Most of TCF’s loan is for real estate
TCF Financial Corporation (NYSE:TCB), incorporated in 1987, is a national bank holding company, providing both retail and commercial banking products in the U.S. It operates in three main business segments: Lending, Funding and Support Services. Most of its revenue, $981.23 million, or 71.4% of the total 2012 revenue, was generated from the Lending segment. The Funding segment ranked second, with $380.76 million in revenue, while the revenue of the Support Services segment was only $13 million. Most of its deposits, $11.76 billion, or 83.7% of total deposits, were checking, savings and money market deposits, which were considered to be low-cost funds for the bank, while the certificates of deposit were nearly $2.3 billion.
TCF Financial Corporation (NYSE:TCB) loans mostly to the consumer real estate field, with total outstanding loans of more than $6.67 billion. The commercial loan ranked second with $3.4 billion in total loans outstanding. In addition, TCF Financial Corporation (NYSE:TCB) also does leasing and equipment financing, with an outstanding amount of $3.2 billion in 2012.
What makes me attracted to the company is its high net interest margin in the past five years. Since 2008, TCF Financial Corporation (NYSE:TCB)’s net interest margin has stayed in the range of 3.87%-4.65%. In 2012, its net interest margin was 4.65%. However, TCF Financial Corporation (NYSE:TCB) booked a loss of $218.5 million, or a loss of $1.37 per share, mainly due to the $550.74 million in loss on termination of debt.
In the period of 2003-2007, TCF Financial Corporation (NYSE:TCB)’s loan loss reserve ratio was quite low, decreasing from 0.89% to 0.65%. However, since 2008, TCF seems to have a more conservative estimate for the loan default, bringing up the loan loss reserve ratio in the range of 1.67% to 2.88%. In 2012, its loan loss reserve accounted for 1.73% of its gross loan. At $14.50 per share, TCF is worth more than $2.3 billion on the market. The market values TCF Financial Corporation (NYSE:TCB) at 12.9 times its forward earnings and 1.5 times its book value.
Associated Banc Corp (NASDAQ:ASBC) with impressive first quarter earnings results
Compared to its peers Associated Banc Corp (NASDAQ:ASBC) and U.S. Bancorp (NYSE:USB), TCF Financial Corporation (NYSE:TCB) is the smallest company among the three. Associated Banc Corp (NASDAQ:ASBC) is trading at $14.80 per share, with a total market cap of nearly $2.5 billion. The market values this bank at 14.1 times its forward earnings and only 86% of its book value. What I like about Associated Banc Corp (NASDAQ:ASBC) is its heavy lending to commercial and business lending, accounting for 38% of its total loans, while the commercial real estate lending, including construction, represented 23% of the total loans. Residential mortgage loans ranked third, accounting for 17% of the total loans.
Recently, Associated Banc Corp (NASDAQ:ASBC) reported impressive earnings results for the first quarter of 2013. Its total interest income decreased 2.9% to $175.35 million, but because of the lower interest expense, its net interest income experienced a 1.9% growth to $157.65 million. Its net income came in at $47.4 million, or $0.27 EPS, 11.2% higher than the net income in the first quarter last year. Its net interest margin was a bit lower than that of TCF at 3.17%. Its loan loss reserve ratio is higher than that of TCF Financial Corporation (NYSE:TCB). In 2012, the loan loss reserve represented around 1.9% of the gross loan.
U.S. Bancorp might be the best pick
U.S. Bancorp (NYSE:USB) is one of the banks that Warren Buffett likes. Most of its lending practice focuses on commercial loan, accounting for 29.7% of the total loans outstanding. Retail loans (leasing, home equity and second mortgages and automobile) ranked second, representing 21.3% of the total loans in 2012. For the past five years, its net interest margin has been quite decent, fluctuating in the narrow range of 3.58%-3.88%. In 2012, its net interest margin stayed at 3.58%.
The reason Buffett likes U.S. Bancorp (NYSE:USB) might be its retail and commercial focus in its lending practices and its decent loan loss reserve ratio over the years. In the past ten years, its loan loss reserve ratio stayed in the range of 1.30%-2.58%. In 2012, its loan loss reserve ratio was 1.91%. U.S. Bancorp (NYSE:USB) is trading at $33.50 per share, with a total market cap of $61.95 billion. The market values the bank at only 10.34 times its forward earnings and 1.78 times its book value.
Among the three, U.S. Bancorp (NYSE:USB) pays the highest dividend yield at 2.3%. Associated Banc Corp (NASDAQ:ASBC) ranked second with a dividend yield of 2.2%. TCF offers investors the lowest dividend yield at only 1.4%.
My Foolish take
Investing in the banking business is not easy at all. Investors should dig deeper to understand the stickiness level of deposits, the lending practices and the conservativeness of the banking operations. At the moment, I would stay away from TCF Financial Corporation (NYSE:TCB) due to its lowest loan loss reserve ratio, the lowest dividend yield and huge CEO share sale amount. I personally like U.S. Bancorp (NYSE:USB) the most of the trio due to its high loan exposure to retail and commercial activities, highest dividend yield and the most conservative loan loss reserves.
The article Should We Follow the CEO Sale of This Banking Stock? originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
