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TCF Financial (TCB) in Wayzata, Minn., has delayed the release of its third-quarter results to give itself more time to review how it will implement regulatory guidance on consumer loans subject to bankruptcy discharge.
October 19 -
Citi, Wells and JPMorgan Chase have all taken substantial chargeoffs in response to new OCC guidance on treatment of home-equity loans, and several other large and regional banks are likely to do the same.
October 15
TCF Financial Corp. (TCB) ended the suspense over its third-quarter results Friday — and the reason behind it was costly.
The Wayzata, Minn., bank on Friday took a net after-tax charge of $20.6 million, or 13 cents per common share, as a result of new regulatory guidance involving homeowners who have been through bankruptcy. TCF had
The charge was a major blow to TCF's quarterly earnings, which totaled $9.3 million, or 6 cents per diluted common share. That was down from $32.2 million in the same period a year earlier.
"While the third-quarter results were not what we anticipated due to the impact of the adoption of the clarifying regulatory guidance, we believe we are on the right track as we work through the remainder of 2012 and move forward with our strategy into 2013," TCF Chief Executive Officer William Cooper said in a news release.
Investors were expecting the bank's earnings to take a hit. Though TCF's earnings fell well short of the consensus estimate among analysts of 17 cents per share, according to Bloomberg, the company's stock price was up nearly 4% in midafternoon trading Friday.
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But affected banks have countered by arguing that many of the borrowers in question have continued to pay and will continue to do so. For example, some people file for bankruptcy in order to discharge medical bills, but they keep paying their mortgages.
In addition to taking a charge, TCF moved $103.2 million of mortgage loans to nonaccrual status in order to comply with the guidance. More than 80% of those loans are first mortgages, and more than 90% of them were less than 60 days past due as of Sept. 30, according to the company.
During a conference call with analysts, Cooper, TCF's often-outspoken CEO, was restrained in his comments about the regulatory guidance. But he said that the directive will alter how banks deal with borrowers who have been through bankruptcy, making banks more likely to pursue foreclosures.
"There's certainly less incentive to work with a customer in terms of loan concessions and so forth, given that the loan has already been written down," Cooper said.
Chief Financial Officer Mike Jones said that in future quarters TCF expects to recover the charges it took. But in response to an analyst's question, he declined to offer a specific timetable. "The vast majority of these loans were current and have been current for a long time," Jones said.
Friday's announcement was the second big earnings hit that TCF has taken this year. In March, the company announced changes to its balance sheet
The company, which took a high-profile role in the industry's fight against the price cap on debit interchange fees, has been remaking its business by expanding into auto lending and inventory finance.
For the quarter, TCF, which has $17.5 billion of assets, reported $312 million in revenue. That was 6% higher than in the third quarter of 2011, on the strength of strong net interest income, which was up 14% from the year-earlier period.
The rising net interest income was driven by a net interest margin of 4.85% — a high margin compared with most other banks, but one that Cooper said he expects to decline somewhat in coming quarters.
TCF is hardly the only bank to be negatively impacted by the OCC guidance.
In the third quarter, JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (NYSE: C)
Other banks that have taken writedowns include First Horizon National (FHN), Huntington Bancshares (HBAN), PNC Financial Services Group (PNC) and Bank of America (BAC).
