Shares of TCF Financial Corporation (TCB) have recorded a year-to-date return of 26.6%. Impressive organic growth, balance sheet repositioning and strong capital deployment activities of the company were primary factors behind the growth. However, we are not so optimistic about these positives translating into further price appreciation down the road as there will likely be significant pressure on its top line.
After analyzing the company’s fundamentals following third-quarter 2013 earnings results, our suggestion is to stay invested in the stock but not to add further shares of the company to your portfolio.
TCF Financial reported third-quarter 2013 net income of 23 cents per share, in line with the Zacks Consensus Estimate. However, results improved by 17 cents on a year-over-year basis. Deposits and loans growth, along with an improving credit quality were the tailwinds for the quarter. Moreover, strong capital position was a positive.
We view TCF Financial as a sound asset for yield-seeking investors. The company has been able to generate positive cash flow even amid an increasingly difficult operating environment. Moreover, over the last about four years ended Sep 30, 2013, the company enhanced shareholder value by returning over $130 million through dividends, thereby enhancing investors’ confidence.
With the growing level of deposits, TCF Financial has experienced organic growth. The third quarter of 2013 reflects the 12th consecutive quarter of positive deposits growth. A huge deposit base should help the company generate loans and meet other general business purposes.
An upward trend in profitability metrics safeguards the company’s financials. The return on average assets and the return on common equity was 0.86% and 8.03%, respectively, in first nine months of 2013 as compared with negative 1.73% and negative 19.5%, respectively, in the comparable prior-year period.
However, with the growing level of non-interest expenses, the company is exposed to operational risks. Though non-interest expenses declined 45.6% year over year in first nine months of 2013, over the last 5 years, expenses recorded a CAGR of 15.8% in 2012.
Over the last 60 days, the Zacks Consensus Estimate for 2013 has gone down by 1.2% to 84 cents, while it declined 2.7% to $1.09 per share for 2014. Hence, TCF Financial now has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked Midwest banks include First Interstate Bancsystem Inc. (FIBK), Wintrust Financial Corporation (WTFC) and PrivateBancorp, Inc. (PVTB). All these stocks carry a Zacks Rank #1 (Strong Buy).