Bank shifts strategy to focus on shorter-term finance such as auto and inventory lending.
TCF Financial Corp. swung back to a profit in the second quarter as the Wayzata-based bank continues its makeover amid radical changes in the U.S. banking industry.
Net income rose 3.6 percent year-over-year to $31.5 million, the bank said Thursday, down from earlier peaks but a relief from a tumultuous first quarter when the "Joe Lunchbox" bank announced a major balance-sheet restructuring and posted a rare loss of $282.9 million.
The bank's profits translated to 20 cents per share, beating Wall Street estimates by 2 cents, according to a Thomson Reuters poll of analysts.
Unlike rivals Wells Fargo & Co. and U.S. Bancorp, which have been riding the boom in mortgage lending, TCF is shifting away from that business. TCF Chairman and CEO Bill Cooper is instead making a bet on the state's No. 3 bank becoming a more national player focusing on shorter-term specialty finance such as auto and inventory financing.
"In the second half of the year we expect to get down to it and benefit from all of those changes we worked on so hard in the first half," he told analysts Thursday in a call. "We are now in a much better position to capitalize on these efforts."
Analysts expressed concern that TCF's level of consumer mortgages that are at least 60 days delinquent hasn't improved faster. Cooper said that the Illinois housing market remains difficult.
"Minnesota has improved considerably as has Denver and even Michigan and Wisconsin," Cooper said. "The tough part for us is Chicago. That's where a lot of the problem assets are."
TCF shares dropped $1.12 to $10.30.
Net interest income from loans and investments grew 12.5 percent from a year ago, driven by the balance sheet restructuring finished in the first quarter that reduced the bank's borrowing costs, and higher average balances on inventory and auto finance loans.
Total noninterest income from such things as fees, service charges and leasing and equipment finance fell 1.1 percent from a year earlier. Leasing and equipment finance rose 4.2 percent, but couldn't offset the hits TCF took in other areas.
Card revenue plunged 52 percent. After a backlash against changes it made to its checking account programs that led to customers pulling accounts, banking fees and service charges dropped 14.7 percent.
In late June, TCF relented and brought back "totally free checking" for all of its customers, a product it helped pioneer in the 1980s. It's too early to gauge the impact of the free-checking-for-everybody campaign, executives said.
"The exit polls are positive," Cooper told analysts.
Total average deposits grew 9.3 percent from a year ago, primarily due to $778 million of deposits TCF acquired from Prudential Bank & Trust.
The company's average level of loans and leases grew 3.7 percent from a year earlier, largely on growth in inventory finance and growth in a new auto finance business it gained last year when it bought Gateway One Lending Finance, a privately held used car lender in Southern California. It also started funding dealers of Bombardier Recreational Products Inc. in February.
TCF added 50 people to its auto financing, a line it expects to be a major driver of loan growth in the second half.
Jennifer Bjorhus • 612-673-4683