TCF Financial Corporation
(
TCB
) reported third quarter 2012 net income of 19 cents per share,
marginally beating the Zacks Consensus Estimate by 2 cents.
However, results compared unfavorably with net income of 20 cents
in the prior quarter.
Including after-tax charge of $20.6 million or 13 cents per
share, based on the impact of the implementation of the
clarifying regulatory guidance, net income stood at $9.3 million
or 6 cents per share.
Improved net interest income coupled with reduced non-interest
expenses were the positives for the quarter. Moreover, continued
positive impact of the balance sheet repositioning in the prior
quarter added fuel to fire. Yet, lower non-interest income and
deteriorating credit quality were the dampeners.
Performance in Detail
TCF Financial reported total revenue of $332 million in the
quarter, up 0.3% sequentially, attributable to higher interest
income, partially offset by lower non-interest income. Moreover,
the results outshined the Zacks Consensus Estimate of $299.0
million.
Net interest income climbed 1.2% sequentially to $200.6 million.
The augmentation was driven by higher average balance of auto
finance loans, partly offset by seasonally lower average balance
of inventory finance loans. Moreover, decline in interest expense
due to the redemption of $115 million of Trust Preferred
securities during the quarter acted as a positive. Net interest
margin was 4.85%, contracting 1 basis point (bp) sequentially.
Non-interest income came in at $112.1 million, down 0.7%
sequentially. The decrease was primarily attributable to reduced
banking fees and service charges coupled with lower card
revenues.
TCF Financial reported non-interest expenses of $196.8 million,
down 3.1% sequentially from $203 million. Reduced deposit account
premiums and decline in foreclosed real estate and repossessed
asset expenses led to decrease in expenses.
Evaluation of Credit Quality
With the increased level of non-performing assets in the quarter,
due to the adoption of clarifying bankruptcy-related regulatory
guidance, which led to rise in consumer real estate non-accrual
loans, credit quality deteriorated on the whole.
Provisions for credit losses climbed 77.9% sequentially to $96.3
million, owing to increased provision expense on commercial loans
and additional provision recorded for consumer real estate loans
associated with the adoption of clarifying bankruptcy-related
regulatory guidance.
Net loan and lease charge-offs were $104.5 million in the
quarter, up 132.8% sequentially. The rise compared to the prior
period was mainly attributable to the upsurge in commercial real
estate net charge-offs. This includes the additional net
charge-offs of $43.9 million related to the implementation of
bankruptcy-related regulatory guidance.
Moreover, non-accrual loans and leases climbed 30% sequentially
to $421.8 million, driven by a rise in consumer non-accrual loans
due to the adoption of clarifying bankruptcy-related regulatory
guidance. However, allowance for loan and lease losses declined
to $264.8 million, down 3.4% sequentially.
Capital Position
As of September 30, 2012, the company's total risk-based capital
was $1.9 billion, or 12.96% 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 10.40%, down
from $1.7 billion, or 12.67% of risk-weighted assets as of
December 31, 2011.
The tier 1 leverage ratio surged to 8.66% from 8.64% in the prior
quarter, while tier 1 common capital ratio declined to 9.17% from
9.26% in the last quarter.
As of September 30, 2012, total deposits grew 3.9% sequentially
and 12.5% year over year to $13.6 billion. Period end loans and
leases were $15.2 billion slightly up sequentially and 6.1% year
over year.
Dividend Update
Concurrent with the press release, TCF Financial declared a
quarterly cash dividend of 5 cents per common share. The dividend
will be paid on November 30, 2012 to stockholders of record as on
November 15, 2012.
Peer Performance
Among TCF Financial's peers,
Commerce Bancshares, Inc.
(
CBSH
) reported third quarter 2012 earnings of 75 cents per share,
lagging the Zacks Consensus Estimate by 2 cents. This compares
unfavorably with the prior quarter's earnings of 80 cents per
share, but favorably with the year-ago quarter's earnings of 72
cents.
The sequential improvement was due to higher non-interest income
and a decrease in operating expenses, partially offset by a lower
net interest income. Moreover, credit quality and capital ratios
continued to show improvements.
Our Viewpoint
In March 2012, TCF Financial repositioned its balance sheet with
the prepayment of $3.6 billion of long-term debt. Moreover, it
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 coming quarters.
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, a 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.
COMMERCE BANCSH (CBSH): Free Stock Analysis
Report
TCF FINL CORP (TCB): Free Stock Analysis
Report
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