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Press Release Details

Santander Consumer USA Holdings Inc. Reports Fourth Quarter and Full Year 2017 Results

January 31, 2018

2017 Milestones Pave the Way for 2018 with Continued Focus On Financial and Operational Performance, Fiat Chrysler and Other Key Origination Channels

DALLAS, Jan. 31, 2018 /PRNewswire/ -- Santander Consumer USA Holdings Inc. (NYSE: SC) ("SC" or the "Company") today announced net income for the fourth quarter of 2017 ("Q4 2017") 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 ("Adjusted1"), totaled $98 million, or $0.27 per diluted common share. Net income for the full year 2017 ("2017") was $1.2 billion, 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 of these 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 management team, 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 our relationship 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 SC completed 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 Lease Trust ("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 of Operations, and Rich Morrin, as President of Chrysler Capital and Auto Relationships.

Full Year 2017 Key Financial Highlights (variances compared to full year 2016 ("2016")):

  • Total auto originations of $20.1 billion, down 8%
  • Finance receivables, loans and leases, net2, 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%
  • Expense ratio of 2.6% and Adjusted expense ratio of 2.3%, up from 2.2%

Fourth Quarter of 2017 Key Financial Highlights (variances compared to fourth quarter of 2016 ("Q4 2016")):

  • 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 into 2018 our goal is to leverage our network and improve our dealer experience, including with Fiat Chrysler, while remaining focused on risk-adjusted returns and disciplined expense 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 an increase 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 serviced for others portfolio of $8.6 billion as of Q4 2017, is down 28 percent from $11.9 billion in Q4 2016.

RIC delinquency ratio3 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 ratio4 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 in Q4 2016.

Allowance ratio5 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 by held for sale accounting for SC's personal lending portfolio6.

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 percent from $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 users of 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 in customer default activity and $23 million increase in market discount, consistent with typical seasonal patterns.

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 call will 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. The conference call will also be accessible via live audio webcast through the Investor Relations section of the corporate website at http://investors.santanderconsumerusa.com. Choose "Events" and select the information pertaining to the Q4 2017 Earnings Call. Additionally there will be several slides accompanying the webcast. Please allow at least 15 minutes to register, 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 the Investor Relations section of SC's corporate website at http://investors.santanderconsumerusa.com, under "Events."

Forward-Looking Statements

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

Contacts:

Investor Relations

Evan Black

800.493.8219

InvestorRelations@santanderconsumerusa.com


Media Relations

Laurie Kight

214.801.6455

Media@santanderconsumerusa.com


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 superior service 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 asset portfolio of approximately $49 billion as of December 31, 2017, and is headquartered in Dallas. (www.santanderconsumerusa.com)


Santander Consumer USA Holdings Inc.

Financial Supplement

Fourth Quarter and Full Year 2016



Table of Contents

 


Table 1: Consolidated Balance Sheets

5


Table 2: Consolidated Statements of Income

6


Table 3: Other Financial Information

7


Table 4: Credit Quality

9


Table 5: Originations

10


Table 6: Asset Sales

11


Table 7: Ending Portfolio

12


Table 8 & 9: Reconciliation of Non-GAAP Measures

13


 

Table 1: Consolidated Balance Sheets



December 31,
 2017


December 31,
 2016

Assets

(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


 


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


 


Table 3: Other Financial Information




Three Months Ended
 December 31,


Year Ended December 31,



2017


2016


2017


2016

Ratios

(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 of period (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 contracts held 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









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 provision for 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 capital leases

(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 covered by 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's shareholders.

(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 reconciliation from GAAP to this non-GAAP measure, see "Reconciliation of Non- GAAP Measures" in Table 8 of this release)

 

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


2016

Credit 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 ratio1

10.3

%


9.9

%


8.9

%


8.3

%

 


December 31, 20172


December 31, 20162

Principal 30-59 days past due

$

2,823,118



10.9

%


$

2,911,800



10.7

%

Delinquent principal over 59 days3

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


2016

TDR - 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 portfolio

2Percent of unpaid principal balance.

3Interest is accrued until 60 days past due in accordance with the Company's account policy for retail installment contracts.

 

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,
2017

Retained 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 and 2016, 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. Of these 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, related to 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, 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. Of these amounts, zero, $8 million, $102 million, $86 million, and $26 million, respectively, were commercial loans.

 


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


 


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 as follows:



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



 

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. 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.

 


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



$

1,187,606


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)

6.0

%


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 $55.7 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 the GAAP Net Income and Adjusted Net Income (excluding significant items) shown above, divided by Average Assets, Average Equity or Weighted average number of common 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.

 

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SOURCE Santander Consumer USA Holdings Inc.