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QCR Holdings, Inc. Announces Third Quarter Earnings And Successful Closing of Guaranty Acquisition

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MOLINE, Ill., Nov. 02, 2017 (GLOBE NEWSWIRE) -- QCR Holdings, Inc. (NASDAQ:QCRH) today announced net income of $7.9 million and diluted earnings per share ("EPS") of $0.58 for the quarter ended September 30, 2017.  This included $601 thousand of acquisition costs and post-acquisition transition and integration costs (after-tax) related to the previously announced acquisition of Guaranty Bank and Trust Company ("Guaranty Bank"), based in Cedar Rapids, Iowa, which closed on October 1, 2017.  Excluding these costs and other non-core items, the Company reported core net income (non-GAAP) of $8.5 million and diluted EPS of $0.63.  By comparison, for the quarter ended June 30, 2017, the Company reported net income of $8.8 million and diluted EPS of $0.65.  For the quarter ended September 30, 2016, the Company reported net income of $6.1 million and diluted EPS of $0.46.  This included $1.5 million of acquisition costs and post-acquisition transition and integration costs (after-tax) related to the acquisition of Community State Bank ("CSB") based in Ankeny, Iowa, which closed on August 31, 2016.  Excluding these costs and other non-core items, the Company reported core net income (non-GAAP) of $7.5 million and diluted EPS of $0.57 for the quarter ending September 30, 2016.

For the nine months ended September 30, 2017, the Company reported net income of $25.8 million, and diluted EPS of $1.91.  Excluding acquisition costs, post-acquisition transition and integration costs, and other non-core items, the Company reported core net income (non-GAAP) of $26.4 million and diluted EPS of $1.96.  By comparison, for the nine months ended September 30, 2016, the Company reported net income of $19.2 million, and diluted EPS of $1.52.  Excluding acquisition costs, post-acquisition transition and integration costs, and other non-core items, the Company reported core net income (non-GAAP) of $20.6 million and diluted EPS of $1.64 for the nine months ended September 30, 2016.

"We are generally pleased with our core operating performance for the first nine months of the year," commented Douglas M. Hultquist, President and Chief Executive Officer, "and we continue to strategize and pursue ways to improve our profitability through our ongoing key initiatives.  Our return on average assets has improved to 1.02% from 0.94%, when comparing the first nine months of 2017 to the same period of the prior year.  This is the result of strong organic loan growth, solid growth in core deposits, and margin improvements.   The acquisition of CSB in the third quarter of 2016 also contributed to our improved profitability.

"Our quarter-over-quarter results were down due to three key factors.  First, acquisition-related net accretion was down $1.1 million when comparing the third quarter of 2017 to the second quarter of 2017.  Secondly, swap fee income and gains from the sale of government guaranteed loans continue to be slow.  Lastly, we've seen an increase in noninterest expense of approximately 5% excluding acquisition costs and post-acquisition transition and integration costs.  Salaries and employee benefits increased from filling open positions, and legal expense also increased."

Net Interest Income Improvement
Driven By Strong Loan Growth and Yield Increase

Net interest income totaled $28.6 million for the quarter ended September 30, 2017.  By comparison, net interest income totaled $28.0 million and $23.6 million for the quarters ended June 30, 2017 and September 30, 2016, respectively.  Acquisition-related net accretion totaled $474 thousand for the quarter ended September 30, 2017.  By comparison, acquisition-related net accretion totaled $1.5 million for the quarter ended June 30, 2017.  Excluding acquisition-related net accretion, net interest income of $28.1 million for the third quarter of 2017 increased 6%, compared to $26.5 million for the quarter ended June 30, 2017.

Net interest income totaled $84.3 million for the nine months ended September 30, 2017.  By comparison, net interest income totaled $65.2 million for the nine months ended September 30, 2016. 

"Net interest margin (excluding acquisition accounting net accretion) increased three basis points when comparing linked quarters at 3.65% for the third quarter of 2017 and 3.62% for the second quarter of 2017," stated Todd A. Gipple, Executive Vice President, Chief Operating Officer and Chief Financial Officer.  "Due to our exceptional loan growth during the second and third quarters of this year, we've been able to shift our mix of earning assets, driving margin improvement.  Additionally, loan yield (excluding loan discount accretion) increased three basis points from 4.39% to 4.42% when comparing the second quarter of 2017 to the third quarter of 2017."

Annualized Loan and Lease Growth of 19.2% for Second Consecutive Quarter

During the third quarter of 2017, the Company's total assets increased $93.3 million, or 3%, to a total of $3.55 billion, while total loans and leases grew $123.2 million, or 4.8% (19.2% when annualized).  Loan and lease growth was primarily funded by short-term borrowings and deposit growth.

 "Organic loan and lease growth totaled $271.3 million for the first nine months of the year, or an annual growth rate of 15.0%," commented Mr. Hultquist.  "This was another very strong quarter of loan growth and while we've already attained our annual loan growth target for the year of 10-12% and are optimistic about the fourth quarter, we believe organic loan growth for the fourth quarter will be at a more normalized level.  We intend to continue our organic growth primarily through market share increases, as customers continue to appreciate the way we do business and are attracted to our relationship-based community banking model."

"Swap fee income and gains on the sale of government guaranteed loans totaled $1.8 million for the first nine months of the year.  The third quarter of 2017 continued to be slow in this area but the pipeline remains active.  Given the nature of this fee income source, large fluctuations can occur from quarter-to-quarter," said Mr. Gipple.  "We plan to continue executing these types of transactions, as they provide unique and beneficial solutions for our clients."

Nonperforming Assets Increase in Third Quarter
Due to the Addition of One Large Relationship

Nonperforming assets ("NPAs") increased $7.8 million in the current quarter.  The ratio of NPAs to total assets was 0.95% at September 30, 2017, which was up from 0.75% at June 30, 2017 and up from 0.69% a year ago. 

 "One large CRE relationship was the primary cause of the increase in NPAs in the third quarter.  We believe that this issue is isolated and not reflective of the overall portfolio," stated Mr. Hultquist.  He continued, "We remain committed to improving asset quality."

The Company's provision for loan and lease losses totaled $2.1 million for the third quarter of 2017, which was up slightly from the prior quarter, and up $479 thousand compared to the third quarter of 2016.  As of September 30, 2017, the Company's allowance to total loans and leases was 1.31%, which was flat compared to June 30, 2017 and up from 1.22% at September 30, 2016. 

In accordance with generally accepted accounting principles for acquisition accounting, the loans acquired through the acquisition of CSB were recorded at market value; therefore, there was no allowance associated with CSB's loans at acquisition.  Management continues to evaluate the allowance needed on the acquired CSB loans factoring in the net remaining discount ($5.6 million at September 30, 2017).  When factoring this remaining discount into the Company's allowance to total loans and leases calculation, the Company's allowance as a percentage of total loans and leases increases from 1.31% to 1.52%.

Capital Levels Remain Strong

            As of September 30, 2017, the Company's total risk-based capital ratio was 11.49%, the common equity tier 1 ratio was 9.33%, and the tangible common equity to tangible assets ratio increased to 8.31%.  By comparison, these respective ratios were 11.65%, 9.46% and 8.29% as of June 30, 2017.
             
            "As a result of solid earnings performance, capital ratios continue to be strong and we are growing tangible common equity at a steady pace," stated Mr. Gipple.  He continued, "Tangible common equity has increased $35.1 million or 14% year-over-year when comparing September 30, 2017 to the same period of the prior year."

Acquisition of Guaranty Bank, Headquartered in Cedar Rapids, Iowa

            Effective October 1st, the Company completed its previously announced acquisition of Guaranty Bank.  The acquisition and subsequent merger of Guaranty Bank into Cedar Rapids Bank & Trust Company ("CRBT") in the fourth quarter of 2017 will enhance the footprint and deposit base of CRBT.  Guaranty Bank had approximately $257.2 million in assets and approximately $212.3 million in deposits as of September 30, 2017. 
             
            "We are delighted to welcome the Guaranty Bank employees, clients and shareholders to QCR Holdings," commented Mr. Hultquist. "This transaction provides the opportunity for us to expand our footprint in Cedar Rapids, partner with a financial institution with a rich legacy and help create the dominant community bank franchise in the Cedar Rapids area. Both organizations focus on recruiting the best people, delivering exceptional, local client service and building the communities they serve."

Continued Focus on Seven Key Initiatives

                The Company continues to focus on the following initiatives in an effort to improve profitability and drive increased shareholder value:

  • Continue strong organic loan and lease growth to maintain loans and leases to total assets ratio in the range of 73-78%
  • Continue to focus on growing core deposits to maintain reliance on wholesale funding at less than 15% of assets
  • Continue to focus on generating gains on sale of USDA and SBA loans, and fee income on swaps, as a significant and consistent component of core revenue
  • Grow wealth management net income by 10% annually
  • Carefully manage noninterest expense growth
  • Maintain asset quality metrics at better than peer levels
  • Participate as an acquirer in the consolidation taking place in our markets to further boost ROAA, improve efficiency ratio, and increase EPS            

Conference Call Details

The Company will host an earnings call/webcast on November 3, 2017 at 11 a.m. central time.  Dial-in information for the call is toll-free 1-888-317-6016 (international 1-412-317-6016).  Participants should request to join the QCR Holdings, Inc. call. The event will be archived and available for digital replay through November 17, 2017.  The replay access information is toll-free 1-877-344-7529 (international 1-412-317-0088); access code 10112157.  A webcast of the teleconference can be accessed at the Company's News and Events page at http://www.qcrh.com or https://services.choruscall.com/links/qcrh171103.html .  The archived audio webcast will be available until November 3, 2018.  Participants should visit the Company's website or call in to the conference line set forth above at least 10 minutes prior to the scheduled start of the call.              

About Us

QCR Holdings, Inc., headquartered in Moline, Illinois, is a relationship-driven, multi-bank holding company, which serves the Quad City, Cedar Rapids, Cedar Valley, Des Moines/Ankeny, and Rockford communities through its wholly owned subsidiary banks.  Quad City Bank & Trust Company, which is based in Bettendorf, Iowa, and commenced operations in 1994, Cedar Rapids Bank & Trust Company, which is based in Cedar Rapids, Iowa, and commenced operations in 2001, Community State Bank, which is based in Ankeny, Iowa and was acquired by the Company in 2016, and Rockford Bank & Trust Company, which is based in Rockford, Illinois, and commenced operations in 2005, provide full-service commercial and consumer banking and trust and wealth management services.  Quad City Bank & Trust Company also provides correspondent banking services.  In addition, Quad City Bank & Trust Company engages in commercial leasing through its wholly owned subsidiary, m2 Lease Funds, LLC, based in Milwaukee, Wisconsin.  Additionally, the Company serves the Waterloo/Cedar Falls, Iowa community through Community Bank & Trust, a division of Cedar Rapids Bank & Trust Company.  The Company enhanced its presence in Cedar Rapids, Iowa with the acquisition of Guaranty Bank & Trust Company in October 2017.

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, national and international economies; (ii) the economic impact of any future terrorist threats and attacks, and the response of the United States to any such threats and attacks; (iii) changes in state and federal laws, regulations and governmental policies concerning the Company's general business; (iv) changes in interest rates and prepayment rates of the Company's assets; (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) unexpected results of acquisitions, including the acquisition of Guaranty Bank, which may include failure to realize the anticipated benefits of the acquisition and the possibility that the transaction costs may be greater than anticipated; (viii) the loss of key executives or employees; (ix) changes in consumer spending; (x)  unexpected outcomes of existing or new litigation involving the Company; and (xi) changes in accounting policies and practices.  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.

 

             
    As of
    September 30,   June 30,   March 31,   December 31,     September 30,
    2017   2017   2017   2016   2016
             
    (dollars in thousands)
             
CONDENSED BALANCE SHEET            
             
Cash and due from banks   $ 56,275   $ 77,161   $ 56,326   $ 70,570   $ 61,213
Federal funds sold and interest-bearing deposits     61,789     72,354     173,219     86,206     96,047
Securities     583,936     593,485     557,646     574,022     564,930
Net loans/leases     2,641,772     2,520,209     2,403,791     2,374,730     2,331,774
Core deposit intangible     6,689     6,919     7,150     7,381     7,614
Goodwill     13,111     13,111     13,111     13,111     13,632
Other assets     186,891     173,948     169,770     175,924     205,776
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