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Podcast: ‘Weekly Wrap’ on earnings, subprime ABS

Third-quarter earnings season continued last week with Ally Financial, Bank of America, Citizens, Fifth Third, Huntington Bank, Truist and U.S. Bank all reporting.

Results were mixed as Ally and Bank of America reported year-over-year increases in their auto portfolio of 2.1% and 6.5%, respectively. U.S. Bank tallied the greatest decline in outstandings, falling 54.4% YoY to $10.6 billion. Citizens continued to run off its auto book after exiting indirect auto lending in June, declining 29.5% YoY to $9.3 billion.

Of the banks that reported origination numbers, Bank of America was the only institution to see an increase, rising 15.3% YoY to $6.8 billion.

Credit performance continued to deteriorate during the quarter as each bank that broke out delinquencies recorded a year-over-year increase. Although Bank of America did not break out delinquency numbers, net charge-offs increased 13 basis points (bps) YoY to 0.2%.

Meanwhile, in subprime auto asset-backed securities deals, 60-day delinquencies continued to pick up, rising 13 bps month over month and 53 bps YoY to 5.75% in September, according to Kroll Bond Rating Agency. Across prime securitized auto loans, losses ticked up 4 bps MoM and 9 bps YoY to 0.51%.

In this episode of the “Weekly Wrap,” Deputy Editor Amanda Harris and Senior Associate Editor Riley Wolfbauer discuss the top stories for the week ended Oct. 20, and what to expect in the week ahead. 

Subscribe to “The Roadmap Podcast” on iTunes or Spotify, or download the episode.

Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas and features a fireside chat with Ford Credit. To learn more about the 2023 event and register, visit here.


Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.   

Riley Wolfbauer 0:09 Hello everyone and welcome to the roadmap from auto finance news since 1996, the nation’s leading newsletter on automotive lending and leasing. It is Monday, October 23 and I’m Riley Wolfbauer joined by Amanda Harris. This is our weekly wrap on what happened in auto finance for the week ending October 20 2023. This episode is sponsored by AI software provider informed IQ. In electric vehicle news, Tesla reported its third quarter earnings last week. Tesla finance patted its lease portfolio during the quarter amid ongoing price cuts as it looked to lower consumers monthly payments lease outstandings clocked in at $6.1 billion, an increase of 3.4% quarter over quarter and 27% year over year. Lease penetration rate on delivery vehicles landed at 4% and increased from 3.2% in q3 2022, but a decrease from 4.7% in q2 2023. Tesla deliveries meanwhile jumped 27% year over year to 435,000 vehicles in q3. In auto finance news banks continued to report third quarter earnings last week with Ally Bank of America, citizens Fifth Third Huntington Bank truest and US Bank all reporting outstandings results came in mix throughout the week as ally and Bank of America were the only institutions to tally a year over year increase on their auto portfolios. Ally grew 2.1% to $95 billion, despite a decline in originations and Bank of America grew 6.5% to $54 billion on the heels of originations rising 15.3% year over year to $6.8 billion of the banks who released earnings last week, Bank of America was the only one to report a rise in originations during Chase auto who also saw a jump in loan originations two weeks ago. Across the board, early stage, delinquencies and net charge offs worship worsened for every bank that reported ally tallied the highest 30 Plus day delinquency rate at 3.85%, an increase of 92 basis points year over year. US banks at the low mark at point five 6%, up 15 basis points year over year. In power sports news octane lending hit the asset backed securities market for the third time this year, amid strong investor demand and improving credit spreads. The $380 million deal closed October 5 and was backed by consumer power sports receivables. It saw increased investor investor demand for triple B rated and double B rated tranches, which were multiple times oversubscribed. As issuance volume across wider capital markets surged. Octane chief financial officer Steve Fernald told AFN demand was lowest for the deals triple A rated tranche largely due to the influx of ABS paper coming to market during the week, but it was still fully subscribed. Meanwhile, the latest auto ABS performance data from Kroll bond rating agency came out for September. Amanda you covered it. How are delinquencies trending? Amanda Harris 3:13 Yes, so not surprisingly, delinquencies and net losses have picked up across securitize auto loan pools in September. So you know, most of those losses are coming from originations from, you know, a couple years ago. So we’re starting to see those pick up. We’re also seeing a bigger divergence now between subprime and prime performance. So of course, historically, subprime has always carried, you know, usually higher losses and higher delinquencies than prime loans. We know that from from everything that we look at for the industry, but we are seeing that difference kind of get a little bit larger. So if you look at 60 Day Past delinquencies for nonprime, they went up 13 basis points sequentially and 53 basis points year over year at about 5.75. Over the collection period in August. And then in prime, I didn’t go out quite as much. So they rose four basis points month over month and nine basis points year over year 2.51%. So you can see there that divergence just a little bit higher than we’ve been been seeing something that you know, everyone’s kind of watching and kind of keeping a close eye on, you know, that making its way to issuance levels, we’re kind of seeing this play out in invest investor demand and issuance volume prime very, very high right now and issuance volume, very, very high on investor demand. It’s actually exceeding expectations for the market from the beginning of the year. As far as you know, the prime deals coming to market we’ve seen just an influx, some of this driven by you know, credit unions are coming to market as well banks, and those are typically very prime focus. Credit us a little different because those are usually backed by us vehicles, banks, typically, you know, new and things like that, but so we’re kind of seeing that play out. Loss is also going up recoveries are still doing really well. With these vehicle values still very elevated and vehicle prices elevated. But you know, just kind of keeping a close eye on that and seeing if that’s going to come down, how the strike might impact, you know, recoveries, if it does lead to vehicle prices going back up again, because supply is once again limited on new which is going to eventually trickle into already squeezed use vehicles ply being even more hurt. So it just keeps being you know, those challenges keep kind of throwing to the new vehicle market is going to make its way to us and I still for years, so kind of keeping a close eye on recovery levels to see if, if those are going to, you know, maybe stay elevated due to that or how quickly this strike is resolved. It may not have any impact and minimal. It really just kind of depends on how long this kind of gets dragged out. But overall just you know, performance kind of weakening, you know, we’re seeing that in securitized pools, but we’re also seeing it in the most recent earnings. So this will be something that affects issuances and, you know ABS performance for the next you know few years down the road. Riley Wolfbauer 6:01 Thanks Amanda and we’ll continue to keep an eye on that as more reports come out for the following months. So that about does it for today’s episode. We are now less than a week away from the auto finance summit and power sports finance summit in Las Vegas, you can purchase your all access pass to attend both events October 29 through 31st at the Bellagio in Las Vegas. For 20% off, you can get your all access pass at WWW dot auto finance dot live. Thanks for joining us today on the roadmap and be sure to follow us on acts formerly known as Twitter and LinkedIn. We will see you online at Auto Finance News dotnet and here next time Podcast: ‘Weekly Wrap’ on earnings, subprime ABS

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