General Motors Financial Company Inc.

10/27/2021 | Press release | Distributed by Public on 10/27/2021 13:42

Quarterly Report (Form 10-Q)

acf-20210930
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
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 1-10667
______________________________________________
General Motors Financial Company, Inc.
(Exact name of registrant as specified in its charter)
Texas 75-2291093
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
801 Cherry Street, Suite 3500, Fort Worth, Texas76102
(Address of principal executive offices, including Zip Code)
(817) 302-7000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
5.250% Senior Notes due 2026 GM/26 New York Stock Exchange
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. YesNo
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo
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.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth 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
As of October 26, 2021, there were 5,050,000 shares of the registrant's common stock, par value $0.0001 per share, outstanding. All shares of the registrant's common stock are owned by General Motors Holdings LLC, a wholly-owned subsidiary of General Motors Company.
The registrant is a wholly-owned subsidiary of General Motors Company and meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q with a reduced disclosure format as permitted by Instruction H(2).


INDEX
Page
PART I
Item 1. Condensed Consolidated Financial Statements (Unaudited)
1
Condensed Consolidated Balance Sheets (Unaudited)
1
Condensed Consolidated Statements of Income (Unaudited)
2
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
2
Condensed Consolidated Statements of Shareholders' Equity (Unaudited)
3
Condensed Consolidated Statements of Cash Flows (Unaudited)
4
Notes to Condensed Consolidated Financial Statements
5
Note 1. Summary of Significant Accounting Policies
5
Note 2. Related Party Transactions
5
Note 3. Finance Receivables
7
Note 4. Leased Vehicles
10
Note 5. Equity in Net Assets of Non-consolidated Affiliates
10
Note 6. Debt
11
Note 7. Variable Interest Entities
11
Note 8. Derivative Financial Instruments and Hedging Activities
13
Note 9. Commitments and Contingencies
15
Note 10. Shareholders' Equity
16
Note 11. Income Taxes
16
Note 12. Segment Reporting
17
Note 13. Regulatory Capital and Other Regulatory Matters
17
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
29
Item 4.
Controls and Procedures
29
PART II
Item 1.
Legal Proceedings
29
Item 1A.
Risk Factors
29
Item 6.
Exhibits
30
Signature
31

Table of Contents
GENERAL MOTORS FINANCIAL COMPANY, INC.
PART I
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts) (unaudited)
September 30, 2021 December 31, 2020
ASSETS
Cash and cash equivalents $ 4,865 $ 5,063
Finance receivables, net (Note 3; Note 7VIEs)
59,922 58,390
Leased vehicles, net (Note 4; Note 7VIEs)
39,657 39,819
Goodwill 1,170 1,173
Equity in net assets of non-consolidated affiliates (Note 5)
1,649 1,581
Related party receivables (Note 2)
331 643
Other assets (Note 7VIEs)
6,612 7,156
Total assets $ 114,206 $ 113,825
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Secured debt (Note 6; Note 7VIEs)
$ 38,041 $ 39,982
Unsecured debt (Note 6)
54,064 52,443
Deferred income 2,754 3,048
Related party payables (Note 2)
470 269
Other liabilities 4,277 4,485
Total liabilities 99,606 100,227
Commitments and contingencies (Note 9)
Shareholders' equity (Note 10)
Common stock, $0.0001 par value per share
- -
Preferred stock, $0.01 par value per share
- -
Additional paid-in capital 8,678 8,642
Accumulated other comprehensive loss (1,303) (1,309)
Retained earnings 7,225 6,265
Total shareholders' equity 14,600 13,598
Total liabilities and shareholders' equity $ 114,206 $ 113,825
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions) (unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue
Finance charge income $ 1,035 $ 999 $ 3,087 $ 2,971
Leased vehicle income 2,246 2,354 6,871 7,203
Other income 73 68 229 231
Total revenue 3,354 3,421 10,187 10,405
Costs and expenses
Operating expenses 381 394 1,170 1,097
Leased vehicle expenses 1,088 1,126 3,157 4,602
Provision for loan losses (Note 3)
141 31 174 824
Interest expense 704 709 1,987 2,332
Total costs and expenses 2,314 2,260 6,488 8,855
Equity income (Note 5)
53 46 157 113
Income before income taxes 1,093 1,207 3,856 1,663
Income tax provision (Note 11)
271 314 976 430
Net income 822 893 2,880 1,233
Less: cumulative dividends on preferred stock 30 24 89 69
Net income attributable to common shareholder $ 792 $ 869 $ 2,791 $ 1,164

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions) (unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income $ 822 $ 893 $ 2,880 $ 1,233
Other comprehensive income (loss), net of tax (Note 10)
Unrealized gain (loss) on hedges, net of income tax (expense) benefit of $(3), $(5), $(18), $45
8 17 50 (134)
Foreign currency translation adjustment (105) 82 (44) (311)
Other comprehensive income (loss), net of tax (97) 99 6 (445)
Comprehensive income $ 725 $ 992 $ 2,886 $ 788
The accompanying notes are an integral part of these condensed consolidated financial statements.




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GENERAL MOTORS FINANCIAL COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions) (unaudited)
Common Stock Preferred Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total
Shareholders'
Equity
Balance at January 1, 2020 $ - $ - $ 8,101 $ (1,119) $ 5,744 $ 12,726
Adoption of accounting standard - - - - (643) (643)
Net income
- - - - 167 167
Other comprehensive loss - - - (543) - (543)
Stock based compensation
- - 9 - - 9
Dividends paid (Note 10)
- - - - (400) (400)
Balance at March 31, 2020 - - 8,110 (1,662) 4,868 11,316
Net income
- - - - 173 173
Other comprehensive loss
- - - (1) - (1)
Stock based compensation
- - 10 - - 10
Dividends paid (Note 10)
- - - - (400) (400)
Dividends declared on preferred stock (Note 10)
- - - - (45) (45)
Balance at June 30, 2020 - - 8,120 (1,663) 4,596 11,053
Net income
- - - - 893 893
Other comprehensive income - - - 99 - 99
Stock based compensation
- - 10 - - 10
Issuance of preferred stock - - 492 - - 492
Balance at September 30, 2020 $ - $ - $ 8,622 $ (1,564) $ 5,489 $ 12,547
Balance at January 1, 2021 $ - $ - $ 8,642 $ (1,309) $ 6,265 $ 13,598
Net income
- - - - 878 878
Other comprehensive loss - - - (23) - (23)
Stock based compensation
- - 8 - - 8
Dividends paid (Note 10)
- - - - (661) (661)
Balance at March 31, 2021 - - 8,650 (1,332) 6,482 13,800
Net income
- - - - 1,180 1,180
Other comprehensive income - - - 126 - 126
Stock based compensation
- - 18 - - 18
Dividends paid (Note 10)
- - - - (600) (600)
Dividends declared on preferred stock (Note 10)
- - - - (59) (59)
Balance at June 30, 2021 - - 8,668 (1,206) 7,003 14,465
Net income
- - - - 822 822
Other comprehensive loss - - - (97) - (97)
Stock based compensation
- - 10 - - 10
Dividends paid (Note 10)
- - - - (600) (600)
Balance at September 30, 2021 $ - $ - $ 8,678 $ (1,303) $ 7,225 $ 14,600
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) (unaudited)
Nine Months Ended September 30,
2021 2020
Cash flows from operating activities
Net income $ 2,880 $ 1,233
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,934 5,702
Accretion and amortization of loan and leasing fees (1,144) (1,501)
Undistributed earnings of non-consolidated affiliates, net (157) (113)
Provision for loan losses 174 824
Deferred income taxes 137 227
Stock-based compensation expense 37 28
Gain on termination of leased vehicles (1,616) (933)
Loss on extinguishment of debt 105 -
Other operating activities 120 (18)
Changes in assets and liabilities:
Other assets 207 (65)
Other liabilities (256) 464
Related party payables 208 152
Net cash provided by operating activities 5,629 6,000
Cash flows from investing activities
Purchases of retail finance receivables, net (25,471) (22,419)
Principal collections and recoveries on retail finance receivables 18,788 14,506
Net collections of commercial finance receivables 4,658 3,426
Purchases of leased vehicles, net (16,698) (10,468)
Proceeds from termination of leased vehicles 15,513 9,937
Other investing activities (33) (23)
Net cash used in investing activities (3,243) (5,041)
Cash flows from financing activities
Net change in debt (original maturities less than three months) 3,205 579
Borrowings and issuances of secured debt 21,745 32,459
Payments on secured debt (23,635) (36,432)
Borrowings and issuances of unsecured debt 12,731 11,226
Payments on unsecured debt (11,956) (7,669)
Extinguishment of debt (1,605) -
Debt issuance costs (133) (135)
Proceeds from issuance of preferred stock - 492
Dividends paid (1,920) (890)
Net cash used in financing activities (1,568) (370)
Net increase in cash, cash equivalents and restricted cash 818 589
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash (43) (140)
Cash, cash equivalents and restricted cash at beginning of period 8,126 7,102
Cash, cash equivalents and restricted cash at end of period $ 8,901 $ 7,551

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet:
September 30, 2021
Cash and cash equivalents $ 4,865
Restricted cash included in other assets 4,036
Total $ 8,901
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Presentation The condensed consolidated financial statements include our accounts and the accounts of our consolidated subsidiaries, including certain special purpose entities (SPEs) utilized in secured financing transactions, which are considered variable interest entities (VIEs). All intercompany transactions and accounts have been eliminated in consolidation.
The consolidated financial statements, including the notes thereto, are condensed and do not include all disclosures required by generally accepted accounting principles (GAAP) in the U.S. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission (SEC) on February 10, 2021 (2020 Form 10-K). Except as otherwise specified, dollar amounts presented within tables are stated in millions.
The condensed consolidated financial statements at September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020, are unaudited and, in management's opinion, include all adjustments, which consist of normal recurring adjustments and transactions or events discretely impacting the interim periods, considered necessary by management to fairly state our results of operations. The results for interim periods are not necessarily indicative of results for a full year. The condensed consolidated balance sheet at December 31, 2020 was derived from audited annual financial statements.
Segment Information We are the wholly-owned captive finance subsidiary of General Motors Company (GM). We offer substantially similar products and services throughout many different regions, subject to local regulations and market conditions. We evaluate our business in two operating segments: North America (the North America Segment) and International (the International Segment). Our North America Segment includes operations in the U.S. and Canada. Our International Segment includes operations in Brazil, Chile, Colombia, Mexico and Peru, as well as our equity investments in joint ventures in China.
Recently Adopted Accounting Standards In January 2021, the Financial Accounting Standards Board issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope," which amended Topic 848 reference rate reform to clarify the scope and availability of expedients for certain derivative instruments affected by reference rate reform. We have elected various optional expedients in Topic 848 related to hedging relationships and expect to make future elections related to contract modifications and other hedging relationships. The future election and application of these expedients are not expected to have a material impact on our consolidated financial statements.
Note 2. Related Party Transactions
We offer loan and lease finance products through GM-franchised dealers to customers purchasing new vehicles manufactured by GM and certain used vehicles and make commercial loans directly to GM-franchised dealers and their affiliates. We also offer commercial loans to dealers that are consolidated by GM and those balances are included in finance receivables, net.
Under subvention programs, GM makes cash payments to us for offering incentivized rates and structures on retail loan and lease finance products. In addition, GM makes cash payments to us to cover interest payments on certain commercial loans we make to GM-franchised dealers.
We are included in GM's consolidated U.S. federal income tax returns and certain U.S. state returns, and we are obligated to pay GM for our share of tax liabilities. During the nine months ended September 30, 2021, we made payments of $522 million to GM for state and federal income taxes related to the years 2021 and 2020. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. In addition, amounts due to GM for commercial finance receivables originated but not yet funded are recorded as a related party payable.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables present related party transactions:
Balance Sheet Data September 30, 2021 December 31, 2020
Commercial finance receivables, net due from dealers consolidated by GM(a)
$ 184 $ 398
Subvention receivable(b)
$ 305 $ 642
Commercial loan funding payable(c)
$ 17 $ 23
Taxes payable(c)
$ 451 $ 244
Three Months Ended September 30, Nine Months Ended September 30,
Income Statement Data 2021 2020 2021 2020
Interest subvention earned on retail finance receivables(d)
$ 205 $ 172 $ 588 $ 464
Interest subvention earned on commercial finance receivables(d)
$ 6 $ 6 $ 22 $ 32
Leased vehicle subvention earned(e)
$ 670 $ 749 $ 2,095 $ 2,319
_________________
(a)Included in finance receivables, net.
(b)Included in related party receivables. We received subvention payments from GM of $828 million and $943 million for the three months ended September 30, 2021 and 2020 and $2.9 billion and $3.0 billion for the nine months ended September 30, 2021 and 2020.
(c)Included in related party payables.
(d)Included in finance charge income.
(e)Included as a reduction to leased vehicle expenses.
Under the support agreement with GM (the Support Agreement), if our earning assets leverage ratio at the end of any calendar quarter exceeds the applicable threshold set in the Support Agreement, we may require GM to provide funding sufficient to bring our earning assets leverage ratio to within the applicable threshold. In determining our earning assets leverage ratio (net earning assets divided by adjusted equity) under the Support Agreement, net earning assets means our finance receivables, net, plus leased vehicles, net, and adjusted equity means our equity, net of goodwill and inclusive of outstanding junior subordinated debt, as each may be adjusted for derivative accounting from time to time.
Additionally, the Support Agreement provides that GM will own all of our outstanding voting shares as long as we have any unsecured debt securities outstanding. GM also agrees to certain provisions in the Support Agreement intended to ensure we maintain adequate access to liquidity. Pursuant to these provisions, GM provides us with a $1.0 billion junior subordinated unsecured intercompany revolving credit facility (the Junior Subordinated Revolving Credit Facility), and GM agrees to use commercially reasonable efforts to ensure we will continue to be designated as a subsidiary borrower under GM's corporate revolving credit facilities. We have access, subject to available capacity, to $15.5 billion of GM's unsecured revolving credit facilities consisting of a three-year, $4.3 billion facility and a five-year, $11.2 billion facility. We also have exclusive access to the GM $2.0 billion 364-day revolving credit facility (GM Revolving 364-Day Credit Facility). At September 30, 2021, we had no borrowings outstanding under any of the GM revolving credit facilities.
Cruise is the GM segment responsible for the development and commercialization of autonomous vehicle technology. In July 2019, we entered into a multi-year credit agreement with Cruise whereby we may provide advances to Cruise to fund the purchase of autonomous vehicles from GM. The agreement was amended in May 2021 to provide an aggregate funding of up to $5.2 billion over time, through 2024. At September 30, 2021, Cruise had no borrowings outstanding under the credit agreement.


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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3. Finance Receivables
September 30, 2021 December 31, 2020
Retail finance receivables
Retail finance receivables, net of fees(a)
$ 57,424 $ 51,288
Less: allowance for loan losses (1,863) (1,915)
Total retail finance receivables, net 55,561 49,373
Commercial finance receivables
Commercial finance receivables, net of fees(b)
4,401 9,080
Less: allowance for loan losses (40) (63)
Total commercial finance receivables, net 4,361 9,017
Total finance receivables, net $ 59,922 $ 58,390
Fair value utilizing Level 2 inputs $ 4,361 $ 9,017
Fair value utilizing Level 3 inputs $ 57,330 $ 51,645
________________
(a) Net of unearned income, unamortized premiums and discounts, and deferred fees and costs.
(b) Net of dealer cash management balances of $909 million and $1.4 billion at September 30, 2021 and December 31, 2020.

Rollforward of Allowance for Retail Loan Losses A summary of the activity in the allowance for retail loan losses is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Allowance for retail loan losses beginning balance $ 1,805 $ 2,044 $ 1,915 $ 866
Impact of adopting ASU 2016-13 - - - 801
Provision for loan losses 146 31 200 819
Charge-offs (207) (280) (664) (876)
Recoveries 133 133 426 378
Foreign currency translation (14) 8 (14) (52)
Allowance for retail loan losses ending balance $ 1,863 $ 1,936 $ 1,863 $ 1,936
The allowance for retail loan losses decreased by $73 million as of September 30, 2021 compared to September 30, 2020, primarily due to a reduction in the reserve levels established at the onset of the COVID-19 pandemic. This reduction was a result of actual credit performance that was better than forecasted and favorable expectations for future charge-offs and recoveries, reflecting improved economic conditions. These decreases in the reserve levels were partially offset by reserves established for loans originated during the nine months ended September 30, 2021.
Retail Credit QualityOur retail finance receivables portfolio includes loans made to consumers and businesses to finance the purchase of vehicles for personal and commercial use. The following tables are consolidated summaries of the amortized cost of the retail finance receivables by FICO score or its equivalent, determined at origination, for each vintage of the portfolio at September 30, 2021 and December 31, 2020:
Year of Origination September 30, 2021
2021 2020 2019 2018 2017 Prior Total Percent
Prime - FICO Score 680 and greater $ 15,723 $ 13,839 $ 4,697 $ 2,747 $ 996 $ 219 $ 38,221 66.5 %
Near-prime - FICO Score 620 to 679 3,321 2,697 1,417 766 342 121 8,664 15.1
Sub-prime - FICO Score less than 620 3,446 2,842 2,024 1,132 694 401 10,539 18.4
Retail finance receivables, net of fees $ 22,490 $ 19,378 $ 8,138 $ 4,645 $ 2,032 $ 741 $ 57,424 100.0 %
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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Year of Origination December 31, 2020
2020 2019 2018 2017 2016 Prior Total Percent
Prime - FICO Score 680 and greater $ 18,685 $ 7,033 $ 4,491 $ 1,917 $ 555 $ 119 $ 32,800 64.0 %
Near-prime - FICO Score 620 to 679 3,695 2,097 1,232 603 225 83 7,935 15.4
Sub-prime - FICO Score less than 620 3,803 2,920 1,740 1,173 610 307 10,553 20.6
Retail finance receivables, net of fees $ 26,183 $ 12,050 $ 7,463 $ 3,693 $ 1,390 $ 509 $ 51,288 100.0 %
We review the ongoing credit quality of our retail finance receivables based on customer payment activity. A retail account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date the payment was contractually due. Retail finance receivables are collateralized by vehicle titles and, subject to local laws, we generally have the right to repossess the vehicle in the event the customer defaults on the payment terms of the contract. The following tables are consolidated summaries of the delinquency status of the outstanding amortized cost of retail finance receivables for each vintage of the portfolio at September 30, 2021 and December 31, 2020, as well as summary totals for September 30, 2020:
Year of Origination September 30, 2021 September 30, 2020
2021 2020 2019 2018 2017 Prior Total Percent Total Percent
0 - 30 days $ 22,252 $ 19,030 $ 7,825 $ 4,443 $ 1,894 $ 642 $ 56,086 97.7 % $ 47,222 97.0 %
31 - 60 days 174 257 231 151 103 73 989 1.7 1,009 2.1
Greater than 60 days 57 81 74 47 32 24 315 0.5 419 0.8
Finance receivables more than 30 days delinquent 231 338 305 198 135 97 1,304 2.2 1,428 2.9
In repossession 7 10 8 4 3 2 34 0.1 45 0.1
Finance receivables more than 30 days delinquent or in repossession 238 348 313 202 138 99 1,338 2.3 1,473 3.0
Retail finance receivables, net of fees $ 22,490 $ 19,378 $ 8,138 $ 4,645 $ 2,032 $ 741 $ 57,424 100.0 % $ 48,695 100.0 %
Year of Origination December 31, 2020
2020 2019 2018 2017 2016 Prior Total Percent
0 - 30 days $ 25,894 $ 11,591 $ 7,131 $ 3,454 $ 1,249 $ 421 $ 49,740 97.0 %
31 - 60 days 210 325 235 170 102 61 1,103 2.1
Greater than 60 days 72 123 90 64 37 26 412 0.8
Finance receivables more than 30 days delinquent 282 448 325 234 139 87 1,515 2.9
In repossession 7 11 7 5 2 1 33 0.1
Finance receivables more than 30 days delinquent or in repossession 289 459 332 239 141 88 1,548 3.0
Retail finance receivables, net of fees $ 26,183 $ 12,050 $ 7,463 $ 3,693 $ 1,390 $ 509 $ 51,288 100.0 %
The accrual of finance charge income had been suspended on retail finance receivables with contractual amounts due of $577 million and $714 million at September 30, 2021 and December 31, 2020.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Impaired Retail Finance Receivables - TDRs The outstanding amortized cost of retail finance receivables that are considered troubled debt restructurings (TDRs) was $2.0 billion, including $214 million in nonaccrual loans at September 30, 2021, and $2.2 billion, including $301 million in nonaccrual loans at December 31, 2020. Additional TDR activity is presented below:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Number of loans classified as TDRs during the period 12,807 13,785 33,227 43,431
Outstanding amortized cost of loans classified as TDRs during the period $ 250 $ 254 $ 667 $ 789
The unpaid principal balances, net of recoveries, of loans charged off during the reporting period and were within 12 months of being modified as a TDR were $3 million and $12 million for the three months ended September 30, 2021 and 2020 and $17 million and $27 million for the nine months ended September 30, 2021 and 2020.
Commercial Credit Quality Our commercial finance receivables consist of dealer financings, primarily for dealer inventory purchases. Proprietary models are used to assign a risk rating to each dealer. We perform periodic credit reviews of each dealership and adjust the dealership's risk rating, if necessary.
Our commercial risk model and risk rating categories are as follows:
Dealer Risk Rating Description
I Performing accounts with strong to acceptable financial metrics with at least satisfactory capacity to meet financial commitments.
II Performing accounts experiencing potential weakness in financial metrics and repayment prospects resulting in increased monitoring.
III Non-Performing accounts with inadequate paying capacity for current obligations and that have the distinct possibility of creating a loss if deficiencies are not corrected.
IV Non-Performing accounts with inadequate paying capacity for current obligations and inherent weaknesses that make collection or liquidation in full highly questionable or improbable.
Dealers with III and IV risk ratings are subject to additional monitoring and restrictions on funding, including suspension of lines of credit and liquidation of assets. The following tables summarize the credit risk profile by dealer risk rating of commercial finance receivables at September 30, 2021 and December 31, 2020:
Year of Origination(a)
September 30, 2021
Dealer Risk Rating Revolving 2021 2020 2019 2018 2017 Prior Total Percent
I
$ 3,042 $ 303 $ 458 $ 145 $ 41 $ 64 $ 13 $ 4,066 92.4 %
II
170 5 16 17 - 10 5 223 5.1
III
55 8 15 2 26 2 4 112 2.5
IV
- - - - - - - - -
Balance at end of period $ 3,267 $ 316 $ 489 $ 164 $ 67 $ 76 $ 22 $ 4,401 100.0 %
________________
(a) Floorplan advances comprise 94% of the total revolving balance. Dealer term loans are presented by year of origination.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Year of Origination(a)
December 31, 2020
Dealer Risk Rating
Revolving 2020 2019 2018 2017 2016 Prior Total Percent
I
$ 7,210 $ 579 $ 179 $ 77 $ 110 $ 43 $ 19 $ 8,217 90.5 %
II
508 2 18 11 15 18 34 606 6.7
III
203 - 8 29 2 11 - 253 2.8
IV
- - - - - - 4 4 0.0
Balance at end of period $ 7,921 $ 581 $ 205 $ 117 $ 127 $ 72 $ 57 $ 9,080 100.0 %
________________
(a) Floorplan advances comprise 97% of the total revolving balance. Dealer term loans are presented by year of origination.
At September 30, 2021 and December 31, 2020, substantially all of our commercial finance receivables were current with respect to payment status, and activity in the allowance for commercial loan losses was insignificant for the three and nine months ended September 30, 2021 and 2020. There were no commercial finance receivables on nonaccrual status at September 30, 2021, and none were classified as TDRs at September 30, 2021 and December 31, 2020.
Note 4. Leased Vehicles
September 30, 2021 December 31, 2020
Leased vehicles $ 57,283 $ 58,915
Manufacturer subvention (8,020) (8,915)
Net capitalized cost 49,263 50,000
Less: accumulated depreciation (9,606) (10,181)
Leased vehicles, net $ 39,657 $ 39,819
Depreciation expense related to leased vehicles, net was $1.6 billion and $1.8 billion in the three months ended September 30, 2021 and 2020 and $4.8 billion and $5.5 billion in the nine months ended September 30, 2021 and 2020.
The following table summarizes minimum rental payments due to us as lessor under operating leases at September 30, 2021:
Years Ending December 31,
2021 2022 2023 2024 2025 Thereafter Total
Lease payments under operating leases
$ 1,660 $ 5,369 $ 3,129 $ 870 $ 60 $ - $ 11,088
Note 5. Equity in Net Assets of Non-consolidated Affiliates
We use the equity method to account for our equity interest in joint ventures.The income of these joint ventures is not consolidated into our financial statements; rather, our proportionate share of the earnings is reflected as equity income.
There have been no ownership changes in our joint ventures since December 31, 2020. The following table presents certain aggregated operating data of our joint ventures:
Three Months Ended September 30, Nine Months Ended September 30,
Summarized Operating Data 2021 2020 2021 2020
Finance charge income $ 406 $ 355 $ 1,254 $ 1,049
Income before income taxes $ 205 $ 174 $ 599 $ 428
Net income $ 154 $ 131 $ 450 $ 321
At September 30, 2021 and December 31, 2020, we had undistributed earnings of $696 million and $647 million related to our non-consolidated affiliates. During the three months ended September 30, 2021, SAIC-GMAC Automotive Finance Company Limited (SAIC-GMAC) declared a $309 million cash dividend of which our share was $108 million. The dividend payment, net of tax, is expected to be received in the fourth quarter of 2021.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. Debt
September 30, 2021 December 31, 2020
Carrying Amount Fair Value Carrying Amount Fair Value
Secured debt
Revolving credit facilities $ 942 $ 941 $ 3,733 $ 3,735
Securitization notes payable 37,099 37,318 36,249 36,645
Total secured debt 38,041 38,259 39,982 40,380
Unsecured debt
Senior notes 46,314 47,966 46,798 48,922
Credit facilities 1,201 1,190 1,535 1,531
Other unsecured debt 6,549 6,549 4,110 4,115
Total unsecured debt 54,064 55,705 52,443 54,568
Total secured and unsecured debt $ 92,105 $ 93,964 $ 92,425 $ 94,948
Fair value utilizing Level 2 inputs $ 92,351 $ 92,922
Fair value utilizing Level 3 inputs $ 1,613 $ 2,026
Secured Debt Most of the secured debt was issued by VIEs and is repayable only from proceeds related to the underlying pledged assets. Refer to Note 7for further information.
During the nine months ended September 30, 2021, we renewed credit facilities with a total borrowing capacity of $21.9 billion, and we issued $19.3 billion in aggregate principal amount of securitization notes payable with an initial weighted average interest rate of 0.73% and maturity dates ranging from 2022 to 2034.
Unsecured Debt During the nine months ended September 30, 2021, we issued $9.9 billion in aggregate principal amount of senior notes with an initial weighted average interest rate of 1.57% and maturity dates ranging from 2024 to 2031.
In September 2021, we redeemed $1.5 billion in aggregate principal amount of 5.20% senior notes due in 2023. The redemption resulted in a $105 million loss on the early extinguishment of debt. The loss is included in interest expense.
In October 2021, we issued $2.3 billion in aggregate principal amount of senior notes with an initial weighted average interest rate of 1.63% and maturity dates ranging from 2024 to 2028.
General Motors Financial Company, Inc. is the sole guarantor of its subsidiaries' unsecured debt obligations for which a guarantee is provided.
Compliance with Debt Covenants Several of our revolving credit facilities require compliance with certain financial and operational covenants as well as regular reporting to lenders, including providing certain subsidiary financial statements. Certain of our secured debt agreements also contain various covenants, including maintaining portfolio performance ratios as well as limits on deferment levels. Our unsecured debt obligations contain covenants including limitations on our ability to incur certain liens. At September 30, 2021, we were in compliance with these debt covenants.
Note 7. Variable Interest Entities
The following table summarizes the assets and liabilities related to our consolidated VIEs:
September 30, 2021 December 31, 2020
Restricted cash(a)
$ 3,539 $ 2,639
Finance receivables, net of fees $ 27,334 $ 32,575
Lease related assets $ 17,317 $ 16,322
Secured debt $ 37,845 $ 39,424
_______________
(a) Included in other assets.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We use SPEs that are considered VIEs to issue variable funding notes to third-party, bank-sponsored warehouse facilities or asset-backed securities to investors in securitization transactions. The debt issued by these VIEs is backed by finance receivables and leasing-related assets transferred to the VIEs. We determined that we are the primary beneficiary of the VIEs because our servicing responsibilities give us the power to direct the activities that most significantly impact the performance of the VIEs and our variable interests in the VIEs give us the obligation to absorb losses and the right to receive residual returns that could potentially be significant. The respective assets of the VIEs serve as the sole source of repayment for the debt issued by these entities. Investors in the notes issued by the VIEs do not have recourse to us or our other assets, with the exception of customary representation and warranty repurchase provisions and indemnities that we provide as the servicer. We are not required to provide any additional financial support to these VIEs. While these VIE subsidiaries are included in our condensed consolidated financial statements, they are separate legal entities and their assets are legally owned by them and are not available to our creditors.
Other Transfers of Finance ReceivablesUnder certain debt agreements, we transfer finance receivables to entities that we do not control through majority voting interest or through contractual arrangements. These transfers do not meet the criteria to be considered sales under GAAP; therefore, the finance receivables and the related debt are included in our condensed consolidated financial statements, similar to the treatment of finance receivables and related debt of our consolidated VIEs. Any collections received on the transferred receivables are available only for the repayment of the related debt. At September 30, 2021 and December 31, 2020, $404 million and $863 million in finance receivables had been transferred in secured funding arrangements to third-party banks, relating to $266 million and $622 million in secured debt outstanding.

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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Derivative Financial Instruments and Hedging Activities
We are exposed to certain risks arising from both our business operations and economic conditions. We manage economic risks, including interest rate risk, primarily by managing the amount, sources, and duration of our assets and liabilities and by using derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our borrowings.
Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates. We primarily finance our earning assets with debt in the same currency to minimize the impact to earnings from our exposure to fluctuations in exchange rates. When we use a different currency, these fluctuations may impact the value of our cash receipts and payments in terms of our functional currency. We enter into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in terms of the relevant functional currency.
The table below presents the gross fair value amounts of our derivative financial instruments and the associated notional amounts:
September 30, 2021 December 31, 2020
Notional Fair Value of Assets Fair Value of Liabilities Notional Fair Value of Assets Fair Value of Liabilities
Derivatives designated as hedges
Fair value hedges
Interest rate swaps $ 19,308 $ 347 $ 90 $ 10,064 $ 463 $ 13
Foreign currency swaps 695 - 46 1,958 128 9
Cash flow hedges
Interest rate swaps 711 8 10 921 - 27
Foreign currency swaps 7,515 115 178 5,626 278 47
Derivatives not designated as hedges
Interest rate contracts 106,109 624 342 110,997 954 576
Total $ 134,338 $ 1,094 $ 666 $ 129,566 $ 1,823 $ 672
The gross amounts of the fair value of our derivative instruments that are classified as assets or liabilities are included in other assets or other liabilities, respectively. Amounts accrued for interest payments in a net receivable position are included in other assets. Amounts accrued for interest payments in a net payable position are included in other liabilities. All our derivatives are categorized within Level 2 of the fair value hierarchy. The fair value for Level 2 instruments was derived using the market approach based on observable market inputs including quoted prices of similar instruments and foreign exchange and interest rate forward curves.
Weprimarily enter into derivative instruments through AmeriCredit Financial Services, Inc. (AFSI); however, our SPEs may also be parties to derivative instruments. Agreements between AFSI and its derivative counterparties include rights of setoff for positions with offsetting values or for collateral held or posted. At September 30, 2021 and December 31, 2020, the fair value of derivative instruments that are classified as assets or liabilities available for offset was $465 million and $501 million. At September 30, 2021 and December 31, 2020, we held $460 million and $728 million of collateral from counterparties that is available for netting against our asset positions. At September 30, 2021 and December 31, 2020, we posted $93 million and $139 million of collateral to counterparties that is available for netting against our liability positions.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following amounts were recorded in the condensed consolidated balance sheet related to items designated and qualifying as hedged items in fair value hedging relationships:
Carrying Amount of
Hedged Items
Cumulative Amount of Fair Value
Hedging Adjustments
(a)
September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Unsecured debt $ 24,533 $ 23,315 $ (296) $ (739)
_________________
(a)Includes $245 million and $200 million of unamortized gains remaining on hedged items for which hedge accounting has been discontinued at September 30, 2021 and December 31, 2020.
The table below presents the effect of our derivative financial instruments in the condensed consolidated statements of income:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Interest Expense(a)
Operating Expenses(b)
Interest Expense(a)
Operating Expenses(b)
Interest Expense(a)
Operating Expenses(b)
Interest Expense(a)
Operating Expenses(b)
Fair value hedges
Hedged items - interest rate swaps $ 69 $ - $ 14 $ - $ 314 $ - $ (555) $ -
Interest rate swaps (56) - (86) - (273) - 289 -
Hedged items - foreign currency swaps(c)
- 16 - (79) - 48 - (80)
Foreign currency swaps (2) (16) (5) 80 (11) (44) (26) 84
Cash flow hedges
Interest rate swaps (2) - (5) - (12) - (8) -
Hedged items - foreign currency swaps(c)
- 166 - (216) - 318 - (223)
Foreign currency swaps (33) (166) (25) 216 (93) (318) (82) 223
Derivatives not designated as hedges
Interest rate contracts 31 - 83 - 70 - 244 -
Total income (losses) recognized $ 7 $ - $ (24) $ 1 $ (5) $ 4 $ (138) $ 4
_________________
(a)Total interest expense was $704 million and $709 million for the three months ended September 30, 2021 and 2020 and $2.0 billion and $2.3 billion for the nine months ended September 30, 2021 and 2020.
(b)Total operating expenses were $381 million and $394 million for the three months ended September 30, 2021 and 2020 and $1.2 billion and $1.1 billion for the nine months ended September 30, 2021 and 2020.
(c)Transaction activity recorded in operating expenses related to foreign currency-denominated loans.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The table below presents the effect of our derivative financial instruments in the condensed consolidated statements of comprehensive income:
Gains (Losses) Recognized In
Accumulated Other Comprehensive Loss
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Fair value hedges
Foreign currency swaps $ (1) $ (4) $ (5) $ (16)
Cash flow hedges
Interest rate swaps 4 - 10 (15)
Foreign currency swaps (147) 158 (278) (22)
Total $ (144) $ 154 $ (273) $ (53)
(Gains) Losses Reclassified From
Accumulated Other Comprehensive Loss Into Income
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Fair value hedges
Foreign currency swaps $ 1 $ 4 $ 5 $ 17
Cash flow hedges
Interest rate swaps 2 3 9 5
Foreign currency swaps 149 (144) 309 (103)
Total $ 152 $ (137) $ 323 $ (81)
All amounts reclassified from accumulated other comprehensive loss were recorded to interest expense. During the next 12 months, we estimate $53 million in losses will be reclassified into pre-tax earnings from derivatives designated for hedge accounting.
Note 9. Commitments and Contingencies
Legal Proceedings We are subject to various pending and potential legal and regulatory proceedings in the ordinary course of business, including litigation, arbitration, claims, investigations, examinations, subpoenas and enforcement proceedings. Some litigation against us could take the form of class actions. The outcome of these proceedings is inherently uncertain, and thus we cannot confidently predict how or when proceedings will be resolved. An adverse outcome in one or more of these proceedings could result in substantial damages, settlements, fines, penalties, diminished income or reputational harm.
In accordance with the current accounting standards for loss contingencies, we establish reserves for legal matters when it is probable that a loss associated with the matter has been incurred and the amount of the loss can be reasonably estimated. The actual costs of resolving legal matters may be higher or lower than any amounts reserved for these matters. At September 30, 2021, we estimated our reasonably possible legal exposure for unfavorable outcomes is approximately $240 million, and we have accrued $79 million.
Other Administrative Tax Matters We accrue non-income tax liabilities for contingencies when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they will be charged against income at that time.
In evaluating indirect tax matters, we take into consideration factors such as our historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. We reevaluate and update our accruals as matters progress over time, where there is a reasonable possibility that losses exceeding amounts already recognized may be incurred. Our estimate of the additional range of loss is up to $52 million at September 30, 2021.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 10. Shareholders' Equity
September 30, 2021 December 31, 2020
Common Stock
Number of shares authorized 10,000,000 10,000,000
Number of shares issued and outstanding 5,050,000 5,050,000
During the nine months ended September 30, 2021 and 2020, our Board of Directors declared and paid dividends of $1.8 billion and $800 million on our common stock to General Motors Holdings LLC.
September 30, 2021 December 31, 2020
Preferred Stock
Number of shares authorized 250,000,000 250,000,000
Number of shares issued and outstanding
Fixed-to-Floating Rate Cumulative Perpetual Preferred Stock,
Series A (Series A Preferred Stock)
1,000,000 1,000,000
Fixed-to-Floating Rate Cumulative Perpetual Preferred Stock,
Series B (Series B Preferred Stock)
500,000 500,000
Fixed-Rate Reset Cumulative Perpetual Preferred Stock,
Series C (Series C Preferred Stock)
500,000 500,000
During the nine months ended September 30, 2021, we paid dividends of $58 million to holders of record of our Series A Preferred Stock, $32 million to holders of record of our Series B Preferred Stock, and $30 million to holders of record of our Series C Preferred Stock. During the nine months ended September 30, 2020, we paid dividends of $58 million to holders of record of our Series A Preferred Stock, and $32 million to holders of record of our Series B Preferred Stock.
In September 2020, we issued 500,000 shares, par value $0.01 per share, of Series C Preferred Stock, at a liquidation preference of $1,000 per share, for net proceeds of approximately $492 million.
The following table summarizes the significant components of accumulated other comprehensive loss:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Unrealized loss on hedges
Beginning balance $ (115) $ (200) $ (157) $ (49)
Change in value of hedges, net of tax
8 17 50 (134)
Ending balance (107) (183) (107) (183)
Defined benefit plans
Beginning balance 1 1 1 1
Unrealized gain on subsidiary pension, net of tax - - - -
Ending balance 1 1 1 1
Foreign currency translation adjustment
Beginning balance (1,092) (1,464) (1,153) (1,071)
Translation gain (loss), net of tax (105) 82 (44) (311)
Ending balance (1,197) (1,382) (1,197) (1,382)
Total accumulated other comprehensive loss $ (1,303) $ (1,564) $ (1,303) $ (1,564)
Note 11. Income Taxes
For interim income tax reporting we estimate our annual effective tax rate and apply it to our year-to-date ordinary income. Tax jurisdictions with a projected or year-to-date loss for which a tax benefit cannot be realized are excluded from the annualized effective tax rate. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur.
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GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We are included in GM's consolidated U.S. federal income tax return and certain states' income tax returns. Net operating losses and certain tax credits generated by us have been utilized by GM; however, income tax expense and deferred tax balances are presented in our financial statements as if we filed our own tax returns in each jurisdiction. Refer to Note 2for further information on related party taxes payable.
Note 12. Segment Reporting
Our chief operating decision maker evaluates the operating results and performance of our business based on our North America and International Segments. The management of each segment is responsible for executing our strategies. Key operating data for our operating segments were as follows:
Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
North
America
International Total North
America
International Total
Total revenue $ 3,128 $ 226 $ 3,354 $ 3,196 $ 225 $ 3,421
Operating expenses 299 82 381 312 82 394
Leased vehicle expenses 1,076 12 1,088 1,114 12 1,126
Provision for loan losses 126 15 141 (26) 57 31
Interest expense 645 59 704 643 66 709
Equity income - 53 53 - 46 46
Income before income taxes $ 982 $ 111 $ 1,093 $ 1,153 $ 54 $ 1,207
Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
North
America
International Total North
America
International Total
Total revenue $ 9,487 $ 700 $ 10,187 $ 9,670 $ 735 $ 10,405
Operating expenses 940 230 1,170 879 218 1,097
Leased vehicle expenses 3,120 37 3,157 4,566 36 4,602
Provision for loan losses 118 56 174 609 215 824
Interest expense 1,812 175 1,987 2,091 241 2,332
Equity income - 157 157 - 113 113
Income before income taxes $ 3,497 $ 359 $ 3,856 $ 1,525 $ 138 $ 1,663
September 30, 2021 December 31, 2020
North
America
International Total North
America
International Total
Finance receivables, net $ 55,751 $ 4,171 $ 59,922 $ 53,332 $ 5,058 $ 58,390
Leased vehicles, net $ 39,478 $ 179 $ 39,657 $ 39,656 $ 163 $ 39,819
Total assets $ 106,937 $ 7,269 $ 114,206 $ 105,507 $ 8,318 $ 113,825
Note 13. Regulatory Capital and Other Regulatory Matters
We are required to comply with a wide variety of laws and regulations. Certain of our entities operate in international markets as either banks or regulated finance companies that are subject to regulatory restrictions. These regulatory restrictions, among other things, require that certain of these entities meet minimum capital requirements and may restrict dividend distributions and ownership of certain assets. We were in compliance with all regulatory capital requirements as most recently reported. Total assets of our regulated international banks and finance companies were approximately $5.1 billion and $6.2 billion at September 30, 2021 and December 31, 2020.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to the "Forward-Looking Statements" section of this MD&A and the "Risk Factors" section of our 2020 Form 10-K for a discussion of these risks and uncertainties.
Basis of Presentation
This MD&A should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto and the audited consolidated financial statements and notes thereto included in our 2020 Form 10-K.
Except as otherwise specified, dollar amounts presented within tables are stated in millions. Average balances are calculated using daily balances, where available. Otherwise, average balances are calculated using monthly balances.
Critical Accounting Estimates
The preparation of condensed financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenue and expenses in the periods presented. Actual results could differ from those estimates, due to inherent uncertainties in making estimates, and those differences may be material. The critical accounting estimates that affect the condensed consolidated financial statements and the judgment and assumptions used are consistent with those described in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Form 10-K.
Results of Operations
This section discusses our results of operations for the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2020.
Income before income taxes for the nine months ended September 30, 2021 increased to $3.9 billion from $1.7 billion for the nine months ended September 30, 2020. Key drivers of the increase in income before income taxes include:
Finance charge income on retail finance receivables increased $241 million due to growth in the size of the portfolio, partially offset by a decrease in the effective yield.
Leased vehicle income decreased $332 million primarily due to a decline in the average balance of the leased vehicles portfolio.
Leased vehicle expenses decreased $1.4 billion primarily due to a $757 million decrease in depreciation on leased vehicles, as well as a $683 million increase in leased vehicle termination gains.
Provision for loan losses decreased $650 million primarily due to a reduction in the reserve levels established at the onset of the COVID-19 pandemic, as a result of actual credit performance that was better than forecasted and favorable expectations for future charge-offs and recoveries, reflecting improved economic conditions; partially offset by reserves established for retail loans originated during the nine months ended September 30, 2021.
Interest expense decreased $345 million primarily due to decreased credit spreads on our debt, partially offset by an increase in the average debt outstanding. Interest expense includes a $105 million loss on extinguishment of debt. Refer to Note 6 to our condensed consolidated financial statements for further information on the extinguishment of debt.
Return on average common equity is widely used to measure earnings in relation to invested capital. Our return on average common equity increased to 29.5% for the four quarters ended September 30, 2021 from 14.6% for the four quarters ended September 30, 2020 primarily due to increased earnings.
We use return on average tangible common equity (a non-GAAP measure) to measure our contribution to GM's enterprise profitability and cash flow. Our return on average tangible common equity increased to 32.7% for the four quarters ended September 30, 2021 from 16.4% for the four quarters ended September 30, 2020 primarily due to increased earnings.
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The following table presents our reconciliation of return on average tangible common equity to return on average common equity, the most directly comparable GAAP measure:
Four Quarters Ended
September 30, 2021 September 30, 2020
Net income attributable to common shareholder $ 3,538 $ 1,519
Average equity $ 13,974 $ 11,951
Less: average preferred equity (1,969) (1,515)
Average common equity 12,005 10,436
Less: average goodwill (1,171) (1,175)
Average tangible common equity $ 10,834 $ 9,261
Return on average common equity 29.5 % 14.6 %
Return on average tangible common equity 32.7 % 16.4 %
Our calculation of this non-GAAP measure may not be comparable to similarly titled measures of other companies due to potential differences between companies in the method of calculation. As a result, the use of this non-GAAP measure has limitations and should not be considered superior to, in isolation from, or as a substitute for, related U.S. GAAP measures. This non-GAAP measure allows investors the opportunity to measure and monitor our performance against our externally communicated targets and evaluate the investment decisions being made by management to improve our return on average tangible common equity. Management uses this measure in its financial, investment and operational decision-making processes, for internal reporting and as part of its forecasting and budgeting processes. For these reasons we believe this non-GAAP measure is useful for our investors.
Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020
Average Earning Assets
Three Months Ended September 30, 2021 vs. 2020
2021 2020 Amount Percentage
Average retail finance receivables $ 57,216 $ 47,818 $ 9,398 19.7 %
Average commercial finance receivables 4,994 8,046 (3,052) (37.9) %
Average finance receivables 62,210 55,864 6,346 11.4 %
Average leased vehicles, net 40,255 39,504 751 1.9 %
Average earning assets $ 102,465 $ 95,368 $ 7,097 7.4 %
Retail finance receivables purchased $ 7,800 $ 7,301 $ 499 6.8 %
Leased vehicles purchased $ 3,849 $ 5,532 $ (1,683) (30.4) %
Average retail finance receivables increased primarily due to a higher volume of new loan originations in excess of principal collections and payoffs, primarily due to higher penetration of GM's retail sales. Our penetration of GM's retail sales in the U.S. was 44.3% and 42.6% for the three months ended September 30, 2021 and 2020. Penetration levels vary depending on incentive financing programs available and competing third-party financing products in the market.
Average commercial finance receivables decreased primarily due to continued low dealer new vehicle inventory.
Leased vehicles purchased decreased during the three months ended September 30, 2021 as compared to the same period in 2020, primarily due to sustained low new vehicle inventory with reduced new vehicle incentive levels.
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Revenue Three Months Ended September 30, 2021 vs. 2020
2021 2020 Amount Percentage
Finance charge income
Retail finance receivables
$ 990 $ 925 $ 65 7.0 %
Commercial finance receivables
$ 45 $ 74 $ (29) (39.2) %
Leased vehicle income
$ 2,246 $ 2,354 $ (108) (4.6) %
Other income
$ 73 $ 68 $ 5 7.4 %
Equity income
$ 53 $ 46 $ 7 15.2 %
Effective yield - retail finance receivables
6.9 % 7.7 %
Effective yield - commercial finance receivables
3.6 % 3.7 %
Finance Charge Income - Retail Finance ReceivablesFinance charge income on retail finance receivables increased due to growth in the size of the portfolio, partially offset by a decrease in the effective yield. The effective yield on our retail finance receivables decreased primarily due to increased lending to borrowers with prime credit. The effective yield represents finance charges, rate subvention and fees recorded in earnings during the period as a percentage of average retail finance receivables.
Finance Charge Income - Commercial Finance Receivables Finance charge income on commercial finance receivables decreased due to a decrease in the size of the portfolio as a result of continued low dealer new vehicle inventory.
Costs and Expenses
Three Months Ended September 30, 2021 vs. 2020
2021 2020 Amount Percentage
Operating expenses $ 381 $ 394 $ (13) (3.3) %
Leased vehicle expenses $ 1,088 $ 1,126 $ (38) (3.4) %
Provision for loan losses $ 141 $ 31 $ 110 354.8 %
Interest expense $ 704 $ 709 $ (5) (0.7) %
Average debt outstanding $ 94,675 $ 90,158 $ 4,517 5.0 %
Effective rate of interest on debt 3.0 % 3.1 %
Operating Expenses Operating expenses as an annualized percentage of average earning assets decreased to 1.5% for the three months ended September 30, 2021 from 1.6% for the three months ended September 30, 2020.
Leased Vehicle Expenses Leased vehicle expenses decreased primarily due to a $257 million decrease in depreciation on leased vehicles resulting from increased residual value estimates, partially offset by a $227 million decrease in lease termination gains for the three months ended September 30, 2021 compared to the same period in 2020.
Provision for Loan Losses The provision for loan losses increased $110 million primarily due to increased loan originations volume in the U.S. and a smaller improvement to the recovery rate outlook during the three months ended September 30, 2021 compared to the same period in 2020.
Interest Expense Interest expense decreased primarily due to decreased credit spreads on our debt, partially offset by an increase in the average debt outstanding. Interest expense includes a $105 million loss on extinguishment of debt. Refer to Note 6to our condensed consolidated financial statements for further information on the extinguishment of debt.
Taxes Our consolidated effective income tax rate was 26.1% and 27.0% of income before income taxes and equity income for the three months ended September 30, 2021 and 2020. The decrease in the effective income tax rate is primarily due to a lower percentage of income being taxed at higher rates for our non-U.S. entities included in our effective tax rate calculation.
Other Comprehensive Income (Loss)
Unrealized Gain on HedgesUnrealized gains on hedges included in other comprehensive income (loss) were $8 million and $17 million for the three months ended September 30, 2021 and 2020. The change in unrealized gain was primarily due to changes in the fair value of our foreign currency swap agreements.
Unrealized gains and losses on cash flow hedges of our floating rate debt are reclassified into earnings in the same period during which the hedged transactions affect earnings via principal remeasurement or accrual of interest expense.
Foreign Currency Translation Adjustment Foreign currency translation adjustments included in other comprehensive income (loss) were $(105) million and $82 million for the three months ended September 30, 2021 and 2020. Translation adjustments resulted from changes in the values of our international currency-denominated assets and liabilities as the value of
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the U.S. Dollar changed in relation to international currencies. The foreign currency translation loss for the three months ended September 30, 2021 was primarily due to depreciating values of the Brazilian Real, the Canadian Dollar and the Mexican Peso in relation to the U.S. Dollar. The foreign currency translation gain for the three months ended September 30, 2020 was primarily due to appreciating value of the Chinese Yuan Renminbi in relation to the U.S. Dollar.
Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020
Average Earning Assets
Nine Months Ended September 30, 2021 vs. 2020
2021 2020 Amount Percentage
Average retail finance receivables
$ 54,962 $ 45,016 $ 9,946 22.1 %
Average commercial finance receivables
6,436 9,897 (3,461) (35.0) %
Average finance receivables
61,398 54,913 6,485 11.8 %
Average leased vehicles, net
40,266 40,562 (296) (0.7) %
Average earning assets
$ 101,664 $ 95,475 $ 6,189 6.5 %
Retail finance receivables purchased
$ 25,163 $ 22,491 $ 2,672 11.9 %
Leased vehicles purchased
$ 15,482 $ 13,737 $ 1,745 12.7 %
Average retail finance receivables increased primarily due to a higher volume of new loan originations in excess of principal collections and payoffs. Our penetration of GM's retail sales in the U.S. was 43.7% and 46.4% for the nine months ended September 30, 2021 and 2020. Penetration levels vary depending on incentive financing programs available and competing third-party financing products in the market. During the nine months ended September 30, 2020, our penetration was positively impacted by GM's incentive program on 84-month, zero-percent loans.
Average commercial finance receivables decreased primarily due to continued low dealer new vehicle inventory.
Average leased vehicles, net decreased due to lease terminations in excess of purchases for the nine months ended September 30, 2021. The increase in leased vehicles purchased during the nine months ended September 30, 2021 compared to the same period in 2020 is primarily due to the impact of the COVID-19 pandemic during the nine months ended September 30, 2020.
Revenue
Nine Months Ended September 30, 2021 vs. 2020
2021 2020 Amount Percentage
Finance charge income
Retail finance receivables
$ 2,913 $ 2,672 $ 241 9.0 %
Commercial finance receivables
$ 174 $ 299 $ (125) (41.8) %
Leased vehicle income
$ 6,871 $ 7,203 $ (332) (4.6) %
Other income
$ 229 $ 231 $ (2) (0.9) %
Equity income
$ 157 $ 113 $ 44 38.9 %
Effective yield - retail finance receivables
7.1 % 7.9 %
Effective yield - commercial finance receivables
3.6 % 4.0 %
Finance Charge Income - Retail Finance Receivables Finance charge income on retail finance receivables increased due to growth in the size of the portfolio, partially offset by a decrease in the effective yield. The effective yield on our retail finance receivables decreased primarily due to increased lending to borrowers with prime credit. The effective yield represents finance charges, rate subvention and fees recorded in earnings during the period as a percentage of average retail finance receivables.
Finance Charge Income - Commercial Finance Receivables Finance charge income on commercial finance receivables decreased due to a decrease in the size of the portfolio as a result of continued low dealer new vehicle inventory.
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Leased Vehicle Income Leased vehicle income decreased $332 million primarily due to a decrease in the size of the leased vehicles portfolio.
Costs and Expenses
Nine Months Ended September 30, 2021 vs. 2020
2021 2020 Amount Percentage
Operating expenses
$ 1,170 $ 1,097 $ 73 6.7 %
Leased vehicle expenses
$ 3,157 $ 4,602 $ (1,445) (31.4) %
Provision for loan losses
$ 174 $ 824 $ (650) (78.9) %
Interest expense
$ 1,987 $ 2,332 $ (345) (14.8) %
Average debt outstanding
$ 94,419 $ 91,625 $ 2,794 3.0 %
Effective rate of interest on debt
2.8 % 3.4 %
Operating Expenses Operating expenses as an annualized percentage of average earning assets were 1.5% for both the nine months ended September 30, 2021 and 2020.
Leased Vehicle Expenses Leased vehicle expenses decreased primarily due to a $757 million decrease in depreciation on leased vehicles resulting from increased residual value estimates and a decrease in the size of the portfolio, as well as a $683 million increase in lease termination gains for the nine months ended September 30, 2021 compared to the same period in 2020.
Provision for Loan Losses Provision for loan losses decreased $650 million primarily due to a reduction in the reserve levels established at the onset of the COVID-19 pandemic, as a result of actual credit performance that was better than forecasted and favorable expectations for future charge-offs and recoveries, reflecting improved economic conditions; partially offset by reserves established for retail loans originated during the nine months ended September 30, 2021.
Interest Expense Interest expense decreased primarily due to decreased credit spreads on our debt, partially offset by an increase in the average debt outstanding. Interest expense includes a $105 million loss on extinguishment of debt. Refer to Note 6to our condensed consolidated financial statements for further information on the extinguishment of debt.
Taxes Our consolidated effective income tax rate was 26.4% and 27.7% of income before income taxes and equity income for the nine months ended September 30, 2021 and 2020. The decrease in the effective income tax rate is primarily due to a lower percentage of income being taxed at higher rates for our non-U.S. entities included in our effective tax rate calculation.
Other Comprehensive Income (Loss)
Unrealized Gain (Loss) on HedgesUnrealized gains (losses) on hedges included in other comprehensive income (loss) were $50 million and $(134) million for the nine months ended September 30, 2021 and 2020. The change in unrealized gain (loss) was primarily due to changes in the fair value of our foreign currency swap agreements.
Unrealized gains and losses on cash flow hedges of our floating rate debt are reclassified into earnings in the same period during which the hedged transactions affect earnings via principal remeasurement or accrual of interest expense.
Foreign Currency Translation Adjustment Foreign currency translation adjustments included in other comprehensive income (loss) were $(44) million and $(311) million for the nine months ended September 30, 2021 and 2020. Translation adjustments resulted from changes in the values of our international currency-denominated assets and liabilities as the value of the U.S. Dollar changed in relation to international currencies. The foreign currency translation loss for the nine months ended September 30, 2021 was primarily due to depreciating values of the Brazilian Real, the Chilean Peso and the Mexican Peso partially offset by the appreciating value of the Chinese Yuan Renminbi in relation to the U.S. Dollar. The foreign currency translation loss for the nine months ended September 30, 2020 was primarily due to depreciating values of the Brazilian Real and the Mexican Peso in relation to the U.S. Dollar.
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Earning Assets Quality
Retail Finance Receivables Our retail finance receivables portfolio includes loans made to consumers and businesses to finance the purchase of vehicles for personal and commercial use. A summary of the credit risk profile by FICO score or its equivalent, determined at origination, of the retail finance receivables is as follows:
September 30, 2021 December 31, 2020
Amount Percent Amount Percent
Prime - FICO Score 680 and greater $ 38,221 66.5 % $ 32,800 64.0 %
Near-prime - FICO Score 620 to 679 8,664 15.1 7,935 15.4
Sub-prime - FICO Score less than 620 10,539 18.4 10,553 20.6
Retail finance receivables, net of fees 57,424 100.0 % 51,288 100.0 %
Less: allowance for loan losses (1,863) (1,915)
Retail finance receivables, net $ 55,561 $ 49,373
Number of outstanding contracts 2,891,622 2,824,757
Average amount of outstanding contracts (in dollars)(a)
$ 19,859 $ 18,157
Allowance for loan losses as a percentage of retail finance receivables, net of fees 3.2 % 3.7 %
_________________
(a)Average amount of outstanding contracts consists of retail finance receivables, net of fees, divided by number of outstanding contracts.
The allowance for retail loan losses decreased as of September 30, 2021 compared to December 31, 2020, primarily due to a reduction in the reserve levels established at the onset of the COVID-19 pandemic. This reduction was a result of actual credit performance that was better than forecasted and favorable expectations for future charge-offs and recoveries, reflecting improved economic conditions. These decreases in the reserve levels were partially offset by reserves established for loans originated during the nine months ended September 30, 2021.
Delinquency The following is a consolidated summary of delinquent retail finance receivables:
September 30, 2021 September 30, 2020
Amount Percentage Amount Percentage
31 - 60 days $ 989 1.7 % $ 1,009 2.1 %
Greater than 60 days 315 0.5 419 0.8
Total finance receivables more than 30 days delinquent 1,304 2.2 1,428 2.9
In repossession 34 0.1 45 0.1
Total finance receivables more than 30 days delinquent or in repossession $ 1,338 2.3 % $ 1,473 3.0 %
At September 30, 2021 and 2020, delinquency was positively impacted by changes in consumer fiscal behavior and strong economic conditions. In addition, a larger percentage of our portfolio was comprised of prime loans at September 30, 2021 as compared to September 30, 2020. We expect that delinquency will increase over time relative to current levels, but may remain below pre-pandemic levels due to improvement in the credit mix of the portfolio.
TDRs Payment deferrals granted through June 30, 2021 to retail loan customers with accounts in good standing, but impacted by the COVID-19 pandemic, are not considered concessions for purposes of TDR classification for up to six months of deferral. Refer to Note 3to our condensed consolidated financial statements for further information on TDRs.
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Net Charge-offs The following table presents charge-off data with respect to our retail finance receivables portfolio:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Charge-offs $ 207 $ 280 $ 664 $ 876
Less: recoveries (133) (133) (426) (378)
Net charge-offs $ 74 $ 147 $ 238 $ 498
Net charge-offs as an annualized percentage of average retail finance receivables 0.5% 1.2 % 0.6 % 1.5 %
Charge-offs for the three and nine months ended September 30, 2021 and 2020, continue to be lower than historical levels primarily due to changes in consumer fiscal behavior, improved recovery rates on repossessed vehicles and strong economic conditions. We expect that charge-offs will increase over time relative to current levels, but may remain below pre-pandemic levels due to improvement in the credit mix of the portfolio.
Commercial Finance Receivables September 30, 2021 December 31, 2020
Commercial finance receivables, net of fees $ 4,401 $ 9,080
Less: allowance for loan losses (40) (63)
Commercial finance receivables, net $ 4,361 $ 9,017
Number of dealers 2,170 2,028
Average carrying amount per dealer $ 2 $ 4
Allowance for loan losses as a percentage of commercial finance receivables, net of fees 0.9 % 0.7 %
At September 30, 2021 and December 31, 2020, no commercial finance receivables were classified as TDRs. Activity in the allowance for commercial loan losses was insignificant for the three and nine months ended September 30, 2021 and 2020, and substantially all of our commercial finance receivables were current with respect to payment status at September 30, 2021 and December 31, 2020.
Leased Vehicles The following table summarizes activity in our operating lease portfolio (in thousands, except where noted):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Operating leases purchased 88 137 357 340
Operating leases terminated 127 171 426 451
Operating leased vehicles returned(a)
6 97 96 312
Percentage of leased vehicles returned(b)
5 % 57 % 23 % 69 %
________________
(a)Represents the number of vehicles returned to us for remarketing.
(b)Calculated as the number of operating leased vehicles returned divided by the number of operating leases terminated.
The return rate can fluctuate based upon the level of used vehicle pricing compared to contractual residual values at lease inception and/or growth and age of the leased vehicles portfolio. Due to high used vehicle prices for the three and nine months ended September 30, 2021 compared to the same periods in 2020, prices on leased vehicles at termination generally exceeded their contractual residual values, which resulted in increased lessee or grounding dealer purchases of the leased vehicles upon lease termination. The high used vehicle prices were predominantly driven by continued low new vehicle inventory. For the full year 2021, we expect used vehicle prices to remain higher than 2020 levels, primarily due to sustained low new vehicle inventory with reduced new vehicle incentive levels.
The increase in used vehicle prices resulted in gains on terminations of leased vehicles of $458 million and $1.6 billion for the three and nine months ended September 30, 2021; and $685 million and $933 million for the three and nine months ended September 30, 2020.
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The following table summarizes the residual value based on our most recent estimates and the number of units included in leased vehicles, net by vehicle type (units in thousands):
September 30, 2021 December 31, 2020
Residual Value Units Percentage
of Units
Residual Value Units Percentage
of Units
Crossovers $ 16,829 941 67.1 % $ 16,334 964 65.5 %
Trucks 7,893 272 19.4 7,455 275 18.7
SUVs 3,260 84 6.0 3,435 92 6.3
Cars 1,583 105 7.5 1,949 140 9.5
Total $ 29,565 1,402 100.0 % $ 29,173 1,471 100.0 %
The following table summarizes the scheduled maturity of our operating leases in the North America Segment:
2021 2022 2023 2024 and Thereafter
Operating lease maturities 6 % 34 % 33 % 27 %
At September 30, 2021 and 2020, 99.6% and 99.4% of our operating leases were current with respect to payment status.
Liquidity and Capital Resources
General Our primary sources of cash are finance charge income, leasing income and proceeds from the sale of terminated leased vehicles, net distributions from credit facilities, securitizations, secured and unsecured borrowings, and collections and recoveries on finance receivables. Our primary uses of cash are purchases and funding of finance receivables and leased vehicles, repayment or repurchases of secured and unsecured debt, funding credit enhancement requirements in connection with securitizations and secured credit facilities, interest costs, operating expenses, income taxes and dividend payments.
Typically, our purchase and funding of retail and commercial finance receivables and leased vehicles are financed initially by utilizing cash and borrowings on our secured credit facilities. Subsequently, we typically obtain long-term financing for finance receivables and leased vehicles through securitization transactions and the issuance of unsecured debt.
The following table summarizes our available liquidity:
Liquidity September 30, 2021 December 31, 2020
Cash and cash equivalents(a)
$ 4,865 $ 5,063
Borrowing capacity on unpledged eligible assets 21,155 19,020
Borrowing capacity on committed unsecured lines of credit 526 504
Borrowing capacity on the Junior Subordinated Revolving Credit Facility 1,000 1,000
Borrowing capacity on the GM Revolving 364-Day Credit Facility 2,000 2,000
Available liquidity $ 29,546 $ 27,587
_________________
(a)Includes $355 million and $685 million in unrestricted cash outside of the U.S. at September 30, 2021 and December 31, 2020. This cash is considered to be indefinitely invested based on specific plans for reinvestment of these earnings.

At September 30, 2021, available liquidity increased from December 31, 2020, primarily due to increased available borrowing capacity on unpledged eligible assets, resulting from the issuance of securitization transactions and unsecured debt, partially offset by a decrease in cash and cash equivalents. We generally target liquidity levels to support at least six months of our expected net cash outflows, including new originations, without access to new debt financing transactions or other capital markets activity. At September 30, 2021, available liquidity exceeded our liquidity targets.
Our Support Agreement with GM provides that GM will use commercially reasonable efforts to ensure we will continue to be designated as a subsidiary borrower under GM's unsecured revolving credit facilities. We have access, subject to available capacity, to $15.5 billion of GM's unsecured revolving credit facilities consisting of a three-year, $4.3 billion facility and a five-year, $11.2 billion facility. We also have exclusive access to the GM Revolving 364-Day Credit Facility. At September 30, 2021, we had no borrowings outstanding under any of the GM revolving credit facilities.
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Cash Flow Nine Months Ended September 30, 2021 vs. 2020
2021 2020
Net cash provided by operating activities $ 5,629 $ 6,000 $ (371)
Net cash used in investing activities $ (3,243) $ (5,041) $ 1,798
Net cash used in financing activities $ (1,568) $ (370) $ (1,198)
During the nine months ended September 30, 2021, net cash provided by operating activities decreased primarily due to a decrease in derivative collateral posting activities of $597 million and a decrease in leased vehicle income of $332 million, partially offset by a decrease in interest paid of $330 million.
During the nine months ended September 30, 2021, net cash used in investing activities decreased primarily due to an increase in proceeds from termination of leased vehicles of $5.6 billion, an increase in collections and recoveries on retail finance receivables of $4.3 billion, and an increase in net collections of commercial finance receivables of $1.2 billion, partially offset by an increase in purchases of leased vehicles of $6.2 billion and an increase in purchases of retail finance receivables of $3.1 billion.
During the nine months ended September 30, 2021, net cash used in financing activities increased primarily due to a decrease in borrowings of $6.6 billion, a decrease in preferred stock issuance of $492 million, early extinguishment of debt of $1.6 billion and an increase in dividend payments of $1.0 billion, partially offset by a decrease in debt repayments of $8.5 billion. We increased our borrowings during the nine months ended September 30, 2020 due to the onset of the COVID-19 pandemic.
Credit Facilities In the normal course of business, in addition to using our available cash, we fund our operations by borrowing under our credit facilities, which may be secured and/or structured as securitizations, or may be unsecured. We repay these borrowings as appropriate under our liquidity management strategy.
At September 30, 2021, credit facilities consist of the following:
Facility Type Facility Amount Advances Outstanding
Revolving retail asset-secured facilities(a)
$ 22,467 $ 942
Revolving commercial asset-secured facilities(b)
3,955 -
Total secured 26,422 942
Unsecured committed facilities 536 10
Unsecured uncommitted facilities(c)
1,191 1,191
Total unsecured 1,727 1,201
Junior Subordinated Revolving Credit Facility 1,000 -
GM Revolving 364-Day Credit Facility 2,000 -
Total $ 31,149 $ 2,143
_________________
(a)Includes committed and uncommitted revolving credit facilities backed by retail finance receivables and leases. The financial institutions providing the uncommitted facilities are not contractually obligated to advance funds under them. We had $20 million in advances outstanding and $710 million in unused borrowing capacity on these facilities at September 30, 2021.
(b)Includes revolving credit facilities backed by loans to dealers for floorplan financing.
(c)The financial institutions providing the uncommitted facilities are not contractually obligated to advance funds under them. We had $1.7 billion in unused borrowing capacity on these facilities at September 30, 2021.
Refer to Note 6to our condensed consolidated financial statements for further discussion.
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Securitization Notes Payable We periodically finance our retail and commercial finance receivables and leases through public and private term securitization transactions, where the securitization markets are sufficiently developed. A summary of securitization notes payable is as follows:
Year of Transaction
Maturity Date (a)
Original Note
Issuance
(b)
Note Balance
At September 30, 2021
2017 April 2023 - May 2025 $ 5,300 $ 621
2018 July 2023 - September 2026 $ 11,010 1,969
2019 April 2022 - July 2027 $ 12,040 4,044
2020 December 2021 - August 2028 $ 24,454 14,288
2021 September 2022 - June 2034 $ 19,337 16,247
Total active securitizations 37,169
Debt issuance costs (70)
Total $ 37,099
_________________
(a)Maturity dates represent legal final maturity of issued notes. The notes are expected to be paid based on amortization of the finance receivables and leases pledged.
(b)At historical foreign currency exchange rates at the time of issuance.
Our securitizations utilize SPEs which are also VIEs that meet the requirements to be consolidated in our financial statements. Refer to Note 7to our condensed consolidated financial statements for further discussion.
Unsecured Debt We periodically access the unsecured debt capital markets through the issuance of senior unsecured notes. At September 30, 2021, the aggregate principal amount of our outstanding unsecured senior notes was $46.2 billion.
We issue other unsecured debt through commercial paper offerings and other bank and non-bank funding sources. At September 30, 2021, we had $6.5 billion of this type of unsecured debt outstanding, of which $2.0 billion was issued under the U.S. commercial paper program.
LIBOR Transition In March 2021, the U.K. Financial Conduct Authority announced that LIBOR will cease to be published by its administrator based on continued bank submissions, or on any other basis, after 2021, with the exception of U.S. dollar LIBOR ceasing at the end of June 2023. Regulators, industry groups and certain committees such as the Alternative Reference Rates Committee (ARRC) have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates, such as the Secured Overnight Financing Rate (SOFR), and proposed implementations of the recommended alternatives in floating rate financial instruments. For more information on the expected replacement of LIBOR, see the "Risk Factors" section of our 2020 Form 10-K.
Support Agreement At September 30, 2021 and December 31, 2020, our earning assets leverage ratio calculated in accordance with the terms of the Support Agreement was 7.43x and 8.00x, and the applicable leverage ratio threshold was 12.00x and 11.50x. The applicable leverage ratio increased to the maximum applicable ratio of 12.00x during the second quarter as net earning assets increased to above $100 billion for the first time. The decrease in the earning assets leverage ratio is primarily due to increased shareholders' equity as a result of $2.9 billion in net income; partially offset by $1.8 billion of dividends on our common stock paid to GM. Current dividend levels are reflective of our record earnings supported by strong residual values, favorable credit performance and improved economic conditions. Future dividends to GM will depend on several factors, including business and economic conditions, our financial condition, earnings, liquidity requirements and leverage ratio.
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Asset and Liability Maturity ProfileWe manage our balance sheet so that asset maturities will exceed debt maturities each year. The following chart presents our cumulative maturities for earning assets and debt at September 30, 2021:
2021 2022 2023 2024 and Thereafter
Encumbered assets $ 6,352 $ 26,760 $ 40,235 $ 48,190
Unencumbered assets 15,594 31,900 45,821 66,016
Total assets 21,946 58,660 86,056 114,206
Secured debt 5,024 21,164 31,821 38,112
Unsecured debt 7,653 16,615 25,056 53,917
Total debt(a)
12,677 37,779 56,877 92,029
Net excess liquidity $ 9,269 $ 20,881 $ 29,179 $ 22,177
_________________
(a)Excludes unamortized debt premium/(discount), unamortized debt issuance costs, and fair value adjustments.
Forward-Looking Statements
This report contains several "forward-looking statements." Forward-looking statements are those that use words such as "believe," "expect," "intend," "plan," "may," "likely," "should," "estimate," "continue," "future" or "anticipate" and other comparable expressions. These words indicate future events and trends. Forward-looking statements are our current views with respect to future events and financial performance. These forward-looking statements are subject to many assumptions, risks and uncertainties that could cause actual results to differ significantly from historical results or from those anticipated by us. The most significant risks are detailed from time to time in our filings and reports with the SEC, including our 2020 Form 10-K. It is advisable not to place undue reliance on our forward-looking statements. We undertake no obligation to, and do not, publicly update or revise any forward-looking statements, except as required by federal securities laws, whether as a result of new information, future events or otherwise.
The following factors are among those that may cause actual results to differ materially from historical results or from the forward-looking statements:
the length and severity of the COVID-19 pandemic;
GM's ability to sell new vehicles that we finance in the markets we serve;
dealers' effectiveness in marketing our financial products to consumers;
the viability of GM-franchised dealers that are commercial loan customers;
the sufficiency, availability and cost of sources of financing, including credit facilities, securitization programs and secured and unsecured debt issuances;
the adequacy of our underwriting criteria for loans and leases and the level of net charge-offs, delinquencies and prepayments on the loans and leases we purchase or originate;
our ability to effectively manage capital or liquidity consistent with evolving business or operational needs, risk management standards and regulatory or supervisory requirements;
the adequacy of our allowance for loan losses on our finance receivables;
our ability to maintain and expand our market share due to competition in the automotive finance industry from a large number of banks, credit unions, independent finance companies and other captive automotive finance subsidiaries;
changes in the automotive industry that result in a change in demand for vehicles and related vehicle financing;
the effect, interpretation or application of new or existing laws, regulations, court decisions and accounting pronouncements;
adverse determinations with respect to the application of existing laws, or the results of any audits from tax authorities, as well as changes in tax laws and regulations, supervision, enforcement and licensing across various jurisdictions;
the prices at which used vehicles are sold in the wholesale auction markets;
vehicle return rates, our ability to estimate residual value at lease inception and the residual value performance on vehicles we lease;
interest rate fluctuations and certain related derivatives exposure;
our joint ventures in China, which we cannot operate solely for our benefit and over which we have limited control;
changes in the determination of LIBOR and other benchmark rates;
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our ability to secure private customer and employee data or our proprietary information, manage risks related to security breaches and other disruptions to our networks and systems and comply with enterprise data regulations in all key market regions;
foreign currency exchange rate fluctuations and other risks applicable to our operations outside of the U.S.; and
changes in local, regional, national or international economic, social or political conditions.
If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.
Additional Information
Our internet website is www.gmfinancial.com. Our website contains detailed information about us and our subsidiaries. Our Investor Center website at https://investor.gmfinancial.com contains a significant amount of information about our Company, including financial and other information for investors. We encourage investors to visit our website, as we frequently update and post new information about our Company on our website, and it is possible that this information could be deemed to be material information. Our website and information included in or linked to our website are not part of this Quarterly Report on Form 10-Q.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those reports, are available free of charge on our website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. These reports can also be found on the SEC website at www.sec.gov.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our exposure to market risk since December 31, 2020. Refer to Item 7A. - "Quantitative and Qualitative Disclosures About Market Risk" in our 2020 Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer (CEO) and principal financial officer (CFO), as appropriate, to allow timely decisions regarding required disclosures.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) at September 30, 2021, as required by Rules 13a-15(b) or 15d-15(b) promulgated under the Exchange Act. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2021.
Changes in Internal Control over Financial Reporting There have not been any changes in our internal control over financial reporting during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, due to the COVID-19 pandemic, we are monitoring our control environment with increased vigilance to ensure changes as a result of physical distancing are addressed and all increased risks are mitigated. For additional information refer to the "Risk Factors" section of our 2020 Form 10-K.
PART II
Item 1. Legal Proceedings
The discussion under "Legal Proceedings" and "Other Administrative Tax Matters" in Note 9to our condensed consolidated financial statements is incorporated by reference into this Part II, Item 1.
Item 1A. Risk Factors
We face a number of significant risks and uncertainties in connection with our operations. Our business and the results of our operations and financial condition could be materially adversely affected by these risk factors. There have been no material changes to the Risk Factors disclosed in our 2020 Form 10-K.
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Item 6. Exhibits
3.1
Incorporated by Reference
3.2
Incorporated by Reference
31.1
Section 302 Certification of the Chief Executive Officer
Filed Herewith
31.2
Section 302 Certification of the Chief Financial Officer
Filed Herewith
32
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Furnished Herewith
101
The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Shareholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements
Filed Herewith
104
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted as iXBRL and contained in Exhibit 101
Filed Herewith
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SIGNATURE
Pursuant to the requirements 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.
General Motors Financial Company, Inc.
(Registrant)
Date: October 27, 2021 By:
/S/ SUSAN B. SHEFFIELD
Susan B. Sheffield
Executive Vice President and
Chief Financial Officer
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