The company's net interest margin -- the difference between the average yield on loans and investments and the average cost for deposits and wholesale borrowings -- expanded to a very strong 4.86%, from 4.14% the previous quarter, and 4.02% a year earlier, reflecting the reduced interest expense and more profitable loan mix. Cooper said in July that "with rates low and even lower, we'll probably see some reduction in that very high net interest margin... somewhere around 4.6%, 4.65%," which Chan said would be "still well above the small-cap bank group average of 3.80%."
TCF's shares closed at $10.44 Thursday, trading for 1.3 times tangible book value, according to Thomson Reuters Bank Insight, and for 10 times the consensus 2013 earnings estimate of $1.03, among analysts polled by Thomson Reuters. The consensus 2012 estimate is for a net loss of $1.19 a share.
Chan called TCF's valuation "attractive," as the shares have "lagged peers YTD, up only 1% vs. a 21% gain for the BIX (S&P Bank Index)," and have lagged over the past three years, because of "outsized exposure to the downturn in the housing market (with 58% of its loans in home equity at its peak in 1Q08)," the regulatory hits to fee income, and the restructuring.
As part of its transition, TCF is focusing on equipment leasing, inventory finance and auto lending, which together made up 32% of the company's total loans and leases as of June 30, increasing from 27% a year earlier. TCF grew these loans and leases 23% year over year, to $4.9 billion.Chan said that the company's new lending focus was in "typically higher-yielding businesses, which could help mitigate margin pressure in a period of extended low interest rates." Despite having a national lending platform, "TCB is still only a very small player in these large market segments," the analyst said, as "auto lending is over a $600 billion market and both
Email. Follow @PhilipvanDoorn
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV