Fifth Third Bank plans to reduce its auto portfolio to $7 billion by 2019 as it focuses on more profitable auto loan originations, Chief Financial Officer Tayfun Tuzun said during an earnings call this morning.
The bank has already started to slow originations, as it aims for an overall 31% decline in the $10.2 billion portfolio held at yearend 2016. At the end of March, Fifth Third’s auto portfolio totaled $9.8 billion, down 4% from yearend 2016 and down 13% year over year.
“We firmly believe that reducing capital deployment in this business is the right decision, especially given the changing risk profile due to pressures on used-car values,” he said.
Fifth Third’s auto portfolio will decline at a rate of about $1.5 billion per year, and the bank would “feel comfortable” managing a portfolio in that $7 billion range, Tuzun added.
Delinquencies were down for the quarter, while charge-offs rose, but the numbers are “a little skewed” because of the declines in the overall portfolio, Tuzun said.
“We are certainly seeing lower recoveries, certainly used cars are showing deterioration,” Tuzun said. “We are not seeing default percentages going up, because the portfolio is a high prime portfolio — which is not as sensitive as subprime borrowers — but the recovery rates in general are looking weaker.”
Delinquencies 90 days or more past due were down to $6 million from $8 million during the same period last year. As a percentage of the portfolio, the delinquency rate dropped to 0.06% from 0.07% last year.
Net charge-offs for the quarter came in at $11 million — 22% higher than in 1Q16. As a percentage of average loans and leases, net charge-offs accounted for 0.48% of the portfolio, up from 0.32% during the same period last year.
