Bank of America Severs Third-Party Agreement as Portfolio Flattens

Although Bank of America has maintained “modest growth” year over year in its auto portfolio for the past few quarters, it now expects volume to flatten or even decline in the coming quarters, said Chief Financial Officer Paul Donofrio on the earnings call Monday.

“The recent moderation in the consumer growth rate is driven mostly by auto loans given our decision to focus on organic growth,” Donofrio said. “We expect auto growth to be flat to down as we focus on organic growth and rely less on third-party [flows], and note that in all of these categories, we’re very focused and remain focused on prime and super-prime.”

It’s unclear what third-party flow of auto loans the bank has cut ties with. The bank was unable to respond to a request for comment by press time.

Average vehicle balances did, in fact, remain flat year over year at $51 billion, but more of those loans continue to come from the bank’s online direct auto originations portal, which is now a year old. Weekly auto loan volume through digital channels has increased to $25.6 million compared with $19.7 million before the direct platform’s launch. The online channel continues to account for half of the bank’s retail auto volume.  

When asked about the state of the economy, Donofrio remained optimistic noting that consumer activity and payments are the “highest they have been in many years.” But, at the same time, the lender continues to stress test extensively and doesn’t see a ton of risk in auto for them.   

“You can see that each year our losses, so to speak, in these [stress] scenarios keep coming down incrementally because the underlying quality of the credit that we do,” he said on the call. “Now, think about the last four or five years. Oil and gas were going to be a problem, we put up a bunch of reserves, and we ended up taking most of them back. Commercial real estate was going to be a problem. We ended up going through that with very little loss and great recoveries last year. We don’t do subprime, so we let that play out in other people’s [portfolios]. Auto loans were going to be a problem, but you see that we haven’t seen much change there.”