santander consumer usa holdings inc.d18rn0p25nwr6d.cloudfront.net/cik-0001580608/fcb98199-e6...2018...
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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): January 31, 2018
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 an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of theSecurities Exchange Act of 1934 (17 CFR 240.12b-2).
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 financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On January 31, 2018, Santander Consumer USA Holdings Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended December 31,2017. Copies of the Company’s press release and an investor presentation for the quarter ended December 31, 2017 are attached hereto as Exhibits 99.1 and 99.2, respectively, andincorporated herein 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 January 31, 2018.
Exhibit 99.2 Presentation Materials of Santander Consumer USA Holdings Inc., dated January 31, 2018 .
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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: January 31, 2018
SANTANDER CONSUMER USA HOLDINGS INC.
By: /s/ Christopher Pfirrman Name: Christopher Pfirrman Title: Chief Legal Officer
Exhibit 99.1
Contacts:Investor RelationsEvan Black [email protected]
Media RelationsLaurie Kight214.801.6455
Santander Consumer USA Holdings Inc. Reports Fourth Quarter and Full Year 2017 Results
2017 Milestones Pave the Way for 2018 with Continued Focus On Financial and Operational Performance, Fiat Chrysler and Other Key Origination Channels
Dallas, TX (January 31, 2018) – Santander Consumer USA Holdings Inc. (NYSE: SC) (“SC” or the “Company”) today announced net income for the fourth quarter of 2017 (“Q42017”) of $580 million , or $1.61 per diluted common share. Net income for Q4 2017, excluding the impact of significant items including tax reform and other tax related items,legal reserves, and a settlement with the former CEO (“Adjusted 1 ”), totaled $98 million , or $0.27 per diluted common share. Net income for the full year 2017 (“2017”) was $1.2billion , or $3.30 per diluted common share. Adjusted net income for 2017 was $627 million , or $1.74 per diluted common share. Please refer to Table 9 for a reconciliation ofthese significant items to GAAP.
The Company has declared a cash dividend of $0.05 per share, to be paid on February 22, 2018, to shareholders of record as of the close of business on February 12, 2018.
“2017 was a pivotal year for SC, and our full year results reflect that, ” said Scott Powell, SC President and CEO, and Santander US CEO. “ We strengthened our managementteam, stabilized credit performance, and launched new efforts focusing on Fiat Chrysler and the rest of our dealers. Passing the Federal Reserve's capital stress test and ourrelationship with Santander Group provide us with the balance sheet flexibility to support our business objectives in 2018. ”
2017 Regulatory and Business Milestones:• The Federal Reserve Bank of Boston (“Federal Reserve”) terminated the 2014 Written Agreement with SC's majority owner, Santander Holdings USA, Inc. (“SHUSA”),
following its non-objection to SHUSA's Comprehensive Capital Analysis and Review submission. SHUSA and SC now operate within a normal capital cycle, and SCcompleted its first cash dividend payment to shareholders since 2014.
• SHUSA and Banco Santander (“Santander”) increased their total ownership in SC to approximately 68.1%, following Santander's acquisition from SC's former CEO of 9.6%of SC's outstanding shares, which it transferred to SHUSA.
• Launched flow program with Santander allowing SC to execute prime auto loan sales of $2.6 billion, and through Santander Bank N.A., increased FCA dealer receivables(“floorplan”) 14% year-over-year, to $2.0 billion.
• Leading auto loan asset-backed securities ("ABS") issuer with $7.9 billion in ABS offered and sold, including SC's inaugural lease securitization, Santander Retail Auto LeaseTrust (“SRT”) and SC's first public DRIVE securitization.
• Announced key appointments and changes to its management team, including Scott Powell as CEO, Juan Carlos Alvarez as CFO, Sandra Broderick as EVP, Head ofOperations, and Rich Morrin, as President of Chrysler Capital and Auto Relationships.
Full Year 2017 Key Financial Highlights (variancescomparedtofullyear2016(“2016” )):• Total auto originations of $20.1 billion, down 8%• Finance receivables, loans and leases, net 2 , increased 2%, to $34.8 billion at December 31, 2017 , from $34.2 billion at December 31, 2016• Net finance and other interest income of $4.3 billion , down 9%• RIC gross charge-off ratio of 17.9%, up 60 basis points, stabilizing compared to a 230 basis point increase from 2015 to 2016• RIC net charge-off ratio of 8.9% , up 60 basis points, compared to a 140 basis point increase from 2015 to 2016• Return on average assets (“ROA”) of 3.0% and Adjusted ROA of 1.6% , down from 2.0%
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• Expense ratio of 2.6% and Adjusted expense ratio of 2.3% , up from 2.2%
Fourth Quarter of 2017 Key Financial Highlights (variancescomparedtofourthquarterof2016(“Q42016” )):• Total auto originations of $4.3 billion, down 5%
◦ Core retail auto originations of $1.5 billion, down 27%◦ Chrysler Capital loan originations of $1.5 billion, flat◦ Chrysler Capital lease originations of $1.3 billion, up 31%
• Net finance and other interest income of $1.0 billion , down 11%• ROA of 6.0% and Adjusted ROA of 1.0% , up from 0.6%• CET1 ratio of 16.3%• $2.2 billion in ABS offered and sold
Subsequent Events:• Partnered with Santander InnoVentures, a Santander corporate venture fund, during the first quarter of 2018, to become a lending choice on AutoFi's online finance platform to
streamline and simplify the car buying process for consumers, while providing dealers a robust digital sales channel.
“Fourth quarter results demonstrate continued stabilization in credit performance following Hurricanes Harvey and Irma, ” said Juan Carlos Alvarez, SC CFO. “ As we head into2018 our goal is to leverage our network and improve our dealer experience, including with Fiat Chrysler, while remaining focused on risk-adjusted returns and disciplinedexpense management. ”
Net finance and other interest income decreased 11 percent, to $1.0 billion in Q4 2017 from $1.1 billion in Q4 2016, primarily driven by lower average RIC balances and anincrease in benchmark rates.
Servicing fee income decreased 19 percent to $26 million in Q4 2017, from $32 million in Q4 2016, driven by lower prime originations and lower prime asset sales. SC's servicedfor others portfolio of $8.6 billion as of Q4 2017, is down 28 percent from $11.9 billion in Q4 2016.
RIC delinquency ratio 3 increased to 5.4 percent in Q4 2017, from 5.1 percent in Q4 2016, primarily due to a lower portfolio balance.
RIC net charge-off ratio 4 increased to 10.3 percent in Q4 2017, from 9.9 percent in Q4 2016. Provision for credit loss decreased to $562 million in Q4 2017, from $686 million inQ4 2016.
Allowance ratio 5 decreased 20 basis points, to 12.6 percent at the end of Q4 2017, from 12.8 percent at the end of Q3 2017.
Recorded net investment losses were $138 million in Q4 2017, compared to net investment losses of $168 million in Q4 2016. The current period losses were primarily driven byheld for sale accounting for SC's personal lending portfolio 6 .
During the quarter, SC incurred $426 million of operating expenses, up 44 percent from $296 million in Q4 2016. Adjusted operating expenses were $269 million , down 9 percentfrom $296 million in Q4 2016.
1 Please refer to Table 9 for a reconciliation of these significant items to GAAP. Amounts excluding significant items are non-GAAP financial measures that management believes will assist usersof SC's financial information by excluding items that management does not believe reflect SC's fundamental business performance or results of operations.2 Includes Finance receivables held for investment, Finance receivables held for sale and Leased vehicles.3 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, excluding capital leases.4 Net charge-off ratio stated on a recorded investment basis, which is the unpaid principal balance adjusted for unaccreted net discounts, subvention and origination costs.5 Ratio for allowance for credit losses excludes end of period balances on purchased receivables portfolio of $28 million and finance receivables held for sale of $2.2 billion .6 The current period losses were primarily driven by $136 million of lower of cost or market adjustments related to the held for sale personal lending portfolio, comprised of $114 million incustomer default activity and $23 million increase in market discount, consistent with typical seasonal patterns.
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Conference Call Information
SC will host a conference call and webcast to discuss the Q4 2017 results and other general matters at 9 a.m. Eastern Time on Wednesday, January 31, 2018. The conference callwill be accessible by dialing 800-281-7973 (U.S. domestic), or 323-794-2093 (international), conference ID 4639683. Please join 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 the corporate website at http://investors.santanderconsumerusa.com . Choose“Events” and select the information pertaining to the Q4 2017 Earnings Call. Additionally there will be several slides accompanying the webcast. Please allow at least 15 minutes toregister, download and install any necessary software prior to the call.
For those unable to listen to the live broadcast, a replay will be available on the Company’s website or by dialing 844-512-2921 (U.S. domestic), or 412-317-6671 (international),conference ID 4639683, approximately two hours after the conference call for two weeks. An audio webcast of the call and investor presentation will also be archived on theInvestor 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 control 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 SHUSA and Banco Santander,which 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 toplace 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 ourresults, 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-lookingstatements 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 reflectany 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 consumer finance company focused on vehicle finance, third-party servicing and delivering superiorservice to our more than 2.6 million customers across the full credit spectrum. The Company, which began originating retail installment contracts in 1997, has a managed assetportfolio of approximately $49 billion as of December 31, 2017 , and is headquartered in Dallas. ( www.santanderconsumerusa.com )
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Santander Consumer USA Holdings Inc.Financial Supplement
Fourth Quarter and Full Year 2016
Table of Contents Table 1: Consolidated Balance Sheets 5Table 2: 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 & 9: Reconciliation of Non-GAAP Measures 13
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Table 1: Consolidated Balance Sheets
December 31,
2017 December 31,
2016Assets (Unaudited, Dollars in thousands)
Cash and cash equivalents $ 527,805 $ 160,180
Finance receivables held for sale, net 2,210,421 2,123,415
Finance receivables held for investment, net 22,427,769 23,481,001
Restricted cash 2,553,902 2,757,299
Accrued interest receivable 326,640 373,274
Leased vehicles, net 10,160,327 8,564,628
Furniture and equipment, net 69,609 67,509
Federal, state and other income taxes receivable 95,060 87,352
Related party taxes receivable 467 1,087
Goodwill 74,056 74,056
Intangible assets, net 29,734 32,623
Due from affiliates 33,270 31,270
Other assets 913,244 785,410
Total assets $ 39,422,304 $ 38,539,104
Liabilities and Equity Liabilities:
Notes payable — credit facilities $ 4,848,316 $ 6,739,817
Notes payable — secured structured financings 22,557,895 21,608,889
Notes payable — related party 3,754,223 2,975,000
Accrued interest payable 38,529 33,346
Accounts payable and accrued expenses 429,531 379,021
Deferred tax liabilities, net 897,121 1,278,064
Due to affiliates 82,382 50,620
Other liabilities 333,806 235,728
Total liabilities 32,941,803 33,300,485
Equity: Common stock, $0.01 par value 3,605 3,589
Additional paid-in capital 1,681,558 1,657,611
Accumulated other comprehensive income, net 44,262 28,259
Retained earnings 4,751,076 3,549,160
Total stockholders’ equity 6,480,501 5,238,619
Total liabilities and equity $ 39,422,304 $ 38,539,104
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Table 2: Consolidated Statements of Income
Three Months Ended
December 31, Year Ended December 31
2017 2016 2017 2016 (Unaudited, Dollars in thousands, except per share amounts)
Interest on finance receivables and loans $ 1,129,181 $ 1,222,468 $ 4,755,678 $ 5,026,790
Leased vehicle income 483,028 401,020 1,788,457 1,487,671
Other finance and interest income 4,470 3,695 19,885 15,135
Total finance and other interest income 1,616,679 1,627,183 6,564,020 6,529,596
Interest expense 236,600 216,980 947,734 807,484
Leased vehicle expense 370,537 278,229 1,298,513 995,459
Net finance and other interest income 1,009,542 1,131,974 4,317,773 4,726,653
Provision for credit losses 562,346 685,711 2,254,361 2,468,200
Net finance and other interest income after provision for credit losses 447,196 446,263 2,063,412 2,258,453
Profit sharing 7,235 12,176 29,568 47,816
Net finance and other interest income after provision for credit losses and profit sharing 439,961 434,087 2,033,844 2,210,637
Investment gains (losses), net (137,926) (168,344) (366,439) (444,759)
Servicing fee income 26,031 32,205 118,341 156,134
Fees, commissions, and other 74,179 88,143 349,204 382,171
Total other income (loss) (37,716) (47,996) 101,106 93,546
Compensation expense 182,692 126,982 581,017 498,224
Repossession expense 70,259 75,539 275,704 293,355
Other operating costs 173,089 93,384 454,715 351,893
Total operating expenses 426,040 295,905 1,311,436 1,143,472
Income before income taxes (23,795) 90,186 823,514 1,160,711
Income tax expense (603,911) 28,911 (364,092) 394,245
Net income $ 580,116 $ 61,275 $ 1,187,606 $ 766,466
Net income per common share (basic) $ 1.61 $ 0.17 $ 3.30 $ 2.14
Net income per common share (diluted) $ 1.61 $ 0.17 $ 3.30 $ 2.13
Dividends paid per common share $ 0.03 — $ 0.03 —
Weighted average common shares (basic) 360,256,602 358,582,203 359,613,714 358,280,814
Weighted average common shares (diluted) 361,409,997 360,323,179 360,292,330 359,078,337
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Table 3: Other Financial Information
Three Months Ended
December 31, Year Ended December 31,
2017 2016 2017 2016Ratios (Unaudited, Dollars in thousands) Yield on individually acquired retail installment contracts 15.4% 15.8% 15.7% 16.1 % Yield on purchased receivables portfolios 30.1% 18.1% 20.6% 24.3 % Yield on receivables from dealers 2.7% 5.1% 5.3% 5.2 % Yield on personal loans (1) 23.9% 22.9% 24.5% 23.9 % Yield on earning assets (2) 12.6% 13.5% 13.2% 14.1 % Cost of debt (3) 3.1% 2.8% 3.0% 2.6 % Net interest margin (4) 10.2% 11.3% 10.8% 12.0 % Expense ratio (5) 3.5% 2.3% 2.6% 2.2 % Return on average assets (6) 6.0% 0.6% 3.0% 2.0 % Return on average equity (7) 38.5% 4.7% 21.0% 15.8 % Net charge-off ratio on individually acquired retail installment contracts (8) 10.3% 9.9% 8.9% 8.3 % Net charge-off ratio on purchased receivables portfolios (8) 4.5% 1.3% 1.4% — % Net charge-off ratio on receivables from dealers (8) —% 1.5% —% 0.5 % Net charge-off ratio on personal loans (8) 0.5% —% 0.6% — % Net charge-off ratio (8) 10.3% 9.8% 8.9% 8.2 %
Delinquency ratio on individually acquired retail installment contracts held for investment, end ofperiod (9) 5.4% 5.1% 5.4% 5.1 %
Delinquency ratio on personal loans, end of period (9) 11.5% 11.3% 11.5% 11.3 % Delinquency ratio on loans held for investment, end of period (9) 5.4% 5.1% 5.4% 5.1 % Allowance ratio (10) 12.6% 12.6% 12.6% 12.6 % Common stock dividend payout ratio (11) 1.9% —% 0.9% — % Common Equity Tier 1 capital ratio (12) 16.3% 13.4% 16.3% 13.4 %
Other Financial Information Charge-offs, net of recoveries, on individually acquired retail installment contracts $ 671,418 $ 674,442 $ 2,394,102 $ 2,257,849 Charge-offs, net of recoveries, on purchased receivables portfolios 514 790 2,055 (17) Charge-offs, net of recoveries, on receivables from dealers — 258 — 393 Charge-offs, net of recoveries, on personal loans 1,576 — 8,126 — Charge-offs, net of recoveries, on capital leases 525 2,219 4,310 9,384 Total charge-offs, net of recoveries $ 674,033 $ 677,709 $ 2,408,593 $ 2,267,609
End of period delinquent principal over 60 days, individually acquired retail installment contractsheld for investment $ 1,404,620 $ 1,386,218 $ 1,404,620 $ 1,386,218
End of period personal loans delinquent principal over 60 days $ 175,660 $ 176,873 $ 175,660 176,873 End of period delinquent principal over 60 days, loans held for investment $ 1,407,456 $ 1,392,789 $ 1,407,456 $ 1,392.789 End of period assets covered by allowance for credit losses $ 25,988,819 $ 27,229,276 $ 25,988,819 $ 27,229,276 End of period gross individually acquired retail installment contracts held for investment $ 25,943,288 $ 27,127,973 $ 25,943,288 $ 27,127,973 End of period gross personal loans $ 1,524,158 $ 1,558,790 $ 1,524,158 $ 1,558,790 End of period gross finance receivables and loans held for investment $ 26,009,206 $ 27,427,578 $ 26,009,206 $ 27,427,578 End of period gross finance receivables, loans, and leases held for investment $ 37,207,665 $ 37,040,531 $ 37,207,665 $ 37,040,531 Average gross individually acquired retail installment contracts held for investment $ 26,091,257 $ 27,225,198 $ 26,754,780 $ 27,253,756 Average gross personal loans held for investment $ 7,997 $ 21,047 $ 12,476 $ 9,995 Average gross individually acquired retail installment contracts $ 27,098,976 $ 28,604,117 $ 27,926,229 $ 28,652,897 Average gross purchased receivables portfolios 45,907 241,404 146,362 286,354 Average Gross receivables from dealers 15,927 69,745 52,435 71,997 Average Gross personal loans 1,392,528 1,405,187 1,419,417 1,413,440 Average Gross capital leases 22,232 34,584 25,495 45,949 Average Gross finance receivables and loans $ 28,575,570 $ 30,355,037 $ 29,569,938 $ 30,470,637 Average Gross finance receivables, loans, and leases $ 39,663,931 $ 39,941,127 $ 40,026,059 $ 39,289,341 Average managed assets $ 48,971,677 $ 52,038,692 $ 50,110,765 $ 52,731,119
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Three Months Ended
December 31, Year Ended December 31,
2017 2016 2017 2016 (Unaudited, Dollars in thousands) Average total assets $ 38,992,937 $ 38,513,454 $ 39,163,887 $ 37,944,529 Average debt $ 30,804,384 $ 31,416,694 $ 31,385,153 $ 31,330,686 Average total equity $ 6,021,944 $ 5,185,840 $ 5,663,469 $ 4,850,653
(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 stock dividend payout ratio” is defined as the ratio of Dividends declared per share of common stock to Earnings per share attributable to the Company'sshareholders.
(12) “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 twelve months December 31, 2017 and 2016 , are as follows:
(Unaudited, Dollars in thousands)
Three Months Ended December 31, Twelve Months Ended December 31,
2017 2016 2017 2016Credit loss allowance — beginning of period $ 3,371,265 $ 3,401,285 $ 3,411,055 $ 3,197,414
Provision for credit losses 561,288 684,213 2,244,182 2,471,490
Charge-offs (1,253,745) (1,293,744) (4,796,216) (4,723,649)
Recoveries 582,327 619,301 2,402,114 2,465,800
Credit loss allowance — end of period $ 3,261,135 $ 3,411,055 $ 3,261,135 $ 3,411,055
Net charge-offs $ 671,418 $ 674,442 $ 2,394,102 $ 2,257,848
Average unpaid principal balance (UPB) held for investment 26,091,257 27,225,198 26,754,780 27,253,756
Charge-off ratio 1 10.3% 9.9% 8.9% 8.3%
December 31, 2017 2 December 31, 2016 2
Principal 30-59 days past due $ 2,823,118 10.9% $ 2,911,800 10.7%
Delinquent principal over 59 days 3 1,507,345 5.8% 1,520,105 5.6%
Total delinquent contracts $ 4,330,463 16.7% $ 4,121,795 16.3%
December 31, September 30,
2017 2016 2017 2016TDR - Unpaid principal balance $ 6,261,894 $ 5,599,567 $ 6,276,659 $ 5,332,767
Non-TDR - Unpaid principal balance $ 19,681,394 $ 21,528,406 $ 20,044,330 $ 22,038,228
Total - Unpaid principal balance $ 25,943,288 $ 27,127,973 $ 26,320,989 $ 27,370,995
Total - Allowance $ 3,261,135 $ 3,411,055 $ 3,371,265 $ 3,401,285
Total allowance ratio 12.6% 12.6% 12.8% 12.4%
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 Twelve Months Ended Three Months Ended
December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 September 30, 2017Retained Originations (Unaudited, Dollar amounts in thousands)Retail installment contracts $ 3,014,433 $ 3,068,154 $ 11,634,395 $ 12,726,912 $ 2,570,228
Average APR 14.0% 15.4% 16.4% 15.7% 16.1%
Average FICO® (a) 631 604 602 598 605
Discount 0.2% 0.3% 0.7% 0.5% 1.2%
Personal loans (b) $ 528,705 $ 570,632 $ 1,477,249 $ 1,555,783 $ 309,779
Average APR 25.7% 25.2% 25.7% 25.1% 25.7%
Discount — — — — —
Leased vehicles $ 1,294,256 $ 971,865 $ 5,987,648 $ 5,584,149 $ 1,665,776
Capital leases $ 4,640 $ 1,424 $ 9,295 $ 7,401 $ 2,477
Total originations retained $ 4,842,034 $ 4,612,075 $ 19,108,587 $ 19,874,245 $ 4,548,260
Sold Originations Retail installment contracts $ — $ 484,916 $ 2,550,065 $ 3,573,658 $ 757,720
Average APR —% 4.4% 6.2% 4.3% 6.0%
Average FICO® (c) — 746 727 745 729
Total originations sold $ — $ 484,916 $ 2,550,065 $ 3,573,658 $ 757,720
Total SC originations $ 4,842,034 $ 5,096,991 $ 21,658,652 $ 23,447,903 $ 5,305,980
Total originations $ 4,842,034 $ 5,096,991 $ 21,658,652 $ 23,447,903 $ 5,305,980
(a) Unpaid principal balance excluded from the weighted average FICO score is $372 million, $426 million , $1.5 billion, and $2.1 billion and $311 million for the three months ended December 31, 2017 and2016 , the twelve months ended December 31, 2017 and 2016 , and the three months ended September 30, 2017 , respectively, as the borrowers on these loans did not have FICO scores at origination. Ofthese amounts, $68 million, $71 million , $164 million, $364 million , and $37 million , respectively, were commercial loans.
(b) Effective three months ended December 31, 2017, the Company revised its approach to define origination volumes for Personal Loans to include new originations, gross of paydowns and charge-offs, relatedto customers who took additional advances on existing accounts (including capitalized late fees, interest and other charges), and newly opened accounts.
(c) Unpaid principal balance excluded from the weighted average FICO score is zero, $50 million , $317 million, $451 million and $93 million for the three months ended December 31, 2017 and 2016 , thetwelve months ended December 31, 2017 and 2016 , and the three months ended September 30, 2017 , respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts,zero, $8 million , $102 million, $86 million , and $26 million , respectively, were commercial loans.
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Table 6: Asset Sales
Asset sales may include assets originated in prior periods.
Three Months Ended Twelve Months Ended Three Months Ended
December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 September 30,
2017 (Unaudited, Dollar amounts in thousands)Retail installment contracts $ — $ 1,381,036 $ 2,979,033 $ 3,694,019 $ 1,482,134
Average APR —% 6.3% 6.2% 4.2% 6.2%
Average FICO® — 721 721 746 716
Personal loans $ — $ — $ — $ 869,349 $ —
Average APR —% —% —% 17.9% —%
Total asset sales $ — $ 1,381,036 $ 2,979,033 $ 4,563,368 $ 1,482,134
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Table 7: Ending Portfolio
Ending outstanding balance, average APR and remaining unaccreted discount of our held for investment portfolio as of December 31, 2017 , and December 31, 2016 , are asfollows:
December 31, 2017 December 31, 2016
( Unaudited, Dollar amounts in thousands)
Retail installment contracts $ 25,986,532 $ 27,358,147
Average APR 16.5% 16.4%
Discount 1.5% 2.3%
Personal loans $ 6,887 $ 19,361
Average APR 31.8% 31.5%
Receivables from dealers $ 15,787 $ 69,431
Average APR 4.2% 4.9%
Leased vehicles $ 11,175,602 $ 9,612,953
Capital leases $ 22,857 $ 31,872
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Table 8: Reconciliation of Non-GAAP Measures
December 31, 2017 December 31, 2016
(Unaudited, Dollar amounts in thousands)
Total equity $ 6,480,501 $ 5,238,619
Deduct: Goodwill, intangibles, and other assets, net of deferred tax liabilities 172,664 186,930
Deduct: Accumulated other comprehensive income (loss), net 44,262 28,259
Tier 1 common capital $ 6,263,575 $ 5,023,430
Risk weighted assets (a) $ 38,473,339 $ 37,432,700
Common Equity Tier 1 capital ratio (b) 16.3% 13.4%
Tier 1 common capital $ 6,263,575 $ 5,023,430
Adjustments for significant items: Deduct: Tax Reform (c) 652,366 —
Deduct: Gain on RV/Marine Portfolio (after tax) (d) 23,353 —
Add: Legal reserves (after tax) (e) 72,100 —
Add: Settlement with former CEO (after tax) (f) 42,975 —
Adjusted Tier 1 common capital $ 5,702,931 $ 5,023,430
Risk weighted assets (a) $ 38,473,339 $ 37,432,700
Adjusted Common Equity Tier 1 capital ratio 14.8% 13.4%
(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. Theaggregate 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 marketrisk, resulting in the Company's total 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.(c) Net tax benefit due to re-measurement of all deferred tax assets (DTAs) and deferred tax liabilities (DTLs) at a federal tax rate of 21% (as compared to 35%).(d) During the three months ended September 30, 2017, SC sold certain receivables previously acquired with deteriorated credit quality at a gain.(e) During the three months ended December 31, 2017, the Company recorded accrual for legal reserves related to certain lawsuits, regulatory matters and other legal proceedings, based on
availability of additional information and ability to reliably estimate the potential liability.(f) On November 15, 2017, the Company entered into a Settlement Agreement with Thomas G. Dundon (former CEO) that, among other things, altered certain portions of the economic
arrangements set forth in the Separation Agreement.
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Table 9: Reconciliation of Non-GAAP Measures
Three Months Ended
December 31, 2017 For the Year Ended December 31,
2017
(Unaudited, Dollar amounts in thousands)
GAAP Operating Expenses $ 426,040 $ 1,311,436
Deduct: Legal Reserves 91,000 91,000
Deduct: Settlement with former CEO 66,115 66,115
Adjusted Operating Expenses, excluding significant items $ 268,925 $ 1,154,321
GAAP Pre-Tax (Loss)/Income $ (23,795) $ 823,514
Add: Legal Reserves 91,000 91,000
Add: Settlement with former CEO 66,115 66,115
Deduct: Gain on RV/Marine Portfolio — 35,927
Adjusted Pre-Tax Income, excluding significant items $ 133,320 $ 944,702
GAAP Net Income $ 580,116 $ 1,187,606Adjustments for significant items:
Deduct: Tax Reform and other tax related items (a) 596,705 652,366
Deduct: Gain on RV/Marine Portfolio (after tax) — 23,353
Add: Legal reserves (after tax) 72,100 72,100
Add: Settlement with former CEO (after tax) 42,975 42,975
Adjusted Net Income, excluding significant items $ 98,486 $ 626,962
GAAP Diluted Earnings per common share (b) $ 1.61 $ 3.30
Adjusted Diluted Earnings per common share, excluding significant items (b) $ 0.27 $ 1.74
Adjusted Selected Ratios GAAP Return on Average Assets (b) 6.0% 3.0%
Adjusted Return on Average Assets, excluding significant items (b) 1.0% 1.6%
Average Assets $ 38,992,937 $ 39,163,887
GAAP Return on Average Equity (b) 38.5% 21.0%
Adjusted Return on Average Equity, excluding significant items (b) 6.7% 11.1%
Average adjusted Equity excluding significant items $ 5,901,536 $ 5,628,906
GAAP Expense Ratio (c) 3.5% 2.6%
Adjusted Expense Ratio, excluding significant items (c) 2.2% 2.3%
Average Managed Assets $ 48,971,677 $ 50,110,765
(a) In addition to the tax adjustments noted under footnote c under Table 8, during the three months ended December 31, 2017, the Company changed the classification of earnings from its subsidiary,Santander Consumer International Puerto Rico, LLC, and no longer intends to permanently reinvest the earnings outside of the United States. As a result of this change, the Company recognized $55.7million of additional income tax expense during the three months ended December 31, 2017 to record the applicable U.S. deferred income tax liability.
(b) These ratios correspond with the GAAP Net Income and Adjusted Net Income (excluding significant items) shown above, divided by Average Assets, Average Equity or Weighted average number ofcommon shares outstanding, as applicable.
(c) These ratios correspond with the GAAP Operating Expenses and Adjusted Operating Expenses (excluding significant items) shown above, divided by Average Managed Assets.
14
01.31.2018 SANTANDER CONSUMER USA HOLDINGS INC. Fourth Quarter and Full Year 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 which 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 for the full year 2017 was $1.2 billion, or $3.30 per diluted common share. Net income, excluding the impact of significant items including tax reform and other tax related items, legal reserves, and a settlement with the former CEO (“Adjusted1”) was $627 million, or $1.74 per diluted common share. » The Federal Reserve Bank of Boston (“Federal Reserve”) terminated the 2014 Written Agreement with SC's majority owner, Santander Holdings USA, Inc. (“SHUSA”), following its non-objection to SHUSA's Comprehensive Capital Analysis and Review submission. SHUSA and SC now operate within a normal capital cycle and SC completed its first cash dividend payment to shareholders since 2014. » SHUSA and Banco Santander (“Santander”) reaffirmed their commitment to SC by increasing their total ownership in SC to approximately 68.1%, following Santander's acquisition from SC's former CEO of 9.6% of SC's outstanding shares, which it transferred to SHUSA. » Launched flow program with Santander allowing SC to execute prime auto loan sales of $2.6 billion, and through Santander Bank N.A., increased FCA dealer receivables (“floorplan”) 14% YoY, to $2.0 billion. » Leading auto loan ABS issuer with $7.9 billion in ABS offered and sold, including SC's inaugural lease securitization, Santander Retail Auto Lease Trust (“SRT”) and SC's first public DRIVE securitization. » RIC gross charge-off ratio of 17.9%, up 60 basis points YoY, stabilizing compared to a 230 basis point increase from 2015 to 2016 and RIC net charge-off ratio of 8.9%, up 60 basis points YoY, compared to a 140 basis point increase from 2015 to 2016. » ROA of 3.0% and Adjusted ROA of 1.6%, down from 2.0% in FY 2016. FY 2017 HIGHLIGHTS 1 Please refer to the appendix for a reconciliation of these significant items to GAAP. Amounts excluding significant items are non-GAAP financial measures that management believes will assist users of SC's financial information by excluding items that management does not believe reflect SC's fundamental business performance or results of operations.
4 Max 3.2% 3.2% Min -4.1% Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 17.8 18.5 9.0 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 ECONOMIC INDICATORS U.S. Auto Sales1 Units in Millions 1 Bloomberg 2 University of Michigan 3 U.S. Bureau of Labor Statistics Consumer Confidence2 Index Q1 1966=100 U.S. GDP1 % U.S. Unemployment Rate3 % O R IG IN AT IO N S CR ED IT 95.9 Max 99.1 Min 55.3 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Max 10.0% Min: 4.1% 4.1% Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
5 43.0% 43.4% 47.9% 46.4% 35% 40% 45% 50% 55% 60% 65% 70% Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 SC Auction Only Recovery Rate SC Auction Plus Recovery Rate (Quarterly) 90 95 100 105 110 115 120 125 110 115 120 125 130 135 140 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Manheim (Left Axis) JDP Used-Vehicle Price Index (Right Axis) 7.8% Max 13.3% Min 2.8% Nov-07 Nov-09 Nov-11 Nov-13 Nov-15 Nov-17 Subprime 4.8% Max 5.4% Min 1.6% Nov-07 Nov-09 Nov-11 Nov-13 Nov-15 Nov-17 Subprime AUTO INDUSTRY ANALYSIS Used Vehicle Indices1 Manheim: Seasonally Adjusted JD Power: Not Seasonally Adjusted SC Recovery Rates2 Industry Net Loss Rates3 SE V ER IT Y CR ED IT Industry 60+ Day Delinquency Rates3 1 Manheim, Inc.; Indexed to a basis of 100 at 1995 levels; JD Power Used-Vehicle Price Index (not seasonally adjusted) 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 November 31, 2017)
6DISCIPLINED LOAN UNDERWRITING CONTINUES IN 4Q17 1 Approximate FICO score 2 Includes some capital lease originations YoY auto origination decreases driven by disciplined underwriting in a competitive market $ in millions Q4 2016 Q4 2017 2016 2017 Quarterly YoY FYoFY Total Core Retail Auto 2,010$ 1,469$ 8,702$ 7,470$ (27%) (14%) Chrysler Capital Loans (<640)1 768 741 3,829 3,372 (4%) (12%) Chrysler Capital Loans (≥640)1 775 804 4,202 3,341 4% (20%) Total Chrysler Capital Retail 1,543 1,545 8,031 6,713 0% (16%) Total Leases2 973 1,299 5,159 5,997 34% 16% Total Auto Originations 4,526 4,313 21,892 20,180 (5%) (8%) Total Personal Lending 571 529 1,556 1,477 (7%) (5%) Total Originations 5,097$ 4,842$ 23,441$ 21,658$ (5%) (8%) Asset Sales 1,381 - 4,563 2,979 N/A (35%) Serviced for Others Portfolio 11,945 8,643 11,945 8,643 (28%) (28%) Average Managed Assets 52,039 48,972 52,731 50,111 (6%) (5%) % VarianceQuarterly Originations Full Year Originations Balances Balances
7 Q4 2017 quarterly penetration rate of 18% vs. 21% in Q3 2017 Completed national roll out of Chrysler Capital VIP program in Q2 2017 with more than 2,500 dealerships participating Through Santander Bank N.A., increased FCA dealer receivables (“floorplan”) 14% year-over-year, to $2.0 billion CHRYSLER CAPITAL 1 FCA filings; sales as reported on 01/01/2018 SC continues to collaborate with FCA to further strengthen the relationship and create value within the Chrysler Capital program 1.64 1.80 2.11 2.26 2.25 2.07 2012 2013 2014 2015 2016 2017 FCA Sales1 (units in millions)
8 Flow Programs 477 931 566 1,347 CCART 904 Other sales 135 Santander flow program totaling $2.6 billion in 2017 Recent trend in total balance related to lower prime originations and timing of asset sales to Santander Growth in SFO remains dependent upon Chrysler Capital penetration, FCA prime originations and timing of sales in the Santander flow program SERVICED FOR OTHERS (SFO) PLATFORM Composition at 12/31/2017 RIC 88% Leases 4% RV/Marine 8% Total 100% Serviced for Others Balances (End of Period) *Sales with retained servicing during period, also include non-Santander sales. $11,945 $11,015 $9,881 $9,957 $8,643 4Q16 1Q17 2Q17 3Q17 4Q17 $ in Millions
9 » Net income for the fourth quarter of 2017 was $580 million, or $1.61 per diluted common share. Adjusted net income totaled $98 million, or $0.27 per diluted common share » Total auto originations of $4.6 billion, down 6%, YoY » Core retail auto originations of $1.5 billion, down 27% YoY » Chrysler Capital loan originations of $1.5 billion, flat YoY » Chrysler Capital lease originations of $1.3 billion, up 31% YoY » Net finance and other interest income of $1.0 billion, down 11% YoY » Return on average assets (“ROA”) of 6.0% and Adjusted ROA of 1.0%, up from 0.6% in Q4 2016 » CET1 ratio of 16.3% » $2.2 billion in ABS offered and sold, including SDART, DRIVE and inaugural lease ABS transaction (SRT) » In January 2018, SC partnered with Santander InnoVentures, a corporate venture fund, to become a lending choice on AutoFi's online finance platform to streamline and simplify the car buying process for consumers, while providing dealers a robust digital sales channel Q4 2017 HIGHLIGHTS AND SUBSEQUENT EVENT *Adjusted net income and ROA are non-GAAP financial measures. For a reconciliation of non-GAAP financial measures to GAAP, see accompanying Appendix.
10Q4 2017 FINANCIAL RESULTS December 31, 2017 September 30, 2017 December 31, 2016 QoQ YoY Interest on finance receivables and loans 1,129,181$ 1,185,059$ 1,222,468$ (5%) (8%) Net leased vehicle income 112,491 118,351 122,791 (5%) (8%) Other finance and interest income 4,470 6,385 3,695 (30%) 21% Interest expense 236,600 250,674 216,980 (6%) 9% Net finance and other interest income 1,009,542$ 1,059,121$ 1,131,974$ (5%) (11%) Provision for credit losses 562,346 536,447 685,711 5% (18%) Profit sharing 7,235 5,945 12,176 22% (41%) Total other income (37,716) 58,947 (47,996) (164%) (21%) Total operating expenses 426,040 297,903 295,905 43% 44% Income before tax (23,795)$ 277,773$ 90,186$ (109%) (126%) Income tax expense (603,911) 78,385 28,911 N/A N/A Net income 580,116$ 199,388$ 61,275$ 191% 847% Diluted EPS ($) 1.61$ 0.55$ 0.17$ 193% 848% Average total assets 38,992,937$ 39,496,278$ 38,513,454$ (1%) 1% Average managed assets 48,971,677$ 49,998,111$ 52,038,692$ (2%) (6%) % Variance Three Months Ended (Unaudited, Dollars in Thousands, except per share)
11CREDIT QUALITY: VINTAGE LOSS PERFORMANCE 2016 vintage continues to outperform the 2015 vintage on a gross and net loss basis *Retained originations only 0% 3% 5% 8% 10% 13% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Cu m ul at iv e N et L os s Ra te Months on Book Total Annual Vintage Cumulative Net Loss Rate 2014 2015 2016 0% 5% 10% 15% 20% 25% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Cu m ul at iv e G ro ss L os s Ra te Months on Book Total Annual Vintage Cumulative Gross Loss Rate 2014 2015 2016
12DELINQUENCY AND LOSS YoY delinquency increased for each delinquency bucket primarily driven by a lower portfolio balance YoY gross charge-off ratio increased 20 basis points YoY net charge-off ratio increased 40 basis points 10.0% 7.3% 9.3% 9.2% 10.3% 5.1% 3.8% 4.7% 5.1% 5.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Delinquency: Individually Acquired Retail Installment Contracts, Held for Investment 31-60 61+ 19.0% 18.1% 16.4% 18.0% 19.2% 9.9% 8.8% 7.5% 9.1% 10.3% 47.9% 51.1% 53.9% 49.3% 46.4% 45.0% 50.0% 55.0% 60.0% 65.0% 70.0% 75.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Credit: Individually Acquired Retail Installment Contracts, Held for Investment Gross Charge- off Ratio Net Charge- off Ratio Recovery Rate (as % of recorded investment)
13 $674 $671 $10 $18 ($31) Q4 2016 Recoveries Other Lower Balance and Mix Q4 2017 Q4 2016 to Q4 2017 Net Charge-Off Walk ($ in millions) CREDIT QUALITY: LOSS DETAIL
14 $3,381 $3,270 $103 $80 ($90) ($204) $3,100 $3,150 $3,200 $3,250 $3,300 $3,350 $3,400 $3,450 $3,500 $3,550 $3,600 Q3 2017 New Volume TDR Migration Performance Adjustment Liquidations & Other Q4 2017 Q3 2017 to Q4 2017 ALLL Reserve Walk ($ in millions) PROVISION AND RESERVES 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 QoQ allowance decreased $111 million New volume and TDR migration1 were offset by performance adjustment and liquidations and other QoQ outstanding TDR balance relatively flat Allowance to loans ratio decreased 20 bps to 12.6% QoQ Provision for credit losses decreased $124 million YoY $686 $635 $521 $536 $562 12.6% 12.7% 12.6% 12.8% 12.6% 12.0 12.5 13.0 13.5 14.0 $0 $100 $200 $300 $400 $500 $600 $700 $800 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Provision Expense and Allowance Ratio ($ in millions) Provision for credit losses Allowance Ratio
15 $52,039 $51,230 $50,436 $49,998 $48,972 $296 $305 $282 $298 $269 2.3% 2.4% 2.2% 2.4% 3.5% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% $2 $10,002 $20,002 $30,002 $40,002 $50,002 $60,002 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Average Managed Assets ($ millions) Total Expenses ($ millions) Expense Ratio EXPENSE MANAGEMENT Operating expenses totaled $426 million, an increase of 44% versus the same quarter last year Adjusted operating expenses decreased $27 million, down 9% year-over-year $426 *Adjusted operating expense is a non-GAAP financial measure. For a reconciliation of non-GAAP financial measures to GAAP, see accompanying Appendix. 2.2% Adjusted Expense Ratio
16 4.3 4.1 5.3 5.8 Q3 2017 Q4 2017 Unused Used 8.3 7.6 Q3 2017 Q4 2017 $17.5 billion in commitments from 12 lenders1 59% unused capacity on revolving lines at Q4 2017 FUNDING AND LIQUIDITY Total funding of $40.3 billion at the end Q4 2017, down 5% from $42.3 billion at the end of Q3 2017 Asset-Backed Securities ($ Billions) Financings ($ Billions) Banco Santander & Subsidiaries ($ Billions) Asset Sales ($ Billions) Offered and sold $2.2 billion in asset-backed securities (ABS) Launched inaugural lease securitization (SRT) $7.8 billion in total commitments 52% unused revolving capacity at Q4 2017 No asset sales in Q4 – expect to complete a sale during Q1 2018 Amortizing Revolving 9.6 9.9 Sant der & Subsidiaries 1.5 Q3 2017 Q4 2017 15.0 15.0 Q3 2017 Q4 2017 3.0 3.0 2.8 1.8 2.1 3.0 Q3 2017 Q4 2017 Term Revolving Contingent 7.87.9 1 Does not include repo facilities
17CONSISTENT CAPITAL GENERATION 1 Net tax benefit due to re-measurement of all deferred tax assets (DTAs) and deferred tax liabilities (DTLs) at a federal tax rate of 21% (as compared to 35%). 2 Common Equity Tier 1 (CET1) Capital Ratio is a non-GAAP financial measure that begins with stockholders’ equity and then adjusts for AOCI, goodwill/intangibles, DTAs, cash flow hedges and other regulatory exclusions over risk-weighted assets. See appendix for further details. 3 Tangible common equity to tangible assets is a non-GAAP financial measure defined as the ratio of Total equity, excluding Goodwill and intangible assets, to Total assets, excluding Goodwill and intangible assets 1 2 SC has exhibited a strong ability to generate earnings and capital, while growing assets. Tangible Assets $38,432 $38,956 $39,401 $38,660 $39,319 Tangible Common Equity $5,132 $5,313 $5,572 $5,780 $6,377 $ in millions The Company has declared a cash dividend of $0.05 per share, to be paid February 22, 2018 to shareholders of record as of the close of business on February 12, 2018 CET1 impacted by net tax benefit due to re-measurement of all deferred tax assets (DTAs) and deferred tax liabilities (DTLs) at a federal tax rate of 21% (as compared to 35%). See accompanying appendix for additional details. 13.4% 13.8% 14.3% 15.0% 16.3% 13.4% 13.6% 14.1% 14.9% 16.2% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 CET1 TCE/TA
APPENDIX
19SANTANDER CONSUMER USA HOLDINGS INC. 1 As of December 31, 2017 • Santander Consumer USA Holdings Inc. (NYSE:SC) (“SC”) is approximately 68.1%1 owned by Santander Holdings USA, Inc. (“SHUSA”), a wholly-owned subsidiary of Banco Santander, S.A. (NYSE:SAN) ▪ SC is a full-service, 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 5,100 full-time, 40 part-time and 1,500 vendor-based employees across multiple locations in the U.S. and the Caribbean ▪ Our strategy is to leverage our scalable technology, data and risk infrastructure to underwrite, originate and service profitable assets while treating employees, dealers, and customers in a simple, personal and fair manner ▪ Compliance and responsible practices focus ▪ Strengthening our relationship with FCA and improving dealer experience ▪ Continuous optimization of the mix of assets retained vs. assets sold and serviced for others ▪ Retain core and Chrysler nonprime and lease assets, sell Chrysler prime assets via Santander flow agreement ▪ Efficient funding through key third-party relationships, secondary markets and Santander Overview Strategy
20COMPANY ORGANIZATION Other Subsidiaries 100% Ownership Santander Holdings USA, Inc. (“SHUSA’) ~68.1% Ownership Santander Consumer USA Holdings Inc. (“SC”) Santander Bank, N.A. Other Subsidiaries Banco Santander, S.A. Spain *Ownership percentages are approximates as of December 31, 2017 31.9% Ownership Public Shareholders
21 2% 2% 2% 2% 2% 11% 12% 12% 10% 10% 15% 18% 17% 14% 14% 24% 25% 24% 23% 24% 15% 13% 13% 13% 13% 32% 30% 33% 38% 36% 4Q16 1Q17 2Q17 3Q17 4Q17 Originations by Credit (RIC only) ($ in millions) >640 600-640 540-599 <540 No FICO Commercial ORIGINATIONS EXHIBIT DISCIPLINED UNDERWRITING 1 Loans to commercial borrowers; no FICO score obtained Originations < 640 were down $486 million YoY Stable mix Recent pickup in new vehicles, reflected in higher average loan balance in dollars Average loan balance in dollars $21,488 $20,193 $20,816 $21,825 $22,013 $2,406 $4,055 $3,328 $3,014$3,787$3,553 53% 47% 48% 55% 53% 47% 53% 52% 45% 47% 4Q16 1Q17 2Q17 3Q17 4Q17 New/Used Originations (RIC only) ($ in millions) Used New $4,055 $3,328 $3,014$3,787$3,553 $1,920
22HELD FOR INVESTMENT CREDIT TRENDS Retail Installment Contracts1 1Held for investment; excludes assets held for sale 3. 1% 12 .2 % 22 .1 % 31 .4 % 17 .4 % 13 .8 % 2. 8% 12 .0 % 22 .3 % 31 .7 % 17 .4 % 13 .8 % 2. 5% 11 .9 % 22 .4 % 31 .9 % 17 .3 % 14 .0 % 2. 4% 11 .6 % 22 .4 % 32 .4 % 17 .5 % 13 .7 % 2. 5% 11 .2 % 21 .8 % 32 .0 % 17 .4 % 15 .1 % Commercial Unknown <540 540-599 600-639 >=640 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
23Q4 2017 EXCLUDING PERSONAL LENDING DETAIL Quarterly Financial Details (Excluding Personal Lending) Total Personal Lending Excluding Personal Lending Total Personal Lending Excluding Personal Lending Total Personal Lending Excluding Personal Lending Interest on finance receivables and loans $ 1,129,181 $ 83,080 $ 1,046,101 $ 1,185,059 $ 83,475 $ 1,101,584 $ 1,222,468 $ 80,292 $ 1,142,176 Net leased vehicle income 112,491 - 112,491 118,351 - 118,351 122,791 - 122,791 Other finance and interest income 4,470 - 4,470 6,385 - 6,385 3,695 - 3,695 Interest expense 236,600 13,998 222,602 250,674 12,015 238,659 216,980 10,721 206,259 Net finance and other interest income $ 1,009,542 $ 69,082 $ 940,460 $ 1,059,121 $ 71,460 $ 987,661 $ 1,131,974 $ 69,571 $ 1,062,403 Provision for credit losses 562,347 415 561,932 536,447 564 535,883 685,711 - 685,711 Profit sharing 7,235 877 6,358 5,945 (143) 6,088 12,176 2,957 9,219 Investment Gains (losses), net (137,926) (136,393) (1,533) (52,592) (83,700) 31,108 (168,344) (145,730) (22,614) Servicing fee income 26,031 - 26,031 28,673 - 28,673 32,205 - 32,205 Fees, commissions and other 74,179 45,830 28,349 82,866 47,380 35,486 88,143 48,527 39,616 Total other income $ (37,716) $ (90,563) $ 52,847 $ 58,947 $ (36,320) $ 95,267 $ (47,996) $ (97,203) $ 49,207 Average gross individually acquired retail installment contracts $ 27,098,976 - $ 28,144,133 - $ 28,604,117 - Average gross personal loans - $ 1,392,529 - $ 1,367,445 - $ 1,405,187 Average gross operating leases $ 11,088,361 - $ 10,710,941 - $ 9,586,090 - As of and for the Three Months Ended (Unaudited, Dollars in Thousands) December 31, 2017 September 30, 2017 December 31, 2016 *The $136 million of investment losses related personal lending, comprised of $114 million in customer default activity and $23 million increase in market discount, consistent with typical seasonal patterns.
24FY 2017 EXCLUDING PERSONAL LENDING DETAIL As Reported Personal Lending Excluding Personal Lending Interest on finance receivables and loans $ 4,755,678 $ 347,873 $ 4,407,805 Net leased vehicle income 489,944 - 489,944 Other finance and interest income 19,885 - 19,885 Interest expense 947,734 50,320 897,414 Net finance and other interest income 4,317,773 297,553 4,020,220 Provision for credit losses 2,254,361 10,691 2,243,670 Profit sharing 29,568 635 28,933 Investment gains (losses), net (366,439) (374,360) 7,921 Servicing fee income 118,341 - 118,341 Fees, commissions and other 349,204 203,502 145,702 Total other income $ 101,106 $ (170,858) $ 271,964 Average gross individually acquired RICs $ 27,926,229 - Average gross personal loans - $ 1,419,417 Average gross operating leases $ 10,456,121 - For the Year Ended ($ in Thousands) December 31, 2017
25CONSOLIDATED BALANCE SHEETS (Unaudited, dollars in thousands) December 31, 2017 December 31, 2016 Assets Cash and cash equivalents $ 527,805 $ 160,180 Finance receivables held for sale, net 2,210,421 2,123,415 Finance receivables held for investment, net 22,427,769 23,481,001 Restricted cash 2,553,902 2,757,299 Accrued interest receivable 326,640 373,274 Leased vehicles, net 10,160,327 8,564,628 Furniture and equipment, net 69,609 67,509 Federal, state and other income taxes receivable 95,060 87,352 Related party taxes receivable 467 1,087 Goodwill 74,056 74,056 Intangible assets, net 29,734 32,623 Due from affiliates 33,270 31,270 Other assets 913,244 785,410 Total assets $ 39,422,304 $ 38,539,104 Liabilities and Equity Liabilities: Notes payable — credit facilities $ 4,848,316 $ 6,739,817 Notes payable — secured structured financings 22,557,895 21,608,889 Notes payable — related party 3,754,223 2,975,000 Accrued interest payable 38,529 33,346 Accounts payable and accrued expenses 429,531 379,021 Deferred tax liabilities, net 897,121 1,278,064 Due to affiliates 82,382 50,620 Other liabilities 333,806 235,728 Total liabilities $ 32,941,803 $ 33,300,485 Equity: Common stock, $0.01 par value 3,605 3,589 Additional paid-in capital 1,681,558 1,657,611 Accumulated other comprehensive income (loss), net 44,262 28,259 Retained earnings 4,751,076 3,549,160 Total stockholders’ equity $ 6,480,501 $ 5,238,619 Total liabilities and equity $ 39,422,304 $ 38,539,104
26CONSOLIDATED FY INCOME STATEMENTS December 31, December 31, 2017 2016 Interest on finance receivables and loans $ 4,755,678 $ 5,026,790 Leased vehicle income 1,788,457 1,487,671 Other finance and interest income 19,885 15,135 Total finance and other interest income 6,564,020 6,529,596 Interest expense 947,734 807,484 Leased vehicle expense 1,298,513 995,459 Net finance and other interest income 4,317,773 4,726,653 Provision for credit losses 2,254,361 2,468,200 Net finance and other interest income after provision for credit losses 2,063,412 2,258,453 Profit sharing 29,568 47,816 Net finance and other interest income after provision for credit losses and profit sharing 2,033,844 2,210,637 Investment gains (losses), net (366,439) (444,759) Servicing fee income 118,341 156,134 Fees, commissions, and other 349,204 382,171 Total other income 101,106 93,546 Compensation expense 581,017 498,224 Repossession expense 275,704 293,355 Other operating costs 454,715 351,893 Total operating expenses 1,311,436 1,143,472 Income before income taxes 823,514 1,160,711 Income tax expense (364,092) 394,245 Net income $ 1,187,606 $ 766,466 Net income per common share (basic) $ 3.30 $ 2.14 Net income per common share (diluted) $ 3.30 $ 2.13 Dividends declared per common share $ 0.03 - Weighted average common shares (basic) 359,613,714 358,280,814 Weighted average common shares (diluted) 360,292,330 359,078,337 For the Year Ended (Unaudited, dollars in thousands, except per share amounts)
27CONSOLIDATED Q4 INCOME STATEMENTS December 31, December 31, 2017 2016 Interest on finance receivables and loans $ 1,129,181 $ 1,222,468 Leased vehicle income 483,028 401,020 Other finance and interest income 4,470 3,695 Total finance and other interest income $ 1,616,679 $ 1,627,183 Interest expense 236,600 216,980 Leased vehicle expense 370,537 278,229 Net finance and other interest income $ 1,009,542 $ 1,131,974 Provision for credit losses 562,346 685,711 Net finance and other interest income after provision for credit losses $ 447,196 $ 446,263 Profit sharing 7,235 12,176 Net finance and other interest income after provision for credit losses and profit sharing $ 439,961 $ 434,087 Investment (losses), net (137,926) (168,344) Servicing fee income 26,031 32,205 Fees, commissions, and other 74,179 88,143 Total other income $ (37,716) $ (47,996) Compensation expense 182,692 126,982 Repossession expense 70,259 75,539 Other operating costs 173,089 93,384 Total operating expenses $ 426,040 $ 295,905 Income before income taxes (23,795) 90,186 Income tax expense (603,911) 28,911 Net income $ 580,116 $ 61,275 Net income per common share (basic) $ 1.61 $ 0.17 Net income per common share (diluted) $ 1.61 $ 0.17 Dividends paid per common share $ 0.03 - Weighted average common shares (basic) 360,256,602 358,582,203 Weighted average common shares (diluted) 361,409,997 360,323,179 For the Three Months Ended (Unaudited, dollars in thousands, except per share amounts)
28RECONCILIATION OF NON-GAAP MEASURES (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 total 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. (c) Net tax benefit due to re-measurement of all deferred tax assets (DTAs) and deferred tax liabilities (DTLs) at a federal tax rate of 21% (as compared to 35%) (d) During the three months ended September 30, 2017, SC sold certain receivables previously acquired with deteriorated credit quality at a gain. (e) During the three months ended December 31, 2017, the Company recorded accrual for legal reserves related to certain lawsuits, regulatory matters and other legal proceedings, based on availability of additional information and ability to reliably estimate the potential liability. (f) On November 15, 2017, the Company entered into a Settlement Agreement with Thomas G. Dundon (former CEO), that, among other things, altered certain portions of the economic arrangements set forth in the Separation Agreement. December 31, 2017 December 31, 2016 Total equity 6,480,501$ 5,238,619$ Deduct: Goodwill, intangibles, and other assets, net of deferred tax liabilities 172,664 186,930 Deduct: Accumulated other comprehensive income (loss), net 44,262 28,259 Tier 1 common capital 6,263,575$ 5,023,430$ Risk weighted assets (a) 38,473,339$ 37,432,700$ Common Equity Tier 1 capital ratio (b) 16.3% 13.4% Tier 1 common capital $6,263,575 $5,023,430 Adjustments for significant items: Deduct: Tax Reform and other tax related items (c) 652,366$ — Deduct: Gain on RV/Marine Portfolio (after tax) (d) 23,353 — Add: Legal reserves (after tax) (e) 72,100 — Add: Settlement with former CEO (after tax) (f) 42,975 — Adjusted Tier 1 common capital 5,702,931$ 5,023,430$ Risk weighted assets (a) 38,473,339$ 37,432,700$ Adjusted Common Equity Tier 1 capital ratio 14.8% 13.4% (Unaudited, Dollar amounts inthousands)
29RECONCILIATION OF NON-GAAP MEASURES GAAP Operating Expenses $426,040 $1,311,436 Deduct: Legal Reserves $91,000 $91,000 Deduct: Settlement with former CEO $66,115 $66,115 Adjusted Operating Expenses, excluding significant items $268,925 $1,154,321 GAAP Pre-Tax (Loss)/Income (23,795) 823,514 Add: Legal Reserves $91,000 $91,000 Add: Settlement with former CEO $66,115 $66,115 Deduct: Gain on RV/Marine Portfolio — $35,927 Adjusted Pre-Tax Income, excluding significant items $133,320 $944,702 GAAP Net Income $580,116 $1,187,606 Adjustments for significant items: Deduct: Tax Reform and other tax related items (a) 596,705 652,366 Deduct: Gain on RV/Marine Portfolio (after tax) — $23,353 Add: Legal reserves (after tax) $72,100 $72,100 Add: Settlement with former CEO (after tax) $42,975 $42,975 Adjusted Net Income, excluding significant items $98,486 $626,962 GAAP Diluted Earnings per common share (b) $1.61 $3.30 Adjusted Diluted Earnings per common share, excluding significant items (b) $0.27 $1.74 Adjusted Selected Ratios GAAP Return on Average Assets (b) 6.00% 3.00% Adjusted Return on Average Assets, excluding significant items (b) 1.00% 1.60% Average Assets $38,992,937 $39,163,887 GAAP Return on Average Equity (b) 38.50% 21.00% Adjusted Return on Average Equity, excluding significant items (b) 6.70% 11.10% Average adjusted Equity excluding significant items $5,901,536 $5,628,906 GAAP Expense Ratio (c) 3.50% 2.60% Adjusted Expense Ratio, excluding significant items (c) 2.20% 2.30% Average Managed Assets $48,971,677 $50,110,765 Three Months Ended December 31, 2017 For the Year Ended December 31, 2017 (Unaudited, Dollar amounts in thousands) (a) In addition to the tax adjustments noted under footnote c under Table 8, during the three months ended December 31, 2017, the Company changed the classification of earnings from its subsidiary, Santander Consumer International Puerto Rico, LLC, and no longer intends to permanently reinvest the earnings outside of the United States. As a result of this change, the Company recognized $55.7 million of additional income tax expense during the three months ended December 31, 2017 to record the applicable U.S. deferred income tax liability. (b) These ratios correspond with theGAAP Net Income and Adjusted, Net Income (excluding significant items) shown above, divided by Average Assets, Average Equity and Weighted average number of common shares outstanding (c) These ratios correspond with the GAAP Operating Expenses and Adjusted, Operating Expenses (excluding significant items) shown above, divided by Average Managed Assets.
