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TCF Financial (TCB) Q1 Earnings Beat as Revenues Rise

TCF Financial Corporation’s TCB first-quarter 2016 earnings per share of 26 cents outpaced the Zacks Consensus Estimate by 2 cents. Further, the bottom line improved 23.8% year over year.

Results were aided by higher net interest income as well as non-interest income, partially offset by higher expenses and a significant rise in provisions. The quarter witnessed a continued rise in loans and deposits, while maintaining a strong capital position.

The company reported net income of $48.0 million, up 20.7% from the prior year quarter.

Performance in Detail

Total revenue came in at $324.3 million in the first quarter of 2016, up 6.6% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $316.4 million.

Net interest income increased 4% year over year to $211.7 million. The rise was mainly attributable to higher average loan and lease balances in several portfolios including auto finance, inventory finance and leasing and equipment finance, partially offset by a run-off of consumer real estate first mortgage lien balances.

NIM of 4.35% declined 13 basis points (bps) year over year due to the persistent low rate environment and higher promotional rates on certificates of deposit.

Non-interest income came in at $112.6 million, up 11.9% year over year. The increase was primarily driven by higher gains on sales of auto loans as well as consumer real estate loans, increases in card revenues, servicing fee income and equipment & lease financing income. These were, however, partially offset by lower ATM revenue and reduced fees and service charges, reflecting changes in consumer behavior, as well as higher average checking account balances per customer.

TCF Financial reported non-interest expenses of $228.3 million, up nearly 1% from the prior-year quarter. The rise mainly reflected increases in compensation and employee benefits and operating lease depreciation, partially offset by decline in several expenses including FDIC insurance and advertising and marketing.

As of Mar 31, 2016, average deposits improved 7.9% year over year to $16.89 billion. Average loans and leases climbed 6.2% year over year to $17.76 billion in the quarter.

Credit Quality

TCF Financial’s several credit metrics improved during the reported quarter. Net charge-offs, as a percentage of average loans and leases, declined 1 basis point year over year to 0.27%. The decline was mainly attributable to an improved credit quality in the commercial and consumer real estate portfolios.

Moreover, non-accrual loans and leases and other real estate owned fell 15.3% year over year to $241.1 million.The decline was due to higher sales of consumer real estate properties, enhanced credit quality trends, and initiatives undertaken to resolve problem loans in the commercial portfolio.

However, provisions for credit losses were $18.8 million, up a massive 47.3% year over year. The rise mainly reflected reserve build tied with changes in economic outlook, growth in portfolios including the auto finance and inventory finance.

Capital Position

TCF Financial’s capital ratios remained strong. As of Mar 31, 2016, Common equity Tier 1 capital ratio was 9.98%. Total risk-based capital ratio was 13.60%, compared with 13.71% as of Dec 31, 2015. Tier 1 leverage capital ratio was 10.33%, versus 10.46% as of Dec 31, 2015.

Our Viewpoint

TCF Financial has come up with a decent performance. Consistent top-line improvement reflects the company’s strong standing in the market. At the same time, a strengthening capital position and improving credit quality are expected to favor the company’s future growth. Moreover, we believe 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 currently carries a Zacks Rank #4 (Sell).

Performance of Other Midwest Banks

Commerce Bancshares, Inc. CBSH reported first-quarter 2016 earnings per share of 65 cents, which surpassed the Zacks Consensus Estimate of 63 cents. Moreover, the bottom line was up 12% from the year-ago tally. Better-than-expected results were driven by growth in revenues, partially mitigated by higher expenses and a substantial rise in provisions.

Associated Banc-Corp ASB reported earnings per share of 27 cents, which lagged the Zacks Consensus Estimate by a penny. Moreover, the bottom line came in 10% below the year-ago figure. Results exhibited significant rise in provisions, partly offset by improvement in revenues and almost stable expense line. Growth in loans and deposits remained impressive. However, asset quality displayed weakness.

Huntington Bancshares Incorporated HBAN reported first-quarter 2016 earnings per share of 20 cents, in line with the Zacks Consensus Estimate. However, the figure came a penny above the prior-year quarter earnings. Results reflected growth in net interest income as well as non interest income. However, the quarter recorded elevated expenses and higher provision for credit losses.

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HUNTINGTON BANC (HBAN): Free Stock Analysis Report
 
TCF FINL CORP (TCB): Free Stock Analysis Report
 
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ASSOC BANC CORP (ASB): Free Stock Analysis Report
 
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