The transformation of TCF is showing signs of paying off.
Growth in loans for used-car financing and inventory finance helped push TCF Financial Corp. profits up 8 percent in the second quarter as the bank works to diversify its sources of revenue. The Wayzata-based lender had to redraw its heavily fee-reliant business model after being walloped by regulatory changes that slashed fees.
Profits of $34.1 million, or 21 cents per share, were right in line with what analysts expected, based on a Thomson Reuters average of Wall Street estimates. That’s important for a lender that has fallen short of the mark in recent quarters.
“It’s been a real transitional year,” TCF Chairman and CEO Bill Cooper told analysts Tuesday. “We spent a lot of money and time reinventing the bank last year, and it’s beginning to pay off this year.”
TCF shares gained 1.5 percent Tuesday, closing above $16 for the first time in more than two years.
Revenue of about $302 million came in surprisingly high. The bank’s net interest income from loans rose 1.2 percent from a year ago, buoyed by its specialty finance operations. Average loans and leases rose 3 percent.
On the fee side, TCF is still feeling the impact of bringing back totally free checking, losing monthly maintenance fees. The bank’s total noninterest income, which tends to jump around, dropped 11.6 percent from a year ago because of lower fees, card revenue, ATM revenue, and leasing and equipment finance revenue.
The decline in noninterest income came despite big gains the bank saw from selling off packages of auto loans and consumer real estate loans, which has become a regular occurrence now. It unloaded some nonperforming consumer real estate loans as well as soured commercial real estate loans, improving the bank’s overall credit quality.
“Most of the financial industry is really starved for loans right now, and so there’s a lot of demand for it,” Cooper said.
Unlike its crosstown competitors, TCF felt little impact from rising mortgage rates because it has shifted its focus away from mortgage loans to shorter-term lending, such as inventory finance.
Cooper said that so far the bank has seen little impact from rising 10-year Treasury rates. “The Treasury rate grows but nothing else seemed to change with it,” he said.