Santander Consumer USA Holdings Inc. emphasized higher credit quality over higher auto loan originations in 2016, and the company can overcome that downturn in originations in the new year, President and CEO Jason Kulas said during a conference call to discuss fourth-quarter 2016 earnings.
Kulas believes the company can rebound in the early stages of the new year thanks to its robust capital position and a greater focus on disciplined underwriting standards.
"We are committed to booking loans with attractive risk-adjusted returns that will perform through cycles, and create shareholder value," Kulas said. "Our disciplined approach to the market has led to year-over-year declines in originations that has allowed us to build capital and has positioned us favorably for future opportunities."
In 2016, total auto originations for the company fell 20% to $21.9 billion, including a steep decline during the fourth quarter when originations decreased by 24% from the prior-year quarter.
On the other hand, the company's annual average FICO score for retained originations rose by 14 points to 598. That rise came as 2016 originations for FICO scores below 640 fell by $590 million on an annual basis.
Santander Consumer incurred normalized investment losses of $22.6 million related to a fourth-quarter off-balance-sheet securitization, according to a slide deck released with the quarter's earnings, and lower-of-cost-or-market adjustments of certain auto assets classified as held for sale.
The losses stem primarily from declining investor appetite for Santander Consumer USA's CCART platform in comparison with periods in 2014 and early 2015, when the company sold the residuals at a gain, CFO Izzy Dawood said. Moving forward, Dawood anticipates a reduction in losses in early 2017 due to reduced market volatility and the expected completion of Santander Consumer USA's group flow agreement with Banco Santander SA, the company's parent.
The flow agreement is expected to be finalized at some point during the first quarter, the company said. The deal could allow Santander Consumer USA to be more competitive in the upper tier of the market, Kulas added.