UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KCURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 28, 2017
SANTANDER CONSUMER USA HOLDINGS INC.(Exact name of registrant as specified in its charter)
Delaware(State or other Jurisdiction of Incorporation)
001-36270(Commission File Number)
32-0414408(IRS Employer Identification No.)
1601 Elm St. Suite #800 Dallas, Texas
(Address of Principal Executive Offices)
75201
(Zip Code)
Registrant’s telephone number, including area code: (214) 634-1110
n/a
(Former name or former address if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
£ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
£ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
£ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
£ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large acceleratedfiler,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accountingstandards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02. Results of Operations and Financial Condition.
On July 28, 2017, Santander Consumer USA Holdings Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended June 30, 2017.Copies of the Company’s press release and an investor presentation for the quarter ended June 30, 2017 are attached hereto as Exhibits 99.1 and 99.2, respectively, and incorporatedherein by reference.
Note : Information in this report (including Exhibits 99.1 and 99.2) furnished pursuant to Item 2.02 shall not be deemed to be “filed” for the purposes of Section 18 of theSecurities Exchange Act of 1934 or otherwise subject to the liabilities of that section.
Item 9.01. Financial Statements and Exhibits.
Exhibit No. Description
Exhibit 99.1 Press Release of Santander Consumer USA Holdings Inc., dated July 28, 2017.
Exhibit 99.2 Presentation Materials of Santander Consumer USA Holdings Inc., dated July 28, 2017.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned hereunto duly authorized.
Dated: July 28, 2017
SANTANDER CONSUMER USA HOLDINGS INC.
By: /s/ Jason A. Kulas Name: Jason A. KulasTitle: Chief Executive Officer
Exhibit 99.1
Contacts:Investor RelationsEvan Black [email protected]
Media RelationsLaurie Kight214.801.6455
Santander Consumer USA Holdings Inc. Reports Second Quarter 2017 Results
Dallas, TX (July 28, 2017) – 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 perdiluted common share, of which $14 million, or $0.04 per diluted common share is attributable to Q2 2017.
Q2 2017 Highlights (variancescomparedtoQ22016):• 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 pershare 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 stillwork 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 riskmanagement,” 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 nationalroll 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 togrowing 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 $2.3billion from our SDART and DRIVE platforms, including our inaugural public DRIVE securitization.”
Finance receivables, loans and leases, net 1 of $35 billion as of Q2 2017 increased 3 percent versus December 31, 2016. Net finance and other interest income decreased 6 percentto $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 wasdriven primarily by an increase in benchmark rates.
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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 APRsare 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 ratio 2 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 ratio 3 and delinquency ratio 4 increased to 7.5 percent and 4.7 percent, respectively, in Q2 2017, from 6.0 percent and 4.2 percent, respectively, in Q22016. 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 bankruptcyrelated 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'soverall 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 milliondecrease 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 controlfunctions. 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 Q22017, 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 inQ2 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.
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Conference Call InformationSC 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 conferencecall 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. Theconference 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 atleast 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 ofthe 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 notalways, 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 notguarantees 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. Foradditional 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 byus 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 financialperformance 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 toremediate any material weaknesses in internal controls over financial reporting completely and in a timely manner; (c) continually changing federal, state, and local laws andregulations could materially adversely affect our business; (d) adverse economic conditions in the United States and worldwide may negatively impact our results; (e) our businesscould 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 anddelays 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 growthand 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 maintainingrelationships with automobile dealerships; (j) our financial condition, liquidity, and results of operations depend on the credit performance of our loans; (k) loss of our keymanagement 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 theComptroller of the Currency, the Consumer Financial Protection Bureau, the European Central Bank, and the Federal Reserve, whose oversight and regulation may limit certain ofour 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 couldadversely affect our operations. If one or more of the factors affecting our forward-looking information and statements proves incorrect, our actual results, performance orachievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, we caution the reader not to place unduereliance 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 thereader 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 onlyspeak 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 anddelivering 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 amanaged asset portfolio of approximately $50 billion (as of June 30, 2017 ), and is headquartered in Dallas. ( www.santanderconsumerusa.com )
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Santander Consumer USA Holdings Inc.Financial SupplementSecond Quarter 2017
Table of Contents Table 1: Condensed Consolidated Balance Sheets 5Table 2: Condensed Consolidated Statements of Income 6Table 3: Other Financial Information 7Table 4: Credit Quality 9Table 5: Originations 10Table 6: Asset Sales 11Table 7: Ending Portfolio 12Table 8: Reconciliation of Non-GAAP Measures 13
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Table 1: Condensed Consolidated Balance Sheets
June 30,
2017 December 31,
2016Assets (Unaudited, Dollars in thousands)
Cash and cash equivalents $ 341,412 $ 160,180
Finance receivables held for sale, net 2,123,103 2,123,415
Finance receivables held for investment, net 23,634,914 23,481,001
Restricted cash 2,756,879 2,757,299
Accrued interest receivable 330,710 373,274
Leased vehicles, net 9,285,718 8,564,628
Furniture and equipment, net 71,432 67,509
Federal, state and other income taxes receivable 97,282 87,352
Related party taxes receivable 467 1,087
Goodwill 74,056 74,056
Intangible assets 32,242 32,623
Due from affiliates 23,146 31,270
Other assets 736,121 785,410
Total assets $ 39,507,482 $ 38,539,104
Liabilities and Equity Liabilities:
Notes payable — credit facilities $ 5,624,440 $ 6,739,817
Notes payable — secured structured financings 23,747,907 21,608,889
Notes payable — related party 2,276,179 2,975,000
Accrued interest payable 32,743 33,346
Accounts payable and accrued expenses 335,807 379,021
Deferred tax liabilities, net 1,419,820 1,278,064
Due to affiliates 60,467 50,620
Other liabilities 331,386 235,728
Total liabilities 33,828,749 33,300,485
Equity: Common stock, $0.01 par value 3,595 3,589
Additional paid-in capital 1,664,903 1,657,611
Accumulated other comprehensive income, net 27,860 28,259
Retained earnings 3,982,375 3,549,160
Total stockholders’ equity 5,678,733 5,238,619
Total liabilities and equity $ 39,507,482 $ 38,539,104
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Table 2: Condensed Consolidated Statements of Income
Three Months Ended
June 30, Six Months Ended
June 30,
2017 2016 2017 2016 (Unaudited, Dollars in thousands, except per share amounts)
Interest on finance receivables and loans $ 1,232,252 $ 1,271,741 $ 2,441,438 $ 2,557,936
Leased vehicle income 429,264 368,358 847,497 698,150
Other finance and interest income 5,205 3,890 9,030 7,802
Total finance and other interest income 1,666,721 1,643,989 3,297,965 3,263,888
Interest expense 233,371 198,594 460,460 383,329
Leased vehicle expense 298,224 243,140 588,395 464,500
Net finance and other interest income 1,135,126 1,202,255 2,249,110 2,416,059
Provision for credit losses 520,555 511,921 1,155,568 1,172,091
Net finance and other interest income after provision for credit losses 614,571 690,334 1,093,542 1,243,968
Profit sharing 8,443 17,846 16,388 29,240Net finance and other interest income after provision for credit losses and profitsharing 606,128 672,488 1,077,154 1,214,728
Investment losses, net (99,522) (101,309) (175,921) (170,365)
Servicing fee income 31,953 42,988 63,637 87,482
Fees, commissions, and other 91,964 95,623 192,159 197,743
Total other income 24,395 37,302 79,875 114,860
Compensation expense 127,894 123,344 264,156 243,186
Repossession expense 67,269 68,351 138,568 141,896
Other operating costs 87,252 80,532 184,769 178,001
Total operating expenses 282,415 272,227 587,493 563,083
Income before income taxes 348,108 437,563 569,536 766,505
Income tax expense 83,433 154,218 161,434 274,861
Net income $ 264,675 $ 283,345 $ 408,102 $ 491,644
Net income per common share (basic) $ 0.74 $ 0.79 $ 1.14 $ 1.37
Net income per common share (diluted) $ 0.74 $ 0.79 $ 1.13 $ 1.37
Weighted average common shares (basic) 359,461,407 358,218,378 359,284,213 358,096,634
Weighted average common shares (diluted) 359,828,690 359,867,806 359,928,003 359,426,918
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Table 3: Other Financial Information
Three Months Ended
June 30, Six Months Ended
June 30,
2017 2016 2017 2016Ratios (Unaudited, Dollars in thousands) Yield on individually acquired retail installment contracts 16.1% 16.1 % 15.8% 16.3 % Yield on purchased receivables portfolios 20.4% 26.4 % 20.3% 25.8 % Yield on receivables from dealers 5.6% 3.6 % 5.4% 4.5 % Yield on personal loans (1) 25.3% 23.6 % 25.0% 23.1 % Yield on earning assets (2) 13.7% 14.2 % 13.5% 14.4 % Cost of debt (3) 3.0% 2.5 % 2.9% 2.5 % Net interest margin (4) 11.3% 12.2 % 11.2% 12.4 % Expense ratio (5) 2.2% 2.0 % 2.3% 2.1 % Return on average assets (6) 2.7% 3.0 % 2.1% 2.6 % Return on average equity (7) 19.1% 24.0 % 15.0% 21.3 % Net charge-off ratio on individually acquired retail installment contracts (8) 7.5% 6.0 % 8.2% 7.0 % Net charge-off ratio on purchased receivables portfolios (8) 0.8% (1.4)% 0.7% (0.7)% Net charge-off ratio on receivables from dealers (8) — 0.8 % — 0.4 % Net charge-off ratio on personal loans (8) 39.0% — 61.3% — Net charge-off ratio (8) 7.5% 5.9 % 8.2% 6.9 % Delinquency ratio on individually acquired retail installment contracts held for investment, end of period (9) 4.7% 4.2 % 4.7% 4.2 % Delinquency ratio on personal loans, end of period (9) 12.7% 12.1 % 12.7% 12.1 % Delinquency ratio on loans held for investment, end of period (9) 4.7% 4.2 % 4.7% 4.2 % Allowance ratio (10) 12.6% 12.6 % 12.6% 12.6 % Common Equity Tier 1 capital ratio (11) 14.3% 12.6 % 14.3% 12.6 %
Other Financial Information Charge-offs, net of recoveries, on individually acquired retail installment contracts $ 512,621 $ 412,246 $ 1,111,554 $ 952,559 Charge-offs, net of recoveries, on purchased receivables portfolios 419 (1,037) 772 (1,061) Charge-offs, net of recoveries, on receivables from dealers — 135 — 135 Charge-offs, net of recoveries, on personal loans 1,321 — 4,779 — Charge-offs, net of recoveries, on capital leases 1,278 2,599 2,592 5,070 Total charge-offs, net of recoveries $ 515,639 $ 413,943 $ 1,119,697 $ 956,703
End of period Delinquent principal over 60 days, individually acquired retail installment contracts held forinvestment $ 1,287,334 $ 1,142,648 $ 1,287,334 $ 1,142,648
End of period Delinquent principal over 60 days, personal loans $ 177,615 $ 168,020 $ 177,615 $ 168,020 End of period Delinquent principal over 60 days, loans held for investment $ 1,292,326 $ 1,151,627 $ 1,292,326 $ 1,151,627 End of period assets covered by allowance for credit losses $ 27,342,511 $ 27,338,761 $ 27,342,511 $ 27,338,761 End of period Gross finance receivables and loans held for investment $ 27,512,362 $ 27,577,127 $ 27,512,362 $ 27,577,127 End of period Gross personal loans $ 1,400,369 $ 1,391,859 $ 1,400,369 $ 1,391,859 End of period Gross finance receivables, loans, and leases held for investment $ 37,916,523 $ 36,747,203 $ 37,916,523 $ 36,747,203 Average Gross individually acquired retail installment contracts held for investment $ 27,168,965 $ 27,674,279 $ 27,136,965 $ 27,384,765 Average Gross personal loans held for investment $ 13,566 $ 2,278 $ 15,587 $ 6,111 Average Gross individually acquired retail installment contracts $ 28,202,716 $ 29,015,183 $ 28,235,651 $ 28,624,094 Average Gross purchased receivables portfolios 202,097 297,663 211,494 317,789 Average Gross receivables from dealers 68,810 71,576 69,361 73,706 Average Gross personal loans 1,402,416 1,376,633 1,450,002 1,550,680 Average Gross capital leases 25,752 48,161 28,235 54,179 Average Gross finance receivables, loans and capital leases $ 29,901,791 $ 30,809,216 $ 29,994,743 $ 30,620,448 Average Gross finance receivables, loans, and leases $ 40,093,171 $ 39,516,716 $ 40,011,065 $ 38,858,731 Average Managed assets $ 50,435,958 $ 53,237,279 $ 50,844,426 $ 53,050,984 Average Total assets $ 39,216,971 $ 38,089,236 $ 39,063,816 $ 37,576,941 Average Debt $ 31,519,486 $ 31,576,856 $ 31,545,144 $ 31,227,922 Average Total equity $ 5,540,371 $ 4,726,601 $ 5,434,973 $ 4,609,561
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(1) Includes Finance and other interest income; excludes fees(2) “Yield on earning assets” is defined as the ratio of annualized Total finance and other interest income, net of Leased vehicle expense, to Average gross finance
receivables, loans and leases(3) “Cost of debt” is defined as the ratio of annualized Interest expense to Average debt(4) “Net interest margin” is defined as the ratio of annualized Net finance and other interest income to Average gross finance receivables, loans and leases(5) “Expense ratio” is defined as the ratio of annualized Operating expenses to Average managed assets(6) “Return on average assets” is defined as the ratio of annualized Net income to Average total assets(7) “Return on average equity” is defined as the ratio of annualized Net income to Average total equity(8) “Net charge-off ratio” is defined as the ratio of annualized Charge-offs, on a recorded investment basis, net of recoveries, to average unpaid principal balance of the
respective held-for-investment portfolio. Effective as of September 30, 2016, the Company records the charge-off activity for certain personal loans within the provisionfor credit losses due to the reclassification of these loans from held for sale to held for investment.
(9) “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 capitalleases
(10) “Allowance ratio” is defined as the ratio of Allowance for credit losses, which excludes impairment on purchased receivables portfolios, to End of period assets coveredby allowance for credit losses
(11) “Common Equity Tier 1 Capital ratio” is a non-GAAP ratio defined as the ratio of Total common equity tier 1 capital to Total risk-weighted assets (for a reconciliationfrom GAAP to this non-GAAP measure, see “Reconciliation of Non-GAAP Measures” in Table 8 of this release)
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Table 4: Credit Quality
Amounts related to our individually acquired retail installment contracts as of and for the three and six months ended June 30, 2017 and 2016 , are as follows:
(Unaudited, Dollars in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016Credit loss allowance — beginning of period $ 3,441,219 $ 3,320,227 $ 3,411,055 $ 3,197,414
Provision for credit losses 518,370 514,755 1,147,467 1,177,881
Charge-offs (1,111,715) (1,032,517) (2,336,412) (2,183,145)
Recoveries 599,094 620,271 1,224,858 1,230,586
Credit loss allowance — end of period $ 3,446,968 $ 3,422,736 $ 3,446,968 $ 3,422,736
Net charge-offs $ 512,621 $ 412,246 $ 1,111,554 $ 952,559
Average unpaid principal balance (UPB) 27,168,965 27,674,279 27,136,965 27,384,765
Charge-off ratio 1 7.5% 6.0% 8.2% 7.0%
June 30, 2017 2 December 31, 2016 2
Principal 30-59 days past due $ 2,701,257 9.9% $ 2,911,800 10.7%
Delinquent principal over 59 days 3 1,412,377 5.2% 1,520,105 5.6%
Total delinquent contracts $ 4,113,634 15.1% $ 4,431,905 16.3%
June 30,
2017 December 31,
2016TDR - Unpaid principal balance $ 5,880,317 $ 5,599,567
TDR - Impairment 1,686,159 1,611,295
TDR allowance ratio 28.7% 28.8%
Non-TDR - Unpaid principal balance $ 21,360,225 $ 21,528,406
Non-TDR - Allowance 1,760,809 1,799,760Non-TDR allowance ratio 8.2% 8.4%
Total - Unpaid principal balance $ 27,240,542 $ 27,127,973
Total - Allowance 3,446,968 3,411,055
Total allowance ratio 12.7% 12.6%
1 “Net charge-off ratio” is defined as the ratio of annualized Charge-offs, on a recorded investment basis, net of recoveries, to average unpaid principal balance of the respective held-for-investment portfolio2 Percent of unpaid principal balance.3 Interest is accrued until 60 days past due in accordance with the Company's account policy for retail installment contracts.
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Table 5: Originations
Three Months Ended Six Months Ended Three Months Ended
June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016 March 31, 2017Retained Originations (Unaudited, Dollar amounts in thousands)Retail installment contracts $ 3,750,752 $ 3,176,087 $ 6,669,307 $ 7,482,180 $ 3,185,373
Average APR 15.6% 14.0% 16.7% 14.9% 17.0%
Average FICO® (a) 612 624 598 609 593
Discount 0.3% 0.2% 0.4% 0.5% 0.4%
Personal loans $ 5,660 $ 9,272 $ 5,660 $ 9,281 $ —
Average APR 25.7% 25.0% 25.7% 25.0% —
Leased vehicles $ 1,426,957 $ 1,694,829 $ 3,027,616 $ 3,311,909 $ 1,600,659
Capital lease $ 1,001 $ 1,805 $ 2,178 $ 3,658 $ 1,177
Total originations retained $ 5,184,370 $ 4,881,993 $ 9,704,761 $ 10,807,028 $ 4,787,209
Sold Originations (b) Retail installment contracts $ 304,748 $ 547,007 $ 1,172,771 $ 1,403,717 $ 601,205
Average APR 6.6% 3.6% 6.2% 3.0% 5.8%
Average FICO® (c) 725 754 727 758 727
Total originations sold $ 304,748 $ 547,007 $ 1,172,771 $ 1,403,717 $ 601,205
Total originations $ 5,489,118 $ 5,429,000 $ 10,877,532 $ 12,210,745 $ 5,388,414
(a) Unpaid principal balance excluded from the weighted average FICO score is $503 million , $509 million , $1 billion, $1.3 billion, and $443 million for the three months ended June 30, 2017 and 2016 , the sixmonths ended June 30, 2017 and 2016 , and the three months ended March 31, 2017 , respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, $49 million, $99million , $77 million, $296 million, and $40 million, respectively, were commercial loans.
(b) Only includes assets both originated and sold in the period. Total asset sales for the period are shown in Table 6.(c) Unpaid principal balance excluded from the weighted average FICO score is $39 million , $64 million , $156 million, $175 million, and $80 million for the three months ended June 30, 2017 and 2016 , the
six months ended June 30, 2017 and 2016 , and the three months ended March 31, 2017 , respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, $14 million,zero, $58 million, zero, and $31 million, respectively, were commercial loans.
10
Table 6: Asset Sales
Asset sales may include assets originated in prior periods.
Three Months Ended Six Months Ended Three Months Ended
June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016 March 31, 2017 (Unaudited, Dollar amounts in thousands)Retail installment contracts $ 566,309 $ 659,224 $ 1,496,899 $ 1,519,179 $ 930,590
Average APR 6.6% 3.5% 6.2% 2.9% 5.9%
Average FICO® 725 758 726 762 726
Personal loans $ — $ — $ — $ 869,349 $ —
Average APR — — — 17.9% —
Total asset sales $ 566,309 $ 659,224 $ 1,496,899 $ 2,388,528 $ 930,590
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Table 7: Ending Portfolio
Ending outstanding balance, average APR and remaining unaccreted dealer discount of our held for investment portfolio as of June 30, 2017 , and December 31, 2016 , are asfollows:
June 30, 2017 December 31, 2016
( Unaudited, Dollar amounts in thousands)Retail installment contracts $ 27,434,063 $ 27,358,147Average APR 16.6% 16.4%Discount 1.6% 2.3%
Personal loans $ 11,926 $ 19,361Average APR 31.8% 31.5%
Receivables from dealers $ 66,373 $ 69,431Average APR 5.2% 4.9%
Leased vehicles $ 10,380,491 $ 9,612,953
Capital leases $ 23,670 $ 31,872
12
Table 8: Reconciliation of Non-GAAP Measures
June 30, 2017 June 30, 2016
( Unaudited, Dollar amounts in thousands)
Total equity $ 5,678,733 $ 4,876,712
Deduct: Goodwill, intangibles, and other assets, net of deferred tax liabilities 177,619 196,962
Deduct: Accumulated other comprehensive income (loss), net 27,860 (50,766)
Tier 1 common capital $ 5,473,254 $ 4,730,516
Risk weighted assets (a) $ 38,368,928 $ 37,460,349
Common Equity Tier 1 capital ratio (b) 14.3% 12.6%(a) Under the banking agencies' risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories. The aggregate dollar
amount in each risk category is multiplied by the associated risk weight of the category. The resulting weighted values are added together with the measure for market risk, resulting in the Company'stotal Risk weighted assets.
(b) CET1 is calculated under Basel III regulations required as of January 1, 2015. The fully phased-in capital ratios are non-GAAP financial measures.
13
07.28.2017 SANTANDER CONSUMER USA HOLDINGS INC. Second Quarter 2017
2IMPORTANT INFORMATION Forward-Looking Statements This presentation 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 presentation 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 automobiledealerships; (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. 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.
3 » Net income of $265 million, or $0.74 per diluted common share » Includes $41 million, or $0.11 per diluted common share, due to lower effective tax rate » $14 million, or $0.04 per share is attributable to Q2 2017 » Announced proposed dividend payments of $0.03 per share in Q4 2017 and $0.05 per share in Q1 and Q2 of 2018 » Total auto originations of $5.5 billion, up 1% year-over-year » Chrysler Capital1 penetration rate increased to 20%, from 19% the prior quarter » Net finance and other interest income of $1.1 billion, down 6% year-over-year » Net leased vehicle income of $131 million, up 5% year-over-year » Return on average assets of 2.7%, down from 3.0% in Q2 2016 » CET1 ratio of 14.3%, up 170 bps year-over-year » Executed second Banco Santander flow transaction totaling $536 million » Issued $2.3 billion in securitizations, including first public DRIVE securitization Q2 2017 HIGHLIGHTS Driving towards long-term success by delivering value to shareholders while focusing on disciplined underwriting, compliance and being Simple, Personal and Fair 1 Chrysler Capital is a dba of Santander Consumer USA
4ECONOMIC INDICATORS U.S. Auto Sales1 Units in Millions 1 St. Louis Fed Research 2 University of Michigan 3 Bloomberg 4 Bureau of Labor Statistics Consumer Confidence2 Index Q1 1966=100 U.S. GDP3 YOY% U.S. Unemployment Rate4 % OR IGIN A TI O N S CRE D IT 16.4 Max 18.3 Min 9.0 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 95.1 Max 98.5 Min 55.3 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 1.4% Max 3.2% Min -4.1% Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 4.4% Max 10.0% Min 4.0% Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17
5 47.8% 44.1% 59.9% 53.9% 35% 40% 45% 50% 55% 60% 65% 70% Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 SC Auction Only Recovery Rate SC Auction Plus Recovery Rate (Quarterly) 6.4% Max 13.3% Min 2.8% May-07 May-09 May-11 May-13 May-15 May-17 Subprime 4.3% Max 5.4% Min 1.6% May-07 May-09 May-11 May-13 May-15 May-17 Subprime 85 90 95 100 105 110 115 120 110 115 120 125 130 135 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Manheim (Left Axis) NADA (Right Axis) AUTO INDUSTRY ANALYSIS Used Vehicle Indices1 Manheim: Seasonally Adjusted NADA: Not Seasonally Adjusted SC Recovery Rates2 Industry Net Loss Rates3 SE V ER IT Y CRE D IT Industry 60+ Day Delinquency Rates3 1 Manheim, Inc.; Indexed to a basis of 100 at 1995 levels; National Automotive Dealers Association (NADA) 2 Auction Only - includes all auto-related recoveries including inorganic/purchased receivables from auction lanes only 2 Auction Plus – Per the financial statements includes insurance proceeds, bankruptcy/deficiency sales, and timing impacts 3 Standard & Poor’s Rating Services (ABS Auto Trust Data – two-month lag on data, as of May 31, 2017)
6 VEHICLE FINANCE LEVERAGING TECHNOLOGY IS INTEGRAL TO THE FOUR PILLARS OF OUR FOCUSED BUSINESS MODEL FOCUSED BUSINESS MODEL DISCIPLINED APPROACH TO MARKET SIMPLE, PERSONAL, FAIR APPROACH WITH CUSTOMERS, EMPLOYEES AND ALL CONSTITUENCIES SERVICED FOR OTHERS FUNDING AND LIQUIDITY CULTURE OF COMPLIANCE
7DIVERSIFIED UNDERWRITING ACROSS FULL CREDIT SPECTRUM Auto origination increases (YoY) in nonprime while the prime environment remains highly competitive ($ in Millions) Q2 2017 Q1 2017 Q2 2016 QoQ YoY Total Core Retail Auto 2,254$ 2,198$ 1,654$ 3% 36% Chrysler Capital Loans (<640)1 948 833 857 14% 11% Chrysler Capital Loans (≥640)1 854 755 1,212 13% (30%) Total Chrysler Capital Retail 1,802$ 1,588$ 2,069$ 13% (13%) Total Leases2 1,427 1,602 1,697 (11%) (16%) T t l Auto Originations 5,483$ 5,388$ 5,420$ 2% 1% Total Personal Lending 6 - 9 N/A (33%) Total Originations 5,489$ 5,388$ 5,429$ 2% 1% Asset Sales 566$ 931$ 659$ (39%) (14%) Average Managed Assets 50,436$ 51,230$ 53,237$ (2%) (5%) Three Months Ended Originations % Variance 1 Approximate FICOs 2 Includes nominal capital lease originations
8 3% 2% 2% 2% 2% 13% 12% 11% 12% 12% 12% 13% 15% 18% 17% 20% 23% 24% 25% 24% 13% 14% 15% 13% 13% 40% 35% 32% 30% 33% 2Q16 3Q16 4Q16 1Q17 2Q17 Originations by Credit (RIC1 only) ($ in millions) >640 600-640 540-599 <540 No FICO Commercial DIVERSIFIED UNDERWRITING ACROSS FULL CREDIT SPECTRUM Originations <640 increased by approximately $500 million YoY Prime environment remains highly competitive Higher proportion of used vehicles originated in 2017, in- line with increased nonprime originations Average loan balances on originations down YoY, reflecting larger percentage of used vehicles Average loan balance in dollars $21,929 $21,482 $21,488 $20,193 $20,816 $3,723 $3,861 $3,553 $4,055$3,786 2 $2,737 $2,229 57% 56% 53% 47% 48% 43% 44% 47% 53% 52% 2Q16 3Q16 4Q16 1Q17 2Q17 New/Used Originations ($ in millions) Used New $3,723 $3,861 $3,553 $4,055$3,786 1 RIC; Retail Installment Contract 2 Loans to commercial borrowers; no FICO score obtained
9 Significant opportunity in prime originations Banco Santander flow agreement FCA has sold more than 2 million units annually since 2014 June 2017 penetration rate of 20% vs. 19% as of March 2017 Accomplishments and Improvements SC is the largest finance provider for FCA FCA and SC’s relationship provides a unique offering for nonprime consumers in comparison to other original equipment manufacturers Completed national roll out of dealer VIP program with more than 2,500 dealerships participating The VIP program is leading to an increase in applications and funding without impacting underwriting standards Through Santander Bank N.A. (“SBNA”), SC has increased dealer receivable originations (“floorplan”) ~3% compared to 2016 YTD CHRYSLER CAPITAL 1 FCA filings; sales as reported on 07/03/2017 SC continues to work strategically and collaboratively with FCA to further strengthen the relationship and create value within the Chrysler Capital program 0.84 0.92 1.04 1.09 1.14 1.07 1.64 1.80 2.11 2.26 2.25 2012 2013 2014 2015 2016 2017 YTD FCA Sales1 (units in millions) YTD Full Year
10 Total Flow Programs 659 794 477 931 566 CCART 904 Recent decrease in total balance related to lower prime originations and lower asset sales Growth in SFO remains dependent upon Chrysler Capital penetration and FCA prime originations SERVICED FOR OTHERS (SFO) PLATFORM Composition at 6/30/2017 RIC 84% Leases 9% RV/Marine 7% Total 100% Serviced for Others Balances (End of Period) Second Banco Santander flow transaction of $536 million *Sales with retained servicing during period $13,034 $12,157 $11,945 $11,015 $9,881 2Q16 3Q16 4Q16 1Q17 2Q17 $ in Millions
11Q2 2017 FINANCIAL RESULTS June 30, 2017 March 31, 2017 June 30, 2016 QoQ YoY Interest on finance receivables and loans 1,232,252$ 1,209,186$ 1,271,741$ 2% (3%) Net leased vehicle income 131,040 128,062 125,218 2% 5% Other finance and interest income 5,205 3,825 3,890 36% 34% Interest expense 233,371 227,089 198,594 3% 18% Net finance and other interest income 1,135,126$ 1,113,984$ 1,202,255$ 2% (6%) Provision for credit losses 520,555 635,013 511,921 (18%) 2% Profit sharing 8,443 7,945 17,846 6% (53%) Total other income 24,395 55,480 37,302 (56%) (35%) Total operating expenses 282,415 305,078 272,227 (7%) 4% Income before tax 348,108$ 221,428$ 437,563$ 57% (20%) Income tax expense 83,433 78,001 154,218 7% (46%) Net income 264,675$ 143,427$ 283,345$ 85% (7%) Diluted EPS ($) 0.74$ 0.40$ 0.79$ 85% (6%) Average total assets 39,216,971$ 38,901,686$ 38,089,236$ 1% 3% Average managed assets 50,435,958$ 51,229,729$ 53,237,279$ (2%) (5%) Three Months Ended (Unaudited, Dollars in Thousands, except per share) % Variance
12 June 30, 2017 March 31, 2017 June 30, 2016 QoQ YoY Interest on finance receivables and loans 1,143,383$ 1,116,737$ 1,190,499$ 2% (4%) Net leased vehicle income 131,040 128,062 125,218 2% 5% Other finance and interest income 5,205 3,825 3,891 36% 34% Interest expense 221,078 215,076 188,546 3% 17% Net finance and other interest income 1,058,550$ 1,033,548$ 1,131,062$ 2% (6%) Provision for credit losses 519,388 627,038 511,921 (17%) 1% Profit sharing 8,299 8,187 13,945 1% (40%) Investment (losses), net (9,880) (11,760) (6,010) (16%) 64% Servicing fee income 31,953 31,684 42,988 1% (26%) Fees, commissions and other 32,412 49,455 45,345 (34%) (29%) Total other income 54,469$ 69,379$ 82,323$ (21%) (34%) Average gross individually acquired RICs 28,202,716$ 28,200,907$ 29,015,183$ 0% (3%) Average gross operating leases 10,380,491$ 9,849,077$ 9,612,953$ 5% 8% Average Serviced for Others 10,342,125$ 11,368,726$ 13,710,985$ (9%) (25%) Three Months Ended (Unaudited, Dollars in Thousands) % Variance Q2 2017 EXCLUDING PERSONAL LENDING *Additional details can be found in Appendix
13TOTAL OTHER INCOME SC’s strategy is to price loans sold under flow agreements close to par, with minimal investment gains (losses), to generate further growth in the serviced for others platform and drive increased fee income Beginning in Q4 2015, net investment gains (losses) include the impact of personal lending assets Customer defaults, as part of LOCM adjustments on the personal lending portfolio designated as held for sale, are recognized through net investment gains (losses) Seasonal balances will impact magnitude of LOCM adjustments; this quarter included lower LOCM adjustments driven by seasonal decreases in the personal lending portfolio 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17 Reported Total Other Income (Loss) 37,302$ 26,682$ (47,996)$ 55,480$ 24,395$ Reported Investment (Losses), Net (101,309)$ (106,050)$ (168,344)$ (76,399)$ (99,522)$ Add back: Personal Lending LOCM Adjustments 94,767 95,646 150,083 64,639 89,642 Other1 7,330 6,639 8,130 878 7,701 Normalized Investment Gains (Losses), Net2 788$ (3,765)$ (10,131)$ (10,882)$ (2,179)$ Servicing Fee Income 42,988 32,205 32,205 31,684 31,953 Fees, Commissions, and Other3 95,623 88,143 88,143 100,195 91,964 Normalize Total Other Income2 139,399$ 116,583$ 110,217$ 120,997$ 121,738$ Customer Default Activity 97,169 114,477 116,113 111,199 103,703 Fair Value Discount (2,402) (18,831) 33,970 (46,560) (14,061) Denotes quarters with CCART sales Three Months Ended (Unaudited, Dollars in Thousands) 1 Other represents gains, losses and impairments 2 Normalized Investment Gains (Losses), Net and Normalized Total Other Income; Non-GAAP measures 3 Fees, commissions and Other includes fee income from the personal lending and auto portfolios
14CREDIT QUALITY: VINTAGE LOSS PERFORMANCE 2016 vintage continues to outperform the 2015 vintage on a gross and net loss basis 4.9% 5.8% 5.3% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 5.8% 6.0% 2014 2015 2016 Full-Year Vintage Performance1, Net Losses2 9.3% 10.5% 9.5% 8.6% 8.8% 9.0% 9.2% 9.4% 9.6% 9.8% 10.0% 10.2% 10.4% 10.6% 2014 2015 2016 Full-Year Vintage Performance1, Gross Losses *Retained originations only 1 Full-Year vintage describes January through December vintage performance through the end of the following June (for each respective year), up to 18 months of performance 2 SC’s financial statements reflect auction fees in repossession expense, whereas these fees are included in the net loss figures as shown above; Non-GAAP measure
15 $512 $610 $686 $635 $521 12.6% 12.4% 12.6% 12.7% 12.6% 12.2% 12.3% 12.4% 12.5% 12.6% 12.7% 12.8% $0 $100 $200 $300 $400 $500 $600 $700 $800 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Provis ion Expense and Allowance Ratio ($ in mi llions) Provision for credit losses Allowance Ratio $3,453 $3,458$199 $101 $35 $330 $3,000 $3,100 $3,200 $3,300 $3,400 $3,500 $3,600 $3,700 $3,800 $3,900 Q1 2017 New Volume TDR Migration Performance Adjustment Liquidations & Other Q2 2017 Q1 2017 to Q2 2017 ALLL Reserve Walk2 ($ in mi llions) PROVISION AND RESERVES Allowance to loans ratio decreased 10 bps to 12.6% QoQ Provision for credit losses increased $9 million YoY QoQ allowance increased $5 million New volume and TDR migration1 were offset by liquidations and other 1 TDR migration – the allowance for assets classified as TDRs or “troubled debt restructuring” takes into consideration expected lifetime losses, typically requiring additional coverage 2 Explanation of quarter over quarter variance are estimates
16 14.9% 18.4% 19.0% 18.1% 16.4% 6.0% 9.3% 9.9% 8.8% 7.5% 60% 49% 48% 51% 54% 0% 10% 20% 30% 40% 50% 60% 70% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00% Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Credit: Individually Acquired Retail Installment Contracts, Held for Investment Gross Charge- off Ratio Net Charge-off Ratio Recovery Rate (as % of recorded investment) 8.9% 9.2% 10.0% 7.3% 9.3% 4.2% 4.6% 5.1% 3.8% 4.7% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Delinquency: Individually Acquired Retail Installment Contracts, Held for Investment 31-60 61+DELINQUENCY AND LOSS YoY delinquency increased for each delinquency bucket primarily driven by slower portfolio growth YoY gross loss increased 150 basis points Net charge-off primary drivers: Lower recovery rate Slower portfolio growth Acceleration of bankruptcy related charge-offs1 Recovery rates and net losses in Q2 2016 benefited by proceeds from bankruptcy and deficiency sales2 1 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 2 Excluding bankruptcy and deficiency sales, recovery rates would have been 59%
17 $412 $513 $29 $62 $10 Q2 2016 Portfolio Aging and Mix Shift Recovery Rate Other Q2 2017 Q2 2016 to Q2 2017 Net Charge-Off Walk ($ in millions) CREDIT QUALITY: LOSS DETAIL Decline in recovery rate primarily driven by lower auction proceeds per unit 2015 vintage represents largest portion of gross losses, and second largest portion of net losses “Other” includes $25 million of write-downs on loans in bankruptcy1 which were accelerated into Q2 2017 1 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
18EXPENSE MANAGEMENT Operating expenses totaled $282 million, an increase of 4% versus the same quarter last year, driven by continued investment in compliance and control functions $53,237 $52,675 $52,039 $51,230 $50,436 $272 $284 $296 $305 $282 2.0% 2.2% 2.3% 2.4% 2.2% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% $2 $10,002 $20,002 $30,002 $40,002 $50,002 $60,002 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Average Managed Assets ($ millions) Total Expenses ($ millions) Expense Ratio
19 4.2 4.9 5.7 5.0 Q1 2017 Q2 2017 Unused Used $18.4 billion in commitments from 14 lenders 50% unused capacity on revolving lines at Q2 2017 FUNDING AND LIQUIDITY Total committed liquidity of $42.1 billion at the end Q2 2017, up 2% from $41.4 billion at the end of Q1 2017 Asset-Backed Securities ($ Billions) Private Financings ($ Billions) Banco Santander & Subsidiaries ($ Billions) Asset Sales ($ Billions) Executed 2 securitizations in Q2 2017 totaling $2.3 billion Upgrade of 18 ABS tranches by Fitch and S&P across multiple platforms, positively impacting more than $2.2 billion in securities $7.7 billion in total commitments 70% unused capacity at Q2 2017 Executed second Banco Santander flow transaction in Q2 2017 Amortizing Revolving 9.9 9.9 7.0 14.8 15.3 Q1 2017 Q2 2017 7.7 8.9 8.5 Q1 2017 Q2 2017 0.9 0.6 Q1 2017 Q2 2017 2.9 2.3 4.1 5.4 Q1 2017 Q2 2017 Unused Used
20 12.6% 13.1% 13.4% 13.8% 14.3% 12.4% 13.0% 13.4% 13.6% 14.1% Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 CET1 TCE/TA CONSISTENT CAPITAL GENERATION 1 Common Equity Tier 1 (CET1) Capital Ratio begins with stockholders’ equity and then adjusts for AOCI, goodwill/intangibles, DTAs, cash flow hedges and other regulatory exclusions over risk- weighted assets; Non-GAAP measure 2Tangible common equity to tangible assets is defined as the ratio of Total equity, excluding Goodwill and intangible assets, to Total assets, excluding Goodwill and intangible assets; Non-GAAP measure, reconciliation in Appendix 1 2 SC has exhibited a strong ability to generate earnings and capital, while growing assets. Current CET1 ratio in excess of required 12.5% based on most recent CCAR stress results. Tangible Assets $38,383 $38,665 $38,432 $38,956 $39,401 Tangible Common Equity $4,769 $5,011 $5,132 $5,313 $5,572 $ in millions
APPENDIX
22SC’S CONSUMER CENTRIC APPROACH Approach to income verification is to require documentation or other means of verification modeled around a risk-based strategy The performance of the verified income population is similar to the non-verified income population SC leverages third-party data and other information to complement income verification efforts Know your customer (KYC), income outlier reports, other third party information and data sources These other validation methods provide additional controls, checks and balances, creating additional elements to risk-based pricing such as maximum monthly payment and loan-to-value limits, or help identify any potential inaccuracies identified in the customer’s application or during the loan origination process Another critical step in SC’s approach to credit is its ongoing review process after a loan has been funded. This process feeds information back into originations as we continue to improve our ability to set consumers up for success: Welcome call attempts to 100% of customers Customer assistance in events of hardship, such as temporary reductions in payment or loan extensions Dealer Performance Management Program (DPM) SC monitors its dealers on an ongoing basis to determine whether a dealer should be placed in an enhanced monitoring environment, which may include additional stipulations, such as verifications of income and employment Dealers are assigned a DPM level based on certain quantitative portfolio metrics as well as qualitative behavior triggers, such as consumer complaints, negative media and fair lending monitoring Stipulations vary by DPM severity level Complaints management and data mining, financial literacy, continuous improvement and enhanced training Income Verification | Other Validation Methods Consumer Practices Ongoing Review Process Setting up the consumer for success and ensuring a customer’s ability to repay are (1) part of an effective consumer practices program and (2) directly tied to our financial success
23 Dealer performance was monitored by Risk Management quarterly SC focused on quantitative metrics including loss performance versus expectations DEALER PERFORMANCE MANAGEMENT TIMELINE 2013 SC further enhanced dealer oversight to include qualitative metrics such as negative media, false documents and consumer complaints If dealers breach any of the qualitative or quantitative metrics and performance does not improve, SC may terminate the dealership. In 2015 and 2016, more than 800 dealerships were terminated for performance-related issues 2016 Dealer Services department formed, which today has approximately 90 employees responsible for dealer oversight and management2015 Monthly Dealer Performance Management (DPM) process was created SC enhanced dealer oversight to include other quantitative metrics such as delinquency and early payment default trends 2014
24SANTANDER CONSUMER USA HOLDINGS INC. • Santander Consumer USA Holdings Inc. (NYSE:SC) (“SC”) is approximately 58.7%1 owned by Santander Holdings USA, Inc. (“SHUSA”), a wholly-owned subsidiary of Banco Santander, S.A. (NYSE:SAN) • On July 3, 2015, SHUSA elected to exercise its right to purchase all of the shares of SC common stock owned by DDFS LLC2, subject to regulatory approval and applicable law ▪ SC is a full-service, technology-driven consumer finance company focused on vehicle finance, third-party servicing and providing superior customer service • Historically focused on nonprime markets; established presence in prime and lease ▪ Approximately 4,900 full-time, 60 part-time and 1,500 vendor-based employees across multiple locations in the U.S. and the Caribbean ▪ Our strategy is to leverage our efficient, scalable technology and risk infrastructure and data to underwrite, originate and service profitable assets while treating employees, customers and all stakeholders in a simple, personal and fair manner ▪ Unparalleled compliance and responsible practices focus ▪ Continuously optimizing the mix of assets retained vs. assets sold and serviced for others ▪ Presence in prime markets through Chrysler Capital ▪ Efficient funding through key third-party relationships, secondary markets and Santander ▪ Solid capital base Overview Strategy 1 As of June 30, 2017 2 DDFS LLC is an entity owned by SC’s former Chairman and Chief Executive Officer, Tom Dundon. This purchase would result in SHUSA owning approximately 68.4% of SC.
25COMPANY ORGANIZATION Other Subsidiaries 100% Ownership Santander Holdings USA, Inc. (“SHUSA’) ~58.7% Ownership Santander Consumer USA Holdings Inc. (“SC”) Santander Bank, N.A. Other Subsidiaries ~9.7% Ownership DDFS LLC1 and Tom Dundon ~31.6% Ownership Other Management Public Shareholders Banco Santander, S.A. Spain *Ownership percentages are approximates as of June 30 2017 1 On July 3, 2015, SHUSA elected to exercise the right to purchase shares of SC common stock owned by DDFS LLC, an entity owned by former Chairman and Chief Executive Officer, Thomas Dundon, subject to regulatory approval and applicable law. This purchase would result in SHUSA owning approximately 68.4% of SC.
26Q2 2017 EXCLUDING PERSONAL LENDING DETAIL Total Personal Lending Excluding Personal Lending Total Personal Lending Excluding Personal Lending Total Personal Lending Excluding Personal Lending Interest on finance receivables and loans $ 1,232,252 $ 88,869 $ 1,143,383 $ 1,209,186 $ 92,449 $ 1,116,737 $ 1,271,740 $ 81,241 $ 1,190,499 Net leased vehicle income 131,040 - 131,040 128,062 - 128,062 125,218 - 125,218 Other finance and interest income 5,205 - 5,205 3,825 - 3,825 3,891 - 3,891 Interest expense 233,372 12,293 221,078 227,089 12,013 215,076 198,594 10,048 188,546 Net finance and other interest income $ 1,135,126 $ 76,576 $ 1,058,550 $ 1,113,984 $ 80,436 $ 1,033,548 $ 1,202,254 $ 71,193 $ 1,131,062 Provision for credit losses 520,555 1,167 519,388 635,013 7,975 627,038 511,921 - 511,921 Profit sharing 8,443 143 8,299 7,945 (242) 8,187 17,847 3,902 13,945 Investment (losses), net (99,522) (89,642) (9,880) (76,399) (64,639) (11,760) (101,309) (95,299) (6,010) Servicing fee income 31,953 - 31,953 31,684 - 31,684 42,988 - 42,988 Fees, commissions and other 91,964 59,552 32,412 100,195 50,740 49,455 95,623 50,278 45,345 Total other income $ 24,394 $ (30,075) $ 54,469 $ 55,480 $ (13,899) $ 69,379 $ 37,301 $ (45,021) $ 82,323 Average gross individually acquired retail installment contracts $ 28,202,716 - $ 28,200,907 - $ 29,015,183 - Average gross personal loans - $ 1,402,416 - $ 1,488,665 - $ 1,376,633 Average gross operating leases $ 10,380,491 - $ 9,849,077 - $ 9,612,953 - Average Serviced for Others $ 10,342,125 - $ 11,368,726 - $ 13,710,985 - As of and for the Three Months Ended (Unaudited, Dollars in Thousands) June 30, 2017 March 31, 2017 June 30, 2016
27HELD FOR INVESTMENT CREDIT TRENDS Retail Installment Contracts1 1Held for investment at end of period; excludes assets held for sale 2.6 % 1 2.6 % 22. 9% 31. 2% 17. 4% 13. 3% 3.3 % 12 .4% 22. 2% 31. 1% 17. 2% 13. 8% 3.1 % 12 .2% 22. 1% 31. 4% 17. 4% 13. 8% 2.8 % 1 2.0 % 22. 3% 31. 7% 17. 4% 13. 8% 2.5 % 1 1.9 % 22. 4% 31. 9% 17. 3% 14. 0% Commercial Unknown <540 540-599 600-639 >=640 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
28CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, dollars in thousands) June 30, 2017 December 31, 2016 Assets Cash and cash equivalents $ 341,412 $ 160,180 Finance receivables held for sale, net 2,123,103 2,123,415 Finance receivables held for investment, net 23,634,914 23,481,001 Restricted cash 2,756,879 2,757,299 Accrued interest receivable 330,710 373,274 Leased vehicles, net 9,285,718 8,564,628 Furniture and equipment, net 71,432 67,509 Federal, state and other income taxes receivable 97,282 87,352 Related party taxes receivable 467 1,087 Goodwill 74,056 74,056 Intangible assets, net 32,242 32,623 Due from affil iates 23,146 31,270 Other assets 736,121 785,410 Total assets $ 39,507,482 $ 38,539,104 Liabilities and Equity Liabilities: Notes payable — credit facil ities $ 5,624,440 $ 6,739,817 Notes payable — secured structured financings 23,747,907 21,608,889 Notes payable — related party 2,276,179 2,975,000 Accrued interest payable 32,743 33,346 Accounts payable and accrued expenses 335,807 379,021 Deferred tax liabilities, net 1,419,820 1,278,064 Due to affil iates 60,467 50,620 Other l iabilities 331,386 235,728 Total l iabilities $ 33,828,749 $ 33,300,485 Equity: Common stock, $0.01 par value 3,595 3,589 Additional paid-in capital 1,664,903 1,657,611 Accumulated other comprehensive income (loss), net 27,860 28,259 Retained earnings 3,982,375 3,549,160 Total stockholders’ equity $ 5,678,733 $ 5,238,619 Total l iabilities and equity $ 39,507,482 $ 38,539,104
29CONDENSED CONSOLIDATED INCOME STATEMENTS June 30, June 30, 2017 2016 Interest on finance receivables and loans $ 1,232,252 $ 1,271,741 Leased vehicle income 429,264 368,358 Other finance and interest income 5,205 3,890 Total finance and other interest income $ 1,666,721 $ 1,643,989 Interest expense 233,371 198,594 Leased vehicle expense 298,224 243,140 Net finance and other interest income $ 1,135,126 $ 1,202,255 Provision for credit losses 520,555 511,921 Net finance and other interest income after provision for credit losses $ 614,571 $ 690,334 Profit sharing 8,443 17,846 Net finance and other interest income after provision for credit losses and profit sharing $ 606,128 $ 672,488 Investment (losses), net (99,522) (101,309) Servicing fee income 31,953 42,988 Fees, commissions, and other 91,964 95,623 Total other income $ 24,395 $ 37,302 Compensation expense 127,894 123,344 Repossession expense 67,269 68,351 Other operating costs 87,252 80,532 Total operating expenses $ 282,415 $ 272,227 Income before income taxes 348,108 437,563 Income tax expense 83,433 154,218 Net income $ 264,675 $ 283,345 Net income per common share (basic) $ 0.74 $ 0.79 Net income per common share (diluted) $ 0.74 $ 0.79 Weighted average common shares (basic) 359,461,407 358,218,378 Weighted average common shares (diluted) 359,828,690 359,867,806 For the Three Months Ended (Unaudited, dollars in thousands, except per share amounts)
30RECONCILIATION OF NON-GAAP MEASURES June 30, March 31, December 31, September 30, June 30, 2017 2017 2016 2016 2016 Total equity $ 5,678,733 $ 5,418,998 $ 5,238,619 $ 5,117,657 $ 4,876,712 Deduct: Goodwill and intangibles 106,298 106,331 106,679 107,084 107,737 Tangible common equity $ 5,572,435 $ 5,312,667 $ 5,131,940 $ 5,010,573 $ 4,768,975 Total assets $ 39,507,482 $ 39,061,940 $ 38,539,104 $ 38,771,636 $ 38,490,611 Deduct: Goodwill and intangibles 106,298 106,331 106,679 107,084 107,737 Tangible assets $ 39,401,184 $ 38,955,609 $ 38,432,425 $ 38,664,552 $ 38,382,874 Equity to assets ratio 14.4% 13.9% 13.6% 13.2% 12.7% Tangible common equity to tangible assets 14.1% 13.6% 13.4% 13.0% 12.4% Total equity 5,678,733$ 5,418,998$ 5,238,619$ 5,117,657$ 4,876,712$ Deduct: Goodwill and other intangible assets, net of deferred tax liabilities 177,619 182,156 186,930 191,848 196,962 Deduct: Accumulated other comprehensive income, net 27,860 35,504 28,259 (26,598) (50,766) Tier 1 common capital 5,473,254$ 5,201,338$ 5,023,430$ 4,952,407$ 4,730,516$ Risk weighted assets (a) 38,368,928$ 37,799,513$ 37,432,700$ 37,828,982$ 37,460,349$ Common Equity Tier 1 capital ratio (b) 14.3% 13.8% 13.4% 13.1% 12.6% (Unaudited, dollars in thousands) (a) Under the banking agencies' risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories. The aggregate dollar amount in each risk category is multiplied by the associated risk weight of the category. The resulting weighted values are added together with the measure for market risk, resulting in the Company's and the Bank's total Risk weighted assets (b) CET1 is calculated under Basel III regulations required as of January 1, 2015.