TCF Financial Corporation
) reported second quarter 2012 net income of 20 cents per share,
marginally beating the Zacks Consensus Estimate by 2 cents.
Reported earnings also improved from the adjusted net loss of $1.78
per share in the prior quarter and net income of 19 cents in the
COMMERCE BANCSH (CBSH): Free Stock Analysis
TCF FINL CORP (TCB): Free Stock Analysis Report
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Adjusted net loss in the prior quarter included an after-tax charge
of $1.87 per share, associated with the repositioning of certain
investments and borrowings of TCF Financial's balance sheet.
Improved net interest income coupled with reduced non-interest
expenses were the positives for the quarter. Moreover, full quarter
impact of the balance sheet repositioning added fuel to fire. Yet,
lower non-interest income and deteriorating credit quality were the
Net income for the reported quarter stood at $31.5 million, up from
net loss of $282.9 million in the prior quarter and net income of
$30.4 million in the prior-year quarter.
Performance in Detail
TCF Financial reported total revenue of $311.1 million in the
quarter, down 10% sequentially, attributable to lower non-interest
income, partially offset by higher net interest income. However,
the results outshined the Zacks Consensus Estimate of $289.0
Net interest income climbed 10% sequentially to $198.2 million.
Full quarter impact of the balance sheet repositioning, which
reduced the cost of borrowings acted as a positive for the
earnings. However, decreased interest income on mortgage-backed
securities and lower interest income on loans and leases partially
offset the increase.
Net interest margin in the quarter was 4.86%, improving 72 basis
points (bps) sequentially. Lower average cost of borrowings
resulting from the balance sheet repositioning and growth in
inventory finance and auto finance portfolios drove the sequential
improvement. These positives were partly offset by reduced levels
of higher yielding loans in the consumer portfolio due to
persistent lower interest rate environment and augmented balances
in higher rate deposit accounts.
Non-interest income came in at $112.9 million, significantly down
32% sequentially. The decrease was primarily attributable to
reduced net gains on securities (down 83% sequentially), though
partially offset by higher banking fees and service charges coupled
with increased fees and other revenues.
TCF Financial reported non-interest expenses of $203 million, down
72.9% sequentially from $748.7 million. Last quarter's results
included a loss of $550.7 million on termination of debt. Moreover,
reduced deposit account premiums added to the decline in expenses.
Evaluation of Credit Quality
With the increased level of non-performing assets in the quarter,
due to elevated non-accrual loans, primarily in commercial real
estate, credit quality also deteriorated.
Provisions for credit losses climbed 11.5% sequentially and 23.0%
year over year to $54.1 million, owing to increased provision
expense on commercial loans and reserve loss on one large lease
Net loan and lease charge-offs were $44.9 million in the quarter,
up 15.4% sequentially and 2.5% year over year. The rise compared to
the prior periods was mainly attributable to the upsurge in
commercial real estate net charge-offs. Allowance for loan and
lease losses was $274.2 million, up 3.4% sequentially and 7.3% year
Moreover, non-accrual loans and leases climbed 5.0% sequentially
and 0.7% year over year to $324.4 million, driven by a rise in
commercial real estate non-accrual loans and one big non-accrual
lease, though partially offset by lower consumer real estate
As of June 30, 2012, the company's total risk-based capital was
$1.9 billion, or 13.11% of risk-weighted assets, down from $2.0
billion, or 14.80% of risk-weighted assets at the end of 2011. Tier
1 risk-based capital was $1.5 billion, or 10.53%, down from $1.7
billion, or 12.67% of risk-weighted assets as of December 31, 2011.
The tier 1 leverage ratio and tier 1 common capital ratio surged to
8.64% and 9.26% from 7.68% and 9.04%, respectively, in the prior
As of June 30, 2012, total deposits grew 6.3% sequentially and 9.3%
year over year to $13 billion. Period end loans and leases were
$15.2 billion, up 0.2% sequentially and 4.1% year over year.
Concurrent with the press release, TCF Financial declared a
quarterly cash dividend of 5 cents per common share. The dividend
will be paid on August 31, 2012 to stockholders of record as on
August 15, 2012.
Among TCF Financial's peers,
Commerce Bancshares, Inc.
) reported second quarter 2012 earnings of 80 cents per share,
significantly outpacing the Zacks Consensus Estimate of 72 cents.
However, after considering loan recoveries and interest income on
non-performing commercial loans as well as early pay-off of
commercial real estate loan, the company reported earnings of 84
This also compares favorably with the prior-quarter's earnings of
75 cents per share and the year-ago quarter's earnings of 74 cents.
Commerce Bancshares' year-over-year results benefited from higher
net interest income and a decrease in operating expenses, partially
offset by a lower fee income. Moreover, credit quality and capital
ratios continued to show improvements.
In March 2012, TCF Financial repositioned its balance sheet with
the prepayment of $3.6 billion of long-term debt. Moreover, it also
sold $1.9 billion of mortgage-backed securities. The restructuring
of the balance sheet has reduced interest rate risk of the company
and is expected to be more accretive to net interest margin in the
We expect the company to maintain its superior position in the
market, based on its positive approach to market conditions and
improving net interest income. Moreover, healthy capital position
is indicative of the company's robust standing. Additionally,
reduced operating expenses reflect prudent expense management.
However, the regulatory reforms might affect the company's
near-term results to some extent.
TCF Financial currently retains its Zacks #3 Rank, which translates
to a short-term Hold rating.