TCF Financial Corporation’s (TCB) first quarter 2011 earnings came in at 20 cents per share, in line with the Zacks Consensus Estimate. This compares unfavorably with the earnings of 22 cents in the prior quarter and 26 cents in the prior-year quarter.
Decreased non-interest income, increased non-interest expenses, sluggish economic recovery and increased regulatory trouble have affected the quarter results. These negatives were partly offset by decline in non-performing assets.
Net income came in at $29.7 million in the reported quarter, down from $30.7 million in the prior quarter and $33.9 million in the year-ago quarter.
Performance in Detail
Net interest income (NII) was $174.0 million, down 0.4% from $174.7 million in the year-ago quarter. The decline was attributed to reposition of higher yielding fixed-rate consumer real estate loans to lower yielding variable-rate consumer real estate loans, partly offset by increase in the higher-yielding inventory finance portfolio and lower average cost of savings deposits and long-term borrowings.
Net interest margin (NIM) in the quarter was 4.06%, down 15 basis points year over year. Increased asset liquidity and lower yielding loans and leases attributed to the lower interest rate environment and the mix of fixed and variable rate consumer loans, negatively affected the margin. However, lower average rates on deposits and long-term borrowings partially offset the decline.
Non-interest income came in at $114.2 million, down 7.2% from $123.0 million in the prior-year quarter. This dip was attributed to lower card revenue and decreased banking fees and service charges. These decreases were partially offset by higher leasing and equipment finance revenue.
TCF reported total revenue of $288.3 million in the quarter, down 3.0% from $297.3 million year over year, below the Zacks Consensus Estimate of $289.0 million.
Non-interest expense was $193.9 million, up 1.1% from $191.8 million in the prior-year quarter. The increase in non-interest expense reflects higher compensation and employee benefits costs, higher FDIC premiums, increased foreclosed real estate and repossessed asset expenses and increased marketing and advertising expenses. These increases were partially offset by lower occupancy and equipment expense and decreased deposit account premiums.
Evaluation of Credit Quality
Overall, improvement in credit quality was recorded with declinein non-performing assets, provision for credit losses, net charge-offs and delinquencies andother credit metrics.
Provisions for credit losses plunged 42.0% sequentially to $45.3 million owing to decreased reserves and charge-offs in the leasing and equipment finance portfolio.
Net loan and lease charge-offs were $55.8 million in the quarter, down 14.0% from $64.9 million sequentially. The decrease was primarily due to decrease in leasing and equipment finance charge-offs.
Allowance for loan and lease losses was $255.3 million, down 4.0% from $265.8 million sequentially. Non-accrual loans and leases decreased 7.6% to $319.0 million sequentially driven by a decline in commercial non-accrual loans.
Non-performing assets decreased 5.2% sequentially to $461.3 million in the first quarter of 2011.
Capital Ratios
At the end of the reported quarter, the company’s total risk-based capital was $2.0 billion, or 14.62% of risk-weighted assets, up from $1.8 billion, or 12.98% of risk-weighted assets at the end of 2010. Tier 1 common capital was $1.6 billion, or 11.47% of risk-weighted assets, up from $1.4 billion, or 9.71% of risk-weighted assets at the end of 2010.
Our Take
Despite sluggish economic recovery and regulatory issues, TCF reported positive net income. We expect TCF to maintain its superior position in the market based on its positive approach to market conditions. However, the regulatory reform and low interest rate environment might affect the company’s near-term results to some extent.
TCF currently retains its Zacks #3 Rank, which translates to a short-term Hold rating. However, TCF’s closest competitor Chemical Financial Corp. (CHFC) maintained a Zacks #1 Rank, which translates into a short-term Strong Buy rating.
CHEMICAL FINL (CHFC): Free Stock Analysis Report
TCF FINL CORP (TCB): Free Stock Analysis Report
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