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Why Is TCF Financial (TCF) Down 6.2% Since the Last Earnings Report?

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A month has gone by since the last earnings report for TCF Financial Corporation (TCF - Free Report) . Shares have lost about 6.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 drivers.

TCF Financial Beats Q2 Earnings Estimates

TCF Financial reported second-quarter 2017 earnings per share of $0.33, surpassing the Zacks Consensus Estimate of $0.30. Moreover, earnings increased 6.5% from the prior-year quarter.

Improvement in net interest income and loans was recorded. 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.


Management expects to reduce originations in auto finance by 30–40%. Further, the auto portfolio currently around 18% of total loan and lease portfolio is expected to be reduced to 15% to 16%.

The company expects overall level of net charge-offs slightly higher for 2017, given the mix change within the portfolio and current market conditions. Notably, auto net charge offs are expected to increase modestly over time excluding seasonality given the mix changes within the portfolio.

Loan and lease growth are expected to be driven by wholesale businesses going forward.

Management expects NIM for the remainder of 2017 to normalize around 4.52% level recorded in second-quarter 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.

TCF Financial Corporation Price and Consensus


VGM Scores

At this time, the stock has a poor Growth Score of F, a grade with the same score on the momentum front. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is solely suitable for value investors.


Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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