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TCF Financial (TCB) Beats on Q2 Earnings as Revenues Rise
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TCF Financial Corporation delivered a positive earnings surprise of 6.9% in the second quarter of 2016 on the back of higher revenues. Earnings per share of 31 cents surpassed the Zacks Consensus Estimate by 2 cents. Moreover, the figure reflects a 6.9% rise from the year-ago quarter.
Results benefited from an increase in net interest and non-interest income. The company witnessed a continued rise in deposits in the quarter and maintained a strong capital position. However, escalated expenses and provisions along with decreased loan balances were on the downside.
The company reported net income of $57.7 million, up 10.3% from the prior-year quarter.
Total revenue was $331 million, up 3.6% from the year-ago quarter. However, the figure came in line with the Zacks Consensus Estimate.
Net interest income rose 3.4% year over year to $213 million. The increase was owing to higher average loan and lease balances in the auto finance and inventory finance portfolios, higher average balances of securities available for sale, and loans and leases held for sale. These were partially pulled down by the run-off of consumer real estate first mortgage lien loan balances, overall net margin compression and higher promotional rates paid on certificates of deposit.
Net interest margin slipped 9 basis points (bps) year over year to 4.4% due to higher rates paid on certificates of deposit and margin compression resulting from the impact of the persistent low interest rate environment.
Non-interest income totaled $118 million, up 4% year over year. The income drivers were a rise in servicing fee income, card revenue, and equipment & lease financing income, other income and absence of net losses on securities. These were, however, partially offset by lower ATM revenue, reduced gains on sales of auto loans as well as consumer real estate loans, and reduced fees and service charges, reflecting changes in consumer behavior, as well as higher average checking account balances per customer.
Non-interest expenses came in at $227.3 million, reflecting an increase of 2% from the prior-year quarter. The rise was mainly led by all components, except FDIC insurance and net foreclosed real estate and repossessed assets.
Credit Quality: A Mixed Bag
Net charge-offs, as a percentage of average loans and leases, plunged 18 bps year over year to 0.2%. The decline was mainly attributable to an improved credit quality in the consumer real estate portfolios.
Moreover, non-accrual loans and leases and other real estate owned were $232.3 million, marking an 11.9% decrease year over year. The decline was due to increased sales of consumer real estate and consumer properties, better credit quality trends, and initiative undertaken to actively resolve problem loans in the commercial real estate portfolio.
However, provisions for credit losses were up 5.8% year over year at $13.3 million. It reflected reserve build tied with growth in the auto finance, leasing and equipment finance and inventory finance portfolios as well as changes in economic outlook, partially offset by decreased net charge-offs and improved credit quality in the consumer real estate and commercial portfolios.
Balance Sheet Reflects a Mixed Picture; Capital Ratios Strengthen
As of Jun 30, 2016, average deposits totaled $17.2 billion, compared with $16.9 billion as of Mar 31, 2016. Average loans and leases amounted to $17.7 billion, down from $17.8 billion as of Mar 31, 2016.
As of Jun 30, 2016, Common equity Tier 1 capital ratio was 10.2%, up from 10% at the end of the prior quarter. Total risk-based capital ratio was 13.7%, compared with 13.6% as of Mar 31, 2016. Tier 1 leverage capital ratio came in at 10.4% compared with 10.3% as of Mar 31, 2016.
Our Viewpoint
Consistent top-line improvement reflects the company’s strong standing in the market. At the same time, a strengthening capital position and improving credit quality are expected to favor the company’s future growth. Moreover, we believe the company’s efforts to reduce balance sheet risk and diversify the loan portfolio will augur well for its earnings in the subsequent quarters. Also, steady improvement in the economy will support the company’s future performance.
However, we remain apprehensive owing to several issues including an expanding cost base, margin pressure and a stringent regulatory landscape.
TCF Financial currently carries a Zacks Rank #3 (Hold).
Performance of Other Midwest Banks
Commerce Bancshares, Inc. (CBSH - Free Report) reported second-quarter 2016 earnings per share of 70 cents, which surpassed the Zacks Consensus Estimate of 68 cents. However, the bottom line was down 1.4% from the year-ago tally.
Associated Banc-Corp (ASB - Free Report) reported earnings per share of 31 cents, which outpaced the Zacks Consensus Estimate by a penny. However, the reported figure came in line with the year-ago figure.
Huntington Bancshares Incorporated (HBAN - Free Report) reported second-quarter 2016 earnings per share of 21 cents, in line with the Zacks Consensus Estimate. However, the figure was below the prior-year quarter earnings of 23 cents.
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TCF Financial (TCB) Beats on Q2 Earnings as Revenues Rise
TCF Financial Corporation delivered a positive earnings surprise of 6.9% in the second quarter of 2016 on the back of higher revenues. Earnings per share of 31 cents surpassed the Zacks Consensus Estimate by 2 cents. Moreover, the figure reflects a 6.9% rise from the year-ago quarter.
Results benefited from an increase in net interest and non-interest income. The company witnessed a continued rise in deposits in the quarter and maintained a strong capital position. However, escalated expenses and provisions along with decreased loan balances were on the downside.
The company reported net income of $57.7 million, up 10.3% from the prior-year quarter.
Revenue Rise Exceeded Expense Growth
Total revenue was $331 million, up 3.6% from the year-ago quarter. However, the figure came in line with the Zacks Consensus Estimate.
Net interest income rose 3.4% year over year to $213 million. The increase was owing to higher average loan and lease balances in the auto finance and inventory finance portfolios, higher average balances of securities available for sale, and loans and leases held for sale. These were partially pulled down by the run-off of consumer real estate first mortgage lien loan balances, overall net margin compression and higher promotional rates paid on certificates of deposit.
Net interest margin slipped 9 basis points (bps) year over year to 4.4% due to higher rates paid on certificates of deposit and margin compression resulting from the impact of the persistent low interest rate environment.
Non-interest income totaled $118 million, up 4% year over year. The income drivers were a rise in servicing fee income, card revenue, and equipment & lease financing income, other income and absence of net losses on securities. These were, however, partially offset by lower ATM revenue, reduced gains on sales of auto loans as well as consumer real estate loans, and reduced fees and service charges, reflecting changes in consumer behavior, as well as higher average checking account balances per customer.
Non-interest expenses came in at $227.3 million, reflecting an increase of 2% from the prior-year quarter. The rise was mainly led by all components, except FDIC insurance and net foreclosed real estate and repossessed assets.
Credit Quality: A Mixed Bag
Net charge-offs, as a percentage of average loans and leases, plunged 18 bps year over year to 0.2%. The decline was mainly attributable to an improved credit quality in the consumer real estate portfolios.
Moreover, non-accrual loans and leases and other real estate owned were $232.3 million, marking an 11.9% decrease year over year. The decline was due to increased sales of consumer real estate and consumer properties, better credit quality trends, and initiative undertaken to actively resolve problem loans in the commercial real estate portfolio.
However, provisions for credit losses were up 5.8% year over year at $13.3 million. It reflected reserve build tied with growth in the auto finance, leasing and equipment finance and inventory finance portfolios as well as changes in economic outlook, partially offset by decreased net charge-offs and improved credit quality in the consumer real estate and commercial portfolios.
Balance Sheet Reflects a Mixed Picture; Capital Ratios Strengthen
As of Jun 30, 2016, average deposits totaled $17.2 billion, compared with $16.9 billion as of Mar 31, 2016. Average loans and leases amounted to $17.7 billion, down from $17.8 billion as of Mar 31, 2016.
As of Jun 30, 2016, Common equity Tier 1 capital ratio was 10.2%, up from 10% at the end of the prior quarter. Total risk-based capital ratio was 13.7%, compared with 13.6% as of Mar 31, 2016. Tier 1 leverage capital ratio came in at 10.4% compared with 10.3% as of Mar 31, 2016.
Our Viewpoint
Consistent top-line improvement reflects the company’s strong standing in the market. At the same time, a strengthening capital position and improving credit quality are expected to favor the company’s future growth. Moreover, we believe the company’s efforts to reduce balance sheet risk and diversify the loan portfolio will augur well for its earnings in the subsequent quarters. Also, steady improvement in the economy will support the company’s future performance.
However, we remain apprehensive owing to several issues including an expanding cost base, margin pressure and a stringent regulatory landscape.
TCF FINL CORP Price, Consensus and EPS Surprise
TCF FINL CORP Price, Consensus and EPS Surprise | TCF FINL CORP Quote
TCF Financial currently carries a Zacks Rank #3 (Hold).
Performance of Other Midwest Banks
Commerce Bancshares, Inc. (CBSH - Free Report) reported second-quarter 2016 earnings per share of 70 cents, which surpassed the Zacks Consensus Estimate of 68 cents. However, the bottom line was down 1.4% from the year-ago tally.
Associated Banc-Corp (ASB - Free Report) reported earnings per share of 31 cents, which outpaced the Zacks Consensus Estimate by a penny. However, the reported figure came in line with the year-ago figure.
Huntington Bancshares Incorporated (HBAN - Free Report) reported second-quarter 2016 earnings per share of 21 cents, in line with the Zacks Consensus Estimate. However, the figure was below the prior-year quarter earnings of 23 cents.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>