Shares of TCF Financial Corporation TCFclimbed 7.27% in single-day trading following the first-quarter 2018 earnings release on Apr 23, before the market opened. The company reported earnings per share of 39 cents, beating the Zacks Consensus Estimate of 37 cents.
Further, the figure compared favorably with the prior-year quarter figure of 25 cents.
Also, top-line strength was experienced in the reported quarter. Furthermore, margin pressure seems to be easing. The quarter also witnessed continued rise in loans and deposits, while maintaining a solid capital position and lower provisions. However, elevated expenses were on the downside.
The company reported net income of $73.8 million or 39 cents compared with $46.3 million or 25 cents recorded in the year-ago quarter.
Revenues Escalate, Cost Pressure Persists
Total revenues came in at $355.4 million in the quarter, up 9.1% year over year. Moreover, the top line comfortably surpassed the Zacks Consensus Estimate of $349.4 million.
Net interest income (NIM) was up nearly 9.5% year over year to $243.2 million. The rise was mainly attributable to increased interest income on loans and leases held for investment, partially mitigated by decreased interest income on loans held for sale and rise in total interest expense.
NIM of 4.59% expanded 13 basis points (bps) year over year due to elevated average yields on the variable and adjustable-rate loan portfolios on rising rates, partly offset by escalated average rates on increased average balances of certificates of deposit, along with higher average rates on long-term borrowings and savings accounts.
Non-interest income came in at $112.2 million, up 8.4% on a year-over-year basis. Higher fees and other revenues, along with elevated card revenues, mainly led to the rise.
TCF Financial reported non-interest expenses of $246 million, up 0.8% from the year-earlier quarter. The rise mainly reflected significant increase in operating lease depreciation, and higher occupancy and equipment expenses.
As of Mar 31, 2018, average deposits improved 7% year over year to $18.3 billion. Average loans and leases climbed 6.7% year over year to $19.3 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 slipped 16% year over year to $143.6 million.
Further, provisions for credit losses were $11.4 million, down 6.8% year over year, primarily due to the auto finance portfolio run-off and lower net charge-offs in the commercial portfolio. These benefits were partly mitigated by rise in net charge-offs in the consumer real estate portfolio.
However, net charge-offs, as a percentage of average loans and leases, expanded 18 bps year over year to 0.29%. The upsurge chiefly stemmed from the recovery recorded in the prior-year quarter, partly mitigated by lower net charge-offs in the commercial portfolio.
Robust Capital Position
TCF Financial’s capital ratios remained strong. As of Mar 31, 2018, Common equity Tier 1 capital ratio was 10.57% compared with 10.79% as of Dec 31, 2017. Total risk-based capital ratio was 13.26% compared with 13.90% as of Dec 31, 2017. Tier 1 leverage capital ratio was 10.52%, down from 11.12% as of Dec 31, 2017.
During the reported quarter, the company repurchased 2.57 million shares of its common stock for a total cost of $57.6 million and at an average price of $22.45 per share.
Our Viewpoint
TCF Financial delivered an impressive performance in the first quarter. Continued top-line improvement underscores the company’s sturdy standing in the market. At the same time, a strengthening capital position and improving credit quality are anticipated to favor the company’s near-term 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 be conducive for the company’s growth.
Nevertheless, we remain apprehensive owing to several issues, including an expanding cost base.