TCF Financial (TCB): Credit, Fee Issues Remain A Challenge ...

TCF Financial Corp. (NYSE:TCB) saw steady improvement in problem asset levels in 2011 versus 2010 with classified assets falling 33.5 percent and is expected to witness the same in 2012 as the economic condition improves.

In 2011, 60+ day delinquent and accruing assets fell 10.1 percent and total non-accruals dropped 13.6 percent. However, the company continues to see growth in accruing troubled debt restructurings (TDR) balances. Specifically, accruing TDR balances grew 37.8 percent in 2011 to $532.3 million.

"While this level of growth is concerning, we continue to believe that the loss content in the restructured credits is manageable and note that the company carries a 13.5% reserve on the consumer TDR balances," RBC Capital Markets analyst Jon Arfstrom wrote in a note to clients.

TCF itself admitted that credit quality remains a challenge in the current environment and is delaying TCF's return to more normal levels of provision.

Meanwhile, checking account attrition continues to offset solid new account openings. TCF opened 431,677 checking accounts in 2011 and 418,670 accounts in 2010. However, account attrition continues to limit growth in the overall account base as total checking accounts has remained rather steady at 1.3 million.

"Our sense is that management is balancing the ability to have greater account growth with less?attrition against the potential for loss in fee income. The key will be to maintain the current account base, potentially generate a lower fee per account average, but to grow the overall number of accounts," Arfstrom said.

In TCF's 10K, the company outlines their current federal home loan bank (FHLB) borrowings at $3.9 billion, carrying a weighted average cost of 4.02 percent. Though it is unrealistic for the company to prepay and refinance all of their FHLB borrowings given prepayment penalties, TCF has the opportunity to reduce some of these borrowing costs which could help support net interest income. "We expect continued slow and steady improvement in problem asset levels in 2012 as the economic environment improves," the analyst said.

Source: http://www.istockanalyst.com/finance/story/5687141/tcf-financial-tcb-credit-fee-issues-remain-a-challenge

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