TCF Ends Indirect Auto Finance Business

TCF Bank is exiting the indirect auto finance space effectively on Dec. 1, and is folding Gateway One Lending & Finance LLC into the bank as it continues to service the remaining loans on its balance sheet. 

Despite growing the size of its auto portfolio in 2016, TCF Bank became unsatisfied with the profitability of those loans and made a number of changes to try and correct course throughout 2017, Auto Finance News previously reported.  

“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,” Craig Dahl, the bank’s chairman and chief executive, said in a press release. “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.”

One of the bank’s changes included a focus on near-prime credit rather than low returns on super-prime loans. TCF also nearly exited the auto ABS market entirely in the second quarter by reducing its loans held for securitization by 85% year over year.

“While our current auto business was expected to be profitable in 2018, it still would have been dilutive in return capital to the organization as a whole,” Dahl said on a webcast explaining the changes. “There are better opportunities to deploy our capital and earn a better return for our shareholders.”

He added that the decision “was not based on any perceived long-term change in underlying credit quality of our auto portfolio.”

TCF acquired its indirect lending arm Gateway One Lending & Finance LLC in November 2011. Per today’s announcement, Todd Pierson, president of Gateway One since March, is no longer with the company, a spokesman told AFN.   

Additionally, TCF said efforts to “wind down operations that support indirect auto originations will begin immediately,” including the “retention of the necessary staff,” according to the release.  

“I want to personally thank the team members who have diligently supported our auto strategy,” Dahl said. “Our decision is not a reflection of their hard work and dedication to execute the plans we put in place at the beginning of the year.” 

Due to this market exit, TCF expects a one-time, after-tax charge in the fourth quarter that will come in two parts: $73.4 million for “goodwill and other intangibles,” and $7 million to $12 million for “severance, asset impairment, and lease termination write-offs.”

The bank’s auto portfolio represented 17% of total loans and leases at $19 billion outstanding, according to third quarter earnings.

“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.”