Fifth Third maintains underwriting criteria amid elevated used-vehicle prices

Fifth Third intends to maintain its underwriting criteria amid elevated used-vehicle values as loan-to-value (LTV) ratios drop in its growing auto portfolio. LTVs dropped to 88% on the bank’s $16.8 billion auto book, a 3-percentage point decrease from Q4 2020 and flat from the third quarter , according to the bank’s earnings presentation. Fifth Third’s outstandings jumped 4.9% sequentially and 22.6% year over year. Average period-end rates, however, dipped to 3.18%, down from 3.27% in Q3 and 3.7% in Q4 2020. “From an underwriting standpoint, we do think about how [used-vehicle] values have changed,” Chief Credit Officer Richard Stein said last week during the bank’s earnings call. “But I think it's important to understand, we look at supply-demand dynamics for autos. We don't think that's going to change in the near-term, certainly. “The other thing I'll add is we are a prime and super prime underwriter from an auto perspective. And so while the collateral value is important, it's the quality of the borrower that really stands out for us, and that hasn't changed,” Stein said. “We continue to see the tailwinds around the consumer from a quality perspective to be strong. So, no real changes in terms of the underwriting criteria. We were mindful of supply demand dynamics and do consider what car prices will do in the future.” Weighted average FICO in Q4 clocked in at 766, up from 760 in the same reporting period last year and 765 in Q3, according to the earnings presentation. About 53% of Fifth Third’s originations in 2021 were for used autos, Chief Executive Greg Carmichael said on the call. Meanwhile, credit performance remained resilient in Q4 despite sequential upticks in early-stage delinquencies and net charge-offs (NCO), in line with seasonal trends and industry expectations. Delinquencies 30 to 89 days past due landed at 0.61% of the portfolio, a 9 basis point (bps) increase from Q3 but 52 bps below Q4 2020 levels. Last stage delinquencies — or 90-plus days past due — remained flat at 0.05% when compared with the third quarter. Similarly, NCOs clocked in at 0.14% to close out 2021, up from a 0.02% recovery rate in Q3, but down from 0.28% in the same reporting period last year. Shares of Fifth Third Bancorp [ Nasdaq: FITB ] were trading up 0.98% to $45.48 at market close Monday in New York. The bank has a market capitalization of $31.04 billion. Auto Finance Risk Summit, the premier event for risk and compliance management in auto finance, returns April 25-26 in San Diego. This event is the central resource for education and networking focused on best practices in risk management and will prepare your team for the dynamics of the evolving auto finance market. To learn more about the 2022 event and register, visit www.AutoFinanceRiskSummit.com .

Fifth Third maintains underwriting criteria amid elevated used-vehicle prices

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