Credit Union Auto Loan Securities Nearly $1 Billion This Year

Houston's First Community Credit Union on Thursday closed its securitization of $255.5 million in auto loans it originated, bringing the credit unions' annual total sales of auto loan-backed securities to nearly 'a billion dollars.

The agreement will ease FCCU's liquidity constraints ($2.6 billion in assets, 162,097 members as of March 31), based on CU' time analysis of NCUA data collected from Callahan & Associates/Peer Suite. The credit union will also collect a 1% service fee.

The credit union's loan-to-share ratio stood at 100.1% on March 31, up from 92.9% a year earlier and down from 101.4% on December 31. If the deal had closed on March 31, its loan-to-share ratio would have been 87.2%.

The average loan-to-share ratio among all credit unions was 82.8% as of March 31, up from 80.9% a year earlier, but down from 85.1% as of Dec. 31.

Like many credit unions with high loan-to-share ratios, its borrowing is also above average. Borrowing as a percentage of assets increased from 11% in March 2023 to 16% in March this year. Nationally, they increased from 4.7% in March 2023 to 5.7% in March this year.

Last year, First Community generated net income of $11.8 million, representing a 0.50% return on average assets, down from 0.97% ROA in 2022. It earned $1.9 million in the first quarter, representing an ROA of 0.30%.

First Community Credit Union was the sponsor of Thursday's sale. It sold the loans to FCCU Auto Funding LLC, the depositor, which sold them to FCCU Auto Receivables Trust 2024-1, the issuer.

Moody's has assigned investment grade ratings to all seven tranches maturing from May 2025 to July 2032.

Moody's May 16 pre-sale report indicates that the securities are backed by FCCU new and used auto loans issued indirectly through dealers to members with prime credit ratings. The pool is made up of 39% new car loans and 61% used car loans. About 27% of loans were granted this year, 58% in 2023 and the remaining 15% earlier.

“The key credit strengths of the transaction are the long-standing origination and management history of FCCU, the strong credit quality of the collateral and the accumulation of credit enhancements as the pool matures. cushions,” Moody’s said.

The pool has a weighted average FICO score of 754 with a low of 680. “The FICO (weighted average) is on the high end compared to other credit union transactions we have evaluated, but lower than captive transactions and sponsored by the banks that we recently assessed,” the report said.

Weaknesses of issuance include the high proportion of longer-term loans (71% have terms of 73 to 84 months), the high geographic concentration with all loans issued in Texas, and poorer loan performance. The balance of loans overdue for at least 30 days was 2.09% as of March 31, compared to 0.88% a year earlier.

Moody's also had more difficulty assessing risk because of FCCU's size. Moody's was able to analyze FCCU originations of auto loans from 2016 to 2024 with borrowers' FICO scores of 680 or higher.

“The origination amount for quarterly vintages between 2016 and 2021 averaged around $10 million to $30 million, and only increased to $50 million to $80 million from 2022 onwards. “Origination resulted in more volatile CNL performance (cumulative net loss),” the report said.

FCCU became the 13th credit union to sponsor an auto title deal since the first in 2019. In total, credit unions have sponsored $4.3 billion in deals.

This year's total now stands at nearly $1 billion, following a $400 million issuance on March 14 by GreenState Credit Union of North Liberty, Iowa ($11.1 billion in assets, 454,787) and a $331.7 million issuance on March 26 by Valley Strong Credit Union of Bakersfield, California. ($3.8 billion in assets, 325,608 members).