Santander Consumer USA (SC) 29 Jul 202020 Q2 Earnings call transcript

Good morning, ladies and gentlemen and welcome to the Santander Consumer USA Holdings Second Quarter 2020 Earnings Conference Call. At this time, all parties have been placed into listen-only mode.

Following today's presentation, the floor will be opened for your questions. [Operator Instructions] Today's call is being recorded. At this time, it's my pleasure to introduce your host, Evan Black, Head of Investor Relations. yours. is floor the Evan,

Thanks, Keith. good joining everyone for and morning. Thanks

on Mahesh call included our And President to we turn made certain will filings be and our today respect be public the factors with these to is Aditya, investors. measures U.S. Please CFO. our measures those call that refer And believe Mahesh? forward-looking. we the CEO. statements our Karam On today SEC a Fahmi statements. have financial the our We'll our reference may and and Certain issued with of risk today's non-GAAP to reconciliation XXXX. to X-K July to in GAAP CEO; useful call XX, over I'll also that,

morning, thanks to and Evan, Thank for this good you, our review and us quarter. for results joining everybody,

to lease shareholders experienced the remain economy helped loan nearly and Santander months. impact offering customers. borrowers the of needed by employees months, COVID-XX by lives these caused Consumer and our times, serving four three this communities and In deferrals Over the people's suspending repossession has where the disruption pandemic. difficult last and for to we've our unprecedented and payment and committed global supporting we

communities. to homeless, racism. the commitment to ease vulnerable USA impact Consumer’s in made organizations helping to pandemic million end aimed children highlight These other like part of During populations. non-profit the underserved quarter, the Santander do the organizations also and its Consumer to systemic the to families would are our hungry donation and in I communities services Santander on helping Foundation at XX a $X.X that providing COVID-XX are

$XXX,XXX financial address training few making over to equality for social initiative. We donation and the $XXX,XXX and a equity in includes next the Santander America. multi-year U.S. and have Consumer’s Justice Equal racial and commitment commitment social joined Initiative to multimillion-dollar justice in years racial Santander leadership

Unconscious to have and organization of environment recruiting know among not and conversation diverse steps of of meaningful color and we and taking moment we concrete culture taking make opportunity are foster the valued the diversity. reorienting that ensure training, is few to this option. more and an our have The quo leadership pools are values we they careers. is employees that affirmatively action. implement senior important our that certain are status maintaining to a place the must We bias respects a call rewarding mentorship sustained all change candidates enjoy of are In people an national qualified to

I measures important on Fahmi, and dealers Before highlights turn few during in like touch we've support see operate I'd our some to the COVID-XX taken of On the from three, our customers, presentation employees, to the communities which slide our over quarter. to we will the you a the crisis.

programs to fronts enacted customers all protect our have on We employees. and

continues distancing to to home workforce continue with employees all nearly Our March. since adhere from protocols, to work social

Through from relief, for encouraging responsive June The lease form and and XX,XXX XX, these in the loan had extremely trend have of at We accounts deferrals. managing completed been the April, that's June been of of an July. has expiring extensions requests June the lease of payment payment. dropping in in the dropped pace loan loans we XXX,XXX in that customer performance primarily deferrals. with continued significantly a made more a quarter, peak extension XX% has in The throughout deferrals XX% also than

performance. four discuss slide to QX to Let's turn

in orders and trends. some we lifted key Our a shutdown were performance themes in continuation the of later the country this was April as of last we shared quarter, most saw the quarter quarter, as shelter-in-place improvement in

portfolio. the and not driven results primarily economy by outlook the Our performance of of the the are actual necessarily

primarily of allowance allowance calculation The losses. $XX Our to including in share prices an and related and a the of the of future quarter XX.X% the additional the loan from economic XX.X% car as factors this end or such at loss last loan We diluted $XXX impact with loan up factors, ended of of booked of net ratio with the reserves per million to quarter variety indicators considers economic quarter. the used a million, basis. on loss totaled associated We on outlook existing impact performance loan unemployment $X.XX COVID-XX.

derived of influenced of well forecast was in TDR by lower our rate -- combination best charge-offs view a deferments balances. as of reflect is high and macroeconomic resulting charge-offs scenarios and low the the forward. economy using allowance delinquencies, Our the The which going as growth

high and repossessions view government sub-prime and and residual in capital infection, the loans and used another and elevated extraordinary values pace the possibility Chrysler lower on quarter the core the the situation credit view extremely carefully quality determine The qualitative leases. the to place. by of has put allowance The level potential have in a or level. of of quarter our wave programs marked of economy future driven uncertainty, uncertain. unemployment for appropriate to improved continued management's monitoring The of for second also stimulus in the quality we book best we our Given the gross judgment by of and expenses, impacted lease remains Overall, outlook potential forbearance was higher the to depreciation suspension COVID-XX in are bookings the losses due we recovery. both the our the of the and factors and

approach of over decision-making uncertainty are including we considerable momentum we cautious and part the reserves. in remains last our a taking While our positive there saw the quarter, some

July trends and forecast originations June many quarter during volumes have originations in X% April year. be certainly to versus steady situation the the established an can billion a down outperformed auto last not back second are state where since quarter, We Total accurate Applications was $X.X of firmly comparisons year-over-year and picked development. segments. with and

credit and to ensure shown cars uninterrupted incentive the creativity FCA pandemic Northeast the impacted Bank. Our year-over-year sell Santander loan order closely to volume dedicated be dealer the as Non-prime program launched we partners pandemic volumes dealers our sales in uncertainty. worked segments to were by decreased continue our has deeper leases meet decreased pandemic. continue originations Midwest the where on service Prime driven prevalent resiliency program the heavily $X.X significantly through by and levels. are team with loan with across and our with increased the volumes disciplined and to given and SC's demand. consumer in in through have incredible billion Lease geographies

and on our support mix FCA partners the originations. has changed pleased year quality with the QX we down Although, volume is to at the are prior of

Moving performance. to credit

effects evaluate We on and customers. the the near and our the pandemic continue to long-term impact of

Our the as the and year in and ratios response due Both to for package. second demand auction as net the levels stimulus provided as prior COVID-XX record release quarter from improved versus consumer and cars market charge-off due stage – dealers early ratios. quarter used we improved pent-up In supported reached relief, to federal well June, to gross late-stage delinquency consumer performance the valuations.

affected which is at to an primarily our historically of due which – delinquencies the low credit reason and it's have of we not offer many The affect improving the environment. are credit forbearance muting programs levels, While metrics charge-offs.

deferral interagency guidelines. hardship continue -- We expect the with federal in – to offer to

XX%. access remains demonstrated a benchmark are relative securitizations. strong SC continuing During space in the and to issuer We than the credit to with liquidity, seeing well of capitalized the more the executing CETX spreads ending benchmarking. SC two we quarter remained quarter

billion not revolving balance which XX% strong sheet have a is line – of warehouse as clearly standpoint. to funding have We market, access third-party is upcoming sheet the allow which is a functioning Besides ABS which disruption of will manage deep financial of a evidenced from diversified by was a and through markets only to XX% commitments, unused. challenges. very This we us $XX balance

support the Bank continued our Group, $X from Santander. Santander unsecured including loan from $X capacity SHUSA have of well a billion through of billion as one-use new as facilities, We

company stress Reserve very SHUSA's to year's During top ratio. the positive quartile SHUSA. of quarter, for capital among the it were results results ranking the banks Federal stress test our in the this participating parent provided

However, repurchases quarter. to from expire interim suspended all third in in The set paying a the fourth dividend the user the prohibit its will which dividends, is and SC guidance capital share Federal Reserve quarter.

Fed's it the be or on view conditions. However, market revised of based will extended

which In that dates back states XXXX, milestone XX addressing commenced the settlement agreement a practices, quarter, voluntary XXXX. and in issues the reached and issue legacy to stemming to from of addition, is Columbia underwriting time during in Attorney another key period. The we related a on that resolves with underwriting our General of an investigation District the

additional no operate with large institution loan SC was responsible a include matter around risk, this in put to compliance lender reserved matter and pleased servicing. taken behind regulated are a under will for fully which the SC and controls this We rigorous standards, environment. lending us. and highly connection be settlement. is in financial We charges

improving years a the and over challenging affordability. managed have we've these significantly past procedures few to ensure misconduct better the we has a times. tightening policies in as through Over our our made board prevent management to company our years, risk and across last team dealer the and put several The identify shape strengthened standards progress

place the from and valued, broader manage to summarize, and management to unprecedented of end motivating to to beginning workers, – continue responded employees needs improvement feel which and of operations care our the developed has of safe employees' customers who efforts economic providing and the accepted economy. tireless challenges deferrals, improve our from crisis, customers' and we're sustain our action working bench pricing, challenge a take their while The do core in to succeed in the hurdles we witness where and deep difficult faced. an operational work ensure sick to helped times we credit reduce efficiency of are committing this repossession systemic is company experts us. notwithstanding It's see to helped our all professionals Several our overall portfolio. medical the to credit our risk these To the during these home. and to the also a all months take our some of part We payment operations from opportunity really the frontline have our times have across business help have burden to credit inspire risk racism, to – to and signs into courageous

a great employees I'm customers a endeavor we and the and of service are and profitability. for teamwork well displayed providing shareholders, priority several to I'll of it our over Fahmi proud we for turn our It's enduring Fahmi performance business more our very With the top as of to call our our be review place success. you. by handled and is detailed that last over to the employees months. results. easy, positioned achieve work over not Our the but been levels long-term highest to

Thanks Mahesh and everyone. morning good

slide to performance. unemployment, for key influence in and has that our confidence, There five been some consumer indicators economic recent Turning GDP. improvement

However, to each metric the pandemic. pressure significant under still due is

increase most for government uncertain of some will As incorporated cases states. and governmental slowdown impact These the expires continue. our in and improvement fundamentals unprecedented this decline. these COVID-XX a is our aid, long or losses. to CARES business reopening of due without allowance and in of continue in packet nation's the further pressure months it most If to how outlook recent variables states, the causing stimulus is further could stimulus seen in to Act our if cases rise continue metrics popular partly to key The affect re-openings another credit the closures

business slide the on those used include of drivers the unemployment few HPI, originations resulting and Along key prices, six that Specifically performance. growth levels GDP influence contraction. there our and a credit are lines or car key factors

many over the trough dealerships industry million closed deteriorated to orders. XX trend April. vehicle slowed units vehicle have be vehicle under and approximately in in although Industry new forecasting years. from expectations. units pre-COVID sources Current demand from down New and but April from of are of shelter-in-place estimates used the XX remain are as pressure, several significantly sales sales because Used seen to million improved continue levels down past pricing for above XXXX, just

used year-over-year car impacting factors their However, of cars, at including the gains indices significantly May Manheim Several demand used supply while and both leading and demand rates at J.D. dealer dealership, being reaching highs. to June helping buildup consumers affordable pricing for consumer vehicles in in among of obtain reasonable closed, prices are were interest financing new historical levels. others Power levels low more auctions rebounded a and at

pages, few and June We the our rates in momentum will has a into in recovery we continued but specific results July. are review pleased with that

quarterly Turning seven for slide to originations.

versus year. sales volume channels across incentive programs and Prime approach due originations Non-prime are moment. the took quarter core which early cover volume non-prime overall Loan this volume quarter Total Chrysler quarter offers driven information decreased prime through to in originations some Chrysler that decreased origination Chrysler generally and higher by volume of X% by I'll exclusive auto risk increased Chrysler volume Chrysler lease in XXXX. the trends versus which XX%. XX% second year-over-year increased added quarter supported a we XX% decreased decreased conservative the and exclusive Core more Capital. decreased a segments. FDA's with underwriting monthly is QX credit last also second in We FCA Capital to XX%. the originations partnership. Chrysler lower XX%, our Total capital

consumer of on our Northeast, few XX California. Midwest, demand FCA Lease was lease to under shelter-in-place space, into penetration the were the early factors. strong the shifted as new are leases vehicle in a originations third of offers term be for lastly quarter expect As orders at XX Also that by And including some FCA's X% certain extended by and were deals normalized incentivized retail U.S. virus continue our the competition months impacted the as to retail and mix end to or share quarter. driven also rates year-over-year returned heavily has lease our decreased the loans. FCA July, in of between due levels with percentage June mentioned of is and we quarter. volumes in into expectations. prime our and At throughout lease FCA decreased mix pressure share the line regions and programs some driving in has their lease concentrated we've and and during the to total a our the sales under

balance coming to crisis. addition of level competition In macro a the and weather us backdrop, times. by standards challenging the the non-prime advantage We while will underwriting these for and reliable strategy pricing dealers. our expertise during source sheet built as funding believe our We volume the be and a driven competitive protect downturn competitive our a remaining of during out to serve our gives to

We slide up reached and on April, XXXX has XXXX and down their trend we in the the of rest year. vehicles for monthly detailed on will versus XX% of our Core serve risk-adjusted while the our the customers XX% appropriate demand more used remain improved This dependent XXXX channel. that will dealers. On rest returns to lowest than of June. versus disciplined by achieving have continuing in July originations level eight, the to breakdown loan quarter the continued be with volume consumer in originations

some non-prime grew the in the competitors pandemic share from stepped as Our market. through away

margin, The couple to and standards. Chrysler of tightening add while back, Some non-prime the been of new share that the also of last XXXX, have originations our in recovery has underwriting XXXX as we June loans have been and down coming is as between able Capital same volumes. different. the is approaching are not competition mix with seen level channel months recovered but throughout increase pleased used we channel core have as of vehicles our but

vehicles. used concentrated seek Our as the Chrysler in vehicles near-prime are and in we've lower-priced consumers discussed, recession typically typically new originations

June strong are strong vehicle peaking generally Additionally, loans April the each Chrysler pressure result Chrysler continued the in in driven incentive February quite incentives gains by and the as we a by FCA. offers January available in through time in mentioned. year-to-date, current with credit. lease will under month XXXX have continues in depend prime is of and in Capital OEM remain demand year-over-year environment, Chrysler exclusive the Volumes Capital to on new prime continued segment still lease increased started which FCA for incentives. previously as

due in Moving vehicle new manufacturers including on downward pressure to FCA X. page to U.S. COVID-XX. experience sales continue to auto

year-over-year quarter However, the finished solutions we programs our to the we as with partner are FCA program. continue FCA customers. the deliver rate penetration of XX% The and increased Santander launched with rate Bank we originations our penetration to driver a with to

lease penetration rate to likely retail demand in and as improve at to these our incentivized term. near drive consumer levels share remain will continue offers Our we to expect the

Turning to slide XX.

$XXX quarter, million a service also sheet off-balance The platform off-balance billion rights servicing optimize completed service the originations selling During the servicing the the loan quarter and to for $XX growth $X.X income in we both million others agreement on we during sheet added Due sheet. securitization in retain to platform fee balance via charge generated in prime year, to our order investors volume others for the Santander this prime SBNA quarter. to and Bank. We significant loans approximately an with fee our assets. in this in

those addition in SBNA fees, the servicing to and line commissions items. origination In of other fees, million $X fees are

Turning billion XX. Santander. billion to billion facilities At $X.X we utilized second term in public quarter, at help In in also the remains billion ABS XX% $XX end slide paid funding billion in capacity fully including unutilized $X.X private from $X.X our Total $X support a $X.X outstanding commitments Santander revolving billion from $XX.X transactions, in had unused. of funding term and the revolving from is capacity the our financings, approximately billion Santander quarter term retained third-party unsecured of available. remain prime loan we to originations. billion $X our in

to issuers fundamental times and to of wholesale access as remains markets volatility customers post market pandemic. access and SC ABS the and to strength our during and of COVID public billion the SC's of critical continued of these is over a investor uncertainty funding, of to to the demonstrate the result public success to continue to having first which with our one met issued since We of the funds overall $X significant demand improve transactions. cost even allowing three beginning transactions April year. levels and through -- Each post were issuance for momentum since our normalize our has positive compared support to

of during As in off-balance with sheet are in our ABS $XXX SC's which billion I investor history. Bank Subsequent transaction million upsized sheet of SR Due largest also took we we that was the [ph] recent at also securitization the flow balance an earlier, of books executed the in order end, XXXX. transaction prime deconsolidating on investor weighted sheet Santander since optimizing funds XX auto Due nearly a focused originations, to opportunities. cost $X.X prime quarter, the billion average one it approximately growth orders, we Estar our loan price making mentioned program transaction for feedback, off-balance quarter had an level the through strong lowest to and loans. to a continued

Our opportunities levels touch subsides. pandemic the will I capitalize arise later us position the our weather liquidity inorganic and that organic upcoming capital and and on improves economy the as on and may which recession to

depreciation, residual residual our extensions. Moving vehicle expectation dependent on XX for estimated value on to decreased reserve levels future. loans review going mix vehicle both from to and a are to forward. accrued due quarter well value and receivables XX% of on interest organic our leased finance lower TDR higher mix Interest year to prime with and Depreciation and entire performance increased X% are lead non income TCF quarter. versus book loans retained the Net as the COVID-XX slide in acquisitions due the monthly a updated to due to due the our decreased prior financial portfolio origination as on

sales future the Credit reduction by to as Investment successful reduction valuation uncertainty to driven prior lease for million credit our versus also expense losses our loss continued a platforms. XX lending primarily million, for losses benchmark up levels During had Chapter primarily gains X%, and to in COVID the leading $XXX held build portfolio to Interest the in quarter rates our we personal in lower residual due filing bankruptcy. due losses in the of due increased lending million sale driven to worse $XXX lower economic quarter, year. $XX The executions in valuation personal expense to related allowance the the across quarter. COVID-XX. lending and terminations the lower factors in portfolio counterparty during well year-over-year, by our as were decreased

by and and outcome Although so far, to was and a the the process. of operating the pandemic bankruptcy funding the related well usual uncertainty the our still the as performed portfolio is business has valuation impacted

XX, slide that which covers the loan the to XXX,XXX deferral pandemic and height of Moving accounts pandemic. since leases in the to customers. we $XX,XXX $XXX,XXX Through for our end that mid-May beginning referenced figure approximately of on Deferrals XX% of Last June April granted in of the deferrals pandemic. increased beginning to sheet. the for to since our we at trends of loans peaking began rise the at quarter, balance the sharply active

of never Of a of is quarter XX% significant accounts that trend end, never improvement a received approximately past we the saw in of And XX%. approximately and status. deferral. the move July currently pandemic, have lower less population with active extension approximately with late-stage in the been in a than XX% deferral As accounts have to continued the and delinquency has an received since the XX% has

the XX% and that and inactive, expiring charge-off. If buckets in remaining late-stage as have the that eventually remain has a payment, extension encouraging, continue will were they As to early mature not made had accounts accounts these XX% of Mahesh received an loans June paid said, the extension XX% and delinquency performance been into of inactive. another

execute consumers extensions all developed for As as customers tools well as for for modifications practices SC. these to help our customary temporary have time quite distress. of Over successfully we have you our financial normal loan some and expertise are well navigate and and are aware, part the to been time servicing designed

to normal is and and to modifications course of levels by better longer versus deferral Payment regularly a to communicate and rational stimulus, the the rate We XX-day for benefits provides provide their our unemployment situation. activity another current term are each our in activity line for financial slightly loan driven our benefits expectations customers to customer performing The ensure with this strategy experience. relief As slide more compare pay XX basis payment points as Versus extensions points. quarter, to the to natural modification consumer prior asking ratio unemployment standpoint initial customers delinquency the agents is early our disaster as modifications. delinquencies last from past to or save our XX.X% remain we from opportunity more believe and QX customers liabilities. cover the from Continuing servicing government suitable than deferrals, these and unique XXX delinquencies down our basis which decreased continue with decreased strategy, elevated losses. and decreased points is stage for was of basis behavior year late XXX stage year. consumers payment The RIC gross charge-off past XXX

as June, from which rate, the sales quarter metal was inactivity basis rate the gross remarketing of and by second of charge-off points decreased that continue our and repossessions auction year will activity and nonmetal values gross quarter the lower second our prior compared to X% our Manheim recovery quarter the the improve XX auction last for were forward X% July net both volume net year-over-year. remain quarter. and up price proceeds standpoint. to to includes and most to In The and is a and sales. as elevated. quarter, the due year. index ratio third will charge-off Our back high of deficiency normalizes and bankruptcy deferrals impacted was recoveries losses hit looking record in The a improve came The losses XX.X% from recoveries XXX.X, expectation reducing from suspended In

recovery detailed loss year. year-to-date prior and XX, slide to Turning we versus monthly rates

net in plateau great trends a and XXXX recoveries. of of auction second with July then from and a the Gross seen during see, at last line In gross charge-offs rebound sharp position although hit continue can Recoveries June. charge-offs week, to pre-COVID resulting June, lack have in for levels continued, in in we losses both the started in troughed have April Combining in As and the over the in and recovery X% net historical down recoveries were in the a to rate reaching to XX%. you charge-offs increased albeit rate the with year April trend benefited month. these to in at equal due that two, the quarter highs. high X% June over prices we low charge-off XX%

that expectation or beginning in no year closures back demand lower is of assuming dynamics major remainder levels. and supply of these throughout XXXX the third pricing the state Our setbacks the the quarter to persist trend

previously tailwinds. headwinds and mentioned used are of can are influence some some the I As factors price many cars, that are there

offset $XX to balances, These were gross by slide Now moving Net on to COVID-XX year-over-year. due loss deferrals. rate RICs in increased and XX loan $XXX dollars flat for were to year. respectively. review a walk more losses $XXX than from million charge-offs million to prior average figures primarily in and million Losses due the effectively recovery lower higher and

quarter. result driven this $XXX the of reserve the to end in in attention quarter. losses million the the The due In one the XX.X% the ratio for allowance in XX.X% losses and continued increased due performance an not on primarily allowance $X of from the on day lower estimate is our deterioration cumulative represents quarter walk, totaled provisions the allowance versus by volume. allowance billion. of we quarter, $X.X for difference based million of first including our XX.X% worsening The XXXX end macroeconomic The overall the the million of the and decreased reserves the credit of $XXX first and have an primarily from which additional since second quarter, to between of factors second is observed mix outlook ratio allowance nearly the credit quarter, Turning the the outlook economic at the XX. the regards the increasing as At slide quarter. our to increase in macro billion, end last to impact from $XX a

of COVID-XX. degrees to period and outcomes a were including unemployment reserve three-year the a include methodology of potential uses economic impact As several largest CECL variables HPI. supportable our and reasonable key economic varying the forecast with the index The impact and stress reminder, and Manheim scenarios

baseline XXXX a Our of at we was end economic the and these governments of followed the available in followed of unemployment consensus to latest reopening key scenario stimulus steep in a a economy drop quarter primary the QX rebound based variables fourth end the second recovery recovery year by supported the X% XX% had the XXXX nearly the The by of QX peak and half in by forecast the by economic of to a of quarter programs. were XXXX. on assumed a in by XX% scenario assumptions slow

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CECL designation. to Moving cover to asset slide by XX

broken reserve by balances. the On the out CECL have TDR we slide, non-TDR versus provided

economic of the changed assumptions methodology level classifications and The an models difference deferrals coverage to still has would significant TDRs guidance between CECL modifications regulators a losses other been rules a a of and the are on TDR normal COVID related to just on classification rate the non-TDRs Despite there portion our between has of non-TDRs. classified in relies population non-TDR on this of due lifetime Based from as a that we our and the loan. classified under as similar loans As and two loans variables. the based portfolio. coverage of typical as portfolio reviewed are TDR the rates that the have on forecast various forecast relevant the

our pick the a risk. As of for modifications models increased as up number flag

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other growth reserve dependent the each of view quarter, of the period. at the As portfolio, portfolio factors economic our mix on is the recent we trends, the the of among and end heavily ultimately sheet discussed our of include outlook balance decline last or

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

primarily were driven Our offset slightly COVID operating expenses. versus lower repossession quarter prior by by year expense related expenses down

turning to slide XX. Finally

excess Our capital remains in of internal our and robust targets.

repurchase Our more quarter XX.X% of and CETX and above expected capital remain build believe minimums. versus ratio still for reserve the quarter than withstand is very was points XX the to basis We losses. post-stress share due adverse this level activity to a the first down loan scenario adequate for

share of repurchases approval the interim During an the the quarter, from policy Reserve. prior the suspended reserves banks. have suspending Federal on we Based share guidance repurchased policy five we shares interim all we for repurchases further or nearly until receive million announcement federal to

in Federal quarters announced average prohibited policy previously income, quarter expected the dividend of trailing a a and from is XXXX. SC we net the press of Board joint release four in interim paying based SHUSA's on As third SHUSA with Reserve

to the into common the determine inner utilizes SC to is quarter, the trailing SHUSA's is declare stock sufficient capital income to SHUSA's consolidated in Although pay income and exceptions requested is subject to has interim SHUSA dividend that cap average therefore on policy. our and the policy plan dividends. stand-alone certain trailing

of We do a of and timing XXXX approval third exception paying in dividend the expect the pay declare or request. currently request of to their SHUSA's uncertain. quarter not is However, outcome

revert economic the established policies to XX capital and backdrop are the to maintain able confident returning capital the As have will months in distribution shareholders. back last we normal, to over we be momentum we

environment. our liquidity Our To sheet we signs optimism this challenging do we ratios well market strong capital will as serve see and indicative current us the for are conclude, of balance in and our originations. navigate strength which

of that the our the in in may economy and impacting the cautious uncertain the remain also remain for vigilant business key volatile are outlook monitoring is will still variables near-term. and we arise. However, outlook very the risk The

be stewards disciplined will in good conservative continuing in and approach of remain We underwriting to our our capital.

we ongoing to situation confident are manage We assist that successfully and customers. liquidity have the and the resources our capital appropriate

long-term assets We servicing for opportunistic returns, capacity are objective risk-adjusted initiatives. by committed leading strategic to our on while focusing effectively,

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

Thank of the employees. of resiliency our our our business the you have Fahmi. the tested and In summary, relationships, the challenges beginning we witness model since pandemic

and and and the our the We quality We've for certain forward been about retain and we confident good push of market have national dealers booked the accounts. improve able to share we're in hopeful quick continue the business are a we leases recovery. pandemic. we we our relationships feel the with And to segments. loans However, since in

we Our country. proven dealers adaptable and sales losses service in functions next to level high levels The can Operationally, determined been few expect XX,XXX severe that our are in stimulus they the has expire. perform and servicing we across fully their collection delinquencies for quarters have programs the increase forbearance maintain at and team under all efforts and as packages stress. an have

However, our robust a in operations we a our ability handle is customers to open moving sheet significant serve capital questions. very confident the also call and that, credit. of gives in With our deterioration with us emerge level and of confidence will capacity, total Underpinning are Operator? and a for operational absorbing balance a potential loss we in which position including I'll up the strength. from reserves, crisis capacity

Thank you. Hello.

call the open you. questions. We [Operator up for Instructions] will now Thank

first Our question from with John is Jefferies. Hecht

taking questions. my very Morning guys. Thanks for much

XXXX well, the number -- guess, get prep in in of can allowance Maybe -- to how losses number cumu XXXX give that's one losses context one question to point the what the us on allowance First of compares the losses? just hiring you level. the were a that trying And of XXXX handle period? XX.X% with to say context the what your -- I one is

the Thanks Good John. morning. question. for Hey,

deeper to on really caution peaked as both from answer think, crisis out I I itself. didn't credit from portfolio question to in have macro the on lot your first didn't about standpoint. Chrysler standpoint want the the just our several talked Back perspective, things we've net you portfolio leases. as -- risk-adjusted to management margins originations the we a over have a a at last to this any any prime of or We done the compare XXXX, charge-off Chrysler risk think XX% of our But over a a years. I XXXX much situation some from trying were losses on financial we focus during originations. the on, we've the And last well crisis,

to performance And our some point. of this that you've up seen in portfolio

you caution So today. from facing I XXXX losses in the what to XXXX, would we're comparing

we a As the that We XX% the far think, for adverse did coverage we're going I Fed's feel scenario. mention forward. as adequate that losses the severely standpoint XX.X%, from it's from

Okay. That's good color.

sorry, of -- the annualized And to loss translates take rate average Yes. X.X% if loan. the weighted the late XX.X% an John, you life

So kind that's of rate. in our estimate coverage reasonable and

Okay.

would next clear XX you Or to months, months? for XX the that this year? sort is average over be X.X% be Just that of what the implying

taken average well, -- life over That's rate annualized the of Yes. loan. the the it's loss

The annualized life of the loan about So X.X% version years. the XX.X%. X.X average to say if is the translates of that we

follow-up given to three should Okay. so and next all equal underwriting What Very yield quarters? the forth. is mix quick think else a helpful. trends changes about the one And then we change with over

Yes.

XXXX think lower hopefully margin. of there's we've here the think bigger our credit we've continue. a yield a at NIM that NIM, moment. if growing. talked a the belief. NIM about we've over That from trend in back Also and a really being the things is becomes risk-adjusted a you the XXXX standpoint of lower a and I story will couple quality go yields, mention lot part yield And that strong talked I'll looked But the but better vintage still new several the as our of sheet, past with and So side That's the balance lease non-prime about vintage, last vintage, standpoint a what that story, quarters. situation which about it's mix comes in on

the XXXX. We also end the at the TCF acquisition about of talked made Gateway that acquisition, we portfolio portfolio

those You're impacts starting of on see to our XXXX in some come results.

items prior I the will This quarter trend next expense. around lease that are that talked lease being couple about quarters few hurt to think to overall quarter year. by is lease in really of in liquidations is the We've expense liquidations a two mentioning things. the compared new worth lease the continue One

units about we is XXXX, year liquidated we X,XXX XX% an which this So drop in off. less than did

monthly. I you're will on different QX. of but our depreciation forward. based as And mentioned that of on we our as what vin-level that seeing So we usually a going on portfolio go that's improve Lease definitely based XX-day expense lease their values residual portfolio couple lag. expected in based update is forward, and for view, it's XX, And that forecasts a

from you're is what expense a depreciation now from forecast April. So seeing

that CECL that reserve. interest around accrued And compared the in will be on crude did reserve specifics the this improve an interest. That's to And to quarter the year. top I've continue to prior book so pressure of that mentioned but I expect that we

the improves of based on more interest. level accruing As deferrals, our we're delinquency

yield was basis RIC interest. a XX So it's that on our points on take of reserve. prudent for us on that reserve impact extra about to That accrued the

the some on -- those assets the prime kind about of level you'll extensions then and see did in So trying We you in selling pressure. business. those forward some off-balance execute from level the deferrals an We of to around lot story going and forward. of to loans loans, the depending a prime can how we've And that of successful prime off see going loans prime securitization Chrysler still pertaining plan then uptick sheet NIM. we're of that's our an those. optimize do If talked

Thanks, helpful very appreciate guys. I color. That’s it. Great.

Betsy question from our next take will We with Morgan Graseck Stanley.

price outlook quarter summary? the car given fair used for prices into revert that that we outlook quarter of question. beginning used couple. look taking effectively a whereas for next for was discussed. being to of value weak good One have this car morning. expectation my just just quarter what I should guess of Thanks off is a residual you that as The Hi, your because key

good Betsy, morning.

will I improve. think it

car end I the in we we prices at Similar it's take going we the to to about seen off that's We June in When we April. in that shouldn't norm extrapolate be new it going what big July forward. how QX. about think to hard it's and used -- talked so talked to April, hard saw said of came it extrapolate forward. the we drop we've

that's and take of so big same June saw and increase the in way, continue is to opposite shouldn't We into that direction. but July Here new going working our kind we norm. the the be in

and appreciation view. our those to as leases predict a months takes XX longer-term of trying Obviously, come off leases maturity. lease you're most the so are So

it improve as I reliance think will will on car season. going but in forward, we it do used it update So the the

dig And some then you the wanted on just as into were of steps to a call. second follow-up I the delinquency discussing that a question

that could another let then As you've us asking that's think extension out move inactive. for the extension. of I forbearance, are couple XX% know seen how are you repaying, you Maybe a month long XX% or folks of is XX% mentioned are another And months? about

do You there? percentage, going expect understand you normal? is on wanted would or inactive think that that that what is So to

Yes.

to XX% XX%, over XX%, were reflection of the we've going two seen XX-day is least the The the So past at we decided a get-go. give thing our from pandemic what we the going an extension months. accurate customers is into that

of that see do by forbearance in for normally versus a to in longer, non-delinquent programs. competitors very we XX-day percentage we them our some percentage The we the of And to obviously when our they and up extend to high first renewal, the what about thing come we've what place re-extended. portfolio gone therefore, some route. expecting the way want decided be normally -- but customers good And got go was were current of

to basically till will that's December another that end go the the So XX allowed And until or we around then go whenever says the declared. be of interagency that crisis, have we're next the guideline days.

-- the a that's So them point we us, they have customer. we to general extend extend with we we the we is have with conservation contact each time, customers do And but that these continue another idea call them.

We depending on re-extend we have them. need their and them a discussion with

program forbearance we crisis -- officially is and So the either declared that's or have guideline the to stay in a general or extension the agencies get we plan. the It's get ended. from until to

and are the And had people these that's the XX% for forbearance inactive, who initially. applied got then on

it So wouldn't they if seems it. extension the want that odd they needed

on? So in you give that's us why sense could have you you programs? a seen ever forbearance And anything as prior going think to like this your

between do -- doing XX,XXX the we pandemic extensions prior somewhere to and we haven't We were a XX,XXX month.

very superior So that we extending we're credit more -- a said higher, quality. and The see the right is sample did much population different. as has now much I is just

high we've were is So we're what is are of either In are another there to noticed been couple the extensions, overall see the extension maybe couple it rate decide when we really are and trend paying. seeing. the basically chronic -- these to whether not payment we before get go see a is figure there we ones case, on need talk that, payment thing out continues months' re-extend hierarchy. program the to auto delinquents that paying which But data other the or about more inactive of opting the of effect that need we rank try important a back that of months has what. But not before or just and to a we high

we are trend with Because sort what the So, accounts new that right we is, are continuing car is a high riding to used demand that by both And and extended are because vehicle, car. and that seeing now. see, in -- reliance. there we demonstrated obviously, a that of we

more one to Betsy, thing And add.

with inactive. is remained to I our we exactly think in to our assess they But why hard it were the the as inactive. XX% It's line experience compare past, that it in expectations.

customers were we have out, the were remember, to and/or never in an current deferrals the received extension that them had majority the You past. gave who of

the haven't relief. were they yet, or tools us, know it, can and need And know they us out. they so kind a just of called tells because us them up, access some to they get they missed coming a from proactively they that giving to they So, get that us, payment they deferral the the either fact payment seeking plan how the reach to

you. Thank

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

thanks. Great,

terms how deferrals don't into they TDR are TDR if another because that the accounts, in does treated? the -- COVID asking on relate that -- to of discussion XX% I of for of the So, are because used they forbearance they went how get crisis extension guess

rule -- classified pandemic due were and past non-TDR the a was than account past than due So, in they early the which our us TDR If related relief, started be less COVID the is time at TDR. and days less receive is as deferral, for we was if XX XX past to on there will not March. days basically,

short-term as is six which long as in months defined is relief in As nature. that nature,

be the long second on of as lease. the as they who the the through going continue that folks, in did depends deferral mentioned, Mahesh of that So, within a year June, delinquency the stay came And it end back really case, status will six to as the March. to months

And just right. All Okay. one...

they even coverage more modification add though even are Moshe, was Moshe, we our received population, that thing And which classified not we -- is that one from as an have classified to maybe a a standpoint, though on is our something prepared as mentioned that to TDR. increasing because going say remarks, that in non-TDRs to accounting rate they're I sorry, they're

any case, that Right. because establishing through a you're on technically, mean reserve I lifetime CECL basis. a you're anything on doing in

That's right.

Understood.

-- of you And -- income in I should just excess the the on was something net excess a comments interest that factor should guess feels like a I of of substantive depreciation, of that lease terms QX. improvement kind that more portfolio. about In talked of absence But understand kind mean I year a alone a interest as significant looks I most income. in that it outlook, will, mean fairly And thinking with like car the in the I of be accounted I net mean reflective it if guess weeks? about, shouldn't guess the I what the next I guess. lag quarter currently to think of it we're going be third that be kind used you about few seeing the decline we of that the values goes on. there's moderation as the

Yeah.

used of prices. uncertainty that's was can the correct. level difference pretty just And I you think stark. with I the just just the and May April the quarter, June in on results, see car it caution between

cautionary or And how on will forecast mentioned, it's residuals so, a us question. do improved And I the they I as whether for improve. think degree just to much just not. And the of is

demand supply it's a side, Yeah. no to There beginning right limited for obviously market. prices anything the because of basically see auction period issue demand were suppressed, shut the time. I used wholesale to been And Auction repossessions. supply more a car it's the car prices. into of mean else. supply on was there used lot We're now, than were houses good

just that's out right playing it's of kind think I So, mismatch now. that

Understood, much. thanks very

Morgan. JP Rick We'll Shane, take our from next question

looking we build going my that taking the what's flattening to When slides, for the back back old vintages, about steepening the show there sort vintages forbearance the cumulative be half. gross losses. right And then opposed linear the be loss of Thanks in I'm There's net the some related question. and a at at as look of will now. and substantial rates. guys. on to you and we current think cumulative Hey, way where

or I really about a current vintages a vintage? XXXX loss is probably to rates you versus when obvious. at you where do come out I'm we're think the that's that the curious What going lifetime think look on XXXX call it

thanks for Rick, morning, Good the question.

the combo. uncertainty of I long, given it's originations It credit that hard and great our the happy understand at your very coming which in we're able of kind last quarter. the share originations question that seen with booking kind couple it, very pleased and grow over slipping it, We add answer the now, a the level we're but of current and I -- is July. think that market. for We months We to but the won't of the the mentioned into this we've the underwriting, the very our we're to last in margin away mentioned very with end. of back quarter were tighten at beginning competition

a beginning is underwriting continuation of in than profile that loss saw really the better given is we've XXXX what so And done what again of of and our And the at approach we XXXX. XXXX.

So do -- trends maybe Sort a worse our The And and XX the probably kind XXXX XX, let characteristics than vintage, to would becomes the front-load of mean, the That we normal, the right loans today and just XXXX dominate me out the the we're then outstandings. it really right? Yes. vintage, now. really majority question was worse three question is vintage, XXXX, Of rest lay that To bad right? the vintages, the reversion take towards the take with the good better and vintage, vintages -- normal. our of of XXXX or becomes first it losses? you of them constitutes the booking to the in I XX new slightly XXXX months. credit time context three is portfolio XXXX XXXX was how XXXX. the at know losses in just every you maybe given least than equal XXXX quickly of whatever the of

-- bad do get. vintage between a front-loaded that's that's difference losses vintage and good the So is a how what

already and XX, very are very about is its confident XX confident about We past way peak. XX

we non-TDR see right see then now treatment you'll TDR. customers normally employment once to because CECL a relief and and is is programs the the thing, treatment off at back -- come at kick actually look a we and the actually TDR it it good then the in way begin will the extension begin true gives behaving is some This in. somewhere comes obviously hopefully So to looks losses then And why between portfolio. it

not completely treating TDR fully an does we fact of as been a we're extended it's by extended which extended. treating get that penalty loan It some So still virtue not loan. are

and of normalization inherent months see But superior to any begin of last will as to we been XXXX quality we So the some credit has the prior losses. XXXX essentially what booked over the vintages. XX Fahmi of said, in

it. Got

Okay.

uncertain off. perspective, environment fairly its it's environment. but seasoned, it's constructed competitive what is into vintage eyes but more from a a take wide vintage a think I from being underwriting I was is was fairly more a the away reality good seasoning we're the was environment to is paid XXXX XXXX in. created XXXX So is that an open probably that that would vintage a

probably so variance performance And of should XXXX Is your six right now of the we vintage. months the the versus whatever to to that be plans really with focused sort are plus on over has do next XX where minus?

that's think I Yes relative.

Thank much. guys you Great. so

next our from Wildhack take question We'll ahead. with Autonomous Please Research. Rob go

at in think cautious guys. you I Yeah April underwriting highlighted more approach to the a time. Good environment back given morning, the

in the underwriting to now? at uncertainty, parts, there? now moving think there's Looking amount of a a And data things place put approach changes how points should you've and any still about been lot changes positive tremendous we of all so given those

question. the for Thanks Rob. morning Good

should that And diligent risk in put monitor on it's what balance But We we cautious to signs to lot very we approach, lot risk-adjusted in a I of appropriately have a return. us there's that, think a our give for seeing still have be to to of our caution we take We're we times underwriting. this mentioned improving. signs us the are April. prudent that discussed, for we few our that similar price, sheet. a things

to approach. So risk. continue we be very for our utilize that cautious. do still underwriting And all assess very in we to tools going We're now, the different be to disciplined,

market. that until we continue see I clarity think, on further to the get you'll

months. there ask offers attractive offers to the are out and those were here? XX really about I level some Okay. side. on just kinds wanted competition what and Thanks. you of And of There X% from competition, What APR, FCA mean captive for

Yeah.

the I request you're in referring generally offers capital. are us, through to the for think exclusive to market us, that of

X% are vehicles. new and so, for driving for consumer those consumers those offers. demand -- to looking And that's And therefore

you bit driving but quarter consumer somewhat demand. it's little throughout As a mentioned, predominantly the those seen still tail the off we've

as get those offers Chrysler exclusive to Capital, an going are in rates long penetration as So to we're our uptick FCA. with

you. Thank Okay.

back now we'll And question-and-answer and today's will turn gentlemen, this the And session. Mahesh to ladies comments. conference conclude final Aditya, for

joining Santander Thank in the and for interest you Consumer. today, for everyone call your

questions. speaking be for with Relations will Investor look team Our next quarter. we follow-up available forward And again to you

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.

now disconnect. may You