Citizens Financial Group Inc. is starting to see the impact of its more disciplined, rate-focused approach to auto lending that it started earlier this year, as outstandings fell 5.7% year over year, according to the company’s third-quarter earnings report.
Citizens One Auto Finance’s portfolio fell to $13.3 billion during the quarter compared with $14.1 billion in 3Q16, as Citizens Financial — like many other institutions this year — decided to focus on profitability over volume.
“We are seeing ongoing benefits from our focus on enhancing our portfolio mix by driving growth in higher return categories,” John Woods, chief financial officer for Citizens Financial, said during the earnings call. “We have been slowing growth in auto and that should continue over time. As a result of these efforts, in addition to higher rate, we’ve expanded consumer portfolio yield by 11 basis points in the quarter and 38 basis points year-over-year.”
Despite this approach, auto charge-offs still grew 18% in the third quarter year over year. The company charged off $46 million worth of auto loans, up from $39 million the same quarter the year prior, according to the the bank’s financial supplement.
As a percentage of the overall auto portfolio, losses grew 14 basis points year over year to 0.83% of the portfolio. As a result, the company increased credit loss provisions by $8 million year over year.
The reason for the increase in losses is threefold, the company explained. First, there is some seasonality baked into charge-offs during this time of year. Second, the bank made a push into new states in 2016 and those loans didn’t perform up to expectations and the program in those states was promptly ended. That “narrow band” of vintages are just now working their way through the portfolio, Chief Executive Bruce Van Saun said on the call.
Finally, the company has expanded originations down the credit spectrum slightly from super prime, and that naturally brings higher losses, said Brad Conner, Citizens’ head of consumer banking.
“We said for quite some time we’ve begun to expand our credit from super prime to sort of mainstream prime,” Conner said on the call. “So we always expected a little bit of an increase and that’s very much in line with what we expected.”
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