Net charge-offs pick up at banks, captives in Q3

Credit performance worsened in the third quarter at banks and captives as consumers are facing inflationary pressures and high interest rates. Delinquencies and net charge-offs increased at every institution that reported performance metrics during the quarter except for PNC Financial , which saw delinquencies decline . Bank of America did not report delinquency numbers for Q3. The rate of auto loans 30 to 60 days past due at PNC were flat sequentially but fell 8 basis points (bps) YoY to 0.56% and loans 60 to 89 days past due were flat quarter over quarter but down 1 bps YoY to 0.13%, according to the bank’s earnings report. Net charge-offs at the bank, however, increased 2 bps YoY to 0.03% of outstandings. The bank’s credit performance remains strong due to the bank’s approach to managing risk, customer selection and relationship development, Chief Executive Bill Demchak said during PNC’s Oct. 13 Q3 earnings call. Ally Financial , Capital One and Wells Fargo Auto had the greatest increases in auto loans 30-plus days past due during the quarter. Ally Financial’s auto loans and leases 30-plus days delinquent rose to 3.85% in Q3, up 92 bps YoY, according to the bank’s earnings supplement. Wells Fargo’s rate of auto accounts 30-plus days past due increased 41 bps YoY to 2.6% of the portfolio and Capital One’s 30-plus day delinquency rate was up 79 bps YoY to 5.64%. Net charge-off rates increased at every institution in Q3. Ally saw the highest rate at 1.85%, up 80 bps YoY. Capital One’s net charge-offs increased 72 bps YoY to 1.77% and Truist tallied a 60 bps YoY rise to 1.75%. Ally Financial has been managing its risk by refining its buy box to limit exposure to underperforming segments, Chief Executive Jeffrey Brown said during the company’s Oct. 18 earnings call. Outstandings and originations mixed amid market volatility Of the 12 banks and captives that reported Q3 earnings and are still originating auto loans, five institutions — Ally Financial, Bank of America, Chase Auto , Ford Credit and GM Financial — tallied increased outstandings on a year-over-year basis. On the other hand, the following seven saw a decline: Capital One, Fifth Third , Huntington Bank , PNC Financial, Truist, U.S. Bank and Wells Fargo Auto. The auto lending landscape remains competitive but has eased slightly, Craig Harter , senior vice president and head of indirect lending at Fifth Third, said at Auto Finance Summit 2023 on Oct. 30. Providence, R.I.-based Citizens continued its planned auto book runoff after exiting indirect auto lending in June. Auto outstandings declined 10.6% sequentially and 29.5% YoY to $9.3 billion in Q3, according to the bank’s earnings supplement. The bank expects auto outstandings to drop to $8.5 billion by the end of this year and fall to $5.3 billion and $3 billion by the end of 2024 and 2025, respectively. Compared with other financial institutions in Q3, Bank of America tallied the largest increase in outstandings on its direct and indirect consumer portfolio, which is primarily made up of auto, at 6.5% YoY to $54 billion. “Our team continues to focus on driving organic growth, digital progress and operational excellence,” Bank of America’s Chief Executive Brian Moynihan said on the company’s Oct. 17 Q3 earnings call. Chase Auto and GM Financial both tallied 5.7% YoY increases in their auto portfolios, to $85.1 billion and $102.8 billion, respectively. U.S. Bank had the largest decrease in outstandings at 54.4% YoY, bringing the portfolio to $10.6 billion at the end of Q3, according to the bank’s earnings release. Chase Auto’s outstandings grew on the heels of the bank recording growth of 36% YoY in originations to $10.2 billion, marking the largest increase in originations across all the institutions in Q3. Chase Auto gained market share as competitors pulled back and the bank had “slightly more competitive pricing,” Jeremy Barnum , chief financial officer at JPMorgan Chase , said on the company’s Oct. 13 earnings call. Of the institutions that reported originations, Bank of America, Chase Auto and GM Financial recorded YoY increases while Ally, Capital One, U.S. Bank and Wells Fargo saw YoY declines. Originations remained flat at Huntington Bank . Following Chase Auto, Bank of America originations increased 15.3% YoY to $6.8 billion and GM Financial loan originations grew 1.1% YoY $9.5 billion. U.S Bank recorded the greatest decline in originations, down 63.3% YoY to $1.1 billion, and Wells Fargo saw the next highest decrease, falling 24.1% YoY to $4.1 billion.

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