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TCF Financial (TCF) Q3 Earnings Top Estimates, Stock Up 2.4%

Zacks Equity Research

Shares of TCF Financial Corporation TCF gained 2.4% post delivering third-quarter 2019 positive earnings surprise of 2.1%. Adjusted earnings per share of 98 cents surpassed the Zacks Consensus Estimate of 96 cents. However, the bottom line was nearly 2% down from the prior-year quarter.

Third-quarter results reflect positive impact of merger with Chemical Financial Corporation. The company benefited from improved loans and deposits balance. Also, the company witnessed rise in top line. However, contraction of margin and higher expenses were headwinds.

After considering after-tax impact of merger-related expenses and non-core items, the company reported net income of $22.1 million, down 74.3% from $86.2 million in the year-ago quarter.

Revenues & Loans Increase, Expenses Rise

Total revenues for the third quarter came in at $466.1 million, up 27.5% year over year. However, the top line missed the Zacks Consensus Estimate of $496 million.

Net interest income for the quarter increased 46.7% year over year to $371.8 million. The rise stemmed from higher interest income. Net interest margin on a fully tax-equivalent basis came in at 4.14% contracting 59 basis points (bps).

Non-interest income came in at $94.3 million, down nearly 16% on a year-over-year basis. This decrease primarily resulted from fall in almost all components of income, partially mitigated by higher card revenues.

TCF Financial incurred non-interest expenses of $425.6 million for the September-ended quarter, up 72.7% from the year-earlier quarter. The rise primarily resulted from higher compensation and employee benefits and merger-related expenses.

As of Sep 30, 2019, deposits were $35.3 billion, up 84.6% from the prior-quarter end. Also, total loans and leases climbed 74.7% sequentially to $33.5 billion.

Credit Quality Worsens                                                               

Total non-performing assets climbed considerably year over year to $209.4 million in the third quarter. Further, net charge-offs, as a percentage of average loans and leases, expanded 24 bps to 0.39%. The upsurge chiefly resulted from elevated net charge-offs in the commercial and inventory finance portfolios.

Also, provisions for credit losses were $27.2 million, up slightly year over year.

Capital Position

As of Sep 30, 2019, Common equity Tier 1 capital ratio was 10.88% compared with 11.04% as of Sep 30, 2018. Also, total risk-based capital ratio was 12.63% compared with 13.66% on Sep 30, 2018. Tier 1 leverage capital ratio was 11.16% on Sep 30, 2019, up from 10.58%.

Our Viewpoint

The company’s performance in third quarter majorly reflects the merger benefits. Rise in deposits and loans is likely to support near-term growth. In addition, a strong capital position remains a tailwind. However, weak fee income keeps us apprehensive. Further, lower rates and deterioration of credit quality pose concerns.

TCF Financial currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Associated Banc-Corp’s ASB third-quarter 2019 adjusted earnings of 50 cents per share outpaced the Zacks Consensus Estimate of 46 cents. The figure compares favorably with 48 cents reported in the prior-year quarter. Earnings (in the reported quarter) excluded certain acquisition-related costs.

SVB Financial Group’s SIVB third-quarter 2019 earnings of $5.15 per share outpaced the Zacks Consensus Estimate of $4.99. Also, the bottom line comes in nearly 1% higher than the year-ago quarter’s reported figure.

Huntington Bancshares HBAN delivered third-quarter 2019 positive earnings surprise of 3%. Earnings per share of 34 cents surpassed the Zacks Consensus Estimate by a penny. The bottom line also came in 10% higher than the prior-year quarter’s reported figure.

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