Q3 2020 Santander Consumer USA Holdings Inc Earnings Call

a significant amount of uncertain

He remained regarding the outlook for our economy COVID-19 cases have continued to increase in Most states and another round of government stimulus may or may not be past. Either of these could have significant impact to our business and our customers on Slide Five. There are a few key Auto factors that influence our origination volume and credit performance.

New and used vehicle sales continue to improve and normalizing the third quarter recently approaching prepay endemic levels. According to Industry sources the outlook for full-year 2020 new vehicle wage is approximately 15.5 million units improved from the second quarter forecast of around thirteen million units the lower than the trend of approximately 17 million units over the past several years new vehicle days. Supply remains low due to lower production levels at the peak of the pandemic day supply of new vehicle is more than 30 days lower while used vehicle date supply has trended to pre-crash levels be the strong demand an auction activity.

Used vehicle pricing continue to improve setting record wholesale prices for the month of August to the lower levels of inventory and pent-up demand from the preceding months.

Several factors are impacting used car prices including among others consumer demand for more affordable used cars shortage of new vehicle Supply and as businesses have reopened consumer to own a vehicle versus using public transportation. We do not expect these records levels to persist. However, we are pleased to observe how well the economy has recovered. It has impacted wage loss and credit performance during the quarter which I will describe in detail in a moment turning to slide six four quarterly origination.

Total third quarter volume was flat versus the third quarter 2019 core loan originations increased 5% year-over-year total Chrysler Capital loan origination increased 6% Chrysler Prime volume increase 17% Chrysler non-prime volume decrease 10% and Lease origination decrease 17%

our core loan origination rebounded and increased slightly from a year ago while our Chrysler non-prime loans continued to be down year-over-year given that vehicle sales have been under pressure down here. We are very pleased with the level of origination as we remain disciplined in the higher-risk credit segment Prime loan originations were up year-over-year similar to last quarter, but not to the same degree of manufacture incentives including incentives from FCA exclusive the Chrysler Capital decreased from the second quarter least volumes began to normalize during the fourth quarter, but remained lower year-over-year to do a couple of factors including fda's lease mix as a percentage of sales is below last year similar to the second quarter extended term retain a Loan offers shifted some lease deals two loans and our market share of leases continues to be under some pressure to the competition throughout the course as deposits rise for our bank and credit union competitive.

We have seen some more aggressive pricing.

In the market, however in September and into October our lease volume has reached prior-year level and we've taken several steps with FCA to improve our share going into the end of the year off our Focus before during and after the pandemic is to achieve the appropriate risk-adjusted returns while continuing to serve our customers and our dealers.

On the fly 7 we break down the 2020 monthly origination for 2019 core loan originations continue to improve in the third quarter succeeding levels from a year ago with a rep about thirteen percent in the month of September. This channel has continued to perform. Well as we have increased share and added margin while at the same time tightening our underwriting standards with Chrysler Capital non-prime Loans continue to remain Under Pressure, but reach 2019 Levels by quarter end as a reminder our Chrysler non-prime origination relative to our core Channel have a higher mix of New York as we mentioned typically consumers during a recession choose a more affordable option of used vehicles and in the current environment new vehicle demand is still driven by incentives which are generous available for Prime credits.

Chrysler Capital Prime loans began to normalize in the quarter investigating here toward extended terms decreased first the height of the pandemic

similar to our Prime loan, press releases also normalized throughout the quarter as consumers continue to weigh the pros and cons of incentivized loan versus lease offers. Our lease volume was the most impacted during the page to the slowest recovery. However, September was a strong month and we expect the momentum to continue into the fourth quarter.

moving on to pay date

us auto manufacturers including FCA continue to experience lower levels of new vehicle sales need to COVID-19. The sales has significantly improved since the second quarter.

Our year-to-date penetration rate of 36% improved versus the prior-year due to our collaboration on incentive program through FCA as well as our origination program with something there Bank. We expect penetration rates to continue at this pace of the partner with FDA to put programs in place for the year-end holiday season turning to slide 9 during the quarter. We added 1.5 billion in loans the service for other platforms one point 1 billion of these loans were originated through our partnership with f d n a and the remainder before from our second off-balance-sheet securitization of the year off both of these programs support our relationship with sta by finding the most efficient funding for Prime loans. We do retain servicing rights in charge of fee on all assets. We originated in service for others.

This platform generated nineteen million in service and fee income this quarter in addition to those servicing fees three million of sg&a origination fees are in the fees commissions and other line items turning to slide ten.

Quarter and fees total liquidity of both funded and unutilized lines is approximately fifty five billion liquidity continues to be fundamental for SC success and remains critical in our efforts to support our flag and our customers during times of uncertainty at the end of the second quarter. We had approximately 77% of unused capacity available on our twelve billion a third-party revolving Warehouse line.

In addition to our third party lenders, we also have continued support from our parents including three billion of unused capacity through our shoes of facilities as well as two billion of new term vets in stocks and are issued in the court.

If you're funding from something dear provides us with additional liquidity and attractive rate to continue to fund our Prime business to support our dealers and consumers additionally this funding contributed to Asian just move approximately 1.7 billion of prime assets and health or sales to help her Investments. I will cover it impacts of the move in more detail when we discuss the reserves.

There in the corner of my house mentioned. We also close at one point nine billion Str transaction, which was upside from one point four billion. You do significant investor demand this transaction with the largest non-profit Auto ABS deal in the last thirteen years. The weighted average cost of funds is the lowest level of an s. In the company's history as I mentioned earlier. We also executed an off-balance-sheet securitization during the quarter you consolidating approximately $635 million in Prime lugs. You would be elevated Prime loan origination. You can see the optimize the amount of prime loans on the balance sheet through our agreement with GNA. I found a few transactions or retaining a portion of that volume.

After quarter, and we also received our second week ABS transaction on our SRT platform. The one point two billion dollar deal was well-received by investors and the overall cost price better than the the issuance Prix coverage in February.

Moving to slide 11th review our financial performance for the quarter versus the prior-year quarter.

The income for the quarter of $490 million or $1.58 per share of UPS improved a hundred and 10% and 135% respectively from the prior-year click on finance receivables and Loans increased 2% little higher average loan balances during the quarter net leased vehicle income increased 3% due to higher lease balances on a lease maturity and higher net proceeds at disposal this quarter compared to the second quarter lease income more than doubled.

During the third quarter we were able to dispose of approximately $18,000 more lease units at more favorable prices versus the second quarter.

Interest expense increased 13% or $43 million different by lower Benchmark rates and better pricing across our lending platforms cost of debt increased 80 basis points versus last year to 2.8% in the quarter.

Los expense increased three hundred two hundred forty-one million in the quarter now $226 million has charge-offs in the quarter. I historic lows given by customer deferrals wrong payment on on deferred accounts and historically High used car prices investment losses were sixteen million better year-over-year given by lower Bluestem balances and losses offset by approximately 13 million in losses associated with off down. She's securitization during the quarter operating expenses were $65 million better than last year mostly due to lower repossession expect.

Moving the slide twelve which covers are deferral trans since the beginning of the pandemic.

In total since the beginning of the pandemic we are granted approximately $912,000 loan deferral to $645,000 younique accounts or 11.5 billion on our balance sheet.

During the third quarter we continue to see a sharp decline in the pace of forbearance request as a percentage of active accounts asking for deferral ended the quarter at 4.5% of total accounts down from the peak of 27%

Included additional information this quarter to further describe the performance of the accounts that have received a code for all of those 645,000 younique accounts approximately eighty 14% of those accounts remain active or approximately 1.7 billion eighty 6% of those accounts that received a referral have had those deferrals expire 80% of these accounts our main less than 30 days delinquent 30% have expired in our more than 30 days away 25% paid off ther balance and 2% charged off.

For accounts with a code deal with a payment due in September 55% made a payment 10% were extended again and 35% remained inactive the payment trend has come down from level of experience in the second quarter, but more accounts remaining inactive as we get further into the pandemic. We do expect some of these accounts to roll through delinquency and ultimately charged off. This is not expected a stimulus benefits have expired and unemployment remains elevated.

Accounts that have not received a modification since dependent like approximately 70% of our portfolio. I performed well and better than our expectations as far the percentage of customers making timely payments on a new account have been over 80% since May in addition. The percentage of these accounts that are thirty plus days past due is currently under 5% this same population same time last year was approximately 15% Another data point that we were tracking is percentage of payments made as a percentage of total expected payment in a given month at the height of the pandemic this purpose of dropped a 59% in April and in September the rate was 79% and incorporating both the furred and non deferred accounts.

We have also experienced.

It's more accounts paying ahead and making payments in excess of the current month's bill.

You're experiencing a clear distinction between account to receive a deferment and account that did not receive a probative related release. Although the third population is experiencing an uptick in divorce. You still in line with our expectations and the non deferred population continues to outperform combined. We have experienced record-low delinquencies and losses and third quarters. As I mentioned without the approval of additional additional government stimulus consumers could spend their savings and these Trends could reverse quickly. Our teams have spent considerable time analyzing the Deferred popular in in determining collection and modification strategies to Aid these customers whether it's another deferral or customized payment plan to keep them current and then their vehicles or another solution. We are committed to serving our customers through this pandemic can't believe we have the tools and expertise to manage these uncertain times.

Continuing to slide thirteen to cover delinquency and loss.

COVID-19 relief provided to our customers strong payment rates and Recovery let the record credit performance in the third quarter versus the prior-year quarter early-stage delinquency is decreased five hundred fifty basis points and late-stage delinquencies decreased 230 basis points.

Lincoln see it began to increase in September compared to August and we do expect that Trend to continue in the fourth quarter, which is typically our seasonally worth quarter for delinquencies and losses.

The Rick gross charge-off ratio of 6.8% decrease more than 11 percentage points from the third quarter last year. Our recovery rate as a percentage of gross losses, which is metal and non-metal proceeds bankruptcy and deficiency sales was 91.4% in the quarter.

And that charge operation of sixty basis points increase 750 basis points from last year during the quarter repossession and remarketing activity returns are more normal levels, and we're support by very strong used vehicle environment waiting for record recoveries and lawsuits.

Our expectation is that lawsuit will remain lower than prior years, even as we enter are typically typically seemingly worst fourth-quarter supported by low delinquencies and continued strong faith. Our prices turning to slide 14. We detailed monthly loss and Recovery rates year-to-date versus prior year.

The customer relief we were provided earlier in the year resulted in fewer units reaching charge-off. We need to a lower gross charge-off ratio in the quarter the third quarter also benefited from record-breaking wholesale involved with August being a net recovery month. Meaning our recoveries outpaced our losses recognized during the month. We expect both gross losses and Recovery rates to continue to Trend upward throughout their entire month of 2020 and into next year. The Manheim index had a record high of above one hundred sixty in August of 16% year-over-year.

factors in September

Again to plant plateau and that trend has continued into October specific to our portfolio. We experienced a 16% increase in auction prices in the quarter versus the third quarter 2019, year-to-date our auction only recovery rate was 5% and we expect on a full year basis to be up 7 to 8%

Did you expect prices to come down from this point going forward and continue to normalize the pre-code the levels which were just kind of winter 20/20 moving the slide fifteen to review lost $3,000 in the walk from prior-year.

Net charge-offs for Rick's were down significantly year-over-year losses increased $72 due to higher average loan balances. This was more than offset by $446 million fewer gross losses incurred primarily due to factor of rediscovered and 172 million d 2 Improvement in companies turning our attention to provisions and reserved on slide sixteen months at the end of the third quarter of the allowance for credit losses total 6.1 billion increasing $293 million from last quarter driven by an increase of $474 million Reserve with a higher balance has partially offset by decrease of 181 million due to a higher mix of prime credit and a slightly better macroeconomic backdrop.

This represents an allowance ratio of 18.4% at the end of this quarter down from 19.2% last quarter.

I reserve that increase materially this year due to the adoption of peaceful and significant changes in the macro Outlook there in the first and second quarter in the third quarter of the macro Outlook improved modestly without more than offset by the increase in balances end up. Balances due to the sharp Rebound in our non-prime segments lower growth losses and our decision this quarter to retain approximately 1.7 wage in a prime asset which we moved from Health to sail to help her investment and are now incorporated into our seats were reserved total balance through approximately 3 billion from the second quarter to Thursday and from Prime assets and a billion from non Prime assets.

I've mentioned the macro scenario. We we use slightly improved but the scenario still assumed elevated unemployment and the prolonged recovery our Baseline macro scenario seems a lot of unemployment in the next few months up to 9.4% and remaining in the high single-digits throughout 2021 ending the year just over 7% our scenario that does not include another round of government stimulus or another shutdown of the economy. If either of those materialize will have an impact on our portfolio and we will have to incorporate those circumstances into our home modeling as a program.

moving to slide Seventeen to cover Cecil by asset designation

On this page, we have provided a break out of reserves between and balancing the TV our coverage ratio vs. Last quarter increased to 33% used to increase credit risk in this pop-up a high percentage of loans and the TV our portfolio have received Covetous and a higher percentage of delinquency exist in this portfolio compared to the second quarter these accounts wage higher risk pre pandemic and we continue to view them as high-risk during the pandemic non TDR coverage vs. Last quarter decreased at 16.5% but mentioned earlier wage growth in the non PDR balance has outpaced the growth in non-ppr reserves as a credit mix of this portfolio has improved these a higher mix of time volume from our move from HFF. Chfi.

also this popular

Includes a much higher percentage of account is not receive a code that deferment as I mentioned account. I mean well, which also brought the lifetime loss expectation down slightly.

Overall, we believe our Reserve is appropriate and 6.1 billion or 18.4% given the the level of uncertainty in the market.

Turning to slide eighteen the expense ratio for the quarter to 1.7% down from 2.3% compared to the prior-year quarter operating expenses down versus the prior-year quarter primarily driven by lower repossessions and other expenses.

Finally turning to slide nineteen the hash mentioned during the quarter. We were able to pay our quarterly dividend to continue our previously authorized share repurchase program. We need to repurchase a mortgage ten million shares of our outstanding common stock in the quarter, even with these Capital distributions RCC one ratio increased Thirty basis points versus the last quarter of the 13.7 per month at the Federal Reserve recently extended interim policy prohibiting share repurchases and limiting dividends to all speak our banks the average trailing four quarters of net income.

Although our Standalone income is sufficient to support our ordinary dividend SC is Consolidated into sheets of capital plan. And therefore we are subject to Shooters average trailing income to determine the money on common stock dividends as such we do not expect to declare or pay a dividend the fourth quarter of 2020.

In consultation with truth though, we decided not to ask for an exception this quarter as we're in the midst of submitting a comprehensive Capital plan, which uses twenty-twenty sikar resubmission. Lisa bonet's is almost complete and will be submitted in early November. We are confident based on the previous submission and the internal stress test that we have conducted throughout the year that we will continue to perform well under stress off and be able to return Capital to shareholders. Once these interim guidelines expired our balance sheet excess capital and reserves position as to whether the uncertainty in the coming quarters payoff and have excess Capital to reinvest in the business or distribute to shareholders.

Between are reserved and capitals. We have a we have significant loss of building capacity.

You conclude the third quarter was a very unique time when we saw record low losses and record highs in the used car prices despite the high level of unemployment. We had trended toward normal many areas of our business as vehicle sales and origination have improved demand for forbearance has decreased and we expect recoveries to come down office local levels.

We will continue to benefit going forward from low-rate environment and a strong ABS Market which will help maintain profitability as routine Better Credit assets. We are cautiously optimistic for another standoff packaged. Please leave a consumer Behavior to this point in the resiliency of our portfolio. The uncertainty is still there. When we are confident our liquidity and capital give us flexibility going forward with an operational and strategic standpoint. We will remain disciplined in our approach conservative in our underwriting and continue to be good stewards of capital before we begin Q&A page return the call back over to my hash. I get that me I want to conclude by thanking all of our employees who despite the personal and professional challenges caused by the pandemic you the execution the level of dedication that's unsurpassed. Our employees hard work continues to inspire and give us confidence as we look to the Future and and position the company for long-term success.

you got such a customer satisfaction scores are net promoter score which measured the likely a measure of the likelihood that our customers would recommend a few friends or family also increased significantly each metrics Remains the

I promise and outperformed the leadership team make tough decisions where the customer was foremost in our part at all times. We launched an unprecedented assistance program almost immediately at the start of the pandemic at the peak 27% of our active account still under forbearance. We were sensitive to the immense hardships facing our customers and stopped all in voluntary repossession on a minimum of sixty days and we waive late fees for those who said the stated that they were impacted by COVID-19. We recently announced one point seven million dollars in charge $29 a month profit organization funding program would need of continued resources during the Bandit.

The grants support organizations with the surrounding communities in which operates providing services including virtual classroom capabilities support for this residence. Get services for working. Clinics and shelter so vulnerable families and food distribution.

Quarterly made great progress in our diversity and inclusion program by launching 16 employee-driven initiatives that cover a wide range of areas from Recruitment and training to Career Development and mentorship to financial education. We're also in the process of engaging or well not for profit to help us launch customer-oriented relief programs in the near future earlier this month. We announced that we are opening a new Servicing Center in Tampa, Florida. We expect the facility will bring approximately 850 jobs to the area and will expand our operations coverage in the Eastern Time Zone.

In addition to becoming a part of the temple business Community. We also look forward to supporting local charitable causes and organizations missions aligned with out.

Santander Consumer has a track record of profitability and resilience to economic cycles and the current pandemic is no exception. We are confident that we have the Capital Security and support from our parents and holding company to withstand. These home. The crisis was accustomed to the mall customer and dealer Centric organization with an enormously resilient Workforce in these unique and trying times and extremely proud of our management team amazing stamina and create a video of a front line and support stuff together. We are there to support our customers dealers are OEM partners and more importantly our community with that. I'll open the process question.

Thank you at this time. If you do have a question, please stand by pressing star one. We do ask that you please limit yourself to one question with one follow-up again, that will be stolen four questions and we'll pause for just a moment.

Well, here's Betsy. Graphic with Morgan Stanley.

Hi, good morning.

Can you hear me? Okay, thank you. Yeah, a couple of questions, you know, there was your commenting a lot of detail around the delinquency the deferrals, you know what you're seeing and a couple of things really stuck out the fact that you're even getting folks paying ahead of time, which I've never heard of in a way, you know any kind of consumer lending in particular in in subprime Auto. So maybe you could give us a sense as to why you think that's happening the monthly payment rates so high in the non deferral group of customers that you see and if you could give us a sense as to what you're thinking about the used car out here with the persistency that you think that that could have how many, you know months or recorders and what kind of rate of change you're anticipating is. We going to twenty Twenty-One. They're thanks.

Yeah, but see thanks for the question. I mean be seen payment rates generally go up across the industry across product categories as you as you're very familiar with we've been tracking from of the banks in new cover. We've also noticed that uh an operable is no exception. So at the start of the pandemic we noticed as soon as the stimulus program was around both the $600 and the $1,200 payment. We began to notice a spike in the payment after initial very steep fall off just off of the pandemic the payments rate payment rates began to come back. So this this was essentially happening from customers who who had had accept cash who had the ability to to to deploy that cash and pay ahead and in in some cases. It was a stimulus in other cases it with customers with the volume and the other asset product who wouldn't paying ahead and getting you know getting themselves in a better situation. You also know that during the during the pandemic cycle scores went up significantly and part of the reason was dead.

Exactly just this phenomenon that we noticed an opera program both loans and leases and Tammy also covered one other interesting aspect that we noticed. This is a payoff rate has increased for both loans and leases. So, that's generally I think that's generally the trend and the tendency to be noticed which is the ongoing the continuation of students. Give me the fastest package is going to be important. We understand some of this is artificial created by the stimulus. But in order for the economy, you know to give it a soft Landing there needs to be a second stimulus and all of that scene whatever, you know comes down to support office. Yeah. I can you remember when we first talked about the level of referral that we've had in our in our portfolio we talked about some were asking for the deferral without even really needing it cuz they didn't have a clear sense for how the pandemic was going to impact them. So I think that's also contributing to people paying ahead and some of the wage

Ask for a referral may not have at the beginning and then maybe on used car prices. I think on the second part of of your of your questions you have obviously in a used car prices have been really strong for us and and really for the for the industry the mentioned we do expect that to be the case at least in the near-term least affects quarter. We talked a little bit about head wounds and Tailwinds over the last few calls. Honestly now, we see a lot more Tailwinds than we do ahead of these apply still being off twenty-five thirty percent from pre-code levels. The consumer demand is still very strong. We see a ship from new to use during any recession and then that you've been related phenomenon of people wanting to own the vehicle first taking public transportation as the economy's have have opened up. So we definitely see more Tailwinds into the future. We do not expect wage.

Levels to stay at a store level every quarter obviously, but we use expect them to Trend down towards.

All the levels which were obviously very strong coming into the year. Yes. It's a question. We've been getting from people because obviously the reopening has slowed down and then you know, we're seeing a little bit of a pullback in certain geographies given the virus spread. So just wondering how you thinking about that specifically into 4q as well. You know can can the can the level of used car price day, you know where it is through the full quarter or you know there anything that you would think would get potentially pull it back down again thinking about the virus spread that's going on right now.

Yeah, we still think that there is a so there's a couple of days a couple of phenomenon here one is Sammy said there is a supply-demand issue that Dynamic is playing out and the ship of reference from New Jersey the second phenomenon W seeing is this availability of liquidity which is which is what creating, you know, the demand for used cars and and a car is the ultimate mask at the end of the day if you can if you can avoid public transport and can't afford a used car. I think there is a there's a general tendency of General belief out there. That is probably the safest way to get you know to get about so we do believe that in the fourth quarter of a while. The used car prices are likely to soften. They won't stop them significantly and then continue to sort of community the high levels of recovery through to the fourth floor wage. Thank you.

What's your next Mark to rise of Barclays? Yeah, thank you. So you guys charge off Trends what could be benefiting from kind of the high-profile activity the last two quarters, you know, but it was deferral balances or bottoming this core. Can you help us think about the timing for growth charge operation normalize and the coming quarters?

Yeah, good morning, Mark. Thanks for the question. So yes on the timing standpoint. There's a lot that goes into the timing we talked about, you know kind of the lack of clarity around another month to stimulus. I think that's going to be you know, really the important factor when it comes to timing of our our losses if things kind of stay as as they are today and no new gown, give me a list occurs and there's not a stoppage of the economy. We think we can see elevated losses, you know the end of q1 going into Q2 of of next year and I'll I'll see them really quick these before that but of course as we've talked about we do feel like a government stimulus will help obviously our portfolios help the industry and the extent that happens you think that will delay some of the possible speed and maybe even, you know, lower the severity of the losses that were experienced.

Okay. Can you remind us what the average income is for your customers and to what extent they were seeing income replacement if they were unemployed from from kind of the federal unemployment, you know supplement.

Yeah, I think marked way to think about it is is a lot of consumers who were able to replace the income. They were making with the stimulus package and at the same time even before COVID-19 savings a lot more of their of their income than prior years and prior recessions. So the consumer was definitely a better footing going into this. I think the stimulus helps them continue making payments. And so now the question is around. How long does that last with the high level of unemployment? Yeah. I mean knock if you just look at it. This is my issue a credit you have at some point. You have bought 70% of our portfolio supplying right and if you take the the in terms of you know, I'm just throwing out data points that we've already that we've already announced one is that at Thursday at the 27% of our portfolio had availed of an extension or forbearance program and that has come down to less support to somewhere around the 4% range if you think about that big decline sharp wage.

From 27 to 4% one would have expected that during that period you would have had an update Indian currency which didn't happen to the extent. That one would have expected it, you know good little more than a quarter of the portfolio coming down to 4% There is no corresponding applicant delinquency. So something is going on over there. And we we attribute that to the to the to the continued existence of the stimulus money and the fact that they're both lines, right and probably a reallocation of the payment hierarchy towards more greater desire to repay the AutoZone because repossession cycle is shorter. And therefore you enter this. We're customers are petitions of the on their own and it's really really important at this point that for us to have a view and an outlook on when losses are emerging in the portfolio is very important to know when the next payment is package is going to come in and what the back of that is going to be. It could be extended out another couple of quarters, but a big percentage of the of our portfolio has come off the extension program which for us is really encouraging.

Great. Thank you.

Well here now from Jefferies John heck.

Thanks very much. Appreciate all the color you guys talked about the crew leaders been a migration toward higher quality portfolio. Mix higher FICO bandwidth. Yep. I'm wondering what does that do to over all the men pre pre losses in the coming quarters.

Sure stays on for the question. So name actually is obviously a very positive story for us this quarter compared to the second quarter our our net interest margin increased $150 this point it's from a combo of combo plate with a big driver. There is around our lease deals are resealed more than more than double this quarter compared to Thursday the 2nd quarter and some of that is we talked about a little bit in the prepared remarks, but it's the level of maturity and disposals we had in the quarter. So this quarter was about 50% higher level of disposals than than the prior-year and about 35% higher than the second quarter and we were able to have them all that much higher used car prices. And so the gate on sale per vehicle was definitely increased but you know, some of that gain on sale is offset by the

depreciation expense

But but that's the big expansion in them going in this quarter. The other piece of nim For Us is around the prime prime assets and the level of mix of prime rib non-prime book from last year Prime assets as a percentage of our total earning assets was about 4% this year. It's about 8% So it's also it's also doubled which brings brings our name down. Another component of it is around our cost of debt. We making the cost of dabble daily basis points better than time elapsed years about thirty basis points better from the second second quarter and we can we expect that to continue. So going forward. I think you'll see the betterment in our cost of debt off will see some of the Prime assets way on our on our Nim but as we mentioned on the non-prime side, we also feel like the origination of our our strong there and at home

I returns so net-net. We feel the level that we're at today is is consistent going forward.

Okay, very helpful. Thanks your second question unrelated. There's been a lot of development particularly over the past six months kind of digital channels too long to purchase cars. I'm wondering do you guys can you guys sort of elaborate on your your focus or strategy there and how to capture market share in that category going forward?

Yeah, thanks for the question John. I mean the they're clearly going to be a shift to more virtual sales perhaps even even further exploration of the direct-to-consumer learning model, but I think right now are interested in is in servicing our dealers that are making sure that whatever happens in terms of digitization and assisting dealers to consummate the sales quicker and more remote crashing out having to you know, that they're your documents back and forth and all of that stuff that's going to be the the sort of emphasis of our investment and our efforts going. We've got to make it easier for dealers to be able to look at alternatives to views to be able to shop around to clean lenders and for us to be able to give them the best offer in order to be able to dealer be sensitive to the fact that dealers have a certain preference to sell certain kinds of products and back end and all of that and give them that flexibility all in the reports action without them having to you age.

Uh have things that are good for the well, so that's without getting into too much elaborate detail around what exactly exactly what kind of Technology were you planning to use them a lot of effort going on internally in terms of developing some of those some of those functionality dealer facing functionality.

I appreciate that. Thanks guys.

What's the next Stephen Clark with KBW?

Great. Thanks for taking my questions. Just the first one I have is just around the competition mentioned some of the competitive pressure on the lease. He's talked about it from both the loan and Lease side. And what's your name?

Sure. So we mentioned on Prime, you know, we're pleased with the level of origination over the last four or five months, you know, we mentioned this a little bit last quarter that's worth of the the non-bank kind of non Prime Focus specialty finance companies. Definitely took a step back on the onset of the pandemic a lot of that competition. I think has has come back home. So I would characterize it as fairly stable and the turned into kind of pretty covert conditions, but we were able to kind of maintain the momentum that we built in May and June into the into the third quarter. So as I mentioned we were able to tighten our underwriting standards increase our margin and grow our share which is which is a great combo you won't last forever, but but it's a nice combo that we've experienced over the last four or five months, but that's that's on the non-prime side on the left side, you know Lisa's coming back from a dead.

You know year-over-year basis. It has been slower for us. I'm coming back. Some of that is competition as I mentioned, you know, some of the banks and Credit Unions that we compete wage. At least I've seen an influx of liquidity and and higher deposits and so they become more aggressive from the pricing standpoint and you know, some of this wood least we talked about in the past have been have been flow of lack of competition each month and we have decisions made on how much we hold marketing and how much we want to go and chase some of the volume. So that's something we deal with on a day-in-day-out basis with my Dad. We pick our spots it comes and goes but as I said, we feel very good that the September was a strong month and we're going to have a strong fourth-quarter.

Am I probably around the fiber package going to be in the in the quarter? How much is the I think you have something like $360 still remaining. How much is that was done during the quarter? And then also as we look at how should we think about, you know the capital and versus you know, what's appropriate level of capital you will need and you know how much the bulb is capital can be used to return back to show.

So we we bought about ten million shares throughout the quarter some of that detail will come out and tend to you the level of what we have left on our authors. I am getting back from the combination 2018 and 2019 is somewhere in that 400 million range as far as capital, you know going forward. I mentioned, you know, we we feel very calm in our liquidity in capital position going through the process now with Susa to submit sikar 2.0 and through that plan. We expect her back by your end. So once we get some feedback from The Regulators or round, not only our portfolio but their feedback and their views around the industry in general will have a better sense of what we go from Capital standpoint going forward and then we'll also get feedback from them on when the interim policy will expire and then the stb policy or framework.

then with chicken

And so once all that happens, you know, we'll come back from the lab to obviously evaluate with the conditions at that time, and we'll be able to give you a better sense for Capital going forward.

Thanks for taking my question.

Can I get in for questions? That is star one at this time? We'll hear next from Mostly Arabic with credits with great and thanks for all the details about our age, you know about the performance coming out of forbearance. I guess maybe I was just a little confused and unfortunate there's a lot going out this morning. Could you just talk a little bit about what is likely to happen in a subsequent, you know during the fourth quarter, you mentioned, you know that some 35% of the followers of that came out of September were inactive wage at what point do those blow into delinquency what percentage of them could anything could start making payments in kind of what does that mean, There? Are there other, you know, you know for the for the stuff coming out in if there are any in October and and future. Yep.

Has can can add on but I think part of what our expectation is for the fourth quarter and leading into next year's. You will see a higher an uptick in delinquency as the accounts roll from Buck Kentucky that it is our expectation. That's why we reserve the 18.4% because we do expect them to increase from this point going forward specifically may be our portfolio which has a higher population of of accounts that did receive code relief. You saw the TV our coverage ratio of 33% and that's what's driving. So I think from this point forward, you'll see higher delinquencies into the fourth quarter specifically around this population and then you'll see them eventually charged off into as I mentioned q1 and into into em, but you remember also we also mentioned the other part of the population which is the bigger part of the population is still performing really well. So that's going to offset the extended or off.

bird population

Yeah, I mean just to add to that there's a couple of things going on with the extended population. We've got it said 55% of paying 35% enacted by an actively mean they need either paying off in the extended and those accounts are likely to go delinquent. So the story with extended accounts is that they they they're obviously, you know, there's a greater Choice selected at the end of the day our customers like demonstrated that they have are experiencing some sort of distressed. So you you would expect that the extended portfolio would have two things one of the higher delinquency, you know, sort of steady-state Liberty as well as a greater reversion to mean and whatever that is, you know, whichever level of business that is so the optic that we're seeing in the extended in the ever extended portfolio. We ever attended before you'll be updated you seen is not sharper than we are seeing for the portfolio that's never been extended and that's to be completely expected what we do expect to happen a couple of things one is dead.

Continue to offer extension programs quick.

Into next year which is relies entirely on the interagency guideline of the fed and cared act and all of that and therefore there's there is a decision likely to be taken on that and the second thing is dead. What what if any is the second part of stimulus and how is that going to affect the extent the portfolio that's an extended so far when they get second on stimulus and will they start paying off their auto loans and will be have some Looting of the Rings on account of that which is why when we made the statement about you could see the merging in the end of the first quarter past the second quarter it largely depends on this phone. If you have an extended portfolio on how they perform and what kind of you know security that they have access to

Okay, you just said the link which is I think you might charge-offs right just to clarify. Yeah life. But delinquency for me is a leading indicator of what's going to eventually happened in terms of you know, of course, I know you just talked a little bit about how about the plans for Capital return but putting aside timing because you don't have control over that maybe could you just spend a minute or two talking about you know, Management's preferences in life is to you know, once you get to the point and see how much you know what's available and you know how you would think about Distributing it because I think you know, obviously the the the E capital Generations probably been you know, a pretty decent balance sheet growth has been, you know below expectations over the last year obviously and you know, it was talking about birth.

talks about the method of distribution

Yeah, so I think the continuation of the of what we've been doing in the past is probably the right way to think about it when I'm showing it's going to be a combination of of dividends and share my thoughts and the mix between the two will have to be depend heavily on kind of the situation at that time as we progress through the pandemic another thing that kind of keep in my life to look at our seats to one ratio is we will start adding to phase in the Cecil impact, uh, first quarter of of 2022. So obviously we feel very good about our Capital position today and work to 13.7% will continue to Capital but we do also we also very mindful of the environment that we're in and the upcoming season, beginning in 2022. So it will be it will be a mix the good news for us is we still have all of the typical Alternatives at our disposal, but it will be a mix of dead.

Let me share BuyBacks mostly. Got you. Thanks very much.

And from JP Morgan will move to Rasheen. Good morning guys. Just like to talk a little bit about some of the competitive Dynamics related to the suspension. Obviously with the supply-demand imbalance for new card. We're seeing a pullback intervention. I'm curious what you guys are hearing from FCA off and presumably they are needing all of their percentage obligations to you guys.

Yeah, so I would say more than likely FCA just like all hands are trying to find ways to drive sales and we partner with them every month to figure out for them and what works for us from the incentives to implement any of your question directly on the level of subvention. Yes, they are performing in line with the contract in our expectations. I think as the pandemic continues senior the reduction in some of the 0 4 4 months terms some of that has kind of shorter-term back down to zero for 60 + 0 for 72, you know, what we're working with them now is around what they want to do around the fourth quarter and the holiday season cuz it's usually a typically heavily Thursday 5 a couple of months. So whether it's invention or some kind of other way of incentives, we're we're permanently them expect, you know, typically strong fourth-quarter from us and origination dead.

one of the penetration standpoint

great. Thank you very much.

For now from Rob wildhack with autonomous research.

Morning guys question on expenses. The expense ratio is good in the quarter. How much do you think this is a temporary improvement from things you called at? Like we possess an expense that will ultimately revert back and what kind of opportunities are you finding to improve the expense ratio of more structural.

A little bit temporary from a repossession but it is going to take us a while to get back to the level of repossessions that we had pre cover just given the level of of losses never experiencing. So it is somewhat temperate signal our expense ratio was pretty flat at 1.7% But down obviously pretty significant wage here. I do expect that to Trend back up into the 2% range over the time.

Okay. Thank you.

And what's that? I'd like to turn things back to you for any closing remarks.

Thanks very much. Thanks everyone for joining the call today and your interest on top of their consumer investor relations team would be available for follow-up questions, and we look forward to speaking you speaking with you again next quarter wage, and that will conclude today's conference again. Thank you all for joining us.