Is TCF Bank Making Money?

Examining the numbers of TCF Financial Corporation (NYSE: TCF) is a great way to gauge the economy in Middle America.

TCF operates 320 banks that provide basic consumer financial services and retail banking to average people in Colorado, Wisconsin, Illinois, Michigan, Arizona, South Dakota, and Minnesota. That means TCF has its finger on the pulse of the local economy in those states, offers insight into the finances of the working class.

The performance at TCF can tell us if the working and middle classes in the heartland are doing well. It can also show us the extent and sustainability of the economic recovery because TCF provides a lot of financial services in working-class neighborhoods in cities like Denver.

Is TCF Financial Making Money?

The good news is that TCF is making some money by offering debit cards and checking accounts to the working class. The company reported a net income of $101.40 million for 4th quarter 2017.

It also racked some losses in the form of a negative operating income of -$7.31 million for 4th Quarter 2017. TCF Bank made a gross profit of $340.49 million on revenues of $340.49 million during 4th Quarter which was very good.

Revenues, income, and gross profits are growing at TCF. Revenues were up from $307.23 million in 4th Quarter 2016, the net income more than doubled from $50.09 million in 4th Quarter 2016, and the gross profit increased from $307.23 million. There was a negative sign the operating income fell from $81.87 million in 2016.

TCF Financial Corporation had a very good year in 2017, with growing revenues, income, and profits. It is generating more income and making more money from consumer bank, which indicates that the rumors of a recovery are not exaggerated.

How Much Money is TCF Bank Making?

Value investors will want to know how much of that money TCF Bank is keeping. After all, one of the major reasons to buy a financial stock is to own a piece of a cash-rich company.

TCF bank reported an operating cash flow of $186.84 million on December 31, 2017. Unfortunately, it also reported a negative free cash flow -$119.60 million and a financing cash flow of -$107.9 million on the same day. That indicates, TCF Bank is taking serious risks with its money.

Nor did TCF Bank have that much cash in the bank, it reported cash and equivalents of just $621.78 million on December 31, 2017. That means it is not generating that much cash from its business.

More problematic are TCF Bank’s liabilities which were $20.321 billion on December 31, 2017. That was a little under $3 billion less than the bank’s liabilities of $23.002 billion.

My conclusion is that TCF’s ability to generate cash is limited and its business is on some very shaky ground. A likely scenario at TCF is that it can run out of cash pretty quickly and get liquidated by the FDIC.

The growth at TCF Bank is simply not leading to more cash. The major reason for this is that TCF’s customer base; working class people in the Midwest and West, simply don’t have that much extra cash. This bank would be well advised to seek some lucrative sidelines to augment its core business.

TCF Bank is a poor Investment

All this makes TCF Bank a pretty poor investment despite its low share price of $22.26 on 6 April 2018. The company is simply far too risky for that share price.

Although TCF’s dividends are pretty good, the shareholders received a 15¢ dividend on February 14, 2018. That was double the 7.5¢ dividend paid out on November 14, 2017.

An obvious conclusion to make here is that TCF is trying to use a higher dividend to get people to buy its stock. That is a sign of a week company with little market interest.

Can TCF Bank Survive?

The prospects of TCF Bank’s long-term survival are limited because of the intense competition in its sector.

TCF faces aggressive competition from the monster banks; especially JPMorgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC) which have substantial presences in Denver. Chase is investing heavily in P2P payment apps and mobile apps which are a direct threat to TCF.

Even greater threats are credit unions, which are using next-generation financial tools such as Apple Pay to appeal to younger working class people. Beyond the credit unions, Fintech companies like Square (NYSE: SQ), Ant Financial and PayPal (NASDAQ: PYPL) are competing directly with banks in areas like lending and money transfer.

Many working-class people; especially small business owners, are now using PayPal as their “checking account.” Equally problematic are online banks like Capital One 360 which often lower fees and better customer service.

A menace to TCF is peer-to-peer (P2P) payment apps like Venmo, which appeal directly to working-class people because they facilitate almost instant money transfer. The P2P apps can become a direct threat if they become integrated with bank accounts or used directly at retail stores or ATMs. Alphabet (NASDAQ: GOOG) is testing such an app called Google Tez right now in India, JPMorgan’s Chase Pay solution can be used at retailers, gas pumps, and ATMs.

There is simply too much competition in the banking and Fintech sectors for TCF serious potential for growth. Expect TCF to face a serious struggle for survival and probably get acquired by a larger banking organization at some point.

Investors should avoid TCF because there are better bank stocks out there. Some of the ones I like include; Bank of America, Wells Fargo (NYSE: WFC) and Bank of New York Mellon (NYSE: BK). Disturbingly consumer banking for the working-class might not be a good investment in today’s environment.