Santander Consumer USA 10Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2020


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			For the transition period from to

Commission File Number: 001-36270

SANTANDER CONSUMER USA HOLDINGS INC.

(Exact Name of Registrant as Specified in Its Charter)


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

1601 Elm Street

Suite 800

Dallas

Texas

75201

(Address of principal executive offices)

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

Not Applicable

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

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 October 26, 2020

Common Stock ($0.01 par value)

New York Stock Exchange

306,070,972

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 ☒ 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 ☒ 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

☒

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 ☒

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	7
	Unaudited Condensed Consolidated Statements of Equity	8
	Unaudited Condensed Consolidated Statements of Cash Flows	10
	Note 1. Description of Business, Basis of Presentation, and Accounting Policies	12
	Note 2. Finance Receivables	16
	Note 3. Credit Loss Allowance and Credit Quality	19
	Note 4. Leases	24
	Note 5. Other Assets	25
	Note 6. Variable Interest Entities	27
	Note 7. Debt	30
	Note 8. Shareholders' Equity	33
	Note 9. Derivative Financial Instruments	35
	Note 10. Fair Value of Financial Instruments	37
	Note 11. Investment Losses, Net	41
	Note 12. Income Taxes	42
	Note 13. Computation of Basic and Diluted Earnings per Common Share	42
	Note 14. Commitments and Contingencies	43
	Note 15. Related-Party Transactions	47
	Note 16. Employee Benefit Plans	50
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	75
Item 4.	Controls and Procedures	75
PART II: OTHER INFORMATION		76
Item 1.	Legal Proceedings	76
Item 1A.	Risk Factors	76
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults upon Senior Securities	76
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	77
Item 6.	Exhibits	78
SIGNATURES		79

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

Cautionary Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about the Company’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends,” and similar words or phrases. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond the Company’s control. Among the factors that could cause the Company’s actual performance to differ materially from those suggested by the forward-looking statements are:

•the adverse impact of COVID-19 on our business, financial condition, liquidity and results of operations;

•our agreement with FCA (FCA US LLC, formerly Chrysler Group LLC) may not result in currently anticipated levels of growth and is subject to certain conditions that could result in termination of the agreement;

•continually changing federal, state, and local laws and regulations could materially adversely affect our business;

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

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

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

•unexpected costs and delays in connection with exiting our personal lending business;

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

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

•loss of our key management or other personnel, or an inability to attract such management and personnel;

•certain regulations, including but not limited to oversight by the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), the European Central Bank (ECB), and the Federal Reserve Bank of Boston (FRBB), whose oversight and regulation may limit certain of our activities, including share repurchase programs, the timing and amount of dividends and other limitations on our business;

•future changes in our relationship with SHUSA and Banco Santander that could adversely affect our operations; and

•the other factors that are described in Part I, Item IA – Risk Factors of the 2019 Annual Report on Form 10-K, impacts of the COVID-19 outbreak on our business, financial condition, liquidity and results of operations, as noted in the Form 8-K filed with the SEC on April 10, 2020 and impacts of the new credit reserving framework, as noted in Part II, Item 1A of our Form 10-Q for the Quarter ended March 31, 2020 filed with the SEC on May 1, 2020.

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 and 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. Forward-looking statements reflect the current beliefs and expectations of the Company's management and 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 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.


ABS			Asset-backed securities
ACL			Allowance for credit loss
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
Amortized costs			Includes unpaid principal balance (UPB), net of discounts and premiums
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

CECL			Current Expected Credit Loss, Amendments based on ASU 2016-13, ASU 2019-04, and ASU 2019-11
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
COVID-19			Coronavirus disease 2019
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




EIR			Effective interest rate
ECL			Expected credit losses
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
HPI			Housing Price Index
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
PD			Probability of default
Private-label			Financing branded in the name of the product manufacturer rather than in the name of the finance provider

PSRT			Private Santander Retail Auto Lease Trust, a lease securitization platform
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			Includes retail installment contracts individually acquired or originated by the Company and purchased non-credit deteriorated 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
SCART			Santander Consumer Auto Receivables Trust, a securitization platform
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
SREV			Santander Revolving Auto Loan Trust, a securitization platform
Subvention			Reimbursement of the finance provider by a manufacturer for the difference between a market loan or lease rate and the below-market rate given to a customer

TDR			Troubled Debt Restructuring
Trusts			Special purpose entities 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 share amounts)


	September 30, 2020		December 31, 2019
ASSETS
Cash and cash equivalents - $26,920 and $41,785 held at affiliates, respectively	$	105,616	$	81,848
Finance receivables held for sale, net	763,292		1,007,105
Finance receivables held for investment, at amortized cost	33,602,108		30,810,487
Allowance for credit loss	(6,152,378)		(3,043,468)
Finance receivables held for investment, at amortized cost, net	27,449,730		27,767,019
Restricted cash - $27 and $27 held at affiliates, respectively	2,267,154		2,079,239
Accrued interest receivable	428,586		288,615
Leased vehicles, net	16,195,376		16,461,982
Furniture and equipment, net of accumulated depreciation of $99,382 and $85,347, respectively	60,105		59,873

Goodwill	74,056		74,056
Intangible assets, net of amortization of $60,395 and $52,665, respectively	62,341		42,772

Other assets - $5,878 and $30,841 held at affiliates, respectively	1,042,665		1,071,020
TOTAL ASSETS	$	48,448,921	$	48,933,529
LIABILITIES AND EQUITY
LIABILITIES
Borrowings and other debt obligations - $11,208,796 and $5,652,325 to/from affiliates, respectively	$	41,369,347	$	39,194,141

Deferred tax liabilities, net	1,095,238		1,468,222
Accounts payable and accrued expenses - $83,254 and $63,951 held at affiliates, respectively	524,816		563,277



Other liabilities - $816 and $24,730 held at affiliates, respectively	364,708		389,269
TOTAL LIABILITIES	43,354,109		41,614,909
Commitments and contingencies (Notes 7 and 14)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value — 1,100,000,000 shares authorized;
363,138,607 and 362,798,115 shares issued and 306,070,972 and 339,201,748 shares outstanding, respectively	3,061		3,392
Additional paid-in capital	394,428		1,173,262
Accumulated other comprehensive income (loss), net of taxes	(56,882)		(26,693)
Retained earnings	4,754,205		6,168,659
TOTAL STOCKHOLDERS' EQUITY	5,094,812		7,318,620
TOTAL LIABILITIES AND EQUITY	$	48,448,921	$	48,933,529

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				For the Nine Months Ended
	September 30,				September 30,

	2020		2019		2020		2019
Interest on finance receivables and loans	$	1,300,694	$	1,273,022	$	3,811,113	$	3,787,700
Leased vehicle income	725,156		706,302		2,210,684		2,032,098
Other finance and interest income	2,146		9,926		12,354		31,610
Total finance and other interest income	2,027,996		1,989,250		6,034,151		5,851,408
Interest expense — Including $87,851, $54,719 and $221,676 and $145,501 to affiliates, respectively	292,118		335,212		929,934		999,633
Leased vehicle expense	467,172		456,193		1,630,945		1,344,654
Net finance and other interest income	1,268,706		1,197,845		3,473,272		3,507,121
Credit loss expense	340,548		566,849		2,110,331		1,548,404
Net finance and other interest income after credit loss expense	928,158		630,996		1,362,941		1,958,717
Profit sharing	30,414		18,125		56,239		38,438
Net finance and other interest income after credit loss expense and profit sharing	897,744		612,871		1,306,702		1,920,279
Investment losses, net	(68,989)		(86,397)		(279,997)		(238,281)
Servicing fee income — Including $10,050, $13,117, $33,923 and $40,405 from affiliates, respectively	18,574		21,447		56,797		70,255
Fees, commissions, and other — Including $1,254, $13,465, $11,127 and $32,432 from affiliates, respectively	78,924		96,243		256,123		280,815
Total other income	28,509		31,293		32,923		112,789
Compensation and benefits	127,991		132,271		388,960		382,843
Repossession expense	35,910		62,937		115,861		203,496
Other expenses — Including $1,456, $1,222, $3,762 and $3,220 to affiliates, respectively	99,761		134,262		308,193		314,737
Total other expenses	263,662		329,470		813,014		901,076
Income (loss) before income taxes	662,591		314,694		526,611		1,131,992
Income tax expense	172,476		82,156		137,161		283,684
Net income (loss)	$	490,115	$	232,538	$	389,450	$	848,308

Net income (loss)	$	490,115	$	232,538	$	389,450	$	848,308
Other comprehensive income (loss):
Unrealized gains (losses) on cash flow hedges, net of tax of $2,083, $(3,610), $(10,419) and $(21,275), respectively	7,112		(11,158)		(31,726)		(66,241)
Unrealized gains (losses) on available-for-sale and held-to-maturity debt securities net of tax of $(88), $(35), $500 and $286, respectively	(289)		(111)		1,537		890
Comprehensive income (loss)	$	496,938	$	221,269	$	359,261	$	782,957
Net income per common share (basic)	$	1.58	$	0.67	$	1.21	$	2.43
Net income per common share (diluted)	$	1.58	$	0.67	$	1.21	$	2.42
Dividend declared per common share	$	0.22	$	0.22	$	0.66	$	0.62
Weighted average common shares (basic)	310,150,293		345,469,657		321,275,907		349,341,627
Weighted average common shares (diluted)	310,307,265		345,956,043		321,492,331		349,855,822

See notes to unaudited condensed consolidated financial statements.

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited) (In thousands except per share amounts)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance — July 1, 2020	316,235	$	3,162	$	624,554	$	(63,705)	$	4,331,454	$	4,895,465

Stock issued in connection with employee incentive compensation plans	34	—		237		—		—		237
Stock-based compensation expense	—	—		1,010		—		—		1,010

Stock repurchase/Treasury stock	(10,198)	(101)		(223,415)		—		—		(223,516)
Dividends-Common stock, $0.22/share	—	—		—		—		(67,364)		(67,364)
Tax sharing with affiliate	—	—		(7,958)		—		—		(7,958)
Available-for-sale securities, net of taxes	—	—		—		(289)		—		(289)
Net income (loss)	—	—		—		—		490,115		490,115
Other comprehensive income (loss), net of taxes	—	—		—		7,112		—		7,112
Balance — September 30, 2020	306,071	$	3,061	$	394,428	$	(56,882)	$	4,754,205	$	5,094,812

Balance — July 1, 2019	348,130	$	3,481	$	1,413,461	$	(20,567)	$	5,940,886	$	7,337,261
Stock issued in connection with employee incentive compensation plans	214	3		2,886		—		—		2,889
Stock-based compensation expense	—	—		931		—		—		931

Stock repurchase/Treasury stock	(5,480)	(55)		(140,964)		—		—		(141,019)
Dividends-Common stock, $0.22/share	—	—		—		—		(76,129)		(76,129)

Available-for-sale securities, net of taxes	—	—		—		(111)		—		(111)
Net income	—	—		—		—		232,538		232,538
Other comprehensive income (loss), net of taxes	—	—		—		(11,158)		—		(11,158)
Balance — September 30, 2019	342,864	$	3,429	$	1,276,314	$	(31,836)	$	6,097,295	$	7,345,202

See notes to unaudited condensed consolidated financial statements.

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited) (In thousands except per share amounts)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance — January 1, 2020	339,202	$	3,392	$	1,173,262	$	(26,693)	$	6,168,659	$	7,318,620
Cumulative-effect adjustment upon adoption of CECL standard (Note 1)	—	—		—		—		(1,590,885)		(1,590,885)
Tax impact of adoption of ASU 2019-12	—	—		—		—		(382)		(382)
Stock issued in connection with employee incentive compensation plans	340	3		(1,509)		—		—		(1,506)
Stock-based compensation expense	—	—		6,161		—		—		6,161
Stock repurchase/Treasury stock	(33,471)	(334)		(775,636)		—		—		(775,970)

Dividends-Common stock, $0.66/share	—	—		—		—		(212,637)		(212,637)
Tax sharing with affiliate	—	—		(7,850)		—		—		(7,850)
Available-for-sale securities, net of taxes	—	—		—		1,537		—		1,537
Net income (loss)	—	—		—		—		389,450		389,450
Other comprehensive income (Loss), net of taxes	—	—		—		(31,726)		—		(31,726)
Balance — September 30, 2020	306,071	$	3,061	$	394,428	$	(56,882)	$	4,754,205	$	5,094,812

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	756	8		1,312		—		—		1,320
Stock-based compensation expense	—	—		7,973		—		—		7,973
Stock repurchase/Treasury stock	(10,195)	(102)		(245,561)		—		—		(245,663)


Dividends-Common stock, $0.62/share	—	—		—		—		(216,761)		(216,761)
Tax sharing with affiliate	—	—		(2,982)		—		—		(2,982)
Available-for-sale securities, net of taxes	—	—		—		890		—		890
Net income	—	—		—		—		848,308		848,308
Other comprehensive income (loss), net of taxes	—	—		—		(66,241)		—		(66,241)
Balance — September 30, 2019	342,864	$	3,429	$	1,276,314	$	(31,836)	$	6,097,295	$	7,345,202

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 Nine Months Ended September 30,

	2020		2019
Cash flows from operating activities:
Net income (loss)	$	389,450	$	848,308
Adjustments to reconcile net income to net cash provided by operating activities
Derivative mark to market	10,022		14,027
Credit loss expense	2,110,331		1,548,404
Depreciation and amortization	1,726,356		1,439,818
Accretion of discount	(15,231)		(59,793)
Originations and purchases of receivables held for sale	(1,637,194)		0
Proceeds from sales of and collections on receivables held for sale	545,293		101,914
Change in revolving personal loans, net	(59,096)		(144,411)
Investment losses, net	279,997		238,281

Stock-based compensation	6,161		7,973
Deferred tax expense/(benefit)	142,554		268,537
Changes in assets and liabilities:
Accrued interest receivable	(153,199)		6,637
Accounts receivable	3,431		(1,425)
Federal income tax and other taxes	(14,145)		8,161
Other assets	(39,721)		(12,792)
Accrued interest payable	(13,237)		(1,508)
Other liabilities	(29,830)		(46,675)
Net cash provided by operating activities	3,251,942		4,215,456
Cash flows from investing activities:
Originations and purchases of portfolios, and disbursements on finance receivables held for investment	(12,782,253)		(12,193,605)

Collections on finance receivables held for investment	9,223,448		9,207,346
Proceeds from sale of loans held for investment	803,614		0
Leased vehicles purchased	(4,891,504)		(6,754,501)
Manufacturer incentives received	339,717		643,552
Proceeds from sale of leased vehicles	3,094,294		2,733,172
Change in revolving personal loans, net	75,318		64,136


Purchases of available-for-sale securities	0		(85,098)

Proceeds from repayments and maturities of available-for-sale securities	0		6,000
Purchases of held-to-maturity investment securities	(54,584)		0
Proceeds from repayments and maturities of held-to-maturity securities	4,203		0
Purchases of furniture and equipment	(18,117)		(8,503)
Sales of furniture and equipment	3		334
Upfront fee paid to FCA	0		(60,000)


Net cash used in investing activities	(4,205,861)		(6,447,167)
Cash flows from financing activities:
Proceeds from borrowings and other debt obligations, net of debt issuance costs - $11,545,000 and $6,515,000 from affiliates, respectively	37,972,329		33,874,913
Payments on borrowings and other debt obligations - $(5,995,000) and $(4,765,000) to affiliates, respectively	(35,818,793)		(31,151,588)




Proceeds from stock option exercises, gross	673		4,441
Shares repurchased	(775,970)		(245,663)
Dividends paid	(212,637)		(216,761)

Net cash provided by (used in) financing activities	1,165,602		2,265,342

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited) (Dollars in thousands)


	For the Nine Months Ended September 30,

	2020		2019
Net increase (decrease) in cash and cash equivalents and restricted cash	211,683		33,631
Cash and cash equivalents and restricted cash— Beginning of year	2,161,087		2,250,484
Cash and cash equivalents and restricted cash— End of year	$	2,372,770	$	2,284,115
Supplemental cash flow information:
Cash and cash equivalents	105,616		38,589
Restricted cash	2,267,154		2,245,526
Total cash, cash equivalents and restricted cash	$	2,372,770	$	2,284,115

See notes to unaudited condensed consolidated financial statements.

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

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

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

Since May 2013, under the Chrysler Agreement with FCA, the Company has operated as FCA’s preferred provider for consumer loans, leases and dealer loans and provides services to FCA customers and dealers under the CCAP brand. These products and services include consumer retail installment contracts and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. In 2019, the Company entered into an Amendment to the Chrysler Agreement with FCA, which modified that Agreement to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions.

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

As of September 30, 2020, the Company was owned approximately 80.2% by SHUSA, a subsidiary of Santander, and approximately 19.8% by other shareholders.

The Company is taking numerous proactive steps to mitigate the negative financial and operational impacts of COVID-19. Business contingency plans have been implemented and will continue to be adjusted in response to the evolving global situation.

Basis of Presentation

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

The accompanying condensed consolidated financial statements as of September 30, 2020 and December 31, 2019,

and for the three and nine months ended September 30, 2020 and 2019, have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal and recurring adjustments, necessary for the fair statement of the financial position, results of operations and cash flows for the periods indicated and contain adequate disclosure for the fair statement of this interim financial information. 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 Annual Report on Form 10-K for the year ended December 31, 2019.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and those differences may be material. The most significant estimates include the determination of credit loss allowance, accretion of discounts and subvention, impairment, fair value

measurements, 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 show significant variances over time.

Business Segment Information

The Company has 1 reportable segment, Consumer Finance, which includes the Company’s vehicle financial products and services, including retail installment contracts, vehicle leases, and Dealer Loans, as well as financial products and services related to recreational vehicles and marine vehicles. It also includes the Company’s personal loan and point-of-sale financing operations.

Recently Adopted Accounting Standards

Since January 1, 2020, the Company adopted the following FASB ASUs:

•Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance significantly changed how entities measure credit losses for most financial assets and certain other instruments that are measured at amortized cost. The amendment introduced a new credit reserving framework known as "Current Expected Credit Loss" (“CECL”), which replaced the incurred loss impairment framework with one that reflects expected credit losses over the full expected life of financial assets and commitments, and requires consideration of a broader range of reasonable and supportable information, including estimation of future expected changes in macroeconomic conditions. Additionally, the standard changed the accounting framework for purchased credit deteriorated held-to-maturity ("HTM") debt securities and loans, and dictates measurement of available-for-sale ("AFS") debt securities using an allowance instead of reducing the carrying amount as it is under the prior OTTI framework. The Company adopted the new guidance on January 1, 2020, on a modified retrospective basis, which resulted in an increase in the ACL of approximately $2.1 billion, a decrease to opening retained earnings of approximately $1.6 billion and a decrease in deferred tax liabilities, net of approximately $0.5 billion, at January 1, 2020. The increase was based on forecasts of expected future economic conditions and was primarily driven by the fact that the allowance covers expected lifetime credit losses of the loan portfolios. The standard did not have a material impact on the Company's other financial instruments.

•In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional expedients to reduce the costs and complexity associated with the high volume of contractual modifications expected in the transition away from LIBOR as the benchmark rate in contracts and hedges. These optional expedients allow entities to negate many of the accounting impacts of modifying contracts and hedging relationships necessitated by reference rate reform, allowing them to generally maintain the accounting as if a change had not occurred. The Company adopted this standard during the three months ended March 31, 2020, and will elect the practical expedients relative to the Company’s contracts and hedging relationships modified as a result of reference rate reform through December 31, 2022. These practical expedients did not have a material impact on the Company’s business, financial position, results of operations, or disclosures.

•In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general tax accounting principles and simplifying other specific tax scenarios. The Company early adopted this update as of January 1, 2020, and it did not have any material impact to the Company’s business, financial position, results of operations, or disclosures.

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

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

•ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement

Accounting Policies

There have been no material changes (except as disclosed below) in the Company's accounting policies from those disclosed in Part II, Item 8 - Financial Statements and Supplementary Data in the 2019 Annual Report on Form 10-K.

The change in the following policy is as a result of the Company's adoption of CECL standard, on January 1, 2020.

•Investment securities

Debt securities expected to be held for an indefinite period of time are classified as AFS and recorded on the balance sheet at fair value. If the fair value of an AFS debt security declines below its amortized cost basis and the Company does not have the intention or requirement to sell the security before it recovers its amortized cost basis, declines due to credit factors will be recorded in earnings through the ACL for debt securities, and declines due to non-credit factors will be recorded in AOCI, net of taxes. Subsequent to recognition of a credit loss, improvements to the expectation of collectability will be reversed through the ACL for debt securities. If the Company has the intention or requirement to sell the security, the Company will record its fair value changes in earnings as a direct write down to the security. Increases in fair value above amortized cost basis are recorded in AOCI, net of taxes.

The Company conducts an impairment assessment quarterly on all AFS securities with a fair value that is less than their amortized cost basis to determine whether the loss is due to credit factors. Securities for which management expects risk of nonpayment of the amortized cost basis is zero, do not have a reserve. The Company has a zero loss expectation when the securities are issued or guaranteed by certain US government entities, because these entities have a long history of no defaults and the highest credit ratings issued by rating agencies. In the event of a credit loss, the credit component of the impairment is recognized within non-interest income as a separate line item, and by the recording of a valuation reserve. The non-credit component is recorded within AOCI.

•Purchased Credit Deteriorated or PCD loans

Loans that the Company deems at acquisition to have more than insignificant deterioration in credit quality since origination (i.e., Purchased Credit Deteriorated or PCD loans) require the recognition of an allowance for credit losses at purchase. The allowance for credit losses is added to the purchase price at the date of acquisition to determine the initial amortized cost basis of the PCD loan. The allowance for credit losses is calculated using the same methodology as originated loans, as described below. Alternatively, the Company can elect the fair value option at the time of purchase for any financial asset. Under the FVO, loans are recorded at fair value with changes in value recognized immediately in income. There is no ACL for loans under an FVO.

•Credit Loss Expense and Allowance for Credit losses

General

Credit loss expenses are charged to operations in amounts sufficient to maintain the ACL at levels considered adequate to cover expected credit losses in the Company’s retail installment contracts. The allowance for expected credit losses on retail installment contracts is measured based on a lifetime expected loss model, which means that it is not necessary for a loss event to occur before a credit loss is recognized. Management’s estimate of expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the reported amounts. Management's evaluation takes into consideration the risks in the portfolio, past loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic forecasts and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the ACL may be necessary if conditions differ substantially from the assumptions used in making the evaluations.

The Company measures expected losses of all components on an amortized cost basis. For all loans except TDRs, the Company has elected to exclude accrued interest receivable balances from the measurement of expected credit losses because it applies a nonaccrual policy that results in the timely write off of uncollectible accrued interest. 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.

Methodology

The Company uses several methodologies for the measurement of ACL. The ACL is made up of a quantitative and a qualitative component. To determine the quantitative component, the Company generally uses a DCF approach for determining ACL for TDRs and other individually assessed loans, and a non-DCF approach for other loans. Expected credit losses are estimated on an individual basis only if the individual asset or exposure does not share similar risk attributes with other financial assets or exposures, including when an asset is treated as a collateral dependent asset.

The ACL estimate includes significant assumptions including the reasonable and supportable economic forecast period, which considers the availability of forward-looking scenarios and their respective time horizons, as well as the reversion method to historical losses. This method results in a single, quantitatively consistent credit model across the

entire projection period as the macroeconomic effects in the historical data are controlled for the estimate of the long-run loss level.

Models

The Company uses a statistical methodology based on an ECL approach that focuses on forecasting the ECL components (i.e., probability of default, payoff, loss given default and exposure at default) on a loan level basis to estimate the expected future life time losses. The individual loan balances used in the models are measured on an amortized cost basis.

•In calculating the probability of default and payoff, the Company developed model forecasts, which consider variables such as delinquency status, loan tenor and other credit quality indicators.

•The loss given default component forecasts the extent of losses given that a default has occurred and considers variables such as collateral, loan-to-value and other credit quality indicators.

•The exposure at default component captures the effects of expected partial prepayments and underpayments that are expected to occur during the forecast period and considers variable such as loan-to-value, collateral and other credit quality indicators.

The above ECL components are used to compute an ACL based on the weighted average of the results of the macroeconomic scenarios. The weighting of these scenarios is governed and approved quarterly by management through established committee governance. These ECL components are inputs to both the Company’s DCF approach for TDR and individually assessed loans and non-DCF approach for other loans.

When using a non-DCF method to measure the ACL, the Company measures ECL over the asset’s contractual term, adjusted for (a) expected prepayments; (b) expected extensions associated with assets for which management has a reasonable expectation at the reporting date that it will execute a TDR with the borrower; and (c) expected extensions or renewal options (excluding those that are accounted for as derivatives) included in the original or modified contract at the reporting date that are not unconditionally cancellable by the entity.

DCF approaches

A DCF method measures expected credit losses by forecasting expected future principal and interest cash flows and discounting them using the financial asset’s EIR. The ACL reflects the difference between the amortized cost basis (including accrued interest) and the present value of the expected cash flows. When using a DCF method to measure the ACL, the period of exposure is determined as a function of the Company’s expectations of the timing of principal and interest payments. The Company considers estimated prepayments in the future principal and interest cash flows when utilizing a DCF Method. The Company generally uses a DCF approach for TDRs.

Collateral - Dependent Assets

A loan is considered a Collateral Dependent Financial Asset when (a) the Company determines foreclosure is probable or (b) the borrower is experiencing financial difficulty and the Company expects repayment to be provided substantially through the operation or sale of the collateral. For all collateral dependent loans such as certain bankruptcy modifications, the Company measures the ACL as the difference between the loan’s amortized cost basis and the fair value of the underlying collateral as of the reporting date, adjusted for expected costs to sell. If repayment or satisfaction of the loan is dependent only on the operation, rather than the sale, of the collateral, the measure of credit losses does not incorporate estimated costs to sell. The collateral dependent loan is written down (i.e. charged off) to the fair value of the collateral adjusted for costs to sell (if repayment from sale is expected.) Any subsequent increase or decrease in the collateral’s fair value less cost to sell is recognized as an adjustment to the related loan’s ACL.

Negative allowance

Negative allowance is defined as the amount of future recovery expected for accounts that have already been charged-off. The Company performs an analysis of the actual historical recovery values to determine the pattern of recovery and expected rate of recovery over a given historic period, and uses the results of this analysis to determine negative allowance. Negative allowance reduces the ACL.

Qualitative Reserve

Regardless of the extent of the Company's analysis of customer performance, portfolio evaluations, trends or risk management processes established, a level of imprecision will always exist due to the judgmental nature of loan portfolio and/or individual loan evaluations. The Company maintains a qualitative reserve as a component of the ACL to recognize the existence of these exposures. Imprecisions include loss factors inherent in the loan portfolio that may not have been discreetly contemplated in deriving the quantitative component of the allowance, as well as potential variability in estimates.

The qualitative adjustment is also established in consideration of several factors such as the interpretation of economic trends, changes in the nature and volume of our loan portfolio, trends in delinquency and collateral values, and concentration risks. This analysis is conducted at least quarterly, and the Company revises the qualitative component of the allowance when necessary in order to address improving or deteriorating credit quality trends or specific risks associated with loan pool classification, not otherwise captured in the quantitative models.

Governance

A comprehensive analysis of the ACL is performed by the Company on a quarterly basis. Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated considering factors such as historical loss experience, trends in delinquency, changes in risk composition and underwriting standards, experience and ability of staff and regional and national economic conditions, trends and forecasts. Risk factors are continuously reviewed and revised by management when conditions warrant.

The Company's reserves are principally based on various models subject to the Company's model risk management framework. New models are approved by the SHUSA's Model Risk Management Committee. Models, inputs and documentation are further reviewed and validated at least annually, and the Company completes a detailed variance analysis of historical model projections against actual observed results on a quarterly basis. Required actions resulting from the Company's analysis, if necessary, are governed by its ACL Committee. Reserve levels are collectively reviewed for adequacy and approved quarterly by Board-level committees.

Changes in the assumptions used in these estimates could have a direct material impact on the credit loss expense in the Consolidated Statements of Operations and in the allowance for credit losses. The loan portfolio represents the largest asset on the Consolidated Balance Sheets. The Company’s models incorporate a variety of assumptions based on historical experience, current conditions and forecasts. Management also applies its judgement in evaluating the appropriateness of the allowance. Material change to the ACL might be necessary if prevailing conditions differ materially from the assumptions and estimates utilized in calculating the ACL.

Recently Issued Accounting Standards Not Yet Adopted

There are no recently issued GAAP accounting developments that we expect will have a material impact on the Company's business, financial position, results of operations, or disclosures upon adoption.

2. Finance Receivables

Held for Investment

Finance receivables held for investment, net is comprised of the following at September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019
Retail installment contracts, net (a)	$	27,415,437	$	27,719,221
Purchased receivables - credit deteriorated	7,438		12,177
Receivables from dealers	3,668		12,536

Finance lease receivables (Note 4)	23,187		23,085
Finance receivables held for investment, net	$	27,449,730	$	27,767,019

(a) The Company has elected the fair value option for certain retail installment contracts reported in finance receivables held for investment, net.

As of September 30, 2020 and December 31, 2019, $8,248 and $22,353 of loans were recorded at fair value, respectively (Note 10).

The Company’s held for investment portfolio of retail installment contracts is comprised of the following at September 30, 2020 and December 31, 2019:


	September 30, 2020
	Retail Installment Contracts
	Non-TDR			TDR
Unpaid principal balance	$	29,667,444		$	3,801,948
ACL	(4,900,132)			(1,248,522)

Discount (net of subvention and participation)	1,004			(10,583)
Capitalized origination costs and fees	100,750			3,528
Net carrying balance	$	24,869,066		$	2,546,371
ACL as a percentage of unpaid principal balance	16.5		%	32.8		%
ACL and discount as a percentage of unpaid principal balance	16.5		%	33.1		%


	December 31, 2019
	Retail Installment Contracts
	Non-TDR			TDR
Unpaid principal balance	$	26,895,551		$	3,859,040
Credit loss allowance - specific	—			(914,718)
Credit loss allowance - collective	(2,123,878)			—
Discount (net of subvention and participation)	(67,484)			(17,167)
Capitalized origination costs and fees	84,961			2,916
Net carrying balance	$	24,789,150		$	2,930,071
Allowance as a percentage of unpaid principal balance	7.9		%	23.7		%
Allowance and discount as a percentage of unpaid principal balance	8.1		%	24.1		%

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 7). Most of the borrowers on the Company’s retail installment contracts held for investment are retail consumers; however, $823,955 and $741,592 of the unpaid principal balance represented fleet contracts with commercial borrowers as of September 30, 2020 and December 31, 2019, respectively.

During the nine months ended September 30, 2020 and 2019, the Company originated (including through the SBNA originations program) $11,145,890 and $9,514,939, respectively, in CCAP loans which represented 61% and 56%, respectively, of the total retail installment contract originations (including the SBNA originations program).

As of September 30, 2020, borrowers on the Company’s retail installment contracts held for investment are located in Texas (16%), Florida (10%), California (8%), Georgia (5%) and other states each individually representing less than 5% of the Company’s total portfolio.

Purchased receivables

During the three and nine months ended September 30, 2020 and 2019, the Company did not acquire any vehicle loan portfolios from third party lenders.

For the nine months ended September 30, 2020 and 2019, the Company recognized certain retail installment contracts with an unpaid principal balance of $76,878 and $74,718 respectively. For the three months ended September 30, 2020 and 2019, there were 0 retail installment contracts with an unpaid principal balance. 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 10).

Receivable from Dealers

The receivables from dealers held for investment are all Chrysler Agreement-related. As of September 30, 2020, borrowers on these dealer receivables are located in New York.

Held for Sale

The carrying value of the Company’s finance receivables held for sale, net is comprised of the following at September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019


Personal loans	$	763,292	$	1,007,105

Sales of retail installment contracts to third parties and proceeds from sales of charged-off assets for the three and nine months ended September 30, 2020 and 2019 were as follows:


	Three Months Ended				Nine Months Ended

	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Sales of retail installment contracts to third parties	$	636,301	$	0	$	1,148,587	$	0

Proceeds from sales of charged-off assets to third parties	$	9,144	$	28,847	$	30,019	$	55,220

3. Credit Loss Allowance and Credit Quality

Credit Loss Allowance

During the first quarter of 2020, the Company changed the model used for estimating the ACL on retail installment contracts from incurred loss model to an expected lifetime loss model, as a result of the Company's adoption of the CECL standard on January 1, 2020.

The Company maintains an ACL on the retail installment contracts held for investment, which excludes those loans measured at fair value in accordance with applicable accounting standards. The Company maintains an expected ACL for receivables from dealers based on risk ratings and individually evaluates loans for specific impairment as necessary. As of September 30, 2020 and 2019, the ACL for receivables from dealers is comprised entirely of general allowance as none of these receivables have been determined to be individually impaired. The Company estimates losses on the finance lease receivable portfolio based on delinquency status, loss experience to date, future expectation of losses as well as various economic factors.

Retail installment contracts

The activity in the ACL for the retail installment contracts for the three and nine months ended September 30, 2020 and 2019 was as follows:



	Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
	Retail Installment Contracts						Retail Installment Contracts
	Non-TDR		TDR			Non-TDR	TDR

Balance — beginning of period	$	4,818,187	$	1,037,628			$	1,961,893	$	1,156,303

Credit loss expense (a)	24,841		314,075				484,626		102,494
Charge-offs (b)	(334,938)		(200,352)				(962,573)		(381,490)
Recoveries	392,042		97,171				567,846		183,305

Balance — end of period	$	4,900,132	$	1,248,522			$	2,051,792	$	1,060,612



	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
	Retail Installment Contracts						Retail Installment Contracts

	Non-TDR		TDR			Non-TDR	TDR
Balance — beginning of period	$	2,123,878	$	914,718			$	1,819,360	$	1,416,743
Day 1 - Adjustment to allowance for adoption of CECL standard	2,030,473		71,833				0		0
Credit loss expense (a)	1,526,545		581,344				1,279,931		266,913
Charge-offs (b)	(1,955,706)		(617,536)				(2,685,931)		(1,217,650)
Recoveries	1,174,942		298,163				1,638,432		594,606

Balance — end of period	$	4,900,132	$	1,248,522			$	2,051,792	$	1,060,612

(a) Excluded from the credit loss expense is $13 million and $52 million related to retail installment contracts sold in an off-balance sheet securitization during the three and nine months ended September 30, 2020, respectively. In addition, credit loss expense includes a net of $72 million and $60 million in the credit loss expense related to retail installment contracts transferred to held for sale and returned to held for investment during the three and nine months ended September 30, 2020, respectively. Furthermore, credit loss expense includes $0 million and $20 million related to retail installment contracts transferred to held for sale during the three and nine months ended September 30, 2019, respectively.

(b) Charge-offs for retail installment contracts includes 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 ACL on these loans.

The credit risk in the Company’s loan portfolios is driven by credit and collateral quality, and is affected by borrower-specific and economy-wide factors. In general, there is an inverse relationship between credit quality of loans and projections of impairment losses so that loans with better credit quality require a lower expected loss. The Company manages this risk through its underwriting, pricing strategies, credit policy standards, and servicing guidelines and practices, as well as the application of geographic and other concentration limits.

The Company estimates lifetime expected losses based on prospective information as well as account level models based on historical data. Unemployment, HPI, and used vehicle index growth rates, along with loan level

characteristics, are the key inputs used in the models for prediction of the likelihood that the borrower will default in the forecasted period (the probability of default). The used vehicle index is also used to estimate the loss in the event of default. The historic volume of loan deferrals provided to customers impacted by COVID-19 has driven positive trends in delinquencies and severity (charge-offs) in the quarter, however, the inclusion of key loan characteristics as inputs to the models (including number of extensions) and management’s evaluation of qualitative factors ensure the allowance is appropriate.

The Company has determined the reasonable and supportable period to be three years at which time economic forecasts generally tend to revert to historical averages. The Company utilizes qualitative factors to capture any additional risks that may not be captured in either the economic forecasts or in the historical data, including consideration of the current levels of delinquency, charge-offs and used vehicle prices. The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustment for macroeconomic uncertainty, and may consider adjustments to macroeconomic inputs based on market volatility. The baseline scenario was based on the latest consensus forecasts available which show an improvement in key variables in this quarter, including a sharp decrease in unemployment rates (which are a key driver to losses). The scenarios are periodically updated over a reasonable and supportable time horizon with weightings assigned by management and approved through established committee governance.

The Company’s ACL increased $0.3 billion and $3.1 billion for the three and nine months ended September 30, 2020. For the three months ended September 30, 2020, the increase was primarily due to portfolio growth. For the nine months ended September 30, 2020, the primary drivers were a $2.1 billion increase at CECL adoption on January 1, 2020, driven mainly by the addition of lifetime expected credit losses for non-TDR loans, and additional reserves specific to COVID-19 risk.

Other portfolios

The ACL for the period end and its activity for Dealer Loans, Finance Lease receivable portfolio, and Purchased receivable portfolio-credit deteriorated, for the three and nine months ended September 30, 2020 and 2019, is insignificant.

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. When an account is deferred, the loan is returned to accrual status during the deferral period and accrued interest related to the loan is evaluated for collectability.

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.

A summary of delinquencies as of September 30, 2020, and December 31, 2019 is as follows:


	September 30, 2020
	Finance Receivables Held for Investment
	Retail Installment Contract Loans		Purchased Receivables Portfolios - credit deteriorated		Total		Percent

Amortized cost, 30-59 days past due	$	1,673,713	$	887	$	1,674,600	5.0	%
Amortized cost over 59 days	817,577		334		817,911		2.4	%
Total delinquent balance at amortized cost (a)	$	2,491,290	$	1,221	$	2,492,511	7.4	%

(a) The amount of accrued interest excluded from the disclosed amortized cost table is $64,970.


	December 31, 2019
	Finance Receivables Held for Investment
	Retail Installment Contract Loans		Purchased Receivables Portfolios - credit impaired		Total		Percent

Principal, 30-59 days past due	$	2,972,495	$	1,930	$	2,974,425	9.7	%
Delinquent principal over 59 days	1,578,452		1,596		1,580,048		5.1	%
Total delinquent principal (a)	$	4,550,947	$	3,526	$	4,554,473	14.8	%

(a) The table includes balances based on UPB. Difference between amortized cost and UPB was not material.

As of September 30, 2020 and December 31, 2019, there were 0 receivables from dealers that were 30 days or more delinquent. 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 $64,358 and $128,872 as of September 30, 2020 and December 31, 2019, respectively.

Non-Accrual Loans for Retail Installment Contracts

The amortized cost basis of financial instruments that are either non-accrual with related expected credit loss or non-accrual without related expected credit loss for retail installment contracts is as follows:


	September 30, 2020
	Non-accrual loans		Non-accrual loans with no allowance (a)		Interest income recognized on nonaccrual loans (YTD)		Non-accrual loans as a percent of total amortized cost
Non-TDR	$	623,428	$	141,269	$	57,275	1.9	%
TDR	301,647		46,956		27,128		0.9	%
Total non-accrual loans	$	925,075	$	188,225	$	84,403	2.8	%

(a) These represent loans for which a bankruptcy notice was received, and have been partially write-down to the collateral value less estimated costs to sell. Accordingly, there is no additional ACL on these loans.


	December 31, 2019
	Amount		Percent
Non-TDR	$	1,099,462	3.6	%
TDR	516,119		1.7	%
Total nonaccrual principal (a)	$	1,615,581	5.3	%

(a) The table includes balances based on UPB. Difference between amortized cost and UPB was not material.

Delinquent balances and nonaccrual balances are lower as of September 30, 2020 primarily due to a significant increase in deferrals granted to borrowers impacted by COVID-19.

Credit Quality Indicators

FICO® Distribution (determined at origination) — Amortized Cost Basis (in millions) by Origination Year for Retail Installment Contacts


															Total
September 30, 2020	2020 (a)		2019		2018		2017		2016		2015		Prior		Amount		%

No-FICO®s	1,395		1,318		608		595		305		174		40		4,435		13.2%
<540	1,444		1,517		1,022		516		305		223		116		5,143		15.3%
540-599	3,307		3,345		1,960		768		495		322		127		10,324		30.7%
600-639	2,101		2,059		1,120		384		272		158		65		6,159		18.4%
>640	4,226		1,592		922		308		244		163		48		7,503		22.4%
Total (b)	$	12,473	$	9,831	$	5,632	$	2,571	$	1,621	$	1,040	$	396	$	33,564	100.0%

(a) Represents nine months ended September 30, 2020

(b) The amount of accrued interest excluded from the disclosed amortized cost table is $428 million.


FICO® Band						December 31, 2019 (a)

No-FICO®s						12.4%
<540						16.9%
540-599						31.9%
600-639						19.0%
>640						19.8%

(a) Percentages are based on UPB. Difference between amortized cost and UPB was not material.

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. All the receivables from dealers, as of September 30, 2020 and December 31, 2019 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. The purchased receivables portfolio - credit deteriorated, operating and finance leases, and loans held for sale, including personal loans, are excluded from the scope of the applicable guidance. The Company’s TDR balance as of September 30, 2020 and December 31, 2019 primarily consisted of loans that had been deferred or modified to receive a temporary reduction in monthly payment. As of September 30, 2020 and December 31, 2019, there were 0 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. 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, if not expected to be collected.

The table below presents the Company’s amortized cost (including accrued interest) of TDRs as of September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019

	Retail Installment Contracts (a)
Amortized Cost including accrued interest (b)	$	3,843,470	$	3,828,892
Impairment	(1,248,522)		(914,718)
Amortized cost including accrued interest, net of impairment	$	2,594,948	$	2,914,174

(a) The December 31, 2019 balances were based on unpaid principal balance. Difference between amortized cost and UPB was not material.

(b) As of September 30, 2020, these balances excludes $74.0 million of collateral-dependent bankruptcy TDRs that have been written down by $27.1 million to fair value less cost to sell. As of December 31, 2019, this balance excludes $94.9 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 amortized cost (including accrued interest) of the Company’s delinquent TDRs at September 30, 2020 and December 31, 2019 is as follows:


	September 30, 2020		December 31, 2019

	Retail Installment Contracts (a)

30-59 days past due	$	564,838	$	927,952
Delinquent balance over 59 days	287,289		521,709
Total delinquent TDRs	$	852,127	$	1,449,661

(a) The December 31, 2019 balances were based on unpaid principal balance. Difference between amortized cost and UPB was not material.

The decrease in total delinquent TDRs is primarily due to the significant increase in deferrals granted to borrowers impacted by COVID-19. The additional risk of these deferrals is captured in the ACL for retail installment contracts for the three and nine months ended September 30, 2020.

Average amortized cost (including accrued interest) and interest income recognized on TDR loans are as follows:



	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
	Retail Installment Contracts				Retail Installment Contracts
Average amortized cost (including accrued interest)	$	3,960,119	$	4,399,099	$	3,802,823	$	4,790,378
Interest income recognized	165,637		188,331		457,642		623,324

The following table summarizes the financial effects, excluding impacts related to credit loss allowance and impairment, of TDRs (including collateral-dependent bankruptcy TDRs) that occurred for the three and nine months ended September 30, 2020 and 2019:



	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
	Retail Installment Contracts				Retail Installment Contracts
Amortized cost (including accrued interest) before TDR	$	317,455	$	376,206	$	1,399,813	$	1,003,755
Amortized cost (including accrued interest) after TDR	319,027		377,750		1,417,480		1,006,637
Number of contracts (not in thousands)	14,620		21,575		69,786		58,783

A TDR is considered to be in default at charge off. For retail installment contracts, charge off is at the earlier of the date of repossession or 120 days past due and, for revolving personal loans, is generally the month in which the receivable becomes 180 days past due. Loan restructurings accounted for as TDRs within the previous twelve months that subsequently defaulted during the three and nine months ended September 30, 2020 and 2019 are summarized in the following table:


	Three Months Ended				Nine Months Ended

	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
	Retail Installment Contracts				Retail Installment Contracts
Amortized cost (including accrued interest) in TDRs that subsequently defaulted (a)	$	83,002	$	83,254	$	183,871	$	299,619
Number of contracts (not in thousands)	4,379		5,190		10,467		18,097

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

4. 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.

Lease extensions granted by the Company are not treated as modifications. Income continues to accrue during the extension period and remaining lease payments are recorded on a straight-line basis over the modified lease term.

Operating Leases

Leased vehicles, net, which is comprised of leases originated under the Chrysler Agreement, consisted of the following as of September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019
Leased vehicles	$	21,795,939	$	21,722,726
Less: accumulated depreciation	(4,694,217)		(4,159,944)
Depreciated net capitalized cost	17,101,722		17,562,782
Manufacturer subvention payments, net of accretion	(972,778)		(1,177,342)
Origination fees and other costs	66,432		76,542
Net book value	$	16,195,376	$	16,461,982

The following summarizes the maturity analysis of lease payments due to the Company as lessor under operating leases as of September 30, 2020:



Remainder of 2020	$	745,650
2021	2,304,011
2022	1,218,588
2023	428,287
2024	7,852
Thereafter	0
Total	$	4,704,388

Finance Leases

Certain leases originated by the Company are accounted for as direct financing leases, as the contractual residual values are nominal amounts. Finance lease receivables, net consisted of the following as of September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019
Gross investment in finance leases	$	34,290	$	34,443
Origination fees and other	288		241
Less: unearned income	(7,673)		(6,859)
Net investment in finance leases before allowance	26,905		27,825
Less: allowance for lease losses (a)	(3,718)		(4,740)
Net investment in finance leases	$	23,187	$	23,085

(a) The impact of day 1 - Adjustment to allowance for adoption of CECL standard was insignificant.

The following summarizes the maturity analysis of lease payments due to the Company, as lessor, under finance leases as of September 30, 2020:



Remainder of 2020	$	2,685
2021	10,066
2022	8,793
2023	6,780
2024	4,262
Thereafter	1,704
Total	$	34,290

5. Other Assets

Other assets were comprised as follows:


	September 30, 2020		December 31, 2019
Vehicles (a)	$	370,678	$	341,465
Manufacturer subvention payments receivable (b)	38,414		74,738
Upfront fee (b)	76,709		98,980
Derivative assets at fair value (c)	5,999		65,358
Derivative - collateral	104,435		147,914
Operating leases (Right-of-use-assets)	49,443		57,508
Available-for-sale debt securities	95,666		92,246
Held-to-maturity debt securities (d)	50,417		0
Equity securities not held for trading	1,430		0
Prepaids	44,458		45,644
Accounts receivable	34,898		24,103
Federal and State tax receivable	104,667		82,945
Other	65,451		40,119
Other assets	$	1,042,665	$	1,071,020

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

(b)These amounts relate to the Chrysler Agreement. The Company paid a $150,000 upfront fee upon the May 2013 inception of the Chrysler Agreement. The fee is being amortized into finance and other interest income over a ten-year term. In addition, in June 2019, in connection with the execution of the Amendment to the Chrysler Agreement, the Company paid $60,000 upfront fee to FCA. This fee is being amortized into finance and other interest income over the remaining term of the Chrysler Agreement.

(c)Derivative assets at fair value represent the gross amount of derivatives presented in the condensed consolidated financial statements. Refer to Note 9 - "Derivative Financial Instruments" to these condensed Consolidated Financial Statements for the detail of these amounts.

(d)Held-to-maturity debt securities includes accrued interest as of September 30, 2020.

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 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.

Most of our real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one year to 15 years or more. The exercise of lease renewal options is at our sole discretion. The Company does not include any of the renewal options in the lease term as it is not reasonably certain that these options will be exercised.

Supplemental information relating to these operating leases is as follows:


	September 30, 2020
Operating leases-right of use assets	$	49,443
Other liabilities	68,545
Weighted average lease term	5.6
Weighted average discount rate	3.4		%

Lease expense incurred totaled $3,479 and $3,402 for the three months ended September 30, 2020 and 2019, respectively, and $10,586 and $10,316 for the nine months ended September 30, 2020 and 2019, and is included within “other operating costs” in the income statement. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Cash paid for amounts included in the measurement of operating lease liabilities was $12,947 during the nine months ended September 30, 2020.

The maturity of lease liabilities at September 30, 2020 are as follows:


	September 30, 2020
2020	$	4,175
2021	13,343
2022	12,639
2023	12,762
2024	12,701
Thereafter	19,691
Total	$	75,311
Less: Interest	(6,766)
Present value of lease liabilities	$	68,545

Available-for-sale and Held-to-maturity debt securities

Debt securities expected to be held for an indefinite period of time are classified as 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.

Debt securities that the Company has the positive intent and ability to hold until maturity are classified as HTM securities. HTM securities are reported at cost and adjusted for payments, charge-offs, amortization of premium and accretion of discount.

Realized gains and losses on sales of investment securities are recognized on the trade date and are determined using specific identification method and are 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 available-for-sale and held-to-maturity debt securities as of September 30, 2020:


	September 30, 2020
	Amortized cost (before unrealized gains / losses)		Gross Unrealized gain		Gross Unrealized loss		Fair value
Available-for-sale debt securities (US Treasury securities)	$	92,621	$	3,045	$	0	$	95,666
Held-to-maturity debt securities (Asset-Backed Notes)	$	50,381	$	561	$	0	$	50,942

Contractual Maturities

The contractual maturities of available-for-sale and held-to-maturity debt instruments are summarized in the following table:


	September 30, 2020
	Available-for-sale debt securities				Held-to-maturity debt securities
	Amortized cost		Fair value		Amortized cost		Fair value
Due within one year	$	4,978	$	5,096	$	3,416	$	3,416
Due after one year but within 5 years	87,643		90,570		34,178		34,320
Due after 5 year but within 10 years	0		0		12,787		13,206
Total	$	92,621	$	95,666	$	50,381	$	50,942

There were no transfers of securities between available-for-sale and held-to-maturity during the periods ended September 30, 2020 or December 31, 2019.

Other Investments

Other investments includes the equity securities not held for trading as 5% of certificate related to the off-balance sheet

securitization. Equity securities are measured at fair value as of September 30, 2020 for $1,430, with changes in fair value recognized in net income.

6. Variable Interest Entities

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

For further description of the Company’s securitization activities, involvement with VIEs and accounting policies regarding consolidation of VIEs, see Part II, Item 8 - Financial Statements and Supplementary Data (Note 7) in the 2019 Annual Report on Form 10-K.

On-balance sheet variable interest entities

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:


	September 30, 2020		December 31, 2019
Assets
Restricted cash	$	1,763,252	$	1,629,870

Finance receivables held for investment, net	22,711,254		26,532,328
Leased vehicles, net	16,195,376		16,461,982
Various other assets	870,229		625,359
Total assets	$	41,540,111	$	45,249,539
Liabilities
Notes payable	$	31,265,215	$	34,249,851
Various other liabilities	117,997		188,093
Total liabilities	$	31,383,212	$	34,437,944

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 GAAP.

The Company retains servicing rights for receivables transferred to the Trusts and receives a monthly servicing fee on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are reflected in fees, commissions and other income.

As of September 30, 2020 and December 31, 2019, the Company was servicing $27,688,633 and $27,253,573, respectively, of gross retail installment contracts that have been transferred to consolidated Trusts. The remainder of the Company’s retail installment contracts remain unpledged.

A summary of the cash flows received from consolidated securitization trusts during the three and nine months ended September 30, 2020 and 2019, is as follows:


	Three Months Ended				Nine Months Ended

	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019

Assets securitized	$	5,282,901	$	5,498,705	$	15,845,707	$	15,340,428

Net proceeds from new securitizations (a)	$	4,662,211	$	4,475,722	$	11,470,857	$	12,232,777
Net proceeds from retained bonds	1,293		2,414		57,286		119,719
Cash received for servicing fees (b)	242,245		242,801		735,533		740,760
Net distributions from Trusts (b)	1,173,276		1,018,301		2,730,657		2,689,735
Total cash received from Trusts	$	6,079,025	$	5,739,238	$	14,994,333	$	15,782,991

(a)Includes additional advances on existing securitizations.

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

Off-balance sheet variable interest entities

During the three and nine months ended September 30, 2020 the Company sold $636,301 and $1,148,587, respectively, of gross retail installment contracts to third party investors in off-balance sheet securitizations for a loss of $13,669 and $40,553, respectively. The losses were recorded in investment losses, net, in the accompanying condensed consolidated statements of income. There were 0 sales for the three and nine months ended September 30, 2019.

As of September 30, 2020 and December 31, 2019, the Company was servicing $2,554,564 and $2,408,205, respectively, of gross retail installment contracts that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call. The portfolio was comprised as follows:


	September 30, 2020		December 31, 2019


Related party SPAIN serviced securitizations	$	1,418,346	$	2,149,008
Third party SCART serviced securitizations	1,032,639		0
Third party CCAP serviced securitizations	103,579		259,197
Total serviced for others portfolio	$	2,554,564	$	2,408,205

Other than repurchases of sold assets due to standard representations and warranties, the Company has 0 exposure to loss as a result of its involvement with these VIEs.

A summary of the cash flows received from off-balance sheet securitization trusts for the three and nine months ended September 30, 2020 and 2019 is as follows:


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Receivables securitized (a)	$	636,301	$	0	$	1,148,587	$	0

Net proceeds from new securitizations	592,455		0		1,052,541		0
Cash received for servicing fees	6,598		7,859		17,856		27,467
Total cash received from securitization trusts	599,053		7,859		1,070,397		27,467

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

7. Debt


Total borrowings and other debt obligations as of September 30, 2020 and December 31, 2019 consists of:
	September 30, 2020		December 31, 2019
Notes Payable — Facilities with Third Parties	$	2,803,684	$	5,399,931
Notes Payable — Secured Structured Financings	27,356,867		28,141,885
Notes Payable — Secured Structured Financing with Santander	7,222		0
Notes Payable — Facilities with Santander and Related Subsidiaries	11,201,574		5,652,325
	$	41,369,347	$	39,194,141

Notes Payable - Credit Facilities

The following table presents information regarding the Company’s credit facilities as of September 30, 2020 and December 31, 2019:


	September 30, 2020
	Maturity Date(s)	Utilized Balance		Committed Amount		Effective Rate	Assets Pledged		Restricted Cash Pledged
Facilities with third parties:
Warehouse line	August 2022	$	166,000	$	500,000	2.54%	$	267,776	$	0
Warehouse line	March 2021	500,445		1,250,000		1.27%	1,151,745		1
Warehouse line (a)	October 2021	92,800		1,500,000		2.69%	819,518		0
Warehouse line (b)	October 2021	1,165,943		3,500,000		3.27%	1,272,926		0
Warehouse line	July 2021	0		500,000		1.53%	497,994		0
Warehouse line	October 2021	0		2,100,000		4.18%	0		0
Warehouse line	January 2022	400,000		1,000,000		1.43%	572,755		0
Warehouse line	November 2021	166,600		500,000		1.04%	495,011		0
Warehouse line	July 2022	0		900,000		3.10%	0		1,684
Repurchase facility (c)	January 2021	263,272		263,272		1.66%	377,550		0
Repurchase facility (c)	November 2020	48,624		48,624		1.79%	69,945		0
Total facilities with third parties		2,803,684		12,061,896			5,525,220		1,685
Facilities with Santander and related subsidiaries:
Promissory Note	December 2021	250,000		250,000		3.70%	0		0
Promissory Note	December 2022	250,000		250,000		3.95%	0		0
Promissory Note	December 2023	250,000		250,000		5.25%	0		0
Promissory Note	December 2022	250,000		250,000		5.00%	0		0
Promissory Note	May 2021	250,000		250,000		2.25%	0		0
Promissory Note	March 2021	300,000		300,000		3.95%	0		0
Promissory Note	May 2023	350,000		350,000		3.80%	0		0
Promissory Note	October 2020	400,000		400,000		4.03%	0		0
Promissory Note	November 2022	400,000		400,000		3.00%	0		0
Promissory Note	April 2023	450,000		450,000		6.13%	0		0
Promissory Note	June 2022	500,000		500,000		3.30%	0		0
Promissory Note	July 2024	500,000		500,000		3.90%	0		0
Promissory Note	March 2022	650,000		650,000		4.20%	0		0
Promissory Note	August 2021	650,000		650,000		3.44%	0		0
Promissory Note	September 2023	750,000		750,000		3.38%	0		0
Promissory Note	June 2025	1,000,000		1,000,000		3.99%	0		0
Promissory Note	June 2022	2,000,000		2,000,000		1.40%	0		0
Promissory Note	September 2022	2,000,000		2,000,000		1.04%	0		0
Line of credit	July 2021	0		500,000		2.18%	0		0
Line of credit	March 2022	0		2,500,000		3.35%	0		0
Total facilities with Santander and related subsidiaries		11,200,000		14,200,000			0		0
Total revolving credit facilities		$	14,003,684	$	26,261,896		$	5,525,220	$	1,685

(a) During the three months ended March 31, 2020, Chrysler Finance Loan credit facility was reactivated with a $1 billion commitment. In April 2020, the commitment amount was increased by $500 million.

(b) This line is held exclusively for financing of Chrysler Finance leases. In April 2020, the commitment amount was reduced by $500 million.

(c) 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.


	December 31, 2019
	Maturity Date(s)	Utilized Balance		Committed Amount		Effective Rate	Assets Pledged		Restricted Cash Pledged
Facilities with third parties:
Warehouse line	June 2021	$	471,284	$	500,000	3.32%	$	675,426	$	0
Warehouse line	March 2021	516,045		1,250,000		3.10%	734,640		1
Warehouse line	October 2021	1,098,443		5,000,000		4.43%	1,898,365		1,756
Warehouse line	July 2021	500,000		500,000		3.64%	761,690		302
Warehouse line	October 2021	896,077		2,100,000		3.44%	1,748,325		7
Repurchase facility	January 2020	273,655		273,655		3.80%	377,550		0
Repurchase facility	March 2020	100,756		100,756		3.04%	151,710		0
Repurchase facility	March 2020	47,851		47,851		3.15%	69,945		0
Warehouse line	November 2020	970,600		1,000,000		2.57%	1,353,305		0
Warehouse line	November 2020	471,320		500,000		2.69%	505,502		186
Warehouse line	June 2021	53,900		600,000		7.02%	62,601		94
Total facilities with third parties		5,399,931		11,872,262			8,339,059		2,346
Facilities with Santander and related subsidiaries:
Promissory Note	December 2021	250,000		250,000		3.70%	0		0
Promissory Note	December 2022	250,000		250,000		3.95%	0		0
Promissory Note	December 2023	250,000		250,000		5.25%	0		0
Promissory Note	December 2022	250,000		250,000		5.00%	0		0
Promissory Note	March 2021	300,000		300,000		3.95%	0		0
Promissory Note	October 2020	400,000		400,000		3.10%	0		0
Promissory Note	November 2022	400,000		400,000		3.00%	0		0
Promissory Note	May 2020	500,000		500,000		3.49%	0		0
Promissory Note	June 2022	500,000		500,000		3.30%	0		0
Promissory Note	July 2024	500,000		500,000		3.90%	0		0
Promissory Note	March 2022	650,000		650,000		4.20%	0		0
Promissory Note	August 2021	650,000		650,000		3.44%	0		0
Promissory Note	September 2023	750,000		750,000		3.27%	0		0
Line of credit	July 2021	0		500,000		3.86%	0		0
Line of credit	March 2022	0		3,000,000		4.96%	0		0
Total facilities with Santander and related subsidiaries		5,650,000		9,150,000			0		0
Total revolving credit facilities		$	11,049,931	$	21,022,262		$	8,339,059	$	2,346

Notes Payable - 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 4), securitization notes payables and residuals retained by the Company.

Facilities with Santander and Related Subsidiaries

Lines of Credit

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

Promissory Notes

SHUSA provides the Company with $7,200,000 of unsecured promissory notes.

Santander provides the Company with $4,000,000 of unsecured promissory notes.

Notes Payable - Secured Structured Financings

The following table presents information regarding secured structured financings as of September 30, 2020 and December 31, 2019:


	September 30, 2020
	Estimated Maturity Date(s) at Issuance	Balance		Initial Note Amounts Issued (d)		Initial Weighted Average Interest Rate	Collateral (b)		Restricted Cash
2016 Securitizations	April 2022 - March 2024	$	520,566	$	4,878,390	1.63% - 2.46%	$	710,108	$	165,372
2017 Securitizations	July 2022 - September 2024	1,252,708		8,262,940		1.35% - 2.52%	1,921,996		228,862
2018 Securitizations	May 2022 - April 2026	3,297,883		12,039,840		2.41% - 3.42%	4,853,413		417,727
2019 Securitizations (e)	May 2024 - February 2027	7,365,406		11,924,720		2.08% - 3.34%	8,999,694		503,999
2020 Securitizations (e)	November 2024 - May 2028	6,372,892		7,291,465		0.76% - 2.73%	7,798,089		421,219
Public Securitizations (a)		18,809,455		44,397,355			24,283,300		1,737,179
2013 Private issuances	July 2024 - September 2024	1,106,654		1,537,025		1.28%	2,189,789		751
2018 Private issuances	June 2022 - April 2024	3,329,885		4,536,002		2.42% - 3.53%	5,028,329		8,294
2019 Private issuance	September 2022 - November 2026	2,839,895		3,524,536		2.45% - 3.90%	3,743,384		10,441
2020 Private issuance	April 2024 - December 2027	1,278,200		1,500,000		1.29% - 2.68%	1,533,617		4,902
Privately issued amortizing notes (c)		8,554,634		11,097,563			12,495,119		24,388
Total secured structured financings		$	27,364,089	$	55,494,918		$	36,778,419	$	1,761,567

(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 through 2017 were paid in full.

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

(e)As of the September 30, 2020, $7.2 million in secured structured financing is held by Santander.


	December 31, 2019
	Estimated Maturity Date(s) at Issuance	Balance		Initial Note Amounts Issued		Initial Weighted Average Interest Rate	Collateral		Restricted Cash
2015 Securitizations	August 2021 - January 2023	$	334,916	$	3,258,300	1.67% - 2.29%	$	411,310	$	94,382
2016 Securitizations	April 2022- March 2024	1,144,421		7,462,790		1.63% - 2.80%	1,560,133		248,784
2017 Securitizations	July 2022 - September 2024	2,364,177		9,296,570		1.35% - 2.52%	3,423,303		292,601
2018 Securitizations	May 2022 - April 2026	5,376,231		12,039,840		2.41% - 3.42%	7,240,151		466,069
2019 Securitizations	May 2024 - February 2027	9,588,028		11,924,720		2.08% - 3.34%	12,062,261		504,810
Public Securitizations		18,807,773		43,982,220			24,697,158		1,606,646
2013 Private issuances	July 2024- September 2024	2,252,616		1,537,025		1.28%	2,143,065		303
2015 Private issuances	July 2019	19,029		500,000		1.05%	67,007		113
2016 Private issuances	September 2024	30,943		300,000		2.35%	90,352		0
2018 Private issuance	June 2022-April 2024	3,742,509		4,536,002		2.42% - 3.53%	5,292,020		10,114
2019 Private issuance	September 2022 - November 2026	3,289,015		3,524,536		2.45% - 3.90%	4,455,773		10,348
Privately issued amortizing notes		9,334,112		10,397,563			12,048,217		20,878
Total secured structured financings		$	28,141,885	$	54,379,783		$	36,745,375	$	1,627,524

Most of the Company’s secured structured financings are in the form of public, SEC-registered securitizations. The Company also executes private securitizations under Rule 144A of the Securities Act and periodically issues private term amortizing notes, which are structured similarly to securitizations but are acquired by banks and conduits. The Company’s securitizations and private issuances are collateralized by vehicle retail installment contracts and loans or leases. As of September 30, 2020 and December 31, 2019, the Company had private issuances of notes backed by vehicle leases totaling $10.0 billion and $10.2 billion, 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 $10,265 and $11,591 for the for the three months ended September 30, 2020 and 2019, respectively, and $28,301 and $29,361 for the nine months ended September 30, 2020 and 2019, respectively. For securitizations, the term takes into consideration the expected execution of the contractual call option, if applicable. Amortization of premium or accretion of discount on notes payable is also included in interest expense using the effective interest method over the estimated remaining life of the notes. Total interest expense on secured structured financings for the three months ended September 30, 2020 and 2019 was $150,734 and $217,544, respectively, and for the nine months ended September 30, 2020 and 2019 was $522,266 and $671,770, respectively.

8. Shareholders’ Equity

Share Repurchases

During the three months ended March 31, 2020, the Company purchased shares of its common stock through a modified Dutch Auction Tender Offer.

In June 2019, the Company announced that the Board had authorized purchases by the Company of up to $1.1 billion, excluding commissions, of its outstanding common stock effective from the third quarter of 2019 through the end of the second quarter of 2020. The Company extended the share repurchase program through the end of the third quarter of 2020. On July 31, 2020, the Company announced that SHUSA’s request for certain exceptions to the Federal Reserve Board’s interim policy (the “Interim Policy”), prohibiting share repurchases and limiting dividends to all CCAR institutions to the average trailing net income, had been approved. Such approval permitted the Board to authorize to continue its share repurchase program through the end of the third quarter of 2020. On August 10, 2020, the Company announced that it had substantially exhausted the amount of shares the Company was permitted to

repurchase under the previously disclosed exception to the Interim Policy and that the Company expected to repurchase an immaterial number of shares remaining under the exception approval.

On September 30, 2020, the Federal Reserve Board extended the Interim Policy through the fourth quarter of 2020. As a result, SC does not currently expect to declare or pay a dividend in the fourth quarter of 2020.

Please find below the details of the Company's tender offer and other share repurchase programs for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended				Nine Months Ended

	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Tender offer (a):
Number of shares purchased	0		0		17,514,707		0
Average price per share	$	0	$	0	$	26.00	$	0
Cost of shares purchased (b)	$	0	$	0	$	455,382	$	0

Other share repurchases:
Number of shares purchased	10,198,800		5,479,650		15,956,561		10,194,772
Average price per share	$	21.91	$	25.71	$	20.00	$	24.08
Cost of shares purchased (b)	$	223,485	$	140,909	$	319,075	$	245,496

Total number of shares purchased	10,198,800		5,479,650		33,471,268		10,194,772
Average price per share	$	21.91	$	25.71	$	23.14	$	24.08
Total cost of shares purchased (b)	$	223,485	$	140,909	$	774,457	$	245,496

(a) During the three months ended March 31, 2020, the Company purchased shares of its common stock through a modified Dutch Auction Tender Offer.

(b) Cost of shares exclude commissions

Refer to Part II Item 2 - "Unregistered Sales of Equity Securities and Use of Proceeds" section for additional details on share repurchases.

Treasury Stock

The Company had 57,067,635 and 23,596,367 shares of treasury stock outstanding, with a cost of $1,301,864 and $525,897 as of September 30, 2020 and December 31, 2019, respectively. NaN shares were withheld to cover income taxes related to stock issued in connection with employee incentive compensation plans for the three months ended September 30, 2020. The value of the treasury stock is included within the additional paid-in-capital.

Accumulated Other Comprehensive Income (Loss)

A summary of changes in accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2020 and 2019 is as follows:



	Three Months Ended				Nine Months Ended

	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Beginning balance, unrealized gains (losses)	$	(63,705)	$	(20,567)	$	(26,693)	$	33,515
Other comprehensive income (loss) before reclassifications (gross)	94		(5,018)		(43,212)		(38,696)
Amounts (gross) reclassified out of accumulated other comprehensive income (loss)	6,729		(6,251)		13,023		(26,655)
Ending balance, unrealized gains (losses)	$	(56,882)	$	(31,836)	$	(56,882)	$	(31,836)

Amounts (gross) reclassified out of accumulated other comprehensive income (loss) during the three and nine months ended September 30, 2020 and 2019 consist of the following:



	Three Months Ended				Nine Months Ended				Income statement line item

Reclassification	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Cash flow hedges	$	8,939	$	(8,283)	$	17,260	$	(35,224)	Interest expense
Available-for-sale	0		0		0		0		Investment gain/loss
Tax benefit	(2,210)		2,032		(4,237)		8,569
Net of tax	$	6,729	$	(6,251)	$	13,023	$	(26,655)

Dividends

The Company paid a cash dividend of $0.22 per share in August 2020.

On September 30, 2020, the FRB extended the interim policy prohibiting share repurchases and limiting dividends to all CCAR banks to the average trailing net income. Based on SHUSA’s expected average trailing four quarters of net income, SC is prohibited from paying a dividend in the fourth quarter of 2020. Although SC’s standalone income is sufficient to declare and a pay a dividend, SC is consolidated into SHUSA’s capital plan and therefore is subject to the FRB’s interim policy that utilizes SHUSA’s average trailing income to determine the cap on common stock dividends. SC does not currently expect to declare or pay a dividend in the fourth quarter of 2020.

9. Derivative Financial Instruments

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

The underlying notional amounts of these derivative financial instruments at September 30, 2020 and December 31, 2019, are as follows:


	September 30, 2020						December 31, 2019
	Notional		Asset		Liability		Notional		Asset		Liability
Interest rate swap agreements designated as cash flow hedges	$	2,750,000	$	0	$	(79,350)	$	2,650,000	$	2,807	$	(39,128)
Interest rate swap agreements not designated as hedges	250,000		0		(14,393)		1,281,000		0		(10,267)
Interest rate cap agreements	11,117,779		5,999		0		9,379,720		62,552		0
Options for interest rate cap agreements	11,117,779		0		(5,999)		9,379,720		0		(62,552)

The aggregate fair value of the interest rate swap agreements was included on the Company’s condensed consolidated balance sheets in other assets and other liabilities, as appropriate. The interest rate cap agreements were included in other assets and the related options in other liabilities on the Company’s condensed consolidated balance sheets. See Note 10 - “Fair Value of Financial Instruments” in the accompanying condensed financial statements for additional disclosure of fair value and balance sheet location of the Company’s derivative financial instruments.

The Company enters into legally enforceable master netting agreements that reduce risk by permitting netting of transactions, such as derivatives and collateral posting, with the same counterparty on the occurrence of certain events. A master netting agreement allows two counterparties the ability to net-settle amounts under all contracts, including any related collateral posted, through a single payment. The right to offset and certain terms regarding the collateral process, such as valuation, credit events and settlement, are contained in ISDA master agreements. The Company has elected to present derivative balances on a gross basis even if the derivative is subject to a legally enforceable master netting (ISDA) agreement. Collateral that is received or pledged for these transactions is disclosed within the “Gross Amounts Not Offset in the condensed Consolidated Balance Sheet” section of the tables below. Information on the offsetting of derivative assets and derivative liabilities due to the right of offset was as follows, as of September 30, 2020 and December 31, 2019:



	Gross Amounts Not Offset in the condensed Consolidated Balance Sheet
	Assets Presented in the condensed Consolidated Balance Sheet		Collateral Received (a)		Net Amount
September 30, 2020


Interest rate caps - Santander and affiliates	$	815	$	0	$	815
Interest rate caps - third party	5,184		(5,184)		0


Total derivatives subject to a master netting arrangement or similar arrangement	5,999		(5,184)		815
Total derivatives not subject to a master netting arrangement or similar arrangement	0		0		0
Total derivative assets	$	5,999	$	(5,184)	$	815
Total financial assets	$	5,999	$	(5,184)	$	815

December 31, 2019

Interest rate swaps - third party (b)	$	2,807	$	(540)	$	2,267
Interest rate caps - Santander and affiliates	25,330		(14,930)		10,400
Interest rate caps - third party	37,222		(26,199)		11,023
Total derivatives subject to a master netting arrangement or similar arrangement	65,359		(41,669)		23,690
Total derivatives not subject to a master netting arrangement or similar arrangement	0		0		0
Total derivative assets	$	65,359	$	(41,669)	$	23,690
Total financial assets	$	65,359	$	(41,669)	$	23,690

(a) Collateral received includes cash, cash equivalents, initial margin and other financial instruments. Cash collateral received is reported in Other liabilities in the consolidated balance sheet. Financial instruments that are pledged to the Company are not reflected in the accompanying balance sheet since the Company does not control or have the ability of rehypothecation of these instruments. In certain instances, the counter party is over-collateralized since the actual amount of collateral received exceeds the associated financial asset. As a result, the actual amount of collateral received that is reported 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.



	Gross Amounts Not Offset in the condensed Consolidated Balance Sheet
	Liabilities Presented in the condensed Consolidated Balance Sheet		Collateral Pledged (a)		Net Amount
September 30, 2020

Interest rate swaps - third party (b)	$	93,743	$	(93,743)	$	0


Interest rate caps - Santander and affiliates	815		(815)		0
Interest rate caps - third party	5,184		(4,193)		991

Total derivatives subject to a master netting arrangement or similar arrangement	99,742		(98,751)		991


Total derivatives not subject to a master netting arrangement or similar arrangement	0		0		0
Total derivative liabilities	$	99,742	$	(98,751)	$	991
Total financial liabilities	$	99,742	$	(98,751)	$	991

December 31, 2019

Interest rate swaps - third party	$	49,395	$	(49,395)	$	0
Interest rate caps - Santander and affiliates	25,330		(25,330)		0
Interest rate caps - third party	37,222		(37,222)		0
Total derivatives subject to a master netting arrangement or similar arrangement	111,947		(111,947)		0


Total derivatives not subject to a master netting arrangement or similar arrangement	0		0		0
Total derivative liabilities	$	111,947	$	(111,947)	$	0
Total financial liabilities	$	111,947	$	(111,947)	$	0

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

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

The gross gains (losses) reclassified from accumulated other comprehensive income (loss) to net income, are included as components of interest expense. The impacts on the consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2020 and 2019 were as follows:


	Three Months Ended September 30, 2020
	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	$	0	$	256	$	(8,939)

Derivative instruments not designated as hedges
Losses (Gains) recognized in interest expenses	$	567


	Three Months Ended September 30, 2019
	Recognized in Earnings		Gross Gains (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)		Gross amount Reclassified From Accumulated Other Comprehensive Income to Interest Expense
Interest rate swap agreements designated as cash flow hedges	$	0	$	(6,485)	$	8,283





Derivative instruments not designated as hedges
Losses (Gains) recognized in interest expenses	$	903


	Nine Months Ended September 30, 2020
	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	$	0	$	(59,405)	$	(17,260)





Derivative instruments not designated as hedges
Losses (Gains) recognized in interest expenses	$	10,774


	Nine Months Ended September 30, 2019
	Recognized in Earnings		Gross Gains (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)		Gross amount Reclassified From Accumulated Other Comprehensive Income to Interest Expense
Interest rate swap agreements designated as cash flow hedges	$	0	$	(52,292)	$	35,224





Derivative instruments not designated as hedges
Losses (Gains) recognized in interest expenses	$	14,750

The Company estimates that approximately $31,118 of unrealized gains included in accumulated other comprehensive income (loss) will be reclassified to interest expense within the next twelve months.

10. 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 or not readily observable for the asset or liability and are used to measure fair value to the extent relevant observable inputs are not available.

Financial Instruments Measured At Fair Value On A Recurring Basis

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019, and the level within the fair value hierarchy:


	Level 1		Level 2		Level 3		Balance at September 30, 2020		Level 1		Level 2		Level 3		Balance at December 31, 2019
Other assets:
Trading interest rate caps (a)	$	0	$	5,999	$	0	$	5,999	$	0	$	62,552	$	0	$	62,552
Cash flow hedging interest rate swaps (a)	0		0		0		$	0	0		2,807		0		$	2,807

Available-for-sale-debt securities (b)	0		95,666		0		$	95,666	0		92,246		0		$	92,246
Other liabilities:
Trading options for interest rate caps (a)	0		5,999		0		$	5,999	0		62,552		0		$	62,552
Cash flow hedging interest rate swaps (a)	0		79,350		0		$	79,350	0		39,128		0		$	39,128
Trading interest rate swaps (a)	0		14,393		0		$	14,393	0		10,267		0		$	10,267
Retail installment contracts (c)(d)	0		0		8,248		$	8,248	0		17,634		4,719		$	22,353

(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 9).

(b)The Company's AFS 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 its securities are 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 are classified as Level 3. As of December 31, 2019, Company had used the most recent purchase price as the fair value for certain loans and hence classified those retail installment contracts as Level 2. Changes in the fair value are recorded in investment gains (losses), net in the condensed consolidated statement of income.

(d)The aggregate fair value of retail installment contracts in non-accrual status, as of September 30, 2020 and December 31, 2019, is $2,031 and $9,511, respectively.

Level 3 Rollforward for Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the changes in retail installment contracts held for investment balances classified as Level 3 balances for the three and nine months ended September 30, 2020 and 2019:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Balance — beginning of year	$	10,585	$	8,832	$	4,719	$	13,509
Additions / issuances	0		0		2,512		2,079
Transfer from level 2 (a)	0		0		17,634		0
Net collection activities	(2,410)		(3,176)		(16,854)		(10,242)
Gains recognized in earnings	73		632		237		942
Balance — end of year	$	8,248	$	6,288	$	8,248	$	6,288

(a) The Company transferred retail installment contracts from Level 2 to Level 3 during the three months ended March 31, 2020 because the fair value for these assets could not be determined by using readily observable inputs at March 31, 2020. There were no other material transfers in or out of Level 3 during the three and nine months ended September 30, 2020 and three and nine months ended September 30, 2019.

Financial Instruments Measured At Fair Value On A Nonrecurring Basis

The following table presents the Company’s assets and liabilities that are measured at fair value on a nonrecurring basis at September 30, 2020 and December 31, 2019, respectively:


	Nine Months Ended September 30, 2020				Year Ended December 31, 2019
	Total		Lower of cost or fair value expense		Total		Lower of cost or fair value expense
Other assets — vehicles (a)	$	370,678	$	0	$	341,465	$	0
Personal loans held for sale (b)	763,292		241,198		1,007,105		408,700

Auto loans impaired due to bankruptcy (c)	188,226		0		200,504		9,106

(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. 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. No additional lower of cost or fair value expense was recorded for the nine months ended September 30, 2020.

Quantitative Information about Level 3 Fair Value Measurements

The following table presents quantitative information about the significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2020 and December 31, 2019, respectively:

Financial Instruments

Fair Value at September 30, 2020

Valuation Technique

Unobservable Inputs

Range (weighted average) (a)

Financial Assets:

Retail installment contracts held for investment

8,248

Discounted Cash Flow

Discount Rate

8%-14% (9%)

Default Rate

4%-20% (5%)

Prepayment Rate

15%-25% (15%)

Loss Severity Rate

50%-60% (56%)

Personal loans held for sale (b)

763,292

Lower of Market or Income Approach

Market Approach

Market Participant View

60%-70%

Income Approach

Discount Rate

20%-30%

Default Rate

40%-50%

Net Principal & Interest Payment Rate

65%-75%

Loss Severity Rate

90%-95%

(a) Weighted average was developed by weighting the associated relative unpaid principal balances.

(b) The estimated fair value for personal loans held for sale (Bluestem) is calculated based on the lower of market participant view, a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, and also considers the possible outcomes of the Bluestem bankruptcy process.

Financial Instruments

Fair Value at December 31, 2019

Valuation Technique

Unobservable Inputs

Range

Financial Assets:

Retail installment contracts held for investment

4,719

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

1,007,105

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 Disclosed, But Not Carried, At Fair Value

The following tables present the carrying value and estimated fair value of the Company’s financial assets and liabilities disclosed, but not carried, at fair value at September 30, 2020 and December 31, 2019, and the level within the fair value hierarchy:


	September 30, 2020										December 31, 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)	$	105,616	$	105,616	$	105,616	$	0	$	0	$	81,848	$	81,848	$	81,848	$	0	$	0

Finance receivables held for investment, net (b)	27,253,256		29,354,905		0		0		29,354,905		27,544,162		28,133,427		0		1,009,358		27,124,069
Restricted cash (a)	2,267,154		2,267,154		2,267,154		0		0		2,079,239		2,079,239		2,079,239		0		0
Investments in debt securities held to maturity (c)	50,381		50,942		0		50,942		0		0		0		0		0		0
Total	$	29,676,407	$	31,778,617	$	2,372,770	$	50,942	$	29,354,905	$	29,705,249	$	30,294,514	$	2,161,087	$	1,009,358	$	27,124,069
Liabilities:
Notes Payable:
Facilities with third parties (d)	$	2,803,684	$	2,803,684	$	0	$	0	$	2,803,684	$	5,399,931	$	5,399,931	$	0	$	0	$	5,399,931
Secured structured financings (e)	27,364,089		27,883,027		0		18,638,472		9,244,555		28,141,885		28,360,948		0		18,646,326		9,714,622
Facilities with Santander and related subsidiaries (f)	11,201,574		11,539,861		0		0		11,539,861		5,652,325		5,724,675		0		0		5,724,675
Total	$	41,369,347	$	42,226,572	$	0	$	18,638,472	$	23,588,100	$	39,194,141	$	39,485,554	$	0	$	18,646,326	$	20,839,228

(a)Cash and cash equivalents and restricted cash — The carrying amount of cash and cash equivalents, including restricted cash, 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 is determined as follows:

•Retail installment contracts held for investment and purchased receivables - credit deteriorated — As of December 31, 2019, the Company used the most recent purchase price as the fair value for certain loans and therefore, classified those retail installment contracts as Level 2. The estimated fair value of all finance receivables at September 30, 2020 is estimated using a DCF model, and such receivables are classified as Level 3.

•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)Investments in debt securities held to maturity - Investments in debt securities held to maturity are recorded at amortized cost and are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.

(d)Notes payable — facilities with third parties — 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.

(e)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, which are considered Level 3 inputs.

(f)Notes payable — facilities with Santander and related subsidiaries — 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.

11. Investment Losses, Net

When the Company sells retail installment contracts, 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 amortized cost of finance receivables held for sale are also recorded in investment gains (losses), net.

Investment gains (losses), net was comprised of the following for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended				Nine Months Ended


	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Gain (loss) on sale of loans and leases	$	(13,669)	$	0	$	(40,553)	$	0
Lower of cost or market adjustments	(56,598)		(87,454)		(241,198)		(239,166)
Other gains, (losses and impairments), net	1,278		1,057		1,754		885
	$	(68,989)	$	(86,397)	$	(279,997)	$	(238,281)

The lower of cost or market adjustments for the three and nine months ended September 30, 2020 and 2019 included $81,247, $278,144, $102,478 and $308,899, respectively, in customer default activity, and favorable adjustments of $24,649, $36,946, $15,023 and $69,732, respectively, primarily related to net changes in the unpaid principal balance on the personal lending portfolio, all of which is classified as held for sale.

12. Income Taxes

The Company recorded income tax expense of $172,476 (26.0% effective tax rate) and $82,156 (26.1% effective tax rate) during the three months ended September 30, 2020 and 2019, respectively. The Company recorded income tax of $137,161 (26.0% effective tax rate) and $283,684 (25.1% effective tax rate) during the nine months ended September 30, 2020 and 2019, 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 $1,003 and $11,010 at September 30, 2020 and December 31, 2019, 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 September 30, 2020 and December 31, 2019, the Company has 0 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.

13. Computation of Basic and Diluted Earnings per Common Share

Earnings per common share (“EPS”) is computed using the two-class method required for participating securities.

The calculation of diluted EPS excludes the effect of exercise or settlement that would be anti-dilutive for employee stock options of 52,114, 52,114, 0 and 24,507 for the three and nine months ended September 30, 2020 and 2019, respectively.

The following table represents EPS numbers for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,

	2020		2019		2020		2019
Earnings per common share
Net income (loss)	$	490,115	$	232,538	$	389,450	$	848,308
Weighted average number of common shares outstanding before restricted participating shares (in thousands)	310,150		345,470		321,276		349,342

Weighted average number of common shares outstanding (in thousands)	310,150		345,470		321,276		349,342
Earnings per common share	$	1.58	$	0.67	$	1.21	$	2.43
Earnings per common share - assuming dilution
Net income (loss)	$	490,115	$	232,538	$	389,450	$	848,308
Weighted average number of common shares outstanding (in thousands)	310,150		345,470		321,276		349,342
Effect of employee stock-based awards (in thousands)	157		486		216		514
Weighted average number of common shares outstanding - assuming dilution (in thousands)	310,307		345,956		321,492		349,856
Earnings per common share - assuming dilution	$	1.58	$	0.67	$	1.21	$	2.42

14. Commitments and Contingencies

The following table summarizes liabilities recorded for commitments and contingencies as of September 30, 2020 and December 31, 2019, 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	September 30, 2020		December 31, 2019
Chrysler Agreement	Revenue-sharing and gain/(loss), net-sharing payments	$	50,809	$	12,132
Agreement with Bank of America	Servicer performance fee	1,508		2,503
Agreement with CBP	Loss-sharing payments	392		1,429

Other Contingencies	Consumer arrangements	25,099		1,991
Legal and regulatory proceedings	Aggregate legal and regulatory liabilities	45,047		137,000
	Total commitments and contingencies	$	122,855	$	155,055

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

Chrysler Agreement

Under terms of the Chrysler Agreement, the Company must make revenue sharing payments to FCA and also must share with FCA when residual gains/(losses) on leased vehicles exceed a specified threshold. The Company had accrued $50,809 and $12,132 at September 30, 2020 and December 31, 2019, respectively, related to these obligations. The Chrysler Agreement also requires that the Company maintain at least $5.0 billion in funding available for Floorplan Loans and $4.5 billion of financing dedicated to FCA retail financing. In turn, FCA must provide designated minimum threshold percentages of its subvention business to the Company.

Agreement with Bank of America

Until January 2017, the Company had a flow agreement with Bank of America whereby the Company was committed to selling up to $300,000 of eligible loans to the bank each month. The Company retains servicing on all sold loans and may receive or pay a servicer performance payment based on an agreed-upon formula if performance on the sold loans is better or worse, respectively, than expected performance at time of sale. Servicer performance payments are due six years from the cut-off date of each loan sale. The Company had accrued $1,508 and $2,503 at September 30, 2020 and December 31, 2019, respectively, related to this obligation.

Agreement with CBP

Until May 2017, the Company sold loans to CBP under terms of a flow agreement and predecessor sale agreements. The Company retained servicing on the sold loans and owes CBP a loss-sharing payment capped at 0.5% of the original pool balance if losses exceed a specified threshold, established on a pool-by-pool basis. Loss-sharing payments are due the month in which net losses exceed the established threshold of each loan sale. The Company had accrued $392 and $1,429 at September 30, 2020 and December 31, 2019, 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 $25,099 and $1,991 at September 30, 2020 and December 31, 2019, respectively, for other miscellaneous contingencies.

Legal and regulatory proceedings

Periodically, the Company, including its subsidiaries, is and in the future expects to be party to, or otherwise involved in, various claims, disputes, lawsuits, investigations, regulatory matters and other legal matters and proceedings that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of any such claims, disputes, lawsuit, investigations, regulatory matter or 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, if any. Accordingly, except as provided below, the company is unable to reasonably estimate a range of its potential exposure, if any, to these claims, disputes, lawsuits, investigations, regulatory matters, and other legal proceedings at this time. 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 position, liquidity, and results of operation.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal and, regulatory 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 legal or regulatory 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 and the Company continues to monitor the matter for further developments that could affect the amount of the accrued liability previously established.

As of September 30, 2020 and December 31, 2019, the Company accrued aggregate legal and regulatory liabilities of $45 million and $137 million, respectively. Further, the Company estimates the aggregate range of reasonably possible losses for legal and regulatory proceedings, in excess of reserves established, is up to $11.5 million as of September 30, 2020. 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. On July 28, 2020, the Company executed a Stipulation of Settlement with the plaintiffs in the Deka Lawsuit that fully resolves all of the plaintiffs’ claims for a cash payment of $47 million. On August 13, 2020, the Court entered an Order Preliminarily Approving the Settlement and Providing For Notice, setting the Final Settlement Hearing for January 12, 2021.

• In Re Santander Consumer USA Holdings, Inc. Derivative Litigation: 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-VCG (the "Feldman Lawsuit"). The Feldman Lawsuit names as defendants certain 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. 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. No. 12775-VCG (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 director 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. In March 2018, the Feldman Lawsuit and Jackie888 Lawsuit were consolidated under the caption In Re Santander Consumer USA Holdings, Inc. Derivative Litigation, Consol. C.A. No. 11614-VCG. In January 2020, the Company executed a Stipulation and Agreement of Settlement, Compromise and Release with the plaintiffs in the consolidated action that, subject to Court approval, fully resolves all of the plaintiffs’ claims in the Feldman Lawsuit and the Jackie888 Lawsuit. The Stipulation provides for the settlement of the consolidated action and, in return, the Company has enacted or will enact and implement certain corporate governance reforms and enhancements. The Settlement Hearing at which the Court would consider the settlement was scheduled for May 27, 2020, but a shareholder filed its notice of intent to object to the settlement and the parties agreed to postpone the Settlement Hearing to a later date.

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 in 2014, 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, 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. On May 19, 2020, all of the Consortium members and the Company announced a settlement of the investigation requiring the Company to: (1) pay a total of $65 million to the states for consumer remediation; (2) pay $5 million to the states for investigation costs; (3) pay up to $2 million in settlement administration costs; (4) provide $45 million in prospective debt forgiveness; (5) provide deficiency waivers for a defined class of SC customers; and (6) implement certain enhancements to its loan underwriting process.

•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. In February 2020, the Company received a communication from the CFPB inviting the Company to respond to the CFPB’s identified issues in the form of a Notice of Opportunity to Respond and Advise (“NORA”) during which the CFPB identified potential claims it might bring against the Company.

•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.

•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.

Agreements

•Bluestem

The Company is party to agreements with Bluestem whereby the Company is committed to purchase certain new advances on personal revolving financings receivables, along with existing balances on accounts with new advances, originated by Bluestem for an initial term ending in April 2020 and renewable through April 2022 at Bluestem’s option. As of September 30, 2020 and December 31, 2019, the total unused credit available to customers was $2.8 billion and $3.0 billion, respectively. In 2020, the Company purchased $0.8 billion of receivables, out of the $3 billion unused credit available to customers as of December 31, 2019. In 2019, the Company purchased $1.2 billion of receivables, out of the $3.1 billion unused credit available to customers as of December 31, 2018. In addition, the Company purchased $151,163 and $137,821 of receivables related to newly opened customer accounts during the nine months ended September 30, 2020 and 2019 respectively.

Each customer account generated under the agreements, generally, is approved with a credit limit higher than the amount of the initial purchase with each subsequent purchase automatically approved as long as it does not cause the account to exceed its limit and the customer is in good standing. As of September 30, 2020 and December 31, 2019, the Company was obligated to purchase $13,281 and $10,628, 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% of new accounts subsequently originated.

On March 9, 2020, Bluestem and certain of its subsidiaries and affiliates filed Chapter 11 bankruptcy in the United States District Court for the District of Delaware. On August 28, 2020, BLST Operating Company LLC, purchased the Bluestem assets from bankruptcy and assumed Bluestem’s obligations under the parties’ agreements.

•Others

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

In connection with the sale of retail installment contracts through securitizations and other sales, the Company has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require the Company to repurchase loans previously sold to on- or off-balance

sheet Trusts or other third parties. As of September 30, 2020, there were 0 loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for the Company’s asset-backed securities or other sales. In the opinion of management, the potential exposure of other recourse obligations related to the Company’s retail installment contract sales agreements is not expected to have a material adverse effect on the Company’s business, financial position, results of operations, or cash flows.

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

In November 2015, the Company executed a forward flow asset sale agreement with a third party under terms of which the Company committed to sell $350,000 in charged off loan receivables in bankruptcy status on a quarterly basis. However, any sale more than $275,000 is subject to a market price check. The remaining aggregate commitment as of September 30, 2020 and December 31, 2019, not subject to market price check was $27,702 and $39,787, respectively.

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.

15. 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 lines of credit from SHUSA (Note 7) totaled $79,854 and $54,963 for the three months ended September 30, 2020 and 2019, respectively, and $213,224 and $145,840 for the nine months ended September 30, 2020 and 2019, respectively. Accrued interest for lines of credit from SHUSA at September 30, 2020 and December 31, 2019 was $42,718 and $29,326, respectively.

Interest expense, including unused fees, for lines of credit from Santander (Note 7) totaled $7,997 and 0 for the three months ended September 30, 2020 and 2019 respectively, and $8,700 and 0 for the nine months ended September 30, 2020 and 2019 respectively. Accrued interest for lines of credit from Santander at September 30, 2020 and December 31, 2019 was $1,512 and 0, respectively.

In 2015, under an agreement with Santander, the Company agreed to begin incurring a fee of 12.5 basis points (per annum) on certain warehouse lines, as they renew, for which Santander provides a guarantee of the Company’s servicing obligations. The Company recognized guarantee fee expense of 0 for the three months ended September 30, 2020 and 2019, and 0 and $384 for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020 and December 31, 2019, the Company had 0 of related fees payable to Santander.

Derivatives

The Company has derivative financial instruments with Santander and affiliates with outstanding notional amounts of

$3,264,580 and $1,874,100 as of September 30, 2020 and December 31, 2019, respectively (Note 9). The Company had a collateral overage on derivative liabilities with Santander and affiliates of $554 and $2,220 as of September 30, 2020 and December 31, 2019, 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 $472 and $377 for the three months ended September 30, 2020 and 2019, respectively, and $1,566 and $1,154 for the nine months ended September 30, 2020 and 2019, respectively. Other information on the serviced auto loan and retail installment contract portfolios for SBNA as of September 30, 2020 and December 31, 2019 is as follows:


	September 30, 2020		December 31, 2019
Total serviced portfolio	$	209,453	$	277,669
Cash collections due to owner	17,793		14,908
Servicing fees receivable	1,938		738

Dealer Lending

Under the Company’s agreement with SBNA, the Company is required to permit SBNA a first right to review and assess CCAP dealer lending opportunities, and SBNA is required to pay the Company an origination fee for each loan originated under the agreement. The agreement also transferred the servicing of all CCAP receivables from dealers, including receivables held by SBNA to the Company and 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 0 outstanding receivable from SBNA as of September 30, 2020 or December 31, 2019 for such advances.

Other information related to the above transactions with SBNA is as follows:



	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Origination and renewal fee income from SBNA	$	451	$	1,291	$	2,473	$	4,218
Servicing fees expenses charged by SBNA	(9)		52		63		113

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, which settles the transaction with the dealer. The Company owed SBNA $9,754 and $5,384 related to such originations as of September 30, 2020 and December 31, 2019, respectively.

The Company received a $9,000 referral fee in connection with a sourcing and servicing arrangement and is amortizing the fee into income over the ten-year term of the agreement through July 1, 2022, the termination date of the agreement. As of September 30, 2020 and December 31, 2019, the unamortized fee balance was $2,475 and $3,150, respectively. The Company recognized $225 and $675 of income related to the referral fee for the three and nine months ended September 30, 2020 and 2019, respectively.

Origination Support Services

Beginning in 2018, the Company agreed to provide SBNA with origination support services in connection with the processing, underwriting and purchase of retail loans, primarily from FCA dealers. In addition, the Company agreed to perform the servicing for any loans originated on SBNA’s behalf. For the three and nine months ended September 30, 2020, the Company facilitated the purchase of $1.1 billion and $3.9 billion of retail installment contacts, respectively. For the three and nine months ended September 30, 2019, the Company facilitated the purchase of $2.1 billion and $5.0 billion of retail installment contacts, respectively. The Company recognized origination fee and servicing fee income of $7,902 and $29,457 for the three and nine months ended September 30, 2020, respectively, of which $4,089 is receivable as of September 30, 2020. The Company recognized origination fee and servicing fee income of $19,892 and $45,716 for the three and nine months ended September 30, 2019, respectively, of which $8,114 is receivable as of September 30, 2019.

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 and nine months ended September 30, 2020 and 2019 is as follows:


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Servicing fee income	$	4,488	$	4,743	$	15,680	$	20,885

Servicing fee receivable, as of September 30, 2020 and December 31, 2019, was $1,247 and $1,869, respectively. The Company had $6,879 and $8,180 of collections due to Santander, as of September 30, 2020 and December 31, 2019, respectively.

Santander Investment Securities Inc. (SIS), an affiliated entity, serves as joint book runner and co-manager on certain of the Company’s securitizations. Amounts paid to SIS for the three months ended September 30, 2020 and 2019, totaled $103 and $929, respectively, and totaled $1,625 and $1,894 for the nine months ended September 30, 2020 and 2019, respectively, and are included in debt issuance costs in the accompanying condensed consolidated financial statements.

Other employee compensation

Sandra Broderick is Head of Operations and Executive Vice President of the Company, and Head of Operations and Senior Executive Vice President of SHUSA. During the nine months ended September 30, 2020, SHUSA owed the Company $163 for the share of compensation expense based on time allocation between her services to the Company and SHUSA.

In addition, certain employees of the Company and SHUSA, provide services to each other. For the nine months ended September 30, 2020, the Company owed SHUSA approximately $9,221 and SHUSA owed the Company approximately $4,198 for such service.

Other related-party transactions

•The Company subleases approximately 13,000 square feet of its corporate office space to SBNA. For the three months ended September 30, 2020 and 2019, the Company recorded $44 in sublease revenue on this property. For the nine months ended September 30, 2020 and 2019, the company recorded $132, in sublease revenue on this property.

•The Company has certain deposit and checking accounts with SBNA, an affiliated entity. As of September 30, 2020 and December 31, 2019, the Company had a balance of $26,920 and $33,683, respectively, in these accounts.

•The Company and SBNA have a Credit Card Agreement (Card Agreement) whereby SBNA provides credit card services for travel and related business expenses for vendor payments. This service is at zero cost but generates rebates based on purchases made. As of September 30, 2020, the activities associated with the program were insignificant.

•The Company pays 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 $39 and $49 for these services for the three months ended September 30, 2020 and 2019, respectively, and $140 and $182 for the nine months ended September 30, 2020 and 2019, respectively.

•The Company has contracted Aquanima, a Santander affiliate, to provide procurement services. Expenses incurred totaled $785 and $765 for the three months ended September 30, 2020 and 2019, respectively, and $2,079 and $1,780 for the nine months ended September 30, 2020 and 2019, respectively.

•Santander Global Tech (formerly known as Produban Servicios Informaticos Generales S.L.), a Santander affiliate, provides professional services, telecommunications, and internal and/or external applications to the Company. Expenses incurred, which are included as a component of other operating costs in the accompanying condensed consolidated statements of income, totaled $279 and $71 for the three months ended September 30, 2020 and 2019, respectively, and $350 and $300 for the nine months ended September 30, 2020 and 2019, respectively.

•The Company partners with SHUSA to place Cyber Liability Insurance in which participating worldwide Santander entities share €270 million aggregate limits. The Company repays SHUSA for the Company’s equitably allocated portion of insurance premiums and fees. Expenses incurred totaled $97 and $108 for the three months ended September 30, 2020 and 2019, respectively, and totaled $313 and $324 for the nine months ended September 30, 2020 and 2019, respectively. In addition, the Company partners with SHUSA for various other insurance products. Expenses incurred totaled $416 and $183 for the three months ended September 30, 2020 and 2019, respectively, and $781 and $571 for the nine months ended September 30, 2020 and 2019, respectively.

16. 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 grant 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 shares of common stock. 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.

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. Awards granted to certain participants may also be subject to the achievement of certain performance conditions. 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 independent directors RSUs that vest 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.

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 0 recorded for the three and nine months ended September 30, 2020 and 2019. The Company recognized $6,161 and $7,973 related to stock options and restricted stock units within compensation expense for the nine months ended September 30, 2020 and 2019, respectively. In addition, the Company recognizes forfeitures of awards as they occur.

A summary of the Company’s stock options and related activity as of and for the nine months ended September 30, 2020 is as follows:


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at January 1, 2020	273,737	$	13.09	3.1	$	2,867
Granted	0	0		—	—
Exercised	(67,241)	9.97		—	868
Expired	(15,440)	25.89		—	—
Forfeited	(13,460)	17.25		—	—
Other (a)	0	0		—	—
Options outstanding at September 30, 2020	177,596	12.84		2.2	1,126
Options exercisable at September 30, 2020	177,596	$	12.84	2.2	$	1,126
Options expected to vest at September 30, 2020	0	$	0	—	$	0

(a) Represents stock options that were reinstated.

A summary of the Company’s Restricted Stock Units and performance stock units and related activity as of and for the nine months ended September 30, 2020 is as follows:


	Shares	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of January 1, 2020	498,299	$	17.41	0.9	$	11,645
Granted	268,438	24.02		—	—
Vested	(365,740)	19.64		—	8,557
Forfeited/canceled	(12,953)	17.97		—	—
Non-vested at September 30, 2020	388,044	$	19.98	1.0	$	7,059


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 2019 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.

Background and 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 September 30, 2020, approximately 80.2%) by SHUSA, a wholly-owned subsidiary of Santander.

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

CCAP continues to be a focal point of the Company’s strategy. In 2019, the Company entered into an Amendment to the Chrysler Agreement with FCA, which modified the Chrysler Agreement to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions. The Amendment also established an operating framework that was

mutually beneficial for both parties for the remainder of the contract. The Company’s average penetration rate under the Chrysler Agreement for the third quarter of 2020 was 33%, a decrease from 36% for the same period in 2019.

The Company has dedicated financing facilities in place for its CCAP business and has worked strategically and collaboratively with FCA to continue to strengthen its relationship and create value within the CCAP program. During the nine months ended September 30, 2020, the Company originated $11.1 billion in CCAP loans which represented 61% of total retail installment contract originations (unpaid principal balance), as well as $4.9 billion in CCAP leases. Additionally, substantially all of the leases originated by the Company during the nine months ended September 30, 2020 were under the Chrysler Agreement.

Economic and Business Environment

Refer to Part I, Item 2. "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Recent Developments and Other Factors Affecting The Company’s Results of Operations" for additional details on the impact of the COVID-19 outbreak on Company's current financial and operating status, as well as its future operational and financial planning.

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. Refer to Note 2 - "Finance Receivables" to the accompanying condensed consolidated financial statements for the details on the Company’s retail installment contracts by state concentration.

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, Bank Secrecy Act, 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, and 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 share repurchase program, 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 2019 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.

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 retail installment contracts, loans and leases, and at the pool level for purchased portfolios-credit deteriorated, enabling it to pinpoint drivers of any unusual or unexpected trends. The Company also monitors its and industry-wide recovery 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 ACL.

•Other income — The Company’s flow agreements and third-party servicing 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).

Recent Developments and Other Factors Affecting The Company’s Results of Operations

Outbreak of COVID-19

The current outbreak of a novel strain of coronavirus, or COVID-19, has materially impacted our business, and the continuance of this outbreak or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.

Due the unpredictable and rapidly changing nature of this outbreak and the resulting economic distress, it is not possible to determine with certainty the ultimate impact on our results of operations or whether other currently unanticipated consequences of the outbreak are reasonably likely to materially affect our results of operations; however, certain adverse effects have already occurred or are probable. The following sets forth our discussion of the impact of COVID-19 on Company's current financial and operating status, as well as its future operational and financial planning as of the date hereof:

•Impact on workforce: The health and well-being of our colleagues and customers are a top priority for the Company. The Company has implemented business continuity plans and has followed guidelines issued by government authorities regarding social distancing and work-from-home arrangements. Currently, approximately 95%-97% of our workforce is working remotely. The Company has established a Temporary Emergency Paid Leave Program that provides employees with up to 120 hours of additional paid time off to use – either continuously or intermittently, and before exhausting other paid time off – to assist with dependent care needs related to COVID-19. Further, the Company provided $250 a week in pay premiums for frontline customer support workers to help defray additional costs incurred while working during the outbreak. While our business continuity plans are place, if significant portions of our or our vendors’ work forces are unable to work effectively as a result of the COVID-19 outbreak including because of illness, stay-at-home orders, facility closures reductions in services or hours of operation, or ineffective remote work arrangements, there may be disruptions to our origination and servicing operations, which could result in reduced originations and/or collection effectiveness and/or impair our ability to operate our business and satisfy our obligations under our third-party servicing agreements. Each of these scenarios could have materially adverse effects on our business, financial condition and results of operations.

•Impact on customers and loans and lease performance: The COVID-19 outbreak and the associated economic crisis have led to negative effects on our customers. Unlike the regional impact of natural disasters, such as hurricanes, the COVID-19 outbreak is impacting customers nationwide and is expected to have a materially more significant impact on the performance of our auto loan and auto lease portfolio than even the most severe historical natural disaster.

Similar to many other financial institutions, we have taken and will continue to take measures to mitigate our customers’ COVID-19 related economic challenges. We have experienced a sharp increase in requests for extensions and modifications related to COVID-19 nationwide and a significant number of such extensions and modifications have been granted. These customer support programs, by their nature, are expected to negatively impact our financial performance and other results of operations in the near term. Our business, financial condition and results of operations may be materially and adversely affected in the longer term if the COVID-19 outbreak leads us to continue to conduct such programs for a significant period of time, if the number of customers experiencing hardship related directly or indirectly to the outbreak of COVID-19 increases or if our customer support programs are not effective in mitigating the effects of the pandemic and the recession on our customers' financial situations. Given the unpredictable nature of

this situation, the nature and extent of such effects cannot be predicted at this time, but such effects could be materially adverse effects to our business, financial condition and results of operations.

Further, government or regulatory authorities could also enact laws, regulations, executive orders or other guidance that allow customers to forgo making scheduled payments for some period of time, require modifications to receivables (e.g., waiving accrued interest), preclude creditors from exercising certain rights or taking certain actions with respect to collateral, including repossession or liquidation of the financed vehicles, or mandate limited operations or temporary closures of the Company or our vendors as “non-essential businesses” or otherwise. Such actions by government or regulatory authorities could have materially negative effects on our business, financial condition and results of operations.

•Impact on originations: Since COVID-19 outbreak, the Company has partnered with FCA to launch new incentive programs, including, 90-day first payment deferrals and 0% APR for 84 months on select 2019/2020 FCA models. Today, all dealers are open and operating at full capacity; however, many are operating with a different business model (e.g., appointments only, home delivery, etc.). Third party sources are reporting a new car SAAR rate that is approximately 95% of pre-COVID expectations. While an economic downturn associated with the Pandemic will impact sales, most dealers have developed business models that will allow them to continue operation in some capacity.

•Impact on Debt and Liquidity: We rely upon four primary sources to fund our operations, including private financing, warehouse lines of credit, the asset-backed securitization market, and support from Santander. As international trade and business activity has slowed and supply chains have been disrupted, global credit and financial markets have recently experienced, and may continue to experience, significant disruption and volatility. During the nine months ended September 30, 2020, financial markets experienced significant declines and volatility, and such market conditions may continue and/or precede recessionary conditions in the U.S. economy. Under these circumstances, we may experience some or all of the risks related to market volatility and recessionary conditions described in the Risk Factors section of our Form 10-K. These include reduced demand for our products and services and reduced access to capital markets funding. These risks could have materially adverse impacts on our liquidity, financial condition, results of operations and cash flows.

Governmental and regulatory authorities have recently implemented fiscal and monetary policies and initiatives to mitigate the effects of the outbreak on the economy and individual businesses and households, such as the reduction of the Federal Reserve’s benchmark interest rate to near zero in March 2020. Further, the FRB established the Term Asset Backed Securities Loan Facility ("TALF") to support the flow of credit to consumers and businesses, including the investment in certain eligible ABS bonds. While the Company currently does not intend to need to utilize TALF, given the current state of the capital markets and the recent tightening in ABS credit spreads, the Company may utilize TALF, if it becomes necessary to do so. These governmental and regulatory actions may not be successful in the long-term mitigating the adverse economic effects of COVID-19 and could affect our liquidity, access to funding and net interest income and reduce our profitability. Sustained adverse economic effects from the outbreak may also result in downgrades in our credit ratings or adversely affect the interest rate environment. If our access to funding is reduced or if our costs to obtain such funding significantly increases, our business, financial condition and results of operations could be materially and adversely affected.

In addition, the Company’s ability to make payments on the notes could be adversely affected if its customers were unable to make timely payments or if the Company elected to, or was required to, implement forbearance programs in connection with customers suffering a hardship (including hardships related to the outbreak of COVID-19).

The capital markets appear to have recovered in third quarter compared to the first half of the year, however, due to the rapidly evolving nature of the COVID-19 outbreak, it is not possible to predict whether unanticipated consequences of the outbreak are reasonably likely to affect materially our liquidity, access to funding and capital resources in the future.

•Impact on impairment of goodwill, indefinite-lived and long-lived assets: In accordance with accounting policy, the Company has analyzed the impact of COVID-19 on its financial statements, including the potential for impairment. The analysis did not support any impairment of these assets, including Goodwill, Leased Vehicles and other non-financial assets such as Upfront fee and other Intangibles.

•Impact on communities: The Company is committed to supporting our communities impacted by the COVID-19 outbreak, and the Company's non-profit foundation has begun responding to the COVID-19 crisis with $1.3 million in donations to a select group of organizations addressing community issues.

Volume

The Company’s originations of loans and leases, including revolving loans, average APR, and dealer discount (net of dealer participation) for the three and nine months ended September 30, 2020 and 2019 were as follows:



	Three Months Ended						Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
	(Dollar amounts in thousands)
Retained Originations
Retail installment contracts	$	5,344,755		$	4,080,028		$	13,608,298		$	12,056,003
Average APR	13.7 %			16.0		%	13.8 %			16.5		%
Average FICO® (a)	637			599			631			598
Discount	(1.3)		%	(0.7)		%	(1.0)		%	(0.4)		%

Personal loans (b)	$	305,039		$	322,335		$	923,112		$	954,105
Average APR	29.4		%	29.7		%	29.4		%	29.8		%


Leased vehicles	$	1,856,166		$	2,225,117		$	4,863,504		$	6,708,827

Finance lease	$	4,087		$	4,859		$	9,016		$	12,989
Total originations retained	$	7,510,047		$	6,632,339		$	19,403,930		$	19,731,924

Sold Originations
Retail installment contracts	$	80,144		$	—		$	761,323		$	—
Average APR	5.2 %			—		%	4.8		%	—		%
Average FICO® (c)	738			—			734			—

Total Originations Sold	$	80,144		$	—		761,323			$	—

Total SC Originations	7,590,191			6,632,339			20,165,253			19,731,924

Total originations (excluding SBNA Originations Program)	$	7,590,191		$	6,632,339		$	20,165,253		$	19,731,924

(a)Unpaid principal balance excluded from the weighted average FICO score is $571 million and $440 million for the three months ended September 30, 2020 and 2019, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, $145 million and $154 million, respectively, were commercial loans. Unpaid principal balance excluded from the weighted average FICO score is $1.5 billion and $1.4 billion for the nine months ended September 30, 2020 and 2019, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, $386 million and $401 million, respectively, were commercial loans.

(b) Included in the total origination volume is $72 million and $62 million for the three months ended September 30, 2020 and 2019, respectively, and $151 million and $138 million for the nine months ended September 30, 2020, and 2019, respectively, related to newly opened accounts.

(c) Unpaid principal balance excluded from the weighted average FICO score is $11 million and $80 million for the three and nine months ended September 30, 2020, respectively, as the borrowers on these loans did not have FICO scores at origination.

Total auto originations (excluding SBNA Origination Program) increased $0.5 billion, or 2.5%, from the nine months ended September 30, 2019 to the nine months ended September 30, 2020. The Company's initiatives to improve our pricing, as well as, our dealer and customer experience have 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. CCAP volume and penetration rates are influenced by strategies implemented by FCA and the Company, including product mix and incentives.

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 FCA dealers. In addition, the Company agreed to perform the

servicing for any loans originated on SBNA’s behalf. During the three and nine months ended September 30, 2020 and 2019 the Company facilitated the purchase of $1.1 billion, $3.9 billion, $2.1 billion and $5.0 billion of retail installment contacts, respectively.

The Company’s originations of retail installment contracts and leases by vehicle type during the nine months ended September 30, 2020 and 2019 were as follows:


	Three Months Ended								Nine Months Ended

	September 30, 2020				September 30, 2019				September 30, 2020				September 30, 2019
	(Dollar amounts in thousands)
Retail installment contracts
Car	$	1,516,163	27.9	%	$	1,424,419	34.9	%	$	3,926,126	27.3	%	$	4,376,512	36.3	%
Truck and utility	3,686,966		68.0	%	2,483,426		60.9	%	9,872,900		68.7	%	7,186,881		59.6	%
Van and other (a)	221,770		4.1	%	172,184		4.2	%	570,595		4.0	%	492,610		4.1	%
	$	5,424,899	100.0	%	$	4,080,029	100.0	%	$	14,369,621	100.0	%	$	12,056,003	100	%

Leased vehicles
Car	$	53,985	2.9	%	$	97,875	4.4	%	$	167,432	3.4	%	$	354,046	5.3	%
Truck and utility	1,769,518		95.3	%	2,016,964		90.6	%	4,593,150		94.5	%	6,104,722		91.0	%
Van and other (a)	32,663		1.8	%	110,278		5.0	%	102,922		2.1	%	250,059		3.7	%
	$	1,856,166	100.0	%	$	2,225,117	100.0	%	$	4,863,504	100.0	%	$	6,708,827	100.0	%

Total originations by vehicle type
Car	$	1,570,148	21.6	%	$	1,522,294	24.1	%	$	4,093,558	21.3	%	$	4,730,558	25.2	%
Truck and utility	5,456,484		74.9	%	4,500,390		71.4	%	14,466,050		75.2	%	13,291,603		70.8	%
Van and other (a)	254,433		3.5	%	282,462		4.5	%	673,517		3.5	%	742,669		4.0	%
	$	7,281,065	100.0	%	$	6,305,146	100.0	%	$	19,233,125	100.0	%	$	18,764,830	100.0	%

(a) Other primarily consists of commercial vehicles.

The Company’s portfolio of retail installment contracts held for investment and leases by vehicle type as of September 30, 2020 and December 31, 2019 are as follows:


	September 30, 2020				December 31, 2019
	(Dollar amounts in thousands)
Retail installment contracts
Car	$	11,811,123	35.3	%	$	12,286,182	39.9	%
Truck and utility	20,356,734		60.8	%	17,238,406		56.0	%
Van and other (a)	1,317,485		3.9	%	1,251,450		4.1	%
	$	33,485,342	100.0	%	$	30,776,038	100.0	%

Leased vehicles
Car	$	844,999	4.9	%	$	1,237,803	7.1	%
Truck and utility	15,814,866		92.5	%	15,795,594		89.8	%
Van and other (a)	441,857		2.6	%	529,385		3.1	%
	$	17,101,722	100.0	%	$	17,562,782	100.0	%

Total by vehicle type
Car	$	12,656,122	25.0	%	$	13,523,985	28.0	%
Truck and utility	36,171,600		71.5	%	33,034,000		68.3	%
Van and other (a)	1,759,342		3.5	%	1,780,835		3.7	%
	$	50,587,064	100.0	%	$	48,338,820	100.0	%

(a) Other primarily consists of commercial vehicles.

The Company's asset sales for the three and nine months ended September 30, 2020 and 2019 were as follows:


	Three Months Ended						Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
	(Dollar amounts in thousands)

Retail installment contracts	$	636,301		$	—		$	1,148,587		$	—
Average APR	4.9		%	—		%	5.6		%	—		%
Average FICO®	735			—			715			—

The unpaid principal balance, average APR, and remaining unaccreted net discount of the Company’s held for investment portfolio as of September 30, 2020 and December 31, 2019 are as follows:


	September 30, 2020			December 31, 2019
	(Dollar amounts in thousands)
Retail installment contracts	$	33,485,342		$	30,776,038
Average APR	15.2		%	16.1		%
Discount	0.05		%	0.3		%




Receivables from dealers	$	3,675		$	12,668
Average APR	3.9		%	4.0		%

Leased vehicles	$	17,101,722		$	17,562,782

Finance leases	$	26,617		$	27,584

The Company records interest income from retail installment contracts 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 at a discount. The Company amortizes discounts, subvention payments from manufacturers, and origination costs as adjustments to income from 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, and 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 5.1% to 10.7% as of September 30, 2020, and 5.2% to 11.0% as of September 30, 2019. 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.

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 purchases pools of receivables and had significant volumes of these purchases during the credit crisis. While the Company continues to pursue such opportunities when

available, during the nine months ended September 30, 2020, the Company did not acquire any vehicle loan portfolios for which there have been more than insignificant deterioration in credit quality since origination. In addition, during the nine months ended September 30, 2020 and 2019, the Company did not acquire any vehicle loan portfolios for which it was probable at acquisition that not all contractually required payments would be collected.

However, during the three months ended September 30, 2020 and 2019 the Company did recognize certain retail installment contracts with an unpaid principal balance of $0, and for the nine months ended September 30, 2020 and 2019 the Company did recognize certain retail installment contracts with an unpaid principal balance of $76,878 and $74,718, 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 ACL. 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. For the Company’s existing purchased receivables portfolios - credit deteriorated, 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 records 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.

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 of revenue 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.

Selected Financial Data


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Income Statement Data	(Dollar amounts in thousands, except per share data)
Interest on retail installment contracts	$	1,220,703	$	1,183,699	$	3,552,193	3,509,507
Interest on purchased receivables portfolios - credit deteriorated	649		852		2,164		3,204
Interest on receivables from dealers	(17)		23		48		196
Interest on personal loans	79,359		88,448		256,708		274,793
Interest on finance receivables and loans	1,300,694		1,273,022		3,811,113		3,787,700
Net leased vehicle income	257,984		250,109		579,739		687,444
Other finance and interest income	2,146		9,926		12,354		31,610
Interest expense	292,118		335,212		929,934		999,633
Net finance and other interest income	1,268,706		1,197,845		3,473,272		3,507,121





Credit loss expense	340,548		566,849		2,110,331		1,548,404
Profit sharing	30,414		18,125		56,239		38,438
Other income	28,509		31,293		32,923		112,789
Operating expenses	263,662		329,470		813,014		901,076
Income before tax expense	662,591		314,694		526,611		1,131,992
Income tax (benefit) / expense	172,476		82,156		137,161		283,684
Net income	$	490,115	$	232,538	$	389,450	$	848,308
Share Data
Weighted-average common shares outstanding
Basic	310,150,293		345,469,657		321,275,907		349,341,627
Diluted	310,307,265		345,956,043		321,492,331		349,855,822
Earnings per share
Basic	$	1.58	$	0.67	$	1.21	$	2.43
Diluted	$	1.58	$	0.67	$	1.21	$	2.42
Dividend paid per share	$	0.22	$	0.22	$	0.66	$	0.62
Balance Sheet Data
Finance receivables held for investment, net	$	27,449,730	$	26,500,359	$	27,449,730	$	26,500,359
Finance receivables held for sale, net	763,292		925,611		763,292		925,611
Goodwill and intangible assets	136,397		110,683		136,397		110,683
Total assets	48,448,921		47,279,015		48,448,921		47,279,015
Total borrowings	41,369,347		37,632,642		41,369,347		37,632,642
Total liabilities	43,354,109		39,933,813		43,354,109		39,933,813
Total equity	5,094,812		7,345,202		5,094,812		7,345,202
Allowance for credit losses	6,152,378		3,116,680		6,152,378		3,116,680


	Three Months Ended						Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Other Information	(Dollar amounts in thousands)
Charge-offs, net of recoveries, on retail installment contracts	$	46,078		$	592,912		$	1,100,138		$	1,670,543




Total charge-offs, net of recoveries	48,125			592,893			1,103,649			1,672,785

End of period delinquent amortized cost over 59 days, retail installment contracts held for investment	817,577			1,394,074			817,577			1,394,074
End of period personal loans delinquent principal over 59 days, held for sale	93,296			176,500			93,296			176,500
End of period delinquent amortized cost over 59 days, loans held for investment	817,911			1,394,074			817,911			1,394,074




End of period assets covered by allowance for credit losses	33,515,634			29,636,174			33,515,634			29,636,174
End of period gross retail installment contracts held for investment	33,485,342			29,597,897			33,485,342			29,597,897

End of period gross personal loans held for sale	1,211,575			1,322,301			1,211,575			1,322,301
End of period gross finance receivables and loans held for investment	33,489,017			29,633,950			33,489,017			29,633,950
End of period gross finance receivables, loans, and leases	50,617,356			46,874,858			50,617,356			46,874,858
Average gross retail installment contracts held for investment	31,462,524			29,316,997			30,946,321			28,998,827

Average gross retail installment contracts held for investment and held for sale	32,847,716			29,450,778			31,632,276			29,035,278

Average gross purchased receivables portfolios- credit deteriorated	16,901			24,297			18,718			26,781
Average gross receivables from dealers	3,675			12,924			8,120			13,226
Average gross personal loans held for sale	1,240,639			1,343,098			1,322,053			1,398,045
Average gross finance leases	26,325			23,977			27,171			21,960
Average gross finance receivables, loans and finance leases	34,135,256			30,855,074			33,008,338			30,495,290
Average gross operating leases	17,146,166			16,902,932			17,447,194			16,135,606
Average gross finance receivables, loans, and leases	51,281,422			47,758,006			50,455,532			46,630,896
Average managed assets	62,662,686			57,379,308			61,325,546			55,830,429
Average total assets	47,979,008			46,915,965			47,581,031			45,696,088
Average debt	41,064,441			37,276,505			40,262,948			36,234,826
Average total equity	5,044,976			7,335,898			5,429,924			7,215,250
Ratios
Yield on retail installment contracts	14.9		%	16.1		%	15.0		%	16.1		%


Yield on leased vehicles	6.0		%	5.9		%	4.4		%	5.7		%
Yield on personal loans held for sale (1)	25.6		%	26.3		%	25.9		%	26.2		%
Yield on earning assets (2)	12.2		%	12.8		%	11.6		%	12.9		%
Cost of debt (3)	2.8		%	3.6		%	3.1		%	3.7		%
Net interest margin (4)	9.9		%	10.0		%	9.2		%	10.0		%
Expense ratio (5)	1.7		%	2.3		%	1.8		%	2.2		%
Return on average assets (6)	4.1		%	2.0		%	1.1		%	2.5		%
Return on average equity (7)	38.9		%	12.7		%	9.6		%	15.7		%
Net charge-off ratio on retail installment contracts (8)	0.6		%	8.1		%	4.7		%	7.7		%



Net charge-off ratio (8)	0.6		%	8.1		%	4.7		%	7.7		%
Delinquency ratio on retail installment contracts held for investment, end of period (9)	2.4		%	4.7		%	2.4		%	4.7		%

Delinquency ratio on loans held for investment, end of period (9)	2.4		%	4.7		%	2.4		%	4.7		%
Equity to assets ratio (10)	10.5		%	15.5		%	10.5		%	15.5		%
Tangible common equity to tangible assets (10)	10.3		%	15.3		%	10.3		%	15.3		%
Common stock dividend payout ratio (11)	13.9		%	32.7		%	54.4		%	25.5		%
Allowance ratio (12)	18.4		%	10.5		%	18.4		%	10.5		%
Common Equity Tier 1 capital ratio (13)	13.7		%	15.4		%	13.7		%	15.4		%

(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 an amortized cost 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 finance 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 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 September 30, 2020 and 2019 is as follows:


	September 30, 2020			September 30, 2019
	(Dollar amounts in thousands)
Total equity	$	5,094,812		$	7,345,202
Deduct: Goodwill and intangibles	136,397			110,683
Tangible common equity	$	4,958,415		$	7,234,519

Total assets	$	48,448,921		$	47,279,015
Deduct: Goodwill and intangibles	136,397			110,683
Tangible assets	$	48,312,524		$	47,168,332

Equity to assets ratio	10.5		%	15.5		%
Tangible common equity to tangible assets	10.3		%	15.3		%

(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-credit deteriorated/impaired, 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.


	September 30, 2020			September 30, 2019
Total equity	$	5,094,812		$	7,345,202
Add: Adjustment due to CECL capital relief (c)	1,842,536			—
Deduct: Goodwill, intangibles, and other assets, net of deferred tax liabilities	159,907			150,644
Deduct: Accumulated other comprehensive income (loss), net	(56,882)			(31,836)
Tier 1 common capital	$	6,834,323		$	7,226,394
Risk weighted assets (a)(c)	$	49,882,540		$	46,870,019
Common Equity Tier 1 capital ratio (b)(c)	13.7		%	15.4		%

(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.

(c)As described in our 2019 Annual Report on Form 10-K, on January 1, 2020, we adopted ASU 2016-13, Financial Instruments-Credit Losses (“CECL”), which, upon adoption, resulted in a reduction to our opening retained earnings balance, net of income tax, and increase to the allowance for credit losses of approximately $2 billion. As also described in our 2019 10-K, the U.S. banking agencies in December 2018 had approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations, including the Company, the option to phase in the day-one impact of CECL until the first quarter of 2023. In March 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. The Company is electing this alternative option instead of the one described in the December 2018 rule.

Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019

Interest on Finance Receivables and Loans


	Three Months Ended								Nine Months Ended
	September 30,				Increase (Decrease)				September 30,				Increase (Decrease)
	2020		2019		Amount		Percent		2020		2019		Amount		Percent
	(Dollar amounts in thousands)
Income from retail installment contracts	$	1,220,703	$	1,183,699	$	37,004	3	%	$	3,552,193	$	3,509,507	$	42,686	1	%
Income from purchased receivables portfolios - credit deteriorated	649		852		(203)		(24)	%	2,164		3,204		$	(1,040)	(32)	%
Income from receivables from dealers	(17)		23		(40)		(174)	%	48		196		$	(148)	(76)	%
Income from personal loans	79,359		88,448		(9,089)		(10)	%	256,708		274,793		$	(18,085)	(7)	%
Total interest on finance receivables and loans	$	1,300,694	$	1,273,022	$	27,672	2	%	$	3,811,113	$	3,787,700	$	23,413	0.6	%

Income from retail installment contracts remained flat from the third quarter of 2019 to the third quarter of 2020 and from the nine months ended September 30, 2019 to the nine months ended September 30, 2020.

Income from personal loans decreased $9 million, or 10%, from the third quarter of 2019 to the third quarter of 2020, and decreased $18 million or 7%, from the nine months ended September 30, 2019 to the nine months ended September 30, 2020 primarily due to 8% and 5% decrease in average outstanding balance of the Company's portfolio, respectively.

Leased Vehicle Income and Expense



	Three Months Ended								Nine Months Ended
	September 30,				Increase (Decrease)				September 30,				Increase (Decrease)
	2020		2019		Amount		Percent		2020		2019		Amount		Percent
	(Dollar amounts in thousands)
Leased vehicle income	$	725,156	$	706,302	$	18,854	3	%	$	2,210,684	$	2,032,098	$	178,586	9	%
Leased vehicle expense	467,172		456,193		10,979		2	%	1,630,945		1,344,654		286,291		21	%
Leased vehicle income, net	$	257,984	$	250,109	$	7,875	3	%	$	579,739	$	687,444	$	(107,705)	(16)	%

Leased vehicle income, net remained flat from the third quarter of 2019 to the third quarter of 2020; the income decreased from the nine months ended September 30, 2019 to the nine months ended September 30, 2020 due to depreciation on a larger lease portfolio and a decrease in liquidated units. 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 vehicle expense.

Interest Expense


	Three Months Ended								Nine Months Ended
	September 30,				Increase (Decrease)				September 30,				Increase (Decrease)
	2020		2019		Amount		Percent		2020		2019		Amount		Percent
	(Dollar amounts in thousands)
Interest expense on notes payable	$	283,202	$	342,336	$	(59,134)	(17)	%	$	902,081	$	1,022,461	$	(120,380)	(12)	%
Interest expense on derivatives	8,916		(7,124)		16,040		(225)	%	27,853		(22,828)		50,681		(222)	%
Total interest expense	$	292,118	$	335,212	$	(43,094)	(13)	%	$	929,934	$	999,633	$	(69,699)	(7)	%

Total Interest expense decreased $43 million, or 13%, from the third quarter of 2019 to the third quarter of 2020, and decreased $70 million or 7% from the nine months ended September 30, 2019 to the nine months ended September 30, 2020, primarily due to lower interest rate environment partially offset by impact of declined forward curves on cash flow hedges.

Credit Loss Expense



	Three Months Ended								Nine Months Ended
	September 30,				Increase (Decrease)				September 30,				Increase (Decrease)
	2020		2019		Amount		Percent		2020		2019		Amount		Percent
	(Dollar amounts in thousands)





Credit loss expense	$	340,548	$	566,849	$	(226,301)	(40)	%	$	2,110,331	$	1,548,404	$	561,927	36	%

Credit loss expense decreased $226 million or 40% from the third quarter of 2019 to the third quarter of 2020 due to decrease in net charge off offset by higher allowance reserve, The expense increased $562 million or 36% from the nine months ended September 30, 2019 to the nine months ended September 30, 2020 primarily driven by the adoption of the CECL standard in 2020, which replaced the incurred loss impairment framework with one that reflects expected credit losses over the full expected life of financial assets. In addition, the Company added a significant amount of additional reserve to address credit risk associated with the COVID-19 outbreak and associated economic recession during the first and second quarter of 2020.

Profit Sharing



	Three Months Ended								Nine Months Ended
	September 30,				Increase (Decrease)				September 30,				Increase (Decrease)
	2020		2019		Amount		Percent		2020		2019		Amount		Percent
	(Dollar amounts in thousands)
Profit sharing	$	30,414	$	18,125	$	12,289	68	%	$	56,239	$	38,438	$	17,801	46	%

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 expense increased from the third quarter of 2019 to the third quarter of 2020, and increased from the nine months ended September 30, 2019 to the nine months ended September 30, 2020 primarily due to an increase in lease portfolio and liquidated units.

Other Income



	Three Months Ended								Nine Months Ended
	September 30,				Increase (Decrease)				September 30,				Increase (Decrease)
	2020		2019		Amount		Percent		2020		2019		Amount		Percent
	(Dollar amounts in thousands)
Investment losses, net	$	(68,989)	$	(86,397)	$	17,408	(20)	%	$	(279,997)	$	(238,281)	$	(41,716)	18	%
Servicing fee income	18,574		21,447		(2,873)		(13)	%	56,797		70,255		(13,458)		(19)	%
Fees, commissions, and other	78,924		96,243		(17,319)		(18)	%	256,123		280,815		(24,692)		(9)	%
Total other income	$	28,509	$	31,293	$	(2,784)	(9)	%	$	32,923	$	112,789	$	(79,866)	(71)	%

Average serviced for others portfolio	$	11,365,610	$	8,996,182	$	2,369,428	26	%	$	10,862,178	$	8,970,346	$	1,891,832	21	%

Investment losses, net, increased $17 million from the third quarter of 2019 to the third quarter of 2020 primarily due to an impairment release on an unsecured portfolio, offset by losses on certain asset sales. The investment losses decreased $42 million from the nine months ended September 30, 2019 to the nine months ended September 30, 2020, primarily due to the loss on asset sales.

Servicing fee income decreased $3 million from the third quarter of 2019 to the third quarter of 2020, and decreased $13 million from the nine months ended September 30, 2019 to the nine months ended September 30, 2020 due to the runoff of serviced portfolio that had higher servicing fee rates. The Company records servicing fee income on loans that it services but does not own and does not report on its balance sheet. The serviced for others portfolio as of September 30, 2020 and 2019 was as follows:


	September 30,
	2020		2019
	(Dollar amounts in thousands)
SBNA and Santander retail installment contracts	$	9,528,349	$	7,989,931
SBNA leases	65		178
Total serviced for related parties	9,528,414		7,990,109
CCAP securitizations	103,579		310,126
SCART securitizations	1,032,639		—
Other third parties	846,178		1,678,556
Total serviced for third parties	1,982,396		1,988,682
Total serviced for others portfolio	$	11,510,810	$	9,978,791

Fees, commissions, and other, primarily includes late fees, miscellaneous, and other income. This income decreased from the nine months ended September 30, 2019 to the nine months ended September 30, 2020 due to lower originations from SBNA and decrease in wear and tear income due to reserve recorded for possible customer refunds.

Total Operating Expenses



	Three Months Ended								Nine Months Ended
	September 30,				Increase (Decrease)				September 30,				Increase (Decrease)
	2020		2019		Amount		Percent		2020		2019		Amount		Percent
	(Dollar amounts in thousands)
Compensation expense	$	127,991	$	132,271	$	(4,280)	(3)	%	$	388,960	$	382,843	$	6,117	2	%
Repossession expense	35,910		62,937		(27,027)		(43)	%	115,861		203,496		(87,635)		(43)	%
Other operating costs	99,761		134,262		(34,501)		(26)	%	308,193		314,737		(6,544)		(2)	%
Total operating expenses	$	263,662	$	329,470	$	(65,808)	(20)	%	$	813,014	$	901,076	$	(88,062)	(10)	%

Compensation expenses remained flat during the three and nine months ended September 30, 2020 compared to the same period in 2019.

Repossession expense decreased during the three and nine months ended September 30, 2020 compared to the same period in 2019, primarily due to the lower volume of involuntary repossessions nationwide as a result of the COVID-19 outbreak.

Other operating costs decreased during the three and nine months ended September 30, 2020 compared to the same periods of 2019, primarily due to decrease in legal settlements and consulting services.

Income Tax Expense



	Three Months Ended										Nine Months Ended
	September 30,						Increase (Decrease)				September 30,						Increase (Decrease)
	2020			2019			Amount		Percent		2020			2019			Amount		Percent
	(Dollar amounts in thousands)
Income tax expense	$	172,476		$	82,156		$	90,320	110	%	$	137,161		$	283,684		$	(146,523)	(52)	%
Income before income taxes	662,591			314,694			347,897		111	%	526,611			1,131,992			(605,381)		(53)	%
Effective tax rate	26.0		%	26.1		%					26.0		%	25.1		%

The effective tax rate increased from 25.1% for the nine months ended September 30, 2019 to 26.0% for the nine months ended September 30, 2020, primarily due to an increase in the effective tax rate impact of discrete adjustments resulting from lower earnings in the current period and an increase in the blended statutory state tax rate.

Other Comprehensive Income (Loss)



	Three Months Ended								Nine Months Ended
	September 30,				Increase (Decrease)				September 30,				Increase (Decrease)
	2020		2019		Amount		Percent		2020		2019		Amount		Percent
	(Dollar amounts in thousands)


Change in unrealized gains (losses) on cash flow hedges and available-for-sale securities, net of tax	$	6,823	$	(11,269)	$	18,092	(161)	%	$	(30,189)	$	(65,351)	$	35,162	(54)	%

The change in unrealized gains (losses) for the three and nine months ended September 30, 2020 as compared to three and nine months ended September 30, 2019, was primarily driven by, as shown in Note 9 “Derivative Financial Instruments”, increase in cash flow hedge portfolio related to mark to mark valuation.

Credit Quality

Loans and Other Finance Receivables

Allowance for Credit losses

Non-prime loans comprise 75% of the Company’s portfolio as of September 30, 2020. The Company records an ACL at a level considered adequate to cover lifetime expected credit losses in the Company’s retail installment contracts and other loans and receivables held for investment, based upon a holistic assessment including both quantitative and qualitative considerations. Refer to Note 2 - "Finance Receivables" and Note 3 - "Credit Loss Allowance and Credit Quality" to the accompanying condensed consolidated financial statements for the details on the Company’s held for investment portfolio of retail installment contracts and receivables from dealers, as of September 30, 2020 and December 31, 2019.

Credit risk profile

A summary of the credit risk profile of the Company’s 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 September 30, 2020 and December 31, 2019 was as follows (dollar amounts in billions, totals may not foot due to rounding):


September 30, 2020
Trade Lines		1			2			3			4+			Total
FICO	Months History	$	%		$	%		$	%		$	%		$	%
No-FICO (a)	<36	$3.0	97	%	$0.1	3	%	$0.0	—	%	$0.0	—	%	$3.1	9	%
	36+	0.3	38	%	0.2	25	%	0.1	13	%	0.2	25	%	0.8	2	%
<540	<36	0.1	50	%	0.0	—	%	0.0	—	%	0.1	50	%	0.2	1	%
	36+	0.1	2	%	0.2	4	%	0.2	4	%	4.4	90	%	4.9	15	%
540-599	<36	0.3	33	%	0.2	22	%	0.1	11	%	0.3	33	%	0.9	3	%
	36+	0.2	2	%	0.3	3	%	0.3	3	%	8.8	92	%	9.6	28	%
600-639	<36	0.4	44	%	0.2	22	%	0.1	11	%	0.2	22	%	0.9	3	%
	36+	0.1	2	%	0.1	2	%	0.1	2	%	4.9	94	%	5.2	15	%
>640	<36	1.0	63	%	0.2	13	%	0.2	13	%	0.2	13	%	1.6	5	%
	36+	0.1	2	%	0.1	2	%	0.1	2	%	6.1	95	%	6.4	19	%
Total (c)		$5.6	17	%	$1.6	5	%	$1.2	4	%	$25.2	75	%	$33.6	100	%


December 31, 2019 (b)
Trade Lines		1				2				3					4+					Total
FICO	Months History	$		%		$		%		$		%			$		%			$		%
No-FICO (a)	<36	$	2.8	97	%	$	0.1	3	%	$	0.0	$	0.0		$	0.0	$	0.0		$	2.9	9	%
	36+	0.3		38	%	0.2		25	%	0.1		13		%	0.2		25		%	0.8		3	%
<540	<36	0.1		25	%	0.1		25	%	0.1		25		%	0.1		25		%	0.4		1	%
	36+	0.1		2	%	0.2		4	%	0.2		4		%	4.4		90		%	4.9		16	%
540-599	<36	0.3		43	%	0.2		29	%	0.1		14		%	0.1		14		%	0.7		2	%
	36+	0.2		2	%	0.3		3	%	0.3		3		%	8.3		91		%	9.1		30	%
600-639	<36	0.3		43	%	0.2		29	%	0.1		14		%	0.1		14		%	0.7		2	%
	36+	0.1		2	%	0.1		2	%	0.2		4		%	4.7		92		%	5.1		17	%
>640	<36	0.5		45	%	0.1		9	%	0.1		9		%	0.4		36		%	1.1		4	%
	36+	0.1		2	%	0.1		2	%	0.1		2		%	4.7		94		%	5.0		16	%
Total		$	4.8	16	%	$	1.6	5	%	$	1.3	4		%	$	23.0	75		%	$	30.8	100	%

(a) Includes commercial loans

(b) The information as of December 31, 2019 includes balances based on UPB. Difference between amortized cost and UPB was not material.

(c)The amount of accrued interest excluded from the disclosed amortized cost as of September 30, 2020 is $428 million.

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. For the quarter ended September 30, 2020, delinquency rates have been positively impacted (lower) due to the historic volume of deferrals granted to borrowers impacted by COVID-19 and benefits of government stimulus.

Refer to Note 3 - "Credit Loss Allowance and Credit Quality" to the accompanying condensed consolidated financial statements for the details on the retail installment contracts held for investment that were placed on nonaccrual status, as of September 30, 2020 and December 31, 2019.

Credit Loss Experience

The following is a summary of net losses and repossession activity on retail installment contracts held for investment for the nine months ended September 30, 2020 and 2019.


	Nine Months Ended September 30,
	2020			2019

	(Dollar amounts in thousands)
Principal outstanding at period end	$	33,485,342		$	29,597,897
Average principal outstanding during the period	$	31,462,524		$	28,998,827
Number of receivables outstanding at period end	1,971,917			1,819,847
Average number of receivables outstanding during the period	1,888,260			1,814,427
Number of repossessions (a)	131,522			218,444
Number of repossessions as a percent of average number of receivables outstanding	9.3		%	16.1		%
Net losses	$	1,100,138		$	1,670,543
Net losses as a percent of average principal amount outstanding	4.7		%	7.7		%

(a) Repossessions are net of redemptions. The number of repossessions includes repossessions from the outstanding portfolio and from accounts already charged off. The Company temporarily suspended involuntary repossession activities nationwide during the onset of COVID-19 and recently restarted these activities.

There were no charge-offs on the Company’s receivables from dealers for the three and nine months ended September 30, 2020 and 2019. Net charge-offs on the finance lease receivables portfolio, totaled $3,588 and $362 for the nine months ended September 30, 2020 and 2019, respectively.

Deferrals and Troubled Debt Restructurings

In accordance with the Company’s policies and guidelines, the Company may offer extensions (deferrals) to customers on its retail installment contracts, whereby the customer is allowed to move a maximum of three payments per event to the end of the loan. Prior to March 2020, the Company’s policies and guidelines limited the frequency of each new deferral that may be granted to one deferral every six months, regardless of the length of any prior deferral. Further, the maximum number of lifetime months extended for all automobile retail installment contracts was eight, while some marine and recreational vehicle contracts had a maximum of twelve months extended to reflect their longer term. Additionally, the Company generally limited the granting of deferrals on new accounts until a requisite number of months have passed since origination. During the deferral period, the Company continues to accrue and collect interest on the loan in accordance with the terms of the deferral agreement.

However, in March 2020, the Company began actively working with its borrowers impacted by COVID-19 and provided loan modification programs to mitigate the adverse effects of COVID-19. These programs temporarily revised the practices noted above by 1) increasing the maximum number of extensions from eight to twelve, 2) allowing more than one deferral every six months and 3) removing the requirement that a requisite number of months have passed since origination. The Company's predominant program offering is a two-month deferral of payments to the end of the loan term and waiver of late charges.

Since the implementation of the program in March 2020, we have experienced a sharp increase in requests for extensions related to COVID-19 and over 911,000 loan extensions have been granted. As of September 30, 2020, approximately one third (or $11 billion in balances) of our customers have received a COVID-19 deferral. The following table provides a summary of loan balances with active payment deferrals as of the end of each reporting period:


	September 30, 2020				June 30, 2020
	(Dollar amounts in thousands)
	Loan balance of active deferrals (a)		% of portfolio		Loan balance of active deferrals (a)		% of portfolio
Retail installment contracts	$	959,236	2.9	%	$	3,753,717	12.3	%

(a) Excludes deferrals with payments due in September 2020

Through September 30, 2020, 645,000 unique accounts have received COVID-19 deferrals. Of these accounts, 86% have exited deferral status, 7% remain in active deferral, 5% have paid-off, and 2% have charged off. Of the loans that have exited deferral status, 85% are less than 30 days past due and 96% of these accounts have made at least one payment since their first COVID-19 extension.

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


	September 30, 2020				December 31, 2019 (a)
	(Dollar amounts in thousands)
Never deferred	$	20,762,398	61.8	%	$	23,830,368	77.3	%
Deferred once	5,984,442		17.8	%	3,499,477		11.4	%
Deferred twice	3,323,367		9.9	%	1,463,503		4.8	%
Deferred 3 - 4 times	2,647,398		7.9	%	1,867,546		6.1	%
Deferred greater than 4 times	866,160		2.6	%	115,144		0.4	%

Total (b)	$	33,583,765			$	30,776,038

(a) The information as of December 31, 2019 is based on UPB. Difference between amortized cost and UPB was not material.

(b) The amount of accrued interest excluded from the disclosed amortized cost as of September 30, 2020 is $428 million.

The historic volume of deferrals granted in response to COVID-19 impacts have caused the percentage of retail installment contracts that have never been deferred to decrease significantly year over year, and the percentage of retail installment contracts deferred more than four times to increase significantly.

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. If a customer receives two or more deferrals over the life of the loan, the loan would generally advance to a TDR designation.

However, in March 2020, the federal bank regulatory agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.” This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19 and concludes that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were impacted by COVID-19 and who were less than 30 days past due as of the implementation date of a relief program are not TDRs. The Company applied this guidance to deferrals executed in response to COVID-19 and did not designate borrowers who were less than 30 days past due at the time of the COVID-19 extension program as TDR’s, even if they would have otherwise qualified. Upon exceeding six months of COVID-19 extensions, borrowers are designated as a TDR. This guidance (or exception) prevented approximately $3.4 billion in retail installment contract balances from being TDR designated as of the end of the quarter. Approximately 31% of all accounts that have received a COVID-19 deferral and are active as of September 30, 2020 are classified as TDR's.

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, expected life of the loan and cash flow forecasts for loans classified as TDRs used in the determination of the adequacy of the Company’s ACL are also impacted.

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 and the accrual of interest is resumed and reinstated if a delinquent account subsequently becomes 60 days or less past due.

The following is a summary of the amortized cost (including accrued interest) balance as of September 30, 2020 and December 31, 2019 of loans that have received these modifications and concessions;


	September 30, 2020		December 31, 2019 (a)
	Retail Installment Contracts
	(Dollar amounts in thousands)
Temporary reduction of monthly payment (b)	$	713,168	$	1,168,358
Bankruptcy-related accounts	26,840		41,756
Extension of maturity date	32,585		35,238
Interest rate reduction	74,098		61,870
Max buy rate and fair lending (c)	7,190,421		6,069,509
Other (d)	347,030		240,553
Total modified loans	$	8,384,142	$	7,617,284

(a) The table includes balances based on UPB. Difference between amortized cost and UPB was not material.

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

(c) Max buy rate modifications comprise 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.

(d) Includes various other types of modifications and concessions, such as hardship modifications that are considered a TDR event.

Refer to Note 3 - "Credit Loss Allowance and Credit Quality" to the accompanying condensed consolidated financial statements for the details on the Company’s amortized cost (including accrued interest) in TDRs and a summary of delinquent TDRs, as of September 30, 2020 and December 31, 2019.

The following table shows the components of the changes in the amortized cost (including accrued interest) in retail installment contract TDRs (excluding collateral-dependent bankruptcy TDRs) for the three and nine months ended September 30, 2020 and 2019:



	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Balance — beginning of period	$	3,981,618	$	4,492,654	$	3,828,892	$	5,365,477
New TDRs	336,249		375,015		1,418,493		999,886
Charge-offs	(200,352)		(378,676)		(617,536)		(1,212,192)
Paydowns (a)	(278,242)		(311,006)		(817,069)		(961,814)
Others	4,197		13,553		30,690		183
Balance — end of period	$	3,843,470	$	4,191,540	$	3,843,470	$	4,191,540

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

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 13 third-party banks, Santander and 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 $5.0 billion of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements.

During the quarter ended September 30, 2020, the Company completed on-balance sheet funding transactions totaling approximately $4.4 billion, including:

•private amortizing lease facilities for approximately $1.2 billion; and

•securitizations on the Company’s SDART platform for approximately $3.3 billion

The Company also completed approximately $0.6 billion in asset sales to third parties.

Refer to Note 7 - "Debt" to the accompanying condensed consolidated financial statements for the details on the Company’s total debt.

Credit Facilities

Third-party Revolving Credit Facilities

Warehouse Lines

The Company has one credit facility with eight banks providing an aggregate commitment of $3.5 billion for the exclusive use of providing short-term liquidity needs to support Chrysler Finance lease financing. As of September 30, 2020 there was an outstanding balance of approximately $1.2 billion 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 eight credit facilities with eleven banks providing an aggregate commitment of $8.3 billion for the exclusive use of providing short-term liquidity needs to support Core and CCAP Loan financing. As of September 30, 2020 there was an outstanding balance of approximately $1.3 billion 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 September 30, 2020 there was an outstanding balance of $312 million 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 September 30, 2020 (amounts in thousands)
	Counterparty	Utilized Balance		Committed Amount		Average Outstanding Balance		Maximum Outstanding Balance
Promissory Note	SHUSA	$	250,000	$	250,000	$	250,000	$	250,000
Promissory Note	SHUSA	250,000		250,000		250,000		250,000
Promissory Note	SHUSA	250,000		250,000		250,000		250,000
Promissory Note	SHUSA	250,000		250,000		250,000		250,000
Promissory Note	SHUSA	250,000		250,000		250,000		250,000
Promissory Note	SHUSA	300,000		300,000		300,000		300,000
Promissory Note	SHUSA	350,000		350,000		350,000		350,000
Promissory Note	SHUSA	400,000		400,000		400,000		400,000
Promissory Note	SHUSA	400,000		400,000		400,000		400,000
Promissory Note	SHUSA	450,000		450,000		450,000		450,000
Promissory Note	SHUSA	500,000		500,000		500,000		500,000
Promissory Note	SHUSA	500,000		500,000		500,000		500,000
Promissory Note	SHUSA	650,000		650,000		650,000		650,000
Promissory Note	SHUSA	650,000		650,000		650,000		650,000
Promissory Note	SHUSA	750,000		750,000		750,000		750,000
Promissory Note	SHUSA	1,000,000		1,000,000		1,000,000		1,000,000
Promissory Note	Santander	2,000,000		2,000,000		2,000,000		2,000,000
Promissory Note	Santander	2,000,000		2,000,000		2,000,000		2,000,000
Line of Credit	SHUSA	—		500,000		170,724		485,000
Line of Credit	SHUSA	—		2,500,000		—		—
		$	11,200,000	$	14,200,000

SHUSA provides the Company with $3.0 billion of committed revolving credit that can be drawn on an unsecured basis. SHUSA also provides the Company with $7.2 billion of term promissory notes with maturities ranging from October 2020 to June 2025. Santander provides the Company with $4 billion of unsecured promissory notes with maturities ranging from June 2022 and September 2022.

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 issues amortizing notes. The Company has on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately $27 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 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 purchasing of retail loans, primarily from FCA dealers, all of which are serviced by the Company.

The Company also continues to periodically execute securitizations under Rule 144A of the Securities Act. After retaining the required credit risk retention via a 5% vertical interest, the Company transfers all remaining notes and residual interests in these securitizations to third parties. The Company subsequently records these transactions as true sales of the retail installment contracts securitized, and removes the sold assets from the Company's condensed consolidated balance sheet.

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 collections from retail installment contracts. SC’s financing activities primarily consist of borrowing, repayments of debt, share repurchases, and payment of dividends.


	Nine Months Ended September 30,
	2020		2019
	(Dollar amounts in thousands)
Net cash provided by operating activities	$	3,251,942	$	4,215,456
Net cash used in investing activities	(4,205,861)		(6,447,167)
Net cash provided by financing activities	1,165,602		2,265,342

Net Cash Provided by Operating Activities

Net cash provided by operating activities decreased by $1.0 billion from the nine months ended September 30, 2019 to the nine months ended September 30, 2020, primarily due to $1.6 billion increase to receivables held for sale offset by $0.6 billion increase to credit loss expense.

Net Cash Used in Investing Activities

Net cash used in investing activities decreased by $2.2 billion from the nine months ended September 30, 2019 to the nine months ended September 30, 2020, primarily due to decrease of $1.9 billion in leased vehicles purchased.

Net Cash Provided by Financing Activities

Net cash provided by financing activities decreased by $1.1 billion from the nine months ended September 30, 2019 to the nine months ended September 30, 2020, primarily related to tender offer program which expired on February 27, 2020, and increase in payments for notes payable of $0.6 billion.

Contingencies and Off-Balance Sheet Arrangements

For information regarding the Company’s contingencies and off-balance sheet arrangements, refer to Note 6 - "Variable Interest Entities" and Note 14 - "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 September 30, 2020:


	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
	(In thousands)
Operating lease obligations	$	4,175	$	25,982	$	25,463	$	19,691	$	75,311
Notes payable - credit facilities and related party	2,412,341		9,841,343		1,750,000		—		14,003,684
Notes payable - secured structured financings (a)	77,643		9,245,194		11,595,201		6,522,034		27,440,072
Contractual interest on debt	895,011		934,689		243,116		64,335		2,137,151
Total	$	3,389,170	$	20,047,208	$	13,613,780	$	6,606,060	$	43,656,218

(a)Adjusted for unamortized costs of $76 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 2019 Annual Report on Form 10-K.

Credit Risk

The Company applies a qualitative framework to exercise judgment about matters that are inherently uncertain and that are not considered by the quantitative framework. These adjustments are documented and reviewed through the Company’s risk management processes. Furthermore, management reviews, updates, and validates its process and loss assumptions on a periodic basis. This process involves an analysis of data integrity, review of loss and credit trends, a retrospective evaluation of actual loss information to loss forecasts, and other analyses.

ACL levels are collectively reviewed for adequacy and approved quarterly. Required actions resulting from the Company's analysis, if necessary, are governed by its Allowance for Credit Losses Committee. The ACL levels are approved by the Board level committees quarterly.

Note 1 to the Consolidated Financial Statements describes the methodology used to determine the ACL and reserve for unfunded lending commitments in the Consolidated Balance Sheets.

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 has policies in place 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 September 30, 2020, the notional value of the Company’s interest rate swap agreements was $3.0 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 September 30, 2020 the notional value of the Company’s interest rate cap agreements was $22.2 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 September 30, 2020, 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 $28 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 September 30, 2020, the impact of a 100 basis point parallel increase in the interest rate curve would decrease the Company’s MVE by $54 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 third quarter of 2020, approximately 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 employs 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.

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 cannot predict how the COVID-19 outbreak and the legal and regulatory responses to the COVID-19 outbreak and related economic disruptions will affect businesses, including liquidity or the ability to access the capital markets. If access to funding is reduced or if the costs to obtain such funding significantly increases, there may be a material impact to business and financial condition. 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 September 30, 2020, it had thirteen);

•that the Company relies on Santander and affiliates for no more than 30% of its funding (as of September 30, 2020, Santander and affiliates provided 27% of its funding);

•that no single lender’s commitment should comprise more than 33% of the overall committed external lines (as of September 30, 2020, the highest single lender’s commitment was 18% (not including repo)); and

•that no more than 35% and 65% of the Company’s warehouse facilities mature in the next six months and twelve months respectively (as of September 30, 2020, two of the Company’s warehouse facilities are scheduled to mature in the next six or twelve 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 and SHUSA. 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 includes Third Party Risk Management, Business Continuity 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.

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 (except as disclosed below) in the Company’s critical accounting estimates from those disclosed in Item 7 of the 2019 Annual Report on Form 10-K. The change is as a result of the Company's adoption of CECL standard, on January 1, 2020. Refer to Note 1 "Description of Business, Basis of Presentation, and

Accounting Policies", and Note 3 " Credit Loss Allowance and Credit Quality" in the accompanying condensed consolidated financial statements and Part II, Item 2 - "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Credit Quality" for a detailed discussion around accounting policy, estimation process and assumptions used in ACL.

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 "Description of Business, Basis of Presentation, and Accounting Policies - 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 September 30, 2020 (the “Evaluation Date”). Based on that evaluation, our CEO and CFO have concluded that as of the Evaluation Date, our disclosure controls and procedures: (a) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (b) include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure.

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 Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Although a substantial portion of the Company’s workforce continues to work remotely due to the COVID-19 pandemic, this has not materially affected our internal controls over financial reporting. We continue to monitor and assess the COVID-19 pandemic to minimize potential impacts, if any, it may have on the design and operating effectiveness of our internal controls.

PART II: OTHER INFORMATION


Item 1.			Legal Proceedings

Reference should be made to Note 14 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 2019 Annual Report on Form 10-K.


Item 1A.			Risk Factors

The Company is subject to a number of risks potentially impacting its business, financial condition, results of operations and cash flow including those set forth under Part I, Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. In addition to the risk factors disclosed in that Form 10-K, the Company is subject to (1) risks related to the new credit reserving framework set forth below, and (2) risks related to the COVID-19 outbreak, as noted in the our Form 8-K filed with the SEC on April 10, 2020, which is incorporated herein by reference.


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.

On January 30, 2020, the Company commenced a modified Dutch Auction tender offer to purchase shares of its common stock, at a range of between $23 and $26 per share, or such lesser number of shares of its common stock as were properly tendered and not properly withdrawn by the seller, in cash. The tender offer expired on February 27, 2020. On March 3, 2020, the Company announced the final results of its “modified Dutch Auction” tender offer. The Company accepted for purchase 17,514,707 shares of its common stock, $0.01 par value per share, at a price of $26 per share, for an aggregate cost of approximately $455 million, excluding fees and expenses related to the tender offer.

In June 2019, the Company announced that the Board had authorized purchases by the Company of up to $1.1 billion, excluding commissions, of its outstanding common stock effective from the third quarter of 2019 through the end of the second quarter of 2020. On July 31, 2020, the Company announced that SHUSA’s request for certain exceptions to the Federal Reserve Board’s interim policy (the “Interim Policy”), prohibiting share repurchases and limiting dividends to all CCAR institutions to the average trailing net income, had been approved. Such approval permitted the Board to authorize to continue its share repurchase program through the end of the third quarter of 2020. On August 10, 2020, the Company announced that it had substantially exhausted the amount of shares the Company was permitted to repurchase under the previously disclosed exception to the Interim Policy and that the Company expected to repurchase an immaterial number of shares remaining under the exception approval. On September 30, 2020, the Federal Reserve Board extended the Interim Policy through the fourth quarter of 2020. As a result, SC does not currently expect to declare or pay a dividend in the fourth quarter of 2020.

The following table presents information regarding repurchases of the Company’s common stock as part of publicly announced plans or programs during the quarter ended September 30, 2020:


Period	Total Number of Shares Purchased	Average Price paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs








July 1 - July 31	558,400	$	18.60	558,400	305,468
August 1 - August 31	9,640,400	22.10		9,640,400	92,415
September 1 - September 30	—	—		—	92,415
Total	10,198,800	$	21.91	10,198,800

Refer to Note 8 of the accompanying condensed consolidated financial statements for additional details on 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 the Group and its affiliates. During the period covered by this report:

•Santander UK holds three blocked accounts for two customers, with the first customer holding one GBP savings account and one GBP current account, and the second customer holding one GBP savings account. Both customers, who are resident in the UK, are currently designated by the US under the Specially Designated Global Terrorist (SDGT) sanctions programme with accounts blocked since designation. The accounts are dormant. Revenues and profits generated by Santander UK on these accounts in the first three quarters of 2020 were negligible relative to the overall profits of Banco Santander, S.A.

•Santander UK holds two frozen current accounts for two UK nationals who are designated by the US under the SDGT sanctions programme. The accounts held by one customer were fully inaccessible at the time of the US designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have remained frozen throughout the first three quarters of 2020. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. 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 in the first three quarters of 2020.

•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 in the first three quarters of 2020 which were negligible relative to the overall revenues and profits of Banco Santander, S.A. 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




































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*						Inline XBRL Instance Document - this instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document
101.SCH*						Inline XBRL Taxonomy Extension Schema
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase
104*						Cover page formatted as Inline XBRL and contained in Exhibit 101


*			Filed herewith.

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/ Mahesh Aditya
						Name: Mahesh Aditya
						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/Mahesh Aditya

President and Chief Executive Officer

October 30, 2020

Mahesh Aditya

(Principal Executive Officer)

/s/ Fahmi Karam

Chief Financial Officer

October 30, 2020

Fahmi Karam

(Principal Financial and Accounting Officer)

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Santander Consumer USA (SC) 10-Q2020 Q3 Quarterly report

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