Shares of TCF Financial Corporation TCF declined 1.68% in single-day trading following the fourth-quarter 2017 earnings release on Jan 30, before the market opened. The company reported adjusted earnings per share of 33 cents, lagging the Zacks Consensus Estimate of 35 cents. However, the figure compared favorably with the prior-year quarter figure of 27 cents.
Elevated expenses and provisions were on the downside. However, top-line strength was experienced. Furthermore, margin pressure seems to be easing. The quarter also witnessed continued rise in loans and deposits, while maintaining a solid capital position.
Including net tax benefit related to the tax reform and certain other one-time items, the company reported net income of $101.4 million or 57 cents compared with $50.1 million or 27 cents recorded in the prior-year quarter.
For full-year 2017, the company reported earnings per share of $1.44, improving 25.2% year over year from $1.15. Additionally, net income for the year increased 26.1% year over year to $243 million.
Revenues Escalate, Cost Pressure Persists
For 2017, TCF Financial reported total revenues of $1.37 billion, up 4.5% year over year. The figure came in line with the Zacks Consensus Estimate.
Total revenues came in at $362.8 million in the quarter, up 10.9% year over year. Moreover, the top line surpassed the Zacks Consensus Estimate of $355.5 million.
Net interest income was up nearly 14.4% year over year to $241.9 million. The rise was mainly attributable to increased interest income on loans and leases, partially mitigated by decreased interest income on loans held for sale and rise in total interest expense.
NIM of 4.57% expanded 27 basis points (bps) year over year due to margin expansion on loans and leases, partly offset by elevated average rates on increased average balances of certificates of deposit.
Non-interest income came in at $120.9 million, up 4.5% on a year-over-year basis. Net gains on sales of auto loans, and higher fees and other revenues mainly led to the rise.
TCF Financial reported non-interest expenses of $347.8 million, up 54.3% from the year-earlier quarter. The rise mainly reflected significant increases in almost all components of expenses.
As of Dec 31, 2017, average deposits improved 2.7% year over year to $17.6 billion. Average loans and leases climbed 5.2% year over year to $18.5 billion in the reported quarter.
Credit Quality: A Mixed Bag
Credit quality for TCF Financial reflected mixed credit metrics. Non-accrual loans and leases, and other real estate owned plunged 40.1% year over year to $136.8 million.
However, provisions for credit losses were $22.3 million, up 11.9% year over year, primarily due to higher net charge-offs in the leasing and equipment finance portfolio.
Net charge-offs, as a percentage of average loans and leases, expanded 11 bps year over year to 0.38%. The upsurge was chiefly attributable to increased net charge-offs in the leasing and equipment finance and auto finance portfolios, partly mitigated by lower net charge-offs in the consumer real estate portfolio.
Robust Capital Position
TCF Financial’s capital ratios remained strong. As of Dec 31, 2017, Common equity Tier 1 capital ratio was 10.79% compared with 10.24% as of Dec 31, 2016. Total risk-based capital ratio was 13.9% compared with 13.69% as of Dec 31, 2016. Tier 1 leverage capital ratio was 11.12%, up from 10.73% as of Dec 31, 2016.
Our Viewpoint
TCF Financial delivered a decent performance in the fourth quarter. Consistent top-line improvement reflects the company’s sturdy standing in the market. At the same time, a strengthening capital position and improving credit quality in the consumer real estate portfolio are anticipated to favor the company’s future growth. In addition to this, we believe its efforts to reduce balance-sheet risks and diversify the loan portfolio will augur well for earnings in the subsequent quarters. Also, steady improvement in the economy will support the future performance of the company.
Nevertheless, we remain apprehensive owing to several issues, including an expanding cost base.
TCF Financial Corporation Price, Consensus and EPS Surprise
TCF Financial Corporation Price, Consensus and EPS Surprise | TCF Financial Corporation Quote
TCF Financial currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Performance of Other Banks
Cullen/Frost Bankers CFR reported positive surprise of 5.8% in fourth-quarter 2017. Adjusted earnings per share of $1.47 handily surpassed the Zacks Consensus Estimate of $1.39. Results excluded $4.0 million or 6 cents per share net-benefit related to the Tax Cuts and Jobs Act. Top-line strength and lower provisions were reflected in the quarter. Further, increase in loans and deposits, and a strong balance-sheet position were the positives. However, elevated expenses and lower non-interest income remained major drags.
Driven by top-line strength, Texas Capital Bancshares Inc. TCBI reported a positive earnings surprise of around 2.6% in fourth-quarter 2017. Adjusted earnings per share of $1.19 outpaced the Zacks Consensus Estimate by 3 cents. Results were driven by rise in revenues and lower provisions. Organic growth was reflected, with significant rise in loans and deposit balances. However, escalating expenses remained the undermining factor.
BOK Financial Corporation’s BOKF fourth-quarter adjusted earnings per share of $1.29 lagged the Zacks Consensus Estimate of $1.34. However, the bottom line compared favorably with 76 cents reported in the year-earlier quarter. Results reflected a decline in loans balance, partially offset by improved revenues and lower expenses. Also, improving credit quality and strong capital position acted as tailwinds.
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