SC - Earnings call transcript Q4 2020 | Santander Consumer USA Holdings Inc.

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Operator

Good morning, and welcome to the Santander Consumer USA Holdings Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all parties have been placed in listen-only mode.

Following today’s presentation, the floor will be open for your questions. [Operator Instructions] Today’s conference is being recorded. It is now my pleasure to introduce your host, Evan Black, Head of Investor Relations. yours. is floor the Evan,

Evan Black

Thanks, Tracy. call for the and morning, everyone, today. thanks joining Good

call, CEO, On our have we the our Karam. CFO, Mahesh Fahmi and Aditya;

turn During reconciliation statements. in issued We'll Please call reference our some was forward-looking the filings make included measures the risk measures also the earlier and to CEO. financial With our GAAP a and those materials to that, those to this SEC statements. regarding factors non-GAAP call, we'll of earnings I'll refer over morning. Mahesh? some U.S.

Mahesh Aditya

by awakening good Thank you, dealers our demonstrating emerge to and we everyone. determination Evan, to a of a with the joining crisis. for proud help I'm the us through and Thank company united other and employees way XXXX caused of results. do review and and resilience our each and year pull contribution and customers country. our the this systemic you quarter our and pandemic and morning, and fourth this many to Thank SC our our responded, customers, as will out in full stick serve given we, so a our stronger and will your to you time. our to this feedback our begin dedication, that adjusted the to communities, XXXX to confident was and challenging at very to thing right to for our team efforts hope help us and very XXXX as and citizens devastation crisis, social together We us injustice of come racism. and that severe of unique will the institutions, national

a the new closing way. to programs meaningful remarks. my our also workplace I in communities this in year We to cover will in contribute launched these to and inequality address several

the quarter did Total volume part X% deal of maintaining I'd share, a of in slide capped quarter $XX a primarily income down common but through XXXX. $XX for improve some fourth past able form off million from like expenses. results, fiscal versus of million Chrysler The compliance provision for structure, $XXX for strong volumes. is to were to Santander enhance product the while net strong in highlights. billion in it analytics. for terms were over by we our We year to earned diluted auto year, borrow a refine the pricing loans. both fourth discuss X, of quality year and which in the full per Turning prime of XXXX, of the decisions our credit an Net of bookings, also last past million Despite to efforts credit of year in $X.X stimulus, the income increase billion was $X.XX years of record year, was quality, only headwinds of originated company. originations Bank, mostly the of the versus risk our down and of advanced framework improve our and couple $XXX financial

grow XXXX, for with pleased FCA are down results, was compared year stable quarter an the our Our crisis. fourth penetration demonstrating rate we extremely XXXX. to through of the ability versus Overall, full while XXXX when of to navigating the but responsibly

high and time focusing expenses. their while provided and during loan employees a colleagues, of additional mission, of strategy for to adapted scores. to deferrals to our stayed work-from-home also customer taking customers additional of compensation quickly on We all-time our achieved true to execute nearly We XXX,XXX satisfaction customers. relief offset care for via We our employees need providing their frontline thousands

plans through collaborating provided relief Bank. continue to by programs incentive affiliate their We Chrysler floor on to Fiat dealer and Santander support our

through merger, SC crisis. communities the and organizations Earlier our completed over the month, this fourth world. supporting their by hit which FCA supported the Peugeot million creating Foundation, in donated people also $X largest hardest to We manufacturers the automobile

For -- with merger FCA. not the expected usual, affected is our SC, to relationship effect affect it and to as remains business

sales As we look their efforts and quality to continue we partnership provide to Stellantis to forward network, going forward. support dealer their service our with

payment million prices, resilience quarter used at consumer higher rates. consumer rate amount to the in with deferrals Loan decreased to disciplined and levels, we our charge-off XX.X% the was bookings flat Low unique ratios X.X the we of QX. of to coverage and loan effect and fiscal car December, From rate with coupled normal to improved accounts. X.X% combined and Early sheets record balance behavior, The through credit. manifested with stimulus, due new itself than cautious of of continue Moving the the inform our relief XXXX. believe that million and nearly loss high government reserve we and an XXX,XXX level year-over-year, the reserves payoff late-stage loan uncertainty economic the our net of a These and to half to led recovery. customers, is significantly $XX rates delinquency methodology. approach low factors record second granted customer But March by the of all-time stimulus of timing in for to in provided there payment breadth year. delinquency loss

confidence likelihood car the growth recovery prices strong, historical inventories months car high our remain our in in we in Used below rates. pandemic, loan will reduced balance. then have and as which or our which And used is business. seen in the out vehicle averages through new in financing there default, show losses remain play of subprime have then delinquencies increase robust rates will that less obviously, stay that Now, ahead, payment eventual

strong transactions We of XX.X%. at quarter and also to with capitalized, platform demonstrated off and executing successful funds company of SRT SDART cost liquidity, the platforms. SC well ABS history. quarter, our and year the on achieved access two ending During lowest remained transactions the the CETX Both the

will us which allow sheet, to manage balance challenges. upcoming strong a have through We

the quarter, in second capital the results ranked parent company, During Reserve test our to stress SHUSA the banks participating among top SHUSA. quartile the stress Federal the ratios. of provided for

quarter interim prohibit However, the capital interim Federal which SC first Reserve in SHUSA limiting distributions, another dividend from has quarter. policy. the to extended will a for exceptions the paying guidelines certain requested the

However, of the we of SHUSA's exceptional outcome timing is dividend Pending request uncertain. pay request, quarter. and approval a cannot the this

XXXX. In Act and pleased addition, with during Reporting entered with a consent matter. fully the and order the a back servicing. related investigation into the and an Fair highly settlement. investigation to with lender fourth standards, additional controls and include which the under we large a in regulated SC's responsible was no loan financial quarter, is rigorous for cooperated will in operate this be to this, charges to around environment we compliance taken Credit CFPB with the SC resolve legacy compliance reserved August SC are We institution dating into risk lending connection

years, XXXX. Over policies Santander the of reporting. our management risk we improving the across are procedures, we've several and Consumer proud bureau including past board, strengthened how navigated our In summary,

we any our into of around amount we XXXX, believe in ability are confident significant and still that a execute in adapt there's scenario. Looking uncertainty to but us,

our for With current detailed more liquidity Fahmi? strategic our initiatives climate elevated the capital of long-term to shareholders. the I'd credit as and review call results. invest that, to return in capital We regulatory like and permit, the absorb to have continue Fahmi turn to losses, to and over

Fahmi Karam

Thanks, Mahesh, good and everyone. morning,

economic influence some indicators performance. slide Turning key to for that four our

in Although, pandemic. change elevated states outlook our indicators of indicated due years. peak to restrict continues potential the quarter-over-quarter seen most ongoing come spike GDP is to The the some prior economic improved, have economy rollout, activity. levels, from pressure the remains for continue economy early to has last to off rise, has U.S. The the further Despite versus recently to face economic improved the quarter, and the Unemployment but COVID-XX and uncertain. remains normalize. beginning cases vaccine have stages growth

the customers. there credit of auto government On round our have the and slide for these a On five, a to Either growing are influence impact another performance. few stimulus. is our that our of other business origination and could volume factors momentum spectrum, events of significant key end

vehicle used to New continue and improve XXXX. normalize and sales in

million fourth line vehicle off XX leveled over of year million, New earlier and sales the XXXX. XX units trough of the the in with quarter above well in

at The still up couple trended of past supply fourth new and remains units auctions, vehicle industry Several norms consumers and in year-over-year more influence trend transportation vehicle demand may including, over number affordable the was we Used the Used demand of choosing in number that consistent trends new historical losses of increased continue XXXX. the supply, factors others, fourth purchase is used car services. vehicle shortage historical the or cars, a vehicle are used peak XX% saw been quarters. versus delinquency with quarter in inventory for consumer sold to prices, wholesale off and below and strong limiting low car among quarter. January. August than New public more seasonal pricing in of and and has its line influencing ridesharing

were a long-term the used with to in followed and the trending levels We seasonal off expect over follow at the the quarters strong with by the drop dip XXXX believe pandemic, onset We fall. record continued should has to the couple the XXXX in prices large prices levels with patterns moderate a spike prices. above of in followed in in next appreciation Prices continue XXXX of August. volatile XXXX started car by elevated the of year. to second below half typical spring

origination six slide trends. for to Turning

in nearly XXXX, slightly versus year volume loans SC $XX XXXX. a leases, down originated record auto During and billion of

spectrum. of Although adapt our ability increasing volumes provide core mix non-prime dynamics credit different, and Chrysler volume year across demonstrating to lease full solutions while market We channels, X% the down and XX%. our originations much by supported unique we as FCA comprehensive to prime the decreased our credit was dealers year-over-year, only in SC's to

channels. the normalize into believe benefit move mix XXXX, in share we gains market and across all from our will we we the As of will

loan X%. quarter decreased the X% capital For increased fourth Chrysler Chrysler lease decreased originations originations volume decreased Total X%. XXXX, non-prime increased year-over-year. volume originations X%. and prime Chrysler core of XX% loan

been loan of as core slowed fourth under and continue to since strong to in Chrysler the non-prime continues vehicles. shifted the be vehicle affordable and sales pandemic consumer volume pressure have increase more new the into preferences onset nonprime we to expect quarter originations used Our XXXX.

extended originations incentives, non-prime disappointed remain exclusive in level normalize FCA, with Capital, improve quarter including to pleased the as Prime as segments. These the below our to during very FCA's market. to quarter, decreased market retail year. year-over-year of more earlier still incentives our as the offers although channels year-end of share in incentives fourth are continued volumes we levels credit quarter the the originations fourth levels. in improved percentage and decreased driven we quarter a attractive lease as pre-COVID spring, were higher to of the the our began in term in loan by third Lease since and peak Chrysler the the risk as increased sales from offers loan in towards from in enhanced We leases manufacturer decreased customers

profile terms. our our us and sales, channel future credit the was provide has of team's half we reflection well Our for of of continuously in originations the positions our to XXXX, in with into lease partners attractive second market position risk. quarter vintage XXXX are Overall, consumers as We of and work believe margin pricing that continued strong a and and FCA momentum the execution dealers profitability. competitive and our share strong, our quality at assess each

added focus Core Our were Slide serve year channel a of well down leases our XXXX down mix the vehicles while quarter tightening stable our We most to has Chrysler monthly to the as loan and continuing at remain in dealers. underwriting up our and versus customers with versus slightly and from our versus have levels the higher call standards. to we has we This increased our Capital channel and XXXX. dealer originate disciplined risk-adjusted XXXX to nonprime same of is continued appropriate a X, this break originations time, for returns originations versus in approach On to loans fourth core ago. while share network. were perform new loans year. margin, the

leading XXXX, As priority Capital a exclusive in to to the half in the of vehicles, new channel. this consumers quarter. fourth incentives this Chrysler to quarter in were made loans in used lower versus year, decreased second vehicles high due lower Capital prime volume affordability FCA Chrysler demand the versus

we second incentives FCA's previously, leases typical, believe in half volume. on commented prime the we've fluctuations return As to our to volume monthly, are prime we retaining as momentum responded impacting November continue XXXX the of and pre-COVID throughout competitive change will materially and XXXX. product to These for on increased and improve pressures very levels Chrysler are Lease into us, focused share and in October. XXXX. a we and is continuing December, in competitive

and partnership. the sales our the year. but to X to half of auto US sales Moving FCA pandemic, improved year-over-year lower significantly Page have second FCA sales, due including in were the

Our the due versus quarterly XX% prior penetration rate year down to FCA of incentives to was lower Chrysler Capital. exclusive quarter

was exclusive in Chrysler penetration market, In of flat saw Our penetration. versus uptick in were prior January, XX% of year. back offers full and year Capital we an the

We with will continue FCA incentive to programs. collaborate XXXX on

Turning to Slide X.

leverage continue growth We ways for in our our servicing to Serviced drive to and Others capabilities identify platform.

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

SFO one flat the our but most fee-generating Serviced partner. fee quarter to successfully million year. year, we of avenue $XX this This income the plan our part core a year, out this the balance this converted remained relatively million we external grow remains to and platform onto $XX our strategy. platform coming new in of for of business. pandemic, the Others generated for for The portfolio During added and And servicing

Slide XX. Moving to

uncertainty. dealers capacity warehouse we of SC's of funded our available $XX had approximately fourth of for of revolving to end liquidity was As and lines of success of total billion. our billion to third-party support be our quarter, $XX customers Liquidity in unutilized SC's critical quarter approximately continues lines. the during At efforts and both remains end, on and times fundamental XX% unused the

third-party our continued billion including our have through SHUSA $X unused facilities. from also lenders, to support capacity we parent, addition our In of

the During the in SRT history. $X.X billion closed in company's both quarter, lowest the transaction, also we SDART and of achieved cost funds

to transaction loans. of our seek million The opportunities end, through year $XXX mostly of our totaled We platform. prime the sheet quarter securitization balance first continue executed sheet. we to off-balance optimize After the SCARD approximately successfully

XXXX, resulted onetime and portfolio depreciation lower increased quarter and was more Net less doubled to versus and Moving quarter. to expense forecast than This increased impact This trends million favorable X.X% rates, customer million, Slide prior quarter-over-quarter at charge-offs the a opening the throughout strong net performance basis loan collection in $XXX share during fourth or prices the saw gains, on of fourth government XX% quarter. payment due due to of Recall units of the auction versus finance favorable site to our dispositions is income to as year $XXX rates loss debt and performance improved a lower portfolio, a and financial In our due to the these Interest values. increased down loans residual and lending to balances lower dispositions in XXXX. sharing percentage quarter, we expenses compared last increases to by the lease on pandemic FCA. held by average last staff higher and as rates the the Credit Tampa in more to to million personal net robust were residual maturing lease increased of increase due improved and points our quarter. in compared to dispositions receivables $XX driven sale. prior auction. in XX the going review The than million gains improved offset which due the salaries portfolio. on lease by favorable income of leased versus lease lease quarter. earlier sale market residual higher XX%, year. Interest loan expense dealers in stimulus by for X% a for deferrals, portfolio increased of of increased quarter and significantly Profit auction related which in Operating portfolio quarter $XXX we conditions. million decreased held-for-sale were losses. third for led quarter-over-quarter. benefited units Bay. performance rates up share benchmark customers recovery to to higher $XX to with new quality expense expense to X% per lower purchasing ramp-up losses due quarter an driven driven has vehicle to credit Investment balances in XX Net and better benefits the quarter more from related decrease of of in year quarter decreased the Cost $X.XX and expenses income the on increased in personal lower decreased year-over-year, versus auction the the lower and this EPS income year of XX% quarter,

expense basis year-over-year. points XX ratio down quarterly was Our

we increased which FCA million, in for CECL prior conditions. approximately the increased reserve income in was by the and expense leased expense. by primarily full to decreased increased by sharing decreased XX by year to offset COVID-XX, lease decreased of due by expense expenses due repossession expense an will billion increase employee points year in increased XXXX, improved volume. Interest doubled, associated million, the Profit residual more in year, for basis $XXX approximately Net Interest partially increase by billion. year. X%. gains, of were Operating down charge-offs year. Net expenses to of to XX reserves X% the approximately turn balances, receivables in increase loan basis X%, Next, yield higher driven related Cost $X.X lower, on grew loans results. to vehicles well expense. the and held-for-sale partially the Net in provision driven an vehicle points build the in due to offset driven Credit XX earlier lower driven finance with personal benchmark and Slide XX%, an share portfolio XX% year. driven $X.X which on macroeconomic lower increase offset with Net loan an by average up loss million versus compensation lease expenses X% depreciation prime increased $XXX decreased adoption income derivatives and on debt headcount. to rates, by $XXX approximately as our as loan we than X%,

deferrals accounts of slide approximately trend the total, balance to the XX, since on pandemic, beginning XXX,XXX our covers we the million unique beginning In pandemic. since granted deferral to billion which Moving loan our the sheet. of was $XX.X X.X

slight deferrals, of and in remain a down X% the but pace active continued had request their up government that the off the third the deferrals have Of XX%, of days that approximately in forbearance accounts we expired to unique of at of delinquent, XX in end than delinquent, than fourth from COVID-XX those stimulus remain unemployment. a elevated or for total and the uptick saw asking active received quarter. paid increase quarter, the the approximately $X.X more deferral, of billion, days in of received of accounts accounts quarter peak typical During the XX X.X% balance deferral accounts. That's as X% those XXX,XXX expire. XX% extension less percentage X.X% ended patterns We these XX% accounts seasonal believe accounts deferrals ending in charged have from due of the XX% off. at X% is a August,

Act, savings. uptick spending extended new end received payment and We continue of and were made with come in again XX% the have due consumers active. both deferral eight expiring up December, the levels down CARES and the remaining benefits quarter since of payment Accounts the inactive. remained non-extended trend pandemic to payment January well accounts XX% into experienced perform the behave is package and to seen due extension trend we accounts. an in COVID third normal stimulus a In this XX% payment, in and more increasing extended the stimulus have in for the certain rationally, has modification as believe to controlling that December The continued with rates from with of and accounts For a not seasonality. and of

deferral status charge-off. and delinquency on economic into there Ultimately, ultimately delinquency As accounts elevated If believe of the of we to the some have levels half XXXX. losses recovery expect information will second through level last quarter, further we in increase stimulus remain unemployment mentioned and today, roll the will we XXXX of we in active Based package the and of and losses. may be losses. larger the delay determine the and Losses passes, saw and of timing delinquency basis overall another pace remain that expected. fourth cover prior also The last X.X% that to decreased loss. XXX the uptick increased quarter XX delinquencies well-below late-stage XXX basis and the Versus trend quarter-over-quarter year continued but ratio a slide delinquency, has fourth quarter, from quarter-over-quarter, decreased XXX than year. basis to in points delinquencies in as points. quarter gross to stage of Similar Continuing points early XXXX levels. charge-off last decreased quarter, RIC more the we the

and Our gross in as charge-offs to recovery quarter was losses quarter, decreased normalize. the from of points begin year. but the charge-off a last down of net as versus recovery values up XX% ratio X.X% basis XXX The rate year-over-year, last percentage

to Turning recovery monthly detailed rates XX. versus loss XXXX. slide and We

quarter charge-off better ratios While fourth recovery rates year-over-year. and are our

the continue in XXXX. anticipated, metrics half of these As to second worsen

fourth which Index a increase XX% to In and strong sales, portfolio, XX% year-over-year to to used record stabilized XXXX. quarter year-over-year. we and the Rates gross across respectively. ages continue up as and prices approximately the were types, recovery trucks quarter a versus SUVs, rates in continued seasonally in XX% car of the auction our XX% our in range. down and the Manheim auction August, quarter the above vehicle in vehicle represent move losses both we especially experienced levels of in trend trend in prices, XX% fourth In own Prices increase normal through XXX toward the expect and regards We XXXX. hit to

gross prior review than recoveries. due balances, were year. loan offset year-over-year. $XXX walk to in XX by Net more to fewer slide to were higher Losses down loss improvement million average significantly the $XXX charge-offs but $XXX RICs Moving figures million due from increased and to million in losses the and in for dollars

activity XX. XX.X%, end Turning to reserves allowance at of this of the double through from ratio approximately new year. to billion reserves, we carried in XXXX represents year. up ended reserve quarter XX% of the We A slide amount show with page $X.X added last an XXXX. we This approximately the

Our total reserves day the approximately just our increased XX% from and from of XXX% end CECL over one XXXX. balance

line total reserved were economy Our growth on the loan centric we below remaining those is well the about TDR consumer in given since unemployment the increase XX% of loans is level believe peers, overall lifetime day of a other our balance. And auto the already year-over-year elevated TDRs one Coming in but and portfolio. represented with into uncertainty level is and peers for pre-CECL, our due country. basis. to our in Overall, the appropriate XXXX, reserve

in decrease an and balances. Moving of increase built to build. since due $XX quarter driven factors The $XX the mix, decreased release of by of the slide approximately represents decrease to of we million day reserves the offset macro million the At last end portfolio by our improved this X% XX. a in a from reserves one fourth CECL allowance credit losses quarter, quarter, reserves for in

during Our the second macro due quarter. in of reserves uncertainty have this first adoption significant especially outlook, materially CECL changes increased and the year and to the and

initial from and benefits Although, economy and Also, the stimulus in for realized. slowed consumer expired the since is of pace initial improvement the losses deferrals the economic months jobless improved, remain macro elevated. pandemic in few claims factors demand the expected yet indicative last recession, a remains be have to over uptick the that have has the

prolonged used assumes macro improved, mentioned, this we scenario unemployment still elevated and the a but As quarter-over-quarter scenario the recovery.

scenario unemployment year in flat in slightly next remaining X%. to XXXX, an couple the baseline Our uptick ending months, assumes just of under macro throughout down the

those round modeling stimulus either to an have will Our on materialize, it we proposed our scenario the wave those and our into governmental have incorporate will as include another of appropriate. shelter-in-place orders. impact not does or of of portfolio, circumstances latest If

to to XX percentage supporting TDR Moving versus to coverage an for by these continues relief balance with -- by delinquency increase to COVID, XX.X%. XX rate. of in quarter be end of population third deterioration. assets driven balances refined rates The this levels asset approximately continued held going well-reserved quarter, elevated coverage seasonally the loans five designation. to a held allowance from third ratio This slide versus receiving XXXX at stable TDR has customer The approximately a the TDR to ratio with The percentage this riskier our to coverage quarter XX%. of portfolio due believe overall levels are CECL for cover of removing have payment of last points coverage approximately in to accounting ratio the of deferral quarter, points TDR the compared non-TDR to stable to reserve. ratio was and performance CECL higher prime ratio coverage basis If $XXX increased and Also increased likely will last XX.X% the compared XXXX. and was strong would XX.X%, grown the quarter. deferral by impacting as from the remained sale move of our quarter. further assets the in continue for the for continue be grow X% investment reserve, we We rate million these into guidance the been of

X%, for slide Turning XX, to totaled down quarter. year the the the quarter from X.X% expense prior from ratio

by look expenses as were collection operating ramp we headcount our XXXX. driven versus an increase up in in primarily efforts to year, up prior the Our

dividend versus XX Finally, quarter turning billion to quarter, being ratio a CETX $X our XX.X%, shareholders its XX, SC fourth of to able basis pay to the slide nearly XXXX. was the down capital in fourth Despite XXXX. points of over the quarter returned not in

in tender these levels, approximately first offer relatively During trade in of Even flat repurchased shares, of the block we the and a ended our which the third We with quarter. year, adequate appropriate. capital remain continue minimums. year the million further this positions inclusive portfolio in we $XXX quarter adverse post capital distributions, to is expand stress than and believe capital more in return and severely the stress to well a withstand when above shareholders scenario to still to us level the of to

mentioned, paying extension quarter is interim income, the Reserve of policy expected based of on average prohibited the Mahesh the quarters a XXXX. of in Federal first As trailing net and from four SHUSA's dividend SC

Although determine requested is is that standalone into capital subject and average plan income trailing in is their certain income first capital to interim SC sufficient to policy. exceptions interim to the to our therefore, capital distribution the SHUSA's distribute quarter, policy has SHUSA's SHUSA utilizes trailing restrictions. consolidated

the outcome that of timing and is uncertain. However, request

economic the As normal, revert over on shareholders. capital and momentum of to years last distribution back focused capital returning maintaining the couple established policies to are the have we we in backdrop

liquidity vehicles quarter capital indicative moving us strong ratios for Our our of are has high. performed will which serve demand To SC. The remains sheet quarter strength, the portfolio well very was fourth conclude, forward. balance for and well and a strong

committed team's optimism future and execute Our balance in expense value our uncertainty we the strong, sheet, there, also management, growth. our disciplined and We approach reinvesting shareholders. have and in capital and but with but and The liquidity business to remain still confidence ability for XXXX to in see our signs deliver remain for to caution. will underwriting we is

to like Mahesh? Q&A, we back Mahesh. over begin I'd Before call the turn to

Mahesh Aditya

Fahmi. Thanks

office newly to in senior will SC's appointed foundation inclusive mentioned employees serve on Chief comprehensive our and first I Officer, cultural role, counsel method. several in this and as culture capabilities of made SC's helping I'm Diversity Diversity, build provide Virnitia focus approaching Virnitia sustainable she growth we've proven they Hendricks. for the to executive DE&I and results-driven Dr. outcomes. leaders build beginning call, new inclusive to organization. a As leading work to an and her at change In with strides and our SC's also through announce will build organization. the of Inclusion, the throughout role, well-established a pleased She processes it oversee will Equity as and the teams

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sustainable – expect We business on we focus to with company our strategy, respect and to for success. long-term the positioning continue

remain experience and dealer a relationships dealer priority our us. Our strategic for

market as pleased we position We competitive dealers are continue with our share. with to very grow

will make We are easier it dedicated processes investing in that experience sales the I our Customer prepared are to the delivering superior all that, again, call invest facing us. plan of stepping and increasing on our to with people thanking for providing dealers in interact technology end position Tracy? solutions. these term. the in results. make remarks we our open great Leveraging I and step position will by future, the remarks, in our more to in customers solutions continue our With area and XXXX virtual service. and leadership become dealers and for more will digital for XXXX external I'll to Part the significantly with employees for up our customer and is in our seamlessly and – end this our to We experience. dealers innovative long efficient solidify questions. integrate sector, our to reliance commitment internal enhancing our

Operator

call Mark will the Our now Instructions] open [Operator at for questions. from first comes question DeVries Hello, we Barclays.

Mark DeVries

your of balancing Yes. CECL you. you restrictions Can about eventual also and should expectations hopes for on phase-in assuming the think Thank interim sheet? capital the some and these how impact returns, the of – kind going we forward, just growing of that balance Fed discuss the lifts the both cadence of

Fahmi Karam

thanks Sure. capital. question. I'll On of the the question. with Mark, I for first start part, guess, the

been – we're So journey that back distribute lot story that excess XXXX XXXX, a balance hard for really focused really we in started to have something a more sheet, on. to has of efficient efforts and good capital. capital as us, A worked really that

and our we've in So to we're disciplined feel been up thoughtful point. still I an in approach very excess position. this capital like

We target distribute execute XX.X%, to have as kind and when our of our to stress grow a work to we the we're over us right, is the next in It to to and so. way XX.X% time. us to from phase lower in CECL year room allow decided us plan to gives still time operate to level allowed any starting absorb XX.X%, to plan. our internal portfolio, the we capital gives opportunity the and and as to that flexibility well down do the Lowering feel strategic target

think that. of best when billion for XXXX. mentioned, all track we've capital have to arise We’ve shareholders. DSO, the time good and stewards make we we returned we'll in decision approved capital, $X and as since of of our with a been it doing and down So of the the our I company And we record, have Board sit XXXX

Mark DeVries

Okay. Well, then. follow-up related just a

of the Is think on roughly to ratio it? balance enable the that that basis right that about target. points would if right think to payout XXX kind a CECL XXX% we maybe and I sheet think CETX. path way Is you have get you new to growth little impact of glide it to about that assume is that

Fahmi Karam

accreting this and lot capital Obviously, buyback. capital with so. a the quarter, we're think I we year big Yes, accreted of every

feel years standpoint. from a we over next in really the absorb position CECL capital a we're like X so good And to it

and the do mentioned, but in form on to able share whether of capital appropriately or on be it's opportunities. buybacks, and anything inorganic I the plan our front, strategic organic execute distribute also dividends As

Mark DeVries

Okay. you. Great. Thank

Operator

question take will We Credit from next our now Moshe Orenbuch at Suisse.

Moshe Orenbuch

other you both The manifests back Great. mentioned been strong kind how I supply quarter, leasing quarters about But I some XXXX. into next over pricing. different during weaker things, XXXX? wanted originations think itself of and subprime's here, of the and you mean, to several Can continued saw that I subprime that you you this about question in players have well. talk been so talking either main came but think sorts was ask

Fahmi Karam

Yes.

Chrysler which you and nonprime, have they look to separated channel. have between And at and our out you it them. is most prime originations all of, core, at to lease, Chrysler pointed then and have You to by look different trends

We we and position been core position, able nonprime to from deck. channel. and look side to earnings the if at both that's credit really obviously since and about position. able you've general, XXXX. into we've a And a the where that quality been share X continue see pandemic, Page share slightly our you in we stand good to feel onset really of year-over-year, market our On used expect that Really it the of increase

On side, went incentives put that into exclusive very incentives. basis. prepared the year, mentioned in are the those our I Capital. on really were to heavy remarks Chrysler a APR, through that around they it's in they the on market the Earlier usually Chrysler monthly driven on And the so

and incentives incentives some to year, the APR return pricing in less that, into of APR are exclusive later those things of got Capital. those employee Chrysler we programs As which like

incentives. our There's be and dealers, of Chrysler just based have competitive. with in last X the going FCA's ebb flow but only that Lease, platform talked And consistent quarters, do over national leases to couple our we've the therefore, on that and other country. to it's very there, we so about players

defend to and it. share is of hopefully that one as able of grow last XXXX months in do first the something have couple do over that And so it we've and And that to the our we been well. quarter

Mahesh Aditya

sales over last general percentage of And years. we in sort are of for X Chrysler terms a of lower coming total off lease the

deemphasizing the been vol, that has has fact market months. has last four Chrysler So the lease been successfully over increasing lease our the lease, -- overall share industry

Moshe Orenbuch

Thanks. it. information the talk you inorganic you, to and a in the opportunities? here both capital kind your bit end inorganic there, just you portion follow-up of that out the of I at new how and things of about kind capital Are little direction? as But of Could allocating monthly what much for quick potential Got on meant return. basis. be you would organic alluded base, or answer, on on there both just answer, in last your the for you thank your a end of, that's maybe to about And all previous talk organic about that you think a would if see and question

Fahmi Karam

it. of a Yeah, Moshe, we don't have certain per allocation se

inorganic opportunistic we'll but been portfolios the opportunistic announce side. right and become nothing And available. as buying be on they there, think now, I we've to

exactly on people shake be. loss of how would some reach out I that slowed the how as think down agreement sure couldn't not recovery the would discussion forecasting really the pandemic an were and

has think down, So of slowed be forward. I that but going part it we'll opportunistic

really and as side, our and of partnership organic that pandemic customers. to the well I channel, with well play helped you've with On lot with Chrysler a programs channel, FCA some of strategy in put the as the through seen that time mentioned out core volume, in our bank our our in we network our as spent as dealer

be to go. started, still side, we the specific the some then the of some the of percentage then side. on have opportunistic room we've benefit not organic initiatives and we're going seen inorganic you've to a So allocation, And of

Moshe Orenbuch

Thanks very much.

Operator

Our JPMorgan. Rick next at question from Shane comes

Rick Shane

at thanks looks and about to greater XX that to those going morning. for look expired Thank are loans to of one the that Hey, way about good charge-offs charge rolled one-third last that forward? deferral and of good my delinquent out you it, taking is good than to quarter that migrate the guys, days jumps Is morning. it a things migration, loan going the me looking this to quarter. questions, at XX-plus-percent of I'm like that

Fahmi Karam

I of one-third that's the right to way Rick. portfolio, No. at if the know don't look it,

case the on of case. extensions standpoint, by accounts, a unique, and the level very it's from depending we're giving that Just

fourth know it's relief give that's deferrals, loan in good quarter. the So as stimulus the The this we we thinking see trends generally, as the dip that consumers way that it. necessarily was I a the in But a on do we're normal a to positive them mentioned probably that if we think for ending December checks inactivity don't at seasonal combination time. and doing seeing, of well of

we've seen out us, the from in just in the January For on were January. a going depends that really big new and And it December stimulus. jump checks

very monitor but currently, obviously, to of for we, try feel quarter-over-quarter reserved hard that that's to level that say something We trend it's to that we and like a heavily. we're so forward. going see And have the extensions extrapolate

Rick Shane

-- of greater Got charge the XX specifically forbearance and bucket, days cumulative than quarter, talking charge-offs and it. cumulative XX,XXX were that the was delinquent units that number there XX,XXX. change the last the And in in I'm were -- the

I'm where That's that's roll the what that number. So on? I'm wondering about getting

Fahmi Karam

to of a you I that, again, with just of matter it's see Yeah, activity forward. But quarter-over-quarter, be I the going think I'm case-by-case it's too. going Rick. on kind

Mahesh Aditya

does charge-off Also, Rick, deferred. the deferred being is portfolio that's that, the point than the normal faster flow not portfolio here the

portfolio charge-off. But So you that's delinquent did and about math, if would so deferral. the good that’s were that only not to work under broad flow to the a-third -- those of that pay specific

Rick Shane

it. Got

interesting. That's Okay.

are they charging So the bit XX-day days roll bucket? that to a for little off portfolio, once the through shorter

Mahesh Aditya

in there no because if run is which come to pay loan. case, up our pay deferrals, in they either to they've the they've policy, can't maximum Because loan, they And the against of but then option, charge-off. out Right. go the

infinitum add So constraints and giving don't the we defining -- of are this deferrals. keep

months a have of that of the number that a -- we'll number loan. on deferrals cap We defer

So that, then there's but to charge-off, against pay. up alternative, or if no you come

Rick Shane

it. Got

you much, Thank Okay. very guys.

Operator

Our Hecht at next Jefferies. question comes from John

John Hecht

my Thanks been lease very lease couple. I of guess One much, portfolio, have obviously, questions strong. guys. were margins pretty the asked. a Most is,

the outlook the that your do in how now? margins the and that And for and residual Where expectations about getting set is given You're pricing? lease depreciation gains end. think your some car for curve we used back

Fahmi Karam

for Thanks the John. morning, question. Good

So, lease yes, yield a has been from standpoint, lease year. volatile pretty all

auction, sales. and drove basically really limited If QX, saw very at go all remember, to which sales you our and back of eliminated limited on maturity down gain very we

So we then seen low a and then. QX we've up big since spike very saw a trough in

expense seeing that the residual benefit about still dispositions depreciation QX. depreciation. record for think the QX, forecasts but kind the used big had I we heavy less prices. And year, up a have and QX, of we expense the in dispositions, makes is quarter saw In expense improved So you're in throughout the depreciation was in elevated the way the lot of car prices, fourth the depreciation

year, about the XXXX. ended lease points basis X% That's and overall yield. about for XX we So at we below where ended net in XXXX

to expect car forward, going we have elevated prices. So, used still

X.X% think will for or But, sustainable. normal, level depreciation we saw the the expense net The we'll above I the overall, net be be for be than the lower something X.X% is not not at the in will that X% year, think year. QX. but yield, yield yield, I do is think do

John Hecht

just for the I there's Okay. and years, a question. can't separate informally And remind mean, -- you formally a loan remember. I us can the contract. or whether few unsecured I it's then also portfolio, market on been has believe,

capital? just it's the keep up maybe might this coming decide next give do to with you and us plans about decide do do that, think sell strategic if or I talk update what is to year. you you on maybe you the you it your Can or around it, it that year

Fahmi Karam

That XX-month sharing for a the have see well April of in profit the both XXXX, saw as able here, quarter And does it. in we're that. extremely we far can the expire has exit We're on does our the portfolio. -- selling you hopefully, as it So been nothing year. as our increases fourth John, to performing portfolio update to by to do contract that plan still of and tail business. activity part its on The and

to point, as you've we'll question when or as So, to in residual that. know of let nothing got Can how at from on And move do that? able any capital you this unlocked we portfolio, that you on soon put kind are what just would think market much tell capital to announce way the but do. be about us

Fahmi Karam

billion of and look the in the figure there through the haven't year, the about a out. appendix at portfolio But value. in in details the So, marked presentation, $X.X let and we fair you to it's I'll detail the end

John Hecht

you Thank that. Appreciate Great. very much.

Operator

Our at Graseck next from Morgan Betsy comes Stanley. question

Betsy Graseck

It's you? are Good Graseck. Betsy how Hey, morning.

Mahesh Aditya

Hey Betsy.

Betsy Graseck

of wanted maybe funds, is NIM to but to here? room funds, how some I dig to in there this then how dig prime going to particular, non-prime So, forward. just thinking think just is shift us on there know the the the expected in about bring give room bit and to I can also highlighted color little to between bit of down you Hi. a cost from wanted a year you're about further that in particular, I'm to cost about I that. bring in little you think normalizing, to the wondering how mix that's

Fahmi Karam

Sure.

about dollar So, quarter-over-quarter year-over-year up obviously most the standpoint XX%. the And NIM, balances separate -- we're of again are side, on a the lease. X%. up about to it high I'm because up and lease going But from and were was between up loan

we've given we've prime exclusive and seen in side, loan in the all the a on lot the the market, that us, So, of our about incentives in the talked prime we sheet retained volume. on balance to XXXX,

of Now, look the billion. about balance $X billion then year-end. you at the around balance typically, somewhere And prime had at sheet, $X loans sheet run we on

try doing assets. the prime loan then do the our January to So, those balance sheet yield. we yields loans, periodically to if whole loan securitization and and Betsy, And our down is off execute see there, uptick Strategy bring towards end optimize that, of we extra that's year. to what or sell you'll and definitely going sheet successful in to do trades that had in prime an off-balance did in loan we're

for a better side, think re-price continue both there rate very points do And we our basis the year, that think think The about on obviously better our us. XX it's deals. from third points basis environment XX the for quarter. re-priced basis and used the we feel as better as least, far of and the I On private were tailwind And I just about definitely quarter, is the XX will car points trend low at securitization, for lease cost forecasting residual I debt, and what as I we good went prices. to then side. through lease sensitive

Betsy Graseck

Okay.

ex-used here, should in see we from even car should that's a pulls bit. realize back some -- uptick bit a if used higher? it's the but flex hard NIM nice forecast, prices be So, definitely that's car auto and I mean, little to I

Fahmi Karam

the Yes. to the of over ability flex retained well time sheet That's and do some we've XXXX. as our off-balance that as

driver. the I big that's think

Betsy Graseck

Okay. had some have December, on that because benefit that And stage, of in you I the there. questions out of for deferrals getting get hitting in that. the we put months. now on the slug At that the took this that out, request was four increased August pockets people's in stimulus recent we're stimulus so basically checks like running

be it's then going be a to recent So to $X.X like, what us this payment the And the on can since us rate, sense weeks? with hit passing regard pockets? will have what trillion color in you give more people's seeing as the benefit you're you looks the next little the checks to give from government think that few a

Fahmi Karam

Yes.

So, than I'll compared and change you December, it the obviously, Betsy, add in start better in saw can But January payment was definitely in December. November. in. a maybe bit little Mahesh, rates a to

of again, they down, We part think it were, ending payment has extensions slowed time people late and September call again or are stimulus but it So frame. where in January, rates of for saw back the was the the to asking first I round summer. kind in August, of it, start definitely deferrals

is portfolio, the in that base So level to it in our is market. stimulus, the our sensitive given and consumer very very sensitive of unemployment

of and for still should does right it months if we the we've be to deferral trillion a but as for our And big be obviously for or there them have to to for cash talking just us, next of least couple decision we're right the the going improvement at to making levels, in So going do them, We're seen that so. pass continue elevated payment $X.X them and proposed, expect that's rates. decision influx for customers.

Mahesh Aditya

comes there's and payment said, rates Fahmi extension. of passing reaction And reacted. seeing way slowdown instantaneous a in – requests the the between our that for package stimulus we're as with almost So a

charge-offs, to slowed are We've January new extension and both whole rates payment increase package, have the seen, in of going spike So could it's to One payment continue payment rates is also passed, the Fahmi secular payments, into see said, and increase to if which if if in couple stickiness rates vintages. delinquencies are it reallocation, But seen in continue therefore, down. the XXXX, payment of goes increase rates sort hierarchy payoff rates. going in lower increasingly result through, then the way stimulus of both as lower some will also things. payoff perceptively the we've what we're as request to balances sort a a and in this of holding and across

call important given of of to is because take going gets line, over to reallocation race of own. it's if economy of vintage when liquidity. returns. sort it's end which here balance availability the at – originally of say be be So sort a race start year But happened point all to to percentage in higher against happening in being has what's the and the package XXXX, a pay originated a XXXX as was finish versus start back the jobs vintage the coming is what a sort going the enough vintage to this through terms a of – of let’s here their normalcy what stimulus passed. people what – at thing happens a to it, able where of, Then And

going when it we mortgages back So happen force moratoria the think or down headwind that expire those the what’s The of the paying due? towards rents is that [ph] payment us on with and built sort cross hierarchy payment to allocate Does wind once point? for mortgages, about rents are all as factors other important our thing, countervailing in we that at and are

Betsy Graseck

information that your and asking they're For Do or collect when are you example, as are rent portfolio? topic or calling any not to you on for a do able people that in paying the delay, have point – at whether you visibility in mortgage? to

Fahmi Karam

across X/X post. question. as analysis customer versus deterioration as So in is industries, about employment handling because the disaster, touch too We've, there's or of a very so calls understand but sort employment in we've of that's our portfolio some light far the done had distributes we examine we our there back to far, pre-pandemic concerned much, that and great want a are don't national of those portfolio cross a shift and industry job significant rate And how we at have on sort is categories. which change call what high-risk been

do through demonstrating sort who going this of are they we and a are payment X/X so event about who are that of the So of eventually our biggest there's kind to behavior. and with beneficiary speak, customers understand ones probably stimulus – job crisis, the

Betsy Graseck

Okay. you. Thank

Operator

last comes from question KBW. Steven Our Kwok at

Steven Kwok

around well? my taking question. exemptions assumption Hi structure had good one around the capital I Was morning. as just just buybacks dividends, quick they Thanks for or to or just Feds include the follow-up did to the plan.

Fahmi Karam

will we as we on quarter comment did of the exceptional announce back, to we with last news, going year. consistent we what request. But some not in the but hear on we're third said, was asked whenever Steven, what hopefully, good we get it

Steven Kwok

Got Thanks. Thanks for taking it. question. the

Operator

time. at further now no comments. questions the final I are turn over Mahesh There this will call for to Aditya

Mahesh Aditya

thanks, Thank for everyone, interest you. your SC. And for and in the joining today call

Our day. Investor quarter. and a Bye. next have again you, you for follow-up look will forward with and the to team in Relations we speaking now questions, available be Thank great

Operator

This participation. call. concludes your you Thank for today's

You may now disconnect.

Santander Consumer USA (SC) 3 Feb 212020 Q4 Earnings call transcript