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TCF Financial (TCF) Beats Q2 Earnings Estimates, Stock Gains

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TCF Financial Corporation (TCF - Free Report) reported second-quarter 2017 earnings per share of 33 cents, surpassing the Zacks Consensus Estimate of 30 cents. Moreover, earnings increased 6.5% from the prior-year quarter.

Shares of TCF Financial have gained 1.1% following its earnings release, owing to positive market sentiments and investors’ satisfaction with the improvement in net interest income and loans. Also, eased margin pressure supported the results. However, the positives were partially offset by higher expenses and provisions.

The company reported net income of $60.4 million, up 4.7% from $57.7 million in the prior-year quarter.

Revenue Growth Offset by Higher Expenses

Total revenue came in at $341.8 million in the quarter, up 3.3% year over year. Further, the top line beat the Zacks Consensus Estimate of $338.1 million.

Net interest income was up 6.7% year over year to $227.2 million. The rise was mainly attributable to higher interest income on loans and leases, partially offset by decline in interest income on loans held for sale.

Net interest margin of 4.52% expanded 17 basis points (bps) year over year due to higher yields on variable and adjustable rate loans.

Non-interest income came in at $114.7 million, down 2.8% on a year-over-year basis. The decline was mainly due to lower gains on sale of auto and real estate loans.

TCF Financial reported non-interest expenses of $233 million, up 2.5% from the prior-year quarter. The rise mainly reflected significant increases in operating lease depreciation expenses, foreclosed real estate and repossessed assets and equipment-related expenses.

As of Jun 30, 2017, average deposits displayed a 1.3% improvement over the previous quarter to $17.3 billion. The increase was mainly due to growth in average checking balance and certificates of deposits, partially offset by decrease in money market balances. Further, average loans and leases inched up 1.6% sequentially to $18.3 billion in the quarter. The rise was due to increase in auto finance, inventory finance and commercial portfolios.

Credit Quality: A Mixed Bag

Net charge-offs, as a percentage of average loans and leases, increased 5 bps year over year to 0.28%. The rise was primarily due to increased net charge-offs in the commercial and auto finance portfolios, partially offset by decreased net charge-offs in the consumer real estate first mortgage lien portfolio.

Moreover, provisions for credit losses were $19.4 million, up 46.8% year over year. This was primarily due to increase in provisions attributable to the auto finance and commercial portfolios, partially offset by decline in provisions attributable to the inventory finance and consumer real estate portfolios.

However, non-accrual loans and leases and other real estate owned fell 32% year over year to $158 million.

Capital Ratios

As of Jun 30, 2017, common equity Tier 1 capital ratio was 10.24% same as on Dec 31, 2016. Total risk-based capital ratio was 13.49% compared with 13.69% as of Dec 31, 2016. Tier 1 leverage capital ratio was 10.76%, up from 10.73% as of Dec 31, 2016.

Our Viewpoint

TCF Financial’s increasing loans and strong deposit mix keep us encouraged about its organic growth prospects. Further, expanding net interest margin is a tailwind. However, we remain apprehensive owing to several issues, including a decline in fee income and increasing cost base.

TCF Financial Corporation Price and EPS Surprise

TCF Financial currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other banks, Boston Private Financial Holdings, Inc. (BPFH - Free Report) is scheduled to announce second-quarter earnings on Jul 26 while Trustmark Corporation (TRMK - Free Report) will report its results on Jul 25. SVB Financial Group (SIVB - Free Report) will announce its second-quarter results on Jul 27.

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