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10 Midwest Bank Stocks Finally Paying Off

10. TCF Financial

Shares of TCF Financial (TCB) of Wayzata, Minn., closed at $12.15 Friday, returning 19% year-to-date, after falling 29% during 2011.

Based on a five-cent quarterly payout, the shares have a dividend yield of 1.63%.

TCF on March 13 announced it would prepay $3.6 billion in wholesale borrowings and sell $1.9 billion in mortgage-backed securities, as part of its strategy of moving away from longer-term residential and commercial real estate loans and MBS investments, to a focus on "originating high-yielding, low-risk, secured loans and leases funded by a low-cost, core deposit base," according to CEO William Cooper.

The company said it would recognize "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."

The good news for TCF's net interest margin, is that the company has "replaced $2.1 billion of 4 percent weighted average fixed-rate, Federal Home Loan Bank advances with a mix of floating and fixed-rate borrowings with a current rate of .5 percent," while terminating "$1.5 billion of 4 percent weighted average fixed-rate repurchase agreement borrowings." The company expects its net interest income to improve by $74 million, annualized, and for its net interest margin to increase by 96 basis points.

TCF earned $109.4 million, or 71 cents a share, during 2011, declining from $151 million, or $1.08 a share, during 2010, as the company saw a major decline in account fees and service charges from the debit card overdraft "opt-in" rule that the Federal Reserve implemented during the third quarter of 2010. TCF also saw its card revenue decline during the fourth quarter of 2011, as the Federal Reserve implemented the cap on debit card interchange fees charged to merchants, as required by the Durbin Amendment of the Dodd-Frank bank reform legislation.

KBW analyst Christopher McGratty was impressed with TCF's balance sheet restructuring, saying on Friday that the company's strong capital levels enabled "them to be aggressive and still maintain ample capital for future growth," and that the "projected earnings pick-up is also meaningful at about $0.27/share annually."

Despite what McGratty called "a 20% hit" to tangible book value, investors reacted positively, sending TCF's shares up 6.5% on the day of the restructuring announcement.

The shares trade for 1.2 times tangible book value, according to HighlineFI. The consensus among analysts polled by Thomson Reuters is for TCF Financial to post a full-year net loss of $1.19 a share for 2012, followed by earnings of $1.15 a share in 2013.

McGratty has a "Market Perform" rating on TCF, with a $12 price target, but said "TCB pulled the earnings power forward in what remains an uncertain environment, ultimately positioning it for a sale down the road (banks get sold on earnings power)."

Interested in more on TCF Financial? See TheStreet Ratings' report card for this stock.

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