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QCR Holdings Inc (QCRH) Q2 2019 Earnings Call Transcript

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QCR Holdings Inc (NASDAQ: QCRH)
Q2 2019 Earnings Call
Jul 24, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the QCR Holdings Incorporated's Second Quarter 2019 Conference Call and Webcast. [Operator Instructions]

I would now like to turn the conference over to Larry Helling, CEO. Please go ahead.

Larry J. Helling -- Chief Executive Officer, Director

Thank you, operator. Welcome, ladies and gentlemen. And thank you for taking time to join us today. I will start the call with a brief overview of our second quarter, and Todd Gipple will finish up with additional details on our financial results.

We are very pleased with our financial and operating performance for the quarter. We posted record quarterly net income, driven by strong organic loan and deposit growth, record fee income, excellent credit quality and careful management of non-interest expenses.

We successfully deployed our increase in core deposits during the quarter with solid loan and lease production, while maintaining disciplined underwriting. The higher average loan balances combined with stable net interest margin enabled us to generate an increase in net interest income from the prior quarter. Additionally, both our core commercial business and our specialty finance group delivered strong production, which led to a record $7.9 million in swap fee income for the quarter.

Second quarter net income was $13.5 million and diluted earnings per share was $0.85, both quarterly highs. Adjusted earnings excluding acquisition related costs were $14.1 million and adjusted diluted EPS was $0.88, a nice increase from the first quarter, when we recorded adjusted earnings of $13 million and adjusted earnings per share of $0.82. On a year-over-year basis, our adjusted earnings for the quarter were up 29%.

Our annualized loan growth was 11.7% during the second quarter, showing strong momentum from the first quarter. Year-to-date, we have produced an annualized growth rate of 9.5%, which when combined with our healthy pipelines gives us confidence that we are on track to be at the upper end of our targeted loan growth range of between 8% and 10% for the full year.

Our loan growth for the quarter was driven by strong broad-based demand for C&I commercial real estate and construction loans across all of our charters. Production was driven by both our core commercial lending business as well as our specialty finance group. We also experienced another quarter of more normalized payoffs, which were up modestly from the first quarter and relatively flat with the second quarter of 2018. While the competition for new loans continues to be high, we remain focused and disciplined in our origination and underwriting efforts and continue to grow loans organically by attracting customers that value our relationship-based community banking model.

Our loan and lease growth was funded by strong core deposit growth. We continue to put a significant focus on core deposit gathering across our entire footprint. As a result, we've reduced our reliance on wholesale funding down to 10% of total assets, a meaningful improvement from 12% in the first quarter. Core deposits, which we define as total deposits excluding broker deposits increased by $160 million or 4.1% on a linked-quarter basis. Broker deposits declined by $31 million in the quarter. Going forward, our goal remains funding our loan and lease growth with core deposit growth. However, we don't want to turn down the opportunity to bring attractive and high-quality loans onto the balance sheet. So we may choose to temporarily fund them with short-term borrowings. Despite robust competition for both loans and deposits and the industrywide pressure that has been put on pricing, we are pleased to have generated a stable net interest margin for the second quarter, which helped to contribute to our increased profitability.

Todd will go into more detail on our NIM during his portion of the call. We continue to be very pleased with the performance of our non-interest income, which in the second quarter reached a record $17.1 million, up from $12 million in the first quarter. The increase was primarily driven by $4.7 million increase in swap fee income due to the strong production from our commercial and specialty finance group.

Wealth management revenue was $4.2 million during the quarter comparable to the first quarter of 2019, which is generally higher due to the tax return preparation fees and other seasonal items. For the first half of the year, wealth management revenue grew by 34% year-over-year, driven mainly by increased assets under management. We continue to win new clients and our existing client retention remains high. We are encouraged by this growth as these fees help drive our earnings improvement and provide important diversification in our revenue mix without requiring additional capital.

Finally, our asset quality continues to improve as we are not seeing any credit degradation in any of our portfolios. That being said, we did record a writedown this quarter as a result of reducing the carrying value of an existing OREO property that we are in the process of marketing for sale. Todd will provide more detail on this and other credit metrics.

One thing that I would like to point out is that even though our franchises are all located here in the Midwest, we have virtually no direct exposure to the production agricultural sector. Approximately 90% of our loan and lease portfolio is in C&I or commercial real estate, and we feel very good about the credit quality of these portfolios.

In summary, we are very encouraged by this quarter's performance and remain optimistic about the remainder of the year. As most of you know, I recently took over as CEO and it's nice to start off strong. And as I mentioned on last quarter's call, I'm excited to work closely with Todd and the rest of the senior management team to continue building upon the successful legacy that has been created over the past 25 years. We remain committed to pursuing the key initiatives that we have shared with you over the last several years with the overwriting goal of delivering attractive results and increased shareholder value.

I will now turn the call over to Todd for further discussion on our second quarter results.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Thank you, Larry. As I review our second quarter financial results, I'm just going to focus on those items where some additional discussion is warranted. I'll start with net interest margin as we've worked very hard to stabilize and protect our NIM and those efforts paid off this quarter. Adjusted net interest margin, stripping out the acquisition accounting net accretion remained static at 3.31% during the quarter when compared to the first quarter.

Excluding the acquisition accounting net accretion and on a tax equivalent basis, our net interest income increased by $1.1 million or 3% on a linked quarter basis, as we had higher average loan balances and realized improved yields in our loan portfolio. This was offset by slightly higher funding costs, driven by higher average rates paid and a change in the mix of our funding sources.

Acquisition accounting net accretion was consistent on a linked quarter basis at $1.1 million. We have proactively focused on initiatives to stabilize and improve NIM. These include reducing rates on some of our most rate sensitive deposit products, gathering more core deposits in order to lessen our reliance on wholesale funding and maintaining our pricing discipline on new loan production. As Larry mentioned, the competition for new loans is strong. Yet even in this market environment, we have been able to grow our loan portfolio and bring on new loans at attractive rates. Additionally, we feel that we are well positioned to benefit from a flat to even slightly down short-term interest rate environment as our balance sheet is modestly liability sensitive. Therefore, we are guiding to a continued static NIM in the third quarter.

Now, turning to our non-interest income results. As Larry mentioned, we are very pleased with the growth in our non-interest income during the quarter, which was mainly driven by record swap fees. Our swap fee income and gains on the sale of government guaranteed loans has averaged just under $5 million per quarter for the last four quarters, including a couple of outsized quarters. As we've indicated in the past, variability in these items will occur from quarter to quarter. Our current expectation is that for the remainder of 2019, this fee income source will be in a range of between $8 million and $9 million for the six-month period.

On the expense side, we remain focused on controlling expenses and improving our efficiency ratio, while our reported expense number came in at $36.6 million for the quarter, there were three non-core items that impacted expenses. First, we incurred post acquisition and conversion related cost of $708,000. Second, we recorded a $1 million writedown on the OREO property, that Larry mentioned. And third, we had an additional $2.5 million of bonus and commission expense, driven by the higher-than-anticipated fee income and strong year-to-date net income.

Excluding these three-line items, our non-interest expense came in at $32.4 million in the middle of the guidance range of $32 million to $33 million we provided on last quarter's earnings call. Our asset quality continues to be excellent with no material additions to NPAs in the second quarter. Additionally, we are seeing no early indications of credit deterioration as criticized and classified loans decreased $7.6 million from the first quarter.

Our non-performing assets declined by $3.2 million from the first quarter, primarily due to the $1 million other real estate writedown and $2.2 million in charge offs for the quarter. Our loan loss provision decreased on a linked quarter basis, primarily due to improved credit quality. As I mentioned, we further wrote down an existing OREO property that we have been marketing for sale. We remain committed to facilitating a sale of the property in this calendar year and while we have had some activity and interest we have not yet arranged for a sale. As a result, we wrote-down its carrying value as we continue to try and move the property off our books.

The last thing I want to mention is that our effective tax rate for the quarter came in at 18.5%. There were not any onetime items impacting this rate. However, it was slightly elevated due to the high fee income which changed our mix of taxable versus non-taxable income. We expect that our tax rate for the third and fourth quarters will be in the range of 16% to 18%, not including the beneficial impact of stock options and RSAs.

With that added color on our second quarter financial results, let's open up the call for your questions. Operator, we are ready for our first question.

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from Jeff Rulis with D.A. Davidson. Please go ahead.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Thanks. Good morning.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Good morning, Jeff.

Larry J. Helling -- Chief Executive Officer, Director

Good Morning.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Todd, just wanted to circle back. It's sort of interrelated expense and swap income. I guess you provided some guidance on expense last quarter. Any thoughts on the third quarter or fourth quarter?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Sure. I would really expect, Jeff, for us to be in that range of $32 million to $33 million all-in. That number will jump a bit if we were to have some outsized swap fees that move that number up a fair amount in Q2. Well, we're still feeling pretty comfortable with a core run rate of $32 million to $33 million.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

So that was -- you touched on my kind of this follow up question would be right, if you're kind of guiding to $8 million to $9 million in fee income from -- I presume that's strictly swap or I guess you're coupling that both with the loan sale as well?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Correct. The $8 million to $9 million for the last six months is really combination of both. So say $4 million to $5 million a quarter. If it was in that $4.5 million range, we would expect expenses to be in the $32 million and $33 million range, if we were to have an outsized quarter, that of course non-interest expense might ramp that for commissions and other things related to that outsized fee income.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Okay. And just to clarify on, I mean, great color on the swap outlook. But is that a big quarter in the second quarter. Does that not -- does that cannibalize kind of future performance or it is simply execution within any given quarter, that number can be volatile and a big quarter previously doesn't necessarily mean that steals from the quarter following in other words?

Larry J. Helling -- Chief Executive Officer, Director

Yes. this is Larry. That one -- because it's a relatively small number of large transactions. Jeez, the timing can move meaningful dollars between quarter. But I'd certainly fall short of saying there is a correlation that we had a huge quarter this quarter and then next quarter is going to be smaller. I don't know if that's real because we're only getting started in the next quarter and it will depend on which transactions ultimately get closed during the third quarter now. So unfortunately, not a real simple correlation because of the number of transactions.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Yes, OK. I appreciate the color there. And maybe for -- well, Larry or Todd, I guess as you have -- you've been removed from an M&A acquisition for some time, you spoke on maybe indirect, I guess, perceived credit strain in the region or ag strain, I should say. Just kind of updating us on your M&A thoughts, I mean vary of buying someone else's problems this late in the cycle, but still good conversations out there. How's the temperature on M&A from your perspective?

Larry J. Helling -- Chief Executive Officer, Director

Well, on the M&A side, as you know certainly activity levels are little bit lighter. Basically, the -- part of the biggest issue is the seller's expectations of value relative to stock multiples these days. We remain committed to our current shareholders and making sure we're doing something that's fair to them. And you're right our credit quality feels really good right now and we'd be certainly cautious about buying someone else's problems. But, certainly, still open in certain situations to the right opportunities.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Okay. Thank you.

Operator

Our next question comes from Damon DelMonte with KBW. Please go ahead.

Damon DelMonte -- KBW. -- Analyst

Hey, good morning, guys. How's it going?

Larry J. Helling -- Chief Executive Officer, Director

Good.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Good, Damon.

Damon DelMonte -- KBW. -- Analyst

Good to hear. First question, Todd, on the margin, can you give a little guidance on your expectation for accretable yields, in other words, the first two quarters of this year, you said were consistent at $1.1 million. Just hoping to trail off of a bit?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Actually, that was right on top of schedule for budgeted accretion, Damon, and right now, that number still remains at about $1.1 million. We've got roughly $9.3 million in the remaining discounts. Really don't see a downward trend there in terms of run rate until we probably get into 2020 after a little bit more runoff. But schedule is right on top of Q1 and Q2, another $1.1 million. So very consistent this year versus prior years. We've had some pretty big swings in there.

Damon DelMonte -- KBW. -- Analyst

Okay. And just to reiterate, you feel comfortable that you can kind of keep the margin steady given your liability sensitivity?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Yes, we do. And we have worked pretty hard to get to a fairly neutral balance sheet, but we do still have some modest liability sensitivity. We are very well prepared for a coming rate cut if one does happen, and we worked hard to put ourselves in a position to get at least a 100 beta on rates down. So we're going to work really hard to take advantage of those cuts on the right side of the balance sheet, we are well prepared for that already. We actually do have a little bit of continued excess liquidity. Loan to deposit ratio is just a touch over 90% at the end of Q2. It was close to 94% at the end of the calendar year. So we actually had a static margin here in Q2 even though we did carry a fair amount of excess liquidity. The big wildcard of course is what the fed actually does here at the end of the month, and maybe more importantly, the language they use, as you know, the market gets ahead of the cuts. And so I think everyone's wondering what the language is going to be for any continued cuts during the year. And then the impact that might have on LIBOR, treasury [Indecipherable] rates. So we feel very bullish about margins and we feel comfortable guiding to a static one.

Damon DelMonte -- KBW. -- Analyst

Okay, great. And then obviously credit trends this quarter are pretty strong. How are you thinking about the provision for the back half of the year? Do you have a estimated range?

Larry J. Helling -- Chief Executive Officer, Director

Yeah, I'll let Todd speak to specific dollars, but certainly probably steady would be our mindset there, just normal provision for normal growth and the normal kind of things that happen under credit portfolio on a quarterly basis.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Yes, so as a result, Damon, that would probably be in a range of 1.7 to 2.

Damon DelMonte -- KBW. -- Analyst

Okay. All right, great. And then I guess just lastly are you guys fully integrated with the Springfield bank shares deal? And can you just give us an update on how those operations are doing right now?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

We'd love to Damon. Actually, just spent the last two days down with the team in Springfield and our conversion is scheduled for the middle of next month. So that team is working really, really hard on integration and conversion, incredibly hard. And what I'm very pleased with is it really is a testament to the quality of that team. They've been working on that for last several quarters leading up to the conversion and they posted a 1 3 7 ROA last quarter. Loans were up 19% deposits were up 24%. So while they do have all of that work going on, the team is still really doing a super job with loan and deposit growth and serving new clients. So could not be more pleased. We'll get some synergies after that conversions, those would primarily be efficiencies related to some of the costs on data processing and some of the other overhead issues. But extremely pleased with the performance of the Springfield team. Couldn't say enough good things about how hard they're working.

Damon DelMonte -- KBW. -- Analyst

Okay, great. That's all that I had. Thank you very much.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Thanks, Damon.

Operator

Our next question comes from Nathan Race with Piper Jaffray. Please go ahead.

Nathan Race -- Piper Jaffray -- Analyst

Hey, guys. Good morning.

Larry J. Helling -- Chief Executive Officer, Director

Good morning.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Good morning, Nat.

Nathan Race -- Piper Jaffray -- Analyst

Todd I was hoping just to drill down on your core NIM outlook a bit more. I appreciate your previous commentary, but just kind of curious where you guys are putting new loans on the books relative to debt portfolio yield that's around for 494 today on a core basis?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Nat we continue to, for the most part, have an average new loan rate that starts with a five, that is coming under pressure, as you might guess. So far, so good, we're still holding on to that. So you're seeing a small uptick in total loan yields as a result of new loans coming on with a five handle. That some of the uncertainty I spoke about in terms of fed language and what the market's reaction is to that. But so far, so good on loan pricing. And we are, as I mentioned earlier, well prepared to take advantage of any cut on the right side of the balance sheet.

Nathan Race -- Piper Jaffray -- Analyst

Got it. And I guess along those lines in terms of thinking about the impact of the fed cut here in July. Curious, I mean, do you expect it to be a wash, essentially, is that kind of what we're hearing?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Yeah. I think in our guidance to a static margin for Q3, we're expecting if the fed does not surprise, I think it's a 75% likelihood now of a quarter and 25% that might be more. But if it were to be a quarter and the market digests that and the language is fairly stable from the fed, we expect that to help us with the static outlook on the long term.

Nathan Race -- Piper Jaffray -- Analyst

Okay. Got it. And I'd just be curious if you can update on core deposit growth, obviously really impressive broad-based growth across the various banks with maybe the exception of Quad Cities. So just curious if you guys expect loan growth to keep pace with core deposits or if you guys kind of expect core deposit growth to lag a little bit and kind of grow into the excess liquidity that you guys have put on the balance sheet over last few quarters now?

Larry J. Helling -- Chief Executive Officer, Director

Yeah, we have excess to liquidity in Q1. We thought we may burn that up a bit in Q2 and we did have strong loan growth, but deposit growth was right on pace with it and that's a good thing. And we're going to continue to stay very focused on core deposit gathering. We know that it may provide a little bit of pressure on margins short term. But we're factoring that into our guidance going forward that we're going to continue to fund with core deposits. And we like where we settled in with reliance on wholesale about 10%. That's -- anything under 15 is pretty good for us. Getting it down to 10 is probably part as well as we'll get it, too. But anywhere in that 10%, 11%, 12% and everything else being core deposit, that's very good for all of our charges.

Nathan Race -- Piper Jaffray -- Analyst

Understood. I appreciate all that color. Congrats on a solid quarter.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Thanks Nathan.

Operator

Our next question comes from Daniel Cardenas with Raymond James. Please go ahead.

Daniel Cardenas -- Raymond James -- Analyst

Good morning, guys .

Larry J. Helling -- Chief Executive Officer, Director

Hi, Dan.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Hi, Dan.

Daniel Cardenas -- Raymond James -- Analyst

Congrats on a good quarter. Just maybe a couple of questions as we think about loan growth on a forward-looking basis, do you kind of expect that growth to be kind of footprint wider? Or does Missouri area or Iowa hold kind of a bigger opportunity for growth for you guys?

Larry J. Helling -- Chief Executive Officer, Director

Yes, fortunately, I would say our growth prospects, I think are pretty broad based. Certainly, our team in Springfield, it's our newest charter, has really done a nice job of building into some scale into that marketplace. But we feel good really about the opportunities in each of our markets, the kind of markets we're in is kind of mid-sized second and third tier cities in the Midwest I think have been pretty stable, so that bodes well for just our normal activity. And so we feel good about it, and then our specialty group is, because of the niches they serve, we believe that that's pretty recession resistant. And so the kind of numbers we've produced so far year-to-date are really just a continuation of what we've done really over many, many years.

Daniel Cardenas -- Raymond James -- Analyst

Okay. And I know credit metrics are good right now and doesn't sound like you're overly concerned about anything near term. But are there any segments that maybe you're tapping the brakes on at the moment just kind of given a good but maybe slow economy?

Larry J. Helling -- Chief Executive Officer, Director

Yes, the tap on the brakes, the one thing that we pointed out specifically is because we're in the Midwest, people have always assumed we did a lot of production ag lending, which we do almost none of. And so that wasn't tap on the brakes, that's just something we made a deliberate decision on 15 or 20 years ago that we didn't want to do that business for various reasons.

The other part certainly in the commercial real estate space, the retail world in commercial real estate is changing. So we backed away years ago from the big box space because of what's going on. Just not necessarily -- there's a C change going on in the way that world looks. And so we've been very cautious in that space. Now, if it's a little neighborhood strip shopping center or something that will probably still be fine because we haven't figured out that people are still going to pick up their whole wheat sandwiches, the different spots and a strip chain center or something like that. So that -- we've been cautious there, and I think that'll prove to be a good decision.

Daniel Cardenas -- Raymond James -- Analyst

Okay, all right. And then maybe on deposit competition, have you noticed a slowdown in Q2 and currently in Q3? Or has it still kind of been over competitive in your footprint?

Larry J. Helling -- Chief Executive Officer, Director

Yeah, my broad comments would be, is we're in a little less activity chase and the marginal deposits out there, so that feels good and it should allow us to be able to push our rates down, particularly if the fed moves rates. And so I would say it softened a little, while our loan totals have grown really nicely, I think that's probably different than most of our competitors and some of the early press releases I've seen softness in loan totals is something that others have experienced. If that's true, kind of broadly, that may help us on the deposit side because the demand won't be as great.

Daniel Cardenas -- Raymond James -- Analyst

Great. And then the last question from me kind of going back to the margin. So good to hear that that a 25 basis-point cut is not going to really impact the margin in 3Q. But beyond that would an additional 25 basis point cut in Q4 have the same effect or would that perhaps put some pressure on the margin?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Dan, I think we're pretty well positioned for cuts to at least provide a static margin, if not a little bit of a nice tailwind for us. So we're not overly concerned about fed cuts. We feel like compared to our peer group, we're probably better positioned for that, just as we may have suffered a little harder and a little earlier than some of our peers on rates up. We feel like we're well positioned to take advantage of cuts and feel very good about that longer term.

Larry J. Helling -- Chief Executive Officer, Director

Yes, Dan, additionally, I'd say when we get to 50 basis points down, as you know, we've got a lot of floating rate commercial prime-based loans, we'll start bumping up against the floors at that point and it actually could help us when we get to that spot.

Daniel Cardenas -- Raymond James -- Analyst

All right, great. Thanks, guys.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Thanks, Daniel .

Operator

[Operator Instructions] Our next question comes from Evan Lyle [Ph] with Janney Montgomery

Unidentified Participant

Good morning. This is Evan on for Brian Martin. Just a quick question on your specialty finance group. How large is that book today and what type of growth do you see for the next 12 to 24 months?

Larry J. Helling -- Chief Executive Officer, Director

Okay, the book on the historic tax credit -- low income tax credit side is a couple hundred million. And so it's meaningful, but not certainly outsized relative to the size of our balance sheet. The direct municipal side where we've done some lending there is probably in the couple $100 million range. And so those have been really steady and we expect that growth to kind of grow at least at the pace of our historic growth rates for our entire portfolio. So we expect that mix of our total assets to remain fairly steady and maybe go up slightly over the next couple of years.

Unidentified Participant

Okay, awesome. And then just following up, can you give an outlook for your purchase accounting accretion?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Sure. We've got $9.3 million remaining in discounts, and the actual accretion in Q1 was $1.1 million. Q2 this most recent quarter was also $1.1 million and scheduled in Q3 is another $1.1 million. So it's really flattened out and much more consistent this year. Don't really see that tailing off from the scheduled perspective until we get into 2020.

Unidentified Participant

All right, awesome. Thank you.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Thanks, Evan.

Operator

Our next question is a follow up from Jeff Rulis with D.A. Davidson. Please go ahead.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Hi, thanks. Just I guess you spoke on Todd about the swap income and quite a bit I guess for the full year you're almost doubling the prior guidance from the beginning of the year. Any initial thoughts as you've clearly been executing pretty well on that front? On 2020, I know that you don't want to get ahead of yourselves, but is it $8 million to $12 million for '19, does that extend and maybe upping that in '20?

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Yeah, Jeff, you said it best when you said we don't want to get ahead of ourselves. So we feel really good about the $8 million to $9 million for the rest of this year as we articulated in our opening comments. It was as simple as taking the last four quarters and getting an average, realizing we had a couple of outsized quarters in there that gets us to that $4.5 million. And so as a result, that $8 million to $9 million range. I think it's quite likely we're not going to be guiding in 2020 to $8 million to $12 million. So we're going to be that quite handling, as Larry articulated, we feel very good about that pipeline. So I think for 2020 hate to do this, Jeff, but we're probably going to wait and see what Q3 brings and then for the first time, we'd talk a little bit more about 2020. I know that doesn't help you with your models yet for next year. But I think it's safe to say that it would be north of $12 million just how far north of that we'd probably want to get one more quarter behind us, if that's OK.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

No, understandable just wanted to -- go ahead.

Larry J. Helling -- Chief Executive Officer, Director

Just to understand, Jeff, and certainly the interest rate environment has a lot to do with the ability to price into those swaps and this interest rate environment is particularly attractive time, given low flat yield curve to be able to execute well on these. So that could have some impact over time, but you can tell me what interest rates are going to do next year and what the yield curves and all slightly come a lot closer.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

All right. Fair enough. Good points. Thank you.

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Thanks, Jeff.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Larry Helling for any closing remarks.

Larry J. Helling -- Chief Executive Officer, Director

Okay, thanks to all of you that joined us today. We look forward to speaking with you all again soon. Thanks, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Larry J. Helling -- Chief Executive Officer, Director

Todd A. Gipple -- President, Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Damon DelMonte -- KBW. -- Analyst

Nathan Race -- Piper Jaffray -- Analyst

Daniel Cardenas -- Raymond James -- Analyst

Unidentified Participant

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