Earnings Call Transcript - QCRH Q1 2024

Operator, Operator

Greetings, and welcome to the QCR Holdings, Inc. Earnings Conference Call for the First Quarter of 2024. Yesterday, after market close, 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.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 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 differ materially from those projected. Additional information on these factors is included in the company's SEC filings, which are available on the company's website. Additionally, management may refer to non-GAAP measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures. The press release available on the company's website contains the financial and other quantitative information to be discussed today, as well as a 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 1, 2024, starting this afternoon, approximately 1 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.

Larry Helling, CEO

Thank you, operator. Welcome, everyone, and thank you 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 balances. In addition, we continue to benefit from well-managed expenses, improved upon our already excellent asset quality and further strengthened our capital ratios. In the first quarter, we produced adjusted net income of $26.9 million or $1.59 per diluted share. 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 group. 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. 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 nonperforming assets to total assets improved by 4 basis points during the first quarter and remains below our historical average levels at 36 basis points. Our 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. 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 in 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 buildings is minimal and well controlled, constituting just 3% of total loans with an average loan size of $859,000. These properties are primarily situated in suburban locations, either within or adjacent to our markets. 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. Balances in this sector declined 19% from the prior quarter as projects reached completion and transferred into permanent financing. The majority of our construction and land development loans consist of financing on 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 over 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 pressures. 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. We maintained disciplined underwriting and vigilant 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 is 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. 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 3 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 3-year period and near the top quartile of our peer group. Our priority is to sustain this outstanding financial performance. We will achieve this by retaining the core of our 9-6-5 strategy. 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 ratios. Additionally, we plan to fund future loan growth through core deposit growth and ongoing securitizations. 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.

Todd Gipple, CFO

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, 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 have 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 business. 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. 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 broker deposits. Our total uninsured and uncollateralized deposits remain very low at 20% of total deposits. 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. 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. Net 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 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 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 decrease in net interest income. However, the company's net interest income driven by core activity saw a growth of approximately $1.2 million during the first quarter, led by continued expansion in loan and investment yields. Our adjusted NIM on a tax equivalent basis declined by 5 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 7 basis points of NIM dilution. However, we were able to partially offset this non-client impact with core NIM expansion of 2 basis points. Notably, our core NIM expansion was less than expected due to additional shifts in our deposit composition. 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 in interest-bearing deposits. 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. The inverted yield curve continues to pressure our NIM. However, we do not have any new non-client headwinds in the second quarter. 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 NIM TEY in the second quarter of 2024, with a range of 5 basis points of expansion on the high end and 5 basis points of compression on the low end. 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 noninterest 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 continues to benefit from the strong demand for affordable housing. 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. 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 Guaranty 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. 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. Noninterest expense for the first quarter totaled $50.7 million compared to $60.9 million for the fourth quarter. The linked quarter decrease was primarily due to lower variable employee compensation related to our record fourth quarter and full-year performance in 2023. 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. 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. Now shifting to asset quality, which continues to be excellent. 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 to the fourth quarter and remain at historical lows at just 5 basis points of average loans and leases. 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 1 ratio was 9.91%, improving by 1 basis point and 24 basis points, respectively, on a linked-quarter basis. 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 linked 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. In addition, we 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 portfolios. As a result, this has helped our effective tax rate to remain one of the lowest in our peer group. We continue to expect our effective tax rate to be in a range of 8% to 11% for the full year 2024. With that added context on our first quarter financial results, let's open the call for your questions. Operator, we are ready for our first question.

Operator, Operator

At this time, we will take our first question, which will come from Nathan Race with Piper Sandler.

Nathan Race, Analyst

I want to start just in terms of thinking about the impact of the upcoming LIHTC 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 from the last securitization, you had some benefit 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 gain on sale revenue.

Todd Gipple, CFO

Sure. Nate, I think I'll start, I'll 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. As we've talked, for us, it's less about ultimate gain or a 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 complete. As we've seen in past securitizations, it really does help take the pressure off funding costs. 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 really in our markets has eased a bit, and we're starting to see more core deposit generation in the 4s versus 5s. So a combination of that and the $275 million in liquidity, 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 LIHTC engine running and the capital markets revenue going. We're very pleased to have securitization in hand. I know Larry has probably got some comments on the next securitization and a little more around our strategy in the future.

Larry Helling, CEO

This securitization that we will undertake early in the third quarter will involve tax-exempt loans. We are also planning a smaller securitization later in the year, which will consist of taxable loans, likely about half the size of the first one. Our main focus here is on creating capacity rather than just efficient execution. We've gained valuable insights from completing two securitizations, and we anticipate needing to conduct several more to understand how to best optimize execution timing in the market and how to structure these deals effectively. Over time, we do expect to see some gains on sales, although that was not the initial goal, and it may take a few more attempts to refine our efficiency in this area. Looking ahead, we expect to continue securitizations on an annual or semiannual basis, depending on our liquidity and loan demand among other factors. It's difficult to predict exactly, but as indicated, we anticipate a dispersed securitization early in the third quarter, with another smaller one towards the end of the year.

Nathan Race, Analyst

Okay. Great. Very helpful. And then just going back to Todd's point in terms of deposit cost pressures. Obviously, you had a decline in noninterest 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 if you're seeing continued slowdown in that pressure.

Todd Gipple, CFO

Sure, Nate. Thank you for your questions. First, I want to discuss noninterest-bearing deposits. We experienced a $79 million reduction in noninterest-bearing deposits, which affected our margin by about 5 basis points in the last quarter. We are closely monitoring these deposits across all locations, and I'm happy to report that so far this quarter, the average has only decreased by about $5 million. This indicates that the stress seems to have lessened a bit in the second quarter. Regarding interest-bearing deposit costs, our net interest margin table shows that interest-bearing deposits increased by 18 basis points, but 8 of those basis points were due to the expiration of caps, so the actual core margin impact was about 10 basis points, which is slowing compared to previous quarters. We're excited to share that we are starting to reprice CDs and attract new money in the 4% range instead of the 5% range. We currently have CD rates between 4.35% and 4.74% at our four charters for new money, and we are gaining traction at those levels. It's encouraging to see a slight reduction in deposit competition, likely because many of our peers are not growing loans or relationships, which has eased deposit pricing pressure in our market. This is another reason we are expecting a more stable net interest margin in Q2. For instance, we have $340 million of CDs that are being repriced, which have a weighted average rate of 4.72%, and we anticipate replacing them at a similar rate. Therefore, we believe we are nearing the end of the increase in interest-bearing deposit costs.

Nathan Race, Analyst

I appreciate the information. I’d like to ask about charge-offs. They have been slightly higher in the last couple of quarters compared to historical levels. I'm interested in understanding what caused the increase in the first quarter and how you view charge-off levels moving forward, including whether we should expect some normalization with charge-offs.

Larry Helling, CEO

The charge-offs mainly come from the micro business segment of our portfolio. There aren’t any significant charge-offs; they average around $100,000 in smaller deals. This sector of the economy has been hit hardest by the pandemic and likely didn’t have as much liquidity as larger businesses. There’s nothing out of the ordinary, as these charge-offs are still lower than our long-term historical averages. I expect they will stabilize and gradually decrease later this year based on current observations. Recently, I've spoken with our Chief Credit Officer, and there’s been no movement in our clients' portfolio. Generally, our businesses are doing well, with minor management issues creating occasional problems. I also checked in with our appraisal review team regarding valuations and cap rates, and their response was largely positive. Real estate values are stable, and unlike the last recession, which focused on housing, the housing market is surprisingly strong due to a supply shortage, making existing inventory very marketable. This trend likely extends to the commercial side as well. New construction costs are higher due to inflation and rising interest rates, meaning existing properties retain value. Since these properties make up a significant part of our collateral, they have helped us avoid substantial charge-offs.

Operator, Operator

Our next question will come from Damon DelMonte with KBW.

Damon DelMonte, Analyst

First question, regarding loan growth. Last quarter, Larry mentioned expecting 4% to 6% growth with securitization and 8% to 10% without it. Has that guidance changed? Do you still feel confident about achieving that growth?

Larry Helling, CEO

Yes, we do still feel confident that those are the right numbers. Quarter-to-date, we're off to a really good start in the first 3 weeks of the quarter here, so more in line with that 8% to 10%. I think the slightly lower loan demand in the first quarter was just kind of seasonality, things that sometimes happens over the end of the year. So we certainly feel at this point that, that guidance is still solid.

Damon DelMonte, Analyst

Okay. And the loans that you added this quarter and last quarter or this year so far. What are some of the rates you guys are getting on new production?

Larry Helling, CEO

It certainly depends on the situation. Go ahead, Todd.

Todd Gipple, CFO

New loan pricing was 7.64% for the quarter, Damon, roll off was 7.18%. So 46 basis points left there. And that blended 7.64% also has 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.

Damon DelMonte, Analyst

Got it. Okay. That's helpful. And then with regards 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 has it kind of fully been absorbed into the margin?

Todd Gipple, CFO

Damon, it's really cooked into Q2 now. That did cost us $1.1 million in additional interest expense and 6 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. The $65 million is sub debt that did reprice went from 5.38% to a floating of 8.12% that cost us $200,000 and 1 basis point in first quarter. That will lift to a full run rate of $400,000 per quarter and 2 basis points in Q2. So just that additional 1 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.

Damon DelMonte, Analyst

Got it. And then just lastly on the provision, credit has been pretty strong. 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. Is that a reasonable way to look at it?

Larry Helling, CEO

Yes. Damon, I think that's a good estimation. There's certainly some science and some art in loan loss reserve. We tried to be conservative in keeping that number high. But I think your parameters are in line.

Operator, Operator

And our next question will come from Jeff Rulis with D.A. Davidson.

Jeff Rulis, Analyst

I want to clarify the margin details. If the tax equivalent stands at 3.25%, the non-client factors still remain. Your guidance of plus or minus 5 basis points is close to 3.25%, but it doesn't suggest it's around 3.30% after accounting for the non-client challenges.

Todd Gipple, CFO

Yes. Thanks for the clarifying question. Our guide to static is at that 3.25%, 3.24% tax equivalent NIM. That's the number we're putting in on in terms of static, yes.

Jeff Rulis, Analyst

Okay. I 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 wins, it's kind of a little further outlook seems like a nicely growing business.

Todd Gipple, CFO

Jeff, 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 Guaranty Bank and getting started here this spring in Des Moines. Des Moines is a great metro for wealth management. We're excited to have hired 2 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 folks. So appreciate you asking. 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 4 of the bank charters. So this is a very good business for us. 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, and we think we do it well, and we like it very much.

Jeff Rulis, Analyst

Is there any consideration regarding the timing of the Des Moines rollout? What did you find significant as you introduced it in Southwest Missouri? Is this part of a company-wide strategy, or have you made some artificial enhancements due to the substantial impact in the new rollout areas? You mentioned a 6% growth rate; are there advantages as you implement Des Moines?

Todd Gipple, CFO

Yes. We certainly expect some of the added lift to come from Des Moines and Springfield, Southwest Missouri, but what to tell you is of the 400-some new AUM, 350 of it came in 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. So 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 and the Quad Cities. And we're just excited about building that over time at Guaranty Bank and CSB. One thing I'd mention is because of our model, it's only going to take us about $125 million to $200 million in AUM in each market to really break even. So it's not a big lift in terms of those revenue producers that we've added. We get to breakeven pretty quickly.

Jeff Rulis, Analyst

Great. And last one for Larry. Just checking in on the M&A landscape and how you're feeling you've got all you can eat on a plate organically, but just thinking about combinations and those conversations on the M&A front?

Larry Helling, CEO

Yes. Thanks, Jeff. Not a big priority for us now. We certainly have 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 valuations a lot of the M&A doesn't make a lot of sense right now.

Jeff Rulis, Analyst

Yes, if I were to kind of think about the growth rate organically that you've got and if M&A is cooling, what are the priorities beyond reinvestment in terms of either a dividend or buyback?

Larry Helling, CEO

Yes. Our first priority is to establish a robust balance sheet, especially considering the current global economic uncertainties caused by various unpredictable events. Initially, we aim to improve our capital ratios further; our tangible common equity is nearing 9, and we aspire to achieve the low 9s to rank among the top quartile of our peers. We believe this is a prudent target. Once we reach those capital levels, we may become more active with stock buybacks. The dividend is a lower priority after that, followed by mergers and acquisitions.

Operator, Operator

And our next question will come from Daniel Tamayo with Raymond James.

Daniel Tamayo, Analyst

I guess, first, just curious on the expense impact of the swaps. So assuming your expense guidance for $49 million to $52 million, in the second quarter is aligned with the $50 million to $60 million of swaps. If the swaps end up kind of higher end of that range towards the $60 million number what kind of impact would that have on the expense guidance.

Todd Gipple, CFO

Danny, thanks for the question. Upper end of the guidance range would still put us within that ballpark range for noninterest 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. So we'd still be within that strike zone.

Daniel Tamayo, Analyst

Okay. All right. 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 back half of the year or even into next year that would come into play?

Todd Gipple, CFO

Yes. 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 rate now. The repricing on the existing sub debt of $65 million, that's happened now. And so that reprices 3 months with SOFR. So SOFR right now at 5.30% 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 '24 other than if we choose to do something, but nothing baked into our derivatives right now. But in '25, we will have another $20 million tranche of sub debt repricing in July. And so that will go from a fixed rate of 5.25% to floating rate that will be quite high, actually, a little over 10%. That's midyear next year. And then core out into the third quarter of next year, we have another $50 million tranche of sub debt that would reprice very similar current rate and future rate. So obviously, given those new rates, we'd probably be looking to take advantage of the marketplace and maybe reprice those, but that's well down the road. So nothing in '24.

Daniel Tamayo, Analyst

Got it. Thanks for going into '25 with that detail Todd, that's helpful. And then, I guess, just lastly, on the impact from rate cuts, just this year as you think about it, just curious where the balance sheet stands now.

Larry Helling, CEO

Dan, could you say that again? Cut out just for a second? The impact of rate cuts?

Daniel Tamayo, Analyst

Yes, sorry, I lost you, yes. The question was just around the impact of rate cuts.

Larry Helling, CEO

Yes. Well, certainly, we think we would benefit if rate cuts happened. Certainly, the world sentiment in that space has changed a lot in the last 30 days which the contrarian in me believes maybe makes that actually more likely 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 will pick up some additional margin if rates do go down.

Operator, Operator

And our next question will come from Brian Martin with Janney.

Brian Martin, Analyst

I have a question regarding the strong deposit growth this quarter. Todd or Larry, you mentioned a lot about loan growth and how you are managing it. Can you share your perspective on the deposit flows and how you're planning to manage the loan-to-deposit ratio? Do you anticipate deposit growth to outpace loan growth, especially considering that pricing seems to be improving recently?

Larry Helling, CEO

Yes, over time, we would like to reduce the loan-to-deposit ratio a bit more. We're not looking to do this aggressively. We made significant progress this quarter. Ideally, we want that ratio to be in the 90% range within the next year or two. Interestingly, even though rates remain high, competition in the local market has softened because banks are more liquid now, and concerns about liquidity from last year have faded. With a decrease in loan demand, this is beginning to affect how others perceive the need to increase deposit rates. Recently, a sizable deposit was put out to the market from a local municipality, seeking rates below 5%, and everyone in the market had an opportunity to participate. I believe this trend will benefit us moving forward.

Brian Martin, Analyst

Got you. Okay. So longer-term target, kind of that 90% level is what you'd be eyeing as you move forward?

Larry Helling, CEO

Yes.

Brian Martin, Analyst

Yes. Okay. Regarding the buyback, it seems that M&A discussions are not moving forward. Since you're approaching the 9% level fairly soon, could you consider share repurchases in the latter half of the year? Additionally, with the outlook indicating higher rates for an extended period and some increased credit concerns, does that affect your potential share repurchase plans as you look toward the second half of the year?

Larry Helling, CEO

Yes, I think we might have the capacity for share repurchases in the second half of the year if the environment remains stable like it is now. Given the expected continued strong earnings and our ongoing securitization efforts, we can achieve that 9% level fairly quickly. However, our decision will depend on our economic outlook at that time. Currently, there are no issues in the portfolio that concern us, but that could change in six months. As it stands, if the variables remain consistent, a share repurchase is certainly a possibility.

Brian Martin, Analyst

Got you. Okay. And then maybe just one for Todd. Just on the margin. Todd, I know you talked about the securitization possibly providing a little bit of benefit to the margin. Can you remind us how much impact you saw from the recent securitizations? Do you think that might parallel what could happen in September or in the third quarter?

Todd Gipple, CFO

Sure, Brian. I think last time we saw about a 3 basis point margin increase from the previous securitization. I would expect something similar this time. It will depend on how quickly we can leverage that liquidity and reduce our cost of funding, but we remain optimistic. Larry provided a data point on some funding options now showing a 4 handle instead of a 5. So starting with 3 basis points might be reasonable. We'll likely provide more guidance on this in July when we discuss Q2.

Operator, Operator

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 Helling, CEO

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. Thanks.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.