TD Bank Group lowered its provisions for U.S. auto credit losses by 11% in the second quarter — to $54 million — compared to the prior quarter amid improvements in collections and fewer subprime loan volume, according to the company’s second quarter earnings for the three months ending in April.
However, U.S. auto provisions are still up 74% on a year-over-year basis.
The quarterly decrease is part of a larger strategy the Canadian bank has implemented since the fourth quarter of 2015, when it shifted to more prime loans and increased its mix of used vehicles.
Improved collections and sustained low oil prices have contributed to the decision to lower provisions, at least in the Canadian market, Mark Chauvin, TD Bank’s chief risk officer, said on the call.
“We did have some operational issues as we brought things together last year that resulted in the increase [in provisions], and we’ve worked our way through those,” Chauvin said. “That’s what we’re seeing that’s contributed to lower losses this year.”
The company’s U.S. auto outstandings increased 5.5% year over year to $21 billion USD in 2Q. While originations numbers were not reported, executives on the call said they expect volumes to decline.
“We’ve had some very strong double-digit C&I [commercial and industrial] growth for the last few years, and we’ve been calling that down … as well in the auto business,” said Greg Braca, president and chief executive of TD Bank. “We’re not going to chase volume for the sake of return or credit quality, and you’re seeing a moderation in the auto space there.”
Correction: The original version of this story misstated the timing of TD Bank’s 2Q earnings release. The piece has been corrected to reflect the appropriate timing.
