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spk00: Greetings and welcome to the QCR 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 company's website, www.qcrh.com. With us today for management are Larry Helling, CEO, and Todd Gippel, President and CFO. Management will provide a summary of 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 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, 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 3rd, 2023, 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. Please go ahead.
spk03: Thank you, operator. Welcome, everyone. And thank you for taking the time to join us today. I will start the call by providing some highlights for the quarter. followed by a discussion about our strong balance sheet performance, liquidity position, and capital levels, 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, and significant fee income. In addition, we maintained strong asset quality. Our diverse revenue sources, which included 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 exceptional earnings performance. In the second quarter, we delivered both reported and adjusted net income $28.4 million or $1.69 per diluted share. We generated an ROAA of 1.44% and an ROAE of 13.97% for the quarter and believe that both metrics remain near the high end of our peer group. Loan growth was exceptional during the quarter, growing 12.2% on an annualized basis. and 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 to deposits further improved to 92.1% uninsured and uncollateralized deposits also improved to 19.9% and remain at very manageable levels. Our elevated on balance sheet liquidity bind with other immediately available liquidity at the federal home loan bank that more than cover our uninsured and uncollateralized. We have assembled a strong and diversified deposit franchise over the years. And our second quarter deposit activity continued to reflect the importance of the relationships that we have developed. During the second quarter, our core deposits, excluding short-term broker deposits, grew $339 million, 23% annual assets. Our asset quality remains excellent as the ratio of non-performing assets, the total assets, increased slightly by three basis points during the second quarter. yet remains near historic lows at 32 basis points. Our reserve for credit losses represents 1.41% of total loans and leases held for investment and continues to be at the high end of . 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 businesses. We remain cautiously optimistic about the economic resiliency of our markets and the financial health of our clients. We are not seeing any meaningful signs of weakness across our footprint. As we mentioned last quarter, our exposure to commercial office buildings is very low and quite manageable at just 3% of total loans with an average loan size of $800,000. 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 capital 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 LIHTC lending businesses, I would like to spend some time discussing the drivers of this high-performing business. Our specialty finance team offers low-income housing tax credit lending to a select group of developers and investors with whom we have built longstanding relationships. Our clients continue to experience strong demand for their project as the need for affordable multi-family housing exceeds supply in the market 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. Strong track record makes these loans ideal 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, borrowers seek to lock in their financing costs over the life of the loan. As a result, our bankers arrange interest rate swaps for the borrowers, enabling them to secure the desired fixed rate financing and generating significant capital markets revenue for our company. The LIHTC business has been a consistent and important component of our non-interest income. In addition, as the economy has softened, Some of the previous headwinds that our clients were experiencing in this space have eased. 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 than traditional banking. 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 in future recessionary environments. We are increasing the size of our planned securitizations of LIHTC loans to achieve improved pricing and execution. We now expect to close on the transactions early in the fourth quarter. The securitization of our LIHTC assets will be an effective tool in managing our liquidity and capital. In addition, it will provide expanded capacity for continued LIHTC 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 0% to 3% growth on an annualized basis, net of planned LIHTC loan securitizations. I will now turn the call over to Todd to provide further detail regarding our second quarter results.
spk05: 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, or $189 million of net growth. In anticipation of our first loan securitizations, we have classified $291 million of LIHTC loans as held for sale. We added an additional $152 million of LIHTC loans to the held for sale category during the quarter as we continue to build towards the first securitizations 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. The 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 and markets, as well as a commercial client base that is spread across a variety of industries. Fifty-five percent of our core deposits represent deposits from our commercial clients and have an average balance of $214,000. Approximately 35% of our deposits consist of consumer deposits and have an average balance of $21,000. 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 deliver 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 of our low beta deposits throughout the cycle. However, the continued shift from non-interest 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 a 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 TEY in the range of static to down 10 basis points for the third quarter. Turning to our non-interest 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 their 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 is 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 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 in assets under management in the first half of this year. Now turning to our expenses. Non-interest 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 million. 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 remained diligent in controlling our expense growth. For the third quarter, we are reaffirming our non-interest expense guidance again this quarter to be in a range of 48 to 51 million. Our asset quality remains exceptional and better than our historical average. During the quarter, NPAs increased modestly. NPAs for the quarter were 26.1 million, or only 32 basis points of total assets. Approximately half of our total NPAs 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 continue 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 14.66%. due to the strong loan growth during the quarter. We increased our tangible common equity to tangible assets ratio to 8.28%, up from 8.21% 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 $1.28, or 13.2% annualized during the second quarter. As interest rates moved higher during the quarter, Our AOCI 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 9.3% 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 remain 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.
spk00: 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 you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Damon Del Monte with KBW. Please go ahead.
spk06: Good morning guys. Hope everybody's doing well today. Just wanted to start off on the revised outlook on the capital markets revenues. I think you said 45 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 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 feel that just given the kind of falling out of supply chain and construction costs that, you know, you're going to keep a higher level for the next couple quarters?
spk03: So, Damon, I'll start with a couple data points for you first. First of all, our average per quarter of flat fee income in 2022 was $10 million per quarter. And our four quarter trailing is 15 million. 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 timing can move the income dollars between quarters. We certainly believe our guidance is achievable, you know, barring headwinds that we can't see today because, you know, 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 certainly feel good about the pipeline going forward. As you know, we're trying to turn this into a, four quarters in the future business, not trying to predict what's going to happen next quarter because of the variability, but probably tell you was, you know, we love this business. We think it's a great business longterm. There is some variability, but longterm, the underpinnings are really solid.
spk06: Got it. Okay. Thanks for that color. Um, with regards to the, uh, the guidance on the margin, uh, Todd, I believe the accretable yield this quarter was only like $134,000 compared to like 800,000 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 347 to 328. So when we, when you talk about the, I think you said zero to 10 basis points compression, is that based off that? Like I use it based off the 328 number and I guess, how should we think about fair value accretion going forward?
spk05: Sure, Damon. First off, you're spot on in terms of what happened to accretion Q1 and Q2. I'll answer the last half first. I would expect that to be more like 500,000 per quarter in Q3 and Q4, so a more normalized number. The 328 is what you should leap off from for the 0 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. Those 290 million of brokereds are at a 506 rate today. So it's going to be nice to see those roll off and replaced with core deposits. And then we assume the midpoint of our loan growth guidance. So that modeling gives us a range of outcomes from as favorable as static to as unfavorable as 10 basis points of contraction. So that would be off of that 328 base. Got it. Okay. That's very helpful. Thank you.
spk06: And then I guess just lastly, and then I'll step back, on the credit quality, you know, the slight uptick in non-performing loans this quarter, a little bit under $4 million. Was that one credit in particular, or was there a couple involved in that?
spk03: Yeah, thanks, Damon. Good question. The pickup was just a handful of mostly equipment loans from small companies that came under pressure. And while we're not seeing any broad-based loans, degradation of our portfolio. It seems like 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 credit costs coming to play long term. I don't know when that's going to be. It depends on what happens to the economy, but normal is going to feel different. And so we had a handful of small companies that felt some pain. We're trying to be out front and deal with them. And so it's really not a concentration one big deal. It's a half a dozen smaller deals that created that MPA increase.
spk06: Got it. Great. Thanks for all the color and congrats on a nice quarter. Thanks, Damon. Thanks, Damon.
spk00: The next question comes from Nathan Race with Piper Sandler. Please go ahead.
spk01: Yep. Hi, guys. Good morning. Thanks for taking the questions.
spk05: Good morning, Nate.
spk01: Just want to kind of think about the balance sheet size entering the third quarter. You know, it looks like the average balances, including loans held for investment held for sale, were about 3% higher than the end of period balances. And I just want to make sure we're thinking about the earning asset size accurately heading into the third quarter to kind of provide any color along those lines.
spk05: Yeah, sure. Go ahead, Larry.
spk03: Yeah, I mean, initially, you know, the guidance we gave you was for the back half of the year. And so, you know, we expect securitization to happen in the fourth quarter. So the growth in the third quarter, you know, will be toward the higher end of that range that we gave you. And then we're going to do the securitization that will take some of that growth off the balance sheet in the fourth quarter. And 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. And so we'd expect the growth to be toward the higher end of the range in the third quarter.
spk01: Gotcha. That's helpful. So it sounds like a lot of the growth occurred late in the quarter, and so, you know, earning assets should be up, you know, maybe $150 to $200 million quarter over quarter?
spk05: That would be right. That's what we're expecting in that. in that margin outcome that we talked about, Nate.
spk01: Okay, perfect. Just want to make sure I have that right. Sounds good. And then, Todd, within your expense guidance, does that kind of contemplate you guys hitting the midpoint of the next 12-month capital markets revenue expectations? Or I guess how should we kind of think about the variability of the expense base relative to that revenue source in particular?
spk05: Sure. As you well know, Nate, that has a pretty significant impact on non-interest expense. I'm 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 increased to, the $55 for a rolling 12 months. I think we'd still feel very confident about coming in at that $51 million or a touch under.
spk01: Okay, great. And then just maybe one last one. I think last quarter, Larry, you were describing a pretty strong core deposit pipeline coming into 2Q, and it seems like that kind of came to fruition here in the second quarter. So I'd just be curious kind of what the pipeline looks for additional core deposit wins and share gains.
spk03: Yeah, I'll start and then maybe let Todd finish here. Certainly, the pipeline still remains strong, and I'm 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. And then what we did very successfully in the last quarter is rotated a lot of that out and replaced it with core deposits. So I'd say the pipeline's certainly still there and we've proven that our client base When we need the money, we can go get it from them. So we certainly feel good about that, certainly in this environment. So deposit pipeline still feels fine to us.
spk01: Got it. That's great to hear. And then if I could actually just ask one last one just in terms of the outlook on the ACL. You know, it came down a little bit quarter over quarter. Is the goal to kind of just hold it here and just provide for growth and any charge-offs? And it seems like, you know, the charge-off outlook looks fairly benign. coming out of the second quarter?
spk03: Yeah, good question, Nate. And I'd say, yes, we're going to hold it probably in the 140s, given what we know today. You know, barring some change in the economy, good or bad here, certainly we think this is a kind of prudent level to be at. We'd be high in our peer group and have credit quality, 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.
spk01: Okay, perfect. I appreciate you guys taking the questions in all the colors. Thanks again.
spk05: Thank you, Nate.
spk00: The next question comes from Brian Martin with Janie Montgomery. Please go ahead.
spk07: Hey, good morning, guys.
spk03: Good morning, Brian.
spk07: Hey, Todd, maybe just one back for that on the core deposit that swapped from, you know, what you're changing out from the broker to the new core deposit this quarter. What What's kind of the range of outlook as far as where those get replaced at?
spk05: Sure. Really glad you asked that question, Brian. So, again, just to reset, we've got $290 million of brokers we're going to replace at a 506. Our expectation is to do that really at that 506 or slightly better. We had a lot of success in Q2 with growing deposits, as you can see. And I'm looking at a sheet of some of our big wins, and we had some new money from existing clients at $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. 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 $4 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 than that 506. And that really is part of our, even though we guided static to 10 basis points of contraction, that may be a little more optimistic than most might have expected. And we think that's certainly achievable. We're really focused on growing core deposits. And while they're pricey these days, we think we'll beat that 506. Gotcha.
spk07: No, that's helpful. And is that kind of your outlook for rates, Todd? I mean, does it kind of contemplate that if it's down next quarter, you know, not picking a number, but sequentially it's down maybe a little bit less fourth quarter and kind of begins to trough out, to reach a trough, is that big picture how we should think about the near term?
spk05: Well, Brian, maybe if you could be a little more clear, are you asking me about our expectations on the Fed or more on our deposit fundings?
spk07: Just your margin and your outlook on, you know, based if we actually have the rate increase, yeah.
spk05: Yeah, okay. So kind of a blended answer here. You know, there's no meeting in August. There's a meeting in September. I guess no one really knows if we'll see another increase or another pause there. But we're very optimistic about, one, achieving this guidance in the third quarter of static to 10 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 actually be MIM accretive by about four basis points. So we'll get a little bit of lift in margin from the securitization and that offtake. It has a ton of other benefits, of course, but will give us a little lift in margin. And 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 peak 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 we're more optimistic about the back half of the year for all those reasons.
spk07: Gotcha. No, that's helpful. I appreciate it, Todd. And maybe just the last one on Mars. And just remind us, if we do see some cuts next year, just how QCR sets up in that type of environment.
spk05: Yeah, thanks, Brian. We are now modestly liability sensitive. Over time, we have gone from an asset sensitivity that helped us in the first third of the hiking cycle. So during the first third, we saw a margin expansion. As our deposits have rotated from non-interest bearing and low beta interest bearing to 100 beta deposits, we've now converted to where we are modestly liability sensitive. So when rate cuts were to take place, 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.
spk07: Perfect. Okay. That's super helpful. And just if I can ask one last one, just The commentary on loan growth and taking the guidance up, it looked, you know, you guys talked about the specialty business being particularly strong, but the traditional side maybe being a little bit more modest. I mean, I guess in your guide or just how you're thinking about, you know, the next couple of quarters, do you see some rebound in that traditional business or is it still more the specialty business that's kind of leading the charge?
spk03: Yeah, I think the specialty businesses you know, especially the LIHTC space is very resilient and seems to be, you know, 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 a normal pace in that business. The core commercial business, CNI and normal commercial real estate, you know, they're still dealing with the shock up in rates and I think it's affected the psychology of people. So, Certainly that, I think, 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 the latex.
spk07: Gotcha. Okay. Perfect. I appreciate you guys taking all the questions. Thanks.
spk03: Thanks, Brian.
spk00: The next question comes from Jeff Rulis with DA Davidson. Please go ahead.
spk04: Hi, good morning. This is Andrew on for Jeff today. Just another follow-up question in regards to the LIHTC 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.
spk03: Yeah, so first of all, we will probably not retain the servicing long-term. Uh, that's not probably a long-term play for us because we'd have to build some more infrastructure, uh, as we securitize though. So initially we're going to engage an outside servicer on that. Um, and so the buyers for this, because we're turning this into a AAA rated security, our institutional investors of all kinds, insurance companies, banks, uh, funds, those kinds of places is where this would go. Uh, so we think it's readily marketable and, uh, and we'll go to the normal kind of institutional buyers.
spk04: Okay. That makes sense. Thank you. And then another question, maybe more on the expense side. Just with the surge in fee income this quarter, we thought expenses might have picked up a little higher, but going forward, is there a way to handicap the variable cost component when swap fees are higher or lower than average?
spk05: Sure, Andrew. There's a correlation, certainly, between the capital markets results and our variable compensation. And historically, for all-in incentives and variable comp around that, you might say that's 20% of that, I guess I would say, beat. So to the extent We might beat our guidance on a more normal quarter. Roughly 20% of that beat would add to the non-interest expense carry. The reason that you didn't see it here in the second quarter, quite honestly, is we expected several quarters ago that margins may be getting squeezed in our industry, and we've really had 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 non-interest 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, 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.
spk04: Thank you. That's very helpful. And then just one more from me. Do you have a June average for net interest margin or spot rate on cost of deposits?
spk05: Actually, I probably feel more comfortable just doing the spot margin, but I'm very glad you asked that question because we had not gotten to that. That's one of the reasons that we're pretty confident about a good outcome in Q3. Our Q3 NIM was that 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. Our May margin was 326. And June was static at 326. So 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.
spk04: That helps. Thank you, and congrats on the quarter. Thank you.
spk00: The next question comes from Daniel Tomeo with Raymond James. Please go ahead.
spk02: Thank you. Good morning, everyone. Maybe just a little bit further digging into the LIHTC portfolio. So first, just you could remind us kind of how much in terms of what's on the balance sheet is in construction and multifamily, just specific to LIHTC at this point.
spk03: Thanks, Daniel. We've got about $800 million of LIHTC-stabilized that's up and running that we would be able to securitize at any time as we go forward. And then we've 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 securitizable assets as we go forward.
spk02: Okay. All right. 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 LIHTC borrowers or how much in deposits are you getting from them and what type currently are they putting on?
spk03: Yeah, we are getting deposits from that source of business, but certainly not at the pace we're putting loans on. It's around $150 million that we've gotten in deposits out of that sector of the business so far. 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, some interest-bearing, some low interest-bearing deposit costs because there are certainly reserve funds, and those kind of things that are parts of these structurings that we put together. So it's kind of a combination of both, I would say, of interest-bearing, non-interest-bearing accounts, typically a non-maturity type deposit.
spk02: Okay, great. And then circling back to the loan growth conversation, so you talked about kind of a 0% to 3% net loan growth of the securitization. Sounds like the securitizations are going to be a bigger part of the strategy going forward. There's two questions here. First, how big are you comfortable letting the LIHTC on portfolio or on balance sheet loans get? And number two, how are we thinking about or how are you thinking about 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 how this all fits into the bigger picture.
spk03: Right. So, yeah, if you look at the light tech loans, they're, you know, in total about a billion six today, we're going to securitize short of just short of $300 million in the fourth quarter. So we're taking the top off of it there. And if we do let it grow, it would, those outstandings would grow at a modest pace going forward. You know, probably more in the 5% range on balance sheet, which would, our capital then could keep pace with and keep it relatively 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 won't have. We can use it to manage liquidity and capital and loan growth pretty nicely. As long as we plan out in front a quarter or two as we look for future securitizations. So we expect to do more securitizations in 2024. As we get closer to that, we'll probably give you some indication of when and how much. But yeah, certainly we're going to take the top off of that growth, grow that much more modestly on balance sheet, which should keep it close to the same kind of relative basis as a percent of capital.
spk02: Okay, great. That's helpful. And just lastly, again, on the LIHTC, What are the yields on those loans look like, and especially relative to kind of what you already are doing in construction and multifamily?
spk03: Yeah, the yields are, number one, there's exclusively floating rate loans on our books. And those yields are between, and I'm going to also tax affected because there's a tax exempt component to a big portion of the loans. So the tax equivalent yields are in the sevens up to 8%.
spk02: That's for the construction portion?
spk03: And for the permanent because the permanent are floating and on our books too. So it's all floating on those same relative prices.
spk02: Got it. All right. Terrific. Thanks for all the color there. That's all I had.
spk03: Thanks, Daniel.
spk00: This concludes our question and answer session. I would now like to turn the call over to Mr. Larry Hailing for closing remarks.
spk03: Thanks to all of you for joining our call today. We appreciate your interest in our company. Have a great day. We look forward to talking with you again in the coming months.
spk00: The conference is now concluded. Thank you for your participation. You may now disconnect.
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