Santander Consumer USA Holdings Inc. Reports Second Quarter 2017 Results

DALLAS, July 28, 2017 /PRNewswire/ -- Santander Consumer USA Holdings Inc. (NYSE: SC) ("SC") today announced net income for the second quarter ended June 30, 2017 ("Q2 2017") of $265 million, or $0.74 per diluted common share. During Q2 2017, SC's effective tax rate was 24.0 percent, down from 35.2 percent in the second quarter ended June 30, 2016 ("Q2 2016"). The decreased tax rate for Q2 2017 is associated with Santander Consumer International Puerto Rico, LLC results, leading to a $41 million impact, or $0.11 per diluted common share, of which $14 million, or $0.04 per diluted common share is attributable to Q2 2017.

Q2 2017 Highlights (variances compared to Q2 2016):

• Announced proposed dividends of $0.03 per share in Q4 2017 and $0.05 per share in Q1 and Q2 of 2018, following the Comprehensive Capital Analysis and Review ("CCAR") results of Santander Holdings USA, Inc. ("SHUSA")
• Total auto originations of $5.5 billion, up 1%
• Core retail auto loan originations of $2.3 billion, up 36%
• Chrysler Capital nonprime loan originations of $948 million, up 11%
• Chrysler Capital prime loan originations of $854 million, down 30%
• Net finance and other interest income of $1.1 billion, down 6%
• Net leased vehicle income of $131 million, up 5%    
• Return on average assets of 2.7%, down from 3.0%
• Common equity tier 1 ("CET1") ratio of 14.3%, up 170 bps
• Executed asset sales of $536 million through Banco Santander flow agreement
• Completed national roll out of Chrysler Capital VIP program with more than 2,500 dealers enrolled
• Chrysler penetration rate of 20%, up from 19% at the end of the first quarter of 2017
• Issued $2.3 billion in securitizations, including the first public DRIVE securitization

"We are pleased that following SHUSA's 2017 CCAR results, SC announced proposed dividends to our shareholders of $0.03 per share in the fourth quarter of 2017 and $0.05 per share in the first and second quarters of 2018, as SC and SHUSA continue to make significant improvements to the organization's capital planning processes. While there is still work to be done, I am proud of our diligent and hard work over the last several years as we endeavor to maintain the highest standards of governance, compliance and risk management," said Jason Kulas, President and Chief Executive Officer.

Mr. Kulas continued, "We are also pleased with the progress we have made to further strengthen our relationship with Chrysler. During the quarter, we completed the national roll out of our VIP program with more than 2,500 Chrysler dealers enrolled, executed a second asset sale through the Banco Santander flow agreement, and remain committed to growing our dealer floorplan strategy with Santander Bank NA, all of which support improved penetration rates with Chrysler."

Izzy Dawood, Chief Financial Officer, added, "During the quarter, we continued to demonstrate robust access to the capital markets by executing two securitizations totaling $2.3 billion from our SDART and DRIVE platforms, including our inaugural public DRIVE securitization."

Finance receivables, loans and leases, net¹ of $35 billion as of Q2 2017 increased 3 percent versus December 31, 2016. Net finance and other interest income decreased 6 percent to $1.1 billion in Q2 2017 from $1.2 billion in Q2 2016, driven by a combination of lower retail installment contract ("RIC") balances and higher cost of funds, which was driven primarily by an increase in benchmark rates.

SC's average annual percentage rate ("APR") at the end of Q2 2017 for RICs held for investment was 16.6 percent, down from 16.7 percent at the end of Q2 2016. These APRs are consistent with credit trends in our held for investment portfolio. As of the end of Q2 2017, RICs with FICO^® scores at origination of less than 540 decreased to 22.4 percent, from 22.9 percent as of the end of Q2 2016, and RICs with FICO^® scores at origination greater than 640 increased to 14 percent, from 13.3 as of the end of Q2 2016.

Net leased vehicle income increased 5 percent to $131 million in Q2 2017, from $125 million in Q2 2016, as a result of the continued growth of our leasing portfolio.

SC's allowance ratio² decreased 10 basis points, to 12.6 percent at the end of Q2 2017, from 12.7 percent at the end of Q1 2017.

SC's RIC net charge-off ratio³ and delinquency ratio⁴ increased to 7.5 percent and 4.7 percent, respectively, in Q2 2017, from 6.0 percent and 4.2 percent, respectively, in Q2 2016. The increase in SC's net charge-off ratio is attributable to a combination of a lower recovery rate, slower portfolio growth since Q2 2016 and the acceleration of bankruptcy related charge-offs. These bankruptcy related charge-offs are primarily timing related and would have likely otherwise occurred in future quarters, as such not changing SC's overall view of vintage losses. The increase in delinquency ratio in Q2 2017 was also impacted by the slower portfolio growth since Q2 2016.

Provision for credit losses increased to $521 million in Q2 2017, from $512 million in Q2 2016.

SC recorded net investment losses of $100 million in Q2 2017, compared to net investment losses of $101 million in Q2 2016. The current period losses were primarily driven by $90 million of lower of cost or market adjustments related to the held for sale personal lending portfolio, comprised of $104 million in customer default activity and a $14 million decrease in market discount, consistent with typical seasonal patterns. Excluding the impact of personal lending, net investment losses totaled $2 million.

During Q2 2017 SC incurred $282 million of operating expenses, up 4 percent from $272 million in Q2 2016, primarily driven by continued investment in compliance and control functions. SC's expense ratio for the quarter increased to 2.2 percent, up from 2.0 percent during the same period last year.

SC executed asset sales of $566 million during Q2 2017, with $536 million in sales generated through the flow agreement with Banco Santander, under which it retains servicing. The serviced for others portfolio of $9.9 billion as of Q2 2017, is down 24 percent from $13 billion in Q2 2016. Servicing fee income decreased 26 percent to $32 million in Q2 2017, from $43 million in Q2 2016. The decline in SC's serviced for others portfolio and servicing fee income are a result of lower prime originations and lower prime asset sales in Q2 2017, compared to the same quarter the prior year, as the prime environment remains highly competitive.

¹ Includes Finance receivables held for investment, Finance receivables held for sale and Leased vehicles.

² Ratio for allowance for credit losses excludes end of period balances on purchased receivables portfolio of $194 million and finance receivables held for sale of $2.1 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.

⁴ Delinquency ratio is defined as the ratio of end of period delinquent principal over 60 days to end of period gross balance of the respective portfolio, excludes capital leases.

Conference Call Information

SC management will host a conference call and webcast to discuss its Q2 2017 results and other general matters at 9:00 a.m. Eastern Time on Friday, July 28, 2017. The conference call will be accessible by dialing 877-681-3375 (U.S. domestic), or 719-325-2494 (international), conference ID 6461311. 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 SC's corporate website at http://investors.santanderconsumerusa.com. Choose "Events" and select the information pertaining to the Q2 2017 SC Earnings Conference Call. Additionally, there will be 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 of the call will be available on the Company's website or by dialing 844-512-2921 (U.S. domestic), or 412-317-6671 (international), conference ID 6461311, approximately two hours after the event. The dial-in replay will be available for two weeks after the conference call. An audio webcast of the call and investor presentation will also be archived on the Investor Relations section of SC's corporate website at http://investors.santanderconsumerusa.com, under "Events".

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 the reader 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 as new factors emerge from time to time. 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 asset portfolio of approximately $50 billion (as of June 30, 2017), and is headquartered in Dallas. (www.santanderconsumerusa.com)

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SOURCE Santander Consumer USA Holdings Inc.