Citizens Auto Finance has its sights set on growth in the second half of 2021 as the economy continues to stabilize.
The bank’s auto portfolio ticked up 1.6% sequentially and 1.5% year over year to $12.3 billion in the first quarter, and has been hovering there for the last five reporting periods. Last year, the bank “artificially” suppressed marketing for its consumer loan products and put auto in a “flattish trend intentionally,” Chief Executive and Chairman Bruce Van Saun said during last week’s earnings call.
“The [auto] market always allowed for us to grow, but we were optimizing our balance sheet with all the excess deposits we have now in the short duration,” Van Saun said. “We’re finding incredibly high returns in the auto business … expect that to continue to moderately grow.” Citizens also “unwound” credit tightening in the first quarter that was initially put in place at the height of the COVID-19 pandemic, but did not change its risk appetite, he explained.
Average yields on auto loans clocked in at 4.14% in the first quarter, accounting for $125 million in interest income, down 12 basis points (bps) from last quarter and 20 bps YoY, according to the earnings supplement, in line with low benchmark interest rates.
Meanwhile, annualized net charge-offs for auto increased 6 bps sequentially to 0.35% of the portfolio, but still remains 53 basis points under last year’s first-quarter figure. Allowance for credit losses in auto dropped $25 million to $175 million, or 1.41% of the portfolio. In Q4, the bank’s $200 million allowance in auto accounted for 1.65% of the portfolio.
Citizens Bank has taken a measured approach to its auto portfolio in recent years. In 2017, the bank took “proactive action” to limit its national footprint to larger dealers by “reducing states and eliminating smaller dealerships,” while limiting its exposure to longer term loans, according to the earnings presentation.
Still, there’s room to grow, Brendan Coughlin, head of consumer banking, said on the earnings call. “Auto has been a hot market, but auto industry sales are really high and the market is still bearing outsized returns,” he said. “So, eat while the eating is good … we’re very well positioned to grow that business in a well-controlled way with double digit [return on equities], which you don’t typically see with auto.”
Shares of Citizens Financial Group [NYSE: CFG] were trading at $44.93 at market close, up 4.05% since market open. The bank has a market capitalization of $19.1 billion.
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