TCF Financial (TCF) Q4 Earnings Impressive, Revenues Improve

TCF Financial Corporation TCF reported fourth-quarter 2019 adjusted earnings per share of $1.04, beating the Zacks Consensus Estimate as well as the prior-quarter figure of 98 cents.

Top-line strength and disciplined cost management drove the results. The company also witnessed continued rise in loans, while maintaining a solid capital position during the quarter. Furthermore, lower provisions was a positive factor. However, margin pressure and lower deposits were undermining factors, reflecting investors’ concerns, resulting in a 3.05% depreciation of its shares following the results.

Including post-tax merger-related expenses and notable items, the company reported net income of $112.4 million or 72 cents compared with the $22.1 million or 15 cents recorded in the previous quarter.

Note: The company’s prior quarter (three-month period ended Sep 30, 2019) results reflect Legacy TCF financial results for the period before Aug 1, 2019, and the post-merger combined TCF financial results on and after Aug 1, 2019.

Revenues Climb, Cost Declines

Total revenues came in at $566.8 million in the reported quarter, up 21.6% sequentially. Moreover, the top-line figure surpassed the Zacks Consensus Estimate of $557.1 million.

Net interest income was up 9.9% sequentially to $408.8 million. This upswing can be mainly attributed to increased interest income on loans and leases, along with loans held for sale, partially mitigated by rise in total interest expense. NIM of 3.89% contracted 25 basis points (bps) sequentially.

Non-interest income came in at $158.1 million, up 67.7% on a sequential basis. Rise in almost all components of income mainly led to this increase, partly offset by lower net gains on investment securities.

TCF Financial reported non-interest expenses of $416.6 million, down 2.1% from the third quarter. This decrease primarily reflects lower merger-related expenses, partly mitigated by higher compensation and employee benefits, occupancy and equipment along with other expenses.

As of Dec 31, 2019, total deposits declined 2.3% sequentially to $34.5 billion. Yet, net loans and leases climbed 3% to $34.4 billion in the December-end quarter.

Credit Quality: A Marked Improvement

Credit quality for TCF Financial reflected improved credit metrics. Non-accrual loans and leases, and other real estate owned slipped 2.6% sequentially to $203.9 million. Provisions for credit losses were $14.4 million, down 47% sequentially.

Net charge-offs, as a percentage of average loans and leases, contracted 32 bps year over year to 0.07%. Non-performing assets as a percentage of total loans and leases and other real estate owned came in at 0.59%, down 3 bps sequentially.

Robust Capital Position

TCF Financial’s capital ratios remained strong. As of Dec 31, 2019, Common equity Tier 1 capital ratio was 10.99% compared with 10.88% as of Sep 30, 2019. Total risk-based capital ratio was 12.71% compared with 12.63% as of Sep 30, 2019. Tier 1 leverage capital ratio was 9.49%, down from 11.16% as of Sep 30, 2019.

Our Viewpoint

TCF Financial put up a decent performance during the October-December period as a combined entity following the merger of equals. Continued top-line improvement reflects the company’s sturdy standing in the market. At the same time, a strengthening capital position and improving credit quality are anticipated to favor the company’s growth in the upcoming period.

In addition to this, we believe its efforts to reduce balance-sheet risks and diversify the loan portfolio will augur well for earnings in the subsequent quarters. Also, steady improvement in the economy will support the future performance of the company.

Nevertheless, we remain apprehensive due to several issues, including margin pressure.

TCF Financial Corporation Price, Consensus and EPS Surprise

TCF Financial Corporation Price, Consensus and EPS Surprise

TCF Financial Corporation price-consensus-eps-surprise-chart | TCF Financial Corporation Quote

TCF Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Texas Capital Bancshares Inc. TCBI reported adjusted earnings per share of $1.44 in fourth-quarter 2019, lagging the Zacks Consensus Estimate of $1.55. However, results compared favorably with the prior-year quarter’s $1.38.

Comerica CMA delivered a positive earnings surprise of 6.3% in the fourth quarter on high non-interest income. Earnings per share of $1.85 outpaced the Zacks Consensus Estimate of $1.74. Earnings, however, came in lower than the prior-year quarter figure of $1.95.

BOK Financial BOKF reported a negative earnings surprise of 15.7% in fourth-quarter 2019. Earnings per share of $1.56 lagged the Zacks Consensus Estimate of $1.85. Further, the bottom line compared unfavorably with the prior-year quarter’s $1.65.

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