TCF Bank grew its auto loan revenue in the second quarter by nearly exiting the securitization market entirely, and lowering originations to focus on more profitable loans, the company reported in its earnings call today.
Auto loan yields increased to 5% in the quarter, up 82 basis points from the same period the year prior.
This was largely due to the company reclassifying $345 million worth of auto loans that were “held for sale” on the secondary market to “held for investment,” executives said on the call. Only $22 million worth of auto loans continue to be set aside for future securitizations — an 85% reduction year over year.
“The assets and loans sitting in held for sale were higher yielding assets — probably our highest yielding assets — and those were the ones moved into the investment book,” Michael Jones, TCF’s executive vice president of consumer banking, said on the call.
Elevated yields were also the result of a strategy the company began in the first quarter to lower originations through its auto arm — Gateway One Lending and Finance — and concentrate auto loans on more near-prime borrowers.
Auto originations fell 41.9% year over year — nearly 2% more than its original projection — to $521 million in the quarter, the report stated. Yet, the bank’s auto outstandings grew to $3.3 billion, up from $3 billion during the same period the year prior.
“We have gotten the origination engine to where we want it to be,” Jones said on the call. Market conditions and how losses perform to expectations “are the things that would drive change in that origination level,” he added.
However, more near-prime loans have brought higher delinquencies and losses as well. The percentage of borrowers 60 days or more past due grew to 0.2% in the quarter, up from 0.1% the year prior. Net charge-offs also rose 14 basis points year over year to 0.8% of the auto portfolio — and the bank anticipates those rates will continue to rise.
“We would look to [losses] modestly increasing as we go forward in the future with the mix change we have on the balance sheet as well as the third and fourth quarters being the seasonally highest quarter from a charge-off perspective,” Jones said. “The team is really focused on how we can improve loss performance, so I’m optimistic the team will execute on those strategies as we move forward.”
