TCF Financial Corporation
Q2 2019 Earnings Call Transcript

Published: 26 Jul 2019

[Operator:]

Good morning, and welcome to TCF's 2019 Second Quarter Earnings Call. My name is Jamie, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] Please also note today's conference is being recorded.At this time, I would like to introduce Tim Sedabres, Head of Investor Relations to begin the conference call.

[Tim Sedabres:]

Good morning, and thanks for joining us for TCF's Second Quarter 2019 Earnings Call. Joining me on today's call will be Craig Dahl, Chairman and Chief Executive Officer; Brian Maass, Chief Financial Officer; Mike Jones, EVP of Consumer Banking; Bill Henak, EVP of Wholesale Banking; and Jim Costa, Chief Risk Officer and Chief Credit Officer.In just a few moments, Craig, Brian and Jim, will provide an overview of our second quarter results. They will reference a slide presentation that is available on the Investor Relations section of TCF's website at ir.tcfbank.com. Following their remarks, we will open up for questions.During today's presentation, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements or predictions and that actual events or results may differ materially. Please see the forward-looking statement disclosure and our 2019 second quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is accurate as of June 31, 2019, and we undertake no duty to update the information.The subject matter discussed in the following message is addressed in a joint proxy statement perspectives filed with the SEC as part of the registration statement filed by Chemical Financial Corporation. TCF and Chemical urge you to read it, because it contains important information. Information regarding the persons who may, under the rules of the SEC be considered participants and the solicitation of TCF and Chemical shareholders in connection with the proposed transaction is set forth in the joint proxy statement perspectives filed with the SEC.I would now like to turn the conference call over to TCF's Chairman and CEO, Craig Dahl.

[Craig Dahl:]

Thank you, Tim. Let's start with Slide 2, our Second Quarter Themes. We've had another strong quarter as we continue to execute on our strategic initiatives while focusing on integration activities related to our merger with Chemical. Our integration teams continue to be hard at work to prepare for the merger and we remain on track for all integration plans.As we have said from the announcement of the merger, we believe what is unique about our transaction is the truly complementary nature of our businesses and the limited customer phasing and client overlap between the two banks. This limited disruption [ph] showed through our strong second quarter results as our client-phasing teams remain focused on serving our customers and we saw strong home growth on origination activities, continued deposit growth and positive trends at our pipelines. I'm proud of the efforts of our teams who have not lost sight of executing on the organic growth opportunity in front of us and continue to deliver for our customers each and every day.This focus on our customers was the driver of our strong second quarter performance which coupled with well-controlled expense management and capital deployment drove higher earnings per share and continued improvement towards our two primary strategic objectives

[Brian Maass:]

Thank you, Craig. Starting on Slide 4, we had another really strong quarter from an expense control standpoint that led to 183 basis point decline in our adjusted efficiency ratio year-over-year. This improvement was driven by an absolute reduction and expenses during the quarter. In fact, our core operating expenses which exclude lease, financing equipment expense and merger-related expenses declined $8 million or 4% from the second quarter of 2018. As a result, we were able to drive positive operating leverage during the quarter while maintaining our strong revenue base of $364 million. Overall, we have positive momentum on the expense side as we move towards closing the merger.As Craig mentioned, we remain on track to hit our $180 million cost savings target. As originally announced, we still expect to have implemented $75 million of annualized cost savings before the fourth quarter of 2020 where our first four full quarters as a combined company with a $480 million run rate thereafter. These cost savings may not necessarily be realized in a linear fashion over the next four quarters. The overall run rate will depend on the timing of various vendor, system, real estate and employee synergies.Turning to Slide 5; with the recent changes to the interest rate environment, Headlife had been centered around the impact of rates on net interest margins. We are not immune to this as we saw our net interest margin of 4.43% decline 13 basis points from the first quarter. Somewhat impacted by the rate environment, but more impacted by our continued remix of the balance sheet as well as growth at more capital efficient assets. Despite the year-over-year decline in margin, we are able to maintain relatively flat net interest income due to our strong earning asset growth. More importantly, we are able to continue to deliver on our real objectives of improving efficiency and return on capital.While we continue to have one of the highest net interest margins in the industry, we view the margin as an outcome of how we run the business, not a driver of the business. This is especially true in light of our strategy to manage the balance sheet remix to reduce the overall risk profile and improved return on capital.Turning to Slide 6; we saw strong average earning assets increased 4.9% year-over-year. What continues to be important here is the improving mixed shift for its more capital efficient assets with a lower risk profile. Auto has declined to just 7% of the portfolio, down from 12% a year ago while debt securities have increased from 10% to 13%. In addition, as a result of the mixed shift, our risk rated assets as a percentage of total assets have continued to decline and support our capital allocation and return on capital focus.Turning to Slide 7; we generated $1.7 billion of loan and lease growth or 10.7% year-over-year excluding the Auto run off with over $1 billion of growth from wholesale banking and over $650 million from consumer real estate. You will know this that while we saw the typical seasonal decline in inventory finance balances in the second quarter, the portfolio grew 13% year-over-year. In addition, the run off of the Auto finance portfolio continues to progress as planned with balances down $248 million during the second quarter. We continue to expect run off of $800 million to $1 billion for the full year 2019.Turning to Slide 8; first quarter earning asset yields remain strong at 5.43%, up 10 basis points year-over-year. We then see some pressure during the second quarter as loan and lease yields declined 7 basis points from the first quarter as a result of mixed changes within the portfolio. Our security yields are also increasing as new purchases in the second quarter of over $400 million had an average tax equivalent yield of 3.27%, above the blended portfolio yield of 3.06%. Although we enjoyed the benefits of being asset-sensitive over the past two years, we had already been taking actions over the last 12-18 months to reduce our asset sensitivity including remixing Auto run off into longer duration securities, adding residential mortgage loans to the balance sheet for added duration and increasing the components of variable fate funding. In addition, given Chemical's more neutral asset liability position, we expect the merger to result in the combined organization becoming the last asset-sensitive than TCF stand alone.Turning to Slide 9; we continue to grow our deposit base through expansion of our average trucking and savings balances which increased 8.7% year-over-year. In addition, despite the current rate environment, we were able to increase non-interest bearing deposits by $102 million or 2.6%. The increase in our cost of total deposits moderated for the second consecutive quarter, after increasing by 13 basis points in the fourth quarter and 9 basis points in the first quarter, our deposit cost increased 5 basis points in the second quarter. While the average interest cost of CDs has increased faster than our non-CD book over the past year, we continue to see a reduction in the CD portfolio with average balances down $382 million year-over-year.In fact, we are managing towards a shorter maturity of the CD portfolio that will allow us to start repricing sooner as rates begin to fall. We expect to see deposit cost continue to trend modestly higher in the coming quarters, however, if we do see multiple rate cuts, it is likely that the market including TCF will start to lower deposit costs. In this scenario, we could see deposit pricing stabilize and actually peak over the next one to two quarters. As we think about the combined deposits for the new TCF beginning in August, we will be able to leverage our own retail-focused deposit base along with the retail and commercial deposit base of Chemical. We look forward to the strong funding base this will provide as we grow the balance sheet moving forward.Turning to Slide 10; non-interest income remained relatively flat year-over-year. These service charges, card and ATM revenue increased from a year ago while we saw modest decline in leasing and equipment finance non-interest income on a year-over-year basis, we would expect to see seasonal strength in the leasing line item in the back half of the year. In addition, servicing fee income continues to tick lower as the auto finance portfolio continues to run off.With that, I'll turn it over to Jim Costa to cover credit and risk.

[Jim Costa:]

Thanks, Brian. Turning to Slide 11, you can see that credit is remaining stable. Non-performing assets decline from the first quarter while 60-day delinquencies at 14 basis points remained within the range of 4 basis points we have seen over the last five quarters. Provision for credit losses was $14 million in the second quarter, in line with what we saw a year ago. Lastly, we are seeing improved liquidity as the balance sheet remix continues to progress. As well as a reduced loan to deposit ratio of 100% as of June 30. Our cash and debt securities now make up 15.5% of total assets, up from 12.9% a year ago.Looking at Slide 12, second quarter net charge offs excluding Auto were 19 basis points, down slightly from 20 basis points in the first quarter. We saw a nice decline in all of our portfolios with the exception of commercial, which [indiscernible] small uptick in the quarter, the portfolio has continued to perform very well. Overall, our strong diversification and conservative underwriting culture continue to result in stable credit quality across our portfolio. We think the merger with Chemical will serve to enhance the overall profile of the portfolio, given the added diversification the deal brings.With that, I'll turn it back to Craig.

[Craig Dahl:]

Thank you, Jim. Slide 13 reiterates our focus on enhancing our return on capital. We recognize that net interest margin is giving many of the headlines during this earning season, but we have been able to continue to execute on our goals to enhance return on capital despite this headwind all the while doing so on a higher capital base. Now with our merger about to close, we are on even stronger position as we have a built-in cost savings tailwind that can serve as a catalyst as we move through the current rate environment. We restarted our repurchase program in the second quarter and total 1.3 million shares acquired through June 30. In addition, we purchased an additional 1.3 million shares during the third quarter to date from July 23.Finally, we also issued 150 million of 408% subject at the bank earlier in July. This issuance was anticipated as part of our capital plan and the numbers we shared at the time of the merger announcement then strengthens our capital position going forward.With that, I will open it up for questions.

[Operator:]

[Operator Instructions] Our first question today comes from Jon Arfstrom from RBC Capital Markets. Please go ahead with your question.

[Jon Arfstrom:]

Thanks. Good morning, guys. Question just on some of the original accretion expectation specifically the expense saves. I know Chemical comes up in an hour, but maybe Brian or Craig, you could address this. You've got an earlier close. It looks like maybe you have a bit of a jumpstart on some of the merger cross savings. The original promise was the first four quarters, you get $75 million out. Is it possible for you to get there -- the full amount by the end of 2020? I know Craig, you kind of alluded to that?

[Brian Maass:]

Jon, this is Brian. What I would say is we are changing our expense reduction forecast. We still expect to get $75 million called in the first four full quarters together. By the end of third quarter next year and then by fourth quarter of 2020, we expect to be on the full run rate of $180 million annualized.

[Jon Arfstrom:]

Okay.

[Brian Maass:]

Obviously, we're not going to prevent ourselves from trying to accelerate things but we have laid out a plan. We aren't necessarily changing our guidance at this point.

[Jon Arfstrom:]

Okay. And then the other side of that is the margin environment seems to be a little bit tougher. I just want to make sure that you're still sticking to some of the original accretion expectations that you guys talked about when the merger was announced.

[Brian Maass:]

Yes. This is Brian. Obviously, the interest rate outlook has changed since we announced the merger in January and that will be reflected in our mark to market of the balance sheet. So we're marking Chemical's balance sheet to market. Basically half of our balance sheet is going to get marked more to current interest rates. What that's going to mean is that we're likely going to have less of a negative mark-to-market, which means we're going to have more capital at the close, but it will likely have some impact on having our net interest margin be lower on a go-forward basis. But again better than median efficiency ratio, we still think we can drive to top quartet return on capitals as an organization.

[Jon Arfstrom:]

Okay. And then last one, Craig, for you. Revenue synergy seems to come up every quarter since the announcement. But you had good growth especially when you remove the Auto piece, it looks like Chemical had good growth. Give us an update on your thoughts on some of the revenue synergy potential. It doesn't look like you're having any trouble growing revenues right now, but talk about some of the synergy potential.

[Craig Dahl:]

Our primary focus right now was still on integration and getting those cost synergies and then not all of our products are going to be able to be as quickly implemented as others. It's certainly going to take longer with a CNI expansion across Chicago, Minneapolis and Denver than it is to bring some leasing talent into Michigan. Those items that we talked about -- and we're gaining more confidence and we're meeting more people -- again, the best of both banks is really going to work well here. We talked before about the expansion of leasing. The whole engine for leasing doesn't have to change. We need to add some focused sales talent to get that done. We're going to bring wealth management. We're going to be thoughtful; we're going to understand the plan; we're going to bring that. That's going to take longer than some of these other quick hits. But none of those were modeled in the process. We see them all as upside.

[Jon Arfstrom:]

Okay. All right. Thanks, guys.

[Operator:]

Our next question comes from Nathan Race from Piper Jaffray. Please go ahead with your question.

[Nathan Race:]

Good morning. Going back to the expense discussion, Brian, just curious, should we just take the Q2 2019 expense run rate at TCF and extrapolate that out for the cost saves that you guys are targeting on a combined -- or should we kind of look back at the last four quarters and take an average there in terms of computing that cost saves…

[Brian Maass:]

Good question, Nate. This is Brian. I think you have to look backwards towards closer to the end of 2018 and what run rate we were on as you look on a go forward basis. We're being very diligent even as we get towards pre-merger here. I'm being careful on attrition and backfills, right. So we're starting to recognize some of those expense synergies even to date and as we go forward, we're only going to see that accelerate as we get into the back half of 2019 and especially as you get into 2020 and we see a lot of the system conversions taking place.

[Nathan Race:]

Okay, got it. And then if I could just ask on the trajectory of deposit cost. From your assuming, we'll get a July bad rate cut. How should we be thinking about just the overall pace of increases in the legacy TCF deposit base going forward?

[Brian Maass:]

This is Brian. I said in the opening remarks, we feel really good, kind of about -- our deposit cost. You've seen the deposit cost increases, really going down each of the last two quarters. In fact over the last even during the second quarter, probably three of the last months we've continued to reduce our promotional rates. We really think once the Fed starts the cut rates, that not just us but the market is going to continue to reduce promotional rates. So we're optimistic about being able to adjust with the market and drive promotional rates lower. As I said, with that $4.5 billion of CDs we've been shortening the maturity on those CDs, so we have a lot of maturities in the next six to 12 months. So as those mature, they're going to reprice to lower interest rates. So just summarizing, if all of that takes place and the feds starts to cut rates in July as I think the market expects, we do think our deposit cost will peak in third quarter and definitely by fourth quarter.

[Nathan Race:]

Okay, great. I appreciate you taking the questions and congrats on closing the transaction earlier.

[Brian Maass:]

Thanks.

[Operator:]

Our next question comes from David Long from Raymond James. Please go ahead with your question.

[David Long:]

Good morning, everyone. Looking at long growth in the quarter, obviously pretty good better than I think the street was expecting. Could you say that some of that may have come because of the upcoming merger knowing that you may not have some of the same concentration limits?

[Craig Dahl:]

No. That's really just the outcome of our normal origination activities because we haven't changed any risk appetites, haven't changed any fall position or anything else. So we're in good shape. I might add onto that, actually quite the opposite, we have been very clear internally that the opportunity for a bigger balance sheet isn't something you'd act on now. We want to make sure that the integration happens, everything is sewed up and then we'll revisit and even then, if there's any expansion, it would be modest. So certainly, that growth is not attributable to a forward view on risk appetite.

[Bill Henak:]

David, this is Bill Henak. The other comment I would add to that is our pipeline of opportunities is as strong as it's been and we continue to operate under the same pretense in risk profiles that we've operated prior to this. So we're not anticipating the merger in how we're doing business today. That will be something we'll consider after we close.

[David Long:]

Got it. Appreciate the color, guys.

[Operator:]

Our next question comes from Chris McGratty from KBW. Please go ahead with your question.

[Chris McGratty:]

Brian, the margin versus net interest income discussion; I think you said even with the pressure, you know, NII was relatively flat. If we get the forward curve, we get a couple of cuts. Obviously, the margin will have some pressure but it's the expectation that you can -- because of that [indiscernible] momentum keep NII roughly around the 250 range that we're in this quarter? Or how do you think about just the stand alone? Do you see that like the Management should think about what?

[Craig Dahl:]

I think there is a couple of factors there. That's definitely what we've been able to do, to date, is the growth. The loan growth is definitely helping outpace any margin decline. Most of our margin decline isn't coming from the rate environment. A lot of it is coming from the remix of the balance sheet, probably five of the 13 basis point that you saw this quarter is coming from the higher cost of funds. So a lot of it is we're just having mortgages, we're having securities, we're at lower yields than what the overall margin is. Just the growth in assets coming onto the balance sheet is causing margin decline.Because I mentioned, we've been reducing our asset sensitivity. That's going to continue to accelerate as we come together with Chemical. We feel good about our deposit outlook and deposit cost kind of peaking and started to come down. The other thing that's also been the headwind on our margin in the near term is we have been adding variable rate funding which sounds contrary. Over the last year we've been adding variable rate funding and we've kind of been feeling the full burn of that as rates kind of continue to go up here and kind of peaking, but that's funding that all of our home loan based advances today are variable rate, we're feeling the full burn of that at 2.65% is probably the range that most of that is that. But once rate starts to come down, we're also going to get some relief from that on a go forward basis as well.

[Chris McGratty:]

Okay. So it sounds like you should be able to basically keep NII roughly flat with these levels given these dynamics. Is that a fair kind of assessment?

[Craig Dahl:]

As we start to come together with Chemical and depending upon what other balance sheet repositioning, we do, but yes, in general we feel very good about the revenue outlook for the base. We feel very good about the loan growth prospects and we're going to do our best to manage to improving the efficiency ratio on higher returns.

[Chris McGratty:]

Great. If I could just sneak a capital question; I think you said you've bought back stock quarter to date. I think there's a roughly $25 million left. Is the expectation -- I know you initially said you were going to finish the buy back before close, but given the sooner close, can you complete the rest of the buy back in the next week? And then secondarily, any update of thoughts on balance sheet repositioning and just kind of accelerating the sale or the exit of the Auto book to perhaps some capital? Thanks.

[Brian Maass:]

So, this is Brian. We have about $25 million remaining in our existing buyback authority. We have our original guidance plus we would have that completed by the close of the transaction. Our original estimated close of the transaction would have been the end of third quarter or the end of September. There's likely that you could see some incremental purchase between now and the close of the transaction, but we're probably only going to reach 70% to 80% of that goal. If we have more time, we likely would have had it all completed. And your second question was on?

[Chris McGratty:]

Just accelerating the run off of Auto. Any thoughts to that given the balance sheet opportunity to reposition?

[Brian Maass:]

Yes. From an Auto perspective, as we said we're going to look at what we're carrying those assets at. We feel good about the run off as going as planned. The credit quality is as planned so we feel perfectly comfortable holding those assets on balance sheet, but we're also willing to understand what we could get in the marketplace for those and we'll continue to evaluate that as an opportunity. But I think the main point is the balances are running off as expected and credit is as expected.

[Chris McGratty:]

Great. Thanks, Brian.

[Operator:]

Our next question comes from Scott [ph] from Sandler O’Neill. Please go ahead with your question.

[Unidentified Analyst:]

Good morning, guys. Thanks for taking the question. I guess I just wanted to go back to the expense discussion for a second. Just given how low the Q2 numbers were relative to other quarters of yours. I guess maybe a way to ask it is on a standalone basis, what would be the cost outlook off of this quarter's roughly $233 million? I guess one way you can look at it is if you're still getting the same amount of cost saves, it's actually a higher percentage of TCF expense base because the absolute dollars of expenses are lower now. In other words, maybe if this $233 million kind of an aberration and how low it is or would it actually stay here at this level on a standalone basis?

[Brian Maass:]

Yes. Good question. This is Brian. What I'd say is it's not an aberration. I think go forward basis, we're starting to take actions with the expectation of the merger taking place. So what we've started to harvest as far as expense synergy is going to be part of what on a combined company basis is what's going to be realized. So there's really no change in our expense outlook guidance on a combined basis. We still expect to achieve the $180 million of expense synergies, but that won't be until fourth quarter of 2020 on an annualized full run rate basis.

[Unidentified Analyst:]

Okay. I guess maybe a way to think about it is you're sort of getting a head start on the cost savings that you guys coming in perhaps a little lower than expected to enter the merger. Is that a fair way to think about it?

[Brian Maass:]

Yes.

[Unidentified Analyst:]

Okay. All right, perfect. Thank you, guys very much.

[Operator:]

Our next question comes from Jared Shaw from Wells Fargo. Please go ahead with your question.

[Jared Shaw:]

Hi, good morning. So most of my questions I think have been answered, but just looking at the CNI growth this quarter. Have you started hiring more attritional CNI lenders in your court geographies? Has that impacted the balances this quarter or is that really -- still more of a longer term plan?

[Craig Dahl:]

That's still a longer term plan. We have not accelerated hiring in any of the markets at this point.

[Jared Shaw:]

Okay. And then coming out of the merger, you'll still be recently capitalized, what capitalized -- should we expect once this buy back is completed, that's still a good alternative for excess capital?

[Craig Dahl:]

Well, we've talked a lot here at TCF for both whether our capital priorities and I think that they're going to be shifted a little bit here as we consolidate and really start to operating a new company. The first priority here is going to be organic growth, really getting our understanding of what the organic growth opportunities are going to be. And then stabilizing where we expect dividend expectations are going to be and we would expect to be similar to what each of us was prior to the transaction. So after you take organic growth and dividend strategies, then it's going to be what other opportunities are out there including whole banks, lending, deposit platforms, portfolios, all of those things. We're going to be focused on integration, but longer term we talked about and starting now as being acquisition-ready. I would put all of those things on the table.

[Operator:]

Our next question comes from Terry [ph] from Stephens. Please go ahead with your question.

[Unidentified Analyst:]

All right, thanks. Good morning. I don't mean to be the dead horse on the expenses, but if I look at the bottom right of Slide 4, the comp and employee benefits, it was low 120s versus the 114 in the second quarter. So call it a $5 million decline. Brian, how much of that do you think was pulling forward some of the cost saves that you were talking about earlier?

[Brian Maass:]

Some of it is pulling forward cost saves as we've had attrition and we're trying not to backfill positions as we go forward. We did have slightly higher benefit run rate cost last year so you're seeing a little bit of that coming out as well, but there's really nothing else that's unusual in those numbers. There's obviously second quarter versus first quarter. First quarter, you always have higher comp expense, just the FICON thing. So naturally, it comes down in the second quarter. That's part of when you're just looking at it on a weak quarter basis. You're going to see that natural decline.

[Unidentified Analyst:]

And then a follow up for Craig. Does the drop in interest rates change the opportunity or maybe your appetite for portfolio purchases within your national businesses?

[Craig Dahl:]

Well, we're always aware of that. We tend to think that there's more interest in them moving when rates are rising or when the rates are falling. Again, we're going to be targeting based on a return on capital. That's what our driver is going to be. Their willingness of a lender to sell or sell a portfolio is still going to be many more factors than just the interest rate environment.

[Unidentified Analyst:]

Okay. Thank you, both.

[Operator:]

Our next question comes from Lana Chan from BMO Capital Markets. Please go ahead with your question.

[Lana Chan:]

Good morning. Can you talk about what you are seeing now in new securities yield purchases relative to the 327 in the second quarter as we think about mulling out the auto going into securities going forward?

[Brian Maass:]

Yes. Good question, Lana. This is Brian. IN our reinvestment yield in the second quarter was 327. I'd say most of those purchases probably happen in I'd say first half or the first two months of the second quarter. Obviously, interest rates have come down since then. Reinvestment yields on a similar security basis would probably be in the high twos now. So maybe 280-285. As you saw in the second quarter, we didn't fully reinvest the Auto run off into securities portfolio and as Craig mentioned, I mentioned, we're seeing good loan growth. So we've always said, those proceeds, don't have to go into the securities portfolio. They would go there, but if we see another opportunity or something that's going to earn us a better yield or a better return on capital, we're going to put those run off proceeds into that and you saw a little bit of that in the second quarter as we try to manage that. But you guys are correct, yields are a little bit lower, the securities portfolio from a reinvestments perspective. And then as we come together now with Chemical, obviously we've got more opportunity to grow different types of assets so again it doesn't necessarily all have to be reinvestment back into the securities portfolio.

[Lana Chan:]

Okay, got it. Just as a follow to that in terms of the loan growth, it was up 11% year-over-year excluding Auto. I think previously on a settlement basis, TCF was guiding more towards mid-single digit range for this year ex-Auto. Are we closer to sort of that top end of the range versus mid-single digits; any guidance on that?

[Brian Maass:]

This is Brian. I don't know if the full year guidance necessarily changes. Obviously, we've seen good growth here in the second quarter. I'd still say on average, you'd probably expect to be in the mid-single digits, maybe it's a little bit higher on the mid-single digits, but not necessarily an overall big change in outlook. As we said in our opening remarks, too, we do expect leasing revenue. It typically does pick up in the second half as well, so we are expecting that in addition.

[Craig Dahl:]

And Lana, this is Craig. Anything I would throw in there, too, we always have that little bit of seasonality of inventory finance and that would be our only portfolio, really whether it can be more variability between the average balance in the quarter and the ending balance in the quarter. So that always had some impact as well.

[Lana Chan:]

Okay, great. Just one housekeeping question on the tax rate for the second half of the year, what should we be assuming?

[Brian Maass:]

The second half of the year, our next reported results will be on a combined basis, so it's not going to be a TCF standalone rate, but I think absent some of the discreet items that either us or Chemical has seen, it really should be a blended rate between both organizations on a go-forward basis. I think we've been in the mid-20s, they've been in the high teens, so it's going to be average between the two of those absent any discreet items that we might have on a go-forward basis as well.

[Lana Chan:]

Okay, great. Thank you.

[Operator:]

[Operator Instructions] And our next question comes from Brock Vandervliet from UBS. Please go ahead with your question.

[Brock Vandervliet:]

In terms of the interest rate sensitivity, going back to the first quarter, you are materially asset-sensitive, about 7% I guess down 100 on a shock. Where do you think you are right now?

[Brian Maass:]

Good question. This is Brian. I think it continues to come down, so we continue to reduce our asset sensitivity. I'd say Chemical is far more neutral from an asset sensitivity perspective. So when we come together, it's going to achieve a lot of our objective, which is to further reduce our asset sensitivity. In addition, we're going to look at as the two companies come together, is there anything else from an asset liability positioning perspective, repositioning the investment portfolio, looking at swaps that we might have on the balance sheet and what are other things that we can do to further reduce the asset sensitivity. But overall, we feel good about the actions that we've taken over the last year or two to reduce our asset sensitivity and we see it coming down not just on a standalone basis, but really on a combined basis as well.

[Brock Vandervliet:]

Do you have a specific goal for that?

[Brian Maass:]

There are goals to reduce our asset sensitivity. I don't think we're going to get all the way to neutral, but our goal is going to be to see it significantly less than we are on a standalone basis today.

[Brock Vandervliet:]

And what's your set of rate assumptions that govern your outlook? Is it the forward curve or something else?

[Brian Maass:]

I'd say it's generally [indiscernible] between the forward curve and kind of fat expectations. I'd say it's somewhere between the two of those, but we are expecting a few rate cuts for this year and likely more in 2020.

[Brock Vandervliet:]

Okay, thank you.

[Operator:]

And ladies and gentlemen, we thank you for your questions today. Should any investors have further questions, Tim Sedabres, Director of Investor Relations will be available for the remainder of the day at the phone number listed on the earnings release.I would now like to turn the conference call back over to Mr. Craig Dahl for any closing remarks.

[Craig Dahl:]

Well, thank you, all, for listening this morning and we're looking forward to closing our merger with Chemical on August 1 and we're excited about the benefits it brings for our shareholders, our customers, our employees and our communities. The teams from both TCF and Chemical have been working extremely hard on this transaction and I really appreciate all of their efforts so far, but we have a long way to go. I'm very confident in our ability to execute and to deliver on the commitments, and we'll keep you posted on our progress along the way. Thank you.

[Operator:]

Ladies and gentlemen, that does conclude today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.