Santander Consumer USA Holdings Inc. Reports Third Quarter 2016 Results

DALLAS, Nov. 9, 2016 /PRNewswire/ -- Santander Consumer USA Holdings Inc. (NYSE: SC) ("SC") today announced net income for third quarter 2016 of $214 million, or $0.59 per diluted common share.

Third Quarter 2016 Key Highlights (variances compared to third quarter 2015):

• One-time tax benefit of $11 million, or $0.03 per diluted common share
• Total auto originations of $5.2 billion
  • Chrysler Capital lease originations of $1.3 billion, down 17%
  • Chrysler Capital retail originations of $1.9 billion, down 39%
  • Core retail auto originations of $2.0 billion, down 29%
• Net finance and other interest income of $1.2 billion, down 3%
• Return on average assets of 2.2%
• Return on average equity 17.1%
• Expense ratio of 2.2%, up 10 bps
• Average managed assets of $52.7 billion, up 3%
• Common equity tier 1 (CET1) ratio of 13.1%, up 160 bps

"We are pleased to report solid core financial performance in the third quarter in light of the competitive marketplace. Fewer originations are in part due to our disciplined underwriting standards as we are committed to driving originations at the right price and structure, and in part due to increased competition in the prime space," said Jason Kulas, President and Chief Executive Officer. "We are finalizing a strategic agreement with Banco Santander to originate and flow prime and near-prime retail loan assets. This strategy should strengthen our overall relationship with Fiat Chrysler (FCA) and our Chrysler Capital volume, as well as our serviced for others strategy."

Mr. Kulas continued, "Our commitment to building a culture of compliance and putting customers at the center of everything we do is the foundation of our continued success. We remain confident in our ability to execute our business plan and deliver value for all our stakeholders and customers through market cycles."

Finance receivables, loans and leases, net¹, increased 6.1 percent, to $34.7 billion at September 30, 2016, from $32.7 billion at December 31, 2015, driven by an increase in lease assets. Net finance and other interest income decreased 3 percent to $1.18 billion in the third quarter 2016 from $1.22 billion in the third quarter 2015, primarily driven by a shift in credit mix as a result of disciplined underwriting standards, and higher cost of funds, driven by an increase in spreads and benchmark rates.

SC's average annual percentage rate (APR) as of the end of the third quarter 2016 for retail installment contracts (RICs) held for investment was 16.4 percent, down from 16.9 percent as of the end of the third quarter 2015. These APRs are consistent with credit trends in our held for investment portfolio. As of the end of the third quarter 2016, RICs with FICO^® scores less than 540 decreased to 22.2 percent, from 23.8 percent as of the end of the third quarter 2015. In addition, RICs with FICO^® scores greater than 640 increased to 13.8 percent, from 12.6 percent.

Net leased vehicle income increased 47 percent to $135.8 million in the third quarter 2016 from $92.7 million in the third quarter 2015 as a result of the continued growth of our leasing portfolio.

The allowance ratio² increased to 12.4 percent as of September 30, 2016, from 11.9 percent as of December 31, 2015, primarily driven by the increased balance of loans classified as troubled debt restructurings (TDRs). A TDR is an accounting classification for assets that meet certain loan modification or extension criteria. Loan modifications and extensions are utilized to offer assistance to some customers experiencing temporary hardship. Under GAAP, the allowance for assets classified as TDRs takes into consideration expected lifetime losses. The allowance ratio as of September 30, 2016 is down from the June 30, 2016 ratio of 12.6%.

SC's RIC net charge-off and delinquency ratio³ increased to 8.7 percent and 4.6 percent, respectively, for the third quarter 2016 from 8.2 percent and 3.8 percent, respectively, for the third quarter 2015. The increases in the net charge-off and delinquency ratios, and in TDR balances, are driven by the aging of the more nonprime 2015 vintage, and slower portfolio growth since the prior year third quarter.

"More recently our asset mix has shifted toward higher credit quality originations, which has impacted APR, and should market conditions persist, positively impact charge-offs and delinquency in the future," said Izzy Dawood, Chief Financial Officer.

Provision for credit losses decreased to $610 million in the third quarter 2016, from $724 million in the third quarter 2015, driven primarily by the classification of the personal loan portfolio as held for sale in the prior year quarter. Excluding personal lending, provision decreased $8 million versus the prior year quarter.

In the third quarter 2016, SC recorded net investment losses of $106 million, compared to investment gains of $23 million in the third quarter 2015. The current period losses were primarily driven by $98 million of lower of cost or market adjustments related to the held for sale personal lending portfolio, including $114 million in customer default activity and a $19 million decrease in market discount. As mentioned in the prior paragraph, in the third quarter 2016, personal lending activity was included in net investment gains (losses) rather than provision for credit losses due to the classification of the personal lending assets as held for sale. Excluding the impact of personal lending, investment losses totaled $10 million.

During the quarter, SC incurred $284 million of operating expenses, up 9 percent from $261 million in the third quarter 2015 driven by higher repossession activity and increased headcount. SC's expense ratio for the quarter increased slightly to 2.2 percent, up from 2.1 percent during the same period last year.

In line with SC's strategy to leverage its scalable servicing platform and increase servicing fee income, SC executed asset sales of $794 million during the third quarter through existing loan sale programs, under which it retains servicing. The serviced for others portfolio of $12.2 billion as of September 30, 2016, is down 18 percent from September 30, 2015. Servicing fee income increased 1 percent to $36.4 million in the third quarter 2016, from $35.9 million in the third quarter 2015, driven by the sale of seasoned nonprime RICs and associated assets, which carry a higher servicing fee, during the prior year quarter.

¹ Includes Finance receivables held for investment, Finance receivables held for sale and Leased vehicles
² Excludes end of period balances on purchased receivables portfolio of $253 million and finance receivables held for sale of $2.6 billion
³ Net charge-off ratio stated on a recorded investment basis which is unpaid principal balance adjusted for unaccreted net discounts, subvention and origination costs

Conference Call Information

SC management will host a conference call and webcast to discuss the third quarter results and other general matters at 9 a.m. Eastern Time on Wednesday, November 9, 2016. The conference call will be accessible by dialing 877-604-9668 (U.S. domestic), or 719-325-4870 (international), conference ID 2258671. Please dial in 10 minutes prior to the start of the call. The conference call will also be accessible via live audio webcast through the Investor Relations section of the corporate website at http://investors.santanderconsumerusa.com. Choose "Events" and select the information pertaining to the Q3 2016 Earnings Call. Additionally there will be several slides accompanying the webcast. Please allow at least 15 minutes prior to the call to register, download and install any necessary software.

For those unable to listen to the live broadcast, a replay will be available on the company's website or by dialing 844-512-2921 (U.S. domestic), or 412-317-6671 (international), conference ID 2258671, approximately two hours after the event. The dial-in replay will be available for two weeks after the conference call, and the webcast replay will be available through November 23, 2016. An investor presentation will also be available by visiting the Investor Relations page of SC's website at http://investors.santanderconsumerusa.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as anticipates, believes, can, could, may, predicts, potential, should, will, estimates, plans, projects, continuing, ongoing, expects, intends, and similar words or phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties that are subject to change based on various important factors, some of which are beyond our control. For additional discussion of these risks, refer to the section entitled Risk Factors and elsewhere in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q filed by us with the U.S. Securities and Exchange Commission (SEC). Among the factors that could cause the forward-looking statements in this press release and/or our financial performance to differ materially from that suggested by the forward-looking statements are (a) the inherent limitations in internal controls over financial reporting; (b) our ability to remediate any material weaknesses in internal controls over financial reporting completely and in a timely manner; (c) continually changing federal, state, and local laws and regulations could materially adversely affect our business; (d) adverse economic conditions in the United States and worldwide may negatively impact our results; (e) our business could suffer if our access to funding is reduced; (f) significant risks we face implementing our growth strategy, some of which are outside our control; (g) unexpected costs and delays in connection with exiting our personal lending business; (h) our agreement with Fiat Chrysler Automobiles US LLC may not result in currently anticipated levels of growth and is subject to certain performance conditions that could result in termination of the agreement; (i) our business could suffer if we are unsuccessful in developing and maintaining relationships with automobile dealerships; (j) our financial condition, liquidity, and results of operations depend on the credit performance of our loans; (k) loss of our key management or other personnel, or an inability to attract such management and personnel; (l) certain regulations, including but not limited to oversight by the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, the European Central Bank, and the Federal Reserve, whose oversight and regulation may limit certain of our activities, including the timing and amount of dividends and other limitations on our business; and (m) future changes in our relationship with Banco Santander that could adversely affect our operations. If one or more of the factors affecting our forward-looking information and statements proves incorrect, our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, we caution not to place undue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect our results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. New factors emerge from time to time, and management cannot assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements only speak as of the date of this document, and we undertake no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

About Santander Consumer USA Holdings Inc.

Santander Consumer USA Holdings Inc. (NYSE: SC) ("SC") is a full-service, technology-driven consumer finance company focused on vehicle finance, third-party servicing and delivering superior service to our more than 2.7 million customers across the full credit spectrum. The company, which began originating retail installment contracts in 1997, has a managed assets portfolio of more than $52 billion (as of September 30, 2016), and is headquartered in Dallas. (www.santanderconsumerusa.com)

Santander Consumer USA Holdings Inc.
Financial Supplement
Third Quarter 2016

SOURCE Santander Consumer USA Holdings Inc.

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