Q3 2022 QCR Holdings Inc Earnings Call
Greetings and welcome to the Q C. Our Holdings, Inc. Earnings Conference call for the third quarter of 2022.
Yesterday after market close the company distributed its third 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 www dot QC or a stock comp.
With us today from management are Larry Helling, CEO , and Todd Gipple, President C O O N CFO .
Management will provide a brief summary of the <unk>.
Financial results and then we.
Well 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.
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 additions.
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 November 3rd 2022, 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 QC or hold it.
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 third quarter performance Todd will follow with additional details on our financial results for the quarter.
We delivered another strong quarter of net income driven by exceptional loan growth improved credit quality and carefully manage the expenses.
In addition, we strengthened our total risk based capital ratio for the quarter with our previously announced $100 million subordinated debt issuance.
This transaction increased our total risk based capital ratio by 140 basis points.
We posted core earnings of $28 $9 million or $1 69 per share generating an ROA.
A $1 five 1% after adjusting for nonrecurring items.
Building on the momentum we generated in the first half of the year, we delivered robust lending activity again in the third quarter with annualized loan growth of 14, 5%.
Our loan growth for the quarter was driven by strength in our traditional commercial lending leasing and specialty finance businesses are.
Our experienced lenders continue to generate exceptional levels of loan growth.
Given our current pipelines, we are reaffirming our targeted loan growth of between 10 and 12% for the fourth quarter, while continuing to be vigilant on maintaining our exceptional credit quality.
Our loan growth was primarily funded by growth in our deposits, which grew by $120 million or eight 3% on an annualized basis.
However, we did experience a shift in the composition of our deposits are non interest bearing demand deposits declined as the liquidity positions of our larger commercial and correspondent bank clients returned to more normal pre pandemic levels.
We were successful in moving some of the correspondent bank deposits onto our balance sheet during the third quarter.
In addition, our time deposit portfolio grew.
Some of our more rate sensitive clients shifted to term deposits.
This shift in mix within our overall funding has added some upward pressure on our deposit costs.
During the quarter, we expanded our adjusted net interest margin by five basis points prior to the three basis point dilutive impact of our subordinated debt issuance as the impact of multiple rate hikes on our asset sensitive balance sheet drove interest earning asset yields higher.
Increased cost of deposits and the impact of our subordinated debt issuance limited the increase in NIM.
Notably our adjusted NIM is up 26 basis points year over year Todd.
Todd will go into more detail in his remarks.
We did see a modest decline in noninterest income in the third quarter as a result of lower capital market revenues from swap fees.
This was primarily due to the delays in client projects caused by ongoing supply chain disruptions inflationary pressures and higher interest rates.
Despite the delays the underlying economics for these projects remains strong.
Housing developments utilized tax credits, which provide affordable housing primarily across select middle markets throughout the central U S and the southeast.
These are high quality loans being made to experienced developers with low loan to values.
The industry has an excellent track record with minimal historic default rates since our program's inception in 2018, we are proud to have helped finance over 250 projects consisting of nearly 13000 affordable housing units.
We remain optimistic about this line of business is the need for affordable housing has never been greater.
As a result, we expect it to continue to be a significant and consistent contributor to our profitability going forward.
Our asset quality improved during the quarter as nonperforming loans declined by $6 $3 million or 27% we.
We have manageable net charge offs during the quarter and are comfortable with our reserves, which represent $1 five 1% of total loans and leases.
We are mindful of recessionary concerns, but remain cautiously optimistic about the relative economic resiliency of our markets. Additionally.
Additionally, our excellent asset quality and strong credit culture.
Pairs as well to weather economic uncertainty.
As we previously announced during the third quarter, we issued $100 million of new subordinated debt as a proactive move to bolster our capital position.
We believe that we are well positioned for potential economic challenges that may occur we.
We have strong earnings a solid 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 turn the call over to Todd to provide further information about our first quarter results.
Thank you Larry good morning, everyone. Thanks for joining us today.
Start with net interest income.
Our net interest income on a tax equivalent basis adjusted for acquisition related accretion and PPP was $64 1 million in annualized increase of 28% from the second quarter.
The increase was due to the linked quarter growth in average, earning assets of approximately 14% annualized coupled with higher yields on those assets with a beta of 33% for the quarter.
Additionally, our loan yield expanded 54 basis points for a beta of 36%.
Partially offsetting the strong growth in earning assets and improved yields we experienced higher interest expense as a result of higher deposit costs a shift in the mix of our deposits and the impact of our recent subordinated debt issuance.
Our adjusted NIM improved by five basis points prior to the three basis point dilutive impact of our subordinated debt issuance as we know NIM impact is typically nonlinear during periods of rapid rate increases.
In the previous quarter, we saw the benefits of a slower and lower deposit betas as we posted a NIM increase of 17 basis points in the second quarter. However, those betas accelerated as we progressed through the third quarter and two additional fed rate increases.
The first half of the year, our beta on total deposits was 8%.
For the third quarter, our beta on total deposits moved to 31%.
And for the full rate hype cycle to date, our beta on total deposits is 20%, which is still below our beta from the last period of rising rates that ended in 2019, which was 30%.
Part of the increased data as a result of our shift in our deposit mix, which we expect to lessen as we move through the rate hike cycle.
Our talented bankers are focused on growing well priced core deposits to continue to fund our strong loan growth.
Looking at our performance on our cycle to date basis, our adjusted NIM has expanded 26 basis points from the fourth quarter of 2021.
With robust organic loan growth and solid NIM expansion for the year. Our net interest income has also experienced significant growth and we have achieved a NIM at or near the top of our peer group.
Looking ahead, we project adjusted NIM expansion in the range of two to four basis points in the fourth quarter. After the additional dilution from a full quarter of the subordinated debt issuance.
Turning to our noninterest income, which was $21 1 million for the quarter lower than the $22 8 million, we generated in the second quarter.
As Larry mentioned, our capital markets revenue was below our guidance range of $13 million to $15 million and was $10 5 million for the quarter.
Despite the project delays that our clients are experiencing our pipeline remains strong capital markets revenue has averaged approximately $11 million per quarter for the last four quarters and therefore, we expect this source of fee income to be in a range of $10 million to $12 million for the fourth quarter.
Rounding out the discussion of noninterest income, we generated $3 $5 million of wealth management revenue in the third quarter consistent with the second quarter. Despite the market decline.
Our wealth management team continues to generate meaningful new client relationships and is adding significant new assets under management, which is helping to offset the sharp decline in stock market valuations.
Now turning to our expenses.
Noninterest expense for the third quarter totaled $47 7 million compared to $54 2 million for the second quarter.
The decrease from the prior quarter was primarily due to elevated expenses in the second quarter related to the Guaranty Bank acquisition and lower incentive based compensation this quarter.
After adjusting both quarters for acquisition and post acquisition related expenses non interest expenses were relatively static at 47, 3% and $47 $4 million, respectively and at the low end of our guidance range of $47 million to $49 million.
Looking ahead to the fourth quarter, we anticipate that our level of noninterest expense will again be in the range of $47 million to $49 million.
As Larry noted our overall asset quality continues to be quite strong nonperforming assets improved by $6 million down to $18 million at the end of the third quarter driven by Paydowns on several NPA during the quarter.
The ratio of NPA to total assets was two 3% at the end of the third quarter compared to three 3% for the prior quarter. In addition, the Companys criticized loans and classified loans to total loans and leases at the end of the third quarter improved to 235% and 129% risk.
Secondly, as compared to 237% and 143% from the prior quarter.
We did not record a provision for credit losses in the third quarter as a result of continued improvements in overall credit quality or.
Our allowance for credit losses remained strong at $1 five 1% of total loans and leases. This allowance represents over five times, our nonperforming assets.
As Larry mentioned, we strengthened our total risk based capital ratio during the quarter with our subordinated debt issuance and stronger earnings posting an improvement of 115 basis points to 14 five 5%.
While our tangible common equity to tangible assets ratio declined to 7.68% at quarter end compared to $8. One 1% at the end of June . This was largely the result of a decline in our <unk> and our share repurchase activity during the quarter.
While a OCI and the share repurchases negatively impacted the company's tangible common equity our strong earnings helped to offset this impact which led to a slight increase in tangible book value per share.
Finally, our effective tax rate for the quarter increased to 14, 1% from eight 9% in the second quarter.
<unk> was higher due to a higher ratio of taxable earnings to tax exempt revenue in the third quarter. We expect the effective tax rate to be in a range of 14% to 16% for the fourth quarter.
With that added context on our third quarter financial results, let's open up the call for your questions.
Operators, we are ready for our first question.
Thank you.
We will now begin the question and answer session.
Last quick question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our okay.
Our first question comes from Damon Delmonte with TCW. Please go ahead.
Hey, Good morning, guys hope everybody is doing well today.
Bring Dana good.
Good morning, just wanted to quick question on credit obviously, if things continue to be really strong you have a healthy reserve.
How should we think about provision going forward.
Just given a continued favorable outlook for loan growth and then just kind of growing.
Concerns about softness throughout the broader economy.
Thanks Damon.
First I would say.
There are no signs of credit deterioration at this juncture and I think the whole.
Sector. Thanks, there'll be some softness sometime during next year, but certainly has not shown up in any of our measurement so far.
We run towards the very high end of our peer group from a reserve standpoint.
So certainly for the fourth quarter, we would expect minimal to no provision in the fourth quarter.
As we go into next year, we'll probably be try and give you a little more guidance on that and when we do the fourth quarter earnings.
Fair enough.
The charge offs you incurred this quarter could you just elaborate on that a little bit.
Yes, it's nice when the charge offs. This small get your attention there.
Cleanup.
And they were very modest most of the reduction in our Npa's came from payoffs of a couple of non accruals.
So they were just two isolated deals that we decided that we should clean up.
Hopefully in one of the future quarters will talk about some recoveries on a couple of those.
Okay, Great and then with regards to the margin outlook Todd.
Todd I think you said.
A couple of basis points of expansion in two to four basis points in the fourth quarter.
As you look at your balance sheet and you look at the impact of rising deposit and funding costs do you think the margin kind of peaks here in the fourth quarter or do you think there's still opportunity to see expansion going into 'twenty three.
Yes, thanks for the question Damon.
We don't believe that Q4 will be the last quarter of margin expansion. We did guide to that two to four basis points of continued margin expansion again thats five to seven really a core margin net of three basis points for the full quarter of the sub debt.
Still remains solidly asset sensitive or about $900 million and net RSA is around $2 4 billion RSA.
$1 $5 billion of ourselves.
Here in the third quarter.
The.
The deposit beta of lag that we experienced.
Up to the third quarter caught up with our clients a bit and.
Snapped back.
We expect that to moderate a bit in Q4, I guess I would say.
Q2, the deposit betas were soft Q3, they were pretty hard Q4.
We expect those to kind of be in the middle of that range.
So that's why we're expecting some expansion in Q4, we don't think we're peaked yet by the end of the year because of that net rsa's. So we expect to continue to see some expansion.
Sure thing just to.
Good point of reference here, our Q3, new loan rates coming on at.
An average of 513.
In Q2 that was up 405, so new new loans are coming on at better rates. So while we're getting some lift in the floating rate loans, our new loan production is also lifted a bad.
Got it and can you just remind us the balance of your your rate sensitive deposits that you have.
The ones that.
That reprice immediately.
Sure sure that's that's pretty close to that one five.
Okay.
We have very few other ourselves other than those very high betas.
Got it okay.
Great. That's all I had for now thank you.
Thanks, David.
Our next question comes from.
Daniel.
To me.
Raymond James Please go ahead.
Thank you good morning, guys.
Okay.
Yes, I guess maybe.
Just following up on the margin not to beat a dead horse here, but.
I know most folks are guiding to.
Deposit betas going up in the fourth quarter is.
As you know.
Depositors' demand higher rates and certainly you had.
More pressure than I think.
A lot of banks in the third quarter, but what could you gives you confidence that.
That those deposit betas will moderate from the third quarter levels here in the fourth quarter.
Sure Dan a great question I.
I will tell you our deposit base reacts more.
More quickly than most given their very significantly.
Sized commercial deposits for the most part so we will tend to react.
A little bit more harshly more quickly and that really showed up here.
Here in the third quarter.
We have really we believe experienced most of the mix shift now our noninterest bearing is down around 20%.
From 24% in that 20% is really more historical norm, so that impact on the compression.
The high beta in Q3, we think that's about done that mixed shift component.
And right now we're looking for that 31% beta.
On non index deposits that we saw in Q3, we're expecting that to be more in the twenty's in Q4 or 20.
20% to 25% beta range.
I know, that's a bit counterintuitive compared to what some of our peers are guiding to.
I would just tell you our showed up a little more early.
And fairly significant here in Q3, but we think that's going to moderate a bit we think we're through.
Some of the worst of it.
In our opening comments I mentioned non linear I think that's really the case, particularly for our deposit base is a little choppy with respect to deposit betas.
We're expecting that the harshest part of it is what we saw here in Q3.
That color hopefully a little bit with that.
Yes, it does thanks Todd.
And I guess, a little bit of a follow up.
Somewhat unrelated just on the deposit side I mean, you reiterated the 10% to 12% loan growth guide.
You've got the.
The loan to deposit ratio now up over 100%.
But a lot of competition certainly for deposits out there.
How do you feel about being able to maintain that.
Loan to deposit ratio in that range or are you comfortable going higher.
Or do you plan to utilize more wholesale funding going forward.
Sure Great Great question, Thanks for asking that one so so yes, we're over 100.
Loan to deposit.
First I'm going to talk about that ratio and then talk about where we expect to go.
We will historically have a higher loan to deposit ratio than our peers.
Because of the numerator.
Our percentage of loans to total assets is about 10% higher than most of the peer group, we're at 78% of our.
Total assets are loans, so the L and a loan to deposit ratio is higher for us. So we typically will hover more in the 90 to 100, even in normal times.
We would like to see this be around 95.
And we think we can get there.
We elevated but over 100 here in Q3, but our goal would be to be in the 95% to 98 range.
For a longer period of time.
Deposit competition is fierce pricing as fears we have great bankers all around.
The company and we're going to work very hard to fund it with core deposits.
It's a little bit about the ratio in the result that we tend to show and then a little bit more about what our expectations are going forward.
And I'll add that.
I was just had an all employee meeting in our Cedar Rapids location. This morning.
We talked about having record new account openings in retail in the month of August .
And we're having.
Record wealth management, new account openings, so certainly the underpinnings longtime were great.
Adding new clients and new relationships, but certainly.
The short term has been exacerbated by the interest rate environment.
Understood, Yes, no thanks for that color.
And then finally just.
Shifting gears here over to the noninterest income side and specifically on the swap fees.
Continued pressure there are headwinds from that.
No.
Supply chain issues, and then obviously from higher rates as you called out but.
With the with the guidance now for that $10 million to $12 million range in the fourth quarter.
Down from from what it was that earlier this year, but in prior years.
Should we think about that as the new.
Uh huh.
Guidance range in future years, or do you think you can get that back up to historical levels in.
In 2023 and beyond.
Yes.
There will be a little cautious on guiding into 2023 at this point certainly we think thats a reasonable expectation for the fourth quarter.
And.
It will depend over time, the fed will get what it wants which will slow down.
Inventory.
Price of materials.
And the supply chain stuff has started to get a little bit better.
But then at the same time the interest rate decline that was really kind of offset it and maintain the kind of pressure on getting capital stacks that together.
So it will certainly depend on what the interest rate environment is in the cost of building new facilities are.
What I would say is there is no shortage of demand for the product.
The people who need affordable housing that is at record levels and sell these projects that we have in our books are performing spectacularly, it's really about the challenge of getting capital stacks put together to make these work.
Which is kind of what the fed increase in rates is all about not just in this space, but everywhere is theres going to be some slowness until we kind of get through the curve and they get their slowdown accomplished.
So longer term.
There is potential when that will be will depend on that combination of factors between cost of getting projects done.
The cost of financing them.
That's helpful. Thanks for answering my questions. That's all I have.
Thanks Danny.
Our next question comes from Brian Martin with Janney Montgomery. Please go ahead.
Good morning, guys.
Good morning, Brian .
I'm going to ask a question here too.
I don't know if you covered I apologize I joined a little bit late but just the.
Todd I think you talked about the migration of deposits just wondering I guess and maybe you said this but is your sense that kind of where the deposit mix is today is kind of where it should stay kind of pre pandemic or did I maybe.
And I hear what Youre, saying properly just kind of wondering if you still expect some migration given the change in rates, we've seen on the on the deposit side prospectively.
Sure no Brian its always good to be clear about mix.
I would say that the mix shift that we experienced in Q3, we think is the high point of that shift.
We're at roughly 20% noninterest bearing which is more of our historical norm, we've been floating around 'twenty four 'twenty five 'twenty six.
With all the excess liquidity in the market. It's now at 'twenty, we expect it to really be pretty static at that level. So that part of the mix shift. We think is over certainly there will continue to be.
Pressure on non rate sensitive clients waking up and deciding they are rate sensitive. So there is going to continue to be pressure on some of the mix change some of the pricing, but I guess, what we're really saying is we think the worst of that is behind us in terms of our deposit base our.
Asset base as you know is much.
Much chunkier much bigger.
Typical deposits a lot of commercial in there.
Of.
Great sensitivity around that so it reacted more quickly than most but we think the majority of that headwind is behind us got.
Got you Okay. That's helpful and just the other easy ones just from a.
A buyback standpoint did you cover that or can you just give any thoughts on how you're thinking about the buyback from here.
Yes, I'll take a swing at that one Brian .
We slowed down a bit.
The past quarter.
Yes.
It seemed like the prudent thing to hold onto a little bit more capital given the.
As expected.
Recession that we think could happen next year or so but as you know we're approaching.
Our top third of our peer group from a capital ratio standpoint, when you look at total risk base.
So we probably are at the point in the next few quarters, where we will have the alternative available to us too.
Buyback more aggressively barring.
Major economic downturn, which we certainly were not seeing today.
But we just thought it was prudent to position ourselves in the upper <unk> and close to 15 on GAAP over total risk base.
We think that bodes well for our company and for our shareholders long term.
We're going to be in a spud sometime in the next year, we're having lots of capital will be the right answer.
Got you Okay. That's helpful and maybe just the last one or two is just the.
Do you have kind of what the monthly margin was for the month of September just kind of just trying to understand how how much you've already seen kind of by the end of the quarter, what the dynamics have been.
Sure Brian .
Yes, we think the majority of the.
Pressure on deposit betas were really spread fairly evenly through the quarter.
It wasn't like that pressure on beta was ramping up right at the end so.
I think that's another reason, we're providing some some guidance for Q4. There is some continued expansion is it is not like that was ramping up it was.
Consistent throughout the quarter got you. Okay. That's helpful. And then just the last one have you guys the loan growth or just the pipelines.
Loan growth has been really strong.
Quite some time now just kind of curious.
<unk> taken as you look out over the coming quarters I'm not looking for much.
Outlet, if youre going to give that more in 'twenty three but just are you getting the sense that the customers are pulling back some or I guess.
Are they still kind of.
Optimistic.
Some type of <unk>.
Growth like we've been seeing a sustainable just trying to get a feel for what you're hearing from your customers.
Yes, Brian .
Deferred certainly is intent on slowing things down a bit and where we're seeing it most.
Would be and just new can do.
<unk>.
It would be in the new construction.
Because of material cost inflation and higher interest rate, making the capital stack work, we've noticed that most.
Because of the fee income business from our swap portfolio, but it's true in other sectors of the business. What are the developers are just slowing down a bit.
Add to that a bit.
Normal C&I clients are performing really well.
And probably more inclined to do.
Plant expansions.
Yes.
Another company.
Looking for ways to grow their presence because theyre operating metrics have been really strong. So that's part of the offset and probably why we think we can do what we've done historically, which has been 8% to 10% we've done that.
Decades now.
Our next question comes from Nathan race with Piper Sandler. Please go ahead.
Yes, hi, guys. Good morning, it's taking the question.
Just go back to the margin discussion curious.
Based on kind of the weighted average rate of.
Loan production in the third quarter and more recently.
Relative to maybe the spot rate on deposits at the end of September .
The growth that you're seeing relative to kind of what you are paying on deposits. These days is that margin accretive generally speaking.
Yes, generally speaking on the margin.
The net new on both sides of the balance sheet it is accretive.
And again I think that's why we're optimistic that we're not done growing margin.
Okay great.
Then maybe just turning to <unk>.
Capital you guys remained active on the buybacks.
This quarter is that a component that you guys expect to continue to utilize within your capital management toolbox at least in the fourth quarter.
Imagine within the context that you guys are still focused on <unk>.
Integrating chi fed, albeit it's probably in the middle late innings at this point.
So just trying to get an update in terms of kind of how you guys are thinking about managing excess capital just given that profitability is going to remain pretty strong.
Going forward.
Yes.
First of all.
Just a comment on the <unk> integration I would say, it's gone really well.
We've asked the system conversions.
Well.
I've been around velocities in my career. These went about as well as I've seen any of them do so kudos to our team for helping pull off the system.
There'll be some speed bumps between now and the end of the year, but we're past.
Power curve.
And conversion.
Secondly on capital.
We're getting close to where we kind of targeted as you know we were really aggressive in the buyback in the second quarter, a little less aggressive last quarter.
We're getting capital levels now because of our low dividend, we can accrete capital pretty quickly.
And so we're.
Sure.
Probably like to be approaching 15% at some point over the next.
Year, or so just because it seems like the prudent place to be a total risk based capital between.
So in the next recession.
So that should allow us to do some stock buyback, but probably not at the same levels. We did in the second quarter.
Okay got it.
Switching gears, a little bit and I got on a little late so I apologize. If this was touched on but just in terms of kind of future deposit growth expectations in the sources of that do you guys expecting just some continued share gains across your footprint should be the main driver there or do you guys intend to maybe tap some of the off balance sheet deposits.
From the correspondent platform to support what looks like it's still pretty strong loan growth expectations into the fourth quarter.
Sure Nate.
To cover that.
Yes, we do expect to continue to fund our loan growth predominantly with core deposit growth. We have shifted some of the correspondent deposits that were off balance sheet on balance sheet. We consider those core there is those are 200 very good clients of ours.
We're really focused.
At all of our charters on growing core deposits.
So I don't really see much of a need to go off balance sheet. We have worked very very hard over the last three to five years.
To wean ourselves almost entirely off wholesale funding, we have a little bit of it today.
But we really want to pull that loan to deposit ratio back into the upper <unk> from from the 102.
Okay great.
And just maybe one last housekeeping question just on the accretion impact going forward as the step down that we saw relative to G said something that we should extrapolate out in future quarters going forward.
Nate So glad you asked the question that's a bit of a big number and so just to recap what's happened and give you a little bit of guidance going forward. So we saw a pretty significant impact of accretion in the first quarter of the transaction, which would've been in Q2 at $1 7 million.
Ian.
That was really the base accretion plus some early.
Pay offs and restructurings.
<unk> 1 million here in Q3, which was really predominantly just the base accretion amount.
We expect that to float up to around one five to two here in the fourth quarter.
We know already that we've had some restructurings and some pay offs to.
Add to the base accretion and then maybe think of it more like a $1 million per quarter.
Base in 2024, with some fluctuation to add to that occasionally when we see some some payoffs or paydowns.
On the on those acquired loans so.
The $1 million this quarter was pretty much base, we're going to float up here in Q4, with some known payoffs, but $1 million per quarter pretty solid amount for 'twenty for probably some.
Yes.
Sometimes we'll have some payoffs on top of that during 2004.
Does that help.
Yes, no that's helpful.
He is up for a million per quarter for 2003.
24.
Sorry 23.
23.
Thank you.
Awesome, great well I appreciate all the color you guys.
Any questions.
Thanks Nate.
Thanks, Dave.
Our next question comes from Jeff Rubin plant of D. A Davidson. Please go ahead.
Thanks, Good morning.
When I just wanted to circle back on.
NPA.
The Paydowns sounds like you got.
A little more aggressive things came to a head.
To kind of deal with those upfront and reduce non performers.
I wanted to get a sense if that was anything if that was timing based or if it was.
Sort of a dedicated effort to clean some things up and if so are there.
Is there any sort of lumpier credits in there.
Think you can chase down in the short term to continue that trend.
Yes, Jeff.
Just to kind of put us all on the same page as a little bit of history.
Last quarter, we had a little hiccup.
Or in the prior quarter, we had a tick up because of.
Two things number one or two credits.
Of decent size that we put on the NPA list.
And then the.
The acquisition of the GE portfolio.
And so it's kind of a combination of both of those that ticked our portfolio NPA is up just a bit.
And we've made good progress.
Just four or five credits.
The largest one that was an NPA.
One from several millions to almost paid off.
A corner.
So just really good work by our team on getting that paid down substantially.
And then on several smaller credits low seven figure balances, we just had.
Two three or four of those that we just had been working on and we've gotten those worked out of the bank. So.
Really good progress there aren't many large deals left in there so.
There's one that's probably a moderate seven figure number.
We could be out of by the end of the year.
We expect with no loss it may take into the first wanted to get out of that but.
As you know these take some time so.
We're continuing to chip away trying to use what's still a really good credit environment to make ourselves.
Christine before we expect some kind of downturn to impact that credit quality.
Okay. Thanks, Larry.
And then just.
We've got the guide on on expenses kind of flat linked quarter.
I guess within the range.
Given the merger.
Integration.
Largely complete in.
I guess, if we go into 'twenty, three if maybe growth moderates.
Any expectations for <unk>.
Expense.
Growth off that base exiting Q4.
Okay.
Yes, Jeff Thanks for asking about expenses, we haven't really talked about those so yes. We are we're maintaining that that guide of 47 to 49 here for Q.
Q4.
I think we're very well versed with our 96, five philosophy and our 5%.
Expectations around expense growth.
So we certainly will see some growth in expenses next year.
In keeping with 96, five we would expect those to be no more than five we will see some cost savings from now having the <unk>.
Conversion and integration behind Us and southwest, Missouri with Guaranty Bank. So we'd like to think that that will help offset some of that expense pressure.
But I think you can count on us to show some pretty.
Well managed expense creep, we tend to focus.
Pretty closely on that as you know.
So we don't really expect to see any big jump there.
Thanks, Todd maybe a last housekeeping.
<unk> referenced the tax rate of 14 to 16 in Q4.
So similar question just kind of roll forward into 'twenty. Three do you think you look like you're mid double digit versus high teens.
23.
Yes.
Yes, correct, Jeff it would be a little more modest than historical.
A lot of our light tech portfolio is.
As.
Tax exempt and that's grown in the way, it's growing and so our.
Our tax benefit from from that part of our portfolio is getting stronger so somewhere in the <unk>.
Middle teens versus the upper teens would be good thing to use for 'twenty three.
Okay. Thank you.
Thanks, Jeff.
Thanks, Joe.
Our next question comes from.
Daniel Tamayo with Raymond James Please go ahead.
Hey, guys just a quick clarification follow up here on the margin just wanted to make sure that I'm understanding this correctly.
Two to four basis point.
NIM guidance that you talked about was before the adjusted NIM was before the accretion numbers that you talked about is that correct.
Correct, Danny yes that would be the core NIM not affected by accounting.
Acquisition accounting accretion.
That would be on top of that for NII dollars.
Got it okay. That's all I had thanks guys.
Thanks for clarifying that.
This concludes our question and answer session I would like to turn the conference back over to Mr. Larry Helling for any closing remarks.
Thanks to all of you for joining our call today have a great day, we look forward to speaking with you all again soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.