Ratings of TCF Financial Corporation TCF and its bank subsidiary, TCF National Bank, have been affirmed by Moody's Investors Service. Notably, the ratings agency has upgraded the outlook from negative to stable, based on its opinion of reduced risks related to TCF's recent merger with Chemical Financial.
TCF National Bank’s standalone baseline credit assessment (“BCA”) has been affirmed as baa1. Also, it has deposit ratings of A2/Prime-1, issuer and subordinated debt ratings of Baa2, counterparty risk assessments of A3(cr)/Prime-2(cr), and counterparty risk ratings of Baa1/Prime-2. Further, the parent company has a Ba1(hyb) non-cumulative preferred stock rating.
Reasons for Ratings Affirmation
Per Moody’s, the company’s solid balance sheet, which reflects a large but low-cost funding base, improved liquidity, stable asset quality and adequate capitalization, is sufficient for the ratings affirmation. Further, TCF Financial has been able to maintain a healthy bottom line despite lingering headwinds, likely low interest rates and expenses related to the merger with Chemical in mid-2019.
The ratings agency finds TCF Financial to have good asset quality. However, the concentration of commercial real estate loans and above peer-average growth of certain national lending businesses are considered to be credit challenges. Also, it expects a deterioration in the company’s asset quality over the next 12-18 months as a result of the impact of the coronavirus pandemic on borrowers and the overall economy.
Reasons for Outlook Upgrade
The change in outlook to stable from negative reflects Moody's view that the integration with Chemical has been well-executed despite the large size of the transaction and TCF Financial having to perform numerous integration activities during the coronavirus pandemic.
Per Moody's, there have been no major operational missteps during the integration process that have weakened the financial standing or performance of the combined entity. Following the deal closure, TCF Financial has been able to maintain asset quality, capital, funding and liquidity levels that are consistent with its peers with a baa1 BCA.
Factors Leading to an Upgrade or Downgrade of Ratings
The ratings of TCF Financial can be upgraded if it demonstrates asset quality and profitability resilience along with maintenance of its capitalization and liquidity during this period of economic volatility caused by the coronavirus outbreak.
However, Moody's could downgrade the BCA and ratings if it finds any deterioration in asset quality beyond current expectations, particularly in its specialty lending portfolios, given their rapid growth in recent years. Also, weaker capitalization or indications of an increase in risk appetite could lead to a downgrade.
Shares of TCF Financial have lost 40.6% so far this year compared with the 32.9% decline of the industry it belongs to.
Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Merchants Bancorp MBIN has witnessed a 74% upward estimate revision over the past 30 days. The company’s shares have lost 0.2% so far this year. It flaunts a Zacks Rank #1 at present.
First Internet Bancorp’s INBK shares have lost 33.2% so far this year. Further, the company’s earnings estimates for the ongoing year have moved 3.2% north in the past 30 days. It currently sports a Zacks Rank of 1.
Financial Institutions, Inc. FISI has witnessed a 31.1% upward estimate revision over the past 30 days. The company’s shares have lost nearly 46% so far this year. It flaunts a Zacks Rank #1 at present.
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