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TCF Financial (TCF) Q2 Earnings Beat, Provisions Decline

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TCF Financial Corporation reported second-quarter 2020 adjusted earnings per share of 54 cents, beating the Zacks Consensus Estimate of 47 cents. However, the figure plunged 5.3% from the prior quarter.

Results were supported by lower provisions. Also, the company witnessed a continued increase in deposits and a strong capital position. However, higher expenses were on the downside. Further, margin pressure and lower fee income were other undermining factors.

Including post-tax merger-related expenses and notable items, the company reported net income of $23.8 million or 14 cents per share compared with the $51.9 million or 32 cents per share recorded in the prior-year quarter.

Revenues Decline, Cost Increases

Total revenues were $511.4 million in the reported quarter, down 5% sequentially. Also, the top-line figure lagged the Zacks Consensus Estimate of $527.8 million.

Net interest income was down 5.8% sequentially to $378.4 million. This decline mainly resulted from decreased interest income on loans and leases along with taxable investment securities, partially mitigated by a fall in total interest expenses. The NIM of 3.33% contracted 40 basis points (bps) sequentially.

Non-interest income was $133.1 million, down 2.9% on a sequential basis. Fall in almost all components of income chiefly resulted in the decrease, partly offset by higher net gains on sale of loans and leases, and leasing revenues.

TCF Financial reported non-interest expenses of $400.2 million, up 6.8% from the first quarter. This increase primarily reflects the substantial rise in merger-related expenses.

Adjusted efficiency ratio was 59.8%, down from the prior quarter’s 58.24%. A rise in ratio indicates lower profitability.

As of Jun 30, 2020, total deposits increased 9.5% sequentially to $39.2 billion. Additionally, net loans and leases declined 1.2% to $35.1 billion in the June-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 15.5% sequentially to $334.2 million.

Provisions for credit losses were $78.7 million, declining 18.8% on a sequential basis due to the coronavirus pandemic.

Net charge-offs, as a percentage of average loans and leases, shrunk 2 bps sequentially to 0.04%. Non-performing assets as a percentage of total loans and leases and other real estate owned were 0.94%, up 14 bps sequentially.

Robust Capital Position

TCF Financial’s capital ratios remained strong. As of Jun 30, 2020, common equity Tier 1 capital ratio was 11.09% compared with 10.44% as of Mar 31, 2020. Total risk-based capital ratio was 13.51% compared with 12.31% as of Mar 31, 2020. Tier 1 leverage capital ratio was 8.75%, down from 9.27% as of Mar 31, 2020.

Capital-Deployment Update

During the April-June period, the company did not repurchase any shares as it has temporarily suspended share buybacks, following the unprecedented challenge from the coronavirus pandemic.

Our Viewpoint

TCF Financial put up a decent performance during the second quarter as a combined entity, following the merger of equals. Strong capital position remains a tailwind. However, higher expenses are concerning. Further, low rates are expected to keep straining margins.

Though the company’s efforts to reduce balance-sheet risks and diversify the loan portfolio will augur well for earnings in the subsequent quarters, a lower fee income remains concerning.

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

Bank OZK’s (OZK - Free Report) second-quarter 2020 earnings per share of 39 cents surpassed the Zacks Consensus Estimate of 35 cents. However, the bottom line indicates a decline of 54.7% from the prior-year quarter’s reported number.

East West Bancorp’s (EWBC - Free Report) second-quarter 2020 earnings per share of 70 cents were in line with the Zacks Consensus Estimate. The figure was down 32% from the prior-year quarter.

People's United Financial Inc. reported second-quarter 2020 operating earnings of 24 cents per share, in line with the Zacks Consensus Estimate. However, the bottom line was below the year-ago quarter’s 34 cents.

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