TCF Financial (TCF) Q1 Earnings Top Estimates, Stock Down 3.4%

TCF Financial Corporation TCF reported a positive earnings surprise of 2.2% in first-quarter 2019. Adjusted earnings per share of 46 cents surpassed the Zacks Consensus Estimate by a penny. Further, the reported figure compares favorably with the prior-year tally of 39 cents.

The company witnessed solid top-line growth in the reported quarter. Moreover, lower provision for credit losses supported the bottom line. Also, loan and deposit balances displayed improvement. Nevertheless, investors’ disappointment was visible on rising expenses, lower non-interest income and net interest margin, which led its share price to decline 3.4%, following the release.

TCF Financial reported net income of $70.5 million for the first quarter compared with $73.8 million recorded in the year-ago quarter.

Revenues Improve, Costs Flare Up

Total revenues for the first quarter came in at $357.9 million, up nearly 1% year over year. The top-line figure, however, missed the Zacks Consensus Estimate of $363.9 million.

Net interest income for the quarter climbed 3.2% year over year to $250.9 million. The upside stemmed from increased interest income on loans and leases held for investment, along with and debt securities available for sale. This was partially offset by rise in interest expenses.

Net interest margin of 4.56% contracted 3 basis points (bps) year over year due to higher average rates on deposits. This was partly offset by higher average yields on the variable and adjustable-rate loan portfolios.

Non-interest income came in at $107 million, down 4.6% on a year-over-year basis. This decrease primarily resulted from fall in almost all components of income, partially mitigated by higher fees and service charges, card revenues and net gains on debt securities.

TCF Financial reported non-interest expenses of $253.1 million for the Mar-end quarter, up 2.9% from the year-earlier quarter. The upswing primarily resulted from merger-related expenses, higher lease financing equipment depreciation, and occupancy and equipment expenses.

As of Mar 31, 2019, average deposits came in at $18.7 billion, up 1.5% from the prior quarter’s end. Average loans and leases climbed 3.4% sequentially to $19.2 billion.

Credit Quality: A Mixed Bag

Non-accrual loans and leases, and other real estate owned slipped 15.3% year over year to $121.6 million in the Jan-Mar quarter. Further, provisions for credit losses were $10.1 million, down 11% year over year.

However, net charge-offs, as a percentage of average loans and leases, expanded 10 bps year over year to 0.39%. The upsurge chiefly resulted from elevated net charge-offs in the commercial, inventory finance, and leasing and equipment finance portfolios.

Capital Position

As of Mar 31, 2019, Common equity Tier 1 capital ratio was 10.79% compared with 10.57% as of Mar 31, 2018. As of Mar 31, 2019 total risk-based capital ratio was 13.30% compared with 13.26% as of Mar 31, 2018. Tier 1 leverage capital ratio was 10.26% on Mar 31, 2019, down from 10.52% as of the end of March 2018.

Our Viewpoint

TCF Financial’s continued top-line improvement highlights the company’s robust position in the market. Additionally, lower provisions are likely to drive its near-term growth, while higher expenses are a concern.

TCF Financial Corporation Price, Consensus and EPS Surprise

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

TCF Financial currently carries a Zacks Rank #3 (Hold). You can see see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Riding on higher revenues, Citizens Financial Group, Inc. CFG delivered a positive earnings surprise of 4.5% in first-quarter 2019. Adjusted earnings per share came in at 93 cents, beating the Zacks Consensus Estimate of 89 cents. Also, the reported figure improved 19.2% year over year. Results exclude one-time items of $4 million or 1 cent per share.

Texas Capital Bancshares Inc. TCBI reported a positive earnings surprise of 19.4% in first-quarter 2019. Earnings per share of $1.60 comfortably surpassed the Zacks Consensus Estimate of $1.34. Further, the bottom line compared favorably with the prior-year quarter figure of $1.38.

Hancock Whitney Corporation’s HWC first-quarter operating earnings per share of $1 outpaced the Zacks Consensus Estimate of 98 cents. The reported figure also came in 11.1% higher than the year-ago reported tally.

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