QCR Holdings (QCRH) 2026 年第三季法說會：每股盈餘創新高、放款成長與 LIHTC 展望

重點摘要

• QCR Holdings 公布調整後淨利為 3,600 萬美元，調整後稀釋每股盈餘 (EPS) 達創紀錄的 2.21 美元。調整後平均資產報酬率 (ROAA) 為 1.52%。
• 淨利息收入達 6,900 萬美元，季增 80 萬美元，而約當含稅淨利息收益率 (NIM) 擴張 3 個基點至 3.58%。
• 扣除 M2 投資組合流失後，放款增加 1.9 億美元，折合年增率為 11%。管理層重申第四季總放款年增率成長指引為 10% 至 15%。
• 由於多筆交易推遲至第四季，資本市場產出為 1,690 萬美元。管理層預期第四季產出為 1,800 萬至 2,000 萬美元，並維持未來四個季度 6,000 萬至 7,000 萬美元的資本市場收入展望。
• 資產品質改善至近年來最佳水準。不良資產降至 3,800 萬美元，佔總資產的 0.39%，而關注類放款降至放款與租賃總額的 1.67%。
• 每股有形帳面價值年增 11% 至 61.79 美元。該公司在本季度買回約 950 萬美元（即 9.5 萬股）的股票。

關鍵財務數據

業務與營運表現

傳統銀行業務在第二季與第三季均實現約 7% 的年化放款成長。管理層指出，待放款案件管道（pipeline）中約有 70% 為低收入住宅稅收抵免（LIHTC）業務，30% 為傳統銀行業務，同時強調近期在其傳統市場的新新增量強勁且市佔率有所提升。

LIHTC 業務仍是獲利與資本效率的核心驅動因子。QCR Holdings 已與全美 20 大開發商中的 18 家完成合作專案，並在 2026 年前九個月與 13 家新開發商達成交易。在過去 12 個月中，放款出售與證券化助推資本市場收入創造超過 6,700 萬美元，同時淨利息收入增加 2,400 萬美元（即 10%）。

鑑於房地美 M 系列證券化計畫的複雜性、執行時間及成本上升，該公司正在針對 LIHTC 永久放款開發替代銷售結構。管理層預期新結構將能實現全額放款出售，無需保留第一損失 B 級標的（first-loss B tranche），進而提升資本效率並增加放款承購/出售（offtakes）的頻率。

受惠於新客戶關係與管理資產規模（AUM）增加，財富管理收入年增 12%。管理層將該業務視為經常性手續費收入與收入多元化的成長來源。

QCR Holdings 於 10 月完成了第三次核心系統轉換。涵蓋 Cedar Rapids 市場的最終轉換預計於 2027 年 4 月進行。今年累計至今資料處理成本已下降 11%（約 200 萬美元），管理層預期營運槓桿效益將在 2027 年下半年及未來持續顯現。

扣除經紀存款後的核心存款總計 70 億美元，而 6 月 30 日時為 73 億美元。然而，從季末到 10 月中旬，總存款增加超過 5 億美元，其中包括 4,000 萬美元的不計息存款。該公司已連續第四個季度實現不計息存款成長。

管理層展望指引

第四季淨利息收益率展望受到約 1.65 億美元固定利率放款重定價的支撐，預計利率將從 6% 出頭區間升至 6% 中段區間。QCR Holdings 還預期新增市政債券投資將產生 7.5% 至 8% 的約當含稅殖利率。

管理層表示，聯準會 9 月升息短期內應對淨利息收益率 (NIM) 略有提振效果，因為資產殖利率重定價速度快於存款。若再升息 25 個基點，其影響可能會較為溫和、接近中性，具體取決於存款定價、客戶行為及殖利率曲線。

風險與關注焦點

• 較高的長期利率可能迫使開發商調整專案資本結構，進而延誤 LIHTC 專案交割。出於此原因，多筆交易已從第三季推遲至第四季，但管理層表示，歷史信貸表現於整個利率週期中依然保持韌性。
• LIHTC 股權投資尚未跟上開發商需求，限制了專案籌集完整資本結構的速度，並可能放緩短期成長。
• 存款競爭與資金結構改變可能會抵消高利率帶來的初期收益率好處。資產負債表仍保持溫和的負債敏感度，約為 3 億至 4 億美元。
• 受同業往來餘額與 LIHTC 放款承購影響，季末存款與資產可能出現波動，因此相較於單一報告日期的餘額，基本趨勢更具參考價值。
• 資產跨越 100 億美元門檻將帶來監管及德賓修正案（Durbin Amendment）相關影響。管理層估計，自 2028 年年中開始，德賓修正案對年收入的影響約為 300 萬美元，其中約一半將影響 2028 年。

分析師問答重點

管理層表示，擬議中的 LIHTC 承購結構可以支援規模較小且頻率更高的交易，優於先前需要 12 至 18 個月的證券化流程。該公司預期於 2027 年第一季進行概念驗證（proof of concept），並相信該結構能加速其輕資產 LIHTC 模式。

QCR Holdings 目前持有略高於 1 億美元的 LIHTC B 級證券。管理層估計，出售這些部位將釋放約 100 個基點的普通股核心第一類資本（CET1）與總風險資本，因為該公司目前仍承擔與約 10 億美元資產負債表外資產相關的風險。

在資金策略方面，管理層目標是將不計息存款提高至同業水準的 21% 至 23% 區間，目標為每年改善約 100 個基點。目前預期新的資金管理（treasury management）客戶關係將帶來實質的不計息存款餘額。

新發放的固定利率放款目標殖利率通常約為 6.50% 至 6.75%，而浮動利率放款則達 7% 至 7.25%。相較於可比的聯邦住房貸款銀行 (FHLB) 利率，目標利差約為 225 至 250 個基點，但競爭性定價可能會低於這些水準。

隨著數位轉型接近完成，管理層對併購 (M&A) 持更開放態度，但表示門檻依然很高。潛在交易需能提升 ROAA、ROAE 與 EPS，同時儘可能減少對每股有形帳面價值的稀釋。策略優先事項包括愛荷華州中部的附加型併購（bolt-on），或進入與公司現有業務版圖特徵相似的第五個市場。

資本配置將繼續優先考慮有機成長，併購則取決於機會而非剩餘資本。管理層將股票買回與股利發放描述為視機會而定。管理層預期，隨著 2027 年與 2028 年資產負債表成長加速，有機資本需求將會上升。

法說會完整逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Good morning, and thank you for joining us today for QCR Holdings, Inc.'s Third Quarter 2026 Earnings Conference Call. Following the close of the market yesterday, the company issued its earnings press release for the third quarter.

If anyone joining us today has not yet received a copy, it is available on the company's website, www.qcrh.com. With us today from management are Todd Gipple, President and CEO; and Nick Anderson, CFO. Management will provide a summary of the financial results, and then we will open the call to questions from analysts.

Before we begin, I would like to remind everyone that some of the information management will be providing today falls under the guidelines of forward-looking statements as defined by the Securities and Exchange Commission. As part of these guidelines, any statements made during this call concerning the company's hopes, beliefs, expectations and predictions of 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 call is being recorded and will be available for replay through October 28, 2026, starting this afternoon approximately 1 hour after the completion of the call. It will also be accessible on the company's website. I will now turn the call over to Mr. Todd Gipple at QCR Holdings.

Todd Gipple

Good morning, everyone. Thank you for joining our call today. I'd like to start with the highlights of our third quarter performance and some thoughts about our business, and then Nick will walk us through the financial results in more detail.

We delivered record earnings per share this quarter supported by margin expansion, robust loan growth, increased capital markets revenue, solid wealth management revenue and further improvement in asset quality to the strongest level in several years.

Return on average assets was 1.52%, reinforcing the earnings power, durability and scalability of our diversified platform. We also continue to deploy capital with a balanced approach, generating 11% year-over-year growth in tangible book value per share, while at the same time, returning capital to shareholders through opportunistic share repurchases and dividend increases.

Our consistently strong earnings allow us to sustain healthy levels of capital while maintaining optionality with respect to capital deployment. Our traditional banking business continues to deliver healthy organic growth with strong production across our traditional lending platform, driving approximately 7% annualized loan growth in each of the second and third quarters.

Our multi-charter model is the best of both worlds, combining the autonomy and agility of local decision-making with the scale and resources of our larger organization. This approach creates and strengthens client relationships, helping us consistently take market share and enables us to attract and retain the most talented bankers in our markets who value local autonomy and the opportunity to grow within a high-performance organization.

Our digital transformation remains a key strategic priority and the completion of our third core conversion in October was another important milestone in that journey. This conversion was another great example of the strength of our multi-charter model with teammates who had been through prior conversions, sharing their experience and supporting their colleagues throughout the process.

I want to thank everyone involved for their hard work and commitment in making this latest conversion a complete success. Modernizing our technology stack will deliver meaningful benefits for both our clients and employees, expanding our service capabilities, enhancing the client experience and driving further operating leverage. And as a reminder, we are managing these investments within the discipline of our 965 strategic model, holding noninterest expense growth under 5% as we build our bank of the future while still maintaining our bank of the past and 1 remaining charter.

Our final conversion in the Sea Rapids market is scheduled for next April, and we expect to see operating leverage build throughout the remainder of 2027 and subsequent years. Our wealth management business continued to deliver strong results with revenue up 12% year-over-year, reflecting sustained new relationship growth and consistent growth in annual revenue.

Our success in this business reflects the long-tenured expertise of our team and the power of our local relationship-driven model, which connects high-value clients in each of our communities with our dedicated wealth advisers. As we continue to expand advisory relationships, Wealth Management provides a growing source of recurring fee income, deepens client engagement and further diversifies our revenue mix.

Our LIHTC lending business continues to perform exceptionally well as the demand for affordable housing remains robust, driven by a lack of supply and ongoing affordability challenges nationwide. This business is a key differentiator for our company, delivering highly profitable and annually consistent results across a variety of interest rate environments and market conditions.

Our deeper relationships with industry-leading LIHTC developers, combined with sustained market demand, position us well to grow this business and further strengthen our financial performance. We have now developed strong relationships and close funding for projects with 18 of the top 20 developers in the country, and during the first 3 quarters of the year, closed transactions with 13 new developers.

While our third quarter capital markets production was strong at $16.9 million, we had a number of transactions actually shift to a Q4 closing date. As a result, we are anticipating a very strong fourth quarter of capital markets production and expect Q4 results to be in the range of $18 million to $20 million.

This would put total 2026 production within our historical 4 quarters guidance range. We are also reaffirming our guidance for $60 million to $70 million of capital markets revenue over the next 4 quarters. We continue to see positive momentum across both our traditional and LIHTC lending platforms. With solid loan production trends and a strong pipeline heading into year-end, we are reaffirming our gross loan growth guidance of 10% to 15% annualized for the fourth quarter of 2026.

Over the past 12 months, we have strategically sold and securitized loans to recycle capital allowing us to support additional LIHTC originations and generate attractive fee income without requiring corresponding balance sheet growth. By recycling this capital into new originations we generated over $67 million of capital markets revenue while increasing net interest income by $24 million or 10% compared to the preceding 12-month period.

This demonstrates our ability to grow both net interest income and capital markets revenue, while operating with a smaller balance sheet and deploying capital more efficiently. Looking ahead, we expect additional LIHTC offtake activity in early 2027. As discussed in prior quarters, changes to Freddie Mac's M-Series securitization program significantly increase the complexity, time and cost of execution despite favorable pricing on the underlying securities.

As a result, we are actively working on other third parties on alternative loan sales structures for our permanent LIHTC loans that we believe will be significantly less complex, take far less time to accomplish and result in better economics. It is also anticipated that these alternative structures will result in a complete sale of the underlying loans without the retention of the first loss Betranche, fully removing the loans from risk-based assets and more effectively freeing up regulatory capital.

These discussions are advancing, and we are confident that we can achieve alignment on our revised structure and complete our first transaction in the first quarter of 2027. While these LIHTC offtake transactions temper balance sheet growth in the near term, they enhance long-term profitability by creating more capacity. That capacity is then rapidly redeployed into new originations, allowing us to replace the earning assets quickly and expand our capital markets revenue, creating greater ROAA and ROAE.

This is our LIHTC flywheel in action, building an asset-light, capital-efficient and revenue-heavy business in affordable housing. Creating this flywheel now allows us to work on further growing the business and increasing our levels of loan production and the related capital markets revenue. These offtake transactions are also allowing us to strategically manage our total assets under the $10 billion asset threshold this year.

We anticipate growing beyond $10 billion sometime in 2027, and we will be fully prepared for the associated organizational impacts that would occur in mid-2028 as we continue to build on the planning efforts we began in 2023. The strength of our company is reflected in our performance across all 3 of our core lines of business. Over the past 5 years, we have driven a 5-year earnings per share CAGR of 14%.

A 5-year tangible book value per share CAGR of 12.5% and a 10-year total shareholder return of 266%, the highest in our peer group. We have a proven, high-performance operating model and we hold ourselves accountable for consistently driving shareholder value.

Through continued investments in our people and our technology, combined with disciplined expense management, we are well positioned to sustain our top-tier financial performance.

I want to thank our more than 1,000 teammates for their hard work and their strong commitment to our high-performance culture. They make relationship-driven come to live each day as they take exceptional care of our clients, our communities and each other and create exceptional results that deliver long-term value for our shareholders.

I'm incredibly proud of them in the high-performance culture that we have created. I will now turn the call over to Nick to provide further details regarding our third quarter results.

Nick Anderson

Thank you, Todd. Good morning, everyone. I'll provide additional details on the key drivers of our third quarter performance and share our outlook for the fourth quarter. We delivered strong third quarter results with adjusted net income of $36 million or $2.21 per diluted share, driving an adjusted return on average assets of 1.52%.

Net interest income was $69 million, an increase of $800,000 or 5% annualized from the second quarter. NIM TEY expanded 3 basis points to 3.58% and exceeding our guidance. The linked quarter increase in net interest income was driven by margin expansion, supported by disciplined funding costs and higher average noninterest-bearing deposits.

Average earning assets declined $44 million, reflecting the strategic LIHTC loan offtake transactions completed in the second quarter, with strong third quarter loan and investment growth, partially offsetting the reduction. Looking ahead, we continue to benefit from repricing lower-yielding loans into higher market rates.

We are encouraged by the strength of our lending pipeline and ongoing client demand, which continue to support profitable growth opportunities across our footprint. We recognize the value of clear guidance around NIM and we continue to be as transparent as possible.

However, given the active management of our balance sheet, including robust earning asset growth, funding mix changes, deposit pricing, and LIHTC offtake transactions. NIM can fluctuate slightly in either direction from quarter-to-quarter. Our focus remains on managing those dynamics in a disciplined way, and ensuring that balance sheet growth translates into stronger net interest income and improved profitability. Our current balance sheet position remains modestly liability sensitive. However, that does not fully capture the timing benefits we expect in the near term.

Following the Federal Reserve's September rate increase, variable rate assets, new loan production and investment growth are repricing faster than our deposits, where deposit repricing typically occurs with a lag. As a result, we expect the September Fed rate increase to be slightly accretive to NIM in the near term.

After that initial benefit, another 25 basis point increase in the Fed funds rate would likely have a more muted impact that is closer to neutral, depending on deposit repricing, customer behavior and the shape of the yield curve. We remain focused on maintaining deposit pricing discipline and managing funding costs carefully.

While the historical lag in deposit repricing should allow us to retain some near-term benefit from higher rates, continued competition for deposits and changes in our funding mix are expected to largely offset that benefit. Accordingly, assuming no additional Federal Reserve rate changes, we expect fourth quarter NIM to EY to remain relatively static.

Our fourth quarter NIM outlook is supported by a strong loan pipeline and the opportunity to reprice approximately $165 million of fixed rate loans, which we expect to move from the low 6% range to the mid-6% range. We also project our nontaxable investment yields to continue expanding, supported by a solid pipeline of new municipal bonds expected to yield between 7.5% and 8% on a tax equivalent basis.

Noninterest income totaled $30 million compared to $29 million in the second quarter. Capital Markets revenue increased to $17 million from $15 million in the prior quarter, which included a $1.3 million loss from the Freddie Mac LIHTC securitization. Wealth management revenue totaled $6 million, consistent with the prior quarter, benefiting from continued expansion of client relationships and growth in assets under management.

Compared with the third quarter of 2025, Wealth Management revenue increased by 12%. Noninterest income performance continues to highlight the strength of our diversified revenue model. Our capital markets and wealth management platforms provide meaningful earnings diversification, reduced reliance on spread income and support more consistent profitability across changing interest rate and economic environments.

Now turning to expenses. Noninterest expense for the third quarter totaled $54.7 million, compared to $53.2 million for the second quarter, and were near the lower end of our guidance range. The linked quarter increase primarily reflected higher occupancy and equipment expense, salary and employee benefits and the timing of advertising and marketing expenses. The increase in occupancy and equipment expense reflected costs associated with our third core system conversion completed in early October.

The increase in salary and employee benefits reflected higher incentive compensation driven by strong full year performance to date. Our efficiency ratio remained solid at 55% for the third quarter.

Our year-to-date adjusted efficiency ratio has improved to 56% from 58% in 2025 and reflecting our continued focus on operating leverage as year-to-date revenues have increased 9.3% compared with the expense growth of 4.8%. Expenses remain well controlled, highlighting disciplined execution of our 965 Strategic Model, which targets annual noninterest expense growth below 5%. As we have now completed 3 of 4 core conversions, our progress on noninterest expenses demonstrate that we can continue investing in digital transformation while managing annual expense growth below 5%.

For the fourth quarter, we expect noninterest expense to remain well controlled, assuming capital markets revenue and loan growth are within our guidance ranges and reflecting continued investments in digital transformation and initiatives. We are reaffirming our noninterest expense guidance range of $54 million to $57 million.

Moving to the balance sheet. Total loans grew $190 million in the quarter or 11% annualized when excluding the M2 portfolio runoff. We also increased our high-performing securities portfolio by $30 million from the second quarter including $63 million of new privately placed municipal investments added at tax equivalent yields at 7.25%. Core deposits when excluding broker deposits, totaled $7 billion compared with $7.3 billion at June 30, while broker deposits remained at approximately 2% of total deposits.

Noninterest-bearing deposits increased slightly and average noninterest-bearing deposits increased $39 million or 15% annualized. While we experienced typical outflows of correspondent deposit balances during the final few weeks of the quarter, those deposits have since returned to our balance sheet, along with additional deposit growth shortly after the quarter ended.

As of mid-October, total deposits have grown over $500 million since quarter end, including $40 million of noninterest-bearing balances. We also achieved our fourth consecutive quarter of noninterest-bearing deposit growth, demonstrating continued progress on this key strategic priority. Additionally, net new commercial and retail account growth this year is well ahead of the first 9 months of 2025. Taken together, the return of correspondent balances continued noninterest-bearing deposit growth and strong net new account activity reflect positive underlying deposit trends.

These trends reinforce our confidence in the strength of our deposit franchise and our ability to fund future growth. Given the dynamic nature of our balance sheet, quarter end balances can fluctuate more than those of similarly sized banks. This quarter underscores why we remain focused on underlying trends rather than any single quarter end balance. Asset quality improved further during the quarter and is the strongest we've experienced in years. Nonperforming assets totaled $38 million, a decrease of $1.5 million from the prior quarter, and the NPA to total asset ratio improvement to 0.39%, its lowest level since 2024.

Total criticized loans decreased $14 million to 1.67% of total loans and leases, the lowest level as a percentage of total loans and leases since 2019. The improvement reflected a combination of loan payoffs, credit upgrades and charge-offs across several criticized borrower relationships. The company recorded total provision for credit losses consistent with the second quarter. Net charge-offs were $3 million, a decline of $200,000 from the prior quarter and the lowest level recorded all year as we continue to benefit from positive charge-off trends from the wind down of the M2 portfolio.

During the third quarter, we repurchased approximately $9.5 million or 95,000 shares of common stock. The share repurchase program enhances our capital allocation flexibility and allows us to balance organic growth, shareholder returns and capital strength while reinforcing confidence in our long-term outlook. Tangible book value per share increased to $61.79 and at September 30, representing 11% year-over-year growth. Tangible common equity to tangible assets decreased 28 basis points to 10.43%, primarily reflecting the impact of higher interest rates on accumulated other comprehensive income and continued share repurchases, partially offset by strong earnings.

The common equity Tier 1 ratio increased 33 basis points to 11.01% and the total risk-based capital ratio increased 37 basis points to 14.5%. These quarterly changes reflect the combined impact of strong earnings partially offset by share repurchases during the quarter.

Finally, our effective tax rate for the quarter was 9%, up slightly from the prior quarter. Our actively managed very low effective tax rate continues to be influenced by the mix of tax exempt income relative to taxable income, particularly the level and timing of capital markets revenue and tax advantage loan and bond income.

Assuming a revenue mix in line with our guidance ranges, we estimate our effective tax rate to continue to trend in the range of 8% to 10% for the fourth quarter of 2026. In summary, the third quarter reflected the strength of our diversified business model that created robust loan growth, expansion in net interest margin, healthy fee income, disciplined expenses and excellent asset quality. We entered the fourth quarter with solid pipelines and positive momentum across our businesses. With that added context on our third quarter results, let's open the call for your questions. Operator, we are ready for our first question.

Operator

[Operator Instructions]

The first question today comes from Jeff Rulis with D.A. Davidson.

分析師問答

Jeff Rulis

Question on the -- curious on the LIHTC portfolio as that's historically performed in an uprate cycle. If you can just speak to demand, the credit side, fee generation, just in general, if there's anything you'd pull or glean historically on how that -- how that changes, if at all, in the upcoming cycle?

Todd Gipple

Sure. Jeff, thanks for the great question. When longer rates are going up, that is a bit of a headwind for our clients, for developers. They have to go back to the well, if you will, and work on our capital stack a little bit when those financing costs go up. .

One of the things we love about this business is it's very durable through all rate cycles. We've experienced all different cycles in our time in the affordable space. So it's very durable, but it will tend at times to have a developer need to go back and work on the capital stack a bit to make up for the added interest carry -- interest cost.

And we did see some deals slide from Q3 to Q4. We talked a little bit about that in the prepared comments. It's one of the reasons we're very optimistic about the fourth quarter. So at times, it can take a little bit longer for deals to get fully baked and the capital stack in place and get the deals closed. But historically, it has not stopped progress and projects.

Jeff Rulis

I appreciate that. And anything on that credit or fee side, it seems like fees is more on rate volatility, I suppose. But anything on those last 2 items on credit and fee income?

Todd Gipple

No. Really, historically, again, we point at this in our investor presentation. There's a slide in there about 35-plus year history of this industry through all different economic cycles and the credit is really unimpacted by this. And Jeff, part of the reason is those costs are fully baked at closing.

So that developer knows what their committed rate is for 15 to 18 years, and they have made the capital stack work with that amount of interest carry, and so that really doesn't tend to impact credit. In terms of fees, really, the only impact on fees is if we provide somebody a term sheet at a certain rate and then we see a massive move in the long rates during that period between then and close we can see our revenue impacted a little bit, and I would say slightly. So at times, it can impact that intra-quarter, if that makes sense.

Jeff Rulis

Yes. No. I appreciate it, Todd. And then maybe just hopping over 1 other question on the expenses. Really, at the low end, you talk about trying to keep those sub-5%. It looks like this year, you're headed for almost a flat year-over-year 26% to 25%.

Just trying to figure out kind of the -- that's outperformed, I suppose, on your expectations? And then kind of coupled with that is the conversion impact. If that does the final 1 completes in April, maybe some early thoughts on '27 growth?

Nick Anderson

Yes, Jeff, thanks for the question. Yes, we are pretty proud of the progress we're making on our noninterest expense while we're investing in the business at the same time. And when we think about the go forward, much like how we've been preparing to cross the $10 billion asset threshold where we've been layering in some of those costs over time. .

We expect the similar impact when it comes to the investments we're making in our core systems where we'll start experiencing and already have experienced some cost savings here, when I look at the data processing costs year-over-year, year-to-date, those are down 11%, about $2 million. So you're seeing some of that impact already in our run rate versus a cliff or a spike here when you think about the go forward.

So very similar approach, a modest -- moderate layering in of cost reductions here as we go through these core conversions. We have the next one here in April, and that will be our final one. We've spent a fair amount of time of optimizing our frontline staff experience as well as our client experience. When we get into '27, '28, we will be spending more time optimizing the back office experience.

Todd Gipple

Jeff, really appreciate the question and allowing Nick to get into the details a little bit there just to point out what is happening. So I appreciate the question. I would just tag on to that, that I mentioned that in our opening comments, we are very optimistic about operating leverage in the back half of '27 and beyond. We're really pleased with the partners we've selected with our core.

Q2 is a huge partner for us in front of our clients. We're just very pleased about the technology stack. We're looking forward to having it done in April. And again, that is one of the reasons that we're very optimistic about continuing to grow ROAA in the traditional bank space. The operating leverage, we're going to continue to pick up.

Operator

The next question comes from Damon DelMonte with KBW.

Damon Del Monte

Appreciate as always the detailed insights that you guys provide on these calls, but a couple of questions here. Just wondering, when you look at the pipeline, the loan growth pipeline and obviously very robust. How much of that growth is being driven by LIHTC versus the traditional community banking?

Todd Gipple

Sure, Damon. Right now, that mix is around 70-30, 70% LIHTC 30% traditional. I will tell you that we have had the most robust loan growth in the traditional bank space the last 2 quarters consecutively. So we are really pleased that we continue to see great production in the traditional bank space. That helps us achieve that more like a 10% to 15% growth that we've guided to because the traditional banks continue to have a lot of success taking market share and doing more with existing clients. .

Damon Del Monte

Great. Appreciate that. And then nice to see the reaffirmed guide on the capital markets of $60 million to $70 million over the next 4 quarters. When you take a step back and you kind of look at this business model, like where do you think the potential for this to grow over time could go to just kind of given the strong traction you have in the LIHTC space? .

Todd Gipple

Sure. So Damon, I'm a little reticent to throw specific numbers out at this point. And I think you've been on this journey with QCR for a long time. and you know our bias to maintaining a strong say-do ratio. So I would just tell you and everyone else, this is where we're going to want to show it and improve it before we talk a lot about it. But what I can tell you is that we have spent the last couple of years really working on and investing in the factory so we can go faster. .

So our expectation is that this business will begin growing. We've got everything in place. We believe to see that happen with now perfecting a better methodology on perm offtake. I think that's going to make us even more nimble in terms of offtake on perm.

Solving the construction offtake was huge because it allows us to say yes more often. All signs point to this business growing for us. I'm just a little reluctant to say how big and how fast. So apologies on that being more transparent. But as soon as we start seeing that come together, I think we're going to be upgrading our guidance and being a little more articulate about that.

I would really expect when we get into either our January call, certainly, April, we're going to have more color for all of you on that. I will tell you there's one other reason -- I'm being a little hesitant to move that guidance up more quickly. There is 1 thing going on in the industry that is a bit of a headwind, and that is that lots of developers and lots of projects and the need for affordable is significant, and it's not diminishing, it's growing.

So the future of this business line is very positive. But right now, equity investment has not caught up. And so the -- I think some of you might be familiar with what happened in the latest housing bill where the PWI percentage was increased for all the largest banks in the country, and that's where a lot of the equity comes from. So I'm optimistic. We're optimistic that this shortfall of equity is going to get fixed.

And just to be transparent, Damon, when that happens, I think that's when you're going to see this business grow for us because right now, developers are struggling to find enough equity to fill all the capital stacks. Fortunately, D.C. did something positive about that to give the largest banks in the country more power to do more equity, but that just happened this summer, and it's probably a year for that to really take effect.

So again, very optimistic about growing this business, how fast and when that starts, we'll want to prove it a bit first.

Damon Del Monte

Great. I appreciate that color. And then just maybe one more quick one on kind of the margin and kind of broader speaking. If we do have more Fed increases. Just wondering given the first increase we just saw kind of how depositor attitudes are today versus the last rate hike cycle.

Are you seeing the more one-on-one discussions for people asking for higher rates. Is it any different than what we saw in like 2023? And kind of how do you view the beta as we go forward?

Nick Anderson

Yes, Damon. Typically, in rate hiking cycles, we see the greatest near-term benefit early in that cycle because our deposit betas tend to lag. Asset yields repriced more quickly while we can initially hold back on some of the increases on the nonindexed deposits.

So over a full hiking cycle, when we look back, eventually, deposit pricing does catch up with more of those interest rate-sensitive clients getting to the -- getting to us. But we look back at the last hiking cycle, earning asset yields, they captured approximately 49% of the Fed fund move compared to our deposits were about 56%.

So I think when we discuss or look forward a little bit, I don't know why we'd come off of that expectation at this point. So again, this really, as I've mentioned in my earlier comments, it creates some early NIM upside, but it also tends to move us more liability sensitive later in the cycle.

Damon Del Monte

That's helpful. That's all that I had. I appreciate you answering my questions.

Operator

The next question comes from Nathan Race with Piper Sandler. .

Nathan Race

Not to beat a dead horse on the margin, but just curious how you're thinking about just deposits on both -- I'm sorry, betas on both sides of the balance sheet. If in fact, we do get a couple of more rate hikes in the next year.

And is the expectation that with hopefully some funding mix improvement, just given some hopefully deposit growth momentum into the 4Q and into next year that there's some opportunities to remix some of the funding to maybe mitigate what you have repricing on the deposit side of things immediately?

Nick Anderson

Yes. So Nate, I appreciate the question. When we think about NIM and where we sit from a liability sensitivity position, we've really moved to more of a neutral stance. And so it's just 4% of earning assets today. So we're liability sensitive by $300 million to $400 million. So it's very slight. So a lot of our expectations when we look ahead here continues to be more of a stable outcome when -- especially when it comes to betas, kind of more of a balance situation for us.

Again, as rate hikes, if they were to continue, as I just mentioned to Damon, we would expect ultimately some of that liability sensitivity to start showing up more.

Todd Gipple

Nate, I might tag on to that a little bit too, you asked about mix. We are laser-focused on noninterest-bearing. Our NIB percentage is far too low. It is our #1 area of focus in traditional banking, and I'm pleased to say we're making some very good progress.

We've had 4 consecutive quarters of positive momentum in moving our NIB percentage up. We have a target of getting that up to the peer group in the low 20s, 21% to 23%. That is going to take a long time. But our goal internally is to move that 100 basis points a year, every single year. And so far, so good. The bankers are doing tremendous work in that regard.

If you want to know the detail of how it's happening. Basically, we allowed our PEG balances in our treasury management area to get to 0 or near 0, and we just, candidly, were not getting enough wallet share free money out of our best clients. And so we now have a program in place where we do not book a new treasury management client without a significant NIB PEG balance and we are now working on existing client relationships to start moving that up.

So that's where the benefit is coming from. But I think, Nate, I loved your question because for us, it's really going to be about that mix change that's going to shelter us from rates up.

Nathan Race

Got you. And just kind of thinking about what you're seeing from a competition perspective on new loan production, both on the LIHTC and commercial side of things and footprint. Just any thoughts on kind of where you're seeing new loan production come on the portfolio yield.

I appreciate your comments to think about some of the repricing that you have on the back book that can help near term as well in terms of loan yields, but just any thoughts on kind of where you're seeing production come on these days?

Todd Gipple

Sure, Nate. Thanks. Nick is going to give you a little bit of data here in a minute on new loan rates. But again, I'd mentioned earlier, traditional banking is doing a fabulous job of doing more transactions and building a deeper relationship with existing clients.

But right now, we are taking a lot of market share within our markets. And honestly, part of that is just simply having the best bankers in the market. Part of it is having the size in the market that we do where we can really be viewed as the preeminent bank in the market. And so we get an opportunity to bank most anything that moves in the market.

And then in terms of taking market share, one of the things that really helps us is each of our 4 charters can punch way above their weight in terms of deal size and complexity with the backbone of the $10 billion organization. So I would just give a little bit of recognition to our folks in Central Iowa or Community State Bank charter there.

They have taken some tremendous clients from some of the bigger banks in that community because we can handle it, and we have better people. So in terms of competition in local markets, I feel really good about how we're performing there. On the LIHTC side, typically, when we have a great relationship with the developer, the only time we don't get that perm financing is if that perm financing is tied to the equity provider. So what happens in the industry is a lot of times the equity provider will come in, they know that equity is already a little scarce so they can basically say we're going to buy the credits.

We're going to give you an ex cents on the dollar. We're going to provide your equity, but you have to use our perm loan product. And so that is when we run into some headwinds in that space. So we are combating that by partnering with a lot of the equity providers that I would say are term loan agnostic, either they don't do any lending or if they do, they prefer construction in that firm.

And so we are really focused on creating relationships with equity providers where when a developer has to tell one of our folks, we really would love to use you guys on this deal, but the equity is driving that, that we can come in with alternatives for equity that we are partnered with. So that's just some of the competitive environment there. Obviously, we're having pretty good success as we are doing 10%, 12%, 15% gross loan growth.

So we're having a lot of success. But those are a couple of the things that we have to be careful about, particularly on the LIHTC side that we need to continue to be partnered with equity providers to make sure that the developers that want us to do their transactions can allow us to do that. And then, Nick, do you want to give a little data?

Nick Anderson

Yes, Nate, so pricing has firmed up. We continue to target spreads kind of in that 225, 250 basis points over comparable FHLB. So that would imply some yields in the upper 6% range. Certainly, competition isn't as actual pricing starts to run a little bit inside of those targets, but spreads certainly have improved from prior quarters. When we look at what's coming on -- for fixed loans, we're targeting more in that $650 million, 675 range, floating is starting to pierce the 7% to 7.25% range is kind of where we're at today. .

Nathan Race

That's very helpful. I appreciate all that color. And Todd, since you mentioned 10 in assets, curious what the thinking is in terms of when you may surpass that threshold. I know you're hesitant to talk about additional offtake transactions, which may unfold next year. And I guess within that discussion, curious if you could maybe just update us on your M&A thoughts.

It seems that that's maybe something you're a little bit more open to these days and you have been seeing some kind of increased conversations. So I apologize for the loaded question, but I would love to just kind of hear your thoughts along those lines?

Todd Gipple

No worries, Nate. I appreciate both ends of that question. So first on $10 billion, we've been planning for this since 2023. We continue to view it as a managed milestone, not a disruptive event. We expect to stay under $10 billion here in the fourth quarter, but we fully expect to run past $10 billion sometime in '27.

Honestly, it's likely in the first half of the year given our strong loan growth. That allows us to not have the regulatory and Durbin impacts until July '28. So again, further delaying those impacts. Nick has talked pretty extensively from an expense standpoint. We do not see a blip coming in '28 related to $10 billion.

Our folks have done a great job layering in the people and the discipline that we need from a regulatory perspective, we do expect revenue impact from Durbin in middle of '28, that's around $3 million in annual. We are blessed in that we have 2 strong and growing sources of other revenue and LIHTC and Wealth Management to help mute that and fully offset that.

So we really view $10 billion as something we're going to do well planned and fairly gracefully in '27 and then be ready for the impacts in '28. So that does tie into M&A because so many I think so many peers have felt that they are compelled to do a transaction to deal with expenses and interchange and all of that. That is not our approach. And it's not going to be our approach. But we are a bit more open to M&A than we have been in the past few years. We've been really focused on growing EPS and TBV double-digit levels organically.

And because our 3 lines of business are going so well, I would just be very clear, the bar is incredibly high for us to consider an M&A partner because right now, organically, we are driving great results in EPS and TBV growth, so the hurdle rate, the bar is quite high. But we are having more conversations and what's changed in that regard is we're about to wrap up our digital transformation in April.

We really wanted to have that done and done incredibly well before we disrupted that with onboarding an acquisition. So as a result, we're more open. We're having more dialogue. Again, I would tell you the hurdle rate is very high, and we are going to be, what I would say, very picky because it's going to have to further improve ROAA and ROAE and further grow earnings per share.

And we are very reticent to dilute tangible book value per share. I think part of the reason we've seen the 266% growth and value for our shareholders is we have been very careful to make sure we're growing TPV at a fast pace. Typically acquisitions come with some dilution to that, and so it'd have to earn back very quickly. And it would have to be a very impactful transaction for us. So you're right, Nate, in your supposition that we are a little more open to it.

We're having conversations. I would say there's nothing really -- not only on the front burner, nothing really even on the stove yet. So because that bar is pretty high.

Nathan Race

Okay. Great. That's super helpful. And just to confirm, Todd, you said Durbin would be $3 million annual hit? Or was that just kind of a back half hit for '28 theoretically? .

Todd Gipple

Yes, $3 million annual. So half that in '28, $3 million annual. .

Operator

The next question comes from Brandon Rud with Stephens Inc. .

Brandon Rud

If I could just start -- and correct me if I'm wrong here, but my understanding is the new partnerships maybe enter into next year will really accelerate the flywheel on the LIHTC side of things. And I guess this isn't necessarily speaking about '27, but longer term, does this allow you to do maybe 4, 5, 6 offtakes a year versus the 1 or 2 previously? Or is that too ambitious? Or am I thinking about that right?

Todd Gipple

So Brandon, I think you're thinking about it just right. The new format and the new process we're going to use with our partners on term loan offtake will be much more nimble in that regard. The prior plan and the prior execution with Freddie on these larger securitizations, those things were taking 12 to 18 months to get fully baked. That's part of the reason that we had to move away from that. It's just far too long or too costly, not very efficient.

And so we started going to some of our partners and saying, "Hey, you're buying this asset on the back end of this securitization and you're not getting the full yield because of all the costs. And we're having economics that aren't good for us. Why don't we just take that out of the equation and why don't you look at buying our assets directly.

So, that's where we're headed. I do anticipate us having proof of concept on that in the first quarter. And to your point, Brandon, I would expect that over time, that might, while not fully turning into a forward flow arrangement, I could be much like that in terms of we built some inventory, and we have some offtake. We built some inventory, we have some offtake. So that might smooth things a little bit.

We know it's a -- we know it's a bit disruptive for you and the rest of your peers trying to model our balance sheet and add dollars and all of that when we have less frequent, bigger swings in assets. So that would be a nice outcome. If it was a little more smooth. But what I would tell you is having this in place is one of the final steps we needed to be able to go faster in this business because it will allow us to know that we can say yes more often that we can do some larger deal sizes knowing that actually that's the appetite our partners have is for fewer larger deals with the best developers in the country.

So having this proof of concept, I think, is really going to help that flywheel.

Brandon Rud

Got it. Okay. Kind of along a similar vein. So without having to hold that first loss tranche I guess, just hypothetically, if you didn't have that for your previous offtake partnerships, what's the capital benefit versus your 11% CET1 ratio this last quarter? Is it like 25, 50 basis points? Or is it multiple -- multiple percentage points improvement.

Todd Gipple

Great. Brandon, I'm glad you asked because I was hoping somebody would. We have a little over $100 million in B pieces right now. We have not felt compelled to sell those. One of the reasons is our CET1 got over 11% organically even holding on to those. So that's part of it.

The other part is they're tax equivalent yields in the high 8s and allowing those B pieces to season makes them more marketable as well. So for all good reasons, we've held on to them. But when we sell those B pieces, that will free up 100 basis points of regulatory capital, CET1 and total risk-based. So it is a big number. And the reason it's a big number is because we have the B tranche, we have about $1 billion of assets not on the balance sheet that we're still carrying the risk waiting for.

So I'm glad you asked the question and allowed us to be a little more transparent on order of magnitude, but it is very big. It's 100 basis points.

Operator

The next question comes from Nicholas Halico with Raymond James.

Nicholas Holowko

Maybe just a follow-up on the prior question. It sounds like there will be some pretty significant capital benefits when you get these new structures up and running. I guess when you get to that point, how would that change how you think about the decision between whether it's investing in organic growth or buybacks or as you've alluded to before potential M&A. How does that impact the sort of decision tree that you face when you're thinking about deploying capital?

Todd Gipple

Sure, Nick, great question. So here's how we think about it. When we look at the 4 uses of capital. So historically, for us, for the vast majority of our 30 years, it's been supporting organic growth. In the last couple of years with offtake, our organic growth NAT has been muted. But we do expect, starting in '27 and '28, we're going to get back to letting the balance sheet grow a little more significantly as we have in the past. So what I would tell you is supporting organic growth is going to become a bit more of a need starting next year.

So in terms of that use of capital that will be elevated a bit more starting in '27. Just talked about M&A. We're open to some conversations. I want to be very clear about 1 thing, got this question from one of our best shareholders, and asked me very directly with all this capital growth, are you feeling compelled to or pressure to do an M&A transaction.

And I would just tell everyone on the call that, that is certainly not the case. We -- we don't feel any pressure to or any urgency to do M&A still an incredibly high bar. So the utilization for M&A will be less about what's going on with our ratios and more about the opportunity that we might find. So that leaves us with the 2 ways we could spend it, not invest it.

And I've just got to tell you, Nick, we're thrilled to have returned about $66 million of capital, buying 770,000 shares. That was a little under 5% of outstanding, but we made a lot of progress and our weighted average price was $85 per share. So we feel really good about that return of capital to our shareholders. At the same time, we did bump our dividend yield a bit. It's still incredibly modest.

I wouldn't want anyone to expect that we're going to continue to do that as frequently, and we're not chasing a number there in terms of dividend payout ratio, but simply, we could afford it. We thought it was good to reward our retail shareholders with a dividend increase. So those last 2 things, dividends and repurchases, the word, I would give you is opportunistic as we want to be opportunistic in terms of deploying that capital for share repurchases.

One of the benefits we have as we are growing earnings per share in TBB at such a fast clip. When we look at being opportunistic, I would tell you, I think we can be a little more aggressively opportunistic because when we model those buybacks we do it with our internal look at forward earnings. So if we're trying to hit a 5-year earn back on repurchases, we know what we're doing with earnings per share internally, and we can be a bit more aggressively opportunistic there.

So I know that's not got a lot of precision, but that's really how we look at those 4 uses. I think organic growth will go up a bit. M&A, TBD, if we find something that beats that very high bar for us. So then that leaves us with opportunistic share repurchases is probably our biggest focus right now.

Nicholas Holowko

Awesome. That's very helpful. And maybe just one more. It sounds like everything is on track and should be an exciting start to next year when we get the first transaction underway. I'm just wondering as we think about higher rates that can have implications for activity levels. But does that put any pressure on the ability to get some of these new style transactions or offtakes rather completed? Or is the pipeline and visibility there to getting those done kind of undeterred by the backdrop at this point?

Todd Gipple

Sure. Nick, thanks for that question because that allows us to talk about something that I think a handful of folks probably have forgotten or don't realize, but those assets on our balance sheet are floating rate. So the good news is we're going to have a delta or be upside down on fixed rate LIHTC loans on our balance sheet and get caught in that conversation with our partners. Those are floating. When rates are going up, they're going up. And so we don't see any headwinds on that offtake process due to rates up. So appreciate the question. .

Operator

The next question comes from Brian Martin with Brean Capital. Brian, your line may be muted.

Brian Martin

Sorry for that. The -- I guess, I don't know, maybe for Nick. Just in terms of the bigger picture, at least I appreciate all the guidance and the thoughtfulness you guys have shared this morning. The -- just on the efficiency, as we think about that with the conversions and the $10 billion, I mean, the outlook for the operating leverage next year -- I mean as far as targeting efficiency, I mean, are you kind of in the low 50s is how you're thinking about it as you move into '27 and capture the full benefits and kind of think about this $10 billion level as you move forward from today's mid-50 type of level? Just how should we be thinking about that? Is that right?

Nick Anderson

Yes, Brian, I think you're on to it. That's how we're viewing where we stand today, kind of in that mid-50s and then taking into consideration everything we've talked about earlier on the call, where we're starting to see some of that benefit from all of the investments we're making work their way into the financials, while at the same time, we're still making some deep investments here.

So I think that's a fair assessment, and we continue on the revenue side as well, having high expectations. So certainly a component there when you think about efficiency.

Brian Martin

Yes. Okay. And then, Todd, to your point about the potential use of capital, I mean the high bar that you have on M&A. I mean in terms of priorities for what M&A could bring to you? I mean, is it more about size or scale or deposits? Is there any priorities in terms of that M&A that we should at least know about in terms of how you're viewing that?

Todd Gipple

Sure. Thanks, Brian. I would say that it's really got to do with the high hurdle in terms of what it would have to do for us and our shareholders. Then it also has to fit into what we call our strength zone. I think we've got a page in our investor deck that gives all the attributes related to what we view to be in our strike zone and kind of keeping with the World Series theme, it's a pretty tight strike zone in terms of what we're looking for.

So right now, really 2 categories for us. We would have a very high degree of interest in doing something in Central Iowa as a bolt-on to our very successful bank in that market. CSB in that market is doing an amazing job growing very quickly, taking great market share 30-plus basis points ROA in our biggest, most competitive market.

So very pleased with that team. I would love to give them a little more scale if we found somebody that made sense in that market. And then it gets to a fifth market with the right characteristics and those characteristics, again, have to do with a market that's very similar to the 4 markets we're in today. We do not want to be in markets smaller than where we're at. And there are a ton of those in Iowa and Missouri.

We want to be in a little larger MSA, but not too large. We -- we like the size of the 4 markets we're in, and that's our sweet spot. So we're looking for a market that has that type of size and then I'll skip all the other 9 or 10 things on that page in terms of strike zone, but -- we would be looking for -- I guess the punchline I would tell you is just like we did when we moved into Central Iowa 2016, what most attracts us to a potential M&A partner is we want to acquire something that we can make better, they can grow faster, make it more profitable.

We want it to be the preeminent bank in the market. And maybe the final punch line is having been around bank M&A for 40-plus years. I really believe the second most important thing you can look for in an M&A transaction is great core deposits. The most important thing you acquire are the people serving those clients and serving that community.

And a lot of people forget that, and they forget that and -- so they do the acquisition and they forget about the people aspect and they fail to grow organically post M&A. They lose the best people, they lose their best clients, and we don't do that. So we are looking for the opposite of that. We're looking for a great franchise that we can help grow.

Brian Martin

Got you. That's super helpful, Todd. And maybe just last 1 for me, just 1 housekeeping for Nick and just -- I don't know, a big picture on credit. Just housekeeping kind of the full year tax rate, as we think about '27, any big change from this year, Nick. And then I don't know, for either 1 of you, just on -- I mean, credit quality is so good. Loan growth is still really, really excellent as well. Just how to think about kind of reserves or provisions going forward? Any big change to kind of run rates we've been at? Or just how to think about that as we look forward?

Nick Anderson

Brian, I'll start on the tax question. Pleased that you pointed out our tax position, and we're very active in managing to a very low effective tax rate and that comes through both our LIHTC and our municipal bond businesses, but also includes us being active in tax credit investments. So assuming -- certainly, as we look to Q4, we've given that guidance in the 8% to 10% range. That's kind of where we've been historically for quite some time. The one major needle mover that can change that dramatically is a significant increase quarter-over-quarter in our capital markets revenues. Obviously, being taxable to the bottom line. So that's how we're thinking about it. Right now, we've had the 8% to 10% range for quite some time, and that looks to be similar for us in the future.

Todd Gipple

Brian, you asked about asset quality and just to be transparent with everyone. I'm almost hesitant to say it out loud on an earnings call, but we are very pleased with our portfolio. Very pleased to have moved NPAs down under 40 basis points, really thrilled with criticized loans dropping the way they have.

And I will tell you that both special mention and substandard fell $10 million and $4 million, respectively, the right way. We have 3 large upgrades and one large payoff in special mention. We had 2 large payoffs in substandard. So asset quality improved the right way. We were able to work out of those deals and not charging them off. We will continue to maintain fairly robust reserves. Even though we have exceptional asset quality, we like operating in this 123, 124 basis points of CECL. And so maybe the punchline here on asset quality is we expect it to be very good.

And yet, we'll probably continue to keep pace at 123, 124 basis points on CECL and really just provide for growth.

Brian Martin

Perfect. All right. Well, thanks for everything, and thanks for the thoughtful comments today. It's always appreciated.

Operator

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

Todd Gipple

Thanks, Chloe. Thank you all for joining our call today. We really appreciate your interest in our company. I hope you have a great day, and we look forward to connecting with you sometime soon. Thanks. .

Operator

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