QCR Holdings, Inc. Announces Third Quarter 2022 Results

QCR Holdings, Inc.

Third Quarter 2022 Highlights

• Net income of $29.3 million, or $1.71 per diluted share

• Adjusted net income (non-GAAP) of $28.9 million, or $1.69 per diluted share

• Net Interest Margin (“NIM”) of 3.46% and NIM (TEY)(non-GAAP) of 3.71%

• Annualized loan and lease growth of 14.5% for the quarter

• Annualized deposit growth of 8.3% for the quarter

• Nonperforming assets improved for the quarter and represented 0.23% of total assets

• Allowance for credit losses (“ACL”) to total loans/leases of 1.51%

• Increased total risk-based capital to 14.55% through the issuance of subordinated notes and strong earnings

MOLINE, Ill., Oct. 26, 2022 (GLOBE NEWSWIRE) -- QCR Holdings, Inc. (NASDAQ: QCRH) (the “Company”) today announced net income of $29.3 million and diluted earnings per share (“EPS”) of $1.71 for the third quarter of 2022, compared to net income of $15.2 million and diluted EPS of $0.87 for the second quarter of 2022.

Adjusted net income (non-GAAP) and adjusted diluted EPS (non-GAAP) for the third quarter of 2022 were $28.9 million and $1.69, respectively. For the second quarter of 2022, adjusted net income (non-GAAP) was $30.4 million and adjusted diluted EPS (non-GAAP) was $1.73. For the third quarter of 2021, adjusted net income (non-GAAP) and adjusted diluted EPS (non-GAAP) were $31.6 million and $1.99, respectively.

	For the Quarter Ended
	September 30,				June 30,				September 30,
$ in millions (except per share data)	2022				2022				2021
Net Income	$	29.3			$	15.2			$	31.6
Diluted EPS	$	1.71			$	0.87			$	1.99
Adjusted Net Income (non-GAAP)*	$	28.9			$	30.4			$	31.6
Adjusted Diluted EPS (non-GAAP)*	$	1.69			$	1.73			$	1.99

*Adjusted non-GAAP measurements of financial performance exclude non-core and/or nonrecurring income and expense items that management believes are not reflective of the anticipated future operation of the Company’s business. The Company believes these measurements provide a better comparison for analysis and may provide a better indicator of future performance. See GAAP to non-GAAP reconciliations.

“We delivered another strong quarter of net income, driven by exceptional loan growth, improved credit quality and carefully managed expenses,” said Larry J. Helling, Chief Executive Officer. “Building on the momentum we established in the first half of the year, we generated robust lending activity again in the third quarter with annualized loan growth of 14.5%. This was funded primarily by growth in deposits during the quarter. Additionally, we raised $100 million of subordinated debt, bolstering our capital position against the backdrop of an uncertain economy.”

Net Interest Income of $60.8 Million

Net interest income for the third quarter of 2022 totaled $60.8 million, compared to $59.4 million for the second quarter of 2022 and $46.2 million for the third quarter of 2021. The increase in net interest income was due to an increase in average earning assets, primarily attributable to loan growth and NIM expansion on a linked-quarter basis. Adjusted net interest income, excluding PPP income (non-GAAP) during the quarter was $64.1 million, an increase of $3.2 million, or 20.8% annualized, from the prior quarter. Acquisition-related net accretion totaled $1.1 million for the third quarter of 2022, as compared to $1.7 million in the second quarter of 2022.

In the third quarter of 2022, NIM was 3.46% and tax-equivalent yield (“TEY”) basis (non-GAAP) NIM was 3.71%, compared to 3.53% and 3.74% in the prior quarter, respectively. Adjusted NIM (non-GAAP), which excludes acquisition-related net accretion, was 3.65%, up 1 basis point from the prior quarter. Excluding the final impact of PPP loans (non-GAAP) on NIM in the prior quarter, adjusted NIM for the current quarter (non-GAAP) was up 5 basis points prior to the dilutive impact of our subordinated debt issuance. The linked-quarter increase was primarily due to the impact of multiple interest rate hikes on our asset-sensitive balance sheet, partially offset by the impact of increased deposit costs and our recent subordinated debt issuance.

	For the Quarter Ended
	September 30,		June 30,		September 30,
	2022		2022		2021
NIM	3.46%		3.53%		3.36%
NIM (TEY)(non-GAAP) *	3.71%		3.74%		3.56%
Adjusted NIM (TEY)(non-GAAP) *	3.65%		3.64%		3.53%
Adjusted NIM ex. PPP (TEY)(non-GAAP)*	3.65%		3.63%		3.39%
* See GAAP to non-GAAP reconciliations

“Our adjusted NIM, excluding PPP, expanded by 5 basis points during the third quarter, prior to the dilutive impact of our recent subordinated debt issuance,” said Todd A. Gipple, President, Chief Operating Officer and Chief Financial Officer. “While our balance sheet is well positioned to continue to drive NIM expansion in this rising rate environment, the sharply higher interest rates impacted our deposit mix and pricing this quarter. However, we are very pleased with the expansion in NIM that we have experienced early in the current rising rate cycle of 26 basis points on a year-over-year basis.”

Annualized Loan and Lease Growth of 14.5%
Total Loans and Leases Surpass $6 Billion

During the third quarter of 2022, the Company’s loans and leases increased $210.7 million to a total of $6.0 billion, or 14.5% on an annualized basis.   Deposits increased by $120.4 million during the quarter, helping to fund our loan and lease growth.

“Strength in our traditional commercial lending, leasing and our Specialty Finance businesses drove our continued loan growth,” added Mr. Helling. “This speaks to the dedication of our experienced teams and the economic resiliency in our markets. Given our current pipelines, we are reaffirming our targeted loan growth of between 10% and 12% for the fourth quarter, while continuing to be vigilant on maintaining our exceptional credit quality.”

Noninterest Income of $21.1 Million

Noninterest income for the third quarter of 2022 totaled $21.1 million, compared to $22.8 million for the second quarter of 2022. The decrease was primarily due to a $2.5 million decline in capital markets revenue from swap fees due to delays in client projects caused by ongoing supply chain disruptions, inflationary pressures and higher interest rates. Wealth management revenue was $3.5 million for the quarter, consistent with the second quarter of 2022, despite ongoing market volatility.

“Capital markets revenue totaled $10.5 million for the quarter, which was below our guidance due to delays in funding low-income housing tax credit projects,” added Mr. Gipple. “While certain client projects have been delayed, the economics of these projects remain solid, and our pipeline is strong. Capital markets revenue has averaged approximately $11 million per quarter for the last four quarters and therefore we expect this source of fee income to be in a range of $10 to $12 million for the fourth quarter.”

Noninterest Expenses of $47.7 Million

Noninterest expense for the third quarter of 2022 totaled $47.7 million, compared to $54.2 million for the second quarter of 2022 and $41.4 million for the third quarter of 2021. The linked-quarter decrease was primarily due to elevated expenses in the second quarter related to the Guaranty Bank acquisition and lower incentive-based compensation in the third quarter. Excluding acquisition/post-acquisition related costs, noninterest expense for the third quarter was $47.4 million, compared to $47.5 million in the second quarter.

Asset Quality Remains Exceptional

Nonperforming assets (“NPAs”) totaled $18.0 million at the end of the third quarter, a decrease of $6.0 million from the second quarter of 2022. The reduction in NPAs during the quarter was primarily the result of paydowns on several NPAs. The ratio of NPAs to total assets was 0.23% on September 30, 2022, compared to 0.33% on June 30, 2022, and 0.11% on September 30, 2021. In addition, the Company’s criticized loans and classified loans to total loans and leases on September 30, 2022 improved to 2.35% and 1.29%, respectively, as compared to 2.37% and 1.43% as of June 30, 2022.

The Company did not record a provision for credit losses in the third quarter of 2022 as a result of continued improvements in overall credit quality. As of September 30, 2022, the ACL on total loans/leases was 1.51%, compared to 1.59% as of June 30, 2022.

Continued Strong Capital Levels

As of September 30, 2022, the Company’s total risk-based capital ratio was 14.55%, the common equity tier 1 ratio was 9.33% and the tangible common equity to tangible assets ratio (non-GAAP) was 7.68%. By comparison, these respective ratios were 13.40%, 9.46% and 8.11% as of June 30, 2022.

On August 18, 2022, the Company announced that it completed a private placement of $100 million in aggregate principal amount subordinated notes. The notes qualify as tier 2 capital and contributed to the increase in the total risk-based capital ratio. This transaction increased our total risk-based capital ratio by 140 bps.

During the third quarter, the Company purchased and retired 190,000 shares of its common stock at an average price of $55.18 per share as the Company executed purchases under the share repurchase plan announced during the second quarter. The 2022 share repurchase plan authorized an approximate 1,500,000 additional shares to be repurchased and the Company has approximately 1,030,000 shares remaining under the program.

The Company’s accumulated other comprehensive income (“AOCI”) declined $24.8 million during the third quarter due to a decrease in the value of its available for sale securities portfolio and certain derivatives resulting from continued sharp increases in interest rates during the quarter. While AOCI and the repurchase of shares reduced the Company’s tangible common equity, solid earnings offset this impact, which led to a slight increase in tangible book value per share (non-GAAP).

Focus on Three Strategic Long-Term Initiatives

As part of the Company’s ongoing efforts to grow earnings and drive attractive long-term returns for shareholders, it continues to operate under three key strategic long-term initiatives:

• Generate organic loan and lease growth of 9% per year, funded by core deposits;

• Grow fee-based income by at least 6% per year; and

• Limit annual operating expense growth to 5% per year.
  

Conference Call Details

The Company will host an earnings call/webcast tomorrow, October 27, 2022, at 10:00 a.m. Central Time. Dial-in information for the call is toll-free: 888-346-9286 (international 412-317-5253). Participants should request to join the QCR Holdings, Inc. call. The event will be available for replay through November 3, 2022. The replay access information is 877-344-7529 (international 412-317-0088); access code 9369877. A webcast of the teleconference can be accessed on the Company’s News and Events page at www.qcrh.com. An archived version of the webcast will be available at the same location shortly after the live event has ended.

About Us
QCR Holdings, Inc., headquartered in Moline, Illinois, is a relationship-driven, multi-bank holding company serving the Quad Cities, Cedar Rapids, Cedar Valley, Des Moines/Ankeny and Springfield communities through its wholly-owned subsidiary banks. The banks provide full-service commercial and consumer banking and trust and wealth management services. Quad City Bank & Trust Company, based in Bettendorf, Iowa, commenced operations in 1994, Cedar Rapids Bank & Trust Company, based in Cedar Rapids, Iowa, commenced operations in 2001, Community State Bank, based in Ankeny, Iowa, was acquired by the Company in 2016, Springfield First Community Bank, based in Springfield, Missouri, was acquired by the Company in 2018, and Guaranty Bank, also based in Springfield, Missouri, was acquired by the Company and merged with Springfield First Community Bank on April 1, 2022, with the combined entity operating under the Guaranty Bank name. Additionally, the Company serves the Waterloo/Cedar Falls, Iowa community through Community Bank & Trust, a division of Cedar Rapids Bank & Trust Company. Quad City Bank & Trust Company offers equipment loans and leases to businesses through its wholly-owned subsidiary, m2 Equipment Finance, LLC, based in Milwaukee, Wisconsin, and also provides correspondent banking services. The Company has 40 locations in Iowa, Missouri, Wisconsin and Illinois. As of September 30, 2022, the Company had approximately $7.7 billion in assets, $6.0 billion in loans and $5.9 billion in deposits. For additional information, please visit the Company’s website at www.qcrh.com.

Special Note Concerning Forward-Looking Statements. This document contains, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “predict,” “suggest,” “appear,” “plan,” “intend,” “estimate,” ”annualize,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

A number of factors, many of which are beyond the ability of the Company to control or predict, could cause actual results to differ materially from those in its forward-looking statements. These factors include, among others, the following: (i) the strength of the local, state, national and international economies (including effects of inflationary pressures and supply chain constraints); (ii) the economic impact of any future terrorist threats and attacks, widespread disease or pandemics (including the COVID-19 pandemic in the United States), acts of war or other threats thereof, or other adverse external events that could cause economic deterioration or instability in credit markets, and the response of the local, state and national governments to any such adverse external events; (iii) changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the FASB or the PCAOB; (iv) changes in local, state and federal laws, regulations and governmental policies concerning the Company’s general business; (v) changes in interest rates and prepayment rates of the Company’s assets (including the impact of LIBOR phase-out); (vi) increased competition in the financial services sector and the inability to attract new customers; (vii) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (viii) unexpected results of acquisitions, which may include failure to realize the anticipated benefits of acquisitions and the possibility that transaction costs may be greater than anticipated; (ix) the loss of key executives or employees; (x) changes in consumer spending; (xi) unexpected outcomes of existing or new litigation involving the Company; (xii) the economic impact of exceptional weather occurrences such as tornadoes, floods and blizzards; and (xiii) the ability of the Company to manage the risks associated with the foregoing as well as anticipated. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.

Contacts:
Todd A. Gipple
President
Chief Operating Officer
Chief Financial Officer
(309) 743-7745
tgipple@qcrh.com

QCR Holdings, Inc. Consolidated Financial Highlights (Unaudited)
	As of
	September 30,			June 30,			March 31,			December 31,			September 30,
	2022			2022			2022			2021			2021
	(dollars in thousands)
CONDENSED BALANCE SHEET
Cash and due from banks	$	86,282		$	92,379		$	50,540		$	37,490		$	57,310
Federal funds sold and interest-bearing deposits		71,043			56,532			66,390			87,662			70,826
Securities, net of allowance for credit losses		879,450			879,918			823,311			810,215			828,719
Net loans/leases		5,918,121			5,705,478			4,753,082			4,601,411			4,519,060
Intangibles		17,546			18,333			8,856			9,349			9,857
Goodwill		137,607			137,607			74,066			74,066			74,066
Derivatives		185,037			97,455			107,326			222,220			198,393
Other assets		434,963			405,239			292,248			253,719			256,277
Total assets	$	7,730,049		$	7,392,941		$	6,175,819		$	6,096,132		$	6,014,508
Total deposits	$	5,941,035		$	5,820,657		$	4,839,689		$	4,922,772		$	4,871,828
Total borrowings		701,491			583,166			443,270			170,805			183,514
Derivatives		209,479			113,305			116,193			225,135			201,450
Other liabilities		140,972			132,675			108,743			100,410			107,902
Total stockholders' equity		737,072			743,138			667,924			677,010			649,814
Total liabilities and stockholders' equity	$	7,730,049		$	7,392,941		$	6,175,819		$	6,096,132		$	6,014,508
ANALYSIS OF LOAN PORTFOLIO
Loan/lease mix:
Commercial and industrial - revolving	$	332,996		$	322,258		$	263,441		$	248,483		$	175,155
Commercial and industrial - other		1,415,996			1,403,689			1,374,221			1,346,602			1,465,580
Total commercial and industrial		1,748,992			1,725,947			1,637,662			1,595,085			1,640,735
Commercial real estate, owner occupied		627,558			628,565			439,257			421,701			434,014
Commercial real estate, non-owner occupied		920,876			889,530			679,898			646,500			644,850
Construction and land development		1,149,503			1,080,372			863,116			918,571			852,418
Multi-family		933,118			860,742			711,682			600,412			529,727
Direct financing leases		33,503			40,050			43,330			45,191			50,237
1-4 family real estate		487,508			473,141			379,613			377,361			376,067
Consumer		107,552			99,556			73,310			75,311			71,682
Total loans/leases	$	6,008,610		$	5,797,903		$	4,827,868		$	4,680,132		$	4,599,730
Less allowance for credit losses		90,489			92,425			74,786			78,721			80,670
Net loans/leases	$	5,918,121		$	5,705,478		$	4,753,082		$	4,601,411		$	4,519,060
ANALYSIS OF SECURITIES PORTFOLIO
Securities mix:
U.S. government sponsored agency securities	$	20,527		$	20,448		$	21,380		$	23,328		$	23,689
Municipal securities		724,204			710,638			667,245			639,799			649,486
Residential mortgage-backed and related securities		68,844			81,247			86,381			94,323			100,744
Asset backed securities		19,630			19,956			23,233			27,124			30,607
Other securities		46,443			47,827			25,270			25,839			24,367
Total securities	$	879,648		$	880,116		$	823,509		$	810,413		$	828,893
Less allowance for credit losses		198			198			198			198			174
Net securities	$	879,450		$	879,918		$	823,311		$	810,215		$	828,719
ANALYSIS OF DEPOSITS
Deposit mix:
Noninterest-bearing demand deposits	$	1,315,555		$	1,514,005		$	1,275,493		$	1,268,788		$	1,342,273
Interest-bearing demand deposits		3,904,303			3,758,566			3,181,685			3,232,633			3,086,711
Time deposits		672,133			540,074			382,268			421,348			441,743
Brokered deposits		49,044			8,012			243			3			1,101
Total deposits	$	5,941,035		$	5,820,657		$	4,839,689		$	4,922,772		$	4,871,828
ANALYSIS OF BORROWINGS
Borrowings mix:
Overnight FHLB advances (1)	$	335,000		$	400,000		$	290,000		$	15,000		$	30,000
Other short-term borrowings		85,180			1,070			1,190			3,800			1,600
Subordinated notes		232,743			133,562			113,890			113,850			113,811
Junior subordinated debentures		48,568			48,534			38,190			38,155			38,103
Total borrowings	$	701,491		$	583,166		$	443,270		$	170,805		$	183,514
(1) At the most recent quarter-end, the weighted-average rate of these overnight borrowings was 3.29%.

QCR Holdings, Inc. Consolidated Financial Highlights (Unaudited)
	For the Quarter Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2022			2022			2022			2021			2021
	(dollars in thousands, except per share data)
INCOME STATEMENT
Interest income	$	79,267		$	68,205		$	51,062		$	52,020		$	51,667
Interest expense		18,498			8,805			5,329			5,507			5,438
Net interest income		60,769			59,400			45,733			46,513			46,229
Provision for credit losses (1)		-			11,200			(2,916	)		(3,227	)		-
Net interest income after provision for loan/lease losses	$	60,769		$	48,200		$	48,649		$	49,740		$	46,229
Trust department fees	$	2,537		$	2,497		$	2,963		$	2,843		$	2,714
Investment advisory and management fees		921			983			1,036			1,047			1,054
Deposit service fees		2,214			2,223			1,555			1,644			1,588
Gain on sales of residential real estate loans		641			809			493			922			954
Gain on sales of government guaranteed portions of loans		50			-			19			227			-
Swap fee income/capital markets revenue		10,545			13,004			6,422			12,982			24,885
Earnings on bank-owned life insurance		605			350			346			470			446
Debit card fees		1,453			1,499			1,007			1,072			1,085
Correspondent banking fees		189			244			277			266			265
Loan related fee income		652			682			480			536			550
Mark to market gain - derivatives		904			432			906			97			(17	)
Other		384			59			129			879			1,128
Total noninterest income	$	21,095		$	22,782		$	15,633		$	22,985		$	34,652
Salaries and employee benefits	$	29,175		$	29,972		$	23,627		$	24,809		$	28,207
Occupancy and equipment expense		6,033			5,978			3,937			3,723			4,122
Professional and data processing fees		4,477			4,365			3,671			3,866			3,568
Acquisition costs		315			1,973			1,851			624			-
Post-acquisition compensation, transition and integration costs		62			4,796			-			-			-
Disposition costs		-			-			-			5			-
FDIC insurance, other insurance and regulatory fees		1,497			1,394			1,310			1,316			1,108
Loan/lease expense		390			761			267			606			308
Net cost of (income from) and gains/losses on operations of other real estate		19			59			(1	)		-			(1,346	)
Advertising and marketing		1,437			1,198			761			1,679			1,095
Communication		639			584			403			481			457
Supplies		289			237			246			274			298
Bank service charges		568			610			541			553			525
Correspondent banking expense		218			213			199			200			201
Intangibles amortization		787			787			493			508			508
Payment card processing		477			626			262			298			346
Trust expense		227			195			187			208			188
Other		1,136			500			571			262			1,802
Total noninterest expense	$	47,746		$	54,248		$	38,325		$	39,412		$	41,387
Net income before income taxes	$	34,118		$	16,734		$	25,957		$	33,313		$	39,494
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