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TCF Financial pulls back on auto securitization as gain-on-sale plummets 90%


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According to Market Intelligence, April 2023

TCF Financial pulls back on auto securitization as gain-on-sale plummets 90%

TCF Financial Corp. executives said Jan. 27 the bank is pulling back from its auto loan securitization operation due to weaker profitability.

Analysts asked several questions about the company's auto business during the company's earnings call to discuss 2016 fourth-quarter and full-year results. The company reported net gain-on-sale revenue of just $1.1 million in its auto loan segment, a 90.1% linked-quarter decline and 63.5% drop from the year-ago quarter.

"The relative profitability in the secondary market for auto loans has declined significantly in recent periods," said CEO Craig Dahl in prepared remarks. "These market conditions have resulted in lower gain on sales that challenge the effectiveness of our originate-to-sell model in auto."

Management said they do not expect the bank's auto business to grow this year due to the difficult market conditions. Auto net charge-offs increased to 1.09% in the fourth quarter of 2016, which the company attributed to softening used car valuations. The auto business dominated the call's question-and-answer portion as analysts strained for additional detail on the company's plans. Executives said the bank would change its approach to the business as market conditions warrant.

"I think the focus for us as we go into the first quarter is look to more of the whole loan sales than it would be to the securitization marketplace, which we executed in the [2016] fourth quarter. As I think we've talked about in the past, our best execution on the auto side would be whole loans first and then securitization second. So I think right now our approach is to work with several different investors kind of around the whole loan purchases versus entering the securitization market in [first quarter]," said Michael Jones, executive vice president of consumer banking for the company.

Executives spoke only briefly about the bank's ongoing lawsuit with the Consumer Financial Protection Bureau over its overdraft program. During prepared remarks, Dahl said he believed the company's policy followed both the letter and spirit of all applicable laws and regulations. An analyst asked whether the bank expected a decline in service fees moving forward, to which management reiterated that they stand behind the bank's overdraft policy.