TCF Financial's bid to reinvent itself as a nationwide specialty lender is showing early signs of success.
The Wayzata, Minn., company said in its second-quarter earnings report Thursday that its total loans rose 4.1% from the same period last year, to $15.2 billion, thanks largely to its recent acquisition of a nationwide automobile lender and strong growth in its inventory finance lending unit.
The loan growth helped offset a steep drop in fee income, resulting primarily from a new law that caps swipe fees on debit card transactions.
For the quarter, the $17.9 billion-asset TCF (TCB) reported a profit of $31.5 million, up 3.6% from the same period last year. Earnings per share climbed 5.3%, to 21 cents, or 3 cents better than the average estimates of analysts surveyed by Thomson Reuters.
TCF has been actively growing its inventory finance business over the last year and now has exclusive lending agreements with several dealers and distributors of lawn equipment, boats, recreational vehicles and other consumer products in both the U.S. and Canada. It also added an auto lending division late last year and at June 30, that unit had $224 million of loans on its books.
The influx of new loans, combined with a balance-sheet repositioning earlier this year that lowered its funding costs, helped boost net interest income by nearly 13% year over year, to $22.1 million. Its net interest margin, meanwhile, climbed 84 basis points, to 4.86%.
"We began the year by saying 2012 would be a 'building and investing' year for TCF, and the halfway point it has been just that," TCF's Chairman and Chief Executive, William Cooper, said in a news release.
Though banking fees fell sharply year over year, they actually rose 11% from the prior quarter, to $68 million, due primarily to a 15% increase in fees and service charges on deposit accounts that the company attributed to changes in its fee structure.
Credit quality weakened somewhat during the quarter, however, as the company reported an increase in nonperforming assets, mostly related to commercial real estate. As a result, TCF boosted its provision for loan losses by 23%, to $54 million.
TCF's shares were down 6% in early trading Thursday, to $10.74.