TCF Financial Corporation
) reported first-quarter 2012 adjusted net loss of $1.78 per share,
better than the Zacks Consensus Estimate loss of $1.81. Adjusted
figure includes after-tax charge of $1.87 per share, associated
with the repositioning of certain investments and borrowings of TCF
Financial's balance sheet.
Excluding one-time after-tax charges of $295.8 million, net
income stood at $12.9 million or 9 cents per share, down from $16.4
million or 10 cents per share in the prior quarter and $30.3
million or 21 cents per share in the prior-year quarter.
Loss recorded on prepayment of debt increased the non-interest
expenses significantly in the quarter. Yet, higher revenue, driven
by increased net interest and non-interest income were positives
for the quarter. Moreover, a rise in net interest margin added fuel
to the fire.
Performance in Detail
TCF Financial reported total revenue of $345.5 million in the
quarter, up 27.2% sequentially and 19.9% year over year,
attributable to higher net interest and non-interest income.
Additionally, the results also outshined the Zacks Consensus
Estimate of $297.0 million.
Net interest income climbed 3.9% sequentially to $180.2 million.
Increased growth in the inventory finance and auto finance
portfolio, coupled with lower average cost of borrowings, cumulated
in the sequential rise. However, lower mortgage-backed securities
balances due to the balance sheet repositioning, which completed in
March 2012, partially offset the climb.
Moreover, net interest income grew 3.6% year over year, mainly
due to lower average balances and cost of borrowings attributed to
the balance sheet repositioning. Additionally, lower average
borrowings, declined rates on diverse deposit products along with
elevated average loan and lease balances, based on the growth in
the inventory finance and auto finance portfolios, were positives
for the income. Yet, a fall in consumer and commercial real estate
portfolio balances and average yields partly offset the rise in
Net interest margin in the quarter was 4.14%, improving 22 basis
points (bps) sequentially and 8 bps year over year. Lower average
cost of borrowings resulting from the balance sheet repositioning
drove the improvement.
Non-interest income came in at $165.3 million, significantly up by
68% sequentially and 45% year over year. The increases were driven
by net gains on securities, though partially offset by lower
banking fees and service charges, coupled with reduced fees and
TCF Financial reported non-interest expense of $748.7 million,
including $550.7 million loss on termination of debt. During March
2012, the company restructured $3.6 billion of long-term borrowings
having 4.3% weighted average rate that resulted in such pre-tax
Evaluation of Credit Quality
Though the level of non-performing assets remained flat for the
quarter, credit quality was a mixed bag.
Provisions for credit losses plunged 18.1% sequentially to $48.5
million, owing to reduced commercial net charge-offs and lower
provision expense on consumer real estate TDRs. However, provisions
increased 7.2% year over year, largely due to augmented reserves on
the inventory finance portfolio.
Net loan and lease charge-offs were $38.9 million in the
quarter, down 32.8% sequentially and 30.2% year over year. The
plunge was mainly attributable to the decline in commercial real
estate and leasing and equipment finance charge-offs.
Allowance for loan and lease losses was $265.3 million, up 3.8%
sequentially and 3.9% year over year. Moreover, non-accrual loans
and leases climbed 3.6% sequentially to $308.9 million, driven by a
rise in commercial real estate non-accrual loans, though partially
offset by lower commercial business non-accrual loans. Yet, loans
dropped 3.2% year over year resulting from a fall in leasing and
equipment finance non-accrual loans, partially offset by elevated
commercial real estate non-accruals.
As of March 31, 2012, the company's total risk-based capital was
$1.7 billion, or 11.88% 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 $1.4 billion, or 9.97%, down from $1.7
billion, or 12.67% of risk-weighted assets as of December 31,
The tier 1 leverage ratio and tier 1 common capital ratio
dropped to 7.68% and 9.04% from 9.15% and 11.74%, respectively, in
the prior quarter.
As of March 31, 2012, total deposits inched up 1.7% sequentially
and 5.1% year over year to $12.3 billion. Period end loans and
leases were $15.2 billion up 7.5% sequentially and 2.8% year over
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 the net interest
We expect the company to maintain its superior position in the
market based on its positive approach to market conditions and
improving top-line growth. 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.
Among TCF Financial's peers,
Citizens Republic Bancorp Inc.
) will be reporting its first-quarter 2012 results on April 26,
2012, after the market closes.
CITIZENS BKNG (
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TCF FINL CORP (
): Free Stock Analysis Report
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