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TCF Financial (TCF) Up 2.3% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for TCF Financial (TCF). Shares have added about 2.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TCF Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

TCF Financial Q1 Earnings Top Estimates, Provisions Up

TCF Financial reported first-quarter 2020 adjusted earnings per share of 57 cents, beating the Zacks Consensus Estimate of 35 cents. However, the figure plunged 45.2% from the prior quarter.

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Disciplined cost management aided the results. Also, the company witnessed continued increase in loans and deposits. However, higher provisions on the coronavirus crisis were on the downside. Further, margin pressure and lower fee income were undermining factors.

Including post-tax merger-related expenses and notable items, the company reported net income of $51.9 million or 32 cents compared with the $112.4 million or 72 cents recorded in the previous quarter.

Revenues Down, Cost Declines

Total revenues came in at $538.8 million in the reported quarter, down 5% sequentially. The top-line figure, however, surpassed the Zacks Consensus Estimate of $534.3 million.

Net interest income was down 1.8% sequentially to $401.5 million. This decline mainly resulted from decreased interest income on loans and leases, along with loans held for sale and other earning assets, partially mitigated by fall in total interest expense. The NIM of 3.53% contracted 7 basis points (bps) sequentially.

Non-interest income came in at $137 million, down 13.3% on a sequential basis. Fall in almost all components of income chiefly resulted in this decrease, partly offset by higher net gains on sale of loans and leases, and servicing fee revenues.

TCF Financial reported non-interest expenses of $374.6 million, down 10.1% from the fourth quarter. This decrease primarily reflects the lower merger-related expenses, compensation and employee benefits, net foreclosed real estate and repossessed assets, along with other expenses.

Adjusted efficiency ratio was 58.24%, down from the prior quarter’s 58.51%. A fall in ratio indicates rise in profitability.

As of Mar 31, 2020, total deposits increased 3.9% sequentially to $35.8 billion. Additionally, net loans and leases climbed 3.3% to $35.5 billion in the March-end quarter.

Credit Quality: A Mixed Bag

Credit quality for TCF Financial reflected mixed credit metrics. Non-accrual loans and leases, and other real estate owned jumped 41.9% sequentially to $289.4 million.

Provisions for credit losses were $96.9 million, significantly up on a sequential basis due to the coronavirus pandemic.

Net charge-offs, as a percentage of average loans and leases, shrunk 1 bps sequentially to 0.06%. Non-performing assets as a percentage of total loans and leases and other real estate owned came in at 0.80%, up 21 bps sequentially.

Robust Capital Position

TCF Financial’s capital ratios remained strong. As of Mar 31, 2020, Common equity Tier 1 capital ratio was 10.44% compared with 10.99% as of Dec 31, 2019. Total risk-based capital ratio was 12.31% compared with 12.70% as of Dec 31, 2019. Tier 1 leverage capital ratio was 9.27%, down from 9.49% as of Dec 31, 2019.

Capital-Deployment Update

During the January-March period, the company repurchased 873,000 shares for a total value of $33.1 million in common stock.

Outlook

The company expects full-year loan growth in the low single-digits, driven by demand for commercial loans. This outlook could change if borrower sentiment improves.

Management expects deposit growth opportunities across all its channels, as customers continue to hold higher balances in the current environment due to less spending. Cost of deposits is expected to continue to decline over time, as the company has reduced deposit rates across products.

It continues to execute integration cost synergies and remain on track to witness expenses of $321 million or lower in the fourth quarter of 2020.

Net interest income is expected to be lower in second-quarter 2020 on account of seasonality. However, it is anticipated to stabilize in the third quarter.

Margin is likely to remain under pressure, given a full-quarter impact of the Fed fund rate cuts and lower LIBOR rates. Reported NIM (excluding purchase account accretions) is expected to stabilize toward the end of second-quarter 2020 or into the third quarter of 2020, as earning asset yields will likely be fully repriced in the second quarter.

Effective tax rate is anticipated to be between 21% and 23% for 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -7.31% due to these changes.

VGM Scores

At this time, TCF Financial has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, TCF Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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