QCR Holdings Inc
NASDAQ:QCRH
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Earnings Call Analysis
Q3-2023 Analysis
QCR Holdings Inc
The bank reported a strong third quarter, showcasing static net interest margin, significant loan growth, stable deposit base, and sound asset quality. Notably, loan growth was robust at 14.2% on an annualized basis, propelled by traditional lending activities and contributions from low-income housing tax credit (LIHTC) lending programs. The Specialty Finance Group and LIHTC lending business are recognized as critical drivers of this growth, with management continuing to leverage these for future securitizations to manage liquidity and capital effectively.
The guidance for loans held for investment growth remains at an annualized rate of 9% to 12% for the fourth quarter, with a conservative reserve for credit losses at 1.39% that reflects the upper quartile of peer group levels. These strategies underscore the bank's prudent risk management and its ongoing efforts to expand its lending portfolio sustainably.
The bank's LIHTC lending is praised not only for its valuable contribution to the portfolio but also for its potential to command higher valuation multiples. Management intends to continue securitizing portions of the LIHTC loan portfolio as part of a broader strategy, with two securitizations scheduled for closure in the fourth quarter. While these securitizations are expected to be approximately breakeven considering valuation and transaction costs, they signal the bank's strategic use of LIHTC lending and securitization to optimize its balance sheet.
The net interest margin is forecasted to be relatively stable in the fourth quarter, with marginal variations. The bank anticipates a range of 5 basis points of expansion on the high end to 5 basis points of compression on the low end, reflecting balanced loan and deposit betas. Non-interest income remains robust, especially with wealth management revenue growing, largely owing to new client acquisition, and is expected to continue with this trend.
The bank emphasizes cost control with the reaffirmation of non-interest expense guidance at $48 million to $51 million for the fourth quarter, while targeting a non-interest expense growth rate of 5% or better as part of their '9-6-5' strategy for the upcoming year.
Favorable shifts in the deposit mix and the roll-off of brokered deposits are helping the bank to increase its core deposit base, which is a focus for funding future loan growth. The wealth management business is reported to be expanding, with a new team on board in Southwest Missouri and plans to extend the service to the Des Moines market next year.
Asset quality remains at the center of the bank's strategy, with non-performing assets (NPAs) increasing slightly due to three unrelated client relationships, yet the bank expects a major portion of these NPAs will be resolved without losses. Further, the effective tax rate is anticipated to be in the range of 8% to 11% for the fourth quarter, slightly up from the previous quarter but within previously given guidance.
While overall loan growth has historically been at 10%, the bank is modifying its on-balance sheet growth strategy to target around 5%, due to the planned use of securitizations. Although there has been a recent slowdown in developer business related to climbing interest rates, the core commercial and manufacturing business are showing signs of recovery. Moreover, the LIHTC pipeline remains stable, offering high-quality loan assets to the portfolio without significant credit risk, given the continued demand for affordable housing.
The bank's commitment to LIHTC lending and securitization remains strong, with plans to conduct several securitizations throughout the next year, details of which will be further clarified after the fourth-quarter call. This is in line with the bank's growing emphasis on tax credit lending and securitization as core components of its lending strategy.
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Greetings, and welcome to the QCR Holdings Inc. earnings conference call for the third quarter of 2023. Yesterday after market close the company distributed this third 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 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 up the call to questions from analysts.Before we begin, I would like to remind everyone that some of the information management will be providing 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. 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 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 for November 2nd, 2023, 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.
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. We will also include a review of our specialty finance business with an update on our loan securitization strategy. Todd will provide additional details on our financial results for the quarter.We delivered solid third quarter results, highlighted by a static net interest margin, robust loan growth and significant fee income. In addition, our deposit base is stable, our capital ratios are strong and our asset quality remains sound. Our third quarter and year-to-date results demonstrate the continued strength of our franchise our commitment to relationship banking, and the successful execution of our strategic initiatives.Our net interest income grew 3.9% from the second quarter. The increase was driven by a static net interest margin and strong loan growth. In the third quarter, we delivered reported net income of $25.1 million or a $1.49 per diluted share. Our adjusted net income for the quarter was $25.4 million and our adjusted EPS was $1.51 per diluted share. We generated an adjusted ROAA of 1.23% and an adjusted ROAE of 12.12% for the quarter. And we continue to target performance near the high end of our peer groups.Loan growth was stronger in the quarter, growing 14.2% on an annualized basis. Our loan growth was driven by solid activity from our traditional lending business and even stronger contributions from our low-income housing and tax credit lending program.During the third quarter, our core deposits excluding short term broker deposits were relatively stable. Core deposits declined slightly by $9 million after growing $339 million or 23% on an annualized basis during the second quarter. Our experienced team of bankers continues to add relationships to our strong and diversified deposit franchise. Our uninsured and uncollateralized deposits remain low at 20.1% of total deposits at quarter end. Our substantial on balance sheet liquidity combined with available liquidity at the Federal Home Loan Bank, fed and other upstream and brokered sources more than cover our uninsured and uncollateralized deposits.Our asset quality remains strong as the ratio of non-performing assets to total assets was 41 basis points at quarter end. Our reserve for credit losses represents 1.39% of total loans and leases held for investment and continues to be near the upper quartile of our peer group. Our reserve levels reflect our conservative approach and provide a buffer against potential economic challenges. While we are cautious given elevated interest rates and economic uncertainty, we remain optimistic about the resilience of our Midwest markets. Unemployment remains below the national average across our footprint and business activity has continued at a steady pace.As we mentioned last quarter, our exposure to commercial office billing is very low at just 3% of total loans with an average loan size of $859,000. These properties are predominantly located in suburban locations within or adjacent to our markets. They're well collateralized and are performing in line with expectations with no significant repayment concerns. We continue to maintain strong levels of capital that have supported another robust year of growth. We are focused on further building our capital levels. With a modest dividend, strong earnings and our pending securitization, we continue to target capital ratios in the top quartile of our peer group.During the quarter, we grew loans 14.2% on an annualized basis, with year-to-date loan growth being 10.2% on an annualized basis. As I noted, this was driven primarily by ongoing strength in our low income housing tax credit lending business. With the growing prominence of our Specialty Finance Group and LIHTC lending business, I will again spend some time discussing the drivers of this high performing business.As we have stated in prior quarters, our specialty finance team offers low-income housing tax credit lending to a select group of developers and investors with whom we have built long standing relationships. Our clients continue to experience strong demand for their projects as the need for affordable multifamily housing far exceeds supply.The industry has an excellent track record with negligible historical fault rates. Based on decades of stability in the industry and our own experience, these high quality loans are ideal for securitization. As we have previously discussed, our intent is to securitize a portion of our existing LIHTC loan portfolio with plans to continue this on an ongoing basis. We view this as an effective tool in managing our liquidity and capital. It will also provide ongoing capacity for continued LIHTC production and the corresponding capital markets revenue that we receive from this business.I'm pleased to announce that we have two LIHTC loan securitizations scheduled to close in the fourth quarter, a tax exempt pool of $130 million dollars and a taxable pool totaling $135 million. Both are now scheduled for closing prior to the end of November. The financial outcome of these first securitizations will be approximately breakeven subject to final valuation and transaction costs. We believe that our LIHTC lending business is extremely valuable and that it deserves a higher valuation multiple than traditional banking.While our third quarter loan growth was exceptional, we are maintaining our guidance for growth in loans held for investment for the fourth quarter to be in a range of 9% to 12% on an annualized basis, as our pipeline continues to be strong. While economic headwinds remain a risk, we have demonstrated excellent historical credit quality, robust fee income sources, a valuable core deposit franchise and a strong capital position.In addition, we believe that we have the ability to defend our net interest margins in a higher for longer interest rate environment. These qualities, when combined with our current valuation, have positioned our company and shareholders to benefit as we continue to execute on our strategic initiatives.I will now turn the call over to Todd to provide further detail regarding our second quarter results.
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 14.2% on an annualized basis during the quarter, or $227 million of net growth. In anticipation of our loan securitizations, as of the end of the quarter, we have classified $278 million of LIHTC loans as held-for-sale. Our loan securitizations in the fourth quarter will improve our liquidity and enhance our TCE ratio. In addition, our long term securitization strategy will enable us to continue to fund the growth of our LIHTC lending business and the corresponding capital markets revenue that we receive from this business, while maintaining the portfolio within our established concentration levels.Core deposits were relatively stable for the quarter. We have grown core deposits nearly 8% on an annualized basis during 2023 which has allowed us to fund our strong loan growth. We also successfully rolled off $103 million of broker deposits in that third quarter. As Larry mentioned, our total uninsured and uncollateralized deposits were at a very low level at quarter end at 20.1% of total deposits. In addition, the company maintain approximately $3 billion of available liquidity sources at quarter end, which includes $1.1 billion of immediately available liquidity.Turning to our income statement, we deliver net income of $25.1 million or $1.49 in diluted earnings per share for the quarter, driven by higher net interest income and strong non-interest income, along with well controlled expenses. Our adjusted net income was $25.4 million or $1.51 per diluted share. Net interest income was $55.3 million, an increase of 3.9% from the prior quarter. Adjusted NIM on a tax equivalent yield basis remained static on a linked quarter basis at 3.28%, which was at the top end of our guidance range.During the third quarter, our loan yield expansion accelerated while we experienced a more modest increase on our cost of funds for the slowing and the shift of the composition of our deposits from non-interest and lower beta deposits to higher beta deposits. We are pleased to see the stabilization in our deposit mix and believe that it will continue to benefit our net interest margin going forward.As we look to the fourth quarter, we are anticipating a pause from the Fed and a yield curve that continues to be partially inverted. We expect our loan and deposit betas will continue to increase but more slowly at offsetting levels. Our loan securitizations in the fourth quarter will also help lessen the pressure on higher funding costs and further stabilize our deposit mix. As a result, we're getting to a relatively static adjusted NIM TEY in the fourth quarter within a range of 5 basis points of expansion on the high end and 5 basis points of compression on the low end.Turning to our non-interest income, which was $26.6 million in the third quarter. Our capital markets revenue was $15.6 million this quarter. And while down from the outsized performance of $22.5 million in the prior quarter, the $15.6 million of production outperformed our annualized guidance range. Capital markets revenue from swaps continues to benefit from the strong demand for affordable housing and stabilization in the supply chain and construction costs. In addition, developers have been successful in restructuring their project capital stacks in the current interest rate environment.Capital markets revenue from swap fees has been a consistent and strong source of fee income. Based on decades of stability in the LIHTC industry and our own experience, we believe that this business will perform well throughout various economic cycles. Our LIHTC lending and capital markets revenue pipeline remains healthy as our clients continue to experience strong demand for new projects. As a result, we are maintaining our capital markets revenue guidance for the next 12 months in a range of $45 to $55 million.In addition, we generated $3.8 million of wealth management revenue in the third quarter consistent with the second quarter. On a year-to-date basis, wealth management revenue was up $488,000 or nearly 6% on an annualized basis. Our wealth management team continues to benefit from new relationships, adding 220 new clients and $577 million in assets under management in the first 9 months of this year. Our continued growth new relationships helped offset market volatility during the third quarter.We're also pleased to announce the start of our new wealth management business in the Southwest Missouri market at our guarantee bank charter. We have a highly experienced team in place that will expand the reach of our current wealth management business.Now turning to our expenses. Non-interest expense for the third quarter totaled $51.1 million compared to $49.7 million for the second quarter and at the high end of our guidance range of $48 million to $51 million. The increase from the prior quarter was primarily due to higher variable employee compensation for year-to-date performance, increased professional and data processing fees and other expenses related to fixed asset disposals. These increases were partially offset by lower advertising and marketing expenses. We remain diligent in controlling our expense growth. For the fourth quarter we are reaffirming our non-interest expense guidance again this quarter to be in a range of $48 million to $51 million.Our asset quality remains strong. During the quarter, NPAs increased by $8.6 million to $34.7 million or 41 basis points of total assets. Majority of the increase was driven primarily by 3 client relationships from unrelated industries. Approximately 1/3 of our NPAs consist of one relationship and we believe that this credit will be resolved without a loss. 20-year historical NPA percentage has averaged approximately 90 basis points on total assets. We remain significantly below those levels today, and believe that we're well positioned given our historical experience and the uncertain economic environment that continues to exist.Classified and criticized loans as the percentage of loans and leases also remain quite low at 1.05% and 2.98%, respectively. Our 20-year historical average of classified and criticized loan percentages are approximately 2.7% and 4.6%. Similar to our NPAs, we remain well below historical averages in these categories, and they have remained relatively stable over the course of 2023.Provision for credit losses was $3.8 million during the quarter which included $3.3 million of provision for loans and leases, primarily driven by the loan growth during the quarter. We expect to continue to maintain strong reserves given the economic environment. Our reserves to loans held for investment was fairly static at 1.39% and continues to be at the higher end of our peer group.We continue to maintain solid levels of capital that have supported another robust year of growth. Our total risk based capital ratio declined by 29 basis points to 14.4% due to the very strong loan growth during the quarter. Our tangible common equity to tangible assets ratio declined 23 basis points to 8.05%. The decline in the TCE ratio was due to the rise in interest rates during the quarter and the resulting negative impact on AOCI related to our securities and derivative portfolios.With continued strong earnings coupled with our modest dividend, our tangible book value per share increased by $0.34 during the third quarter. The decline in AOCI partially offset the growth in our tangible book value. Our capital allocation priorities remain focused on growing our capital and targeting capital levels in the top quartile of our peer group.Finally, our effective tax rate for the quarter was 6.8% compared to 12.2% in the second quarter. We benefited this quarter from a full quarter, a strong growth in our tax exempt loan and bond portfolios that was added during the late portion of the second quarter and throughout the third quarter. As a result, this has helped drive our effective tax rate even lower and remains one of the lowest in our peer group. We expect the effective tax rate to be in a range of 8% to 11% for the fourth quarter.With that added context on our third quarter financial results, let's open the call for your questions. Operator, we are ready for our first question.
[Operator Instructions] Today's first question comes from Damon DelMonte with KBW.
Just wanted to start off on the margin commentary. Todd, I think you said in your remarks that you're anticipating the margin could be plus or minus 5 basis points here in the fourth quarter. Just kind of wondering under like which scenarios are you expecting that to change? Like, is there something on the deposit mix side which could have a bigger impact on which direction that the margin goes?
Sure, Damon. So our base assumptions on static would be no Fed hikes in November, December. The loan growth of that 9% to 12% that we've guided to having the loan sold up to 65% roll off in November, as we've guided to, securitization will give us a couple basis points of lift in the fourth quarter. But the big assumption around deposit mix is that it's going to remain fairly static, we did see a real positive slowdown in terms of mix shift in the third quarter, and candidly that's continued here in October. Our non-interest bearing is actually up $20 million thus far in the quarter. So with all of that we're feeling very optimistic about static margin.The reason for the goalposts on both sides of that up and down would be just how effectively we're going to continue to get some loan yield pop. We are starting to see some really nice loan yields on new loans. And to the extent we can continue that and also hold on to a more static mix of deposits, then we're a little more optimistic ahead of that static guide. I hope that gives you enough color around what our assumptions are.
Yes, that was helpful. And do you happen to have like what -- and I'm sorry if I missed this, but what new production? So new loans coming on books, generally are coming out what kind of yields?
Sure. So in the third quarter our average new fundings were $747 million but that's actually also accelerated into a quarter. And in September alone those were up to $756 million. Floating rate loans, which most of -- well, actually all of our LIHTC production would be in that category. That was $810 million yield for the third quarter, and that also was ramping up during the quarter, had a terminal rate of $819 million in September. So we are starting to see some real nice lift in new loan production. And as I said, in terms of the NIM guidance, that's a big part of us being able to hold on to NIM.
Got it. It's great. It's helpful. And then I guess regards to the credit in those three relationships that that kind of came under the books this quarter, was one of those part of the 1/3 of the overall NPAs or no?
No, Damon. They were 3 new ones that came on. The 1/3 ones the one we've been working on for a couple quarters. The 3 new deals that came on totally different industries, one in the hospitality space, one small homebuilder. One was actually a daycare. And if you step back and look at it we're moving toward what I consider slowly toward a normalization of credit, which was absent the last couple of years because of all the PPP money and those kinds of things. So if there were management issues, it got covered up by excess liquidity that borrowers had. That's kind of gone now for most people, especially the really small businesses. So we don't see any broad base trends. But management decisions are showing up a little bit more than they did 2 years ago.
And our next question comes from Nathan Race, Piper Sandler.
Going back to the margin discussion, and just kind of think about some of the dynamics on the right side of the balance sheet that factor into the guidance for 4Q. Just curious to what extent you guys plan to run off some of the brokered CDs there in the first quarter. And obviously, the overnight borrowings are up versus the second quarter. But I imagine those can come down with the securitizations in the fourth quarter as well. So just trying to think about how we should think about the overall size of the right side of the balance sheet, and kind of what you guys are seeing in terms of additional core deposit growth opportunities going forward.
Sure, Nate. Yes, you're spot on what your opening comment on what you were seeing, and that is that $295 million of overnight was really a placeholder for the securitization and the liquidity we're going to free up here in the fourth quarter. So we did that really as a placeholder for funding until we are able to close those securitizations. So we would see that going away. We actually rolled off $103 million of the brokered in this most recent quarter and that had a $480 million average handle. So we felt really good about seeing that roll off and replacing it with core deposits.When you look at our core deposits, I mean, they were essentially static quarter-to-quarter. We liked it that way. That was somewhat intentional. We're trying to take some of the sting out of new deposit generation costs. Again, that's another big lift from the securitization that gives us the ability to be a little bit more patient with deposit growth. But maybe the punch line for you in terms of the right side of the balance sheet, we would expect to fund any and all new loan growth going forward with core deposits, not with overnight, not with brokered. And so that leaves us with roughly $200 million of brokered, that's going to mature during 2024. And we would expect to keep rolling that off and not replace it with anything but core deposits.
And is the replacement costs on those broker CDs, that marginally lower than what you guys are seeing in terms of pricing on new core deposits today?
Well, new core deposits are still very pricey, of course, and so some of the big chunks come with a 5 handle or a 5-plus handle. But we're really fortunate to have such strong bankers and very good treasury management people and platforms. So we do continue to pick up actual core relationships. And so those blended rates when they come in, when we pick up a new treasury management client, we're going to get some non-interest bearing, we're going to get some money market that might be in the 2s. And then of course, we're probably going to have to pay a little bit higher for some of their excess cash, but blended all-in, we're really looking to try to keep that coming on, on a blended rate, somewhere close to those brokers, which again, would be in the mid to upper 4s. So really just swapping those out from a cost of funds perspective.
Got it. That's very helpful. And just maybe thinking about expenses for next year. And I know it's a fluid situation at this point in the year in terms of thinking about next year. And I appreciate that you guys have a fairly variable cost structure relative to overall revenue. But just any guideposts in terms of how you guys are thinking about expense growth for next year? I think the historical goal is to limit expense goes to 5%. Is that a reasonable expectation assuming you guys have kind of the midpoint of capital markets revenue for the next 12 months?
Sure, Nate, that would be spot on. Our 5% non-interest expense, guidance or strategy and our 9-6-5 strategy is what we'd be holding ourselves accountable to next year. We still feel good about our guide for Q4 in the 48% to 51% range. If you're out modeling '24, that 5% would be a good thing to use, because it does tie in to our 9-6-5 strategy, and certainly what everyone in our company understands is the guideline. And so we're in the middle of budgeting, as you would expect right now. And that's certainly the expectation that Larry and I would have for next year's non-interest expense, 5% or better.
Okay, great. And then just going back to credit quality, I think we've been talking about that 1/3 proportion of NPAs that you guys expect to resolve without a loss for a couple of quarters now. So Larry, any sense on just the timing of when that resolution is expected to occur?
Yes, I mean, it's certainly hard to tell when you get into these kinds of situations. I talked to a workout guy that handled that yesterday, and it's probably the middle of next year before we get some clarity when you started going through the legal channels. We're going through the legal process. It's still a really good quality asset that is very valuable. And so it's back half of next year, we probably -- before we can expect that one to get resolved. But we have some smaller ones in between now and then we would expect to be resolved.
Okay, great. And just one last housekeeping question. [indiscernible] income was up about $1 million quarter-over-quarter. Was that more one time in nature or did you guys kind of reevaluate a new plan asset in the quarter? And is that kind of level sustainable going forward?
Yes, Nate, that's good catch. That is a one-time event. So going back to the second quarter number would be a more normalized run rate.
Okay, great. And then just lastly, any thoughts on the tax rate going forward? I apologize if you described that in your prepared remarks. I missed it.
Yes, no, not a problem at all. We did give some guidance on that. And right now, our expectation is that that's going to be somewhere in 8% to 11% for the fourth quarter, a little bit up from this quarter. That would be a little more normal in terms of what we would expect for the guidance that we have given all of you. We hit those guide numbers, we're probably going to be in that 8% to 11% range.
And our next question comes from Brian Martin with Janney.
Nice quarter. Just couple of things that weren't asked here. Just maybe, from a I guess the new wealth team. Well, just, Todd, just quickly on the tax rate. The thought for next year is that 8% to 11% still kind of bookend good range for next year, given what we know today?
Yes, I think Brian, for now I'd go with that. We'll likely have some more clarity around that for full year '24 when we talk to all of you in late January for Q4. But for now, that's probably a good place to start.
Okay. All right. And then just you mentioned -- just one last one on the margin, Todd. I guess you talked about it or maybe Larry talked about it, just being -- maybe feeling a bit more confident to defend the margins in a higher for longer environment. I mean, anything else you haven't -- I guess, as far as just kind of supporting that statement, just as far as you look out a couple quarters? Can you give kind of -- what gives you a bit more confidence today? Anything over and above you've already talked about?
Sure. I think the biggest thing, Brian, that gives us a lot of confidence that we're going to be at this more static margin, even into 2024 is what's happened on the right side of the balance sheet, the deposit base, really settling and settling down. Certainly did so in Q3. That's why we had guided static to maybe down 10 basis points, and we came in at static. And what really allowed us to show that nice outcome was the deposit base stabilizing. We've seen that continue here thus far in the fourth quarter, through the month of October. And that really has what -- has been what has impacted our margin the most during this hiking cycle, of course, has been the right side of the balance sheet. So it's starting to settle in. The mix shift has really stopped, not just slowed, but for the most part stopped.And our beta results have actually been quite good on the deposit side. Our betas have outperformed our modeling. It's just the mix shift that really caught us and caught the industry, of course. So that's the thing that I would really point to, Brian, that gives us confidence about a more static margin. If we're in this rate environment for longer, we feel like we're not going to continue to believe margin, we're going to be able to hang on to it.
Okay. And is it worth, my guess, the spot margin tied in September, where that was at?
Sure. Yes. So in July was $327 million. In August, it was $329 million. And in September, it was $330 million. And that again bodes well for the go forward because our full year was $328 million. So we saw a nice ramp during Q3 and that gives us some real confidence going forward.
Got you. Okay, that's helpful. Just last 2 for me. Just on the -- just housekeeping, the accretion. I know you talked last quarter pretty close to where it was at. Is that kind of a good level to think about here the next couple of quarters?
It is. So it was at $500 million which is much more normal than prior quarters. And really, our accretion model would show it being close to that $500 million in Q4. And that leaves us with roughly $4 million of accretion left. And if you're looking at $24 million, I would say, again continue that $500 million per quarter, so roughly $2 million for 2024
Got you. And with the securitization on the LIHTC. What -- where is your concentration limit, kind of where your targeting that to be now, if you kind of utilize the securitizations? I mean, where would you like that portfolio to be?
Yes, how we'd look at that one, Brian, is a little bit -- as a percent of our capital, we'd probably like to maintain it around the percent of capital that we have today. And so as we grow, capital will be comfortable continuing to grow that more as if you step back and look at the loan growth that we've had over a long period of time, our total loan growth has been 10%, roughly over a long period of time. What we're going to do on balance sheet now, because we're going to do securitizations going forward, is to really grow the on balance sheet, or the loans held for investment more like 5%. We think that's going to provide a great funding mechanism, better pricing power on the deposit side for us. It'll flow through under NIM eventually. And so we're going to grow those but at a more slow pace than we have over the last couple of years.
Okay, that makes sense. And last roll is just on the -- it sounds like you brought a new team on, maybe just can elaborate a little bit on just how that changes the dynamics on the wall side? And you guys have been looking at that for a while, so congrats on that. But any commentary on that you could provide?
Sure, Brian. No, we're very excited about getting it started in Southwest Missouri, Guaranty Bank, has got a great deposit base in this community. And Southwest Missouri is a great place for us to have wealth management. So we're very pleased to have that started. We actually have two individuals hired and have had the ground running and bringing in new clients already. We're already integrating them with our bankers here to make sure we're getting all the right faces in front of them. So we have very high expectations for that to grow nicely and quickly here in Southwest Missouri.The beauty of our model is we're not having to stand up and entire trust operations. We use the operations at our Quad City Bank Charter, our first charter, where all of our operational folks for trust reside. And so that wealth management group can really just focus on bringing in clients and giving them great service. And they don't need to worry about learning the back office. We don't need to stand up the back office.So this is a very, very long sales cycle and a very long process to grow wealth management. So you're not going to see the big shifts in our revenue numbers quickly, but the sooner we get started, the sooner we're going to build hundreds of millions of dollars in AUM in this market. So we're pleased to be started. We'll just tell you, we're very active in our Des Moines metro, looking to do the same thing. So we hope to have an announcement in Des Moines sometime next year that we've gotten wealth management off and running in that last market in Des Moines.
Perfect. Congrats on the quarter and the hires.
And our next question comes from Daniel Tamayo with Raymond James.
Most of my most of my questions have been answered at this point. But just one question on the pipeline. You mentioned the kind of resiliency of the pipeline, but curious if that has started to slow at all through the quarter, particularly in the non LIHTC business. And then I guess I'll ask the follow up on the LIHTC business separately
Yes, certainly the LIHTC pipeline remains vibrant, given the demand for affordable housing. So that's really been fairly consistent. The demand for the core commercial business actually slowed a couple quarters ago as rates started to decline because -- and the investor developer kind of stopped, kind of got stressed by that. We've actually had, I think people kind of -- clients starting to get their head around dealing with interest rates in the 8% range. And there's certainly a slowdown in developer business, but some of our core commercial manufacturing owner occupied business, that appears to actually be bouncing back just a little bit. So now at that 8% to 10% pace that maybe we've grown historically, but modest growth in our core commercial. And so it's kind of a mixed bag right now, depending on which sector you're in. But we think we can continue to grow assets at the pace we outlined in our comments.
Okay, great. And then I guess this is a follow up on the LIHTC business. Is -- have you found there's any kind of cyclicality to credit to LIHTC? I know you've talked about the credit history of that effect lasting very strong. But just curious if the loans being added at this point in the cycle have any different kind of credit attached to them in your opinion.
No. What I'd say is it's almost none. These are continued, I believe, to be the highest quality loan assets we have on our books. We have no past dues, we have no -- none of the LIHTC ones that are criticized or classified. We've got none of them with issues with stabilization because the demand for affordable housing is so great. And so over the last 30 years, this has been a very steady performer from an asset quality standpoint. And just a reminder, we are low to loan values with lapse of capital into these deals depending on whether taxable, or tax exempt. There's two different structures, but there's a lot of cash in these, and a lot of strong underpinnings that have made these very stable from a credit standpoint.
And our next question comes from Jeff Rulis from D.A. Davidson.
This is Matt on for Jus. Just a question. Apologies if I missed it. But what's the appetite for LIHTC securitization in 2024? And then just, I guess, indirectly also asking for total loan growth expectations in 2024.
So yes, let me talk about the securitization a little bit more broadly. Again, we've historically kind of grown our loan portfolio with a 10% clip over a long period of time. And if you cut it down to a simple methodology, what we're probably going to do is manage our loan book to maybe more of a 5% growth using the securitization. We think that will provide better operating results over time now that we've got the book built. And so we will plan to do several securitizations during next year, we'll probably get more guidance on that after our fourth quarter call.We're going to learn a lot as we get these first two tranches and securitizations done here in the next few weeks. And so that'll give us some clarity on our -- and allow us to give you a better strategy as we go forward. So loan growth, we expect to still be meaningful next year, but we're going to take the top off at using the securitization.
Got it. That's great color. And then just kind of hopping over to the capital side here. Capital seems healthier than peers if you look at regulatory or TCE given the lack of AOCI headwinds. Just wanted to get a sense of where the buyback sits on your capital priority.
Yes, in the near term, given the uncertainty that's going on in the world, and the economic climate, we're going to be very cautious on buyback for the next quarter or two, until we have some clarity on interest rates, and probably on the economic environment. And we're going to probably hold onto Capital One, focus on building TCE. We certainly have plenty of regulatory capital and don't feel any pressure there. But it just seems like it's prudent right now and to hold onto capital and then ultimately, once we kind of get our TCE probably to the top quartile of the peer group. And we're not that far from it. Sometime during next year, we'd likely look at being more aggressive on buybacks.
Thank you, ladies and gentlemen, this concludes your question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.
I would like to thank all of you for joining our call today. We appreciate your interest in our company. We look forward to talking to you again soon.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.