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TCF Financial (TCF) Q1 Earnings Top Estimates, Provisions Up

Zacks Equity Research
·5 mins read

TCF Financial Corporation TCF reported first-quarter 2020 adjusted earnings per share of 57 cents, beating the Zacks Consensus Estimate of 35 cents. However, the figure plunged 45.2% from the prior quarter.

Disciplined cost management aided the results. Also, the company witnessed continued increase in loans and deposits. However, higher provisions on the coronavirus crisis were on the downside. Further, margin pressure and lower fee income were undermining factors.

Including post-tax merger-related expenses and notable items, the company reported net income of $51.9 million or 32 cents compared with the $112.4 million or 72 cents recorded in the previous quarter.

Revenues Down, Cost Declines

Total revenues came in at $538.8 million in the reported quarter, down 5% sequentially. The top-line figure, however, surpassed the Zacks Consensus Estimate of $534.3 million.

Net interest income was down 1.8% sequentially to $401.5 million. This decline mainly resulted from decreased interest income on loans and leases, along with loans held for sale and other earning assets, partially mitigated by fall in total interest expense. The NIM of 3.53% contracted 7 basis points (bps) sequentially.

Non-interest income came in at $137 million, down 13.3% on a sequential basis. Fall in almost all components of income chiefly resulted in this decrease, partly offset by higher net gains on sale of loans and leases, and servicing fee revenues.

TCF Financial reported non-interest expenses of $374.6 million, down 10.1% from the fourth quarter. This decrease primarily reflects the lower merger-related expenses, compensation and employee benefits, net foreclosed real estate and repossessed assets, along with other expenses.

Adjusted efficiency ratio was 58.24%, down from the prior quarter’s 58.51%. A fall in ratio indicates rise in profitability.

As of Mar 31, 2020, total deposits increased 3.9% sequentially to $35.8 billion. Additionally, net loans and leases climbed 3.3% to $35.5 billion in the March-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 41.9% sequentially to $289.4 million.

Provisions for credit losses were $96.9 million, significantly up on a sequential basis due to the coronavirus pandemic.

Net charge-offs, as a percentage of average loans and leases, shrunk 1 bps sequentially to 0.06%. Non-performing assets as a percentage of total loans and leases and other real estate owned came in at 0.80%, up 21 bps sequentially.

Robust Capital Position

TCF Financial’s capital ratios remained strong. As of Mar 31, 2020, Common equity Tier 1 capital ratio was 10.44% compared with 10.99% as of Dec 31, 2019. Total risk-based capital ratio was 12.31% compared with 12.70% as of Dec 31, 2019. Tier 1 leverage capital ratio was 9.27%, down from 9.49% as of Dec 31, 2019.

Capital-Deployment Update

During the January-March period, the company repurchased 873,000 shares for a total value of $33.1 million in common stock. Notably, the company has temporarily suspended share buybacks, following the unprecedented challenge from the coronavirus pandemic.

Our Viewpoint

TCF Financial put up a decent performance during the January-March period as a combined entity following the merger of equals. Continued expense management reflects the company’s cost-control initiatives. However, the rise of provisions on heightening coronavirus concerns is a concern. Further, low rates are expected to keep straining margins.

Though the company’s efforts to reduce balance-sheet risks and diversify the loan portfolio will augur well for earnings in the subsequent quarters, a lower fee income remains is a concern.

TCF Financial Corporation Price, Consensus and EPS Surprise

TCF Financial Corporation Price, Consensus and EPS Surprise
TCF Financial Corporation Price, Consensus and EPS Surprise

TCF Financial Corporation price-consensus-eps-surprise-chart | TCF Financial Corporation Quote

TCF Financial currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Synovus Financial SNV reported first-quarter 2020 adjusted earnings of 21 cents per share, missing the Zacks Consensus Estimate of 31 cents. Also, the reported figure came in 79% lower than the prior-year quarter tally.

Evercore EVR delivered adjusted earnings per share of $1.21 for the January-March quarter, beating the Zacks Consensus Estimate of $1.03. However, results were down 27% from the prior-year quarter’s $1.66 per share.

Regions Financial RF recorded adjusted earnings of 15 cents per share in the March-end quarter, missing the Zacks Consensus Estimate of 19 cents. The figure plummeted 59.5%, year over year.

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