SC - Earnings call transcript Q3 2018 | Santander Consumer USA Holdings Inc.

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Operator

Good morning, and welcome to the Santander Consumer USA Holdings Third Quarter 2018 Earnings Conference Call. At this time, all parties have been placed into a 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 thanks today’s and for everyone morning, call. joining Good

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

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

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

listening few as call For full a website, now Scott? turn for presentation there the to as I’ll slides those well as webcast, of supplement Relations user-controlled Powell. Inventor as to are Scott you And well on the investor today. a over a the

Scott Powell

morning, Good Evan. everybody. joining the Thanks call. for Thanks,

the first addressing in off by the issues accounting let me we So press that start release. two highlighted

important the changes material material. is together that point neither are not of they the are here and again, So

of So are made were and revisions correcting XXXX, so those back the to errors go January we they and that we errors.

portfolio. the The first core item status fee past determine only partial the for portion treatment that is our regarding payments a of of

an as is explain and happy through just when of again, quarter further thorough will we have by give And we back XXXX. increased quarter we go our in million. that’s will relates number a you XXXX, second we’re certain Juan And would And the $XXX case, income in on Second, how complex. the accounts. at reported look description the it apply the which Q&A, to first to then presentation, little if nonaccrual not of a change and walk-through website, a you to the net numbers second example, because those and detailed show very have you certainly the obviously, against his revised material, in as and for we of second supplement play our changes a the TDRs going $XXX,XXX. a payments the status Carlos But

the just impact So to you. a bit put for the of in of context little changes

our So talk about been had business. the let’s the the the because feel the and year. underscores X turn reflection it’s quarter. good our again, of course about the continues that we’ve the initiatives of that to quarter and and a had strength is over strategy We we results And business, And that theme we – last strength same Slide performance of producing very the working hoped in a for. third talking in

million totaled third of income a $X.XX year. which last XX% or net is quarter So share, up $XXX compared to

the past, return-on-assets agreement was up from very Reserve that We’ve agreement in XXXX that’s in Federal Our the agreement. XXXX. a front, August. talked of in the terminated the quarter on X% And the third X.X%, written regulatory about is comprehensive which

row. now kind the of the also the is year. passed And XXXX that test written the momentum last And termination years we of example two Fed’s that in of have. we the feel So we of termination stress capital builds agreement another on have a

we good that. on good momentum, so about performance really front regulatory feel solid So the with

the we fourth plan, million $X.XX quarter. front, on continue capital dividend for we’re repurchase our and the On declaring execute a $XXX to share

the can see respect is can you a billion look to very from. quarter, third there strong been total our The in XX% six originations, us down and with above has and our for partner, see, months, streak at was came segment the over the XX%, last or originations important Very penetration $X.X rate very were Chrysler. which where increases originations. for importantly, Chrysler you record Looking up

that progress up Carlos the good Juan quarter-on-quarter. balance really we as will XX% So well. growth about SBNA, at mention floor which is plan

So business Chrysler. progress supporting the do we good at that’s also

with our includes We million first almost part In that a again, launched And $XXX new loans. SBNA. XX% also flow program, did prime of Over very for program support quarter. the that we important our of that’s in program Chrysler. Chrysler

on continuing do are So improve us. service Continuing to we’re said, with for and easier follow just just which initiatives And making we funding we underlining strong on streamlining means to as dealers, our to dealers business I processes with it discussed seeing the prior through our and performance. calls.

We continue to be expenses. very focused on

our see then you going we you improved it, it’s kind last if of on that’s expense if there, a can feel strength year. our then, at of you core ratio apples-and-oranges economic underlying to for And environment. we steady our but good from really There’s about essentially see, strength of very as expense ago. Again, our performance. of ratio continue a have normalize time to compared a business. on You to thanks risk the a lot and and management, spend for operations can year flat overall little continue focusing part the risk look to we credit in credit, pricing And just

little that XX- basis lot were by a was the point been normally out to of short-term to see points. last So were the it it than did XX-day that hurricanes. XX our ratio I providing will would affected increase relief a lower because people year just have we you can

have it bit So it was a last lower otherwise year’s lower little than – than a bit little would been. is number

So whereas points basis quarter. auction-plus XX improved rate and very XX ratio recovery charge-off basis points, by to XXX the importantly, by delinquency points, the in basis decreased our third improved ratio XX% XX-day plus

were $XX Santander charge-off You benefit ratio being basis can from then, our And see points. we Group that net U.S. by part net charge-offs million decreased down Santander XX and do and of

we That the last of Group. did first with program is I being program. feel was the And – transaction flow quarter, just mentioned now that first include, about again, by really Just fully we replaced XXXX. a $XXX our good couple originations million the It examples through for in SBNA. of since transaction that the the sixth

the lower They macroeconomic very unemployment, low had have again, their expect their So you feel strong then, about to are captive a and down the through with Obviously, discussions alternatives, we and on – assess in Capital. and continuing a we And answer, as are quick sure we partnership company continue. finance Chrysler economy, the this talks word guys is floor SBNA, well. with environments. so I’m about good U.S. auto floor your taxes. which the also benefits plan of guys that is, plan you where Chrysler Those

for good we So in our lease used performance. to and continuing see for reflected cars. are for And demand cars very that certainly, in our and is strong new demand used cars recovery also demand rates

a of of as also impacting lineups, think cycle, cars. – vigilant shift tariffs used their to the interest of – are that length so and disciplined thinking price strong. value credit that more driving rates about how to next then we’re it manufacturers We seeing happy we’re some manage when and the are the I comes environment about continues is cars, for it’s very cars, would the demand certainly used to be this we the cycle credit through do

about to talk on more well. Q&A the as happy that So

over to it turn Juan Carlos. and there stop I’ll So

Juan Carlos

everyone. probably of remains business, environment went I our Slide supports well our robust. the through. turn most If remain for Thank okay? economic the and originations good sales performance, much just business and you, strong we and Scott, that remains to supportive and steady, indicators some which slide Scott the the overall is macro influenced what morning, pretty market, is The Auto X our of credit think confidence, for reiterates GDP important consumer as job

all, for vehicles. in all points So a and to healthy favorable everything new market

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

good we’ve performance to mentioned, and our rates recovery and As auction-only Scott auction-plus improved compared quarter recovery a year. last this QX had

improved from quarter of of at experienced year. particularly rate payments of earlier last outstanding in across lead time normal lower auction. during to recovery notably year. lagged which auction-only average at given the is this the seasonality at ended XX.X%, end the experienced up QX have this time strong, year. XX.X% to We’ve This higher at Our made segment, vehicles, continue performance balances the most repossession loan the Sedan Also, the

– QX a comparison to which well, performance auction. seasonally We is is next at from quarter, constructive weak quarter QX, For a remain XXXX.

certain in in between recent this Our bankruptcy include year. more periods, XX.X% opportunistic quarter’s auction-plus insurance, smaller recoveries, and quarter quarter, deficiency is as recovery rates, XX% the auction were from up the sales regarding the quarter. sales and last delta recovery auction-plus than were The portfolio proceeds, same delivery we and which

is This the strength. X, with Slide increases. consecutive to our year-over-year Turning originations third quarter

increased compared retail to in Our a originations year versus quarter. Chrysler increased loan loan than quarter, greater a and the XX% compared quarter the year last established with growth originations XX% channel. prior These SBNA auto from originations be expect FICO future FICO strong, from the continue XX% Total benefit to prior channel, originations strong total core the capital less to than year. increasing XXX newly we do XXX QX to

to is are following quarter continued the originations dealer and our well to and the As season diminished, customer our by results we benefits steady seasonally of risk as pricing for this tax our reminder, a a enhancements quarter’s quarter weaker as efforts third optimize auto encouraged experience. credit management but

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

to Turning Slide X.

FCA full-spectrum for the the quarter floor and marks quarter. volumes increase This loans, quarterly XX%, to in we of year and Chrysler across XX% our leases, more, the capital penetration with from rate third-party our lending plan services. quarter penetration continue across prior loans With or a and consecutive average was the lease, optimize and in up servicing XX% rate from second platform

increase plan, and relationship of floor increase value in SBNA offering. just of to as assets balances dealers. to than alluded Scott This This largest momentum SC of the dealer part both due that are some both larger is quarters good FCA with of remember quarter’s this, overall plan our to FCA SBNA brings the prior in floor and

FCA reiterate continues dealers and we make. Regarding on in ongoing on capital serving alternatives remain stage, do plan discussions. focused to their FCA, update a for building at on assess for the we this the in progress customers FCA and We have okay. I’ll not those U.S. further

important Slide strategy, generating to fee servicing continues to our Serviced turning quarter. X. this of in income million others be for So an $XX part

Santander the in the million with During platform SFO we the our agreement Bank. quarter, added via $XXX originations to

what Group, conclude should that million the final flow Santander than Additionally, completed Group. we expect adding size sale expected. be flow sale with smaller another Santander And as $XXX previous we to the deals, with

become to SBNA remember originated last we more through sheet of mentioned quarter, the flow balance a loans with but servicing we instead, rights. the not sheet our balance also touch we from with program our the And retain SBNA Group. As replacing efficient do expect source collaboration funding, that

So items color to remarks. let’s quarter. the through Slide to move our some the to opening provide numbers, further referenced as review financial before I’ll during walk I results the X, for And the Scott that

said, we by tenders not Scott in prior As made the our And revisions XXXX. statements material. to were financial on driven calls. decisions are we January we implemented tenders The cover or back these corrections earnings were

treatment loan book tax that in disclosures. interest minimum should means would We core monthly Remember, The of nonprime core core for prior be considered error Auto a originated borrower okay? first, reported nearly to to at partial threshold. book. all expense. delinquency current we – to provision So the a past we payments. the year’s account borrower, for and regarding have XX%, and XXXX, Chrysler to if threshold. payments we impacts loan payment In XX% core loans ratios, in a immaterial XXXX, of XX% corrections XX% income changes the are This used moved payment different season XX% our The loans all as these that well, of moved reported delinquency

loans were we loans as to related nonaccrual non-accrual XXXX, Prior principle. when made XXXX, to when we and certain placed delinquent. to they classified received payments tenders change second those additional in applied status Beginning XX%-plus TDR non-accrual was all to on TDRs place we loans from directly The on status.

no tenderswere quarter, determined line. that management the with and in bottom to This them reversed those error impact made

they will when Going classifying delinquent. loans back XX%-plus are go forward, non-accrual we to as all

again, And So this financial Investor a posted supplement the details. website our immaterial. on Relations we more change of impacts with are

can see expense. the in income, in As is which supplement, our an financial you entirely is offset interest there increased increase provision by

driven points, derivatives, the by offset year. other $XX that period pool in gain mainly continued $X and Net prior quarter million interest already through XX% Interest loan which good this on that and the to QX balances. income higher legacy swing off-lease corrected. during year quarter income on in It’s decrease charge-offs including portfolio, and So quarter leased for approximately on we think of versus during we Florida. delinquencies by go $XX growth between and million last comparisons. okay? million year-on-year million higher have were the $XX expense $XXX financials now increased The million, let’s sale interest onetime credit market very increased Slide million quarter, to a reported million operating the quarter year-over-year, our pretax balances during financials XX XXXX basis year magnitude loans of by market to included period, important the XX and million performance. during the prior customer areas, the point So to and QX various Slide If the would QX XX. provided relief, XX% was year-over-year of in provision XXXX, decreased sale RV/Marine was partially that $XX mind about QX is gain that due the to we XXXX. for Provision other good primarily in customers resulted expense by expense for been comprised And while hurricane-impacted same income increase of related still our of million the Again, decreased to in quarter, quarter Net in income average late-stage of lease versus RV/Marine move the for vehicle over increased Interest of up million, was $XX income sold $XX held-for-sale again, in on points. finance increased compared to $XXX due I’m million Versus favorable the year. of up which we XXXX. which an X. rates losses in Keep in Total QX. from from discount. remember the assets, QX which in $XX $XX a personal of adjustments early-stage million. extensions This view. in gain last $XXX financial total form slightly higher receivables QX impacts Texas to lending delinquencies driven basis

in We have States those stage customers a concentration delinquency reduced in the high earlier and overall expansions of and QX XXXX.

QX We also XXXX. experienced hurricanes during

were the exposure impacts to terms XXXX. significantly than Our of and less severity the the

the last now The last basis points XX.X% from QX ratio ratio year. net slide decreased moving So the in to of X.X% portion charge-off decreased the of basis QX bottom points RIC from XX RIC gross charge-off on year. XX quarter of losses. The

better Okay improving year-over-year recovery due rates, RIC to greater to charge-offs in so, which the million year performance credit turn if quarter XX for to offset to dollars; net we balances. Slide decreased review million versus prior loss $XX $XXX figures and

the components from lower walk better category, address to recovery the $XX by right, is due in we the sales net $XX loan million rates period in The me a and opportunity year losses quarter. a versus gross the million for other to lower beginning the in therefore, let prior charge-off million $XX million balances the to left charge-off average rate. result of Then the lower debt with $XX increase have over losses. losses same greater and primarily just of due higher balance increase So lower driven

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

XX decreased we on quarter-over-quarter. balances TDRs. correction So balances non-accrual we Slide It TDR million longer to more the TDRs is we’re no turn implemented to as important for those that to because than to that note an a update principle. TDR $XXX discussed, the increased provide of payments applying

revised remains. balances is interest provisions, numbers the which trend As with the revised income TDR in offset – dollar-for-dollar have the in okay? increase again changed, But the declining once

X% of million, prior Turning the management. was versus disciplined $XXX to during period the occurred This a of and to XX, quarter items, totaled expense primarily a decrease this expenses one-time the around decrease attributable few quarter Slide year. which operating last year same

ratio prior So from X.X% the quarter the down totaled for X.X% in year quarter.

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

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

to plan, on also we to during previously During be declaring repurchase paid share execute our announced began $X.XX and the period, QX. we’re dividend a

to the turning financials comments impact to reported My will otherwise include our personal and QX of for unless lending. Now noted quarter. be guidance the relative will fourth

million $XX in be balances. higher million corrected that fourth is driven other lease numbers finance the expected might expense well as net up X% expense, to. provision why $XX line look to finance So base to with quarter, we primarily and increase in other by to interest now that’s the as interest Provision and income than remember and and loan two used patterns. net expect X% figures, higher the off are you are of income higher seasonal And these to

income, to of fourth total moving other expect $XX quarter quarter Keep Bluestem is to million total we that $XX in held-for-sale portfolio. Bluestem. be normal expect, strongest the We the seasonality other worse, driven income by volume for mind the

mind of XXXX, are lines. from QX that to further, variance gain these the on million negatively impacts So I And RV/Marine the at during we flat in loss are patterns, comparing the total adjustments, looking like when earlier increases QX expenses as other onetime okay? to gain so with before QX be lower $XX expected the keep and that was worse, year. income substantially to in it Operating cost-to-market you’re there investments, stated portfolio, call and this to I’d XXXX begin line Scott. turn back to Q&A, seasonal And

Scott Powell

Carlos. Juan Thanks,

things in across strong a all third good So we good quarter. especially, Obviously, to channels a think sum and we’re after position originations Chrysler. up, strong

calls, being for We’re pricing focus our continuing regulatory large financial continuing of talked on just front continuing are and Santander Group and lots our institution things to that U.S. experience to dealer is progress optimize on benefits of like, the prior which management Santander and and to part I consumer about say would on on we’ve Santander just and make U.S. realizing And, running and at results continuing again credit the Consumer focus our standards. risk

let’s up for said, open that it questions. Operator? with So

Operator

Hello.

We follow-up question. up one limit for one you. now and to the will questions. open yourself Thank question call Please

Please John question first Hecht of ahead. from go our take Jefferies. will We

John Hecht

kind trend in you’re improving how Thanks will related does channels, desperate benefit that what across of, factors morning, evaluation I’m the used Good you that and for volumes for, of wondering question. persist you are guys. to, versus cars. Scott, partially near-term? guess, and talked the about, guys the looking I long relative how taking new my

Scott Powell

demand shift car new? more the mean so you to used John, than

John Hecht

shift, yes, the Yes, relative correct.

Scott Powell

new used a we’re mean, cars. I in significant Yes. both player and

obviously, that performance relative of as It And we’ve so, to but portfolio it’s improvement little lease and seen values. bit residual the a off not lease, cars as said, a our a we’ve recalibration, has significant impact recalibration. come on significant of

to more the as in trying especially at But so, space. do to And side, change on new we’re opportunity Chrysler. we used car doesn’t it that what the look respect with car

John Hecht

Okay.

Scott Powell

John. wholesale or a anything little like a a that. bit in Not It’s strategy like of shift, swing

John Hecht

call carved on term Okay. volume wondering terms in where the tied And capturing are, you’ve improvements out then, kind of lending if your Chrysler in the what performance obviously, I’m of various of, the in to in business, core business, you it the to at some and look loan channel. value pricing are trends increased subprime the there? information you channels

Scott Powell

– pressure have experience mean, and very very we a lots subprime as a in. obviously continues space especially lot of definitely always upward is the it’s and space. terms. history, operate for And are you competitive I good consistently mean, say, we the us very I the there’s – a that news of that, Yes, be to Yes. in trends LTV nonprime, on competitive,

for customers us think going of any in – are lessons be to I our thoughtful But I of cycles, always there’s was is point, now at going really last to this To we start we the when their through given with a this opening past do the should it of or the the really your longer no cycle idea pressure way, have is booking times, we’re significant what having and couple couple haven’t best, the that. haven’t time but been to profile to made turn terms. about what we things saying – this thoughtful there. years. people case, that credit this going length we is we’re do any remarks, really when time the that’s And over happen very is stretching. focused be made We shifts that on really the be say I to yes, LTV in of And in as all that think, when the of to respect not

Juan Carlos

that, sure to the Scott. during continue price Making that to risk-adjusted correctly returns. Maybe right we to add

able customers. been to far, we’ve along our So the to pass higher rates

where that do So continue appropriate. to

John Hecht

much, Thanks guys. Great. very

Scott Powell

You bet.

Operator

Orenbuch go ahead. We of our next will question take Credit Suisse. from Please Moshe now

Scott Powell

Hi.

Moshe Orenbuch

give kind good bit, morning, and just hi, about how of, how do a SBNA on how – parent, program of, update that does think like, little guys. and large Could kind your – an Scott of you, over the you that? be could us time, Could Great. you

Scott Powell

Yes, talk that. happy to about

it’s is, not competitive thing and funding the able they beautiful – this And they are have, a it’s provide in with parents, to more about the rate prime of much deposit really space. So SBNA. course program leverage

And so, it are are loans you is engaged parameters, of much the buybacks, the very will. they originating and credit – credit we in if definition their with

So through the to are them bank-type that flowing assets. assets we’re

And so, the program from did about that. it quarter, will $XXX we million the think in a bit grow

think really really crazy haven’t any and grow it’s Bank. on do laid program defined that growth the from plans, by point, We as the we credit but we buybacks, the will starting refine

depends credit bigger. it we get – hopeful But So their that it we are do on appetite. will

Juan Carlos

thing, more one Moshe. Maybe

agreement to flow will SBNA, Santander the remember transfer SBNA, flow we balance not with and that move sheet. with or once program As again our Group touch those assets

SBNA, that quarter, the the paper right? to be during the also it prime goes so the through solved later, to we growth Now of in pumps, noise see will won’t in okay? straight only So some remove

Moshe Orenbuch

to, newer kind prior. of, the think from still we vintages? for potential Got the from dollars should improvement – think flow, a the down are quarter, about some think ability talk this about the two-thirds very, you bit And part should and little we kind just XXXX of, inflows Like, how it, to, very solid I work maybe, the about and had that and but TDR of how thanks. the

Juan Carlos

we trend had remains. in think I described that the the Yes, past

at vintage for a this point, okay? of part Our earlier, through downward XXXX one through, that thing you in TDR balances a is, be mind just expectation mind inflows as lower package, of remains. the no to we’ve some nonaccrual expectation, described that stabilized right? expectation because will have – that quarters Lower starts trend principal decrease flowing described At XXXX, an TDRs. keep lower One vintage, to for there a the the payments we XXXX, into to that we thing before come. continued regarding early the is larger XXXX in in no, of corrections level in the because keep past to So right, the maybe

it So the okay? in remains it bit trend than should steadier be before, place. was little a But also certainly,

Moshe Orenbuch

it. Got very Thanks much.

Scott Powell

welcome. You’re

Operator

our of ahead. will next go question Sandler Please We from Chris O’Neill. Donat take

Chris Donat

Good morning. Thanks taking for my questions.

Scott Powell

Good morning.

Chris Donat

wanted on expenses. I to one ask

expenses flowing twice, offset, you’ve two need test less agreements originations see if and you about be Just should trends? as cleared should on thinking we now? on of downward Fed look what terminated or capacity next a at potential do like you expense we any couple years pressure As the stress wondering the

Scott Powell

Yes, Chris, the question. for thanks

I them to the case, agreements the areas been any But no, doesn’t reduction in this less stress we think testing, did Resolving overbuild out Reserve. to like stuff address well, infrastructure you the two place. in risk I stay much management, infrastructure – will related legacy built written have drive the written know, agreements require regulatory capital investments expense places didn’t with that in Building would opportunities. Federal expect, we compliance, the like that and of that. has

we holding also remind – includes no, we’re one directed yes, overhead Santander written on the too. you, on but company it’s increase. Fed was of be which it also as news expenses. agreement have – So especially a doesn’t But do for an for road on Consumer. agreement but there we to have opportunity at we great, It’s with you also XXXX just compliance, the feel close out. then, rise no, can I don’t like expense continues expect the And the And written to to we’ll disciplined, right do us. think more obviously that reasons, originations the volume business bunch servicing for trade expenses the it’s And very and to great

Chris Donat

Reporting for thing? GAAP is you impact I’m affects Okay. is a or And if parent? to Standards with there just made my financial to for errors, as follow-up all International prior this just to Financial the the then, up wondering JC, corrections any this the flows things it

Juan Carlos

to is immaterial GAAP then, say determines priced earlier roll reported reported. the if as – immaterial it’s group apply And for that up us, correction we a even – as certainly, less us. And them. it’s the So to a how the numbers this accounts, we for

Scott Powell

Less material, yes.

Juan Carlos

even for it’s immaterial so Sorry, Group. us, for more the

Chris Donat

Okay, Thanks. understood.

Scott Powell

bet. You

Operator

from take We of question next will Richard JPMorgan. now Shane ahead. our Please go

Richard Shane

Hey, for my guys. Thanks taking question.

Scott Powell

Hey, Richard.

Richard Shane

with portfolio XXXX we off see the tracking that time, we same curious, vintage we ask XXXX chart going a performance. the XXXX – my on Should little really at find and quarter XXXX in and more which that also year-over-year seasoning the vintage pool out is and is flatten was bit pool of I’m XXXX, a the curious to credit One curves, the vintage. now, sort basis where driving I’ll second that pool follow-up of, and is was couldn’t with I’m line of tracking sort saw when charge-offs, expect curves, I’m the the rolling forward? vintage the

Juan Carlos

– XXXX, and XXXX that before, remember we and the of, continue we QX, the our so remains expect volume. it way XXXX kind was go a expectation the as through we ended initiatives Yes, it and XXXX in lot vintage described the were, vintages. between the to still of as right, year, come the in we’ve complete pricing Especially, back

XXXX level, in we you is line and the terms described. dynamics forward, – the that as correct. ratio ratio, to continue expectation, start stabilize expectations should our of high think The to between comment I drive because in in the also the charge-off in a downward vintages. XXXX that trends at that come your – of think The will that will our chart So go the I

Richard Shane

much, you guys. it. Got Thank very

Scott Powell

You’re welcome.

Operator

from will of go Arren now ahead. We our question Cyganovich Citi. take next Please

Arren Cyganovich

Thanks.

Scott Powell

Hey, Arren.

Arren Cyganovich

been clip ask steady just nicer I to the about penetration ratios, here. have wanted they a at

that ratio curious there see that XX% their leading rise do Just the to you a further. Is to – factor or anything can any higher? seeing right as into what to

Scott Powell

especially good to read question, hard a it’s you’ve contract. going quite Yes, It’s I’m be to sure honest. to it the be higher, push

always it take higher. We’re for looking opportunities to

year, is is You and we on. feel put at in about side had leases growth volume great The look the really we very competitive. we’ve this good that which lending

– So absent keep dramatic any it’s to partner, chipping additional – away support from see on hard dramatic we’ll it. our

away to the ago expect to increase of a that we’ve XXs see But year-on-year. in today, I from bit we able – continue. from of So improvements. to But year absent improvement will little the of where were wouldn’t I wouldn’t again, we XXs keep put hope low kind better. up going and try into yes, the to changes something we Chrysler, would it and low slow chipping steady expect would But support that be at a terms maybe. kind that I make from improvements

Arren Cyganovich

you. Thank

Scott Powell

Yes.

Operator

ahead. our KBW. question Please We Kwok will of take go now Steven from next

Steven Kwok

Great. Thanks for my taking questions.

as about one into Just fourth we used ends XXXX? Can the you the look expectations around prices. your car quarter just first are in just talk what

Juan Carlos

Yes.

obviously So in had of used year car particularly, strong we’ve terms very summer. the a prices, very good – and

and will, normalization, because As from softening, Scott some it’s performance softening support car about we mean expect should And of vehicles, if okay? a have we for QX, are you a we it even today, some factors and the prices. would regarding is but in some performance, good where year-on-year we industry still beyond used the still seasonality. then, terms just steady we all as normalization that talked still used relatively if move factors that, into of cetera, other That look et macro

Steven Kwok

about this any how talk trends a about are – quarter. there down Slide forward? looking just of then, to, where little increase rate you and And and it. saw rate seasonal Can couple of good then, rate in on the XX, relates recovery like, bit a as it we that the just we should recovery around going rates Got recovery came think quarters it

Juan Carlos

Yes. There of recovery. is our definitely seasonality in terms

lower to Page remember trend, we right? year. particular recovery because you during put some goes It half on say. the the should in the my rate. I significant good This which back portfolio comment pretty that first up see So year-on-year this were of end earlier, good and little of see a that the rate softens about it’s underlying of the postpone, dampener year, you on we XX, to what somewhat – opportunistic quarter’s the then, it decided quarter, But performance. kind tend recovery still a – on much And So right? is sales,

Scott Powell

I in the not which types driving all Yes. Carlos of improvement recovery vehicle, one just at you the just is would happening across When type said. to auctions, the auction that what’s at And too. of vehicles add Juan what rates, it’s prices look

for It’s this So that’s SUVs nice used seeing there underlying just demand Pickups, improvements to says, rates. see, recovery are that cars. not broader which to and for me is in example,

to So used again, valued us points I cars that, think of away economy and cars. that maybe, new the underlying the strength the from are shift

Steven Kwok

that on fourth in to beyond And should that? we could that it. quarter or or just optimistic, quick be it delay then, Got occur the expect follow-up the a as

Juan Carlos

choose We could ahead will It we them. – and every extract and debt best trying and conduct the execute to we that. to sales value be try we’re always quarter, beyond when go

Steven Kwok

my questions. Great. for taking Thanks

Juan Carlos

Thank you.

Operator

go Morgan question now our ahead. next Betsy will from Please We of Graseck Stanley. take

Betsy Graseck

Hi, morning. good

Juan Carlos

morning. Good

Betsy Graseck

A the kind Prime do bring your on subprime? business it just of couple you – want understand just in. the you business. the there let’s part One, you and thinking the of I with to from assume just own FCA here on do that the have – on balance how I’m on flow think structuring that wondering from that. agreements of flow Chrysler with you focus about near your buys other sheet questions. stick or how Do you’re origination out institutions of about or

Scott Powell

fun a Yes, It certainly – so at think it’s thing point. speculative a to yes, it. is kind this it’s continue. talks little about The of

happen our shape to what an come. years a yes, is some what many going think overnight, in a if or in happens. know transaction, for ours those transaction don’t and I things about I be. be don’t relationship of Chrysler to form we partner case would many, So way mean, important of Certainly, the life

opportunities have Chrysler we we our and in about part work, think business looking that of space, cost positive outside of those our or So of funding important long Chrysler. focused some a or non-Chrysler are the to very form. an we’re And continuation is opportunities, a of much a time that for come, for with in our opportunities change grow and then contract business with way nonprime, – always relationship to on world our to they our our in the so where of we’re the because a part just shape going in be whole strength that, of range

headed as we a feel future business So pretty the – for business. feel about we optimistic this positive and yes, quite where about we’re

Betsy Graseck

just on a here. follow risen And interest Okay. rates the up having then, funding side with obviously,

to strong to higher indicated, are a to late to we point start and rate little are away the losses customers. have able you’ve feeling far extremely been sense a get as cycle. the cycle customers that, any and you in that is you to to late this start pass with Do cycle You’ve your at what little going from on increase an that or the as consumer this really different Obviously, that? bit

Just you’re when can’t point afford you the wondering about that. What’s thinking your tipping how rates the for borrowers in the on? increased pass that modeling interest

Scott Powell

their payment Yes, it’s used, what consumers bit And a I affordable to I over new make to customers really would flows would Certainly, those it guess, enough as describe a shock year-on-year, significant say I shifting to time. question. consumers. payment is, more of again, passed we’ve rates them to have would the which what from vehicles, good lowers a to the I for cars. builds through little aren’t cause that, say

we lots when of So we’re business that. higher our vigilant consumers, have look that payment metrics are incomes to it for The of at. percentage and to towards our comes and – booked very

think in your at yet answer the to see it dramatic time. all We So question any short look I income. payments the shift we is, the to don’t

I a warning metric you’re it’s in change think right, the for cycle. the credit really

– change. we’re and – do metrics about we have market vigilant I good of reactive know in lots wish the that very keeping But to did, if to we’re don’t we warning changes I to But so, are And it. really I early can’t place, very and today. I but is going

So cycle we will how to we starts the our manage definitely are thinking when about change. business

Juan Carlos

They are not flashing us.

Scott Powell

board. And across just of none flashing looks as those today. great the It are of

Betsy Graseck

Thank Okay. you.

Scott Powell

You’re welcome.

Operator

from ahead. We question next will of go Please now our Vincent Stephens. take Caintic

Vincent Caintic

Thanks. things, it’s morning focus guys. it’s up actually to floor nice to on of so the year-over-year. Wanted side plan dealer XX% Good see

lease the the if And floor penetration on you wondering of have so, on you rate Chrysler when Chrysler loan gave dealer I’m penetration overall think be plan either and of there. floor the out side. versus the kind rates you plan your same

Juan Carlos

plan pipeline Yes, little, little them incumbent, stay So share, much lines is comes only FCA, our no, with up to we right? when right? There most floor by these it much, that. dealer – provide – smaller, and of the dealers. to good market momentum, this floor there’s with is grind don’t This And the fashion. Obviously, with plan you dealer is the say a – the of I inventory. prepare working the team year just FCA larger the grow new for that of some will of there through steady some is time clients particularly in when

share market space in very strong. still with our that But Okay. FCA is

Scott Powell

– we Chrysler, we look as would It’s of small it important Chrysler. deliver at because partner, also for the but part to that our package it’s continue that overall very to

we that provide grow important very for is it so, And this to and it. our partner continue

it’s right a that to it’s grow business. things just think the call doing if it of small become it, I’ll you so, got when ton way – but today And we opportunity available

Juan Carlos

very the the So and to partnership. I relationship relate small but important

Vincent Caintic

floor plan areas. you both other increasing also there floor and there in so leading Right. the is great. and where indicator, general certain if plan when is competition less is the that Arguably next you see lease the so in the relationship taking a is And dealer competitors rate the the some floor this to quick nice it’s just area one – so seeing or penetration think growing, increasing, from plan. have, share yourself low one Do you’re the of I about

your to Just, kind are you a of, growth is taking of relative growth. sense that where where

Scott Powell

And look Yes. we changes in noticed. I market mean, fascinating, always sure. probably competitors. for there’s as It’s it changing. at And do is of in lots the share across you market players

focused funded on every trends, very just we some Not continue transaction. some but seen market on that’s we’ve be going the of that nonprime, space. of – those more in on, stuff of deposit strongly. moved seen and just back And for the we’ve some prime pricing to really we prime near-prime guys yes, into risk there’s So

we’re are focused from there prime, not anybody. people so, real always on subprime, in taking and out share and And prime but moving in

where for We’re That sheet. we them get balance assets focused returns. the sense on originating on appropriate and our putting us, make

Vincent Caintic

you. Thank great. Okay,

Scott Powell

You’re welcome.

Operator

now will We Securities. ahead. go Please question from take David of GMP our next Scharf

David Scharf

in shift often, my and been you you Hi, asked of, a for you list seeing that for from or thanks to few two new in us regarding yet on warning kind of metrics taking good others. terms that just of, had the to an there that reduce but question I several other desire sign used, no you’re monthly mentioned warning track? you the mentioned early of other, before. three the, biggest are Can that’s maybe need questions. in subtle sign a payments. is variation lights consumers’ But I ways sort morning flashing know apologize that early and were

Scott Powell

Yes, sure.

of time, one it. our it’s big vintages with looking at portfolio a So business at thing we look because is you’re lots the our all and in portfolio

do look things best the is of vintage one at So to performance.

You vintage. look the on at a early defaults

payments first that payment. missed many changing. best what year, their their a of we first see of can percentage can missed is, just in compare then, loans And And ago, customers their people this to loans what if like, July all booked we of and the prior those periods, payment, percentage we right? look So metric missed we that’s year say, aging, that same example at originated of how we

warning our up book we see is performance shift the to good time, percentage changes be the the to is periods, make all going subsequent that we compared really the that Now that up underwriting and a significant early on down worse. but goes prior if to

of not XX delinquency a profile a to pay. starts higher lot’s I’m metric, have that in so are looked loans being another if That’s those the moving were to restructure you to in can you’d like. we able you look very good if And one. it. if consumers, customers go stage metrics, indicator. to collections, at like bucket, incoming percentage of that’s apps, look from we Incoming average we that’s we good there percentage for their then score buckets at that the the a people changing too. apps see then good bucket delinquency like origination percentage of When indicator the do So early of that’s at I up, asked is

David Scharf

payment like have But sounds notably? early first it defaults payment increased defaults or haven’t

Scott Powell

right. exactly That’s

that’s we That’s predictive. the So the for. we look the [indiscernible] it’s all get what most and when

David Scharf

that And in kind $XX it. the follow Got million more the I just it, I here is out up, may relative figures additional accounting. was to is… pre-restatement was million the expense $XX the a got in in delta guidance guess, the provision was quarter trying remarks. of heard was thrown be I – With But quarter, provided, to understand, thought I the on the prepared the JC,

Juan Carlos

Yes, approximately $XX million or so.

So one thing useful. that might be more

to the the $XX the will provisions this pointed – our do for supplement that see in year-on-year. you that XXXX, around which deduct the QX and then quarter and you number basically flat supplement million, out was same you is are if from go correction for So

David Scharf

Got it.

Operator

question now will Barker next from ahead. Please Jaffray. of our We take Piper Kevin go

Kevin Barker

that year-over-year delinquency XX XX The points. morning. days in Good basis rates increase roughly

increase delinquency time this higher the now putting even mentioned caused Was balance anything else FICO rate You loans in sheet around may there finish. today. you’re have XXXX the that score on your

Juan Carlos

provided we drove comparison the increase significant back the is is largely The delinquency impact. slightly probably impact or the flat driven the if which number hurricanes wasn’t year-on-year in the for either by down, No, would of that in uptick it year-on-year the or – hurricanes be down XXXX. QX and expansions then,

Kevin Barker

a declining sheet score you’ve as overall FICO start increased seems plateau a become going loan a rate, you’re XXXX plateauing you charge-off a putting impact. was look to and in the thereafter going like to XXXX vintage into primarily balance portfolio? greater it as impact to we going higher expect purely to mentioned it that But due hurricane of net the forward that of portion XXXX. And given – So starts loans to would your forward, be that there forward you was due then

Juan Carlos

we’re up anything, as should but down so be, steady pretty we slight go a if It [indiscernible] if forward. anything

Scott Powell

today. of loss steady-state Yes, kind I we’re it’s generally we are where rate the that’s mean, targeting,

maybe So bit down there. a little from

that’s would unchanged being expect, things yes, kind the So environment. of in we all what

Juan Carlos

One more thing.

I Now new you of can the will the as the forward, that we FICO felt higher investment here We the later truly sold. group what originations sell new were or go SC. be that for for noise FICO hope think the the SBNA, at – originations we originations of

Kevin Barker

are remain expect – are today car they or prices. some where about are you you used that recovery about discussed And softness your do expectations earlier as then, rates

Juan Carlos

some do then its we when levels, quarter. from its forecasting, pretty normalization, Yes, have seen steady we we softening performance, do a what include still softer current this some our

Kevin Barker

much. Okay. Thank very you

Operator

to was Scott we no That final at final Powell question, this time. questions have turn for now comments. will further and the the call over I

Scott Powell

Thanks. the Thanks, the Appreciate call for joining today. questions. everybody,

end Investor look next As and team forward follow-up to talking available quarter. we always, the our to at Relations questions, much. of is for the you very Thanks

Operator

Thank you.

Santander Consumer USA (SC) 31 Oct 182018 Q3 Earnings call transcript