Wells Fargo & Co. reported strong growth in consumer auto outstandings during the company’s Q2 earnings call Friday.
Although second quarter consumer auto originations were at $7.8 billion, down 1% from the previous quarter, consumer auto oustandings were at $54 billion, up 11% year-over-year, according to John Shrewsberry, senior EVP and chief financial officer, who said during the call that the bank’s focus remains on pricing for risk.
Shrewsberry cited visible improvements in FICO scores, average loan-to-value, and payment-to-income ratio of its auto customers.
“Each of those has improved, not only over the last five years, but improved meaningfully from pre-crisis levels. So the portfolio actually looks really good,” Shrewsberry said.
He also attributed the company’s healthy portfolio to its strong auto lending relationships with dealers.
“We banked the dealers directly, we provide them with floorplan financing, and we provide them with real estate financing,” Shrewsberry. “We bank them personally and we are a very reliable takeout for indirect auto paper and we get more than our fair share as a result of the paper we want and the portfolio composition reflects that.”
Wells Fargo is ranked No. 3 in originations in the 2014 Auto Finance Big Wheels Data Report, and remains a leader in auto lending, despite heavy competition in the space.
“It is a more competitive environment. There are lots of people out there. Lots of banks out there with a lot of liquidity competing for loans. And we do see more competitive — more borrower friendly structures that we have to react to from one asset category to another,” Shrewsberry said. “There are people out there who, for example, are extending the terms on auto loans.”
But in response to CLSA’s Mike Mayo, who questioned if Wells was taking on too much risk with auto lending, John Stumpf, chairman, president and chief executive, denied any irresponsibility.
“We looked carefully at what’s going on with FICO scores and we look at delinquencies and a whole bunch of things there. So no, I don’t think we are taking inappropriate risks,” Stumpf said.
Wells reported overall earnings of $5.7 billion, up 4% from a year ago, and an average of $265 million in deposits everyday over the past year.
(In an earlier version of this story, Auto Finance News incorrectly reported Wells Fargo’s originations at $54 billion, not outstandings.)
