SC - Earnings call transcript Q2 2018 | Santander Consumer USA Holdings Inc.

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Operator

Good morning, and welcome to the Santander Consumer USA Holdings Second Quarter 2018 Earnings Conference Call. At this time, all parties have been placed into listen-only mode.

Following today’s presentation, the floor will be open for your questions. [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

you. Thank and the everyone, today. for thanks morning, call joining Good

President have Executive On we Powell, and the call, CFO. Scott Chief JC, Officer; and

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

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

you over Scott of the well as a website. With turn the to webcast, that, on IR to as slides user-controlled listening the to there I'll few Powell. call those Scott? are review full presentation investor For the

Scott Powell

Thanks, Great. everybody. Good Evan. morning,

off, and time. by friends through Sergio at challenging would segue of our best family and condolences to Marchionne the FCA First to send the sending management like this of team our really start we

turn of let's So the Juan to hitting X the to some and of then I'll Page start But of it go second by highlights over quarter Carlos. the presentation.

the the the our working following on demonstrate really strategy quarter and calls. our producing business. quarter solid through good, really and prior really that big the of and a discussing feel result is of like results. headline, of a had So And that results We we've is on us strength we course, that's second been initiatives

compared quarter income can up see million, the that last same And to $XXX is totaled so you net which year. XX%

regulatory from second significant for to the at again, Importantly, which same regulatory step in consecutive a we we're the last us very on capital then assets marks up Santander And and is plan X.X% proud Consumer the average for our from another Federal was quarter our Reserve year. U.S. on front, of. which And received Santander the X.X%, return non-objection year, this

$X.XX the As third inaugural announcing authorized million over is dividend program share for a executing we're up declaring months. will the repurchase we're $X.XX. next from which $XXX board And the be result, quarter, a XX the that

really Looking again at originations. originations, a quarter second good for

was and Chrysler we across in rate last our as You'll XX% second the last all results said, XX%, the of discussed prior up on from XX%; up Total up Overall, the of penetration were channels. demonstrate up on initiatives of billion; that in was was through calls. with we're up see year. originations originations that our quarter $X.X from our are Chrysler year this the importantly, second Core that XX% XX% really billion, $X.X up following quarter I to quarter.

We continue increased we taking And risk without to optimize our on have management. risk. our pricing additional and credit volume

So to ROA. our we're we're We between with buybacks moving respect in okay. our kind of trade-off net charge-offs nor neither sweet upmarket, the credit expanding spot and

now. right at we're where about good pretty feel we So

easier We disciplined very dealer to to our expenses. We're are process. underwriting business on do experience. our consumer us. continued be importantly, making for improving and we And streamlining We're with dealers

exactly ratio year. the it the is last Our which this X.X%, expense in second of is quarter quarter same was as

in the continued prime we space. focused on to addition, In be initiatives important

program to our flow launched others prime bank plans Xnd. on very serviced and for important are an that grow through And space July run. in in Boston, program is which for and we've program. importantly, a our strategic us, the SBNA, our at presence We launched our expanding initiative then, And are this

quarter. strong the We candidly, were surprised in the we quite credit. a by performance And little performance. bit see very to how Turning was stable credit credit

decreased XXX see can basis $XXX our by or charge-offs net are million, charge-off million rate decreased points. you're the And you or XX%. our XX XX%. decreased decreased quarter charge-offs million year-on-year, by gross at worse, Gross $XXX if that $XXX in by accounts, the days looking by delinquency, and which X% So and

basis Our a recovery is charge-off rate really our more improved this was auction-only XX% down points. year sign rate sure our we'll to talk XX% XXX about that And positive from I'm last TDRs. year.

for second did $XX year, we of the balances by year. quarter over the And the the about that come first rest our decline down balances to talk – to quarter. TDR expect but million slightly would of expectation the from the down we'll those to Our rest

$XXX with second the Santander our I year. is benefit touch And so being the transaction rollout is the completed Consumer one down which already was expense of transaction transaction, provision program since we Santander group, I to the the both the perspective, that last Consumer with we fifth thing perspective, U.S. the Santander the to Santander last From I’d again, of on, guess really part mentioned $X.X SBNA. million and flow compared of and SBNA. group From group. expect program group's U.S. our billion Santander quarter of more started program and we the benefits of that with like And

respect the the you then, in really mode platform our with serviced try two our part we're key lastly, drive to our discussions I'm Santander in space are, being But of have we to Chrysler, of here group the guess, competitiveness call I points And to this, about started Chrysler. happy have sure questions leveraging to continue lot and being them. So should BAU answer with helps the a operate U.S. I and prime but by the others with of maybe for part us

in their And don't but to discussions new desire we have any developments discussions to I think our reflect Chrysler the our their report own with company, on finance results that. captive continue. have

let Juan that, it with over So turn to me Carlos.

Juan Carlos

good everyone. and morning, Scott Thanks,

remains high. growth macroeconomic and in of off of Slide of historical to continued are and range. line healthy Consumer despite and creation remains stable recent of economy. strong overall And influence indicators Unemployment new metrics job total levels indicative that the our and some a for state supportive performance. very with market environment Turning stable X credit is and GDP to business. be originations The economic key our sales solid. low vehicles. their robust being auto for These is peak, remain the are indicators confidence

On the that X, few influence a key performance. loss credit are and factors Slide there severity our

auction-plus As to Scott very In last compared mentioned, good in auction-only. quarter we rates this performance improved recovery had year. QX our recovery

rate Our trends payments and the made types, at vehicle average performance up vehicle were leads which quarter from repossession, in XX.X%, up balances the include end which year, outstanding proceeds, across by deficiency overall used and Auction-plus the time at bankruptcy auction. higher pricing of driven lower XX.X% most from at the same at dealer quarter, to last recoveries, improved auction-only XX.X% recovery last sales of QX recovery ended insurance better quarter year. the XX.X% rates, and

expect year, Some to We'll the which Slide we're auto constructive speak industry forecast difficult with for stabilize of will trends. seasonal prices the year year-over-year the that keeping seeing channels. remainder the consecutive origination is see performance of in all increases We quarter at used patterns. X to our slightly We that auction. turn across second this during now car mind the the or increases remain for to

prior including loan compared Our the to for total compared quarter, originations Lease Total XXX QX the loan versus last strong, increased FICO both Capital the XX% prior retail to auto XX% Chrysler and year year. greater increased to continued year the core originations in be quarter less growth quarter. channels. than XX% originations increasing

encouraged as and is with for quarter customer seasonally second are a credit very well that management, originations the we risk reminder, to over season, following enhancements our a continued tax efforts As experience results quarter strong dealer this our as due optimize several by quarter’s the calls. to the last discussed you but we pricing, for

profile, Our appropriate by strategy prime a the that Bank nonprime the strong program in for to origination return Scott volume targeting mentioned maintaining Santander lease. leveraging and remains increase presence risk

origination Slide XX%, quarter rate to in penetration in for FCA XX% the from line prior our quarterly our Turning average positive trends, quarter. year the X, was up with

servicing across and lending services. our loans, full-spectrum floor optimize to leases, continued and We third-party platform plan

As the the finance a year. FCA's don't our half and discussions focused of we serving customers on on a Scott exploratory to the we made further the in remain progress and captive update that building on mentioned, We'll establish dealers our have U.S. first Chrysler company regarding strategy during

Turning X, driven for increased Slide quarter-over-quarter, balance to serviced our items. others by two

origination secondly, the flow servicing we pleased of balance announce serviced earnings we First, a executed prime we'll And out program for mentioned service we And $XX with transactions year, this additional call, retain as for $X.X last earlier and this portfolio to Santander conversion whereby we directly The assets Bank, billion that we the and Santander we fee program to onto million our sheets quarter. others third-party. rolled billion. pilot Earlier Scott month. of facilitate fully a the as for loans this platforms drove Group discussed income $X for mentioned, with we're transaction this on fee servicing. that the SBNA's mostly completed

partnership to Group. program become funding, with replacing flow expect we Moving more Santander the collaboration a and forward, our with meaningful of SBNA source

other for in combination QX which derivatives, APRs. is financial in of included market better $XX offset comprised offset rates recovery discount. Let's in driven loan in lower lower continued vehicle review $XXX higher decreased decrease increased finance to up and partially balances, related XX% last $XX of quarter, the compared million from higher market off-lease Net year-over-year to loans quarter Interest million and XXXX. by to X favorable Total the to million offset credit period, on performance decreased due decreased due which and in increased quarter. during for in $XX portfolio, million lending due benefit QX credit expense income quarter personal partially expense customer our year. RIC the TDRs, was of quarter provision Interest income and Slide million income interest by million $XXX performance. leased losses balances growth partially from balances QX million results certain for last adjustments move on XX% $XX lease $XX the prior charge-offs, and Provision $XXX year good the is million and of year. the million average to $XXX receivables Net X% to held-for-sale by the non-accruals to average rates. in over This of by increased versus

Slide to our to last XXXX well the as with to consistent update performance, a as gross continues on XXXX outperform vintage basis. review vintage XX our from quarter, loss Turning vintage net

quarter, XXXX can began as we Slide XX vintage, the of to than line, show see, you to to XX is XX XX, instead Continuing XX better we notice to vintage. added data Beginning XXXX which performing that show QX delinquency slightly for to in This so may and data the and plus XX XX updated XXXX, sets plus. both we ratios. in of you

only Versus forward, quarter those use throughout ratios been But XX that consistent had be going to for transition X.X various respectively. of have shown we're figures prior have if those since year and the to to using X.X, and quarter, respectively. plus interested, the the XX we XX and X.X, each delinquency to and method, in XX this Going you to order of decreased the delinquency would is plus disclosures. X.X the and a are XX figures XX prior

of XXX portion ratio points last from ratio gross quarter The year. bottom XXX QX The last charge-off XX.X% RIC basis to net down in from of decreased X% QX RIC year. the points and the charge-off basis Moving the is slide. of

to evidenced a credit. a recovery. as also strong the by And more that, continued quarter stable performance, improved results, seasonally see for supported is QX So we by remember

net million, figures dollars; and to recovery RIC rates. RIC balances, for the loss million quarters XX the which Turning credit in was attributable Slide decreased to performance charge-offs to better review $XXX in primarily $XXX to quarter the lower improving for

waiting the lower $XX the let over other address the in is in last charge-off lower $XX same auction losses. due inventory balance of charge-off million and of due versus net decrease components me in to and increase the opportunity to the lower better therefore, is reposses lower a million $XX a rates, a So The gross adjustment recovery losses to $XX a lower year. driven due million by period, result in balances RIC to average million walk. rates, for units an losses primarily lower category

increased over totaled quarter, ratio and reserves last allowance to end million the At $XX were and XX. by and million These favorable credit and to QX more which of an $XXX attention loans at loss than XXXX, decrease end other, provisions our increases decreasing due TDR go allowance a The million $XX includes the performance million due represents to on the which quarter $XX and of reserve of the this to million walk. the decrease Turning offset in I'll billion, due the components XX.X% liquidations new migration. Slide of originations allowance for $XXX $X.X due quarter. charge-offs. payoffs to to from adjustments

and billion the call, Therefore, Slide in TDR than in third from approximately million. lower Let’s XX decreased we a turn as the And in variance $X.XX $XX detail. decrease discuss decline. $XXX more the TDRs quarter. our quarter to million sequential to prior consecutive QX shows this of XXXX billion prior balances is $X prior in this quarter discussed

to vintages, prior that continued that is on there portion our see, remain dating balance modified still you As this considerable to vintage the loans perform. all and TDRs sheet, back a demonstrating XXXX of

we all of the QX. of till the TDR XX% still the vintage addition, speak, as TDRs represents In end of balance XXXX

As unless or remain loan becomes a will a pays-off it it the once TDR, a reminder, charges-off. TDR

management Slide to severance a million, prior XX, QX disciplined was attributable This The expenses that expense ratio expenses quarter for decrease totaled operating expense X.X% totaled legal to and quarter. and the versus primarily decrease XXXX. Turning this year. flat X% during occurred year the of the period $XXX same quarter last versus of

including strong of in continued Slide SDART capital and $X.X more position to billion. with access the quarter, transactions liquidity XX, the remains one having funding deep to consistent SC and transactions committed of markets, DRIVE. and two to ABS funding demonstrate than billion Turning issued new our total $XX.X

lender And is to quarter Slide We also transaction. Subsequent ratio quarter and our which to funding our totaled completed commitments, for $XX.X finally, XX.X%. to also XX, diversify private financings an additional through we billion. the billion continued CETX end, turning DRIVE $X.X

for per XX, XXXX. inaugural as Scott share repurchase quarter declaring share well a an of June stock the third of mentioned, authorization $XXX dividend million $X.XX program we're As cash for as through

to about we regulatory My relative continued include will unless are balance returns. as turn optimize our the will progress, guidance the excited for our of continued Following increasing otherwise quarter. personal the comments while QX we milestone noted shareholder and to to lending. third impact now significant be sheet, I'll

increase to expense We expect patterns. balances. third up $XXX higher net to is expected to finance flat income and in other line million the X% by loan interest primarily $XXX quarter, Provision be driven in lease seasonal and to million with

We discipline lower expenses to also to expected be million attributable down with $XX seasonal other management. And line $XX expect flat income total patterns. in to to are operating expense flat to be million

Q&A, Before you, we turn will it back begin to I Scott.

Scott Powell

improving extremely continuing and service And for about can Great. been prior and Thanks, on bringing on It to and day talk Obviously we vintage then our every pricing performance our risk, calls the to for Chrysler. business continued optimize in all And making more – on continues we expectations focus but more portfolio. to standards. what as focus obviously at consumers, dealers portfolio. really the pricing Good our performance feel good about one Q&A., our institution on our a talking just credit solid on front, and us that progress up origination for focus risk we’ve about with again, credit credit running well is the Santander regulatory time. that the aligns this things Yes, the performance good sum sort Juan financial quarter including Consumer in side very of credit our Carlos. as important, was

our So the track. we good performance. on quarter things about really And and are feel

operator. it So you, up questions. Over open with for that, we'll to

Operator

you. Thank

O'Neill. will Instructions] We Our question Chris Donat first from questions. from will for [Operator the come open up now Sandler call

Chris Donat

my I so or for it a I assume with if given that or thanks well, the just your Scott, – with wanted domestic, this thoughts on potential your ask going if might of question. new your what risk potential vehicles. there any to on got at you – everything for question. XX% morning, talk vehicle new new – too exposure originations on I is vehicles, point? were tariffs mostly originations of either is is affect quarter taking mix used just your of wonder speculative sort this And vehicle thought Good originations how but wondered

Scott Powell

Yes, question. great I it’s mean, a

trade how went if more of new and switched tell impact of are the the really tariffs to cars mean, it’s we cars. prime news demand, leap, price we're car little to prime up, it's mix Chrysler I that so early will new and us. going lessen newer restrictions to used loans a because certainly but the loans, bit cars But that lean up I going very it's keeping tends something side. Our towards of to good tell going early new on did yes, that's and you're right, radar to on the too focused too impact Certainly, But, mean, on. means

– I business. little going So – exactly it's too impact but early to for us tell that's how it's the to think

Chris Donat

up those and Okay. call particular just the in the affecting would other some the attributed And – out strength structured, penetration rates Is the you how finally follow incentives, you on to of are factor that or this anything there? to? Chrysler it any consequence is higher interest and of Is then rate. the originations

Scott Powell

working optimizing and we just say bring sales. Chrysler would to I with relationship, their at have very extra the team supporting continued to focus closely the on

initiatives, the on together, which bonus drove calls service, is which did dealer a quarter, some kind part, being work results. working what prior we for production. just more same working more incremental is little most it's responsive, better said But on cash the providing to So, put in those the producing of we

Chris Donat

it. Got

much. very Thanks Okay.

Scott Powell

welcome. You’re

Operator

We'll Orenbuch Credit hear from Suisse. from Moshe next

Moshe Orenbuch

good a vintage – coming the to bit about than auction gives XXXX confidence? mean, to over chart what of into one kind about whole XXXX of next talk results? what how you that top talk you invitation XXXX. little of the the maybe the to kind is kind you it talk hear And in close are on to better and the of of it lines Scott, see improved so? the that more Thanks. in that see you Is Great. Like performance. gives if is it we flow Could can you address TDRs the the or that you year on I give us the did vintage another. vintage confidence

Scott Powell

kick let back and up me answer. I’ll then Juan on it Moshe, Yes. this Carlos off,

I half, the prior vintages, than chart. First XXXX, a which vintage at and the that's both good the is XXXX smaller mean, a our in news the fourth of quarter vintage guess, drive, that on the full you're looking number things of year is will I vintage We bad did news. and which so

that, as continue vintage little tracking. So really detailed that improve granular we're the bit we're on to ages data perform more vintage confident first six months But it out understand level they're the versus may actually we vintages a how lot will a a at XXXX that look on just showing like because at and even chart.

if have and we strategies So would. to adjust we our underwriting pricing

look expected we when good performance feel that XXXX; the vintage, pretty So looks credit of as good. really then reads on our we quarter early about XXXX take the there. fourth at And we

to that, you Carlos? So something want Juan add to

Juan Carlos

expected the rest The comments to will And rolls made balances is that the TDRs. should we perform perform overall year. don't regarding have impact similar rates future into Yes, we vintage that other that that’s to on we vintages year the better, better. the it different roll expect right. year of The in of for TDR any full vintage

smaller impact TDR mostly will be be it from So on the it size. will mostly the –

Moshe Orenbuch

size. Thanks. Smaller

Scott Powell

why declined increasing because the XXXX. say to Yes, I our is year. the which vintage from Moshe; be of be should end just we going through would TDR the But then expectation was larger balances add, of coming through start

So there. that increase will drive the

Moshe Orenbuch

also? relationship little you in perhaps quick bit Chrysler just Santander expand for the you penetration as prime And on Could can Bank? accomplish the the Thanks. originations terms with new a maybe And it a what of follow-up. and

Scott Powell

Yes.

have. obviously a different they've got deposits structure very with funding they So the

– different than they is this way what So is group. one setup do in the we

the originate we for the books Santander group, loans directly. and our put Group. loans loans, – bank they're sell is The So of them to time short program, originating the on it essentially then a period

origination for So them. we and getting for the that fee are an fee servicing doing

lower use significantly costs, can be their obviously what in at have space. Consumer they we funding Santander to more that is which here So competitive than

very as So is banks. you for that be know competitive to prime tends space

So or for piloted we three program on four before it launching months July Xnd. the

optimizing the program to programs will run looking and grow here, And that we so space. like we just that for be volume opportunities other in

well-performing could and for then for so we bank And for assets us because they it's the thing the their to do thing it balance because and sheet. ultimately get on And servicing Chrysler a good good a obviously pay a good fees, originations. it's because Santander thing it's Consumer incremental origination allows more

Moshe Orenbuch

very Thanks much.

Juan Carlos

we year we as on lower on carry as will the this our well impact the prime for Moshe, simpler have yields much lower added those sale as books set. loss operationally or of us

Scott Powell

Yes, the for Moshe. question, thanks

Operator

We hear John from Hecht Jefferies. from will next

John Hecht

my Morning, for guys. Thanks questions. taking

that First, number across that one, a And mentioned is rising flow to through buckets what increasing you're all push increases state for this Scott, at means you I'm offset price you getting the to point? you competition? able wondering, two, number of more channels. not us rates tell the can credit that are

Scott Powell

it's didn't been. It's to as the Yes, always space as that less so just mean competitive. competitive imply I any is

battle basis. on the all focus on the risk a I've a the so calls, that lot on like, front. deal-by-deal to We've really as – brought to And continues of said understanding

loans in low. data changes building bringing high better more level models book bit a we or a it So and for – we're be are quickly the things that a alternative sources, adjusting secret into doing models, at using but would better doing be getting the job, sauce would adjust after little here, granular to like when

analytical So a we're bringing just space. to effort that more lot

applications are pull-through our up but well. as is only not up so rate and our our originations up, as then And

gaining confidence in ability are and dealers our deliver. to us So more

again, better. pricing Carlos, take and to progress good feels all Juan that reflects want we're making on serving And you side? So dealers on the

Juan Carlos

pass Yes, on higher ability clients. regarding to to the the rates

If trending it retained you at higher. see you look is APR, will our and that

the price higher environment and So we to for on risk adequately we have that rate been are everything. able board for

John Hecht

And a question question. – follow-up non-related that. for follow-up thanks Okay,

guys any have helpful sales the on would update anything be detailed us? loan the You with process book, unsecured to that

Juan Carlos

Still working we on and the to it, there. new minute we that, something will a nothing report have to convey update,

John Hecht

All right, you thank guys.

Juan Carlos

Thank you.

Scott Powell

welcome. You’re

Operator

next hear Micenko Jack from We'll from SIG.

Jack Micenko

Hi, good the morning. Hey, agreement. would Scott, are programs you on from words characterization – like in the two, don't quarters flow SBNA replace to in now? fair to the put the want side prepared your I existence going three a would Is remarks in agreement mouth, or sounded both group be – that

Scott Powell

of the the as the volume is space using group. cost funds to of because originate be to be net-net the But SBNA Jack, of sale that going flow exactly intention, program the loans that more program prime we're That's again, two to to kind in things replace for in those should better.

So an not an have funding ability loans more it. replaces had but we a got guess, describe We different should structure. the to because apple prime for apple, to we it, generate I it's

Jack Micenko

new model in work a sort come lease of different is the you penetration Okay. doing your origination uptick got products some that process? new lot or you on frame of And a got lease. then, out? and Or the you came Are looks like from in angle anything

Juan Carlos

well. good Chrysler the Chrysler seeing only more relative onboarding We has as our pretty that's seen it's a with good of that are lease we and performance about very partners. higher the the also do leases lease In feel the to Yes, off-lease benefiting. we're trends, whole. we And percentage where latter.

So that's really the key there.

Jack Micenko

Okay.

$XXX quick said real million for clarification, provision the million you quarter? guidance to $XXX next a Just on

Juan Carlos

On provisions I $XXX increase said $XXX is million million. expected to to

Jack Micenko

million $XXX thank million, Okay, $XXX you. to

Juan Carlos

I not Jack, other and the flipped Because guidance minute I to on total I'm going take asked you think income. since over me, go again. a

going to take I'm okay. the So opportunity,

X% flat million. interest in me expenses, expected be other In to to be on in we to flat quarter. expenses, Provision and $XXX the finance million expect So flat then to expected asked net $XX you to And total to up to operating million $XX to down income, $XXX increase better. million. be income about, expected we other just is

make to sure. just you. Okay, Thank

Operator

to will Eric Wasserstrom UBS. next from We move

Eric Wasserstrom

Thanks very and credit trends? the of about much. going strong coverage both recovery How the think allowance forward should we – given some performance

Juan Carlos

Yes. ratios compared number have of you fact previous allowance that Mostly, credit The as impacting noticed well. as a to well balances the levels. of have performance down TDR a but that's been the down is allowance as coming factors, clearly, our our function improved

stabilize. this are as go mentioned same, as TDR have forward, our we past, start They we've also as – think the think originating I about to I balances, Scott stabilize. talked in also reaching And out we're earlier, originations expect to increased. as the you allowance ratio

Eric Wasserstrom

with margin that run several finance low of I about in probably good moment, continues thank it higher just that rates? seems for the to in take out XX% base rate settled think higher over the a on Is follow-up a costs past funding net it range you. quarters, Great, could if the sort as And even to level. this

Juan Carlos

been increase the able Like it's for now. is I've been we've in increased very continues NIM have maneuver. up said hedging but been able couple higher a we of slightly, Yes, sequentially, to quarters headwind to be that us, a to rate previous through for calls, environment

So for think to the see in headwind particular I going time that still metric. we're being,

Eric Wasserstrom

rates? in percent or despite past relative this it’s that over the do mean because of of XX-ish by higher And remains level – headwind, sort level actually at quarters sort of it the to the improved you past couple

Juan Carlos

think I for sometime. XX% up improved, go Yes, to expected quickly don't it's but into back very

Eric Wasserstrom

much. very thanks Okay,

Operator

Stanley, Morgan from Graseck Betsy is your line open.

Betsy Graseck

morning. Hi, good

Scott Powell

morning. Good

Betsy Graseck

about to reserve with a how upcoming CECL? Just follow-up you regard the to the think that do

Scott Powell

it obviously a for Yes, be terms won't be in CCAR until It be gradual our presented of of it will part And we're waiting for submission, I think capital. implementation. [indiscernible] submission. still example, will XXXX

being So capital sheet we're to able strength terms the our good feel running time about being, but of we internal obviously the and rates of analysis, for balance just do. very in

Betsy Graseck

what not duration – higher You to book excess up guess more totally would capital, today? to to your you you here. and feel the coming a real even are reflect have that in than CECL question do extent little the that's amount FICO I incent portfolio significant so is does you question up of the ALR move average have the your to in move

Juan Carlos

not CECL for we're buybacks No, Scott moved just sweet spots, we're in not – we Betsy, haven't in remained as particular. our said. We our and underwriting but

that making not we're type So decision of yet.

Betsy Graseck

quarter recoveries wondering Okay and maybe recoveries book, continued given on feel how the go-forward you thinking quarters question recoveries. here over you or year? next strong about another trends there very you're here. likely I several the your in with see that that is you obviously Do – do I'm improvement just in the follow-up on just

Scott Powell

good now. Betsy, – really I we’d expect wouldn't they Yes, say are right

and So believe really in I I rates driven of better. wouldn't the for expect them to by get demand economy the recovery the the even strength economy. vehicles the

it's a So used new all-time with unemployment cars. that hitting of and really lot driving for demand in low,

we our talked be trade there given could to Is that think at the depending the that as are stay the a Carlos? that as up how and I strength Juan before upon tariffs But and stuff expectations for sit while are the our isn’t about down. today, we things here out fair this least level at concern. plays expectation or So a worry obviously economy. about And

Juan Carlos

That's that’s fair. Yes, fair.

monsoon that's rate. again there, seen to payment, which overall recovery we've And well, recovery continued which speaks all-time also – also monsoon book right, On also on the recovery. trends support to the good We had class economy… remember

Betsy Graseck

have – car the allowances that, you likely prices of of in mentioned, your an and for beginning get flat at are I price be and or recoveries I plus to if totally call, assumption what anticipation to in Scott, one heard your you I the that auto know price used correctly. two

of over So persist is versus question? delta the expecting in there your what prices car the I what’s that's used guess, next should now underpinning flat between allowance that the of embedded plus of to couple you're quarters, a estimates there

Juan Carlos

there allowance, variables that into In our many our going are allowance.

particular that haven't made component. any significant We sense in

is no… So there

Scott Powell

any assumptions. on future performance actual the on based based not It's it's

Betsy Graseck

thanks. Okay,

Scott Powell

Yes.

You’re welcome.

Operator

Barclays. to move DeVries We’ll Mark next from

Mark DeVries

recovery Hi, had horse, to thanks. but I'm not I question. a the beat dead

the what a So are auction-only disparity pretty the and substantial sustainable to drove you was hoping recovery How of benefit that? you. the do understand auction-plus drivers better I the widening rate was and to think obviously between

Juan Carlos

deficiency, Yes, charge-off success And like also example, in in post for recoveries we're with dealers. recoveries well. recoveries the more initiatives as having includes

year. been sales better a than it's than year we half anything been good for But around So it. specific a the pretty again, the of anticipated. don't half better see first we – the And of the expected during changing has trend

Mark DeVries

Thank it. got you. Okay,

Operator

JMP is your David Scharf Securities, line open. from

David Scharf

wondering Good morning, taking in questions. volumes just Thanks in into year-to-date. Scott, really strength more you. the thank digging things, Two little I'm for a the

streamlining on you things wondering little couple a for process, that. noticeable or the examples the few capture and making calls, in support provide lately underwriting can if have You of saw tangible to any a mentioned a that whether I'm dealers. better change not rates of you

Scott Powell

above, David. the Yes to Yes. all

to – nice is that are capture up. dealers rates APRs because is see, rate and up reflects confidence up, which I reflects think capture are that our our or So

make And by we with We’ve actually then, program thing did overall better our and and easier implications to you to other We’ve our important find And auto improved them. region. it our certainly on makes just is which for ability a give rates their dealers. reflects that deliver to the enhanced confidence dealer credit our we underwriting decisioning increased give for for we you examples. management receive, to teams, few then So them that up – dealers.

So that a few just give we’ve you to regionalized our underwriting examples. teams

David Scharf

A for rate, JCD. the the XX% than then year was full I guidance that follow-up, that's maybe ought believe you that how higher year? The thinking us the can in question helpful. maybe for to Got tax it And rolled actually be about out. cleanup a for came just it, update noticeably on very we

Juan Carlos

pointing for that Dave. out, Thanks

the to You’re a states catch be still and one This we of state their higher up one-time expect XX% we quarter as right. We tax it. up than particular how for slightly applies previously. catch indicated tax on there rate was

that one-time front. So a was on it deal

David Scharf

it. Got

So arguably sort a tax be effective the you should below rate think? second of XX% little half of bit

Juan Carlos

which past. We guided higher expect XX%, what the slightly be than in to we’ve is it

David Scharf

very you Okay, much. thank

Scott Powell

You’re welcome.

Operator

Janney. from Rowan John

Your line is open.

John Rowan

guys. morning, Good

Juan Carlos

John. morning, Good

John Rowan

if number if I'm a for Thank recoveries. mitigating think opportunity to guys in me enough impound not, so made kind wondering I story is it – these have that there question. you. strategy if you’ve pretty that or is questions a significant I mitigation other states? auto whether one it Florida. impact to if and think a There more you our was had to any had of that specific losses about actually I'm guys, about move changing papers or and you in of wondering industry

Scott Powell

case, the on are – Yes, we do got and on servicing that those and – we But I'm always on optimize brought one. origination not I to in numbers. Juan the Carlos And for supplementing have ways and in been article. improving side collections good thought sure specific and team talent recovery I looking operations knows. specific not read you what have sure we we operations really everything, they do side. guess we’ve just but and that I have they a the – I'm maybe rates

our So not to game back are are optimize you might have there little that and process. scale on we looking us. up one, improve needle ways every that And sure way. we're is for to huge – to But get the if our even on and make, important they on But one. constantly moving a we to

John Rowan

about car much there Basically for guys number. but the just guys quite pretty then talks overcharged completed. when I’ll that material. and I'm article, sound was of a It to was fraud. you referring article bit that's it it said, repair I never that you again through The actually abandonment type was real money, you’re of was a curious acquire basically was a send like made this

Juan Carlos

Not specifically, I try for initiatives where but to you I the some talking efficiencies. dealer recover those mean, are about of was

but So made progress that, we to of specific lot it's a not article. have our on

Scott Powell

get material we that would is. how on back certainly to you But

John Rowan

you. Thank Okay.

Operator

Autonomous Please ahead. Research. with go Elliott Geoffrey

Geoffrey Elliott

the paying for Thanks guess, between you on got earnings your buyback how see it morning. Good that. repurchases. about of arrived surprised usually, taking dividend about was volatile the kind in interest decisions split question. out particular, and dividends, to and made companies the I capital, in you thinking the think Could I you and more and in split in at share less more you talk then how with

Juan Carlos

that also in more said, us or you Yes, get that progress with share past we’ve we a we submission. internally. or this the have type we to to We then, us in line went – and overall buybacks, in capital do also happy then the to considering few have particular our of $X.XX discussed the let's dividend that made more capacity the way or very with for including stuffs things, of we it's we submission. the have case, within let's SHUSA, to of remember market it and as consider payout. have that important – when that And in remember, operate the it but gives always feel reasonable, we first overall more this past reach it before, we're capacity then, dividend do the submission we here significant analysis – trying say, payout all, the discussed frame In capital a per of was And number own amount we normalized. of

the all significant significant terms So in arriving improvement of total a it through impact, at shareholders. payout for

Scott Powell

some I issues we but have to the said progress, great out where capital our includes closing part had was this made with agreement, come confidence we to-do – we've in Geoffrey, the And think may of given good. Fed specifically is regulators. the of sequencing events the XXXX And there actions building list, related with and prior to on regulatory think from calls, I I respect this our

described us our credibility against And process year, sense. right. this If plan you of And continuing can is that. regulators. Carlos that put the backdrop of got approval is we to the that a the reflection Juan think makes I so with And capital good

Geoffrey Elliott

it's one into statutory you that? extended. that recently. Can Thank And It quick then explain you like to the exactly are on of you. be doing Chrysler; why agreement allowing limitations sounds tolling kind a entered you’ve

while? drag So does advice that a going of for on that to this kind is

Juan Carlos

in both speak you and of ensures without the extension group. the December have to discussions just agreement free tolling under that to okay. compromising doesn't tolling than that And could Master SC FCA parties parties changed amended agreement, adequate. It under agreement, or the any that. anything XX both rights seen MP date both it in might LFA other carry The ongoing was is The that the the [indiscernible] exploratory the to the be are – of on

Scott Powell

to very same think tolling the about partner FCA Yes. talk candid for open and we’ve just lot. Master And our about performance have And that important discussions we I the very it's provides at those under contract. that been spirit. we about it That agreement – discussions in continue with a

Geoffrey Elliott

you. Thank Great.

Juan Carlos

Yes.

Scott Powell

You’re welcome.

Operator

We’ll move next to Steven Kwok from KBW.

Steven Kwok

questions. for my taking been Most Thanks have answered.

CCAR question around following on up the the last processes. Just

of you into next the still to we very that about $XXX raise? given where most It building your returned asset are think we the of it capital CCAR. strong should couple percentage million returning capital how despite capital would capital next the ratios, handing the As your appear and dividend recent plus that's years out look going to of

Juan Carlos

Yes.

progress. process although, to the from continue we is with program. within the more of company to make before, make progress have to Clearly, for but that to this and said to capital, we growth. regulators. inaugural points internally able always expect framework right, and I milestone to due very It's continue expect important have hope okay. As continue make buyback We increase that the this to a us. hope but quarter progress, you we might through down and was that's go process, But noticed the accrete sequentially XX we you're was capital This ratio the have that branding basis a payout, to to tolling capital

Steven Kwok

And take relates ratios, holding perhaps the CECL? Got guys impact to just capital are it. a buffer you it in as to account from the around CECL

Juan Carlos

sure but said, the me like I'm that's moment. but They No, the becomes that analysis, And time, still have if soon going into submissions. NPR I we at asked finalized into not case. the submission, the any the incorporated think, have we come in somebody planning. future I obviously, made this CCAR – the more will no, at if into

Steven Kwok

my Thanks Okay. for Great. taking questions.

Juan Carlos

Sure. Thank you.

Operator

We’ll Jaffray. Piper to from next Barker move Kevin

Kevin Barker

and what been this of Good down score in remained appetite appetite your morning. XXXX? I far your risk was in type so any year quarter. strong yields FICO willing this or underwriting to the relatively noticed has take Is what you're there versus the change

Juan Carlos

Yes.

are example, the regard. yields So with TDR okay, of has couple up a balance, more TDR but interest the in are the for on up, down, the non-accruals, EPRs things. that – to but of average is APR The impact do that the the

that able to and So higher rates the been the price adequately rates for we're we ongoing. for have

Scott Powell

a and of those hasn't looking an spot is, that our trends, that pricing say. changed or goes our and important pretty question it, at we up general your looking our part But of those, I'd look into just it. answer The credit to short kind would at box, appetite to within – risk risk. haven't FICO stable there optimize sweet And I down that Kevin, is FICO say always over assessment lot good one the measure at collaterals is a way of time.

Kevin Barker

in time of XXXX TDRs migration. from of I last to this that XQ year. the the the some Okay. regards percent And of noticed below XXXX the vintage is percentage as in then in TDR TDRs XXXX

in than better And that the to by the compared of XXXX? Was you’re has performance less see you’ve this appear beginning ages XXXX would changes of to the so servicing practices implemented that vintage XXXX? migrations some and TDR credit as impacted vintage XXXX XXXX it starting

Juan Carlos

In included of XXXX line calculation into we specifically to the the the all that, – average that entire should improve. where curve any XXXX expect we we More already the supplier. into year haven't TDR compared seen the there. the regarding what the Scott the to asked answer maybe alluded XXXX, to roll were is we before two-part presentation in the that TDRs in difference from vintage to rolls, have the meaningful with rate

a you But there. the true that bank full is better on XXXX in the health. it's to issues vintage, are of XXXX right, early see operational performance. originations we that the had should So included meaningful metrics. – nothing performance in In our that the regards saved of We year

Kevin Barker

Thank much. you very

Juan Carlos

Yes.

Scott Powell

welcome. You’re

Operator

this would for no are There Scott comments. at time. questions over turn to final conference the Powell further to like I

Scott Powell

and for to questions. to Thanks for appreciate a obviously joining We'll We Have Thanks and interest you speaking very good available good everybody follow-up Great. we forward very the day. be the the questions, again. look call. much.

Juan Carlos

you. Thank

Operator

does your conclude you today's for thank We all That teleconference. participation.

Santander Consumer USA (SC) 25 Jul 182018 Q2 Earnings call transcript