Fifth Third Auto Trust 2023-1 Annual Report - How They Did This Year

I’m here to help you break down the performance of Fifth Third Auto Trust 2023-1. Instead of digging through dense legal filings, we’ll look at what this means for you as an investor.

1. What does this trust do?

Fifth Third Auto Trust 2023-1 is a financial vehicle created in February 2023. It holds $1.05 billion in car loans for new and used vehicles. Fifth Third Bank bundled these loans into an investment product called an Asset-Backed Security. The trust issued several classes of notes to investors, and this year, it successfully collected payments from 38,422 loans to distribute cash to investors as planned.

2. Financial performance

The trust generated enough cash from the loans to pay all interest owed to investors. The total loan balance dropped from $1.05 billion to about $682 million. The average interest rate on these loans is 7.24%, which comfortably covers the interest paid to investors (ranging from 5.35% to 5.78%) and the 1.00% fee for managing the loans.

3. Operational stability

Independent auditors confirmed that Fifth Third Bank processed all payments correctly. There were no issues with how the money was handled. Regarding the trustee, U.S. Bank Trust Company, they have confirmed they have the necessary resources and insurance to continue their duties without interruption despite unrelated legal matters.

4. Financial health

The trust maintains a "Reserve Account" to cover any missed payments. It started with $2.63 million and remains fully funded. The trust’s only debt is the money owed to investors, which decreases every month as borrowers pay off their loans.

5. Key risks

Your main risk is credit performance. If too many borrowers stop paying their loans, investors could see a change in cash flow. Currently, the annual loss rate is 0.85%, which is in line with expectations. About 1.42% of loans are 30 days or more late.

6. Competitive positioning

This trust holds high-quality loans, with borrowers having an average credit score of 748. Because these borrowers are reliable, the trust pays lower interest rates than riskier, subprime competitors, which helps keep your returns steady.

7. Future outlook

The trust will continue to pay down its balance. Based on current trends, the notes should be fully retired by July 2029. Investors can expect a steady decline in the outstanding balance each month.

8. Market trends

The Consumer Financial Protection Bureau is monitoring auto lenders closely. New rules regarding fees and repossessions have increased the administrative workload for Fifth Third Bank. While this doesn't change your current cash flow, it is an area that rating agencies continue to watch.

The trust remains stable and is paying down its debt as expected. With a fully funded reserve account and consistent loan performance, the trust is currently meeting its obligations to investors.