0001580608 srt:MaximumMember us-gaap:FairValueInputsLevel3Member sc:PersonalLoansHeldforsaleMember us-gaap:MeasurementInputLossSeverityMember us-gaap:IncomeApproachValuationTechniqueMember 2018-12-31

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,~~June 30, 2019



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

Commission File Number: 001-36270

SANTANDER CONSUMER USA HOLDINGS INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		32-0414408
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

Registrant’s telephone number, including area code ~~(214)~~ (214) 634-1110

Not Applicable

(Former name, former address, and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol (s)	Name of each exchange on which registered		Outstanding shares at July 29,2019
Common Stock ($0.01 par value)	SC	New York Stock Exchange	NYSE	345,991,292

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý☒ No ¨☐

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



Large accelerated filer	ý☒	Accelerated filer	¨☐	Emerging growth company	¨☐
Non-accelerated filer	¨☐	Smaller reporting company	¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

~~Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.~~



~~Class~~		~~Outstanding at April 29, 2019~~
~~Common Stock ($0.01 par value)~~		~~351,781,864 shares~~

☒

INDEX




Cautionary Note Regarding Forward-Looking Information		3
PART I: FINANCIAL INFORMATION		6
Item 1.	Unaudited Condensed Consolidated Financial Statements	6
	Unaudited Condensed Consolidated Balance Sheets	6
	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income	8
	Unaudited Condensed Consolidated Statements of Equity	9
	Unaudited Condensed Consolidated Statements of Cash Flows	1011
	Note 1. Description of Business, Basis of Presentation, and Significant Accounting Policies and Practices	1213
	Note 2. Finance Receivables	1516
	Note 3. Leases	17
	~~Note 4. Credit Loss Allowance and Credit Quality~~	18
	Note ~~5. Debt~~4. Credit Loss Allowance and Credit Quality	2319
	Note ~~6. Variable Interest Entities~~5. Debt	2624
	Note ~~7. Derivative Financial Instruments~~6. Variable Interest Entities	2827
	Note ~~8. Other Assets~~7. Derivative Financial Instruments	3029
	Note ~~9. Income Taxes~~8. Other Assets	3231
	Note ~~10. Commitments and Contingencies~~9. Income Taxes	3233
	Note ~~11. Related-Party Transactions~~10. Commitments and Contingencies	3734
	Note 11. Related-Party Transactions	38
	Note 12. Computation of Basic and Diluted Earnings per Common Share	40
	~~Note 13. Fair Value of Financial Instruments~~	41
	Note ~~14. Employee Benefit Plans~~13. Fair Value of Financial Instruments	4542
	Note ~~15. Shareholders' Equity~~14. Employee Benefit Plans	46
	Note 15. Shareholders' Equity	47
	Note 16. Investment Losses, Net	4749
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4849
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7875
Item 4.	Controls and Procedures	7875
PART II: OTHER INFORMATION		8177
Item 1.	Legal Proceedings	8177
Item 1A.	Risk Factors	8177
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8177
Item 3.	Defaults upon Senior Securities	8178
Item 4.	Mine Safety Disclosures	8178
Item 5.	Other Information	8178
Item 6.	Exhibits	8380
SIGNATURES		8481
EXHIBITS

Unless otherwise specified or the context otherwise requires, the use herein of the terms “we,” “our,” “us,” “SC,” and the “Company” refer to Santander Consumer USA Holdings Inc. and its consolidated subsidiaries.

Cautionary Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about the Company’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be ~~forward-looking.~~forward-looking and reflect the current beliefs and expectations of the company’s management. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends,” and similar words or phrases. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond the Company’s control. For more information regarding these risks and uncertainties as well as certain additional risks that the Company faces, refer to the Risk Factors detailed in Item 1A of Part I of the 2018 Annual Report on Form 10-K, as well as factors more fully described in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, including the exhibits hereto, and subsequent reports and registration statements filed from time to time with the SEC. Among the factors that could cause the Company’s actual results to differ materially from those suggested by the forward-looking statements are:

the Company operates in a highly regulated industry and continually changing federal, state, and local laws and regulations could materially adversely affect its business;

the Company’s ability to remediate any material weaknesses in internal controls over financial reporting completely and in a timely manner;

adverse economic conditions in the United States and worldwide may negatively impact the Company’s results;

the business could suffer if access to funding is reduced or if there is a change in the Company’s funding costs or ability to execute securitizations;

the Company faces significant risks implementing its growth strategy, some of which are outside of its control;

the Company may not realize the anticipated benefits from, and may incur unexpected costs and delays in connection with, exiting its personal lending business;

the Company’s agreement with FCA may not result in currently anticipated levels of growth and is subject to performance conditions that could result in termination of the agreement, and is subject to an option giving FCA the right to acquire an equity participation in the Chrysler Capital portion of the Company’s business;

the business could suffer if the Company is unsuccessful in developing and maintaining relationships with automobile dealerships;

the Company’s financial condition, liquidity, and results of operations depend on the credit performance of its loans;

loss of the Company’s key management or other personnel, or an inability to attract such management and personnel, could negatively impact its business;

the Company is directly and indirectly, through its relationship with SHUSA, subject to certain banking and financial services regulations, including oversight by the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), the European Central Bank, and the Federal Reserve Bank of Boston (FRBB); such oversight and regulation may limit certain of the Company’s activities, including the timing and amount of dividends and other limitations on the Company’s business; and

future changes in the Company’s ownership by, or relationship with, SHUSA or Santander could adversely affect its operations.

If one or more of the factors affecting the Company’s forward-looking information and statements renders forward-looking information or statements incorrect, the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information or statements. Therefore, the Company cautions the reader not to place undue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect the Company’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties as new factors emerge from time to time. Management cannot assess the impact of any such factor on the Company’s business or the extent to which any factor, or combination of factors may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements only speak as of the date of this document, and the Company undertakes no obligation to update any forward-looking information or

statements, whether written or oral, to reflect any change, except as required by law. All forward-looking information and statements attributable to the Company are expressly qualified by these cautionary statements.

Glossary

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



2018 Annual Report on Form 10-K	Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 26, 2019.
ABS	Asset-backed securities
Advance Rate	The maximum percentage of collateral that a lender is willing to lend.
Affiliates	A party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an entity.
ALG	Automotive Lease Guide
Amendment	Amendment to the Chrysler Agreement with FCA, dated June 28, 2019.
APR	Annual Percentage Rate
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Bluestem	Bluestem Brands, Inc., an online retailer for whose customers SC provides financing
Board	SC’s Board of Directors
CBP	Citizens Bank of Pennsylvania
CCAP	Chrysler Capital
CCART	Chrysler Capital Auto Receivables Trust, a securitization platform
CEO	Chief Executive Officer
CFPB	Consumer Financial Protection Bureau
CFO	Chief Financial Officer
Chrysler Agreement	Ten-year master private-label financing agreement with FCA
Clean-up Call	The early redemption of a debt instrument by the issuer, generally when the underlying portfolio has amortized to 5% or 10% of its original balance
Commission	U.S. Securities and Exchange Commission
Credit Enhancement	A method such as overcollateralization, insurance, or a third-party guarantee, whereby a borrower reduces default risk
DCF	Discounted Cash Flow Analysis
Dealer Loan	A Floorplan Loan, real estate loan, working capital loan, or other credit extended to an automobile dealer
Dodd-Frank Act	Comprehensive financial regulatory reform legislation enacted by the U.S. Congress on July 21, 2010
DOJ	U.S. Department of Justice
DRIVE	Drive Auto Receivables Trust, a securitization platform
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FCA	FCA US LLC, formerly Chrysler Group LLC
FICO®	A common credit score created by Fair Isaac Corporation that is used on the credit reports that lenders use to assess an applicant’s credit risk. FICO® is computed using mathematical models that take into account five factors: payment history, current level of indebtedness, types of credit used, length of credit history, and new credit
FIRREA	Financial Institutions Reform, Recovery and Enforcement Act of 1989
Floorplan Loan	A revolving line of credit that finances dealer inventory until sold
Federal Reserve Board	Board of Governors of the Federal Reserve System
FRBB	Federal Reserve Bank of Boston
FTC	Federal Trade Commission



GAP	Guaranteed Auto Protection
GAAP	U.S. Generally Accepted Accounting Principles



IPO	SC’s Initial Public Offering
ISDA	International Swaps and Derivative Association
Managed Assets	Managed assets included assets (a) owned and serviced by the Company; (b) owned by the Company and serviced by others; and (c) serviced for others
Nonaccretable Difference	The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows of a portfolio acquired with deteriorated credit quality
OCC	Office of the Comptroller of the Currency
Overcollateralization	A credit enhancement method whereby more collateral is posted than is required to obtain financing
OEM	Original equipment manufacturer
Private-label	Financing branded in the name of the product manufacturer rather than in the name of the finance provider
RC	The Risk Committee of the Board
Remarketing	The controlled disposal of vehicles at the end of the lease term or upon early termination or of financed vehicles obtained through repossession and their subsequent sale
Residual Value	The future value of a leased asset at the end of its lease term
Retail installment contracts acquired individually	Includes purchased non-credit impaired finance receivables
RSU	Restricted stock unit
SAF	Santander Auto Finance
Santander	Banco Santander, S.A.
SBNA	Santander Bank, N.A., a wholly-owned subsidiary of SHUSA. Formerly Sovereign Bank, N.A.
SC	Santander Consumer USA Holdings Inc., a Delaware corporation, and its consolidated subsidiaries
SCI	Santander Consumer International Puerto Rico, LLC , a wholly-owned subsidiary of SC Illinois
SC Illinois	Santander Consumer USA Inc., an Illinois corporation and wholly-owned subsidiary of SC
SCRA	Servicemembers Civil Relief Act
SDART	Santander Drive Auto Receivables Trust, a securitization platform
SEC	U.S. Securities and Exchange Commission
SHUSA	Santander Holdings USA, Inc., a wholly-owned subsidiary of Santander and the majority stockholder of SC
SPAIN	Santander Prime Auto Issuing Note Trust, a securitization platform
SRT	Santander Retail Auto Lease Trust, a lease securitization platform
Subvention	Reimbursement of the finance provider by a manufacturer for the difference between a market loan or lease rate and the below-market rate given to a customer
TDR	Troubled Debt Restructuring
Trusts	Special purpose financing trusts utilized in SC’s financing transactions
VIE	Variable Interest Entity
Warehouse Line	A revolving line of credit generally used to fund finance receivable originations

PART I: FINANCIAL INFORMATION



Item 1.	Condensed Consolidated Financial Statements (Unaudited)

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (Dollars in thousands, except per share amounts)


	March 31, 2019		December 31, 2018		June 30, 2019			December 31, 2018
Assets
Cash and cash equivalents - $38,200 and $101,334 held at affiliates, respectively	$	76,272	$	148,436
Cash and cash equivalents - $42,889 and $101,334 held at affiliates, respectively					$	99,756		$	148,436
Finance receivables held for sale, net	974,017		1,068,757		1,249,101			1,068,757
Finance receivables held for investment, net	25,598,716		25,117,454		25,838,749			25,117,454
Restricted cash and cash equivalents - $0 and $341 held at affiliates, respectively	2,414,653		2,102,048
Restricted cash and cash equivalents - $27 and $341 held at affiliates, respectively					2,272,621			2,102,048
Accrued interest receivable	272,014		303,686		277,813			303,686
Leased vehicles, net	14,388,657		13,978,855		15,313,369			13,978,855
Furniture and equipment, net of accumulated depreciation of $77,036 and $72,345, respectively	61,856		61,280
Furniture and equipment, net of accumulated depreciation of $79,397 and $72,345, respectively					59,176			61,280
Federal, state and other income taxes receivable	80,567		97,087		83,427			97,087
Related party taxes receivable	2,594		734		4,581			734
Goodwill	74,056		74,056		74,056			74,056
Intangible assets, net of amortization of $47,438 and $45,324, respectively	41,200		35,195
Intangible assets, net of amortization of $49,426 and $45,324, respectively					34,117			35,195
Due from affiliates	6,685		8,920		19,581			8,920
Other assets	1,054,619		963,347		1,089,746			963,347
Total assets	$	45,045,906	$	43,959,855	$	46,416,093		$	43,959,855
Liabilities and Equity
Liabilities:
Notes payable — credit facilities	$	5,063,786	$	4,478,214	$	6,514,163		$	4,478,214
Notes payable — secured structured financings	27,080,312		26,901,530		26,248,528			26,901,530
Notes payable — related party	3,503,055		3,503,293		4,002,814			3,503,293
Accrued interest payable	54,655		49,370		46,817			49,370
Accounts payable and accrued expenses	399,792		422,951		431,004			422,951
Deferred tax liabilities, net	1,230,531		1,155,883		1,327,342			1,155,883
Due to affiliates	70,526		63,219		91,320			63,219
Other liabilities	484,719		367,037		416,844			367,037
Total liabilities	37,887,376		36,941,497		39,078,832			36,941,497
Commitments and contingencies (Notes 5 and 10)
Equity:
Common stock, $0.01 par value — 1,100,000,000 shares authorized;
362,419,860 and 362,028,916 shares issued and 351,728,473 and 352,302,759 shares outstanding, respectively	3,517		3,523
362,571,219 and 362,028,916 shares issued and 348,130,140 and 352,302,759 shares outstanding, respectively					3,481			3,523
Additional paid-in capital	1,499,092		1,515,572		1,413,461			1,515,572
Accumulated other comprehensive income, net	12,938		33,515		(20,567		)	33,515
Retained earnings	5,642,983		5,465,748		5,940,886			5,465,748
Total stockholders’ equity	7,158,530		7,018,358		7,337,261			7,018,358
Total liabilities and equity	$	45,045,906	$	43,959,855	$	46,416,093		$	43,959,855

See notes to unaudited condensed consolidated financial statements.

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (Dollars in thousands)

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


	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Assets
Restricted cash and cash equivalents	$	1,830,617	$	1,582,158	$	1,697,692	$	1,582,158
Finance receivables held for sale, net					266,086		—
Finance receivables held for investment, net	24,889,257		24,151,971		25,004,109		24,151,971
Leased vehicles, net	14,388,657		13,978,855		15,313,369		13,978,855
Various other assets	667,368		685,383		604,431		685,383
Total assets	$	41,775,899	$	40,398,367	$	42,885,687	$	40,398,367
Liabilities
Notes payable	$	32,810,785	$	31,949,839	$	33,289,722	$	31,949,839
Various other liabilities	109,388		122,010		99,856		122,010
Total liabilities	$	32,920,173	$	32,071,849	$	33,389,578	$	32,071,849

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

See notes to unaudited condensed consolidated financial statements.

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,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018			2019			2018
Interest on finance receivables and loans	$	1,253,580		$	1,168,540		$	1,261,098		$	1,211,006		$	2,514,678		$	2,379,546
Leased vehicle income	649,560			504,278			676,236			537,897			1,325,796			1,042,175
Other finance and interest income	10,247			7,137			11,437			8,494			21,684			15,631
Total finance and other interest income	1,913,387			1,679,955			1,948,771			1,757,397			3,862,158			3,437,352
Interest expense — Including $44,873 and $42,033 to affiliates, respectively	334,382			241,028
Interest expense — Including $45,909, $43,640, $90,782, and $85,673 to affiliates, respectively							330,039			273,953			664,421			514,981
Leased vehicle expense	444,019			358,683			444,442			360,335			888,461			719,018
Net finance and other interest income	1,134,986			1,080,244			1,174,290			1,123,109			2,309,276			2,203,353
Provision for credit losses	550,879			510,341			430,676			406,544			981,555			916,885
Net finance and other interest income after provision for credit losses	584,107			569,903			743,614			716,565			1,327,721			1,286,468
Profit sharing	6,968			4,377			13,345			12,853			20,313			17,230
Net finance and other interest income after provision for credit losses and profit sharing	577,139			565,526			730,269			703,712			1,307,408			1,269,238
Investment losses, net — Including $0 and $(16,903) from affiliates, respectively	(67,097		)	(86,520		)
Servicing fee income — Including $12,995 and $7,811 from affiliates, respectively	23,806			26,182
Fees, commissions, and other — Including $6,781 and $225 from affiliates, respectively	94,376			85,391
Investment losses, net — Including $0, $3,177, $0, and $20,080 from affiliates, respectively							(84,787		)	(82,634		)	(151,884		)	(169,154		)
Servicing fee income — Including $14,275, $11,375, $27, $270, and $21,447 from affiliates, respectively							25,002			27,538			48,808			53,720
Fees, commissions, and other — Including $12,186, $398, $18,967, and $769 from affiliates, respectively							90,196			77,480			184,572			162,871
Total other income	51,085			25,053			30,411			22,384			81,496			47,437
Compensation expense	127,894			122,005			122,678			118,598			250,572			240,603
Repossession expense	70,860			72,081			69,699			63,660			140,559			135,741
Other operating costs — Including $933 and $1,161 to affiliates, respectively	92,203			93,826
Other operating costs — Including $811, $3,111, $1,744, and $4,273 to affiliates, respectively							88,272			94,692			180,475			188,518
Total operating expenses	290,957			287,912			280,649			276,950			571,606			564,862
Income before income taxes	337,267			302,667			480,031			449,146			817,298			751,813
Income tax expense	89,764			58,052			111,764			114,120			201,528			172,172
Net income	$	247,503		$	244,615		$	368,267		$	335,026		$	615,770		$	579,640

Net income	$	247,503		$	244,615		$	368,267		$	335,026		$	615,770		$	579,640
Other comprehensive income (loss):
Change in unrealized gains (losses) on cash flow hedges, net of tax of $6,794 and $2,903, respectively	(21,039		)	12,800
Unrealized gains (losses) on available-for-sale debt securities net of tax of ($149), and zero, respectively	462			—
Change in unrealized gains (losses) on cash flow hedges, net of tax of $10,870, $79, $17,665, and $2,981, respectively							(34,045		)	(761		)	(55,084		)	12,039
Unrealized gains (losses) on available-for-sale debt securities net of tax of ($173), zero, ($321), and zero, respectively							539			—			1,001			—
Comprehensive income	$	226,926		$	257,415		$	334,761		$	334,265		$	561,687		$	591,679
Net income per common share (basic)	$	0.70		$	0.68		$	1.05		$	0.93		$	1.75		$	1.61
Net income per common share (diluted)	$	0.70		$	0.68		$	1.05		$	0.93		$	1.75		$	1.60
Dividend declared per common share							$	0.20		$	0.05		$	0.40		$	0.10
Weighted average common shares (basic)	351,515,464			360,703,234			351,106,197			361,268,112			351,309,700			360,987,233
Weighted average common shares (diluted)	352,051,887			361,616,732			351,556,349			362,057,614			351,825,554			361,829,283

See notes to unaudited condensed consolidated financial statements.

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited) (In thousands)


	Common Stock					Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings				Total Stockholders’ Equity			Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Total Stockholders’ Equity
	Shares		Amount						Shares				Retained Earnings			Amount								Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Total Stockholders’ Equity
Balance — January 1, 2018	360,527		$	3,605		Additional Paid-In Capital			$	Accumulated Other Comprehensive Income (Loss)	1,681,558		$	44,262			Total Stockholders’ Equity		$	4,736,277	$	6,465,702	360,527			$	3,605			$	1,681,558			$	44,262			$	4,736,277	$	6,465,702
Cumulative-effect adjustment upon adoption of ASU 2018-02	—		—			—				6,149			(6,149		)		—			—	—			—				6,149				(6,149		)		—
Stock issued in connection with employee incentive compensation plans	481		5			464				—			—				469			481	5			464				—				—				469
Stock-based compensation expense	—		—			4,208				—			—				4,208			—	—			4,208				—				—				4,208
Dividends ($0.05 per share)	—		—			—				—			(18,028		)		(18,028		)
Dividends-Common stock, $0.05/share																				—	—			—				—				(18,028		)		(18,028		)
Tax sharing with affiliate	—		—			3,766				—			—				3,766			—	—			3,766				—				—				3,766
Net income	—		—			—				—			244,615				244,615			—	—			—				—				244,615				244,615
Other comprehensive income (loss), net of taxes	—		—			—				12,800			—				12,800			—	—			—				12,800				—				12,800
Balance — March 31, 2018	361,008		$	3,610		$	1,689,996			$	63,211		$	4,956,715			$	6,713,532		361,008	$	3,610		$	1,689,996			$	63,211			$	4,956,715			$	6,713,532

Balance — January 1, 2019	352,303		$	3,523		$	1,515,572			$	33,515		$	5,465,748			$	7,018,358
Stock issued in connection with employee incentive compensation plans	391		4			(1,715		)		—			—				(1,711		)	401	4			2,349				—				—				2,353
Stock-based compensation expense	—		—			5,987				—			—				5,987			—	—			1,586				—				—				1,586
Stock repurchase/Treasury stock	(965	)	(10		)	(17,770		)		—			—				(17,780		)
Dividends paid ($0.20 per share)	—		—			—				—			(70,268		)		(70,268		)
Dividends-Common stock, $0.05/share																				—	—			—				—				(18,064		)		(18,064		)
Tax sharing with affiliate	—		—			(2,982		)		—			—				(2,982		)	—	—			(35		)		—				—				(35		)
Available-for-sale securities, net of taxes	—		—			—				462			—				462
Net income	—		—			—				—			247,503				247,503			—	—			—				—				335,026				335,026
Other comprehensive income (loss), net of taxes	—		—			—				(21,039		)	—				(21,039		)	—	—			—				(762		)		—				(762		)
Balance — March 31, 2019	351,729		$	3,517		$	1,499,092			$	12,938		$	5,642,983			$	7,158,530
Balance — June 30, 2018																				361,409	$	3,614		$	1,693,896			$	62,449			$	5,273,677			$	7,033,636

See notes to unaudited condensed consolidated financial statements.

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited) (In thousands)



	Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
	Shares		Amount			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
Balance — January 1, 2019	352,303		$	3,523		$	1,515,572		$	33,515		$	5,465,748		$	7,018,358
Stock issued in connection with employee incentive compensation plans	391		4			(1,715		)	—			—			(1,711		)
Stock-based compensation expense	—		—			5,987			—			—			5,987
Stock repurchase/Treasury stock	(965	)	(10		)	(17,770		)	—			—			(17,780		)
Dividends-Common stock, $0.20/share	—		—			—			—			(70,268		)	(70,268		)
Tax sharing with affiliate	—		—			(2,982		)	—			—			(2,982		)
Available-for-sale securities, net of taxes	—		—			—			462			—			462
Net income	—		—			—			—			247,503			247,503
Other comprehensive income (loss), net of taxes	—		—			—			(21,039		)	—			(21,039		)
Balance — March 31, 2019	351,729		$	3,517		$	1,499,092		$	12,938		$	5,642,983		$	7,158,530

Stock issued in connection with employee incentive compensation plans	151		1			141			—			—			142
Stock-based compensation expense	—		—			1,055			—			—			1,055
Stock repurchase/Treasury stock	(3,750	)	(37		)	(86,827		)	—			—			(86,864		)
Dividends-Common stock, $0.20/share	—		—			—			—			(70,364		)	(70,364		)
Available-for-sale securities, net of taxes	—		—			—			539			—			539
Net income	—		—			—			—			368,267			368,267
Other comprehensive income (loss), net of taxes	—		—			—			(34,044		)	—			(34,044		)
Balance — June 30, 2019	348,130		$	3,481		$	1,413,461		$	(20,567	)	$	5,940,886		$	7,337,261

See notes to unaudited condensed consolidated financial statements.

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (Dollars in thousands)


	For the Three Months Ended March 31,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Cash flows from operating activities:
Net income	$	247,503		$	244,615		$	615,770		$	579,640
Adjustments to reconcile net income to net cash provided by operating activities
Derivative mark to market	5,162			(7,164		)	13,367			(10,199		)
Provision for credit losses	550,879			510,341			981,555			916,885
Depreciation and amortization	472,886			392,847			951,039			775,849
Accretion of discount	(26,708		)	(48,075		)	(45,826		)	(91,856		)
Originations and purchases of receivables held for sale	—			(1,019,425		)	—			(1,837,463		)
Proceeds from sales of and collections on receivables held for sale	36,710			1,551,109			70,173			2,766,700
Change in revolving personal loans, net	6,523			5,722			(72,722		)	(72,922		)
Investment losses, net	67,097			86,520			151,884			169,154
Stock-based compensation	5,987			4,208			7,042			5,794
Deferred tax expense	81,062			64,789			188,598			177,903
Changes in assets and liabilities:
Accrued interest receivable	16,019			31,832			10,651			6,551
Accounts receivable	(6,926		)	11,760			(6,040		)	12,100
Federal income tax and other taxes	11,911			(4,215		)	7,036			(5,465		)
Other assets	(75,445		)	(46,923		)	(25,432		)	(69,117		)
Accrued interest payable	4,051			(2,529		)	(2,258		)	7,477
Other liabilities	69,756			113,090			(405		)	115,943
Due to/from affiliates	9,816			(4,150		)	17,937			65,265
Net cash provided by operating activities	1,476,283			1,884,352			2,862,369			3,512,239
Cash flows from investing activities:
Originations of and disbursements on finance receivables held for investment	(4,041,377		)	(3,253,263		)	(8,021,054		)	(7,783,649		)
Purchases of portfolios of finance receivables held for investment	—			(43,177		)	(75,330		)	(116,458		)
Collections on finance receivables held for investment	3,008,780			2,624,311			6,057,333			5,338,222
Leased vehicles purchased	(1,975,326		)	(2,118,545		)	(4,517,624		)	(4,764,841		)
Manufacturer incentives received	227,757			215,113			450,954			445,266
Proceeds from sale of leased vehicles	875,002			957,863			1,840,648			1,959,866
Change in revolving personal loans, net	36,520			45,184			50,267			59,350
Purchases of available-for-sale securities	(31,410		)	—			(85,098		)	—
Proceeds from repayments and maturities of available-for-sale securities							3,000			—
Purchases of furniture and equipment	(5,634		)	(1,012		)	(6,810		)	(4,220		)
Sales of furniture and equipment	58			57			355			74
Upfront fee paid to FCA							(60,000		)	—
Other investing activities	(1,335		)	(3,705		)	—			(6,578		)
Net cash used in investing activities	(1,906,965		)	(1,577,174		)	(4,363,359		)	(4,872,968		)
Cash flows from financing activities:
Proceeds from notes payable related to secured structured financings — net of debt issuance costs	3,979,924			3,687,932			7,874,360			8,651,828
Payments on notes payable related to secured structured financings	(3,807,357		)	(3,386,999		)	(8,543,669		)	(6,924,281		)
Proceeds from unsecured notes payable	1,195,000			—			3,695,000			—
Payments on unsecured notes payable	(1,195,000		)	—			(3,195,000		)	—
Proceeds from notes payable	4,572,550			7,795,002			9,852,100			14,060,698
Payments on notes payable	(3,986,978		)	(7,954,759		)	(7,816,151		)	(15,033,991		)
Proceeds from stock option exercises, gross	1,032			2,391			1,519			5,958
Dividends paid	(70,268		)	(18,028		)	(140,632		)	(36,092		)
Shares repurchased	(17,780		)	—			(104,644		)	—
Net cash provided by financing activities	671,123			125,539			1,622,883			724,120

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited) (Dollars in thousands)


	For the Three Months Ended March 31,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Net increase in cash and cash equivalents and restricted cash and cash equivalents	240,441		432,717
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents					121,893		(636,609		)
Cash and cash equivalent and restricted cash and cash equivalents— Beginning of period	2,250,484		3,081,707		2,250,484		3,081,707
Cash and cash equivalents and restricted cash and cash equivalents — End of period	$	2,490,925	$	3,514,424	$	2,372,377	$	2,445,098
Supplemental cash flow information:
Cash and cash equivalents	76,272		618,809		99,756		319,688
Restricted cash and cash equivalents	2,414,653		2,895,615		2,272,621		2,125,410
Total cash and cash equivalents and restricted cash and cash equivalents	$	2,490,925	$	3,514,424	$	2,372,377	$	2,445,098

See notes to unaudited condensed consolidated financial statements.

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Description of Business, Basis of Presentation, and Significant Accounting Policies and Practices

~~SC, or the~~The Company is the holding company for SC Illinois, and its subsidiaries, a specialized consumer finance company focused on vehicle finance and third-party ~~servicing.~~servicing and delivering superior service to dealers and customers across the full credit spectrum. The Company’s primary business is the indirect origination and ~~securitization~~servicing of retail installment contracts and leases, principally, through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. Additionally, the Company sells consumer retail installment contracts through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer retail installment contracts.

SAF is our primary vehicle brand, and is available as a finance option for automotive dealers across the United States. Since May 2013, under the Chrysler Agreement with FCA, the Company has ~~been~~operated as FCA’s preferred provider for consumer loans, ~~and~~ leases and ~~Dealer Loans. Under the Chrysler Agreement, the Company offers a full spectrum of auto financing products~~dealer loans and provides services to FCA customers and dealers under the ~~Chrysler Capital~~CCAP brand. These products and services include consumer retail installment contracts and leases, as well as ~~Dealer Loans~~dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. Retail installment contracts and vehicle leases entered into with FCA customers, as part of the Chrysler Agreement, represent a significant concentration of those portfolios and there is a risk that the Chrysler Agreement could be terminated prior to its expiration date. Termination of the Chrysler Agreement could result in a decrease in the amount of new retail installment contracts and vehicle leases entered into with FCA customers as well as Dealer Loans.

InOn June 2018, the Company announced that it was in exploratory discussions with FCA regarding the future of FCA’s U.S. finance operations. FCA announced its intention to establish a captive U.S. auto finance unit and indicated that acquiring Chrysler Capital is one option it would consider. Under the Chrysler Agreement, FCA has the option to acquire, for fair market value, an equity participation in the business offering and providing the financial services contemplated by the Chrysler Agreement. The likelihood, timing and structure of any such transaction, and the likelihood that the Chrysler Agreement will terminate, cannot be reasonably determined. In July 2018, FCA and28, 2019, the Company entered into ~~a tolling agreement pursuant~~an Amendment to ~~which the parties agreed to preserve their respective rights, claims and defenses under~~ the Chrysler Agreement, ~~as they existed on April 30, 2018.~~with FCA, which modified the Chrysler Agreement to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions. The Amendment also terminated the previously disclosed tolling agreement, dated July 11, 2018, between the Company and FCA.

The Company also originates vehicle loans through a web-based direct lending program, purchases vehicle retail installment contracts from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally, the Company has other relationships through which it provides ~~personal loans, private-label revolving lines of credit and~~ other consumer finance products.

As of ~~March 31,~~June 30, 2019, the Company was owned approximately ~~69.8%~~70.5% by SHUSA, a subsidiary of Santander, and approximately ~~30.2%~~29.5% by other shareholders.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries, including certain Trusts, which are considered VIEs. The Company also consolidates other VIEs for which it was deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying condensed consolidated financial statements as of ~~March 31,~~June 30, 2019 and December 31, 2018, and for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the financial position, results of operations and cash flows for the periods indicated. Results of operations for the periods presented herein are not necessarily indicative of results of operations for the entire year. These financial statements should be read in conjunction with the 2018 Annual Report on Form 10-K.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities, as of the date of the financial statements and the amount of revenue and expenses during the reporting periods. Actual results could differ from those estimates and those differences may be material. These estimates include the determination of credit loss allowance, discount accretion, impairment, fair value, expected end-of-term

lease residual values, values of repossessed assets, and income taxes. These estimates, although based on actual historical trends and modeling, may potentially show significant variances over time.

Corrections to Previously Reported Amounts

As mentioned in Note 1- ~~“ Description~~“Description of Business, Basis of Presentation, and Significant Accounting Policies and Practices” in the 2018 Annual Report on Form 10-K, the Company identified and corrected two immaterial errors. The Company has revised its comparative condensed consolidated financial statements as of ~~March 31,~~June 30, 2018 included within.

The following tables summarize the impacts of the corrections on the condensed consolidated financial statements of income and comprehensive income:


	Three months ended March 31, 2018						Three months ended June 30, 2018						Six Months Ended June 30, 2018
	Reported		Corrections		Revised		Reported		Corrections		Revised		Reported		Corrections		Revised
Interest on finance receivable and loans	$	1,114,137	$	54,403	$	1,168,540	$	1,156,536	$	54,470	$	1,211,006	$	2,270,673	$	108,873	$	2,379,546
Provision for credit losses	458,995		51,346		510,341		352,575		53,969		406,544		811,570		105,315		916,885
Income (loss) before income taxes	299,610		3,057		302,667		448,645		501		449,146		748,255		3,558		751,813
Income tax expense	57,311		741		58,052		114,004		116		114,120		171,315		857		172,172
Net income (loss)	242,299		2,316		244,615		334,641		385		335,026		576,940		2,700		579,640

Net income (loss) per common share (basic)	$	0.67	$	0.01	$	0.68	$	0.93	$	—	$	0.93	$	1.60	$	0.01	$	1.61
Net income (loss) per common share (diluted)	$	0.67	$	0.01	$	0.68	$	0.92	$	0.01	$	0.93	$	1.59	$	0.01	$	1.60

The following tables summarize the impacts of the corrections on the condensed consolidated statement of cash flows:


	Three months ended March 31, 2018									Six Months Ended June 30, 2018
	Reported			Corrections			Revised			Reported			Corrections			Revised
Net cash provided by operating activities	$	1,835,235		$	49,117		$	1,884,352		$	3,413,047		$	99,192		$	3,512,239
Net cash used in investing activities	(1,528,057		)	(49,117		)	(1,577,174		)	(4,773,776		)	(99,192		)	(4,872,968		)

In addition to the revision of the Company’s condensed consolidated financial statements, information within the footnotes to the condensed consolidated financial statements has been revised to reflect the correction of the errors discussed above. The following table summarizes the impacts of the corrections of those items, including table disclosures in Note 4-“Credit Loss Allowance and Credit Quality”:



	June 30, 2018
	Reported			Corrections			Revised
TDR - Unpaid principal balance	$	5,958,564		$	139,716		$	6,098,280
TDR - Impairment	1,496,580			167,642			1,664,222
TDR allowance ratio	25.1		%	2.2		%	27.3		%

Nonaccrual loans TDRs	1,554,860			(957,705		)	597,155

Delinquencies for our retail installment contracts held for investment:
Principal, 30-59 days past due	2,535,166			116,651			2,651,817
Delinquent principal over 59 days	1,151,410			83,092			1,234,502
Total delinquent principal	3,686,576			199,743			3,886,319

March 31, 2018
Reported Corrections Revised
TDR - Unpaid principal balance $ 5,998,768
$ 97,110
$ 6,095,878
TDR - Impairment 1,595,465
120,667
1,716,132
TDR allowance ratio 26.6 % 1.6 % 28.2 %

Nonaccrual loans TDRs 1,346,148
(781,215 ) 564,933

Delinquencies for our retail installment contracts held for investment:
Principal, 30-59 days past due 2,238,425
95,020
2,333,445
Delinquent principal over 59 days 1,089,648
72,663
1,162,311
Total delinquent principal 3,328,073
167,683
3,495,756

Business Segment Information

The Company has one reportable ~~segment:~~segment, Consumer Finance, which includes the Company’s vehicle financial products and services, including retail installment contracts, vehicle leases, and Dealer Loans, as well as financial products and services related to recreational vehicles and marine vehicles. It also includes the Company’s personal loan and point-of-sale financing operations.

Accounting Policies

~~Accounting Policies~~

There have been no material changes in the Company’s accounting policies from those disclosed in Part II, Item 8 - Financial Statements and Supplementary Data in the 2018 Annual Report on Form 10-K.

Recently Adopted Accounting Standards

Since January 1, 2019, the Company adopted the following FASB ASUs:

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~. The primary effect of the ASU is to replace the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases and lessor accounting requirements for operating leases and sales type and direct financing leases (sales-type and direct financing leases were both previously referred to as capital leases) are largely unchanged. The Company adopted this standard using the modified retrospective method and utilized the optional transition method under which we continue to apply the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative period presented.

•

In February 2016, the FASB issued ASU 2016-02, Leases. The primary effect of the ASU is to replace the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases and lessor accounting requirements for operating leases and sales type and direct financing leases (sales-type and direct financing leases were both previously referred to as capital leases) are largely unchanged. The Company adopted this standard using the modified retrospective method and utilized the optional transition method under which we continue to apply the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative period presented.

For all our operating leases (primarily our office space/facility leases), where the Company is a lessee, adoption of the new standard resulted in recognizing on our balance sheet, a right-of-use (“ROU”) asset of $67,300, a reduction of accounts payable and accrued expenses of $24,100 relating to straight-line rent accruals and unamortized tenant improvement allowances, and a lease liability of $91,400. The right-of-use-asset and lease liability will be derecognized in a manner that effectively yields a straight-line lease expense over the lease term. In addition, the Company will no longer capitalize certain initial direct costs in connection with lease originations where it is the lessor.

Further, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We elected not to (a) use the hindsight practical expedient to determine the lease term for existing leases; and (b) recognize a lease liability and associated ROU asset for short term leases if such lease meet the definition under ASC 842. We chose not to elect the practical expedient to not separate non-lease components from lease components. The standard did not have a material impact on our condensed consolidated statement of income or condensed consolidated statement of cash flows.

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~ This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard effective January 1, 2019 and it did not have a material impact on the Company’s business, financial position or results of operations.

~~In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815),~~ ~~Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.~~ This ASU permits use of the OIS rate based on SOFR as an eligible benchmark interest rate for purposes of applying hedge accounting under Topic 815. The adoption of this standard did not have any impact on the Company’s business, financial position or results of operations.

•

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard effective January 1, 2019 and it did not have a material impact on the Company’s business, financial position or results of operations.

•

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU permits use of the OIS rate based on SOFR as an eligible benchmark interest rate for purposes of applying hedge accounting under Topic 815. The adoption of this standard did not have any impact on the Company’s business, financial position or results of operations.

The adoption of the following ASUs did not have a material impact on the Company’s business, financial position or results of operations.

~~ASU 2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities~~

~~ASU 2017-11,~~ Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

~~ASU 2018-07,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~

~~ASU 2018-09,~~ ~~Codification Improvements~~


•	ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

•

ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception


•	ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting


•	ASU 2018-09, Codification Improvements

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, which changes the criteria under which credit losses are measured. The amendment introduces a new credit reserving model known as the Current Expected Credit Loss ~~(CECL)~~(“CECL”) model, which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to establish credit loss estimates. The guidance will be effective for the fiscal year beginning after December 15, 2019, including interim periods within that year. The Company does not intend to adopt the new standard early and is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows; however, it is expected that the new CECL model will alter the assumptions used in calculating the Company’s credit losses, given the change to estimated losses for the estimated life of the financial asset, and will likely result in a material increase in the Company’s credit and capital reserves and related decrease in capital ratios.

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

In addition to those described in detail above, the Company is also in the process of evaluating the ~~following ASUs and~~ ASU 2018-17, Consolidation (Topic 10): Targeted Improvements to Related Party Guidance for Variable Interest Entities, but

does not expect ~~them~~it to have a material impact on the Company’s business, financial position, results of operations or ~~disclosures:~~disclosures.

~~ASU 2018-17,~~ ~~Consolidation (Topic 10): Targeted Improvements to Related Party Guidance for Variable Interest Entities~~


2.	Finance Receivables

Held For Investment

Finance receivables held for investment, net is comprised of the following at ~~March 31,~~June 30, 2019 and December 31, 2018:


	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Retail installment contracts acquired individually (a)	$	25,548,985	$	25,065,511	$	25,790,932	$	25,065,511
Purchased receivables-Credit Impaired	17,903		19,235		15,419		19,235
Receivables from dealers	13,032		14,557		12,875		14,557
Personal loans	1,485		2,014		—		2,014
Finance lease receivables (Note 3)	17,311		16,137		19,523		16,137
Finance receivables held for investment, net	$	25,598,716	$	25,117,454	$	25,838,749	$	25,117,454

(a) The Company has elected the fair value option for certain retail installment contracts reported in finance receivables held for investment, net. As of ~~March 31,~~June 30, 2019 and December 31, 2018, ~~$11,195~~$8,832 and $13,509 of loans were recorded at fair value (Note 13).

The Company’s held for investment portfolio of retail installment contracts acquired individually, receivables from dealers, and personal loans is comprised of the following at ~~March 31,~~June 30, 2019 and December 31, 2018:


	March 31, 2019													June 30, 2019
	Retail Installment Contracts Acquired Individually						Receivables from Dealers				Personal Loans			Retail Installment Contracts Acquired Individually								Receivables from Dealers
	Non-TDR			TDR						Non-TDR					TDR							Receivables from Dealers
Unpaid principal balance	$	23,905,478		$	4,916,251		Receivables from Dealers	$	13,169		Personal Loans			$	1,952		$	24,451,977			$	4,519,334			$	13,010
Credit loss allowance - specific	—			(1,280,649		)	—				—			—				(1,156,303		)		—
Credit loss allowance - collective	(1,891,351		)	—			(137		)		(605		)	(1,961,893		)		—				(135		)
Discount	(151,909		)	(32,519		)	—				—			(120,523		)		(26,736		)		—
Capitalized origination costs and fees	79,841			3,843			—				138			81,581				3,495				—
Net carrying balance	$	21,942,059		$	3,606,926		$	13,032			$	1,485		$	22,451,142			$	3,339,790			$	12,875

The remaining balance of personal loans, held for investment, was charged off during the quarter ended June 30, 2019.



	December 31, 2018
	Retail Installment Contracts Acquired Individually						Receivables from Dealers			Personal Loans
	Non-TDR			TDR			Receivables from Dealers			Personal Loans
Unpaid principal balance	$	23,054,157		$	5,378,603		$	14,710		$	2,637
Credit loss allowance - specific	—			(1,416,743		)	—			—
Credit loss allowance - collective	(1,819,360		)	—			(153		)	(761		)
Discount	(172,659		)	(40,333		)	—			—
Capitalized origination costs and fees	77,398			4,448			—			138
Net carrying balance	$	21,139,536		$	3,925,975		$	14,557		$	2,014

December 31, 2018

Retail Installment Contracts
Acquired
Individually
Receivables from
Dealers
Personal Loans

Non-TDR
TDR

Unpaid principal balance $ 23,054,157

$ 5,378,603

$ 14,710

$ 2,637
Credit loss allowance - specific —

(1,416,743 )
—

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

(153 )
(761 )
Discount (172,659 )
(40,333 )
—

—
Capitalized origination costs and fees 77,398

4,448

—

138
Net carrying balance $ 21,139,536

$ 3,925,975

$ 14,557

$ 2,014

Retail installment contracts

Retail installment contracts are collateralized by vehicle titles, and the Company has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. Most of the Company’s retail installment contracts held for investment are pledged against warehouse lines or securitization bonds (Note 5). Most of the borrowers on the Company’s retail installment contracts held for investment are retail consumers; however, ~~$553,495~~$604,157 and $537,922 of the unpaid principal balance represented fleet contracts with commercial borrowers as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively.

During the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, the Company originated ~~$2,442,582~~(including the SBNA originations program) $5,895,651 and ~~$1,962,180,~~$4,689,784, respectively, in ~~Chrysler Capital~~CCAP loans which represented ~~61%~~54% and ~~46%~~49%, respectively, of the total retail installment contract originations ~~(unpaid principal balance)~~(including the SBNA originations program). As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company’s carrying value of auto retail installment contract portfolio consisted of ~~$9,192,748~~$8,581,222 and $8,977,284, respectively, of ~~Chrysler Capital~~CCAP loans which represents ~~36%~~33% and 36%, respectively, of the Company’s carrying value of auto retail installment contract portfolio.

As of ~~March 31,~~June 30, 2019, borrowers on the Company’s retail installment contracts held for investment are located in Texas (17%), Florida (11%), California (9%), Georgia (6%) and other states each individually representing less than 5% of the Company’s total portfolio.

Purchased receivables - Credit impaired

Purchased receivables portfolios, which were acquired with deteriorated credit quality, is comprised of the following at ~~March 31,~~June 30, 2019 and December 31, 2018:



	June 30, 2019		December 31, 2018
Outstanding balance	$	25,637	$	30,631
Outstanding recorded investment, net of impairment	15,533		19,390

March 31,
2019 December 31, 2018
Outstanding balance $ 28,153
$ 30,631
Outstanding recorded investment, net of impairment 18,030
19,390

Changes in accretable yield on the Company’s purchased receivables portfolios-credit impaired for the periods indicated were as follows:



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Balance — beginning of period	$	17,892		$	18,446		$	18,145		$	19,464
Accretion of accretable yield	(940		)	(2,245		)	(2,353		)	(5,085		)
Reclassifications from (to) nonaccretable difference (a)	(3,194		)	2,167			(2,034		)	3,989
Balance — end of period	$	13,758		$	18,368		$	13,758		$	18,368

For the Three Months Ended

March 31,
2019 2018
Balance — beginning of period $ 18,145
$ 19,464
Accretion of accretable yield (1,413 ) (2,840 )
Reclassifications from (to) nonaccretable difference (a) 1,160
1,822
Balance — end of period $ 17,892
$ 18,446

(a) Reclassifications from (to) nonaccretable difference represents the increases (decreases) in accretable yield resulting from higher (lower) estimated undiscounted cash flows.

During the three and six months ended ~~March 31,~~June 30, 2019 and 2018, the Company did not acquire any vehicle loan portfolios for which it was probable at acquisition that not all contractually required payments would be collected. However, during the three months ended ~~March 31,~~June 30, 2019 and 2018, the Company recognized certain retail installment contracts with an unpaid principal balance of ~~zero~~$74,718 and ~~$42,996,~~$72,963, respectively, and for the six months ended June 30, 2019 and 2018, the Company recognized certain retail installment contracts with an unpaid principal balance of $74,718 and $115,959, respectively, held by non-consolidated securitization Trusts, under optional clean-up calls (Note 6). Following the initial recognition of these loans at fair value, the performing loans in the portfolio are carried at amortized cost, net of allowance for credit losses. The Company elected the fair value option for all non-performing loans acquired (more than 60 days delinquent as of the re-recognition date), for which it was probable that not all contractually required payments would be collected (Note 13).

Receivable from Dealers

The receivables from dealers held for investment are all Chrysler Agreement-related. As of ~~March 31,~~June 30, 2019, borrowers on these dealer receivables are located in Virginia (70%) and New York (30%).

Held For Sale

The carrying value of the Company’s finance receivables held for sale, net is comprised of the following at ~~March 31,~~June 30, 2019 and December 31, 2018:



	June 30, 2019		December 31, 2018
Retail installment contracts acquired individually	$	293,372	$	—
Personal loans	955,729		1,068,757
Finance receivables held for sale, net	$	1,249,101	$	1,068,757

March 31,
2019 December 31, 2018
Personal loans $ 974,017
$ 1,068,757

Sales of retail installment contracts and proceeds from sales of charged-off assets for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 were as follows:



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019	June 30, 2018
Sales of retail installment contracts to affiliates	$	—	$	1,156,060	—	2,631,313
Proceeds from sales of charged-off assets to third parties	6,148		16,638		26,373	34,875

For the Three Months Ended

March 31,
2019 2018
Sale of retail installment contracts to affiliates $ —
$ 1,475,253
Proceeds from sales of charged-off assets to third parties 20,225
18,237


3.	Leases (SC as Lessor)

The Company originates operating and finance leases, which are separately accounted for and recorded on the Company’s condensed consolidated balance sheets. Operating leases are reported as leased vehicles, net, while finance leases are included in finance receivables held for investment, net.

Operating Leases

Leased vehicles, net, which is comprised of leases originated under the Chrysler Agreement, consisted of the following as of ~~March 31,~~June 30, 2019 and December 31, 2018:



	June 30, 2019			December 31, 2018
Leased vehicles	$	20,190,000		$	18,737,338
Less: accumulated depreciation	(3,665,402		)	(3,518,025		)
Depreciated net capitalized cost	16,524,598			15,219,313
Manufacturer subvention payments, net of accretion	(1,292,015		)	(1,307,424		)
Origination fees and other costs	80,786			66,966
Net book value	$	15,313,369		$	13,978,855

March 31,
2019 December 31,
2018
Leased vehicles $ 19,136,180
$ 18,737,338
Less: accumulated depreciation (3,529,738 ) (3,518,025 )
Depreciated net capitalized cost 15,606,442
15,219,313
Manufacturer subvention payments, net of accretion (1,287,017 ) (1,307,424 )
Origination fees and other costs 69,232
66,966
Net book value $ 14,388,657
$ 13,978,855

The following summarizes the maturity analysis of lease payments due to the Company as lessor under operating leases as of ~~March 31,~~June 30, 2019:




Remainder of 2019	$	1,354,257
2020	2,219,761
2021	1,170,434
2022	197,514
2023	9,722
Thereafter	—
Total	$	4,951,688

Remainder of 2019 $ 1,848,447
2020 1,894,782
2021 838,398
2022 68,060
2023 535
Thereafter —
Total $ 4,650,222

Finance Leases

Certain leases originated by the Company are accounted for as direct financing leases, as the contractual residual values are nominal amounts. Finance lease receivables, net consisted of the following as of ~~March 31,~~June 30, 2019 and December 31, 2018:


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Gross investment in finance leases	$	25,524		$	23,809		$	28,783		$	23,809
Origination fees and other	150			152			188			152
Less: unearned income	(4,855		)	(4,465		)	(5,520		)	(4,465		)
Net investment in finance leases before allowance	20,819			19,496			23,451			19,496
Less: allowance for lease losses	(3,508		)	(3,359		)	(3,928		)	(3,359		)
Net investment in finance leases	$	17,311		$	16,137		$	19,523		$	16,137

The following summarizes the maturity analysis of lease payments due to the Company as lessor under finance leases as of ~~March 31,~~June 30, 2019:




Remainder of 2019	$	4,163
2020	8,244
2021	7,187
2022	5,382
2023	3,166
Thereafter	641
Total	$	28,783

Remainder of 2019 $ 5,734
2020 7,087
2021 5,954
2022 4,354
2023 2,282
Thereafter 113
Total $ 25,524


4.	Credit Loss Allowance and Credit Quality

Credit Loss Allowance

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

values of underlying collateral, when applicable, and various economic factors. In developing the allowance, the Company utilizes a loss emergence period assumption, a loss given default assumption applied to recorded investment, and a probability of default assumption. The loss emergence period assumption represents the average length of time between when a loss event is first estimated to have occurred and when the account is charged-off. The recorded investment represents unpaid principal balance adjusted for unaccreted net discounts, subvention from manufacturers, and origination costs. Under this approach, the resulting allowance represents the expected net losses of recorded investment inherent in the portfolio. The Company uses a transition based Markov model for estimating the allowance for credit losses on individually acquired retail installment contracts. This model utilizes the recently observed loan transition rates from various loan statuses, including delinquency and accounting statuses from performing to charge off, to forecast future losses.

For loans classified as TDRs, impairment is generally measured based on the present value of expected future cash flows discounted at the original effective interest rate. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell. The amount of the allowance is equal to the difference between the loan’s impaired value and the recorded investment.

The Company maintains a general credit loss allowance for receivables from dealers based on risk ratings and individually evaluates loans for specific impairment as necessary. As of ~~March 31,~~June 30, 2019 and 2018, the credit loss allowance for receivables from dealers is comprised entirely of general allowance as none of these receivables have been determined to be individually impaired.

The activity in the credit loss allowance for individually acquired retail installment contracts and Dealer Loans for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 was as follows:


	Three Months Ended March 31, 2019												Three Months Ended June 30, 2019														Three Months Ended June 30, 2018
	Retail Installment Contracts Acquired Individually						Receivables from Dealers			Personal Loans			Retail Installment Contracts Acquired Individually						Receivables from Dealers				Personal Loans				Retail Installment Contracts Acquired Individually							Receivables from Dealers			Personal Loans
	Non-TDR			TDR									Non-TDR			TDR										Non-TDR				TDR
	Non-TDR			TDR									Non-TDR			TDR						Personal Loans				Non-TDR				TDR
Balance — beginning of period	$	1,819,360		$	1,416,743		$	153		$	761		$	1,891,351		$	1,280,649		$	137				$	605		$	1,597,057			$	1,716,132		$	161		$	1,714
Provision for credit losses	446,488			104,613			(16		)	83			365,604			63,414			(2		)			1,070			263,648				144,750			(3		)	(83		)
Charge-offs (a)	(927,457		)	(466,637		)	—			(346		)	(795,901		)	(369,523		)	—				(1,761		)		(605,658		)		(412,710		)	—			(695		)
Recoveries	552,960			225,930			—			107			517,626			185,371			—				86				396,667				216,050			—			180
Transfers to held-for-sale													(16,787		)	(3,608		)	—				—				—				—			—			—
Balance — end of period	$	1,891,351		$	1,280,649		$	137		$	605		$	1,961,893		$	1,156,303		$	135			$	—			$	1,651,714			$	1,664,222		$	158		$	1,116

(a) For the three months ended ~~March 31,~~June 30, 2019 and June 30, 2018, charge-offs for retail installment contracts acquired individually includes approximately $4$7 million and $7 million, respectively, for the partial write-down of loans to the collateral value less estimated costs to sell, for which a bankruptcy notice was received. There is no additional credit loss allowance on these loans.


	Three Months Ended March 31, 2018												Six Months Ended June 30, 2019													Six Months Ended June 30, 2018
	Retail Installment Contracts Acquired Individually						Receivables from Dealers			Personal Loans			Retail Installment Contracts Acquired Individually						Receivables from Dealers			Personal Loans				Retail Installment Contracts Acquired Individually								Receivables from Dealers				Personal Loans
	Non-TDR			TDR									Non-TDR			TDR										Non-TDR				TDR
	Non-TDR			TDR									Non-TDR			TDR									Receivables from Dealers	Non-TDR			Personal Loans				Receivables from Dealers
Balance — beginning of period	$	1,540,315		$	1,804,132		$	164		$	2,565		$	1,819,360		$	1,416,743		$	153		$	761			$	1,540,315				$	1,804,132			$	164		$	2,565
Provision for credit losses	286,451			223,574			(3		)	(102		)	812,092			168,027			(18		)	1,153				550,099					368,324				(6		)	(185		)
Charge-offs (a)	(655,169		)	(547,343		)				(1,068		)	(1,723,358		)	(836,160		)	—			(2,107		)		(1,260,827		)		(960,053		)		—				(1,763		)
Recoveries	425,460			235,769						319			1,070,586			411,301			—			193				822,127				451,819				—				499
Transfers to held-for-sale													(16,787		)	(3,608		)	—			—				—				—				—				—
Balance — end of period	$	1,597,057		$	1,716,132		$	161		$	1,714		$	1,961,893		$	1,156,303		$	135		$	—			$	1,651,714			$	1,664,222			$	158			$	1,116

(a) For the ~~three~~six months ended ~~March 31,~~June 30, 2019 and June 30, 2018, charge-offs for retail installment contracts acquired individually includes approximately $7$12 million and $14 million, respectively, for the partial write-down of loans to the collateral value less estimated costs to sell, for which a bankruptcy notice was received. There is no additional credit loss allowance on these loans.

The Company estimates ~~lease~~ losses on the finance lease receivable portfolio based on delinquency status and loss experience to date, as well as various economic factors. The activity in the lease loss allowance for finance leases for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 was as follows:



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Balance — beginning of period	$	3,508		$	5,757		$	3,359		$	5,642
Provision for lease losses	595			(1,769		)	$	916		(1,348		)
Charge-offs	(1,130		)	(1,760		)	$	(1,789	)	(3,141		)
Recoveries	955			1,354			$	1,442		2,429
Balance — end of period	$	3,928		$	3,582		$	3,928		$	3,582

Three Months Ended

March 31,
2019 2018
Balance — beginning of period $ 3,359
$ 5,642
Provision for lease losses 321
421
Charge-offs (659 ) (1,381 )
Recoveries 487
1,075
Balance — end of period $ 3,508
$ 5,757

There was no impairment activity noted for purchased receivable-credit impaired portfolio for the three and six months ended ~~March 31,~~June 30, 2019 and ~~March 31,~~June 30, 2018.

Delinquencies

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

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

The accrual of interest on revolving personal loans continues until the loan is charged off. The unpaid principal balance on revolving personal loans 90 days past due and still accruing totaled ~~$112,317~~$118,225 and $129,227 as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively.

A summary of delinquencies as of ~~March 31,~~June 30, 2019 and December 31, 2018 is as follows:


	March 31, 2019						June 30, 2019
	Retail Installment Contracts Held for Investment						Retail Installment Contracts Held for Investment
	Loans Acquired Individually		Purchased Receivables Portfolios		Total		Loans Acquired Individually		Purchased Receivables Portfolios		Total
Principal, 30-59 days past due	$	2,417,300	$	2,341	$	2,419,641	$	2,723,639	$	2,548	$	2,726,187
Delinquent principal over 59 days (a)	1,224,289		1,518		1,225,807		1,367,310		1,117		1,368,427
Total delinquent principal	$	3,641,589	$	3,859	$	3,645,448	$	4,090,949	$	3,665	$	4,094,614



	December 31, 2018
	Retail Installment Contracts Held for Investment
	Loans Acquired Individually		Purchased Receivables Portfolios		Total
Principal, 30-59 days past due	$	3,118,869	$	2,926	$	3,121,795
Delinquent principal over 59 days (a)	1,712,243		1,532		1,713,775
Total delinquent principal	$	4,831,112	$	4,458	$	4,835,570

December 31, 2018
Retail Installment Contracts Held for Investment

Loans
Acquired
Individually

Purchased
Receivables
Portfolios
Total
Principal, 30-59 days past due $ 3,118,869
$ 2,926
$ 3,121,795
Delinquent principal over 59 days (a) 1,712,243
1,532
1,713,775
Total delinquent principal $ 4,831,112
$ 4,458
$ 4,835,570

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

The retail installment contracts acquired individually held for investment that were placed on nonaccrual status, as of ~~March 31,~~June 30, 2019 and December 31, 2018:


	March 31, 2019				December 31, 2018				June 30, 2019				December 31, 2018
	Amount		Percent (a)		Amount		Percent (a)		Amount		Percent (a)		Amount		Percent (a)
Non-TDR	$	724,025	2.5	%	$	834,921	2.9	%	$	864,619	3.0	%	$	834,921	2.9	%
TDR	537,259		1.9	%	733,218		2.6	%	546,495		1.9	%	733,218		2.6	%
Total nonaccrual principal	$	1,261,284	4.4	%	$	1,568,139	5.5	%	$	1,411,114	4.9	%	$	1,568,139	5.5	%

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

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

As of ~~March 31,~~June 30, 2019 and December 31, 2018, there were no receivables from dealers that were 30 days or more delinquent. In addition, as of June 30, 2019 and December 31, 2018, there were $10,779 and zero, respectively, of retail installment contracts held for sale that were 30 days or more delinquent.

Credit Quality Indicators

FICO^®Distribution — A summary of the credit risk profile of the Company’s retail installment contracts held for investment by FICO^® distribution, determined at origination, as of ~~March 31,~~June 30, 2019 and December 31, 2018 was as follows:


FICO^® Band	March 31, 2019 (b)	December 31, 2018 (b)	June 30, 2019 (b)	December 31, 2018 (b)
Commercial (a)	1.9%	1.9%	2.1%	1.9%
No-FICOs	10.9%	11.0%	10.9%	11.0%
<540	19.4%	19.8%	18.8%	19.8%
540-599	33.0%	32.9%	33.2%	32.9%
600-639	18.4%	18.2%	18.9%	18.2%
>640	16.4%	16.2%	16.1%	16.2%

(a)No FICO score is obtained on loans to commercial borrowers.

(b)Percentages are based on unpaid principal balance.

Commercial Lending — The Company’s risk department performs a credit analysis and classifies certain loans over an internal threshold based on the commercial lending classifications described in Part II, Item 8 - Financial Statements and Supplementary Data (Note 4) in the 2018 Annual Report on Form 10-K.

All the receivables from dealers, as of ~~March 31,~~June 30, 2019 and December 31, 2018 were classified as “Pass.”

Troubled Debt Restructurings

In certain circumstances, the Company modifies the terms of its finance receivables to troubled borrowers. Modifications may include a temporary reduction in monthly payment, reduction in interest rate, an extension of the maturity date, rescheduling of future cash flows, or a combination thereof. A modification of finance receivable terms is considered a TDR if the Company grants a concession to a borrower for economic or legal reasons related to the debtor’s financial difficulties that would not otherwise have been considered. Management considers TDRs to include all individually acquired retail installment contracts that have been modified at least once, deferred for a period of 90 days or more, or deferred at least twice. Additionally, restructurings through bankruptcy proceedings are deemed to be TDRs. The purchased receivables portfolio-credit impaired, operating and finance leases, and loans held for sale, including personal loans, are excluded from the scope of the applicable guidance. The Company’s TDR balance as of ~~March 31,~~June 30, 2019 and December 31, 2018 primarily consisted of loans that had been deferred or modified to receive a temporary reduction in monthly payment. As of ~~March 31,~~June 30, 2019 and December 31, 2018, there were no receivables from dealers classified as a TDR.

A loan that has been classified as a TDR remains so until the loan is liquidated through payoff or charge-off. For loans on nonaccrual status, interest income is recognized on a cash basis, and the accrual of interest is resumed and reinstated if a delinquent account subsequently becomes 60 days or less past due. The recognition of interest income

on TDR loans reflects management’s best estimate of the amount that is reasonably assured of collection and is consistent with the estimate of future cash flows used in the impairment measurement. Any accrued but unpaid interest

is fully reserved for through the recognition of additional impairment on the recorded investment, if not expected to be collected.

The table below presents the Company’s TDRs as of ~~March 31,~~June 30, 2019 and December 31, 2018:



	June 30, 2019			December 31, 2018
	Retail Installment Contracts
Outstanding recorded investment (a)	$	4,492,654		$	5,365,477
Impairment	(1,156,303		)	(1,416,743		)
Outstanding recorded investment, net of impairment	$	3,336,351		$	3,948,734

March 31,
2019 December 31, 2018
Retail Installment Contracts
Outstanding recorded investment (a) $ 4,891,375
$ 5,365,477
Impairment (1,280,649 ) (1,416,743 )
Outstanding recorded investment, net of impairment $ 3,610,726
$ 3,948,734

(a) As of ~~March 31,~~June 30, 2019, the outstanding recorded investment excludes ~~$91.0~~$94.2 million of collateral-dependent bankruptcy TDRs that have been written down by ~~$38.3~~$39.0 million to fair value less cost to sell. As of December 31, 2018, the outstanding recorded investment excludes $90.1 million of collateral-dependent bankruptcy TDRs that have been written down by $36.4 million to fair value less cost to sell.

A summary of the Company’s delinquent TDRs at ~~March 31,~~June 30, 2019 and December 31, 2018, is as follows:



	June 30, 2019		December 31, 2018
	Retail Installment Contracts (a)
Principal, 30-59 days past due	$	991,730	$	1,265,946
Delinquent principal over 59 days	555,864		810,589
Total delinquent TDR principal	$	1,547,594	$	2,076,535

March 31,
2019 December 31, 2018
Retail Installment Contracts (a)
Principal, 30-59 days past due $ 978,359
$ 1,265,946
Delinquent principal over 59 days 549,692
810,589
Total delinquent TDR principal $ 1,528,051
$ 2,076,535

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

Average recorded investment and interest income recognized on TDR loans are as follows:



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	Retail Installment Contracts
Average outstanding recorded investment in TDRs	$	4,745,931	$	6,118,495	$	4,970,364	$	6,248,219
Interest income recognized	$	199,305	257,275		$	434,993	551,062

Three Months Ended
March 31, 2019 March 31, 2018
Retail Installment Contracts
Average outstanding recorded investment in TDRs $ 5,181,657
$ 6,194,844
Interest income recognized $ 235,688
$ 293,787

The following table summarizes the financial effects, excluding impacts related to credit loss allowance and impairment, of TDRs (including collateral-dependent bankruptcy TDRs) that occurred for the three and six months ended ~~March 31,~~June 30, 2019 and 2018:



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	Retail Installment Contracts
Outstanding recorded investment before TDR	$	295,540	$	723,925	$	627,549	$	1,308,373
Outstanding recorded investment after TDR	$	296,257	$	725,438	$	628,887	$	1,308,102
Number of contracts (not in thousands)	17,335		43,265		$	37,208	$	77,639

Three Months Ended
March 31, 2019 March 31, 2018
Retail Installment Contracts
Outstanding recorded investment before TDR $ 332,010
$ 584,448
Outstanding recorded investment after TDR $ 332,630
$ 582,664
Number of contracts (not in thousands) 19,873
34,374

Loan restructurings accounted for as TDRs within the previous twelve months that subsequently defaulted during the three and six months ended ~~March 31,~~June 30, 2019 and 2018 are summarized in the following table:



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	Retail Installment Contracts
Recorded investment in TDRs that subsequently defaulted (a)	$	90,128	$	144,561	$	216,365	$	339,826
Number of contracts (not in thousands)	5,335		8,707		$	12,907	$	20,247

Three Months Ended
March 31, 2019 March 31, 2018
Retail Installment Contracts
Recorded investment in TDRs that subsequently defaulted (a) $ 126,238
$ 195,265
Number of contracts (not in thousands) 7,572
11,540

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

5. Debt

Revolving Credit Facilities

The following table presents information regarding the Company’s credit facilities as of ~~March 31,~~June 30, 2019 and December 31, 2018:


	March 31, 2019										June 30, 2019
	Maturity Date(s)	Utilized Balance		Committed Amount		Effective Rate	Assets Pledged		Restricted Cash Pledged		Maturity Date(s)	Utilized Balance		Committed Amount		Effective Rate	Assets Pledged		Restricted Cash Pledged
Facilities with third parties:
Warehouse line	August 2019	$	37,484	$	500,000	8.60%	$	54,475	$	—	June 2021	$	186,983	$	500,000	4.04%	$	267,358	$	—
Warehouse line	Various (a)	355,345		1,250,000		5.16%	511,875		—		March 2021	1,061,345		1,250,000		3.66%	1,552,733		—
Warehouse line ~~(b)~~(a)	August 2020	2,515,243		4,400,000		4.09%	3,311,763		4,274		August 2020	2,966,543		4,400,000		3.73%	4,080,313		3,849
Warehouse line	October 2020	775,177		2,050,000		5.16%	1,158,396		37		October 2020	881,577		2,050,000		4.38%	1,203,771		46
Repurchase facility ~~(c)~~(b)	May 2019	167,748		167,748		3.80%	235,540		—		September 2019	330,062		330,062		3.80%	452,740		—
Repurchase facility ~~(c)~~(b)	May 2019	119,169		119,169		3.04%	151,932		—		July 2019	95,633		95,633		3.04%	153,680		—
Warehouse line	November 2020	751,400		1,000,000		3.68%	1,088,648		—		November 2020	585,400		1,000,000		3.76%	922,796		—
Warehouse line	November 2020	261,620		500,000		3.57%	289,933		505		November 2020	315,720		500,000		3.28%	349,564		486
Warehouse line	October 2019	80,600		350,000		5.74%	89,781		581		June 2021	90,900		350,000		5.66%	101,504		239
Total facilities with third parties		5,063,786		10,336,917			6,892,343		5,397			6,514,163		10,475,695			9,084,459		4,620
Facilities with Santander and related subsidiaries:
Promissory Note	December 2022	250,000		250,000		3.95%	—		—		December 2021	250,000		250,000		3.70%	—		—
Promissory Note	December 2021	250,000		250,000		3.70%	—		—		December 2022	250,000		250,000		3.95%	—		—
Promissory Note	December 2023	250,000		250,000		5.25%	—		—		December 2023	250,000		250,000		5.25%	—		—
Promissory Note	December 2022	250,000		250,000		5.00%	—		—		December 2022	250,000		250,000		5.00%	—		—
Promissory Note	March 2021	300,000		300,000		3.95%					March 2021	300,000		300,000		3.95%
Promissory Note	October 2020	400,000		400,000		3.10%	—		—		October 2020	400,000		400,000		3.10%	—		—
Promissory Note	May 2020	500,000		500,000		3.49%	—		—		May 2020	500,000		500,000		3.49%	—		—
Promissory Note ~~(d)~~(c)	March 2022	650,000		650,000		4.20%	—		—		March 2022	650,000		650,000		4.20%	—		—
Promissory Note	August 2021	650,000		650,000		3.44%	—		—		June 2022	500,000		500,000		5.82%	—		—
Promissory Note											August 2021	650,000		650,000		3.44%	—		—
Line of credit	July 2021	—		500,000		5.85%	—		—		July 2021	—		500,000		4.27%	—		—
Line of credit	March 2022	—		3,000,000		5.69%	—		—		March 2022	—		3,000,000		5.60%	—		—
Total facilities with Santander and related subsidiaries		3,500,000		7,000,000			—		—			4,000,000		7,500,000			—		—
Total revolving credit facilities		$	8,563,786	$	17,336,917		$	6,892,343	$	5,397		$	10,514,163	$	17,975,695		$	9,084,459	$	4,620

(a) ~~One-half of the outstanding balance on this facility matures in May 2019 and remaining balance matures in March 2020.~~

~~(b)~~ This line is held exclusively for financing of Chrysler Capital leases.

~~(c)~~(b) The repurchase facilities are collateralized by securitization notes payable retained by the Company. As the borrower, we are exposed to liquidity risk due to changes in the market value of the retained securities pledged. In some instances, we place or receive cash collateral with counterparties under collateral arrangements associated with our repurchase agreements. The maturity date for the repurchase facility trade that expires in July 2019 was extended to October 2019.

~~(d)~~(c)

In 2017, the Company entered into an interest rate swap to hedge the interest rate risk on this fixed rate debt. This derivative was designated as fair value hedge at inception. This derivative was later terminated and the unamortized fair value hedge adjustment as of ~~March 31,~~June 30, 2019 and December 31, 2018 was ~~$3.1~~$2.8 million and $3.2 million, respectively, the amortization of which will reduce interest expense over the remaining life of the fixed rate debt.



	December 31, 2018
	Maturity Date(s)	Utilized Balance		Committed Amount		Effective Rate	Assets Pledged		Restricted Cash Pledged
Facilities with third parties:
Warehouse line	August 2019	$	53,584	$	500,000	8.34%	$	78,790	$	—
Warehouse line	Various	314,845		1,250,000		4.83%	458,390		—
Warehouse line	August 2020	2,154,243		4,400,000		3.79%	2,859,113		4,831
Warehouse line	October 2020	242,377		2,050,000		5.94%	345,599		120
Repurchase facility	April 2019	167,118		167,118		3.84%	235,540		—
Repurchase facility	March 2019	131,827		131,827		3.54%	166,308		—
Warehouse line	November 2020	1,000,000		1,000,000		3.32%	1,430,524		6
Warehouse line	November 2020	317,020		500,000		3.53%	359,214		525
Warehouse line	October 2019	97,200		350,000		4.35%	108,418		328
Total facilities with third parties		4,478,214		10,348,945			6,041,896		5,810
Facilities with Santander and related subsidiaries:
Promissory Note	December 2022	250,000		250,000		3.95%	—		—
Promissory Note	December 2021	250,000		250,000		3.70%	—		—
Promissory Note	December 2023	250,000		250,000		5.25%	—		—
Promissory Note	December 2022	250,000		250,000		5.00%	—		—
Promissory Note	March 2019	300,000		300,000		4.09%	—		—
Promissory Note	October 2020	400,000		400,000		3.10%	—		—
Promissory Note	May 2020	500,000		500,000		3.49%	—		—
Promissory Note	March 2022	650,000		650,000		4.20%	—		—
Promissory Note	August 2021	650,000		650,000		3.38%	—		—
Line of credit	July 2021	—		500,000		4.34%	—		—
Line of credit	March 2019	—		3,000,000		4.97%	—		—
Total facilities with Santander and related subsidiaries		3,500,000		7,000,000			—		—
Total revolving credit facilities		$	7,978,214	$	17,348,945		$	6,041,896	$	5,810

December 31, 2018
Maturity Date(s) Utilized Balance Committed Amount Effective Rate Assets Pledged Restricted Cash Pledged
Facilities with third parties:
Warehouse line August 2019 $ 53,584
$ 500,000
8.34% $ 78,790
$ —
Warehouse line Various 314,845
1,250,000
4.83% 458,390
—
Warehouse line August 2020 2,154,243
4,400,000
3.79% 2,859,113
4,831
Warehouse line October 2020 242,377
2,050,000
5.94% 345,599
120
Repurchase facility April 2019 167,118
167,118
3.84% 235,540
—
Repurchase facility March 2019 131,827
131,827
3.54% 166,308
—
Warehouse line November 2020 1,000,000
1,000,000
3.32% 1,430,524
6
Warehouse line November 2020 317,020
500,000
3.53% 359,214
525
Warehouse line October 2019 97,200
350,000
4.35% 108,418
328
Total facilities with third parties 4,478,214
10,348,945
6,041,896
5,810
Facilities with Santander and related subsidiaries:
Promissory Note December 2022 250,000
250,000
3.95% —
—
Promissory Note December 2021 250,000
250,000
3.70% —
—
Promissory Note December 2023 250,000
250,000
5.25% —
—
Promissory Note December 2022 250,000
250,000
5.00% —
—
Promissory Note March 2019 300,000
300,000
4.09% —
—
Promissory Note October 2020 400,000
400,000
3.10% —
—
Promissory Note May 2020 500,000
500,000
3.49% —
—
Promissory Note March 2022 650,000
650,000
4.20% —
—
Promissory Note August 2021 650,000
650,000
3.38% —
—
Line of credit July 2021 —
500,000
4.34% —
—
Line of credit March 2019 —
3,000,000
4.97% —
—
Total facilities with Santander and related subsidiaries 3,500,000
7,000,000
—
—
Total revolving credit facilities $ 7,978,214
$ 17,348,945
$ 6,041,896
$ 5,810

Facilities with Third Parties

The warehouse lines and repurchase facilities are fully collateralized by a designated portion of the Company’s retail installment contracts (Note 2), leased vehicles (Note 3), securitization notes payables and residuals retained by the Company.

Facilities with Santander and Related Subsidiaries

Lines of Credit

SHUSA provides the Company with $3,500,000 of committed revolving credit that can be drawn on an unsecured basis.

Promissory Notes

SHUSA provides the Company with ~~$3,500,000~~$4,000,000 of unsecured promissory notes. In July 2019, SHUSA provided a $500,000 unsecured promissory note to the Company which will mature July 2024.

Secured Structured Financings

The following table presents information regarding secured structured financings as of ~~March 31,~~June 30, 2019 and December 31, 2018:


	March 31, 2019										June 30, 2019
	Estimated Maturity Date(s)	Balance		Initial Note Amounts Issued (d)		Initial Weighted Average Interest Rate	Collateral (b)		Restricted Cash		Estimated Maturity Date(s)	Balance		Initial Note Amounts Issued (d)		Initial Weighted Average Interest Rate	Collateral (b)		Restricted Cash
2014 Securitizations	January 2022 - April 2022	$	210,870	$	2,291,020	1.16%-1.27%	$	276,026	$	65,769
2015 Securitizations	April 2021 - January 2023	1,400,803		9,054,732		1.33%-2.29%	1,673,187		296,972		April 2021 - January 2023	1,179,917		9,054,732		1.33%-2.29%	1,416,611		277,660
2016 Securitizations	April 2022- March 2024	1,913,327		7,462,790		1.63%-2.8%	2,482,363		295,114		April 2022- March 2024	1,627,222		7,462,790		1.63%-2.8%	2,145,078		265,020
2017 Securitizations	July 2022 - September 2024	3,787,585		9,296,570		1.35%-2.52%	5,321,553		385,897		July 2022 - September 2024	3,210,416		9,296,570		1.35%-2.52%	4,648,860		333,728
2018 Securitizations	May 2022 - April 2026	8,292,523		12,039,840		2.41%-3.42%	10,749,495		602,036		May 2022 - April 2026	7,211,450		12,039,840		2.41%-3.42%	9,521,053		527,200
2019 Securitizations	June 2025-June 2026	2,884,535		2,990,260		3.1%-3.34%	3,555,396		144,790		May 2024-October 2026	5,865,241		6,477,310		2.56%-3.34%	7,240,492		270,321
Public Securitizations (a)		18,489,643		43,135,212			24,058,020		1,790,578			19,094,246		44,331,242			24,972,094		1,673,929
2013 Private issuances	November 2020 - September 2024	1,172,833		2,044,054		1.28%-1.38%	2,426,570		1,835		November 2020 - September 2024	1,307,640		2,044,054		1.28%-1.38%	2,091,902		1,230
2015 Private issuances	June 2019-September 2021	827,842		1,811,312		0.88%-2.8%	275,512		1,784		July 2019-September 2021	113,289		1,000,000		0.88%-1.05%	206,326		1,473
2016 Private issuances	August 2020 - Sept 2024	346,660		2,550,000		1.93%-2.86%	679,865		797		August 2020 - Sept 2024	70,786		1,200,000		1.93%-2.35%	177,175		265
2017 Private issuances	April 2021 - Sept 2021	489,845		1,600,000		1.85%-2.44%	806,525		4,604		April 2021 - Sept 2021	241,350		1,600,000		1.85%-2.44%	605,018		2,315
2018 Private issuance	June 2022-April 2024	4,767,573		4,536,002		2.42%-3.53%	6,395,457		23,716		June 2022-April 2024	4,439,453		4,536,002		2.42%-3.53%	6,188,294		11,877
2019 Private issuance	September 2022	985,916		1,000,000		3.34%	1,252,200		1,906		September 2022	981,764		1,026,766		3.34%	1,260,503		2,071
Privately issued amortizing notes (c)		8,590,669		13,541,368			11,836,129		34,642			7,154,282		11,406,822			10,529,218		19,231
Total secured structured financings		$	27,080,312	$	56,676,580		$	35,894,149	$	1,825,220		$	26,248,528	$	55,738,064		$	35,501,312	$	1,693,160

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

(b)Secured structured financings may be collateralized by the Company’s collateral overages of other issuances.

(c)All privately issued amortizing notes issued in 2014 were paid in full.

(d)Excludes securitizations which no longer has outstanding debt and excludes any incremental borrowings.



	December 31, 2018
	Estimated Maturity Date(s)	Balance		Initial Note Amounts Issued		Initial Weighted Average Interest Rate	Collateral		Restricted Cash
2014 Securitizations	January 2022 - April 2022	$	246,989	$	2,291,020	1.16% - 1.27%	$	334,888	$	65,028
2015 Securitizations	April 2021 - January 2023	1,651,411		9,054,732		1.33% - 2.29%	1,979,942		288,654
2016 Securitizations	April 2022 - March 2024	2,233,720		7,462,790		1.63% - 2.80%	2,876,141		285,300
2017 Securitizations	July 2022 - September 2024	4,385,029		9,296,570		1.35% - 2.52%	6,090,150		352,833
2018 Securitizations	May 2022 -April 2026	10,708,030		13,275,840		2.41% - 3.53%	13,631,783		549,899
Public Securitizations		19,225,179		41,380,952			24,912,904		1,541,714
2013 Private issuance	November 2020 - September 2024	1,507,241		2,044,054		1.28% - 1.38%	2,896,344		3,021
2015 Private issuances	June 2019 -September 2021	1,043,723		1,811,312		0.88% - 2.80%	350,212		2,215
2016 Private issuances	August 2020 - September 2024	454,280		2,550,000		1.93% - 2.86%	901,641		1,661
2017 Private issuances	April 2021 -September 2021	689,152		1,600,000		1.85% - 2.44%	1,037,263		5,716
2018 Private issuances	June 2022 - April 2024	3,981,955		3,300,002		2.42% - 3.17%	5,197,806		22,588
Privately issued amortizing notes		7,676,351		11,305,368			10,383,266		35,201
Total secured structured financings		$	26,901,530	$	52,686,320		$	35,296,170	$	1,576,915

Most of the Company’s secured structured financings are in the form of public, SEC-registered securitizations. The Company also executes private securitizations under Rule 144A of the Securities Act and periodically issues private term amortizing notes, which are structured similarly to securitizations but are acquired by banks and conduits. The Company’s securitizations and private issuances are collateralized by vehicle retail installment contracts and loans or leases. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had private issuances of notes backed by vehicle leases totaling ~~$8,035,481~~$8,292,230 and $7,847,071, respectively.

Unamortized debt issuance costs are amortized as interest expense over the terms of the related notes payable using the effective interest method and are classified as a discount to the related recorded debt balance. Amortized debt issuance costs were ~~$8,461~~$9,309 and ~~$7,920~~$8,580 for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $17,770 and $16,500 for the six months ended June 30, 2019 and 2018, respectively. For securitizations, the term takes into consideration the expected execution of the contractual call option, if applicable. Amortization of premium or accretion of discount on notes payable is also included in interest expense using the effective interest method over the estimated remaining life of the notes. Total interest expense on secured structured financings for the three months ended ~~March 31,~~June 30, 2019 and 2018 was ~~$231,291~~$222,935 and ~~$150,675,~~$172,916, respectively. Total interest expense on secured structured financings for the six months ended June 30, 2019 and 2018 was $454,226 and $323,591, respectively.


6.	Variable Interest Entities

The Company transfers retail installment contracts and vehicle leases into newly formed Trusts that then issue one or more classes of notes payable backed by the collateral. The Company’s continuing involvement with these Trusts is in the form of servicing the assets and, generally, through holding residual interests in the Trusts. The Trusts are considered VIEs under U.S. GAAP and the Company may or may not consolidate these VIEs on the condensed consolidated balance sheets.

For further description of the Company’s securitization activities, involvement with VIEs and accounting policies regarding consolidation of VIEs, see Part II, Item 8 - Financial Statements and Supplementary Data (Note 7) in the 2018 Annual Report on Form 10-K.

On-balance sheet variable interest entities

The Company retains servicing rights for receivables transferred to the Trusts and receives a monthly servicing fee on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are reflected in fees, commissions and other income. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company was servicing $~~28,058,972~~28,343,622 and $27,193,924, respectively, of gross retail installment contracts that have been transferred to consolidated Trusts. The remainder of the Company’s retail installment contracts remain unpledged.

A summary of the cash flows received from consolidated securitization trusts during the three and six months ended ~~March 31,~~June 30, 2019 and 2018, is as follows:


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31, 2019		March 31, 2018		June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Assets securitized	$	4,928,462	$	7,240,944	$	4,913,261	$	6,511,953	$	9,841,723	$	13,752,897

Net proceeds from new securitizations (a)	$	3,962,618	$	3,476,322	$	3,794,437	$	4,581,874	$	7,757,055	$	8,058,196
Net proceeds from retained bonds	17,306		211,610		99,999		382,022		117,305		593,632
Cash received for servicing fees (b)	208,325		215,790		289,634		213,900		497,959		429,690
Net distributions from Trusts (b)	592,769		545,152		1,078,665		780,834		1,671,434		1,325,986
Total cash received from Trusts	$	4,781,018	$	4,448,874	$	5,262,735	$	5,958,630	$	10,043,753	$	10,407,504


(a)	Includes additional advances on existing securitizations.


(b)	These amounts are not reflected in the accompanying condensed consolidated statements of cash flows because these cash flows are intra-company and eliminated in consolidation.

Off-balance sheet variable interest entities

During the three and six months ended ~~March 31,~~June 30, 2018 the Company sold ~~$1,475,253,~~$1,156,060 and $2,631,313, respectively, of gross retail installment contracts to Santander in off-balance sheet securitizations for a loss (excluding lower of cost or market adjustments, if any) of ~~$16,903,~~$3,177 and $20,080, respectively. The losses were recorded in investment losses, net, in the accompanying consolidated statements of income. There were no sales during the three and six months ended ~~March 31,~~June 30, 2019.

As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company was servicing ~~$3,631,317~~$3,145,282 and $4,072,843, respectively, of gross retail installment contracts that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call. The portfolio was comprised as follows:



	June 30, 2019		December 31, 2018
SPAIN	$	2,776,169	$	3,461,793
Total serviced for related parties	2,776,169		3,461,793
Chrysler Capital securitizations	369,113		611,050
Total serviced for third parties	369,113		611,050
Total serviced for others portfolio	$	3,145,282	$	4,072,843

March 31,
2019 December 31,
2018
SPAIN $ 3,110,475
$ 3,461,793
Total serviced for related parties 3,110,475
3,461,793
Chrysler Capital securitizations 520,842
611,050
Total serviced for third parties 520,842
611,050
Total serviced for others portfolio $ 3,631,317
$ 4,072,843

Other than repurchases of sold assets due to standard representations and warranties, the Company has no exposure to loss as a result of its involvement with these VIEs.

A summary of the cash flows received from off-balance sheet securitization trusts for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, is as follows:


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31, 2019		March 31, 2018		June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Receivables securitized (a)	$	—	$	1,475,253	$	—	$	1,156,060	$	—	$	2,631,313

Net proceeds from new securitizations	$	—	$	1,474,820	$	—	$	1,160,119	$	—	$	2,634,939
Cash received for servicing fees	10,251		8,078		9,357		12,616		19,608		20,694
Total cash received from securitization trusts	$	10,251	$	1,482,898	$	9,357	$	1,172,735	$	19,608	$	2,655,633

(a) Represents the unpaid principal balance at the time of original securitization.


7.	Derivative Financial Instruments

The Company uses derivatives financial instruments such as interest rate swaps, interest rate caps and the corresponding options written in order to offset the interest rate caps to manage the Company’s exposure to changing interest rates. The Company uses both derivatives that qualify for hedge accounting treatment and economic hedges.

In addition, the Company is the holder of a warrant that gives it the right, if certain vesting conditions are satisfied, to purchase additional shares in a company in which it has a cost method investment. This warrant was issued in 2012 and is carried at its estimated fair value of zero at March 31, 2019 and December 31, 2018.

The underlying notional amounts and aggregate fair values of these derivatives financial instruments at ~~March 31,~~June 30, 2019 and December 31, 2018, are as follows:



	June 30, 2019
	Notional		Fair Value			Asset		Liability
Interest rate swap agreements designated as cash flow hedges	$	4,150,000	$	(28,812	)	$	12,225	$	(41,037	)
Interest rate swap agreements not designated as hedges	2,110,000		(9,179		)	2,992		(12,171		)
Interest rate cap agreements	9,203,381		88,240			88,240		—
Options for interest rate cap agreements	9,203,381		(88,240		)	—		(88,240		)

March 31, 2019
Notional Fair Value Asset Liability
Interest rate swap agreements designated as cash flow hedges $ 4,150,000
$ 11,323
$ 28,601
$ (17,278 )
Interest rate swap agreements not designated as hedges 2,110,000
1,329
6,409
(5,080 )
Interest rate cap agreements 9,679,846
136,470
136,470
—
Options for interest rate cap agreements 9,679,846
(136,470 ) —
(136,470 )



	December 31, 2018
	Notional		Fair Value			Asset		Liability
Interest rate swap agreements designated as cash flow hedges	$	3,933,500	$	36,489		$	43,967	$	(7,478	)
Interest rate swap agreements not designated as hedges	2,270,200		9,423			11,553		(2,130		)
Interest rate cap agreements	7,741,765		128,377			128,377		—
Options for interest rate cap agreements	7,741,765		(128,377		)	—		(128,377		)

December 31, 2018
Notional Fair Value Asset Liability
Interest rate swap agreements designated as cash flow hedges $ 3,933,500
$ 36,489
$ 43,967
$ (7,478 )
Interest rate swap agreements not designated as hedges 2,270,200
9,423
11,553
(2,130 )
Interest rate cap agreements 7,741,765
128,377
128,377
—
Options for interest rate cap agreements 7,741,765
(128,377 ) —
(128,377 )

See Note 13 for disclosure of fair value and balance sheet location of the Company’s derivative financial instruments.

The Company enters into legally enforceable master netting agreements that reduce risk by permitting netting of transactions, such as derivatives and collateral posting, with the same counterparty on the occurrence of certain events. A master netting agreement allows two counterparties the ability to net-settle amounts under all contracts, including any related collateral posted, through a single payment. The right to offset and certain terms regarding the collateral process, such as valuation, credit events and settlement, are contained in ISDA master agreements. The Company has elected to present derivative balances on a gross basis even if the derivative is subject to a legally enforceable master netting (ISDA) agreement. Collateral that is received or pledged for these transactions is disclosed within the “Gross amounts not offset in the Condensed Consolidated Balance Sheet” section of the tables below. Information on the offsetting of derivative assets and derivative liabilities due to the right of offset was as follows, as of ~~March 31,~~June 30, 2019 and December 31, 2018:



	Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
	Assets Presented in the Condensed Consolidated Balance Sheet		Collateral Received (a)			Net Amount
June 30, 2019
Interest rate swaps - third party (b)	$	15,217	$	(3,836	)	$	11,381
Interest rate caps - Santander and affiliates	15,305		(4,391		)	10,914
Interest rate caps - third party	72,935		(46,807		)	26,128
Total derivatives subject to a master netting arrangement or similar arrangement	103,457		(55,034		)	48,423
Total derivatives not subject to a master netting arrangement or similar arrangement	—		—			—
Total derivative assets	$	103,457	$	(55,034	)	$	48,423
Total financial assets	$	103,457	$	(55,034	)	$	48,423

December 31, 2018
Interest rate swaps - third party (b)	$	55,520	$	(23,929	)	$	31,591
Interest rate caps - third party	128,377		(72,830		)	55,547
Total derivatives subject to a master netting arrangement or similar arrangement	183,897		(96,759		)	87,138
Total derivatives not subject to a master netting arrangement or similar arrangement	—		—			—
Total derivative assets	$	183,897	$	(96,759	)	$	87,138
Total financial assets	$	183,897	$	(96,759	)	$	87,138

Gross Amounts Not Offset in the
Condensed Consolidated Balance Sheet
Assets Presented
in the
Condensed Consolidated
Balance Sheet Cash
Collateral
Received (a) Financial Instruments received (c) Net
Amount
March 31, 2019
Interest rate swaps - third party (b) $ 35,010
$ (852 ) $ (3,878 ) $ 30,280
Interest rate caps - third party 136,470
(48,289 ) (71,771 ) 16,410
Total derivatives subject to a master netting arrangement or similar arrangement 171,480
(49,141 ) (75,649 ) 46,690
Total derivatives not subject to a master netting arrangement or similar arrangement —
—
—
Total derivative assets $ 171,480
$ (49,141 ) $ (75,649 ) $ 46,690
Total financial assets $ 171,480
$ (49,141 ) $ (75,649 ) $ 46,690

December 31, 2018
Interest rate swaps - third party 55,520
(23,929 ) —
31,591
Interest rate caps - third party 128,377
(72,830 ) —
55,547
Total derivatives subject to a master netting arrangement or similar arrangement 183,897
(96,759 ) —
87,138
Total derivatives not subject to a master netting arrangement or similar arrangement —
—
—
—
Total derivative assets $ 183,897
$ (96,759 ) $ —
$ 87,138
Total financial assets $ 183,897
$ (96,759 ) $ —
$ 87,138

(a) Collateral received includes cash, cash equivalents, and other financial instruments. Cash collateral received is reported in Other liabilities ~~or Due to affiliate, as applicable,~~ in the consolidated balance sheet.

~~(b) Includes derivative instruments originally transacted with Santander and affiliates and subsequently amended to reflect clearing with central clearing counterparties.~~

~~(c) These amounts represent financial~~ Financial instruments that are pledged to the Company ~~for interest rate swaps, caps and back to back instruments. These amounts~~ are not reflected in the accompanying consolidated balance sheet since the Company does not control or have the ability of rehypothecation of these instruments.

(b) Includes derivative instruments originally transacted with Santander and affiliates and subsequently amended to reflect clearing with central clearing counterparties.


	Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet										Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
	Liabilities Presented in the Condensed Consolidated Balance Sheet		Cash Collateral Pledged (a)			Financial Instruments pledged (a)			Net Amount		Liabilities Presented in the Condensed Consolidated Balance Sheet		Collateral Pledged (a)			Net Amount
March 31, 2019
June 30, 2019
Interest rate swaps - third party(b)	22,358		(16,374		)	(5,984		)	—		$	53,208	$	(53,208	)	$	—
Back to back - third party	136,470		(105,997		)	(30,473		)	—
Interest rate caps - Santander and affiliates											15,305		(15,305		)	—
Interest rate caps - third party											72,935		(72,935		)	—
Total derivatives subject to a master netting arrangement or similar arrangement	158,828		(122,371		)	(36,457		)	—		141,448		(141,448		)	—
Total derivatives not subject to a master netting arrangement or similar arrangement	—		—						—		—		—			—
Total derivative liabilities	$	158,828	$	(122,371	)	$	(36,457	)	$	—	$	141,448	$	(141,448	)	$	—
Total financial liabilities	$	158,828	$	(122,371	)	$	(36,457	)	$	—	$	141,448	$	(141,448	)	$	—

December 31, 2018
Back to back - Santander & affiliates	9,608		(9,608		)	—			—
Back to back - third party	128,377		(128,377		)	—			—
Interest rate swaps - third party											$	9,608	$	(9,608	)	$	—
Interest rate caps - third party											128,377		(128,377		)	—
Total derivatives subject to a master netting arrangement or similar arrangement	137,985		(137,985		)	—			—		137,985		(137,985		)	—
Total derivatives not subject to a master netting arrangement or similar arrangement	—		—			—			—		—		—			—
Total derivative liabilities	$	137,985	$	(137,985	)	$	—		$	—	$	137,985	$	(137,985	)	$	—
Total financial liabilities	$	137,985	$	(137,985	)	$	—		$	—	$	137,985	$	(137,985	)	$	—

(a) ~~Cash collateral~~Collateral pledged includes cash, cash equivalents, and other financial ~~instruments pledged is~~instruments. These balances are reported in Other assets ~~Restricted cash and cash equivalents, or Due from affiliate, as applicable,~~ in the consolidated balance sheet. In certain instances, the Company is over-collateralized since the actual amount of ~~cash~~collateral pledged ~~as collateral~~ exceeds the associated financial liability. As a result, the actual amount of ~~cash~~ collateral pledged that is reported in Other assets ~~Restricted cash and cash equivalents, or Due from affiliates~~ may be greater than the amount shown in the table above.

(b) Includes derivative instruments originally transacted with Santander and affiliates and subsequently amended to reflect clearing with central clearing counterparties.

The gross gains (losses) reclassified from accumulated other comprehensive income (loss) to net income, are included as components of interest expense. The impacts on the condensed consolidated statements of income and comprehensive income for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 were as follows:


	Three Months Ended March 31, 2019							Three Months Ended June 30, 2019
	Recognized in Earnings		Gross Gains Recognized in Accumulated Other Comprehensive Income (Loss)			Gross amount Reclassified From Accumulated Other Comprehensive Income to Interest Expense		Recognized in Earnings		Gross Gains (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)			Gross amount Reclassified From Accumulated Other Comprehensive Income to Interest Expense
Interest rate swap agreements designated as cash flow hedges	$	—	$	(14,793	)	$	13,040	$	—	$	(31,014	)	$	13,901

Derivative instruments not designated as hedges
Losses (Gains) recognized in interest expenses	5,401							8,446


	Three Months Ended March 31, 2018							Three Months Ended June 30, 2018
	Recognized in Earnings			Gross Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss)		Gross Gains (Losses) Reclassified From Accumulated Other Comprehensive Income to Interest Expense		Recognized in Earnings			Gross Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss)		Gross Gains (Losses) Reclassified From Accumulated Other Comprehensive Income to Interest Expense
Interest rate swap agreements designated as cash flow hedges	$	—		$	26,429	$	4,578	$	—		$	8,412	$	9,095

Derivative instruments not designated as hedges
Losses (Gains) recognized in interest expenses	(9,717		)					(22		)



	Six Months Ended June 30, 2019
	Recognized in Earnings		Gross Gains (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)			Gross amount Reclassified From Accumulated Other Comprehensive Income to Interest Expense
Interest rate swap agreements designated as cash flow hedges	$	—	$	(45,807	)	$	26,941

Derivative instruments not designated as hedges
Losses (Gains) recognized in interest expenses	13,847



	Six Months Ended June 30, 2018
	Recognized in Earnings			Gross Gains Recognized in Accumulated Other Comprehensive Income (Loss)		Gross amount Reclassified From Accumulated Other Comprehensive Income to Interest Expense
Interest rate swap agreements designated as cash flow hedges	$	—		$	34,841	$	13,672

Derivative instruments not designated as hedges
Losses (Gains) recognized in interest expenses	(9,739		)

The Company estimates that approximately ~~$23,659~~$3,119 of unrealized gains included in accumulated other comprehensive income (loss) will be reclassified to interest expense within the next twelve months.

8. Other Assets

Other assets were comprised as follows:


	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Vehicles (a)	$	353,123	$	342,097	$	331,251	$	342,097
Manufacturer subvention payments receivable (b)	100,099		106,313		126,185		106,313
Upfront fee (b)	61,250		65,000		113,827		65,000
Derivative assets at fair value (c)	171,480		183,897
Derivative-third party collateral	177,152		150,783
Derivative assets (third party) at fair value (c)					88,152		183,897
Derivative - collateral					173,226		150,783
Operating leases (Right-of-use-assets)	64,822		—		63,235		—
Available-for-sale debt securities	42,733		—		94,643		—
Prepaids	26,696		29,080		40,076		29,080
Accounts receivable	34,217		28,511		33,111		28,511
Other	23,047		57,666		26,040		57,666
Other assets	$	1,054,619	$	963,347	$	1,089,746	$	963,347


(a)	Includes vehicles recovered through repossession as well as vehicles recovered due to lease terminations.

(b)

These amounts relate to the Chrysler Agreement. The Company paid a $150,000 upfront fee upon the May 2013 inception of the Chrysler Agreement. The fee is being amortized into finance and other interest income over a ten-year term. AsIn addition, in June 2019, in connection with the ~~preferred financing provider for FCA, the Company is entitled to subvention payments on loans and leases with below-market customer payments. Exercise~~execution of the ~~equity option in~~sixth amendment to the Chrysler Agreement, ~~by FCA would require~~ the Company paid $60,000 upfront fee to ~~evaluate whether~~FCA. This fee is being amortized into finance and other interest income over the remaining ~~unamortized balance~~term of the ~~upfront fee should be impaired. To date, FCA has not exercised its equity option.~~Chrysler Agreement.


(c)	Derivative assets at fair value represent the gross amount of derivatives presented in the condensed consolidated financial statements. Refer to Note 7 to these Condensed Consolidated Financial Statements for the detail of these amounts.

Operating Leases (SC as Lessee)

The Company has entered into various operating leases, primarily for office space. Operating leases are included within other assets as operating lease ROU assets and other liabilities within our condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives.

Most of our real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one to 15 years or more. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Supplemental information relating to these operating leases is as follows:



	June 30, 2019
Operating leases-right of use assets	$	63,235
Other liabilities	85,939
Weighted average lease term	6.5 years
Weighted average discount rate	3.40		%

March 31,
2019
Operating leases-right of use assets $ 64,822
Other liabilities 88,206
Weighted average lease term 6.8 years
Weighted average discount rate 3.40 %

Lease expense incurred totaled ~~$3,466~~$3,448 and ~~$2,559~~$2,531 for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $6,914 and $5,090 for the six months ended June 30, 2019 and 2018, respectively, and is included within “other operating costs” in the income statement. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Cash paid for amounts included in the measurement of operating lease liabilities was ~~$4,176~~$8,406 during the ~~three~~six months ended ~~March 31,~~June 30, 2019.

The maturity of lease liabilities at ~~March 31,~~June 30, 2019 are as follows:



2019	$	8,382
2020	16,716
2021	13,201
2022	12,555
2023	12,678
Thereafter	32,391
Total	$	95,923
Less: Interest	(9,984		)
Present value of lease liabilities	$	85,939

2019 $ 12,470
2020 16,465
2021 12,940
2022 12,283
2023 12,393
Thereafter 32,270
Total $ 98,821
Less: Interest (10,615 )
Present value of lease liabilities $ 88,206

~~Operating lease payments exclude $1.3 million of legally binding minimum lease payments for leases signed but not yet commenced.~~

Available-for-sale debt securities

Debt securities expected to be held for an indefinite period of time are classified as available-for-sale (“AFS”) and are carried at fair value, with temporary unrealized gains and losses reported as a component of accumulated other comprehensive income within stockholder's equity, net of estimated income taxes. All of these securities are used to satisfy collateral requirements for our derivative financial instruments.

Realized gains and losses on sales of investment securities are recognized on the trade date and are determined using specific identification method and is included in earnings within Investment gain (losses) on sale of securities. Unamortized premiums and discounts are recognized in interest income over the estimated life of the security using the interest method.

The following tables present the amortized cost, gross unrealized gains and losses and approximate fair values of debt securities AFS as of ~~March 31, 2019:~~ June 30, 2019:

March 31, 2019
Amortized cost Gross Unrealized gain Gross Unrealized loss Fair value
Available-for-sale debt securities (US Treasury securities) $ 42,122
$ 611
$ —
$ 42,733



	June 30, 2019
	Amortized cost (before unrealized gains / losses)		Gross Unrealized gain		Gross Unrealized loss		Fair value
Available-for-sale debt securities (US Treasury securities)	$	93,321	$	1,322	$	—	$	94,643

Contractual Maturities

The contractual maturities of available-for-sale debt instruments are summarized in the following table.



	Amortized cost		Fair value
Due within one year	$	2,931	$	2,997
Due after one year but within 5 years	90,390		91,646
Total	$	93,321	$	94,643

Amortized cost Fair value
Due within one year $ 5,812
$ 5,997
Due after one year but within 5 years 36,310
36,736
Total $ 42,122
$ 42,733

The Company ~~did~~did not record any other-than-temporary impairment related to its AFS securities for the ~~three~~six months ended ~~March 31,~~June 30, 2019.


9.	Income Taxes

The Company recorded income tax expense of ~~$89,764 (26.6%~~$111,764 (23.3% effective tax rate) and $~~58,052~~114,120 (~~19.2%~~25.4% effective tax rate) during the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively. The Company recorded income tax expense of$201,528(24.7% effective tax rate) and $172,172 (22.9% effective tax rate) during the six month ended June 30, 2019 and 2018, respectively.

The Company is a party to a tax sharing agreement requiring that the unitary state tax liability among affiliates included in unitary state tax returns be allocated using the hypothetical separate company tax calculation method. The Company had a net receivable from affiliates under the tax sharing agreement of $~~2,594~~4,581 and $734 at ~~March 31,~~June 30, 2019

and December 31, 2018, respectively, which was included in related party taxes receivable in the condensed consolidated balance sheet.

The Company provides U.S. income taxes on earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside of the United States. As of December 31, 2018 and ~~March 31,~~June 30, 2019, the Company has no earnings that are considered indefinitely reinvested.

The Company applies an aggregate portfolio approach whereby disproportionate income tax effects from accumulated other comprehensive income are released only when an entire portfolio (i.e., all related units of account) of a particular type is liquidated, sold or extinguished.

Significant judgment is required in evaluating and reserving for uncertain tax positions. Although management believes adequate reserves have been established for all uncertain tax positions, the final outcomes of these matters may differ. Management does not believe the outcome of any uncertain tax position, individually or combined, will have a material effect on the Company’s business, financial position or results of operations. The reserve for uncertain tax positions, as well as associated penalties and interest, is a component of the income tax provision.


10.	Commitments and Contingencies

The following table summarizes liabilities recorded for commitments and contingencies as of ~~March 31,~~June 30, 2019 and December 31, 2018, all of which are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets:



Agreement or Legal Matter	Commitment or Contingency	June 30, 2019		December 31, 2018
Chrysler Agreement	Revenue-sharing and gain/(loss), net-sharing payments	$	19,893	$	7,001
Agreement with Bank of America	Servicer performance fee	5,249		6,353
Agreement with CBP	Loss-sharing payments	2,498		3,708
Other Contingencies	Consumer arrangements	596		2,138
Legal and regulatory proceedings	Aggregate legal and regulatory liabilities	100,000		97,700

Agreement or Legal Matter Commitment or Contingency March 31, 2019 December 31, 2018
Chrysler Agreement Revenue-sharing and gain-sharing payments $ 13,254
$ 7,001
Agreement with Bank of America Servicer performance fee 5,980
6,353
Agreement with CBP Loss-sharing payments 3,340
3,708
Other Contingencies Consumer arrangements 2,999
2,138
Legal and regulatory proceedings Aggregate legal and regulatory liabilities 106,900
97,700

Following is a description of the agreements and legal matters pursuant to which the liabilities in the preceding table were recorded.

Chrysler Agreement

Underterms of the Chrysler Agreement, the Company must make revenue sharing payments to FCA and also must ~~make gain-sharing payments to~~share with FCA when residual ~~gains~~gains/(losses) on leased vehicles exceed a specified threshold. The Company had accrued ~~$13,254~~$19,893 and $7,001 at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, related to these obligations.

The Chrysler Agreement requires, among other things, that the Company bear the risk of loss on loans originated pursuant to the agreement, but also that FCA shares in any residual gains and losses from consumer leases. The Chrysler Agreement also requires that Santander maintain at least $5.0 billion in funding available for Floorplan Loans and $4.5 billion of financing dedicated to FCA retail financing. In turn, FCA must provide designated minimum threshold percentages of its subvention business to the Company. The Chrysler Agreement is subject to early termination in certain circumstances, including the failure by either party to comply with certain of their ongoing obligations under the Chrysler Agreement. These obligations include the Company’s meeting specified escalating penetration rates for the first five years of the agreement. The Company did not meet these penetration rates. Also, FCA has the option to acquire, for fair market value, an equity participation in the business offering and providing the financial services contemplated by the Chrysler Agreement. If FCA exercises its equity option, the Chrysler Agreement were to terminate, or the Company otherwise is unable to realize the expected benefits of its relationship with FCA, there could be a materially adverse impact to the Company’s business, financial condition, results of operations, profitability, loan and lease volume, the credit quality of its portfolio, liquidity, funding and growth, and the Company’s ability to implement its business strategy could be materially adversely affected.

Agreement with Bank of America

Until January 2017, the Company had a flow agreement with Bank of America whereby the Company was committed to selling up to $300,000 of eligible loans to the bank each month. The Company retains servicing on all sold loans and may receive or pay a servicer performance payment based on an agreed-upon formula if performance on the sold loans is better or worse, respectively, than expected performance at time of sale. Servicer performance payments are due six years from the cut-off date of each loan sale. The Company had accrued ~~$5,980~~$5,249 and ~~$6,353~~$6,353 at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, related to this obligation.

Agreement with CBP

Until May 1, 2017, the Company sold loans to CBP under terms of a flow agreement and predecessor sale agreements. The Company retained servicing on the sold loans and ~~will owe~~owes CBP a loss-sharing payment capped at 0.5% of the original pool balance if losses exceed a specified threshold, established on a pool-by-pool basis. Loss-sharing payments are due the month in which net losses exceed the established threshold of each loan sale. The Company had accrued ~~$3,340~~$2,498 and ~~$3,708~~$3,708 at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, related to the loss-sharing obligation.

Other Contingencies

The Company is or may be subject to potential liability under various other contingent exposures. The Company had accrued ~~$2,999~~$596 and ~~$2,138~~$2,138 at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, for other miscellaneous contingencies.

Legal and regulatory proceedings

Periodically, the Company is party to, or otherwise involved in, various lawsuits and other legal proceedings that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of any such lawsuit, regulatory matter and legal proceeding, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of the matters, or the eventual loss, fines or penalties related to the matter. Further, it is reasonably possible that actual outcomes or losses may differ materially from the Company’s current assessments and estimates and any adverse resolution of any of these matters against it could materially and adversely affect the Company’s business, financial condition and results of operation.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation, regulatory matters and other legal proceedings when those matters present material loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation, regulatory matter or other legal proceeding develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether the matter presents a material loss contingency that is probable and estimable. If a determination is made during a given quarter that a material loss contingency is probable and estimable, an accrued liability is established during such quarter with respect to such loss contingency. The Company continues to monitor the matter for further developments that could affect the amount of the accrued liability previously established.

As of ~~March 31,~~June 30, 2019, the Company has accrued aggregate legal and regulatory liabilities of ~~$106,900.~~$100,000. Further, the Company believes that the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for legal and regulatory proceedings is up to ~~$71,000~~$57,000 as of ~~March 31,~~June 30, 2019. Set forth below are descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject.

Securities Class Action and Shareholder Derivative Lawsuits

•

Deka Lawsuit: The Company is a defendant in a purported securities class action lawsuit (the Deka Lawsuit) in the United States District Court, Northern District of Texas, captioned Deka Investment GmbH et al. v. Santander Consumer USA Holdings Inc. et al., No. 3:15-cv-2129-K. The Deka Lawsuit, which was filed in August 26, 2014, was brought against the Company, certain of its current and former directors and executive officers and certain institutions that served as underwriters in the Company’s IPO on behalf of a class consisting of those who purchased or otherwise acquired our securities between January 23, 2014 and June 12, 2014. The complaint alleges, among other things, that our IPO registration statement and prospectus and certain subsequent public disclosures violated federal securities laws by containing misleading statements concerning the Company’s ability to pay dividends and the adequacy of the Company’s compliance systems and oversight. In December 2015, the Company and the individual defendants moved to dismiss the lawsuit, which was denied. In December 2016, the plaintiffs moved to certify the proposed classes. In July 2017, the court entered an order staying the Deka Lawsuit pending the resolution of the appeal of a class certification order in In re Cobalt Int’l Energy, Inc. Sec. Litig., No. H-14-3428, 2017 U.S. Dist. LEXIS 91938 (S.D. Tex. June 15, 2017). In October 2018, the court vacated the order staying the Deka Lawsuit and ordered that merits discovery in the Deka Lawsuit be stayed until the court ruled on the issue of class certification.

•~~Deka Lawsuit:~~ The Company is a defendant in a purported securities class action lawsuit (the Deka Lawsuit) in the United States District Court, Northern District of Texas, captioned Deka Investment GmbH et al. v. Santander Consumer USA Holdings Inc. et al., No. 3:15-cv-2129-K. The Deka Lawsuit, which was filed in August 26, 2014, was brought against the Company, certain of its current and former directors and executive officers and certain institutions that served as underwriters in the Company’s IPO on behalf of a class consisting of those who purchased or otherwise acquired our securities between January 23, 2014 and June 12, 2014. The complaint alleges, among other things, that our IPO registration statement and prospectus and certain subsequent public disclosures violated federal securities laws by containing misleading statements concerning the Company’s ability to pay dividends and the adequacy of the Company’s compliance systems and oversight. In December 2015, the Company and the individual defendants moved to dismiss the lawsuit, which was denied. In December 2016, the plaintiffs moved to certify the proposed classes. In July 2017, the court entered an order staying the Deka Lawsuit pending the resolution of the appeal of a class certification order in In re Cobalt Int’l Energy, Inc. Sec. Litig., No. H-14-3428, 2017 U.S. Dist. LEXIS 91938 (S.D. Tex. June 15, 2017). In October 2018, the court vacated the order staying the Deka Lawsuit and ordered that merits discovery in the Deka Lawsuit be stayed until the court ruled on the issue of class certification.

•

Feldman Lawsuit: In October 2015, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Feldman v. Jason A. Kulas, et al., C.A. No. 11614 (the Feldman Lawsuit). The Feldman Lawsuit names as defendants, certain of its current and former members of the Board, and names the Company as a nominal defendant. The complaint alleges, among other things, that the current and former director defendants breached their fiduciary duties in connection with overseeing the Company’s nonprime vehicle lending practices, resulting in harm to the Company. The complaint seeks unspecified damages and equitable relief. In December 2015, the Feldman Lawsuit was stayed pending the resolution of the Deka Lawsuit.

•

Parmelee Lawsuit: The Company is adefendant in two purported securities class actions lawsuits that were filed in March and April 2016 in the United States District Court, Northern District of Texas. The lawsuits were consolidated and are now captioned Parmelee v. Santander Consumer USA Holdings Inc. et al., No. 3:16-cv-783. The lawsuits were filed against the Company and certain of its current and former directors and executive officers on behalf of a class consisting of all those who purchased or otherwise acquired our securities between February 3, 2015 and March 15, 2016. The complaint alleges that the Company violated federal securities laws by making false or misleading statements, as well as failing to disclose material adverse facts, in its periodic reports filed under the Exchange Act and certain other public disclosures, in connection with, among other things, the Company’s change in its methodology for estimating its allowance for credit losses and correction of such allowance for prior periods. In March 2017, the Company filed a motion to dismiss the lawsuit. In January 2018, the court granted the Company’s motion as to defendant Ismail Dawood (the Company’s former Chief Financial Officer) and denied the motion as to all other defendants. In July 2018, the lead plaintiff filed an unopposed motion for preliminary approval of a class action settlement of the lawsuit for a cash payment of $9,500. In September 2018, the court entered an order granting the motion for preliminary approval of the settlement of the lawsuit. An order approving the settlement was entered in June 2019.

•

Jackie888 Lawsuit: In September 2016, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Jackie888, Inc. v. Jason Kulas, et al., C.A. # 12775 (the Jackie888 Lawsuit). The Jackie888 Lawsuit names as defendants current and former members of the Board, and names the Company as a nominal defendant. The complaint alleges, among other things, that the defendants breached their fiduciary duties in connection with the Company’s accounting practices and controls. The complaint seeks unspecified damages and equitable relief. In April 2017, the Jackie888 Lawsuit was stayed pending the resolution of the Deka Lawsuit.

•~~Feldman Lawsuit:~~ In October 2015, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Feldman v. Jason A. Kulas, et al., C.A. No. 11614 (the Feldman Lawsuit). The Feldman Lawsuit names as defendants, certain of its current and former members of the Board, and names the Company as a nominal defendant. The complaint alleges, among other things, that the current and former director defendants breached their fiduciary duties in connection with overseeing the Company’s nonprime vehicle lending practices, resulting in harm to the Company. The complaint seeks unspecified damages and equitable relief. In December 2015, the Feldman Lawsuit was stayed pending the resolution of the Deka Lawsuit.

•~~Parmelee Lawsuit:~~ ~~The Company is a~~defendant in two purported securities class actions lawsuits that were filed in March and April 2016 in the United States District Court, Northern District of Texas. The lawsuits were consolidated and are now captioned Parmelee v. Santander Consumer USA Holdings Inc. et al., No. 3:16-cv-783. The lawsuits were filed against the Company and certain of its current and former directors and executive officers on behalf of a class consisting of all those who purchased or otherwise acquired our securities between February 3, 2015 and March 15, 2016. The complaint alleges that the Company violated federal securities laws by making false or misleading statements, as well as failing to disclose material adverse facts, in its periodic reports filed under the Exchange Act and certain other public disclosures, in connection with, among other things, the Company’s change in its methodology for estimating its allowance for credit losses and correction of such allowance for prior periods. In March 2017, the Company filed a motion to dismiss the lawsuit. In January 2018, the court granted the Company’s motion as to defendant Ismail Dawood (the Company’s former Chief Financial Officer) and denied the motion as to all other defendants. In July 2018, the lead plaintiff filed an unopposed motion for preliminary approval of a class action settlement of the lawsuit for a cash payment of $9,500. In September 2018, the court entered an order granting the motion for preliminary approval of the settlement of the lawsuit. A final settlement approval hearing is scheduled for May 2019.

•~~Jackie888 Lawsuit:~~ In September 2016, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Jackie888, Inc. v. Jason Kulas, et al., C.A. # 12775 (the Jackie888 Lawsuit). The Jackie888 Lawsuit names as defendants current and former members of the Board, and names the Company as a nominal defendant. The complaint alleges, among other things, that the defendants breached their fiduciary duties in connection with the Company’s accounting practices and controls. The complaint seeks unspecified damages and equitable relief. In April 2017, the Jackie888 Lawsuit was stayed pending the resolution of the Deka Lawsuit.

Consumer Lending Cases

The Company is also party to various lawsuits pending in federal and state courts alleging violations of state and federal consumer lending laws, including, without limitation, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, Fair Credit Reporting Act, Section 5 of the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Truth in Lending Act, wrongful repossession laws, usury laws and laws related to unfair and deceptive acts or practices. In general, these cases seek damages and equitable and/or other relief.

Regulatory Investigations and Proceedings

The Company is party to, or is periodically otherwise involved in, reviews, investigations, examinations and proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the FRBB, the CFPB, the DOJ, the SEC, the FTC and various state regulatory and enforcement agencies.

Currently, such matters include, but are not limited to, the following:

The Company received a civil subpoena from the DOJ, under FIRREA, requesting the production of documents and communications that, among other things, relate to the underwriting and securitization of nonprime vehicle loans. The Company has responded to these requests within the deadlines specified in the subpoena and has otherwise cooperated with the DOJ with respect to this matter.

In October 2014, the Company received a subpoena from the SEC commencing an investigation into the Company’s securitization practices. In June 2016, the SEC served an additional subpoena on the Company requesting documents related to the Company’s securitizations practices as well as the Company’s financial restatements. The Company produced documents responsive to these subpoenas, and the SEC took testimony from certain of the Company’s employees. In December 2018, the SEC and the Company reached a voluntary agreement to settle the SEC’s investigation under which the SEC entered a cease-and-desist order against the Company in an administrative matter captioned In the Matter of Santander Consumer USA Holdings Inc., File No. 3-18932. The Company paid a civil penalty of $1,500 in January 2019 and agreed to cease and desist from any future violations of the Exchange Act and the rules thereunder.

In October 2014, May 2015, July 2015 and February 2017, the Company received subpoenas and/or Civil Investigative Demands (CIDs) from the Attorneys General of California, Illinois, Oregon, New Jersey, Maryland and Washington under the authority of each state’s consumer protection statutes. The Company has been informed that these states serve as an executive committee on behalf of a group of 3233 state Attorneys General (and the District of Columbia). The subpoenas and/or CIDs from the executive committee states contain broad requests for information and the production of documents related to the Company’s underwriting, securitization, servicing and

collection of nonprime vehicle loans. The Company has responded to these requests within the deadlines specified in the CIDs and has otherwise cooperated with the Attorneys General with respect to this matter.

In August 2017, the Company received a CID from the CFPB. The stated purpose of the CID is to determine whether the Company has complied with the Fair Credit Reporting Act and related regulations. The Company has responded to these requests within the deadlines specified in the CIDs and has otherwise cooperated with the CFPB with respect to this matter.

These matters are ongoing and could in the future result in the imposition of damages, fines or other penalties. No assurance can be given that the ultimate outcome of these matters or any resulting proceedings would not materially and adversely affect the Company’s business, financial condition and results of operations.

•

2017 Written Agreement with the Federal Reserve: In March 2017, the Company and SHUSA entered into a written agreement with the FRBB. Under the terms of the agreement, the Company is required to enhance its compliance risk management program, Board oversight of risk management and senior management oversight of risk management, and SHUSA is required to enhance its oversight of the Company’s management and operations.

•~~2017 Written Agreement with the Federal Reserve~~

•

Mississippi Attorney General Lawsuit: In January 2017, the Attorney General of Mississippi filed a lawsuit against the Company in the Chancery Court of the First Judicial District of Hinds County, Mississippi, captioned State of Mississippi ex rel. Jim Hood, Attorney General of the State of Mississippi v. Santander Consumer USA Inc., C.A. # G-2017-28. The complaint alleges that the Company engaged in unfair and deceptive business practices to induce Mississippi consumers to apply for loans that they could not afford. The complaint asserts claims under the Mississippi Consumer Protection Act (the MCPA) and seeks unspecified civil penalties, equitable relief and other relief. In March 2017, the Company filed motions to dismiss the lawsuit and the parties are proceeding with discovery.

In March 2017, the Company and SHUSA entered into a written agreement with the FRBB. Under the terms of the agreement, the Company is required to enhance its compliance risk management program, Board oversight of risk management and senior management oversight of risk management, and SHUSA is required to enhance its oversight of the Company’s management and operations.

•~~Mississippi Attorney General Lawsuit~~

In January 2017, the Attorney General of Mississippi filed a lawsuit against the Company in the Chancery Court of the First Judicial District of Hinds County, Mississippi, captioned State of Mississippi ex rel. Jim Hood, Attorney General of the State of Mississippi v. Santander Consumer USA Inc., C.A. # G-2017-28. The complaint alleges that the Company engaged in unfair and deceptive business practices to induce Mississippi consumers to apply for loans that they could not afford. The complaint asserts claims under the Mississippi Consumer Protection Act (the MCPA) and seeks unspecified civil penalties, equitable relief and other relief. In March 2017, the Company filed motions to dismiss the lawsuit and the parties are proceeding with discovery.

•~~SCRA Consent Order~~

In February 2015, the Company entered into a consent order with the DOJ, approved by the United States District Court for the Northern District of Texas, that resolves the DOJ’s claims against the Company that certain of its repossession and collection activities during the period of time between January 2008 and February 2013 violated the Servicemembers Civil Relief Act (SCRA). The consent order requires the Company to pay a civil fine in the amount of $55, as well as at least $9,360 to affected servicemembers consisting of $10 per servicemember plus compensation for any lost equity (with interest) for each repossession by the Company, and $5 per servicemember for each instance where the Company sought to collect repossession-related fees on accounts where a repossession was conducted by a prior account holder. The consent order also provides for monitoring by the DOJ for the Company’s SCRA compliance for a period of five years and requires the Company to undertake certain additional remedial measures.

•

SCRA Consent Order: In February 2015, the Company entered into a consent order with the DOJ, approved by the United States District Court for the Northern District of Texas, that resolves the DOJ’s claims against the Company that certain of its repossession and collection activities during the period of time between January 2008 and February 2013 violated the Servicemembers Civil Relief Act (SCRA). The consent order requires the Company to pay a civil fine in the amount of $55, as well as at least $9,360 to affected servicemembers consisting of $10 per servicemember plus compensation for any lost equity (with interest) for each repossession by the Company, and $5 per servicemember for each instance where the Company sought to collect repossession-related fees on accounts where a repossession was conducted by a prior account holder. The consent order also provides for monitoring by the DOJ for the Company’s SCRA compliance for a period of five years and requires the Company to undertake certain additional remedial measures.

Agreements

•Bluestem

The Company is party to agreements with Bluestem whereby the Company is committed to purchase certain new advances on personal revolving financings receivables, along with existing balances on accounts with new advances, originated by Bluestem for an initial term ending in April 2020 and renewable through April 2022 at Bluestem’s option. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the total unused credit available to customers was ~~$2.8~~$3.0 billion and $3.1 billion respectively. In 2019, the Company purchased ~~$0.3~~$0.6 billion of receivables, out of the $3.1 billion unused credit available to customers as of December 31, 2018. In 2018, the Company purchased $1.2 billion of receivables, out of the $3.9 billion unused credit available to customers as of December 31, 2017. In addition, the Company purchased ~~$24,239~~$75,486 of receivables related to newly opened customer accounts during the ~~three~~six months ended ~~March 31,~~June 30, 2019.

Each customer account generated under the agreements generally is approved with a credit limit higher than the amount of the initial purchase, with each subsequent purchase automatically approved as long as it does not cause the account to exceed its limit and the customer is in good standing. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company was obligated to purchase ~~$9,233~~$16,329 and $15,356, respectively, in receivables that had been originated by Bluestem but not yet purchased by the Company. The Company also is required to make a profit-sharing payment to Bluestem each month if performance exceeds a specified return threshold. The agreement, among other provisions, gives Bluestem the right to repurchase up to 9.99% of the existing portfolio at any time during the term of the

agreement, and, provides that if the repurchase right is exercised, Bluestem has the right to retain up to ~~20%~~20.00% of new accounts subsequently originated.

•~~SBNA~~Others

The Company also has agreements with SBNA to service recreational and marine vehicle portfolios. These agreements call for a periodic retroactive adjustment, based on cumulative return performance, of the servicing fee rate to inception of the contract. There were no adjustments for the three months ended March 31, 2019 and March 31, 2018.

The Company provided SBNA with the first right to review and approve consumer vehicle lease applications, subject to volume constraints, under terms of a flow agreement that was terminated in 2015. In 2015, the Company additionally agreed to indemnify SBNA for residual losses, up to a cap, on certain leases originated under the flow agreement for which SBNA and the Company had differing residual value expectations at lease inception. As of March 31, 2019 and December 31, 2018, the Company had a recorded liability of zero and $39, respectively, related to the residual losses covered under the agreement.

•~~Others~~

Under terms of an application transfer agreement with Nissan, the Company has the first opportunity to review for its own portfolio any credit applications turned down by the Nissan’s captive finance company. The agreement does not require the Company to originate any loans, but for each loan originated the Company will pay Nissan a referral fee.

In connection with the sale of retail installment contracts through securitizations and other sales, the Company has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require the Company to repurchase loans previously sold to on- or off-balance sheet Trusts or other third parties. As of ~~March 31,~~June 30, 2019, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for the Company’s asset-backed securities or other sales. In the opinion of management, the potential exposure of other recourse obligations related to the Company’s retail installment contract sales agreements is not expected to have a material adverse effect on the Company’s business, financial position, results of operations, or cash flows.

Santander has provided guarantees on the covenants, agreements, and obligations of the Company under the governing documents of its warehouse lines and privately issued amortizing notes. These guarantees are limited to the obligations of the Company as servicer.

In November 2015, the Company executed a forward flow asset sale agreement with a third party under terms of which the Company committed to sell $350,000 in charged off loan receivables in bankruptcy status on a quarterly basis . However, any sale more than $275,000 is subject to a market price check. The remaining aggregate commitment as of ~~March 31,~~June 30, 2019 and December 31, 2018, not subject to market price check was ~~$52,231~~$46,083 and $63,975, respectively.


11.	Related-Party Transactions

Related-party transactions not otherwise disclosed in these footnotes to the condensed consolidated financial statements include the following:

Credit Facilities

Interest expense, including unused fees, for affiliate ~~lines/letters~~lines of credit for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, was as follows:



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Lines of credit agreement with Santander - New York Branch (a)	$	—	$	5,741	$	—	$	10,108
Debt facilities with SHUSA (Note 5)	45,996		36,561		90,877		72,407

Three Months Ended
March 31, 2019 March 31, 2018
Line of credit agreement with Santander - New York Branch (a) $ —
$ 4,367
Debt facilities with SHUSA (Note 5) 44,881
35,846

(a) Through its New York branch, Santander provided the Company with revolving credit facilities. During the year ended December 31, 2018 these facilities were terminated.

Accrued interest for affiliate ~~lines/letters~~lines of credit at ~~March 31,~~June 30, 2019 and December 31, 2018, was as follows:



	June 30, 2019	December 31, 2018
Debt facilities with SHUSA (Note 5)	20,533	19,928

March 31,
2019 December 31, 2018
Line of credit agreement with Santander - New York Branch (Note 5) $ —
$ —
Debt facilities with SHUSA (Note 5) 20,399
19,928

In 2015, under an agreement with Santander, the Company agreed to begin incurring a fee of 12.5 basis points (per annum) on certain warehouse lines, as they renew, for which Santander provides a guarantee of the Company’s servicing obligations. The Company recognized guarantee fee expense of ~~zero~~$154 and ~~$2,048~~$384 for the three and six months ended ~~March 31,~~June 30, 2019, respectively, and $1,569 and $3,617 for the three and six months ended June 30, 2018,

respectively. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had $1,101 and $1,922 of related fees payable to ~~Santander.~~Santander, respectively.

Derivatives

~~There were no~~The Company has derivative financial instruments with Santander and affiliates with outstanding notional amounts of

$979,270 and zero as of ~~March 31,~~June 30, 2019 and December 31, ~~2018.~~ 2018, respectively (Note 7). The Company had a collateral overage on derivative liabilities with Santander and affiliates of $3,525 and zero as of June 30, 2019 and December 31, 2018, respectively.

Interest and mark-to-market adjustments on ~~previously outstanding~~these derivative financial instruments ~~with Santander~~totaled $241 and ~~its affiliates totaled $238 and $229~~$231 for the three months ended ~~March 31,~~June 30, 2019 and 2018, ~~respectively.~~

~~Lease origination~~respectively, and ~~servicing agreement~~

~~Servicing fee income recognized on leases serviced for SBNA totaled $4~~$479 and ~~$781~~$460 for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

Retail Installment Contracts and RV Marine

The Company also has agreements with SBNA to service auto retail installment contracts and recreational and marine vehicle portfolios.

Servicing fee income recognized under these agreements totaled ~~$407~~$370 and ~~$1,039~~$756 for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $777 and $1,795 for the six months ended June 30, 2019 and 2018, respectively. Other information on the serviced auto loan and retail installment contract portfolios for SBNA as of ~~March 31,~~June 30, 2019 and December 31, 2018 is as follows:



	June 30, 2019		December 31, 2018
Total serviced portfolio	$	327,902	$	383,246
Cash collections due to owner	28,118		14,920
Servicing fees receivable	187		601

March 31,
2019 December 31,
2018
Total serviced portfolio $ 355,280
$ 383,246
Cash collections due to owner 20,411
14,920
Servicing fees receivable 628
601

Dealer Lending

Under the Company’s agreement with SBNA, the Company is required to permit SBNA a first right to review and assess Chrysler Capital dealer lending opportunities, and SBNA is required to pay the Company an origination fee and an annual renewal fee for each loan originated under the agreement. The agreement also transferred the servicing of all Chrysler Capital receivables from dealers, including receivables held by SBNA and by the Company, from the Company to SBNA. The Company may provide advance funding for dealer loans originated by SBNA, which is reimbursed to the Company by SBNA. The Company had no outstanding receivable from SBNA as of ~~March 31,~~June 30, 2019 and December 31, 2018 for such advances.

Other information related to the above transactions with SBNA ~~as of March 31, 2019 and December 31, 2018~~ is as follows:


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31, 2019		March 31, 2018		June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Origination and renewal fee income from SBNA (a)	$	1,223	$	840	$	1,704	$	1,232	$	2,927	$	2,072
Servicing fees expenses charged by SBNA (b)	13		20		19		20		32		39

(a) As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had origination and renewal fees receivable from SBNA of ~~$416~~$635 and $385, respectively.

(b) As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had $6$16 and $19 ~~respectively,~~ of servicing fees payable to SBNA, respectively.

Under the agreement with SBNA, the Company may originate retail consumer loans in connection with sales of vehicles that are collateral held against floorplan loans by SBNA. Upon origination, the Company remits payment to SBNA, who settles the transaction with the dealer. The Company owed SBNA ~~$4,667~~$5,526 and $5,908 related to such originations as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively.

The Company received a $9,000 referral fee in connection with sourcing and servicing arrangement and is amortizing the fee into income over the ten-year term of the agreement through July 1, 2022, the termination date of the agreement. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the unamortized fee balance was ~~$3,825~~$3,600 and $4,050, respectively. The Company recognized $225 and ~~$225~~$450 of income related to the referral fee for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

Origination Support Services

Beginning in 2018, the Company agreed to provide SBNA with origination support services in connection with the processing, underwriting and purchase of retail loans, primarily from ~~Chrysler~~FCA dealers. In addition, the Company agreed to perform the servicing for any loans originated on SBNA’s behalf. During the three and six months ended ~~March 31,~~June 30, 2019, the Company facilitated the purchase of $1$1.9 billion and $2.95 billion of retail installment contacts, respectively. During the three and six months ended June 30, 2018, the Company facilitated the purchase of $29 million and $53 million of retail installment contacts, respectively. The Company recognized origination/referral fee and servicing fee income of ~~$6,556~~$16,388 and ~~$2,881,~~$25,825, respectively, for the three and six months ended ~~March 31,~~June 30, 2019 of which ~~$3,226~~$4,298 is receivable as of ~~March 31,~~June 30, 2019.

Beginning in 2016, the Company agreed to pay SBNA a market rate-based fee expense for payments made at SBNA retail branch locations for accounts originated or serviced by the Company and the costs associated with modifying the Advanced Teller platform to the payments. The Company ~~incurred expenses~~recognized origination/referral fee and servicing fee income of ~~$49~~$216 and ~~$187~~$388, respectively, for ~~these services during~~ the three and six months ended ~~March 31, 2019 and~~June 30, 2018 ~~respectively.~~of which $46 is receivable as of June 30, 2018.

Securitizations

The Company had a Master Securities Purchase Agreement (MSPA) with Santander, whereby the Company had the option to sell a contractually determined amount of eligible prime loans to Santander, through the SPAIN securitization platform, for a term that ended in December 2018. The Company provides servicing on all loans originated under this arrangement.

Other information relating to SPAIN securitization platform for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and ~~March 31,~~June 30, 2018 is as follows:



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Servicing fee income	$	7,711	$	8,622	$	16,142	$	15,822
Loss (Gain) on sale, excluding lower of cost or market adjustments (if any)	—		3,177		—		20,080

Three Months Ended
March 31, 2019 March 31, 2018
Servicing fee income $ 8,431
$ 4,792
Loss (Gain) on sale, excluding lower of cost or market adjustments (if any) —
16,903

Servicing fee receivable as of ~~March 31,~~June 30, 2019 and December 31, 2018 was ~~$2,690~~$2,402 and $2,983 respectively. The Company had ~~$15,769~~$16,131 and $15,968 of collections due to Santander as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively.

Santander Investment Securities Inc. (SIS), an affiliated entity, serves as joint bookrunner and co-manager on certain of the Company’s securitizations. Amounts paid to SIS as co-manager for the three months ended ~~March 31,~~June 30, 2019 and 2018, totaled ~~$814~~$151 and ~~$710,~~$148, respectively, and totaled $965 and $858 for the six months ended June 30, 2019 and 2018, respectively, and are included in debt issuance costs in the accompanying condensed consolidated financial statements.

CEO and other employee compensation

~~In 2017, the Board~~Scott Powell is President and CEO of the Company, ~~announced~~and the ~~appointment of Scott Powell as~~ President and ~~CEO.~~CEO of SHUSA. During the ~~three~~six months ended ~~March 31,~~June 30, 2019, the Company accrued ~~$1,072~~$2,051 as its share of compensation expense based on time allocation between his services to the Company and SHUSA.

In addition, certain employees of the Company and SHUSA, provide services to each other. For the ~~three~~six months ended ~~March 31,~~June 30, 2019, the Company owed SHUSA approximately ~~$2,000~~$4,448 and SHUSA owed the Company approximately ~~$575~~$1,133 for such services.

Other related-party transactions

The Company subleases approximately 13,000 square feet of its corporate office space to SBNA. For the three months ended ~~March 31,~~June 30, 2019 and 2018, the Company recorded $44 and $41 respectively, in sublease revenue on this property. For the six months ended June 30, 2019 and 2018, the Company recorded $88 and $82 respectively, in sublease revenue on this property.

The Company’s wholly-owned subsidiary, Santander Consumer International Puerto Rico, LLC (SCI), ~~opened~~has deposit accounts with Banco Santander Puerto Rico, an affiliated entity. As of ~~March 31,~~June 30, 2019 and December 31, 2018, SCI had cash of ~~$6,655~~$6,339 and $8,862, respectively, on deposit with Banco Santander Puerto Rico.

The Company has certain deposit and checking accounts with SBNA, an affiliated entity. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had a balance of ~~$31,545~~$36,550 and $92,774, respectively, in these accounts.

Beginning in 2017, the Company and SBNA entered into a Credit Card Agreement (Card Agreement) whereby SBNA will provide credit card services for travel and related business expenses and for vendor payments. This service is at zero cost but generates rebates based on purchases made. As of ~~March 31,~~June 30, 2019, the activities associated with the program were insignificant.

Beginning in 2016, the Company agreed to pay SBNA a market rate-based fee expense for payments made at SBNA retail branch locations for accounts originated or serviced by the Company and the costs associated with modifying the Advanced Teller platform to the payments. The Company incurred expenses of $84 and $154 for these services during the three months ended June 30, 2019 and 2018, respectively, and $133 and $341 for the six months ended June 30, 2019 and 2018, respectively.

Effective 2017, the Company contracted Aquanima, a Santander affiliate, to provide procurement services. Expenses incurred ~~and paid for~~ totaled $379 and $379 for the three months ended ~~March 31,~~June 30, 2019 and ~~2018.~~2018, respectively, and $758 and $758 for the six months ended June 30, 2019 and 2018, respectively.

Santander Global Tech, (formerly known as Produban Servicios Informaticos Generales S.L.), a Santander affiliate, is under contract with the Company to provide professional services, telecommunications, and internal and/or external applications. Expenses incurred, which are included as a component of other operating costs in the accompanying consolidated statements of income, totaled ~~$195~~$34 and zero for the three months ended ~~March 31,~~June 30, 2019 and 2018,

respectively, and $229 and zero for the six months ended June 30, 2019 and 2018, respectively.

The Company partners with SHUSA to place Cyber Liability Insurance in which participating national entities share $150 million aggregate limits. The Company repays SHUSA for the Company’s equitably allocated portion of insurance premiums and fees. Expenses incurred totaled $108 and ~~$92~~$93 for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $216 and $185 for the six months ended June 30, 2019 and 2018, respectively. In addition the Company partners with SHUSA for various other insurance products. Expenses incurred totaled ~~$195~~$194 and $163 for the three months ended ~~March 31,~~June 30, 2019 and ~~2018.~~2018, respectively, and $388 and $325 for the six months ended June 30, 2019 and 2018, respectively.


12.	Computation of Basic and Diluted Earnings per Common Share

Earnings per common share ~~(EPS)~~(“EPS”) is computed using the two-class method required for participating securities. Restricted stock awards are considered to be participating securities because holders of such shares have non-forfeitable dividend rights in the event of a declaration of a dividend on the Company’s common shares.

The calculation of diluted EPS excludes ~~168,728~~85,190, 221,572, 104,790, and ~~284,951~~221,572 employee stock options ~~and zero RSUs~~ for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, respectively, as the effect of exercise or settlement of those securities would be anti-dilutive. RSUs of zero for the three and six months ended June 30, 2019 and zero for the three and six months ended June 30, 2018 were excluded as the effect of exercise or settlement of those securities would be anti-dilutive.

The following table represents EPS numbers for the three and six months ended ~~March 31,~~June 30, 2019 and 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Earnings per common share
Net income	$	368,267	$	335,026	$	615,770	$	579,640
Weighted average number of common shares outstanding before restricted participating shares (in thousands)	351,106		361,268		351,310		360,987
Weighted average number of participating restricted common shares outstanding (in thousands)	—		—		—		—
Weighted average number of common shares outstanding (in thousands)	351,106		361,268		351,310		360,987
Earnings per common share	$	1.05	$	0.93	$	1.75	$	1.61
Earnings per common share - assuming dilution
Net income	$	368,267	$	335,026	$	615,770	$	579,640
Weighted average number of common shares outstanding (in thousands)	351,106		361,268		351,310		360,987
Effect of employee stock-based awards (in thousands)	450		790		516		842
Weighted average number of common shares outstanding - assuming dilution (in thousands)	351,556		362,058		351,826		361,829
Earnings per common share - assuming dilution	$	1.05	$	0.93	$	1.75	$	1.60

Three Months Ended

March 31,
2019 2018
Earnings per common share
Net income $ 247,503
$ 244,615
Weighted average number of common shares outstanding before restricted participating shares (in thousands) 351,515
360,703
Weighted average number of participating restricted common shares outstanding (in thousands) —
—
Weighted average number of common shares outstanding (in thousands) 351,515
360,703
Earnings per common share $ 0.70
$ 0.68
Earnings per common share - assuming dilution
Net income $ 247,503
$ 244,615
Weighted average number of common shares outstanding (in thousands) 351,515
360,703
Effect of employee stock-based awards (in thousands) 537
914
Weighted average number of common shares outstanding - assuming dilution (in thousands) 352,052
361,617
Earnings per common share - assuming dilution $ 0.70
$ 0.68


13.	Fair Value of Financial Instruments

Fair value measurement requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs and also establishes a fair value hierarchy that categorizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that can be accessed as of the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 inputs are those that are unobservable for the asset or liability and are used to measure fair value to the extent relevant observable inputs are not available.

Financial Instruments Disclosed, But Not Carried, At Fair Value

The following tables present the carrying value and estimated fair value of the Company’s financial assets and liabilities disclosed, but not carried, at fair value at ~~March 31,~~June 30, 2019 and December 31, 2018, and the level within the fair value hierarchy:


	March 31, 2019										June 30, 2019
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents (a)	$	76,272	$	76,272	$	76,272	$	—	$	—	$	99,756	$	99,756	$	99,756	$	—	$	—
Finance receivables held for investment, net (b)	25,417,594		26,413,532		—		—		26,413,532		25,645,374		26,536,662		—		—		26,536,662
Restricted cash and cash equivalents (a)	2,414,653		2,414,653		2,414,653		—		—		2,272,621		2,272,621		2,272,621		—		—
Total	$	27,908,519	$	28,904,457	$	2,490,925	$	—	$	26,413,532	$	28,017,751	$	28,909,039	$	2,372,377	$	—	$	26,536,662
Liabilities:
Notes payable — credit facilities (c)	$	5,063,786	$	5,063,786	$	—	$	—	$	5,063,786	$	6,514,163	$	6,514,163	$	—	$	—	$	6,514,163
Notes payable — secured structured financings (d)	27,080,312		27,245,983		—		18,332,662		8,913,321		26,248,528		26,499,153		—		19,182,978		7,316,175
Notes payable — related party (e)	3,503,055		3,511,805		—		—		3,511,805		4,002,814		4,047,246		—		—		4,047,246
Total	$	35,647,153	$	35,821,574	$	—	$	18,332,662	$	17,488,912	$	36,765,505	$	37,060,562	$	—	$	19,182,978	$	17,877,584



	December 31, 2018
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents (a)	$	148,436	$	148,436	$	148,436	$	—	$	—
Finance receivables held for investment, net (b)	24,914,833		26,037,559		—		—		26,037,559
Restricted cash and cash equivalents (a)	2,102,048		2,102,048		2,102,048		—		—
Total	$	27,165,317	$	28,288,043	$	2,250,484	$	—	$	26,037,559
Liabilities:
Notes payable — credit facilities (c)	$	4,478,214	$	4,478,214	$	—	$	—	$	4,478,214
Notes payable — secured structured financings (d)	26,901,530		26,994,912		—		17,924,867		9,070,045
Notes payable — related party (e)	3,503,293		3,438,543		—		—		3,438,543
Total	$	34,883,037	$	34,911,669	$	—	$	17,924,867	$	16,986,802


(a)	Cash and cash equivalents and restricted cash and cash equivalents — The carrying amount of cash and cash equivalents, including restricted cash and cash equivalents, is at an approximated fair value as the instruments mature within 90 days or less and bear interest at market rates.


(b)	Finance receivables held for investment, net — Finance receivables held for investment, net are carried at amortized cost, net of an allowance. These receivables exclude retail installment contracts that are measured at fair value on a recurring and nonrecurring basis. The estimated fair value for the underlying financial instruments are determined as follows:

~~Retail installment contracts held for investment and purchased receivables~~ — The estimated fair value is calculated based on a DCF in which the Company uses significant unobservable inputs on key assumptions, including historical default rates and adjustments to reflect prepayment rates, expected recovery rates, discount rates reflective of the cost of funding, and credit loss expectations.

~~Finance lease receivables~~ — Finance lease receivables are carried at gross investments, net of unearned income and allowance for lease losses. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements.

~~Receivables from dealers and personal loans held for investment~~ — Receivables from dealers and personal loans held for investment are carried at amortized cost, net of credit loss allowance. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements.


•	Retail installment contracts held for investment and purchased receivables — The estimated fair value is calculated based on a DCF in which the Company uses significant unobservable inputs on key assumptions, including historical default rates and adjustments to reflect prepayment rates, expected recovery rates, discount rates reflective of the cost of funding, and credit loss expectations.


•	Finance lease receivables — Finance lease receivables are carried at gross investments, net of unearned income and allowance for lease losses. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements.


•	Receivables from dealers and personal loans held for investment — Receivables from dealers and personal loans held for investment are carried at amortized cost, net of credit loss allowance. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements.


(c)	Notes payable — credit facilities — The carrying amount of notes payable related to revolving credit facilities is estimated to approximate fair value. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements as the facilities are subject to short-term floating interest rates that approximate rates available to the Company.

(d)

Notes payable — secured structured financings — The estimated fair value of notes payable related to secured structured financings is calculated based on market observable prices and spreads for the Company’s publicly traded debt and market observed prices of similar notes issued by the Company, or recent market transactions involving similar debt with similar credit risks, which are considered level 2 inputs. The estimated fair value of notes payable related to privately issued amortizing notes is calculated based on a combination of credit enhancement review, discounted cash flow analysis and review of market observable spreads for similar liabilities. In conducting this analysis, the Company uses significant unobservable inputs on key assumptions, including historical default rates, prepayment rates, discount rates reflective of the cost of funding, and credit loss expectations, which are considered level 3 inputs.

(e)

Notes payable — related party — The carrying amount of floating rate notes payable to a related party is estimated to approximate fair value as the facilities are subject to short-term floating interest rates that approximate rates available to the Company. The fair value premium/discount of the fixed rate promissory notes are derived from changes in the Company’s unsecured cost of funds since the time of issuance and weighted average life of these notes.

Financial Instruments Measured At Fair Value On A Recurring Basis

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis at ~~March 31,~~June 30, 2019 and December 31, 2018, and the level within the fair value hierarchy:


	Fair Value Measurements at March 31, 2019								Fair Value Measurements at June 30, 2019
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other assets — trading interest rate caps (a)	$	136,470	$	—	$	136,470	$	—	$	72,935	$	—	$	72,935	$	—
Due from affiliates — trading interest rate caps (a)									$	15,305	—		15,305		—
Other assets — cash flow hedging interest rate swaps (a)	28,601		—		28,601		—		$	12,225	—		12,225		—
Other assets — trading interest rate swaps (a)	6,409		—		6,409		—		2,992		—		2,992		—
Other assets — available-for-sale-debt securities (b)	42,733		—		42,733		—		94,643		—		94,643		—
Other liabilities — trading options for interest rate caps (a)	136,470		—		136,470		—		72,935		—		72,935		—
Other liabilities — cash flow hedging interest rate swaps (a)	17,278		—		17,278		—		41,037		—		41,037		—
Due to affiliates — trading options for interest rate caps (a)									15,305		—		15,305		—
Other liabilities — trading interest rate swaps (a)	5,080		—		5,080		—		12,171		—		12,171		—
Retail installment contracts acquired individually (c)	11,195		—		—		11,195		8,832		—		—		8,832



	Fair Value Measurements at December 31, 2018
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other assets — trading interest rate caps (a)	$	128,377	$	—	$	128,377	$	—
Other assets — cash flow hedging interest rate swaps (a)	43,967		—		43,967		—
Other assets — trading interest rate swaps (a)	11,553		—		11,553		—
Other liabilities — trading options for interest rate caps (a)	128,377		—		128,377		—
Other liabilities — cash flow hedging interest rate swaps (a)	7,478		—		7,478		—
Other liabilities — trading interest rate swaps (a)	2,130		—		2,130		—
Retail installment contracts acquired individually (c)	13,509		—		—		13,509

(a)

The valuation is determined using widely accepted valuation techniques including a DCF on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurement of its derivatives. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings and guarantees. The Company utilizes the exception in ASC 820-10-35-18D (commonly referred to as the “portfolio exception”) with respect to measuring counterparty credit risk for instruments (Note 7).


(b)	The Company's available-for-sale debt securities includes U.S. Treasury securities that are valued utilizing observable market quotes. The Company obtains vendor trading platform data (actual prices) from a number of live data sources, including active market makers and interdealer brokers and therefore, classified as Level 2.

(c)

For certain retail installment contracts reported in finance receivables held for investment, net, the Company has elected the fair value option. The fair values of the retail installment contracts are estimated using a DCF model. When estimating the fair value using this model, the Company uses significant unobservable inputs on key assumptions, which includes historical default rates and adjustments to reflect prepayment rates based on available data from a comparable market securitization of similar assets, discount rates reflective of the cost of funding of debt issuance and recent historical equity yields, and recovery rates based on the average severity utilizing reported severity rates and loss severity utilizing available market data from a comparable securitized pool. Accordingly, retail installment contracts held for investment are classified as Level 3. Changes in the fair value are recorded in investment gains (losses), net in the condensed consolidated statement of income.

The following table presents the changes in retail installment contracts held for investment balances classified as Level 3 balances for the three and six months ended ~~March 31,~~June 30, 2019 and 2018:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Balance — beginning of period	$	11,195		$	18,850		$	13,509		$	22,124
Additions / issuances	2,079			1,927			2,079			3,276
Net collection activities	(4,412		)	(3,936		)	(7,066		)	(9,530		)
Gains recognized in earnings	(30		)	341			310			1,312
Balance — end of period	$	8,832		$	17,182		$	8,832		$	17,182

Three Months Ended March 31,
2019 2018
Balance — beginning of period $ 13,509
$ 22,124
Additions / issuances —
1,349
Net collection activities (2,654 ) (5,594 )
Gains recognized in earnings 340
971
Balance — end of period $ 11,195
$ 18,850

The Company did not have any transfers between Levels 1 and 2 during the three and six months ended ~~March 31,~~June 30, 2019 and 2018. There were no amounts transferred into or out of Level 3 during the three and six months ended ~~March 31,~~June 30, 2019 and 2018.

Financial Instruments Measured At Fair Value On A Nonrecurring Basis

The following table presents the Company’s assets and liabilities that are measured at fair value on a nonrecurring basis at ~~March 31,~~June 30, 2019 and December 31, 2018, and are categorized using the fair value hierarchy:


	Fair Value Measurements at March 31, 2019									Fair Value Measurements at June 30, 2019
	Total	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Lower of cost or fair value expense for the three months ended March 31, 2019		Total	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Lower of cost or fair value expense for the six months ended June 30, 2019
Other assets — vehicles (a)	353,123	$	—	$	353,123	$	—	$	—	331,251	$	—	$	331,251	$	—	$	—
Personal loans held for sale (b)	974,017	—		—		974,017		67,691		955,729	—		—		955,729		151,712
Retail installment contracts held for sale (d)										293,372	—		293,372				20,395
Auto loans impaired due to bankruptcy (c)	169,928	—		169,928		—		4,410		184,543	—		184,543		—		11,664



	Fair Value Measurements at December 31, 2018
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Lower of cost or fair value expense for the year ended December 31, 2018
Other assets — vehicles (a)	$	342,097	$	—	$	342,097	$	—	$	—
Personal loans held for sale (b)	1,068,757		—		—		1,068,757		367,219
Retail installment contracts held for sale	—		—		—		—		15,098
Auto loans impaired due to bankruptcy (c)	189,114		—		189,114		—		18,083

(a) The Company estimates the fair value of its vehicles, which are obtained either through repossession or lease termination, using historical auction rates and current market levels of used car prices.

(b) The estimated fair value for personal loans held for sale is calculated based on the lower of market participant view and a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, including historical default rates and adjustments to reflect prepayment rates (principal and interest), discount rates reflective of the cost of funding, and credit loss expectations. The lower of cost or fair value adjustment for personal loans held for sale includes customer default activity and adjustments related to the net change in the portfolio balance during the reporting period.

(c) For loans that are considered collateral-dependent, such as certain bankruptcy loans, impairment is measured based on the fair value of the collateral, less its estimated cost to sell. For the underlying collateral, the estimated fair value is obtained using historical auction rates and current market levels of used car prices.

(d) The estimated fair value of retail installment contracts held for sale is based on market participant view.

Quantitative Information about Level 3 Fair Value Measurements

The following table presents quantitative information about the significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at ~~March 31,~~June 30, 2019 and December 31, 2018:

Financial Instruments Fair Value at March 31, 2019 Valuation Technique Unobservable Inputs Range
Financial Assets:
Retail installment contracts held for investment $ 11,195
Discounted Cash Flow Discount Rate 8%-10%
Default Rate 15%-20%
Prepayment Rate 6%-8%
Loss Severity Rate 50%-60%
Personal loans held for sale $ 974,017
Lower of Market or Income Approach Market Approach
Market Participant View 70%-80%
Income Approach
Discount Rate 15%-25%

Default Rate 30%-40%
Net Principal & Interest Payment Rate 70%-85%
Loss Severity Rate 90%-95%



Financial Instruments	Fair Value at June 30, 2019		Valuation Technique	Unobservable Inputs	Range
Financial Assets:
Retail installment contracts held for investment	$	8,832	Discounted Cash Flow	Discount Rate	8%-10%
				Default Rate	15%-20%
				Prepayment Rate	6%-8%
				Loss Severity Rate	50%-60%
Personal loans held for sale	$	955,729	Lower of Market or Income Approach	Market Approach
				Market Participant View	70%-80%
				Income Approach
				Discount Rate	15%-25%
				Discount Rate	15%-25%
				Default Rate	30%-40%
				Net Principal & Interest Payment Rate	70%-85%
				Loss Severity Rate	90%-95%



Financial Instruments	Fair Value at December 31, 2018		Valuation Technique	Unobservable Inputs	Range
Financial Assets:
Retail installment contracts held for investment	$	13,509	Discounted Cash Flow	Discount Rate	8%-10%
				Default Rate	15%-20%
				Prepayment Rate	6%-8%
				Loss Severity Rate	50%-60%
Personal loans held for sale	$	1,068,757	Lower of Market or Income Approach	Market Approach
				Market Participant View	70%-80%
				Income Approach
				Discount Rate	15%-25%
				Discount Rate	15%-25%
				Default Rate	30%-40%
				Net Principal & Interest Payment Rate	70%-85%
				Loss Severity Rate	90%-95%

14. Employee Benefit Plans

The Company has granted stock options to certain executives, other employees, and independent directors under the Company’s 2011 Management Equity Plan (the MEP), which enabled the Company to make stock option awards up to a total of approximately 29 million common shares (net of shares canceled and forfeited). The MEP expired in January 2015 and the Company will not grant any further awards under the MEP. The Company has granted stock options, restricted stock awards and restricted stock units (RSUs) under the Omnibus Incentive Plan (the Plan), which was established in 2013 and enables the Company to grant awards of cash and of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, RSUs, and other awards that may be settled in or based upon the value of the Company’s common stock up to a total of 5,192,641 common shares. The Plan was amended and restated as of June 16, 2016.

Stock options granted under the MEP and the Plan have an exercise price based on the estimated fair market value of the Company’s common stock on the grant date. The stock options expire ten years after grant date and include both

time vesting options and performance vesting options. The fair value of the stock options is amortized into expense over the vesting period as time and performance vesting conditions are met.

Compensation expense related to the 583,890 shares of restricted stock that the Company has issued to certain executives is recognized over a five-year vesting period, with zero ~~and zero~~ recorded for the three and six months ended ~~March 31,~~June 30, 2019 and ~~2018, respectively.~~ 2018. The Company recognized ~~$5,987~~$7,042 and ~~$4,208~~$5,794 related to stock options and restricted stock units within compensation expense for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively. In addition, the Company recognizes forfeitures of awards as they occur.

A summary of the Company’s stock options and related activity as of and for the ~~three~~six months ended ~~March 31,~~June 30, 2019 is as follows:



	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at January 1, 2019	645,376			$	13.15	4.0	$	3,682
Granted	—			—		—	—
Exercised	(145,198		)	9.73		—	1,674
Expired	(1,480		)	9.21		—	—
Forfeited	—			—		—	—
Other (a)	1,480			9.21		—	—
Options outstanding at June 30, 2019	500,178			14.15		3.7	4,971
Options exercisable at June 30, 2019	$	453,519		13.71		3.5	$	4,703

Shares
Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value
Options outstanding at January 1, 2019 645,376
$ 13.15
4.0
$ 3,682
Granted —
—
—
—
Exercised (83,312 ) 9.49
—
924
Expired —
—
—
—
Forfeited —
—
—
—
Other (a) 1,480
9.21
—
—
Options outstanding at March 31, 2019 563,544
13.68
3.8
4,493
Options exercisable at March 31, 2019 $ 497,569
12.82
3.6
$ 4,337

(a) Represents stock options that were reinstated.

In connection with compensation restrictions imposed on certain executive officers and other employees by the European Central Bank under the Capital Requirements Directive IV prudential rules, which require a portion of such officers’ and employees’ variable compensation to be paid in the form of equity, the Company periodically grants RSUs. Under the Plan, a portion of these RSUs vest immediately upon grant, and a portion vest annually over the following three or five years and subject to the achievement of certain performance conditions as applicable. After the shares subject to the RSUs vest and are settled, they are subject to transfer and sale restrictions for one year. In addition, the Company grants RSUs to certain officers and employees as part of variable compensation and these RSUs typically vest over three years. The Company also has granted certain directors RSUs that vest either upon the earlier of the first anniversary of grant date or the first annual stockholder meeting following the grant date. RSUs are valued based upon the fair market value on the date of the grant.

A summary of the Company’s ~~Restricted Stock Units~~RSUs and performance stock units and related activity as of and for the ~~three~~six months ended ~~March 31,~~June 30, 2019 is as follows:



	Shares		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of January 1, 2019	698,799		$	14.53	1.1	$	12,292
Granted	473,325		20.83		—	—
Vested	(541,812	)	16.70		—	11,366
Forfeited/canceled	(20,981	)	13.35		—	—
Unvested as of June 30, 2019	609,331		17.62		1.5	$	14,600

Shares
Weighted
Average
Grant Date Fair Value

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value
Outstanding as of January 1, 2019 698,799
$ 14.53
1.1
$ 12,292
Granted 462,680
20.77
—
—
Vested (438,285 ) 17.57
—
9,098
Forfeited/canceled (89 ) 16.12
—
—
Unvested as of March 31, 2019 723,105
16.76
1.5
$ 15,279


15.	Shareholders’ Equity

Share Repurchases and Treasury Stock

In ~~July 2018,~~May 2019, the Board approved ~~purchases by the Company~~a share repurchase program of up to ~~$200~~$400 million ~~excluding commissions,~~in share repurchase of its outstanding common stock through the end of the second quarter of 2019, which concluded with the repurchase of $86.8 million of the Company’s common stock.

The following table presents information regarding the shares we repurchased during the three and six months ended June ~~2019.~~30, 2019 ($ and shares in thousands, except per share amounts):



	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
Total cost of shares repurchased	$	86,826	$	104,587
Average price per share	23.16		22.18
Number of shares repurchased	3,749,692		4,715,122

Refer to Part II “Unregistered Sales of Equity Securities and Use of Proceeds” section for additional details on share repurchases.

During the year ended December 31, 2018, the Company purchased 9,473,955 shares of its common stock under its share repurchase program at a cost of approximately $182 million, excluding commissions. In JanuaryFurther, in June 2019, the Company ~~purchased~~announced its planned capital actions for the ~~remaining $18 million in share purchases by purchasing 965,430 shares at~~third quarter of 2019 through the second quarter of 2020, which includes an ~~average price~~authorization to repurchase up to $1.1 billion of ~~$18.40 per share.~~the Company’s outstanding common stock through the end of the second quarter of 2020.

The Company had ~~10,691,387~~14,441,079 and 9,725,957 shares of treasury stock outstanding, with a cost of ~~$205,710~~$292,574 and $187,930 as of ~~March 31,~~June 30, 2019, and December 31, 2018, respectively. ~~Prior to the IPO, the Company repurchased 3,154 shares as a result of an employee leaving the Company.~~ No shares were withheld to cover income taxes related to stock issued in connection with employee incentive compensation plans for the three months ended ~~March 31,~~June 30, 2019. The value of the treasury stock is included within the additional paid-in-capital.

Accumulated Other Comprehensive Income (Loss)

A summary of changes in accumulated other comprehensive income (loss), net of tax, for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 is as follows:



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Beginning balance, unrealized gains (losses)	$	12,938		$	63,211		$	33,515		$	44,262
Other comprehensive income (loss) before reclassifications (gross)	(22,997		)	7,015			(33,678		)	29,934
Amounts (gross) reclassified out of accumulated other comprehensive income (loss)	(10,508		)	(7,777		)	(20,404		)	(11,747		)
Ending balance, unrealized gains (losses)	$	(20,567	)	$	62,449		$	(20,567	)	$	62,449

Three Months Ended
March 31, 2019 March 31, 2018
Beginning balance, unrealized gains (losses) $ 33,515
$ 44,262
Other comprehensive income (loss) before reclassifications (gross) (10,680 ) 22,919
Amounts (gross) reclassified out of accumulated other comprehensive income (loss) (9,897 ) (3,970 )
Ending balance, unrealized gains (losses) $ 12,938
$ 63,211

Amounts (gross) reclassified out of accumulated other comprehensive income (loss) during the three and six months ended ~~March 31,~~June 30, 2019 and 2018 consist of the following:



	Three Months Ended June 30, 2019				Three Months Ended June 30, 2018
Reclassification	Amount reclassified			Income statement line item	Amount reclassified			Income statement line item

Cash flow hedges	$	(13,901	)	Interest expense	$	(9,095	)	Interest expense
Available for sale-debt securities	$	—		Investment gain/loss	—			Investment gain/loss
Tax expense (benefit)	3,393				1,318
Net of tax	$	(10,508	)		$	(7,777	)

Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
Reclassification Amount reclassified Income statement line item Amount reclassified Income statement line item

Cash flow hedges $ (13,040 ) Interest expense $ (4,578 ) Interest expense
Available for sale-debt securities —
Investment gain/loss —
Investment gain/loss
Tax expense (benefit) 3,143
608

Net of tax $ (9,897 ) $ (3,970 )



	Six Months Ended June 30, 2019				Six Months Ended June 30, 2018
Reclassification	Amount reclassified			Income statement line item	Amount reclassified			Income statement line item

Cash flow hedges	$	(26,941	)	Interest expense	$	(13,672	)	Interest expense
Available for sale-debt securities	$	—		Investment gain/loss	$	—		Investment gain/loss
Tax expense (benefit)	$	6,537			$	1,925
Net of tax	$	(20,404	)		$	(11,747	)

Dividends

The Company paid a cash dividend of $0.20 per share in ~~February 2019 and~~May 2019. Further, the Company has declared a cash dividend of ~~$0.20~~$0.22 per share, to be paid on ~~May~~August 20, 2019, to shareholders of record as of the close of business on ~~May~~August 10, 2019.


16.	Investment Losses, Net

When the Company sells retail installment contracts acquired individually, personal loans or leases to unrelated third parties or to VIEs and determines that such sale meets the applicable criteria for sale accounting, the Company recognizes a gain or loss for the difference between the cash proceeds and carrying value of the assets sold. The gain or loss is recorded in investment gains (losses), net. Lower of cost or market adjustments on the recorded investment of finance receivables held for sale are also recorded in investment gains (losses), net.

Investment gains (losses), net was comprised of the following for the three and six months ended ~~March 31,~~June 30, 2019 and 2018:



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Gain (loss) on sale of loans and leases	$	—		$	(2,096	)	$	—		$	(18,792	)
Lower of cost or market adjustments	(84,021		)	(79,215		)	(151,712		)	(149,714		)
Other gains, (losses and impairments), net	(766		)	(1,323		)	(172		)	(648		)
	$	(84,787	)	$	(82,634	)	$	(151,884	)	$	(169,154	)

Three Months Ended
March 31, 2019 March 31, 2018
Gain (loss) on sale of loans and leases $ —
$ (16,696 )
Lower of cost or market adjustments (67,691 ) (70,499 )
Other gains, (losses and impairments), net 594
675
$ (67,097 ) $ (86,520 )

The lower of cost or market adjustments for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 included ~~$109,154~~$97,267, $206,421, $89,513, and ~~$105,774~~$195,287 in customer default activity, respectively, and net favorable adjustments of ~~$41,463~~$13,246, $54,709, $10,298, and ~~$35,275,~~$45,573, respectively, primarily related to net changes in the unpaid principal balance on the personal lending portfolio, ~~most~~all of which ~~has been~~is classified as held for sale.



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q should be read in conjunction with the 2018 Annual Report on Form 10-K and in conjunction with the condensed consolidated financial statements and the accompanying notes included elsewhere in this report. Additional information, not part of this filing, about the Company is available on the Company’s website at www.santanderconsumerusa.com. The Company’s recent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, as well as other filings with the SEC, are available free of charge through the Company’s website by clicking on the “Investors” page and selecting “SEC Filings.” The Company’s filings with the SEC and other information may also be accessed at the SEC’s website at www.sec.gov.

Overview

Santander Consumer USA Holdings Inc. was formed in 2013 as a corporation in the state of Delaware and is the holding company for Santander Consumer USA Inc., a full-service, technology-driven consumer finance company focused on vehicle finance and third-party servicing. The Company is majority-owned (as of ~~March 31,~~June 30, 2019, approximately ~~69.8%~~70.5%) by SHUSA, a wholly-owned subsidiary of Santander.

The Company is managed through a single reporting segment, Consumer Finance, which includes its vehicle financial products and services, including retail installment contracts, vehicle leases, and Dealer Loans, as well as financial products and services related to ~~RVs,~~recreational and marine ~~vehicles.~~ vehicles, and other consumer finance products.

The ~~Consumer Finance segment also includes personal loan and point-of-sale financing operations.~~

Santander Auto Finance (SAF) is our primary vehicle brand, and is available as a finance option for automotive dealers across the United States. Since May 1, 2013, under terms of the Chrysler Agreement, a ten-year private-label financing agreement with FCA, the Company has operated as FCA’s preferred provider for consumer loans, leases and Dealer Loans and provides services to FCA customers and dealers under the CCAP brand. These products and services include consumer retail installment contracts and leases, as well as Dealer Loans for inventory, construction, real estate, working capital and revolving lines of credit.

~~Under the terms of the Chrysler Agreement, certain standards were agreed to, including the Company meeting specified escalating~~Company’s average penetration ~~rates~~rate for the ~~first five years, subject to FCA treating~~second quarter of 2019 was 36%, an increase from 32% for the ~~Company~~same period in a manner consistent with comparable OEMs’ treatment of their captive providers, primarily in regard to sales support. The failure of either party to meet its respective obligations under the Chrysler agreement could result in the agreement being terminated. Chrysler Capital2018. CCAP continues to be a focal point of the Company’s ~~strategy and the Company continues to work with FCA to improve penetration rates.~~

Instrategy. On June 2018, the Company announced that it was in exploratory discussions with FCA regarding the future of FCA’s U.S. finance operations. FCA announced its intention to establish a captive U.S. auto finance unit in the future and indicated that acquiring Chrysler Capital is one option it would consider. Under the Chrysler Agreement, FCA has the option to acquire, for fair market value, an equity participation in the business offering and providing the financial services contemplated by the Chrysler Agreement. In addition, in July 2018, FCA and28, 2019, the Company entered into ~~a tolling agreement pursuant~~an Amendment to ~~which the parties agreed to preserve their respective rights, claims and defenses under~~ the Chrysler Agreement, ~~as they existed on April 30, 2018.~~

with FCA, has not delivered a notice to exercise its equity option, and the Company remains committed to the success of the Chrysler Capital business. Although the likelihood, timing and structure of any such transaction, and the likelihood thatwhich modified the Chrysler Agreement ~~will terminate, cannot be reasonably determined, termination~~to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions. The Amendment also established an operating framework that is mutually beneficial for both parties for the remainder of the Chrysler Agreement or a significant change in the business relationship between the Company and FCA could materially adversely affect the Company’s operations, including the origination of receivables through the Chrysler Capital portion of the Company’s business and the servicing of Chrysler Capital receivables. Moreover, there can be no assurance that the Company could successfully or timely implement any such transaction without significant disruption of its operations or restructuring, or without incurring additional liabilities, which could involve significant expense to the Company and have a material adverse effect on its business, financial condition and results of operations.contract.

~~The Company’s average penetration rate for the~~ ~~three months ended~~ ~~March 31, 2019 was~~ ~~31%, an increase from 28% for the same period in~~ ~~2018~~. The Company’s penetration rate has been constrained due to a more competitive landscape and low interest rates, causing its subvented loan offers not to be materially more attractive than other lenders’ offers. Chrysler Capital continues to be a focal point of the Company’s strategy, the Company continues to work with FCA to improve penetration rates, and the Company remains committed to the Chrysler Agreement.

The Company has dedicated financing facilities in place for its ~~Chrysler Capital~~CCAP business and has worked strategically and collaboratively with FCA to continue to strengthen its relationship and create value within the ~~Chrysler Capital program. The Company has partnered with FCA to roll out pilot programs, including a dealer rewards program and a nonprime subvention~~CCAP program. During the ~~three~~six months ended ~~March 31,~~ June 30, 2019, the Company originated ~~$2.4~~$5.9 billion in ~~Chrysler Capital~~CCAP loans which represented ~~61%~~54% of total retail installment contract originations (unpaid principal balance), ~~with an approximately even share between prime and non-prime,~~ as well as ~~$2.0~~$4.5 billion in ~~Chrysler Capital~~CCAP leases. Additionally, substantially all of the leases originated by the Company during the ~~three~~six months ended~~March 31,~~June 30, 2019 were under the Chrysler ~~Capital~~ Agreement. Since its May 2013 launch, ~~Chrysler Capital~~CCAP has originated more than ~~$55.5~~$59.0 billion in retail loans ~~(excludes~~(excluding SBNA originations program) and ~~$35.3~~purchased $37.8 billion in ~~leases, and facilitated the origination of $3.0 billion in leases and dealer loans for an affiliate.~~leases. As of ~~March 31,~~June 30, 2019, the Company’s carrying value of auto retail installment contract portfolio consisted of ~~$9.2~~$8.6 billion of ~~Chrysler Capital~~CCAP loans, which represents ~~36%~~33% of the Company’s carrying value of auto retail installment contract portfolio.

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 has provided personal loans, private-label credit cards and other consumer finance products. In 2015, the Company announced a planned exit from the personal lending business.

The Company has dedicated financing facilities in place for its Chrysler Capital business. The Company periodically sells consumer retail installment contracts through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer retail installment contracts. The Company also periodically enters into bulk sales of consumer vehicle leases with a third party. The Company typically retains servicing of loans and leases sold or securitized, and may also retain some residual risk in sales of leases. The Company has also entered into an agreement with the buyer of its leases whereby the Company will periodically sell charged-off loans.

Economic and Business Environment

Unemployment rates continue to be at low levels of ~~3.8%~~3.7% as reported by the Bureau of Labor Statistics for ~~March 31, 2019. The Federal Reserve maintained its~~June 30, 2019, and the federal funds rate were in the range of 2.25% to 2.5% in ~~March 2019.~~June 30, 2019.

Despite this stability, consumer debt levels continued to rise, specifically auto debt. As consumers assume higher debt levels, the Company may experience an increase in delinquencies and credit losses. Additionally, the Company is exposed to geographic customer concentration risk, which could have an adverse effect on the Company’s business, financial position, results of operations or cash flow.

~~The following table shows~~ Refer to Note 2 to these Condensed Consolidated Financial Statements for the ~~percentage of unpaid principal balance~~details on the Company’s retail installment contracts by state concentration. ~~Total unpaid principal balance of retail installment contracts held for investment was $28,849,755 and $28,463,236 at March 31, 2019 and December 31, 2018, respectively.~~

March 31,
2019 December 31, 2018
Retail Installment Contracts Held for Investment
Texas 17% 17%
Florida 11% 11%
California 9% 9%
Georgia 6% 6%
Illinois 4% 4%
North Carolina 4% 4%
New York 4% 4%
Pennsylvania 3% 3%
Louisiana 2% 2%
Ohio 2% 2%
South Carolina 2% 2%
Other States 36% 36%
100% 100%

Regulatory Matters

The U.S. lending industry is highly regulated under various U.S. federal laws, including the Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt Collection Practices, SCRA, and Unfair, Deceptive, or Abusive Acts or Practices, Credit CARD, Telephone Consumer Protection, FIRREA, and Gramm-Leach-Bliley Acts, as well as various state laws. The Company is subject to inspections, examinations, supervision, and regulation by the Commission, the CFPB, the FTC, the DOJ and by regulatory agencies in each state in which the Company is licensed. In addition, the Company is directly and indirectly, through its relationship with SHUSA, subject to certain bank regulations, including oversight by the OCC, the European Central Bank, and the Federal Reserve, which have the ability to limit certain of the Company’s activities, such as the timing and amount of dividends and certain transactions that the Company might otherwise desire to enter into, such as merger and acquisition opportunities, or to impose other limitations on the Company’s growth.

Additional legal and regulatory matters affecting the Company’s activities are further discussed in Part I, Item 1A - Risk Factors of the 2018 Annual Report on Form 10-K.

How the Company Assesses its Business Performance

Net income, and the associated return on assets and equity, are the primary metrics by which the Company judges the performance of its business. Accordingly, the Company closely monitors the primary drivers of net income:

•

Net financing income — The Company tracks the spread between the interest and finance charge income earned on assets and the interest expense incurred on liabilities, and continually monitors the components of its yield and cost of funds. The Company’s effective interest rate on borrowing is driven by various items including, but not limited to, credit quality of the collateral assigned, used/unused portion of facilities, and reference rate for the credit spread. These drivers, as well as external rate trends, including the swap curve, spot and forward rates are monitored.

•

Net credit losses — The Company performs net credit loss analysis at the vintage level for individually acquired retail installment contracts, loans and leases, and at the pool level for purchased portfolios, enabling it to pinpoint drivers of any unusual or unexpected trends. The Company also monitors its recovery rates as well as industry-wide rates. Additionally, because delinquencies are an early indicator of future net credit losses, the Company analyzes delinquency trends, adjusting for seasonality, to determine if the Company’s loans are performing in line with original estimations. The net credit loss analysis does not include considerations of the Company’s estimated allowance for credit losses.

•

Other income — The Company’s flow agreements have resulted in a large portfolio of assets serviced for others. These assets provide a steady stream of servicing income and may provide a gain or loss on sale. The Company monitors the size of the portfolio and average servicing fee rate and gain. Additionally, due to the classification of the Company’s personal lending portfolio as held for sale upon the decision to exit the personal lending line of business, adjustments to record this portfolio at the lower of cost or market are included in investment gains (losses), net, which is a component of other income (losses).

•

Operating expenses — The Company assesses its operational efficiency using the cost-to-managed assets ratio. The Company performs extensive analysis to determine whether observed fluctuations in operating expense levels indicate a trend or are the nonrecurring impact of large projects. The operating expense analysis also includes a loan- and portfolio-level review of origination and servicing costs to assist the Company in assessing profitability by pool and vintage.

~~Net financing income~~ — The Company tracks the spread between the interest and finance charge income earned on assets and the interest expense incurred on liabilities, and continually monitors the components of its yield and cost of funds. The Company’s effective interest rate on borrowing is driven by various items including, but not limited to, credit quality of the collateral assigned, used/unused portion of facilities, and reference rate for the credit spread. These drivers, as well as external rate trends, including the swap curve, spot and forward rates are monitored.

~~Net credit losses~~ — The Company performs net credit loss analysis at the vintage level for individually acquired retail installment contracts, loans and leases, and at the pool level for purchased portfolios, enabling it to pinpoint drivers of any unusual or unexpected trends. The Company also monitors its recovery rates as well as industry-wide rates. Additionally, because delinquencies are an early indicator of future net credit losses, the Company analyzes delinquency trends, adjusting for seasonality, to determine if the Company’s loans are performing in line with original estimations. The net credit loss analysis does not include considerations of the Company’s estimated allowance for credit losses.

~~Other income~~ — The Company’s flow agreements have resulted in a large portfolio of assets serviced for others. These assets provide a steady stream of servicing income and may provide a gain or loss on sale. The Company monitors the size of the portfolio and average servicing fee rate and gain. Additionally, due to the classification of the Company’s personal lending portfolio as held for sale upon the decision to exit the personal lending line of business, adjustments to record this portfolio at the lower of cost or market are included in investment gains (losses), net, which is a component of other income (losses).

~~Operating expenses~~ — The Company assesses its operational efficiency using the cost-to-managed assets ratio. The Company performs extensive analysis to determine whether observed fluctuations in operating expense levels indicate a trend or are the nonrecurring impact of large projects. The operating expense analysis also includes a loan- and portfolio-level review of origination and servicing costs to assist the Company in assessing profitability by pool and vintage.

Because volume and portfolio size determine the magnitude of the impact of each of the above factors on the Company’s earnings, the Company also closely monitors origination and sales volume along with APR and discounts (including subvention and net of dealer participation).

Corrections to Previously Reported Amounts

As previously mentioned in Footnote 1 - Description of Business, the Company identified and corrected two immaterial errors. The Company included the impact of these errors on the material accounts and disclosures presented in the financial statements within Footnote 1. The impact of these errors on other material items included within Management’s Discussion and Analysis section are as follows:

Delinquency ratios


	As of March 31, 2018						As of June 30, 2018
	Reported		Corrections		Revised		Reported		Corrections		Revised
Delinquent principal, 30-59 days past due	8.6	%	0.3	%	8.9	%	9.2	%	0.4	%	9.6	%
Delinquent principal over 59 days	4.2	%	0.2	%	4.4	%	4.2	%	0.3	%	4.5	%

Other ratios


	Three months ended March 31, 2018						Three months ended June 30, 2018						Six Months Ended June 30, 2018
	Reported		Corrections		Revised		Reported		Corrections		Revised		Reported		Corrections		Revised
Net Charge-off ratio	8.3	%	—	%	8.3	%	6.0	%	0.1	%	6.1	%	7.1	%	0.1	%	7.2	%

Yield on individually acquired retail installment contracts	15.2	%	0.8	%	16.0	%	15.5	%	0.7	%	16.2	%	15.4	%	0.7	%	16.1	%

~~First~~Second Quarter 2019 Summary of Results

Key highlights of the Company’s performance in the ~~first~~second quarter of 2019 included:

Total auto originations (excluding the SBNA originations program) of ~~$6.0~~$6.5 billion, down ~~5.6%~~(18.5)% from ~~$6.3 billion~~$7.9 originated in the same quarter in 2018;

Net finance and other interest income of ~~$1.1~~$1.2 billion, up ~~5.1%~~4.6% compared to the same quarter in 2018;

Return on average assets of ~~2.2%~~3.2%, down from ~~2.5%~~3.3% compared to the same quarter in 2018;

Common equity tier 1 (CET1) ratio of ~~15.8%~~15.7%, down 119 bps compared to the same quarter in 2018; and

Net leased vehicle income of ~~$206~~$232 million, up ~~41.2%~~30.5% compared to the same quarter in 2018.

Volume

~~Volume~~

The Company’s originations of individually acquired loans and leases, including revolving loans, average APR, and discount during the three and six months ended ~~March 31,~~June 30, 2019 and 2018 were as follows:


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
Retained Originations
Retail installment contracts	$	4,026,327		$	3,866,494		$	3,949,648		$	4,630,704		$	7,975,975		$	8,014,110
Average APR	17.2		%	16.1		%	16.2 %			16.8		%	16.7 %			17.0		%
Average FICO® (a)	593			611			601			602			597			599
Discount	(0.1		)%	0.3		%	(0.5		)%	0.004		%	(0.3		)%	0.2		%

Personal loans (b)	$	288,557		$	273,328		$	343,214		$	340,088		$	631,770		$	613,416
Average APR	29.7		%	26.0		%	29.7		%	27.1		%	29.8		%	28.3		%

Leased vehicles	$	1,963,580		$	2,093,604		$	2,520,130		$	2,632,052		$	4,483,710		$	4,725,657

Finance lease	$	3,308		$	2,398		$	4,822		$	2,058		$	8,129		$	4,456
Total originations retained	$	6,281,772		$	6,235,824		$	6,817,814		$	7,604,902		$	13,099,584		$	13,357,639

Sold Originations
Retail installment contracts	$	—		$	386,956		$	—		$	683,935		$	—		$	1,553,979
Average APR	—		%	6.8		%	—		%	7.6		%	—		%	7.3		%
Average FICO® (c)	—			732			—			726			—			726

Total originations	$	6,281,772		$	6,622,780
Total originations (excluding SBNA Originations Program)							$	6,817,814		$	8,288,837		$	13,099,584		$	14,911,618

(a)

Unpaid principal balance excluded from the weighted average FICO score is ~~$493~~$448 million and ~~$461~~$594 million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, ~~$106~~$141 million and ~~$54~~$44 million, respectively, were commercial loans. Unpaid principal balance excluded from the weighted average FICO score is $941 million and $1 billion for the six months ended June 30, 2019 and 2018, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, $247 million and $77 million, respectively, were commercial loans.


(b)	Included in the total origination volume is ~~$24~~$51 million and ~~$17~~$58 million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, and $76 million and $84 million for the six months ended June 30, 2019 and 2018, respectively, related to newly opened accounts.

(c)

Unpaid principal balance excluded from the weighted average FICO score is zero and ~~$32~~$54 million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, zero and ~~$20~~$26 million, respectively, were commercial loans. Unpaid principal balance excluded from the weighted average FICO score is zero and $121 million for the six months ended June 30, 2019 and 2018, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, zero and $67 million, respectively, were commercial loans.

Total auto originations (excluding SBNA Originations Program) decreased ~~$356 million,~~$1.5 billion, or ~~5.6%~~18.5% , from the three months ended ~~March 31,~~June 30, 2018 to the three months ended ~~March 31, 2019.~~June 30, 2019, since the Company has initiated the SBNA originations program as below. The Company’s initiatives to improve our pricing as well as dealer and customer experience has increased our competitive position in the market. The Company continues to focus on optimizing the loan quality of its portfolio with an appropriate balance of volume and risk. Chrysler Capital volume and penetration rates are influenced by strategies implemented by FCA, including product mix and incentives.

SBNA Originations Program

Beginning in 2018, the Company agreed to provide SBNA with origination support services in connection with the processing, underwriting and purchase of retail auto loans, primarily from ~~Chrysler~~FCA dealers. In addition, the Company agreed to perform the servicing for any loans originated on SBNA’s behalf. During the three and six months ended ~~March 31,~~June 30, 2019, the Company facilitated the purchase of $1$1.9 billion and $2.95 billion of retail installment ~~contacts.~~contacts, respectively.

The Company’s originations of individually acquired retail installment contracts and leases by vehicle type during the three and six months ended ~~March 31,~~June 30, 2019 and 2018 were as follows:


	Three Months Ended								Three Months Ended								Six months ended
	March 31, 2019				March 31, 2018				June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018
	(Dollar amounts in thousands)								(Dollar amounts in thousands)
Retail installment contracts
Car	$	1,555,114	38.6	%	$	1,544,947	36.3	%	$	1,396,979	35.4	%	$	1,892,910	35.6	%	$	2,952,093	37.0	%	$	3,473,841	36.2	%
Truck and utility	2,322,091		57.7	%	2,213,400		52.0	%	2,381,365		60.3	%	3,101,908		58.4	%	4,703,456		59.0	%	5,482,673		57.4	%
Van and other (a)	149,122		3.7	%	495,103		11.7	%	171,304		4.3	%	319,821		6.0	%	320,426		4.0	%	611,575		6.4	%
	$	4,026,327	100.0	%	$	4,253,450	100.0	%	$	3,949,648	100.0	%	$	5,314,639	100.0	%	$	7,975,975	100.0	%	$	9,568,089	100.0	%
Leased vehicles
Car	$	106,502	5.4	%	$	158,869	7.6	%	$	149,669	5.9	%	$	274,589	10.4	%	$	256,171	5.7	%	$	433,513	9.2	%
Truck and utility	1,802,755		91.8	%	1,658,957		79.2	%	2,285,002		90.7	%	2,260,804		85.9	%	4,087,758		91.2	%	4,101,105		86.8	%
Van and other (a)	54,323		2.8	%	275,778		13.2	%	85,459		3.4	%	96,659		3.7	%	139,781		3.1	%	191,039		4.0	%
	$	1,963,580	100.0	%	$	2,093,604	100.0	%	$	2,520,130	100.0	%	$	2,632,052	100.0	%	$	4,483,710	100.0	%	$	4,725,657	100.0	%
Total originations by vehicle type
Car	$	1,661,616	27.7	%	$	1,703,816	26.8	%	$	1,546,648	23.9	%	$	2,167,499	27.3	%	$	3,208,264	25.7	%	$	3,907,354	27.4	%
Truck and utility	4,124,846		68.9	%	3,872,357		61.0	%	4,666,367		72.1	%	5,362,712		67.5	%	8,791,214		70.6	%	9,583,778		67.0	%
Van and other (a)	203,445		3.4	%	770,881		12.2	%	256,763		4.0	%	416,480		5.2	%	460,207		3.7	%	802,614		5.6	%
	$	5,989,907	100.0	%	$	6,347,054	100.0	%	$	6,469,778	100.0	%	$	7,946,691	100.0	%	$	12,459,685	100.0	%	$	14,293,746	100.0	%

(a) Other primarily consists of commercial vehicles.

The Company’s asset sales for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 were as follows:


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
Retail installment contracts	$	—		$	1,475,253		$	—		$	1,156,060		$	—		$	2,631,313
Average APR	—		%	6.5		%	—		%	7.5		%	—		%	7.0		%
Average FICO®	—			727			—			724			—			726

Total asset sales	$	—		$	1,475,253		$	—		$	1,156,060		$	—		$	2,631,313

There were no asset sales for the three and six months ended ~~March 31, 2019, since it has been replaced with SBNA origination program.~~June 30, 2019.

The Company’s portfolio of retail installment contracts held for investment and leases by vehicle type as of ~~March 31,~~June 30, 2019 and December 31, 2018 are as follows:


	March 31, 2019				December 31, 2018				June 30, 2019				December 31, 2018
	(Dollar amounts in thousands)								(Dollar amounts in thousands)
Retail installment contracts
Car	$	12,826,449	44.5	%	$	13,011,925	45.7	%	$	12,535,991	43.2	%	$	13,011,925	45.7	%
Truck and utility	14,835,476		51.4	%	14,266,757		50.1	%	15,274,401		52.7	%	14,266,757		50.1	%
Van and other (a)	1,187,830		4.1	%	1,184,554		4.2	%	1,186,443		4.1	%	1,184,554		4.2	%
	$	28,849,755	100.0	%	$	28,463,236	100.0	%	$	28,996,835	100.0	%	$	28,463,236	100.0	%

Leased vehicles
Car	$	1,494,104	9.6	%	$	1,590,621	10.5	%	$	1,433,262	8.7	%	$	1,590,621	10.5	%
Truck and utility	13,434,910		86.1	%	12,899,955		84.8	%	14,436,351		87.3	%	12,899,955		84.8	%
Van and other (a)	677,428		4.3	%	728,737		4.7	%	654,987		4.0	%	728,737		4.7	%
	$	15,606,442	100.0	%	$	15,219,313	100.0	%	$	16,524,600	100.0	%	$	15,219,313	100.0	%

Total by vehicle type
Car	$	14,320,553	32.2	%	$	14,602,546	33.4	%	$	13,969,253	30.7	%	$	14,602,546	33.4	%
Truck and utility	28,270,386		63.6	%	27,166,712		62.2	%	29,710,752		65.3	%	27,166,712		62.2	%
Van and other (a)	1,865,258		4.2	%	1,913,291		4.4	%	1,841,430		4.0	%	1,913,291		4.4	%
	$	44,456,197	100.0	%	$	43,682,549	100.0	%	$	45,521,435	100.0	%	$	43,682,549	100.0	%

(a) Other primarily consists of commercial vehicles.

The unpaid principal balance, average APR, and remaining unaccreted dealer discount of the Company’s held for investment portfolio as of ~~March 31,~~June 30, 2019 and December 31, 2018 are as follows:


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
Retail installment contracts (a)	$	28,849,755		$	28,463,236		$	28,996,835		$	28,463,236
Average APR	16.8		%	16.7		%	16.8		%	16.7		%
Discount	0.7		%	0.8		%	0.5		%	0.8		%

Personal loans(b)	$	1,952		$	2,637		$	—		$	2,637
Average APR	31.7		%	31.7		%	—		%	31.7		%

Receivables from dealers	$	13,169		$	14,710		$	13,010		$	14,710
Average APR	4.0		%	4.1		%	4.0		%	4.1		%

Leased vehicles	$	15,606,442		$	15,219,313		$	16,524,600		$	15,219,313

Finance leases	$	20,669		$	19,344		$	23,263		$	19,344

(a) Of this balance as of ~~March 31,~~June 30, 2019, ~~$3.9~~$7.3 billion, ~~$11.7~~$10.3 billion, ~~$4.9~~$4.3 billion, and ~~$3.7~~$3.2 billion was originated during the ~~three~~six months ended ~~March 31,~~June 30, 2019, and the years ended 2018, 2017, and 2016, respectively.

(b) The remaining balance of personal loans, held for investment, was charged off during the quarter ended June 30, 2019.

The Company records interest income from individually acquired retail installment contracts, personal loans, and receivables from dealers in accordance with the terms of the loans, generally discontinuing and reversing accrued income once a loan becomes more than 60 days past due, except in the case of revolving personal loans, for which the Company continues to accrue interest until charge-off, in the month in which the loan becomes 180 days past due, and receivables from dealers, for which the Company continues to accrue interest until the loan becomes more than 90 days past due.

The Company generally does not acquire receivables from dealers and term personal loans at a discount. The Company amortizes discounts, subvention payments from manufacturers, and origination costs as adjustments to income from individually acquired retail installment contracts using the effective yield method. The Company estimates future principal prepayments specific to pools of homogeneous loans which are based on the vintage, credit quality at origination and term of the loan. Prepayments in our portfolio are sensitive to credit quality, with higher credit quality loans generally experiencing higher voluntary prepayment rates than lower credit quality loans. The impact of defaults is not considered in the prepayment rate; the prepayment rate only considers voluntary prepayments. The resulting prepayment rate specific to each pool is based on historical experience, and is used as an input in the calculation of the constant effective yield. Our estimated weighted average prepayment rates ranged from ~~5.4%~~5.3% to ~~11.0%~~11.1% as of ~~March 31,~~June 30, 2019, and ~~6.1%~~5.9% to ~~10.5%~~10.6% as of ~~March 31,~~June 30, 2018. The Company amortizes the discount, if applicable, on revolving personal loans straight-line over the estimated period over which the receivables are expected to be outstanding.

For individually acquired retail installment contracts, personal loans, finance leases, and receivables from dealers, the Company also establishes a credit loss allowance for the estimated losses inherent in the portfolio. The Company estimates probable losses based on contractual delinquency status, historical loss experience, expected recovery rates from sale of repossessed collateral, bankruptcy trends, and general economic conditions such as unemployment rates. For loans within these portfolios that are classified as TDRs, impairment is measured based on the present value of expected future cash flows discounted at the original effective interest rate. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell.

The Company classifies most of its vehicle leases as operating leases. The Company records the net capitalized cost of each lease as an asset, which is depreciated straight-line over the contractual term of the lease to the expected residual value. The Company records lease payments due from customers as income until and unless a customer becomes more than 60 days delinquent, at which time the accrual of revenue is discontinued and reversed. The Company resumes and reinstates the accrual if a delinquent account subsequently becomes 60 days or less past due. The Company amortizes subvention payments from the manufacturer, down payments from the customer, and initial direct costs incurred in connection with originating the lease straight-line over the contractual term of the lease.

Historically, the Company’s primary means of acquiring retail installment contracts has been through individual acquisitions immediately after origination by a dealer. The Company also periodically purchased pools of receivables and had significant volumes of these purchases during the credit crisis. While the Company continues to pursue such opportunities when available, it did not purchase any pools for which it was probable at acquisition that not all contractually required payments would be collected, during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018. However, during the three months ended ~~March 31,~~June 30, 2019 and 2018, the Company recognized certain retail installment contracts with an unpaid principal balance of ~~zero,~~$74,718 and $72,963, respectively, and for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, the Company recognized certain retail installment contracts with an unpaid principal balance of ~~zero~~$74,718 and ~~$42,996,~~$115,959, respectively, held by non-consolidated securitization Trusts under optional clean-up calls. Following the initial recognition of these loans at fair value, the performing loans in the portfolio will be carried at amortized cost, net of allowance for credit losses. The Company elected the fair value option for all non-performing loans acquired (more than 60 days delinquent as of re-recognition date), for which it was probable that not all contractually required payments would be collected. All of the retail installment contracts acquired during these periods were acquired individually. For the Company’s existing purchased receivables portfolios, which were acquired at a discount partially attributable to credit deterioration since origination, the Company estimates the expected yield on each portfolio at acquisition and record monthly accretion income based on this expectation. The Company periodically re-evaluates performance expectations and may increase the accretion rate if a pool is performing better than expected. If a pool is performing worse than expected, the Company is required to continue to record accretion income at the previously established rate and to record impairment to account for the worsening performance.

Selected Financial Data


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31, 2019		March 31, 2018		June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Income Statement Data	(Dollar amounts in thousands, except per share data)				(Dollar amounts in thousands, except per share data)
Interest on individually acquired retail installment contracts	1,156,023		$	1,076,319	1,169,785		$	1,123,860	$	2,325,808	2,200,178
Interest on purchased receivables portfolios	1,413		2,841		939		2,244		2,352		5,085
Interest on receivables from dealers	122		120		51		130		173		250
Interest on personal loans	96,022		89,260		90,323		84,772		186,345		174,032
Interest on finance receivables and loans	1,253,580		1,168,540		1,261,098		1,211,006		2,514,678		2,379,545
Net leased vehicle income	205,541		145,595		231,794		177,562		437,335		323,157
Other finance and interest income	10,247		7,137		11,437		8,494		21,684		15,631
Interest expense	334,382		241,028		330,039		273,953		664,421		514,981
Net finance and other interest income	1,134,986		1,080,244		1,174,290		1,123,109		2,309,276		2,203,352
Provision for credit losses	550,879		510,341		430,676		406,544		981,555		916,885
Profit sharing	6,968		4,377		13,345		12,853		20,313		17,230
Other income	51,085		25,053		30,411		22,384		81,496		47,437
Operating expenses	290,957		287,912		280,649		276,950		571,606		564,862
Income before tax expense	337,267		302,667		480,031		449,146		817,298		751,812
Income tax expense	89,764		58,052		111,764		114,120		201,528		172,172
Net income	$	247,503	$	244,615	$	368,267	$	335,026	$	615,770	$	579,640
Share Data
Weighted-average common shares outstanding
Basic	351,515,464		360,703,234		351,106,197		361,268,112		351,309,700		360,987,233
Diluted	352,051,887		361,616,732		351,556,349		362,057,614		351,825,554		361,829,283
Earnings per share
Basic	$	0.70	$	0.68	$	1.05	$	0.93	$	1.75	$	1.61
Diluted	$	0.70	$	0.68	$	1.05	$	0.93	$	1.75	$	1.60
Dividend paid per common share	$	0.20	$	0.05	$	0.20	$	0.05	$	0.40	$	0.10
Balance Sheet Data
Finance receivables held for investment, net	25,598,716		$	22,551,646	25,838,749		$	24,057,164	$	25,838,749	$	24,057,164
Finance receivables held for sale, net	974,017		1,611,535		1,249,101		1,246,732		1,249,101		1,246,732
Goodwill and intangible assets	115,256		105,144		108,173		105,669		108,173		105,669
Total assets	45,045,906		40,028,740		46,416,093		41,157,189		46,416,093		41,157,189
Total borrowings	35,647,153		31,305,159		36,765,505		31,929,606		36,765,505		31,929,606
Total liabilities	37,887,376		33,315,209		39,078,832		34,123,553		39,078,832		34,123,553
Total equity	7,158,530		6,713,532		7,337,261		7,033,636		7,337,261		7,033,636
Allowance for credit losses	3,176,250		3,320,821		3,122,259		3,320,792		3,122,259		3,320,792


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Other Information	(Dollar amounts in thousands)						(Dollar amounts in thousands)
Charge-offs, net of recoveries, on individually acquired retail installment contracts	$	615,204		$	541,283		$	462,427		$	405,651		$	1,077,631		$	946,934
Charge-offs, net of recoveries, on purchased receivables portfolios	—			(428		)	—			(565		)	—			(993		)
Charge-offs, net of recoveries, on personal loans	239			749			1,675			515			1,914			1,264
Charge-offs, net of recoveries, on finance leases	172			306			175			406			347			712
Total charge-offs, net of recoveries	615,615			541,910			464,277			406,007			1,079,892			947,917
End of period delinquent principal over 59 days, individually acquired retail installment contracts held for investment	1,224,289			1,160,154			1,368,427			1,232,521			1,368,427			1,232,521
End of period personal loans delinquent principal over 59 days	165,220			162,061			167,033			164,458			167,033			164,458
End of period delinquent principal over 59 days, loans held for investment	1,225,807			1,162,311			1,368,427			1,234,502			1,368,427			1,234,502
End of period assets covered by allowance for credit losses	28,857,519			26,124,390			29,007,585			27,551,134			29,007,585			27,551,134
End of period gross individually acquired retail installment contracts held for investment	28,821,729			26,081,986			28,971,311			27,511,718			28,971,311			27,511,718
End of period gross personal loans	1,393,403			1,387,713
End of period gross personal loans held for sale							1,364,956			1,370,888			1,364,956			1,370,888
End of period gross finance receivables and loans held for investment	28,864,876			26,141,811			29,009,846			27,566,517			29,009,846			27,566,517
End of period gross finance receivables, loans, and leases held for investment	44,491,987			37,816,402			45,557,709			40,422,435			45,557,709			40,422,435
Average gross individually acquired retail installment contracts held for investment	28,595,315			26,006,518			29,017,122			26,772,369			28,816,732			26,402,688
Average gross personal loans held for investment	2,317			6,010			1,337			4,562			1,809			5,304
Average gross individually acquired retail installment contracts held for investment and held for sale	28,595,315			26,915,621			29,070,738			27,673,016			28,834,640			27,305,408
Average gross purchased receivables portfolios	29,283			41,209			26,759			37,284			28,020			39,257
Average gross receivables from dealers	13,598			15,651			13,088			15,361			13,368			15,507
Average gross personal loans	1,466,300			1,459,308
Average gross personal loans held for investment and held for sale							1,375,306			1,375,877			1,424,717			1,421,861
Average gross finance leases	20,018			22,474			21,889			20,937			20,994			21,699
Average gross finance receivables and loans	30,124,514			28,454,263			30,507,780			29,122,475			30,321,739			28,803,732
Average gross operating leases	15,425,190			11,441,789			16,043,654			12,219,612			15,752,705			11,856,109
Average gross finance receivables, loans, and leases	45,549,704			39,896,052			46,551,434			41,342,087			46,074,444			40,659,841
Average managed assets	54,433,129			48,516,758			55,545,503			50,445,203			55,043,583			49,632,691
Average total assets	44,488,868			39,677,593			45,700,887			40,885,863			45,101,873			40,316,990
Average debt	35,261,121			31,208,250			36,152,602			31,898,900			35,715,392			31,589,063
Average total equity	7,052,703			6,566,933			7,273,470			6,879,749			7,163,738			6,724,157
Ratios
Yield on individually acquired retail installment contracts	16.2		%	16.0		%	16.1		%	16.2		%	16.1		%	16.1		%
Yield on purchased receivables portfolios	19.3		%	27.6		%	14.0		%	24.1		%	16.8		%	25.9		%
Yield on receivables from dealers	3.6		%	3.1		%	1.6		%	3.4		%	2.6		%	3.2		%
Yield on personal loans (1)	26.2		%	24.5		%
Yield on personal loans held for sale (1)							26.3		%	24.6		%	26.2		%	24.5		%
Yield on earning assets (2)	12.9		%	13.2		%	12.9		%	13.5		%	12.9		%	13.4		%
Cost of debt (3)	3.8		%	3.1		%	3.7		%	3.4		%	3.7		%	3.3		%
Net interest margin (4)	10.0		%	10.8		%	10.1		%	10.9		%	10.0		%	10.8		%
Expense ratio (5)	2.1		%	2.4		%	2.0		%	2.2		%	2.1		%	2.3		%
Return on average assets (6)	2.2		%	2.5		%	3.2		%	3.3		%	2.7		%	2.9		%
Return on average equity (7)	14.0		%	14.9		%	20.3		%	19.5		%	17.2		%	17.2		%
Net charge-off ratio on individually acquired retail installment contracts (8)	8.6		%	8.3		%	6.4		%	6.1		%	7.5		%	7.2		%
Net charge-off ratio on purchased receivables portfolios (8)	—		%	(4.2		)%
Net charge-off ratio on personal loans (8)	41.3		%	49.9		%
Net charge-off ratio (8)	8.6		%	8.3		%	6.4		%	6.0		%	7.5		%	7.2		%
Delinquency ratio on individually acquired retail installment contracts held for investment, end of period (9)	4.2		%	4.4		%	4.7		%	4.5		%	4.7		%	4.5		%
Delinquency ratio on personal loans, end of period (9)	11.9		%	11.7		%
Delinquency ratio on loans held for investment, end of period (9)	4.2		%	4.4		%	4.7		%	4.5		%	4.7		%	4.5		%
Equity to assets ratio (10)	15.9		%	16.8		%	15.8		%	17.1		%	15.8		%	17.1		%
Tangible common equity to tangible assets (10)	15.7		%	16.6		%	15.6		%	16.9		%	15.6		%	16.9		%
Common stock dividend payout ratio (11)	28.4		%	7.4		%	19.1		%	5.4		%	22.8		%	6.2		%
Allowance ratio (12)	11.0		%	12.7		%	10.8		%	12.1		%	10.8		%	12.1		%
Common Equity Tier 1 capital ratio (13)	15.8		%	17.0		%	15.7		%	16.9		%	15.7		%	16.9		%


(1)	Includes finance and other interest income; excludes fees.


(2)	“Yield on earning assets” is defined as the ratio of annualized Total finance and other interest income, net of Leased vehicle expense, to Average gross finance receivables, loans and leases.


(3)	“Cost of debt” is defined as the ratio of annualized Interest expense to Average debt.


(4)	“Net interest margin” is defined as the ratio of annualized Net finance and other interest income to Average gross finance receivables, loans and leases.


(5)	“Expense ratio” is defined as the ratio of annualized Operating expenses to Average managed assets.


(6)	“Return on average assets” is defined as the ratio of annualized Net income to Average total assets.


(7)	“Return on average equity” is defined as the ratio of annualized Net income to Average total equity.


(8)	“Net charge-off ratio” is defined as the ratio of annualized Charge-offs on a recorded investment basis, net of recoveries, to average unpaid principal balance of the respective held-for-investment portfolio.


(9)	“Delinquency ratio” is defined as the ratio of End of period Delinquent principal over 59 days to End of period gross balance of the respective portfolio, excludes capital leases.

(10)

“Tangible common equity to tangible assets” is defined as the ratio of Total equity, excluding Goodwill and intangible assets, to Total assets, excluding Goodwill and intangible assets. Management believes this non-GAAP financial measure is useful to assess and monitor the adequacy of the Company’s capitalization. This additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with U.S. GAAP and may not be comparable to similarly-titled measures used by other financial institutions. A reconciliation from GAAP to this non-GAAP measure for the periods ended ~~March 31,~~June 30, 2019 and 2018 is as follows:


	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
Total equity	$	7,158,530		$	6,713,532		$	7,337,261		$	7,033,636
Deduct: Goodwill and intangibles	115,256			105,144			108,173			105,669
Tangible common equity	$	7,043,274		$	6,608,388		$	7,229,088		$	6,927,967

Total assets	$	45,045,906		$	40,028,740		$	46,416,093		$	41,157,189
Deduct: Goodwill and intangibles	115,256			105,144			108,173			105,669
Tangible assets	$	44,930,650		$	39,923,596		$	46,307,920		$	41,051,520

Equity to assets ratio	15.9		%	16.8		%	15.8		%	17.1		%
Tangible common equity to tangible assets	15.7		%	16.6		%	15.6		%	16.9		%


(11)	“Common stock dividend payout ratio” is defined as the ratio of Dividends declared per share of common stock to Earnings per share attributable to the Company’s shareholders.


(12)	“Allowance ratio” is defined as the ratio of Allowance for credit losses, which excludes impairment on purchased receivables portfolios, to End of period assets covered by allowance for credit losses.


(13)	“Common Equity Tier 1 Capital ratio” is defined as the ratio of Total Common Equity Tier 1 Capital (CET1) to Total risk-weighted assets.


	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018
Total equity	$	7,158,530		$	6,713,532		$	7,337,261		$	7,033,636
Deduct: Goodwill, intangibles, and other assets, net of deferred tax liabilities	163,444			169,870			$	152,264		$	166,241
Deduct: Accumulated other comprehensive income (loss), net	12,938			63,211			$	(21,568	)	$	62,449
Tier 1 common capital	$	6,982,148		$	6,480,451		$	7,206,565		$	6,804,946
Risk weighted assets (a)	$	44,260,896		$	38,191,687		$	45,849,574		$	40,251,526
Common Equity Tier 1 capital ratio (b)	15.8		%	17.0		%	15.7		%	16.9		%

(a)

Under the banking agencies’ risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories. The aggregate dollar amount in each risk category is multiplied by the associated risk weight of the category. The resulting weighted values are added together with the measure for market risk, resulting in the Company’s total Risk weighted assets.


(b)	CET1 is calculated under Basel III regulations required since January 1, 2015. The fully phased-in capital ratios are non-GAAP financial measures.

The following tables present an analysis of net yield on interest earning assets:


	Three Months Ended March 31,														Three Months Ended June 30,
	2019							2018							2019							2018
	(Dollar amounts in thousands)														(Dollar amounts in thousands)
	Average Balances			Interest Income/Interest Expense		Yield/Rate		Average Balances			Interest Income/Interest Expense		Yield/Rate		Average Balances			Interest Income/Interest Expense		Yield/Rate		Average Balances			Interest Income/Interest Expense		Yield/Rate
Assets
Retail installment contracts acquired individually	$	28,595,315		$	1,156,023	16.2	%	$	26,915,621		$	1,076,319	16.0	%	$	29,070,738		$	1,169,785	16.1	%	$	27,673,016		$	1,123,860	16.2	%
Purchased receivables	29,283			1,413		19.3	%	41,209			2,841		27.6	%	26,759			939		14.0	%	37,284			2,244		24.1	%
Receivables from dealers	13,598			122		3.6	%	15,651			120		3.1	%	13,088			51		1.6	%	15,361			130		3.4	%
Personal loans	1,466,300			96,022		26.2	%	1,459,308			89,260		24.5	%	1,375,306			90,323		26.3	%	1,375,877			84,772		24.6	%
Finance lease receivables	20,018			365		7.3	%	22,474			558		9.9	%	21,889			910		16.6	%	20,937			376		7.2	%
Finance receivables	30,124,514			1,253,945		16.8	%	28,454,263			1,169,098		16.4	%	30,507,780			1,262,008		16.5	%	29,122,475			1,211,382		16.6	%
Leased vehicles, net	15,425,190			205,541		5.3	%	11,441,789			145,595		5.1	%	16,043,654			231,794		5.8	%	12,219,612			177,562		5.8	%
Other assets	2,156,750			9,882		1.8	%	3,152,001			6,579		0.8	%	2,310,954			10,527		1.8	%	2,866,389			8,118		1.1	%
Allowance for credit losses	(3,217,586		)	—		—		(3,370,460		)	—		—		(3,161,501		)	—		—		(3,322,613		)	—		—
Total assets	$	44,488,868		$	1,469,368			$	39,677,593		$	1,321,272			$	45,700,887		$	1,504,329			$	40,885,863		$	1,397,062
Liabilities and equity
Liabilities:
Notes payable	$	35,261,121		$	334,382	3.8	%	$	31,208,250		$	241,028	3.1	%	$	36,152,602		$	330,039	3.7	%	$	31,898,900		$	273,953	3.4	%
Other liabilities	2,175,044			—		—		1,902,410			—		—		2,274,815			—		—		2,107,214			—		—
Total liabilities	37,436,165			334,382				33,110,660			241,028				38,427,417			330,039				34,006,114			273,953

Total stockholders' equity	7,052,703			—		—		6,566,933			—				7,273,470			—		—		6,879,749			—
Total liabilities and equity	$	44,488,868		$	334,382			$	39,677,593		$	241,028			$	45,700,887		$	330,039			$	40,885,863		$	273,953



	Six Months Ended June 30,
	2019							2018
	(Dollar amounts in thousands)
	Average Balances			Interest Income/Interest Expense		Yield/Rate		Average Balances			Interest Income/Interest Expense		Yield/Rate
Assets
Retail installment contracts acquired individually	$	28,834,640		$	2,325,808	16.1	%	$	27,305,408		$	2,200,178	16.1	%
Purchased receivables	28,020			2,352		16.8	%	39,257			5,085		25.9	%
Receivables from dealers	13,368			173		2.6	%	15,507			250		3.2	%
Personal loans	1,424,717			186,345		26.2	%	1,421,861			174,032		24.5	%
Finance lease receivables	20,994			1,275		12.1	%	21,699			934		8.6	%
Finance receivables held for investment, net	30,321,739			2,515,953		16.6	%	28,803,732			2,380,479		16.5	%
Leased vehicles, net	15,752,705			437,335		5.6	%	11,856,109			323,157		5.5	%
Other assets	2,218,872			20,409		1.8	%	2,991,938			14,697		1.0	%
Allowance for credit losses	(3,191,443		)	—		—		(3,334,789		)	—		—
Total assets	$	45,101,873		$	2,973,697			$	40,316,990		$	2,718,333
Liabilities and equity
Liabilities:
Notes payable	$	35,715,392		$	664,421	3.7	%	$	31,589,063		$	514,981	3.3	%
Other liabilities	2,222,743			—		—		2,003,770			—		—
Total liabilities	37,938,135			664,421				33,592,833			514,981

Total stockholders' equity	7,163,738			—				6,724,157			—
Total liabilities and equity	$	45,101,873		$	664,421			$	40,316,990		$	514,981

Results of Operations

The following table presents the Company’s results of operations for the three and six months ended ~~March 31,~~June 30, 2019 and 2018:


	For the Three Months Ended March 31,					For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018		2019			2018			2019			2018
						(Dollar amounts in thousands)
Interest on finance receivables and loans	$	1,253,580		$	1,168,540	$	1,261,098		$	1,211,006		$	2,514,678		$	2,379,546
Leased vehicle income	649,560			504,278		676,236			537,897			1,325,796			1,042,175
Other finance and interest income	10,247			7,137		11,437			8,494			21,684			15,631
Total finance and other interest income	1,913,387			1,679,955		1,948,771			1,757,397			3,862,158			3,437,352
Interest expense	334,382			241,028		330,039			273,953			664,421			514,981
Leased vehicle expense	444,019			358,683		444,442			360,335			888,461			719,018
Net finance and other interest income	1,134,986			1,080,244		1,174,290			1,123,109			2,309,276			2,203,353
Provision for credit losses	550,879			510,341		430,676			406,544			981,555			916,885
Net finance and other interest income after provision for credit losses	584,107			569,903		743,614			716,565			1,327,721			1,286,468
Profit sharing	6,968			4,377		13,345			12,853			20,313			17,230
Net finance and other interest income after provision for credit losses and profit sharing	577,139			565,526		730,269			703,712			1,307,408			1,269,238
Total other income	51,085			25,053		30,411			22,384			81,496			47,437
Total operating expenses	290,957			287,912		280,649			276,950			571,606			564,862
Income before income taxes	337,267			302,667		480,031			449,146			817,298			751,813
Income tax expense	89,764			58,052		111,764			114,120			201,528			172,172
Net income	$	247,503		$	244,615	$	368,267		$	335,026		$	615,770		$	579,640

Net income	$	247,503		$	244,615	$	368,267		$	335,026		$	615,770		$	579,640
Change in unrealized gains (losses) on cash flow hedges, net of tax	(21,039		)	12,800		(34,045		)	(761		)	(55,084		)	12,039
Unrealized gains (losses) on available-for-sale debt securities, net of tax	$	462		$	—	$	539		—			$	1,001		$	—
Comprehensive income	$	226,926		$	257,415	$	334,761		$	334,265		$	561,687		$	591,679

Three and Six Months Ended ~~March 31,~~June 30, 2019 Compared to Three and Six Months Ended ~~March 31,~~June 30, 2018

Interest on Finance Receivables and Loans


	Three Months Ended									Three Months Ended									Six Months Ended
	March 31,				Increase (Decrease)					June 30,				Increase (Decrease)					June 30,				Increase (Decrease)
	2019		2018		Amount			Percent		2019		2018		Amount			Percent		2019		2018		Amount			Percent
	(Dollar amounts in thousands)									(Dollar amounts in thousands)
Income from individually acquired retail installment contracts	$	1,156,023	$	1,076,319	$	79,704		7	%	$	1,169,785	$	1,123,860	$	45,925		4	%	$	2,325,808	$	2,200,178	$	125,630		6	%
Income from purchased receivables portfolios	1,413		2,841		(1,428		)	(50	)%	939		$	2,244	(1,305		)	(58	)%	2,352		$	5,085	(2,733		)	(54	)%
Income from receivables from dealers	122		120		2			2	%	51		$	130	(79		)	(61	)%	173		$	250	(77		)	(31	)%
Income from personal loans	96,022		89,260		6,762			8	%	90,323		$	84,772	5,551			7	%	186,345		$	174,032	12,313			7	%
Total interest on finance receivables and loans	$	1,253,580	$	1,168,540	$	85,040		7	%	$	1,261,098	$	1,211,006	$	50,092		4	%	$	2,514,678	$	2,379,545	$	135,133		6	%

Income from individually acquired retail installment contracts increased ~~$80~~$46 million, or 7%4%, from the ~~first~~second quarter of 2018 to the ~~first~~second quarter of 2019, and increased $126 million, or 6%, from the six months ended June 30, 2018 to the six months ended June 30, 2019, primarily due to ~~6.2%~~5.1% and 5.6% increase respectively, in the average outstanding balance of the ~~portfolio and newer originations with higher loan APRs.~~portfolio.

Income from purchased receivables-credit impaired portfolios decreased $1 million, or ~~50%~~58%, from the ~~first~~second quarter of 2018 to the ~~first~~second quarter of 2019, and decreased $3 million , or 54%, from the six months ended June 30, 2018 to the six months ended June 30, 2019, due to the continued runoff of the portfolios, as the Company has made no portfolio acquisitions accounted for under ASC 310-30 since 2012.

Income from personal loans increased $7$6 million, or 8%7%, from the ~~three months ended March 31,~~second quarter of 2018 to the ~~three~~second quarter of 2019, and increased $12 million, or 7%, from the six months ended ~~March 31,~~June 30, 2018 to the six months ended June 30, 2019, primarily due to ~~0.5% increase in the average outstanding balance of the portfolio and~~ newer originations with higher loan APRs.

Leased Vehicle Income and Expense


	Three Months Ended								Three Months Ended								Six Months Ended
	March 31,				Increase (Decrease)				June 30,				Increase (Decrease)				June 30,				Increase (Decrease)
	2019		2018		Amount		Percent		2019		2018		Amount		Percent		2019		2018		Amount		Percent
	(Dollar amounts in thousands)								(Dollar amounts in thousands)
Leased vehicle income	$	649,560	$	504,278	$	145,282	29	%	$	676,236	$	537,897	$	138,339	26	%	$	1,325,796	$	1,042,175	$	283,621	27	%
Leased vehicle expense	444,019		358,683		85,336		24	%	444,442		360,335		84,107		23	%	888,461		719,018		169,443		24	%
Leased vehicle income, net	$	205,541	$	145,595	$	59,946	41	%	$	231,794	$	177,562	$	54,232	31	%	$	437,335	$	323,157	$	114,178	35	%

Leased vehicle income and expense increased in the three and six months ended ~~March 31,~~June 30, 2019, when compared to the same periods in 2018, due to increase in the average outstanding balance of the portfolio by ~~35% .~~31% and 33% respectively. Through the Chrysler Agreement, the Company receives manufacturer incentives on new leases originated under the program in the form of lease subvention payments, which are amortized over the term of the lease and reduce depreciation expense within ~~Leased~~leased vehicle expense.

Interest Expense


	Three Months Ended										Three Months Ended										Six Months Ended
	March 31,						Increase (Decrease)				June 30,						Increase (Decrease)				June 30,						Increase (Decrease)
	2019			2018			Amount		Percent		2019			2018			Amount		Percent		2019			2018			Amount		Percent
	(Dollar amounts in thousands)										(Dollar amounts in thousands)
Interest expense on notes payable	$	343,312		$	253,372		$	89,940	35	%	$	336,813		$	287,369		$	49,444	17	%	$	680,125		$	540,741		$	139,384	26	%
Interest expense on derivatives	(8,930		)	(12,344		)	3,414		(28	)%	(6,774		)	(13,416		)	6,642		(50	)%	(15,704		)	(25,760		)	10,056		(39	)%
Total interest expense	$	334,382		$	241,028		$	93,354	39	%	$	330,039		$	273,953		$	56,086	20	%	$	664,421		$	514,981		$	149,440	29	%

Total Interest expense increased ~~$93~~$56 million, or ~~39%~~20%, from the ~~first~~second quarter of 2018 to the ~~first~~second quarter of 2019, and increased $149 million, or 29%, from the six months ended June 30, 2018 to the six months ended June 30, 2019, primarily due ~~(a)~~an increase in average outstanding debt balance by 13.3% and 13.1% respectively, and increased cost of funds resulting from higher market rates and wider ~~spreads; (b) an increase in average outstanding debt balance by 13%.~~spreads.

Provision for Credit Losses

Three Months Ended
March 31, Increase (Decrease)
2019 2018 Amount Percent
(Dollar amounts in thousands)
Provision for credit losses $ 550,879
$ 510,341
$ 40,538
8 %



	Three Months Ended								Six Months Ended
	June 30,				Increase (Decrease)				June 30,				Increase (Decrease)
	2019		2018		Amount		Percent		2019		2018		Amount		Percent
	(Dollar amounts in thousands)
Provision for credit losses	$	430,676	$	406,544	$	24,132	6	%	$	981,555	$	916,885	$	64,670	7	%

Provision for credit losses increased ~~$41~~$24 million, or 8%6%, from the ~~three months ended March 31,~~second quarter of 2018 to the ~~three~~second quarter of 2019, and increased $65 million, or 7%, from the six months ended ~~March 31,~~June 30, 2018 to the six months ended June 30, 2019, primarily due to increase in portfolio by 5.3% and higher net charge offs ~~for three months ended March 31, 2019, and an increase~~ in ~~portfolio by 10.5%.~~2019.

Profit Sharing

Three Months Ended
March 31, Increase (Decrease)
2019 2018 Amount Percent
(Dollar amounts in thousands)
Profit sharing $ 6,968
$ 4,377
$ 2,591
59 %



	Three Months Ended								Six Months Ended
	June 30,				Increase (Decrease)				June 30,				Increase (Decrease)
	2019		2018		Amount		Percent		2019		2018		Amount		Percent
	(Dollar amounts in thousands)
Profit sharing	$	13,345	$	12,853	$	492	4	%	$	20,313	$	17,230	$	3,083	18	%

Profit sharing expense consists of revenue sharing related to the Chrysler Agreement and profit sharing on personal loans originated pursuant to the agreements with Bluestem. Profit sharing increased in the three and six months ended ~~March 31,~~June 30, 2019 compared to the same periods in 2018, primarily ~~because of~~due to increase in ~~Chrysler profit sharing expense.~~lease portfolio.

Other Income


	Three Months Ended											Three Months Ended											Six Months Ended
	March 31,						Increase (Decrease)					June 30,						Increase (Decrease)					June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2019			2018			Amount			Percent		2019			2018			Amount			Percent
	(Dollar amounts in thousands)											(Dollar amounts in thousands)
Investment losses, net	$	(67,097	)	$	(86,520	)	$	19,423		22	%	$	(84,787	)	$	(82,634	)	$	(2,153	)	(3	)%	$	(151,884	)	$	(169,154	)	$	17,270		10	%
Servicing fee income	23,806			26,182			(2,376		)	(9	)%	25,002			27,538			(2,536		)	(9	)%	48,808			53,720			(4,912		)	(9	)%
Fees, commissions, and other	94,376			85,391			8,985			11	%	90,196			77,480			12,716			16	%	184,572			162,871			21,701			13	%
Total other income	$	51,085		$	25,053		$	26,032		104	%	$	30,411		$	22,384		$	8,027		36	%	$	81,496		$	47,437		$	34,059		72	%
Average serviced for others portfolio	$	8,887,964		$	8,697,711		$	190,253		2	%	$	8,996,182		$	9,103,107		$	(106,925	)			$	8,970,346		$	8,928,448		$	41,898

Investment losses, net, ~~for~~decreased $17 million, or 10%, from the ~~three~~six months ended ~~March 31,~~June 30, 2018 to the six months ended June 30, 2019, ~~and 2018, decreased $19 million, or 22%,~~ primarily because of no asset sales in 2019. The Company recorded a loss of ~~$17~~$20 million during ~~first quarter of~~the six months ended June 30, 2018, related to asset sales.

The Company records servicing fee income on loans that it services but does not own and does not report on its balance sheet. Servicing fee income decreased ~~$2 million, or~~ 9%~~, from the first quarter of 2018~~ in 2019, as compared to ~~the first quarter of 2019,~~2018, due to the lower average balances for serviced portfolio that had higher servicing fee rates. The serviced for others portfolio as of ~~March 31,~~June 30, 2019 and 2018 was as follows:


	March 31,				June 30,
	2019		2018		2019		2018
	(Dollar amounts in thousands)				(Dollar amounts in thousands)
SBNA and Santander retail installment contracts	$	5,735,648	$	3,660,760	$	6,853,846	$	4,458,912
SBNA leases	202		97,274		163		7,042
Total serviced for related parties	5,735,850		3,758,034		6,854,009		4,465,954
Chrysler Capital securitizations	520,842		1,182,457		369,113		960,057
Other third parties	2,487,473		3,782,602		2,059,186		4,128,950
Total serviced for third parties	3,008,315		4,965,059		2,428,299		5,089,007
Total serviced for others portfolio	$	8,744,165	$	8,723,093	$	9,282,308	$	9,554,961

The Company’s fees, commissions, and other, primarily includes late fees, miscellaneous, and other income. This income increased ~~11% from the three months ended March 31,~~in 2019, as compared 2018, ~~to the three months ended March 31, 2019,~~ primarily due to the increase in referral fee income from SBNA related to origination support services.

Total Operating Expenses


	Three Months Ended									Three Months Ended									Six Months Ended
	March 31,				Increase (Decrease)					June 30,				Increase (Decrease)					June 30,				Increase (Decrease)
	2019		2018		Amount			Percent		2019		2018		Amount			Percent		2019		2018		Amount			Percent
	(Dollar amounts in thousands)									(Dollar amounts in thousands)
Compensation expense	$	127,894	$	122,005	$	5,889		5	%	$	122,678	$	118,598	$	4,080		3	%	$	250,572	$	240,603	$	9,969		4	%
Repossession expense	70,860		72,081		(1,221		)	(2	)%	69,699		63,660		6,039			9	%	140,559		135,741		4,818			4	%
Other operating costs	92,203		93,826		(1,623		)	(2	)%	88,272		94,692		(6,420		)	(7	)%	180,475		188,518		(8,043		)	(4	)%
Total operating expenses	$	290,957	$	287,912	$	3,045		1	%	$	280,649	$	276,950	$	3,699		1	%	$	571,606	$	564,862	$	6,744		1	%

Compensation expense increased ~~$6 million, or 5%, from the first quarter of 2018~~three and six months ended June 30, 2019 compared to the ~~first quarter of 2019,~~same periods in 2018, primarily due to an increase in number of employees period over period.

Repossession expense increased three and six months ended June 30, 2019 compared to the same periods in 2018, primarily due to an increase in number of repossessions in 2019.

Other operating costs decreased three and six months ended June 30, 2019 compared to the same periods in 2018, primarily due to a decrease in legal accruals in 2019.

Income Tax Expense


	Three Months Ended										Three Months Ended											Six Months Ended
	March 31,						Increase (Decrease)				June 30,						Increase (Decrease)					June 30,						Increase (Decrease)
	2019			2018			Amount		Percent		2019			2018			Amount			Percent		2019			2018			Amount		Percent
	(Dollar amounts in thousands)										(Dollar amounts in thousands)
Income tax expense	$	89,764		$	58,052		$	31,712	55	%	$	111,764		$	114,120		$	(2,356	)	(2	)%	$	201,528		$	172,172		$	29,356	17	%
Income before income taxes	337,267			302,667			34,600		11	%	480,031			449,146			30,885			7	%	817,298			751,813			65,486		9	%
Effective tax rate	26.6		%	19.2		%					23.3		%	25.4		%						24.7		%	22.9		%

The effective tax rate increased from ~~19.2% in~~22.9% for the ~~first quarter of~~six months ended June 30, 2018 to ~~26.6% in~~24.7% for the ~~first quarter of~~six months ended June 30, 2019, primarily due to certain state return to provision true-ups and decrease in electric vehicle credits in 2019.

Other Comprehensive Income (Loss)

Three Months Ended
March 31, Increase (Decrease)
2019 2018 Amount Percent
(Dollar amounts in thousands)
Change in unrealized gains (losses) on cash flow hedges and available-for-sale securities, net of tax $ (20,577 ) $ 12,800
$ (33,377 ) (261 )%



	Three Months Ended											Six Months Ended
	June 30,						Increase (Decrease)					June 30,					Increase (Decrease)
	2019			2018			Amount			Percent		2019			2018		Amount			Percent
	(Dollar amounts in thousands)
Change in unrealized gains (losses) on cash flow hedges and available-for-sale securities, net of tax	$	(33,506	)	$	(761	)	$	(32,745	)	4,303	%	$	(54,083	)	$	12,039	$	(66,122	)	549	%

The change in unrealized gains (losses) for the three and six months ended ~~March 31,~~June 30, 2019 as compared to the three and six months ended ~~March 31,~~June 30, 2018 was primarily driven by interest income realized into Statement of Income in 2019.

Credit Quality

Loans and Other Finance Receivables

Nonprime loans comprise 82% of the Company’s portfolio as of ~~March 31,~~June 30, 2019. The Company records an allowance for credit losses to cover the estimate of inherent losses on individually acquired retail installment contracts and other loans and receivables held for investment. The Company’s ~~held~~allowance for ~~investment portfolio~~credit losses as a percentage of retail installment contracts acquired individually, ~~receivables from dealers, and personal loans~~ was comprised of the following at ~~March 31,~~June 30, 2019 and December 31, 2018:

March 31, 2019
Retail Installment Contracts
Acquired
Individually (a) Receivables from
Dealers Personal Loans
Non-TDR TDR
Unpaid principal balance $ 23,905,478
$ 4,916,251
$ 13,169
$ 1,952
Credit loss allowance - specific —
(1,280,649 ) —
—
Credit loss allowance - collective (1,891,351 ) —
(137 ) (605 )
Discount (151,909 ) (32,519 ) —
—
Capitalized origination costs and fees 79,841
3,843
—
138
Net carrying balance $ 21,942,059
$ 3,606,926
$ 13,032
$ 1,485
Allowance as a percentage of unpaid principal balance 7.9 % 26.0 % 1.0 % 31.0 %
Allowance and discount as a percentage of unpaid principal balance 8.5 % 26.7 % 1.0 % 31.0 %



	June 30, 2019				December 31, 2018
	Non-TDR		TDR		Non-TDR		TDR
Allowance as a percentage of unpaid principal balance	8.0	%	25.6	%	7.9	%	26.3	%
Allowance and discount as a percentage of unpaid principal balance	8.5	%	26.2	%	8.6	%	27.1	%

~~(a) As~~

Note: Refer to Note 4 to these Condensed Consolidated Financial Statements for the details on the components of ~~March 31, 2019, used car financing represented 57%~~the carrying value of ~~our outstanding~~ retail installment contracts acquired ~~individually. 85%~~individually held for investment as of ~~this used car financing consisted~~June 30, 2019 and December 31, 2018.

As of ~~nonprime auto loans.~~

December 31, 2018
Retail Installment Contracts
Acquired
Individually (a) Receivables from
Dealers Personal Loans
Non-TDR TDR
Unpaid principal balance $ 23,054,157
$ 5,378,603
$ 14,710
$ 2,637
Credit loss allowance - specific —
(1,416,743 ) —
—
Credit loss allowance - collective (1,819,360 ) —
(153 ) (761 )
Discount (172,659 ) (40,333 ) —
—
Capitalized origination costs and fees 77,398
4,448
—
138
Net carrying balance $ 21,139,536
$ 3,925,975
$ 14,557
$ 2,014
Allowance as a percentage of unpaid principal balance 7.9 % 26.3 % 1.0 % 28.9 %
Allowance and discount as a percentage of unpaid principal balance 8.6 % 27.1 % 1.0 % 28.9 %

~~(a) As of~~June 30, 2019 and December 31, 2018, used car financing represented 57% of our outstanding retail installment contracts acquired individually. 85% of this used car financing consisted of nonprime auto loans.

In the past, the Company acquired certain retail installment contracts in pools at a discount due to credit deterioration subsequent to their origination. The Company anticipates the expected credit losses at purchase and records income thereafter based on the expected effective yield, recording impairment if performance is worse than expected at purchase. Any deterioration in the performance of the purchased portfolios results in an incremental impairment. The balances of these purchased receivables portfolios were as follows at ~~March 31, 2019~~ ~~and~~ ~~December 31, 2018~~:

March 31,
2019 December 31, 2018
(Dollar amounts in thousands)
Outstanding balance $ 28,153
$ 30,631
Outstanding recorded investment, net of impairment $ 18,030
$ 19,390

A summary of the credit risk profile of the Company’s ~~consumer loans~~retail installment contracts held for investment, by FICO® score, number of trade lines, and length of credit history, each as determined at origination, as of ~~March 31,~~June 30, 2019 and December 31, 2018 was as follows (dollar amounts in billions, totals may not foot due to rounding):



June 30, 2019
Trade Lines		1				2				3				4+				Total
FICO	Months History	$		%		$		%		$		%		$		%		$		%
No-FICO (a)	<36	$	2.6	96	%	$	0.1	4	%	$	—	—		$	—	—		$	2.7	9	%
No-FICO (a)	36+	0.4		40	%	0.2		20	%	0.1		10	%	0.3		30	%	1.0		4	%
<540	<36	0.1		33	%	0.1		33	%	—		—	%	0.1		33	%	0.3		1	%
<540	36+	0.2		4	%	0.2		4	%	0.2		4	%	4.5		87	%	5.1		18	%
540-599	<36	0.3		38	%	0.2		25	%	0.1		12	%	0.2		25	%	0.8		3	%
540-599	36+	0.2		2	%	0.3		3	%	0.3		3	%	8.0		92	%	8.8		30	%
600-639	<36	0.3		38	%	0.2		25	%	0.1		12	%	0.2		25	%	0.8		3	%
600-639	36+	0.1		2	%	0.1		2	%	0.1		2	%	4.3		94	%	4.6		16	%
>640	<36	0.4		43	%	0.2		22	%	0.1		11	%	0.2		22	%	0.9		3	%
>640	36+	0.1		3	%	0.1		3	%	0.1		3	%	3.6		91	%	3.9		13	%
Total		$	4.7	16	%	$	1.7	6	%	$	1.1	4	%	$	21.4	74	%	$	28.9	100	%



December 31, 2018
Trade Lines		1				2				3				4+				Total
FICO	Months History	$		%		$		%		$		%		$		%		$		%
No-FICO (a)	<36	$	2.5	96	%	$	0.1	4	%	$	—	—		$	—	—		$	2.6	9	%
No-FICO (a)	36+	0.4		40	%	0.2		20	%	0.1		10	%	0.3		30	%	1.0		4	%
<540	<36	0.1		25	%	0.1		25	%	0.1		25	%	0.1		25	%	0.4		1	%
<540	36+	0.2		4	%	0.3		5	%	0.3		5	%	4.7		86	%	5.5		19	%
540-599	<36	0.3		37	%	0.2		25	%	0.1		13	%	0.2		25	%	0.8		3	%
540-599	36+	0.2		2	%	0.2		2	%	0.3		4	%	7.7		92	%	8.4		30	%
600-639	<36	0.2		33	%	0.1		17	%	0.1		17	%	0.2		33	%	0.6		2	%
600-639	36+	0.1		2	%	0.1		2	%	0.1		2	%	4.2		94	%	4.5		16	%
>640	<36	0.3		43	%	0.2		29	%	0.1		14	%	0.1		14	%	0.7		2	%
>640	36+	0.1		2	%	0.1		2	%	0.1		2	%	3.7		94	%	4.0		14	%
Total		$	4.4	15	%	$	1.6	6	%	$	1.3	5	%	$	21.2	74	%	$	28.5	100	%

March 31, 2019
Trade Lines 1 2 3 4+ Total
FICO Months History $ % $ % $ % $ % $ %
No-FICO <36 $ 2.6
96 % $ 0.1
4 % $ —
—
$ —
—
$ 2.7
9 %
36+ 0.4
40 % 0.2
20 % 0.1
10 % 0.3
30 % 1.0
4 %
<540 <36 0.1
25 % 0.1
25 % 0.1
25 % 0.1
25 % 0.4
1 %
36+ 0.2
4 % 0.3
6 % 0.3
6 % 4.5
84 % 5.3
18 %
540-599 <36 0.3
38 % 0.2
25 % 0.1
12 % 0.2
25 % 0.8
3 %
36+ 0.2
2 % 0.2
2 % 0.3
3 % 8.0
93 % 8.7
30 %
600-639 <36 0.3
38 % 0.2
25 % 0.1
12 % 0.2
25 % 0.8
3 %
36+ 0.1
2 % 0.1
2 % 0.1
2 % 4.3
94 % 4.6
16 %
>640 <36 0.3
49 % 0.1
17 % 0.1
17 % 0.1
17 % 0.6
2 %
36+ 0.1
3 % 0.2
5 % 0.1
3 % 3.6
89 % 4.0
14 %
Total $ 4.6
16 % $ 1.7
6 % $ 1.3
4 % $ 21.3
74 % $ 28.9
100 %

December 31, 2018
Trade Lines 1 2 3 4+ Total
FICO Months History $ % $ % $ % $ % $ %
No-FICO <36 $ 2.5
96 % $ 0.1
4 % $ —
—
$ —
—
$ 2.6
9 %
36+ 0.4
40 % 0.2
20 % 0.1
10 % 0.3
30 % 1.0
4 %
<540 <36 0.1
25 % 0.1
25 % 0.1
25 % 0.1
25 % 0.4
1 %
36+ 0.2
4 % 0.3
5 % 0.3
5 % 4.7
86 % 5.5
19 %
540-599 <36 0.3
37 % 0.2
25 % 0.1
13 % 0.2
25 % 0.8
3 %
36+ 0.2
2 % 0.2
2 % 0.3
4 % 7.7
92 % 8.4
30 %
600-639 <36 0.2
33 % 0.1
17 % 0.1
17 % 0.2
33 % 0.6
2 %
36+ 0.1
2 % 0.1
2 % 0.1
2 % 4.2
94 % 4.5
16 %
>640 <36 0.3
43 % 0.2
29 % 0.1
14 % 0.1
14 % 0.7
2 %
36+ 0.1
2 % 0.1
2 % 0.1
2 % 3.7
94 % 4.0
14 %
Total $ 4.4
15 % $ 1.6
6 % $ 1.3
5 % $ 21.2
74 % $ 28.5
100 %

(a) Includes commercial loans

Delinquencies

The Company considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date.

In each case, the period of delinquency is based on the number of days payments are contractually past due. Delinquencies may vary from period to period based upon the average age or seasoning of the portfolio, seasonality within the calendar year, and economic factors. Historically, the Company’s delinquencies have been highest in the period from November through January due to consumers’ holiday spending.

The following is a summary of delinquencies on retail installment contracts held for investment as of ~~March 31,~~June 30, 2019 and December 31, 2018:


	March 31, 2019				December 31, 2018				June 30, 2019				December 31, 2018
	Dollars (in thousands)		Percent (a)		Dollars (in thousands)		Percent (a)		Dollars (in thousands)		Percent (a)		Dollars (in thousands)		Percent (a)
Principal 30-59 days past due	$	2,419,641	8.4	%	$	3,121,795	11.0	%	$	2,726,187	9.4	%	$	3,121,795	11.0	%
Delinquent principal over 59 days (b)	1,225,807		4.2	%	1,713,775		6.0	%	1,368,427		4.7	%	1,713,775		6.0	%
Total delinquent principal	$	3,645,448	12.6	%	$	4,835,570	17.0	%	$	4,094,614	14.1	%	$	4,835,570	17.0	%

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

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

~~In addition,~~Refer to Note 4 to these Condensed Consolidated Financial Statements for the details on the retail installment contracts acquired individually held for investment that were placed on nonaccrual status, as of ~~March 31, 2019 and December 31, 2018:~~

March 31, 2019 December 31, 2018
Amount Percent (a) Amount Percent (a)
Non-TDR $ 724,025
2.5 % $ 834,921
2.9 %
TDR 537,259
1.9 % 733,218
2.6 %
Total nonaccrual principal $ 1,261,284
4.4 % $ 1,568,139
5.5 %

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

~~All of the Company’s receivables from dealers were current as of March 31,~~June 30, 2019 and December 31, 2018.

Credit Loss Experience

The following is a summary of net losses and repossession activity on ~~finance receivables~~retail installment contracts held for investment for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018.


	Three Months Ended March 31,						Six Months Ended June 30,
	2019			2018			2019			2018
	Retail Installment Contracts						Retail Installment Contracts
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
Principal outstanding at period end	$	28,849,755		$	26,121,158		$	28,971,311		$	27,511,718
Average principal outstanding during the period	$	28,624,598		$	26,047,727		$	28,816,732		$	26,441,945
Number of receivables outstanding at period end	1,813,284			1,717,403			1,824,968			1,714,744
Average number of receivables outstanding during the period	1,805,099			1,704,781			1,810,734			1,729,592
Number of repossessions (a)	76,963			77,763			144,957			142,625
Number of repossessions as a percent of average number of receivables outstanding	17.1		%	18.2		%	16.0		%	16.5		%
Net losses	$	615,204		$	540,855		$	1,077,631		$	945,941
Net losses as a percent of average principal amount outstanding	8.6		%	8.3		%	7.5		%	7.2		%

(a) Repossessions are net of redemptions. The number of repossessions includes repossessions from the outstanding portfolio and from accounts already charged off.

There were no charge-offs on the Company’s receivables from dealers for the three and six months ended ~~March 31,~~June 30, 2019 and 2018.

Deferrals and Troubled Debt Restructurings

In accordance with the Company’s policies and guidelines, the Company may offer extensions (deferrals) to consumers on its retail installment contracts, whereby the consumer is allowed to move a maximum of three payments per event to the end of the loan. More than 90% of deferrals granted are for two months. The Company’s policies and guidelines limit the frequency of each new deferral that may be granted to one deferral every six months, regardless of the length of any prior deferral. The maximum number of lifetime months extended for all automobile retail installment contracts is eight, while some marine and recreational vehicle contracts have a maximum of twelve months extended to reflect their longer term. Additionally, the Company generally limits the granting of deferrals on new accounts until a requisite number of payments has been received. During the deferral period, the Company continues to accrue and collect interest on the loan in accordance with the terms of the deferral agreement.

At the time a deferral is granted, all delinquent amounts may be deferred or paid. This may result in the classification of the loan as current and therefore not considered a delinquent account. However, there are other instances when a deferral is granted but the loan is not brought completely current, such as when the account days past due is greater than the deferment period granted. Such accounts are aged based on the timely payment of future installments in the same manner as any other account. Historically, the majority of deferrals are approved for borrowers who are either 31-60 or 61-90 days delinquent, and these borrowers are typically reported as current after deferral. A customer is limited to one deferral each six months, and if a customer receives two or more deferrals over the life of the loan, the loan will advance to a TDR designation.

The following is a summary of deferrals on the Company’s retail installment contracts held for investment as of the dates indicated:


	March 31, 2019				December 31, 2018				June 30, 2019				December 31, 2018
	(Dollar amounts in thousands)								(Dollar amounts in thousands)
Never deferred	$	21,006,521	72.8	%	$	20,212,452	71.0	%	$	21,533,545	74.3	%	$	20,212,452	71.0	%
Deferred once	3,615,890		12.5	%	3,690,522		13.0	%	3,513,241		12.1	%	3,690,522		13.0	%
Deferred twice	1,777,579		6.2	%	1,952,894		6.9	%	1,649,535		5.7	%	1,952,894		6.9	%
Deferred 3 - 4 times	2,355,275		8.2	%	2,516,451		8.8	%	2,201,028		7.6	%	2,516,451		8.8	%
Deferred greater than 4 times	94,491		0.3	%	90,917		0.3	%	99,486		0.3	%	90,917		0.3	%
Total	$	28,849,756			$	28,463,236			$	28,996,835			$	28,463,236

The Company evaluates the results of deferral strategies based upon the amount of cash installments that are collected on accounts after they have been deferred versus the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, the Company believes that payment deferrals granted according to its policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.

Changes in deferral levels do not have a direct impact on the ultimate amount of consumer finance receivables charged off. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent that deferrals impact the ultimate timing of when an account is charged off, historical charge-off ratios, loss confirmation periods, and cash flow forecasts for loans classified as TDRs used in the determination of the adequacy of the Company’s allowance for credit losses are also impacted.

Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the allowance for credit losses and related provision for credit losses. Changes in the charge-off ratios and loss confirmation periods are considered in determining the appropriate level of allowance for credit losses and related provision for credit losses, including the allowance and provision for loans that are not classified as TDRs. For loans that are classified as TDRs, the Company generally compares the present value of expected cash flows to the outstanding recorded investment of TDRs to determine the amount of TDR impairment and related provision for credit losses that should be recorded. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell.

The Company also may agree, or be required by operation of law or by a bankruptcy court, to grant a modification involving one or a combination of the following: a reduction in interest rate, a reduction in loan principal balance, a temporary reduction of monthly payment, or an extension of the maturity date. The servicer of the Company’s revolving personal loans also may grant modifications in the form of principal or interest rate reductions or payment plans. Similar to deferrals, the Company believes modifications are an effective portfolio management technique. Not all modifications are classified as TDRs as the loan may not meet the scope of the applicable guidance or the modification may have been granted for a reason other than the borrower’s financial difficulties.

A loan that has been classified as a TDR remains so until the loan is liquidated through payoff or charge-off. TDRs are generally placed on nonaccrual status when the account becomes past due more than 60 days. For loans on nonaccrual status, interest income is recognized on a cash basis; For loans on nonaccrual status, the accrual of interest is resumed and reinstated if a delinquent account subsequently becomes 60 days or less past due.

TDR loans are generally measured based on the present value of expected cash flows. The recognition of interest income on TDR loans reflects management’s best estimate of the amount that is reasonably assured of collection and is consistent with the estimate of future cash flows used in the impairment measurement. Any accrued but unpaid interest is fully reserved for through the recognition of additional impairment on the recorded investment, if not expected to be collected.

The following is a summary of the principal balance as of ~~March 31,~~June 30, 2019 and December 31, 2018 of loans that have received these modifications and concessions:


	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
	Retail Installment Contracts				Retail Installment Contracts
	(Dollar amounts in thousands)				(Dollar amounts in thousands)
Temporary reduction of monthly payment (a)	$	1,856,055	$	2,137,334	$	1,627,478	$	2,137,334
Bankruptcy-related accounts	49,956		54,373		44,922		54,373
Extension of maturity date	28,340		25,644		28,985		25,644
Interest rate reduction	56,617		54,906		54,301		54,906
Max buy rate and fair lending (b)	5,120,118		4,685,522		5,470,323		4,685,522
Other	133,509		137,958		126,151		137,958
Total modified loans	$	7,244,595	$	7,095,737	$	7,352,160	$	7,095,737

(a) Reduces a customer’s payment for a temporary time period (no more than six months)

(b) Max buy rate modifications comprises of loans modified by the Company to adjust the interest rate quoted in a dealer-arranged financing. The Company reassesses the contracted APR when changes in the deal structure are made (e.g., higher down payment and lower vehicle price). If any of the changes result in a lower APR, the contracted rate is reduced. Substantially all deal structure changes occur within seven days of the date the contract is signed. These deal structure changes are made primarily to give the consumer the benefit of a lower rate due to an improved contracted deal structure compared to the deal structure that was approved during the underwriting process. Fair Lending modifications comprises of loans modified by the Company related to possible “disparate impact” credit discrimination in indirect vehicle finance. These modifications are not considered a TDR event because they do not relate to a concession provided to a customer experiencing financial difficulty.

~~A summary of~~

Refer to Note 4 to these Condensed Consolidated Financial Statements for the details on the Company’s recorded investment in TDRs ~~as of the dates indicated is as follows:~~

March 31, 2019 December 31, 2018
Retail Installment Contracts
(Dollar amounts in thousands)
Outstanding recorded investment (a) $ 4,891,375
$ 5,365,477
Impairment (1,280,649 ) (1,416,743 )
Outstanding recorded investment, net of impairment $ 3,610,726
$ 3,948,734

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

Aand a summary of ~~the Company’s~~ delinquent TDRs, as of ~~the dates indicated is as follows:~~

March 31, 2019 December 31, 2018
Retail Installment Contracts (a)
(Dollar amounts in thousands)
Principal 30-59 days past due $ 978,359
$ 1,265,946
Delinquent principal over 59 days 549,692
810,589
Total delinquent TDRs $ 1,528,051
$ 2,076,535

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

~~As of March 31,~~June 30, 2019 and December 31, ~~2018, the Company did not have any Dealer Loans classified as TDRs and had not granted deferrals or modifications on any of these loans.~~2018.

The following table shows the components of the changes in the recorded investment in retail installment contract TDRs (excluding collateral-dependent bankruptcy TDRs) during the three and six months ended ~~March 31,~~June 30, 2019 and 2018:


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Balance — beginning of period	$	5,365,477		$	6,328,159		$	4,891,375		$	6,094,823		$	5,365,477		$	6,328,159
New TDRs	331,792			582,664			293,079			711,927			624,871			1,294,591
Charge-offs	(464,758		)	(549,584		)	(368,758		)	(406,514		)	(833,516		)	(956,098		)
Paydowns (a)	(341,606		)	(267,304		)	(309,202		)	(305,296		)	(650,808		)	(572,600		)
Others	470			888			(14,570		)	928			(14,100		)	1,816
Balance — end of period	$	4,891,375		$	6,094,823		$	4,491,924		$	6,095,868		$	4,491,924		$	6,095,868

(a) Includes net discount accreted in interest income for the period.

For loans not classified as TDRs, the Company generally estimates an appropriate allowance for credit losses based on delinquency status, the Company’s historical loss experience, estimated values of underlying collateral, and various economic factors. Once a loan has been classified as a TDR, it is generally assessed for impairment based on the present value of expected future cash flows discounted at the loan’s original effective interest rate considering all available evidence. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell. Due to this key distinction in allowance calculations, the coverage ratio is higher for TDRs in comparison to non-TDRs.

The table below presents the Company’s allowance ratio for TDR and non-TDR individually acquired retail installment contracts as of ~~March 31,~~June 30, 2019 and December 31, 2018:


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
TDR - Unpaid principal balance	$	4,916,251		$	5,378,603		$	4,519,334		$	5,378,603
TDR - Impairment	1,280,649			1,416,743			1,156,303			1,416,743
TDR - Allowance ratio	26.0		%	26.3		%	25.6		%	26.3		%

Non-TDR - Unpaid principal balance	$	23,905,478		$	23,054,157		$	24,451,977		$	23,054,157
Non-TDR - Allowance	1,891,351			1,819,360			1,961,893			1,819,360
Non-TDR Allowance ratio	7.9		%	7.9		%	8.0		%	7.9		%

Total - Unpaid principal balance	$	28,821,729		$	28,432,760		$	28,971,311		$	28,432,760
Total - Allowance	3,172,000			3,236,103			3,118,196			3,236,103
Total - Allowance ratio	11.0		%	11.4		%	10.8		%	11.4		%

The total allowance ~~ratio for TDR retail installment contracts~~ decreased from December 31, 2018 to ~~March 31,~~June 30, 2019, primarily driven by lower TDR ~~balances.~~balances and better recovery rates.

Liquidity Management, Funding and Capital Resources

Source of Funding

The Company requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. The Company funds its operations through its lending relationships with 12 third-party banks, SHUSA and through securitizations in the ABS market and flow agreements. The Company seeks to issue debt that appropriately matches the cash flows of the assets that it originates. The Company has more than ~~$7.1~~$7.3 billion of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements.

During the ~~three months ended March 31,~~second quarter of 2019, the Company completed on-balance sheet funding transactions totaling approximately $4.0 billion, including:

~~One~~ securitizations on the Company’s SDART platform for approximately ~~$0.9~~$1.0 billion;

~~Two~~ securitizations on the Company’s DRIVE, deeper subprime platform, for approximately ~~$2.0~~$1.2 billion;

private lease securitization for approximately $1.2 billion; and

~~One~~ private amortizing lease facility for approximately ~~$1.0~~$0.5 billion.

~~As of March 31, 2019 and December 31, 2018,~~

Refer to Note 5 to these Condensed Consolidated Financial Statements for the details on the Company’s ~~debt consisted of the following:~~

March 31,
2019 December 31,
2018
Third - party revolving credit facilities $ 5,063,786
$ 4,478,214
Related - party revolving credit facilities 3,503,055
3,503,293
Total revolving credit facilities 8,566,841
7,981,507

Public securitizations 18,489,643
19,225,179
Privately issued amortizing notes 8,590,669
7,676,351
Total secured structured financings 27,080,312
26,901,530
Total debt $ 35,647,153
$ 34,883,037
total debt.

Credit Facilities

Third-party Revolving Credit Facilities

Warehouse Lines

The Company has one credit facility with seven banks providing an aggregate commitment of $4.4 billion for the exclusive use of providing short-term liquidity needs to support Chrysler Capital lease financing. As of ~~March 31,~~June 30, 2019 and December 31, 2018, there was an outstanding balance of approximately ~~$2.5~~$3.0 billion and $2.2 billion, respectively, on this facility in aggregate. The facility requires reduced Advance Rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.

The Company has six credit facilities with nine banks providing an aggregate commitment of $5.7 billion for the exclusive use of providing short-term liquidity needs to support Core and Chrysler Capital Loan financing. As of ~~March 31,~~June 30, 2019 and December 31, 2018, there was an outstanding balance of approximately ~~$2.3~~$3.1 billion and $2.0 billion, respectively, on these facilities in aggregate. These facilities reduced Advance Rates in the event of delinquency, credit loss, as well as various other metrics exceeding specific thresholds.

Repurchase Agreements

The Company obtains financing through investment management or repurchase agreements whereby the Company pledges retained subordinate bonds on its own securitizations as collateral for repurchase agreements with various borrowers and at renewable terms ranging up to one year. As of ~~March 31,~~June 30, 2019 and December 31, 2018, there was an outstanding balance of ~~$287~~$426 million and $299 million, respectively, under these repurchase agreements.

Lines of Credit with Santander and Related Subsidiaries

Santander and certain of its subsidiaries, such as SHUSA, historically have provided, and continue to provide, the Company with significant funding support in the form of committed credit facilities. The Company’s debt with these affiliated entities consisted of the following:


	As of March 31, 2019 (amounts in thousands)							As of June 30, 2019 (amounts in thousands)
	Counterparty	Utilized Balance		Committed Amount		Average Outstanding Balance	Maximum Outstanding Balance	Counterparty	Utilized Balance		Committed Amount		Average Outstanding Balance		Maximum Outstanding Balance
Promissory Note	SHUSA	250,000		250,000		250,000	250,000	SHUSA	$	250,000	$	250,000	$	250,000	$	250,000
Promissory Note	SHUSA	250,000		250,000		250,000	250,000	SHUSA	$	250,000	$	250,000	$	250,000	$	250,000
Promissory Note	SHUSA	250,000		250,000		250,000	250,000	SHUSA	$	250,000	$	250,000	$	250,000	$	250,000
Promissory Note	SHUSA	250,000		250,000		250,000	250,000	SHUSA	$	250,000	$	250,000	$	250,000	$	250,000
Promissory Note	SHUSA	300,000		300,000		300,000	300,000	SHUSA	$	300,000	$	300,000	$	193,923	$	300,000
Promissory Note	SHUSA	400,000		400,000		400,000	400,000	SHUSA	$	400,000	$	400,000	$	400,000	$	400,000
Promissory Note	SHUSA	500,000		500,000		500,000	500,000	SHUSA	$	500,000	$	500,000	$	500,000	$	500,000
Promissory Note	SHUSA	650,000		650,000		650,000	650,000	SHUSA	$	500,000	$	500,000	$	46,961	$	500,000
Promissory Note	SHUSA	650,000		650,000		650,000	650,000	SHUSA	$	650,000	$	650,000	$	650,000	$	650,000
Promissory Note								SHUSA	$	650,000	$	650,000	$	650,000	$	650,000
Line of Credit	SHUSA	—		500,000		100,833	375,000	SHUSA	$	—	$	500,000	$	109,917	$	435,000
Line of Credit	SHUSA	—		3,000,000		—	—	SHUSA	$	—	$	3,000,000	$	—	$	—
		$	3,500,000	$	7,000,000				$	4,000,000	$	7,500,000


	As of March 31, 2018 (amounts in thousands)									As of June 30, 2018 (amounts in thousands)
	Counterparty	Utilized Balance		Committed Amount		Average Outstanding Balance		Maximum Outstanding Balance		Counterparty	Utilized Balance		Committed Amount		Average Outstanding Balance		Maximum Outstanding Balance
Line of credit	Santander-NY	$	30,000	$	1,000,000	$	166,444	$	610,000	Santander-NY	$	—	$	1,000,000	$	107,253	$	595,000
Line of credit	Santander-NY	114,200		750,000		498,973		750,000		Santander-NY	122,200		750,000		575,135		687,900
Line of credit	SHUSA	250,000		250,000		250,000		250,000		SHUSA	250,000		250,000		250,000		250,000
Promissory Note	SHUSA	250,000		250,000		250,000		250,000		SHUSA	250,000		250,000		250,000		250,000
Promissory Note	SHUSA	300,000		300,000		300,000		300,000		SHUSA	300,000		300,000		300,000		300,000
Promissory Note	SHUSA	400,000		400,000		400,000		400,000		SHUSA	400,000		400,000		400,000		400,000
Promissory Note	SHUSA	500,000		500,000		500,000		500,000		SHUSA	500,000		500,000		500,000		500,000
Promissory Note	SHUSA	650,000		650,000		650,000		650,000		SHUSA	650,000		650,000		650,000		650,000
Promissory Note	SHUSA	650,000		650,000		650,000		650,000		SHUSA	650,000		650,000		650,000		650,000
Line of Credit	SHUSA	—		3,000,000		—		—		SHUSA	—		3,000,000		—		—
		$	3,144,200	$	7,750,000						$	3,122,200	$	7,750,000

SHUSA provides the Company with $3.5 billion of committed revolving credit that can be drawn on an unsecured basis. SHUSA also provides the Company with ~~$3.5~~$4.0 billion of term promissory notes with maturities ranging from ~~March 2019~~May 2020 to December 2023.

Under an agreement with Santander, the Company paid a fee of 12.5 basis points per annum on certain warehouse facilities, as they renew, for which Santander provided a guarantee of the Company’s servicing obligations. The Company recognized guarantee fee expense of zero and $2.0 million for the three months ended March 31, 2019 and 2018, respectively.

There were no derivative financial instruments with Santander and affiliates outstanding as of March 31, 2019 and December 31, 2018. Interest and mark-to-market adjustments on previously outstanding derivative financial instruments with Santander and its affiliates totaled $238 and $229 for the three months ended March 31, 2019 and 2018, respectively.

Secured Structured Financings

The Company’s secured structured financings primarily consist of public, SEC-registered securitizations. The Company also executes private securitizations under Rule 144A of the Securities Act and privately ~~issue~~issues amortizing notes. The Company has on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately ~~$27~~$26 billion.

Flow Agreements

In addition to the Company’s credit facilities and secured structured financings, the Company has a flow agreement in place with a third party for charged off assets. Loans and leases sold under these flow agreements are not on the Company’s balance sheet but provide a stable stream of servicing fee income and may also provide a gain or loss on sale. The Company continues to actively seek additional ~~such~~ flow agreements.

Off-Balance Sheet Financing

Beginning in 2017, the Company had the option to sell a contractually determined amount of eligible prime loans to Santander, through securitization platforms. As all of the notes and residual interests in the securitizations were issued to Santander, the Company recorded these transactions as true sales of the retail installment contracts securitized, and removed the sold assets from the Company’s consolidated balance sheets. Beginning in 2018, this program has been replaced with a new program with SBNA, whereby the Company has agreed to provide SBNA with origination support services in connection with the processing, underwriting and ~~purchase~~purchasing of retail loans, primarily from ~~Chrysler deals,~~FCA dealers, all of which are serviced by the Company.

Cash Flow Comparison

The Company has historically produced positive net cash from operating activities. The Company’s investing activities primarily consist of originations, acquisitions, and ~~acquisitions of~~collections from retail installment contracts. SC’s financing activities primarily consist of borrowing, repayments of debt, share repurchases, and payment of dividends.


	Three Months Ended March 31,						Six Months Ended June 30,
	2019			2018			2019			2018
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
Net cash provided by operating activities	$	1,476,283		$	1,884,352		$	2,862,369		$	3,512,239
Net cash used in investing activities	(1,906,965		)	(1,577,174		)	(4,363,359		)	(4,872,968		)
Net cash provided by financing activities	671,123			125,539			1,622,883			724,120

Net Cash Provided by Operating Activities

Net cash provided by operating activities decreased by ~~$0.4~~$0.6 billion from the ~~three~~six months ended ~~March 31,~~June 30, 2018 to the ~~three~~six months ended ~~March 31,~~June 30, 2019, mainly due to lower origination of assets held for sale.

Net Cash Used in Investing Activities

Net cash used in investing activities ~~increased~~decreased by ~~$0.3~~$0.5 billion from the ~~three~~six months ended ~~March 31,~~June 30, 2018 to the ~~three~~six months ended ~~March 31,~~June 30, 2019, primarily due to increase of ~~$0.8~~$0.7 billion ~~for originations of~~in collections on finance receivables held for investment, offset by increase of ~~$0.4~~$0.2 billion ~~in collections on~~for originations of finance receivables held for investment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities increased by ~~$0.5~~$0.9 billion from the ~~three~~six months ended ~~March 31,~~June 30, 2018 to the ~~three~~six months ended ~~March 31,~~June 30, 2019, primarily due to the increase of proceeds from notes payable.

Contingencies and Off-Balance Sheet Arrangements

For information regarding the Company’s contingencies and off-balance sheet arrangements, refer to Note 10 - Commitments and Contingencies in the accompanying condensed consolidated financial statements.

Contractual Obligations

The Company leases its headquarters in Dallas, Texas, its servicing centers in Texas, Colorado, Arizona, and Puerto Rico, and an operations facilities in California, Texas and Colorado under non-cancelable operating leases that expire at various dates through 2027. The Company also has various debt obligations entered into in the normal course of business as a source of funds.

The following table summarizes the Company’s contractual obligations as of ~~March 31,~~June 30, 2019:


	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
	(In thousands)										(In thousands)
Operating lease obligations	$	12,612	$	29,917	$	25,233	$	32,391	$	100,153	$	8,382	$	29,917	$	25,233	$	32,391	$	95,923
Notes payable - credit facilities and related party	760,346		7,053,440		750,000		—		8,563,786		425,695		9,338,469		750,000		—		10,514,164
Notes payable - secured structured financings (a)	1,125,084		6,933,245		12,989,593		6,095,328		27,143,250		431,135		7,434,332		12,636,638		5,811,270		26,313,375
Contractual interest on debt	1,107,286		1,087,883		231,971		35,480		2,462,620		1,138,671		1,076,721		211,103		26,111		2,452,606
Total	$	3,005,328	$	15,104,485	$	13,996,797	$	6,163,199	$	38,269,809	$	2,003,883	$	17,879,439	$	13,622,974	$	5,869,772	$	39,376,068

(a)Adjusted for unamortized costs of ~~$63~~$65 million.

Risk Management Framework

The Company’s risk management framework is overseen by its Board, the RC, its management committees, its executive management team, an independent risk management function, an internal audit function and all of its associates. The RC, along with the Company’s full Board, is responsible for establishing the governance over the risk management process, providing oversight in managing the aggregate risk position and reporting on the comprehensive portfolio of risk categories and the potential impact these risks can have on the Company’s risk profile. The Company’s primary risks include, but are not limited to, credit risk, market risk, liquidity risk, operational risk and model risk. For more information regarding the Company’s risk management framework, please refer to the Risk Management Framework section of the Company’s 2018 Annual Report on Form 10-K.

Credit Risk

The risk inherent in the Company’s loan and lease portfolios is driven by credit and collateral quality, and is affected by borrower-specific and economy-wide factors such as changes in employment. The Company manages this risk through its underwriting, pricing and credit approval guidelines and servicing policies and practices, as well as geographic and other concentration limits.

The Company’s automated originations process is intended to reflect a disciplined approach to credit risk management. The Company’s robust historical data on both organically originated and acquired loans is used by Company to perform advanced loss forecasting. Each applicant is automatically assigned a proprietary loss forecasting score using information such as FICO®, debt-to-income ratio, loan-to-value ratio, and more than 30 other predictive factors, placing the applicant in one of 100 pricing tiers. The Company continuously maintains and adjusts the pricing in each tier to reflect market and risk trends. In addition to the automated process, the Company maintains a team of underwriters for manual review, consideration of exceptions, and review of deal structures with dealers. The Company generally tightens its underwriting requirements in times of greater economic uncertainty to compete in the market at loss and approval rates acceptable for meeting the Company’s required returns. The Company’s underwriting policy has also been adjusted to meet the requirements of the Company’s contracts such as the Chrysler Agreement. In both cases, the Company has accomplished this by adjusting risk-based pricing, the material components of which include interest rate, down payment, and loan-to-value.

The Company monitors early payment defaults and other potential indicators of dealer or customer fraud and uses the monitoring results to identify dealers who will be subject to more extensive requirements when presenting customer applications, as well as dealers with whom the Company will not do business at all.

Market Risk

Interest Rate Risk

The Company measures and monitors interest rate risk on at least a monthly basis. The Company borrows money from a variety of market participants to provide loans and leases to the Company’s customers. The Company’s gross interest rate spread, which is the difference between the income earned through the interest and finance charges on the Company’s finance receivables and lease contracts and the interest paid on the Company’s funding, will be negatively affected if the expense incurred on the Company’s borrowings increases at a faster pace than the income generated by the Company’s assets.

The Company’s Interest Rate Risk policy is designed to measure, monitor and manage the potential volatility in earnings stemming from changes in interest rates. The Company generates finance receivables which are predominantly fixed rate and

borrow with a mix of fixed and variable rate funding. To the extent that the Company’s asset and liability re-pricing characteristics are not effectively matched, the Company may utilize interest rate derivatives, such as interest rate swap agreements, to mitigate against interest rate risk. As of ~~March 31,~~June 30, 2019, the notional value of the Company’s interest rate swap agreements was $6.3 billion. The Company also enters into Interest Rate Cap agreements as required under certain lending agreements. In order to mitigate any interest rate risk assumed in the Cap agreement required under the lending agreement, the Company may enter into a second interest rate cap (Back-to-Back). As of ~~March 31,~~June 30, 2019 the notional value of the Company’s interest rate cap agreements was ~~$19.4~~$18.4 billion, under which, all notional was executed Back-to-Back.

The Company monitors its interest rate exposure by conducting interest rate sensitivity analysis. For purposes of reflecting a possible impact to earnings, the twelve-month net interest income impact of an instantaneous 100 basis point parallel shift in prevailing interest rates is measured. As of ~~March 31,~~June 30, 2019, the twelve-month impact of a 100 basis point parallel increase in the interest rate curve would decrease the Company’s net interest income by ~~$34~~$35 million. In addition to the sensitivity analysis on net interest income, the Company also measures Market Value of Equity (MVE) to view the interest rate risk position. MVE measures the change in value of Balance Sheet instruments in response to an instantaneous 100 basis point parallel increase, including and beyond the net interest income twelve-month horizon. As of ~~March 31,~~June 30, 2019, the impact of a 100 basis point parallel increase in the interest rate curve would decrease the Company’s MVE by ~~$116~~$135 million.

Collateral Risk

The Company’s lease portfolio presents an inherent risk that residual values recognized upon lease termination will be lower than those used to price the contracts at inception. Although the Company has elected not to purchase residual value insurance at the present time, the Company’s residual risk is somewhat mitigated by the residual risk-sharing agreement with FCA. Under the agreement, the Company is responsible for incurring the first portion of any residual value gains or losses up to the first 8%. The Company and FCA then equally share the next 4% of any residual value gains or losses (i.e., those gains or losses that exceed 8% but are less than 12%). Finally, FCA is responsible for residual value gains or losses over 12%, capped at a certain limit, after which the Company incurs any remaining gains or losses. From the inception of the agreement with FCA through the ~~first~~second quarter of 2019, approximately ~~88%~~89% of full term leases have not exceeded the first and second portions of any residual losses under the agreement. The Company also utilizes industry data, including the ALG benchmark for residual values, and employ a team of individuals experienced in forecasting residual values.

Similarly, lower used vehicle prices also reduce the amount that can be recovered when remarketing repossessed vehicles that serve as collateral underlying loans. The Company manages this risk through loan-to-value limits on originations, monitoring of new and used vehicle values using standard industry guides, and active, targeted management of the repossession process.

The Company does not currently have material exposure to currency fluctuations or inflation.

Liquidity Risk

The Company views liquidity as integral to other key elements such as capital adequacy, asset quality and profitability. The Company’s primary liquidity risk relates to the ability to finance new originations through the Bank and ABS securitization markets. The Company has a robust liquidity policy that is intended to manage this risk. The liquidity risk policy establishes the following guidelines:

that the Company maintain at least eight external credit providers (as of ~~March 31,~~June 30, 2019, it had ~~twelve)~~12);

that the Company relies on Santander and affiliates for no more than 30% of its funding (as of ~~March 31,~~June 30, 2019, Santander and affiliates provided ~~10%~~11% of its funding);

that no single lender’s commitment should comprise more than 33% of the overall committed external lines (as of ~~March 31,~~June 30, 2019, the highest single lender’s commitment was ~~21%~~23% (not including repo)); and

that no more than 35% and 65% of the Company’s ~~debt~~warehouse facilities mature in the next six months and ~~no more than 65%~~twelve months respectively (as of June 30, 2019, none of the Company’s ~~debt mature in the next twelve months (as of March 31, 2019, 11.19% and 20.90% of the Company’s debt~~warehouse facilities is scheduled to mature in the next six ~~and~~or twelve ~~months, respectively); and~~

that the Company maintain unused capacity of at least $6.0 billion, including flow agreements, in excess of the Company’s expected peak usage over the following twelve months (as of March 31, 2019, the Company had twelve-month rolling unused capacity of $11.2 billion)months).

The Company’s liquidity risk policy also requires that the Company’s Asset Liability Committee monitor many indicators, both market-wide and company-specific, to determine if action may be necessary to maintain the Company’s liquidity position. The Company’s liquidity management tools include daily, monthly and twelve-month rolling cash requirements forecasts, long term strategic planning forecasts, monthly funding usage and availability reports, daily sources and uses reporting, structural liquidity risk exercises, key risk indicators, and the establishment of liquidity contingency plans. The Company also performs monthly stress tests in which it forecasts the impact of various negative scenarios (alone and in combination), including

reduced credit availability, higher funding costs, lower Advance Rates, lending covenant breaches, lower dealer discount rates, and higher credit losses.

The Company generally seeks funding from the most efficient and cost effective source of liquidity from the ABS markets, third-party facilities, and Santander. Additionally, the Company can reduce originations to significantly lower levels, if necessary, during times of limited liquidity.

The Company had established a qualified like-kind exchange program to defer tax liability on gains on sale of vehicle assets at lease termination. If the Company does not meet the safe harbor requirements of IRS Revenue Procedure 2003-39, the Company may be subject to large, unexpected tax liabilities, thereby generating immediate liquidity needs. The Company believes that its compliance monitoring policies and procedures are adequate to enable the Company to remain in compliance with the program requirements. The Tax Cuts and Jobs Act permanently eliminated the ability to exchange personal property after January 1, 2018, which resulted in the like-kind exchange program being discontinued in 2018.

Operational Risk

The Company is exposed to operational risk loss arising from failures in the execution of our business activities. These relate to failures arising from inadequate or failed processes, failures in its people or systems, or from external events. The Company’s operational risk management program Third Party Risk Management, Business Continuity Management, Information Risk Management, Information Risk Management, Fraud Risk Management, and Operational Risk Management, with key program elements covering Loss Event, Issue Management, Risk Reporting and Monitoring, and Risk Control Self-Assessment (RCSA).

To mitigate operational risk, the Company maintains an extensive compliance, internal control, and monitoring framework, which includes the gathering of corporate control performance threshold indicators, Sarbanes-Oxley testing, monthly quality control tests, ongoing compliance monitoring with applicable regulations, internal control documentation and review of processes, and internal audits. The Company also utilizes internal and external legal counsel for expertise when needed. Upon hire and annually, all associates receive comprehensive mandatory regulatory compliance training. In addition, the Board receives annual regulatory and compliance training. The Company uses industry-leading call mining that assist the Company in analyzing potential breaches of regulatory requirements and customer service. The Company’s call mining software analyzes all customer service calls, converting speech to text, and mining for specific words and phrases that may indicate inappropriate comments by a representative. The software also detects escalated voice volume, enabling a supervisor to intervene if necessary. This tool is intended to enable the Company to effectively manage and identify training opportunities for associates, as well as track and resolve customer complaints through a robust quality assurance program.

Model Risk

The Company mitigates model risk through a robust model validation process, which includes committee governance and a series of tests and controls. The Company utilizes SHUSA’s Model Risk Management group for all model validation to verify models are performing as expected and in line with their design objectives and business uses.

Critical Accounting Estimates

Accounting policies are integral to understanding the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations. The preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company reviews its accounting policies, assumptions, estimates and judgments to ensure that its financial statements are presented fairly and in accordance with U.S. GAAP. There have been no material changes in the Company’s critical accounting estimates from those disclosed in Item 7 of the 2018 Annual Report on Form 10-K.

Recent Accounting Pronouncements

Information concerning the Company’s implementation and impact of new accounting standards issued by the Financial Accounting Standards Board (FASB) is discussed in Note 1- Recently Issued Accounting Pronouncements, in the accompanying condensed consolidated financial statements.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Incorporated by reference from Part I, Item 2 - “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Risk Management Framework” above.



Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of ~~March 31,~~June 30, 2019, we did not maintain effective disclosure controls and procedures because of the material weakness in internal control over financial reporting described below. In light of this material weakness, management completed additional procedures and analysis to validate the accuracy and completeness of the reported financial results. In addition, management engaged the Audit Committee directly, in detail, to discuss the procedures and analysis performed to ensure the reliability of the Company’s financial reporting. Notwithstanding this material weakness, based on additional analyses and other procedures performed, management concluded that the financial statements included in this Quarterly Report on Form 10-Q fairly present in all material respects

our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with GAAP.

A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.

These deficiencies in controls could result in a misstatement of any account balance or disclosure that in turn, would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected.

Control Environment, Risk Assessment, Control Activities and Monitoring

We did not maintain effective internal control over financial reporting related to our control environment, risk assessment, control activities and monitoring as follows:

Management did not effectively execute a strategy to hire and retain a sufficient complement of personnel with an appropriate level of knowledge, experience, and training in certain areas important to financial reporting.

The tone at the top was insufficient to ensure there were adequate mechanisms and oversight to ensure accountability for the performance of internal control over financial reporting responsibilities and to ensure corrective actions were appropriately prioritized and implemented in a timely manner.

There was not adequate management oversight of accounting and financial reporting activities in implementing certain accounting practices to conform to the Company’s policies and GAAP.

There was not an adequate assessment of changes in risks by management that could significantly impact internal control over financial reporting or an adequate determination and prioritization of how those risks should be managed.

There was not adequate management oversight and identification of models, spreadsheets and completeness and accuracy of data material to financial reporting.

There were insufficiently documented Company accounting policies and insufficiently detailed Company procedures to put policies into effective action.

There was a lack of appropriate tone at the top in establishing an effective control owner risk and controls self-assessment process which contributed to a lack of clarity about ownership of risk assessments and control design and effectiveness.

There was insufficient governance, oversight and monitoring of the credit loss allowance and accretion processes and a lack of defined roles and responsibilities in monitoring functions.

This material weakness resulted in the revision of the Company’s consolidated financial statements for the year ended December 31, 2017, as well as the unaudited condensed consolidated financial statements for the quarters ended June 30, 2018, March 31, 2018, September 30, 2017, June 30, 2017 and March 31, 2017.

Remediation Status of Reported Material Weakness

The Company is currently working to remediate the material weakness described above, including assessing the need for additional remediation steps and implementing additional measures to remediate the underlying causes that gave rise to the material weakness. The Company is committed to maintaining a strong internal control environment and to ensure that a proper, consistent tone is communicated throughout the organization, including the expectation that previously existing deficiencies will be remediated through implementation of processes and controls to ensure strict compliance with GAAP.

To address the material weakness, noted above, the Company has taken the following measures:

Appointed an additional independent director to the Audit Committee of the Board with extensive experience as a financial expert in our industry to provide further experience on the committee.

Established regular working group meetings, with appropriate oversight by management of both the Company and its parent to strengthen accountability for performance of internal control over financial reporting responsibilities and prioritization of corrective actions.

Hired a Chief Accounting Officer and other key personnel with significant public-company financial reporting experience and the requisite skillsets in areas important to financial reporting.

Developed and implemented a plan to enhance its risk assessment processes, control procedures and documentation.

Reallocated additional Company resources to improve the oversight for certain financial models.

Increased accounting resources with qualified permanent resources to ensure sufficient staffing to conduct enhanced financial reporting procedures and to continue the remediation efforts.

Improved management documentation, review

controls and oversight of accounting and financial reporting activities to ensure accounting practices conform to the Company’s policies and GAAP.

Increased accounting participation in critical governance activities to ensure an adequate assessment of risk activities which may impact financial reporting or the related internal controls.

Completed a comprehensive review and update of all accounting policies, process descriptions and control activities.

Developed and implemented additional documentation, controls and governance for the credit loss allowance and accretion processes.

Conducted internal training courses over Sarbanes-Oxley regulations and the Company’s internal control over financial reporting program for Company personnel that take part and assist in the execution of the program.

While progress has been made to remediate this material weakness, as of ~~March 31,~~June 30, 2019, we are still in the process of testing the operating effectiveness of the new and enhanced controls. We believe our actions will be effective in remediating the material weakness, and we continue to devote significant time and attention to these efforts. However, the material weakness will not be considered remediated until the applicable remedial processes and procedures have been in place for a sufficient period of time and management has concluded, through testing, that these controls are effective. Accordingly, the material weakness was not remediated as of ~~March 31,~~June 30, 2019.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended ~~March 31,~~June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Disclosure Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II: OTHER INFORMATION



Item 1.	Legal Proceedings

Reference should be made to Note 10 to the accompanying condensed consolidated financial statements, which is incorporated herein by reference, for information regarding legal proceedings in which the Company is involved, which supplements the discussion of legal proceedings set forth in Note 11 to the accompanying consolidated financial statements of the 2018 Annual Report on Form 10-K.



Item 1A.	Risk Factors

~~Information concerning our risk factors~~

The Company is ~~contained~~subject to a number of risks potentially impacting its business, financial condition, results of operations and cash flow that are set forth under Part I, Item IA, Risk Factors, in ~~Item 1A of our 2018~~the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The information presented below should be read in conjunction with the risk factors disclosed in that Form 10-K.

Uncertainty regarding LIBOR may adversely affect our business

The UK Financial Conduct Authority, which regulates LIBOR, announced in July 2017 that it will no longer persuade or require banks to submit rates for the calculation of LIBOR after 2021. This announcement has resulted in uncertainty about the future of LIBOR and other rates used as interest rate “benchmarks,” and suggests that the continuation of LIBOR on the current basis will not be guaranteed after 2021, and that LIBOR could be discontinued or modified by 2021.

Several international working groups are focused on transition plans and alternative contract language seeking to address potential market disruption that could arise from the replacement of LIBOR with a new reference rate. For example, in the U.S., the Alternative Reference Rates Committee, a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York and comprised of private sector entities, banking regulators and other financial regulators, including the SEC, has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on observable U.S. Treasury-backed repurchase transactions. In addition, ISDA is working to develop alternative contract language applicable in the event of LIBOR’s discontinuation that could apply to derivatives entered into on ISDA documentation. Separately, the SEC issued a statement in July 2019 encouraging market participants to focus on managing the transition from LIBOR prior to 2021 to avoid business and market disruptions, including incorporating fallback language in contracts in the event LIBOR is unavailable and proactive negotiations with counterparties to existing contracts that utilize LIBOR as a reference rate.

While we have begun the process of identifying existing contracts that extend past 2021 to determine their exposure to LIBOR, there can be no assurance that we and other market participants will be adequately prepared for an actual discontinuation of LIBOR, or of the timing of the adoption and degree of integration of alternative reference rates in financial markets relevant to us.If LIBOR ceases to exist, or if new methods of calculating LIBOR are established, interest rates on our loans, deposits, derivatives and other financial instruments tied to LIBOR, as well as revenue and expenses associated with those financial instruments, may be adversely affected, and financial markets relevant to us could be disrupted.

Even if financial instruments are transitioned to alternative reference rates successfully, the new reference rates are likely to differ from the previous reference rates, and the value and return on those instruments could be adversely impacted. We could also be subject to increased costs due to paying higher interest rates on our existing financial instruments. We could incur legal risks in the event of such changes, as renegotiation and changes to documentation for new and existing transactions may be required, especially if parties to an instrument cannot agree on how to effect the transition. We could also incur further operational risks due to the potential need to adapt information technology systems, trade reporting infrastructure, and operational processes and controls, including models and hedging strategies.

In addition, it is possible that LIBOR quotes will become unavailable prior to 2021. This could result, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator. In that scenario, risks associated with the transition away from LIBOR would be accelerated for us and the rest of the financial industry.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of the Company’s common stock during the period covered by this Quarterly Report on Form 10-Q.

Share Repurchases and Treasury Stock

~~In July 2018,~~The following table presents information regarding our repurchases of the ~~Board approved purchases by the Company of up to $200 million, excluding commissions, of its outstanding~~Company’s common stock ~~through~~during the quarter ended June ~~2019.~~30, 2019:

~~During~~



Period	Total Number of Shares Purchased	Average Price paid per Share		Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
April 1-April 31	—	$	—	$	400,000
May 1-May 31	365,055	22.79		391,680
June 1-June 30	3,384,637	23.19		313,174
Total	3,749,692	$	23.16

Refer to Note 15 of the ~~year ended December 31, 2018, the Company purchased 9,473,955 shares of its common stock under its~~accompanying condensed consolidated financial statements for additional details on share repurchase program at a cost of approximately $182 million, excluding commissions. In January 2019, the Company purchased the remaining $18 million in share purchases by purchasing 965,430 shares at an average price of $18.40 per share.repurchases.



Item 3.	Defaults upon Senior Securities

None.



Item 4.	Mine Safety Disclosures

Not applicable.



Item 5.	Other Information

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

(Amounts presented as actuals)

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended (the Exchange Act), an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.

The following activities are disclosed in response to Section 13(r) with respect to Santander UK and certain other affiliates of Santander (collectively, the Group). During the period covered by this report:

Santander UK holds ~~two savings~~ accounts ~~and one current account~~ for two customers, with the first customer holding one Savings Account and one Current Account, and the second customer holding one Savings Account. Both customers, who are resident in the ~~U.K. who~~UK, are currently designated by the ~~U.S.~~US under the Specially Designated Global Terrorist (SDGT) sanctions ~~program. Revenues and profits generated by Santander U.K. on these accounts in the three months ended March 31, 2019 were negligible relative to the overall profits of Santander.~~

Santander UK held one savings account and one current account for another customer resident in the UK who is currently designated by the US under the SDGT sanctions program. The United Nations and European Union removed this customer from their equivalent sanctions lists in 2008. The customer relationship predated the designations of the customer under these sanctions. Santander UK determined to put a block on the accounts and the accounts were closed on January 14, 2019.programme. Revenues and profits generated by Santander UK on these accounts in the ~~three months ended March 31,~~first half of 2019 were negligible relative to the overall profits of Santander.

Santander UK holds two frozen current accounts for two U.K. nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by each customer have been frozen since their designation and have remained frozen through the ~~three months ended March 31,~~first half of 2019. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on these accounts ~~during~~in the ~~three months ended March 31,~~first half of 2019.

The Group also has certain legacy performance guarantees for the benefit of Bank Sepah and Bank Mellat (stand-by letters of credit to guarantee the obligations - either under tender documents or under contracting agreements - of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

In the aggregate, all of the transactions described above resulted in gross revenues and net profits ~~for~~in the ~~three months ended March 31,~~first half of 2019, which were negligible relative to the overall revenues and profits of Santander. The Group has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. The Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, the Group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.



Item 6.	Exhibits

The following exhibits are included herein:



Exhibit Number		Description
10.1		Offer letter, by and among Fahmi Karam and Santander Consumer USA Holdings Inc. and Santander Consumer USA Inc., dated July 23, 2019. #
10.2		Amendment to the Master Private Label Financing Agreement, dated June 28, 2019 (certain identified information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed).
31.1*		Chief Executive Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Chief Financial Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase
101.DEF*		XBRL Taxonomy Extension Definition Linkbase
101.LAB*		XBRL Taxonomy Extension Label Linkbase
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase



*	Filed herewith.
#	Indicates management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		Santander Consumer USA Holdings Inc. (Registrant)

By:		/s/ Scott Powell
		Name: Scott Powell
		Title: President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



Signature	Title	Date
/s/ Scott Powell	President and Chief Executive Officer	~~May 1,~~July 31, 2019
Scott Powell	(Principal Executive Officer)
/s/ Juan Carlos Alvarez de Soto	Chief Financial Officer	~~May 1,~~July 31, 2019
Juan Carlos Alvarez de Soto	(Principal Financial and Accounting Officer)

8481




Remainder of 2019	$	1,848,447
2020	1,894,782
2021	838,398
2022	68,060
2023	535
Thereafter	—
Total	$	4,650,222




Remainder of 2019	$	5,734
2020	7,087
2021	5,954
2022	4,354
2023	2,282
Thereafter	113
Total	$	25,524



	Three Months Ended March 31,
	2019			2018
Balance — beginning of period	$	3,359		$	5,642
Provision for lease losses	321			421
Charge-offs	(659		)	(1,381		)
Recoveries	487			1,075
Balance — end of period	$	3,508		$	5,757



	Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
	Assets Presented in the Condensed Consolidated Balance Sheet		Cash Collateral Received (a)			Financial Instruments received (c)			Net Amount
March 31, 2019
Interest rate swaps - third party (b)	$	35,010	$	(852	)	$	(3,878	)	$	30,280
Interest rate caps - third party	136,470		(48,289		)	(71,771		)	16,410
Total derivatives subject to a master netting arrangement or similar arrangement	171,480		(49,141		)	(75,649		)	46,690
Total derivatives not subject to a master netting arrangement or similar arrangement	—		—						—
Total derivative assets	$	171,480	$	(49,141	)	$	(75,649	)	$	46,690
Total financial assets	$	171,480	$	(49,141	)	$	(75,649	)	$	46,690

December 31, 2018
Interest rate swaps - third party	55,520		(23,929		)	—			31,591
Interest rate caps - third party	128,377		(72,830		)	—			55,547
Total derivatives subject to a master netting arrangement or similar arrangement	183,897		(96,759		)	—			87,138
Total derivatives not subject to a master netting arrangement or similar arrangement	—		—			—			—
Total derivative assets	$	183,897	$	(96,759	)	$	—		$	87,138
Total financial assets	$	183,897	$	(96,759	)	$	—		$	87,138



2019	$	12,470
2020	16,465
2021	12,940
2022	12,283
2023	12,393
Thereafter	32,270
Total	$	98,821
Less: Interest	(10,615		)
Present value of lease liabilities	$	88,206



	March 31, 2019		December 31, 2018
Line of credit agreement with Santander - New York Branch (Note 5)	$	—	$	—
Debt facilities with SHUSA (Note 5)	20,399		19,928



Financial Instruments	Fair Value at March 31, 2019		Valuation Technique	Unobservable Inputs	Range
Financial Assets:
Retail installment contracts held for investment	$	11,195	Discounted Cash Flow	Discount Rate	8%-10%
				Default Rate	15%-20%
				Prepayment Rate	6%-8%
				Loss Severity Rate	50%-60%
Personal loans held for sale	$	974,017	Lower of Market or Income Approach	Market Approach
				Market Participant View	70%-80%
				Income Approach
				Discount Rate	15%-25%
				Discount Rate	15%-25%
				Default Rate	30%-40%
				Net Principal & Interest Payment Rate	70%-85%
				Loss Severity Rate	90%-95%



	March 31, 2019		December 31, 2018
Third - party revolving credit facilities	$	5,063,786	$	4,478,214
Related - party revolving credit facilities	3,503,055		3,503,293
Total revolving credit facilities	8,566,841		7,981,507

Public securitizations	18,489,643		19,225,179
Privately issued amortizing notes	8,590,669		7,676,351
Total secured structured financings	27,080,312		26,901,530
Total debt	$	35,647,153	$	34,883,037

1601 Elm Street

Suite 800 ~~Dallas, Texas~~

(Address of principal executive offices)

~~(Zip Code)~~