QCR Holdings, Inc. Announces Record Net Income of $15.9 Million for the Fourth Quarter and $57.4 Million for the Full Year 2019

Fourth Quarter 2019 Highlights

• Net income of $15.9 million, or $0.99 per diluted share
• Adjusted net income (non-GAAP) of $15.4 million, or $0.96 per diluted share
• NIM and NIM (TEY)(non-GAAP) at 3.36% and 3.51%, respectively
• Noninterest income of $29.8 million for the quarter and $78.8 million for the year
• Completed the sale of the operations of Rockford Bank & Trust ("RB&T") to Heartland Financial USA, Inc.
• Excluding RB&T held for sale assets and liabilities:
  • Annualized loan and lease growth was 8.9% for the quarter and 10.9% for the year
  • Annualized deposit growth was 11.5% for the quarter and 10.3% for the year
  • Nonperforming assets were down $0.2 million, or 1.2% from the prior quarter

MOLINE, Ill., Jan. 22, 2020 (GLOBE NEWSWIRE) -- QCR Holdings, Inc. QCRH (the "Company") today announced net income of $15.9 million and diluted earnings per share ("EPS") of $0.99 for the fourth quarter of 2019, compared to net income of $15.1 million and diluted EPS of $0.94 for the third quarter of 2019. The fourth quarter results included a $12.3 million gain on sale and $3.3 million of disposition costs due to the sale of RB&T. Additionally there was a $3.0 million goodwill impairment charge related to the Bates Companies as a result of the decision to exit the Rockford market. The fourth quarter results also included $1.5 million of post-acquisition compensation, transition and integration costs (after-tax), compared to $0.7 million of similar costs in the third quarter of 2019.

Excluding these expenses and some modest cost for early debt extinguishment, the Company reported adjusted net income (non-GAAP) of $15.4 million and adjusted diluted EPS of $0.96 for the fourth quarter of 2019, compared to adjusted net income (non-GAAP) of $15.9 million and adjusted diluted EPS of $1.00 for the third quarter of 2019. For the fourth quarter of 2018, net income and diluted EPS were $13.3 million and $0.84, respectively, and adjusted net income (non-GAAP) and adjusted diluted EPS were $14.5 million and $0.91, respectively.

"We are very pleased with our financial performance in 2019, highlighted by record net income and a 19% increase in adjusted earnings per share," said Larry J. Helling, Chief Executive Officer. "Our strong results were driven by robust revenue growth, due to both record fee income and increased net interest income. Our loans and deposits both grew organically by over 10% for the year, as we continued to gain market share across our charters, capitalizing on the ongoing favorable economic environment as well as the value that our clients place on relationship-based community banking. Additionally, we successfully expanded our net interest margin over the course of the year as our initiatives in this area gained traction."

"We also were pleased to complete the sale of RB&T, which enables us to redeploy capital in our other more profitable markets to help drive continued organic and acquisitive growth."

Mr. Helling continued, "We finished the year building substantial momentum, delivering solid loan and lease production, successfully attracting new deposits and generating very strong fee income. Our asset quality remains excellent and our capital levels are strong. Looking to the year ahead, we remain optimistic about our ability to continue delivering exceptional financial results given our healthy loan pipeline and our high quality deposit base, which we believe will lead to improved returns and enhanced shareholder value in 2020 and beyond."

Completion of the sale of Rockford Bank & Trust to Heartland Financial USA

On November 30, 2019 the Company completed the sale of substantially all of the assets and transfer of substantially all of the deposits and certain other liabilities of the Company's wholly-owned subsidiary, RB&T to Illinois Bank & Trust ("IB&T"), a wholly-owned subsidiary of Dubuque, IA-based Heartland Financial USA, Inc. The purchase and assumption transaction was valued at approximately $59.1 million, representing a cash payment of approximately $46.9 million from IB&T, including the purchase price premium of $12.5 million, and the separate liquidation of net assets retained by QCRH of $12.2 million.  As a result, substantially all of RB&T's assets and liabilities were classified as held for sale as of September 30, 2019, which impacts balance sheet comparisons to prior quarters. 

Annualized Loan and Lease Growth of 8.9% for the Quarter and 10.9% for the Year

During the fourth quarter of 2019, the Company's total loans and leases increased $79.9 million to a total of $3.7 billion. Continued loan and lease growth was funded by an increase in core deposits. Core deposits (excluding brokered deposits) increased $192.0 million, or 5.4% on a linked quarter basis. At quarter-end, the percentage of wholesale funds to total assets was 8.8%, which was down significantly from 11.6% in the third quarter. Additionally, at quarter-end, the percentage of gross loans and leases to total assets was 75%, which remained consistent with the third quarter when excluding assets held for sale.  

"Our solid loan growth for the quarter was driven by strength in commercial and industrial and commercial real estate construction loans," added Mr. Helling. "Production was driven by both our core commercial lending business, as well as our Specialty Finance Group. We also experienced another quarter of a more normalized level of payoffs, which were relatively consistent from the third quarter of 2019 and down significantly from the fourth quarter of 2018. Our loan and lease pipeline remains strong and our markets remain healthy, giving us confidence that we can achieve organic loan growth for the full year 2020 of between 8% and 10%." 

Net Interest Income of $39.9 million

Net interest income for the fourth quarter of 2019 totaled $39.9 million, compared to $40.7 million for the third quarter of 2019 and $39.6 million for the fourth quarter of 2018. The slight decrease was primarily due to a decline in average interest earning assets of $80.0 million, or 1.7% on a linked quarter basis, due to the sale of RB&T. Acquisition-related net accretion totaled $0.9 million (pre-tax) for the fourth quarter of 2019, compared to $1.3 million for the third quarter of 2019 and was $2.6 million for the fourth quarter of 2018. Adjusted net interest income (non-GAAP) was $40.8 million for the fourth quarter of 2019, compared to $41.2 million for the third quarter of 2019 and $38.7 million for the fourth quarter of 2018.

Net interest income totaled $155.6 million for the year ended December 31, 2019, compared to $142.4 million for the year ended December 31, 2018.

In the fourth quarter, reported net interest margin was 3.36% and, on a tax-equivalent yield basis (non-GAAP), net interest margin (non-GAAP) was 3.51%, with both metrics slightly decreasing by 1 basis point from the third quarter of 2019. Net interest margin, excluding acquisition-related net accretion was 3.43%, up 2 basis points from the third quarter. The increase in adjusted net interest margin during the quarter was due to a 27 basis point decline in the total cost of interest-bearing funds (due to both mix and rate), partially offset by a 24 basis point decrease in the yield on earning assets.

"Our organic loan and lease growth during the fourth quarter was more than funded by our ongoing success in gathering core deposits," stated Todd A. Gipple, President, Chief Operating Officer and Chief Financial Officer. "We also once again expanded our adjusted net interest margin during the quarter as we experienced meaningfully lower deposit costs due to lower short-term interest rates and lower CD rates. However, the decline in deposit costs was largely offset by lower yields on our loans as well as some excess liquidity."

Noninterest Income of $29.8 million

Noninterest income for the fourth quarter of 2019 totaled $29.8 million, compared to $19.9 million for the third quarter of 2019. The fourth quarter results included a $12.3 million gain on the sale of RB&T. Excluding the gain, noninterest income totaled $17.5 million in the fourth quarter. The decline from the third quarter was primarily due to a $2.4 million decrease in swap fee income and $0.4 million decrease on gains on the sale of the government guaranteed portions of loans. Wealth management revenue was $4.0 million for the quarter, as compared to $4.1 million for the third quarter of 2019. The slight decline was primarily due to the elimination of wealth management revenue due to the sale of RB&T. Noninterest income, excluding the gain on sale of RB&T, increased 14.7% when compared to the fourth quarter of 2018.

Noninterest income, excluding the gain on sale of RB&T, totaled $66.5 million for the year ended December 31, 2019, compared to $41.5 million for the year ended December 31, 2018, an increase of 60%.

"Our noninterest income was again driven by another strong quarter of swap fee income. Swap fee income and gains on the sale of government guaranteed loans totaled $29.0 million for the full year 2019, well in excess of our initial full-year target of $8 million to $12 million," added Mr. Gipple.

Noninterest Expenses of $46.3 million

Noninterest expense for the fourth quarter of 2019 totaled $46.3 million, compared to $39.9 million and $36.4 million for the third quarter of 2019 and fourth quarter of 2018, respectively. The linked quarter increase was due to a number of factors, including $3.3 million of disposition costs and a $3.0 million goodwill impairment charge, both related to the decision to exit the Rockford market. In addition post-acquisition transition and integration costs increased by $1.0 million due to the completion of the core conversion of Springfield First Community Bank.

Asset Quality Remains Solid

Nonperforming assets ("NPAs") totaled $13.1 million, a decrease of $0.2 million from the third quarter of 2019. The relatively stable NPAs resulted in the ratio of NPAs to total assets remaining consistent at 0.27% on December 31, 2019 compared to September 30, 2019 and down from 0.56% at December 31, 2018.

The Company's provision for loan and lease losses totaled $1.0 million for the fourth quarter of 2019, down from $2.0 million in the prior quarter and $1.6 million in the fourth quarter of 2018. The linked quarter decrease in the provision for loan and lease losses was primarily due to continued strength in overall portfolio quality and $488 thousand of provision taken in the third quarter related to an RB&T nonperforming loan held for sale. As of December 31, 2019, the Company's allowance to total loans and leases was 0.98%, which was down from 1.00% at September 30, 2019 and down from 1.07% at December 31, 2018.

In accordance with generally accepted accounting principles for acquisition accounting, the loans acquired through past acquisitions were recorded at market value; therefore, there was no allowance associated with the acquired loans at the acquisition date. Management continues to evaluate the allowance needed on the acquired loans factoring in the net remaining discount ($7.0 million at December 31, 2019).

Strong Capital Levels

As of December 31, 2019, the Company's total risk-based capital ratio was 13.48%, the common equity tier 1 ratio was 10.29%, and the tangible common equity to tangible assets ratio was 9.25%. By comparison, these respective ratios were 12.22%, 9.12% and 8.20% as of September 30, 2019.

Continued Focus on Seven Key Initiatives

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

• Strong organic loan and lease growth in order to maintain loans and leases to total assets ratio in the range of 73% - 78%
• Grow core deposits to maintain reliance on wholesale funding at less than 15% of assets
• Generate gains on sale of government guaranteed loans, and fee income on interest rate 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 industry to further boost return on average assets, improve efficiency ratio, and increase EPS

Conference Call Details

The Company will host an earnings call/webcast tomorrow, January 23, 2020, 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 February 6, 2020. The replay access information is 877-344-7529 (international 412-317-0088); access code 10137973. 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 Lease Funds, LLC, based in Milwaukee, Wisconsin, and also provides correspondent banking services. The Company has 25 locations in Illinois, Iowa, Wisconsin and Missouri. As of December 31, 2019, the Company had approximately $4.9 billion in assets, $3.7 billion in loans and $3.9 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 the impact of tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations); (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, which may include failure to realize the anticipated benefits of acquisitions and the possibility that 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.

Contacts:

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

Christopher J. Lindell
Executive Vice President
Corporate Communications
(319) 743-7006
clindell@qcrh.com