Strong sales in leasing and equipment finance and lower credit costs helped drive TCF Financial Corp.'s profits in the third quarter, but the bank has yet to see the full bang from heavy investments in its new auto finance business.
The Wayzata-based lender reported profits of $37.9 million, or 23 cents per share, in line with Wall Street expectations and a threefold increase from a year earlier, when regulators pushed banks to charge off certain consumer loans deemed risky.
Like all banks, TCF has struggled to grow revenue amid weak loan demand and tightened regulation, but TCF responded with a major restructuring, and results are still unfolding.
The bank hoisted total revenue 1.3 percent from the previous quarter to $305.8 million, but it was still down 2.2 percent from a year ago. Net interest income on loans was largely flat; noninterest income from such things as card fees and other charges sank about 5 percent.
The shortfalls in noninterest income have narrowed in recent quarters, however. Chairman and CEO William Cooper summed it up as "a pretty good quarter."
"Our revenue diversification strategy and asset diversification strategy is starting to prove itself," Cooper told analysts Friday.
As part of its makeover, TCF in 2011 bought Gateway One Lending Finance, a used car lender in Southern California, and has been building out that business. The auto finance loan portfolio has more than doubled from a year ago to nearly $1 billion, but expenses have been high.
Cooper said he expects the auto finance business to become more profitable over the next 15 to 18 months or so, and said the portfolio could grow to $2 billion in the next year or two.
Jon Arfstrom, a bank analyst with RBC Capital Markets in Minneapolis, said he thinks the bank already has seen good payback from the acquisition and that it's still early in the combination.
"The revenue part of the company is in better shape than it's been in years," Arfstrom said of the bank.
TCF's unusually large stock of checking accounts, a bread-and-butter business for a bank that has always has a strong retail focus, continues growing.
The bank made headlines recently for the high level of complaints TCF customers filed with the Consumer Financial Protection Bureau about checking account issues.
Nonetheless, more people are opening accounts than closing them, as the total number of checking accounts was up about 5 percent from a year ago. The bank said it has grown the number of checking accounts for five straight quarters, since it reintroduced free checking.
"Our team is focused on improving the customer experience for our deposit customers and the team is making good progress in that regard," Vice Chairman Tom Jasper told analysts.