Santander Consumer USA Holdings Inc.

Good morning and welcome to the Santander Consumer USA Holdings Second Quarter 2021 Earnings Conference Call. At this time, all parties have been placed into a listen-only mode. Following today's presentation, the floor will be open for your questions. Please dial star 1 to enter the Q&A queue. It is now my pleasure to introduce your host, Evan Black, Head of Investor Relations. Evan, the floor is yours.

Thank you, Sarah. Good morning, everyone, and thanks for joining the call today. On the call, we have our CEO, Mahesh Aditya, and our CFO, Sami Khatam. Certain statements made on today's call may be forward-looking. Please refer to our public SEC filings and risk factors with respect to these statements. We'll also reference certain non-GAAP financial measures that we believe are useful to investors, and a reconciliation of those measures to GAAP was included in the 8K issued earlier today. With that, I'll turn the call over to our CEO, Nash.

Thanks, Adam, and good morning, everyone. Thank you for joining us to review our second quarter 2021 results. Before discussing the quarter... I'll address the offer we received from our majority shareholder, Santander Holdings USA. On July 2nd, we received a non-binding proposal from Schuster to acquire all of the outstanding common shares of SC it does not currently own. The SC board has formed a special committee to consider the proposal. As the special committee's review is still ongoing, there will be no further details shared regarding this matter or guidance given on this call. We politely request that no questions be directed to this topic during the Q&A portion. Thank you. Now on to the second quarter, which was another record-setting quarter for Santander Consumer, representing the most profitable quarter in the company's history, with $1.1 billion in net income, the highest level of quarterly originations at $10.5 billion, and we finished the quarter with a net credit recovery of $79 million. Total quarterly originations increased 34%, versus last year, with strong increases in lease and non-prime loan, more than offsetting a decrease in prime loan originations due to a sharp reduction in incentive levels versus the prior year. Overall, consumer demand remains strong. However, we remain cautious in our underwriting to ensure resiliency in all new originations, especially given the unique environment resulting from the much-talked-about supply shortages and increased competition. The U.S. economy continues to recover even as uncertainty remains, June unemployment reached its lowest level since the onset of the pandemic, and approximately half the U.S. population has been fully vaccinated. In our portfolio, credit metrics remain strong, with delinquencies well below pre-pandemic levels and unprecedented loss rates highlighted by the net recovery this quarter. Payment rates in both the deferred and non-deferred populations are stable, and deferred requests are in line to lower than 2019. Lower levels of deferrals and government stimulus in the first quarter contributed to an increase in early-stage delinquencies quarter over quarter, but delinquencies remained well below historical levels. Record used vehicle prices coupled with low charge-offs led to a net recovery during the second quarter. June was the first month-over-month decline in the Mannheim Index in 2021, and this trend continued in the mid-July report, but prices are expected to be elevated for some time. As anticipated, significant vehicle inventory shortages pressured industry sales, as the June SAR fell to $15.4 million from $17.7 million in March. New vehicle inventories are at historical lows, but the month-over-month pace of decline moderated in June. The dynamic will likely be a challenge for new vehicle sales and therefore our prime originations for the remainder of the year. Our reserve coverage decreased versus Q1, primarily due to strong credit performance and an improved macroeconomic outlook. At the end of the second quarter, our coverage rate stands at 17.8%, which remains more than 100 basis points above our day-one CISO. This level of reserve accounts for the risk that credit performance may worsen once the government stimulus programs expire and used vehicle prices may normalize. We believe holding reserves at this level is appropriate, given the continued uncertainty around the pandemic, the Delta variant, and long-term unemployment trends. As we have discussed the last couple of quarters, digital investment is a priority for our company as we look to the future. Yesterday, we announced the debut of an innovative digital auto finance experience that will streamline and enhance our interaction with our dealers and customers. Our solution was developed with Autofi, an established digital retail leader, to further our vision of simplifying the car buying experience. SC's digital product suite will enable dealers to self-service across key vehicle underwriting interaction points with SC, enhancing their ability to sell vehicles. The dealer digital experience includes tools to identify cars on the dealer's lot that fit a consumer's budget, as well as specifications to complete these, streamlining the financing process. This dealer tool is the first of several technology advancements we plan to roll out over the next several months. As consumer purchasing habits shift, we are committed to changing our process and giving dealers the right tools to simplify the legal finance process. We are also committed to educating our customers, our consumers about their finance options and ensuring a full understanding of our products. The next wave of technology enhancements will be focused on consumer financial literacy at the time of purchase, throughout the life of the loan on lease, and if modifications are requested. The pandemic has highlighted the need to automate these tools for consumers who have proven to be resilient and prefer to research options online before or without speaking to one of our representatives. With that, I'm going to turn the call over to Fahmy for a more detailed review of our results.