TCF Financial (TCF) Q4 Earnings Top Estimates, Expenses Down

TCF Financial Corporation TCF reported fourth-quarter 2020 adjusted earnings per share of 75 cents, beating the Zacks Consensus Estimate by 4 cents. The figure, however, decreased 16.7% from the prior-year quarter.

Disciplined cost management aided the bank’s quarterly performance. Also, the company witnessed decent loans and deposits balance. Moreover, lower provisions were on the upside. However, margin pressure and lower fee income were undermining factors.

Including post-tax merger-related expenses and notable items, the company reported net income of $91.4 million or 58 cents compared with the $112.4 million or 72 cents recorded in the previous-year quarter.

For 2020, the company reported net income of $212.8 million compared with the $285.5 million recorded in the prior year.

Revenues Down, Cost Declines, Loans Up

Total revenues came in at $508.6 million in the reported quarter, down 10.3% year over year. The top-line figure, however, outpaced the Zacks Consensus Estimate of $501 million.

For 2020, total revenues were $2.05 billion, up 17.1% year over year.

Net interest income was down 6.7% year on year to $381.4 million during the fourth quarter. This decline mainly resulted from decreased interest, partially mitigated by a fall in total interest expense. The NIM of 3.55% contracted 34 basis points (bps) year on year.

Non-interest income came in at $127.2 million, down 19.5% on a year-over-year basis. Fall in almost all components of income chiefly resulted in this decrease, partly offset by higher net gains on sales of loans and leases, and solid wealth management revenues.

TCF Financial reported non-interest expenses of $379.1 million, down 9% from the prior-year quarter. This decrease primarily reflects the lower merger-related expenses, occupancy and equipment and other expenses, partly offset by higher compensation and employee benefit expenses.

Adjusted efficiency ratio was 64.8%, up from the prior-year quarter’s 58.51%. A rise in ratio indicates fall in profitability.

As of Dec 31, 2020, total deposits decreased marginally sequentially to $38.9 billion. However, total loans and leases increased slightly to $34.5 billion during the December-end quarter.

Credit Quality: A Mixed Bag

Credit quality for TCF Financial reflected mixed credit metrics. Total non-performing assets more than doubled to $710.5 million on a year-over-year basis.

Provisions for credit losses were $11.8 million, down 17.9% on a year-on-year basis to 0.14%. Non-performing assets as a percentage of total loans and leases and other real estate owned came in at 2.06%, up 147 bps year on year.

Robust Capital Position

TCF Financial’s capital ratios remained strong. As of Dec 31, 2020, Common equity Tier 1 capital ratio was 11.45% compared with 10.99% as of Dec 31, 2019. Total risk-based capital ratio was 14.03% compared with 12.70% as of Dec 31, 2019. Tier 1 leverage capital ratio was 9.34%, down from 9.49% as of Dec 31, 2019.

Our Viewpoint

TCF Financial put up a decent performance during the October-December period. Continued expense management highlights the company’s cost-control initiatives. Nevertheless, reduction in revenues is a concern. Further, low rates are expected to keep straining margins.

Though the bank’s efforts to reduce balance-sheet risks and diversify the loan portfolio augur well for earnings in the subsequent quarters, a lower fee income is a headwind. Notably, the merger with Huntington Bancshares Incorporated HBAN is likely to capture market opportunities and boost the client base through a distinctive, "People-First, Digitally-Powered" customer experience. Apart from this, the companies’ expanded scale, technological advancement and increased product offerings will help capitalize the market share.

TCF Financial Corporation Price, Consensus and EPS Surprise

TCF Financial Corporation price-consensus-eps-surprise-chart | 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

Texas Capital Bancshares TCBI reported adjusted earnings per share of $1.14 in fourth-quarter 2020, inching past the Zacks Consensus Estimate of $1.13. However, results compared unfavorably with the prior-year quarter’s $1.23. Rise in fee income and lower expenses were driving factors. Yet, fall in net interest income along with pressure on margin were deterrents. Further, results reflect decline in both loans and deposit balances. In addition, provision for credit losses escalated.

First Republic Bank FRC delivered an earnings surprise of 5.3% in the October-December period on solid top-line strength. Earnings per share of $1.60 surpassed the Zacks Consensus Estimate of $1.52. Additionally, the bottom line climbed 15.1% from the year-ago quarter. Results were supported by an increase in net interest income and fee income. Moreover, the company’s balance-sheet position was strong during the quarter. Nonetheless, higher expenses and elevated provisions were offsetting factors.

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