SCUSA builds up prime lending

Santander Consumer USA Holdings (SCUSA) reported total auto originations of $5.2 billion in the third quarter of the year, lower than the same period the previous year, as the lender commits to a strategy of upping its leasing portfolio and moving away from a sub-prime focus.

Net income for third quarter 2016 was $214 million. The company recorded Chrysler Capital lease originations of $1.3 billion, down 17%, while Chrysler Capital retail originations stood at $1.9 billion, down 39%. Core retail auto originations were down 29% to of $2 billion.

“We are pleased to report solid core financial performance in the third quarter in light of the competitive marketplace. Fewer originations are in part due to our disciplined underwriting standards as we are committed to driving originations at the right price and structure, and in part due to increased competition in the prime space,” said Jason Kulas, SCUSA president and chief executive officer.

“We are finalizing a strategic agreement with Banco Santander to originate and flow prime and near-prime retail loan assets. This strategy should strengthen our overall relationship with Fiat Chrysler (FCA) and our Chrysler Capitalvolume, as well as our serviced for others strategy,” he reported.

Kulas continued: “Our commitment to building a culture of compliance and putting customers at the center of everything we do is the foundation of our continued success. We remain confident in our ability to execute our business plan and deliver value for all our stakeholders and customers through market cycles.”

Credit scores up

Net finance receivables, loans and leases increased 6.1%, to $34.7 billion at September 30, 2016, from $32.7 billion at December 31, 2015, driven by an increase in lease assets. Net finance and other interest income decreased 3% to $1.18 billion in the third quarter 2016 from $1.22 billion in the third quarter 2015, primarily driven by a shift in credit mix as a result of disciplined underwriting standards, and higher cost of funds, driven by an increase in spreads and benchmark rates.

As of the end of the third quarter 2016, borrowers with FICO scores less than 540 decreased to 22.2%, from 23.8% as of the end of the third quarter 2015. In addition, borrowers with FICO scores greater than 640 increased to 13.8%, from 12.6%.

Net leased vehicle income increased 47 % to $135.8 million in the third quarter 2016 from $92.7 million in the third quarter 2015 as a result of the continued growth of the lender’s leasing portfolio.

“More recently our asset mix has shifted toward higher credit quality originations, which has impacted APR, and should market conditions persist, positively impact charge-offs and delinquency in the future,” said Izzy Dawood, SCUSA chief financial officer.

Provision for credit losses decreased to $610 million in the third quarter 2016, from $724 million in the third quarter 2015, driven primarily by the classification of the personal loan portfolio as held for sale in the prior year quarter. Excluding personal lending, provision decreased $8 million versus the prior year quarter.