Ally Financial, one of the nation's largest automobile lenders, saw profits fall during the third quarter as more motorists fell behind on their car payments.

Detroit-based Ally reported net income Wednesday of $209 million, down 22% from the third quarter of 2015. Earnings per share dropped from 47 cents to 43 cents, and fell well short of analysts' consensus expectations of 59 cents.

One key driver of the disappointing results was the company's swelling provision for loan losses, which increased 22%, to $258 million. The percentage of retail auto loans at Ally that were at least 30 days past due also rose, as did the firm's retail auto net chargeoff rate.

During a conference call with analysts, Ally Chief Executive Officer Jeffrey Brown said that the worsening credit measures are the result of deliberate choices the company has made. He noted that Ally's retail auto loans are generating higher yields – retail auto loan yields were 5.58% during the quarter, up from 5.24% a year earlier – which are more than offsetting higher delinquencies.

Ally said that it is making more loans to borrowers with credit scores between 620 and 740, which is where the firm's executives believe they can optimize pricing.

"Overall we feel good, and believe we are booking good assets," Brown said on a conference call with analysts Wednesday. "We believe the U.S. consumer is healthy, but overall pretty cautious, and still focused on keeping debt loads in check."

Shares in Ally fell by 3.5% in midday trading Wednesday. Over the last year, the company's stock price has fallen by 7% amid fears that the U.S. auto-finance market is weakening.

But some analysts shrugged off the recent rises in late payments and chargeoffs in Ally's auto-lending business.

"We believe that the increases are more a reflection of the changing mix of Ally's [auto] loan portfolio than a sign of deteriorating credit quality," wrote Christopher Donat, an analyst at Sandler O'Neill, in a research note.

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