Capital One releases $39M in auto ACL as delinquencies, NCOs rise

Capital One Auto Finance has posted quarterly earnings metrics in line with the growing trend of decreased origination volume, and increased delinquencies and net charge-offs. The auto financier, which posted sequential increases in origination volume in the first three quarters of 2020 , saw a 2% year-over-year decrease and 18% sequential decrease in the fourth quarter to $7.4 billion. The decline in origination volume was largely attributed to increased competition in the third quarter that continued into the fourth, Chief Executive Richard Fairbank said in the lender’s earnings call last week. Credit availability among dealers ticked up in December, suggesting that auto lenders are becoming more comfortable with widening their credit box. Still, Capital One finished out the year with an outstanding portfolio of $65.8 billion, a 6% YoY increase, and 1% sequential increase from last quarter. Several factors contributed to this growth, according to Fairbank. “When the COVID downturn began, we tightened our underwriting box in auto to focus on the most resilient asset,” he said. “The auto market rebound has been stronger for larger franchise dealers, the part of the market where we're focused. “Our digital products and services drove growth in direct-to-consumer originations and growth with dealers who want to provide a low-touch car buying experience in response to social distancing,” Fairbank continued. “And our dealer relationship strategy put us in a strong position to grow high-quality auto loans.” Meanwhile, early-stage delinquencies and net charge-offs increased from last quarter, but still remained under 4Q19’s figure, in line with industry expectations, and “unusually strong,” according to Fairbank. Thirty-day delinquencies clocked in at 4.48%, up 102 basis points from last quarter but 210 bps under the same reporting period last year. Net charge-offs came in at 4.48%, up 24 bps from last quarter but 143 bps under 4Q19. Auto credit benefited from strong auction values , and auto forbearance “is having a temporary positive impact, particularly on delinquency rates,” Fairbank said. As of Dec. 31, 2020, Cap One had a total of 17.8% of accounts in auto enter into forbearance programs at one time, with 15.9% no longer enrolled, and 1.9% still enrolled or eligible to skip their next payment. Fairbank expects auto credit metrics to increase from their “unusually low levels as auction prices normalize and the temporary impacts of COVID forbearance plays out.” The bank remains well-capitalized, spurring a $32 million release in allowance for credit losses for its auto portfolio, bringing total ACL for auto to $2.6 billion, or 3.94% of balances, according to the earnings release. Capital One released $79 million in auto allowance last quarter on the heels of strong performance. Shares of Capital One [NYSE: COF] were trading up 3.06% at market close today to $106.04. The bank has a market capitalization of $48.5 billion. Auto Finance Innovation Summit, the premier event for technology in auto finance, returns March 16-17, 2021, as a virtual experience. The virtual experience will offer the quality networking and education of past events, all through an online platform. To learn more about the 2021 event and register, visit www.AutoFinanceInnovation.com .

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Weekly Wrap: Q4 earnings and credit access trends

Truist grows auto book, prioritizes digital adoptions

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