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Auto credit quality deteriorates further in Q4'17

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Auto credit quality deteriorates further in Q4'17

Auto loans at U.S. banks and thrifts kept growing during the fourth quarter even as credit quality hit some potholes.

U.S. banks and thrifts reported $449.99 billion in auto loans at the end of 2017, up $1.18 billion from the third quarter. Auto loans 30-plus days past due or in nonaccrual status increased to 2.58% of total auto loans at Dec. 31, 2017, up 34 basis points from the year-ago quarter. Auto net charge-offs as a percentage of average auto loans increased 11 basis points year over year to 1.0% during the fourth quarter.

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According to the Federal Reserve's January 2018 Senior Loan Officer Opinion Survey, eight of 59 responding banks reported moderately weaker auto loan demand over the last three months, three reported "moderately stronger" demand and 48 reported "about the same" demand.

Regarding the quality of auto loans, about 18% of the 55 responding banks expect it to "deteriorate somewhat" over 2018, while 74.5% expect it to "remain around current levels" and 7.3% expect it to "improve somewhat."

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Although total auto loans at banks and thrifts continued to rise in the fourth quarter, some companies appear to be pulling back. Eleven of the 25 largest auto lenders among banks and thrifts posted lower loan balances quarter over quarter and 12 posted declines year over year. The median delinquency ratio among the top 25 increased to 1.88% in the fourth quarter, up from 1.56% a year earlier.

Ally Financial Inc. remained the nation's largest auto lender with $60.77 billion in auto loans as of Dec. 31, 2017, a $739.0 million increase since September. Delinquent auto loans at the Detroit-based lender jumped 16 basis points year over year to 4.7% of total auto loans.

Wells Fargo & Co. dropped to the No. 3 spot after its auto loans fell $2.08 billion to $53.39 billion at year-end.

John Shrewsberry, Wells Fargo's CFO, said auto balances are expected to decline further throughout 2018 after falling 33% year over year in the fourth quarter of 2017. "We've reduced volumes while strengthening the credit profile of this portfolio, and our origination volume with a FICO score above 640 grew to 85% of total originations in the fourth quarter, up from 76% a year ago," he said on the company's earnings call.

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Capital One Financial Corp. jumped to the No. 2 spot with $53.99 billion in auto loans at the end of the fourth quarter, up $701.2 million from Sept. 30, 2017, and $6.08 billion from a year earlier. Auto delinquency hit 7.2% at Dec. 31, 2017, up 62 basis points year over year.

Now that there has been some competitive pullback in the auto business, Capital One has again "stepped on the gas" over the last couple of years, Richard Fairbank, Capital One's chairman and CEO, said at a recent conference.

The average rate for a direct 60-month new car loan was 4.02% as of Feb. 16, up 13 basis points year over year. At the state level, Massachusetts and Wyoming were the only states where average auto rates declined year over year, dropping 5 basis points and 3 basis points to 3.90%, respectively. Rhode Island financial institutions offered the highest average rate for a direct 60-month new car loan at 4.65%, while Washington, D.C., had the lowest average rate at 3.02%.

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Click here to access the data for the 25 largest auto lenders as of Dec. 31, 2017.

S&P Global compiles auto loan data based on call reports and Form Y-9s. Click here to see the aggregated data for commercial banks.

For a look at fourth-quarter loan growth at community banks, click here; for large banks, click here.