Santander Consumer USA Holdings · 5 QoQ decrease in net income in line with normal seasonality trends Refinement

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  • Santander Consumer USA Holdings Inc.3Q15 Company Update


  • 2IMPORTANT INFORMATIONForward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements aboutour 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. Althoughwe believe that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performanceand involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond our control. For additionaldiscussion 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 Form10-Q filed by us with the SEC. Among the factors that could cause our financial performance to differ materially from that suggested by the forward-lookingstatements are: (a) we operate in a highly regulated industry and continually changing federal, state, and local laws and regulations could materiallyadversely affect our business; (b) adverse economic conditions in the United States and worldwide may negatively impact our results; (c) our businesscould suffer if our access to funding is reduced; (d) we face significant risks implementing our growth strategy, some of which are outside our control; (e)we may incur unexpected costs and delays in connection with exiting our personal lending portfolio; (f) our agreement with FCA US LLC may not result incurrently anticipated levels of growth and is subject to certain performance conditions that could result in termination of the agreement; (g) our businesscould suffer if we are unsuccessful in developing and maintaining relationships with automobile dealerships; (h) our financial condition, liquidity, and resultsof operations depend on the credit performance of our loans; (i) loss of our key management or other personnel, or an inability to attract such managementand personnel, could negatively impact our business; (j) we are subject to certain regulations, including oversight by the Office of the Comptroller of theCurrency, the CFPB, the European Central Bank, and the Federal Reserve, which oversight and regulation may limit certain of our activities, including thetiming and amount of dividends and other limitations on our business; and (k) future changes in our relationship with Santander could adversely affect ouroperations. If one or more of the factors affecting our forward-looking information and statements proves incorrect, our actual results, performance orachievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, we caution not to placeundue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also couldadversely affect our results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. New factors emergefrom time to time, and management cannot assess the impact of any such factor on our business or the extent to which any factor, or combination offactors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements only speak as of thedate of this document, and we undertake no obligation to update any forward-looking information or statements, whether written or oral, to reflect anychange, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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  • 43Q15: HIGHLIGHTSNet income of $223.9 million, or $0.62 per diluted common share

    Revenue driven by increasing balances via strong originations across the business

    Net finance and other interest income in line with second quarter commentary

    Expenses in line with expectations; increase driven by seasonally worse credit performance inthe second half of the year and one-time expense related to former CEO departure

    Personal lending portfolio designated as held for sale as SC explores strategic alternatives1

    Credit performing in line with expectations; adjusted net charge-off ratio1 increase driven by the year-over-year asset mix shift

    Provision model refined to remove volatility associated with seasonality assumptions

    Continued success with asset sales, leading to growth in the serviced for others portfolio

    1 In connection with the reclassification of personal loan portfolio to held for sale, SC adjusted the allowance for credit losses associated with the portfolio to reflect the valuation of theportfolio at the lower of cost or market through provision for credit losses, and the adjusted credit loss allowance was released through provision for credit losses. The net impact ofthe reclassification of the personal loan portfolio to held for sale was a decrease to provision expense of $14 million. Future loan originations and purchases under SC's personallending platform will also be classified as held for sale.

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    QoQ decrease in net income in line with normal seasonalitytrends

    Refinement of the auto provision models to removevolatility associated with seasonal assumptions reducedprovision for credit losses by $134 million

    Absence of CCART transaction reduced investment gains

    YoY increase due to growth in average portfolio andrefinement of the provision model

    Internal capital target is in line with Q3 2015 levels, expectcapital levels to increase over time as we continue to retainadditional equity

    1 As defined in public filings2 Retained portfolio only3 Non-GAAP measure; see reconciliation in Appendix4 Regulatory calculation; calculated as common equity tier 1 capital over risk-weighted assets

    Three Months Ended(Dollars in Thousands)

    September30, 2015

    June 30,2015

    September30, 2014

    Interest on finance receivables and loans $ 1,334,655 $ 1,321,245 $ 1,177,828Net leased vehicle income 93,185 74,019 62,751Other finance and interest income 9,334 6,738 2,512Interest expense 171,420 150,622 129,135Net finance and other interest income 1,265,754 1,251,380 1,113,956Provision for credit losses 744,140 738,735 769,689Profit sharing 11,818 21,501 10,556Total other income 130,553 208,978 149,961Total operating expenses 287,343 253,428 201,906Income before tax 353,006 446,694 281,766Income tax expense 129,106 161,230 90,397Net income $ 223,900 $ 285,464 $ 191,369Diluted EPS ($) $ 0.62 $ 0.79 $ 0.54

    Key ratiosYield on Earning Assets1 (%) 15.5% 15.6% 15.7%Cost of Debt (%) 2.3% 2.0% 1.9%Net Interest Margin1 (%) 13.7% 13.9% 14.1%Expense Ratio1 (%) 2.3% 2.1% 2.0%ROA (%) 2.5% 3.2% 2.5%ROE (%) 21.1% 28.2% 23.9%RIC Average APR2 (%) 16.9% 16.9% 16.3%

    End of PeriodSeptember

    30, 2015June 30,


    30, 2014TCE/TA3 (%) 11.8% 11.5% 10.4%

    CET14 (%) 11.2% 10.8% 9.4%


    QoQ and YoY increase driven by increase in average portfolio

    Yield and Net Interest Margin continue to gradually declinedue to growth in leases as a percentage of the portfolio,partially offset by retail installment contract APRs increasing

    QoQ increase, adjusted for $22.2 million non-recurringexpense related to former CEO departure, consistent withseasonal expectations

    Adjusted expense ratio for the quarter equals 2.1%3, in linewith Q2

    Adjusted for non-recurring CEO expense, 31% YoY increasedriven by 26% growth in average managed assets

    Net Finance and Other Interest Income




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    Three Months EndedSeptember

    30, 2015June 30,


    30, 2014

    Net Charge-Offs ($) $1,105,795 $398,872 $565,468

    Adjusted Net Charge-Offs ($)1 $664,057 $398,872 $565,468

    Net Charge-Off Ratio (%) 14.4% 5.3% 8.4%

    Adjusted Net Charge-Off Ratio (%)1 8.7% 5.3% 8.4%

    Provision for Credit Losses ($) $744,140 $738,735 $769,689

    September30, 2015

    June 30,2015

    September30, 2014

    Delinquency Ratio (%) 3.8% 3.6% 4.1%

    Credit Loss Allowance2 ($) $3,173,327 $3,530,919 $3,100,378

    Allowance Ratio2 (%) 11.8% 12.4% 12.1%


    Adjusted net charge-off ratio up QoQ as performanceseasonally worsens in the second half of the year

    Adjusted YoY credit performance is reflective of currentasset mix and in line with expectations

    Retail installment contract APR shift from 16.3% to16.9%

    QoQ increase expected given seasonal portfolio trends3

    YoY decrease due to shift in mix within the held forinvestment portfolio3

    QoQ increase driven by increase in charge-offs in line withseasonality trends

    $134 million reduction due to refinement of the autoprovision models

    YoY decrease driven by the refinement of the auto loanprovision models

    1 Q3 2015 adjusted for lower of cost or market adjustments on loans sold and held for sale; see reconciliation in the Appendix2 Excludes purchased receivables portfolios and finance receivables held for sale3 Ratio excludes receivables held for sale. As of September 30, 2015, held for sale assets included the entire personal lending portfolio, which had an aggregate delinquency ratio of

    8.8% as of that date

    Net Charge-Offs