Despite an uptick in fourth-quarter delinquencies and net charge-offs in its auto portfolio, U.S. Bank has steadily decreased its credit loss provisions after preparing for the worst at the height of the pandemic.
Auto delinquencies 30-89 days past due ticked up in the fourth quarter to 0.83%, an increase of 15 basis points from the third quarter, but down 23 bps from the same reporting period last year. Loans 90-plus days past due increased 6 bps quarter-over-quarter and 1 bps YoY to 0.11%, according to the earnings presentation.
The net charge-off rate for auto loans also increased sequentially 7 basis points to 0.31% but still remained 16 basis points behind last year’s level.
Delinquency and net charge-off increases were expected by the fourth quarter as unemployment benefits and stimulus support fluctuate, Terry Dolan, the bank’s chief financial officer, said on the third-quarter earnings call in October.
Still, the bank again decreased its total provision for credit losses in the fourth quarter to $441 million, down 30% from $635 million last quarter, suggesting the bank is prepared for potential credit deterioration. For perspective, U.S. Bank increased its credit loss provisions in the second quarter to $1.7 billion, up 74% compared with the first quarter of 2020.
U.S. Bank’s allowance for credit losses for other retail loans, including auto, totaled $1.1 billion, or 2% of the fourth-quarter portfolio. Auto makes up 53% of the bank’s other retail portfolio. Overall, the bank increased its credit loss allowance given continued economic uncertainty.
“We expect the allowance for credit losses to begin to decline when there is more certainty regarding the economic outlook and the timing of when peak net charge-offs will occur,” Dolan said on the bank’s Q4 earnings call last week.
Meanwhile, U.S. Bank has seen a steady decline in the number of loans in deferral status since peaking in April, according to the earnings presentation. For other retail loans, the number of deferments declined 40 bps to 1% of the portfolio — or $600 million — as of Dec. 31, down from $800 million as of Sept. 30.
Still, U.S. Bank maintained tightened underwriting standards due to the pandemic, contributing to an average FICO score of 793 for auto loans and 786 for leases in the fourth quarter. U.S. Bank’s average loan-to-value ratio stood at 96% for vehicle loans and 95% for leases. The bank originates about 96% of auto loans through indirect channels.
Auto outstandings clocked in at $19.7 billion, an increase of 1.5% year over year. During the height of the pandemic, the bank’s auto portfolio dipped to $18.7 billion in the second quarter of 2020, but has steadily recovered.
Shares of U.S. Bancorp [NYSE: USB] were trading at $43.77 as of market close today, up 2.31% since market open. U.S. Bancorp has a market capitalization of $65.94 billion.
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