Midwest Banks vs. Northeast Banks: Here Are Winners in Each Region

TCF Financial

TCF Financial (TCB) of Wayzata, Minn., closed at $13.78 Tuesday, returning 14% this year, following a 20% increase in 2012.

The shares trade for 1.6 times tangible book value, and for 11.8 times the consensus 2014 EPS estimate of $1.17. The consensus 2013 EPS estimate is $0.94.

Based on a quarterly payout of $0.05, the shares have a dividend yield of 1.45%.

TCF had $18.2 billion in total assets as of Dec. 31. The company reported fourth-quarter earnings of $23.6 million, or $0.15 a share, increasing from $9.3 million, or $0.06 a share during the third quarter, and $16.4 million, or $0.10 a share, during the fourth quarter of 2011. During the most recent quarter, the company paid a $10 million civil fine for "deficiencies" in its Bank Secrecy Act compliance program.

The earnings improvement reflected a decline in credit expenses. The fourth-quarter provision for loan losses was $48.5 million, declining from $96.3 million the previous quarter and $59.2 million a year earlier. During the third quarter, TCF the provision was boosted by $31.5 million because of regulatory guidance requiring "requiring loans subject to a borrower's discharge from personal liability following Chapter 7 bankruptcy, to be reported as non-accrual loans, and written down to the estimated collateral value, regardless of delinquency status."

Total nonperforming assets -- including nonaccrual loans, repossessed real estate and the "loans discharged in bankruptcy" that the company was required to begin treating as nonaccrual loans during the third quarter -- totaled $476.4 million as of Dec. 31, declining from $542.2 million in September.

TCF's ROA during 2012 was a negative 1.18%, as TCF during the first quarter of last year booked a net loss of $292.9 million, or $1.78 a share, after the company repositioned its balance sheet by prepaying long-term borrowings and selling lower-yielding mortgage-backed securities.

Green calls TCF a "credit recovery play, with decent loan growth in the upper single digits."

The company has lagged behind many other Midwest banks in the credit recovery, because of a "much more significant mix of residential loans on the balance sheet," and the clearing out of the problem residential loans has been slow "because of foreclosure moratoriums and things like that," according to Green.

The analyst's price target for TCF's shares is $14, and he said in a report on Jan. 31 that "much more progress on the credit quality should drive an improvement in EPS to $1.00 in 2013E and $1.40 in 2014E."

TCB data by YCharts

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