SC - Earnings call transcript Q3 2017 | Santander Consumer USA Holdings Inc.

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Operator

Good morning, and welcome to the Santander Consumer USA Holdings Third Quarter 2017 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Evan Black, Vice President of Investor Relations. Evan, the floor is yours.

Evan Black

Good morning, everyone, and thank you for joining the call.

On the call today, we have Scott Powell, President and Chief Executive Officer; and Juan Carlos Alvarez, JC, Chief Financial Officer.

you for certain forward-looking SC's as such made statements. begin, projections as future we are statements aware, today Before performance are Actual those materially be results different could projected. from on to obligation has SC call. this the no information update presented

of For investors. on to our please measures results in cause believe those differ, measures our call, provide concerning A speakers further information filings. certain refer will XXXX. Also, that today, GAAP non-GAAP factors financial information U.S. SEC could is these earnings that the public reconciliation issued today's to for may XX, useful October to reference we included release

For you of as are as webcast, there well few website. user-controlled a full those on on to presentation review listening slides investor the IR our

over to call Scott? the Powell. Scott turn I'll Now

Scott Powell

I’ll Juan results I and cover who highlights I’ll everyone. Evan. some cover thanks to the then our quarter in morning, detail. Good over of Carlos Great, third it do is, our more will results turn What will of

look So there. if you want at Slide we start will X, to

Our demonstrates continued our business. really quarter results, strength in third

or that million earned $XXX share. a will see You we $X.XX

overall, by You or a in which a results $XX pretax of sale that million, includes the really driven our strong But an credit has RV/Marine quarter. gain share. were that will of notice portfolio, $X.XX the performance

and much year say general, XXXX. us. flat very to some the lower regulatory third see would is our You are it compared in points quarter third in growth Also, report had in respectively are about And of very important encouraging for basis in at that XX a to is third the also, we our of XX will progress net loss XXXX recovery and rates pivotal quarter the XX%, I quarter rate XXXX.

on reserve quarter the our not So year. Written the of the back XXXX on in plan And third federal the in terminated second the capital Reserve objecting quarter Agreement what to capital that the that, distributions. of comes is happened Federal this

very of institutions a things that’s XXXX exciting of included and in today putting news issues work some weeks cycle to importantly that are has first we excited XXXX. the a that financial do for and so a for dividend starting are With It’s of focused $X.XX couple Consumer we and the and ago. be on of declaring we said, that very out. shareholders very announced have in now changes would context, since more Santander outstanding So share. declared I we have normal legacy kind And Santander capital some Consumer made that highlight, management closing still the we are those regulatory we on more on to previously dividend

CFO our a Juan me One treasury of in new brings Carlos planning the get table was in CCAR. Alvarez experience of those Carlos Juan was helping instrumental the financial here. for Santander hump capital across on in and function over the the is who and announcing U.S. lot functions

the here. is he to it have part Carlos, So team Juan is of great

We USA. Sandy also from Broderick hired

demonstration our the is commitment critical support did Capital. of it's with company note, Chrysler, to Chrysler. And a Sandy On third improvement brings billion and important into we hoping Capital decades the Rich with the quarter. for role, Chrysler President new to And allow that expertise on a we excited in Capital. Rich Before have whole Chase Again, success help and to our with and related we're make especially with again, segment. X.X to that really will team. are at on promoted away U.S. and Sandy focused Santander Chrysler of future in is operational in was Broderick us the Sandy Grupo Morrin, will of transaction Bank, a partnership Chrysler JPMorgan our management us have prime which

So and I'll there over with turn it Carlos. Juan that, to stop

Juan Carlos Alvarez

morning Scott. everyone. Thanks Good

performance. and high. range X originations GDP for in macroeconomic key line We few influence that replacement also with very and growth to recent the are credit The Despite is influence that auto uptick stable These performance. for sales unemployment remains Slide health of to demand. our the can reflects indicators there hurricane-related to see our loss economic the September some this Turning pleased On environment recovery relatively year. flat downward of that a we and levels rates overall the historical business. confidence stayed metrics economy. trend, supportive compared continue Slide gradual is quarter strong that partially key our indicators low. robust. remained credit factors Consumer and QX last be believe in witnessed X, severity We're to that are the

Our this auction year. quarter, up XX.X% last QX recovery from was in XX.X% rate

bankruptcy Our auction-plus which quarter, QX insurance the flat in is to recovery were rate XX.X% deficiency last year. includes proceeds, and sales compared relatively

X. Slide to Turning

quarter, decreased QX year risk-adjusted prior X% due X% over the in with we compared and decreased quarter as compared Santander flow FICO originations, in year XX% originations appropriate the focused continued XX% These underwriting sequentially Our the to continued total supported earning Chrysler strong, increasing FICO Chrysler originations above in score loans be loan with sequentially. period. XXX competition XXX quarter core to XX% the compared below to and retail primarily disciplined QX same year, last but our agreement. remain by XX% last returns. to originations, the the decreased to increased score our

Santander increase ensuring risk non-prime prime flow Looking profile goal increase to return appropriate ahead, the through and to is volume, our agreement. while volume the

of penetration Capital which end of Chrysler down the QX XX%, at The XX% the last end quarter. X. Slide rate from is of was as to Moving

completed to Last national rate last appointing QX at quarter. rate pleased making quarter, was XX%, with with should with with we rates up penetration the Dealer than Fiat past, the on We're of progress VIP initiatives in Santander and is Over only for which, the enrolled, In X,XXX of future. rate combined expect improved further quarter, the our XX% Chrysler the representative our quarterly of penetration dealers with are Capital many performance more with and Now FCA, FCA. support strategies we're rollout advance influenced from the mix rates more our also Dealer implemented A these quarterly XXXX FCA. end including the relationship the by product but FCA. time, volume penetration penetration we by incentives. flow reminder, agreement provided penetration the the program we time and strategies Chrysler Program, our

addition, about In the strengthening more President new of as Auto allow attention to with FCA. Capital him towards and role devote excited Chrysler will Relationships, which Rich’s we're relationship

income XX of quarter. this part unique balance to totaled million for to has others originations Slide due of strategy A prime our last to fee lower Turning Servicing year. compared serviced XX. decreased

service to drive Chrysler penetration for increasing supported other platform expect Capital Moving by the strategies by our forward, we previously. I the mentioned

finance performance, year-over-year which Interest by the our personal on rate decreased Moving on X% XX, of to impact and primarily driven excluding Slide lending. receivables loans highlights lower average balances.

by XX% see income ALG expense, to prior leased by in XX% same continue the XXXX. in up affected XXXX for increase primarily to for portfolio leased losses in year is credit forecasts, leasing vehicle driven decrease from recovery million income million credit of in this leased by in for an the performance, increase QX We quarter, a driven QX million the compared period. decreased growth $XX benchmark revised reserve combination decrease vehicle to driven with customers the increased leading a partially offset This residual by versus to quarter, $XXX in in value vehicle quarter our Interest primarily saw Provision year. Hurricane by expense We XX%. rates of and net $XXX Irma. provision stabilizing improving over an rates, last Harvey additional

Turning Slide to XX.

income QX. Normalized commissions million. $XXX income gain $XX impact into by $XX reported of normalized were fees, or $XX approximately million in RV offset total for by income a down quarter personal income. in million sales, default, other net lending market other, gains customer in of including $XXX market resulting servicing fee other was drill adjustments marine further lower of the quarter. discount portfolio and $XX The the other will a million, reduction, investment this We $XX of for in primarily cost and We total quarter. million, million was million pretax After including of the total driven

XX basis. points to flat period. Continuing well on the X.X% XX, XX of during displays up QX to gross Slide for XX XX-plus quarter XX is quarter, Turning delinquency same a our to with performance. net review Slide to vintages and Consistent our last XXXX the months performance. vintage slide and losses gross of in buckets for net delinquency This to XX The the retained year. XXXX, increased last XXXX compared continues rates XXXX to outperform from update vintages vintage XXXX to as basis the loss as

lower remain and respectively, Our performance, relief while of quarter the prior X.X% rates QX decrease this do rate associated that charge-off result credit XXXX. hurricanes. recovery growth to relatively time the quarter. additional some ratio provided from flat XX.X% ratios in gross losses to delinquencies year, and The charge-off quarter decreased and the expect attributable XX% year despite in compared net improving We as with this to over we portfolio a and QX primarily net is in X.X% last

improved year, $XXX credit acquired figures QX quarter charge-offs XX million which loss in Turning to $XX individually decreased to Net Slide to and performance primarily to million stabilizing rates attributable rates. dollars. was for the last to review in the recovery compared

due the lower the and credit quarter. me higher dollars $XX million decrease recovery improvement compared components to also $XX address this to were portfolio $XX overall related debt by of year. in the sales million QX to charge-off walk. is the and million related aging portfolio's to Let mix-shift performance The net is last

of and quarter. originations, our increase $XXX XX. TDR the million to billion billion period. the associated end of basis this prior to allowance other, with was migration adjustments. compared XX and payoffs attention $XX reserves a on allowance performance million Liquidations the decrease There increase as and QX XX.X% includes end was At provisions charge-offs, ratio quarter, new due to to which XXXX, $X.X $XXX totaled due Slide the last and end $X.X from million. totaled up the $XXX to loans Turning million of points The a of

Turning severance to increase prior certain losses the expenses up the period contingencies same X% $XXX versus quarter. the expenses from management quarter related was by This for totaled changes. and Slide increase for an quarter Expense year. X.X%, recorded year X.X% Operating of totaled to XX. ratio primarily driven million, in last this

XX. Slide to Turning

securitization, During quarter, SDART and approximately executed we $X.X the billion. DRIVE totaling

$X approximately $X.X totaled leases Asset we an executed to Chrysler driven of additional publicly securitization, by quarter third Santander for sales we Capital flow our facility transaction Also warehouse two billion. note our an this years. $X.X our $X.X DRIVE quarter-end, and transaction. DRIVE Subsequent for totaling third billion billion syndicated additional registered this renewed billion, quarter, primarily loans to

XX. Finally, turning to Page

Our basis XX%, year. for this QX last is than CETX ratio quarter XXX points higher

levels capital capital remained well Our internal above targets. our

mentioned, declared the quarter are We're we're forward for optimizing lies in look operational have very performance by since the saw dividends with the As and in our first XXXX our our Scott to we financial future. to capital business. what and ahead excited further and encouraged pleased

offset quarter, Looking lending. balances be ahead personal of to unless and net an credit driven by to expected time otherwise to of expect other lower Provision noted primarily to the accruals, line impact performance, flat interest partially Bluestem This expense last the to higher after expected is lower, other and X% year QX, to Total in same the as we season. my to adjusting the $XX will on is will be improving income down million million with RV/Marine primarily seasonality. relative we gain fourth be million better. variation driven and TDR $XX expected in balances, increase for X% expenses sales at are finance be QX the $XX Despite holiday by income slightly portfolio. to by the to given be experienced the comments Operating interest the is losses. lower seasonal include in the

to turn like back to Scott. I'd Q&A, begin we it Before

Scott Powell

cars hurricanes. driven the mentioned Carlos. that I a add say well destroyed the our Juan annual losses, the about Carlos and without at here $XX more Juan hurricanes in and insurance were And we were relief we as to XX,XXX Consumer want they recovering Puerto struck Thanks, future both really hurricanes donated than Santander efforts. States Consumer helped reserve Rico. United across good couple the customers U.S. Santander have pretty by at more relief The did were $X significant. $X U.S. both and million efforts Puerto to the cover feel to as has primarily that do those million Santander for Rico. efforts that. as in the – And million from donating here relief we about words

I a there for colleagues our broadly that fully they we has in know employees or to Santander report. the in Rico. we recover. working on which in which and Puerto operational safe know to to as of mentioned And continue sound, are a report Puerto Consumer colleagues that happy the to servicing Banco have we to operations phone we is Puerto with folks in Rico. operational a all continues Puerto are is more our full-service and island Puerto bank servicing Rico week that support our think resume Rico. we're is fully and that have great in I for Puerto as because Folks bank work also a Santander center so Rico, Rico, That center probably been

remain to there our will colleagues Puerto we so in helpful And Rico.

would concluding car really underlying new performance. about strong, is negative the future. that it was quarter isn't strong again earlier in good In this car credit encouraged as for outlook feel prices we say and as year. our very it I results terms economy and driven remains of about used third just the The because We're remarks, sales by

Consumer, to operations us. to good So pretty across have at we in about here that new good and this team execute the feel Santander feels on We continue well place will organization. we really management

risks focusing for And day. our And to financial especially returns focus priorities going us. pricing our for going to really who forward strategic continue by strengthen performance partner continue and important going We're customers. aren’t mean to on shareholder every on changed. a deliver we're our operational So very core our and performance Chrysler to I remains

results quarter regulatory more third and issues. demonstrate Our progress broadly financially on some

that. a at feel ways, said for we a that, us it really Having pivotal we here lot So about should Consumer turn of is and year Santander Q&A. maybe in good to

Evan Black

you Q&A, to us please? can Perfect. take Operator,

Operator

open [Operator Jefferies. now up with from we first Hello, Our for comes question will Instructions] Hecht questions. the Mr. John call

John Hecht

my Good taking questions. morning, guys. Thanks very for much

guys that you subprime. you targeting JC, Just – more talked about

I’m now what So of you that capture asset on how period in start current to to next market size? the competitive the just you see effects balances, the and is revenues pretax your so subprime grow about at the like looking volumes the share and loan more market forth think the wondering do and year, do and target and in of And class? given overall ROA right end type ability

Scott Powell

credit first it's grow we numbers Carlos the Hey, then Juan John, there optimizing Scott. And maybe we I'll our of market, the ROA. part opportunity our you the pricing we in to feel feel – have nonprime on pre-tax core take question mean, do and like just do give let the by underwriting models. and I an

the So that. in very that to we space we have looking opportunity competitive, continues we and been confident to to ability there's feel grow for but and we're us. to be like forward there think It's have the ability competitive. we we're It grow

Juan Carlos Alvarez

X% pre-tax of of segment terms of particular we for aim for plus ROA, In business. that our range

John Hecht

just XXXX broad a Where are performance? when terms then the on that migration. we TDRs? of managing should we to with the that quickly, receive start cohort difference And influence to and between see based XXXX turning question it's TDR And XXXX the in

Juan Carlos Alvarez

the losses, of it's already is, net the losses terms XXXX vintage. losses, in XXXX – XXXX vintage less contributing net So than contributing

plateau The So do that early to we has TDR start already crossed. expect volume, in XXXX. to

to more QX. off of ALLL, ALLL, volume, talk TDR referenced, will the about just to migration I it's be there important migration terms in In leveling always as to but

Scott Powell

relatively core contribute to to assuming expect that's TDRs. to flat. what said, would do portfolio We will the more remains and which John, And growing be just nonprime, hope in Juan Carlos add additional

that So we off assumes significantly. to growing beginning but do not level of the expect at it we're next year,

John Hecht

good, the Very much very guys. color. for Thanks

Juan Carlos Alvarez

you. Thank

Operator

Thank you.

comes Orenbuch question next Our Credit Suisse. Moshe from with

Moshe Orenbuch

Thanks, Great. the TDR. on for and the comments thanks

being it's Is start how just think a a focus like alluded that moving sort one actually, should you And little the you impacts. that, anything when driver on about revenue in about impacts to bit little as to follow-up of talk revenue kind to from moderate that? lag a And quarter on we bit or the would to TDR? the that revenue QX? think impacts Just now those it we're I a interesting of could

Juan Carlos Alvarez

So at that the top line, the throughout that TDR in year. has policy impact the growth when was QX on changed put started but in hasn't place,

Moshe Orenbuch

current. it's So

you're balance plateaued, the in – the as impact as early it's So XXXX? has would moderate saying,

Juan Carlos Alvarez

would Yes, It's overall that perfect. in policy an place. overall yes, relative component, component, the remain

Moshe Orenbuch

QX, after about just reserve hurricane put as When in you is this a million in And Understood. the housekeeping that or item. that the talked you $XX change before for the as quarter?

Juan Carlos Alvarez

the I million to referred reserve. variances the All $XX include

Moshe Orenbuch

Thank sit you. I’ll in queue. the back

Scott Powell

Thank you.

Operator

you. Thank

question of Stephens. comes Caintic next from Our Vincent

Vincent Caintic

wanted guys. Good morning, Chrysler. Good focus Thanks. morning. Hey. on to Hey. I

of think this call I you've highlighted Banco Investor also Day and importance Santander the well. relationship as this on the

Just – now, XX% your to run just you've one to your trying – importance cap like between I else XX% Chrysler to think so – that. one has highlighted at your range. there right deposit penetration to to get or XX% done any typical you is rate wondering to if help needs be And to rates And have funding. and get if support the wondering that maybe I'm you're are programs penetration to to anything hoping that there's higher? then program

Scott Powell

you're an a right, we're it's a is working extremely great fronts. this of Yes, so number on to one and relationship across important And it question. us

Chrysler growing dealer a commercial have We services is which space. business, in

leg strategy. one the that's of So

more drive in our to volume. dealer relationships put deeper build VIP to program dealers program individual called place have Chrysler rewards We with a

auto the because effectively lease down We be allows compete. you funding how very other structure important Santander Grupo and to financing deal Chrysler more making relationship, extremely continues into important get be the leveraging leverage of possible progress competitive today. part structure Santander is the And bank partnerships funding near-prime And then Consumer, us when are given to compete can is We with space. then subprime, we in to with their a prime our space portfolio that in price. on big here that on at and our

overall get Grupo our with leveraging importantly, really on which loans bringing the the to bear Chrysler relationship. space, relationship you services partners challenge possibly dealers, more as and but prime commercial to penetration delivering say, more bank the on so other to deeper improving is this in Santander is And means rate then,

And our review of strategy away a so that are time. the And the we're is essentially it's our kind we those with them. all and Chrysler when partners strategy, working chip discuss things with we that

Vincent Caintic

to Got and tightness you is as Grupo Thanks. you guess, well when just, is about And that? flow or of bank some as it. other creative there between more ideas talk other partners, agreements maybe maybe I more that the, Santander

Scott Powell

would maybe far on too variations the I that. nothing slight afield say, that but structure, flow from on agreement-type

Vincent Caintic

Great. one Okay. Thank question side. just on more the you. And expense

slightly But front. regulatory success efficiencies going lower some could that forward, that quarter. in with fourth you there quarter-on-quarter we other about expenses great So Do is as forward the of running you've expenses think operational some guidance been going had you've we the or were see? level need

Scott Powell

it’s yes, I – a yes Well, no. and of would a kind

level. made and then is next of – and need management, have we years. on really two couple And Consumer of here agreement around with will the holding a comprehensive regulatory over risk from And written the issues written to agreements kind we progress, across XXXX, out Reserve you've a in focused one So sort agreement XXXX of the read that agreements. couple whole of crossed so them, other written years in at see have we which very Federal – if cuts That of written one works, we addressing primarily compliance great also the both in other is is those company kind the Santander of at close thing. outstanding

we you those will of for is – maintained answer So can on regulatory But do new and the your expect areas Sandy lower be operate – along expect Those have kind I for the think expect more can question, we to this question, expenses? do our now. efficiently. operational from but no to issues. looking one committed of where efficiency address to Broderick, we leader, to is a be answer

especially more we some expect bringing We in today, are new new expenses you to achieving, efficient ideas, technologies, But very yes, efficiency when initiatives. to us some be compare do through operational competitors.

Vincent Caintic

Got very it. much, Very Thanks helpful. Scott.

Operator

Thank you.

question next O’Neill. from with We will take Sandler Donat our Chris

Chris Donat

Good question. taking morning. my Thanks for

Just or anything the Was one the or or have that related hurricane TDRs? impact any did on there to not was on more in question hurricanes TDRs. there

Juan Carlos Alvarez

No, it does have an impact.

been TDR As the volume. to relative increased, relief customers, we provided would it's of not a the but significant balance our have affected component TDR

Chris Donat

Okay.

Scott Powell

on – Maybe what add Carlos sorry, Juan said. to just little a

of that Some the through and have moved customers some leased to the provided extension TDR have. then we would for would that we not

have didn't reason. for big that it impact a So

Chris Donat

Okay. market, vehicle Got We disruption the the comments. sort give prior pricing used it. for XXXX? And management car for then just say, the kind of what used to had your of had and are curious expectations have XXXX us prices, can hurricanes with you

started Just know what your to building into models. want you’ve

Scott Powell

right, with Yes, started say, more used for we're car we projections on I sales than car new year would this the prices. and optimistic,

or The million U.S. months certainly destroyed. these economy manufacturers That production. hurricanes, a X still strong. know reducing it's have their that XXX,XXX know, prices. car don't the few has, is were think been cars if impact I I on don’t I pretty

less negative on used both factor say we as sales a car about So year. we're prices using think have new we I and – next would car

Chris Donat

Some are right? of stable, these

Scott Powell

I – used still down X% But X% that be both we'll of take how maybe moving Stabilize in. prices car instead mean, is or X%, down. will

Chris Donat

Okay. Awesome. Thank you.

Scott Powell

Yes.

Operator

Thank you.

JPMorgan. with Shane Rick from question next our take will We

Rick Shane

morning. to like a about for historically on look XXXX my One, taking XXXX XXXX ROA is you by ROA from two context just things. the thought sort guys some provide you vintage forward, Can and provided vintages. XXXX, talked target of the the of going Thanks perspective? going sort and what you with questions Really an for this vintage us

Juan Carlos Alvarez

parts quarter the the XXXX I vintage. being the potentially talked of XXXX profitable less think than about early vintage especially being last – the year So we

I case. the think remains that

to it's so wouldn't forward, much. change late that could change previously I much. guidance that very That very Going expect was in given the year, very

Rick Shane

change there no on So that guidance?

Juan Carlos Alvarez

Correct.

Rick Shane

sure, sell I'm to comment just we been to Slide that need then agreement been haven't par. of. is servicing want And that change the any flow on want near a in make Excellent. rights, there's the of assuming to that strategy tweaks make there little XX there's I the no here but just there sure on capitalization to be aware

Juan Carlos Alvarez

it’s No, ended.

Rick Shane

me. Okay. it Great. That’s from Thanks, guys.

Scott Powell

Thank you.

Operator

Thank you.

will next DeVries with from Barclays. Mark We our question take

Scott Powell

Hey, Mark.

Mark DeVries

Thanks. a comments, alluded to could elaborate in cycle Yes. you XXXX. more hoping on a Scott, you was your that. prepared to capital return I in normal

expect a payout should So share next year? from we meaningful more much buybacks contribution a healthy with

Scott Powell

this of passed, got I what a that we year, can't to really to again, cycle. plan shareholders on just just number Fed after thoughtful do as are different wear capital at us the say we to be about what except do a I on do comment there next having Yes. we're number have cycle. Yes. comment can having you our a planning options that. look options to non-objection can't capital and, Well, we would we'll expect our on for dimensions of We start to going as that

Mark DeVries

your understand that's say here. helpful. Fair constraints can you what certainly enough. on I Yes, Okay.

a in a can of part next lower the charge-offs, or obviously receivables, can day sense you parse year-over-year, the trajectory improved your of just so get impact balances but understand those it charge-offs due as So to two, the I was your out not but increased. delinquencies and next question, year but at we XX-plus or we look quarter now so? of just

Juan Carlos Alvarez

– delinquency? the you say, about and let's So charge-offs talked

Mark DeVries

directions now. Yes, opposite kind of moving right in

Juan Carlos Alvarez

Right.

have, have in the terms provided, do the we of right? These the is extension impact So on charge-offs, an ratios.

relatively than the the have same the would they been example, quarter remain quarter hurricane, So charge-off to we've that last much very in okay? been compared year. slightly of been trend about on underlying higher ratio would but otherwise because have would talking place, for flat So the

slightly In the So the of XX we terms time year-on-year see stage XX-plus to in being were of of delinquencies, majority this the being extensions given is would what which okay? the also the flat year. buckets, earlier you'll and XX higher, expect

Mark DeVries

Okay. Got it. Thank you.

Operator

you. Thank

our with will next question KBW. We from Steven Kwok take

Steven Kwok

questions. for Two I All my right. Thanks taking questions have.

First is to we rate. just the million, sustainable going the back forward? about $XX debt should How charge-off that Around think how is on of going sales that?

Scott Powell

they're on they'll occurring a pretty that regular should have we basis. now I think regular. our deficiency It's the think I that be pretty of all balances tales time.

a But as builds So it the a sell market in yes, regular in of little process. now, month. the we'll every I might choppy part right we're because those. not, It's and not market pool mean, be be the to the

Steven Kwok

it. Got

use it Okay. tax the think rate, about And then to going good we how and Is fourth just on your should in forward? quarter going forward? it rate XX%

Juan Carlos Alvarez

also related hasn't in benefit we last to SCI. tax That on guidance guidance SCI, this the changed. quarter, gave think I

Steven Kwok

for taking questions. Thanks Okay. my

Juan Carlos Alvarez

you. Thank

Operator

you. Thank

Scharf from question Our JMP next comes with David Securities.

David Scharf

couple Good quick for maybe Most just my taking update morning, thanks have question. of so been a and asked, questions.

regarding last portfolio. quarter, the front? put updates more Bluestem know potential the prior you on Are of can place first, commented been have The to seem in pieces any management provide acquirers that that there I had

Juan Carlos Alvarez

to continue and on portfolio on you We The work that's and options. all that consider remains we that. it held-for-sale, give can our on

David Scharf

still while And the servicing too developments to And long on a the forward? there. around that's potentially given going know just strategies Okay lastly, since has it's ago, But whether that's viable the Puerto something I been it. the can being tax regarding Rico, not was Company got you center of speak talk island, pursued there then not it. discussed or

Scott Powell

center important in the the so servicing service is said around Yeah, have what think sites new for we I other Rico of collection our we previously have Caribbean. management is Puerto

also it's it us and operations well. our of collections so important then as an benefits tax And strategy, provides part and infrastructure some

David Scharf

you. thank Okay

Scott Powell

You bet.

Operator

We’ll our Micenko next take SIG. from of Jack question

Jack Micenko

Hi, good morning.

Looking at than the loan yields higher basis your yields, XX in money portfolio. you loan portfolio coming are new and about points the noticing that

yields reported to turnover the the given on in affects I an quarter? higher is auto for guess – reasonable sort expect this over expect Did general that. high some should question today? of coupon it the And business accretion of So yields portfolio second, loan to then time, two-part the on sale putting impact you're we portfolio if overall

Juan Carlos Alvarez

referring have a those I've the The May you that through little. that Santander agreement, to, prime. break been are loan flow sales to

Jack Micenko

I to was referring sale. RV/Marine the

Juan Carlos Alvarez

so not that million, overall the XXX meaningful yields. in very regard is It it to loan is

David Scharf

book it And higher yields assume overall in to new coming the fair help yields that is should overtime? money

Juan Carlos Alvarez

Yes. discussed. Remember, that's part of our strategy, as Scott

core the that's on and prime we'll look to product agreement. We’re what goes still flow through prime, and the focused retain,

So sense, be by all-in on yield should the boosted dynamic. that that

Jack Micenko

then I about storms? year-over-year repo next payment the expenses I noticed this the in Okay. given to XQ, expense you rebounds think moratoriums expenses some you and a Are have repo guided quarter. probably higher the you've XX% contemplating that quarter, was better And in down given

Juan Carlos Alvarez

in slightly guidance the the what repo Our I That be already hurricane. it including is better. said activity and repo expect to that bakes we trends considers in underlying

Jack Micenko

you. thank Okay

Operator

Thank Cyganovich Citi. you. with to We'll Arren move next

Arren Cyganovich

trend growth are between the on book? outperforming a underwriting your contracts. volume summer a you values? the lease? with used Do in retail given have adding of associated of thought in growth What's And that, there lower what lease your the your loan thoughts versus The Thanks. upfront your preference was about car much

Scott Powell

up. I’ll be Juan may that can back at one shot and Carlos Yeah, take a me

relationship is to Chrysler. with having that a growing the yes, important and mean, I product lease So product

And but and said residual in very so we're the portfolio. values lease the having – about thoughtful analytical that,

someone depreciation changes to like our lease. we run the for at get so internal that. related It new changes or values. the And off expectation our to curves the a That time account ALG own it's residual forecast underlying to forecast extent with

So Does on a think managing relationship risk feel the to associated the leases make important portfolio as how basis, we're and part growing residuals the with so good are that us. we with very about Chrysler. we the sense? We we're conservative and have of that overall portfolio

Arren Cyganovich

comp model Did And of Yeah, say a question. thank quarter? to cost in specifically that. give Where Scott? type that? your just related you. much Appreciate like you onetime then severance how this you Can difference, there's

Juan Carlos Alvarez

discussed the in line. was so in discussed public we've that that's that severance releases, it That It public. why Yes. was is incorporated

Arren Cyganovich

thank Okay you.

Operator

take of We'll question Geoffrey you. Elliott our Autonomous Research. next Thank from

Geoffrey Elliott

taking thank morning the Good question. for you

On the you when when think the through move starts about that But clearly income, how inflect impacts coming in think should and can again? help forward going up that negative can we you to interest XQ? financing it net talk

Juan Carlos Alvarez

the rates Yeah, the on drivers a rates. interest so terms other rates, big benchmark And for given depreciation The quarter. is driver driver benchmark that's base in going quarter, the for the did of flat. increase. relatively is in adjusted Spreads key up, margin, the remain higher key leases, expense

leases, forward, that So moderate, when we remember pretty much to one if with adjust going depreciation we're lag. that on right, quarter the were looking

looking we're a metric. So at QX

moderate speed about talked then terms of mix we've the forward. a also top somewhat the bit the And the how line. that's going depreciation loans could the should in of a So of line, top of boost give to

Geoffrey Elliott

you're whether look relationship focus. simple Great on guess is should Chrysler, as at to you that direction to see are judge should being whether or about in want? a and talked there you at looking I penetration lot be the that Is going then we we rates it succeeding other as things there? What a that

Scott Powell

Yeah nonprime? portfolio? flow segment the the making for doing Are touched the some we areas before. growing for with partners are And of commercial big component it’s on Are prime those of services I progress we leases in there. other the Chrysler? is I would How then dealer on say we Chrysler

Juan Carlos Alvarez

that think in provide the core I Also, stability we is. nonprime

Scott Powell

Chrysler, provide Carlos, value Juan key in consistency we volume mean, the of Yes. our is I segments. nonprime thanks, with the the

is it this parties because good believe benefit we from both So relationship. a partnership

Geoffrey Elliott

you Great, much. very thank

Scott Powell

You bet.

Operator

you. question Point. Compass Michael We'll from take our Thank of Tarkan next

Michael Tarkan

you. Thank

comment on should for of plans can't optimize I to you've but time? what the for question. this wanting capital view at over CCAR, level talked about excess know you of on follow-up just be your capital the wondering a right what is I'm the Just capital. company kind

Scott Powell

CETX prior So is and our Scott talked of about, as adequacy capital I cycle, XX.X targets on driven internal changed. That think and part talked capital quarter, analysis. hasn't we that get capital as last internal targets. by quarters, our our updated It's about internal

So same Scott are on. as they the touched related the capital cycle that and to well, follow that actions

Juan Carlos Alvarez

regulatory is the – you improving there to probably is there of issues a ability company. management of our but noticed, Yes these deal with connectedness legacy with – deal some to and and overall the

to do factored in through get those year. analysis go so we elements the adequacy capital that every And

Michael Tarkan

Okay.

to on fair over you're is level now mean, back time, returns broader maybe I time? it So to over that that will start to hopefully migrating XX.X% forward, broader, say cycle moving that that the you regular I see, closer think, capital

Juan Carlos Alvarez

are the next what out cycle. actions We've laid until the capital

that's much stepping to remember That capital choose plan. includes – we our that $X.XX as now. have right in of $X.XX proposed and action, as we us So as that capital front up

As it of that, part be to analysis. that will adequacy

Michael Tarkan

you're as or And think levels that. XXXX you a bit even here, about Understood. bigger about Thank beyond reserve you. little thinking picture, then

kind state, that guys on XXXX company view assuming of do for thereafter? TDRs and to a credit as that first Just quarter this be the operating level what then XXXX that right peak wondering you of in at early of steady sort reserves improve or

Juan Carlos Alvarez

that reflection So of our the as our are of adequately is information a reserved we've I we we is our we we with level reserves – we will what outlook look and that that update The reserves experienced, of level what portfolio. go receive, believe are perfectly, along. that for what

Scott Powell

quality as to the and out inherent laid move the we portfolio just Yes, I to shift mix in strategy and that, we've be the forward. of won't dramatic mean, kind credit in add there

say comment, mix of I or to the portfolio. of it's to Carlos environment kind in in it's steady yes, changes the build So state on either think unless inherent – it's Juan I fair something think

Michael Tarkan

I that reserve If quarter on an is just fair would presumably be your that guess forward, do moving first then new – levels clear. just on assume? TDRs peak overall lower but and loans on Okay, basis in to

Scott Powell

Yes. I mean – yes.

So the loans I reserve normalized the as that. we I this, segments. kind book. you think we is, nonprime to gets agree allowance would grow know if our that's your of with like way we point. as it And But for we grow there, right gets front-loaded

So up upfront we're putting for growing loans. reserves portfolio, for those our

an So impact that the certainly on portfolio. overall has

Michael Tarkan

Understood, thank you.

Operator

take Fotheringham next you. from with Montreal. We'll question Bank of Thank James our

James Fotheringham

Santander recent something the and related minorities the you the said in at Group funding time. hypothetically, about update, all said potential buying you SC it's think strategy when, synergies, about Scott, SHUSA Thanks, you

it, assuming especially potential timing? you've Thanks. could So your with thoughts, about latest to respect you to give and think that continued us required approvals related regulatory

Scott Powell

you what and Well, makes Yes, me to sense. trouble, our time get look, I mean, all we corporation try think a consider as about right? options the in

there's on So about with you leave to respect that my that. But so meant talk yes, what to at nothing that's context. comment have just that, to it

James Fotheringham

you. Thank

Scott Powell

bet. You

Operator

Jaffray. Thank next of you. question Barker We'll take our from Kevin Piper

Kevin Barker

less us on give little Thanks. vintage be You XXXX around stated takes the that and you will detail than vintage? the XXXX and Could more yields charge-offs? the puts a profitable

Scott Powell

really of Kevin, beginning the missed we part you. question. hear the We couldn't

Kevin Barker

XXXX the In you you be takes versus you regards understand profitable between explain less help around XXXX the stated than the XXXX. could those us yields to and charge-offs Could vintages, portfolio? – can and XXXX puts

Scott Powell

Yes.

really way I the hasn't we changed. think talked it last quarter about

recovery the happened in profitability within lower talked earlier about earlier the part had for also part operational being context the we than we of about that rates the of year vintage. of we the think impacting talked Remember that I issues that XXXX XXXX. the

about talked we and last expect been also should we those better think going quarter, I fixed forward. As performance issues have

Kevin Barker

Thank you. Okay.

Operator

will comments. call over Powell Thank to Scott the questions no for are at turn final now you. There further this time. I

Scott Powell

Great, in call. interest appreciate a joining right. weekend. we you Consumer. good appreciate All all questions. for well, We Santander And your the of Bye-bye. Have the thank all

Operator

you your That conclude for today's participation. does Thank conference.

may You now disconnect.

Santander Consumer USA (SC) 27 Oct 172017 Q3 Earnings call transcript