SC - Earnings call transcript Q2 2019 | Santander Consumer USA Holdings Inc.

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Operator

Good morning and welcome to the Santander Consumer USA Holdings Second Quarter 2019 Earnings Conference Call. At this time, all parties have been placed into a listen-only mode. And following today's presentation, the call will be opened for your questions. [Operator Instructions]

It is now my pleasure to introduce your host Evan Black, Vice President of Investor Relations. yours. is floor the Evan,

Evan Black

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

call Powell, On and have we the Scott CFO. J.C. President Alvarez, CEO; and

Certain with respect forward-looking. these statements. call public on filings to statements to SEC Factors refer our maybe Risk and made today Please today's

We reference in July to measures U.S. financial is included certain measures will today, we believe those also useful reconciliation for XXXX. of X-K may the XX, issued be our non-GAAP that investors. A GAAP

to over call Powell. the Scott? turn I'll now, Scott And

Scott Powell

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

So let a few results. before announcements the positive into second me start with we get quarter

So I'll with leadership announced changes that start morning. this the we

at So look slide if you laid can you see out. those X,

with start let Carlos with He's the XX. being SBNA's Juan Juan getting me promoted. the is September effective CFO, SHUSA job. be So the table to this He's me CFO going bigger our morning. Alvarez, current Carlos sitting across

to Juan So Carlos. congratulations

here. next to Karam, me Fahmi replace Juan to with We're going Carlos is who sitting

So of Fahmi range Fahmi function. XXXX. whole CFO a our XX will responsible is He's done for us September new been currently with has pricing be here. since He our things as well. effective

which team Prior talk other also other our to led and he's we'll a important role sales strategy an overseeing MPLFA played that, responsible FCA, been about strategic amended for things development with acquisitions, he asset Fahmi like and and initiatives. the second. in in

new moving that Fahmi to role. it's So have into great

to a go. He's The finance of going the Capital to an of Chrysler great that outside We're got Auto important do Head part something auto for long Rich time. other company. is Rich different. been off see Morrin the Rich we're a thing opportunity and announcing completely been space. of Rich President our has is sad has Rich leaving the is Relationships. company

new So we in Rich well wish endeavor. that

Shawn Allgood. currently Rich Shawn the replacing Chrysler of So Capital. is we're with Head

but three at Capital, take finance as responsibility our in nearly role well. relationships Chrysler Financial. for us he'll Shawn not decades only into and Ally Rich's spending joined other step So auto after XXXX,

well Shawn qualified role. Rich's is into So to step

want and I thank on Santander miss So everything Rich us I'll Rich at congratulate to three new he's their certainly roles, done here personally. Morrin folks for for those

news is promotions. feel really this these and good our about strength the about and So the all internal maturity We are good depth organization. of

up wouldn't great this lined certainly to important ago, years maturity feel happy depth of for of take our promotions said, couple the the so very we And is It's and as roles. have well-qualified about a have sign the readily hand to these and this I quality organization. we of successors and at depth good

made on with that comes Chrysler heel I'll announcement also distributions respect ago. we of that Chrysler And -- some weeks then news the that we announced capital to on Fiat to. get our few a So announcement

So announced buy intent to U.S. you'll finance recall back in that their June XXXX, company. FCA

framework going strengthening say amended to And so establishes are excited an through MPLFA. forward work that'll you FCA, last continue today, to companies, we see two year agreement over for beneficial We're results because fast-forward operating FCA with great as be reached evidence we've and able a can our to to the clear allow our it's mutually it the where with when together grow of at And look to you us that partners. partnership.

that's quarter and penetration XXXX. second we've year XX% is rate XX% from it's year level the of up So our achieved really of highest the last in since penetration this

growing FCA. originations with our reflection that relationship You the look That's can strong a of as well. at also

part operations. of the penetration we see And dealer rate. that's You've experience heard really me hard say again, improved in improving on prior working you are what and that calls on

of also continued more another we're that buyback our share demonstration towards is maturity news has $X.XX for the about ago big talked we've in again, goal long-term $X.XX. of announcing of efficient dividend an progress a our been capital that objectives. couple increase we announced one having and billion our And base, other which $X.X of us up and The to weeks from

if you X, quarterly at some So slide look I'll page hit highlights. financial -- the of

$X.XX, ago. from We quarter net from volume, So which which $X.X ROA is up It is share is billion did up was million, the year in $XXX is X% income year quarter XX% same per and during ago our year ago. another on a strong XX% originations. quarter a the Earnings a is total from up X.X%. were which

keep from down a business X% just at that a quarter billion year core ago. we really, really But year mind strong ago. $X.X in Our was a had

Chrysler loans.

up Here the thing XX% relationship, the in Santander the a strength from strong other with we see now can And Bank ago. again, that have the is partnership of N.A. place reflects year you

you'll us you'll recall so that the through billion year quarter, we originated Bank Consumer. Santander a really helps And Bank support quarter see out the program rolled we again ago FCA. for the of So prime that portion with Santander and in that business of loans strong originated -- and that a or $X.X Santander the

transaction in a In X%, did $X.X ABS. the were the of for In executed securitization our down bit, overall little but we down a ABS originations. funding, lease year. we Leases to of execute billion market. second continue quarter strong July, successfully We

our pretty credit performance, a credit credit performance see benign remains you'll stable and continue reflect environment. And to

was a up ratio to little bit, up down our little So was ratio charge-off a bit delinquency XX-day XX basis points. bit. a was Net little XX XX-plus

take Juan auction recovery strong, were which Carlos at detail. really Recoveries especially look when in you will you through the rates,

$XXX positive and dollars was expected, driven sign quarter, actually than that's down is million net in the positive. TDR prior doing is which that we charge-off by almost we're decrease fewer slightly And little higher. a fact balances, more the modifications is from our which the ratio really another really Also,

sales environment. switched consumer confidence on Just they when car car at it to a positive prices Job some kind fully then And but macro-environment. Sudan, broader time. used pretty is about said which the a kind is it's shown used happening numbers, couple what's bit, consistent and and up look including of not board, and has strong, tracking important very is over radar as before, comes creation slight not a little I've when comments that improvements obviously year-over-year business. sales say remains you of so very, just down vehicle And to SUVs. so I'd of the in the our Obviously, new the across

stop to Juan turn over Carlos. that, I'll With I'll there. it

J.C. Alvarez

credit some slide Thanks, Scott, and for good key indicators our performance. that X everyone. start with influence We'll economic originations morning and

our high and overall the confidence environment robust. is creation remains supportive of business. As Consumer remains macroeconomic earlier, job mentioned

a consumer-lending moderate continues And sales now Environment in to industry forecasting behind which QX support environment. XXXX, the for is are vehicle market. indicative new experts decrease with of still stable resilient us, a only

influence slide there and factors at few low that our we If performance. a the credit are X, key look severity

is Our prior from quarter. auction during which represents year recovery the auction all rate, XX.X%, auto-related up the from XX.X% lanes recoveries

recovery which year. the quarter, proceeds, and deficiency were last non-metal the Our stable includes bankruptcy which versus sales rate, quarter is same XX.X% in

relatively securitization last year. and a industry to trends Additionally, points loss non-prime stable compared net data to delinquency

than a X Turning board volume. quarter. loan total trends. healthy the to decreased across prior Core $X X% quarter in compared to year Overall, billion originations saw slide more originations level we in for the origination the of

year of year-on-year. the half the volume is However, up X% first

closer the SBNA and expect with loans. did which SBNA be was increase volume particularly drove to Chrysler we XX% Capital one for to strong platform that our year. originations growth strong per combined of level the This for in partnership remainder a be billion quarter program FCA the quarter in prime

Switching to decreased lease versus X% originations, QX last year. volume

Looking with respect ahead, we the remained our risk-return originations. profile disciplined non-prime to of

prime our program, a expect strong presence maintaining lease. also while We loans continue in support to to SBNA with FCA

we sets now to beneficial Turning Again, a us agreement partnership of forward. that up the us and the The for remainder reach FCA help are our succeed. to well mutually X. contract amendment to continue slide positions with going to FCA strengthens pleased

one-time that announcement, tolling As the million we of amendment announced to also FCA $XX we agreement. the made the a payment of terminates part and

average FCA was quarter, up performance penetration the in in our rate XX% Moving from our to XX%, last year. quarterly QX

floor expect really loans, We're lending We new agreement. optimize and leases, services. third-party servicing our and our continued about full plan to excited platform across

coming build optimizing continue the scores relationship by bring in under collaborating progress updated remaining going relationship, focused will drive a renew the we quarters, the on made on our dealer This forward. satisfaction aim agreement. During in to to to bigger improvement

generated income Looking million to service slide quarter. this for others X. servicing The in platform $XX fee

fees $XX million fees, servicing origination and SBNA commissions in of item. those other our to line fees are addition in Now

quarter, assets previous added the Santander During in increase SFO runoff. platform balance Bank, SFO which these our drove to our with programs originations flow via we billion as the agreement $X.X

higher benchmark and in our to a lease million, on balances. from increased ranks due the of receivables vehicle for compared increased the growth income increase performance Interest up review the quarter. Moving for lease average up for contribution to the by of by loan quarter financial in XX% finance balances. loans XX slide prior driven to versus Net continued due $XXX from to $XXX year million. XX% income X% Interest derivative to QX Net XXXX expense increased our -- lower and quarter portfolio.

held-for-sale of related Total lower to million, which by was million the charge-offs by to levels lower million $XX and by higher Provision in in adjustments million million balances $XX combination of a $XXX the in is income $XX offset personal million for the increased the up credit comprised portfolio, a losses and quarter modification of quarter, $XX driven market in discount. customer offset lending included $XX balances. other decrease TDR

slide increased XX quarter, year Continuing while basis versus basis delinquency points. XX to state late XX is points delinquency the prior decreased early state

gross again, QX And levels QX lower X.X% slide last net portion XX from prior the to quarter points charge-off less quarter, loan and XX.X% lower referenced ratio last year. into points increased on increased now charge-offs are And The of last as impact modification Moving RIC of of XX basis ratio basis to inflows relative years. delinquencies, from we bottom losses. the in TDRs. modifications year. The the charge-off RIC

by to RIC figures to slide $XX increased charge-offs million. from rate loan million quarter $XXX a up These recoveries average the were of items. loss slightly were due charge-off losses which attributable for more is review to $XX offset to Turning in to million Net $XX versus higher dollars. another year gross better other billion XX year. balances, prior higher than now and million $X last were

XXXX, and quarter, attention QX to provisions of losses reserves billion decreasing on $XX last at the credit At the end of quarter. represents from ratio XX. which Turning slide an allowance of the end allowance XX.X% this million for our $X.X totaled

increases these million and the was offset and $XXX And allowance to non-TDR the $XXX due a to of inflows new which were million million Going and TDR unfavorable million by charge-offs. than $XX benefit migration, increased due originations more decrease increase over into $XX payoffs components fewer work, in performance due TDR our drove to the reserve quarter adjustments. of

Let's to slide detail. to TDRs now turn in discuss XX more

million TDR inflows continuing lower This trend, $XXX quarter modification decreased prior lower given TDR and the the versus year balances due consumer their the downward nearly the levels. of quarter to the strength

we of to rest the As balances allow of mentioned through reserve TDRs generation to quarter, this last the slower year. trend lower

are slide last XX, strong the – compared average as the the to in growth totaled X.X%, dollars X% a for with to year quarter down relatively which expense year is prior Turning quarter important balances. from ratio expense flat

continued more than remains of XX, strong access committed demonstrate $XX liquidity consistent capital to Turning very and markets. the position our slide with to SC deep funding billion. to total

markets Our each doing active a is $X.X treasurer teams of for quarter billion. got busy. the combined one ABS transaction capital He in shelf in

and billion. $XX.X We lender diversify commitments, also which to private totaled our financings funding continued through

XXXX Subsequent fourth new quarter-end, $X.X SRT in lease is closed for to platform transaction also which since important inception we diversification. this lease of funding late ABS is the transaction the billion a and this

Finally, our slide the prior quarter was CETX versus ratio from XX, turning to XX.X% year. XX.X% down for

announcement capital this of earlier, increased repurchase mentioned opportunity Scott billion of in cycle dividend with to we are the program. excited As return more $X.X our the to have

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

driven income We rates. expect primarily balances by and quarter, lower and X% net swap up the to finance loan other higher to be X% interest in second

patterns. with Provision expected to $XXX increase in million million expense line seasonal to is $XXX

be normal to total are Bluestem by flat driven expect income We And with to be seasonal to better flat held-for-sale operating the patterns. $XX worse million portfolio. million in line $XX expenses seasonality of expected to other

Regarding guidance, our we no our full call. quarter guidance have year XXXX changes this ranges we provided earnings to last on that

you to turn to like I'd – Scott. to Q&A, back begin the we before call And over

Scott Powell

Juan Carlos. to four would Thanks, I just come key back points.

creating our made Number that Institution has we've Consumer deepening Financial at risk our better Santander a focus Standards. expenses of spent two, last we time building with disciplined engine our announcements Santander So we've the on and smoothly. and the morning, U.S. experience to three, running management making Number you years are dealer sure management over management pricing on leverage. operating operations and we significant and remained fine-tuning running the that few progress reflected large continue see lot made and team positive Consumer in this

then to X number continue work to partner. And support FCA, we hard very our

look over forward reflect to made. MPLFA, announce win contract. longer opportunity continuing life a do to the to of happy remaining we've and contract, relationship have for I the opportunity FCA better very of past end progress look the think the forward the We're with the to to results really kind to the amended of job a we FCA our and we

that, Over with go we'll to you, So operator. stop to there and I'll questions.

Operator

[Operator our Micenko question Instructions] from And Jack SIG. we'll with first take

Jack Micenko

Hi. rate Good big obviously morning. on a Congratulations the role. new JC Scott, jump. penetration looking the at

prior You're move quarter The Rich the new understand, that. this had long efforts? big of to sort this internally? incremental just a XX% into time of or here there, you something versus what's process number. just what's And know the to is is focused try I of in the origination ongoing for been contract more on step-up specific in changed this it SBNA the Did that agreement? really harvesting helping the running flow the was

Scott Powell

And the relationship sales but the in I Yeah. respect have Jack, things an we've put execution are confidence with Yes, but working and obviously different quarter it's been the particular particularly senior to on of driving of that there and on deliver confidence the to SBNA levels a reflects on us market kind good prime byproduct of of company it's – no thing wasn't that happened. just us whole at volume, of that to the had kind improving that have have they incentives then they pricing part they bunch the that that kind the originations, side any dealers. that also the in we in for really the of touched level operating the and important growing in it a them.

N.A. having game things structure reflection with the funding right all really with a a together. of you're it's So those helpful is different And the SBNA, Bank relationship. Santander in FCA

Jack Micenko

I could my historically Thanks. Okay. the then And sensitivity you I still think the then that around that on sort the of here. position bps a guess, there XX lag effect direction with come true; and in follow-up and liability-sensitive of on the to balance is the balance going is the and sheet, up some costs? with the a, sort of way be per funding on sheet the contemplating run fed b,

J.C. Alvarez

over movements that always position It's years sensitive. so the to yes, it. you is that's measure still we've -- to I but tend in references our somewhat. filings, disclosed mean, disclosure parallel liability the Yes, how we're neutralized

us right? down -- like until starting we doing I for swap particularly be seeing right, FCA of right a that's think that a points downward time benefit, push to and do a rate warehouse one What And lines parallel that some be benefits already get for rates, example, what we're us will is up NII XXX we're seeing. important on finally to which gradual again help okay? So will in see LIBOR We're additional a quarter $XX year, will now securitization. cut help but the not for is parallel move, we every materializes, for that benefit what exactly basis month us the the move you'll lower we a or have million sensitivity if okay?

Jack Micenko

All the Okay. taking Thanks questions. for right.

Scott Powell

Thanks.

Operator

And we'll from Hecht John with take next our question Jefferies.

Scott Powell

Hi, John.

John Hecht

over the the and trends kind Chrysler much follow-up due NIM very what base step-up Thanks Is that time from to loss these in rate with JC rates? from is any volumes of there a bit of congratulations. those? A guys effect and persist, partnership. If little

J.C. Alvarez

would to strategy, drastic to forward. a us But necessarily. say, relationship bigger Not new earlier our It it solidify give No. I us do doesn't business better necessarily better. going agreement we so gives ability ability okay? and change together, the as described will the represent in

John Hecht

Okay. -- on you going as should aside And for level. then to TDRs? the you the percentage the ALLL similar second much. question allowance pertains is, the have expect And number of we to on we expect Number any thank do at loans comments one should given the and pace what's very with continue a two, to decline CECL CECL;

J.C. Alvarez

Thanks.

terms in parallel the guidance that are running runs we line in quarters. going several are Those we've or with discussions had exactly CECL, of last so the So now. parallels, the the

to be come earnings call. QX able with the back of expect the We to guidance better impact in

So plans. all of going is that to according

Your allowance question was to other ratio. related the

I yes, you lower should think been by actually allowance think if ratio, now would TDR the stabilize look very the has The the allowance So balances steady, right? stabilize. I ratio TDR the impacted it same the past. non-TDR highlight okay? you in mostly we've once be provided is trend stabilize apples-to-apples balances, of the sort -- should answer as right downward Because it at

Scott Powell

Thanks, John.

J.C. Alvarez

you, Thank John.

John Hecht

you, Thank guys.

Scott Powell

Operator?

Operator

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

Mark DeVries

Hi.

there to to shares, an share $X might those the can So about obviously on is considering with quite you the repurchasing basis? accelerated you repurchase current us authorization billion look large you're Is how if flow. anything relative around, go anything

J.C. Alvarez

you we've step. while, to been all capital the more pleased this is is very something pursuing as -- know quite for announced repurchase $X.X a so very positive that to the a has as is both as having up increasing distribute We're able dividends been well about -- Yes. program billion

potential how of we terms as okay? how as we over move are looking it months forward, go always alternatives evaluate we'll we think going forward, So we're for conditions at past consider program really. to flexibility execution what and that value, execute sure all we're evaluate next in consider also make any have -- XX the In repurchase in the capital strategies I generating as right move now our we to other We'll we about of market is deployment terms okay?

Mark DeVries

just changes extending Okay. considered you Got substantive the kind anything us about specific whether were agreement can that? And then, Chrysler you it. made of and is with to there share that

J.C. Alvarez

agreement out FCA a you'll it The update redacted sharing performance Yes. that have sort thing. looking you certain at And contract practices a of is there. there see metrics is that

the And So again our agreement importance better right? about solidifies will gives ability partnership it the better do and the going business, forward us is that partnership. to that's

Scott Powell

works Yes, I given what the have the is framework operating said and was only Juan relationship. sides add would both thing that current Mark that to important it we Carlos for an

the to the So tolling of put obviously, the contract. froze some agreement to their of the at essentially elements in end place year they continue ability dispute

I the the just concern of sorry relationship -- way happy can a creating contract they're contract, the that the the And operate It amendment sites new with you both frames it, amendment situation. the would up tell it for about default the with we're without happy we're so future happy with it. in

FCA really it's it they framework need reasons lets that's and works creates us of do So about we're as one do what well. -- that excited a to it, very the for because

J.C. Alvarez

business have have the okay. think an the to it question the your us about think to will for -- gives earlier, this and enhance beyond Santander I The contract, us ability to I do amendment work. but opportunity that, we contract the said even not the gives to relationship extend to fight as does opportunity extension, more specifically

Mark DeVries

Thank Okay, you. got it.

J.C. Alvarez

Thanks.

Operator

with our And next we'll Steven question take Kwok from KBW.

Steven Kwok

taking for questions. my thanks Hi,

but used-car landscape. that's well. the you year-over-year, Just outlook the been seems can first prices is also, your for up around really holding competitive originations. color to around provide just if could then one wondering It you be upon strong some the touch And

Scott Powell

out it's changed. hasn't of it's competitive super one landscape be the in competitive the Its most do think to market. competitive, there competitive. I the mean, super U.S. I -- continues Yeah. spaces lending Yeah,

there's there. going the let yeah no So framework competitive off in on

the who prices remains go And the the good. it's the Obviously outlook I going strong down, it's for car there are used is think actually in obviously for and quarter. The but to good. -- say consumer economy outlook people pretty and

says other just used strength phenomenon it's think in interesting the isn't were of bit trucks that. of as across board kind driving as SUVs, and I that's One car mentioned strong which I well, thing is Sedans me that an a prices to

are used to have our to I changing don't don't not continue decline to have horizon. in used believe any strategy we on we're the we prices, car think because -- a decline going rise. I prices that reason But So think any significant is car

Steven Kwok

ones origination just your taking ability are guys others and increase And like it are from? taking Yeah. given you share sell then who are from that to year-over-year, you the the share

Scott Powell

few it's share kind we on then the up I we're our grinding I percentage big. think. and relationship a where on to market little market that just very non-Chrysler dealers, bit from hard out and think service the on Our which it's Chrysler our year-over-year, improving don't working application-by-application is side No, up coming -- points is can share that's but a and see of

invested haven't better in but things last dealer’s, we've which inventories, and finding we things really improved year. staffing lot not done. were set credit down our specifics, We mean And talked we're we're for means faster, significantly teams where increasing drives the faster. about deals delivering we're a from place, which like when our we I contract better regional I putting and rate say like we're up auto-decision in

we'll to a those combination a and on Santander so volume the and But those I together. all optimize credit like across our things that's just it's it's just and and -- critical also those those combination for from of works how to things mean all of continue pricing engine. dealers, magic good dealer No because focus continuing inside that's made get we -- all progress issues. all are

Steven Kwok

That’s helpful. Thank you. it. Got

Scott Powell

Yeah.

welcome. You're

Operator

question Moshe from we'll Credit Suisse. our Orenbuch next with And take

Scott Powell

Hi, Moshe.

Moshe Orenbuch

the as And on And J.C. next on with in few the respect this congratulations the volumes -- transactions has where quarter? whether going jump how to an this you've about better quarters? thanks. talk that be a think little bit And funding with done your with that parent you Great, maybe about that impact integration well. to your

J.C. Alvarez

The SBNA funding, mean the platform? you

Moshe Orenbuch

Yeah, sorry.

J.C. Alvarez

a Yeah, so fully and one like the remember it Yeah. how agreements talked months the to on working like pass it number the we to we it's we -- of then originate we almost and not the it's previous flow new. worked or make our sure for that last year this warehouse launched on platform previous -- would I were loans we wasn't where on sale about partners.

platform we okay? FCA and This meets box, directly their credit originate get only buy And in return origination servicing their us not allows with we SBNA's onto to box, case also fees. but sheet, have balance a that fees

a earlier. gradual the fully a exactly there discussed we with year ago, So And really was have quarter strong seen okay? this year improvement was very as launched this

out As our bit. I was little fading think strategy, I you change your question, right question. because were That your Moshe, a it's

Moshe Orenbuch

saw Well their appetite I what that larger product. with maybe some I little bit Santander for -- a guess sold that makes is noted they the credit

J.C. Alvarez

Okay. you. got you. -- I no, No, I Totally no. got

office referring sell credit-linked Remember basically. of that that program with to, that No, you're use group the Okay. notes head you're bridge originate to they flow the with talking that the transaction notes we securitize on Those old part Recently loans totally head we group until are board. decided came basically -- the office. We that and unrelated. to had a some trenches. about, and them those distribute of as the SBNA you're

SBNA -- from to standpoint. and to unrelated an ongoing entirely the SC our recurring that's platform So not with ongoing

Moshe Orenbuch

Got it.

J.C. Alvarez

for clarification. the Thanks

Moshe Orenbuch

Just you've agreement working separately. guess was written past update point is on -- the the since with. kind been that Thanks. Separately, of since two-year any where I

Scott Powell

we I we're past the point? the from guess in It Are was second maybe. year two-year XXXX.

J.C. Alvarez

was It the in spring.

Scott Powell

spring, yeah. the In

everybody's we into XXXX wide Reserve would that one and yeah, very mean the here. closed tell compliance Santander one closed pretty we and company written mean we on out you So, framework. level for the read ranging it. other and written it's I XXXX XXXX recall agreements from issues benefit like you paying of Consumer on Fed that a a management you sounds on at I agreement And then I holding that like out dividends overall risk then is closed out comprehensive it from

those management like I'm two effort just which address We've with we about. institution and say, those operating down. way. committed all I we're that's what issues Federal the standards, large resources don't at heads the so And It's exactly agree significant financial U.S. to when by Reserve, raised talking by

we And executing so tell plans But then Moshe. and and following good get a I on – of plans we'll out, those It's hard out. trouble through otherwise we have and closed again just are our closed super big can't really good. it you we we and when just, matter working know plans are

Moshe Orenbuch

I certainly Scott. in get you trouble. don't but Great Thanks want

Scott Powell

Sometimes the fun but it's with to trouble, Federal not in Reserve. get

Operator

Securities. with And David from JMP we'll question take Scharf next our

David Scharf

Good morning, thanks questions. for taking my

or clarify just maybe make to heard wanted I correctly. sure First, I

the should be $X thinking suggest billion down about to SBNA the volume, half that second to did from we billion closer level a close QX? in the origination in Regarding you $X

J.C. Alvarez

for -- about mean quarter, talked I a be we've normal past about in it Yes billion a this the okay. $X that cadence year more would

was So strong, okay. this particularly quarter

we of about of of right. Some some talked drivers earlier, the because --

$X keep not So quarter. a $X expecting we're that to billion between somewhere the should originating close It billion quarter. platform be and every to

David Scharf

that big $X FICO were quarter, of and SBNA the both at these the the and If XXX in new I the used that when versus the primarily couple mix than consistent what J.C. XX, pretty new last vehicle mixes greater volumes. the I'm increase And billion look the it. -- Got assuming mix the on slide look FICO material would at to shift the relative level quarters? was by driven with in the back

J.C. Alvarez

Yes. It's definitely.

the first the to The increase SBNA of shifts question -- driven mix FICO's platform. answer the are the largely are So by originations yes. is, in the

the off normal we've have but if would level we well. as you more a shift to see So percentages quarter these were somewhat still strong, downward seen

David Scharf

you. Thank Okay.

Operator

JP Rick take we'll next Shane question And Morgan. with our from

Rick Shane

things guys, years, all for Hey appreciate over this you thank When to car last the to pressure. contributed thesis was of questions across the going the strength the sector taking really really J.C. through question for that for we the you. at factors thanks is off-lease several I a is the your and my hard I morning. that's been this Scott, prices used look strong create think work And has conversations. think supply/demand one

talk see forward cars look you ongoing the for also used context tariffs sort of we negotiations? as of in you what supply/demand about the and can As UAW off-lease the

Scott Powell

Yes. Maybe, – I Yes don't think take a I you it on don't I get I'll in just one. was trouble think yes, myself I'll mean guys. shot. this certainly

it's value new the relative cars. used think cars and between I

yes, a the off-lease been used might cars, because just the strength comments kind I have. of think prices I increasing details is get overall demand think, and of consumer, the there. what's in the of way don't so car relative impact enough I I made I'm of And there's cars the economy for happened into mean the attractiveness volumes about not still again, what smart the that in

not in -- happened the just when I SUVs SUV what buying prices. like who up car I and And quarter, we used it again it's because think reflects at that second driving people look SUVs

trade-off here underlying versus and an So it car real. new big a the effect prices impact on I think macroeconomic there that is has is

my of had conversation yes, think mean had I it. a And lot really So the view an of about I best of off-lease impact. continue that's hasn't I increasing big that of volumes will that

So...

J.C. Alvarez

the right, tsunamis, dealt every spring at of end well. month sort those have almost it of had the with year the very and in We've

Scott Powell

Yes very It a system. helpful. very probably efficient it's wasn't

Rick Shane

eventually of mean is. right a used look obviously I the in -- one is trickier. will about prices it it's be No bit things where declines everybody timing little car

something interesting something to and well. commentary the alluded I that as find which we've considered You SUVs into ties is on

as a pretty really you low this been Do result. increased and of about some of becoming SUVs of their function prices think complacent is penetration gas a consumers U.S.

Scott Powell

a can't to does. so try fashion again think big effect going has sure I say just that Yes. old I it effect much but a market again get on think mean has of -- has, preference give big how consumer there's can -- But the I an it that Yes it sure. an influence. would has in an I I

and and in times, are like not this said the usually I -- many to think your so not accurate are point forecasts And call forecasts accurate. I've usually my

So it's the in somewhere down middle.

J.C. Alvarez

to a recently good benefited our are and the think more from the we recently highlight for And But in doing probably more very thing was trend having while, mix sedans SUVs the the I portfolio. very also quite right? of driver well. trucks SUV

right? it's just on It's the not complacency -- wider probably prices, So than cash than broader that. that

Scott Powell

Yes.

Rick Shane

Okay. Thank for it clarification. that guys. you Appreciate

Scott Powell

that through. I hope helps

You bet.

Operator

Chris question Sandler Donat next O'Neill. with take our we'll And from

Chris Donat

it didn't you for thanks and because morning FCA. quarter. would FCA doesn't mentioned hear the I $XX in second like the for to seem I third make mention million quarter agreement question. saw Good taking curious, J.C. it and payout about my have you one the I I'm that the just it

show is up? that does later does how onetime up Is it an date? it show it a in or amortized or So

J.C. Alvarez

life of contract. the over the remaining It's amortized

Chris Donat

Okay.

some the So, be third in quarter then? there will

J.C. Alvarez

There's see already and some you the quarter the will in contract. over of same second remaining life proportion the the

Chris Donat

it. Got

coming on strategy why is getting one are just was economy less TDR the a replace understand Okay. of I fewer driven that And off? that do heard balances on reduction put comes TDRs. it question of down decision say Is I fewer a change? what the to to then you trying that more your on or to modifications. Just part TDRs? by thought on partly sort Was just balances in or take function the

J.C. Alvarez

were couple Yes. that we that servicing result last highlighted generating continued the at in process is practices, to we calls less our into inflows that's in and quarter first and the time discussed we've okay. starting earnings Remember a this we seeing And continues less TDRs. something evaluate of modifications

you trend you have that And you the of what can we has once just never cues that defer point some put trend see where to I'll for on twice. the or of information our been

the the more been big seeing like consistent you'd starting saw coinciding to-- deferrals you'll has right it with know If trend spike we're now. really don't that if XXXX. out, just late pretty hurricane Scott in And after that that of you season, for plot I see since less we the

Scott Powell

to process we're important we're very applying when and subtle sure so appropriate. our criteria is for it's and optimize that No, I is pay and have demonstrate or tools and the complex said determining to right principle that we long-term it always looking here either short-term to that you ability those willingness think governing before make doing which modifications can consumers is do to

Carlos And or a when as there's we then. hardship occasionally do modifications Juan hurricane a flooding, said

to and when what's hardship improve you it. consistent day a the really And doing then driving we're so modifications people to what look every of refinement combination yes at less help is

Chris Donat

much guys. Got Thanks very it.

Scott Powell

there's and was from And too. good thing less I to the is when forward only going demand think the is consumers add I economy other

So, takes a combination all it factors of those down.

Chris Donat

Okay.

Operator

And from we'll Caintic Vincent the Stephens. go question next to with

Vincent Caintic

Good Hey, thanks. guys. morning,

Scott Powell

Good morning.

J.C. Alvarez

morning. Good

Vincent Caintic

the wondering a look to sensitivity could I also though Thanks I even rates funding see bit. you the significantly. from a for if yields on the did costs. just yield quarter to your asset this dealer much just benchmark big rates -- I side. about that drop dropped didn't color receivable was drop talk

do just seems was about bit like have if could you wondering sensitivity. It a the pricing maybe talk you power. I

that talk If different parts what you risks your can maybe Thanks. the and changes -- on of that spectrum? why about appetite is

J.C. Alvarez

Yes.

have dealers press from X.X. you're there the in So, one to I just to small balance that yield down referring that, dealers year a think dealer right? on really ago thing from is receivables you -- you that yield very That a And release. to very, the X.X dropping note from right mentioned on

a your X, so million of that's point question see equation. bottom But -- get your legacy to loan you'll the is like is Page At pricing something really baked more that's there balance really into power. $XX about

You're only, points RICs right? in on the acquired move right, Despite swaps. XX down the yields dropped basis

about we've pricing power like if Really point, has of that do lost -- either. it talked at the there, each quarter. has as still not retain really it's It this -- right? with we've more mix do it's So, particular gained it we we already, out this competitive originate to we but it's not

our been little will a the that the or we bit paper were yields retain to able do buy near-prime prime have little rates into that while quite ability originations pass go fit was month more the say I a would it. doesn't to for bit. rates consumers drop box to higher If All-in-all were the up evident of the to going we or SBNA

because in right? we'll the from compete, So, we loan to is swap the NIM, the pass we've seen that how can lower seen trend also rates have pressuring our really key right, down, this year, we've rates to quickly Now, terms okay? consumer in come driver of which benefit we

to need So, the benefit cost we but down LIBOR to starting in turn of see a it. stock the for our as as that we're to of that the reprice that then will will the we'll debt go short-term earlier really cut point, we entire income help securitize, around and help also it

Vincent Caintic

that SDART. of in notice want you. versus any on there's change more the sort that? with do you to Is risk that's are securitizations market just not that of just the helpful. thought it been of with have Thank view following a for kind but pricing Any the change you you Okay, play drive necessarily

J.C. Alvarez

area. No. This of you the is it No all. the call at grand, is more a significant grand, this change in strategy just single

pricing the at revise change And in no pricing. where are we there the models in We As our we we other where market originations way. of drastic look go pockets look along at opportunities. market

Vincent Caintic

Thanks it. very got much. Okay,

J.C. Alvarez

deals, to the keep a fund driving drive you in recently. -- used recent And mind thing it One we back more to when is SDART that compare brought drive more through private right? remember we've

But the underlying versus change the no really number impact might also that in So, there's strategy. of one other. platform

Vincent Caintic

Great. Thank you.

Operator

question Cyganovich next our from Citi. with take We'll Arren

Arren Cyganovich

Thanks.

or the continues kind getting of the you bit as expect TDR balance? kind of talked to in, past. a of in kind TDR last of is as coming maybe at the slower about before, this when we the end a Do off leveling of year, quarter that end think do of be that had balances, towards kind get the better that back normalizing talked get more Just the than to of you about it still you like year, new I to formation

J.C. Alvarez

Yes.

If expect and remember little earlier a the to of sometime in off year. the we we even part further the in used to early level it you said back, year bit

to inflows, said year. lower the what end through As our we updated expectation continue -- of sold a lower is generation of exactly TDR expected TDRs now you we the

Arren Cyganovich

Okay. Thank you.

J.C. Alvarez

Thank you.

Operator

Morgan Betsy question with take from we'll our Stanley. next Graseck And

Betsy Graseck

Hey, good morning.

Scott Powell

Good morning.

Betsy Graseck

you $XX is million a questions. a of with spot NII right? that's couple that XXX clarification on the just know A outlook. $XX move or that and One, Is immediate bps, $XX million of XX the I course the move a million. mentioned over months, spot an

J.C. Alvarez

parallel a points the move Yeah. XXX basis over of It's of course year. the

Betsy Graseck

Yeah.

XX cut then, guess, it Does $XX not the it's versus on like the once it's is, -- doesn't at don't at you matter So, numbers that to change all all million? the a I forwards. based materially question XX. bp if And other

J.C. Alvarez

more short XX, be upfront average immediate If benefit instead on -- balance most end, get would to whatever month The very drops being does. the LIBOR XX one do -- on we it the No, we period. for Yeah. the definitely right? And help, right? of it the benefit

Betsy Graseck

Yeah. Yeah.

going do up? rates impact you your is, how flip then for will to side your consumer of bigger it's or And Okay. less think business. -- in the are growth the expect you going going pick you you to out loan exposures? Do are something think think else? probability lower default, they Do Do

Scott Powell

Yes.

on same kind I monthly they average those the think it's that it payments Certainly, reduces make to have reduces their the debt. all things. certainly of -- of American

consumer. good be the think I for yeah, So, will it

for good I the think industry be will it too.

J.C. Alvarez

general Just …

Betsy Graseck

much is here question sitting over XXX the really? the probabilities guess seeing of the have changed couple not given what like that frontend here? I length the in it like your past you that on Has been been assault we've And quarters Yeah. or of time

Scott Powell

No.

J.C. Alvarez

really. Not No.

Scott Powell

no, so segments at changes we And given and We really we performance do -- there's or try far. if it. similar look isolate to minus and see don't No. to plus and see the any what's settles happened

Betsy Graseck

that XX.X% they know happens and for obviously -- how a is topic, impact it different we just then go I'm when a their operate an lastly the is share if does over increasing anything you ownership them an parent ownership it's perspective. benefit all And that that's of But from Okay. accounting go but there at separate XX% wondering stake? over or

J.C. Alvarez

is, So, I short no. the answer think

all, mean, a their the last function -- first this executed ownership of have closed parent just year, right? repurchases as has having since us and We I increased of

Betsy Graseck

Right.

J.C. Alvarez

… And

Scott Powell

Yeah.

J.C. Alvarez

XX% our have so based threshold are were supports that highlights … planning repurchase and -- benefits to disclosed SC when that its our program for the ownership the which But and the benefits that reached. we shareholders. the or benefits on is our Holdings if Santander analysis in there XX% additional or be to

that So, will up in to there necessarily XX% mean for there SC. be -- doesn't us beyond going or anything here different XX%

Betsy Graseck

changed just Yeah. Okay. your that operationally, of sure that answer understood getting if anything got is there make Really one to I no. crossed that with was wanted threshold crossed. I like, threshold

J.C. Alvarez

Not operationally.

Betsy Graseck

right. All you. Thank

Scott Powell

Not. Yeah.

welcome. You are

Operator

Powell Scott I will comments. turn over now session. the Q&A our conclude final will to This call for

Scott Powell

for questions call. the joining your for our your everyone and company. Thanks Thanks in interest

And investor will you forward As follow-up have speaking look and will with team next they Thanks you much. quarter. we questions see to always be you. available very any for our

J.C. Alvarez

Thank you.

Santander Consumer USA (SC) 24 Jul 192019 Q2 Earnings call transcript