Fifth Third forecasts 16% dip in auto originations in 2023

A decline in auto loan production offset growth in Fifth Third ’s consumer portfolio in the fourth quarter as the bank continues to focus on mortgage finance and pull back on vehicle lending . Indirect secured consumer loan outstandings — primarily made up of auto loans along with recreational vehicle and marine lending — totaled $16.6 billion in Q4, a 0.56% decline sequentially and down 1.4% year over year, according to the bank’s earnings release. Fifth Third’s consumer portfolio grew 1% compared with Q3 and 8% YoY, driven by growth in mortgage and other consumer loans. “From a balance sheet management perspective, we have continually improved the granularity and diversification of our loan portfolios through a focus on high-quality relationships. In consumer, we have focused on lending to homeowners, which are 85% of our consumer portfolio,” Jamie Leonard, executive vice president and chief financial officer, said today on the bank’s Q4 earnings call. “We also have maintained the lowest overall portfolio concentration in nonprime consumer borrowers among our peers.” Fifth Third’s average yield rate on auto loans was 3.31% in Q4, a decline of 3 basis points (bps) sequentially and 4 bps YoY, according to the release. The bank expects indirect consumer originations to be down about 16% over the course of 2023, Leonard said on the call. “We finished the year in 2022 at $7.1 billion of production, if you take auto as well as RV, Marine and specialty business combined,” he said. “Our expectation for 2023 for that asset class is to be down to about $6 billion. Loan balances we would expect to be down, but yields we expect to improve about 100 bps from the fourth-quarter 2022 levels to fourth-quarter 2023 levels.” [caption id="attachment_57333549" align="alignnone" width="2560"] Photographer: Luke Sharrett/Bloomberg [/caption] Modest growth Fifth Third expects full-year average loan growth to land between 3% to 4% YoY in 2023, mainly driven by an increase in commercial lending, Leonard said. “As capital markets conditions improve a bit in the second half of the year, we expect total consumer loans to increase modestly, as unexpected increase from dividend finance and modest growth from home equity and card will be mostly offset by a decline in auto and mortgage reflecting the environment,” he said. “We expect consumer balances to be stable to down 1%, reflecting lower auto and residential mortgage balances, partially offset by dividend loan originations of $1 billion dollars or so in the first quarter.” Planning for a ‘shallow’ recession Fifth Third’s credit performance continued to normalize in Q4. The rate of auto loans 30 to 89 days past due came in at 0.86%, up 21 bps quarter over quarter and 25 bps YoY, according to the earnings presentation. Loans 90-plus days delinquent sat at 0%, down 6 bps sequentially and 5 bps YoY. The net charge-off rate across auto loans stood at 0.32%, up 8 bps sequentially and 18 bps YoY. Allowance for auto loan losses totaled $187 million and accounted for 1.13% of the outstanding portfolio compared with 0.05% in Q3. The bank is preparing for a “shallow recession,” Chief Executive Tim Spence said on the call. “I don't know that there's a big difference between a half a percent of growth and a half a percent of GDP decline,” he said. “Given the amount of de-risking that's been done inside the banking sector, and certainly inside Fifth Third over the course of the past decade, the more interesting dynamic really is going to be this question about the duration of a recession if we see it and what happens if we don't get a typical recovery.” Potential mild recessionary conditions have been at the core of financial institutions’ Q4 earnings, driving moderate upticks in credit loss reserves. Chase Auto , for one, grew its net reserve build by $1.4 billion , while Bank of America added $400 million in credit loss reserve in anticipation of a mild recession. Shares of Fifth Third Bancorp [ Nasdaq: FITB ] were trading at $33.64 as of market close today, up 2.81% from market open. Fifth Third has a market capitalization of $23.1 billion. Auto Finance Summit East, Auto Finance News’ new spring event, kicks off May 10-12 at the JW Marriott Nashville featuring a fireside chat with Peter Muriungi, CEO of Chase Auto. Visit autofinance.live.

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