TCF Financial (TCB) Fell 7.5% as Q4 Earnings Lag; Costs Up

Shares of TCF Financial CorporationTCB fell 7.5% in single-day trading following its fourth-quarter 2016 earnings release on Jan 27, before the market opened. The company reported earnings per share of 27 cents, lagging the Zacks Consensus Estimate of 30 cents and also lower than the prior-year quarter figure of 29 cents.

Lower-than-expected results were due to concerns over persistent decline in net interest margin (NIM) as well as elevated expenses. However, on a positive note, the quarter witnessed top-line growth and continued rise in loans and deposits, while maintaining a solid capital position.

The company reported net income of $50.1 million, down 4.6% from $52.4 million in the prior-year quarter.

For full-year 2016, the company reported earnings per share of $1.15, improving 7.5% year over year from $1.07. Further, net income for the year increased 7.6% year over year to $212.1 million.

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Revenue Escalates, Cost Pressure Persists

For 2016, TCF Financial reported total revenue of $1.3 billion, up 4.1% year over year. However, the figure was almost in line with the Zacks Consensus Estimate.

Total revenue came in at $327.1 million in the quarter, up 1.8% year over year. However, the top line missed the Zacks Consensus Estimate of $332.0 million.

Net interest income was up nearly 2.8% year over year to $211.4 million. The rise was mainly attributable to higher average loan and lease balances held for sale, inventory finance and leasing, equipment finance and securities available for sale, partially offset by reduced consumer real estate loan balances and reduced average yield on the overall loan and lease portfolio.

NIM of 4.30% contracted 5 basis points (bps) year over year due to reduced yields on commercial loans, leasing and equipment finance loans and leases, auto finance loans and loans and leases held for sale.

Non-interest income came in at $115.5 million, slightly down on a year-over-year basis. Ongoing consumer behavior changes, along with higher average checking account balances per customer, mainly led to the fall.

TCF Financial reported non-interest expenses of $225.4 million, up 1.2% from the prior-year quarter. The rise mainly reflected significant increases in compensation and employee benefits expenses and other expenses.

As of Dec 31, 2016, average deposits improved 4.8% year over year to $17.1 billion. Average loans and leases inched up 1.1% year over year to $17.5 billion in the quarter.

Credit Quality: A Mixed Bag

Credit quality for TCF Financial reflected mixed credit metrics. Net charge-offs, as a percentage of average loans and leases, declined 2 bps year over year to 0.27%. The decline was chiefly attributable to an improved credit quality in the consumer real estate portfolio, partially offset by increase in net charge-offs in the auto finance portfolio.

Moreover, non-accrual loans and leases and other real estate owned fell 8.9% year over year to $228.2 million.

However, provisions for credit losses were $19.9 million, up 13% year over year, primarily driven by growth in the overall loan and lease portfolio, partially mitigated by a decline in net charge-offs.

Robust Capital Position

TCF Financial's capital ratios remained strong. As of Dec 31, 2016, Common equity Tier 1 capital ratio was 10.24% compared with 10.00% as of Dec 31, 2015. Total risk-based capital ratio was 13.69% compared with 13.71% as of Dec 31, 2015. Tier 1 leverage capital ratio was 10.73%, up from 10.46% as of Dec 31, 2015.

Our Viewpoint

TCF Financial has come up with a decent performance. Consistent top-line improvement highlights the company's sturdy standing in the market. At the same time, a strengthening capital position and improving credit quality in consumer real estate portfolio are expected to favor the company's future growth. Moreover, we believe that the company's efforts to reduce balance sheet risk and diversify the loan portfolio will augur well for its earnings in the subsequent quarters. Also, steady improvement in the economy will support the future performance of the company.

However, we remain apprehensive owing to several issues, including an expanding cost base, margin pressure and a stringent regulatory landscape.

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 the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Performance of other Banks

Huntington Bancshares Incorporated HBAN reported a positive earnings surprise of 9.1% in fourth-quarter 2016. Earnings per share of 24 cents outpaced the Zacks Consensus Estimate by 2 cents. Moreover, the figure was higher than the prior-year quarter adjusted earnings of 22 cents. The reported earnings figure excludes FirstMerit acquisition-related expenses of 6 cents per share.

Comerica Inc. CMA delivered a positive earnings surprise of 4.2% in fourth-quarter 2016. Adjusted earnings per share of 99 cents came ahead of the Zacks Consensus Estimate of 95 cents. The adjusted figure excludes a restructuring charge of 7 cents per share. Also, earnings increased 43.8% year over year.

Associated Banc-Corp ASB reported fourth-quarter 2016 earnings per share of 34 cents, outpacing the Zacks Consensus Estimate of 32 cents. The figure also represents an increase of 26% from the prior-year quarter. Better-than-expected results were primarily driven by an improvement in total revenues. Moreover, the company registered growth in deposits and loan balances. Results also benefited from lower provision for credit losses. Further, an improvement in capital and profitability ratios added to the positives. However, expenses moved north and the company recorded a significant rise in non-performing assets.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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