Santander Consumer USA Holdings inc (SC) Q2 2021 Earnings Call Transcript

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Santander Consumer USA Holdings inc (SC)
Q2 2021 Earnings Call
Jul 28, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Santander Consumer USA Holdings, Second Quarter 2021 Earnings Conference Call. [Operator Instructions]. Following today's presentation, the floor will be open for your question. [Operator Instructions].

It is now my pleasure to introduce your host, Evan Black, Head of Investor Relations. Evan, the floor is yours.

Evan Black -- Head of Investor Relations

Thank you, Sarah. Good morning everyone and thanks for joining the call today. On the call, we have our CEO Mahesh Aditya and our CFO Fahmi Karam. Certain statements made on today's call may be forward-looking, please refer to our public SEC filings and risk factors with respect to these statements. We'll also reference certain non-GAAP financial measures that we believe are useful to investors and a reconciliation of those measures to GAAP was included in the 8-K issued earlier today. With that, I'll turn the call over to our CEO. Mahesh.

Mahesh Aditya -- President and Chief Executive Officer

Thanks, Evan, and good morning everyone. Thank you for joining us to review our second quarter 2021 results. Before discussing the Quarter, I'll address the offer we received from our majority shareholder Santander Holdings USA. On July 2, we received a non-binding proposal from SHUSA to acquire all of the outstanding common shares of SC it does not currently own. The SC Board has formed a special committee to consider the proposal. As the special committee's review is still ongoing, there will be no further details shared regarding this matter or guidance even on this call. We will likely request that no questions be directed to this topic during the Q&A portion. Thank you.

Now onto the second quarter, which was another record-setting quarter for Santander Consumer representing the most profitable quarter in the company's history with $1.1 billion in net income, the highest level of quarterly originations at $10.5 billion, and we finished the quarter with a net credit recovery of $79 million. Total quarterly originations increased 34% versus last year with strong increases in lease and non-prime loan, more than offsetting a decrease in prime loan originations due to a sharp reduction in incentive levels versus the prior year.

Overall, consumer demand remains strong. However, we remain cautious in our underwriting to ensure resiliency in all new origination, especially given the unique environment resulting from the much talked about supply shortages and increased competition. The US economy continues to recover even uncertainty remains. June unemployment reached its lowest level since the onset of the pandemic and approximately half of the US population has been fully vaccinated. In our portfolio, credit metrics remained strong with delinquencies, well below pre-pandemic levels and unprecedented loss rates highlighted by [Indecipherable] this quarter. Payment rates in both the deferred and nondeferredi populations are stable and the quarter requests are in line to lower [Indecipherable] 2019. Lower levels of deferrals and government stimulus in the first quarter contributed to an increase in early stage delinquencies, quarter over quarter but delinquencies remain well below historical levels.

Record used vehicle prices coupled with low charge-offs led to a net recovery during the second quarter. June was the first month over month decline in the Manheim index in 2021 and this trend continued in the mid-July report but prices are expected to be elevated for some time. As anticipated significant vehicle inventory shortages pressured industry sales as the June SAAR fell to 15.4 million from 17.7 million in March.

New vehicle inventories are at historical low, but the month over month pace of decline moderated in June. The dynamic will likely be a challenge for new vehicle sales and therefore our prime originations for the remainder of the year.

Our reserve coverage decreased versus Q1, primarily due to strong credit performance and an improved macroeconomic outlook. At the end of the second quarter, our coverage rate stands at 17.8%, which remains more than a 100 basis points above our day one CECL. This level of reserve accounts for the risk that credit performance may worsen once the governance -- government stimulus programs expire and used vehicle prices normalize. We believe holding reserves at this level is appropriate given the continued uncertainty around the pandemic, the delta variant, and long-term unemployment trends.

As we have discussed, the last couple of quarters, digital investment is a priority for our company as we look to the future. Yesterday, we announced the debut of an innovated digital auto finance experience that will streamline and enhance our interaction with our dealers and customers. Our solution was developed, modified [Phonetic]. and established digital retail leader to further our vision of simplifying the car buying experience. SC's digital product -- products we could enable dealers to sell service across key vehicle underwriting interaction points at SC enhance their ability to sell -- enhancing their ability to sell vehicles.

The dealer digital experience includes tools to identify cars since the dealers [Indecipherable] consumers budget as well as specifications to complete the streamlining the financing process. This dealer tool is the first of several technology advancements we plan to roll out in the next several months. As consumer purchasing habits shift, we are going to shift. We are committed to changing our process and giving dealers the right tools to simplify the vehicle finance process. We also committed to educating our customers -- our consumers about their finance options and ensuring a full understanding of our products. The next wave of technology enhancements will be focused on consumer financial literacy at the time of purchase throughout the life of the loan or lease and if modifications are requested. The pandemic has highlighted the need to automate, these tools for consumers who have proven to be resilient and prefer to research options online before all without speaking to one of our representatives. With that I'm going to turn the call over to Fahmi for a more detailed review of our results.

Fahmi Karam -- Chief Financial Officer at

Thanks. Mahesh, and good morning everyone.

Turning to slide 4 for some key economic indicators that influence our performance. Economic indicators have improved supported by the vaccine rollout, continued federal aid, and reopenings across the country. Unemployment is down but remains well above pre-COVID levels with several million less jobs today then in March of 2020. Although the economic recovery is well underway, we remain prudent in our approach. The impact of the pandemic, and the health of the consumer after stimulus benefits expire remain uncertain. COVID spike from the Delta variant has slowed reopenings and caused some states to consider reinstituting restrictive measures. In addition, we're also monitoring the recent uptick in inflation and the potential impacts to consumers. Our performance will depend on the economic recovery continuing and the health of the consumer remaining strong until sustain employment returns across the economy.

On slide 5, there are a few key auto factors that influence our origination volume. New and used vehicle sales decreased versus last quarter. Consumer demand remains high but supply shortages and elevated vehicle prices are pressuring sales. The Manheim index increased 12% in June compared to March, and 34% year-over-year. However, as expected, used vehicle prices are beginning to moderate, especially in the last month of the quarter. The mid-July index decreased 2% from the end of June. We expect prices will continue to trend toward normal and decrease in the fall, following seasonal patterns. On average, we expect 2021 used car prices will increase approximately 20% to 25% compared to 2020.

Turning to slide 6 for origination trends. During the second quarter, we originated 10.5 billion of auto loans and leases leading to 34% growth in volume versus last year and 22% higher than the first quarter of this year. Reviewing our originations by channel, core loan originations increased 79% year-over-year. Total Chrysler Capital loan originations decreased 2% made up of Chrysler prime volume, which increased 15% and Chrysler nonprime volume, which increased 41%, Lease originations more than doubled, reaching 2 billion in the quarter. Volume in the quarter was driven by continued strong demand from consumers spurred by tax refunds, and the 3rd round of stimulus checks. Our core loan originations have been strong since the onset of the pandemic, and we expect that trend to continue. Although competition has been intense our share with our core dealers has increased year-over-year. Chrysler nonprime volumes return to more normal levels and experienced year-over-year and quarter-over-quarter growth. The majority of volume from this channel has historically come from new vehicle sales. However, given the lack of new vehicle inventory and fewer incentives from launches, our strategy and mix shifted to more used vehicles. We are very pleased with the level and credit quality of originations in our nonprime channels. We remain disciplined in our approach from a risk perspective, while maintaining strong margins among the heightened competition. Prime loan originations increased 29% over the first quarter of 2021, however, decreased 15% from the second quarter of 2020. As we have discussed prime volume in 2020, especially in the second quarter was supported by significant OEM incentives in the market, exclusive to Chrysler Capital. We expect pressure on our prime volumes for the remainder of the year depending on the supply of chips for new vehicles.

Lease volumes returned to more normal levels, increasing 109% compared to last year. As you may recall, lease volume was mostly impacted by the pandemic in 2020 as lease-heavy regions of the country remained in quarantine for an extended period of time plus significant incentives on the retail side, likely shifted volume to loans. Overall, our strong originations are a reflection of our team's execution and our relationships with our OEM partners and dealers. We believe the credit quality and margin profile of each channel positions us well for future profitability.

Onto slide 7. We break down our 2021 monthly originations by channel and product. Our core loan originations began in 2021 relatively in line with the prior years and follow the typical seasonal patterns with tax refunds. Unlike previous years, we did not experience a drop-off in the first half of the second quarter because of the 3rd round of stimulus checks which cut demand elevated. Coupled with higher demand, our market share also increased due to our competitive market offerings and dealer relationships. Second-quarter dollar volume was up nearly 60% compared to the second quarter of 2019. Dollar volumes were elevated due to the continued strength of used car prices. The average amount financed in our core segment has grown $3,000 to $4,000 per vehicle compared to historical norms. Unit growth for the quarter increased nearly 40% compared to 2019 and 45% compared to 2020. Chrysler Capital nonprime experienced a similar uptick for the first 4 months of the year and ended the quarter in line with 2019 levels.

Unit growth was also strong increasing 33% over 2020 and 6% compared to the second quarter of 2019.

Stellantis incentives continue to influence the level of our Chrysler Capital prime loans. The beginning of the quarter benefited from strong demand and incentives exclusive to Chrysler Capital. However, as new vehicle inventory levels continue to decrease so do OEM incentives in the market. Our volume, especially in June, was impacted by both lower sales and lower market share as incentives were significantly reduced. The prime volume ended the quarter in line with 2019 levels and continues to be supported by our partnership with Santander Bank. Lease volume trends follow a very similar pattern as prime loans, starting the year at elevated levels and trended down throughout the quarter due to lower sales and reduced incentives. We expect both lease and prime loan volumes to remain under pressure as long as inventory levels and Stellantis incentives remain low.

Moving to page 8 and our Stellantis partnership. Year-to-date industry auto sales including Stellantis resales have benefited from robust consumer demand. Our penetration rate decreased versus the first quarter but remain in line with performance experienced in 2019. We remain committed to Stellantis and providing exceptional service to their dealers. As inventory levels normalize, we expect incentives to normalize as well, increasing our market share and our volume.

Turning to slide 9. Our service for others balance increased to $15 billion at quarter end of 35% versus the prior year quarter, driven by 2.6 billion in originations via agreement with Santander Bank and 300 million in off-balance sheet prime loan sales. This platform generated 23 million in servicing fee income this quarter.

Moving to slide 10 for an overview of our liquidity. As a quarter end SC's committed funding including unutilized lines of approximately 55 billion. At the end of the second quarter, we had approximately 94% of unused capacity available on our $11.8 billion of 3rd-party revolving warehouse lines. We also have 3 billion of unused capacity from our parent Santander. Utilization levels have significantly been reduced in 2021 as customer payment rates have been elevated and we have successfully executed several large ABS transactions along with our unsecured borrowing from Santander in 2020. Given our greater utilization of ABS and unsecured debt, which are generally fixed rate liabilities, our balance sheet has become less sensitive to rate movements. We have historically been more sensitive to rising rates than we are today due to larger utilization of floating-rate bank facilities. The ABS market continues to be very supportive of our securitization platforms. During the quarter, we executed approximately 5.3 billion in asset-backed securities across 2 loan transactions and one lease transaction. All -- all 3 transactions were upside at record low cost.

Subsequent to quarter end, we executed our 3rd SDART transaction of the year for a total of 2.5 billion. This was the largest retail auto ABS transaction since 2008 and the largest non-prime auto ABS deal on record. The transaction price of the tightest weighted average credit spread and lowest cost of funds in the SDART platform history.

Our liquidity position and continued investor demand positioned us well to benefit from the macro environment in auto and grow volumes across all of our channels.

Moving to slide 11 to review our financial performance for the quarter versus the prior year quarter. We achieved the highest level of quarterly earnings in Company history. More than 1 billion of net income or $3.45 per share. Our earnings for the first half of 2021 are also the highest level of earnings generated in any single full year at SC. The drivers of the quarter's strong results are a combination of our solid execution and supportive macro condition. Interest on finance receivables and loans decreased 60 basis points due to the sale of the personal lending portfolio. interest on retail instalment contracts increased 7% due to higher average loan balances during the quarter, which were up 6% or $1.8 billion. Net leased vehicle income more than tripled, primarily driven by an increase in the amount of lease dispositions, the gain on sale from disposed units as well as lower depreciation levels. Net yield on leased vehicles increased to 9.6% up from 2.9% last year to 7.3% last quarter.

Interest expense decreased 23% driven by lower benchmark rates and lower average debt balances. Cost of debt decreased 60 basis points versus the last year, and it was stable versus the prior quarter.

Credit loss expense increased more than 1.1 billion due to a net recovery during the quarter as our auto recoveries exceeded gross losses and $186 million CECL reserve release compared to significant reserve build in 2020 as a result of macroeconomic factors and COVID 19.

Profit-sharing expense increased 39 million due to sharing of lease residual gains with the launches.

Total other income improved to 122 million due to the sale of the personal lending portfolio. As a reminder, losses from that portfolio were recorded in other income.

Operating expenses increased 14% primarily due to increased compensation and benefit expenses, and an increase in repossession expense versus the prior year when we presented -- were temporarily halted due to the pandemic.

Continuing to slide 12 to cover delinquency and losses. Our credit performance remains very strong and continues to benefit from the proactive credit tightening actions that we implemented at the start of the pandemic, the extensive customer relief initiatives by our customers. the elevated government some more support, and our robust underwriting capabilities.

Versus the prior year quarter, early stage delinquencies increased to 120 basis points and late stage delinquencies were stable year-over-year. Despite the increase in the quarter, early stage delinquencies were nearly 400 basis points lower than 2019 and late stage delinquencies were 230 basis points lower.

As a result of our customer relief efforts during the pandemic, and strong payment rates experienced in the first half of the year, gross losses are at historic lows. The net [Phonetic] gross charge-off ratio of 6.6% is 450 basis points lower than last year and 950 basis points compared to the second quarter of 2019. Our recovery rate as a percentage of gross losses was approximately 115%. Recovery rate continue to benefit from low gross losses and high used car prices. The net recovery ratio of 1% is 700 basis points lower than last year.

A stimulus benefits forbearance programs and mortgage moratorium and we expect delinquencies to increase in the latter part of 2021 and then begin to normalize throughout 2022 subject to any further government stimulus or deferral programs.

Turning to slide 13 we detailed monthly loss and recovery rates versus 2020 and 2019. Gross charge-offs continue to trend lower as consumer balance sheets remain strong. We expect this trend to continue into the 3rd quarter. Recovery rates as a percentage of gross losses in the quarter remain elevated as the ratio of benefits from low losses and record used car prices. Although prices have begun to plateau, we expect used car prices to remain above historical norms into 2022. In our own portfolio, looking at auction prices on a vehicle basis, we experienced 44% increase in the quarter versus the prior year second quarter, 37% higher than 2019, and a 19% increase from the first quarter of this year. Rates were strong across all vehicle ages and vehicle types.

Moving to slide 14 to review the loss figures in dollars and the walk from prior year. Losses in the quarter decreased 40 million resulting in a net recovery of $79 million. Losses decreased 340 million due to strong recoveries, 219 million due to lower gross charge-offs and offset by 18 million due to higher balances.

Turning to slide 15 in the CECL reserve. At the end of the second quarter, the allowance for credit losses decreased to $186 million from last quarter, driven by an increase of 188 million due to higher asset balances, a decrease of 283 million due to the improvements in credit quality and portfolio mix and a decrease of 91 million due to improved macroeconomic factors. Despite improvement in the macroeconomic outlook, the overall risk and uncertainty in the portfolio still remain. Concerns over recent spikes in COVID cases, 7.5 million fewer jobs than pre-pandemic levels, and used car prices normalizing over the life of the loans are incorporated into our analysis,. The macro scenario we use quarter over quarter did improve. Our baseline macro scenario assumes unemployment will average approximately 4.5% in the 4th quarter of this year and come down to 4% in the 4th quarter of 2022.

Moving to slide 16 to cover CECL by asset designation. The TDR coverage ratio increased to approximately 36% of 570 basis points, driven by higher delinquencies, higher percentage of deferred accounts, and a higher percentage of delinquent deferred accounts TDR balances decreased approximately 300 million this quarter as deferral request remain low, we believe we are adequately reserved for our riskier TDR portfolio the coverage ratio of over 36%. The non-TDR coverage ratio decreased to 15% down 200 basis points versus last quarter and in line with our day one CECL reserve. The coverage rate dropped due to the improved credit profile of originations, lower delinquency, and strong payment performance. Overall. We feel our reserve is appropriate given the nonprime nature of our portfolio, the ongoing benefits of government stimulus, and the remaining uncertainty in the economic recovery.

Turning to slide 17. Our expense ratio this quarter was 1.9% up 20 basis points versus the prior year quarter and 10 basis points lower than the second quarter of 2019. Operating expenses increased $36 million, driven by higher employee benefits insurance claims and repossession expenses as business activities normalize.

Turning to capital on slide 18. Our CET1 ratio for the quarter was 18.1%, up 160 basis points versus the first quarter. Our capital levels were supported by record income in the quarter, offset by an increase in assets of approximately $1 billion. Our Board has declared a dividend equal to $0.22 per share to be paid in the 3rd quarter. At the end of the quarter, the Federal Reserve announced the maturity of the capital preservation rules and reinstituted a stress capital buffer framework beginning in the 3rd quarter. Our parent's SHUSA stress capital buffer, with a minimum of 2.5%. Our capital levels are in excess of our 11.5% target. We've discussed in the past, we remain committed to utilizing this excess capital in accretive manner. We're excited about the opportunity to reinvest in the business as we announced yesterday with our digital experience as well as continue to grow originations by enhancing our dealer experience. We will also be opportunistic as strategic opportunities arise.

To conclude, the second quarter was another record quarter for SC. The portfolio has performed well. Demand for vehicles remains high, and the portfolio has proven to be resilient. Our disciplined underwriting over the years and our robust risk framework that we have established position the company to capitalize on the current auto industry tailwinds. Our balance sheet capital and liquidity remain strong and we will continue to take a prudent approach as we manage through the uncertainty in the market. Before we begin Q&A, I'd like to turn the call back over to Mahesh. Mahesh.

Mahesh Aditya -- President and Chief Executive Officer

Thank you. Fahmi. I want to conclude by thanking, all of our employees who despite the volatile environment caused by the pandemic continue to execute with the level of dedication that's unsurpassed. Our employees' hard work continues to inspire us and give us confidence as we look to the future and position the company for long term success. Our employees are our top asset ensuring that engagement and supporting our communities and stop priority for us. We continue to make progress in our diversity, [Indecipherable] programs and have had tremendous response from all of our employees. It's clear that our team is ready to drive change in how we interact, recruit [Phonetic] manage the business.

Over the past year, we've more than doubled our charitable donations in support of nonprofit organizations in our communities. I'm very proud to announce that we plan an additional $50 million donation to the SC Foundation, which will fund a multiyear program focused on transforming lives of low-income students, young adults, and families across the country. The programs will target closing the digital divide and aiding students and families in education programs to boost digital and financial competencies. Our goal is to reduce the opportunity gap, diminish social and economic disadvantages, and improve life outcomes. In addition to the charitable donation of this year, we will be launching several customer relief initiatives for our existing customers. Although credit performance as outperformed through the pandemic, we believe, consumers will go through tough times and stimulus ends and we are adjusting our servicing policies to accommodate our customers who have been severely impacted by the pandemic. We are committed to offering superior customer service, starting with financial literacy at the time of application and aiding in a soft landing in case of hardships along the way. With that, I'll open the call up for questions, operator.

Questions and Answers:

Operator

Hello. We will now open the call for questions, please limit yourself to one question and one follow-up question. Thank you. Our first question comes from Moshe Orenbuch with Credit Suisse.

Moshe Orenbuch -- Credit Suisse -- Analyst

Great, thanks. Excellent results, I would say -- the discussion of excess capital versus an 18.1%, the number exceeds $3 billion to your 11.5% and just trying to respect their request you made at the front end NASH, but are you able to buyback stock now?

Fahmi Karam -- Chief Financial Officer at

Hey, Moshe, good morning, it's Fahmi. So yes -- so when the Federal Reserve terminated the interim policy in a capital preservation rules that does provide us a lot of flexibility with capital distribution. The Board has declared as the ordinary dividend this quarter. We're going to continue to evaluate all the alternatives around capital distribution including share buybacks, but nothing further to announce on that front outside of the dividend that we've declared.

Moshe Orenbuch -- Credit Suisse -- Analyst

Got it, OK. And kind of my follow-up question would be, given you've had really strong net interest income. You talked about -- on the costs, can you -- can you just talk or can you put that together for us because also coupled with the strong lease gains, obviously while we are seeing used car values kind of moderate, they are still going to likely be better. So could you put those kind of three -- three things together for us in terms of the outlook for net interest income?

Fahmi Karam -- Chief Financial Officer at

Sure. So I'll talk about NIM kind of trends and I'll start with going to in dollars. So we're up year-over-year and quarter-over-quarter because balances are also up. On the loan side, we're out about 6% year-over-year. As you mentioned, we're also benefiting from lease, even though the average balance there is down around 2% but obviously that's more than offset by the gain on sales and the lower depreciation expense. So lease on it going from a dollar standpoint increased about $280 million year over-- year-over-year. On the rate side of it, we're also up this quarter because of the uptick in lease. We recall, If you think about last year lease yields really drop because of the higher depreciation expense and we have had lower units come back to us. This quarter, we saw continued record prices, depreciation expense continues to be low. Net yield lease of around 9.5% which is a which is a record for us. I don't know if that will persist. As we mentioned, we do expect used car prices to come down. But generally speaking lease yields were 8.5% almost, year-to-date. They're going to look really good compared to 2020 and 2019.

On the auto loan side, yields was up 30 basis points compared to last year despite the cost of funds dropping about 60 basis point and really that's a result of our prime assets we've talked about kind of the mix between prime and nonprime. And -- and since we did sell $2.5 billion plus of prime assets in the first half of the year, you'll see an uptick on the auto loan side as well. So overall yield on earning assets and NIM, if you just look at those that we disclosed, you got to keep in mind that last year's results had personal lending business included, which is 25% plus top-line yield asset. So that is offsetting some of the benefits that I just went through. But to be 300 basis points higher over the last year is pretty exceptional performance. So there are a lot of moving parts. I think the auto loans will be stable to slightly down to due to some of that competitive pressure that we mentioned and it will also passing on on some of the cost of debt benefits that we've seen. Lease yield., as I mentioned, I think were same -- remained [Indecipherable].

Moshe Orenbuch -- Credit Suisse -- Analyst

Thanks a lot.

Operator

Our next question comes from Betsy Graseck with Morgan Stanley.

Betsy Graseck -- Morgan Stanley -- Analyst

Hi, good morning.

Fahmi Karam -- Chief Financial Officer at

[Indecipherable] morning.

Betsy Graseck -- Morgan Stanley -- Analyst

Yeah, first question, it's. I want to say [Indecipherable] slightly different. Just wanted to understand how you're thinking about the supply of autos entering into the market. I mean I think that's at the crux of how long this used-car price going to stay high. So what are you hearing from your dealers your partners. We hear different things from my colleague who covers autos. Some guys that figured out the chip problem. Others still have it. But trying to understand what you're hearing and thinking and when you think the supply chain is going to be resolved?

Fahmi Karam -- Chief Financial Officer at

Yeah, thanks for the question. Betsy. So a couple of things. The two data points that we are going with and there are several obviously from the industry. But fundamentally, the new vehicles we sell are Chrysler vehicles. And I think Carlos Tavares the CEO, Chrysler recently said that he expects this problem will continue well into next year. The chip problem that is. We also talked to our dealers and dealers tell us they're running at historically low levels of inventory and new vehicles. So you're putting the two together, We fully anticipate that there'll be a -- there'll be a decrease in and there'll be a low level of auto new vehicle supply going into the next, at least the next 2, 3 quarters until something -- something definitive happens on the chip production side. And my understanding of the chip problem is that it's concentrated among few manufacturers and therefore there is a high dependency on a couple of factories being able to turn out the volume. I also understand that auto consume only about 10% of the total chips that are manufactured. So these are all data points be sort of hold onto. The good news is that Chrysler probably got some new models that they waiting to launch this year, and we are hoping that that we'll see some -- there will be a good reception in the market, and we are looking forward to supporting Chrysler through -- through the sales of some of those new models that they have. The 2022 as well as, as well as the new models as far as the Jeep -- Jeep Grand Cherokee and Grand Wagoneer are concerned.

Moshe Orenbuch -- Credit Suisse -- Analyst

Can you talk a little -- yeah, I know, that's great. And then can you talk a little bit about how you anticipate used car prices to respond as the supply chain is fixed stroke improved. Is this going to be a slow just trying to understand how you're thinking about that?

Fahmi Karam -- Chief Financial Officer at

Yeah, but I definitely think it's going to be a slow burn back to normal. We do not see a necessarily a cliff event where used car prices drop all in one month or one quarter. I think the chip shortage on its own will keep the used car prices elevated. The supply shortages Mahesh just mentioned will also keep things elevated for a period of time. We do think we will see a drop. We saw it in June. We saw at the beginning of July. In the last week, it seemed to have flattened out. So it's relative. I mean compared to historical norms. It's going to be a down over time.

Moshe Orenbuch -- Credit Suisse -- Analyst

Right. Then.

Operator

Our next question comes from Steve Kwok with KBW.

Steven Kwok -- KBW -- Analyst

Hi, thanks for taking my question. I guess just one question around the originations. As we think about it going forward given the new vehicle shortage along with the competition. Can you just talk about your thoughts on originations going forward?

Fahmi Karam -- Chief Financial Officer at

Sure. Good morning. So total originations were up, we think will be up year-over-year compared to 2020 and compared to 2019 and really that's a combination of unit growth, which is driven by pent-up demand, consumers with healthy balance sheets, and general move away from public transportation. And the second part of that is pricing vehicles, I mentioned that ticket size for our average finance amount is up. So I think both will drive higher prime loans and leases as those originations as Mahesh mentioned are heavily weighted on new vehicles. So those obviously didn't -- didn't feel that impact in this quarter with a record low of originations. So I think the demand will be there. I think our position with our dealers will keep up that momentum in originations for the rest of the year.

Steven Kwok -- KBW -- Analyst

Got it, got it. And then if you can elaborate around the competition on your, on your core business. And just what you're seeing there understanding prime there's a lot of competition, but that's not really the market you cater to?

Mahesh Aditya -- President and Chief Executive Officer

I would say we kind of cater full spectrum, both on the prime and non-prime side. You can see that just based on the percentage of our prime and lease originations, but. But the comment on competition. We've said it now for a couple of quarters is, it is intense. But I would characterize it as still rational. We haven't seen anyone getting really too aggressive on policies. Though we have seen some pressure on pricing. Anytime you have really strong capital markets and robust access to liquidity, you're going to see that heightened competition. You couple that with fewer vehicles to finance and you have a really a good combo to spur competition. Again it didn't hurt us this -- this quarter, but the competition is there. And sometimes we have to make tough decisions between maintaining share and maintaining margins. We generally like to maintain our margins in general, especially on the -- on the non-prime side. For the competition does come and go [Indecipherable] month to month, quarter to quarter. We're looking to be very consistent with our programs and consistent with our profitability. So the competition is going to be there. Yeah, the one thing. Good. I'd like to add here that we understand our competitors I think pretty well there. There, some of them as Fahmi said who come in and out of some of staying there, and the important thing here is to maintain both the margin as well as the credit quality. We don't want to get into a sort of race to the bottom, kind of scenario. And we've kind of holding the line as far as great quality is concerned.

Steven Kwok -- KBW -- Analyst

Got it. Thanks for the color and good quarter.

Mahesh Aditya -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from John Rowan with Janney.

John Rowan -- Janney -- Analyst

Good morning, guys. Again kind of respecting your [Indecipherable] talk about the offer, is there any timing around when the board will be discussing stock repurchases [Indecipherable] meeting or some type of market we can look for? Wheh they would be discussed?

Mahesh Aditya -- President and Chief Executive Officer

Good morning, John. No, there is no mediating or timeline said on we're continuously evaluating all kinds of different capital deployment alternatives and share buybacks are one of those.

John Rowan -- Janney -- Analyst

Okay. And then you guys have given net charge off guidance in the past. Now, assuming you don't want to give you net charge-off guidance here, either talk about what you think about net charge-offs will be for 3Q or alternatively, are we still running in a plus 100% recovery environment post the end of 2Q?

And that's it from me. Thank you.

Mahesh Aditya -- President and Chief Executive Officer

Thanks, John. So obviously, the losses that we're experiencing today are certainly well below kind of normal levels. Gross charge-offs for the quarter were 450 basis points better than last year and 950 basis points better than 2019. We do not think the losses will stay this low going -- going forward, especially in the long term and we've already started to see it with our early stage delinquencies ticking up quarter-over-quarter, although they're still well below normal, but they have shown some signs of increasing there over the last couple of months. So I think, near-term, we'll still with the consumer still having really strong balance sheet, we should expect to see continued strong credit, especially for the second half of this year. But long term, we do expect it to normalize. You couple that -- on the growth side -- you couple that with the used car prices in the commentary we had there on used car prices trending down to normal. So I think you'll see both normalization of gross losses as well as our recoveries and ultimately our net losses.

We do think it will be gradual. Again, we don't think it's going to be a cliff events, but you will start to see it delinquencies in the latter part of 2021 and then translate into losses in 2022. So I think just one more thing, John, and thanks for the question is that there is a couple of external events that we are keeping a close watch on. One of the September 6 states and the federal assistance programs come off. The other is how much dry powder do our borrowers have saved up which they're going to used toward paying down their auto loans. We continue to see very high levels of payment rates. Notwithstanding the fact that early stage where you can see them picking up. All of that stuff eventually, as Fahmi said earlier, it's all going to have to normalize at some point and be generally [Indecipherable] seeing all the data for the past few months that it's going to be a gradual normalization rather than any sort of cliff connection and all of this is supported by used car prices, the sort of deficit or the lower levels of inventory of new vehicles. And the value of the car has increased in terms of the fact that people want now to -- they feel safer traveling in a car than taking public transport, a sort of general statement. So I think all of that is working in our favor. And we just have to wait and see what happens after September 6th and how long does that process take to online [Phonetic].

John Rowan -- Janney -- Analyst

Okay. Thank you very much.

Operator

Our last question comes from John Hecht with Jefferies.

John Hecht -- Jefferies -- Analyst

Good morning, guys. I don't know if we'll get another conversation with you guys at a public call, but it's been -- it's been a good experience. So good luck with everything. My question is this pertaining a more details about kind of elevated used car prices. We talked about the supply chain impact in them, and I'm wondering what your guys perspective is on the demand side of the equation. I mean, how much has used car demand [Indecipherable] forward because of stimulus and may be reluctance to use public transportation. How much of, call it profit bidding from big used car channels like Carvaan [Phonetic] and so forth. Do you think is driving the market? And how fast can those patterns change? So we think as a general sort of trend that we're seeing, you're exactly right. There's lot of the -- the -- this sort of call them virtual to providers like Caravan [Phonetic] etc are very active in the auction lanes and they are putting out [Indecipherable]and picking our vehicles. Some of that is driving that -- is driving the inflation in used car prices and I think some of it has to do a genuine demand and people wanting to go out there and get a car for safety purposes. Easier to get around, safer etc. So we take -- I'm not -- I think it's still early, early for us to say that the sort of structural correction that's going on where people are moving away from collective transport into more individual forms of transport. But generally, we are seeing a couple of things.

One is the shift into vehicle purchases as a general thing obviously for used cars as much higher sales and the other thing, the other thing trends and tendency that we are seeing is more and more dealers are going digital, and they are, they are discouraging -- they understand that borrowers wouldn't increasingly want to do their shopping and get every single point of interaction and as much of the fulfillment process on the Internet as possible, which is why we've done what we've done with AutoSlide and sort of thinking a little bit ahead of how the market is likely to evolve over the next three, six months to a year. We have kind of preparing ourselves for that. So used car prices is largely driven by demand and the positive view of new inventory. New inventory will come back, hopefully next year, hopefully later this year but probably sometime into next year [Indecipherable] and I think we might, it is a little early, but I think we might be going into a period of significant maybe ownership and [Indecipherable].

Fahmi Karam -- Chief Financial Officer at

Great. Appreciate that.

Operator

There are no further questions at this time, I will now turn the call over to Mahesh Aditya for final comments.

Mahesh Aditya -- President and Chief Executive Officer

Thanks, everyone for joining the call today and for your interest in SC. We appreciate your participation and support. Have a great day and stay well.

Operator

[Operator Closing Remarks].

Duration: 43 minutes

Call participants:

Evan Black -- Head of Investor Relations

Mahesh Aditya -- President and Chief Executive Officer

Fahmi Karam -- Chief Financial Officer at

Moshe Orenbuch -- Credit Suisse -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Steven Kwok -- KBW -- Analyst

John Rowan -- Janney -- Analyst

John Hecht -- Jefferies -- Analyst

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