TCF Financial Gains on Earnings Growth - Analyst Blog

Shares of TCF Financial Corporation TCB rallied more than 2% following the release of its first-quarter 2014 results that reflected 50% year-over-year rise in earnings per share. However, earnings of 24 cents per share came just in line with the Zacks Consensus Estimate. Notably, results for the quarter figure included an amortization charge.

Results reflected higher net interest income as well as non interest income and lower provision for credit losses. Further, deposits and loans growth and an improving credit quality were among the positives. However, increase in non-interest expenses was the downside.

Net income available to common shareholders stood at $39.9 million, up 56.8% from $14.5 million in the prior-year quarter.

Quarter in Detail

TCF Financial reported total revenue of $304.7 million, up 4.4% year over year, driven by higher net interest as well as non-interest income. However, this compared unfavorably with the Zacks Consensus Estimate of $307.0 million.

Net interest income inched up 1.1% year over year to $201.3 million. The rise was primarily driven by elevated average loan and lease balances in the auto finance and inventory finance businesses along with reduced rates on deposit products. These positives were partly offset by lower yields throughout the lending businesses mainly due to the persistent low interest rate scenario and declining average balances in consumer real estate and higher yielding commercial fixed-rate loan portfolios.

Net interest margin was down 6 basis points year over year to 4.66%, primarily due to lower origination yields in the leasing and equipment finance and consumer businesses.

Non-interest income came in at $103.4 million, up 11.5% year over year. The increase was primarily attributable to higher leasing and equipment finance revenues and gains on sales of auto loans as well as consumer real estate loans, partially offset by lower fees and service charges and declining revenues from card and ATM.

TCF Financial reported non-interest expenses of $217.1 million, up 6.4% year over year. Elevated compensation and employee benefits, occupancy and equipment costs and higher operating lease depreciation mainly led to the rise in expenses.

As of Mar 31, 2014, total deposits improved 3.4% year over year to $14.5 billion. Total loans and leases increased 3.9% year over year to $16.2 billion at the end of the quarter.

Credit Quality

Credit quality continued to improve at TCF Financial. Provisions for credit losses decreased 62.2% year over year to $14.5 million.

Net charge-offs were $17.4 million in the quarter, down 57.5% year over year. The year-over-year fall was mainly attributable to an improved credit quality in the consumer real estate portfolio. Also, total non-accrual loans and leases declined 22.3% year over year to $266.7 million.

Capital Position

TCF Financial exhibited a strong capital position in the quarter. As of Mar 31, 2014, the company's Tier 1 risk-based capital ratio was 11.37% compared with 11.41% as of Dec 31, 2013. The tier 1 common capital ratio was 9.59% compared with 9.63% in the prior-quarter. Moreover, Tier 1 leverage capital ratio was 9.84%, up from 9.71% in the prior- quarter.

Our Viewpoint

Results of TCF Financial look decent and we remain encouraged owing to its continued efforts in improving top-line growth, maintaining a better asset quality as well as enhancing its organic growth strategy through continued rise in loan and deposit balances. If the company can sustain this trend, it will continue to drive earnings in the upcoming quarters.   

However, continuous increase in expenses, the low interest-rate environment and regulatory pressure remain looming concerns.

Performance of Other Midwest Banks

Huntington Bancshares Incorporated HBAN reported adjusted earnings per share of 19 cents in first-quarter 2014, beating the Zacks Consensus Estimate of 17 cents. Results were driven by top-line growth and lower provision for credit losses, partly offset by higher expenses. Further, loan and deposit balances exhibited growth.

Wintrust Financial Corporation WTFC reported earnings per share of 68 cents in first-quarter 2014, beating the Zacks Consensus Estimate of 66 cents per share. Results primarily reflected higher net interest margin, robust growth in loans and deposits, and an increase in non-performing asset levels.

Commerce Bancshares, Inc.'s CBSH first-quarter 2014 earnings per share of 67 cents missed the Zacks Consensus Estimate by a penny. Results reflected higher operating expenses, partially offset by a slight rise in revenues. However, growth in loans and deposits as well as strong capital and profitability ratios acted as the tailwinds.