TCF Financial Q2 Earnings Beat Estimates on Higher Revenues - Analyst Blog

Riding on higher revenues, TCF Financial Corporation (TCB) reported second-quarter 2014 net income of 29 cents per share, beating the Zacks Consensus Estimate by 2 cents. Moreover, results improved significantly by 8 cents on a year-over-year basis.

Deposits and loans growth coupled with top-line improvement were the tailwinds for the quarter. Moreover, strong capital ratios and an improving credit quality were the positives. However, increase in non-interest expenses remain a concern.

Net income was $53.1 million, up 36.6% from $38.9 million in the prior-year quarter.
 

Performance in Detail

TCF Financial reported total revenue of $310.1 million in the second quarter, up 2.7% year over year, driven by higher net interest as well as non-interest income. Moreover, the results outpaced the Zacks Consensus Estimate of $309.0 million.

Net interest income rose 2.0% year over year to $206.1 million. The rise was primarily driven by elevated average loan and lease balances in the auto finance, inventory finance and leasing and equipment finance businesses along with reduced borrowing costs. These positives were partially offset by a downward pressure on yields across the lending businesses mainly due to the persistently low interest rate environment. Net interest margin was 4.65%, down 7 basis points year over year.

Non-interest income came in at $103.2 million, up 3.5% year over year. The increase was primarily attributable to gains on sales of consumer real estate loans and higher other non-interest income, partially offset by lower banking fees and reduced gains on sales of auto loans.

TCF Financial reported non-interest expenses of $213.2 million, up 2.2% year over year. Higher occupancy and equipment costs, elevated operating lease depreciation and increased compensation and employee benefits mainly led to the rise in expenses.

Evaluation of Credit Quality

Overall, credit quality improved for TCF Financial. Provisions for credit losses decreased 69.6% year over year to $9.9 million, owing to the decline in net charge-offs in the consumer real estate portfolio.

Net charge-offs were $18.4 million in the quarter, down 33.7% year over year. The decrease compared to the prior-year period was mainly attributable to an improved credit quality in the consumer real estate portfolio.

Moreover, non-accrual loans and leases declined 6.5% year over year to $260.3 million, mainly driven by reduced non-accrual commercial loans.

Capital Position

TCF Financial exhibited a strong capital position in the quarter. As of Jun 30, 2014, the company's Tier 1 risk-based capital ratio was 11.56% compared with 11.41% as of Dec 31, 2013. The tier 1 common capital ratio was 9.82% compared with 9.63% as of Dec 31, 2013. Moreover, Tier 1 leverage capital ratio was 9.91%, up from 9.71% as of Dec 31, 2013.

As of Jun 30, 2014, total average deposits improved 4.6% year over year to $14.8 billion. Total loans and leases increased 3.0% year over year to $16.1 billion in the quarter.

Competitive Landscape

Among other Midwest banks, Huntington Bancshares Incorporated's (HBAN) and Commerce Bancshares, Inc.'s (CBSH) second-quarter 2014 earnings beat the Zacks Consensus Estimate, while Associated Banc-Corp's (ASBC) results were in line with the Zacks Consensus Estimate.

Our Viewpoint

We expect the company to maintain its superior position in the market based on its positive approach to market conditions and top-line growth. Moreover, a healthy capital position along with strong capital deployment activities is indicative of the company's robust standing. However, regulatory pressure and increase in expenses remain looming concerns. TCF Financial currently carries a Zacks Rank #3 (Hold).