Second Quarter 208 07.25.208
IMPORTANT INFORMATION 2 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 995. 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 0-K and our Quarterly Reports on Form 0-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 presentation and/or our financial performance to differ materially from that suggested by the forward-looking statements are: (a) the inherent limitations in internal controls 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 FCA US LLC may not result in currently anticipated levels of growth, and is subject to certain 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 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. 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.
Q2 208 HIGHLIGHTS 3» Net income of $335 million, or $0.92 per diluted common share, up 26% YoY» Received authorization for dividend payments of $0.20 per share per quarter and an inaugural share repurchase program of $200 million through June 30, 209» Total auto originations of $7.9 billion, up 45% YoY» Core retail auto loan originations of $2.6 billion, up 5% YoY» Chrysler Capital loan originations of $2.7 billion, up 5% YoY» Chrysler Capital lease originations of $2.6 billion, up 84% YoY» Net finance and other interest income of $. billion, decreased 6% YoY» Net leased vehicle income of $78 million, increased 36% YoY» Retail Installment Contract RIC gross charge-off ratio of 5.2%, down 20 basis points YoY» RIC net charge-off ratio of 6.0%, down 50 basis points YoY» Auction-plus recovery rate of 60.6%, up 670 basis points YoY» Troubled Debt Restructuring ( TDR ) balance of $6.0 billion flat vs. March 3, 208» Return on average assets of 3.3%, up from 2.7% YoY» $3.5 billion in asset-backed securities ABS offered and sold» Asset sales of $.2 billion executed through the Santander flow agreement» Full roll-out of SBNA 2 originations program in July Chrysler Capital is a dba of Santander Consumer USA 2 Santander Bank N.A.
CREDIT ORIGINATIONS ECONOMIC INDICATORS 4 25 U.S. Auto Sales Units in Millions Consumer Confidence 3 Index Q 966=00 Used Sales Quarterly New Sales Monthly SAAR2 Max 0 20 7.4 5 0 0.6 5 0 Jun-2 Jun-3 Jun-4 Jun-5 Jun-6 Jun-7 Jun-8 Min 55 Jun-08 Jun-09 Jun-0 Jun- Jun-2 Jun-3 Jun-4 Jun-5 Jun-6 Jun-7 Jun-8 U.S. GDP 4 % US Unemployment Statistics 5 55,000 Unemployment Rate % (Right) Total Nonfarm Payroll Employment, SA (Left) 2.0 Max 3.2 50,000 0.0 2.2 45,000 8.0 40,000 35,000 6.0 30,000 4.0 25,000 2.0 Min -4.0 Mar-08 Mar-09 Mar-0 Mar- Mar-2 Mar-3 Mar-4 Mar-5 Mar-6 Mar-7 Mar-8 20,000 0.0 Jun-08 Jun-09 Jun-0 Jun- Jun-2 Jun-3 Jun-4 Jun-5 Jun-6 Jun-7 Jun-8 Edmunds data, one quarter lag, data as of March 3, 208 2 Bloomberg 3 University of Michigan 4 U.S. Bureau of Economic Analysis, one quarter lag, data as of March 3, 208 5 U.S. Bureau of Labor Statistics
CREDIT SEVERITY AUTO INDUSTRY ANALYSIS 5 40 Used Vehicle Indices Manheim: Seasonally Adjusted JD Power: Not Seasonally Adjusted Manheim (Left Axis) JDP Used-Vehicle Price Index (Right Axis) 35 70% SC Auction Only Recovery Rate SC Recovery Rates 2 % SC Auction Plus Recovery Rate (Quarterly) 35 30 25 20 30 25 20 5 0 65% 60% 55% 50% 45% 53.9% 44.% 60.6% 46.5% 5 05 40% 0 00 Jun-3 Jun-4 Jun-5 Jun-6 Jun-7 Jun-8 Industry Net Loss Rates 3 % Subprime Max 3.6% 35% Jun-3 Jun-4 Jun-5 Jun-6 Jun-7 Jun-8 Industry 60+ Day Delinquency Rates 3 % Subprime Max 5.9% 4.0 6.4 Min 3.3% Min.6% Apr-08 Apr-0 Apr-2 Apr-4 Apr-6 Apr-8 Apr-08 Apr-0 Apr-2 Apr-4 Apr-6 Apr-8 Manheim, Inc.; Indexed to a basis of 00 at 995 levels; JD Power Used-Vehicle Price Index (not seasonally adjusted) 2 Auction Only - includes all auto-related recoveries including inorganic/purchased receivables from auction lanes only 2 Auction Plus Per the financial statements includes insurance proceeds, bankruptcy/deficiency sales, and timing impacts 3 Standard & Poor s Rating Services (ABS Auto Trust Data two-month lag on data, as of April 3, 208)
DIVERSIFIED UNDERWRITING ACROSS THE CREDIT SPECTRUM 6 YoY auto originations increase across all channels Three Months Ended Originations % Variance ($ in Millions) Q2 208 Q 208 Q2 207 QoQ YoY Total Core Retail Auto $ 2,587 $ 2,29 $ 2,253 3% 5% Chrysler Capital Loans (<640),742,083 948 6% 84% Chrysler Capital Loans ( 640) 986 879 854 2% 5% Total Chrysler Capital Retail $ 2,728 $,962 $,802 39% 5% Total Leases 2 2,634 2,096,428 26% 84% Total Auto Originations $ 7,949 $ 6,349 $ 5,483 25% 45% Total Personal Lending 340 273 35 25% (3%) Total SC Originations $ 8,289 $ 6,622 $ 5,834 25% 42% SBNA Originations 29 24-2% N/A Total SC & SBNA Originations $ 8,38 $ 6,646 $ 5,834 25% 43% Asset Sales $,56 $,475 $ 566 (22%) 04% Average Managed Assets $ 50,307 $ 48,42 $ 50,436 4% NM Approximate FICOs 2 Includes nominal capital lease originations
FCA US LLC (FCA) RELATIONSHIP 7 SC continues to optimize the Chrysler Capital program Chrysler Capital average quarterly penetration rate of 32%, up from 20% during the same quarter last year Through SBNA, SC has increased dealer receivables outstanding ( floorplan ) % QoQ FCA Sales (units in millions) Dealer Floorplan 2 Outstanding ($ in millions) 2. 2.26 2.25 2.07 $,723 $,777 $,963 $2,33 $2,56.04.09.4.07.2 204 205 206 207 208 YTD Full Year 2Q7 3Q7 4Q7 Q8 2Q8 FCA filings; sales as reported on 06/30/208 2 Dealer receivables originated through SBNA
SERVICED FOR OTHERS (SFO) PLATFORM 8 Serviced for Others Balances (End of Period) Santander Flow Sales totaling $.2 billion in Q2 208 Balance increase due to second flow sale and $.0 billion portfolio conversion Full roll out of SBNA origination program Composition at 06/30/208 RIC 85% Leases 9% RV/Marine 6% Total 00% $9,88 $9,957 $ in Millions $8,639 $8,723 $9,5 2Q7 3Q7 4Q7 Q8 2Q8 Santander Flow Sales 566,347,475,56 SBNA Originations 24 29 Other 35 972 Other includes 3Q7 RV/Marine Sale and 2Q8 portfolio conversion
Q2 208 FINANCIAL RESULTS 9 Three Months Ended (Unaudited, Dollars in Thousands, except per share) % Variance June 30, 208 March 3, 208 June 30, 207 QoQ YoY Interest on finance receivables and loans $,56,536 $,4,37 $,232,252 4% (6%) Net leased vehicle income 77,562 45,595 3,040 22% 36% Other finance and interest income 8,494 7,37 5,205 9% 63% Interest expense 273,953 24,028 233,37 4% 7% Net finance and other interest income $,068,639 $,025,84 $,35,26 4% (6%) Provision for credit losses 352,575 458,995 520,555 (23%) (32%) Profit sharing 2,853 4,377 8,443 94% 52% Total other income 22,384 25,053 24,395 (%) (8%) Total operating expenses 276,950 287,92 282,45 (4%) (2%) Income before tax $ 448,645 $ 299,60 $ 348,08 50% 29% Income tax expense 4,004 57,3 83,433 99% 37% Net income $ 334,64 $ 242,299 $ 264,675 38% 26% Diluted EPS ($) $ 0.92 $ 0.67 $ 0.74 37% 25% Average total assets $ 40,90,80 $ 39,694,04 $ 39,26,97 3% 4% Average managed assets $ 50,306,666 $ 48,42,303 $ 50,435,958 4% NM
Cumulative Gross Loss Rate Cumulative Net Loss Rate CREDIT QUALITY: VINTAGE LOSS PERFORMANCE 0 206 vintage continues to outperform the 205 vintage on a gross and net loss basis Total Annual Vintage Cumulative Gross Loss Rate Total Annual Vintage Cumulative Net Loss Rate 25% 20% 5% 0% 5% 0% 0 2 3 4 5 6 7 8 9 0 2 3 4 5 6 7 8 9 20 2 22 23 24 8% 6% 4% 2% 0% 8% 6% 4% 2% 0% 0 2 3 4 5 6 7 8 9 0 2 3 4 5 6 7 8 9 20 2 22 23 24 Months on Book Months on Book 204 205 206 207 204 205 206 207 *Retained originations only
DELINQUENCY AND LOSS Delinquency: Individually Acquired Retail Installment Contracts, Held for Investment 2.0% 0.9% 30-59 delinquency ratios down 70 basis points YoY >59 delinquency ratios down 00 basis points YoY 0.0% 8.0% 6.0% 4.0% 9.9% 9.8% 5.2% 5.6% 5.9% 8.6% 9.2% 4.2% 4.2% 30-59 >59 2.0% 0.0% Q2 207 Q3 207 Q4 207 Q 208 Q2 208 YoY gross charge-off ratio decreased 20 basis points YoY net charge-off ratio decreased 50 basis points YoY Auction Plus recovery rate increased 670 basis points 25.0% 20.0% 5.0% 0.0% 5.0% 0.0% 6.4% Credit: Individually Acquired Retail Installment Contracts, Held for Investment 7.5% 53.9% 8.0% 9.% 49.3% 9.2% 0.3% 46.4% 8.5% 8.3% 55.% 5.2% 6.0% 60.6% Q2 207 Q3 207 Q4 207 Q 208 Q2 208 20.0% Gross Chargeoff Ratio 0.0% 00.0% 90.0% Net Charge-off Ratio 80.0% 70.0% Recovery Rate (as % of 60.0% recorded 50.0% investment) 40.0% 30.0%
CREDIT QUALITY: LOSS DETAIL 2 Q2 207 to Q2 208 Retail Installment Contract Net Charge-Off Walk ($ in millions) ($87) $53 ($46) ($0) $29 $399 Q2 207 Recoveries Gross Loss Performance Lower Balance Other Q2 208
PROVISION AND RESERVES 3 QoQ allowance decreased $47 million New volume and TDR migration were offset by performance adjustment and liquidations and other $3,550 $3,500 $3,450 $3,400 $3,350 $3,300 $3,250 $3,200 $3,50 $3,00 $3,050 $3,000 $283 $3,90 $3,90 Q 208 Q 208 to Q2 208 ALLL Reserve Walk ($ in millions) New Volume $58 ($69) $3,473 $3,46 TDR Migration Performance Adjustment 2 ($39) $3,43 $3,43 Liquidations & Other Q2 208 Provision Expense and Allowance Ratio ($ in millions) Allowance to loans ratio decreased 80 bps to.5% QoQ Provision for credit losses decreased $68 million YoY $600 $500 $400 $300 $200 $00 $52 $536 2.6% $562 2.8% 2.6% $459 2.3% $353.5% 4.5% 3.0%.5% $0 Q2 207 Q3 207 Q4 207 Q 208 Q2 208 Provision for credit losses Allowance Ratio 0.0% TDR migration the allowance for assets classified as TDRs or troubled debt restructuring takes into consideration expected lifetime losses, typically requiring additional coverage 2 Explanation of quarter over quarter variance are estimates
TDR BALANCE COMPOSITION BY VINTAGE 4 TDR balances gradually down three consecutive quarters TDR Balance by Origination Vintage ($ billions) $5.03 $5.33 $5.60 $5.79 $5.88 4% 9% $6.28 $6.26 6% 20% $6.00 2% 24% % $5.96 7% 3% 22% 30% 35% 37% 37% 37% 26% 36% 5% 34% 44% 32% 37% 29% 32% 27% 28% 23% 2% 9% 6% 24% 22% 35% 20% 33% 8% 2Q6 3Q6 4Q6 Q7 2Q7 3Q7 4Q7 Q8 2Q8 203 & Prior 204 205 206 207
EXPENSE MANAGEMENT 5 Operating expenses totaled $277 million, a decrease of 2% versus the same quarter last year $60,002 0.0% $50,002 $40,002 $30,002 $20,002 $50,436 $49,998 $48,972 $48,42 $426 $282 $298 $288 3.5% 2.2% 2.4% 2.4% $50,307 2.2% $277 8.0% Average Managed Assets 6.0% ($ millions) Total Expenses 4.0% ($ millions) $0,002 2.0% Expense Ratio $2 Q2 207 Q3 207 Q4 207 Q 208 Q2 208 0.0% Q4 207 was impacted by significant items. Please refer to the 8-K filed January 3, 208 for further details.
FUNDING AND LIQUIDITY 6 Total funding of $43.3 billion at the end Q2 208, up 3% from $42.2 billion at the end of Q 208 Asset-Backed Securities ($ Billions) Financings ($ Billions) 6.0 8.6 6.9 Amortizing 5.7 0.0 Revolving 0.0 5.4 5.9 4.6 4. Q 208 Q2 208 $3.5 billion in SDART and DRIVE transactions $.2 billion private lease securitization Q 208 Q2 208 $5.7 billion in commitments from 2 lenders Q 208 Q2 208 Unused Used 60% unused capacity on revolving lines at Q2 208 Banco Santander & Subsidiaries ($ Billions) 7.8 7.8 Asset Sales ($ Billions) 3.0 3.0.8.8 Term Revolving Contingent.5.2 3.0 3.0 Q 208 Q2 208 $7.8 billion in total commitments 59% unused revolving capacity at Q2 208 Q 208 Q2 208 Fifth Santander flow sale of $.2 billion Does not include repo facilities
CONSISTENT CAPITAL GENERATION 7 SC has exhibited a strong ability to generate earnings and capital, while growing assets Received authorization for dividend payments of $0.20 per share per quarter and an inaugural share repurchase program of $200 million through June 30, 209 CET 2 TCE/TA 4.3% 4.% 5.0% 4.9% 6.3% 6.2% 6.9% 6.6% 6.7% 6.9% $ in millions Q2 207 Q3 207 Q4 207 Q 208 Q2 208 Tangible Assets $39,40 $38,657 $39,39 $39,940 $4,067 Tangible Common Equity $5,572 $5,780 $6,377 $6,62 $6,940 Common Equity Tier (CET) Capital Ratio is a non-gaap financial measure that begins with stockholders equity and then adjusts for AOCI, goodwill/intangibles, DTAs, cash flow hedges and other regulatory exclusions over risk-weighted assets. See appendix for further details. 2 Tangible common equity to tangible assets is a non-gaap financial measure defined as the ratio of Total equity, excluding Goodwill and intangible assets, to Total assets, excluding Goodwill and intangible assets
APPENDIX
COMPANY ORGANIZATION 9 Banco Santander, S.A. Spain Other Subsidiaries 00% Ownership Santander Holdings USA, Inc. ( SHUSA ) Santander Bank, N.A. Other Subsidiaries ~68% Ownership Santander Consumer USA Holdings Inc. ( SC ) Public Shareholders ~32% Ownership *Ownership percentages are approximates as of June 30, 208
DIVERSIFIED UNDERWRITING ACROSS FULL CREDIT SPECTRUM 20 Originations by Credit (RIC only) ($ in millions) $4,055 $3,328 $3,04 $4,278 $5,344 33% 38% 36% 3% 29% >640 3% 3% 3% 5% 6% 600-640 540-599 $2,737 24% 23% 24% 26% 27% $3,85 <540 No FICO 7% 4% 4% 4% 4% 2 Commercial 2% 0% 0% 2% 2% 2% 2% 2% 2% % 2Q7 3Q7 4Q7 Q8 2Q8 New/Used Originations ($ in millions) $4,055 $3,328 $3,04 $4,278 $5,344 52% 45% 47% 50% 40% Used 48% 55% 53% 50% 60% New 2Q7 3Q7 4Q7 Q8 2Q8 Average loan balance in dollars $20,86 $2,825 $22,03 $2,699 $22,926 RIC; Retail Installment Contract 2 Loans to commercial borrowers; no FICO score obtained
2.5% 2.4% 2.5% 2.2%.9%.9%.6%.2%.2%.3% 4.0% 3.7% 7.3% 7.5% 7.4% 7.6% 5.% 5.0% 5.4% 7.8% 22.4% 22.4% 2.8% 2.6% 2.0% 3.9% 32.4% 32.0% 32.4% 32.6% HELD FOR INVESTMENT CREDIT TRENDS 2 Retail Installment Contracts Commercial Unknown <540 540-599 600-639 >=640 Q2 207 Q3 207 Q4 207 Q 208 Q2 208 Held for investment; excludes assets held for sale
EXCLUDING PERSONAL LENDING DETAIL 22 Personal lending earned $42 million before operating expenses and taxes Total Personal Lending Excluding Personal Lending Total As of and for the Three Months Ended (Unaudited, Dollars in Thousands) June 30, 208 March 3, 208 June 30, 207 Personal Lending Excluding Personal Lending Total Personal Lending Excluding Personal Lending Interest on finance receivables and loans $,56,536 $ 84,772 $,07,764 $,4,37 $ 89,260 $,024,877 $,232,252 $ 88,869 $,43,383 Net leased vehicle income 77,562-77,562 45,595-45,595 3,040-3,040 Other finance and interest income 8,494-8,494 7,37-7,37 5,205-5,205 Interest expense 273,953 7,35 266,638 24,028 0,992 230,036 233,372 2,293 22,079 Net finance and other interest income $,068,639 $ 77,457 $ 99,82 $,025,84 $ 78,268 $ 947,573 $,35,25 $ 76,576 $,058,549 Provision for credit losses Profit sharing 352,575 83 352,492 458,995 02 458,892 520,555,67 59,388 2,853 (5,282) 8,35 4,377 207 4,70 8,443 43 8,300 Investment gains (losses), net (82,634) (75,725) (6,909) (86,520) (58,963) (27,557) (99,522) (89,627) (9,895) Servicing fee income Fees, commissions and other Total other income 27,537-27,537 26,82-26,82 3,953-3,953 77,480 45,237 32,243 85,39 49,487 35,904 9,964 59,552 32,42 $ 22,383 $ (30,488) $ 52,87 $ 25,053 $ (9,476) $ 34,529 $ 24,395 $ (30,075) $ 54,470 Average gross individually acquired retail installment contracts, held for investment and held for sale $ 27,534,479 - $ 26,820,66 - $ 28,202,76 - Average gross personal loans - $,375,877 - $,459,308 - $,402,46 Average gross operating leases $ 2,29,62 - $,44,789 - $ 0,9,380 - The $76 million of investment losses related to personal lending in Q2 208, comprised of $90 million in customer default activity, partially offset by a $4 million decrease in market discount, consistent with typical seasonal patterns.
RECONCILIATION OF NON-GAAP MEASURES 23 June 30, March 3, December 3, September 30, June 30, (Unaudited, dollars in thousands) 208 208 207 207 207 Total equity $ 7,045,734 $ 6,726,05 $ 6,480,50 $ 5,885,234 $ 5,678,733 Deduct: Goodwill and intangibles 05,669 05,44 03,790 05,590 06,298 Tangible common equity $ 6,940,065 $ 6,620,87 $ 6,376,7 $ 5,779,644 $ 5,572,435 Total assets $ 4,73,36 $ 40,045,88 $ 39,422,304 $ 38,765,557 $ 39,507,482 Deduct: Goodwill and intangibles 05,669 05,44 03,790 05,590 06,298 Tangible assets $ 4,067,467 $ 39,940,044 $ 39,38,54 $ 38,659,967 $ 39,40,84 Equity to assets ratio 7.% 6.8% 6.4% 5.2% 4.4% Tangible common equity to tangible assets 6.9% 6.6% 6.2% 4.9% 4.% Total equity $ 7,045,734 $ 6,726,05 $ 6,480,50 $ 5,885,234 $ 5,678,733 Deduct: Goodwill and other intangible assets, net of deferred tax liabilities 66,24 69,870 72,664 72,502 77,69 Deduct: Accumulated other comprehensive income, net 62,449 63,2 44,262 27,48 27,860 Tier common capital $ 6,87,044 $ 6,492,934 $ 6,263,575 $ 5,685,25 $ 5,473,254 Risk weighted assets (a) $ 40,744,526 $ 38,57,988 $ 38,473,339 $ 37,828,30 $ 38,368,928 Common Equity Tier capital ratio (b) 6.7% 6.9% 6.3% 5.0% 4.3% (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 and the Bank's total Risk weighted assets (b) CET is calculated under Basel III regulations required as of January, 205.