Oregon Community CU Sells $275 Million in Auto Loan Securities

Oregon Community Credit Union has completed the sale of $275 million in securities backed by automotive loans it had originated, an advisor on the deal announced Wednesday.

ALM First, a Dallas-based financial advisory service, said it served as a consultant for OCCU of Eugene, Ore. ($3.5 billion in assets, 256,807 members as of Sept. 30) in the securitization that closed Oct. 20.

Travis Goodman, principal of ALM First, said this is the credit union’s first asset-backed securities issuance and is only the fourth such securitization to be completed in the entire industry since the NCUA’s June 2017 Opinion Letter affirming credit unions could conduct securitizations. With the OCCU sales, total sales are now $1.2 billion since 2019.

“We assisted OCCU in gaining access to a broader investor market and profitably accessing liquidity,” Goodman said. “In our role as a trusted advisor, we help credit unions strategically navigate the securitization process, provide insights regarding where to price new loans for sale, and execute hedging strategies to lock in profit given the uncertain rate environment.”

OCCU will receive a 1% annual fee for servicing the loans.

“This securitization benefits members by building the financial strength of OCCU,” OCCU President/CEO Ron Neumann said. “This strength allows us to serve more members and supports our ability to provide member benefits such as lower or eliminated fees, additional branches and service centers and enhanced technology such as digital banking and interactive teller machines.”

Both Moody’s Investors Service and Standard & Poor’s gave the securities investment-grade ratings.

The sale included $244.2 million in senior notes that mature from Oct. 15, 2023 to Nov. 15, 2029 and had S&P ratings of AAA and above. The $30.8 million in subordinated notes mature from 2029 to 2031 and carry S&P ratings of AA to BBB, the lowest investment-grade rating.

Factors in S&P’s rating included the credit quality of the underlying pool, which consists of direct and indirect prime automobile loans that had a weighted average credit score of 730 and a minimum credit score of 620.

Risks noted by S&P included:

• Geographic concentration: Oregon and Washington each account for about 46% of originations of the pool.
• A high concentration of loans with long terms: Loans with terms extending beyond 72 months make up 71% of the pool. Approximately 11% of the pool is comprised of loans with original terms of 73-75 months, and another 60% has terms of 76-87 months, the majority of which are 84-month loans.
• High loan-to-value ratios: The pool had a weighted average LTV ratio of 110%, which is at the high end compared securitization pools of its peers.

S&P’s pre-sale report showed the average loan in the OCCU pool had an average remaining balance of $29,442, with an original term of 77 months at 5.65% APR.

OCCU’s net charge-off ratio was 0.11% in the first half of this year, compared to 0.12% in the first half of 2021. For the years 2016 through 2021, charge-offs peaked at 0.55% in 2017, then subsided to 0.47% by 2019. With the pandemic, charge-offs plunged to 0.35% in 2020 and 0.16% in 2021.

Its 30-plus-day delinquencies for auto loans increased to 1.15% as of June 30 from 0.63% a year earlier, “showing a normalization in delinquency rates to those prior to year 2020,” the S&P report said.

NCUA data shows OCCU’s 60-days-plus auto delinquency rate for all car loans rose from 0.51% at the end of September 2021 to 0.58% to 0.78% on Sept. 30.

OCCU was the nation’s 127th largest credit union based on June 30 assets, rising from 138th a year earlier, according to NCUA data.

Its total car loan balance on June 30 was $1.5 billion, making it the 44th largest credit union auto lender in the nation. Auto loans accounted for 52% of its total loan portfolio, compared with 32% for all credit unions.

As of Sept. 30, it held $1.7 billion in auto loans. Its new car loan balance was $599.6 million, up 65% from a year earlier, while used loans stood at $1.1 billion, up 62%.

Previous credit union ABS sales were:

• GTE Financial Federal Credit Union of Tampa, Fla. ($2.9 billion in assets, 231,425 members) sold $175 million in November 2019.
• Unify Financial Federal Credit Union of Torrance, Calif. ($4.1 billion in assets, 292,992 members) sold $300 million in March 2021. ALM First also acted as an advisor on that deal.
• PenFed Credit Union of Tysons, Va. ($35.9 billion, 2.8 million members) sold $460.3 million in August. PenFed held $5.3 billion in auto loans on Sept. 30, down from $6 billion on June 30.