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TCF Financial Corporation Repositions Balance Sheet

TCF Financial Corporation (“TCF”) (NYSE: TCB) announced today that it has taken steps to reposition its balance sheet by prepaying $3.6 billion of long-term debt and selling $1.9 billion of mortgage-backed securities, which it anticipates will increase net interest margin and reduce interest rate risk.

“TCF’s strong capital and liquidity position created the opportunity for us to execute this transaction,” said William A. Cooper, Chairman and Chief Executive Officer. “This balance sheet repositioning enables TCF to realize its true franchise value from its ongoing strategy of originating high-yielding, low-risk, secured loans and leases funded by a low-cost, core deposit base.”

TCF’s current asset growth strategy along with the outlook of the interest rate environment made it prudent for TCF to develop and execute a comprehensive balance sheet repositioning transaction. A reliance on longer term, fixed-rate debt was appropriate for TCF’s previous strategy of growth in real estate assets with longer durations, such as residential and commercial real estate loans and mortgage-backed securities. Given TCF’s current strategic focus on growth in nationally-oriented specialty finance assets with shorter durations and/or variable interest rates, a more flexible funding structure will significantly increase TCF’s ability to maximize net interest income and net interest margin going forward.

TCF’s long-term, fixed-rate debt was originated at market rates prior to the economic crisis. At the time of the balance sheet repositioning, the interest rates on these borrowings were significantly above current market rates. In addition, in late January 2012 the Federal Reserve forecast interest rates to remain at historically low levels through at least 2014. As a result, this action better positions TCF for today’s interest rate outlook while reducing interest rate risk tied to longer duration, fixed-rate securities.

As part of the transaction TCF executed several actions aimed at better positioning its balance sheet:

Transaction Details

  • Deleveraged the balance sheet by selling $1.9 billion of 3.8 percent weighted average mortgage-backed securities resulting in a $77 million gain ($48 million after-tax).
  • Restructured $3.6 billion of 4.3 percent weighted average debt with a termination loss of $551 million ($341 million after-tax).
    • Replaced $2.1 billion of 4.4 percent weighted average fixed-rate, Federal Home Loan Bank advances with a mix of floating and fixed-rate borrowings with a current weighted average rate of .5 percent.
    • Terminated $1.5 billion of 4.2 percent weighted average fixed-rate repurchase agreement borrowings.

The actions above result in TCF recognizing a one-time, net after-tax charge of $293 million, or a loss of $1.85 per common share, recorded in the first quarter of 2012.

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