GreenState to Sell $400 Million in Auto-Backed Securities Thursday

GreenState Credit Union will be the first credit union to sell securities backed by auto loans this year when it closes on $400 million in securities Thursday.

This is also the first securities sale ever by the Iowa credit union ($11.4 billion in assets, 451,291 members as of Dec. 31).

Since the first sale in 2019, 10 credit unions have now sold about $3.05 billion in auto loan-backed securities, including $1.8 billion in seven deals last year.

Moody’s Investors Service and the Kroll Bond Rating Agency (KBRA) gave investment-grade ratings to the securities being sold in seven tranches maturing from February 2025 through June 2032. More than half the value of the securities mature by August 2027.

Initial purchasers of the securities were Stifel, Nicolaus & Company and BofA Securities, both of New York.

KBRA’s pre-sale report provides some new insights into the credit union, which lost $71.3 million (-2.53% ROA) in last year’s fourth quarter, resulting in a net loss of $62.6 million for the year, compared with a $40.3 million gain in 2022.

Loan loss provisions rose by $60.4 million and net interest income fell by $19.4 million from the fourth quarter of 2022 to the fourth quarter of 2023.

GreenState cut 94 jobs in the 12 months ending September 2023, and its December Call Report showed it cut the equivalent of 36 more full-time jobs from Sept. 30 to Dec. 31.

GreenState originated $621.5 million in total loans in the fourth quarter, down 39% from a year earlier. From January through September, it originated $3.9 billion, down 36% from a year earlier.

The KBRA report showed GreenState hit the brakes on auto originations in last year’s second half.

Originations had run between $100 million to $190 million per quarter from 2015 through 2019. They ran about $300 million per quarter from the second quarter of 2021 through the second quarter of 2023, except for peaks of about $460 million in the second quarter of 2022 and $390 million in the first quarter of 2022.

Much of the increase was GreenState’s expansion into Illinois. Loans in Illinois grew from 8% of originations in 2020’s second quarter to 26% of originations in 2022’s second quarter.

But originations plummeted to about $180 million in 2023’s third quarter and about $25 million in the fourth quarter.

GreenState membership is open to anyone living or working in Iowa, 18 counties in Illinois, eight counties in Nebraska, five counties in South Dakota and three counties in Wisconsin. Membership is also open to people affiliated with GreenState’s member organizations, including University of Iowa students, staff and alumni.

Iowans account for 11,713, or 68% of the loans in the securities being sold, followed by Illinois with 22% and Nebraska with just under 4%. The remaining loans are held by borrowers in five states with 2% of less of the loans: South Dakota, Wisconsin, Minnesota, Missouri and Michigan.

KBRA said GreenState’s rapid origination growth from October 2021 through June 2022 contributed to credit deterioration in its 2022 and early 2023 vintages.

“GreenState attributes the main cause of higher net losses for these vintages to the effects of inflation and higher interest rates, as well as a higher proportion of loans originated in Illinois. The latter have historically experienced higher default rates compared to loans originated in Iowa.

“The credit union also cited downward pressure on recovery rates due to declining used car values and extended repossession timelines,” it said. “In response, GreenState has made steps to accelerate repossession and improve recovery rates that include adding additional third-party repossession and remarketing providers, adding collections staff and enhancing omni-channel collection strategies such as texting and automated emails.”

The KBRA report cited other characteristics of the loans in the pool as of Jan. 31:

• Nearly 80% of the loans were originated in 2023.
• The average principal balance is $24,387.
• The weighted average APR was 7.53%.
• The weighted average original term was 75 months, with 43% of them having an original term of 84 months. The weighted average remaining term was 65 months.
• Indirect channels were the source of 83% of the balance.
• All borrowers had a FICO score of 660 or above. The weighted average FICO score of the borrowers in the pool was 753.
• The weighted average loan-to-value ratio was 101.5%.