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On Sep 19, we reiterated our recommendation on retail and wholesale banking products and services provider, TCF Financial Corporation (TCB - Analyst Report) at Neutral based on its superior market position aided by its positive approach to market conditions and top-line growth. Moreover, a healthy capital position is indicative of the company’s robust standing. However, regulatory reforms and an unsettled global economy might act as headwinds for the stock.

Why Neutral?

TCF Financial reported second-quarter 2013 net income of 21 cents per share, in line with the Zacks Consensus Estimate. However, results improved by a nickel on a sequential basis. Deposits growth coupled with improving credit quality were the tailwinds for the quarter. However, increase in non-interest expenses reflects undisciplined expense management.

We view TCF Financial as a sound asset for yield-seeking investors. The company has been able to generate positive cash flow even in an increasingly difficult operating environment. Moreover, over the last three and a half years ended Jun 30, 2013, the company enhanced shareholder value by returning over $100 million through dividends, thereby enhancing investors’ confidence.

With the growing level of deposits, TCF Financial has expanded organically. The second quarter of 2013 reflects the 11th consecutive quarter of positive deposits growth. A huge deposit base should help the company generate loans and meet other general business purposes.

An upward trend in profitability metrics safeguards the company’s financials. The return on average assets and common equity was 0.80% and 7.39%, respectively, in first-half 2013 as compared with negative 2.71% and negative 29.84%, respectively, in the comparable prior-year period.

However, with the growing level of non-interest expenses, the company is exposed to operational risks. Though non-interest expenses declined 56.6% year over year in first-half 2013, over the last 5 years, expenses recorded a CAGR of 15.8% in 2012.

Over the last 60 days, the Zacks Consensus Estimate for 2013 has gone down by 2.3% to 85 cents, while it remained stable at $1.12 per share for 2014. Hence, TCF Financial carries a Zacks Rank #4 (Sell).

Other Stocks to Consider

Some stocks in the same sector that are currently performing well include Tower Financial Corporation , German American Bancorp Inc. (GABC - Snapshot Report) and Firstbank Corporation . All three companies carry a Zacks Rank #1 (Strong Buy).

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