Q1 2024 QCR Holdings Inc Earnings Call
Operator: Greetings and welcome to the QCR Holdings Inc earnings conference call for the first quarter of 2024. Yesterday after the market closed, the company distributed its first 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.
Greetings and welcome to the Q C. Our Holdings, Inc. Earnings Conference call for the first quarter of 'twenty 'twenty four.
Yesterday after market close the company distributed its first quarter earnings press release.
If there's anyone on the call who has not received a copy you may access it on the company's website at Www Dot Q C. R H dot com.
Operator: QCRH.com. With us today from management are Larry Helling, CEO, and Todd Gipple, President and CFO. Management will provide a summary of the financial results, and then we'll open the call to questions from analysts. Before we begin, I would like to remind everyone that some of the information management we'll 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 future events and forward-looking statements and actual results could differ materially from those projected.
With us today from management are Larry Helling, CEO, and Todd Gipple, President and CFO.
Management will provide a summary of the financial results and then we'll 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 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 future and forward looking statements and actual results could be different differ materially from those projected.
Operator: 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.
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.
Operator: The press release available on the company's website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of GAAP to non-GAAP measures. And lastly, as a reminder, this conference is being recorded and will be available for replay through May 1st, 2024, 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 QCR Holdings.
The press release available on the company's website contains the financial and other quantitative information to be discussed today as well as the.
Reconciliation of GAAP to non-GAAP measures.
And lastly, as a reminder, this conference is being recorded and will be available for replay through May one 2020 for 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.
Larry J. Helling: Thank you operator.
Larry J. Helling: Welcome everyone.
Larry J. Helling: and thanks for joining us today. I'll begin by providing some highlights for the quarter, followed by a discussion on our strategic priorities. Todd will then follow with additional details regarding our financial results for the quarter. We delivered strong first-quarter results highlighted by significant fee income and continued growth in both our core deposit and loan balance. In addition, we continue to benefit from well-managed expenses, improve upon our already excellent asset quality, and further strengthen our capital ratio. In the first quarter, we produced an adjusted net income of $26.9 million, or $1.59 per diluted share.
And thank you for joining us today.
Larry J. Helling: Begin by providing some highlights for the quarter, followed by a discussion on our strategic priorities.
Larry J. Helling: I will then follow with additional details regarding our financial results for the quarter.
We delivered strong first quarter results highlighted by significant fee income and continued growth in both our core deposit and loan balances.
Larry J. Helling: Addition, we continued to benefit from well manage expenses.
Larry J. Helling: Proved upon our already excellent asset quality and further strengthened our capital ratios.
Larry J. Helling: In the first quarter, we produced adjusted net income of $26 $9 million or $1 59 per diluted share.
Larry J. Helling: We generated an ROAA of 1.25% and an ROAE of 11.83% for the quarter, and believe that both metrics remain near the high end of our peer base. We grew total loans 6.4% on an annualized basis during the quarter, driven primarily by our low-income housing tax credit lending program. We also grew core deposits significantly, increasing them by $316 million or 20.3% on an annualized basis, adding to our strong and diversified deposit franchise. As a result, our loans held for investment to deposit ratio improved to 93.6%. The exceptional deposit growth achieved during the first quarter was driven by growth in our correspondent bank deposits.
Larry J. Helling: We generated an ROA of.
Larry J. Helling: 1.25% and.
Larry J. Helling: And in our O E of 11, 83% for the quarter and believe that both metrics remain near the high end of our peer group.
Larry J. Helling: We grew total loans six 4% on an annualized basis during the quarter driven primarily by our low income housing tax credit lending program.
Larry J. Helling: We also grew core deposit significantly increasing them by $316 million or 23% on an annualized basis, adding.
Larry J. Helling: Adding to our strong and diversified deposit franchise.
Larry J. Helling: As a result, our loans held for investment to deposit ratio improved to 93, 6%.
Larry J. Helling: The exceptional deposit growth achieved during the first quarter was driven by growth in our correspondent bank deposits. Our success in growing deposits underscores our commitment to expanding our market share with existing clients and establishing new relationships within the communities we serve.
Larry J. Helling: Our success in growing deposits underscores our commitment to expanding our market share with existing clients and establishing new relationships within the communities we serve. Our asset quality remains excellent, as the ratio of non-performing assets to total assets improved by four basis points during the first quarter and remains below our historical average levels at 36 basis points. A reserve for credit losses represents 1.33% of total loans and leases held for investment and continues to be near the high end of our peer group.
Our asset quality remains excellent.
Larry J. Helling: The ratio of nonperforming assets to total assets improved by four basis points during the first quarter and remains below our historical average levels at 36 basis points.
Larry J. Helling: Our reserve for credit losses represents 133% of total loans and leases held for investment and continues to be near the high end of our peer group.
Larry J. Helling: We remain disciplined in our underwriting, maintain prudent reserves, and diligently monitor asset quality across all business lines. We also continued to see positive trends this quarter in our total criticized and classified loans as a percentage of total loans and leases. We are cautiously optimistic about the economic resilience of our markets and the financial health of our clients. We are not seeing any meaningful signs of weakness across our footprint. Our exposure to commercial office billings is minimal and well-controlled, constituting just 3% of total loans with an average loan size of $859,000.
Larry J. Helling: We remain disciplined in our underwriting maintained prudent reserves and diligently monitor asset quality across all business lines.
Larry J. Helling: We also continued to see positive trends this quarter and our total criticized and classified loans as a percentage of total loans and leases.
Larry J. Helling: We are cautiously optimistic and the economic resilience of our markets and the financial health of our clients.
Larry J. Helling: We are not seeing any meaningful signs of weakness across our footprint.
Larry J. Helling: Our exposure to commercial office billings is minimal and well controlled.
Larry J. Helling: Constituting just 3% of total loans with average loan size of $859000.
Larry J. Helling: These properties are primarily situated in suburban locations, either within or adjacent to our market. Importantly, they are well collateralized and performing in line with expectations, and we have no significant repayment concerns. In addition, our construction and land development portfolio is performing well. However, balances in this sector declined 19% from the prior quarter as projects reached completion and transferred into permanent financing.
Larry J. Helling: These properties are primarily situated in suburban locations either within or adjacent to our markets.
Larry J. Helling: Importantly, there are well collateralized and performing in line with expectations and we have no significant prepayment concerns.
Larry J. Helling: In addition, our construction and land development portfolio is performing well.
Larry J. Helling: Balances in this sector declined 19% from the prior quarter as projects reached completion and transferred into permanent financing.
Larry J. Helling: The majority of our construction and land development loans consist of financing for high-quality, low-income housing tax credit projects. The LIHTC lending program has been instrumental in creating affordable housing units and has been a significant strategic initiative for our company in recent years. We consider this to be the best asset class in our loan portfolio. The entire LIHTC industry enjoys an outstanding historical track record and solid underpinnings. In recent years, we've navigated a challenging construction period, overcoming pandemic-related difficulties, supply chain disruptions, and inflationary pressure. Given the superior quality of the LIHTC construction portfolio, and despite the headwinds, we have had negligible credit issues from this sector of our business.
Larry J. Helling: The majority of our construction and land development loans consist of financing on high quality low income housing tax credit projects.
Larry J. Helling: The light Tech lending program has been instrumental in creating affordable housing units and has been a significant strategic initiative for our company over recent years.
Larry J. Helling: We consider this to be the best asset class in our loan portfolio.
The entire latex industry enjoys an outstanding historical track record and solid underpinnings.
Larry J. Helling: In recent years, we've navigated a challenging construction period, overcoming pandemic related difficulties supply chain disruptions and inflationary pressures.
Larry J. Helling: Given the superior quality of the light tech construction portfolio.
Larry J. Helling: And despite the headwinds we have had negligible credit issues from this sector of our business.
Larry J. Helling: We maintain disciplined underwriting and prudent credit administration. It also underscores the strength of our risk management practices and commitment to prudent lending. Our remaining CRE portfolio is performing well, and it's with clients we trust and in markets that we know and understand. Our capital levels remain strong, and we believe that our modest dividend and solid earnings will enable us to continue to grow capital faster than our peers as we delve into our strategic priorities for 2024 and beyond. It's essential to highlight our 9-6-5 strategy.
Larry J. Helling: We maintained disciplined underwriting and vigilant credit administration.
Larry J. Helling: It also underscores the strength of our risk management practices and commitment to prudent lending.
Larry J. Helling: Our remaining CRE portfolio is performing well.
With clients, we trust and in markets that we know and understand.
Larry J. Helling: Our capital levels remained strong and we believe that our modest dividend and solid earnings will enable us to continue to grow capital faster than our peers.
Larry J. Helling: As we delve into our strategic priorities for 2024 and beyond it is essential to highlight our 965 strategy.
Larry J. Helling: We crafted this long-term initiative in 2019 with the purpose of driving our financial results to enhance shareholder value. We have delivered on those goals, and our overall financial performance has been exceptional. Over the last three years, core diluted earnings per share has grown at a compounded annual rate of 21%, and tangible book value per share by 11% per year. Our adjusted ROAA was 1.41% in 2023, up 28 basis points over the three-year period and near the top quartile of our peer group.
Larry J. Helling: We crafted this long term initiative in 2019 with the purpose of driving our financial results to enhance shareholder value.
Larry J. Helling: We have delivered on those goals and our overall financial performance has been exceptional.
Larry J. Helling: Over the last three years core diluted earnings per share has grown at a compounded annual rate of 21%.
Larry J. Helling: Tangible book value per share by 11% per year.
Larry J. Helling: Our adjusted <unk> was 1.41% in 2023.
Larry J. Helling: Up 28 basis points over the three year period.
Larry J. Helling: And near the top quartile of our peer group.
Larry J. Helling: Our priority is to sustain this outstanding financial performance. We will achieve this by retaining the core of our 9-6-5 strategy. Additionally, we remain committed to delivering top-tier financial performance across several key metrics, including earnings per share, tangible book value per share growth, ROAA, and continuing to increase our capital ratio.
Larry J. Helling: Our priority is to sustain this outstanding financial performance, we will achieve this by retaining the core of our 96 five strategy.
We remain committed to delivering top tier financial performance across several key metrics.
Larry J. Helling: <unk> earnings per share.
Larry J. Helling: Tangible book value per share growth R O, a a and continuing to increase our capital ratios.
Larry J. Helling: Additionally, we plan to fund future loan growth through core deposit growth and ongoing securitizations.
Larry J. Helling: We plan to fund future loan growth through core deposit growth and ongoing securitization. Our qualitative goals encompass enhancing employee and client experiences by investing in best-in-class technology for greater efficiency and continuing to invest in and support the communities in which we operate. In summary, we believe that our commitment to sustained top-tier financial performance will enhance shareholder value in the long run. I will now turn the call over to Todd to provide further detail regarding our first quarter results.
Larry J. Helling: Our qualitative goals encompass enhancing employee and client experiences by investing in best in class technology for greater efficiency and continuing to invest in and support the communities in which we operate.
Larry J. Helling: In summary.
Larry J. Helling: We believe that our commitment to sustain top tier financial performance will enhance shareholder value in the long run.
Larry J. Helling: I will now turn the call over to Todd to provide further detail regarding our first quarter results.
Todd A. Gipple: Thank you, Larry. Good morning, everyone.
Todd A. Gipple: Thank you Larry good morning, everyone. Thanks for joining us today.
Todd A. Gipple: Thanks for joining us today. I'll start my comments with details on our balance sheet performance during the quarter. As Larry mentioned, our total loans grew 6.4% on an annualized basis during the quarter, or $105 million of net growth. In anticipation of our next loan securitization, we designated $275 million of LIHTC loans as held for sale at the end of the quarter. As we have previously discussed, our long-term securitization strategy allows us to sustain the strong performance of our LIHTC lending.
Todd A. Gipple: Start my comments with details on our balance sheet performance during the quarter.
Todd A. Gipple: As Larry mentioned, our total loans grew six 4% on an annualized basis during the quarter or $105 million of net growth.
Todd A. Gipple: In anticipation of our next loan securitization, we have designated 275 million of life Tech loans as held for sale at the end of the quarter.
Todd A. Gipple: As we have previously discussed our long term securitization strategy allows us to sustain the strong performance of our life Tech lending business.
Todd A. Gipple: In addition, this will continue to drive the corresponding capital markets revenue that we earn from this business, all while ensuring our portfolio remains within our established concentration levels. Core deposits increased $316 million during the quarter, or just over 20% on an annualized basis. As Larry mentioned, growing our core deposits remains a top priority.
Todd A. Gipple: In addition, this will continue to drive the corresponding capital markets revenue that we earn from this business all while ensuring our portfolio remains within our established concentration levels.
Todd A. Gipple: Core deposits increased $316 million during the quarter or just over 20% on an annualized basis.
Todd A. Gipple: As Larry mentioned growing our core deposits remains a top priority.
Todd A. Gipple: This strategic focus enables us to sustain our future loan growth while reducing reliance on wholesale or higher-cost funding. During the first quarter, our exceptional deposit growth facilitated a combined reduction of $252 million in overnight borrowings and brokered deposits. Our total uninsured and uncollateralized deposits remain very low at 20% of total deposits.
This strategic focus enables us to sustain our future loan growth, while reducing reliance on wholesale or higher cost funding.
Todd A. Gipple: During the first quarter, our exceptional deposit growth facilitated a combined reduction of $252 million in overnight borrowings and broker deposits.
Todd A. Gipple: Our total uninsured and uncollateralized deposits remained very low at 20% of total deposits.
Todd A. Gipple: In addition, the company maintained approximately 3.2 billion of available liquidity sources at quarter end, which included 1.3 billion of immediately available liquidity. Now turning to our income statement, we delivered net income of $26.7 million, or $1.58 per diluted share for the quarter. Our adjusted net income was $26.9 million, or $1.59 per diluted share.
Todd A. Gipple: In addition, the company maintained approximately $3 2 billion of available liquidity sources at quarter end, which includes $1 3 billion of immediately available liquidity.
Speaker Change: Now turning to our income statement.
Speaker Change: We delivered net income of $26 7 million or $1.58 per diluted share for the quarter.
Speaker Change: Our adjusted net income was $26 9 million or $1.59 per diluted share.
Todd A. Gipple: And interest income for the first quarter of 2024 totaled $54.7 million, a decrease of $1 million from the fourth quarter of 2023. This decrease was influenced by several non-client factors, including the maturity of $125 million of interest rate caps on our index deposit and the conversion of $65 million of our subordinated debt to a higher floating rate, which contributed a combined $1.3 million of additional interest expense. We also had lower loan discount accretion by $310,000, and there was one less day in the quarter, which had an impact of approximately $600,000 on net interest income.
Speaker Change: Net interest income for the first quarter of 2024 totaled $54 7 million a decrease of $1 million from the fourth quarter of 2023.
Speaker Change: This decrease was influenced by several non client factors, including the maturity of 125 million of interest rate caps on our index deposits and the conversion of $65 million of our subordinated debt to a higher floating rate, which contributed a combined $1 3 million of additional interest.
Speaker Change: But.
Speaker Change: We also had lower loan discount accretion by 310000, and there was one less day in the quarter, which had an impact of approximately 600000 decrease in net interest income.
Todd A. Gipple: However, the company's net interest income driven by core activity saw growth of approximately $1.2 million during the first quarter, led by continued expansion in loan and investment yields. However, our adjusted NIM on a tax equivalent basis declined by five basis points from the fourth quarter of 2023 and was at the low end of our guidance range. The decrease was driven primarily by a combination of non-client factors, including the expiration of interest rate caps and the repricing of a portion of our subordinated debt, which collectively contributed seven basis points of NIM dilution. However, we were able to partially offset this non-client impact with core NIM expansion of two bases.
Speaker Change: However, the company's net interest income driven by core activity saw growth of approximately $1 2 million. During the first quarter led by continued expansion in loan and investment yields.
Speaker Change: Our adjusted NIM on a tax equivalent basis declined by five basis points from the fourth quarter of 2023 and was at the low end of our guidance range.
Speaker Change: The decrease was driven primarily by a combination of non client factors, including the expiration of interest rate caps and the repricing of a portion of our subordinated debt, which collectively contributed seven basis points of NIM dilution.
Speaker Change: However, we were able to partially offset this non client impact with core NIM expansion of two basis points.
Todd A. Gipple: Notably, our core NIM expansion was less than expected due to additional shifts in our deposit composition. Specifically, our non-interest-bearing deposit portfolio has experienced a net decline over the past year as our commercial clients use more cash for operations and are investing excess cash in interest-bearing deposits. Looking ahead, we continue to use the forward yield curve as the baseline for our interest rate assumption, which no longer includes any rate cuts for the second quarter. However, the inverted yield curve continues to pressure our NEM. However, we do not have any new non-client headwinds in the second quarter.
Speaker Change: Notably our core NIM expansion was less than expected due to additional shifts in our deposit composition.
Speaker Change: Specifically, our noninterest bearing deposit portfolio has experienced a net decline over the past year as our commercial clients use more cash for operations and are investing excess cash and interest bearing deposits.
Speaker Change: Looking ahead, we continue to use the forward yield curve as the baseline for our interest rate assumptions, which no longer includes any rate cuts for the second quarter.
Speaker Change: The inverted yield curve continues to pressure our NIM. However, we do not have any new non client headwinds in the second quarter.
Todd A. Gipple: Therefore, assuming a static funding mix, we anticipate that our expansion in loan and investment yields will generally offset any further increase in our funding costs, leading to growth in net interest income. As a result, we are reaffirming our guidance for a relatively static adjusted NEMTEY in the second quarter of 2024 with a range of five basis points of expansion on the high end and five basis points of compression on the low end.
Speaker Change: Therefore, assuming a static funding mix, we anticipate that our expansion in loan and investment yields will generally offset any further increase in our funding costs leading to growth in net interest income.
Speaker Change: As a result, we are reaffirming our guidance for a relatively static adjusted NIM T Y in the second quarter of 2024 with a range of five basis points of expansion on the high end and five basis points of compression on the low end.
Todd A. Gipple: We continue to be well-positioned for a rates-down scenario. In the past year, our balance sheet has shifted from asset-sensitive to firmly liability-sensitive. The shift is primarily due to changes in our funding mix to more higher beta funding. Turning to our non-interest income of $26.9 million for the first quarter, which was down from our record $47.7 million in the fourth quarter of 2023. Our capital markets revenue was $16.5 million in the quarter as our LIHTC lending and revenue from swap fees continued to benefit from the strong demand for affordable housing.
Speaker Change: We continue to be well positioned for our rates down scenario in the past year, our balance sheet has shifted from asset sensitive to firmly liability sensitive.
Speaker Change: This shift is primarily due to changes in our funding mix to more higher beta funding.
Speaker Change: Turning to our noninterest income of $26 9 million for the first quarter, which was down from a record $47 7 million in the fourth quarter of 2023.
Speaker Change: Our capital markets revenue was $16 5 million in the quarter as our life Tech lending and revenue from swap fees continues to benefit from the strong demand for affordable housing.
Todd A. Gipple: Our pipeline in this business remains healthy, and therefore, we are reaffirming our capital markets revenue guidance for the next 12 months to be in a range of $50 to $60 million. We generated $4.3 million of wealth management revenue in the first quarter, up 16% on an annualized basis from the fourth quarter. In addition to the expansion of our wealth management business at our Guaranteed Bank Charter in 2023, we are pleased to announce the recent launch of our wealth management business in the attractive Des Moines, Iowa metropolitan market at our community state bank charter.
Speaker Change: Our pipeline in this business remains healthy and therefore, we are reaffirming our capital markets revenue guidance for the next 12 months to be in a range of $50 million to $60 million.
Speaker Change: We generated $4 $3 million of wealth management revenue in the first quarter up 16% on an annualized basis from the fourth quarter.
Speaker Change: In addition to the expansion of our wealth management business at our Guaranty Bank charter in 2023.
Speaker Change: We are pleased to announce the recent launch of our wealth management business in the attractive des Moines, Iowa Metropolitan market at our community State Bank charter.
Todd A. Gipple: We have a highly experienced team in place and anticipate further growth of our already successful wealth management business model. Now, turning to our expenses. Non-interest expense for the first quarter totaled $50.7 million compared to $60.9 million for the fourth quarter. The length of quarter decrease was primarily due to lower variable employee compensation related to our record fourth quarter and full year performance in 2020. As we look ahead to the second quarter, we expect our non-interest expenses to continue to be in the range of $49 to $52 million.
Speaker Change: We have a highly experienced team in place and anticipate further growth of our already successful wealth management business model.
Speaker Change: Now turning to our expenses.
Speaker Change: Noninterest expense for the first quarter totaled $50 7 million compared to $60 9 million for the fourth quarter.
Speaker Change: Linked quarter decrease was primarily due to lower variable employee compensation related to our record fourth quarter and full year performance in 2023.
Speaker Change: As we look ahead to the second quarter, we expect our noninterest expenses to continue to be in the range of $49 million to $52 million.
Todd A. Gipple: Our ongoing focus is on effective management of recurring non-interest expenses, and we continue to benefit from our investments in technology in creating a best-in-class group operations team that supports our multi-charter community banking model. Now shifting to Asset Quality, which continues to be a; During the quarter, NPAs declined by 3 million to 31 million, or 36 basis points of total assets. The provision for credit losses was $3 million during the quarter, and our allowance for credit losses to total loans held for investment was static quarter over quarter at 1.33%. Net charge-offs were also static in the fourth quarter and remain at historical lows at just five basis points of average loans at least.
Speaker Change: Our ongoing focus is on effective management of recurring noninterest expenses and we continue to benefit from our investments in technology and creating a best in class group operations team that supports our multi charter community banking model.
Speaker Change: Now shifting to asset quality, which continues to be excellent.
Speaker Change: During the quarter Npa's declined by 3 million to $31 million or 36 basis points of total assets.
Speaker Change: The provision for credit losses was $3 million during the quarter and our allowance for credit losses to total loans held for investment was static quarter over quarter at 133%.
Speaker Change: Net charge offs were also static to the fourth quarter and remain at historical lows at just five basis points of average loans and leases.
Todd A. Gipple: Our Tangible Common Equity to Tangible Assets ratio increased by 19 basis points to 8.94% at quarter end, up from 8.75% at the end of December. The first quarter improvement in our TCE ratio was primarily driven by our strong earnings and was only partially offset by a $5.4 million decrease in AOCI. Our total risk-based capital ratio was 14.30% at quarter end, and our common equity tier one ratio was 9.91%, improving by one basis point and 24 basis points, respectively, on a linked quarter basis.
Speaker Change: Our tangible common equity to tangible assets ratio increased by 19 basis points to 894% at quarter end up from 875% at the end of December.
Speaker Change: The first quarter improvement in our TCE ratio was primarily driven by our strong earnings and was only partially offset by a $5 4 million decrease in OCI.
Speaker Change: Our total risk based capital ratio was $14 three zero percent at quarter end and our common equity tier one ratio was 991% improving by one basis point and 24 basis points, respectively on a linked quarter basis.
Todd A. Gipple: The improvement in both capital ratios was due to strong earnings. We are also pleased to deliver another meaningful increase in our tangible book value per share, which grew by $1.12 or just over 10% annualized during the quarter. Finally, our effective tax rate for the quarter was 4% compared to 12% in the prior quarter. The late-quarter decline was due primarily to the sequentially lower capital markets revenue we earned during the quarter, decreasing the mix of our taxable income as compared to our tax-exempt income.
Speaker Change: The improvement in both capital ratios was due to strong earnings.
Speaker Change: We were also pleased to deliver another meaningful increase in our tangible book value per share, which grew by $1 12, or just over 10% annualized during the quarter.
Speaker Change: Finally, our effective tax rate for the quarter was 4% compared to 12% in the prior quarter.
Speaker Change: Quarter decline was due primarily to the sequentially lower capital markets revenue, we earned during the quarter decreasing the mix of our taxable income as compared to our tax exempt income.
Todd A. Gipple: In addition, we've recognized a stronger tax benefit on our stock-based compensation, which tends to be elevated in the first quarter. We also continue to benefit from our tax-exempt loan and bond portfolio. As a result, this has helped our effective tax rate to remain one of the lowest in our period. We continue to expect our effective tax rate to be in a range of 8 to 11 percent for the full year 2025. With that added context on our first quarter financial results, let's open the call to your questions. Operator, we're ready for our first question.
Speaker Change: In addition, we recognized a stronger tax benefit on our stock based compensation, which tends to be elevated in the first quarter.
Speaker Change: We also continue to benefit from our tax exempt loan and bond portfolios.
Speaker Change: As a result this has helped our effective tax rate to remain one of the lowest in our peer group.
Speaker Change: We continue to expect our effective tax rate to be in a range of 8% to 11% for the full year 2024.
Speaker Change: With that added context on our first quarter financial results, let's open the call for your questions.
Speaker Change: Operator, we're ready for our first question.
Operator: We will now begin the question and answer session. As a reminder, to ask a question, you may press star, then one on your touchtone phone. And if you're using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw a question, please press star, then two. At this time, we will take our first question, which will come from Nathan Race with Piper Sandler. Please go ahead.
Speaker Change: We will now begin the question and answer session.
Speaker Change: A reminder to ask a question you May Press Star then one on your Touchtone phone and if youre using a speakerphone. Please pick up your handset before pressing the keys. If you would like to withdraw question. Please press Star then two.
Speaker Change: At this time, we will take our first question, which will come from Nathan race with Piper Sandler. Please go ahead.
Nathan James Race: I want to start just in terms of kind of thinking about the impact of the upcoming latex securizations in terms of when you expect that to occur and then also just in terms of how we should think about QCR Holdings Inc.
Nathan James Race: Hi, guys good morning.
Nathan James Race: Good morning.
Nathan James Race: Wanted to start just in terms of the kind of thinking about the impact of the upcoming latex securitizations in terms of when you expect that to occur and then also just in terms of how we should think about the.
Core margin impact from that I think.
Nathan James Race: From our last securitization had some bad.
Nathan James Race: Is there to the margin and also trying to think about what kind of offset we can expect in terms of the reduction in earning assets relative to maybe some higher.
Todd A. Gipple: Sure. Nate, I think I'll start, let Larry chime in a little bit with our longer-term strategy on securitizations, but I would tell you that $275 million securitization we do expect that to occur in the third quarter, not late here in the second. So for modeling purposes, you can expect that in the third quarter. But, as we've talked, for us, it's less about ultimate gain or loss on the sale of those securitized loans. It's more about the benefit it gives us in terms of liquidity and, therefore, core deposit pricing.
Nathan James Race: Hi.
Nathan James Race: Gain on sale revenue.
Speaker Change: Sure Nate.
Nate: I think I'll start I'll, let Larry chime in a little bit with our longer term strategy on securitization, but wood.
Speaker Change: I would tell you that 275 million securitization, we do expect that to occur in.
Speaker Change: In the third quarter not late here in the second.
Larry J. Helling: So for modeling purposes, you can expect that in the third quarter.
Larry J. Helling: As we've talked for us, it's less about ultimate gain or loss on sale of those securitized loans, it's more about the benefit it gives us in liquidity and therefore core deposit pricing. So we do expect a lift in net interest margin in the third quarter when that securitization is.
Todd A. Gipple: So we do expect a lift in net interest margin in the third quarter when that securitization is complete. As we've seen in past securitizations, it really does help take the pressure off funding. And we've seen that in the past. We actually feel like perhaps that benefit will be a bit more in the third quarter because core deposit pricing has eased a bit in our markets, and we're starting to see more core deposit generation in the fours versus fives.
Larry J. Helling: Please.
Larry J. Helling: As we've seen in past Securitizations. It really does help take the pressure off.
Larry J. Helling: Funding cost.
Larry J. Helling: And we've seen that in the past we actually feel.
Larry J. Helling: Feel like perhaps that benefit will be a bit more in the third quarter, because core deposit pricing really in our markets has eased a bit and we're starting to see more core deposit generation in the fours versus fives.
Todd A. Gipple: So, the combination of that and the $275 million in liquidity we'll get, we're very optimistic about that helping us with margin going forward. And then, of course, all the benefits of allowing us to keep that LIHTC engine running and the capital markets revenue going. We're very pleased to have securitization in hand. I know Larry's probably got some comments on the next securitization and a little more around our strategy in the
Larry J. Helling: So combination of of that and the $275 million in liquidity will get.
Larry J. Helling: We're very optimistic about that helping us with margin going forward and then of course, all the benefits to allowing us to keep that logitech engine running and the capital markets revenue growing.
Larry J. Helling: We're very pleased to have a securitization in hand.
Larry J. Helling: I know Larry has probably got some comments on.
Larry J. Helling: The next securitization in a little more around our strategy in the future.
Larry J. Helling: Yeah, Nate, the next one that we'll do early in the third quarter, on tax-exempt loans. We'll likely do a smaller one later in the year, that will be taxable loans, so probably roughly half the size of this one, probably late in the year.
Larry J. Helling: Yes Nathan.
Larry J. Helling: Yeah.
Nathan James Race: This securitization the next one that we will do early in the third quarter.
Nathan James Race: On tax exempt loans will likely do a smaller one later in the year.
Nathan James Race: But that will be taxable loans, so likely you roughly half the size of this one.
Nathan James Race: Probably late in the year.
Larry J. Helling: Again, our focus is not, we certainly want efficient execution, but this is more about creating capacity for us. And so we've learned a lot, and haven't done two securitizations. I think we'll need to do several more before we figure out the most efficient ways and the timing in the marketplace and how to package these to get the most efficient execution. Over time, we'll certainly expect to get some gains on sale. Again, that was never the intent here, and it'll probably take us a few more to learn the best way to get more efficient with that.
Nathan James Race: Again, our focus is not we certainly want efficient execution, but this is more about great capacity for us and so we've learned a lot haven't done two securitizations I think we will need to do.
Nathan James Race: Several more before we figure out the most efficient ways of the timing in the marketplace and how to package these to get the.
Nathan James Race: The most efficient execution.
Nathan James Race: Over time, we will certainly expect to get some gains on sale again that was never the intent here and it will probably take us a few more to learn the best way to get.
Nathan James Race: More efficient with that so and then future Securitizations, that's something we would expect to do on an ongoing basis annually or semi annually.
Larry J. Helling: So, and then future securitizations, that's something we would expect to do on an ongoing basis, annually or semi-annually. It'll depend on the timing of that on, you know, what our liquidity looks like, other loan demand, all those kinds of things as we go forward. So it's a little hard to tell, but certainly, as Todd telegraphed, you know, this first securitization early in the third quarter, and likely another smaller one late in the year.
Nathan James Race: It'll depend on.
Nathan James Race: The timing of that.
Nathan James Race: What our liquidity it looks like other loan demand all those kinds of things as we go forward. So it's a little hard to tell but certainly as Todd telegraphed.
Nathan James Race: This first securitization early in the third quarter likely another smaller one late in the year.
Nathan James Race: Okay, great. Very helpful. And then just going back to Todd's point in terms of deposit cost pressures, you know, obviously a decline in non-trust deposits in the quarter. I'm curious in terms of the driver there and just in terms of what you saw in terms of the degree of deposit cost increases over the quarter and in terms of whether you're seeing continued slowdown in that pressure.
Speaker Change: Okay, Great very helpful. And then just going back to Todd for it in terms of.
Nathan James Race: Deposit cost pressures.
Nathan James Race: Obviously, you had a decline.
Nathan James Race: Noninterest.
Todd A. Gipple: A positive in the quarter I am curious in terms of the driver there and just in terms of what you saw in terms of the.
Todd Gipple: Degree of deposit cost increases over the.
Todd Gipple: Quarter and in terms of if you're seeing continued slow down and that pressure.
Todd A. Gipple: Thanks for the great questions around that. First, I'm going to talk about non-interest bearing, a $79 million reduction in non-interest bearing that really cost us about five basis points of margin this past quarter. We are monitoring NIBs very, very closely in all locations.
Speaker Change: Sure <unk>. Thanks for great questions around that first time I talked about noninterest bearing we did see that.
Speaker Change: $79 million reduction in noninterest bearing that really cost us about five basis points of margin. This past quarter, we're monitoring very very closely.
Speaker Change: In all locations.
Todd A. Gipple: And I'm pleased to say that so far this quarter, we're down only about $5 million in terms of average. So that stress seems to have abated a bit here in the second quarter. In terms of interest-bearing deposit costs, if you look at our NIM table, that went up; interest-bearing deposits went up 18 bits. But really, eight basis points of that were the expiration of those caps. So, really more 10 basis points in terms of non-synthetic or really core margin impact, and that 10 basis points is slowing from prior quarters.
Speaker Change: And I'm pleased to say that so far this quarter, we're down only about $5 million in terms of average so.
Speaker Change: That stress seems to have abated a bit here in the second quarter.
Speaker Change: In terms of interest bearing deposit costs. If you look at our NIM table that went up interest bearing deposits went up 18 bps.
Speaker Change: But really eight basis points of that was the exploration of those caps, so really more 10 basis points in terms of <unk>.
Non synthetic or.
Speaker Change: Really core margin impact and that 10 basis points is slowing from prior quarters.
Todd A. Gipple: What I will tell you is that we're very excited about the fact that we are starting to reprice CDs and bring on new money in the fours versus the fives. We actually have CD rates somewhere between 435 and 474 at our four charters for new money, and we're getting some traction at those pricing levels. We're very pleased to see a little bit of the competition for deposits abating. I think that has a lot to do with the fact that many of our peers are not growing, not growing loans, not growing relationships, and so some of the Edge has been taken off of deposit pricing in our market. Another reason we're guiding to a more static NIM and Q2.
Speaker Change: I will tell you is we're very excited about the fact that we are starting to reprice Cds and bring on new money.
Speaker Change: In the fours versus the fives.
Speaker Change: We actually have.
Speaker Change: CD rates somewhere between $4 35 in.
Speaker Change: $4 74 at our four charters.
For new money and we're getting some traction at those pricing.
Speaker Change: Levels, we're very pleased to see a little bit of the competition for deposits abating.
Speaker Change: That has a lot to do with the fact that many of our peers are not growing not growing loans not growing relationships.
Speaker Change: And so some of that.
Speaker Change: Edge has been taken off of deposit pricing in our market. So.
Speaker Change: The other reason, we're guiding to a more static NIM in Q2.
Todd A. Gipple: For example, we have 340 million CDs to reprice. They have a weighted average rate of 472, and we actually expect to replace them at roughly that rate. So, we think we're hitting somewhere near the end of that creep in interest spurring deposit costs.
Speaker Change: For example, we have $340 million of Cds repricing. They have a weighted average rate of $4 72, and we actually expect to replace them at roughly that rate. So we.
Speaker Change: We think we're we're hitting somewhere near the end of that creep in.
Speaker Change: Sparing deposit costs.
Nathan James Race: Okay, super helpful. If I could just ask the last one about charge-offs. The last couple of quarters, they're slightly elevated relative to your historical levels. Just curious, you know, kind of what the driver was in the first quarter and how you're kind of thinking about charge-off levels, or if we could maybe assume that there's some additional normalization going on with charge-offs. Yeah, Nate, what I'd say is that charge-offs are primarily common.
Speaker Change: Okay.
Speaker Change: Helpful and if I could just ask last one on charge offs.
Speaker Change: The last couple of quarters there.
Speaker Change: I mean, all of it is your relative to your historical.
Speaker Change: <unk> levels, just curious kind of what the driver was in the first quarter and how youre kind of thinking about charge off levels or if we could maybe.
Speaker Change: Assume that Theres some additional.
Speaker Change: Normalization going on with charge offs.
Speaker Change: Yes, what I'd say is the charge offs are primarily comment.
Larry J. Helling: Yeah, Nate, what I'd say is the charge-offs are primarily common in what I'd call our micro business portion of our portfolio. There are no big charge-offs in there, it's really just $100,000 average kind of charge-offs and small deals that, and I think that's the sector of the economy that suffered the most from the pandemic and probably didn't have the kind of liquidity that a little bit larger businesses So I'd say, you know, there's nothing unusual. These charge-offs are still running well below our long-term 20-year historical average. But I can't expect them to do it.
Speaker Change: What I would call our.
Speaker Change: Microbes business portion of our portfolio.
Speaker Change: There is no big charge offs and there its really.
Speaker Change: $100000 average kind of charge offs and small deals that.
Speaker Change: That's the sector of the economy Thats suffered the most.
Speaker Change: From the pandemic and probably didn't have the kind of liquidity is a little bit larger businesses add so.
Speaker Change: I'd say.
Speaker Change: Theres nothing unusual these charge offs are still running well below our long term 20 year historical averages.
Speaker Change: Can I expect them to.
Larry J. Helling: Stabilize and slowly move down here later this year based on what we're seeing today. You know, I've had conversations with our chief credit officer in the last couple days, and I ask you if you see anything, and yeah, I mean, there's just no movement from our clients' portfolio. You know, if we look at our businesses, they're being successful generally. There are normal little spots here and there of management issues that create problems. And then I talked to our appraiser review people yesterday.
Speaker Change: Stabilize and slowly move down here later this year based on what we're seeing today.
Speaker Change: I've had conversations with our Chief credit officer in the last couple of days ago are you seeing anything and yes. I mean, there are just no movement from our clients portfolio. If we look at our businesses they are being successful generally.
Speaker Change: There is like normal little spots here and there are management issues that create problems.
Speaker Change: And then I talked to our appraisal review equal yesterday.
Larry J. Helling: Have you seen anything on valuations and cap rates? The answer is not really. So real estate values are holding up, and the strange thing going on in the real estate market is that, Uh, you know, the last recession was all about housing. Housing is holding up amazingly well in our market, really because of a shortage of supply, which means existing inventory is very marketable. And I think that holds on the commercial side of things too.
Speaker Change: What are you seeing anything on valuations and cap rates in.
Speaker Change: And the answer is not really.
Speaker Change: No real estate values are holding up and the strange thing going on in the real estate market.
Speaker Change: The last recession was all about housing.
Speaker Change: Housing is holding up amazingly well in our markets.
Speaker Change: Because of shortage of supply.
Speaker Change: Which means the existing inventory is very marketable and I think that holds on the commercial side of things do.
Larry J. Helling: New construction is more expensive because of inflation and higher interest rates. So existing properties have value, and it's really, when that's a big chunk of our collateral, that's helped us avoid significant charge-offs. Okay, great.
Speaker Change: New construction is more expensive because the inflation and the higher interest rates, so existing properties that value and it's really well and that's a big chunk of our collateral that's helped us avoid significant charge offs.
Speaker Change: Okay great.
Speaker Change: Alright.
Speaker Change: Okay.
Speaker Change: Thanks Nate.
Damon Paul DelMonte: Our next question will come from Damon DelMonte with KBW. Please go ahead.
Speaker Change: Our next question will come from Damon Delmonte with <unk>. Please go ahead.
Damon Paul DelMonte: Sorry about that; I couldn't figure out how to unmute myself. Good morning, I hope you guys are doing well. First question, just with regard to loan growth, I think last quarter, Larry, you had said, you know, kind of going into the year, you thought, you know, 4% to 6% growth with excess securitization and kind of 8% to 10% without it. I'm sorry, 4% to 6% with it and 8% to 10% without it. Has that guidance changed at all? Do you still feel that confident about that kind of growth?
Damon Paul DelMonte: Good morning, Dan.
Damon Paul DelMonte: Sorry about that I can kind of figure out how to argue myself. Good morning Hope you guys are doing well.
Damon Paul DelMonte: First quarter excuse me first question just with regards to loan growth I think last quarter, Larry you had said.
Damon Paul DelMonte: Kind of going into the year, you thought 4% to 6% growth ex the securitization and kind of 8% to 10% with without it I'm, sorry, 46, with the eight to 10 without it.
Damon Paul DelMonte: Does that has that guidance changed at all or do you still feel that confident for that kind of growth.
Speaker Change: Yes, we do still feel confident that those are the right numbers.
Larry J. Helling: Yeah, we do still feel confident that those are the right numbers. Uh, quarter to date, we're off to a really good start, you know, in the first three weeks of the quarter here. So more in line with that eight to 10, I think.
Speaker Change: To date, we are off to a really good start on the first three weeks of the quarter here. So more in line with that eight to 10 I think.
Speaker Change: Slightly lower loan demand in the first quarter was just kind of seasonality things that sometimes happens over the end of the year.
Speaker Change: So we certainly feel at this point that that guidance is still solid.
Damon Paul DelMonte: Okay, and the loans that you added this quarter and last quarter or this year so far, what do you know about what some of the rates you guys are getting on?
Speaker Change: Okay, and then in the loans that you added this quarter.
Speaker Change: Last quarter or this year, so far what you know what what are some of the the rates you guys are getting on new production.
Larry J. Helling: Yeah, it certainly depends on what... Yeah, it's really because
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Yeah, so it really depends on that.
Larry J. Helling: Yeah, it certainly depends on the...
Todd A. Gipple: Go ahead Todd.
Todd A. Gipple: New loan pricing was $7.64 for the quarter, Damon. Roll-off was $7.18, so a 46 basis point lift there, and that blended $7.64 also had a fair amount of floating at $8.24 in it for the quarter. So, the $7.64 continues to grow. We're optimistic about that getting closer and closer to an 8% handle on a blended.
Speaker Change: New loan pricing.
Todd A. Gipple: Was <unk>.
Todd A. Gipple: 764 for the quarter Damon.
Damon Paul DelMonte: We'll off was 718, so 46 basis point lift there.
Todd A. Gipple: And that blended 764.
Todd A. Gipple: So has a fair amount of floating at $8 24 in it for the quarter.
So the 764 continues to grow we are optimistic about that getting closer and closer to an 8% handle on a on a blended.
Damon Paul DelMonte: Got it. Okay, that's helpful. And then with regard to the margin and the impact you had this quarter from the interest rate caps expiring. Do you see that moving higher and being more of a headwind in the upcoming quarter or is it kind of fully absorbed into the margin?
Speaker Change: Got it Okay. That's helpful and then with regards to the margin and the the.
Do you had this quarter from the <unk>.
Speaker Change: Just rate caps expiring.
Speaker Change: Do you see that moving higher and being more of a headwind in the upcoming quarter or is it kind of fully been absorbed into the margin.
Todd A. Gipple: Yeah, Damon, it's really cooked into Q2 now that that did cost us $1.1 million in additional interest expense and six basis points of margin, but that's for the most part fully baked into the run rate now, so we don't expect any further drag from that.
Speaker Change: Yes, David it's really cooked into Q2 now that that did cost us $1 1 million and additional interest expense and six basis points of margin, but that's for the most part fully baked into the run rate now. So we don't expect any further drag from that.
Todd A. Gipple: The $65 million in sub debt that did reprice went from a $538 million to a floating of $812 million. That cost us $200,000 at one basis point in the first quarter. That will lift to a full run rate of $400,000 per quarter by two basis points in Q2. So just that additional one basis point of drag there. As we said early in our prepared opening comments, we expect to be able to overpower that with core margin.
Speaker Change: The $65 million in sub debt that did re price went from $5 38 to a floating of eight to 12.
Speaker Change: That cost US 200, K in one basis point in first quarter that will lift to a full run rate of 400 K per quarter and two basis points in Q2, So just that additional one basis point of drag there.
Speaker Change: As we said early in our.
Speaker Change: Prepared opening comments, we expect to be.
Speaker Change: Able to overpower that with core margin.
Damon Paul DelMonte: Got it. And then just lastly on the provision, you know, credit has been pretty strong, you know, the reserves stayed flat at 133. Do you kind of try to keep that level and, you know, based on the recent net charge-off history, kind of use that as the data points to back into a provision?
Speaker Change: Got it and then just lastly on the provision.
Speaker Change: Credit has been.
Speaker Change: Pretty strong.
Speaker Change: The reserves stayed flat at $1 33, do you kind of try to keep that level and based on the recent net charge off history kind of use that as the data points to back into a provision.
Speaker Change: Is that a reasonable way to look at it.
Todd A. Gipple: Yeah, Damon, I think that's a good estimate. Certainly some science and some art in the Low Loss Reserve. We've tried to be conservative in keeping that number high, but I think you're proud.
Speaker Change: Yes, David I think thats, good SMA and Theres.
Speaker Change: Certainly some science and some art and loan loss reserve, we've tried to be conservative in keeping that number high.
Speaker Change: But I think your parameters are in line.
Damon Paul DelMonte: Great. Okay, that's all that I had. Thank you.
Speaker Change: Great. Okay. That's all I had thank you.
Jeffrey Allen Rulis: And our next question will come from Jeff Rulis with D.A. Davidson. Please go ahead.
Speaker Change: Thanks, David Thanks, Glenn.
Speaker Change: And our next question will come from Jeff <unk> with D. A Davidson. Please go ahead.
Jeff: Thanks, Good morning.
Jeffrey Allen Rulis: Morning, Joe. Todd.
Jeff: Good morning, Joe Todd.
Jeffrey Allen Rulis: I'm sorry to circle back to the margin. I just want to make sure I got this right. If the tax equivalent was $325... It's not as if those non-client factors go away. That's your guide for plus or minus five basis points hugs the 325. It's not as, kind of around a 3.30 with the elimination of the non-quiet headwinds.
Jeff: I'm, sorry to circle back to the margin I just wanted to make sure I got this right if the tax equivalent was $3 25.
Speaker Change: It's not as if those non client factors.
Speaker Change: Go away.
Speaker Change: Your guide for plus or minus five basis points hugs.
Speaker Change: 325, it's not as if it's kind of around $3 30, with the elimination of the non quiet.
Speaker Change: Headwinds.
Todd A. Gipple: Yeah, Jeff, thanks for the clarifying question. Our guide to static is at that 325, 324 tax-equivalent NIM. That's the number we're pointing in on in terms of static, yes. Okay.
Speaker Change: Yes, Jeff Thanks for the clarifying question our guide to static is that that 325 through 24.
Speaker Change: Tax equivalent NIM.
Speaker Change: <unk>.
Speaker Change: That's the number we're honing in on in terms of static yes, Okay I appreciate it.
Jeffrey Allen Rulis: Appreciate it. And maybe just on the fee income, obviously capital markets gets kind of the fanfare, but that wealth management piece is growing nicely. And I think you talked about the rollout in Des Moines, maybe the outlook there, and where you're seeing kind of the winds. It's, you know, kind of a little further outlook seems like a nice thing.
Speaker Change: And maybe just on the fee income, obviously capital markets gets kind of the.
Speaker Change: Fanfare, but that wealth management piece is growing nicely and I think you've talked about.
Speaker Change: The rollout in des Moines.
Speaker Change: Maybe the outlook, there and where you're seeing kind of the wins.
Speaker Change: Kind of a little further outlook seems like a nice.
Todd A. Gipple: Jeff, thanks. Thanks for asking more about wealth management. It is a great business for us. We're very excited to have had that start last year in Southwest Missouri at Guarantee Bank and getting started here this spring in Des Moines. Des Moines is a great metro for wealth management.
Speaker Change: A nicely growing business.
Speaker Change: Hey, Jeff Thanks for asking more about wealth management is a great business for us we're very excited to having had that started last year.
Speaker Change: Southwest, Missouri at Guaranty Bank and getting started here. This spring in des Moines to Boyd's a great metro for wealth management.
Todd A. Gipple: We're excited to have hired two very experienced folks to lead that effort in Des Moines. The good news about this business for us is we can leverage off our infrastructure in the Quad Cities market that really provides the... shared services around that business. So when we stand that up in Springfield or Des Moines, we don't have to put a whole lot of operational folks with it. It's really client-facing people. So, I appreciate you asking.
Speaker Change: Excited to have hired two very experienced folks to lead that effort in des Moines.
Speaker Change: The good news about this business for US is we can leverage off our infrastructure and the quad cities' market that really provides the.
Speaker Change: Shared services around that business. So when we stand that up in Springfield or des Moines, we don't have to put a whole lot of operational folks, whether it's really client facing folks.
Speaker Change: So I appreciate you asking we're very excited about this business.
Todd A. Gipple: We're very excited about this business. AUM was up 11% for the quarter, so we're thrilled with that. We actually brought in 136 new clients in the quarter, and 413 of the new AUM crossed all four of the bank charters, so this is a very good business for us. You know, if you think about it, as Larry said in his opening comments, 9-6-5 for us... We really expect this business to continue to grow at a better than 6% clip organically. And it's the ultimate relationship business. We think we do it well, and we like it very much.
Speaker Change: AUM was up 11% for the quarter. So we're thrilled with that we actually brought in 136, new clients in the quarter and 413 of the new.
Speaker Change: <unk>.
Speaker Change: <unk> all for.
Speaker Change: The bank charter. So this is a very good business for us.
If you think about it is as Larry said in his opening comments 96 five for US we were.
Speaker Change: And we really expect this business to continue to grow at a better than 6% clip organically and it's the ultimate relationship business.
Speaker Change: We think we do it well and we like it very much.
Jeffrey Allen Rulis: Is the, just thinking about the timing of Des Moines, what did you see a considerable as you rolled out in Southwest Missouri? Is there, you know, kind of, you know, company-wide, but are there some artificial jumps that you've taken because they are really impactful and the new rollout areas, trying to get into that, you know, you talk about 6% growth rate, but are there some leg ups as you get Des Moines rolled out?
Just thinking about the timing of des Moines, what did you see a considerable as you rolled out in southwest Missouri.
Speaker Change: Is there a.
Speaker Change: Kind of company.
Speaker Change: Company wide, but.
Speaker Change: Are there some artificial jumps that you've taken because it really impactful in the.
Speaker Change: The new rollout areas.
Speaker Change: To get into that.
Speaker Change: You're talking about 6% growth rate, but are there some leg up says you get good morning rolled out.
Todd A. Gipple: Yeah, we certainly expect some of the added lift to come from Des Moines and Springfield, in southwest Missouri, but what I'll tell you is, of the 400 and some new AUM, 350 of it came from Quad Cities, in our longest tenured market, and 84 new relationships. So it is a bit of a momentum business. Once you get that momentum going, you get on all the right radar screens for the right centers of influence in the markets, the right attorneys, and other relationships, you can build some really good momentum.
Speaker Change: Yeah, we certainly expect some of the added lift to come from des Moines and.
Speaker Change: Springfield, Southwest, Missouri, but well I'll tell you is of the 400 and some new a U M 350 of it came in quad cities.
Speaker Change: In our.
Speaker Change: Longest tenured market in 84, new relationships so.
Speaker Change: It is a bit of a momentum business once you get that momentum going you get on all the right radar screens for.
Speaker Change: The right centers of influence in the markets.
Speaker Change: Right.
Speaker Change: Attorneys and other relationships you can build some really good momentum so we.
Todd A. Gipple: So we expect to keep growing in the Quad Cities and Cedar Rapids, both of those really, really good wealth management teams, really deep client bases in both Cedar Rapids and the Quad Cities. And we're just excited about building that over time at Guarantee Bank and CSB. One thing I'd mention is that because of our model, it's only going to take us about $125 to $200 million in AUM in each market to really break even. So it's not a big list. In terms of those revenue producers that we've added, we get to break even pretty quick.
Speaker Change: We expect to keep growing in quad cities in Cedar Rapids, both of those really really good wealth management teams really deep client base in both Cedar Rapids, or the Quad cities and we're just excited about building that over time, our guaranty bank and CSB.
Speaker Change: One thing I'd mention is.
Speaker Change: Because of our model, it's only going to take us about 125 to 200 million in AUM in each market to really breakeven.
Speaker Change: So it's not a big lift in terms of those revenue producers that we've added we get to breakeven pretty quickly.
Jeffrey Allen Rulis: Great. And last one for Larry, just checking in on the M&A landscape and how you feel about what you've got. You can eat off the plate organically, but just thinking about combinations and those conversations on the M&A front.
Speaker Change: Great.
Speaker Change: Last one maybe for Larry.
Larry J. Helling: Just checking in on the M&A landscape and how you are feeling you've got.
Larry J. Helling: All you can eat unplait organically, but just thinking about combinations in those conversations.
Larry J. Helling: On the M&A front.
Larry J. Helling: Yeah, thanks, Jeff. It's not a big priority for us now. We certainly have. Oh, some longer-term potential partners that we think might make some sense. But again, our focus is on managing our current business as effectively as we can because we think that's going to give us, in the short run, the best return for our shareholders until the whole sector gets a little better valuation. A lot of the M&A doesn't make a lot of sense right now.
Larry J. Helling: Yes.
Larry J. Helling: Thanks, Jeff.
Speaker Change: Not a big priority for US now we certainly have.
Some longer term.
Speaker Change: Central partner that we think might make some sense.
Speaker Change: But again, our focus is on managing our current business as effectively as we can because we think that's going to give us in the short run.
Speaker Change: The best return for our shareholders.
Speaker Change: And Joe the whole sector gets a little better valuations or lot of the M&A doesn't make a lot of sense right now.
Jeffrey Allen Rulis: If I were to kind of think about the growth rate organically that you've got and if M&A's cooling, what are the priorities beyond reinvestment in terms of either the dividend or buyback? Yeah, our first priority is...
Speaker Change: Yes.
Speaker Change: Morning.
Speaker Change: Think about the growth rate organically that you've got and if M&A is.
Speaker Change: Cooling.
Speaker Change: What are the priorities beyond reinvestment.
In terms of either a dividend or a buyback.
Larry J. Helling: Yeah, our first priority is building a really strong balance sheet given the call it world economic uncertainty. It could be caused by all kinds of, as you know, watch the news, the crazy events going on in the world.
Speaker Change: Yes, our first priority is building a really strong balance sheet given the.
Speaker Change: I'll call it the world economic uncertainty that could be caused by all kinds of as you know to watch the news the crazy events going on in the world. So.
Larry J. Helling: So our focus initially is to grow our capital ratios a bit more yet. Our TCE is approaching nine. We'd like to get into the low nines here, which would be the kind of top quartile in our peer group. We think that's the kind of prudent place to be. After that, it would be, you know, stock buybacks when we get to that relative capital level. We might get a little more active there. Dividends are down the list after that, and that emanates.
Speaker Change: Our focus initially is to grow our capital ratios a bit more yet.
Speaker Change: Our TCE is approaching nine we'd like to get into the low nines here, which should be kind of top quartile in our peer group we think that's the.
Speaker Change: It kind of prudent place to be.
Speaker Change: After that.
Speaker Change: Would be.
Speaker Change: Stock buybacks, when we get to that relative capital levels, we might get a little more active there dividends is down the list after that.
Speaker Change: M&A.
Speaker Change: Okay.
Speaker Change: I appreciate it thank you.
Daniel Tamayo: And our next question will come from Daniel Tamayo with Raymond James. Please go ahead.
Speaker Change: And our next question will come from Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo: Thank you. Good morning, everyone. Good morning, Danny. Yes, first, just curious about the expense impact of the swaps. So assuming your expense guidance for $49 to $52 million in the second quarter is aligned with the $50 to $60 million of swaps, if the swaps end up kind of higher in that range toward the $60 million number, what kind of impact would that have on the expense guidance?
Daniel Tamayo: Thank you good morning, everyone.
Daniel Tamayo: Good morning Dani.
Daniel Tamayo: I guess first just curious on the expense.
Daniel Tamayo: Fact of the swaps so.
Daniel Tamayo: Assuming your expense guidance for $49 2 million in the second quarter is aligned.
Daniel Tamayo: Aligned with the $50 million to $60 million of swaps.
Daniel Tamayo: It is the swaps ended up kind of higher higher end of that range towards the 60 million number what kind of impact would that have on the on the expense guidance.
Todd A. Gipple: Danny, thanks for the question. The upper end of the guidance range would still put us within that ballpark range for non-interest expense. So we would not expect, even if we're at the higher end of the run rate to be outside of that 52 million, we'd still be within that strike.
Speaker Change: Yeah, Dan anything so the question.
Speaker Change: Upper end of the guidance range would still put us within that.
Speaker Change: Ballpark range for non interest expense, so we would not expect.
Speaker Change: Even if we were at the higher end of the run rate to be outside of that $52 million. So we'd still be within that strike zone.
Daniel Tamayo: Okay. All right. Thanks, Todd. And then, I guess, just to reiterate on the caps. I think you said it, but I'm not sure how far out in terms of the interest rate caps. I think you said there's nothing in the second quarter. But if we did stay in this higher for longer environment, is there anything kind of in the back half of the year or even into next year that would come into play?
Okay, Alright, thanks Todd.
Speaker Change: And then I guess just just two.
Speaker Change: Reiterate on the on the cap side I think you said, it but I'm not sure how far out in terms of the interest rate caps.
Speaker Change: I think you said theres nothing in the second quarter, but if we did it stay in this higher for a longer environment is there anything kind of back half of the year or even into next year that that would.
Todd A. Gipple: Yeah, Danny, great question. So, really not anything else synthetic during 2024. The caps have expired, so that's over with. It's baked into our run right now. The repricing on the existing sub-debt of $65 million, that's happened now. That repricing takes three months with SOFR. SOFR right now at $530 is going to control that floating rate. That's already baked into the run right now. We really don't have anything else synthetically in 2024 other than if we choose to do something, but nothing baked into our derivatives right now.
Speaker Change: Come into play.
Speaker Change: Yes, Danny Great question, so so really not anything else synthetic.
Danny: During 2024.
Danny: The the caps have expired.
Danny: So that's over with its baked into our run rate now.
Danny: The repricing on the existing.
Danny: Existing sub debt to 65 million that's happened now and so that that re prices three months with sulfur. So so for right now outside 30 is going to control that floating rate that's already baked into the run rate now we really don't have anything else synthetically in 'twenty four other than if we choose to do something.
Danny: But nothing baked into our derivatives right now, but in 'twenty five we will have another $20 million tranche of sub debt repricing in July.
Todd A. Gipple: But in 2025, we will have another $20 million tranche of sub-debt repricing in July. And so that'll go from a fixed rate of five and a quarter to a floating rate that will be quite high, actually a little over 10%. That's mid-year next year, and then we're out into the third quarter of next year. We have another $50 million tranche of sub-debt that would reprice at a very similar current rate and future rate. So obviously, given those new rates, we'd probably be looking to take advantage of the marketplace, maybe reprice those.
Danny: So that will go from.
Danny: Fixed rate of five and a quarter to a floating rate that will be quite high actually a little over 10%.
Danny: That's mid year next year and then our core.
Danny: We're out into the third quarter of next year, we have another $15 million tranche of sub debt that would reprice very similar.
Right and future rate so.
Danny: Obviously.
Danny: Those new rates, we'd probably be looking to.
Danny: Take advantage of the marketplace.
Danny: Maybe reprice, those but that's well down the road so nothing in 'twenty four.
Todd A. Gipple: But that's well down the road. So nothing in 24. Got it. Thanks for going into 25 with that detail, Todd. That's helpful.
Speaker Change: Got it thanks for going into 25 with that detail that's helpful.
Daniel Tamayo: Got it. Thanks for going into 25 with that detail, Todd. That's helpful. And then, I guess just lastly, on the impact of rate cuts, just this year as you think about it, just curious where the balance sheet stands now.
Speaker Change: And then I guess, just lastly on the.
Speaker Change: On the impact from <unk>.
Speaker Change: Rate cuts this year as we think about it.
Speaker Change: I'm, just curious where the balance sheet stands now.
Daniel Tamayo: And would you... Danny, could you say that again? Take out just for a second. The impact of rate cuts...
Speaker Change: Hello, Joe.
Joe: And would you say that again.
Speaker Change: Just for a second.
Speaker Change: The impact of rate cuts.
Daniel Tamayo: Yeah, sorry, I lost you. Yeah, the question was just around the impact of rate cuts.
Joe: Yes, sorry, I lost you yes. The question was just around the impact of Brexit.
Todd A. Gipple: Yeah, certainly we think we would benefit if break cuts happened. Certainly, world sentiment in that space has changed a lot in the last 30 days, which the contrarian in me believes maybe makes it actually more likely that that actually could happen here.
Joe: Yes.
Speaker Change: Certainly we think we would benefit.
Speaker Change: <unk> that's happened.
Speaker Change: <unk>.
Speaker Change: But the world sentiment in that space has changed a lot in the last 30 days.
Which the contrarian in me believes maybe make that actually more likely that that actually could happen here. So I think we're reasonably well positioned we think we can navigate higher for longer. We're also well positioned we've picked up.
Todd A. Gipple: So I think we're reasonably well positioned. We think we can navigate higher for longer. We're also well positioned. We can pick up additional margin if, you know, rates do go down. Okay.
Speaker Change: Additional margin yes.
Daniel Tamayo: Okay. Alright, thanks for taking my questions.
Speaker Change: If rates do go down.
Speaker Change: Okay.
Alright, thanks for taking my questions.
Speaker Change: Thanks, Dan.
Brian Joseph Martin: And our next question will come from Brian Martin with JANI. Please go ahead. Hey, good morning guys.
Speaker Change: And our next question will come from Brian Martin with Janney. Please go ahead.
Brian Joseph Martin: Hey, good morning, guys.
Good morning, guys.
Brian Joseph Martin: Just one question, just with the strong deposit growth this quarter, Todd or Larry, just as far as kind of, you know, you talked a lot about the loan growth and kind of managing that, but just as far as where you see the deposit flows and just trying to manage that loan-to-deposit ratio, kind of expecting to kind of outpace loan growth there, I guess. How are you thinking about that, especially given the pricing appears to be a little bit better here, you know, of late?
Brian Joseph Martin: Hey, just one question just with the strong deposit growth this quarter tied or Larry just as far as kind of.
Brian Joseph Martin: You talked about a lot about the loan growth and kind of managing that business as far as where you see the deposit flows and just trying to manage that.
Brian Joseph Martin: Loan to deposit ratio kind of expect them to kind of outpace loan growth or I guess, how are you thinking about that especially given the pricing appears to be a little bit better here Blake.
Brian Joseph Martin: Blake.
Brian Joseph Martin: Okay.
Larry J. Helling: Yeah, certainly. But over time, Brian, we'd still like to move the loan to deposit ratio down a little bit more. We're not trying to do it aggressively. We've made really good progress this quarter. We probably want that number in the next year or two down in the 90% loan to deposit ratio range. And yeah, the interesting thing is, in spite of rates hanging in higher, local market competition has softened, I think because banks are running more liquid and have more liquidity.
Blake: Yes, certainly.
Blake: Over time, Brian.
Blake: Felt like to move the loan to deposit ratio down a little bit more we're not trying to do it aggressively we made.
Blake: Really good progress during this quarter, we probably want that.
Blake: Number in the next year or two down in the 90% loan to deposit ratio range.
And yes. The interesting thing is in spite of rates hanging in higher local market competition has softened I think because the banks are running more liquid.
Liquidity.
Larry J. Helling: You know, concerns of a year ago have kind of become a memory, and everybody's kind of comfortable with their new set of liquidity with less loan demand that's starting to impact other people's perception of bidding up deposits. So, you know, I saw, you know, a medium seven-figure deposit that went out to the market, a bid from a municipality in our market that got, you know, the price sub-five here in the last week. So, and that's when the market, everybody in the market had a chance to buy. So, I believe that that's gonna help us as we go forward.
Blake: Concerns of a year ago have kind of become a memory and everybody's kind of comfortable with their new set of liquidity with less loan demand that's starting.
Blake: Impact other people perception of bidding up deposits so.
I saw.
Blake: Medium seven figure deposit went out to the market.
Blake: Bid from a municipality in our markets.
Blake: Price subs sub five here in the last week.
Blake: And that's why the market everybody to work and had the chance to buy so I believe that that's going to help us as we go forward.
Brian Joseph Martin: Gotcha okay, so a longer-term target kind of the 90% level is what you'd be eyeing as you move forward, yes? Yeah. Okay. And then just on the buyback for a moment, just because conversations on M&A are not percolating, it sounds like, but given that you're going to be at that 9% level relatively quickly, I guess, is it something you could think about the share repurchases in the back half of the year or just kind of the change in rate outlook here, kind of the higher for longer with some incremental credit concerns? Is that something that weighs on potential share repurchase activity as you kind of look at the second half of the year?
Got you, okay. So a longer term target kind of that 90% level is what you'd be eyeing.
Blake: We move forward.
Blake: Yes.
Blake: Okay, and then just on the buyback.
Blake: Buyback for a moment just.
Blake: Conversations on M&A.
Blake: Yes, percolating sounds like that the.
Blake: Given that you're going to be at that 9% level relatively quickly I guess is it something you could think about the share repurchases in the back half of the year just kind of the maybe the.
Blake: Kind of a change in rate outlook here kind of a higher for longer with some incremental credit concerns is that something that weighs on potential.
Blake: Share repurchase activity as you kind of look in the second half of the year.
Larry J. Helling: Yeah, I think it is possible in the second half of the year, if things, if the environment kind of looks like it does today, I think that's probably appropriate because you're right. You know, we get into the nines here on TCE fairly quickly here, given expected continued good earnings, and the securitization that we're doing, and all those things give us some capacity. So yeah, in the second half of the year, I think we'll have the capacity to do it, but it'll certainly depend on how we feel about it.
Speaker Change: Yes, I think it is possible in the second half of the year, if things if the environment kind of looks like it does today.
Speaker Change: I think that's probably the appropriate because you are right.
Speaker Change: Get into the nines, you're on TCE fairly quickly here.
Speaker Change: Given expected continued good earnings.
Speaker Change: And the securitization that we're doing in all of those things give us some capacity so back half of the year I think we'll have the capacity to do it but it will certainly depend on how we feel about it.
Larry J. Helling: The environment, you know, from an economic standpoint, and again, there's really nothing showing up in the portfolio today that gives us cause for concern. It doesn't mean that will be the same way six months from now. But certainly today, if the variables all come in the same, that's certainly possible.
Speaker Change: The environment.
Speaker Change: From an economic standpoint, and again, there is really nothing showing up in our portfolio today.
Speaker Change: Gives us cause it doesn't mean that will be the same way six months from now but.
Speaker Change: Certainly today.
Speaker Change: The variables all come in the same that's certainly possible.
Brian Joseph Martin: Okay. And then maybe just one for Todd. Just on the margin, Todd, I know you talked about the securitization maybe giving a little bit of a benefit to the margin. Can you just remind us in terms of how much impact you saw from the recent securitization? So maybe just to see if that parallels what you think may occur in the one in September here or the one in the third quarter.
Speaker Change: Gotcha Okay.
Speaker Change: And then maybe just.
Speaker Change: One one for Todd just on the on the margin side I know you talked about the securitization, maybe giving a little bit of benefit.
Todd A. Gipple: So the margin can you talk I guess can you just remind us in terms of.
Todd A. Gipple: How much impact you saw from some of the recent securitization. So maybe just if that parallels that what you think may occur in.
Todd A. Gipple: The one in September here and one in third quarter.
Todd A. Gipple: Sure, Brian. I think last time we got about a three basis point margin lift from the securitization previously. I would expect something like that. It will, again, depend on how quickly we're able to take advantage of that liquidity and drive down the cost of funding, but we're optimistic about that. Again, you know, Larry gave you a data point on some money, bid money with a four handle now versus a five. So three basis points might be a good place to start. We'll likely have some more guidance for all of you on that in July when we talk about Q2.
Speaker Change: Sure Brian.
Speaker Change: I think last time, we got about a three basis point margin lift from the securitization previously.
Speaker Change: I would expect something like that again will depend on.
Speaker Change: How quickly we're able to take advantage of that liquidity and driving down cost of funding, but we're optimistic about that again.
Speaker Change: He gave you a data point on some.
Speaker Change: Some money.
Speaker Change: Big money.
With a four handle now versus a five.
So three basis points might be a good place to start.
Speaker Change: We will likely have some more guidance for all of you on that.
Speaker Change: In July when we talk about Q2.
Brian Joseph Martin: Gotcha. And then just one more housekeeping question, Todd. Small, just on the accretion you talked about a bit earlier, being a little bit down this quarter, just that ebbs and flows a little bit, but kind of in that general zip code is kind of where it may shake out here in the coming quarters.
Speaker Change: Got you and then just one more housekeeping Todd it's small just on the on the you talked about the accretion of it earlier being a little bit down this quarter is that ebbs and flows a little bit but kind of in that general ZIP code is kind of where may shake out here in the coming quarters.
Todd A. Gipple: Yes, Brian, that zip code is an accurate way to put it. It was $350-some million in Q1, and the scheduled run rate is around that $300 mark for the rest of this year, or $300 per quarter.
Yes, Brian that that gold is accurate.
The accurate way to put it it was $357 million in Q1 and.
Speaker Change: Scheduled run rate is around that 300, mark for the rest of this year 300 per quarter. So very.
Brian Joseph Martin: Got you. Okay. Perfect. That's all I had. Thanks for taking the question.
Speaker Change: Very consistent.
Speaker Change: Okay perfect. That's all I had thanks for taking the questions.
Brian Joseph Martin: Thanks, Brian. Thanks, Brian.
Speaker Change: Thanks, Brian Thanks, Brian.
Larry J. Helling: And this concludes our question and answer session. I would now like to turn the call back over to Mr. Larry Helling for any closing remarks.
Speaker Change: And this concludes our question and answer session I would now like to turn the call back over to Mr. Larry Helling for any closing remarks.
Larry J. Helling: I would like to thank all of you for joining our call today. We appreciate your interest in our company. Have a great day. We look forward to connecting with you in the coming months.
Larry J. Helling: I would like to thank all of you for joining our call today. We appreciate your interest in our company have a great day, we look forward to connecting with you in the coming months.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Larry J. Helling: Yes.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.