TCF Financial Corporation (TCB)

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TCF Financial Corporation (TCB)

Reposition of Balance Sheet Call

March 13, 2012 11:00 AM ET

Executives

Jason Korstange – Director

William Cooper – Chairman & CEO

Mike Jones – CFO & EVP

Tom Jasper – EVP, Funding – Operations and Finance

Craig Dahl – Chairman – TCF Inventory Finance

Analysts

Jon Arfstrom – RBC Capital Markets

Steve Alexopoulos – JPMorgan

Chris McGratty – KBW

Tony Davis – Stifel Nicolaus

Erika Penala of Bank – Bank of America Merrill Lynch

Paul Miller – FBR Capital Markets

Terry McEvoy – Oppenheimer

Steve Zuccarello – UBS

Emlen Harmon – Jefferies

Chris Gamatoni – Compass Point

Andrew Marquardt – Evercore Partners

Presentation

Operator

Good morning and welcome to TCF’s Conference Call. My name is Christy and I will be your conference operator today. (Operator Instructions). At this time I would like to introduce Mr. Jason Korstange, Director of TCF Corporate Communications to begin the conference call.

Jason Korstange

Good morning. Mr. William Cooper, Chairman and CEO will host this conference. Joining Mr. Cooper will be Mr. Barry Winslow, Vice Chairman of Corporate Development; Mr. Neil Brown, Chief Risk Officer; Mr. Tom Jasper, Vice Chairman of Funding, Operations and Finance; Mr. Craig Dahl, Vice Chairman of Lending; Mr. Mike Jones, Chief Financial Officer and Mr. Earl Stratton, Chief Operations Officer.

During this presentation, we may make projections and other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are predictions and that actual events or results may differ materially. Please see our forward-looking statement disclosure contained in our 2011 Form 10K for more information about risks and uncertainties, which may affect us. The information we will provide today is accurate as of March 13th, 2011 and we undertake no duty to update the information.

During today’s conference, we will be referring to a slide presentation which is currently available on TCF’s website, irtcfbank.com. Today we will provide an overview of the transaction, a mid-quarter update and then a question and answer period.

I will now turn over the conference call to Chairman and CEO, William Cooper.

William Cooper

Thank you Jason. Today TCF announced a restructuring of its balance sheet; we have sold 1.9 billion of mortgage backed securities which were collateralizing partially collateralizing long term fixed rate volumes that amounted to 6.3 billion. We sold the mortgages backs and the pay down borrowings, the net impact of this transaction is a charge to capital but a long term improvement in our net interest margin and a significant improvement in our interest rate risk and it gives TCF a significantly more flexibility in connection with how we do our funding.

With that I will turn it over to Mike Jones, who will go through the details of the transaction.

Mike Jones

So if we flip forward in the investor presentation to slide six, this outlines the details of the transaction. We de-levered the balance sheet by selling 1.9 billion of 3.8% mortgage backed securities which resulted in a 77 million pretax gain. This action we feel reduces exposure to prepayment risk today and future exposure to mark to market risk as rates rise.

This will result in reduction in margin of about 69 million as we move forward out through the year. With that said our intention is that we can utilize the capital associated with these assets to grow our core businesses at a much higher yield than the 3.8% of assets de-leveraged. Next we repositioned 3.6 billion of debt on the balance sheet by replacing the 4.4% Federal Home Loan bank advances with the mixture of floating and fixed rate debt at a rate of approximately 50 basis points. We also terminated 1.5 billion of 4.2% repurchase agreements reducing our overall wholesale borrowing outstanding.

Basically we are taking the old borrowing’s off at a cost of approximately a 150 million and replacing them with an annual cost of new borrowings about 11 million. So if you take a look at all of the results of those transactions, the reduction of the mortgage backed of 69 million, taking off the old borrowings at a cost of 150 million and replacing them with a cost of 11 million you get benefit of the 74 million of increased margin on a go forward basis.

We are utilizing the cash held at the holding company anticipation of redeeming the trust preferred and infusing that cash down into TCF National Bank as we see this transaction as a better alternative than the redemption of the trust preferred securities. These actions will result in a one time after tax charge of 293 million that will be recorded during the first quarter of 2012.

Moving to slide seven, we believe that this transaction and repositioning places the organization in a great spot and improves TCF's outlook focused in three areas. As I mentioned it significantly expands our net interest margin with already one of the strongest margin percentages among our peers this transaction will add an additional estimated 74 million in pretax margin to the organization or 96 basis points allowing the organization to consistently build additional capital overtime.

We also believe transaction decreases the interest rate risk of the organization, it improves the overall asset and liability sensitivity position by eliminating long duration mortgage backed securities.

Also it reduces the organizations reliance on wholesale funding why maintaining strong capital ratios.

These actions place more stability in our earnings stream going forward as capital is less exposed to changes and interest rates. At this time I would like to turn it over to Tom Jasper, Vice Chairman of Funding to discuss the impact of the transaction on our funding strategies and the overall improvement in funding optionality.

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