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TCF Financial (TCB) Q3 Earnings Beat on Higher Revenues

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TCF Financial Corporation delivered a positive earnings surprise of 3.3% for third-quarter 2016 on the back of higher revenues. Earnings per share of 31 cents surpassed the Zacks Consensus Estimate by a penny. Moreover, the figure reflects a 6.9% rise from the year-ago tally of 29 cents.

Results benefited primarily from higher net interest and non-interest income. The quarter witnessed a rise in loans and deposits as well as an improved capital position. However, escalated expenses and provisions acted as undermining factors.

The company reported net income of $56.3 million, up 7.1% from the prior-year quarter.

 

Uptrend in Revenues & Expenses

Total revenue was $331.7 million, up 4.5% year over year. However, the figure came approximately in line with the Zacks Consensus Estimate.

Net interest income rose 3.3% year over year to $212 million. The upside was driven by higher average loan and lease balances held for sale, securities available for sale, higher loans in the auto finance portfolio, higher interest income from inventory finance loans, and increased leasing and equipment finance loans and leases. These positives were partially offset by reduced interest income from consumer real estate first mortgage lien loan balances, and higher interest expense incurred on certificates of deposit.

Net interest margin contracted 6 basis points (bps) year over year to 4.34% due to higher average interest rates paid on promotions of certificates of deposit.

Non-interest income totaled $119.7 million, up 6.6% year over year. The upside was driven by higher servicing fee income, net gain on sales of auto loans and consumer real estate loans, equipment & lease financing income, and fees and other revenue. These were partially offset by lower ATM and card revenue, and reduced fees and service charges, reflecting changes in consumer behavior as well as higher average checking account balances per customer.

Non-interest expenses totaled $228.9 million, reflecting a year-over-year increase of 3%. The upside was mainly due to an increase in other non-interest, and occupancy and equipment expenses, partially offset by a decrease in net foreclosed real estate and repossessed assets.

Credit Quality: A Mixed Bag

Net charge-offs, as a percentage of average loans and leases, expanded 3 bps year over year to 0.26%. The increase was mainly attributable to a rise in net charge-offs in auto finance portfolio, partially offset by improved credit quality in the consumer real estate portfolio.

Moreover, provisions for credit losses were up 38.7% year over year to $13.9 million. It reflected increased reserve builds tied with growth and higher net charge-offs in the auto finance, and leasing and equipment finance portfolios.

However, non-accrual loans and leases and other real estate owned were $223.8 million, marking a 15.5% decrease year over year. The decline was due to better credit quality trends in the consumer and commercial real estate portfolios, along with sales of other real estate owned surpassing additions. Notably, the balance of $223.8 million was at its lowest since the third quarter of 2008.

Balance Sheet and Capital Ratios Show Improvement

As of Sep 30, 2016, average deposits totaled $17.1 billion, up 7.3% year over year. Average loans and leases amounted to $17.3 billion, reflecting an increase of 2.2% from the year-ago quarter.

As of Sep 30, 2016, common equity Tier 1 capital ratio was 10.35%, up from 10% as of Dec 31, 2015. The total risk-based capital ratio was 13.89% and Tier 1 leverage capital ratio was 10.66%, compared with 13.71% and 10.46%, respectively, as of Dec 31, 2015.

Our Viewpoint

Continued improvement in the top line reflects the company’s strong footing in the market. At the same time, a strengthening capital position, increasing loans and a strong deposit mix are expected to support growth. Going forward, the company’s performance will also be aided by steadily improving economy.

However, we remain apprehensive due to several issues including an expanding cost base and a stringent regulatory landscape, which are likely to hurt profitability and business flexibility.

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

Performance of Other Midwest Banks

Commerce Bancshares, Inc. (CBSH - Free Report) reported third-quarter 2016 earnings per share of 68 cents, lagging the Zacks Consensus Estimate of 70 cents. However, the bottom line reflected a 7.9% increase from the year-ago period.

Associated Banc-Corp (ASB - Free Report) reported earnings per share of 34 cents, outpacing the Zacks Consensus Estimate of 32 cents. Also, the reported figure was up 9.7% from the prior-year quarter.

We look forward to Huntington Bancshares Incorporated’s (HBAN - Free Report) third-quarter 2016 results, which are slated to release on Oct 26.

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