Limits on certain fees helped cut the bank's quarterly earnings in half. Shares fell 9 percent.
In no mood for the reinvention TCF Financial Corp. says it's undergoing, investors pushed the bank's stock down 9 percent Tuesday on disappointing fourth-quarter numbers.
The regional bank's profits were cut in half as both interest from loans and revenue from banking fees and service charges dropped. Everyone anticipated a difficult quarter as the Wayzata-based bank works to restructure in the face of new banking regulations and a difficult economy, but the declines were greater than expected.
"It's been a deep bottoming," said Peyton Green, a bank analyst at Sterne, Agee & Leach in Nashville, Tenn. "They're suffering from a lot of pressure."
TCF reported net income of $16.4 million in the fourth quarter, or 10 cents per share, down 52 percent from a year earlier. Analysts polled by Thomson Reuters expected about 14 cents a share.
Deposits rose about 6 percent, but loans were down 4 percent, with revenue declining across nearly all the bank's business lines. Total revenue sank 14 percent to $271.7 million.
For the year, profits were $109.4 million, or 71 cents per share, down 28 percent from $150.9 million, or $1.08 per share, for 2010.
Shares closed Tuesday at $10.58, down 9 percent.
Credit quality was mixed. Net charge-offs fell about 10 percent from a year ago, but the bank's 60-day-plus delinquency rate nudged up to 0.85 percent, from 0.8 percent a year ago as more consumers fell behind on their mortgages.
Unlike other banks that boosted profits by setting aside less money for covering sour loans, TCF increased its provisions for credit losses, mostly in its commercial portfolio, by about $7 million, nicking profits.
TCF's loans are "not showing the pace of improvement we had expected, lagging peers," Morgan Stanley bank analyst Ken Zerbe said.
TCF has been hit particularly hard by the rocky economic recovery and new bank regulations targeting fees, as it's more heavily weighted to residential mortgages than many other banks and more heavily dependent on fees.
Now, the bank is trying to restructure itself into a more diverse, loan-driven and more national bank on better footing with competitors such as Wells Fargo, even as it seeks creative new strategies to wring out more fees to recoup revenue it lost from new bank regulations.
In October, TCF bought Gateway One Lending & Finance, a used car financing company.
In reaction to new regulations on overdraft fees, TCF started the fourth quarter off with a new system, charging customers $28 a day when they overdraw their checking accounts, instead of charging per transaction. Card revenue fell by half from a year earlier, a result of the Durbin Amendment cap on what banks can collect on debit card transactions.
The overdraft change didn't boost revenue as investors expected, said Jon Arfstrom, banking analyst with RBC Capital Markets in Minneapolis. The majority of the 17 percent decline in the bank's "fees and service charges" was related to that change, Arfstrom said.
The total restructuring will probably take three years, TCF Chairman Bill Cooper told analysts Tuesday. Cooper described 2011 as "another in a series of difficult years in banking."
"We continue to reinvent the bank," he said. "This is my third reinvention. I look at 2012 as a building, investing and innovating year."
Arfstrom said he thinks TCF is close to the bottom of its numbers.
"I think you now have Durbin and the account structure change [overdraft] fully in the numbers," he said. "Those are obviously two big body blows that the company has had to endure."
Jennifer Bjorhus • 612-673-4683