TCF Financial Shares Dropped: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Minnesota regional bank holding company TCF Financial (NYS: TCB) were getting knocked around by investors today, losing as much as 11% in intraday trading after the bank reported disappointing fourth-quarter earnings.

So what: If you stick to just the headline of the company's press release, you might be scratching your head over the stock declines since it triumphantly proclaims, "TCF Reports 21st Consecutive Year of Net Income -- Earns $109.4 Million." But dig a bit further and the news didn't look quite as good. Earnings per share for the final quarter of the year came in at $0.10, down by half from $0.20 in the third quarter and off 58% from the fourth quarter of 2010. Wall Street analysts had expected a dip in TCF's bottom line, but they were looking for $0.14 in per-share profit.

Now what: If there's a silver lining in the nasty-looking quarterly numbers, it's this: The declines weren't due to rapidly deteriorating credit quality. As investors continue to fret over the state of banks' balance sheets, a big drop in profit like this might spark concerns that TCF's loan book is souring. In fact, much of the profit decline had to do with the so-called Durbin Amendment of the financial-reform bill going into effect. The legislation drastically cut back on the fees that banks could charge for customers' use of debit cards. TCF's revenue from debit cards fell to $13.6 million for the fourth quarter, down more than 50% from the fourth quarter of 2010.

Meanwhile, credit quality seemed to hold up for the bank. Non-accrual loans as a percentage of total loans held steady at 2.1% from the third quarter and was down from 2.3% in 2010. New provisions for credit losses decreased 24% from the fourth quarter of 2010.

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