TCF to Take $293M Hit from Restructuring Its Balance Sheet

TCF Financial Corp. will take a $293 million hit in the first quarter after it decided to restructure its balance sheet while it looks to expand its specialty finance operations.

The Wayzata, Minn., company said Tuesday that it restructured $3.6 billion in debt and sold $1.9 billion of mortgage-backed securities because of a change in its growth strategy. TCF said longer-term, fixed rate debt was appropriate when it was focused on real estate assets, such as residential and commercial real estate loans and mortgage-backed securities, which have longer durations.

Because the company is expanding in specialty finance, which has shorter durations and variable interest rates, a more-flexible funding structure is preferred, TCF said in a press release.

TCF has expanded some of its business lines and entered new ones as it pursues new sources of revenue. In January, the company said that its inventory financing arm was expanding its marine lending operation to include floor plan financing to U.S. and Canadian manufacturers. TCF also entered indirect auto lending by acquiring Gateway One Lending & Finance LLC.

TCF’s long-term, fixed-rate debt was originated before the economic downturn with significantly higher interest rates than current market rates. The Federal Reserve Board has forecast that interest rates will remain at low levels through at least 2014.

TCF expects a $48 million after-tax gain from selling the $1.9 billion of 3.8% weighted average mortgage-backed securities.

The company will record a loss of $341 million after-tax from restructuring the $3.6 billion of debt. The company replaced $2.1 billion of 4.4% weighted average fixed-rate advances from the Federal Home Loan Bank with a mix of floating and fixed-rate borrowings with a current weighted average rate of .5%. It also terminated $1.5 billion of 4.2% weighted average fixed-rate repurchase agreement borrowings.

TCF said that it expects the transactions to increase its net interest margin by about 96 basis points and net interest income by roughly $74 million pretax, both on an annualized basis. In January, the company reported that for 2011 its net interest margin was 3.99% and net interest income was more than $699 million.

The changes should also decrease its interest rate risk and its reliance on wholesale borrowings, TCF said. Its Tier 1 leverage capital ratio should be 8.45%.

The one-time charge will be recorded in the first quarter and will result in a loss of $1.85 a share. In January, the company said it earned $16.4 million in the fourth quarter and $109.4 million for 2011.

TCF has been busy with its balance sheet as of late. Earlier this month, it agreed to buy $805 million in deposits from the banking unit of Prudential Financial Inc.