It’s a dicey time in consumer lending as banks pull back on auto loans amid looming credit risks, and also guard their share of the mortgage market from the competitive threat posed by nonbanks.

Facing those and other constraints, some prominent regional banks — Fifth Third Bancorp, Citizens Financial Group, Regions Financial and SunTrust Banks — are seeking new ways to grow.

Executives said during second-quarter earnings calls Friday that they are experimenting with innovative ways to expand their consumer books, particularly through investments in personal lending and credit card technology. Fintech partnerships launched over the past year have begun to juice up consumer loan books, producing double-digit growth in personal loans. Banks such as Fifth Third have also invested in analytics technology to more narrowly target their credit card marketing.

Though the executives confidently projected strong loan growth in the year ahead, analysts have begun to question the potential for credit risks down the road, particularly when it comes to unsecured loans.

Fifth Third CEO Greg Carmichael.
Reassurance on consumer risk
“If you look at our unsecured [lending], it’s performing as best-in-class against the other assets in the consumer business, short of super-prime auto,” Fifth Third CEO Greg Carmichael says.

Fifth Third — which has expanded its personal loan book — has focused primarily on borrowers with sterling credit histories, executives said when asked about credit risk during the Cincinnati company’s earnings call. The average credit score in its personal lending business is about 760, Fifth Third said.

“People aren’t born with a 760 FICO,” Greg Carmichael, president and CEO, said in an interview after the call. “They’ve got to kind of earn it.”

Personal loans at the $141 billion-asset Fifth Third grew 36%, to $892 million, boosted in part by a partnership with the fintech firm GreenSky. Total consumer loans, meanwhile, fell 2% to just over $25 billion as the company scaled back on indirect auto lending and also felt the impact of industrywide declines in home equity lines of credit.

“If you look at our unsecured [lending], it’s performing as best-in-class against the other assets in the consumer business, short of super-prime auto,” Carmichael said.

Efforts to find new ways to ramp up consumer loans come as more traditional methods — boosting mortgage production or auto loans — have come under pressure.

Once the kings of the residential mortgage market, banks have been fending off competition from nonbank lenders in recent years, as post-crisis regulations have reshaped the industry.

During the current earnings season, big banks such as JPMorgan Chase have notably tempered their outlook for residential mortgage lending in 2017.

Additionally, falling yields and signs of credit trouble have led several regional banks to scale back in auto lending. Declines in auto were a drag on overall consumer lending at several regional banks, including Fifth Third and Regions.

At Fifth Third, for instance, auto loans declined 14% from a year earlier to $9.4 billion. Citizens pulled back as well as balances declined about 3%, to $13.6 billion, though executives at the Providence, R.I., company downplayed the stresses in the broader auto industry, such as falling used-car values.

Opportunistic
“The consumer generally has been healthy and we’ve sought out … little pockets where we can, you know, be distinctive” and find risk-adjusted returns, Citizens CEO Bruce Van Saun says.

During the quarterly calls Friday, executives emphasized the importance of finding consumer-lending niches.

Fifth Third has begun using new analytics technology in its credit card business, and also hiring additional staffers who are trained in utilizing data.

The new technology has helped the company better identify opportunities, such as when to increase credit card lines. It has also helped the company to more carefully direct its marketing, so that it does not cannibalize its personal lending business.

In addition to offering personal loans through its GreenSky partnership — offered at the point of sale at big-box home-improvement stores — Fifth Third has also boosted production of personal loans at its branches, according to the company.

“It’s about the client selection,” Carmichael said.

The $151 billion-asset Citizens has also taken a selective approach to consumer loans, particularly through its installment-lending partnerships with Apple, Hewlett-Packard and others. The company also has a significant business in refinancing student loans.

“I think the consumer generally has been healthy and we’ve sought out … little pockets where we can, you know, be distinctive” and find risk-adjusted returns, CEO Bruce Van Saun said during the company's call.

SunTrust Banks Chief Financial Officer Aleem Gillani.
Successful niche
SunTrust's LightStream personal lending business has steadily grown at a double-digit pace over the past five years, CFO Aleem Gillani says.

At Regions, consumer loans climbed 1% to $31.1 billion as a 65% increase in indirect consumer loans helped offset a slowdown in mortgages, as well as a pullback in indirect auto.

During the quarter, the Birmingham, Ala., company exited a third-party relationship in its indirect auto business.

“We’ve made a very conscious effort to take a different risk appetite on certain of our lending segments,” said David Turner, chief financial officer at the $125 billion-asset company, discussing the reduction in higher-risk types of lending, including auto.

At the $207 billion-asset SunTrust, meanwhile, consumer loans increased by 4% to $72.1 billion on strength in credit cards, as well as a “substantial” increase in the company’s LightStream personal lending business.

Aleem Gillani, chief financial officer of Atlanta-based SunTrust, noted that LightStream has grown at a double-digit pace since SunTrust bought it in 2012.

“We can’t grow 50% year over year forever, but we’re pleased with the growth, and we’re pleased with the fact that it’s accretive to everything we’re doing from a return perspective,” Gillani said.

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Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.
Andy Peters

Andy Peters

Andy Peters writes about regional banks, consumer finance and debt collections for American Banker.