Community banks are slowly booking more auto loans.
Auto loans at banks with $10 billion or less in assets rose by nearly 2% in the third quarter compared to a year earlier, to $47.8 billion, based on data compiled by Sageworks. The 25 biggest auto lenders in that group, however, increased the aggregate size of their auto books by about 7%.
Notable banks that have revved up dealings in auto lending include HarborOne Bank in Brockton, Mass.; Berkshire Hills Bancorp in Pittsfield, Mass.; United Bankshares in Charleston, W.Va.; and First Interstate BancSystem in Billings, Mont.
For some of those banks, the moves are matter of being opportunistic in the face of high demand. At the same time, some bigger banks such as Fifth Third Bancorp and Citizens Financial Group, have said they will scale back after regulators issued a warning about the quality of auto loans.
"If the volume goes up, and we're getting the asset at the price that we want it … we'll book it," said Kevin Riley, president and CEO of the $8.9-billion asset First Interstate, where auto loans rose 21% in the third quarter. The increase "is purely because there was more of that good volume that we could book."
In terms of credit quality, Riley said most risk is contingent on the types of borrowers targeted and how banks value used cars that serve as collateral. First Interstate, he said, only focuses on prime loans for new and used cars.
"We're not doing anything to just put on volume for the sake of volume," Riley said.
United, which had a 31% spike in auto loans compared to a year earlier, is tapping into demand in its northern Virginia markets, said Chad Mildren, the $6 billion-asset company's chief consumer banking officer.
United, which also focuses on prime borrowers, is accustomed to 15% to 20% annual growth in its auto portfolio, Mildren said. "The car market is strong," Mildren said, adding that United "made an effort to penetrate new markets within our footprint."
It is always worth watching banks where a "lending category shows that type of growth," said Matthew Schultheis, an analyst at Boenning & Scattergood. Schultheis said, however, that he doesn't get concerned when he sees spikes at banks such as United, which has a history of conservative underwriting and running a "tight credit ship."
Industry consolidation and a pullback by other lenders helped Five Star Bank, the $3.7 billion-asset bank unit of Financial Institutions Inc. in Warsaw, N.Y., boost the size of its auto portfolio by nearly 10%.
"In our footprint specifically, we've seen some very large players either modify their programs or scale back a little bit," said Charles Gearino, Five Star's chief retail lending executive. "Any time a really large player makes some changes, it puts some excess capacity into the market."
A number of community banks also reduced the size of their auto portfolios.
Eastern Bank in Boston, while still among the 25 biggest community banks in terms of auto loans, reduced its book by 18% in the third quarter compared to a year earlier. The number of auto loans held by First Commonwealth Financial in Indiana, Pa., shrank by nearly 14%.
Efforts to reach Eastern and First Commonwealth were unsuccessful.
Canandaigua National Bank based in New York expects its number to rebound in the fourth quarter after falling behind earlier this year. Though the year-over-year size of its auto portfolio shrank slightly in the third quarter, Canandaigua should be on pace in 2016 to exceed last year's volume by about 16%, said Brian Pasley, the bank's Community Reinvestment Act officer.
The $2.4 billion-asset bank plans to keep building its loan book.
"It's a very important business to us," Pasley said. "As long as we continue to manage the risk aggressively we think we can do very well."