TCF Financial Corp.'s second-quarter profit jumped nearly 5 percent, shaped by higher interest rates and a pullback in auto loans.
The Wayzata-based company's report issued Monday showed solid gains in most key measures and executives gave an upbeat outlook for the rest of 2017.
TCF earned $60.4 million, or 33 cents a share, in the April-through-June period. Analysts surveyed by Zack's Investment Research had forecast a profit of 30 cents a share. TCF shares rose 1 percent.
Revenue was $341.8 million, up 3 percent. Interest income rose 6.7 percent.
The company's net interest margin, the difference between what it pays to get deposits and what it charges for loans, rose to 4.52 percent from 4.35 percent a year ago.
After Federal Reserve policymakers raised interest rates twice this year, TCF, like many banks, started to see improvement in net interest margin. Banks in general benefit from higher rates because the spread tends to widen between the rate a bank pays to borrow money and the rate it charges customers to borrow.
TCF's efficiency ratio dropped a half-percentage point to 68.19 percent. The ratio expresses a bank's ability to create revenue from deposits and other resources and a lower figure is better. In a conference call with analysts, executives said they expect the ratio to improve further this year on stronger revenue.
The company restructured its auto finance business, which accounts for about 18 percent of its loans, in the first three months of the year. For several years, TCF rapidly grew the business with a strategy of originating loans, then packaging them up and selling them. Under the restructuring, it shifted its strategy to an "originate-to-hold" model.
The result: TCF originated 42 percent fewer auto loans in the latest quarter and focused more on their potential yield. The company showed a higher yield from the auto portfolio and said that the business would eventually dwindle to about 15 percent of its overall loan base.
"We are pleased with the performance of the [auto finance] business and like the outlook," Craig Dahl, TCF's chief executive, told analysts in a conference call.
The reduction in gains that TCF previously experienced from selling off auto loans was largely offset by higher levels of leasing and equipment finance, Dahl said.
Deposits grew 0.2 percent. Noninterest expenses rose 2.5 percent chiefly due to higher spending on marketing and technology.