Q2 2019 Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by welcome to the Chemical Financial Corporation second quarter earnings Conference call. At this time, all participants are in a listen only.
Later, we'll conduct a question and answer session session and instructions will be given at that time as a reminder, today's call is being recorded.
A copy of todays earnings release can be accessed by logging on to chemical bank dotcom and selecting the investor information tab at the top of the web site.
Also included is a slide presentation on our Investor information page with supplemental information that will be referenced in today's call with us today are David Provost CEO and President of Chemical Financial Corporation, Thomas Schafer, Vice Chairman and chemical Vice Chairman of Chemical Financial Corporation, and CEO and President of Chemical Bank and Dennis Klaeser, Our Chief Financial Officer.
After brief comments from management the call will be open to your question before we begin we would like to caution listeners that this conference call will contain forward looking statements about chemical its business strategies and prospects.
Please refer to the forward looking statements disclaimer and the other information on pages two through five of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in forward looking statements.
In addition to the financial results prepared in accordance with generally accepted accounting principles or GAAP. We will also present certain non-GAAP financial measures. Today. You are encouraged to review the reconciliation of non-GAAP financial measures with their most directly comparable GAAP financial measure, which can be found in our earnings release and the a company slide presentation.
And now I'd like to turn the call over to David frivolous.
Thanks, Terry and good morning, everyone. We were pleased with our results for the quarter. The report gross and net interest income due to improvements in our profitability ratios. This coupled with an active management of our expenses continued to broader provide for a lower efficiency ratio.
Driving or is it.
Increase in net interest income was our solid loan growth for the quarter.
Which totaled 538 million, which was primarily comprised of commercial and industrial growth.
Over the past 12 months or loans have grown by 1.3 billion an annualized rate of 8.8%.
Looking at the financial highlights for the second quarter on Slide six our earnings were 69.6 million representing earnings per diluted share of 96 cents. Excluding significant items earnings represented one dollar and six cents per diluted share for the second quarter. In addition, we recognized 4.2 million in net gain on sale on sale of investment securities in the second quarter as we repositioned our portfolio.
As a part of our planning efforts related to our pending merger with Tcl.
If we exclude both the significant items and the security gains that our earnings per share would have been one dollar two cents for the quarter.
Moving on to slide seven.
Since our last earnings call, we have made significant progress with our previously announced merger of equals with Tcf financial.
A transaction that we continue to expect will create significant strategic and financial value for our shareholders.
We received positive feedback from our shareholders of both chemical and Tcl.
Overall, the pending merger following these approvals we have obtained the necessary bank regulatory approvals to complete the merger and we have announced our plan to close the merger on August Onest.
In addition, we have worked diligently to build out our joint board of directors for the new Tcf to include a valuable and diverse set of skills.
And expertise as we move forward with the integration efforts and the growth initiatives, we set off of that for the combined company.
The specific composition of the board members for the New Tcf was announced in an 8-K that was filed yesterday.
Our integration efforts involve key leaders from both organization supported by a strong third party consulting firm. We are very pleased with our progress to date and we believe it bodes well for the future of this merger of equals I can't speak highly enough of our core banking teams focus on continuing customer service.
Our customers are at the forefront of the decisions that are being made in the planning for our combined organization.
This level of customer focus.
Recent upgrades to our core operating system.
Investments in our team over the past year.
Joined with the strength that we have previously built now coupled with the expansion of business that our pending merger with Tcf will provide allows for our continued optimistic outlook for our future. We believe that we are well positioned for growth not only in our high growth potential markets of Detroit, Cleveland Grammar and Grand Rapids.
But also as we expand our market footprint as a result of our proposed merger with Tcf.
We focus on service and products that provide the greatest opportunity to create value.
While we continue to make strategic marketing investments and make plans in regards to our pending merger.
We will continue to balance our disciplined expense management philosophy with a strong focus on driving revenue growth as we continue to make progress toward our goal of being the Midwest Premier Bank, providing best in class service to all of our customers with that let me turn it over to Tom to go through some of the specifics of our overall strategic plan Tom.
Thanks, David during the quarter, we continue to place a priority on the extension of the foundation of our business and maintaining our strong market share in brand recognition and our historical markets and continuing to drive growth in our high potential markets in Detroit, Cleveland in Grand Rapids, and strengthen our core banking operating model, which will continue to be relied on as we migrate into our new markets. All while additionally, working collaboratively with our Tcf car parts toward the completion of the merger.
We continue to see the benefits of our upgraded core operating system through the ability to expand and offer new products and through continued growth in commercial and business banking customer relationships as we have focused on building strength in depth in our team.
As always while we grow our loan portfolio, our focus on continuing to improve the risk characteristics of our credit portfolios as well as continuing to offer exceptional customer service.
As David touched on with all the required approvals received in the quality of the planning from our combined integration teams, we're positioned to close on our merger on August Onest. Two months ahead of the schedule communicated when we announced the transaction.
We have key leaders from both organizations, leading work streams to bring the best of both organizations forward enhancing our capacity to grow our combined core bank and the national lending platforms Tcf.
With the merger literally just days away, we are organized to operate the company and achieve the goals, which are at the center of bringing chemical and Tcf together.
Our priorities.
Our bringing our companies together by focusing on the cultural integration and creating one Tcf. This is the most important aspect of any merger and we know through our personal experience of the criticality of this for all constituents. Our focus has also heightened on culture with the nature of our transaction being anomaly.
The new executive team as a combined company has been meeting in tinley with an emphasis on initiating a deep dive into both organizations and supporting information gathering and exchanges at all levels of the companies.
Our next priority is planning and executing the system conversions in 2020 and as equally important achieving the cost synergies previously announced.
We continue to be impressed by our team as they place a strong focus on servicing our customers. While we are working to complete the merger with Tcf.
As we look forward to the third quarter and beyond we are excited to close the merger and begin leveraging the best of both banks.
We are particularly excited about the tcf transaction, because the complementary nature of our companies and the opportunities. This brings for our customers with enhanced digital experiences leveraging the national business lines across our footprint and client base as well as exporting our relationship banking strategy to new markets.
All of this will support the momentum we each bring to this merger.
Our teams have heard me say a number of times like chemical bank and Tcf, we will be a much stronger company together and this positions us well as we begin working as one company for the remainder of 2019 and head into 20 and 21.
With that let me turn it over to Dennis to go through the financial results in further detail Dennis.
Thank you Tom and good morning, everyone.
Moving to slide nine net income was $69.6 million in the second quarter of 2019.
Or 96 cents per diluted share.
Our second quarter results were impacted by a couple of significant items.
We had $5.5 million from the change in fair value of servicing rights.
For the equivalent of six cents drag to earnings we also incurred $3 million of merger related expenses incurred during the second quarter of 2019 or the equivalent of four cents to earnings after adjusting for these items. Our net income was $76.3 million or a dollar six per diluted share compared to $73.3 million or dollar two in the first quarter.
And $69 million or 96 cents per share in the second quarter of 2018.
In addition to the items, we identified as significant we recognized $4.2 million net gain on sale of investment securities as a result of repositioning our our portfolio.
In conjunction with our pending merger of equals with Tcfe, which provided four cents benefit to earnings per share.
As shown on slides 10, and 11, our key profitability metrics improved as we increased.
Net interest income compared to the prior quarter through continued increases in average balances.
And yields on loans, partially offset by an increase in average short term borrowings and overall cost of funds.
And kept our efficiency ratio at a low level, excluding significant items return on average assets was 1.39%.
And return on tangible shareholders equity was 17.3% for the second quarter 2019.
As shown on slide 12 year over year, our total loan portfolio has grown $1.3 billion.
Or 8.8% to 15.9 billion as of June 32019.
This growth was driven by Cnine loans, which grew by over 22% year over year.
Demonstrating our strategic focus on growing our senior lending business.
Turning to slide 13, we had loan growth in the second quarter of $538 million.
The growth in the second quarter was primarily a result of.
Growth in the C.I. portfolio, which grew by $294 million. In addition to growth in our residential mortgage loan portfolio, which grew by $117 million.
From Slide 14, you can see that our $538 million of net loan growth for the quarter as a result of $729 million of growth.
In the originated loan portfolio offset by a $191 million runoff in our acquired loan portfolios.
Moving on to deposits as you can see on slide 15.
We had strong overall deposit growth year over year of $1.3 billion or 9% with 1.3 billion of growth and customer deposits, partially offset by $19.7 million decrease in broker deposits.
Total deposits declined during the second quarter, primarily due to seasonal decrease in municipal deposits.
Our average cost of deposits increased to 105 basis points in the second quarter.
Compared to 99 basis points in the first quarter.
And 56 basis points in the second quarter of 2018.
Looking at overall funding on slide 16, our average cost of funds.
Increased 120 basis points during the second quarter compared to 113 basis points in the prior quarter.
And 76 basis points, one year earlier, primarily driven by the rising interest rate environment.
Turning to slide 17, our credit metrics remain strong.
The increase in provision to $7.5 million in the second quarter compared to 2.5 million in the first quarter.
Reflects an increase in originated loan growth.
Net loan charge offs for just five basis points of average loans in both the first and second quarters compared to 12 basis points in the second quarter of 2018.
Our ratio of nonperforming loans was 62 basis points as of the end of the second quarter compared to 56 basis points at year end.
As shown on slide 18, net interest income increased $2.3 million to 165.2.
In the second quarter compared to the prior quarter with the increase primarily driven by the benefit from the increase in average balances and yields earned on loans, partially offset by the increase in funding costs.
The net interest margin on a tax equivalent basis was 3.36% in the second quarter compared to 3.42 in the first quarter with the decrease primarily due to increase in average interest bearing liabilities and cost of funds.
Partially offset by increase in average balances on the yield earned on loans.
It is important to note that we continue to see improvement in our loan yields benefiting from market interest rate shifts. In addition to our focus on growth in our commercial loan portfolio.
Moving on to slide 19 are not inched, our noninterest income for the second quarter increased to $38.2 million compared to $24.9 million in the first quarter largely due to the gain on sale investment investment securities that I discussed earlier.
And increase in net gain on sale of loans other mortgage banking revenue and increased swap fee income from our commercial lending business.
Net gain on sale of loans and other mortgage banking revenue includes the charge of.
Up from the two the fair value large servicing rights, which was a detriment to $5.5 million in the second quarter compared to $7.6 million in the prior quarter.
As seen on slide 20 core operating expenses, which excludes.
Merger expenses that impairment association associated with federal Historic tax.
Credits was $107.7 million in the second quarter of 2019 compared to 103.6 in the first quarter.
Quarter over quarter, the increase was primarily due to increase in salaries.
And benefits impacted by an increase in mortgage loan Commission expense.
And the annual Merit increases that went into effect April onest.
We have a keen focus on expense management as evidenced by our continued low adjusted efficiency ratio of 51.3% in the second quarter compared to 51.7 in the first quarter and 51.2% a year ago.
Turning to slide 21, we ended the quarter with tangible book value of 25.18.
$25.18, which represents 13% and our tangible book value compared to one year ago, our Tc to total assets ratio remains strong at 8.4% at June 32019.
And our regulatory capital ratios are strong at an estimated 10.7%.
And for our tier one capital ratio, 11.5% for our total risk based capital ratio.
I will now turn it back to Dave for his closing remarks.
Thank you Dennis as always we believe the key factors that will drive our future earnings our ability to drive revenue growth and the continuation of our disciplined expense management.
We remain focused on these factors as we speak.
Strive to appropriately balance risk and return and in conjunction with our efforts to close on our pending pending merger with Tcf and beyond.
As always we appreciate your time and interest in chemical financial on that note moderator, let's open it up for questions.
Thank you I would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again that is star one if you would like to ask a question.
And we'll take our first question from Chris Mcgratty with KBW. Please go ahead.
Hey, good morning.
Dennis maybe we could start with you.
We just got off the obviously tcf call and third quarter was characterized by very good expenses and you talked a bit about getting some of the savings onto their income statement before close.
Could you help us with kind of that obviously you reiterated the 180 million of cost. So could you help us with kind of the trajectory of expenses.
Now that youve seemingly are going to close this deal two months sooner can you get the savings quicker.
Does the same outlook still hold in terms of run rate by the end of 2000 any any thoughts on expenses to be great.
Yes, you are correct.
Tcf has made meaningful progress on their expense base.
A portion of that is in anticipation of the merger a portion of that is because they have been strategically focused.
Improving their efficiency ratio and where we've been impressed with this the success so far that they've already made.
But.
There is a little bit of front loading of the expenses I would not say there is a.
Very material amount.
And we're sticking with our guidance of recognizing $75 million of the $180 million over the first four quarters.
And then.
As we move into the fourth quarter, we would be.
Realizing the full $180 million.
So we haven't we're not in a position yet to change that guidance obviously.
If there is opportunities to accelerate that will we will harvest those opportunities, but we really aren't in a position yet to change that guidance.
Okay understood.
Maybe we could turn to margins.
Just for a moment most banks this quarter felt the pinch from from declining rates and the expectation for the fed the fed to cut next week.
Can you speak to kind of how you're thinking about the pro forma NIM I think around the deal you said it was going to be 394%.
So comments on pro forma margins given given the shifting environment and also given the drop in rates. Obviously, I think there will be less of a mark on day one so.
Maybe round out the discussion with capital pro forma capital levels and maybe the Accretable.
The change in the Accretable assumptions. Thanks.
Yes, so first on the Accretable assumption.
You are correct. The interest Mark is going to come down quite meaningfully because of the rate environment has come down.
And it may be incrementally impacted by whether or not the fed moves next week.
So were expecting a fairly low interest mark on the overall loan portfolio.
However, as I think I've explained to analyst.
And investors is that in that.
Margin guidance, we gave when we announced the deal we weren't to creating in the credit Mark and as we now know with Cecil.
That credit Mark will will be accreting in so in the rough ballpark the level of accretion from purchase accounting.
Will be will be roughly the same as it was when we initially gave guidance, but you're right.
When you look at the entire industry I believe that.
There is pressure on margin with the with the drop in interest rates.
And so directionally.
I would say there is some modest pressure on that margin over time.
I'd like to Brian's comment on their earnings call. The margin is the outcome of the strategy not the input to the strategy.
So overall when we look at the the goals of the merger the synergies that we create.
The targeted return on tangible common equity, we still feel confident in those core fundamentals.
Great. So if I kind of summarizing.
Despite the moving pieces the.
The level of accretion that you told the street at the end of January you are not materially different from that.
The EPS accretion we talked about in January was 17% EPS accretive to the chemical shareholders.
That's that's GAAP accounting accretion.
We specific carved out exactly what the cash accounting accretion is up 13% and yes, we feel confident around that.
Those are the.
Those estimates.
One of the numbers are really jumps out it out at me when we look back to that point in time.
When we announced the transaction.
Is that the analyst consensus estimate for earnings for Tcf.
For 2020.
It was around $315 million of net income.
And as you just saw from Ccs earnings announcements.
They produced over $90 million worth of core earnings here in the second quarter alone.
So so we feel very good about.
Going here into the merger given the momentum that we see here.
Great. Thanks, guys.
Well take our next question from David Long with Raymond James. Please go ahead.
Good morning, everyone.
Hi, good morning.
So looking at seeing growth in the quarter, obviously quite good.
Curious as to.
What the spreads in terms were on on some of the new originations in the quarter versus what you may have been looking at a year ago.
Yes, so the.
The scene I came from.
Most of our marketplaces.
And as you'd expect it's a very competitive environment out there, but we're looking at the end of the quarter spreads of the transaction. We're we're really.
Engaging relationship so it's it's.
Deposits.
C based services as well as the as well as the credit spread.
But.
You're you're seeing it.
Pricing in the I'd say the the the end of a long expansion.
Depending on the credit quality.
You know when 75 two.
225 over LIBOR is a typical spread but it is.
I'm going to be very careful with a comment like that because you need to understand the quality of the borrowers and scale of the borrowers et cetera across our marketplaces.
Got it and as it relates to expanding that part of the business and leveraging it into Tcfs franchise any progress made in the Tcf footprint and whether it's looking for a leader team or teams at this point.
Let's say that we've we've spent the last couple of months kind of organizing with the new companies organizational structure will look like.
Giving assignments to both teams from Tcf and chemical we've identified.
The structure of how do we go to market with with the middle market or.
The the style that chemicals had.
And and those individuals that are looking at.
I really think about it.
Chicago Minneapolis, Saint Paul is primary marketplaces, we're obviously in Denver in Milwaukee and in Phoenix beyond that but first we'll pick a couple of marketplaces and then.
Make sure that we have a very strong business case for the markets that we enter into.
We have a little bit of a start in Chicago Tcf has.
Couple of groups in the Chicago market place that I think will help will help get us started.
Got it Okay, and then one on the deposit side the city of Detroit deposits is that relationship fully baked in at this point and then as a follow up to that.
Some movement in municipality deposits, obviously in the quarter, how should how should we expect the flow overall municipal deposits over the next couple of quarters. Yes. Good question as you know there is seasonality to that business, but.
The the outcomes that we hoped for with city of Detroit are coming to fruition. We is that comes in somewhat of waves as we've we're going through their different deposit categories. Our lock boxes now opened and so for tax revenues coming through during the next billing cycle, we'll be seeing those.
The it's also given us access to talk to other I would say highly sophisticated large municipal entities in Michigan, and we are having meaningful conversations and developing new relationships. So thats moving as we anticipated.
With the announcement that we made in the first quarter.
I wanted to point out one other thing when we talk about deposits.
First at Tcf commented on their call.
About the strong core deposit growth that theyve had year over year.
We too have had strong core deposit growth when you look at our net interest margin table, you will see that average balances for really core deposits, including checking accounts and savings accounts.
I think the average balances increased nearly 11%.
Year over year and Thats a.
Result of our.
Strategic focus on that part of our business.
And there is multiple drivers one our retail branch system has performed exceptionally well and delivered.
On initiatives, our commercial bankers are doing a great job of bringing in deposits with our customers in particular, and then also our municipal deposit effort.
He has been working very well.
Over the past few quarters and so we've we've got a lot of momentum in terms of driving core deposits and then we're looking at the enhanced capabilities that we will have when we come together with Tcf.
Got it thanks for taking my questions.
And we'll take our next question from Scott Siefers with Sandler O'neill. Please go ahead.
Morning, guys.
Dennis I wanted to go to the expense.
Side, just for a chemical on a standalone basis, your guys' cost of kind of bounce around between like 100, 300 808 million in any given quarter, so a little bit of variability in in there and I know in the Twoq you. They were elevated due to some variable costs associated with revenues like mortgage just curious on a standalone basis. What you think the trajectory is in other words can we get some relief from this quarters, roughly 108 million level or is this the steady state the base off of.
[laughter] on a theoretical standalone basis, it's a good steady state knowing that the the mortgage compensation is seasonally a bit stronger than than the other quarters.
But overall, that's a pretty high.
Strong base, you know a good baseline.
We I did mention that.
The compensation increases went into effect April 1st and.
The annualized increases, particularly for.
The broad base of.
Lower compensate employees the earnings the salary increases there were pretty strong this year.
And so that that trend line may have been a little stronger than what you would normally be seeing.
As we go forward.
Okay perfect. Thank you and then.
I know over the past it feels like past year and a half to two years for chemicals, specifically you've had this.
Hi, guys sort of slow, but steady securities portfolio build.
Continued a little in the second quarter can you just spend a moment discussing how the merger will affect that in other words does does the combined company is that just naturally where you want it to be or will there be further need to do anything within the in the securities portfolio or is that just on a bigger company just isn't gonna matter as much.
Well its a.
It's a dynamic strategic item, but port for chemical Standalone. You know, we went from roughly securities being 10% of our balance sheet to now being.
A little bit more than 17%.
I previously talked about a long term target closer to 20%. So we've moved up.
Closer to that longer term.
Target.
Tcf has moved up to about 13% of their balance sheet being the securities portfolio, primarily because of.
Investing the cash coming off of the run off of the auto loan.
Portfolio and so the Tcf trend line, probably was to continue to build that somewhat again dependent on.
The run off of the auto portfolio and the pace of growth and various other categories.
So so so combined I would see.
Some modest build in that securities portfolio, again, primarily driven not so much because of.
No we're all desire to.
To leverage up the securities portfolio, but.
Deploying cash off the auto loan portfolio.
Our preference, though is to make room for the organic growth across our various.
Key lending categories, whether it's.
Whether it's our middle market see in high business this tcfs middle market business.
The inventory finance the leasing business and combined we are going to have a really strong residential mortgage banking business as well and as you saw in the second quarter that can also be a lever that we that we pull to manage our overall.
Growth of our loan portfolio.
So.
So it will be a dynamic item and depending on the the opportunities and levels of returns that we can generate with the various categories.
Is that the growth of the securities portfolio will will ebb and flow.
Okay, all right perfect. Thank you very much.
Well take our next question from Terry Mcevoy with Stephens. Please go ahead.
Good morning.
[noise] with the deal expected to close so earlier than expected any chance you can move the systems conversion to an earlier date too.
Achieved the cost savings a bit earlier than was discussed in February .
Yeah, It's a <unk> no I don't think there we're going to we're going to move that up when I think about the planning process and while we've been able to move a number of things up to.
Accommodate the closing of the planning work stream for the system conversion really is a you know in a.
A timeline that makes sense to US right now is I don't see that moving I don't see that moving at this point.
Thank you.
And then just I guess the last question for for Dennis any.
Thought into reducing the volatility in the loan servicing rights just to remove that mortgage volatility we see each quarter and again, we saw here in the second quarter.
Yes, so first of all.
The accounting policy with Tcf is to do with lower of cost or market.
So.
At least in the short term, we are likely to move to that accounting policy for the servicing rights.
If you understand that accounting basically there's still the downside risk of of a mark to markets on mortgage servicing rights, but you, but you moderate the overall volatility because if and when the securities portfolio appreciates and value Youre not marketing.
Marking up the mortgage servicing rights.
So I think as a combined organization one just given the combined scale the relative volatility MSR is moderating, but we're also focused on either from an accounting standpoint and or.
Implementing a hedging strategy is to moderate that overall impact of volatility.
Great. Thanks, Dennis.
[noise].
Well take our next question from Nathan race with Piper Jaffray. Please go ahead.
Hey, guys. Good morning, Dennis maybe a question on just the trajectory of deposit costs going forward, Brian made some comments earlier today the deposit costs me peak in Threeq or Fourq. Your delays of this year, assuming the fed does cut rates.
Here in July so just curious on how you see that potentially.
Unfolding at the on the chemical side of things based on what you're seeing in Europe .
Yes, my guidance would be incomplete harmony with what.
Brian was suggesting there we continue to see some pressure here on deposit cost and we expect that to continue for.
The short term here, but.
As we look a bit longer term.
We think that deposit costs will peak and then.
And then start coming down with the success of potential fed moves.
Okay, Great and then perhaps a question for Tom and just going back to the earlier question in terms of.
Commercial.
Hires and so forth and some of the legacy Tcf.
Cities and so forth just curious as you spend more time with some of those folks on the Tcf set of things for the last several months if you've got any more confidence in terms of your ability to maybe replicate some of the successes youve had in adding commercial banker talent.
In Grand Rapids, Detroit in Cleveland, and so forth and some of those legacy Tcf.
Cities and so forth.
Yes, so I think.
About the.
Kind of the operating model that we had for last couple of years at chemical Bank.
Getting to know the Tcf.
Managing very well, having a better understanding of their marketplaces I have as much confidence today as ever in our ability to replicate that activity going forward and I think that.
Partially it's it's our ability to execute but.
As an organization to join I think that we have an extraordinarily strong story in recruiting and our ability to recruit I believe is even stronger as we move past August onest.
Okay, Great I appreciate all the color guys.
Thanks.
And we have a follow up from Chris Mcgratty with KBW. Please go ahead.
Yes, Thanks, Dennis just a quick one on the model the tax rate how should we think about pro forma tax rate from here.
Yes, so our tax rate.
Just under 18% this quarter.
Pro forma for the fourth quarter, I think you would sort of look.
At the just weighted average between our tax rate and Tcfs.
We will have.
A modest benefit to our tax rate.
In the fourth quarter as a result of a.
Legacy Federal historic tax credit as Youve seen before in our results.
In past quarters.
And so the tax rate will will be.
Moderately below that weighted average in the in the fourth quarter.
Going into 2020 as well again.
You are sort of base model should use the weighted average tax rates are two companies, but then we have.
More than we expected a federal historic tax credits that are being accounted for with the better we are grandfathered with this.
The legacy.
Accounting treatment, where we're we're able to harvest the benefit immediately a 100% of the benefit immediately when our historic tax credit project.
Goes into use.
And so in the last three quarters of the year.
We will be.
We will be harvesting some benefits from Federer historic tax credits again that will be moderately averaging down the tax rate.
Below that sort of weighted average of our 18% and Tcf.
Tax rate.
Great. Thanks for that and then maybe just lastly.
Kind of maybe for David the.
Balance sheet repositioning both both you guys are.
Repositioning the balance sheet a bit into the close.
Given the Mark is coming down and capital levels are going to be higher.
Maybe I missed it before but any thoughts on.
Kind of announcing a capital distribution with the buyback or something into the back half of the year.
You know I think we'll wait till the.
Could we get the two companies together and.
Well make sure we were onboard with our regulators before we start.
Getting to.
No aggressive with those comments so.
Stay tuned for that.
Understood. Thanks.
And there are no further questions at this time.
All right well, let me let me conclude by saying we appreciate your interest in chemical financial as we change our ticker symbol to Tcf on August 1st we continue to remain very confident in the future and we believe we are well positioned to achieve additional market share gains as we move forward. So with that thank you very much and have a great day. Thank you everybody.
Ladies and gentlemen, this does conclude todays presentation. We thank you for your participation you may now disconnect.