Q1 2022 QCR Holdings Inc Earnings Call
Greetings, everyone and welcome to the Q E. Our Holdings, Inc. Earnings Conference call for the first quarter of 2022.
Yesterday after market close the company distributed its first quarter earnings press release, there is anyone on the call who has not received a copy you may access it on the company's website www dot QC are each dot com.
With us today from management are Larry Helling, CEO , and Todd Gipple, President COO and CFO .
Management will provide a brief summary of the financial results and then open the call to questions from analysts.
Before we begin I'd like to remind everyone that some of the information management will be providing today falls under the guidelines of forward looking statements as defined by the Securities and Exchange Commission.
As part of these guidelines any statements made during this call concerning the company's hopes.
<unk> expectations and predictions of the future are forward looking statements and actual results could differ materially from those projected.
Additional information on these factors is included in the company's SEC filings, which are available on the company's website.
Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.
The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures.
As a reminder, this conference call is recorded and will be available for replay through May four 2022, starting this afternoon approximately one hour after completion of this call.
It will be accessible on the company's website.
At this time I'd like to turn the floor over to Mr. Larry Helling at <unk>, you see our holdings, Sir you may begin.
Thank you operator, welcome ladies and gentlemen, and thank you for taking the time to join us today.
I will start the call with a brief discussion regarding our first quarter performance Todd will follow with additional details on our financial results for the quarter.
Before I discuss the quarter I want to welcome any new shareholders that are on the call today as a result of our successful acquisition of Guaranty Federal Bancshares, which closed on April one.
We have merged Guaranty bank into SFC bank her charter in southwest, Missouri.
The integration process is going very well.
We have retained the guaranty bank brand due.
Due to its more extensive branch network and strong name recognition in the market.
We're eager to continue our growth in the vibrant southwest Missouri region.
Turning to quarterly results, which are highlighted by exceptional loan growth and expanded net interest margin.
Carefully manage expenses and continued excellent credit quality.
We continue to experience healthy demand from our client base and.
And grew loans by 14, 6% on annualized basis, excluding PPP.
Our accelerated loan growth in the first quarter was driven by strength in our traditional commercial banking.
In specialty finance businesses.
We are capitalizing on improved economic conditions in our markets.
<unk> to gain market share across our charters.
Our clients value our relationship based community banking model.
Emphasizing the importance of strong relationships and customized service.
Our loan pipelines remain healthy and our near term outlook for loan growth remains positive.
Therefore, we are increasing our targeted loan growth to between 10 and 12% for the full year.
While core deposits decreased modestly during the quarter, mainly due to expected seasonality with our commercial client base. We saw the mix of our deposits continued to improve with further rotation from time deposits to interest bearing demand deposits and.
In addition, guaranty bank brings excess liquidity and a strong core deposit client base to our balance sheet, which will support our ability to continue to fund our expected loan growth.
We expanded our net interest margin in the first quarter, which was up one basis point on an adjusted basis and up four basis points, excluding the impact of PPP fees.
Expansion was supported by a favorable change in our asset mix lower deposit costs and stable loan yields.
Given our asset sensitive balance sheet, we are very well positioned for the current rising rate environment and expect to see meaningful NIM expansion in the second quarter.
Todd will go into more details in his remarks.
With respect to our non interest income we experienced a decline in capital markets revenue from swap fees due to project delays, which are caused by ongoing supply chain disruptions and inflationary pressures.
The majority of our swap business is generated by low income housing tax credit projects.
Over the years, we have grown and diversified our client base, which has helped our outsized growth and as a.
Our pipeline remains robust.
GAAP between the demand and the availability of affordable housing is widening.
And we believe that the long term fundamentals for this business have actually strengthened despite the short term challenges.
Our asset quality and credit metrics remain extremely strong nonperforming assets improved again and represent a record low of four basis points of total assets.
Additionally, our criticized loans and classified loans to total loans and leases decreased during the quarter. We continued to have negligible net charge offs and we feel very good about our current reserve level at 155% of total loans and leases.
Our excellent credit quality is a function of our disciplined and consistent underwriting along with vibrant economic conditions across our markets.
With that I will now turn the call over to Todd.
Further information about our first quarter results.
Thank you Larry good morning, everyone. Thanks for joining us today.
I'll start with net interest income.
Our adjusted net interest income for the quarter was $48 5 million down one 4% from a record amount set in the fourth quarter.
However, the decline was entirely due to the significant linked quarter decrease in P. P. P loan forgiveness fees, which was expected as our PPP loan program nears its end.
With our strong loan growth using our excess liquidity from the prior quarter, our balance sheet efficiency improved helping to expand margin in the first quarter.
We funded our loan and lease growth during the quarter with a combination of excess liquidity and overnight advances or.
Our non maturity deposits typically experience a seasonal decline in the first quarter as many of our commercial clients are using funds to make bonus and tax payments during this period.
We continue to improve the mix of our deposit base intentionally rotating out of higher cost CD balances as they mature.
The cost of our total interest bearing liabilities further improved by one basis point from the fourth quarter, we utilized our overnight borrowing capacity during the quarter to temporarily fund some of our loan growth and we subsequently repaid the majority of these advances after quarter end with guaranty bank's excess liquidity.
Our adjusted NIM improved by one basis point for the quarter. However, after excluding the impact of lower P. P. P income that I mentioned earlier, our core NIM expanded by four basis points significantly outperforming our guidance of a slight decline of two to four basis points.
We've been very pleased with our NIM performance over the last several quarters as we've been successful in maintaining earning asset yields while driving down our cost of funds.
As we are now entering a rising rate environment, our asset sensitive balance sheet will lead to significant further NIM expansion.
Our asset sensitivity is driven by the strong growth in our floating rate loan portfolio over the past three years.
During that same period. The success, we've had in growing core deposits has reduced our reliance on deposits tied to an index and higher cost wholesale funds.
Looking ahead as we benefit from a full quarter of the March rate hike and factoring in another rate hike of 50 basis points in early May combined with the addition of the Guaranty bank balance sheet we.
We project further NIM expansion of nine to 11 basis points in the second quarter.
Given the addition of Guaranty bank in the second quarter. We're also providing additional guidance on net interest income for Q2.
Excluding P P P and acquisition related accretion, we expect net interest income for the second quarter in the range of $56 million to $58 million.
Now turning to our noninterest income of $15 6 million for the quarter, which was lower than the 23 million we generated in the fourth quarter.
As Larry mentioned, we produced capital markets revenue from swap fees of $6 4 million in Q1.
While this result was below the lower end of our typical guidance range of $14 million. It is very consistent with our past Q1, latex production, which has averaged $6 8 million in the past four years.
Capital markets revenue from latex swap fees has averaged 15 million per quarter since the first quarter of 'twenty 'twenty, which gives us continued confidence in the sustainability of this important source of fee income.
During the same nine quarter period capital markets revenue from latex swap fees as range from a low of $4 5 million to a high of $25 2 million.
Given our solid pipeline of transactions, but recognizing the project delays caused by ongoing supply chain disruptions and inflationary pressures that Larry mentioned previously.
We are expecting this source of fee income to be in a range of $13 million to $15 million per quarter for the remainder of 2022.
Excluding swap fees at noncore items noninterest income for the first quarter totaled $8 3 million.
With the addition of Guaranty bank in the second quarter. We are also providing additional noninterest income guidance.
We expect noninterest income excluding capital markets revenue to be in the range of 9% to 11 million for the second quarter.
This guidance reflects the addition of Guaranty bank strong retail and commercial banking fee income, while adjusting for the headwinds of rising rates on our mortgage business.
Now turning to our expenses.
Noninterest expense for the first quarter totaled $38 3 million compared to $39 4 million for the fourth quarter.
After adjusting for acquisition expenses and lower performance based compensation expense related to capital markets revenue.
Noninterest expenses were $39 million and at the low end of our guidance range of $39 million to $41 million.
Our noninterest expense run rate remains very well controlled.
Looking ahead to the second quarter and factoring in the addition of Guaranty Bank, we anticipate that our level of noninterest expense will be in the range of $46 million to $48 million.
This guidance includes the incremental expenses from Guaranty bank, but.
It excludes remaining integration costs.
In addition, we do not anticipate that the full cost savings from the Guaranty Bank acquisition will be recognized until 'twenty 'twenty three.
Our overall asset quality continues to be quite strong nonperforming assets remained very low at $2 7 million and as Larry mentioned represent only four basis points of total assets 21 basis points lower than one year ago.
Additionally, we recorded a $2 9 million negative provision for credit losses in the first quarter, primarily due to continued strong asset quality and a corresponding reduction in the qualitative factor related to the pandemic.
Our allowance for credit losses remains quite strong at 1.55% of total loans and leases down 13 basis points from the end of 2021.
This allowance represents over 27 times, our nonperforming assets.
With respect to capital our capital levels remained strong.
Our tangible common equity to tangible assets ratio modestly declined to $9 six zero percent at quarter end.
Impaired to 9.87% at the end of December .
This was largely the result of a decline in our a OCI.
The resumption of our share repurchase program during the quarter and strong organic loan growth.
While a OCI and the share repurchases did reduce the company's tangible common equity.
Our strong earnings helped to offset this impact which led to a net decline of only one 2% and tangible book value.
Finally, our effective tax rate for the quarter was 9% down significantly from 18, 9% in the fourth quarter.
The rate was lower on a linked quarter basis due to an increased benefit from a tax strategy. We implemented in 2021 combined with the book tax expense benefits from our stock compensation plans, which are typically higher in the first quarter as well as a lower ratio of taxable earnings to tax exempt revenue in the first quarter.
We expect the effective tax rate to normalize back to a range of 18% to 20%, including the addition of Guaranty Bank.
With that added context on our first quarter financial results, let's open up the call for your questions. Operator, we're ready for our first question.
Ladies and gentlemen at this time, we will begin the question and answer session.
To ask a question you May press Star and then one if you are using a speaker phone. We do ask that you. Please pick up the handset prior to pressing the numbers to ensure the best sound quality.
To withdraw your question you May press star into.
Once again that is star and then wanted to join the question queue.
Our first question today comes from Nathan race from Piper Sandler. Please go ahead with your question.
Yes, hi.
Hey, guys good morning.
What do you need a morning Nate.
A question on the swap capital markets revenue outlook I appreciate the update updated guidance, but I guess I'm. Just curious if you guys could kind of update us just in terms of all the swap revenue pricing may be impacted in future quarters, just based on what rates have done recently.
Yeah, Nate I'll start and let Andy.
Additional comments do you think it's appropriate.
The interest rate is really having just a modest impact on the pricing.
Hum.
Compared to the other factors that we talked about.
It's really the impact on the future swap revenue, which we guided to a slightly different number that's the story.
It's really because of the inflationary pressures and the supply chain disruption that are causing the delays in the project.
Our pipeline of activity is really consistent with a year ago.
Really just a matter of getting those projects to fruition.
So certainly a little impact from interest rates, but we do expect the vast majority of these projects that come to fruition.
Maybe slightly less pricing power than we would have.
During the pandemic, so probably pricing pressure, maybe decrease those fees, maybe 10% 15%.
Got it.
Okay.
Sorry go ahead.
Well Nate.
Just pointed out Larry spot on in terms of the impact of the rates, it's really a drop of about 10% in terms of our average fee on each deal.
So a fairly modest impact due to rate.
Understood.
Maybe switching gears and kind of think about deposit.
Trends in the quarter and the outlook I appreciate some of the.
The sequential decline in core deposits are somewhat seasonal in nature and I noted with guarantee you guys are picking up some excess liquidity. So just trying to think about.
Core deposit growth expectations going forward I know you guys have some deposits off balance sheet that are maybe more rate sensitive.
They want to keep their butt.
Just curious if you guys expect.
Posit grow to run commensurate to kind of the loan growth expectations that you guys are guiding to in the 10% to 12% range. This year.
Sure Nate.
Yeah, we do continue to have a fair amount of what we would call just in time inventory off balance sheet with the.
Correspondent Bank team.
That actually ended at roughly 1.4 billion in excess balance accounts at the fed so a fair amount of liquidity available to us there.
We love the core deposit franchise, we acquired with Guaranty Bank and added to our legacy bank here in southwest Missouri.
So we.
We do expect that the.
Our loan to deposit ratio to settle back down a bit here in Q2 it elevated.
As we talked we use some overnight funds to really supplement our loan growth funding in the first quarter, because we knew that guaranty bank balance sheet was coming on April one and that really paid off for us in terms of taking advantage of that here in the second quarter. So.
While loan growth is very robust, we expect to keep pace with deposit growth and not have to rely on.
Wholesale funding.
Maybe I would add that.
Youre on an interesting question because.
Because of the excess liquidity because all of the government programs in the last year and a half some of that excess.
Quiddity will flow out over time, and I think we saw some of that happened in the first quarter. So we're trying to figure out what the new normal is in that space.
What new liquidity levels are going to be for our clients. Both on the retail and the commercial side, what I would tell you is our new account opening activity.
During the past month of March was really strong.
So while balances are moving around we're continue to add clients at a really steady pace.
Okay great.
Just along those lines thinking about the margin outlook going forward we'd.
I'd love to get an update just in terms of kind of interesting.
Interest rate sensitivity position of the balance sheet at the end of the quarter and how you guys see the margin trending over the next couple of quarters, assuming the fed raises by.
I think cap a percent or so.
May and June .
Sure Nate.
As we said in our opening comments, we're guiding for margin expansion of between nine and 11 basis points here in the second quarter.
Might help you better plan for future quarters, if you know really the mix of that improvement.
We talked a during the Q4 call about a four to five basis point improvement in.
And margin for each 25 basis point hike, so with the full impact of the March hike here in the second quarter, that's four to five basis points of that increased margin.
We are expecting as we indicated in our opening comments, a 50 basis point hike by the fed here and.
First part of May.
That would also do four to five basis points per 25, there but of course, it's only about half the quarter.
So that nets down to a net four to five for Q2.
And then.
Well that's in a range of eight to 10, we're adding another basis point of margin expansion expectation due to the blending in of the Guaranty bank balance sheet.
Their legacy NIM was $3 15 in the first quarter are.
Solid, but less than are our legacy NIM run rate, but between the excess liquidity that they brought to the balance sheet.
Some of the bond restructuring that was accomplished post closing.
Their balance sheet is actually slightly more rate sensitive than our legacy balance sheet.
So all of that has us pivoting to a slightly.
Accretive NIM from the acquisition and were adding another basis point there here in the second quarter. So so that's really the buildup of the nine to 11 in terms of subsequent quarters we.
We certainly expect our asset sensitive balance sheet to continue to price provide upward.
Trajectory on margin. So we're very pleased to be in this position from a balance sheet perspective.
Okay, Great and then if I could just ask one more housekeeping question.
Do you have the amount above.
Triple P revenue that was recognized in the quarter and whats remaining.
Yeah, we we have very little remaining as it as you would guess and consistent with our comments. So in the fourth quarter total P. P. P impact on NII was a $1.4 million.
Dropped pretty significantly in the fourth quarter to about 530000, so that 800000 or so drop was really the cause for NII dollars to be down on a linked quarter basis. It was entirely P. P. P.
We only have 119000, the remaining PPP fees and only about $6 million and remaining loan balances. So.
We're really at the end of.
That program.
Okay perfect.
Sheila color I'll step back thanks, guys.
Okay.
And our next question comes from Jeff <unk> from D. A Davidson. Please go ahead with your question.
Thanks, Good morning, Larry and Todd.
Morning, Jeff Jeff.
Wanted to check in on on guarantee a little bit I just wanted to.
As of.
The first of the month, what that loan balance you brought over kind of what basically what was growth in the first quarter and then you know still assuming a.
A couple of million shares.
On the on the transaction.
Yeah.
Yeah.
So the shares issued or slightly over $2 million really didn't end up very close to the 80 20 stock cash split.
That was announced based on the election of the deferred shareholders.
Issued about $27 million in cash to go along with the $2 million in the.
The 2 million shares.
Their average earning assets for.
Sure G. Fed was a 1.15 billion. So I think Jeff that is probably the important number for you in terms of a run rate on earning assets that that came across very.
Very strong performance in the first quarter out of Guaranty Bank, and so really pleased with the balance sheet and the people and the clients that they brought along with.
With the transaction.
And Todd Youre.
The conversion expectation timing on that.
Sure. So we had a lot of folks working really hard to make sure that our all of our collaboration tools were implemented right at closing on April 1st and so our teams in telephony and all the communication aspects are fully integrated right away.
Conversion onto a single platform right now is scheduled for early October and during this time.
One of the things that helps us through transitions like this is a multi charter structure.
Our group operations teams are used to dealing with divergent cores at times.
So we're able to operate on the two separate cores here very effectively during this period, we actually have some very powerful software that's rolling data in financials and other things up on a combined basis. So we are able to look at one guaranty bank.
Got you.
And another checking Todd just the Covid what was the core margin you set up four basis points linked quarter.
One of the kind of back into that.
Core margin for.
I'm sorry.
Overall.
On a consolidated basis with with them folded in with Guaranty Bank Fulton.
And a lot of legacy.
Yes.
Yeah.
Yeah. So while you are so are.
Okay. So legacy QC, our was at $3 50 on a tax equivalent basis.
And when when we're giving this nine to 11 guidance going forward.
That can either be layered on top of T E y or stripping out tax equivalent and just getting to the core margin of 330.
Those would be our legacy numbers carrying into the second quarter.
The adjusted Guaranty Bank balance sheet would be accretive to that by one basis point in the race.
Just getting back to you sort of stated in linked quarter, just one basis point increase.
So again, you talked about core of four basis points linked quarter.
I'm trying to.
Kind of.
Equate those two.
Gotcha, the difference would be the decrease in P. P. P revenue would would give you that delta of those three basis points.
Okay, Oh I can.
And just a calculated I just thought you had core margin linked quarter.
The last one would be on the buyback.
And just in that it sounded from.
Shareholder approval of guarantee shareholders I guess.
I'd like the third week of March you mentioned that amount of.
Activity was that.
The amount of time between guarantees shareholder approval and the ended the quarter or was that.
To date, effectively kind of a month's time frame into the debt today or yesterday.
A four month or was that just a kind of a small piece remaining in the first quarter.
Yeah, Jeff that was just through quarter and $3 31.
Got it and then.
I guess the broader question for both you would marry is just the appetite.
Right there.
Knowing that you had a moderate amount remaining under authorization.
What are your kind of what's the appetite for future discussions with the board in terms of upping that authorization.
Yeah, I'll take first crack there Jeff that your timing is good.
And our next board meeting a few weeks, we're certainly going to discuss our overall capital plan and revisit.
Thanks.
And decided to see appropriate time to reset our repurchase program.
And just a couple of weeks right right about at the same time as our shareholder meeting.
Okay. Do you are you are you.
Is there any remaining authorization given the pullback in bank stocks just adds up today until that.
I guess to that meeting.
Yes, we do still have some available.
And certainly at this price point, we feel like we're undervalued and that there is opportunity for us.
Perfect. Okay. Thank you.
Hey, Jeff.
I feel badly that maybe I wasn't quite on top of understanding your your linked quarter question and what I'm wondering is are you looking for the adjusted NIM, where we talked about the four basis point.
Alta and what that core number is on a linked quarter basis.
Yeah, just you know it's it was on the T.
T Y as is.
Adjusted is $3 49 to $3 50 to state. It is $3 29 to 330, you guys talking about a four basis point.
Linked quarter increase just trying to look at the what was what is the other margin that you're referencing encore.
Sure Yeah. That's that's why I wanted to get back to your question. So that gets down to taking the T y.
$3 50, compared to last quarter at $3 49, there's the one basis point, where we're talking about pretty consistently and then when we strip out the.
Strip out the impact of the P. P P.
We get that down to a $3 43 in Q4 and $3 47 in Q1, so it's really that stripping out of that P. P. P impact that gets us to that four bps.
Got it thank you.
Yeah. Thanks, Joe.
Our next question comes from Damon Delmonte from <unk>. Please go ahead with your question.
Hey, good morning, guys hope everybody's doing well today and day not to not to belabor the discussion on the margin, but so just to kind of close the loop on this so that $3 47 core that you just described to out to Jeff's question from there you would lay around nine to 11 basis points.
Is that correct correct correct, Okay Yep.
Alright, great. Okay. Thank you.
And then I guess, you know with regards to the swap fees. You know you you. You know you gave a good description as to why they came in lower this quarter and.
Provide some commentary with the with the outlook.
Do you expect you know we've seen this in previous quarters, where you have like a soft quarter for one reason or another you kind of have a snapback in the following quarter.
Would you expect that something similar to occur here in the second quarter, where you could you know get to the high high end of that range or even exceed it.
But then it kind of blended in for the remainder of the year to average that 13 to 15 million per quarter.
Yes, I think because we got off to a little bit of a slow start we think the total for the year I'll be in the $45 million to $50 million range, given what we know today.
And while the supply chain things are clients or figure out ways to work through those it could still slow roll that.
Execution.
On these projects.
I think we really still believe the $13 million to $15 million per quarter as is our best estimate for today on a quarterly basis throughout the rest of the year.
Okay. So I think.
It was in the third quarter of last year, where you spoke on the July call and you had said Oh you already had three deals priced in the beginning of July that's not the case. This go round.
Yeah, it's a little slower because of this supply chain and inflationary pressures, making them reset the capital stacks for deal so.
You know.
We all wish this business a little more consistent but.
But the pipeline is still there and is it possible now what youre describing happens in the second or third quarter, it's possible, but I don't want to.
It's probably premature to give that kind of guidance yet.
Got it okay.
And then in the in the previous quarter. You guys had commented that you were exploring the opportunity or potential opportunity to securitize. Some of the S. F. G loans and sell them off is there any update on where that stands and any color around that.
Yes, it's still something that we would expect to do at some point in the future, possibly late in the year.
Cause the growth slowed a little bit there and we're not in a.
A big rush to execute honest securitization, but it's still something we weren't available to us later in the year.
We plan to.
Be very transparent when we get closer to doing a securitization and let you know exactly.
How it's going to work on the economics.
Economics of the transaction when we do that but it's a couple of quarters, possibly down the road yet.
We'll give you a preview when we get there, but I would tell you that the loan growth number that we guided you to.
It would be net of any securitization.
That happens later this year.
Got it okay.
That's all I had thank you very much for the commentary this quarter.
Damien Thanks, David.
And our next question comes from Brian Martin from Janney Montgomery. Please go with your question.
Hey, good morning, guys.
Right.
I just wondered if you could Todd I appreciate all the added color this quarter on the margin, particularly with guaranteed just as.
As it relates to the margin.
Just big picture I think when you look at the variable rate loans than in the past you've typically given some thought on the Ara.
The rate sensitive assets and liabilities, just kind of combined but I guess, if we think about your guidance are you just kind of your outlook for second quarter on the margin. If we think about additional rate increase and just kind of wondering what the what those repricing assets and liabilities are and just maybe what betas you've got assumed in there. So we can think about additional hikes and just kind of how to think that through and.
So I don't know the best way to create answer that but that's kind of the path of what I'm kind of asking.
Sure No Brian I think it's fair to give you a little more insight on RSA RSL. So so we ended the quarter and this is on a combined basis. So this is pro forma with G said at $3 31.
We have just shy of 1 billion and our net our SaaS. So about 2.6 billion R. S. A's.
Ourselves about 1.6, so roughly a 1 billion.
Net positive RSA is.
And in terms of deposit betas.
One of the significant pivots, we've made in our balance sheet I think all of you that have covered us for a while understand that we.
We have a much more.
<unk> right side of the balance sheet now and as a result.
Only about 25%.
Of our funding is in rate sensitive liabilities that would have high betas and so that roughly a 1.3 billion would.
It would be most of that $1 six that I just mentioned.
And in that 1.6, we've had betas in a range of 60 to 100 here just starting off with some of the rate increases some of those are truly index. So they are going to perform like 100 beta some of those.
Are very rate sensitive, but theyre more negotiated rates and we can hold back a bit in the beta is not quite as strong.
But 75% of our deposits.
They have exhibited zero beta thus far and we think that we still got some runway to hold on to deposit rates before they need to increase so we're very optimistic not just having the 1 billion of and that our SaaS, but in the characteristics of the underlying rate sensitive liability.
We feel very good about.
Ongoing betas, so that is what's leading us to give there.
This very strong guidance for the second quarter.
As the fed continues to hike rates.
We think that we will stay fairly static with respect to the uptick in margin as a result of those 25 basis point increases.
But I will tell you will probably have more guidance for you in July with Q2 and be a little more precise about the rest of 'twenty two.
Does that help Scott yeah that helps and I guess I just bottom line is your second if you've got another 50 basis point hike. After the may one that benefits should be less than what you're guiding to this quarter.
Based on the 15th hike in May that accurate, you'll just give more detail later.
Don't know that we we yet have enough insight once we get fat past. This next 50 in May.
If we're going to see diminished returns on on rate hikes.
It's a little too early for us to.
Capitulate, there and say that that's going to narrow.
Domestic based on what we're seeing Brian that we will continue to see a nice upward trend.
We will have more guidance in July but.
I don't know that were ready to yet say, we're gonna start getting diminished returns of course, we all know, it's it's subject to market factors.
Deposit and loan pricing and that's why I think we'll have a little more insight in July .
Gotcha, Okay. No I appreciate all the color that's helpful and maybe just one or two others just on the with the transaction the accretion tied to purchase accounting accretion can you give any.
Colorado, how to think about that as you just get into second quarter.
Sure so.
We right now looking at what we announced in November for the transaction and what we're seeing here are being through closing and integration. The numbers are holding up very consistent with our initial thoughts back at announcement, so not seeing much in the way of variation there.
We talked about a.
A initial credit Mark on non P. C D of around $10 5 million and actually disclosed in our deck that we had a negative interest rate mark of just shy of 3 million factored into the model. So that's roughly 13.5.
We'd get accreted back over the three years, so that'll give you a little bit of insight as to what early expectations would be for.
For loan accretion, adding to Q2 and beyond.
Got you, Okay, that's helpful and and just the last one.
The loan growth. This quarter can you give any just update on where the specialty finance balances are today relative to year end I mean, it was it was there much of a change there.
Spread equally among the you know the buckets there that traditional leasing in specialty.
Yeah, Brian It was really fairly evenly distributed.
Where.
Our traditional leasing and lending business was up and property represented 60% to 70% of our growth in the first quarter.
Especially group because of the supply chain disruptions that we talked about.
In the latex business.
<unk> grew more.
More slowly than it had but as we get into the year, we would expect that pace to pick up.
Gotcha, Okay. Thank you Larry I appreciate it and thanks for taking the questions guys I appreciate it.
Thanks, Brian Thanks, Brian .
And our next question comes from Daniel <unk> from Raymond James. Please go ahead with your question.
Hey, good morning, guys.
Good morning Dana.
Maybe just a quick follow up on the swaps.
Someone asked earlier about pricing.
Can you just go into little more detail on what what the swipes pricing is based on end.
Kind of your thoughts on if it could potentially tightened further is as rates rise the rest of the year.
Yeah.
Yes, certainly the swap pricing is determined by things going on in the yield curve and the duration of the swap that we're doing.
So as we talk.
Ben some marginal pricing pressure on that.
Maybe 10% off the top end of our historic performance.
As rates are starting to move I don't think that's going to continue.
The impact pricing in the marketplace seems to have kind of started to adjust to that now so while that will continue to be compressed.
Compared to a year ago, probably a little bit.
Pricing is really not the issue here its really people getting projects to the point, where theyre comfortable executing and moving forward because of the other inflationary pressures and supply chain issues.
Okay. That's helpful.
And then within the fee income guidance that you gave I'm.
Just curious what your assumptions are around.
The gain on sale of the mortgage banking piece, including with.
With guaranteed federal.
Sure Danny Yeah. So the additional guidance, we provided ex swaps was really to help everyone understand what we thought the combined.
Post closing.
Our run rate might be so when you look back at that other non interest income we had about $8 $3 million of that legacy EQ CRH.
G Fed Guaranty bank had about $2 2 million in the first quarter. So so that gets you to 10 and a half and we gave a range of nine to 11.
We have certainly seen a significant impact on on run rate on mortgage the good news is guaranteed.
Guaranty Bank has a very strong.
Standing in the community and mortgage we have very strong team coming over from legacy SFC, We think on a combined basis theyre going to be able to hold onto their share of the market and perhaps improve it. So there's a pretty wide delta there obviously between nine and 11. Fortunately the net number is not all that material but.
Our expectation is mortgage is going to be under pressure of course and part of that is rate and part of that is supply. So our assumptions on mortgage would be maybe taking that.
Look at what we did in Q1 and that might be.
A static number or down slightly further from that we we in the first quarter did not have a whole lot of refi.
Refi activity for obvious reasons. So we are kind of getting down to core purchase activity, which tends to be more more stable of course.
So our outlook for mortgages is down, but we we are expecting that most of them.
Most of the headwinds there have already been faced and.
Well start trudging, along with purchase mortgage volume going forward.
Okay, great. Thank you for that and then and finally, just a quick one here.
I'm just curious how much impact the decline in swap fees had on expenses, obviously, we had a big step down but.
Provided the guidance for that to kind of rebound with.
Here in the second quarter, just curious how much of that was associated with the decline in swaps.
Sure Danny about 2.5.
Was reduced commission and other.
Salary expense related to that decline so the guidance that we gave has that.
Has that.
Added back in if you will in our guidance on noninterest expense that we just provided would be at the midpoint of that 13 to 15, so $14 million of swap would get back to.
The guidance that we gave on noninterest expense so.
It was about a $2.5 million reduction in Q1.
Alright, that's great I appreciate it that's all I had thanks for answering my questions.
Thanks, Dan.
Yeah.
And our next question is a follow up from Jeff <unk> from D. A Davidson. Please go ahead with your follow up.
Thanks, I just wanted to check in on that.
The 56 to 68 NII guide for next quarter is that comparable to the.
$45, seven GAAP or the adjusted 48 five.
Yeah, Great Great question, Jeff I'm glad you asked that clarifying comment are clarifying question. So so that is built based on reported of 45 seven not grossed up for T Y. So TCR for Q1, we had the 45 seven.
Guaranty Bank had 8.6.
So 54 three combined.
On a pro forma basis for Q1, and then our guidance is 56 to 58 and again, that's that's non T Y. So I'm glad you asked that clarifying question.
Thanks Todd.
One other one and this is.
A little more squishy, the swap business and the supply chain and inflation pressures.
Any sense that that has eased I mean, it was that consistent throughout the quarter.
I think Larry mentioned, finding ways to kind of get around that a bit.
In other words is there any kind of hope that.
Maybe those pressures work early in the quarter and now as were into April .
Is that easing at all or is it pretty steady state.
Each project has its own.
Animal thanks.
Yes, you are right, that's a little bit of a squishy one Jeff what I would tell you is.
I think our clients are starting to find ways to work through.
The restructuring of their capital stacks from their transactions in order to make things move forward.
Starting to find ways to get materials and material cost figure it out so that they can be comfortable committing going forward on a project.
It's certainly not over I would say I think they're finding ways to adjust to it and we're finding ways to adjust to it because we're all probably being more active on AR.
Hi.
Outbound basis, reaching out to this.
People that operate in this niche training trying to find new transactions. So.
We're in the middle of it yet, but certainly not over.
Okay fair enough I figured.
You you'd be doing just as much to help them through as well, but I. Appreciate it. Thank you guys.
Thanks, Jeff.
And ladies and gentlemen, with that we will be concluding today's question and answer session I'd like to turn the floor back over to Larry Helling for any closing remarks.
Thank you operator, I'd just like to thank everyone for joining us on our call today, we hope everyone remains healthy and safe and have a great day, we look forward to speaking with you all again soon.
And ladies and gentlemen, with that we will be concluding today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.