Some times the probability of gains on below $25 priced stocks is higher than the probability of gains on stocks priced above $25. In the banking industry stocks, I view TCF Financial Corp. as one such stock.
TCF Financial Corp. (TCB) is a national financial holding company based in Wayzata, Minnesota. Its principal subsidiary, TCF Bank, is headquartered in Minnesota and operates mainly in Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana.
The 2008 year for the financial services sector was highlighted with news of subprime lending, multi-billion dollar credit losses, collateralized debt obligations and financial derivatives which negatively impacted the industry as a whole. In addition, many recent mergers and acquisitions rapidly deteriorated in value for the purchaser and their stockholders.
TCB did not engage in the activities that have created so many problems in the financial industry. TCB has not made subprime, teaser rate, Option ARM, broker-purchased, out of market, low documentation and other risky mortgages. TCB has not participated in junk bonds, collateralized debt obligations, asset-backed commercial paper, structured investment vehicles, or other off-balance-sheet programs. TCB has no auto or credit card portfolios, and does not have any derivative contracts. TCB has never owned Fannie Mae or Freddie Mac preferred stock, trust preferred securities or bank owned life insurance. Over 99 percent of TCB loans and leases are secured. Hence I view this Midwestern regional bank's credit quality as near the top of the industry, and I think it will remain relatively high, given my view that the company operates in an attractive service territory, and has not engaged in high-risk lending practices, or held risky investment securities. Since TCB has avoided subprime lending and option adjustable rate mortgages, and has concentrated on "in-market" home equity lending, commercial lending and leasing, I think TCB's loan portfolio is better positioned than peers to withstand the severe battering that the national recession has wreaked on credit quality industrywide. TCB is one of the few lenders that has been expanding its loan portfolio and level of interest earnings assets. Most banks have shrunk lending over the last three quarters, as customers have less inventory to finance and have lowered expansion plans. I see net interest income robust enough to cushion potential impacts to fee income from regulatory initiatives.
TCB has a strong retail deposit franchise with $10.2 billion in deposits (none of our deposits are brokered deposits), an increase of 7% in 2008, which provides ample liquidity for the bank.
