It has been about a month since the last earnings report for TCF Financial (TCF - Free Report) . Shares have added about 2.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is TCF Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
TCF Financial Q2 Earnings Beat, Provisions Decline
TCF Financial 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.
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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.72% due to these changes.
At this time, TCF Financial has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, TCF Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.