Quarterly profits at Santander Consumer USA Holdings fell sharply as the Dallas company has been steadily scaling back on lending to customers with significantly blemished credit histories.

The $39 billion-asset company, a subsidiary of the Spanish banking giant Banco Santander, reported earnings of $143.4 million in the first quarter, or 31% less than a year earlier. Earnings per share were 40 cents, 4 cents better than the average estimate of analysts compiled by FactSet Research Systems.

Credit-strategy check
“We’re being more conservative on payment-to-income [and] loan-to-values," Santander Consumer USA Holdings CEO Jason Kulas said in discussing competition in the auto market Wednesday.

The subprime auto lender in recent months has modified its approach to the market, slashing originations and moving up the credit spectrum slightly. Total originations plunged 21% to $5.4 billion, the company said in a news release Wednesday. Loans with FICO scores below 540 fell to 22.3%, from 23.2%.

“We’re being more conservative on payment-to-income, loan-to-values, [and] our contractual terms are relatively flat,” said CEO Jason Kulas, discussing competition in the auto market during a conference call with analysts.

Competition in the auto market remains fierce, and Santander remains focused on maintaining solid risk-adjusted yields, Kulas said.

Net interest income declined 8% to $1.1 billion. The net interest margin dipped 15 basis points to 11.2%. The provision for loan losses fell 4% to $635 million.

Noninterest income declined 28% to $55.5 million on lower servicing fees as well as accounting adjustments on a portfolio of personal loans that is currently held for sale.

Operating expenses rose 5% to $305.1 million mostly from higher compensation costs.

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Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.