Third-quarter profit dropped at TCF Financial as the Wayzata, Minn., company bought back preferred shares, sold fewer loans and was hit by higher interest expenses.

Net income at the $23 billion-asset company fell 6% year over year to $48.3 million. Earnings per share of 29 cents missed by 2 cents the mean estimate of analysts compiled by FactSet Research Systems. However, excluding the impact of TCF’s redemption of preferred stock in the quarter, net income would have increased 8% to $60.5 million, or 33 cents per share.

Noninterest income dropped 9% to $109.2 million. One big reason was that TCF did not sell auto loans in this year’s quarter after recording a gain on sales a year earlier. The change is part of an effort to reduce volatility in earnings that had occurred because of the dicey auto-loan market. Additionally, TCF sold fewer consumer mortgages in the quarter, resulting in a smaller gain. Its income from deposit service charges also fell.

Strategy in action
TCF's fee income fell in the third quarter partly due to CEO Craig Dahl's effort to hold auto loans on the bank's books and reduce volatility tied to the dicey secondary market for auto loans.

Meanwhile, total interest expense increased 14% to $23.5 million as a result of higher balances of both certificates of deposits and holdings of long-term borrowings.

Nevertheless, net interest income rose 11% to $219.6 million. Net loans and leases increased 7% to $18.8 billion, largely because TCF reclassified a batch of auto loans to held-for-investment from held-for-sale status, and due to TCF’s acquisition of a $446 million leasing and equipment finance portfolio. Loan and lease originations fell 7% to $3.9 billion.

“A loan-and-lease portfolio purchase in leasing and equipment finance drove strong growth during the quarter,” Chairman and CEO Craig Dahl said in a news release Friday.

Noninterest expense increased 3% to $235 million due partly to higher operating lease depreciation expense. Higher professional fees connected to TCF’s investments in technology added to expenses, too. TCF in September converted most of its customers to a new digital banking platform.

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