QCR Holdings, Inc. Announces Net Income of $18.0 Million for the First Quarter of 2021

First Quarter 2021 Highlights

• Net income of $18.0 million, or $1.12 per diluted share
• Adjusted net income (non-GAAP) of $18.6 million, or $1.16 per diluted share
• NIM increased by 1 basis point and Adjusted NIM (TEY)(non-GAAP) increased by 3 bps to 3.26% and 3.40%, respectively
• Noninterest income continues to be strong at $23.5 million
• Annualized core loan and lease growth (non-GAAP) of 14.0% for the quarter, excluding SBA Paycheck Protection Program (“PPP”) loans
• Annualized core deposit growth of 3.2% for the quarter
• Provision for credit losses of $6.7 million for the quarter and allowance for credit losses (“ACL”) to total loans/leases of 1.99%, excluding PPP loans (non-GAAP)
• Nonperforming assets remained stable for the quarter and represent 0.25% of total assets

MOLINE, Ill.,, April 27, 2021 (GLOBE NEWSWIRE) -- QCR Holdings, Inc. (NASDAQ: QCRH) (the “Company”) today announced net income of $18.0 million and diluted earnings per share (“EPS”) of $1.12 for the first quarter of 2021, compared to net income of $18.3 million and diluted EPS of $1.14 for the fourth quarter of 2020. Pre-provision, pre-tax adjusted net income (non-GAAP) was $29.0 million in the first quarter of 2021, compared to $30.4 million in the fourth quarter of 2020.

The Company reported adjusted net income (non-GAAP) of $18.6 million and adjusted diluted EPS (non-GAAP) of $1.16 for the first quarter of 2021, compared to adjusted net income (non-GAAP) of $19.1 million and adjusted diluted EPS (non-GAAP) of $1.20 for the fourth quarter of 2020. For the first quarter of 2020, net income and diluted EPS were $11.2 million and $0.70, respectively, and adjusted net income (non-GAAP) and adjusted diluted EPS were $12.4 million and $0.77, respectively.

Adjusted non-GAAP measurements of financial performance exclude non-recurring 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 are pleased with our financial performance for the first quarter,” said Larry J. Helling, Chief Executive Officer. “We delivered another quarter of strong net income, driven by robust loan growth, expanded net interest margin and carefully managed expenses. Despite a competitive lending environment, we grew core loans by 14% on an annualized basis, while maintaining disciplined underwriting and excellent credit quality. We continue to attract new clients and deepen ties with existing clients, which validates our relationship-based community banking model.”

Annualized Loan and Lease Growth of 14.0% for the Quarter, excluding PPP Loans (non-GAAP)

During the first quarter of 2021, the Company’s total loans and leases, excluding PPP loans, increased $139.2 million to a total of $4.1 billion. Core loan and lease growth during the quarter was 14.0% on an annualized basis and was funded by the Company’s excess liquidity and core deposit growth. Core deposits (excluding brokered deposits) increased by $37.2 million during the quarter.   Core deposit growth was muted during the quarter as the Company was successful in shifting some of its excess deposits off balance sheet. The Company retains the ability to bring these deposits back onto the balance sheet as needed. The Company’s wholesale funding portfolio has been reduced to predominately subordinated debt that qualifies as regulatory capital. Additionally, at quarter-end, the percentage of gross loans and leases to total assets was 77.3%, up from 74.8% in the fourth quarter of 2020, driven primarily by the strong loan growth and lower excess liquidity.

“Our robust loan growth for the quarter was driven by strength in both our core commercial lending business and in our Specialty Finance Group,” added Helling. “Given the strong first quarter results, combined with our current pipeline, we are now targeting organic loan growth for the full year 2021 of between 8% and 10%, consistent with our long-term goal of 9%.”

Net Interest Income of $42.0 million

Net interest income for the first quarter of 2021 totaled $42.0 million, compared to $43.7 million for the fourth quarter of 2020 and $37.7 million for the first quarter of 2020. Excluding the impact of acquisition-related net accretion and PPP income, net interest income was stable on a linked quarter basis. Acquisition-related net accretion totaled $504 thousand for the first quarter of 2021, down from $1.1 million in the fourth quarter of 2020 and $625 thousand for the first quarter of 2020. Adjusted net interest income (non-GAAP) was $43.7 million for the first quarter of 2021, compared to $45.3 million for the fourth quarter of 2020 and $38.9 million for the first quarter of 2020.

In the first quarter, reported NIM was 3.26% and, on a tax-equivalent yield basis (non-GAAP), NIM was 3.43%, as compared to 3.25% and 3.45% in the fourth quarter of 2020, respectively. Adjusted NIM (non-GAAP), excluding acquisition-related net accretion was 3.40%, up 3 basis points from the fourth quarter. The increase in Adjusted NIM (non-GAAP) during the quarter was due to a 1 basis point decline in the total cost of interest-bearing funds (due to both mix and rate), and a 2 basis point increase in the yield on earning assets (adjusted for acquisition-related net accretion).   

“We expanded our adjusted net interest margin again during the first quarter as our deposit costs were slightly lower due to an improved mix. While our average loan yields also declined during the quarter, we benefited from lower excess liquidity as well, enabling us to grow our margin,” said Todd A. Gipple, President, Chief Operating Officer and Chief Financial Officer.

Noninterest Income of $23.5 million        

Noninterest income for the first quarter of 2021 totaled $23.5 million, compared to $32.0 million for the fourth quarter of 2020. The decrease was primarily due to a $7.8 million reduction in swap fee income from the strong fourth quarter. Wealth management revenue was $3.7 million for the quarter, up $427 thousand from the fourth quarter. In addition, securities gains decreased by $617 thousand and gain on sale of loans decreased by $349 thousand from the prior quarter. Noninterest income increased $8.3 million, or an increase of 55% compared to the first quarter of 2020.

“Swap fee income totaled $13.6 million for the quarter, which was effectively right at the lower end of our guidance. The current pipeline of swap loans remains healthy and we believe this source of fee income is sustainable for the long term,” added Gipple “Our continued expectation is that swap fee income will be approximately $14 to $18 million per quarter for the remainder of 2021.”

Noninterest Expenses of $37.2 million

Noninterest expense for the first quarter of 2021 totaled $37.2 million, compared to $46.4 million for the fourth quarter of 2020 and $31.4 million for the first quarter of 2020. The linked-quarter decline was primarily due to lower salary and benefits expense of $5.6 million, driven by lower commission and incentive compensation expense in the quarter due to the lower swap fee income and lower incentive compensation accruals. Occupancy and equipment expense decreased by $809 thousand, advertising and marketing expense decreased by $649 thousand, and professional and data processing fees decreased by $428 thousand. In addition, we experienced a linked-quarter decline in losses on liability extinguishment of $1.5 million.

Asset Quality Remains Strong and NPAs Remained Stable

Nonperforming assets (“NPAs”) totaled $14.1 million at the end of the first quarter, consistent with the fourth quarter of 2020. The ratio of NPAs to total assets was 0.25% on both March 31, 2021 and December 31, 2020, and improved from 0.31% on March 31, 2020. In addition, the Company’s criticized loans and classified loans to total loans and leases were 3.17% and 1.95%, respectively, from 3.24% and 1.55% as of December 31, 2020.

On January 1, 2021, the Company replaced its "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as the CECL model, as per ASU 2016-13. As a result, there was a “day one” adjustment to our allowance for credit losses on loans/leases, which decreased the allowance by $8.1 million. Additionally, when combined with “day one” adjustments for held-to maturity investments and off-balance sheet exposures, also required by CECL, the total “day one” adjustment resulted in a $937 thousand reduction to capital, after-tax.

The Company’s provision for credit losses totaled $6.7 million for the first quarter of 2021, down from $7.1 million in the prior quarter. As of March 31, 2021, the ACL on total loans/leases was 1.88%. The ACL on total loans/leases to total loans and leases on December 31, 2020 under CECL would have been 1.79%. Excluding PPP loans of $244 million, the ACL to total loans/leases as of March 31, 2021 was 1.99% (non-GAAP).

Continued Strong Capital Levels

As of March 31, 2021, the Company’s total risk-based capital ratio was 15.22%, the common equity tier 1 ratio was 10.83% and the tangible common equity to tangible assets ratio (non-GAAP) was 9.42%. By comparison, these respective ratios were 14.95%, 10.55% and 9.08% as of December 31, 2020.

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:

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

These initiatives are long-term targets. Due to the impact of the COVID-19 pandemic, among other factors, the Company may not be able to achieve these goals for the full year 2021.

Supplemental Presentation and Where to Find It
In addition to this press release, the Company has included a supplemental presentation that provides further information regarding the Company’s loan exposures and deferrals. Investors, analysts and other interested persons may find this presentation on the Securities and Exchange Commission’s EDGAR filing system at www.sec.gov/edgar.shtml, or on the Company’s website at www.qcrh.com.

Conference Call Details

The Company will host an earnings call/webcast tomorrow, April 28, 2021, 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 May 12, 2021. The replay access information is 877-344-7529 (international 412-317-0088); access code 10153920. 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 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, and Springfield First Community Bank, based in Springfield, Missouri, was acquired by the Company in 2018. 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 engages in commercial leasing through its wholly-owned subsidiary, m2 Equipment Finance, LLC, based in Milwaukee, Wisconsin, and also provides correspondent banking services. The Company has 23 locations in Iowa, Missouri, Wisconsin and Illinois. As of March 31, 2021, the Company had approximately $5.6 billion in assets, $4.4 billion in loans and $4.6 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 the impact of the new presidential administration); (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, the Securities Exchange Commission or the PCAOB, including FASB’s CECL impairment standards ; (iv) changes in 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.