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TCF Exists Indirect Auto Finance Business

WAYZATA, Minn. — Seven months after announcing plans to reduce auto originations and transition from a reliance on the auto ABS market to an originate-to-hold model in an attempt to increase earnings predictability, TCF Financial Corp. said on Monday it will discontinue all indirect auto loan originations on Dec. 1.

According to officials, the company is folding Gateway One Lending & Finance LLC into the bank as it continues to service existing auto loans on its balance sheet and auto loans serviced for other finance sources.  

“After a thorough review of our businesses by our executive management team and board of directors, we determined that the financial outlook of the indirect auto loan origination business was less favorable compared to alternative uses of capital,” said Craig R. Dahl, chairman and CEO. “As a result, we believe this is the appropriate time to discontinue originating indirect auto loans. While the business performed as expected under the new direction we set earlier in the year, we believe there are better opportunities to deploy our capital and earn a higher return for our shareholders.”

During the bank’s April 23 investor call to discuss its first-quarter results, Dahl said he expected auto originations to fall 30% to 40% once the new strategy took full effect. In the third quarter, originations were down 44.5% year over year, with the bank’s auto portfolio accounting for only 17% of its total loan and lease portfolio.

The bank also tightened credit underwriting standards and moved toward more nearprime paper to increase profitability and drive a higher risk-adjusted yield for its auto business. In the second quarter, the company disclosed that the average FICO score for its auto portfolio was 716; Dahl telling investors in October during the company’s third-quarter webcast that he expected that to be relatively unchanged in the third quarter.

Dahl also told investors back in April that the company was optimizing expenses across all function of the bank’s auto business, including a reduction in headcount of approximately 200 employees this year. “However, for 2018, we see a full run rate of risk-adjusted margin,” Dahl said. “We see a reduction of our overall expenses and we expected an improved return in the auto business compared to 2016.

“We have confidence in the management team to execute on the new strategy and we look forward to our strategic change having a positive impact on the organization moving forward,” he said during the webcast, which took place a month after the company announced leadership and strategy changes at its Gateway One Lending & Auto Finance subsidiary.

TCF acquired Gateway in November 2011. This past March, the company named Todd A. Pierson president and Andrew B. Strum COO. It also announced a new chapter for its Anaheim, Calif.-based subsidiary.

A company spokesman told Auto Finance News that Pierson is no longer with the company. And according to the company’s press release, “actions to wind down operations that support indirect auto originations will begin immediately,” including retention of necessary staff.

As a result of its exit from the indirect auto finance channel, TCF expects a one-time, after-tax charge of $73.4 million for goodwill and other intangibles, and an after-tax restructuring charge of between $7 million and $12 million for items such as severance, asset impairment and lease termination write-offs.

“We are confident that the actions we are taking will meaningfully improve our return on capital and earnings per share in 2018,” Dahl said. “We remain committed to making decisions that will drive shareholder value moving forward.”

 

 

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