QCR Holdings, Inc. Announces Second Quarter 2022 Results

Second Quarter 2022 Highlights

• Completed the acquisition of Guaranty Federal Bancshares, Inc. adding approximately $1.3 billion in assets, $808 million in loans and $1.1 billion in deposits
• Reported net income of $15.2 million, or $0.87 per diluted share
• Adjusted net income (non-GAAP) of $30.4 million, or $1.73 per diluted share
• Acquisition/Post-acquisition related expenses and CECL Day 2 provision totaled $15.5 million, post-tax, or $0.88 per diluted share
• Net Interest Margin (“NIM”) of 3.53% and Adjusted NIM (TEY)(non-GAAP) of 3.74% expanded significantly from the prior quarter by 23 and 24 basis points, respectively
• Capital Markets Revenue from Swap Fees of $13.0 million doubled from the first quarter of 2022
• Annualized loan and lease growth of 14.0% for the quarter, excluding loan balances acquired from the Guaranty Bank transaction and SBA Paycheck Protection Program (“PPP”) loans (non-GAAP)
• Repurchased 602,500 shares at an average price of $54.80 per share

MOLINE, Ill., July 26, 2022 (GLOBE NEWSWIRE) -- QCR Holdings, Inc. (NASDAQ: QCRH) (the “Company”) today announced net income of $15.2 million and diluted earnings per share (“EPS”) of $0.87 for the second quarter of 2022, compared to net income of $23.6 million and diluted EPS of $1.49 for the first quarter of 2022. Included in the second quarter of 2022 results were $5.7 million of acquisition/post-acquisition related expenses and $9.8 million of CECL Day 2 provision, both post-tax. The CECL Day 2 provision was required to establish the initial credit loss allowances for the acquired non-PCD loan portfolio and off-balance sheet exposure as a result of the acquisition of Guaranty Federal Bancshares, which closed on April 1, 2022.

*CECL Day 2 provision to establish the initial non-PCD loan and off-balance sheet exposure credit loss allowances under ASU 2016-13, Financial Instruments – Credit Losses, for the acquired loan portfolio.        Excluding acquisition/post-acquisition related expenses, the CECL Day 2 provision and other nonrecurring items, adjusted net income (non-GAAP) and adjusted diluted EPS (non-GAAP) for the second quarter of 2022 were $30.4 million and $1.73, respectively. For the first quarter of 2022, adjusted net income (non-GAAP) was $24.4 million and adjusted diluted EPS (non-GAAP) was $1.54. For the second quarter of 2021, adjusted net income (non-GAAP) and adjusted diluted EPS (non-GAAP) were $22.5 million and $1.40, respectively.

*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, expanding net interest margin and well managed expenses,” said Larry J. Helling, Chief Executive Officer. “Building on the momentum we saw in the first quarter, we generated robust lending activity again in the second quarter with annualized loan growth of 14.0% after excluding the impact of the acquired portfolio and PPP activity. Adjusting for the nonrecurring items, primarily related to the closing of the Guaranty Bank acquisition, we increased core earnings by $6.0 million on a linked-quarter basis, generating an adjusted ROAA of 1.66%”

“On April 1st, we successfully completed the acquisition of Guaranty Federal Bancshares, Inc. and merged Guaranty Bank into Springfield First Community Bank with the combined bank retaining the Guaranty Bank name. We’re eager to continue to grow in the vibrant southwest Missouri region and we look forward to serving our clients and our communities.”

Net Interest Income of $59.4 MillionNIM Expanded by 23 Basis Points from the Prior Quarter

Net interest income for the second quarter of 2022 totaled $59.4 million, compared to $45.7 million for the first quarter of 2022 and $43.5 million for the second quarter of 2021. The increase in net interest income was due to an increase in average earning assets, primarily attributable to the Guaranty Bank transaction, increased organic loan growth on a linked-quarter basis, and strong NIM expansion.   Adjusted net interest income (non-GAAP) during the quarter was $61.1 million, an increase of $12.6 million, or 25.9%, from the prior quarter. Adjusted net interest income (non-GAAP) was $45.7 million for the second quarter of 2021. Acquisition-related net accretion totaled $1.7 million for the second quarter of 2022, up from $118 thousand in the first quarter of 2022 and $291 thousand for the second quarter of 2021.

In the second quarter, NIM was 3.53% and tax-equivalent yield (“TEY”) basis (non-GAAP) NIM was 3.74%, compared to 3.30% and 3.50% in the prior quarter, respectively. Adjusted NIM (non-GAAP), which excludes acquisition-related net accretion, was 3.64%, up 14 basis points from the prior quarter. The increase in Adjusted NIM (non-GAAP) during the quarter was primarily due to the impact of multiple rate increases on our asset-sensitive balance sheet as well as the addition of Guaranty Bank.

“Excluding the impact of acquisition-related net accretion and PPP fees, we significantly expanded our adjusted NIM during the second quarter by 17 basis points” said Todd A. Gipple, President, Chief Operating Officer and Chief Financial Officer. “Our balance sheet is well positioned to continue to drive strong NIM expansion in this rapidly rising rate environment.”

Annualized Loan and Lease Growth of 14.0%, Excluding the Guaranty Bank Acquisition and PPP Loans (non-GAAP)

During the second quarter of 2022, the Company’s loans and leases increased $970.0 million to a total of $5.8 billion. Excluding the initial loan balances from the Guaranty Bank acquisition and PPP loans (non-GAAP), loan and lease growth during the quarter was $168.7 million, or 14.0% on an annualized basis.   Core deposits (excluding brokered deposits) increased by $973.2 million during the quarter, due to the Guaranty Bank acquisition.

“Our continued robust loan growth in the second quarter was driven by strength in our traditional commercial lending, leasing and our Specialty Finance business,” added Helling. “This is a testament to the economic resiliency in our markets as well as our relationship-based community banking model, emphasizing the importance of strong relationships with new and existing clients. Given our current pipeline, we are reaffirming our targeted organic loan growth to between 10% and 12% for the full year.”

Noninterest Income of $22.8 Million

Noninterest income for the second quarter of 2022 totaled $22.8 million, compared to $15.6 million for the first quarter of 2022. The increase was primarily due to a $6.6 million increase in capital markets revenue from swap fees as well as the Guaranty Bank acquisition. Wealth management revenue was $3.5 million for the quarter, down 12.9% from the first quarter of 2022, primarily due to increased market volatility.

“Capital markets revenue totaled $13.0 million for the quarter, which was within our guidance range,” added Gipple. “Given our solid pipeline and recognizing timing continues to be impacted by project delays caused by ongoing supply chain disruptions and inflationary pressures, we continue to expect this source of fee income to be in a range of $13 to $15 million per quarter for the remainder of 2022.”

Noninterest Expenses of $54.2 Million, Including Acquisition/Post-Acquisition Related Expenses

Noninterest expense for the second quarter of 2022 totaled $54.2 million, including acquisition/post-acquisition related expenses of $6.8 million, compared to $38.3 million for the first quarter of 2022 and $35.7 million for the second quarter of 2021. The linked-quarter increase was primarily due to the inclusion of expenses from Guaranty Bank and expenses related to the acquisition. Excluding these acquisition/post-acquisition related costs, noninterest expense for the second quarter was $47.5 million.

Asset Quality Reflects Addition of Guaranty Bank

Nonperforming assets (“NPAs”) totaled $24.0 million at the end of the second quarter, an increase of $21.3 million over the first quarter of 2022, primarily the result of the Guaranty Bank acquisition and two legacy lending relationships. The ratio of NPAs to total assets was 0.33% on June 30, 2022, compared to 0.04% on March 31, 2022, and 0.17% on June 30, 2021. In addition, the Company’s criticized loans and classified loans to total loans and leases at June 30, 2022 were 2.37% and 1.43%, respectively, compared to 2.45% and 1.13% as of March 31, 2022.

The Company recorded an $11.2 million provision for credit losses in the second quarter of 2022, due solely to the CECL Day 2 provision of $12.4 million (pre-tax) as a result of the Guaranty Bank acquisition. As of June 30, 2022, the ACL on total loans/leases was 1.59%, compared to 1.55% as of March 30, 2022.

Continued Strong Capital Levels

As of June 30, 2022, the Company’s total risk-based capital ratio was 13.02%, the common equity tier 1 ratio was 9.17% and the tangible common equity to tangible assets ratio (non-GAAP) was 8.11%. By comparison, these respective ratios were 14.50%, 10.61% and 9.60% as of March 31, 2022. Total risk-based capital and the common equity tier 1 were both impacted by expected initial dilution from the Guaranty Bank acquisition. The Company’s accumulated other comprehensive income (“AOCI”) declined $24.3 million during the second quarter due to a decrease in the value of its available for sale securities portfolio and certain derivatives resulting from ongoing increases in interest rates during the quarter. While AOCI reduced the Company’s tangible common equity (non-GAAP), solid earnings partially offset this impact, which led to a decline of only 8.4% in tangible book value (non-GAAP).

During the second quarter, the Company purchased and retired 602,500 shares of its common stock at an average price of $54.80 per share as the Company finished repurchases under the original 2020 authorized plan and began repurchases under the May 2022 authorized plan. Under the 2020 share repurchase program, the Company repurchased 794,000 shares in total at an average price of $50.60 per share. The 2022 share repurchase program, announced during the second quarter of 2022, authorized an approximate 1,500,000 additional shares to be repurchased. The Company repurchased 280,000 shares during the quarter and has approximately 1,220,000 shares remaining under its 2022 share repurchase program.

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, July 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 August 3, 2022. The replay access information is 877-344-7529 (international 412-317-0088); access code 7416915. A webcast of the teleconference can be accessed at 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 UsQCR 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. Including the Guaranty Bank acquisition, the Company now has 40 locations in Iowa, Missouri, Wisconsin and Illinois. As of June 30, 2022, the Company had approximately $7.4 billion in assets, $5.8 billion in loans and $5.8 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                                [email protected]