Yahoo Finance TCF Financial Corporation (TCF) Q2 2019 Earnings Call Transcript
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TCF Financial Corporation (NYSE: TCF)
Q2 2019 Earnings Call
Jul. 25, 2019, 10:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to TCF's 2019 Second Quarter Earnings Call. My name is Jamie, and I'll be your conference operator today. [Operator Instructions]. At this time, I'd like to introduce Tim Sedabres, Head of Investor Relations, to begin the conference call.
Tim Sedabres -- Head of Investor Relations
Good morning, and thanks for joining us to 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'll 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 are predictions and that actual events or results may differ materially. Please see the forward-looking statements 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 30, 2019, and we undertake no duty to update the information.
I would now like to turn the conference call over to TCF Chairman and CEO Craig Dahl.
Craig Dahl -- Chairman and Chief Executive Officer
Thank you, Tim. I'll start with Slide two, our second quarter themes. We 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-facing and client overlap between the 2 banks.
This limited disruption showed through our strong second quarter results as our client-facing team has remained focused on serving their customers, and we saw strong loan growth and origination activities, continued deposit growth and positive trends in 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 continuing to deliver for our customers each and every day. This focus on our customers was a 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 toward our 2 primary strategic objectives, lower efficiency ratio and improved return on capital.
Starting on Slide two, we reported second quarter earnings per share of $0.54. This included pre-tax merger-related expenses of $4.2 million or $0.02 per share. Excluding these charges, adjusted EPS was $0.56 or 14% higher than a year ago. Our adjusted efficiency ratio for the quarter came in at 63.95%, a 183 basis points lower than a year ago and our lowest level since 2012. We also produced an adjusted return on average tangible common equity of 16.02% in the second quarter, which was 63 basis points higher than a year ago. We were able to deliver these improved returns even with a larger capital base as our common equity Tier 1 ratio was 39 basis points higher than a year ago.
These strong financial returns demonstrate our ability to deliver on our strategic objectives of improving return on capital and reducing the efficiency ratio. Not only when we continue to focus on these areas after the merger, but we expect to accelerate improvements to these metrics through the transaction. Let me share a few factors that drove our strong second quarter financial performance. We saw strong loan growth during the quarter as loan and lease balances, excluding auto, were up nearly a 11% year-over-year, with growth across all of our portfolios.
In fact, we were able to grow loan and lease balances 3% inclusive of the runoff of the auto portfolio. In addition, with the continued remix of our balance sheet, we saw strong average earning asset growth of nearly 5% year-over-year. On the deposit side, we saw continued momentum as average checking and savings balances were up 9% year-over-year. Additionally, we had a very strong quarter from an expense management standpoint, as total noninterest expenses declined 3% year-over-year, excluding merger-related expenses.
While we maintained our strong revenue base, our ability to manage expenses resulted in positive operating leverage and drove the improvement to our efficiency ratio. We were also active on the capital front as we reactivated our repurchase program and repurchased 1.3 million shares of common stock during the second quarter. Cumulatively, we have repurchased approximately $275 million of common stock since we began our repurchase program in late '17. Finally, the combination of our strong loan growth and balance sheet management strategy have enabled us to continue to reduce the overall risk profile of the company, while maintaining relatively stable revenues.
This has resulted in risk-weighted assets to total assets declining by 400 basis points over the past year and flat net interest income from a year ago, although we had a lower margin. Credit quality continues to remain stable, as net charge-offs, excluding auto, were 19 basis points for the quarter. We remain focused on our strategy to improve return on capital, while reducing the risk profile of the balance sheet at the same time. This may result in a slightly lower net interest margin, however, as you have seen this quarter, we believe we can drive higher earnings per share and increased returns on capital.
I want to take a minute to highlight one of the initiatives we have to continue to improve the experience for our customers. Last month, we announced TCF Capital Solutions, which brings together our TCF Equipment Finance and Winthrop Resources businesses to deliver deeper lending and leasing expertise across healthcare, industrial, technology and other specialty industries. This alignment will enable us to leverage the talent and expertise from both businesses to better serve our customers by providing a single point of contact, while innovating and delivering new products and services to address their evolving business needs
. I believe this group has a tremendous opportunity going forward with this aligned go-to-market strategy and that opportunity only gets larger on the other side of the merger. Turning to Slide three, our MOE update. With that, let me share an update here. The most significant development since our last update is the receipt of approvals from the shareholders of both TCF and Chemical as well as the necessary regulatory approvals from the OCC and the Federal Reserve. As a result, we began taking actions to prepare for the potential of an earlier-than-anticipated close. And last week, we were pleased to announce our plan to close the merger 1 week from today on August 1.
This timing comes 2 months ahead of schedule from the time line we shared when we announced the deal. With approvals in hand and the hard work of the integration teams from both companies, we are well positioned to close the transaction and establish the new TCF as a premier Midwest bank. During the second quarter, we also announced internally the next level of management team in key business and functional leadership roles. This included approximately 80 team members that will be reporting up through the executive leadership team. This was a significant step as it enabled us to move forward in our integration planning process and further established a combination of talent that represents the best of both banks.
We are fortunate to have a strong bench of experienced leaders from both organizations to help us move forward with realizing the full benefits and potential of our merger of equals. In addition, we were pleased to announce the joint Board of Directors for the new TCF earlier this week. This collective group brings a strong and diverse set of skills, experiences and expertise that we believe will support the efforts of the company as we execute on the integration and growth initiatives we have in front of us. I cannot say enough about how impressed I am by the caliber and expertise of the combined Board we have assembled, and I look forward to our first official joint meeting next week.
With the closing of the transaction in sight, we are now turning our attention to ensuring we are ready to operate as one company and deliver on the commitments we have made for our shareholders, our employees and our communities. As a result, there are several key areas we will be focused on over the coming months. First is the thoughtful alignment of our combined internal policies and controls to operate the business on August 1 as well as the implementation of our governance and committee structure to support these activities. This includes many back-office functions, such as finance, accounting, risk, compliance and legal. Second is the cultural integration of the 2 organizations. We recognized that this is a very important aspect of any merger and perhaps even more so for a merger of equals.
We have spent considerable time to date on this topic across the organization, and you can expect we will continue to put this at the top of the list as we move along on our integration efforts. The new executive leadership team with a combined organization has already been meeting on a recurring basis and will continue to push down that coordination and blending of cultures deeper throughout the organization. A key piece of this will be the launch of a new corporate purpose statement and beliefs for the combined organization that we expect to rollout in the near future. We have been receiving input on this from a broad and deep set of team members across both organizations to ensure we align on a common framework that both teams can rally behind and reflects our shared outlook and opportunity.
Third is beginning the true conversion process of key systems. The planning efforts are already well under way for system selection and integration. That said, this was a longer term process that will include a series of rollouts and conversions over the coming quarters as we love to be fully converted across all systems in the third quarter of 2020. We will keep you updated regarding key system conversion developments as we move forward. Fourth is the execution against our targeted cost synergies. When we announced our merger, we shared expected cost savings of a $180 million by the fourth quarter of 2020, and we remain on track to hit this target. We remain focused on execution against these targets as we view the cost savings as a real catalyst to us in order to drive earnings growth over the coming years.
Although, we operate in a same interest rate and credit environment as other banks, we are focused on controlling what we can control and that includes the targeted expense opportunity as a result of the transaction. Finally, we remain focused on serving our customers throughout this transition. When we announced this merger, we talked about uniqueness of bringing together 2 banks, which both have a lot of momentum across our operating markets. This momentum for both banks has continued since the announcement, and we expect it to continue after the transaction is complete.
That combined momentum we believe is something unique to us that we can leverage over the course of years to come as we look to expand the business, take market share and deepen our relationship with customers across our businesses. We are focused on ensuring any transition is seamless for our customers. In fact, it will not be any rebranding as of August 1 so our customers will continue to have the same experience they are having today. And many of our businesses, the impact of customers will be negligible from day 1 through the last of the conversion activities.
For those customers who may see a change or upgrade to their online experience, we will be communicating with them throughout the process to ensure we minimize any potential disruption. Recall that here at TCF, we converted all of our retail customers 2 years ago to a narrowly -- entirely new digital banking platform with limited disruption, and Chemical has completed a substantial core system upgrade with similar results. I think I can speak for both TCF and Chemical management teams in saying, we are excited to close this merger and start leveraging the best of both banks.
Again, I want to reiterate the primary differentiation of this transaction compared to many other mergers and that is the complementary nature of our 2 businesses across adjacent markets, products and services. We believe that our 2 companies are, in fact, better and stronger together and that positions us well as we move into the back half of '19 and into 2020. We look forward to keeping you updated on our progress over the coming quarters.
I'll now turn it over to Brian to provide more detail around our second quarter financial results.
Brian Maass -- Chief Financial Officer
Thank you, Craig. Starting on Slide four, we had another really strong quarter from an expense control standpoint that led to a 183 basis point decline in our adjusted efficiency ratio year-over-year. This improvement was driven by an absolute reduction in 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 toward 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 or our first 4 full quarters as a combined company, with a full $180 million run rate thereafter. These cost savings may not necessarily be realized in a linear fashion over the next 4 quarters. The overall run rate will depend on the timing of various vendor, system, real estate and employee synergies.
Turning to Slide five. With the recent changes to the interest rate environment, headlines have been centered around the impact of rates on net interest margin. We are not immune to this, as we saw our net interest margin of 4.43% declined 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 in more capital efficient assets. Despite the year-over-year decline in margin, we were 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 six. We saw strong average earning assets increased 4.9% year-over-year.
What continues to be important here is the improving mix shift toward 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 mix shift, our risk-weighted assets, as a percentage of total assets, have continued to decline and support our capital allocation and return on capital focus. Turning to Slide seven. We generated $1.7 billion of loan and lease growth or 10.7% year-over-year, excluding the auto runoff, with over $1 billion of growth from wholesale banking and over $650 million from consumer real estate. You will notice 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 runoff of the auto finance portfolio continue to progress as planned with balances down $248 million during the second quarter. We continue to expect runoff of $800 million to $1 billion for the full year 2019. Turning to Slide eight. First quarter earning asset yields remain strong at 5.43%, up 10 basis points year-over-year. We did see some pressure during the second quarter as loan and lease yields declined 7 basis points from the first quarter as a result of mix 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 few years, we had already been taking actions over the last 12 to 18 months to reduce our asset sensitivity, including remixing auto runoff into longer duration securities, adding residential mortgage loans to the balance sheet for added duration and increasing the components of variable rate funding. In addition, given Chemical's more neutral asset liability position, we expect the merger to result in the combined organization becoming less asset sensitive than TCF stand-alone. Turning to Slide nine. We continue to grow our deposit base through expansion of our average checking and saving balances, which increased 8.7% year-over-year. In addition, despite the current rate environment, we were able to increase noninterest-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 continued to see a reduction in the CD portfolio with average balances down $382 million year-over-year. In fact, we are managing toward 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 costs 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 1 to 2 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. Noninterest income remained relatively flat year-over-year.
Fees, service charges, card and ATM revenue increased from a year ago. While we saw a modest decline in leasing and equipment finance noninterest 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 continued to tick lower as the auto finance portfolio continues to runoff.
With that, I'll turn it over to Jim Costa to cover credit and risk.
Jim Costa -- Chief Risk Officer and Chief Credit Officer
Thanks, Brian. Turning to Slide 11, you can see that credit is remaining stable. Nonperforming assets declined 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 5 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 although had a 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 portfolios. 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 -- Chairman and Chief Executive Officer
Thank you, Jim. Slide 13 reiterates our focus on enhancing our return on capital. We recognized that net interest margin is getting many of the headlines during this earnings 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 in 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 of 1.3 million shares acquired through June 30. In addition, we purchased an additional 1.3 million shares during the third quarter to date through July 23. Finally, we also issued a $150 million of 4.125% sub-debt 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 and strengthens our capital position going forward.
With that, I will open it up for questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question today comes from Jon Arfstrom from RBC Capital Markets.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Question just on some of the original accretion expectations, specifically the expense saves. I know Chemical comes up in an hour, but may be Brian or Craig, you could address this. You've got an earlier close. It looks like maybe you have a bit of a jump start on some of the merger cost savings. The original promise was the first 4 quarters you'd 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 -- Chief Financial Officer
Jon, this is Brian. What I would say is we aren't changing our expense reduction forecast. We still expect to get $75 million call it in the first 4 full quarters together. So basically, 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 the $180 million annualized. I mean, obviously, we're not going to prevent ourselves from trying to accelerate things, but we have kind of laid out a plan and we aren't necessarily changing our guidance at this point.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay. And then the other side of that is the margin environment seems to be a little bit tougher, and 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 -- Chief Financial Officer
Yes, so this is Brian. So 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. So 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 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, with a better-than-median efficiency ratio, we still think we can drive to top quartile return on capital as an organization.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay. And then last one, Craig, for you. Revenue synergy just 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. I mean, it doesn't look like you're having any trouble growing revenues right now, but talk about some of the synergy potential.
Craig Dahl -- Chairman and Chief Executive Officer
Yes, I mean, our primary focus right now though is 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 C&I expansion across Chicago, Minneapolis and Denver, then it is to bring some leasing talent into Michigan. So those items that we talked about and we're gaining more confidence on 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. So -but we're -none of those were modeled in the process. We see them all as upside.
Jon Arfstrom -- RBC Capital Markets -- Analyst
Okay. All right. Thanks, guys.
Operator
Our next question comes from Nathan Race from Piper Jaffray.
Nathan Race -- Piper Jaffray -- Analyst
Going back to the expense discussion. Brian, just curious, should we just take the 2Q '19 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 4 quarters and take an average there in terms of computing that cost saves and probably extrapolate?
Brian Maass -- Chief Financial Officer
Yes, I think you have -yes, no, good question, Nate. This is Brian. I think you have to kind of look backwards toward closer to the end of '18 and what run rate we were on as you look on a go-forward basis. We're being very diligent even as we get toward pre-merger here and being careful on attrition and backfills, right? So we're starting to recognize some of those expense synergies even today. And as we go forward, we're only going to see that accelerate as we get into the back half of '19 and especially as we get into 2020 and we see a lot of the system conversions taking place.
Nathan Race -- Piper Jaffray -- Analyst
Okay. Got it. And then if I could just add on the trajectory of deposit costs from your assuming we get a July-I'm sorry, a July Fed rate cut, I mean, how should we be thinking about just the overall pace of increases in the legacy TCF deposit base going forward?
Brian Maass -- Chief Financial Officer
Yes, this is Brian. As I said in the opening remarks, we feel really good kind of about our deposit costs. You've seen the deposit cost increasing -- increases really going down each of the last 2 quarters. In fact, over the last -- even during the second quarter, probably 3 of the last months, we've continued to reduce our promotional rates. We really think once the Fed starts to 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, we've got $4.5 billion of CDs, we've been shortening the maturity on those CDs. So we have a lot of maturities in the next 6 to 12 months. So as those mature, they're going to reprice to lower interest rates.
Nathan Race -- Piper Jaffray -- Analyst
Understood. I appreciate.
Brian Maass -- Chief Financial Officer
So just kind of summarizing then. If all of that takes place and the Fed starts to cut rates in July as, I think, the market expects, we do think our deposit costs will peak in third quarter or definitely by fourth quarter.
Nathan Race -- Piper Jaffray -- Analyst
Okay, great. I appreciate taking the questions and congrats on closing the transaction earlier.
Brian Maass -- Chief Financial Officer
Thanks.
Operator
Our next question comes from David Long from Raymond James.
David Long -- Raymond James -- Analyst
Looking at loan growth in the quarter, obviously, pretty good, better than I and 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 -- Chairman and Chief Executive Officer
No. That's really just the outcome of our normal origination activities because there's -there isn't -we haven't changed any risk appetite, we haven't changed any ball position or anything else. So we're in a good shape.
David Long -- Raymond James -- Analyst
Got it. And then.
Jim Costa -- Chief Risk Officer and Chief Credit Officer
Yes, this is Jim Costa. I might add on to that. Actually, quite the opposite, we have been very clear internally that the opportunity for bigger balance sheet isn't something you would act on now. We want to make sure that the integration happens, everything sort up and then we will 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.
William S. Henak -- EVP of Wholesale Banking
Dave, this is Bill Henak. The other comment I would add to that is that our pipeline of opportunity is as strong as it's been and we continue to operate under the same pretense and risk profiles that we've operated under -- prior to this. So we're not anticipating the merger and how we're doing business today. That will be something we'll consider after we close.
Operator
Our next question comes from Chris McGratty from KBW.
Chris McGratty -- KBW -- Analyst
Brian, the margin versus net interest income discussion, I think, you said even with the pressure, NII was relatively flat. If we get the forward curve, we get a couple of cuts, obviously, the margin will have some pressure. But is the expectation that you can, because of the earning asset momentum, keep NII roughly around the $250,000 range that we're in this quarter? Or how do you think about just stand-alone TCF like the net interest income outlook?
Brian Maass -- Chief Financial Officer
Yes. No, I think, there's 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 5 of the 13 basis points that you saw this quarter is coming from the higher cost of funds. So a lot of it is -- we're just adding mortgages, we're adding securities, they're at lower yields than what the overall margin is.
So just the growth in assets coming on to the balance sheet is causing margin decline. As 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. It's starting to come down. The other thing that's also been a 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 nets at. All of our home loan bank advances today are variable rate, we're feeling the full burn of that at 2.5%, 2.65% is probably the range that most of that is there. But once rates start to come down, we're also going to get some relief from that on a go-forward basis as well.
Chris McGratty -- KBW -- Analyst
Okay. So it sounds like -if I'm hearing it, you should be able to basically keep NII roughly flat with these levels given these dynamics. Is that fair kind of assessment?
Brian Maass -- Chief Financial Officer
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 banks, we feel good about the loan growth prospects, and we're going to do our best to manage to improving efficiency ratio on higher returns.
Chris McGratty -- KBW -- Analyst
Great. And if I could just sneak a capital question, and I think you said you've bought back stock quarter-to-date. I think there's roughly $25 million left. Is it the expectation, I know, initially you said, you were going to finish the buyback before close. But given the sooner close, can you complete the rest of the buyback in the next week? And then secondarily, any updated thoughts on balance sheet repositioning? And just kind of accelerating the sale of or the exit of the auto book to free up some capital?
Brian Maass -- Chief Financial Officer
Yes. So this is Brian. So we have about $25 million remaining in our existing buyback authority. We had -our original guidance was 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, call it, the close of the transaction, but we're probably only going to reach 70%, 80% of that goal. If we had more time, we likely would have had it all completed. And your second question was on...
Chris McGratty -- KBW -- Analyst
Just accelerating the runoff of auto. Any thoughts to that given the balance sheet opportunity to reposition?
Brian Maass -- Chief Financial Officer
Yes. From an auto perspective, as we said, we're going to look at what our overcarrying those assets that we feel good about, the runoff is going as planned, the credit quality is as planned. So we feel perfectly comfortable on holding those assets on balance sheet, but we're also willing to understand where -- what we could get in the marketplace for those and will 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.
Operator
Our next question comes from Scott Siefers from Sandler O'Neill.
Scott Siefers -- Sandler O'Neill -- Analyst
I guess, I just wanted to go back to the expense discussion for a second. Just given how low the 2Q numbers were relative to others -- other quarters of yours. I guess, if may be a way to ask it is, on a stand-alone basis, what would be the cost outlook off of this quarter's roughly $233 million? Because, I guess, one way you can look at it is that if you're still getting the same amount of cost saves, it's actually a higher percentage of TCF's expense base, right? Just because the absolute dollars of expenses are lower now. So in other words, may be is this $233 million kind of an aberration and how low it is? Or would it actually stay here at this level on a stand-alone basis?
Brian Maass -- Chief Financial Officer
Yes. No, a good question. This is Brian. What I would say is, it's not an aberration. I think on a 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 receive -- to achieve the $180 million of expense synergies, but that won't be until fourth quarter of 2020 on an annualized kind of full run rate basis.
Scott Siefers -- Sandler O'Neill -- Analyst
Okay. So I guess, may be a way to think about it is just sort of getting a head start on the cost savings, but you guys coming in perhaps lower -- a little lower than expected to enter the merger. Is that a fair way to think about it?
Brian Maass -- Chief Financial Officer
Yes.
Operator
Our next question comes from Jared Shaw from Wells Fargo.
Jared Shaw -- Wells Fargo. -- Analyst
Most of my questions I think have been answered, but just looking at the C&I growth this quarter, have you been -- have you started hiring more traditional C&I lenders in your core geographies? Is that impacted the balances this quarter? Or is that really still more of a longer term plan?
Craig Dahl -- Chairman and Chief Executive Officer
No, that's still a longer term plan. We have not accelerated hiring in any of the markets at this point.
Jared Shaw -- Wells Fargo. -- Analyst
Okay. And then coming out of the merger, you'll still be decently capitalized, well capitalized. Should we expect once this buyback is completed that that's still a good alternative for excess capital?
Craig Dahl -- Chairman and Chief Executive Officer
Well, we've talked a lot here at TCF about what are our capital priorities, and I think that they're going to be shifted a little bit here as we consolidate and really start 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 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've talked about and starting now as being acquisition ready. So I would put all of those things on the table.
Operator
Our next question comes from Terry McEvoy from Stephens.
Terry McEvoy -- Stephens -- Analyst
I don't mean to beat a dead horse on the expenses, but if I look at the bottom right of Slide four, the comp and employee benefits, it was kind of low 120s versus the $114 million 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 -- Chief Financial Officer
Some of it is pulling forward cost saves, right? 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 expenses, but FICA and things. So naturally, it comes down in the second quarter. So that's part of when you're just looking at it on a linked-quarter basis, you're going to see that natural decline.
Terry McEvoy -- Stephens -- Analyst
And maybe a follow up for Craig. Does the drop in interest rates change the opportunity or may be your appetite for portfolio purchases within the -- with your international businesses?
Craig Dahl -- Chairman and Chief Executive Officer
Well, we're always aware of that, and there, we tend to think that there is more interest in them moving when rates are rising rather than rates are falling, but again, you're -- we're going to be targeting based on a return on capital and -- so that's where our driver is going to be in. The willingness of a lender, it's a sell or sell a portfolio is still going to be with many more factors than just the interest rate environment.
Operator
Our next question comes from Lana Chan from BMO Capital Markets.
Lana Chan -- BMO Capital Markets. -- Analyst
Can you talk about what you are seeing now in new securities yield purchases relative to the 3.27% in the second quarter as we think about modeling out the auto going into securities going forward?
Brian Maass -- Chief Financial Officer
Yes. No, good question, Lana. This is Brian. Great. Our reinvestment yield in the second quarter was 3.27%. I'd say most of those purchases probably happened in, I'd say, the first half or the first 2 months in the second quarter. Obviously, interest rates have come down since then so reinvestment yields kind of on a similar security basis would probably be in the high 2s now, so may be 2.80%, 2.85%. As you saw in the second quarter, we didn't fully reinvest the auto runoff into securities portfolio. And as Craig mentioned and I mentioned, we're seeing good loan growth.
So we've always said, it doesn't -- those proceeds don't have to go into the securities portfolio, they would go there. But if we seize 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 runoff proceeds into that and you saw a little bit of that in the second quarter as we try to manage that. But yes, you're correct. Yields are a little bit lower on the securities portfolio from a reimbursement perspective, but if -- 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 reinvested back into the securities portfolio.
Lana Chan -- BMO Capital Markets. -- Analyst
Okay. Got it. And just as a follow up to that in terms of the loan growth, it was up 11% year-over-year, excluding auto. I think previously on a stand-alone basis, TCF was guiding more toward mid-single-digit range for this year, ex auto. So are we closer to sort of that top end of the range versus mid-single digits? Any guidance on that?
Brian Maass -- Chief Financial Officer
Yes, I don't know if the full year -- this is Brian. I don't know if the full year guidance necessarily changes. Obviously we've seen good growth year in the second quarter. I still say on average we 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, no, we do expect leasing revenue typically does pick up in the second half as well so we are expecting that in addition.
Craig Dahl -- Chairman and Chief Executive Officer
And Lana, this is Craig. The only thing I'd throw in there too. We always have that a little bit of seasonality of the inventory finance and that would be our only portfolio really where there can be more variability between the average balance in the quarter and the ending balance in the quarter. So that always have some impact as well.
Lana Chan -- BMO Capital Markets. -- Analyst
Okay, great. And just one housekeeping question on the tax rate for the second half of the year. What should we be assuming?
Brian Maass -- Chief Financial Officer
Yes, the second half of the year, our next reported results will be on a combined basis. So it's not going to be kind of a TCF stand-alone rate, but I think, absent some of the discrete items that either us or Chemical has seen, it really should be a blended rate between both organizations on a go-forward basis. And 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 2 of those, absent any discrete items that we might have on a go-forward basis as well.
Operator
[Operator Instructions] And our next question comes from Brock Vandervliet from UBS.
Brock Vandervliet -- UBS -- Analyst
In terms of the interest rate sensitivity, going back to the first quarter, you were materially asset sensitive, that's 7%, I guess, down 100 on a shock. Where do you think you are right now?
Brian Maass -- Chief Financial Officer
Yes. No, good question. This is Brian. And I think it continues to come down. So we continue to reduce our asset sensitivity. I'd say when we -- Chemical is far more neutral from an asset sensitivity perspective. So when we come together, it's going to achieve a lot our objective, which is to further reduce our asset sensitivity. In addition, we're going to look at as the 2 companies come together if there's 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 2 to reduce our asset sensitivity and we see it coming down not just on a stand-alone basis, but really on a combined basis as well.
Brock Vandervliet -- UBS -- Analyst
Do you have a specific goal to that?
Brian Maass -- Chief Financial Officer
No, our goal is 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 stand-alone basis today.
Brock Vandervliet -- UBS -- Analyst
And what's your set of rate assumptions that kind of govern your outlook? Is it the forward curve or something else?
Brian Maass -- Chief Financial Officer
I'd say it's generally between the forward curve and kind of Fed expectations. I'd say it's somewhere between the 2 of those, but we're expecting a few rate cuts for this year and likely more in 2020.
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 -- Chairman and Chief Executive Officer
Well, thank you, all for listening this morning. We're looking forward to closing our merger with Chemical on August 1 and we're excited about the benefits that brings for our shareholders, our customers, our employees and our communities. The teams from both TCF and Chemical had been working extremely hard in 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
[Operator Closing Remarks].
Duration: 51 minutes
Call participants:
Tim Sedabres -- Head of Investor Relations
Craig Dahl -- Chairman and Chief Executive Officer
Brian Maass -- Chief Financial Officer
Jim Costa -- Chief Risk Officer and Chief Credit Officer
Jon Arfstrom -- RBC Capital Markets -- Analyst
Nathan Race -- Piper Jaffray -- Analyst
David Long -- Raymond James -- Analyst
William S. Henak -- EVP of Wholesale Banking
Chris McGratty -- KBW -- Analyst
Scott Siefers -- Sandler O'Neill -- Analyst
Jared Shaw -- Wells Fargo. -- Analyst
Terry McEvoy -- Stephens -- Analyst
Lana Chan -- BMO Capital Markets. -- Analyst
Brock Vandervliet -- UBS -- Analyst
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