Provision for loan losses plummets at Santander Consumer

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Quarterly profits rose at the subprime auto lender Santander Consumer USA Holdings as improvements in credit quality offset a decline in its margin.

The Dallas company — a unit of the Spanish banking giant Banco Santander — reported earnings of $334.6 million during the second quarter, or 26% more than a year earlier. Earnings per share were 93 cents, or 18 cents higher than the mean of analyst estimates compiled by FactSet Research Systems.

Improvements in the asset quality of loans held on the company’s books bolstered the results. The provision for loan losses fell 32% to $352.6 million. Net charge-offs declined 22%.

Total originations, meanwhile, jumped 42% to $8.2 billion on increases in loans made through Chrysler Capital, Santander’s partnership with Fiat Chrysler.

The $41.2 billion-asset Santander is currently in talks with the automaker to sell its stake in the partnership, a move that could threaten its independence as a stand-alone company.

Earlier this year, Santander Consumer also began originating auto loans, mostly from Chrysler dealers, through the banking unit of its Boston-based U.S. parent, Santander USA Holdings.

"The originations program is another step forward as we continue to bring the Santander U.S. businesses closer together, leveraging their individual strengths," CEO Scott Powell in a press release Wednesday announcing the results.

During the quarter, net interest and finance revenue declined 6% to $1.1 billion. The net interest margin, meanwhile, declined 90 basis points to 10.4%.

Noninterest income fell 8% to $22.4 million on lower servicing fees and commissions.

Noninterest expenses were down 2% to $276.9 million because of lower compensation costs.

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