Santander Consumer USA Holdings Inc.
Q1 2021 Earnings Call Transcript

Published: 28 Apr 2021

[Operator:]

Good morning and welcome to the Santander Consumer USA Holdings First Quarter 2021 Earnings Call. At this time all party parties have been placed in a listen-only mode. Following today's presentation, the floor will be open for your questions. . It is now my pleasure to introduce your host Evan Black, Head of Investor Relations. Evan, the floor is yours.

[Evan Black:]

Thank you, Lisa. Good morning, everyone. And thanks for joining our call today. We have on the call our CEO, Mahesh Aditya; and our CFO, Fahmi Karam. Certain statements made on today's call will be forward looking. Please refer to our public SEC filings and risk factors with respect to these statements.

[Mahesh Aditya:]

Thank you, Evan. And good morning, everyone. Thanks for joining us to review our first quarter 2021 results. Before describing our results for the quarter, it's important to highlight a number of corporate milestones we achieved in 2021. First, this quarter, we reached a significant milestone by closing the last of our written agreements with the Federal Reserve. The 2017 written agreement required us to strengthen our risk management framework and the recent termination shows the significant strides made to strengthen our business across the board. Our employees have worked tirelessly to build a culture with a compliance mindset with the highest operating standards. These enhancements are fully embedded in Santander Consumer’s operations. Next, we executed the sale of our personal loan portfolio, allowing us to focus on our core competencies and opportunities in auto finance. In March we paid our Q1 2021 ordinary dividend as well as a special dividend for a total dividend of $0.44 per share. Also, during the quarter we deconsolidated $2.5 billion in prime auto loans optimizing the balance sheet by growing the service for other portfolio. Finally, I'm pleased to welcome Bruce Jackson, our newly appointed head of Chrysler Capital & Auto Relationships. Bruce joins Santander from JP Morgan Chase with Auto business. In his new role, Bruce will manage origination sales and funding for all channels while also building a best-in-class dealer experience. We believe there's tremendous potential to transform and grow our auto origination and Bruce will make a strong impact on others. Having another tried and tested seasoned executive on our team will position SC to accelerate our growth plan, enhancing dealer experience and digital advancement in the years ahead. During the quarter, we earned $742 million in net income, record earnings quarter for the company. We continue to grow originations following the momentum built in the second half of 2020. Originations were up across all channels for a total of $8.6 billion in volume, an increase of 24% versus the prior year. The growth in originations this quarter is driven in part by strong industry sales across New and Used vehicles, as well as an increase in demand from consumers following another round of fiscal stimulus.

[Fahmi Karam:]

Thanks, Mahesh. And good morning everyone. Turning to slide four for some key economic indicators that influence our performance. As Mahesh mentioned, most economic indicators have improved on the back of the vaccine rollout, federal aid and measured reopening’s across many states. Unemployment has improved, but the pace of improvement has slowed since the fall of 2020, and several million Americans continue to file for unemployment benefits well above pre COVID levels. Although the economic recovery has begun, we remain cautiously optimistic in our approach. The impacts of the pandemic and the health of the consumer after stimulus benefits expire remain uncertain. Ultimately, our performance will depend on the speed of the recovery and whether the stimulus benefits last long enough to allow sustained employment to return across the economy. On Slide 5, there are a few key auto factors that influence our origination volume and credit performance. New and Used vehicle sales continue to improve as consumer demand remains high. New vehicle SAAR at the end of March reach $17.7 million, the highest level seen for several years. Despite the new vehicle supply shortage, OEMs and dealers have adjusted their sales cycles to meet the demand.

[Mahesh Aditya:]

Thanks, Fahmi. In summary, as Fahmi said, our first quarter performance has exceeded our expectations of the many positive friends he highlighted I would point to our robust sales growth, improving quality of through the door bookings and the rapid curate of our four bond accounts. It is particularly important than positive over the long term in a future of how stimulus work. The high payment rates, low delinquencies and charge-offs and to a lesser degree, the higher recovery rates are trends that are likely to dissipate once benefits run out in September. In a post stimulus world, we will expect to see government assistance replaced by salaries, new car production and inventories revert back to normal levels, and used car demand and prices normalize. In the meanwhile, we will endeavor to serve our employees, dealers, customers, and Stellantis in the best way possible through this uncertain period as we emerge from the pandemic and its terrible toll on our country and the lives and livelihoods of fellow Americans. I'm very proud of the way our colleagues have stepped up to support our customers, our communities and each other over the past year. This has been a very trying year and has dramatically changed the way in which we work in them and made us take a step back to evaluate how we engage with each other. We made great strides in putting in place a foundation to make our organization more inclusive, but we have a long way to go to ensure sustainable change. I'm proud of the way we've embraced these initiatives, and to know that we will be a better place for With that, I'll open up the call for questions. Operator?

[Operator:]

Thank you. All right, we will now open up the call for questions, please limit yourself to one question and one follow up question. We'll take our first question from Moshe Orenbuch with Credit Suisse.

[Moshe Orenbuch:]

Great thanks. I am struck, three months ago you did lower your kind of expected required capital down to 11.5% and relative to that number given the improved capital efficiency steps you've taken this quarter. You've got a full $2.5 billion on the books right now. I know that you can buy back stock right now because there's the program in place. But I was hoping you could give us a little more definition since that number kind of exceeds against the float that's sitting out there. So talk about, once that's allowed the year like, how does that – how will that process work?

[Fahmi Karam:]

Thanks, Moshe. Good morning. So, yeah, capital we're obviously in a really good spot, ending the quarter at 16.5%. As you mentioned, it's 5 percentage points higher than what we announced last quarter, our target of 11.5%. We're obviously very pleased with the news last night that the regulators gave us approval to pay the dividend this quarter. And we'll get with our board over the next couple of days to figure out next steps. As far as looking forward, we're still under this interim policy through SCUSA and their capital plan was submitted in early April. We'll get feedback on that by the end of June, just like everyone else, we're hoping that the regulator's move back to the stress capital buffer framework in the third quarter. And if that's the case, we'll have a lot more flexibility on our capital distributions. But until then, we're going to wait and see what the regulator's give us and then we'll reassess with the board with everything that we have in front of us. But as I mentioned in our prepared remarks, I think it's going to be a combination of one, dividends; two, reinvesting in the business, potentially doing tack on M&A if the right opportunity arises. But then a big part of it will also be returning capital to shareholders.

[Moshe Orenbuch:]

Great, thanks. And maybe just kind of at a very high level, you mentioned a bunch of these issues about the fact that, at the moment, consumers are actually putting in more cash. So theoretically, things are less risky, but the potential for the environment to get more competitive, just expand a little bit as to what steps you either are taking or will be taking in the coming quarters?

[Fahmi Karam:]

Yeah, I think we're going to be very thoughtful and disciplined in our underwriting approach. We typically underwrite through us through a cycle. So, we’re not baking in these high recovery rates and this record used car prices into our underwriting practices. So, we definitely take a longer-term view when we underwrite these loans. As far as competition goes, it's been pretty intense. It was intense pre COVID. We had a window there at the onset of the pandemic where, there was a couple lenders one being one of them that tightened up but didn't pull all the way back. And we've benefited from that by increasing our market share. And obviously, we've kept that market share going into the end of 2020 and into the first part of 2021. And so, we're very pleased with the level of originations, the credit quality of those originations and the margin profile. Obviously, as our cost of debt has come down, our yield has also come down. And we've also had to react to some of those competitive pressures. But overall, feel good about the margin profile of the originations.

[Mahesh Aditya:]

Yeah, just to add to that Moshe. This is Mahesh. The whole idea that we have, basically two sort of countervailing issues going on. One is obviously, this whole government stimulus which is having a significant impact on people's cash flows to the positive. And that, as Fahmi said, that is suppressing our loss rates and making everything look much, much lower and much better performing than it perhaps would be once the economy is sort of set on its own. And the other is, one of the fundamentals in our portfolio and in our underwriting practices, and one of the ideas being below the surface in our book, that's giving us some cause for optimism that coming out of the crisis, and coming out of the stimulus regime, that the economy is going to be self-supporting. And it's not going to blow off in terms of bad losses or whatever. So, we're pretty confident that right now, it's just given the underwriting quality and as Fahmi says, we’re not pricing to the lower loss rates, and all of the other aspects of the P&L that things will be pretty stable once the stimulus comes on.

[Operator:]

We'll take our next question from Betsy Graseck with Morgan Stanley.

[Betsy Graseck:]

Hi, good morning.

[Mahesh Aditya:]

Morning. Hi.

[Betsy Graseck:]

Hi. I know you mentioned the comment around capital and you'll see what happens, et cetera post the CCAR submission and all. But I'm just kind of wondering, when you think about the amount of capital that you're generating today, how do you think about on a longer-term basis? What the distribution strategy is going to be like? Because, there is optionality here and buybacks obviously, it's limited. Is there any discussion about maybe we should buy the whole thing in? Maybe can you give us some color on that? And then if you could give us a sense as to what kind of acquisitions could really utilize this level of excess capital you have would be helpful. Thanks.

[Fahmi Karam:]

Sure. Thanks Betsy. I’ll remind, the capital levels were definitely supported by our asset sales this quarter. That decreased our RWA in dollars in the quarter. So that increased our CET1 at the 16.5%. But as far as our priorities go and how we think about it, priority one is to always maintain that the ordinary dividend at $0.20 per share. And then as I mentioned, we're going to reinvest some of the technology efforts that Mahesh mentioned in the prepared remarks, to position ourselves for the future and really make it easier for our dealers and our customers to interact with us. That's going to be another top priority for us. As far as the M&A goes, valuation levels right now in the market are pretty elevated. We haven't done through M&A for a very long time. We've done portfolio acquisitions from time to time, and I think we will take a look at those things. If there's a technology out there that advances some of the things we just talked about, I think that would be interesting to us, and then returning capital to shareholders is going to be a large component of us getting down to 11.5%. Getting down to 11.5% I would say is a medium-term goal. It's not something we're going to do overnight. But it's something that over the next couple of quarters, we'll be discussing as a management team and with our board on the best use of that capital for all of our shareholders.

[Betsy Graseck:]

And medium term those are felt like that, or is it like a one-year timeframe?

[Fahmi Karam:]

Yeah, but I'm not going to go into the specifics on time. I think part of it also is that we have to see how the economic theory plays out over the next several, several months, right. I obviously feel really good about where we are from a reserve standpoint and feel good about where we are from a capital standpoint. But until we see how this really plays out over the next few quarters, we're not going to rush into releasing either capital or reserves.

[Betsy Graseck:]

And on the digitization front, when you're talking about improving your digitization efforts, is that -- Or could you just help us understand that so it's an eye to the dealer community that you're working with primarily or is it with an eye towards going direct-to-consumer? Or enhancing that share?

[Fahmi Karam:]

Yeah, thanks for the question. So, this is actually both Betsy, you've got increasing number of dealers at the high end, particularly who are going digital and making the sales appreciating the sales experience is becoming more remote. And lenders need to step up and be able to have some sort of plug in into the dealer’s digital experience without making it too clunky. So, I think we need to invest – we are in the process of investing in that, and making that interface between us and the dealer as seamless and as smooth as possible. And the direct-to-consumer front, we obviously, there are obviously structural resistances to being able to fully consummate and fulfill a loan directly with a consumer. So, we need to bring in the dealers into that as well. But there is a strong belief in our company that we should have a faster, smoother, better way of attracting customers who want to get – who have a relationship with us, who want to get an auto loan with us. And for us to be able to fulfill that need, and yet maintain our dealer loyalty and be able to have the deal completely documented as a dealer of choice. So, it’s a bit of both, but it's essentially moving with the way the rest of the market is moving, which is towards a more remote, more digital experience.

[Betsy Graseck:]

Thank you.

[Operator:]

Our next question comes from Rick Shane with JP Morgan.

[Rick Shane:]

Hey, guys, thanks for taking my question. Look, I'm not big on congratulations, but I think I've probably asked about the personal lending business 10 times over the past five years. So, congratulations on getting that done. I do want to talk a little bit, you guys have spoken about the impact of higher used car price on credit. But I'm curious if you're adjusting LTVs to reflect that inflation as well?

[Fahmi Karam:]

Adjusting LTVs, no, I don't think we're adjusting our underwriting to again see where we are from a used car price this year compared to years prior. As I mentioned, we kind of stick to the underwriting practices we've had, obviously LTV that's coming better as people are putting in on the deals when we talk about that we feel like the credit quality of our new origination have improved. That's going to be part of it.

[Mahesh Aditya:]

Yeah. And whatever adjustment in LTV happens, happens by consumer segment, based on the behavior of that particular segment is not related to the fact that we believe that the value of the vehicle is necessarily inflated. I think that's what they're getting at like, right Rick.

[Rick Shane:]

That's exactly it. And it's a fair point, it looks to me, like oftentimes we hear about companies taking barbell strategies. It feels and looking at the distribution of your FICO scores, that you're actually doing the opposite that you're really going to your core business that 540 to 639 segments of the market. Is that where you is the best competitive opportunity, or do you think you have the best underwriting there?

[Mahesh Aditya:]

Well, it's a combination of both, right. We feel more secure in the less than 640 segments, which is where I think we have over the years sort of taken the training wheels off and we really understand the subprime lending business. I think it's also where competition sort of thins out. But our experience has been that if we can keep the loss given default under control, which is all dependent on loan value and how we assess the borrower, we feel more confident right now that, that that's the space to be in because for all of the reasons you mentioned.

[Rick Shane:]

Perfect, thanks guys. Thanks very much.

[Fahmi Karam:]

And I was just going to say, Rick to add on to that, obviously, that's less than 640 is the space that we've had the most history, Rick. That also shows the strength of the partnership with Santander Bank and their ability to take on the prime and near prime assets. And then also for us to sell the prime assets that we do retain. And so, what you're seeing in the portfolio is that kind of right in our sweet spot from a FICO standpoint.

[Rick Shane:]

Got it. Okay, thank you guys.

[Operator:]

Our next question comes from David Scharf with JMP securities.

[David Scharf:]

Hi. Good morning, thanks for taking my questions. A couple things, one, just mechanical to start out on the personal loan sale. I just wanted to clarify the flow arrangement. Are you going to be retaining any loans in the future or you just basically providing sort of a warehouse line to the buyer of that portfolio going forward?

[Fahmi Karam:]

We will not – if everything works as planned, we will not be retaining any loans, we will basically act like a pass-through entity. We buy the assets from Bluestem and then sell them to Castlelake on a on a daily basis.

[David Scharf:]

Okay, got it, thank you. And just, is a follow up. I want to just follow up on the previous question on the competitive kind of environment right now and you acknowledge it remains intense by your description. Are you seeing in sort of that core 640 and under segment, are you seeing the bulk of the competition still from non-bank competitors I'm curious if you're seeing any large banks reengage in some of the FICO banks where you’re prevalent? And as we think about really kind of the next six to 12 months, trying to get a sense for who may still be, if not on the sidelines, still pretty restrained and may actually reenter later in the year?

[Fahmi Karam:]

I would say most people, David have reentered the market. Anytime you have really strong capital markets and robust access to liquidity, you're going to have heightened competition. So, I think, obviously, everyone has their different spots. So, bank tend not to dip down below 600. But I would say everyone is back in play, and they go with the capital markets with will be behind the competition.

[Mahesh Aditya:]

Yeah, specifically in the non-prime space, it's mostly, as we said the non-bank people, but there are a couple of banks that are there who, I don't need to name them, I'm sure, you know.

[David Scharf:]

Sure.

[Mahesh Aditya:]

And they go in and out. And as Fahmi said, it all depends on, when they have a strong liquidity position as many of them do right now, some of them that they've gotten, and some of them are more comfortable with subprime than others. And we sort of see them come in and out of that thing.

[David Scharf:]

Okay, so when aggregated it sounds like we shouldn't be thinking of this as an environment where there's still a couple sizable players that haven't really reengaged and could in the future on every bank press. Got it. Thank you very much. Operator We'll take our next question from Steven Kwok with KBW.

[Steven Kwok:]

Great quarter. Thanks for taking my questions. The first one I had was just a clarification around the capital side. I know you guys are also looking at phasing in the CECL transition as well. And so, if we look at it, is the right way to think about it today that you have roughly about a billion dollars of excess capital when you cancel for the CECL payment?

[Fahmi Karam:]

So Steven, yeah, so we have called it 500 basis points of room from our target of 11.5%. CECL, if you take the full load of the CECL impact, it's going to be close to 375 basis points. So, you'll have that remaining left. But of course, that's going to be phased in over four years. And we'll agree capital over those four years as well.

[Steven Kwok:]

Got it. And then Fahmi the cost of funds. I noticed that continued to sit down nicely. Is there more room for that to go? Are there any impending maturities that can help on the cost of funds side?

[Fahmi Karam:]

Yeah, cost of funds is definitely a tailwind for us. 80 basis points better over the year and 20 basis point better from the fourth quarter. I do think there's probably a little bit more room to improve that as the deals as the year progresses. And we've seen that with the strong executions we've had on our ABS securitizations. So, I do think that will continue to be a positive for us throughout the year.

[Steven Kwok:]

Got it. Thanks for taking my questions.

[Operator:]

We'll take our next question from Mark DeVries of Barclays.

[Mark DeVries:]

Yeah, thanks. Just a question about the reserve levels. It sounds like, you’re kind of net more concerned about the potential impacts of saving stimulus benefits than kind of the ongoing benefits on recovery rates and improving macro. And I think Fahmi, you alluded to part of that, I think is trends that you experienced the last time stimulus transpire. Can you talk a little bit more about that? And kind of how you're thinking about all these different forces both the positive and the negative impacting your loss expectations?

[Fahmi Karam:]

Sure. I mean, there are definitely positive signs in the portfolio. We talked about a lot of them this morning, but also there's things that give us a little pause. And there's a lot of uncertainty out there. I mentioned 8 million to 10 million jobs, fewer than we had a year ago, several million people who are under employed are not looking for jobs. But as you said, the reliance on stimulus is real. And we saw that last year, we saw about a 16% drop in the payment rates between August and November last year when the first round of stimulus dropped. And then we saw about a 40% increase in payment rates from the end of the year to March once people started to get their third checks. So very sensitive and reliant on the benefits of the stimulus and having cash. So, that gives us pause on what happens after the stimulus expires. But hopefully, the recovery continues, and it picks up and is enough to kind of bridge the gap. But the question I think we're all trying to answer is where is unemployment at the end of the year. And for now, we just don't think it's very prudent to release reserves in a meaningful way anyway, until we see that play out.

[Mahesh Aditya:]

Yeah. And just to sort of peel that back a little bit further, we'll see sort of early signs very specific to our portfolio. So, as Fahmi said, there's two things going on over here. One is, what happened when the last when the July stimulus came off, and then it was reinstated the $906 billion that was announced in December. So, in that period, in the November December period, we saw an uptick in delinquencies and post payment defaults, et cetera. Then the second stimulus came back. And then as Fahmi said, after that payment rates went up delinquencies sort of started trending down, et cetera. So that's one data point we have that when the stimulus is lifted, unless there's full employment or close to full employment, you're likely to see some uptick in delinquencies, right? Which will be offset, obviously, by the realization quality of the 2020 book. And the other countervailing factor is that we've now got vintages that are aging and more customers are paying and therefore they've got more skin in the game as far as collateral is concerned. So that could also be sort of improving the portfolio quality so to speak. The second thing is, stimulus is not employment. Employment has to come back. And what we look at is employment by industry category and employment by zip code, employment in areas where we are concentrated. And the encouraging sign for us in the last employment data release was that it seems to be coming back in the services sector, which is where we have some exposure. So, it’s services, hospitality, retail, et cetera start coming back quicker than some of the other areas, then it's likely that we get some lift in that. So those are all, we got a bunch of indicators that we look at the so-called canary in the coal mine, looking for some early signs of what the portfolio's likely to – how it will shift once the stimulus runs off.

[Mark DeVries:]

Okay, got it. That's very helpful color. And then this may be a very short response. But is there any impact whether short term or long term to the crisis agreement from the merger of the FCA accretive to Stellantis?

[Fahmi Karam:]

For the short term no, it's business as usual. We have a really good relationship obviously here in North America. Santander there globally has a really good relationship with Cujo. So, we're focusing on what we can do to maximize our relationship day-to-day.

[Mark DeVries:]

Okay, got it. Thank you.

[Operator:]

Our next question comes from Kevin Barker with Piper Sandler.

[Kevin Barker:]

Thank you. Good morning. Could you just clarify what we expect in June, something similar to the CCAR where you just get a press release on your capital plans? Is that how we should expect that to play out?

[Fahmi Karam:]

I'm not going to commit to a press release in June. We're a little bit in uncharted waters here for this quarter. We'll see what the Fed comes back with and we'll go from there. But obviously, if there is something material, then we will announce it.

[Kevin Barker:]

Okay. And then going back to some of the disclosure you had on the personal loan portfolio and breaking it out, back in the appendix. You have significant investment gains in the first quarter, but it was relatively flat in previous years. And that had a lot of noise, just given the Bluestem relationship. Can you help us understand like what the runway is going to look like from an investment gains and losses standpoint? And then also, would you look to be more proactive in selling portfolios, just given the market environment today it seemed like you were much more attractive than the first quarter. And it seems like – that seems attractive given the current market environment.

[Fahmi Karam:]

Yeah, we've seen a lot of investor demand for consumer assets. And we're able to take advantage into 2020 and we said on the call. We had a real run out in our prime volume, as we stepped up for our dealers and for Stellantis through the pandemic. And we took advantage of in the first quarter of interest in the consumer assets, and we’re able to sell those assets off into the market and generate a servicing fee. So, we're always going to look to do that it's been consistently our strategy over the years with prime loans, and we'll continue to do that. As far as the investment gains and losses go for going forward, that's really going to be around asset sales only. Historically, we've had, as we said, a little noise there with the personal lending portfolio. So that will stop going forward. And it will just be related to any activity we have on the asset sale side.

[Kevin Barker:]

So, if you continued with the asset sales and it probably caused capital to build up, are you comfortable with the capital build up from that? Or would you just be more proactive and utilizing that capital? How do you give and take that think about?

[Fahmi Karam:]

Yeah, we're comfortable with it. If the economics make sense for us to sell the assets. I mean typically, we're going to retain most of the nonprime slash bottom in the near prime, because we think we can service and generate a nice margin. To the extent we do originate higher into prime, super prime paper, and we can sell it off at a reasonable price and earn a servicing fee. We're always going to look to do that.

[Kevin Barker:]

Okay. Thank you for taking my question.

[Operator:]

Our next question comes from Vincent Caintic with Stephens. Please go ahead.

[Vincent Caintic:]

Thanks. Good morning. Thanks for taking my question, just one. So, I wanted to talk about the vehicles supply issues. And as we've been talking about this, there's going to be a struggle for a while in terms of vehicle supply. But I'm just wondering how you think that's going to affect your business going forward? I was impressed with this quarter’s originations and your Chrysler originations were up 40% year-over-year, that's really impressive. So, I'm just wondering, do you have expectations for that to affect your business in 2021? And also, how does it affect maybe any discussions you have with Stellantis in terms of the programs you launched, like any suspension or anything like that? Thank you.

[Mahesh Aditya:]

Thanks. Thanks for the question. So yeah, we are fully committed to supporting Stellantis’s production and whatever happens in this whole semiconductor. Right now, it's just speculation, what's up then, when property supplies are restored. But we are, as Fahmi said, we utilize we figure out a really vivid outside as far as utilizing the full agreement we have with FEMA, and we are able to service, be a full service, full spectrum lender for Stellantis. So that really helps a lot, because we prime, sub-prime and relief, and I think, as the market begins to sort of settle, and production comes back, it's nobody's interest right now to see production start panning out and inventory levels being where they are. So, I'm sure, they're doing all they can to bring back the semiconductor supply and all the other issues. But we'd be there fully to support them. But our prime, I mean, our other very profitable business is the used car business that we will do due to our core subprime part of the business. And that continue that first theme, and we expect to see continuing growth, growth, they're supported by a higher demand for used car prices, higher demand for used cars. And as Fahmi said, that's also very, very profitable part of agreement.

[Vincent Caintic:]

Okay, that makes sense. There isn't like, even with the vehicle supply issues, it doesn't seem like there's maybe a follow up in origination volumes, or anything like that?

[Mahesh Aditya:]

Potentially you could see later in the year, a shift more into the new side from an origination standpoint, but we hadn't seen that. We haven't seen that yet.

[Vincent Caintic:]

Great. That’s all I had. Thanks very much.

[Operator:]

Our last question comes from Rob Wildhack with Autonomous Research.

[Rob Wildhack:]

Morning, guys. You highlighted the expense ratio lower and repossession expenses contributing their longer term as repossession expenses normalize, would you expect the expense ratio to reverse or do you have some levers that you can use to offset that?

[Fahmi Karam:]

I think we'll stay in that 1.8-1.9 range Rob; I mean, we've been pretty consistently under 2%. But I think we're pretty tight in that range.

[Mahesh Aditya:]

Yeah, Rob I'm – sorry, repossession expenses coming back, collection costing down because lower linked originations possibly, expenses possibly also staying flat. So, the dates are there, but we've updated the 1.8 1.9 probably, expect to stay there.

[Rob Wildhack:]

Right. That makes sense. And the broader question on credit and how you're thinking about modeling going forward. Obviously, losses in 2020 and year-to-date have not followed what macro trends and historical correlations might have suggested. I'm wondering how you treat that going forward. Are you going to bake that in and train models at least partially using 2020 data? Or do you just kind of delete that from the record?

[Fahmi Karam:]

That's a secret sauce kind of question. So, we need out of the situation right now, before we decide whether to factor out these two years or this 1.5 year of artificial performance that we've seen. We know that our models go back several years, particularly the CECL model. And we're going just happen, just going to have to wait and watch and see whether there's any way in which we can make sense of this data, or if we need to factor it out completely.

[Rob Wildhack:]

Okay, got it. Thank you.

[Operator:]

All right. And there are no further questions at this time. I'll now turn the call over to Mahesh Aditya for final comments.

[Mahesh Aditya:]

Thank you. And thanks everyone for joining the call today and for your interest in SC, our Investor Relations team will be available follow up questions. We look forward to speaking with you again next quarter. Thank you.

[Operator:]

Thank you. That does conclude today's presentation. Thank you for your participation. You may now disconnect.