TCF Financial Corporation
Q3 2019 Earnings Call Transcript

Published: 29 Oct 2019

[Operator:]

Good morning, everyone and welcome to TCF's 2019 Third 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 call is being recorded.At this time, I'd 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 third quarter 2019 earnings call. Joining me on today's call will be

[Craig Dahl:]

Thank you, Tim. Good morning, and thank you for joining us on our first earnings call as the new TCF team. As Tim mentioned, I'm pleased to be joined here this morning by Dennis, Tom, Jim and Brian. Let me start by recapping a few key highlights from our third quarter earnings and then share an update related to our merger and integration activities. After that, Dennis will share more details on our third quarter financials and Jim will make a few remarks around credit quality.To begin, we closed the quarter with $46 billion in total assets, including $34 billion of loans and leases funded with $35 billion of deposits. Both the loans and deposits are comprised of a complementary mix of consumer and commercial relationships as a result of bringing together both banks. The top 10 leading market share in the Midwest along with dedicated team members across the footprint, we have the size scale and product offerings to compete and win in our markets.We have been hard at work and have completed numerous activities to-date, including closing the merger on August 1st, and completing all legal day one work streams repositioning the balance sheet by selling securities, terminating interest rate swaps, and transferring the Legacy TCF auto portfolio to held-for-sale. Continuing to drive organic growth both in loans and deposits and authorizing a $150 million share repurchase.Dennis will provide more details on these actions. I continue to believe we have a tremendous opportunity in front of us, with the ability to grow and take market share in various ways, including building on the expertise in our commercial banking and commercial real estate groups to newly expanded markets, leveraging our expertise in inventory finance and capital solutions across our larger commercial customer base, bringing market-leading consumer digital banking offerings to a broader set of customers and expanding our mortgage banking products to a larger base of over 1.5 million customers.We are in the very early innings of what I believe we can accomplish together as one TCF. And I look forward to sharing our progress and successes with you as we go forward. Slide four opens with a few highlights from the third quarter results. Although, our reported earnings were impacted by merger-related and non-core items for the quarter adjusted for these items we earned $0.98 per share. Even as we closed on the merger of equals during the quarter, we delivered an adjusted efficiency ratio of 58.7%, and an adjusted return on tangible common equity of 15%. These results do not yet reflect the full contribution from our targeted cost synergies.Our results should only improve as we get closer to our run rate targets in the fourth quarter of next year. Underlying these results was continued momentum across our businesses with deposit growth up 4% from a year ago and deposits excluding CDs increased by 7% year-over-year.On the lending side, we saw a held-for-investment loan growth of 8% year-over-year excluding the Legacy TCF auto portfolio. And this included strong growth across our C&I and CRE portfolios. We also expect higher production going into the fourth quarter as we have a strong backlog in leasing and are seeing a large mortgage origination pipeline.As I have said before, each bank had momentum going into this partnership on a stand-alone basis and these core results demonstrate that continued trajectory. Finally, we posted a common equity Tier 1 ratio of 10.9% at quarter end, which was above the 10% target we shared at deal announcement. As a result of this increased capital, we announced a $150 million share repurchase authorization, which will continue our disciplined capital deployment strategy.Turning to slide five, our integration program and activities remain on track. We closed on the merger on August 1, which was at the early end of our expected timing, and was supported by timely applications and approvals.Our integration teams are hard at work, executing on our project plan and preparing for upcoming key milestones. Recent actions include, a combined Board of Directors comprised equally of representatives from each legacy bank.Our Board is comprised of exceptional leaders from their fields, with diverse backgrounds and experience. We have consolidated governance and committee structures, both at the Board and management levels, to ensure we have one, integrated governance and control framework for the organization.We have aligned internal policies, including establishment of an integrated risk appetite framework. And credit concentration limits. Additionally, credit underwriting policies, and BSA policies have been aligned across the company.Our cultural integration activities are well underway. We have spent a good deal of time travelling the footprint and meeting with team members across the bank. We have met with key leaders across the organization, in their markets.And as we visit with more colleagues, and see the passion they have for the customers, I have even more confidence in our ability to compete and win in these markets.We are already seeing positive momentum for leveraging our expanded product set, and expertise across the footprint. On the leadership side, we have named over 90% of functional leaders, across the company to date.Additionally, we recently hosted a meeting of our broader senior leadership team, representing the next layer of leadership across the organization. Their engagement and passion was inspiring and demonstrated the substantial expertise that we have across the company.The conversion of many, key system is, foundational in our integration plans. And we are preparing for the first wave of system conversion work streams. We have selected a provider for the core-banking platform. And have negotiated and executed the related contract.Our teams continue to remain focused on putting our clients first, during the integration work. That includes both maintaining top service levels, as well as not losing momentum on new business development activities.Not directly related to the merger, but indicative of our continued focus on managing the business effectively and efficiently, we implemented a set of branch rationalization initiatives.This includes closing four branches in Indiana and Ohio, which were outside of our core market footprint. And also announced the closing of 17 branches within grocery store locations in Chicago and the Twin Cities aligned with our ongoing review of branch profitability.As we move into the fourth quarter, there are numerous items coming up on our action plans including, implementing a combined benefit plan for all employees effective on January 1.Our human capital management team did a great job to get us to a single, comprehensive benefit plan for all employees. On the systems front, we will consolidate to one mortgage-lending platform.We will continue to execute on system conversions in waves, as we move forward, where we can, we are de-risking the conversion milestones. We are working through the continuation of staffing optimization to support our targeted cost synergies from compensation and overlapping resources, and taking steps to do right, by our employees in the process.Finally, we have roadmaps in place regarding the launch of business synergy initiatives. Before I turn it over to Dennis, I want to thank all of our employees for all of their hard work to date, on ensuring we continue serving our customers.We all come to work every day as part of one TCF. And that I believe we have the scale, products, talent and expertise to compete and win, against any competition. I look forward to our top -- to our opportunity in 2020 and the future.I will now turn it over to Dennis, to provide more details around our third quarter financial results.

[Dennis Klaeser:]

Thank you, Craig. Before I begin, I want to remind everyone that, the third quarter results as presented in the earnings release, reflect the mid-quarter closing of the transaction on August 1.As a result, our numbers include July financials for Legacy TCF only. And reflect the combined new TCF financials for August and September, inclusive of the addition of Chemical.The income statement as presented in the earnings release does not reflect a full quarter of earnings, nor does it reflect a full quarter of expenses. In the presentation today we have added selected items, to assist in establishing a relevant full quarter view, as we move into the fourth quarter.Starting on slide six, we highlight some first accounting marks as a result of the closing of the merger. The credit mark came in at $183 million, based on the addition of the Chemical loan portfolio. And was slightly lower by $6 million compared to our estimate, in January when we announced the transaction.The interest rate mark came in at $66 million, much lower than our initial estimate, given the substantial decline in interest rates, between January and August.Tangible book value per share was $26.18, at quarter end 11% higher than we projected in -- at January's announcement. The results of lower interest marks, as well as, not all merger-related costs, being recognized on day 1, both support a higher tangible book value per share.In addition, the core deposit intangible came in at $178 million, slightly above our estimate from January.CDI is expected to be amortized over 10 years and is expected to be approximately $5 million in the fourth quarter. The result of purchase accounting marks, as well as the timing of merger-related expenses gives us much higher capital at the close of the transaction, while reducing the related accretion income, we would have otherwise accreted in overtime.The common equity Tier 1 ratio was estimated to be 10% at close, but was at 10.9% at the end of September. Purchase accounting accretion in the third quarter was $28 million. CDI amortization was $4 million for the third quarter and the net impact for the third quarter was $24 million.Purchase accounting accretion of $28 million was elevated for the months of August and September and was benefited by loan prepayments and payoffs. We expect purchase accounting accretion to be in the low $20 million range for the fourth quarter excluding payoffs and prepayments.Turning to Slide 7, we look -- we took several actions during the quarter to optimize the balance sheet of the combined company. Collectively these actions lower our risk profile, reduce asset sensitivity and enhance capital efficiency and liquidity.We sold $1.6 billion worth of securities during the quarter which included selected floating rate, corporate’s, non-agency and municipal securities. These actions are intended to reduce credit risk of the securities book, help us manage interest rate risk as we look to reduce asset sensitivity and improve overall liquidity and capital efficiency of the portfolio.We do not redeploy all of the sales proceeds as of quarter end and we had approximately $1.3 billion remaining to be reinvested which we will layer in over the coming quarters.We also terminated a $1.1 billion interest rate swap during the quarter which all else being equal, we expect to reduce our asset sensitivity by approximately 60 basis points. The termination of swaps resulted in a $17 million pre-tax expense.Lastly we transferred the Legacy TCF auto finance portfolio to held-for-sale and mark the portfolio’s fair value which resulted in a $19 million pretax loss included in the gain on sale line item. At quarter end the portfolio totaled $1.2 billion. We are being proactive in exploring options for the portfolio which has been in runoff mode since the fourth quarter of 2017.As shown on slide 8, you can see the strong mix of our combined loan and lease portfolio which is comprised primarily of commercial based loans which totaled 66% of total loans and the remaining 34% from our consumer-based portfolios.We continue to generate strong loan and lease growth as balances increased $2.6 billion or 8.3% year-over-year compared to the combined portfolios of TCF and Chemical a year ago, excluding the Legacy TCF auto portfolio. This growth has come from across all portfolios with C&I up 11% year-over-year and commercial real estate up 9.5% year-over-year.Note that as part of merging the two balance sheets. The Legacy TCF inventory finance portfolio is now included in the C&I category. Similarly, the Legacy TCF leasing and equipment finance portfolio is now split with the loans being in the C&I category and leases being in the lease-financing category.Moving to deposits on slide 9, we have a well-diversified deposit mix with $8 billion of non-interest-bearing balances and CDs representing less than 25% of deposits. In addition to product diversification, we have a strong deposit or mix as a result of the MOE.We have brought together the strong consumer deposit base of Legacy TCF and the strong commercial deposit base of Chemical which has created a complementary deposit mix of 62% consumer deposits and 38% commercial deposits. Total deposits have increased by 4% year-over-year and growth of deposits excluding CDs increased by $1.7 billion or 7% from a year ago.The third quarter benefited from strong seasonal inflows and -- of municipal deposits as tax payments drive higher balances. Our cost and deposits in the third quarter was 94 basis points, 1 basis point below our combined cost and deposits in the second quarter. We expect to see our deposit cost continue to decline over the coming quarters.Slide 10 highlights the $1.6 billion worth of investment securities sales I mentioned earlier as a result we have been able to improve the mix of our investment securities portfolio by reducing interest rate and credit risk enhancing capital efficiency and liquidity.The total securities portfolio of $5.7 billion represents only a 13% of total assets. We expect that number to gradually increase as we reinvest over the coming quarters. In the near term, we expect the securities to total assets to be in the mid-teen range. The largest component of the portfolio today is, Agency MBS representing 2/3 of the total portfolio and 95% of the portfolio is represented by securities rated AA or AAA.Turning to slide 11. We have presented net interest income and net interest margin for both the third quarter reported period as well as the September month actuals. Starting with the net interest income in the upper left, the red number one circle represents reported net interest income for the third quarter of 2019 reflective of a stub period of $371 million with $28 million of it -- of the total coming from purchase accounting accretion. As a result, the net interest income excluding accretion was $343 million.As a reminder this $343 million does not reflect a full quarter of net interest income because the merger closed on August 1. Our income statements results including net interest income reflect full Legacy TCF results for July and new TCF results for August and September. Reported results exclude Chemical results for the month of July.As noted by the red number two below the chart to help provide a starting point for net interest income going forward, we provided our actual net interest income for the month of September which totaled $143 million and included $15 million of accretion resulting in net interest income for the month of September excluding accretion of $128 million.Taking the $128 million in September as a baseline, this puts us at a starting point entering into the fourth quarter for net interest income excluding accretion of $384 million. In addition, we expect purchase accounting accretion in the fourth quarter to be in the low $20 million range and be additive on top of the $384 million. This does not include any accelerated payoffs or prepayments which we did see a fairly decent amount of during the months of August and September.We are presenting net interest margin in the similar format in the upper right portion of the slide. We reported third quarter net interest margin of 4.14% which included 31 basis points of purchase accounting accretion resulting in a margin excluding accretion of 3.83%.Again this reflects the stub period accounting math as it excludes one month of Chemical impact from July. Our margin excluding accretion for the month of September was 3.7%, which provides a starting point as we enter the fourth quarter. This reflects the full impact of both portfolios.Going forward, we expect various factors to impact this 3.7% margin. Our continued reinvestment in our securities portfolio will likely result in a lower margin, but we'll add additional net interest income, dollars and be accretive to return on capital. In addition, we expect a rate cut this week or in December to be additional margin headwind as our combined balance sheet remains modestly asset sensitive. All of these factors alongside earnings asset growth will impact net interest income and margin moving forward.We do maintain levers in our -- at our disposal to combat against some of these factors. We should see a benefit in the fourth quarter from deposit repricing. We have enacted to-date and expect to see deposit cost decline over the coming quarters. Additionally, we will continue to look to optimize our asset mix over the pace of Fed rates and LIBOR moves will continue to drive the trend for asset yields.Looking at slide 12. Reported non-interest income was $94 million in the third quarter. This included several non-core items. A loss of $19.3 million from the transfer of the Legacy TCF auto to held-for-sale, a loss of $17.3 million related to the termination of interest rate swaps, a $4.5 million impairment on loan servicing rights and a $5.9 million gain on the sale of investment securities. Excluding these items adjusted non-interest income was $129 million.Again the third quarter results exclude July non-interest income from Chemical. As we look ahead to the fourth quarter, we would expect non-interest income to come closer to the levels from the combined Chemical and TCF that you can see for the second quarter and third quarter of 2018 -- second quarter of 2019 and the third quarter of 2018.Slide 13 highlights non-interest expense and $180 million of merger-related cost savings we expect to achieve by the fourth quarter of 2020. As shown in the upper left chart when you when we announced the transaction in January, we utilized Street's consensus for both banks for the combined 4Q 2020 non-interest expense, which totaled $366 million at that time and was inclusive of expected cost savings -- cost expense growth and inflation. Taking out $45 million of quarterly cost savings or $180 million annualize, we would have implied fourth quarter 2020 expense of $321 million.Looking at the chart in the upper right our reported non-interest income expense in the third quarter was $425 million including $111 million of merger-related expenses and $6 million in non-core items resulting in an adjusted non-interest income of $308 million. Keep in mind again, this is a stub period base -- basis. This is not reflective of the current full quarter run rate.The combined expenses of both banks for the second quarter of 2019 provides a full quarter view of $341 million excluding merger-related charges. Based on August and September actuals, we've remained in the similar range in the low 340s as we enter the fourth quarter.We have realized $4 million of cost savings to-date with $41 million further to realize as you can see in the bottom left chart. We expect the pace of cost savings to ramp-up as we move through 2020. We do expect some level of natural expense growth and inflation on top of the cost synergy savings with merit increases in early 2020 as an example.Net of these factors, we believe we can drive expenses below the initial implied target of $321 million by the fourth quarter of 2020. Overall, we are focused on driving towards an efficiency ratio that is below the peer median after completion of our cost savings. Our adjusted efficiency ratio in the third quarter was 58.7%, which is adjusted for merger related expenses, non-core items, tax equivalent adjustments, intangible amortization as well as an adjustment for lease financing equipment depreciation. We will continue to keep you updated on our progress in future quarters.With that, I will turn it over to Jim Costa to provide an update on credit.

[Jim Costa:]

Thank you, Dennis. Turning to slide 14 as we brought together the organizations this quarter, we continue to see strong credit performance across the portfolios. Reported net charge-offs were 39 basis points and are calculated based on average loans for the quarter.Charge-offs for the quarter totaled $29 million with approximately half of the $29 million coming from a single C&I credit. Expected losses for this credit were fully absorbed in the third quarter. Absent this credit we would have been in the low end of the combined charge of range we have seen over the past year. Non-accrual loans and leases about $182 million represented 54 basis points of loans and leases. While the allowance for loans and lease losses was only 36 basis points.However, Chemical loans added in the merger were recorded at fair value as of August 1st without a carryover of the related allowance. Therefore, the allowance including the discount on acquired loans was 89 basis points of loans and leases. Lastly over 90-day delinquencies, a leading indicator of credit quality for many of our portfolios were just nine basis points for the quarter.Overall, the additional diversification of the loan lease portfolio as a result of the merger of equals, we believe positions us very well as we continue to stay focused on the overall credit profile of the balance sheet.Lastly, let me share a brief update on our CECL work and expectations. Our teams are conducting parallel runs of CECL process against our current incurred loss or ALLL process. Based on our work completed to date, we expect CECL allowance could result in an increase to the reserves of 35% to 45% of the current ALLL in place for Legacy TCF portfolio of $17.8 billion.We expect our commercial portfolios with relatively short durations to not see a meaningful net change in reserves, however, our consumer lending portfolios including mortgage and home equity are expected to see a greater impact. Related to the Legacy Chemical portfolio, we do not expect to see some mark to be materially different than the level day one credit mark.With that, I'll turn it back over to Craig.

[Craig Dahl:]

Thank you, Jim. So turning to slide 15, the highlight from a capital perspective this quarter is the higher level of capital at merger close than what we initially guided. With this excess capital today above our near-term target, we are pleased to have announced $150 million share repurchase authorization. This will give us increased capital flexibility as we move forward and is consistent with our desire to remain thoughtful around capital deployment in order to drive value for shareholders.As we think about capital priorities going forward, our primary focus will be on organic growth and the ability to leverage the scale and product set we have as a leading Midwest bank across our markets.Second is dividend where we think a payout ratio in the 30% to 40% range makes sense, it is competitive with peers. Next our share repurchases I mentioned and finally corporate development opportunities if and when they arise. No matter, which priority we take action on we are committed to being thoughtful and disciplined and expect to continue to put the shareholder impact at the forefront of our thought process. Overall, we remain confident in our ability to drive toward the top quartile return on average tangible common equity, which we indicated at deal announcement.And with that, I'll open it up for questions.

[Operator:]

Ladies and gentlemen, at this we’ll begin the question-and-answer session. [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.

[Craig Dahl:]

Good morning.

[Jon Arfstrom:]

Dennis maybe let's start with you on expenses. I mean, it's good that you talked about being able to get below that implied fourth quarter 2020 consensus target. It looks like you might get there a quarter early if you take that $75 million of cost saves and layer that through. I know it's a year out, but what were you saying about the rest of it, the $105 million in annualized cost savings that would be left? Are you saying that that comes through because of the conversion in 3Q? And how quickly can we see that come through?

[Dennis Klaeser:]

Yeah. The large chunk of cost savings really is triggered by the completion of the core operating systems, which we're targeting in the third quarter. And our goal is to achieve that as quickly as possible after the conversion. However, there is a little bit of delay in full realization of that because we do need to run our systems redundant for short period of time just to be able to test the systems. Exactly how long we run redundant with some other functions is yet to be determined, but -- so some of that could spill into the fourth quarter, but our goal is to get that realize as much as we can by the end of the third quarter.

[Jon Arfstrom:]

Okay. Say that again, Dennis? You're just saying some of that spills into the fourth quarter, but maybe not material? Is that the message?

[Dennis Klaeser:]

That's the goal. Yes. That's the goal.

[Jon Arfstrom:]

Okay. Okay. $341 million from the Q2 combined number less $4 million, does that feel like a good run rate for Q4 expenses?

[Craig Dahl:]

I think you misspoke. You said $341 million less $4 million.

[Jon Arfstrom:]

Right. You laid out the Q2 2019 combined at $341 million. And I think you said in your comments that that's a decent run rate, and that was representative of what you saw in 3Q combined?

[Craig Dahl:]

Yes. Yes, that's roughly the same level. We had some seasonal increase in commission fee -- in commissions to particularly the residential mortgage lenders. So, some of that offset the additional realization of cost savings. But we're -- let's say, we're at that $341 million level, and we have another $41 million worth of quarterly cost saves to realize that puts us down to roughly $300 million or so of a run rate. But that run rate is going to be impacted by the -- I mentioned in my prepared remarks, by the annual inflation, salary increases and so forth, and the potential increase in some additional hires. So -- but net-net, we expect to come below the $321 million.

[Jon Arfstrom:]

Okay. Great. Thanks guys. Appreciate it.

[Craig Dahl:]

Thank you.

[Operator:]

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

[David Long:]

Good morning, everyone.

[Craig Dahl:]

Good morning.

[Dennis Klaeser:]

Hey, David.

[David Long:]

Can you talk about any progress that you've been made to date on the revenue synergy side? And maybe any hires or moves to find a leader in the C&I side in the TCF footprint? And anything on the revenue said that you can point to at this side -- at this time.

[Craig Dahl:]

Yeah. I would say -- this is Craig. I would say at this point, it's all been in the planning phase. The execution is really going to be the next up, but it will be starting in the fourth quarter. We have not announced the hire, but we're very confident of our ability to act on the C&I expansion in the TCF territories, and we'll be having some updates on that rather soon. And I'll have Thomas Shafer add any of his comments to that question.

[Tom Shafer:]

Yes. So that was front of the middle market side of that some of the C&I does migrate to the national businesses that we have I think, the plans are well underway and we're very confident with conversations that we're having that we'll be executing as Craig said beginning of the fourth quarter.

[David Long:]

Got it. Okay. Thanks for the color there. And then Jim, it relates to that single C&I credit that made up I think you said half of the charge-offs in the quarter. Any detail that you can give on that? What industry? Is it part of a larger trend? And maybe any other trends that you've seen in credit?

[Jim Costa:]

Yeah. I appreciate the question, David. Yeah, it was a credit in the healthcare sector, a diagnostics lab and the circumstances there are -- there was a regulatory change, which really disrupted the business model. It was not indicative of a drop off in demand or weak balance sheet or anything that would be sort of emblematic of a change in the credit cycle. This is really a unique circumstance where a state legislative change impacted the business model. And so it really is an extraordinary situation.I did, as you mentioned, represent half of the credit charge-offs for the quarter. And further to that point, yeah, you'll note that we move the gateway portfolio to held for sale. So, sort of the core charge-off content really is quite di-minimus. We're happy with that. As we looked across the broader portfolios, we're watching I'm sure all the same things you are on the residential real estate side collateral values. The loan demand, delinquency tends, there's really nothing that has surface that would cause us concern. But we do recognize where we are in the cycle and our attention is well placed.

[David Long:]

Got it. Thanks for the color there. Then lastly Dennis or -- thinking about the City of Detroit net win that you guys had for the large deposits last year at Chemical. Has that relationship fully been brought on Board at this point? And then any other opportunities on the municipal side for you guys?

[Dennis Klaeser:]

Yeah. We made substantial progress there and deposits have ramped-up. There are some incremental deposits we expect to bring in from the City, but they're fairly incremental to where we sit today. And yes, we have opened the doors to a variety of other municipalities where we've made some progress and bought in some additional deposits. It's a great marketing tool for us. It demonstrates our level of sophistication to be able to handle their deposits, we can handle just about any municipalities deposits across the Midwest.

[David Long:]

Excellent. Thanks a lot for the color guys. Appreciate it.

[Operator:]

Our next question comes from Scott Siefers from Sandler O'Neill. Please go ahead with your question.

[Scott Siefers:]

Good morning, guys. Thank you.

[Dennis Klaeser:]

Good morning.

[Scott Siefers:]

Hey, Dennis, just want to make sure I'm crystal clear on this expense guidance. So it sounds like for expenses, you're saying that you get to $321 million by the third quarter of next year and the net should be a low watermark, right? I think you said maybe a little more spills over in the fourth quarter but basically 3Q 2020 is a low watermark of about $321 million, is that all correct?

[Dennis Klaeser:]

Well. I'm saying 4Q is below $320 million. It will be a bit higher than that in the third quarter. Because in the third quarter, a lot of our -- a large chunk of our expenses are still running well into the quarter. So there is a significant drop from 3Q to 4Q, down to that $320 million or less level in 4Q.

[Scott Siefers:]

Okay. All right. I think that clears it up. I was wondering sort of where that 90-day gap came from. So -- okay so fourth quarter $321 million or below and that's below watermark then.

[Dennis Klaeser:]

Yes.

[Scott Siefers:]

Okay. Good. Thank you for clarifying that. And then could you maybe walk through what specifically TCF's rate positioning is now versus what it was before? All the actions I guess, you had the securities portfolio the swaps and the auto move to held-for-sale. So maybe a simple way would be what would have been the impact to the margin of a rate cut previously and then what would it be now?

[Dennis Klaeser:]

Yes. So, I'll start out and Brian can chime in too if we could -- if he will be helpful here. So first of all the Legacy Chemical was naturally liability sensitive and we moved ourselves to relative neutral position with the help of an interest rate swap. So we unwound that swap to move the Legacy Chemical side of the balance sheet back to liability sensitivity and that moderated the level of asset sensitivity of TCF.Now we are still net-net on a combined basis, asset sensitive with a 100 basis point shock down. We would expect our net interest income to be reduced by a little less than 5%. And by further deployment of the securities portfolio and then some strategies within the loan portfolio, our goal is to further moderate that level of asset sensitivity and hopefully we're going to see that impact already here in the fourth quarter.

[Brian Maass:]

The exact impact of the margin depends on a number of factors in terms of the timing of changes and so forth. But I think that will give you a sense as to how sensitive margin could be to the further actions of the Fed.

[Scott Siefers:]

Okay. Perfect. And then if I could jump back to that CECL commentary, I think you said, 35% to 45% increase in the reserve. Did that include the impact from sort of that double count notion sort of remaking the Legacy Chemical portfolio again? Or is there another higher number that is the total all-in increase to the reserve? And if so, what is that total increase to the reserve from CECL?

[Dennis Klaeser:]

Yes. Jim's comment was purely focused on the Legacy TCF portfolio, what is the existing on-balance sheet allowance for loan loss in the 35% to 45% increase in that level -- that loan loss. You're correct. The Chemical portfolio, the -- essentially the allowance for loan losses off-balance sheets that day one credit mark, which was $180 million or so. At this point, we're not fully prepared to give guidance, exactly what we think the CECL mark is going to be but my expectation is it's in that ballpark range but there may be some noise to that depending on the final analytics around that.

[Scott Siefers:]

All right. Perfect. Thank you very much.

[Operator:]

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

[Chris McGratty:]

Great. Good morning. Dennis or Craig, maybe for you. I think you said in your prepared remarks excluding the auto runoff, loan growth is about 8% year-on-year. In fourth quarter, I believe it's seasonally pretty good for you guys. How should we be thinking about outlook for growth next year? It's kind of mid- to upper single-digits kind of a reasonable excluding the auto or maybe the puts and takes on that?

[Craig Dahl:]

Yes. This is Craig. I think that's what we've talked about before. Chemical has always been at the high-end of single-digit or double-digit and TCF we were moving towards that short of the auto runoff and so -- but you're right, the fourth quarter is particularly good for us and so we would expect really a strong quarter of originations in this first full quarter.

[Chris McGratty:]

Okay. And then if we kind of fast forward through and get the cost saves that you've outlined for us. I think you said in your remarks that the goal is efficiency ratio better than peers. In the deck you show 57% and obviously, that's a bit of a moving target because of rates. But is that 57% is kind of -- is that what you're kind of trying to steer us to over the next four, five quarters?

[Dennis Klaeser:]

Well, no. It will be stepping down from there and it'll -- depending on a variety of factors, our expectation will be stepping -- be moving down from that level as we move to the end of next year.

[Chris McGratty:]

Okay. So below 57% Dennis by the end of next year is that what you're saying?

[Dennis Klaeser:]

Yes. Our original guidance when we announced the deal was 53%. Obviously, the industry is facing some revenue headwind with margin. So it may be difficult to get to that level but we're going to do our damnedest to get as close to that as we can.

[Chris McGratty:]

Great. And then -- and maybe one for Jim, I think you said half of the charge-offs were run at one credit, so that would put kind of blended change-offs in that roughly 20 basis point range. Is that kind of a fair way of thinking about credits -- credit costs plus provisioning as you see the world today?

[Jim Costa:]

I would think that that would be a generous estimate. So we would hope to be inside of 20 basis points, but not a bad starting point.

[Chris McGratty:]

Okay. Great. And then Dennis maybe last one tax rate, you had a lot of moving parts in the quarter. Could you help us with Q4 and kind of 2020?

[Dennis Klaeser:]

Yeah. So the normalized tax rate on the combined entity is going to be 22% to 24%, let's say, 23% is a normalized rate. In the fourth quarter, there will be some discreet items that effectively bring the rate down below that. If there's probably not important for you to model that out, there is a particularly discrete item that we're going to see is, we're going to see another one of the historic tax credits that come through the Legacy Chemical that you're accustomed to seeing in the historically Legacy Chemical side, but going forward I would say that 22% to 24% is the range that you should be modeling.

[Chris McGratty:]

And that's an effective impact, right.

[Dennis Klaeser:]

Yes.

[Chris McGratty:]

Okay. Thank you for your help.

[Operator:]

Our next question comes from Steven Alexopoulos from JPMorgan. Please go ahead with your question.

[Steven Alexopoulos:]

Hey, everybody.

[Dennis Klaeser:]

Yes. Good morning.

[Steven Alexopoulos:]

To start on the fee income side. So core fee income was fairly well off from the historical on a combined basis, it was really service charges. What drove that?

[Dennis Klaeser:]

Steve, I don't know that I have a particular item for you. Obviously, there's a lot of noise in the quarter. And we're suggesting that when you look at the trend, it's really better to look at the prior quarters as being the indicative level of the starting point.Fee income should be seasonally a bit stronger in the fourth quarter, but over time looking at the prior quarters is really the range that you should be expecting for us to build off of.

[Steven Alexopoulos:]

Okay. Okay. And then Dennis not to beat a dead horse on the expenses. So we're going to get to the fourth quarter run rate and that is the assumption that you basically will stay there maybe plus or minus some inflation until that system conversion gets done and then the remaining cost saves will hit, is that the right way to think about it? Or will any material cost saves come through before the end?

[Dennis Klaeser:]

The $321 million is fully realizing the cost saves -- less than $321 million is fully realizing the cost saves. Now there is a possibility that we're going to look for incremental cost saves there, but I don't -- that isn't particularly the target for us to drive that much lower than that.We're always sort of interested in the geography of expenses. And when there's opportunities to reduce costs within non-revenue producing areas to allow us to further invest in revenue producing areas, we're going to do that, but pushing down below that $321 million level in the fourth quarter and then going forward, I think the reasonable baseline is just assuming the natural inflation adjustments of that going forward.

[Steven Alexopoulos:]

Okay. I probably should have been clear. I mean, when we get to the 4Q 2019 run rate. So through the beginning of 2020 will any material cost saves hit before that system conversion? Where is it really after that date when the remaining cost saves will hit?

[Dennis Klaeser:]

Yes. Sorry, I misunderstood. So over that fourth quarter period, fourth quarter this year and going forward, we do have -- we are layering in roughly $75 million worth of cost saves or roughly $70 million worth of incremental cost saves that's going to be realized over that period of time. And then the balance of it realized late in the third quarter early fourth quarter.

[Steven Alexopoulos:]

Got it. Okay. And then finally just on the NIM, what do you -- I heard the guidance on 4Q low $20 million. What's the accounting schedule for 2020 and 2021 full year?

[Dennis Klaeser:]

What's the -- what did you say accounting schedule?

[Steven Alexopoulos:]

So, the purchase accounting you talked about low $20 million for 4Q 2019. I don't know if that's the straight line run rate moving forward potentially, but I just wanted to see what it was for 2020 and 2021?

[Dennis Klaeser:]

Yeah. So each quarter expect that to moderate by $2 million, $3 million, $4 million, but three's going to be noise in that impacted by prepayment. So if the Fed moves this quarter while that puts some core pressure on the margin, you may see a pickup in prepayment speeds, and therefore a pickup in the level of accretion.So -- and to the extent that we have pick up in accretion, it's just a matter of timing. It's moving accretion that we thought would come in later periods coming in earlier. But I think modeling at the low $20 million range, and they're expecting that to bleed down $2 million, $3 million a quarter is a reasonable starting point.

[Steven Alexopoulos:]

And then sorry just one final one. The $1.3 billion that you plan to redeploy, I'm assuming it's going to securities. What's the yield that you'll likely get with that $1.3 billion?

[Dennis Klaeser:]

Brian?

[Brian Maass:]

Yeah. So this is Brian. What I would say on that you saw in third quarter, our reinvestments were around 2.6%. Yields weren't all that different as we started off here in the fourth quarter probably around that 2.55% to 2.6%. Yields are slightly higher right now. So, it's hard to predict where they'll kind of remain as we continue to reinvest those proceeds I'd say probably over the next three to four months, but it's somewhere in that 2.6% to 2.7% range as of right now.

[Steven Alexopoulos:]

Okay, perfect. Thanks for taking my questions.

[Operator:]

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

[Nathan Race:]

Hi guys. Good morning. Just to clarify on the margin outlook on a core basis for the fourth quarter. So, you're at $370 million for September and so I think Dennis you're speaking to additional pressure in the fourth quarter just given the Fed cuts. And so we're talking mid to low 360s and then maybe I guess I'm just curious how much more additional pressure we should expect with each additional Fed cut from that run rate?

[Dennis Klaeser:]

Yes. We're hesitant to sort of give the specific basis point guidance there. I think you saw the core sort of trend on the combined company second quarter into the third quarter. And you saw rate cut late July and September. So, I think that does give you some indication but there is a lot of factors that are going to go into the ultimate outcome there.So, I think there's going to be a range of different conclusions there by our analysts appropriately so because at this point it's difficult to predict that. And obviously we are going to be as productive as we can and trying to combat that pressure thinking through in terms of loan mix that we're putting onto the balance sheet.I think we made very rapid progress in terms of our deposit base that the team's got together very quickly. In fact they got together August 1st when we closed the deal and I think that had a positive impact and the fact that our deposit cost actually step down a basis point in the third quarter and we expect further stepping down of that as we go into the fourth quarter and into the first quarter next year.And of course, we're also -- we expect the volume of earning assets to increase meaningfully not just from the securities portfolio, but we'll have a seasonally strong quarter in terms of loan growth. So, the goal is for us to combat that pressure on margin by strategically focused loan growth deposit pricing and we'll see where that shakes out.

[Nathan Race:]

Understood. And I guess within that context can you update us in terms of what the variable or floating rate exposure is within the portfolio and within that how much is LIBOR over prime?

[Dennis Klaeser:]

So, the portion that is purely floating that's index of a prime where LIBOR is roughly 37% or so plus or minus. And less than half of that is more -- is LIBOR-based the other half -- more than half is prime based.

[Nathan Race:]

Okay, that's helpful. And if I could just ask one more on the buyback. Can you help us just kind of understand the pace at which you want to kind of tap that going forward? Obviously, capital levels came in ahead of what you guys guided to when the deals announced in January. So, just trying to understand how aggressive you guys could be with the buyback at this point?

[Dennis Klaeser:]

Again there -- we're -- there's a number of factors that's going to impact the pace. It's going to our view in terms of loan growth short-term and long-term is going to impact that. How quickly we get to the point of selling the auto portfolio is going to impact that and the stock price is going to impact that.But I think, in general, you can I assume we're going to be fairly aggressive about it because right now the stock price, we think that it makes sense for us to be buying back stock.

[Nathan Race:]

Understood. I appreciate all the color Dennis. Thank you.

[Operator:]

Our next question comes from Ebrahim Poonawala from Bank of America. Please go ahead with your question.

[Ebrahim Poonawala:]

Good morning guys. Just one more follow-up on NII Dennis if I could. When we think about the cash getting redeployed into securities just if you could give us a sense is it fair to assume that the average earning assets land around the $42 billion to $42.5 billion in the fourth quarter as we think about a base from where it begins to grow in 2020?

[Dennis Klaeser:]

Yes, I think we talked about high single-digit -- mid to high single-digit loan growth target over the course of the year with fourth quarter being very strong. So, you should expect the growth in the fourth quarter to be a higher end of the range.And then in my prepared remarks, we talked about over the shorter term and that sort of the year end early 2020, we expect the securities portfolio to get up to the mid-teens of the total assets. And so that would imply in the neighborhood of $1 billion of growth over the next few months or so.

[Ebrahim Poonawala:]

Well, it's $1 billion of growth relative to wherever we are in the fourth quarter?

[Dennis Klaeser:]

Relative to where we are at -- as of the end of the third quarter.

[Ebrahim Poonawala:]

End of the third quarter?

[Dennis Klaeser:]

Yes.

[Ebrahim Poonawala:]

Got it. Got it. All right. And then just moving in terms of the move to held-for-sale for the order book. As we think about -- if assuming that you're able to go through the really quickly, how should we think about redeployment of those cash flows? Does it all go into immediately buying those securities or would you rather keep cash and then deploy towards funding loan growth?

[Dennis Klaeser:]

Well clearly the preference is to -- is freeing up that part of the balance sheet that capital to support loan growth bigger margins, higher value from a franchise standpoint. So in the short-term, really it's paying off the incremental higher cost of borrowings and being more aggressive than running off higher costing CDs. But it's a combination of redeployment into the loan portfolio and redeployment into the securities portfolio.

[Ebrahim Poonawala:]

And do you expect any additional marks on that or hit on that book as you look to exit? Or do you think it's fairly mark-to-market in the current environment?

[Dennis Klaeser:]

There's always a chance that there's going to be some change upon final realization of a sale. But right now that's our best estimate and so that's where we stand today.

[Ebrahim Poonawala:]

Got it. Thanks for taking my questions.

[Operator:]

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

[Jared Shaw:]

Hi, good morning.

[Dennis Klaeser:]

Good morning.

[Jared Shaw:]

Just on the auto the move to held-for-sale was there anything that happened this quarter that caused you to want to accelerate the exit from that portfolio in terms of the credit dynamics? And I guess, what's driving that mark in the portfolio as far as it's really just the market environment?

[Dennis Klaeser:]

It's a strategic decision. It's a market environment. It's fact that the merger got completed and we're more focused on a variety of other business priorities.

[Jim Costa:]

I might just add a comment this is Jim. We monitor that portfolio very closely. The behavior of the delinquency and charge-off has been consistent with what you'd expect. With seasonal performance, there's been really no change in our expectations. It's running out just as we would have expected.

[Dennis Klaeser:]

Yes. No. We -- it's a great portfolio for an acquirer to buy and for us it's something that we made a decision not to be focused on that niche anymore. And over time -- right now that portfolio does -- is incrementally profitable to us by I say incrementally. But as that portfolio runs down, it becomes incrementally unprofitable. So it's the right time for us to take a more proactive approach to divesting in that portfolio.

[Jared Shaw:]

Okay. Then when we look at the planned sale of that portfolio and then the securities restructuring and sitting on the cash for a little longer, does that change or do those impacts to NII change the expected time for EPS accretion from the deal?

[Dennis Klaeser:]

No. No. The other thing to note on the security -- on the auto portfolio is that they're obviously there are some non-interest operating expenses associated with that performance. And so again, while we are going to lose some net interest income, the bottom line impact is relatively neutral in 2020 and then accretive to earnings in 2021.

[Jared Shaw:]

Okay. And then the branch closures that you announced were those always sort of part of the planned cost saves or those -- is that going to be incremental savings beyond the plant deal cost saves?

[Dennis Klaeser:]

They were not part of the original expected cost saves. So ultimately, that becomes incremental overall in terms of the efficiency of the organization. But let me point out that again there is a variety of areas in which we are optimistic about revenue growth opportunities. And there are some geographies where we're going to intend to open a couple of additional branches.

[Jared Shaw:]

Okay. And actually just following up on the auto side, when is the expectation for that to be sold?

[Dennis Klaeser:]

Yes. We don't have a specific time frame, but our goal is sooner the better.

[Jared Shaw:]

I mean like in a quarter or two or is it -- it's really just...

[Dennis Klaeser:]

Our goal is yes within the quarter or 2. Yes. That's our objective and we're working hard towards that.

[Jared Shaw:]

Great. Thank you.

[Operator:]

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

[Lana Chan:]

Hi, thanks, good morning. Had a few follow-up questions. One on the fee side. On an early question about the run rate seeming a little bit below the prior quarters. I think -- so some of it the fee income at Legacy TCF was related to auto, I don't -- can you just refresh us in terms of the servicing fee income? How much is left on the auto side? And yes I don't know the gain on sale loans is that a good run rate?

[Brian Maass:]

Yes. Lana. This is Brian. We were seeing a rundown of the servicing fee income on the Legacy TCF side, but that really was being offset by NIE declines over time. So there was a few million dollars less than that line that ultimately once the portfolio was sold that will have that remaining amount will come out. But as Dennis alluded to I think the guidance that we have overall for non-interest income is going to be similar back to the levels that you saw in 2Q or 3Q. So there will be some mix shift that's taking place in their gain on sale, I'd say was probably a little late. For the third quarter, we held a few extra loans, but you should see that number will likely be up a little bit even from what you saw in the third quarter as we get to Q4. So I think the guidance that Dennis had around -- look at the previous quarters is probably the best indicator of what we'll probably see in the fourth quarter.

[Lana Chan:]

Okay. Thank you. And then, following up on the margin question, it would be helpful if you have some available end-of-period spot rates across deposits and some of your loan and securities, so we could model off of end-of-period spot rates going into 4Q?

[Dennis Klaeser:]

Yes. Sorry, Lana, we didn't bring those spot rates with prime.

[Brian Maass:]

Yes. We don't have specific numbers to give you, Lana, but what we did show you was the September standalone. So the $370 million is kind of a starting point for the quarter. Then there are these puts and takes, which honestly is kind of hard for us to estimate exactly what those puts and takes are going to be, but it is going to be lower than the $370 million.As we get into the fourth quarter, we then – what we realized in third quarter, because you are going to have the third month of Chemical comes in, so that's going to make the NIM be lower. The portfolio expansion is going to have an impact of having a reduction to the net interest margin, as we mentioned. And so, really the net impact will be what happens from a rates perspective is what will drive it lower.So if we do see a rate cut this week, we will see some pressure going down. And that's versus our model results, which Dennis mentioned, we might be in a 48, 47 to 49, kind of in a down 100 shock. So that would be a number that you can use.What we're going to try and do is hopefully outperform our deposit estimate that we have for that and as Dennis said, we've been quite aggressive at leading the market and reducing promotional rates is running off some higher-cost wholesale funding itself.So we think we can have some offset to that, but really our big offset is going to be growing earning assets and as we grow earning assets in fourth quarter, that's really going to help us from a run rate perspective into growing NII, or net interest income is really our goal as we get in 2020. It's not about necessarily the margin rate, we want to make sure that we're growing net interest income and we think we can, especially if we have strong originations this quarter.

[Lana Chan:]

Okay. Thank you.

[Operator:]

Our next question comes from Terry McEvoy from Stephens. Please go ahead with your question.

[Terry McEvoy:]

Good morning. Question, your near-term CET1 capital ratio targets 10%. And I guess my question is, is near term 2020 or something beyond 2020?

[Dennis Klaeser:]

Brian would you take that?

[Brian Maass:]

Yes. I think it's more of a reference to. That's where we thought we were going to be when we announced the transaction. So we're not necessarily in a rush to get to that 10%. As Dennis said, we're focused on organic growth.We're focused on a lot of other things, but I think it's notable that we also do want to manage the capital of the organization appropriately and to the extent that we have excess capital, you saw us announce stock repurchase and we're going to manage towards that. So we don't necessarily have a date in mind where we have to be at 10%. It's more -- that's where we thought we were going to be and that is a good target for you to think about but...

[Terry McEvoy:]

And then just as a quick follow up, the sale of the legacy auto portfolio, the $19.3 million loss was that net against the $25 million reserve that was held against that portfolio?

[Dennis Klaeser:]

Yes.

[Terry McEvoy:]

Great. Just trying to connect all the dots. That’s it. Thank you.

[Dennis Klaeser:]

Yes. Thanks, Terry.

[Operator:]

Our next question comes from Ken Zerbe from Morgan Stanley. Please go ahead with your question. Hey, Mr. Zerbe, is it possible your phone is on mute. And we'll move on to Kevin Reevey from D.A. Davidson. Please go ahead with your question.

[Kevin Reevey:]

Good morning.

[Dennis Klaeser:]

Hi, Kevin.

[Brian Maass:]

Good morning

[Kevin Reevey:]

So I was just curious, the 60% of your CD portfolio that's maturing over the six -- next six months, is there a plan to roll that over, or to have it exit the bank?

[Dennis Klaeser:]

Go ahead, Brian.

[Brian Maass:]

Yes. This is Brian. What I would say is, what we were trying to do was two things. We're trying to manage kind of from the interest rate environment uncertainty allow us the optionality to reprice that lower, as well as knowing that we might be selling $1.2 billion of auto balances and having a further reduction on liabilities on the balance sheet, is just allowing us optionality to either not reduce some of those or significantly lower the rates on them and run some of them off.

[Kevin Reevey:]

And if you were to renew some of them, what kind of rate do you think you'd have to pay up to retain those deposits.

[Brian Maass:]

Yes. I mean, promotional rates for retail have come down, what I'd say, dramatically. We probably saw retail promotional rates peak, I'd say, back in first quarter, it was probably March or April. So we've been reducing rates on promotional deposits. We could be down 100 basis points from probably where we were at peak.I'd say at peak we might have been at $265 million $275 million, and we're probably down in $165 million $175 million range today. And obviously, a lot of that will depend upon market competition as well as where interest rates change from here going forward.

[Kevin Reevey:]

And then, Craig, earlier in your prepared remarks you talked about residential mortgage production. Is the plan to hold that production and portfolio or to sell it?

[Craig Dahl:]

I mean that always becomes in both segment discussion and overall discussion. So at this point, I don't have any predetermination of where that's going to go. But I mean, I think the key is, that it's all in our footprint and that's -- these are not -- this is not a national business. It's all in our footprint. These are all our customers or acquiring new customers and we're pretty pumped on that pipeline as we sit here today.

[Kevin Reevey:]

Thank you.

[Dennis Klaeser:]

And Kevin, going back to your question about rolling over of CDs, I think, an important number to look at is the growth of our non-CD deposits year-over-year. We highlighted that it was 7% year-over-year. So, that level of growth I think really puts us in the top tier of -- in the industry. And it shows a lot of success in both companies in growing really true core deposits. And that's a level of growth that we achieved sort of prior to their -- us benefiting some of the business synergies as we talked about, when we announced the transaction, TCF has made significant investments in the front end digital-banking platform to be an industry-leading platform and we're going to be leveraging that into the Chemical franchise and we think that's going to help particularly on the Legacy Chemical side in growing those core deposits with our retail customers. And then vice versa, Chemical brings an expertise in generating commercial deposits, which we're going to roll out into the TCF franchise. So ultimately, the goal is rather than rolling over those CDs into new CDs is to pick up the growth of core deposit growth -- really core deposits and that will clearly have a benefit to margin and overall franchise value.

[Kevin Reevey:]

Thank you, very much.

[Operator:]

Our next question comes from Brock Vandervliet from UBS. Please go ahead with your question.

[Brock Vandervliet:]

Hi, good morning. I think we've covered the NII and NIM dynamics. Dennis, I know you talked about this off-line. In terms of the system conversion and that being a linchpin for some of the substantial cost saves, any sense of whether that could be moved up? Or is that really kind of locked in concrete here given that outside providers are required for that?

[Dennis Klaeser:]

Yes. It's pretty well locked in in the third quarter. And yes and particularly because, we're working with an outside provider, it's hard to move that data around. That said, there is other aspects of the conversions. There's really multiple conversions that are going on and we're staging a number of the conversions earlier. So for example, that front-end deposit app -- banking app that we use for our retail customers, that conversion occurs much earlier. And so that -- on the Chemical side, we'll get the benefit of that and has technology much earlier than the final systems conversion.

[Brock Vandervliet:]

Okay. Great. And this may have been covered initially on the call, but any changes or call-outs you'd make in terms of the general market environment and kind of the operational tempo that you see across the franchise?

[Craig Dahl:]

This is Craig. I would say, we're particularly attuned to that especially we just came off of our first combine Board meeting and so setting the risk appetites and concentrations levels and we've had a lot of customer interactions and feedback and we're continuing to monitor that. I would say, that there's probably less expansion oriented, but there's still quite a bit of companies investing in their products or replacing equipment. And that we continue to again to monitor that, but there is frequently a manufacturer and a dealer and a lot of the stuff that we do, so we get a lot of different perspectives on business activity.

[Brock Vandervliet:]

Great. Thanks, Craig. Appreciate the color.

[Operator:]

And our next question comes from David Chiaverini with Wedbush. Please go ahead with your question.

[David Chiaverini:]

Hi, thanks. So you spoke about loan growth in the mid to high single digits for next year. Could you talk about the opportunity for deposit growth and the pipeline for deposits to fund that growth?

[Dennis Klaeser:]

Ultimately, our goal is for a core deposit growth to keep up with loan growth. That is -- that's a big challenge when you're talking about the level of loan growth that we're targeting, but because we've got sort of the multiple drivers of deposit growth, both the retail side and the commercial side, we think we can achieve that objective and that's a key strategic priority of ours and it was a key strategic synergy of the transaction rationale for the merger in the first place because, we thought that we really complement each other in terms of our deposit generation core competencies.

[David Chiaverini:]

Great. Thanks for that. And then, shifting to fee income, it is more of an accounting type of question. But were there any loan fees that were previously included in fee income that are now being included in net interest income?

[Dennis Klaeser:]

No. Brian?

[Brian Maass:]

I think obviously, when you come together as two companies there is slight geography changes that you have to make to reclass a few things to make sure that you've got alignment on both sides, but there shouldn't be anything that was materially different.

[David Chiaverini:]

Thanks very much.

[Operator:]

And ladies and gentlemen, at this time, 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. At this time, I'd like to turn the conference call back over to Mr. Craig Dahl for any closing remarks.

[Craig Dahl:]

Thank you for listening this morning. I would tell you that, I'm so glad we have this statement that said we undertake no duty to update this information because if that was ever appropriate for an earnings call, it was appropriate for today. So I'm pleased about the progress we've made, the collaboration our teams have shown. We're right on track with our expectations for the merger and we're excited to operate as one TCF and deliver on the value creation we expect for our shareholders, customers, team members and communities. Thank you, very much.

[Operator:]

And ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.