Q2 2023 QCR Holdings Inc Earnings Call
Greetings and welcome to the QC, Our Holdings, Inc. Earnings Conference call for the second quarter of 2023 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 comps.
[laughter] website, www dot QC, our H dot com.
With us today from management are Larry Helling, CEO , and Todd Gipple President M. C. F O management will provide a summary of financial results and then well open 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 guide.
Our forward looking statements as defined by the Securities and Exchange Commission.
As part of these guidelines any statements made during the 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. Additionally.
Additionally, 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 direct 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 32023, starting this afternoon approximately one hour after the completion of this call.
It will also be accessible on the company's website.
I will now turn the call over to Mr. Larry Helling at QC Our holdings.
Please go ahead.
Thank you operator welcome everyone.
Thank you for taking the time to join us today.
We'll start the call by providing some highlights for the quarter.
I would buy a discussion about our strong balance sheet performance liquidity position and capital.
As well as a review of our specialty finance business and our loan securitization strategy.
Todd will provide additional details on our financial results for the quarter.
We continue to be pleased with our operating performance in 2023.
We delivered outstanding second quarter results highlighted by robust loan and core deposit growth.
Significant fee income.
In addition, we maintained strong asset quality.
Our diverse revenue sources, which include capital markets and wealth management fees more than offset the pressure on our net interest income.
We also continued to improve upon our already solid capital levels with the exceptional earnings performance.
In the second quarter, we delivered both reported and adjusted net income.
$8 $4 million or $1 69 per diluted share.
We generated an Roe.
144%.
And in Aro AE of 13, 97% for the quarter.
And believe that both metrics remain near the high end of our peers.
Loan growth was exceptional during the quarter growing 12% on an annualized basis.
Driven primarily by our low income housing tax credit lending program.
I'll expand on our success in growing loans shortly.
Our experienced bankers grew core deposits significantly during the quarter.
Building upon our strong and diversified deposit franchise.
As a result, our loans held for investment for deposits further improved to 92, 1%.
Our uninsured and uncollateralized deposits also improved to 19, 9% and remain at very manageable levels.
Our elevated on balance sheet liquidity.
With other immediately available liquidity at the federal home loan bank debt.
More than cover our uninsured and uncollateralized.
We have assembled a strong and diversified deposit franchise over the years.
Our second quarter deposit activity continued to reflect the importance of the relationships that we've developed.
During the second quarter core deposits, excluding short term brokered deposits grew $339 million.
3% annualized.
Our asset quality remains excellent.
Our ratio of nonperforming assets to total assets decreased slightly by three basis points during the second quarter.
It remains near historic lows.
At this point.
Our reserve for credit losses represents one point or 1% of total loans and leases held for investment.
It continues to be at the high end up from here.
We remain confident that our reserve for credit losses are adequate to weather future economic uncertainty.
We plan to be disciplined and maintain prudent reserves as we continue to diligently monitor asset quality across all of our business.
We remain cautiously optimistic about the economic resiliency of our markets.
Actual health of our clients.
We are not seeing any meaningful signs of weakness.
As we mentioned last quarter, our exposure to commercial office buildings is very low and quite manageable.
3% of total loans with an average loan size of $800000.
These properties are predominantly located in suburban locations within or adjacent to our markets. They are well collateralized and are performing in line with expectations with no significant repayment concerns.
Our capital levels are strong and we remain focused on growing capital throughout the remainder of the year.
We continue to target Apple ratios in the top quartile of our peer group.
We believe that our modest dividend and strong earnings power allow us to continue to grow capital faster than our peers.
During the quarter, we grew loans 12, 2% on an annualized basis, driven primarily by the ongoing strength in our low income housing tax credit lending business.
With the growing prominence of our specialty finance group and the light Tech lending business I would like to spend some time discussing the drivers of this high performing business.
Our specialty finance team offers low income housing credit lending.
Select group of developers and investors with whom we have built long standing relationships.
Our clients continue to experience strong demand for their project as the need for affordable multifamily housing exceed supply in the markets that we serve.
These high quality loans are bolstered by strong equity investment from other banks and corporate investors.
The industry has an excellent track record with negligible historical default rates.
<unk> track record makes these loans a deal for securitization.
In addition, these loans are made on a floating rate basis, which has greatly improved our ability to manage interest rate risk.
Due to the long term ownership structure of these projects.
Our receipt lock in their financing cost over the life of the loan.
As a result, our bankers arrange interest rate swaps for the borrowers.
<unk> them here the desired fixed rate financing.
And generating significant Apple market revenue.
The light Tech business has been a consistent and important component or noninterest income.
In addition, as the economy has softened some of the previous headwinds that our clients were experiencing in this space and eat.
We saw a nice rebound in capital markets revenue from swap fees in the first half of 2023.
As the supply chain constraints and inflationary pressures on the construction costs have begun to abate.
In short this is an extremely valuable business.
And we believe that it deserves a higher valuation multiple and traditional bank.
Furthermore, based on decades of stability in the industry and our own experience. We believe that this business is counter cyclical and will be very resilient and future recessionary environments.
We are increasing the size of our planned securitization of latex owns.
We've improved pricing and execution.
We now expect to close on the transactions early in the fourth quarter.
The securitization of our latex assets will be an effective tool in managing our liquidity and capital.
In addition, it will provide expanded capacity or continued latex production and the resulting capital markets revenue.
While economic headwinds remain a risk we experienced strong loan growth during the second quarter.
As a result.
We are increasing our guidance for loan growth for the remainder of the year to be in the range of 9% to 12% on an annualized basis.
Which would result in a zero to 3% growth on an annualized basis.
A brand like Tech loan Securitizations.
I will now turn the call over to Todd.
Abide further detail regarding our second quarter results.
Thank you Larry good morning, everyone. Thanks for joining us today.
I'll start my comments with details on our balance sheet performance during the quarter.
As Larry mentioned, we grew total loans by 12, 2% on an annualized basis during the quarter.
Our 189 million of net growth.
In anticipation of our first loan Securitizations, we've classified 291 million of life Tech loans as held for sale.
We added an additional $152 million of life Tech loans to the held for sale category during the quarter as we continue to build towards the first securitization later this year.
Executing our long term securitization strategy will enable us to continue to fund the significant growth of our tax credit lending business and maintain the portfolio within our established concentration levels.
Total deposits grew 105 million during the quarter driven by strong core deposit growth from a mix of commercial retail and municipal deposits.
Growth in core deposits of $339 million, which excludes broker deposits increased total available liquidity and allowed us to reduce the amount of our broker deposits by $234 million.
Our core deposits continue to have strong diversification due to our separate charters end markets as well as our commercial client base that is spread across a variety of industries.
55% of our core deposits represent deposits from our commercial clients and to have an average balance of 214000.
Approximately 35% of our deposits consist of consumer deposits and have an average balance of 21000.
The remaining 10% of our deposits are from our 181 correspondent banking partners with an average balance of $2.3 million.
Now turning to our income statement.
We delivered net income of $28 4 million for the quarter, an annualized increase of 18, 7% as the decrease in our net interest margin was overpowered by strong capital markets revenue and well controlled expenses.
Our adjusted net interest income on a tax equivalent basis decreased $2 4 million to $59 $5 million down from 62 million in the first quarter.
Adjusted NIM on a tax equivalent yield basis was 3.28%, which was down 19 basis points from 3.47% in the prior quarter and within our guidance range.
As we anticipated and guided last quarter, we experienced a continued increase in the cost of funds during the second quarter.
This was primarily the result of a shift in the composition of our deposits from lower beta to higher beta deposits.
We've been pleased with the beta performance over a low beta deposit throughout the cycle.
However, the continued shift from noninterest and lower beta deposits to higher beta deposits has been more than expected and has led to an outsized increase in our cost of funds.
As we look to the third quarter, including the 25 basis point rate hike announced yesterday and the yield curve that continues to be sharply inverted.
Our moderate liability sensitive balance sheet creates an interest rate environment that continues to be challenging.
However, we expect the pressure on margin to lessen as the deposit mix shift has slowed and we benefit from strong late second quarter loan growth.
We are guiding adjusted NIM T Y in the range of static to down 10 basis points for the third quarter.
Turning to our noninterest income, which increased $6 7 million or 26% during the second quarter.
Our capital markets revenue was $22 5 million compared to 17 million for the first quarter, which outperformed our annualized guidance range.
Capital markets revenue from swaps continues to benefit from stabilization in the supply chain and construction costs.
In addition developers have been successful in restructuring the capital stacks in the new interest rate environment.
Capital markets revenue from swap fees has been a consistent and strong source of fee income and importantly, this revenue source has provided significant countercyclical benefits during the pandemic.
And as expected to do so in future economic downturns.
Our tax credit lending and capital markets revenue pipeline remains healthy as our clients continue to experience strong demand for new projects.
As a result, we are increasing our capital markets revenue guidance for the next 12 months to a range of $45 million to $55 million.
In addition, we generated $3 8 million of wealth management revenue in the second quarter consistent with the first quarter.
Our wealth management team continues to benefit from new relationships, adding 148, new clients and $455 million and assets under management in the first half of this year.
Now turning to our expenses.
Noninterest expense for the second quarter totaled $49 7 million compared to $48 8 million for the first quarter and within our guidance range of 48 to 51 billion.
The increase from the prior quarter was primarily due to higher variable compensation increased FDIC insurance rates and higher direct costs from holding more deposits in the Ics program.
Our strong fee based performance in the second quarter led to an increase in variable compensation, while other salary and benefit related expenses decreased.
We remain diligent in controlling our expense growth.
For the third quarter, we are reaffirming our noninterest expense guidance again this quarter to be in a range of $48 million to $51 million.
Our asset quality remains exceptional and better than our historical average.
During the quarter Mta's increase modestly M.
N P as for the quarter were $26 1 million or only 32 basis points of total assets.
<unk> half of our total Npa's consist of one relationship and we believe that this credit will be resolved without a loss.
The provision for credit losses was $3 6 million during the quarter, we expect to.
Continued to maintain strong reserves given the economic uncertainty.
Our reserve to loans held for investment was fairly static at 1.41% and continues to be at the higher end of our peer group.
Our total risk based capital ratio declined slightly by two basis points to 14, six 6% due to the strong loan growth during the quarter.
We increased our tangible common equity to tangible assets ratio to 8.28% up from $8 two 1% at the end of the prior quarter.
With our continued strong earnings coupled with our modest dividend our tangible book value per share increased by one dollar and 28.
Or 13, 2% annualized during the second quarter.
As interest rates moved higher during the quarter or a OCI declined sequentially, which partially diluted some of the growth in our tangible common equity and tangible book value.
During the quarter, we repurchased a modest number of shares our capital allocation priorities remain focused on growing our capital and targeting capital levels near the top of our peer group.
Finally, our effective tax rate for the quarter was 12, 2% compared to nine 3% in the first quarter.
The increase was due to a higher mix of taxable income primarily from the significant growth in capital markets revenue this quarter.
We continue to benefit from our strong portfolio of tax exempt investments and loans, which has helped our effective tax rate remained one of the lowest in our peer group.
We expect the effective tax rate to be in a range of 11% to 14% for the remainder of 2023.
With that added context on our second quarter financial results, let's open the call for your questions. Operator, we're ready for our first question.
Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Damon Delmonte with <unk>. Please go ahead.
Good morning, guys hope everybody's doing well today.
Damien just wanted.
Just wanted to start off on me.
Our revised outlook on the <unk>.
Capital markets revenues, I think you said $45 million to $55 million over the next.
Four quarters.
Given the strong performance here in the first half of the year and especially in the second quarter do you feel that you know the the.
The the.
The pipelines might be a little bit slower here in the back half of this year and it kind of ramps back up in 2024 or do you do you feel that just given the kind of buying out of.
Our supply chain and construction cost that you know you're going to keep a.
Higher level for the next couple of quarters.
Damon I'll start with a couple of data points were hit first.
First of all.
Our average.
Per quarter of swap fee income in 2022 was $10 million per quarter.
And our four quarter trailing.
No.
So the middle of our guidance is kind of right in the middle of those two numbers. So we're certainly trying to give you numbers that we think are achievable.
The pipeline remains strong, but as you know, it's a modest number of deals.
And move some dollars between quarters. So we certainly believe our guidance is achievable.
Barring headwinds that we can't see today because.
As we talked a lot during the pandemic about supply chain and inflation pressures on those projects those came through those.
Beautifully, but it took some time and so we're starting to feel good about the pipeline going forward.
As you know we're trying to turn this into a <unk>.
Four quarters into future business, not trying to predict what's going to happen next quarter because of the variability but.
<unk> tell you was we love this business, we think it's a great business long term there is some variability but long term the underpinnings are really solid.
Got it okay. Thanks for that color.
With regards to the.
The guidance on the margin Todd.
I believe the Accretable yield this quarter was only like $134000 compared to like 800000 last quarter. So if you kind of back both of those out of the first and second quarters. It looks like the core margin was like $3 47 to $3 28. So when we when you talk about the I think you said zero to 10 basis points compression.
Is that based off of that.
Like I use it based off the 328 number and I guess, how should we think about fair value accretion going forward.
Sure Damon first off you're spot on in terms of what happened to accretion in Q1 and Q2 I'll answer the last half first I would expect that to be more like 500000 per quarter.
Q3, and Q4, so a more normalized number.
The 328 is what you should leap off for them for for the zero to 10 basis point contraction in our guide and.
Just a little more color around how we got there we did expect as we said in the opening comments the 25 basis point hike.
We're assuming that we.
Continue to have this inverted curve and it remains fairly static we modeled a range of outcomes on core deposit mix over the quarter.
Under all scenarios, we do replace the $290 million of brokered Cds that we have maturing in Q3 was $290 million of brokers are at a five or six rate today, so going to be nice to see those roll off and replace with core deposits and then we assume the midpoint of our loan growth guidance. So.
Modeling gives us a range of outcomes from this favorable static.
Unfavorable is 10 basis points of contraction.
So that would be off of that 328 days.
Got it okay. That's very helpful. Thank you and then I guess, just lastly announced that back on the.
The credit quality, the slight uptick in nonperforming loans this quarter.
Little bit under $4 million was that one credit in particular or was there a couple involved in that.
Yes. Thanks Damon good question the tick up was just a handful of mostly equipment loans.
From small companies that came under pressure.
While we're not seeing any broad base.
Degradation in our portfolio it seems like that.
The companies that are having the most stress are really the smaller companies with less sophisticated management and those kind of things.
That's maybe.
Longer term as we've talked about normal.
As normal credit costs come into play long term I don't know when thats going to be it depends on what happens to the economy.
Normally going to feel different and so we had a handful of small companies that felt some pain.
We're trying to be out trying to deal with them and so it's certainly not a concentration in one big deal. It's a half a dozen smaller deals are accretive.
Immigrants.
Got it great. Thanks for all the color and congrats on a nice quarter.
Thanks, David Thanks, David.
The next question comes from Nathan race with Piper Sandler. Please go ahead.
Yes, hi, guys. Good morning, Thanks for taking my questions Good morning Nate.
Just wanted to kind of think about the balance sheet size and in the third quarter. It looks like the average balances including loans held for investment held for sale were about 3% higher than the end of period balances.
I just want to make sure we're thinking about the earning asset size accurately has in the third quarter.
Yeah.
Provide any color along those lines.
Yeah.
Yes.
Go ahead Larry.
Yes, I mean initially.
The guidance. We gave you was for the back half of the year.
So.
We expect.
<unk> that happened in the fourth quarter. So the growth in the third quarter will be towards the higher end of that range that we gave you and then we're going to do the securitization that'll take somebody brought up off the balance sheet in the fourth quarter.
So I mean, I think we expect continued growth we had strong growth late in the second quarter. So that's going to run into the third quarter.
So we would expect that growth to be towards the higher end of the range in the third quarter.
Okay.
Gotcha. That's helpful. So it sounds like a lot of the growth occurred late in the quarter and so earning assets should be up maybe 150 to 200 million quarter over quarter.
That would be right.
That's what we're expecting in that in that margin outcome that we talked about Nate.
Perfect just wanted to make sure I have that right.
Sure.
And then Todd.
In your expense guidance.
Does that kind of contemplate you guys hitting the midpoint of the next 12 months capital markets revenue expectations are.
How should we kind of think about the variability of the expense base relative to that revenue source in particular.
Sure as you well know Nate that has a pretty significant impact on noninterest expense I am comfortable that we would still be within that upper end of the range at $51 million.
Even if we continue to perform at the higher range of our annualized guidance that we just <unk>.
Increased to 55.
For a rolling 12 months.
We still feel very confident about coming in at that $51 million or a touch under.
Okay, Great and then just maybe one last one.
Last one Larry Youre, describing a pretty strong core deposit pipeline coming into <unk> and it seems like that kind of came to fruition here in the second quarter. So it would just be curious kind of what the kind of the pipeline looks for additional core deposit wins and share gains.
Yeah, I'll start and then maybe let Todd finish year, certainly the pipeline still remains strong and Im certainly.
Really proud of our team for 23% core deposit growth during the quarter.
You can see what we did late in the first quarter when the banking market was just getting disrupted we added a bunch of broker Cds just to boost liquidity in them.
What we did very successfully in the last quarters rotate in a lot of that out and replace it with core deposits.
So I would say the pipeline certainly still there and we've proven that our client base.
When we need the money we can go get it from them, but we're certainly feel good about that certainly in this environment.
So deposit pipeline still feels fine to us.
Got it Thats great to hear and then if I could actually just ask one last one just in terms of the outlook on.
The ACL.
Came down a little bit quarter over quarter as a goal to kind of just hold it here and just provide for growth and any charge offs that it seems like the charge off outlook looks fairly benign.
Coming out of the second quarter.
Yes.
Great question, Nathan I'd say, yes, we're going to hold it probably in the 140 is given what we know today.
Barring some change in the economy, good or bad here certainly we think this is a.
Prudent level to be at the high end, our peer group and our credit quality is certainly consistent with our peer group. So I think we're trying to take a conservative approach and manage it around these numbers as much as we can.
Okay perfect.
I.
I appreciate you guys, taking the questions and all the color. Thanks again.
Thank you Nate.
Our next question comes from Brian Martin with Janney Montgomery. Please go ahead.
Hey, good morning, guys.
Good morning, Brian .
Todd maybe just one back for that on the core deposit that swapped from what you are changing out from the broker to the new core deposits. This quarter, what was kind of a range of outlook as far as where those funding where those get replaced that.
Sure really glad you asked that question, Brian . So again, just to reset we've had $290 million of brokerage we're going to replace at a 506, our expectation is to do that really at that five or six or slightly better.
A lot of success in Q2 with growing deposits as you can see.
I'm looking at a sheet as some of our big wins, and we had some new money from existing clients at a $50 million in the mid fives, but we also picked up some significant dollars from existing clients in the mid fours and we continue to bring on some new clients.
<unk>.
Certainly some of those new funds would be with a five handle but I'm looking at a couple of wins here with a couple of four and $5 million new relationships in the two and three range in terms of Ics money markets. So.
We're working really hard to replace that at a lesser weighted average rate them at 506 and that really is part of our.
Even though we guided static that 10 basis points of contraction.
That may be a little more optimistic than most might've expected and we think thats certainly achievable. We are really focused on growing core deposits.
Whether pricing. These days, we think we'll beat that five or six.
Got you no that's helpful.
Kind of your outlook for rates, Todd I mean does it kind of contemplate that the if it's down next quarter not picking a number but sequentially, it's down a little maybe a little bit last fourth quarter and kind of against to trough out to trough is that big picture, how we should think about the near term.
Well, Brian maybe if you could be a little more players are you asking me about our expectations on the fed or more on our deposit fundings.
Margin in your outlook on.
You actually have the rate increase yes.
Yeah, Okay, so kind of a blended answer here.
You know Theres no meeting in August there was a meeting in September I.
I guess no one really knows if we will see another increase or another pause there, but we're very optimistic about.
One achieving this guidance in the third quarter of static to turn down.
We're very optimistic about margin in the fourth quarter, Larry gave some more details around the securitization in the fourth quarter that securitization will be will actually be NIM accretive by about four basis points. So we'll get a little bit of western margin from the securitization and that offtake.
There's a ton of other benefits of course, but will give us a little lift in margin.
And we're.
We're right now at a 50.
Beta on total deposits for the entire cycle.
We think that's getting pretty close to our peak beta and while we probably got to peek betas more quickly than most of the industry.
We feel like we're through the worst of it now and.
Maybe the rest of the industry might have a little longer tail.
On that level of beta performance, but where we're more optimistic about the back half of the year for all those reasons Gotcha. No. That's helpful. I appreciate it and maybe just last one on margins just remind us.
If we do see some cuts next year.
The.
How how <unk> sets up in that type of environment.
Yeah. Thanks, Brian .
Our now modestly liability sensitive.
Over time, we have gone from a <unk>.
<unk> sensitivity that helped us in the first third of the.
Of the hiking cycle. So during the first third we saw margin expansion.
As our deposits have rotated from noninterest bearing and <unk>.
Low beta interest bearing 200 beta deposits, we've now converted to where we are modestly liability sensitive so.
Win rate cuts were to take place, who you know however, long that might be out in the future when that does happen, we feel like we're well positioned to see some margin lift when rates come back down.
Perfect. Okay. That's super helpful and just if I can ask one last one just the commentary on loan growth and taken the guidance up.
Look you guys talked about the specialty business being particularly strong, but the traditional side, maybe being a little bit more modest I guess in your guide or just how youre thinking about the next couple of quarters do you see some rebound in that traditional business or is it still more specialty business, that's kind of leading the charge.
Yes, I think the.
The specialty business.
Especially the light tech space is very resilient and it seems to be.
As we talked about it in the past there was kind of a slowing down of that during the pandemic that now seems to be kind of back to normal pace on that business.
The core.
Commercial business C&I, a normal commercial real estate.
Theyre still dealing with the shock up in rates and I think it's.
The fact that the psychology of people so.
Certainly I think we will grow but at a modest pace certainly low single digits there.
And how we're going to get to that double digit pre securitization kind of numbers is really because of the nice growth in our lifetimes.
Got you Okay perfect I appreciate you guys, taking all the questions.
Thanks, Matt.
The next question comes from Jeff <unk> with D. A Davidson. Please go ahead.
Hi, Good morning, this is Andrew on for Jeff today.
Just another.
Follow up question in regards to the light Tech loans, just wondering what type of servicing revenue or gain you receive from those and then also just wondering who the targeted buyers of that product are.
Yeah. So.
First of all.
We will probably not retain the servicing long term, that's not probably a long term play for us as we would have to build some more infrastructure.
As we securitize, though so initially we're going to engage an outside service around that.
And so the buyers for this.
We are turning this into a AAA rated security are institutional investors of all times insurance companies banks.
Funds those kind of places where this would go.
So we think it's readily marketable.
And we will go to the normal kind of institutional buyers.
Okay that makes sense. Thank you.
And then another question maybe more on the expense side, just with the with the surgeon fee income this quarter.
We thought expenses might have kicked up a little higher but.
Going forward is there a way to handicap the variable cost component when.
Fees are higher or lower than average.
Sure Andrew there's there's a correlation certainly.
Between the capital markets results in our variable compensation.
And historically.
Four.
All in.
Incentives and variable comp around that you might say that's 20%.
That.
I guess I would say beat so to the extent we.
We might beat our guidance on a more normal quarter, roughly 20% of that beat would add to the noninterest expense carry.
The reason that you didn't see it here in the second quarter quite honestly as we expected several quarters ago.
Margins, maybe getting squeezed in our industry and we've really at our entire leadership team focused on being deliberate and thoughtful around expenses, we've been doing that for several quarters now that's why our noninterest expense guide has remained very static here probably for the last four quarters.
And we're just really focused paying attention to expenses, we're still making great long term decisions, but we're just being more thoughtful and intentional on spend so.
That's why that 48 to 51 guide I think we're still pretty comfortable that even though we might be in the upper end of that.
Range, we'd still be within the range, even if we outperform on capital markets revenue, so kind of a long answer to your short question, but just a lot of moving parts, there, but really think about a 20%.
Handle on that capital markets revenue.
Thank you that's very helpful.
And then just one more from me do you have a June average for net interest margin our spot rate on cost of deposits.
Yeah actually.
Probably feel more comfortable just doing the spot margin, but I'm very glad you asked that question because we have not gotten to that that's one of the reasons that we are pretty confident about a good outcome in Q3.
Our Q3 NIM was at 328 that we talked about with Damon earlier in the call. The big contraction in margin in the second quarter was really in April and May or May margin was 326 in June was static at $3 26.
That's one of the reasons, we have some confidence about a good outcome in Q3, we really saw that level off in June .
So I hope that helps.
That helps thank you congrats on the quarter.
Thank you Andrew.
The next question comes from Daniel Tamayo with Raymond James. Please go ahead.
Thank you good morning, everyone.
Maybe.
Just a little bit further digging into the light tech portfolio.
First just you.
If you could.
Remind us kind of how much.
In terms of what's on the balance sheet is in construction and multifamily.
Multifamily just specific to <unk> at this point.
Okay. Thanks Daniel.
We've got about $800 million Mitek stabilized.
That's.
Up and running.
Would be able to securitize at any time.
As we go forward and then we got a little over $800 million in construction that is in the process of stabilizing and completion.
And so.
That's what we'll be creating the future pipeline of.
Securitizing assets as we go forward.
Okay.
Okay.
Alright, thank you for that.
And then.
In terms of the kind of the.
Deposit relationship for those borrowers.
How do you think about kind of loan to deposit for the light tech borrowers or you know how much in deposits or are you getting.
From them and what type.
Currently our they are.
Are they putting on.
Yes, we are getting deposits from those sorts of business, but certainly not at the pace, we're putting loans.
It's around $150 million that we gotten into deposits out of that sector of the business. So far and we have a new initiative that we are getting more serious about collecting deposits from that space.
Just because it makes sense from a long term business perspective, it would be a combination.
Interest bearing some low interest bearing deposit cost because there is certainly.
Reserve funds and those kind of things that are parts of the structuring that we've put together. So it's kind of a combination of both I would say in interest bearing non interest bearing.
Accounts typically non maturity type deposit.
Okay great.
And then just circling back to that to the loan growth conversation.
So you talked about kind of a zero to 3% net loan growth.
Of the securitization it sounds like the.
Securitization that could be a bigger part of the strategy going forward.
Just two questions here first how big are you comfortable letting.
The light tech.
On portfolio on balance sheet loans get and number two how are you how are we thinking about or how are you thinking about kind of net loan growth.
Maybe into 2024, it's probably more a function of the traditional loan growth coming back, but just curious if this is <unk>.
This all fits into the bigger picture.
Great.
So yes, if you look at the light tech loans or in total about 1 billion, 6% rate, we're going to securitize shortage, just short of $300 million.
In the fourth quarter, we're taking the top off of it there.
If we do let it grow it would those outstandings would grow at a modest pace going forward.
Probably more in the 5% range on balance sheet, which would our capital than 50 base with and keep it relatively soon.
Static at the same percent of capital.
Longer term for loan growth I think that's the beauty of this securitization tool that we have that most of them would have we can use it to manage liquidity and capital and loan growth pretty nicely.
As long as we plan out in front of a quarter or two as we look for future Securitizations.
We expect to do more securitizations.
In 2024.
As we get closer to that will probably give you some indication of when and how much.
But yes, certainly we're going to take the top off of that growth.
That much more modestly on balance sheet.
Should EBIT close to the same kind of relative basis as a percent of capital.
Okay.
Okay, Great. That's helpful and just lastly, again on the light Tech.
What are the yields on those loans look like.
Especially relative to kind of what you already are doing them.
Construction and multifamily.
The yields are.
Number one does.
Exclusively floating rate loans on our books.
And those yields are between and also tax effected because there's a tax.
Exempt component to a big portion of the loans. So the tax equivalent yields are in the sevens up 8%.
Yes.
That's for the construction portion.
And for the and for the permanent because the permanent are floating.
And on our books too so thats all floating out those same relative prices.
Got it alright.
Terrific. Thanks for all the color there that's all I had.
Thanks Danielle.
Yes.
This concludes our question and answer session I would now like to turn the call over to Mr. Larry Helling for closing remarks.
Thanks to all of you for joining our call today, we appreciate your interest in our company.
Great day, we look forward to talking with you again in the coming months.
The conference has now concluded. Thank you for your participation you may now disconnect.
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