Jeff Rulis: Just thinking about the timing of Des Moines. What did you see a considerable as you rolled out in Southwest Missouri? Is there a, you know, it’s kind of company-wide. But are there some artificial jumps that you’ve taken because it really impactful in the new rollout areas? Trying to get into that, you talk about 6% growth rate. But are there some leg ups as you get Des Moines rolled out?
Todd Gipple: Yes, we certainly expect some of the added lift to come from Des Moines and Springfield, Southwest Missouri. But what I’ll tell you is of the 400 and 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 and 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 Guarantee Bank and CSB.
One thing I’d mention is 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 lift in terms of those revenue producers that we’ve added. We get to break even pretty quickly.
Jeff Rulis: 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 the plate organically, but just thinking about combinations and those conversations on the M&A front?
Larry Helling: 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. And until a whole sector gets a little better valuations a lot of the M&A doesn’t make a lot of sense right now.
Jeff 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?
Larry Helling: Yes. Our first priority is building a really strong balance sheet. Given the, I’ll call it the world economic uncertainty, it could be caused by all kinds of, as you know, to watch the news, the crazy events going on in the world. 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 kind of top quartile in our peer group. We think that’s the kind of prudent place to be. After that, it would be stock buybacks when we get to that relative capital levels. We might get a little more active there. Dividend is down the list after that and then M&A.
Jeff Rulis: Appreciate it. Thank you.
Operator: And our next question will come from Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo: Thank you. Good morning, everyone.
Larry Helling: Morning, Danny.
Daniel Tamayo: Yes, 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 toward the $60 million number, what kind of impact would that have on the expense guidance?
Todd Gippel: Danny, thanks for the question. 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. 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, 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 a longer environment, is there anything kind of back half of the year or even into next year that would come into play?
Todd Gippel: 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 right now. The repricing on the existing sub-debt of $65 million, that’s happened now. And so that reprices three months with SOFR. So SOFR right now at 530 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’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 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: 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? Hello?
Todd Gippel: Danny could you say that again. I’m cut out just for a second. The impact of rate cuts?
Daniel Tamayo: Yes, sorry, I lost you. Yes, the question was just around the impact of rate cuts.
Todd Gippel: 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 than 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’ll pick up some additional margin if rates do go down.
Daniel Tamayo: Okay. All right. Thanks for taking my questions.
Todd Gipple: Thanks, Danny.
Operator: And our next question will come from Brian Martin with Janney. Please go ahead.
Brian Martin: Hey, good morning, guys.
Larry Helling: Good morning, Brian.
Brian Martin: Just one question, just with the strong deposit growth, this quarter Todd or Larry, just as far as kind of, you know, we 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, you know, loan to deposit ratio kind of expect them to cut off pace load growth there. I guess. How are you thinking about this especially given the pricing appears to be a little bit better here, you know, ablaze?
