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Financial update provides needed boost to Santander Consumer shares


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Financial update provides needed boost to Santander Consumer shares

Sharesof Santander Consumer USAHoldings Inc. rallied after the market open on Sept. 23 as thecompany provided along-awaited update on progress toward the resolution of an ongoing accountingreview and released select financial results for the second quarter.

Thestock entered the day having plunged by 50.2% from the close on the same datein 2015. It had fallen by 59.2% from Sept. 23, 2015, through March 28, 2016,but rallied by 22.2% from then through the Sept. 22, 2016, close. Shares openedSept. 23 at $10.94 and quickly spiked to as much as $12.58. Even at that level,which the stock had previously attained earlier in September, SantanderConsumer's shares remained well below their Sept. 23, 2015, closing price of$21.78.

Tradingvolume was heavy to the point that it had already exceeded the three-monthdaily average of 1.8 million shares by midday.

Thecompany's announcement included news of its restatement of financial resultsfor the past three fiscal years, which Santander Consumer said should not havea material impact on its net cash from operating, investing or financingactivities. It also offered detailed financial information regarding the secondquarter — nearly two months after the company had originally been expected torelease earnings results.

SantanderConsumer said its underwriting standards "remained disciplined … in acompetitive market" during the second quarter, effectively confirming theobservations days earlier of CarMax Inc., one of Santander Consumer's keydealer customers. The retailer reported that Santander Consumer's appetite for subprimeauto loan originations had remained stable at levels that tightened earlier in2016, leading to its lower-tier customers accounting for a smaller portion ofits overall sales during a three-month period ended Aug. 31.

SantanderConsumer reported total originations of $5.43 billion during the secondquarter, down from $7.38 billion in the year-earlier period. While leaseoriginations climbed to $1.69 billion from $1.42 billion, production of retailinstallment contracts retained by the company tumbled on a year-over-year basisto $3.18 billion from $4.77 billion. Originations of retail installmentcontracts sold by Santander Consumer fell to $547 million from $927.6 million.

Thecompany posted a 7.8% decline in the retained origination of retail installmentcontracts during the first quarter — a year-over-year rate of decline easilyeclipsed by the 33.4% retreat in the second quarter. More granular detailsregarding the specific contribution of business originated as part of SantanderConsumer's private-label Chrysler Capital brand that had been included in thecompany's first quarter earnings call slide deck were not incorporated in the company's Sept.23 release, but it reported that an increase in Chrysler capital prime loans andleases partially offset a decline in nonprime originations.

SantanderConsumer disclosed that the average FICO score of its second quarter retailinstallment contract originations totaled 624, up from 586 in the year-earlierperiod. The average annual percentage rate on those contracts declined to 14%from 17.2%. The average FICO and APR for Santander Consumer's retailinstallment contracts originated during the first quarter were 601 and 15.3%,respectively.

Thecompany said that it intends to file its 10-Q for the second quarter "assoon as possible," and it cautioned that it is likely to push back itsthird-quarter earnings release, which had been scheduled for Oct. 26.