Q2 2022 QCR Holdings Inc Earnings Call
Greetings and welcome to the Q T. R Holdings, Inc. Earnings Conference call for the second quarter of 2022.
Yesterday after market close the company distributed its second quarter earnings press release, if there is anyone on the call who has not received a copy you may access it on the company's website at Www Dot you see our H dot com.
With us today from management are Larry Helling, CEO , and Todd Gipple, President C O O N E F L.
Management will provide a brief summary of the financial results and then we'll open up the call to questions from analysts.
Before we begin I would 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 beliefs 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 is being recorded and will be available for replay through August 32022, starting this afternoon approximately one hour after the completion of this call.
It will also be accessible on the company's website.
At this time I will now turn the call over to Mr. Larry Helling at Qs D. R. Horton. Please go ahead.
Thank you operator.
Welcome, ladies and gentlemen, and thank you for taking the time to join us today.
We'll start the call with a brief discussion regarding our second quarter performance Todd will follow with additional details on our financial results for the quarter.
We delivered another strong quarter of financial performance.
We did the acquisition and integration of Guaranty Bank.
SFC Bank.
We're excited to continue to grow the Guaranty bank brand and the vibrant southwest Missouri region.
We are pleased that this team delivered solid loan growth during the second quarter given the additional work that is involved with the combining of two banks.
Overall, our strong results during the quarter.
Driven by exceptional loan growth expanding net interest margin and carefully managed expenses.
We increased our core earnings by $6 million for the first quarter hosting core earnings per share of $1.73 and.
<unk> and Aro <unk>.
One 6%.
After adjusting for nonrecurring items, primarily related to the closing of the Guaranty Bank acquisition.
Building on the momentum we generated in the first quarter, we delivered robust lending activity again in the second quarter.
Annualized loan growth of 14% after excluding the impact of the acquired portfolio and PPP activity.
Our organic loan growth in the quarter was driven by strength in our traditional commercial lending leasing and specialty finance business.
We are capitalizing on the economic resilience of our markets and continue to gain market share across our charters.
This is a testament to our relationship based community banking model, one that emphasizes the importance of strong relationships and customized service with new and existing clients.
Our loan pipelines remain healthy and our near term outlook for loan growth remains positive there.
Therefore, we are reaffirming our targeted organic loan growth of between 10 and 12% for the full year.
Our core deposits also grew during the quarter matching our loan growth primarily due to the addition of guaranty bank's deposits.
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 significantly again in the second quarter, which was up 23 basis points and up 17 basis points, excluding acquisition accretion and the impact of PPP fees.
This expansion was driven by the impact of multiple rate hikes on our asset sensitive balance sheet as well as the addition of Guaranty Bank.
We're very well positioned for the current rising rate environment I expect to see meaningful continued NIM expansion in the third quarter.
Todd will go into more detail in his remarks.
Okay.
Our asset quality remains strong we did experience an increase in nonperforming assets during the quarter, primarily the result of the Guaranty Bank acquisition and two legacy lending relationships.
We had minimal net charge offs during the quarter and we increased our reserves slightly to 1.59% of total loans and leases.
We feel very comfortable with our reserve level, despite the potential economic challenges.
Maintain a prudently cautious view on credit as reflected in our reserve coverage.
We have a strong credit culture that focuses on high quality loans disciplined underwriting and diligent credit administration.
Given the current heightened level of economic uncertainty we.
We are well prepared for any potential economic challenges that may occur.
We have solid earnings a strong capital position excellent credit quality and a prudent level of reserves, which will enable us to continue to deliver disciplined growth and attractive returns for our shareholders.
With that I will now turn the call over to Todd to provide further information on our first quarter results.
Thank you Larry good morning, everyone. Thanks for joining us today.
I'll start my comments with net interest income.
Our reported net interest income for the quarter was $59 4 million and excluding acquisition accretion of $1 7 million. It was 57.7 million near the upper end of our guidance range of $56 million to $58 million.
This outperformance was driven by robust organic loan growth combined with strong NIM expansion.
We funded our solid loan and lease growth during the quarter with a combination of the excess liquidity, we obtained from guaranty bank and overnight advances.
Guaranty Bank provided strong core deposits and the acquisition and we continue to benefit from a favorable mix of deposits.
As at the end of the second quarter demand deposits, both noninterest and interest bearing represented over 90% of our total deposits and are an important factor in managing our cost of funds in this rapidly rising rate environment, and allowing us to significantly expand margin.
We did temporarily increase our utilization of overnight borrowings during the quarter as a better priced funding option. However, we plan to reduce our modest reliance on wholesale funding during the latter half of this year.
Our reported NIM improved by 23 basis points for the quarter after excluding acquisition accretion and the impact of P. P. P income our NIM expanded by 17 basis points significantly outperforming our guidance of a nine to 11 basis point improvement.
We were very pleased with our NIM performance for the quarter as we were more successful than anticipated and managing deposit betas and our balance sheet strategies related to the Guaranty Bank acquisition proved to be more successful than expected.
As interest rates continue to rise our asset sensitive balance sheet will lead to significant further NIM expansion.
Over the past three years, we have intentionally grown our floating rate loan portfolio, which has positioned us well for rising rates.
This combined with 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 June rate hike and factoring in today's expected rate hike. We project further adjusted NIM expansion of nine to 11 basis points in the third quarter.
Now turning to our noninterest income, which was $22 8 million for the quarter up $7 2 million from the prior quarter.
The increase was primarily due to higher capital markets revenue from swap fees as well as the additional noninterest income from Guaranty Bank.
Capital markets revenue totaled 13 million for the quarter, which was within our guidance range and more than double the amount booked in the first quarter.
Given our solid pipeline of transactions, while recognizing timing continues to be impacted by project delays caused by ongoing supply chain disruptions and inflationary pressures.
We continue to expect 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 and noncore items noninterest income for the second quarter totaled $9 3 million, which was within our guidance range provided on last quarter's call.
Now turning to our expenses.
Noninterest expense for the second quarter totaled $54 2 million, which included acquisition and post acquisition related expenses of $6 8 million, which was significantly less than originally modeled.
After adjusting for these nonrecurring items noninterest expenses were $47 5 million and within our guidance range of $46 million to $48 million.
Our noninterest expense run rate remains well control however.
However, we like the rest of the industry are experiencing cost pressures in a number of areas.
As a result, we anticipate that our level of core noninterest expense will be in a range of $47 million to $49 million in the third quarter.
In addition, we do not anticipate that the full cost savings from the Guaranty Bank acquisition will be recognized until 'twenty 'twenty three.
Now turning to asset quality as Larry mentioned, our increase in nonperforming assets was a combination of the addition of Guaranty bank and two legacy credit relationships.
The Guaranty Bank N P. A is at closing were $3 million or 25% lower than at the initial acquisition announcement date as Guaranty bank reach positive resolutions on several N P. As prior to closing the transaction.
Our M. P. A's are quite manageable and represent only 33 basis points of total assets.
We recorded an $11 2 million provision for credit losses in the second quarter due solely to the Cecil day, two provision of $12 4 million to establish the initial credit loss allowances for the acquired non P. C D loan portfolio and off balance sheet exposure as a result of the guarantee.
Bank acquisition.
Our allowance for credit losses remains quite strong at 1.59% of total loans and leases and represents nearly four times our nonperforming assets.
With respect to capital our capital levels remained solid.
The decline in our capital ratios. This quarter was driven by several factors specifically the decline in our TCE ratio due to the Guaranty Bank transaction was 72 basis points, which came in better than our initial modeling of 100 basis points, when we announced the acquisition.
Additionally, our share repurchase activity during the quarter had an impact of 46 basis points and a decline in our Aoc I had an impact of 34 basis points, primarily due to a decrease in the value of our available for sale securities.
Finally, our strong loan growth contributor to the remaining 18 basis point decline.
Our reported net income partially offset these factors to arrive at a TCE ratio at eight point, 11% at quarter end.
Our tangible book value was impacted by these same factors it was down $3 14 per share during the quarter.
We had modeled initial tangible book value dilution of $2 four sounds from the Guaranty Bank acquisition and are pleased that it came in better than our estimate at $1 88 per share.
The remainder of the reduction in <unk> was due to the decline in our Aoc I of $1 42 per share.
And our share repurchases of 72 per share during the quarter.
These were partially offset by a reported net income to arrive at a tangible book value per share of $34.41 at the end of the second quarter.
With respect to our share repurchase program. We purchased 600 in 2500 shares at an average price of $54 80 per share in the second quarter as we completed repurchases under our original 2020 authorized plan and began repurchases under the Mei.
2022 authorized plan.
The 2020 plan, we repurchased 794000 shares in total at an average price of $50 60 per share.
The 2022 share repurchase program authorized in approximate $1 5 million additional shares to be repurchased and we repurchased 280000 shares during the quarter and have approximately $1 2 million shares remaining on this program.
We will continue to be opportunistic with our approach to future share repurchases based on market conditions and our capital levels.
Finally, our effective tax rate for the quarter was eight 9% lower than our expected range due to the impact of the acquisition and post acquisition related expenses and the day to see sold provision.
We expect the effective tax rate to normalize back to a range of 16% to 18% in the second half of the year.
With that added context on our second quarter financial results, let's open up the call for your questions. Operator, we're ready for our first question.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speaker phone please pick up your handset before pressing the key.
He withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And our first question comes from Daniel Tamayo of Raymond James. Please go ahead.
Good morning, guys.
Good morning, Daniel.
Let me start first on just the swap fees outlook.
You guys came in right at the bottom of the $13 million to $15 million range in the second quarter, and then reiterated that going forward.
Should we take that to mean, the $13 million is kind of I know, it's a volatile.
You know a line item, but it was a $13 million a decent run rate to build off of or are.
Are you, saying that you feel like that there's growth opportunity from that $13 million in the back half.
Yes, certainly we talked about the headwinds in this business in the past.
We feel comfortable that we can perform in that $13 million to $15 million range for the next two quarters.
Given the market conditions, we see today so.
I'll, let you pick the number in between those two.
We feel comfortable with.
We're trying to.
Certainly try and make it more predictable and more consistent but the.
The headwinds in the.
Economy.
Our making that a little more challenging, but we certainly feel comfortable with our guidance range.
Okay.
And then I guess on the margin.
So first of all.
What are your deposit betas assumed in the guidance that you are that you gave for nine to 11 basis point expansion in the third quarter.
And then I'll go ahead might change though.
Sure Yeah. Thanks, Danny.
So first off the 911 basis point guidance assumes a 75 basis point increase today. So I just wanted to get that out of the way that that's our assumption in that guidance at 75, not not necessarily a 100 basis points.
Our beta for Q2 was very well controlled.
At 18 basis point increase in non maturity interest bearing deposit cost.
150 basis point of market rate hikes. So the beta overall for Q2 was 12.
Our beta assumption going into Q3 is a little higher than that.
As you might guess part of that success in beta is what we were able to accomplish.
With a lag and our ability to continue to lag like most of the industry is going to start to be hampered a little bit so.
Our our beta assumption would probably be closer to 20 or 25 for Q3.
Okay.
And then last one you know.
Just on.
I guess the the deposit.
Growth expectations, you mentioned expecting to to be able to fund loan growth with deposit growth going forward.
And.
I think you said that you're expecting to reduce your reliance on wholesale funding in the back half of the year I guess, what gives you the confidence that you'll be able to do that we've heard from some other management teams kind of expectations for <unk>.
Deposit balances, perhaps to be stable to down going forward to be able to keep deposit cost at a manageable level just wanted to hear your thoughts on how you're managing that interplay.
Sure, Yes, I'll start there maybe.
And then let you fill in just a bit.
One of the things that we've talked about historically.
Because of our correspondent banking business.
We have a large chunk of deposits in the fed account, that's off balance sheet or some of our clients.
We'll start to move some of that back on our balance sheet in the next couple of quarters.
And liquidity across all banks has come down, including our correspondent bank clients, but they are still.
A little less than 900 million that we get off balance sheet.
That we can move certainly meaningful parts that onto our balance sheet over the next couple of quarters.
Okay.
Yeah, Danny soda to tag on to Larry's overview, there part of what gives US confidence is we've already done it here since quarter end we've.
We've moved roughly 180 to 200 million onto our balance sheet from from the EPA program and we're being a little more deliberate in the pace of doing that.
Being more deliberate allows us to get better beta on those funds and.
Using tiered rates using the size of the tiers, we're able to bring those on.
A little more gradually at a little bit better beta and and that really of course helps us maintain margin. While we're doing it we can do it more quickly it would be more expensive.
One of the reasons, we filled in the gaps with some overnight wholesale.
During the quarter.
There was about a 20 basis point cost advantage to doing that so we took advantage of it but the main reason we have confidence in doing that in the last half of the years, we're already doing that but make no doubt.
Does it sound liquidity.
And really starting to dry up in the in the system and so it's going to be a challenge.
Alright got it I appreciate all that color that's all for me. Thanks.
Thanks, Jamie.
The next question comes from Damon Delmonte of <unk>. Please go ahead.
Hey, Good morning, guys Hope you guys are doing well today.
Good morning Damon.
Good morning, So first question on the loan growth this quarter could.
Could you just talk a little bit about.
What segments, where we're driving that like how much of that was the specialty finance group.
Where do Outstandings stand right now with our specialty Finance group.
Yes.
The growth was really across all of our main sectors.
And.
So our leasing company was growing at kind of record paces during this past quarter or so.
The ability for clients to be able to start getting equipment.
Did that pace.
Quickly.
And then.
Kind of legacy traditional.
Commercial banking business grew probably more in the 7% to 8% range this quarter, so still solid numbers.
But not necessarily the same pace, we grew overall so the specialty group.
And one some tax credit space grew at the fastest pace and if you add those all up that's how we got to the.
14% a quarter.
Quarter quarterly growth.
We guided toward a little bit lower number for the full year.
That's really I think we're just trying to be prudent and one of these days, we might talk ourselves into a recession.
Loan growth will slow a bit.
We certainly don't have any evidence of that yet.
Hence the reason for our guidance.
A little bit lower than what our pace has been during the first six months of the year.
Got it okay. That's helpful. Thank you.
And then tied with respect to the expense outlook and are they kind of that increased guide there for 47 to 49.
Is that a function of.
More time needed to realize the cost savings from the <unk> deal or is that just you know operational inflationary pressures that.
That are in the marketplace today.
Sure Yeah, Great question, Dana so so really a bit of both.
We are expecting to convert onto a single platform here and southwest Missouri. During October so as you would all gas that that means we're not going to see some of the cost savings until really in the first quarter of 'twenty three we mentioned that in our prepared comments so.
A little bit of a lag in that which we expected and at announcement, we said it would really be twenty-three before those are fully realized but the reason for the upper move on our guide for next quarter couple of things. So one our actual was toward the higher end.
End of the range we had.
Upper end being 48, and we were at 47, five and then those other types of inflationary pressures that you asked about and that we talked a little bit about in our prepared comments.
We're certainly seeing that.
Whether it's people cost.
As important of course or other expenses.
We just thought it was prudent to really nudge that guidance, just a slight bit, reflecting where cord or two was and the pressure. We're seeing so in terms of short term Damon that there was a slight move up in that guide is really about inflation and pricing pressures and the delay in the cost.
Saves us a little more expected and that's more 'twenty three.
Got it that's good color. Thank you and then I guess lastly on the on the credit side with with Horizon and the MTA the two legacy.
Kishore H credits that moved on to nonperforming status what were the size of those and what are the like the industries that they're right.
Yes.
We're both kind of a low seven figure.
Transactions each.
Totally unrelated different businesses, one was an investment property.
And.
Basically.
Our underlying collateral is really strong so we don't anticipate any real loss in the first one that we're talking about.
Second one was a homebuilder, but related to the.
The economic environment, because the homebuilder business continues to be strong or just some management issues.
And people using funds for things that we didn't think were appropriate.
And so we're making good progress on both of those and really expect minimal loss on <unk>.
Either one of those projects.
Got it okay. That's great. That's all that I had thank you very much.
Amen.
Your statement.
The next question comes from Brian Martin of Janney Montgomery. Please go ahead.
Hey, good morning, guys.
Good morning, Brian Good morning, Hey.
Hey, just a couple for me just.
Maybe Todd just you talked maybe we talked last quarter, but just the thought about the margin and I appreciate the guidance and just kind of thoughts regarding next quarter, but just as you think about the back half of the year and into next year, just kind of wondering if we do get additional rate increases as it appears curve is suggesting just kind of how you think about the out year.
And just do you begin to begin to see some stabilization as the betas rise I know I.
I guess kind of just your expectations or is this kind of your thoughts on you know specific guidance, but just trying to understand when you would expect the margin maybe to begin to stabilize if we do see some of these rate hikes transpired starting today.
Sure, Brian I'm happy to speculate my Crystal ball is no more clear than yours or anyone else's, but I'll I'll do my best based on what Larry and I and the rest of our team think.
I believe it is real that we're all having a lot of success with low deposit betas right now we're able to lag.
The question is going to be how much of that is permanent and how much of that is just pure lag and it's going to catch up.
So for for Q3, we feel very comfortable about pretty significant continued expansion in that nine to 11 basis points range.
At some point.
Those deposit betas are going to creep up and they're gonna get hotter and with liquidity, leaving the market, it's going to be incumbent on on banks to start catching up on on market rates to fund so theres going to be pressure late.
I don't know when the tipping point might be I still think there's a lot of runway there and we feel very bullish about margin.
You know, maybe my punch line would be or our net interest.
Interest margin is the highest in our peer group and it was before rates started going up and it took us a long time to get there we were well positioned for rates up we're starting to take advantage of that.
We want to continue to have the highest net interest margin and our peer group I think we will.
But when we get into next year, there's going to there's going to be some real challenges in terms of funding cost and.
Just what the fed might have to do in terms of additional increases. So I know that's not a real solid answer I'll just tell you directionally, we feel very good about the guidance. We gave for youth Q3 feel like Theres still a fair amount of continued margin expansion to happen, but depending on a whole host of factors.
At some point could be in in 'twenty three that.
That flattens out and plateaus and we have you know.
Flattened merger.
Got you no that's helpful.
Tough question got it.
Thinking about it sounds like the next three two to three quarters are still pretty attractive as far as the margin goes and then we'll see what happens from there. So thanks for taking a stab at it and just maybe one or two others here just the <unk>.
You talked about that kind of a nine on the fee income side kind of a non capital markets revenue being around that nine a little bit over $9 million this quarter.
It feel like it's a kind of a good run rate I know, there's some uncertainty with bringing G that over and just kind of the mortgage outlook, there and just other areas, but is that a pretty solid level and think about building off of as we go into Q3.
Sure Brian I'm glad you asked about that we don't often talk about the other sources of noninterest income outside of the capital markets. So so that nine feels like where we settled in a post merger.
Post acquisition.
I think that's a good place for us to start into in terms of Q3 expectations, certainly wealth management was down and was down somewhat sharply.
Around 12.9% linked quarter.
Was impacted by that and I don't think anyone's surprise that that happened one and that that might continue to happen based on the market. So we.
We don't see really continued further.
Drag on wealth management.
Mortgage.
It's kind of flattened out the feedback Larry and I've gotten recently as maybe this is kind of the new run rate for Q3 at least.
So long answer to your short question I said I think nine ish is probably what we're looking for in Q3 and into Q4.
Gotcha, Okay, Brian I would add.
Ryan I would add that in our wealth management space, we continue to add clients any.
At a steady pace. So that's not the issue certainly there where we feel good about that business long term love the business and the long term Youll love it too, but when the market gets pounded.
We have to take a step back before we go forward.
Got you that's helpful and I know you guys are working on adding some more teams. So we'll see how that goes that could also obviously play a part in that so.
Maybe just last two on the capital market side, Todd I think it's just or Larry I guess, maybe maybe more for you, but just the euro.
Your ability to kind of work through the challenges in the economy, and just kind of where you see that heading.
The guide for the next two quarters as helpful. As we think about it as you kind of work through some of these challenges in the economy would your expectation be over time that may be this level.
Obviously sustainable as you, but as you get into next year is there a reason to think as you clear some of these challenges out there that the run rate could tick back up or is this you know I guess is that the wrong way to think about it and that's not really holding back the kind of the run rate as you try and make it maybe more predictable and more consistent.
Go forward.
Yes, I'll start.
I'd say for the foreseeable next few quarters, certainly that 13% to 15 field.
Now, where we should be thinking about it.
As some of the supply chain issues.
To change certainly there is the potential.
The yield curve also impacted pricing in this space, so it's a little bit hard to predict.
Certainly longer term.
We think we can grow this.
Over time.
But we really were just trying to focus mostly on making this into a consistent business. So we get the appropriate valuation on our stock.
Got it Brian I would just tag onto to Larry's comments, we guided 13 to 15.
We we'd like folks to start thinking about this business on a bit more longer term basis more annually.
And so you know it.
It might be better for all of us to think about it that we're guiding to $26 30 for the last half of the year versus necessarily 13.
15, each quarter it is very choppy.
The business got great underpinnings as Larry has said.
But it's it's difficult.
To think about it quarter to quarter with.
Just a handful of deals can really move that number pretty dramatically. So we're starting to try to talk more about it as an annual business and the annual revenue source and get away from necessarily feeling really really good or really really bad based on a two or $3 million swing right.
Yeah, No that's helpful and I think that's the right way and I think that was really my question. We're not trying to pin you guys down in a number for next year as much as just the expectation would be in our shoes. It it should be trending higher annually and we'll see what the quarterly run rate goes to but it sounds like that's how you guys feel at this point that it is sustainable it is likely your expectation would be.
It would be to try and get it higher and we'll see what happens.
Yeah, I think youre seeing right Brian .
Okay, perfect and last one Todd just simple question on.
Just your.
The accretion income in the quarter, obviously impacted by the transaction, but you know at least in the near term is this kind of an.
Appropriate level on that and it tails off or was there anything unusual in that this quarter that wouldn't be thinking about that being kind of next couple of quarters sustainable at a higher level here.
Sure No I'm glad you asked Brian for a couple of reasons one here in the first quarter. It was a bit elevated from scheduled. So this quarter's number is a bit elevated due to some pay offs right now our scheduled accretion per quarter at least the next two is more like <unk>.
650, K per quarter, so that that's really the baseline that's the scheduled accretion.
As we all know that number can move up with with payoffs and pay downs and it may but just to be transparent the base core accretion number is $6 50 a quarter.
Gotcha, and then that steps down as you get into next year is how to think about that as we model it.
Correct, and and I would expect that.
Probably not in October , but certainly in January .
Maybe October will will give you a little bit clearer picture on full year 'twenty three.
Gotcha, Okay perfect I appreciate you, taking the questions and that congrats on getting the deal closed and that good results so far.
Thank you thanks, Brian .
Okay.
The next question comes from Nathan race of Piper Sandler. Please go ahead.
Good morning.
Good morning Nate.
A question.
Just around the outlook for the reserve going forward.
It doesn't sound like you guys are expecting much if any loss content on those two legacy relationships that moved to nonaccrual in the quarter. So just assuming you know continued relatively benign charge off outlook. How are you guys kind of thinking about providing for growth in the back half of this year with that kind of 10% to 12% guidance for the full year.
Yes, Nate first of all as you know.
Sure.
Our reserve levels at $1 59, or more at the top of our peer group.
We've done what we like to say prudently conservative is we've looked at reserving.
There was a couple of large credits Youre right, we don't expect any meaningful loss in those and so we don't feel that we're going to use much of that reserve rectify a couple of the larger transactions.
We've talked about growing into our reserve level in the last few quarters.
And.
With.
The trend in loan growth, we certainly will.
Possibly even to that 159 year reserve a bit.
As I look at our projections just in the last few days.
Think we can fund the growth.
And stay above $1 50, really between now and the end of the year. So.
That Legion minimal if any additional reserving here given.
Given what we see today.
Yeah.
Okay.
Got it.
And then just kind of thinking about the appetite for buybacks going forward. Obviously you guys were.
Pretty active in the quarter and it sounds like you've already repurchased some shares so far in year three Q.
So I'm, just curious kind of where buyback stack in terms of kind of your capital deployment priorities relative to kind of what you guys see in terms of future acquisitions as well I imagine the focus is still at least for the next several quarters on successfully integrating a guarantee but it seems like you guys are in a good position. So far so just curious kind of how you guys are way.
Buyback opportunities.
With the valuation where it's at today versus kind of the outlook for acquisitions as well.
Yes, certainly I'll start and let Todd maybe fill in the blanks here in the back side.
Our strategy here is to continue to be opportunistic.
Uh huh.
A little bit of a rubik's cube here because it depends on how we see the economic factor.
Our stock prices trading how we feel about credit quality.
Do we feel about reserve levels and all of those things and so.
At this juncture.
Nothing that we're certainly ready to talk about on the M&A side. So its.
Buybacks is probably the next best use of our capital here.
And.
We're just going to kind of continue to watch the landscape and the economic.
Outlook is changing pretty quickly.
We're just not sure which direction, it's changing and so that should impact how we'd look at it in the next few quarters.
Yeah.
Got it that's helpful and then.
Yeah, just might tag on one of the things that helped us in and how we think about it.
And to Larry's point being opportunistic when the time is right.
Based on our.
Earnings run rate and the high level of earnings we're driving in our low dividend payout intentionally.
We can organically add 40 to 50 basis points.
TCE each quarter, so that <unk>.
Certainly as one of the factors that were thinking about when we're making decisions around.
Share repurchases and just wanted to get that out on the table that was really masked here this past quarter with the.
Dilution from <unk>.
The repurchases that we did the dilution from closing G fed kind of lost in the wash is the fact that.
At current earnings levels, we can add 40 to 50 bps of.
TCE organically.
Got it yeah not lost on me that you guys are building capital at a pretty strong clip. So the 150 plus outlook going forward.
Okay, Great and then just I appreciate all the earlier color in terms of just kind of a balance sheet dynamics and the margin outlook on adjusted basis, I guess I'm just curious within that context has the addition of the.
So you said does that changed the interest rate sensitivity of the balance sheet I think Todd you alluded to last quarter the rate sensitive assets exceeded the rate sensitive liabilities by I think a billion dollars or so is that still the case today.
Yes, and I'm very happy with the retail core deposit portfolio that a G bank had created.
Love the deposit betas were experiencing.
Here in the southwest, Missouri market with Guaranty Bank and so it is helping US further insulate ourselves from some of those rate pressures in some of the beta factors. So.
It was a very very good time to bring on to our consolidated balance sheet.
Deposit portfolio like Guaranty Bank is built so it's helping it certainly is.
Okay, great well I appreciate you guys, taking the questions and all the color.
Thanks Nate.
Thanks Nate.
The next question comes from Jeff Lewis.
D. A davidson. Please go ahead.
Thanks, Good morning.
Good morning, Jeff Good morning, Jeff.
Just a few maybe the follow ups, maybe just a different angle on the number of them, but the on.
On the non accruals that you added.
The two legacy and even the guarantee.
The piece that was brought over.
Any.
Expected.
The resolution on those are there maybe on the G said.
Is that bucket what it does.
Legacy you see some quick resolution on on any of the <unk>.
That group that that came over.
Yes.
Jeff I'd say.
Yeah.
Maybe the most important message we could give you is one.
With an acquired portfolio there has been no surprises so far.
What we thought it would be.
And we actually do think Theres, a chance to get some fairly quick resolution on a couple of the larger credits.
Our acquired in.
So we could see resolution on a couple of big things in the next couple of quarters.
And certainly there is a potential for the two legacy relationships that we outlined.
There is a potential to get either meaningful paydowns of resolution on those also within the next couple of quarters. So we feel good about.
Being I think prudently.
Focused on how we look at these and how we reserve for them.
Hopefully eliminate any surprises later on to you or to us.
Yeah.
And could you I don't know Todd if you have this I think the ACL to loans is at $1 59, but if you did.
Do you have a number that if you true up credit marks what that coverage would be.
Oh, I'm sorry, guys.
How does your language on news.
Yeah, Ed needed had low noise here next door so.
We're at 182 basis points, when adding back those marks Jeff. So I appreciate you asking the question and as Larry said.
Really good progress.
The Guaranty Bank portfolio, you may have missed it.
In our opening comments, but.
At announcement date and modeling.
Guaranty Bank Npa's were $12 million, they were down to $9 million at close and as Larry said, we see pretty good traction there in terms of working on those nine that remain so 182 basis points of coverage when you add in the remarks.
Got it.
And then the loan growth.
It continues to be very strong and I know you touched on this a little bit.
I guess at the low end of guidance that would imply.
To get to 10 to 12, I mean, you're booked 14 I guess.
6% at the second half I just wanted to.
Were to hit the low end of that what what does transpire, there what areas of weakness or slowdown.
What is vulnerable I know that you guys are being conservative.
Most times will well exceed that but just wanted to kind of in what scenario are you on that low bar of of growth.
Yeah I'd say.
Jeff two things come to mind immediately first of all if the supply chain issues get worse instead of better.
Because the stuff that's outside of our control of our clients.
Certainly that's that's one issue.
If all of a sudden we see real.
Recessionary trends, which is not showing up in any of our quantitative factors.
We're really in any of our client's balance sheets and income statements yet it's very.
Muted and so if we get surprised in the economy slips quickly.
That's probably why we're giving you the lower guidance that protect against those kind of things because in a recession.
Growing loans will be more challenging because clients will be.
Barn less money.
From their choice not ours necessarily if we do go into that kind of a recession. So most of the things that could impact us well, we outperform is certainly very possible.
We're trying to be conservative on that one so that we don't surprise you.
Yeah got it thanks, Larry that's just the law.
Last one on the.
The fee income again going to go to the non swap discussion.
Understand the pressures on the wealth management front.
But more specifically.
The other noninterest income was down linked quarter, three or 400000 was there anything in that that seemed a little light, but maybe that's just normal fluctuation.
Yeah, there was a single non repeated items on a linked quarter basis.
So.
It was.
Looking here to see if I had any granular detail on that yes, I don't know that I have it.
And Oh here it is.
So roughly our derivative gains and losses.
We're up.
In.
Both.
Fourth quarter and in the first quarter of 'twenty, two and that dropped off a bit in the second quarter. So we flow through some of the ineffectiveness gain and losses and derivative moves through that other category and it was just that that single line item.
That dropped in Q1.
Okay. So more.
So Q2, you mean.
From Q1 and Q4.
So in Q2.
Total other was roughly 1.2 down from 1.5 and the drop was derivative gains so may make sense to be thinking more like the the one two is more of the <unk>.
Go forward run rate on that.
Okay, Okay and then.
Got that and then.
I don't know if you had did you waive any sort of deposit fees or others on guarantee in the in the quarter that you closed here I mean was there any idea that may be.
Those come back on or you soon as they closed you were on the normal.
Deposit service charge upfront.
Yeah, Jeff interesting question I'm glad you asked it we actually.
Didn't change anything in that regard.
At closing.
Be looking at it once we get on one combined system, but have had really good success with.
Maintaining clients, even though we're running two different quarters here in southwest Missouri.
A little expensive as you might guess to have all of our locations have the capability to handle client deposits and transactions on each system.
But we've really been very successful in retaining clients or retaining fees.
Great.
Thanks for the color.
Yeah. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Larry Helling for any closing remarks.
I'd just like to thank all of you for joining our call today, we hope everyone remains healthy and safe have a great day and look forward to speaking with you all again soon.
Yes.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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