WAYZATA, Minn. (


) - Shares of

TCF Financial


slumped Thursday as investors appeared to sell the good news after the bank holding company beat analysts' expectations for its latest results.

The stock lost 4.7% to $16.70 in midday action. Volume of 1.6 million compared to the issue's trailing three-month daily average of 2.1 million. Based on Wednesday's close at $17.52, shares were up nearly 29% year-to-date.

Before Thursday's opening bell, TCF announced second-quarter net income of $45 million or 32 cents a share, beating the average estimate of analysts polled by

Thomson Reuters

for a profit of 27 cents a share.

In comparison, the company posted earnings $33.9 million, or 26 cents a share, in the first quarter, and a profit of $10.3 million or 8 cents a share, in the second quarter of 2009. The year-ago results reflected the payment of $12 million in non-cash deemed preferred stock dividends as well as the impact of the company's redemption of $361 million in preferred shares held by the Treasury in April 2009 for bailout money received through the Troubled Assets Relief Program, or TARP.

TCF's return on average assets (ROA) was 1.02% in the latest quarter and its return on average equity (ROE) was 12.71%. This was the bank's strongest earnings performance since the first quarter of 2008, when the ROA was 1.17% and ROE 17.08%, according to

SNL Financial.

CEO William Cooper touted the holding company's 61 consecutive profitable quarters, adding that second quarter results were "fueled by both increased revenues and decreased expenses, including a decrease in credit costs."

The main factor in the quarter-over-quarter earnings improvement was a sequential increase in revenue derived from fees and service charges to $77.8 million from $66.2 million in the first quarter. These items were flat year-over-year.

The company attributed the sequential increase in this type of revenue to "seasonality and a full quarter of account maintenance fees on checking accounts not meeting certain requirements, which began in March." This is a significant change that could bode well over subsequent quarters, since TCF Financial's checking account deposits of $4.5 billion increased 3% from the first quarter and 12% year-over-year.

The second quarter provision for loan losses was $49 million, declining from $50.5 million the previous quarter and $61.9 million a year earlier. The company continued to make provisions for loan loss reserves exceeding net charge-offs (loan losses). Net charge-offs for the second quarter were$47.8 million, down from $49.7 million in the first quarter, but up from $44.5 million in the second quarter of 2009.

The annualized net charge-off ratio for the second quarter was 1.30% for the second quarter -- a moderate level in the current industry environment. While an aggregate second-quarter figure won't be available for several weeks, the industry's net charge-off ratio for the first quarter was 2.84% according to the Federal Deposit Insurance Corp.

TCF Financial had $18 billion in total assets as of June 30. Nonperforming assets -- including nonaccrual loans and repossessed real estate -- continued to increase and comprised 3.04% of total assets as of June 30, compared to 2.75% the previous quarter and 2.40% a year earlier. Earlier-stage delinquencies, including loans past due 60 days or more, comprised 1.78% of total loans, up from 1.68% in March and compared to 1.34% in June 2009.

The company was well capitalized with a total risk-based capital ratio of 12.71% as of June 20. TCF raised $172.5 million in common equity through a public offering in February.

Based on Wednesday's market data, TCF Financial's shares were selling for 15.6 times the consensus earnings estimate of $1.07 a share for 2010. Shares were trading for 12.4 times the 2011 estimate and a rather low 9.6 times the earnings estimate of $1.75 a share for 2012.


Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.