Santander Consumer USA posts record low NCOs

Santander Consumer USA logged record-low net charge-offs on the year, thanks to government stimulus, low delinquency levels, strong used-vehicle prices and the lender’s deferral program. Net charge-offs clocked in at 4.4% of the lender’s portfolio in 2020, down 340 basis points from 2019, according to the company’s earnings presentation. Early stage delinquencies in the fourth quarter were down 370 basis points year over year to 6%, and late-stage delinquencies dropped 200 bps to 3.1%. Loan and lease outstandings came in nearly flat from last quarter at $50.7 billion. Still, SCUSA has seen an uptick in the pace of forbearance requests as a percentage of active accounts requesting a deferral, Chief Financial Officer Fahmi Karam said during the earnings call this morning. Accounts in deferral came in at 5.7%, an increase from 4.5% in the third quarter, but well below peak levels of 27%. Karam attributed the uptick in extensions to government stimulus ending in August, as well as elevated unemployment rates and seasonal patterns. “The uptick in demand for consumer deferrals since the initial stimulus benefits expired is indicative that the economy remains in a recession, and the losses expected from the pandemic have yet to be realized,” he said. “Based on the information we have today, we believe that losses will increase in the second half of 2021 and remain elevated into 2022,” Karam explained. “If another larger stimulus package passes, there may be further delay in delinquency and the timing of losses.” In the meantime, though, loan loss coverage rates remained flat sequentially at 18.5%. Total auto originations came in at $30.6 billion, just 2% shy of 2019 record-breaking volume. Declines in Chrysler Capital subprime loans and leases were nearly offset by a 31% fiscal year-over-year increase in prime loans, according to the earnings statement. The increase in prime loans were largely attributed to FCA incentive programs, Karam said. The captive’s Fiat Chrysler Automobiles penetration rate dropped 450 basis points for the quarter on a sequential basis to 28%, but only declined 2 basis points on the year, landing at 33.6%. FCA sold 499,000 vehicles in the fourth quarter, and 1,820,636 vehicles in 2020, according to the automaker. Chief Executive Mahesh Aditya also put to bed any concerns that the FCA- Peugeot merger completed earlier this month would affect Santander’s relationship with the automaker. The new company, Stellantis , will be the world’s fourth-largest automaker. “For [Santander Consumer], it remains business as usual, and the merger is not expected to affect our relationship with FCA. As we continue to support their sales efforts and provide quality service to their dealer network, we look forward to our partnership with Stellantis going forward,” Aditya said. Shares of Santander Consumer USA [NYSE: SC] were trading up 2.32% to $24.21 at market close today. SCUSA has a market capitalization of $7.4 billion. Auto Finance Innovation Summit, the premier event for technology in auto finance, returns March 16-17, 2021, as a virtual experience. The virtual experience will offer the quality networking and education of past events, all through an online platform. To learn more about the 2021 event and register, visit www.AutoFinanceInnovation.com .

Santander Consumer USA posts record low NCOs

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