Wells Fargo, Chase and Capital One Discuss 3Q Auto Finance Results
SAN FRANCISCO, NEW YORK and McLEAN, Va. — Wells Fargo Financial, Chase Auto Finance and Capital One Auto Finance each recently released their third-quarter results, indicating how each company did for the period.
Starting with Wells Fargo Financial, which covers real-estate debt consolidation, auto financing, consumer and private-label credit cards, in addition to commercial services for consumers, net income came in at $135 million, down 29 percent, or $56 million, from the same period last year.
Breaking it down, Tom Shippee, Wells Fargo Financial's president and chief executive officer, indicated losses.
"Losses in our auto portfolio were down $32 million year-over-year, but up $57 million from the second of quarter 2007 due to seasonality," he reported. "We continued to conservatively manage growth in the auto portfolio, with receivables flat on a linked-quarter basis, and saw positive results from the additional collection capacity added late last year.
"Delinquencies have increased due to seasonality, but total and 90-day results improved over the third quarter of 2006," he continued. "We continue to manager our store network and reduce redundancy."
He went on to add that the real estate business did well, despite market issues. Moreover, he said, "Through the third quarter of 2007, approximately 8 percent of our Wells Fargo Financial store locations have been closed and team members have been redeployed to other locations, which will improve the overall effectiveness and efficiency of our store operations."
For the nine-month period, the financial division posted net income of $403 million, a decline of 42 percent, or $291 million, from the same period of 2006, according to the company.
Officials noted that results last year included a $50-million reversal of the allowance for credit losses that had been established for Hurricane Katrina.
Moreover, executives said, "Third-quarter 2007 revenue of $1.4 billion was virtually flat compared with third-quarter 2006. Average loans reached $65.8 billion, up 11 percent from a year ago due primarily to 24-percent growth in the real-estate loan portfolio. Non-interest expense increased 6 percent, or $38 million, to $728 million from a year ago, primarily due to increased collection capacity added to the auto business."
Discussing credit quality, Mike Loughlin, chief credit officer, indicated that net credit losses reached $892 million, or 1.01 percent of average loans when annualized, which is up from $720 million, or 0.87 percent, in the second quarter of the year. He noted that credit losses were $633 million, or 0.86 percent, in the third quarter of 2006.
Explaining the results, he said, "Almost half of the increase in net credit losses from second quarter 2007 was concentrated in the home equity portfolio, where losses accelerated in the quarter given the stronger than anticipated decline in national home prices.
"The remainder of the increased credit losses were concentrated in the auto portfolio (seasonally higher in the second half of the year) and in unsecured consumer credit (largely due to portfolio growth, with loss rates remaining relatively stable). Commercial loan losses remained modest and within portfolio expectations," he pointed out.
Chase Auto Finance
Moving on to Chase Auto Finance, the company indicated that its originations were down 5 percent, coming in at $5.2 billion. Average loan receivables were $39.9 billion, up 3 percent.
As for net income, it came in at $76 million, a decrease of $9 million, or 11 percent, from the same quarter in 2006. Net-interest income was $307 million, compared to $312 million last year, officials reported.
On a strong note, net revenue reached $447 million, up $52 million, or 13 percent. Executives attributed the growth to higher vehicle lease revenue and wider loan spreads.
"The provision for credit losses was $96 million, an increase of $35 million, reflecting an increase in estimated losses from low prior-year levels," officials said.
Furthermore, non-interest expense for the period was $224 million, which is up $30 million, or 15 percent. The company said the jump was due to higher deprecation expense on owned-vehicles subject to operating leases.
Officials went on to add that the net charge-off ratio grew to 0.97 percent from 0.64 percent last year. For lease receivables the net charge-off rate was 0.57 percent.
The 30-day delinquency rate came in at 1.65 percent, compared to 1.43 percent in the second quarter of this year.
Loan outstanding for the quarter came in at $40.3 billion, compared to $40.4 billion, the company noted.
Chase Auto Finance also said today that it has opened a new Custom Finance Business Center in Birmingham, Ala., to meet the subprime financing needs of dealers in the state.
Officials said Eric Adams will manage the new office at Two Chase Corporate Drive, Suite 120, Birmingham, Ala. He and the center's credit team have nearly 100 years of combined experience in auto finance, executives highlighted.
Moreover, the company said that Hank Briley will serve as the office's dealer relationship manager.
"We are excited about expanding our presence in Alabama, offering local customer service and making it even easier for our dealers and ultimately consumers to access our subprime financing solutions," said Bill Jensen, Chase's custom finance executive.
Chase Auto Finance went on to point out that throughout the Southeast, its retail and commercial sales teams provide a full spectrum of services to dealerships through a Prime Business Center in Tampa, Fla., and Subprime Business Centers in Charlotte, N.C.; Columbia, S.C.; Fort Lauderdale, Fla.; Tampa and now Birmingham.
Capital One Auto Finance
Posting a net-loss of $3.8 million, compared to $38 million in the last quarter and $35.3 million in the same period of 2006, Capital One Auto Finance showed some weakness.
Officials said revenue was up 6 percent for the year, while expenses were down 1 percent and provisions were up 52 percent.
Charge-offs and delinquencies from the third quarter of last year jumped. The managed 30-day plus delinquency rate came in at 7.15 percent, compared to 6 percent in the previous quarter and 5.18 percent in the prior year.
As for the company's managed net charge-off rate, it was 3.56 percent, up from 2.35 percent in the second quarter and up from 2.34 percent in the third quarter of 2006.
Executives indicated that dealer prime 2005 and 2006 tranches are continuing to season. Also, that there has been an industry-wide risk expansion in subprime, covering LTV and terms. Overall managed loan receivables were $24 billion for the quarter, a 15-percent jump over last year. Additionally, the company said loan originations came in at $3.2 billion, up 3 percent over 2006.