QCR Holdings Inc

NASDAQ:QCRH

Earnings Call Analysis

Strong Financial Performance in Q3

In the third quarter of 2024, QCR Holdings delivered impressive financial results, achieving an adjusted net income of $30 million, or $1.78 per diluted share. This growth was propelled by an increase in net interest income (NII) of $3.6 million (6%) from the previous quarter, driven largely by strong growth in loans and investments, coupled with an enhanced net interest margin (NIM). The adjusted NIM expanded by 8 basis points, surpassing previous forecasts.

Guidance for Future Growth

Looking ahead, the company has updated its guidance for adjusted NIM in Q4 to an anticipated increase of 2 to 7 basis points. This is based on the assumption of stable funding mix and no further Federal Reserve actions. Furthermore, QCR Holdings remains optimistic about continued growth in net interest income due to their liability-sensitive balance sheet, particularly benefiting from the Fed's recent rate cuts.

Robust Income Streams

During Q3, the company's noninterest income reached $27 million, bolstered significantly by capital markets revenue of $16 million. The wealth management sector also saw notable growth, reporting $4.5 million in revenue for the quarter, which translates to a 17% annualized increase from the preceding quarter. Year-to-date, wealth management assets under management grew by $1 billion, which is an 18% increase, highlighting the company’s expanding client base and market reach.

Strategic Securitizations and Asset Quality

QCR Holdings executed a derivative strategy with a notional value of $410 million, aimed at securing its regulatory capital against potential declines in interest rates. The company recorded a modest loss of $473,000 on securitization activities in Q3, which was considerably better than original forecasts. With respect to asset quality, total criticized loans decreased by 21 basis points to 2.20% of total loans, an ongoing trend of improvement over the prior four quarters.

Controlled Core Expenses Amid Growth

The company maintained an efficient control over core expenses, spending $51 million adjusted for one-time charges—an increase of only about $1 million from the previous quarter. This control was achieved despite a one-time restructuring charge of $2.4 million related to the company's decision to discontinue new loans through its equipment finance business. Looking ahead, QCR Holdings expects noninterest expenses to remain within the range of $49 million to $52 million in Q4.

Outlook on Loan Growth and Deposits

QCR Holdings reported a year-to-date loan growth of 6%, accelerated by robust core deposit growth of 8.5%. This growth is primarily attributed to its low-income housing tax credit (LIHTC) lending and the strength of its commercial lending. As the market stabilizes, loan demand, particularly in LIHTC, is expected to continue to evolve favorably. The company aims to ensure that all asset growth is funded through core deposits, which is the cornerstone of their growth strategy.

Improved Tangible Book Value and Capital Management

The tangible book value per share grew by $2.35 during the quarter, showing a robust 20% annualized growth rate. This is further complemented by a strong increase in the tangible common equity (TCE) ratio, reaching 9.24%. The company is continuously focused on enhancing its regulatory capital levels while planning to retire sub debt and potentially consider share buybacks later in 2025.

Conclusion: Positive Momentum with Strategic Focus

Overall, QCR Holdings' third quarter results reflect a strong and disciplined growth trajectory characterized by increased income, controlled expenses, and a robust asset quality standing. The company’s upcoming strategies in loan securitization and capital management position it favorably for continued growth and value creation for shareholders in the forthcoming periods.

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to the QCR Holdings, Inc. Earnings Conference Call for the Third Quarter of 2024.

Yesterday, after market close, the company distributed its 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 the call to questions from analysts.

Before we begin, I would like to remind everyone that some of the information we'll 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 the future are forward-looking statements, and actual results could differ materially from those projected. Additional information on these factors is included on 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 through November 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, executive]

Thank you, operator. Welcome, everyone, and thank you for joining us today. I'll start by presenting some highlights of our strong financial performance for the quarter, and Todd will follow with additional details.

We produced exceptional third quarter results, highlighted by our significant growth in net interest income and margin expansion. We also had another quarter of strong capital markets and wealth management revenue. We grew total core deposits and maintained a stable cost of funds. Core expenses remained well controlled, and our credit quality continues to be excellent. All of this led to a significant increase in tangible book value.

We generated net income of $28 million or $1.64 per diluted share during the quarter. Net income on an adjusted basis was $30 million or $1.78 per diluted share. This produced an adjusted ROAA of 1.35% and an adjusted ROAE of 12.60%, which continues to be at the higher end of our peer group.

Our net interest income increased significantly by nearly $3.6 million in the third quarter or 6%. This was driven by strong growth in loan and investment balances, combined with an expanded margin. Annualized year-to-date total loan growth is 6% or 10.5% when including loans that were securitized in the third quarter. This is just above our annual target range of 8% to 10%.

Our low-income housing tax credit lending program and our conventional commercial lending business have been the primary drivers of our loan growth. We have funded this loan growth through a combination of deposit growth and liquidity provided from our loan securitizations. Total year-to-date annualized core deposit growth has been a robust 8.5%.

Stabilizing deposit cost and noninterest-bearing balances, combined with higher loan and investment yields, produced higher margins and drove an 8 basis point expansion in adjusted NIM from the prior quarter. Our total noninterest income for the third quarter was $27 million driven primarily by our capital markets revenue of $16 million.

Additionally, our wealth management business continues to generate outstanding growth in assets under management. We have added nearly $1 billion of assets under management year-to-date or 18% driven by significant new client volume. Our continued strong AUM growth and favorable market conditions drove a 17% annualized increase in total wealth management revenues for the quarter and 20% year-to-date. We believe that the addition of key personnel in the Southwest Missouri and Central Iowa regions will help support continued growth in this business.

We continue to diligently manage our core operating expenses. Year-to-date, after adjusting for onetime items, noninterest expenses have increased only 2% annualized. During the third quarter, total noninterest expenses increased from the prior quarter, primarily due to the announced changes at our m2 Equipment Finance subsidiary. We incurred a onetime charge of $2.4 million for restructuring expenses and goodwill impairment. We expect to recover these costs over the next 2 quarters.

The decision to discontinue providing new loans and leases to our equipment finance business reinforces our focus on our core banking franchise. This change will allow us to improve profitability, increase liquidity and reallocate capital to business lines that generate higher risk-adjusted returns.

Our asset quality remains excellent and our credit trends improved from last quarter. Nonperforming assets as a percent of total assets were static when compared to the prior quarter and remain well below our historical averages.

Total classified loans are meaningfully lower and total criticized loans are also lower, having declined for the fourth consecutive quarter. Our allowance for credit losses as a percent of total loans held for investment was 1.30% for the quarter. The provision for credit losses was $2 million lower this quarter due to improvements in overall credit quality.

We are encouraged by the economic stability of our markets and the balance sheet strength of our clients. We are not seeing any meaningful indicators of financial stress across our markets. We are comfortable with our commercial real estate concentration levels. Our investment in high-quality LIHTC loans make up roughly half of our exposure to this asset class. We believe that this is the best asset class in our loan portfolio. The entire LIHTC industry has a long track record of solid performance for nearly 4 decades and through several credit cycles.

Our commercial real estate exposure, excluding LIHTC loans, is 140% of total risk-based capital. Commercial office space exposure remains low at only 3% of total loans with an average loan size of less than $900,000. Most of these properties are in suburban markets and are performing consistent with our expectations with no indications of repayment concerns.

We continue to have a robust pipeline of high-quality LIHTC loans. The LIHTC lending program has been a key strategic initiative for our company. This program generates significant capital markets revenue, which contributes meaningfully to our noninterest income. In addition, LIHTC loans are ideal for securitization due to their strong track record and substantial investor demand.

Securitization of LIHTC loans improves the optionality in our balance sheet, improves our TCE, increases liquidity and expands our net interest margin. Additionally, it moderates our on-balance sheet growth as we approach the $10 billion asset level. Securitizations will continue to drive the sustainability of our earnings and tangible book value growth. Our next securitization is targeted for the fourth quarter.

Capital levels are solid, and we continue to focus on increasing our regulatory capital. Our strong and steady earnings growth, combined with our modest dividend, allows us to generate capital and increase our TCE ratio more quickly than our peers.

We are dedicated to delivering top-tier financial performance, which includes EPS growth, top quartile ROAA and meaningful tangible book value per share growth. We create shareholder value by remaining client-focused, creating employee well-being and delivering a positive impact in the communities in which we live and work.

In summary, we are committed to industry-leading results and outstanding client service, which we believe will continue to drive strong operating performance.

I will now turn the call over to Todd to provide further details regarding our third quarter results.

[Todd Gipple, executive]

Thank you, Larry. Good morning, everyone. Thanks for joining us today. I'll start my comments with details on our earnings performance for the quarter.

We delivered adjusted net income of $30 million or $1.78 per diluted share for the quarter. Our strong financial results were driven by significant growth in net interest income, solid noninterest income from capital markets and wealth management revenue, combined with well-managed core expenses.

Net interest income was $60 million, a $3.6 million increase from the second quarter. This 6% linked quarter growth in NII was driven by strong growth in loans and investments, combined with significant margin expansion.

Our adjusted NIM on a tax equivalent yield basis expanded by 8 basis points from the second quarter and exceeded the upper end of our guidance. The increase was fueled by a combination of improving loan and investment yields and stable deposit costs.

Looking ahead, with our liability-sensitive balance sheet, we are well positioned to benefit from the Fed's decision to lower interest rates in the third quarter. Assuming a stable funding mix and no additional Fed action, we anticipate continued growth in net interest income for the fourth quarter. We are updating our guidance for adjusted NIM TEY in the fourth quarter to increase in the range of between 2 and 7 basis points.

Our noninterest income was $27 million for the third quarter, supported by continued strong capital markets revenue of $16 million. Our LIHTC lending and revenue from swap fees continue to be fueled by the steady demand for affordable housing. Our pipeline in this business remains healthy. We are, therefore, reaffirming our capital markets revenue guidance for the next 12 months to be in a range of $50 million to $60 million.

Our wealth management business generated $4.5 million of revenue in the third quarter, a 17% annualized increase from the second quarter. Year-to-date, our wealth management assets under management have grown by $1 billion driven by growth in our existing client base and the expansion of this business into 2 of our markets. This growth is driven by the high-touch value proposition that our extremely knowledgeable team of advisers deliver, the strong relationships we have built with our clients and a network of trusted legal advisers and key referral sources.

During the third quarter, we executed a derivative strategy with a notional value of $410 million. These derivatives are designed to safeguard the company's regulatory capital ratios against the adverse effects of a significant decline in long-term interest rates that would impact the value of our back-to-back swaps in our LIHTC loan portfolio. These derivatives are unhedged and are mark-to-market, with gains or losses recorded in noninterest income and reflected as a noncore item. If long-term interest rates increase, we will reflect a reduction in the market value of the derivative capped at the upfront premium. However, should long-term interest rates decline, we will record an increase in the market value of the derivative that will help offset the risk to our regulatory capital ratios. For the quarter, we recorded a loss on those derivatives of $414,000.

In addition, we recorded a $473,000 loss on the securitization in the third quarter. This result was better than anticipated due to improved economics in our execution.

Now turning to our expenses. Noninterest expense for the third quarter totaled $54 million. The increase in expenses for the third quarter included the onetime restructuring and goodwill impairment charges totaling $2.4 million, resulting from our decision to discontinue offering new loans and leases through our equipment finance business. Adjusting noninterest expense for those onetime charges resulted in core noninterest expenses of $51 million, an increase of approximately $1 million from the prior quarter and within our guidance range of $49 million to $52 million. The linked quarter increase was primarily driven by higher incentive compensation and advertising expenses. Our year-to-date core noninterest expenses remain well controlled, having increased only 2% annually.

We continue to carefully manage our core operating expenses. Our approach includes investments in technology and automation, combined with a best-in-class operations team that supports our multi-charter community banking model. As we look ahead to the fourth quarter, we expect our noninterest expenses to continue to be in the range of $49 million to $52 million.

Turning to our balance sheet. Year-to-date, total loans have grown by $285 million or 6% annualized, funded by growth in core deposits of $400 million. Including the $230 million of loans that were securitized during the quarter, total loans have grown 10.5% year-to-date and just above our guidance range of 8% to 10%.

In anticipation of our next loan securitization planned for the fourth quarter, we have designated $166 million of LIHTC loans as held for sale. Our long-term securitization strategy underscores the continued success of our LIHTC business and the significant capital markets revenue it generates. By securitizing LIHTC loans, we create capacity for sustained future swap revenue generation, enhanced liquidity, reduced funding costs, strengthened TCE, and we maintain our LIHTC portfolio within established concentration levels.

Our upcoming securitization in the fourth quarter will consist of $166 million of stabilized taxable LIHTC loans. Our execution has improved since our initial securitizations late last year, and we expect improved economics with future securitizations from lower transaction and administrative costs.

Total deposits increased $220 million or 13% annualized during the quarter. Year-to-date, total core deposits have increased $400 million or 9% on an annualized basis. Deposit growth remains a core focus for our company and, in combination with our securitizations, helps us decrease reliance on wholesale or higher cost funding.

Our total uninsured and uncollateralized deposits remain quite low at 21% of total deposits. Additionally, the company had approximately $3 billion of available liquidity at quarter end, which includes $1.4 billion of instantly accessible liquidity.

Turning to our asset quality, which remains excellent. During the quarter, total criticized loans decreased 21 basis points to 2.20% of total loans and leases. This marks the fourth consecutive quarter of improvement, resulting in a $50 million reduction in total criticized balances.

NPAs increased by $1 million to $36 million or 39 basis points of total assets, which is static to the prior quarter. Two relationships drove this moderate increase in NPAs. Additionally, approximately 45% of our total NPAs are comprised of just 4 relationships.

We recorded a total provision for credit losses of $3.5 million during the quarter, representing a decline of $2 million from the prior quarter. The reduction in the provision for credit losses during the quarter was primarily due to the overall credit quality improvements.

Net charge-offs were $3.4 million for the third quarter, an increase of $1.8 million from the prior quarter. The increase in net charge-offs primarily included smaller loans and leases at m2.

The allowance for credit losses to total loans held for investment decreased to 1.30% from 1.33% as of the prior quarter.

Our tangible common equity to tangible assets ratio increased by 24 basis points to 9.24% at quarter end, up from 9% at the end of June. The improvement in TCE was driven by very strong earnings and an increase in AOCI.

Our total risk-based capital ratio decreased to 13.87% at quarter end, and our common equity Tier 1 ratio decreased to 9.79% due to sizable loan and investment growth, partially offset by strong earnings. We remain focused on growing our regulatory capital and targeting TCE in the top quartile of our peer group.

We saw another significant increase in our tangible book value per share, which grew by $2.35, representing a 20% annualized growth for the quarter. Over the past 5 years, our TBV has grown by more than 12% on a compound annual basis, highlighting our strong financial performance and commitment to building long-term shareholder value.

Finally, our effective tax rate for the quarter was 7%, just under the low end of our guidance. Our high-yielding, tax-exempt loan and bond portfolios have consistently preserved our low tax obligation and benefited our shareholders. We continue to expect our effective tax rate to be in the range of 8% to 10% in 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]

[Operator Instructions] Our first question comes from Damon DelMonte with KBW.

[Damon Del Monte, analyst]

First question, I just wanted to circle back on the margin commentary, Todd. I think you said your guidance is for 2 to 7 basis points of expansion here in the fourth quarter, absent any changes in rates. Is that the way you characterized that?

[Todd Gipple, executive]

Yes, Damon. Thanks for the NIM question. Yes, the 2 to 7 basis points guide does not include an additional cut. If we were to get that action in early November, you could add 1 or 2 basis points to that range.

[Damon Del Monte, analyst]

Got it. Okay. So 1 or 2 basis points for every 25 basis points cut?

[Todd Gipple, executive]

Yes. Correct.

[Damon Del Monte, analyst]

Okay. And could you remind us the amount of the deposits that are kind of tied to an index, that reprice? I think it's immediately. Could you just remind us of that, please?

[Todd Gipple, executive]

Sure, Damon. I'd be happy to do that. That's one of the reasons we had such good performance in the back half of the third quarter. We actually had $2.2 billion of immediately repriced core deposits. We took those down 50 basis points the day after the Fed cut. We had another $685 million of high beta, not directly indexed like the $2.2 billion, but we took that $685 million down somewhere in the range of 10 to as much as 60 basis points since the Fed action. So those are two big buckets of our RSLs. Our total RSLs are right around $3.8 billion. RSAs are $3.2 billion. So we continue to have a nice delta on RSLs and overpowering the rate reductions. We're not seeing that really impacting loan yields yet. As you saw, Q3, loan yields were up even in the face of rate cuts, so very pleased to have that level of RSLs to reprice immediately.

[Damon Del Monte, analyst]

Got it. Okay. Great. And then just secondly, on the outlook for expenses, you kind of reiterated the $49 million to $52 million quarterly level. With this quarter kind of on the upper half end of that, what gives you confidence that you could kind of keep that from not getting over the $52 million range? Is there some items here in the third quarter that might be going away in the fourth quarter? Or kind of how are you looking at the expenses?

[Todd Gipple, executive]

Yes, so two things. One, we will benefit from roughly $900,000 of reduced expenses with the m2 decision. We had those upfront charges in the third quarter, but we're going to recover that over the next 2 quarters, Q4 and Q1, next year. So that's helping. Then probably the only thing that might cause us to really bump up against the $52 million would be, I think, good things, and that would be if we continue to have a lot of success growing earnings, growing NII, growing earnings per share. We may see some higher incentives for performance kicking in, in the fourth quarter. I still think we can bring it in, in that high end of the range or below with those two moving parts.

And as you know, we're a big fan of incentive comp. So far this year, about 23% of our compensation is incentivized. We like that approach. We like to have shareholders get rewarded first and then our employees with those incentives. So that's what's given us confidence we can hold it within the range.

[Operator]

Our next question comes from Nathan Race with Piper Sandler.

[Nathan Race, analyst]

Just going back to the margin discussion. Curious how much of the expansion that you expect in 4Q is a function of just further deleveraging the balance sheet with the next planned securitization in 4Q versus just what you have repricing on the right side of the balance sheet versus in terms of loans as well?

[Todd Gipple, executive]

Sure. No, thanks, Nate, for the clarifying question on that. Of that 2 to 7 or maybe 3 to 8, if we get a 25 basis point cut in early November, I would say about half of that is really the benefit of repricing deposits, holding on to loan yield, really, I guess, I would say the more client-based accretion of margins. So let's say, roughly half of that. And maybe the other half would be the benefit from the securitizations accomplished in Q3 and the one we have on deck here for middle of the fourth quarter. So probably about half and half.

[Nathan Race, analyst]

Okay. Got you. And are you seeing any improvement in the economics on the securitizations as you're getting more of these out the door lately?

[Todd Gipple, executive]

Yes, absolutely are. Thanks for asking about that, Nate. So in Q3, we did about $230 million of [ tax-exempt ] loans. and actually had a very good outcome there. We did have a modest loss of $473,000, but that was less than half of our expectation initially in our guidance. I think we guided last quarter that might be a $1 million loss. So continued better and better execution on those.

The taxable one that we'll be doing here in the fourth quarter of $166 million, we're going to reaffirm our guidance there that we indicated last quarter that we expect a $2 million to $3 million gain on that execution. So probably a net $1.5 million to $2.5 million gain for the full year on doing around $400 million of securitization. If you recall, we did our first ones late last year around that same volume of $400 million, and we only had about a $600,000 gain on that level of activity. So I appreciate you asking, Nate. We do continue to see better economics and stronger execution as we perfect this.

[Nathan Race, analyst]

Got you. That's great to hear. And then just switching to capital markets revenue. You guys have obviously exceeded the midpoint of kind of the quarterly average that you've provided for the next 12-month guidance over the last several quarters now. So just curious why you guys are still kind of remaining fairly conservative on that front. Is it just a function of the pipeline or just some of the increase that we see in the 10- and 5-year part of the curve more recently? Or just any updated thoughts on kind of what you're seeing there across that vertical.

[Larry Helling, executive]

Nate, I'll take this one. As you know, there's some inherent variability quarter-to-quarter in these businesses. So we've tended to be conservative in how we've guided for this. The performance this last quarter was right on top of our 2-year average for these numbers. So the pipeline continues to be strong. So we don't see a change in the pipeline. What we've been after is trying to create as much consistency as possible in this business. And we could potentially certainly grow this faster over time once we get a baseline in here of this kind of consistent level. That takes people because we've got to do transactions to do it. But right now, we like where we're at. We like the pipeline. the outlook remains positive in this space.

[Nathan Race, analyst]

Okay. Very helpful. And maybe one last one for me while I have you, Larry. Curious to get your updated thoughts on excess capital management going forward. You guys obviously built TCE pretty nicely in the quarter, and that will likely continue, if not increase, over the course of next year as the margin improvement continues to play out. So just curious how you're thinking about managing TCE just in order to try to optimize that return on tangible.

[Larry Helling, executive]

Yes. There's certainly a lot of, I'll call it, variability in the economy and outlook and interest rates and all those things right now. So we're certainly not in a rush to get rid of capital. We're certainly going to have our TCE in a spot where that's an option for us to do some things next year.

First of all, we want to make sure we've got enough capital to support our growth. Our growth has been uniquely good compared to most of our peers. So we want capital to support that. Secondly, we're going to look at some of our sub debt. We may retire a portion of that next year. We think that might be the next right place to go when some of that becomes callable. Then we'd look at some buybacks probably later in the year. And lastly, M&A, probably not on our purview right now, it's just not a priority for us. We've got such good momentum, and an M&A transaction would be distracting, and we don't want to get distracted how we're executing right now.

[Operator]

Our next question comes from Jeff Rulis with D.A. Davidson.

[Jeff Rulis, analyst]

I wanted to circle back on the margin. I appreciate the guide into the fourth quarter. Todd, that relationship on 1 to 2 per 25 basis point cut, do you think that holds into '25? It certainly sounds positive to close the year, and I would imagine a tailwind into next year, but understanding other components can change, just wanted to get your general feel for '25 in direction.

[Todd Gipple, executive]

Sure, Jeff. I appreciate you asking. We would expect that kind of margin accretion to continue if the Fed were to continue cutting rates $1 million to $2 million, $1.5 million, $2 million in annual NII improvement for every quarter of Fed cuts. So it won't be perfectly linear. And I think you were actually saying that, that there's a lot of other things that go into that. And we expect to have more detailed guidance on '25 in January with full year '24 results. But I do think it's reasonable to expect that we're going to continue to see some nice lift in NIM percentage and NII dollars if the Fed does continue to cut. So I think that's fair to assume that.

[Jeff Rulis, analyst]

Okay. I wanted to hop into credit for a minute. I think you mentioned a bulk of the net charge-offs were m2-related. Is that also the case in the drop in criticized? Was that also lowering due to m2?

[Larry Helling, executive]

Yes. The drop is a combination of several factors, several upgrades, some charge-offs that were a little bit elevated. Where we're seeing the credit stress is really in the small business, I mean, I guess I'd call maybe micro business sector which some of the m2 business was in. And some of our other portfolios is in really the micro business as they're the ones that have really struggled to deal with inflation pressures on their cost structures. And so it's really a combination of those factors.

When forward-looking to our criticized and classified, those numbers are surprisingly good to me. I'd say that we're kind of close to our 20-year lows in criticized and classified. That seems like crazy in this environment that they're that good. But that's kind of the forward-looking perspective right now. We certainly got a couple of NPAs, as we indicated, just a handful that we got to work through. We've got 1 NPA we've talked about in the past. That's 30% of our NPAs in 1 deal, I'd tell you. That's still not resolved. It's closer to being resolved, and we've made some progress. And hopefully, in the next few quarters, we can just get that off the books because we've already taken the reserve where it needs to be to handle that.

So the credit outlook is really strong right now given what we know today. Now given the volatility of the economy and interest rates and all those things going on, gee, who knows what it will look like in 2 quarters. But today, it looks pretty rosy.

[Jeff Rulis, analyst]

Got it. One last one. Interested in more of a loan demand question. I guess two parts to that is, one, have you seen how has sort of customer behavior, if at all, changed post the Fed cut? And then two, if you could touch on like the competitive landscape, how that's evolved as well? And I guess I'm speaking more in the last couple of months.

[Larry Helling, executive]

Yes. I'll start with the back end first. Our pricing power is still good. We feel like we've got pricing power and have been able to expand our pricing over maybe historical norms a little bit when we're looking at margins compared to the yield curve and those kind of things. From a loan demand standpoint, we've got this unique LIHTC business, which continues to grow 10%, 12% a year. That's a steady pipeline of growth and business.

I would say our commercial traditional pipeline is improving a bit. We've seen utilization of credit lines move part of the way back toward normal. We're not back to pre-pandemic levels yet on line of credit utilization, but maybe it moved halfway back. And I'd say loan demand is improving modestly, certainly low single digits yet. But I think traditional commercial growth, people are getting accustomed to the interest rates that were kind of a shock to them when they first went up. And now I think they believe that this is just kind of normal. So I think our businesses have kind of adjusted.

As we said, the one sector still feeling some pain is really those micro businesses that can't deal with labor costs going from $15 to $20 an hour. But that's not where the bulk of our dollars are at.

[Operator]

Our next question comes from Daniel Tamayo with Raymond James.

[Daniel Tamayo, analyst]

Maybe a quick question on the deposit side. I think you talked about wanting to get the loan-to-deposit ratio down into the 90% to 95% range. You're basically there at the top end of that range. Just curious if that feels good to you guys where you want to kind of bring deposit growth back into the similar range as loan growth going forward or if you're still looking to bring that down closer to the midpoint?

[Todd Gipple, executive]

Yes, Danny, thanks for asking. We are very pleased with the deposit growth that we had here in this quarter and certainly this full year. We are committed to continuing to fund all asset growth with core deposits and then some. We do want to continue to drive that loan-to-deposit ratio down. We know that's going to take a while. We know that's going to take a huge focus across the entire footprint, but we do have that level of focus.

I would just tell you that if Larry or I or both of us are in a meeting, it doesn't matter much what the subject is, we will find a way to talk about deposits. I just visited with Larry yesterday. He was in a credit meeting and he found a way to talk about deposits. And I was with a big team of our operating folks here in the Springfield market 2 days ago, and we found a way to talk about deposits. So we're very focused on core deposit growth, and we're not going to put our foot off the gas in that regard. So we want to continue to run more liquid. We want to continue to focus on net new accounts and core deposit growth. And many of our strategies in all 4 banks are really focused on that.

[Daniel Tamayo, analyst]

Okay. Great. And then second question kind of related to the capital discussion we were having earlier. But you mentioned certainly, the securitizations are allowing you guys to stay below $10 billion for a longer period. But just curious if you have a thought on when you guys might actually cross $10 billion? And can you just remind us what the Durbin impact would be for you?

[Larry Helling, executive]

Yes. We're pleased that we have securitization that's going to help us buy a little bit more time to get ready for it. Going over the $10 billion, probably 2 years from now, we're probably going to be over it. We probably can't manage it much after that.

For us, because we are heavily commercial, the Durbin impact is not nearly as big for us as some. As we've talked about this historically, we probably already have $1 million in our expense run rate getting ready to be over $10 billion, and we'll probably build another $1 million of expense in our run rate this year to get ready for $10 billion; and then a year after another, $1 million or $2 million. And so for us, I think the total impact is $5 million, $6 million a year run rate, maybe 3 years from now. And what we are focused on is pulling all the other levers so that as we go through $10 billion, you don't notice. And we've got plans in place to basically manage our expense structures and our revenues so that we can power our way through that.

Our situation is much different than a high retail bank that could have a huge Durbin impact. And so we feel pretty good about where we're at today. The regulators will have increased expectation, which will increase some costs. We already got part of that built in. It's going to be gradual, more than a cliff the way we fall off on the expense side, though. So we feel good about where we're at. Hopefully, we can do it in a way you don't even notice.

[Daniel Tamayo, analyst]

Okay. So the revenue impact is negligible, basically is what you're saying?

[Larry Helling, executive]

It might be a couple of million dollars a year, but we've already got plans in place on other places to try and save that so that, over the next couple of years, we can overpower that.

[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 Helling, executive]

Thanks to all of you for joining our call today. We appreciate your interest in our company. Have a great day, and we look forward to connecting with each of you again soon.

[Operator]

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