QCR Holdings, Inc. Announces Third Quarter 2022 Results

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.

*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.

“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 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. 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. GipplePresidentChief Operating OfficerChief Financial Officer(309) 743-7745[email protected]