Regional Acceptance (RA) “experienced some higher loss severities” in the first quarter of 2016, according to Clarke Starnes, BB&T’s chief risk officer and senior executive vice president.
RA, which primarily finances economy cars, reported net charge-offs of 8% in 1Q, up around 50 to 75 basis points versus the same quarter last year, Starnes said during an earnings call.
“Our prime portfolio today is about 16 basis points, and is relatively stable quarter-to-quarter and year-over-year,” he said. “If you look at Manheim over the last year or 18 months, that class of vehicles [economy cars] has been hit a little harder. We’ve adjusted for that over the last year. We actually forecast — notwithstanding the view of car prices over the next remainder of the year — losses to be down more in the 7% range or so by the end of the year.”
RA expects its advance rate adjustments — made 12 to 18 months ago — to cause a decline in losses, given the continued pressure in use-car prices, Starnes said. “As those burn through, we believe we will be in a much better severity position, even with the decline in prices. We’ve been lending into lower advance rates that we feel like we’ll work through some of the older credits and we’ll be in a better position,” he added.
RA “generated stable loan growth” in 1Q, according to the earnings report. Average loans increased 4.6% year over year to $3.3 billion versus the same quarter a year prior.
