For a midsized bank that's supposed to be in trouble, TCF Financial (NYSE:TCB) is doing all right. What's more, when the yield curve ultimately gets back to a more normal shape, I think some folks might be surprised with what this Midwestern lender is able to achieve.
That's not to say this was a great quarter. It was better than the median expectation, but it wasn't what you'd call great. Revenue was up about 4%, and expense growth pushed net income to a 5% drop from the year-ago period. Returns on assets and equity both declined, as you might imagine with the decline in income, but both remain at rather strong absolute levels.
The flat yield curve continues to weigh on earnings as depositors reap better terms, while borrowers aren't seeing a commensurate rise in their rates. Net interest income climbed a bit more than 3% this quarter, and though the net interest margin was pretty flat on a sequential basis, it fell from the prior year's level. Non-interest income remains an important part of the picture -- nearly half of revenue -- and grew by more than 5% this time around.
Where other Midwestern banks such as National City (NYSE:NCC) and U.S. Bancorp (NYSE:USB) are seeing very modest deposit growth, TCF continues to do a good job of gathering deposits. TCF is paying more for them -- borrowing costs rose almost a full percentage point this quarter -- and more customers are switching away from non-interest-bearing accounts (down 3%), but they're still growing.
TCF has a lot of what I often look for in banks. Which is to say that I prefer to see banks growing through de novo expansion instead of costly acquisitions, producing strong returns on equity, and having an attractive balance between interest- and non-interest-based income. TCF has those traits. It also happens to have a fine 10-year-plus track record in the stock market.
As much as I like the bank, though, the stock is no longer at a point at which I'd be keen to buy. That's not a negative opinion on TCF Financial so much as it's a realization that there are hundreds and hundreds of banks out there, and some of them offer a better risk-reward tradeoff at today's prices.
For more Foolish thoughts on the financials:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
