U.S. Markets open in 1 hr 49 mins

Edited Transcript of QCRH earnings conference call or presentation 21-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 QCR Holdings Inc Earnings Call

Moline Apr 22, 2017 (Thomson StreetEvents) -- Edited Transcript of QCR Holdings Inc earnings conference call or presentation Friday, April 21, 2017 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Doug Hultquist

QCR Holdings, Inc. - President and CEO

* Todd Gipple

QCR Holdings, Inc. - EVP, COO, and CFO

================================================================================

Conference Call Participants

================================================================================

* Jeff Rulis

D.A. Davidson & Co. - Analyst

* Erik Zwick

Stephens Inc. - Analyst

* Damon DelMonte

Keefe, Bruyette & Woods, Inc. - Analyst

* Nathan Race

Piper Jaffray & Co. - Analyst

* Brian Martin

FIG Partners, LLC - Analyst

* Daniel Cardenas

Raymond James & Associates, Inc. - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greetings and welcome to the QCR Holdings, Inc. first-quarter 2017 conference call. Yesterday after market close, QCR distributed its first-quarter press release and we hope that you have had the opportunity to review the results. If there is anyone on the call who has not received a copy, you may access it at the Company's website, www.qcrh.com.

With us today from management are Doug Hultquist, President and CEO, and Todd Gipple, Executive Vice President, COO, and CFO. Management will provide a brief summary of the quarter and then we will open up the call to questions from analysts.

Before we begin the call, I would like to remind everyone that some of the information management will be providing today falls under the guidelines of forward-looking statements as defined by the Securities and Exchange Commission. As part of these guidelines, I must point out that any statements made during this call concerning the Company's hopes, beliefs, expectations, and predictions of the future are forward-looking statements, and actual results could differ materially from those projected.

Additional information on these factors is included from time to time in the Company's 10-K and 10-Q filings, which may be obtained on the Company's website or the SEC's website. As a reminder, this conference is being recorded and will be accessible on the Company's website until May 5, 2017.

At this time, I will now turn over the call to Mr. Doug Hultquist at QCR.

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [2]

--------------------------------------------------------------------------------

Good morning, everyone. Thank you for joining us today, and I would like to welcome you to our quarterly earnings call for the quarter ended March 31, 2017, which is our Company's first quarterly earnings call.

For the next few minutes, I will recap some of the highlights for the first quarter and then will turn the call over to our Chief Operating Officer and Chief Financial Officer, Todd Gipple, who will provide some additional color on our financial results.

I am very pleased to begin this morning's call with news that we completed our most profitable quarter in the history of our Company, with earnings of $9.2 million and diluted earnings per share of $0.68. Our operating performance was quite strong, as this represents an 8% increase in net income on a linked-quarter basis from Q4 of 2016 and a 44% increase in net income from the same quarter one year ago.

We continue to make solid progress in further improving our return on average assets performance, as our ROAA was 1.12% this quarter compared to 1.04% in the prior quarter, and 0.98% in the same quarter one year ago. These improved results from the prior year were driven by strong organic loan growth, robust growth in core deposits and a corresponding reduction in our reliance on wholesale funding, significant margin improvements, strong fee income, and modest operating expense growth.

We of course added Community State Bank Ankeny to our Company in August of last year, which also contributed significantly to our improved financial results the past two quarters. We are very pleased to enter the Des Moines metro market with CSB and believe that that market provides a great opportunity for strong growth and financial performance.

Before I ask Todd to provide some additional comments on our financial results, I did want to comment on our loan growth for the quarter. For the past three years, we have been successful in growing loans and leases in a range of 10% to 12% annually. That is a solid rate of organic loan and lease growth for us, as a significant portion of that loan growth has come in the form of market share gains as we attract clients to our relationship-based community banking model.

While we got off to a bit of a slow start in Q1 this year at a 5% growth rate, we still aim to achieve our targeted organic growth of 10% to 12% for the full year. We are seeing strong pipelines in each of our bank charters and our leasing company, and believe that we will see stronger loan growth the remainder of the year.

Our long-term focus is on continued improvements in return on average assets, and our strategic goals and related strategic initiatives are focused on achieving ROAA results in the upper quartile of our peer group. We believe that we again made good progress on this strategic goal in Q1 with an ROAA of 1.12%.

Now I will turn it over to Todd for more detail on our financial results for the quarter.

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [3]

--------------------------------------------------------------------------------

Thanks, Doug. Good morning, everyone. Thanks again for joining us on the call today. Our first-quarter results benefited from strong fee income, as gains on the sales of government guaranteed loans and swap fee income combined was more than $1 million. And wealth management fee income was off to a strong start at more than $2.7 million for the quarter, which was up around 11% from the prior quarter.

Noninterest expenses were well controlled and actually down from the prior quarter, both in total and across several categories. In addition, income tax expense was reduced this quarter with the adoption of a new accounting pronouncement that reflects the tax benefit of stock options exercised and the vesting of restricted stock awards as reduction of current-period tax expense rather than treating that benefit as a direct increase to equity.

In Q1, this reduced tax expense by $533,000. This was a significant amount in Q1 due to the volume of stock options exercised and RSAs that normally vest in the first quarter each year, as they would've been initially granted under our performance-based equity incentive plans in prior years. The strong performance of our stock further magnified this tax benefit in Q1.

Provision expense was reduced this quarter as well due to continued strong asset quality and the more modest loan growth that Doug mentioned previously. Partially offsetting these results was a reduction in net interest income in Q1 versus the prior quarter.

Our net interest income was actually flat on a linked-quarter basis when you consider the impact of 2 fewer days in Q1, which resulted in a $615,000 reduction, and that the positive impact of loan discount and FHLB accretion declined by slightly more than $1 million in Q1 versus Q4. Combined, these 2 items accounted for the entire $1.6 million reduction in net interest income when comparing Q1 to the previous quarter.

NIM percentage was reduced on a reported basis by 12 basis points from 4.02% in Q4 to 3.90% in Q1 of 2017. However, the entire reduction in reported NIM was due to the impact of reduced acquisition accounting accretion in Q1 versus the prior quarter. Net interest margin excluding this impact of acquisition accounting accretion was stable at 3.65% for the first quarter of 2017 compared to 3.64% for the fourth quarter of 2016.

First-quarter net income of $9.2 million represents a further improvement in core ROAA to 1.12% for the quarter, and an efficiency ratio of 60.86%, which we consider to be continued good progress on our goal of achieving upper-quartile ROAA. Earnings per share for the first quarter was $0.68 and a solid start to 2017.

As we look to the remainder of the year, we will continue to focus on our seven key initiatives, which we have highlighted in our filings.: continue strong organic loan and lease growth to maintain loans and leases to total assets ratio in a range of 70% to 75%; continue our 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; and finally, participate as an acquirer in the consolidation taking place in our markets to further boost ROAA, improve efficiency ratio, and increase earnings per share.

Strong progress on these seven initiatives the past two years has resulted in significant improvement in our financial performance and the achievement of peer levels of ROAA. We will need to continue to execute on each of these initiatives to achieve our goal of upper-quartile peer performance.

Now I'll turn it back to Doug to wrap up.

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [4]

--------------------------------------------------------------------------------

Thanks, Todd. Again, we are pleased with our first-quarter results and hope that our comments have provided a bit more insight into the numbers.

We can now open the phone lines for questions, and we would also appreciate your input on the content of this earnings call.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Jeff Rulis, D.A. Davidson.

--------------------------------------------------------------------------------

Jeff Rulis, D.A. Davidson & Co. - Analyst [2]

--------------------------------------------------------------------------------

Thanks. Good morning, guys. I guess first question on maybe on the expense line. Have you achieved all cost savings from the CSB acquisition? And if you have, I guess just a comment on is this a good noninterest expense base to go off going forward?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [3]

--------------------------------------------------------------------------------

We have achieved all the cost savings we anticipated, with the exception of the fact that we have not converted the core operating system yet. I think we talked about that in some of our prior filings, and that won't happen for some time. So we would expect a bit of an additional benefit in run rate on cost at CSB once that occurs.

But all the other cost saves are fully implemented. If you want to talk a little bit more about salary and employee benefits, that's obviously the biggest component, and we saw a nice drop there in Q1. We actually are down 11 FTEs from Q4. So just wanted to give you a little color on that number.

--------------------------------------------------------------------------------

Jeff Rulis, D.A. Davidson & Co. - Analyst [4]

--------------------------------------------------------------------------------

Okay, great. And then a bit on deposit growth, very strong, but noticed the cost of deposits also increased. Is this -- maybe just kind of talk about the strategy and what you'd expect. Is that part of the process is that you might see a bump in cost deposits as you continue to grow deposits?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [5]

--------------------------------------------------------------------------------

Sure, Jeff. We were thrilled with the amount of deposit growth we saw. We really view that as franchise value and are very focused on continuing to grow core deposits. As you know, it's really led to a significant improvement in margin for us, as we've reduced our reliance on wholesale as a result.

We have, of the $3 million -- I'm sorry, $3 billion in funding, we have about $500 million that we would really consider fairly rate-sensitive. So about $500 million of that funding. And we actually saw about a 15-basis-point increase in the cost on those funds. That's really what's driving the increased cost of funds on the entire funding portfolio.

We feel like that 15 basis points on the 25-basis-point move by the Fed in December is actually a pretty good result for us. Those are fairly rate-sensitive. Of course, we continue to have fairly robust non-interest-bearing DDAs that offset some of that pressure. But continued success with holding onto low betas on the most significant rate-sensitive funds, those $500 million is really the key for us. And so far, we've had good success with that.

--------------------------------------------------------------------------------

Jeff Rulis, D.A. Davidson & Co. - Analyst [6]

--------------------------------------------------------------------------------

Okay. And overall market dynamics, pressure per deposits, do you get the sense that competitors' deposit rates are -- is it aggressive or how would you characterize the competitive landscape on deposits?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [7]

--------------------------------------------------------------------------------

Great question, Jeff. With the exception of the credit unions, the banks have not been too competitive in terms of deposit rates or really seeking funds. Fairly liquid balance sheets in our markets right now. So not seeing a tremendous amount of pressure really in our marketplace. But paying close attention to that.

--------------------------------------------------------------------------------

Jeff Rulis, D.A. Davidson & Co. - Analyst [8]

--------------------------------------------------------------------------------

Okay. And maybe one last one, Todd. Would you anticipate the tax rate kind of heading back up to reverting to kind of historical levels in the remaining three quarters of the year?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [9]

--------------------------------------------------------------------------------

Yes. We certainly would, Jeff. Without the one-time benefit of the accounting change, it would've been 25.25%. And that would be a more normalized tax rate for us that we would expect for the rest of the year.

--------------------------------------------------------------------------------

Jeff Rulis, D.A. Davidson & Co. - Analyst [10]

--------------------------------------------------------------------------------

Great. Thanks, and I thought -- thanks for hosting the call. I thought the introductory comments were concise, and I appreciate the effort. So thanks.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Erik Zwick, Stephens Inc.

--------------------------------------------------------------------------------

Erik Zwick, Stephens Inc. - Analyst [12]

--------------------------------------------------------------------------------

Good morning, guys. Maybe first, just starting with your comments about loan growth and your expectations and ability to kind of achieve that 10% to 12% target, you obviously commented on the strength of the pipelines heading into the second quarter.

But maybe from looking at it from are there any particular markets or loan types? Do you think would be balanced across CRE and commercial and industrial, or what gives you kind of the optimism to achieve that goal?

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [13]

--------------------------------------------------------------------------------

We think it will be pretty balanced and broad-based. Certainly in the Des Moines MSA, it will be a little more concentrated on real estate. And obviously, we knew that going in and that market continues to grow much faster than what we see in the rest of the upper Midwest.

But across the commercial banking loan operations in each of our charters and our leasing company, we are seeing pretty diversified growth. We think in early 2017, there was some hesitation after the initial optimism after the election. I think some folks decided to wait and see a little bit if all of these proposed changes were really going to happen, and held back on capital spending in Q1.

--------------------------------------------------------------------------------

Erik Zwick, Stephens Inc. - Analyst [14]

--------------------------------------------------------------------------------

All right. And then I guess how are you thinking about the opportunity to expand the swap fee and sale of government guaranteed loan businesses into the Des Moines market? I guess how long do you think that ramp will take and what is the potential impact to fees?

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [15]

--------------------------------------------------------------------------------

Good question. They are not as C&I-based as we are. It's a very financial-oriented market with insurance and banking, and obviously state government and so forth.

But I think given our look at those pipelines, we expect USDA and SBA to rebound in the final three quarters compared to Q1. We are a little surprised at the slowness in swap income. Because we think given what's going on after the election that now is the time for our commercial clients to be locking in fixed rates. But as I mentioned earlier, as it relates to capital spending, they are just kind of putting things on pause until there's some more certainty.

--------------------------------------------------------------------------------

Erik Zwick, Stephens Inc. - Analyst [16]

--------------------------------------------------------------------------------

That's helpful. And have you set any targets for how much you think that market could contribute going forward? Or tough to tell at this point?

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [17]

--------------------------------------------------------------------------------

Yes, probably a little tough to tell, Erik, quite yet.

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [18]

--------------------------------------------------------------------------------

We are seeing some of those opportunities on the pipeline there in Des Moines now, which is a great sign. And I think we'll start having some success there.

To further Doug's comment on swaps, the bouncing around of the 10-year has slowed that down a bit. There's just a little more uncertainty there than there was during most of 2016, and so we see that perhaps starting to pick back up. But of course, it's really going to be somewhat dependent on the yield curve and what happens with that 10-year.

--------------------------------------------------------------------------------

Erik Zwick, Stephens Inc. - Analyst [19]

--------------------------------------------------------------------------------

Maybe just one more quick one and then I'll jump back into queue if my questions aren't answered. With regard to the sale of CSB's insurance business at the end of last year, did you sell 100% of your interest? And if not, what is the expected kind of annual impact to fees and expenses?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [20]

--------------------------------------------------------------------------------

Great question. We actually have a joint venture arrangement where we retain 25% ownership of that business. Candidly, we expect that 25% ownership to really provide much the same bottom-line impact that the 100% ownership used to provide based on the strength of our partner. We are very pleased with that arrangement, and really don't see any material impact on CSB's bottom line as a result.

--------------------------------------------------------------------------------

Erik Zwick, Stephens Inc. - Analyst [21]

--------------------------------------------------------------------------------

Great. Thanks for taking my questions.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Damon DelMonte, KBW.

--------------------------------------------------------------------------------

Damon DelMonte, Keefe, Bruyette & Woods, Inc. - Analyst [23]

--------------------------------------------------------------------------------

My first question, probably directed more towards Todd with regards to the margin. I think the accretable yield this quarter was $1.9 million. Is that correct?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [24]

--------------------------------------------------------------------------------

Yes, in total, both accelerated and scheduled.

--------------------------------------------------------------------------------

Damon DelMonte, Keefe, Bruyette & Woods, Inc. - Analyst [25]

--------------------------------------------------------------------------------

Okay. And as we look forward, what are you projecting for a scheduled level of accretable yield?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [26]

--------------------------------------------------------------------------------

We are really at about a 250 to 275 per month run rate now. We've got about $8 million of the initial $13 million remaining, and so we are at about that 250 to 275 range per month. And that would be scheduled accretion.

--------------------------------------------------------------------------------

Damon DelMonte, Keefe, Bruyette & Woods, Inc. - Analyst [27]

--------------------------------------------------------------------------------

Got you, okay. And then with respect to the core margin, it was good to see that hold steady this quarter. As you look at some of the pricing pressures with that, those sensitive deposits, and you look at the new loan originations, how do you see the core margin trending in the upcoming quarters, especially in light of the most recent rate increase we had in March, and potentially a couple more as we progress through 2017?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [28]

--------------------------------------------------------------------------------

Sure. We were pleased with the core margin here in Q1, considering the loan growth coming in at about 5% versus 10% annualized. So the biggest benefit for us going forward potentially on margin would be seeing that loan growth ramp back up, as Doug mentioned previously. Absent that, we are really just blocking and tackling every day. We have a very significant focus on ALM at each of the charters.

And really the thing that perhaps is holding us back is something that I think most of our peers are seeing, and that is we are really seeing no beta at all on new loan pricing with three-year and five-year deals. We are just seeing no movement in those yields.

If we could get a little bit of that across the industry, that would help. But right now, our expectation wouldn't be changed in terms of margin. Just really trying to increase that a basis point or two going forward.

--------------------------------------------------------------------------------

Damon DelMonte, Keefe, Bruyette & Woods, Inc. - Analyst [29]

--------------------------------------------------------------------------------

Okay. All right, that's helpful. And then I guess if you look at the trust department fees and investment advisory management fees, the bozos came in pretty positive this quarter. Is there anything that's kind of seasonally related in the first quarter or do you think this is a good run rate for these two categories going forward?

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [30]

--------------------------------------------------------------------------------

Interestingly, Damon, last year it was a slow first quarter. And we got off to a really slow start. But a lot of new clients. The stock market has helped, obviously. And we've just really put a lot of focus on getting that back on track because that's a very important business for us. We obviously like the fee income without requiring additional capital under our own balance sheet.

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [31]

--------------------------------------------------------------------------------

I think it's fair to say it was very strong quarter in terms of new assets under management: close to $82 million. Maybe one of the other changes is our disbursements, our payouts on those, are down a fair amount in the first quarter.

And then, of course, as Doug mentioned, the market appreciation helped us a fair amount on fees. So we feel really good about that; off to a very good start in wealth management. And clearly, it's one of our seven initiatives. It's one of our core strengths. And it was perhaps the one thing we might have underperformed on last year. But put a big focus on it and that team is doing great job.

--------------------------------------------------------------------------------

Damon DelMonte, Keefe, Bruyette & Woods, Inc. - Analyst [32]

--------------------------------------------------------------------------------

Great. And then with respect to credit, pretty stable trends quarter over quarter. Just a very minor uptick in nonperforming loans, but overall I think pretty healthy quarter.

How do you look at the provision expense going forward? Do you think something in the low $2 million range per quarter is reasonable, especially in light of acquired loans that might be renewing or new loans from the new markets coming onboard?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [33]

--------------------------------------------------------------------------------

We really don't see any big movement in terms of provision, certainly absent any asset quality issues. Our asset quality right now is very solid.

As you already articulated, NPAs are very static for us right now. They are really concentrated in a few large deals and we are working really hard to take some of those large deals out of NPAs. But I think that's a fair comment in terms of going-forward provision.

--------------------------------------------------------------------------------

Damon DelMonte, Keefe, Bruyette & Woods, Inc. - Analyst [34]

--------------------------------------------------------------------------------

Great. And then just my final question. Doug, maybe you could update us on your M&A thoughts. I know there's a very fragmented market that you guys are operating in. There's a lot of smaller community banks which may look to partner up with a larger institution.

Just kind of wondering how the discussions, if any, have been going recently. And if you think a potential acquisition is in the near future for you guys?

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [35]

--------------------------------------------------------------------------------

Yes. As you well know, we don't give much forward-looking information in that regard. And one thing that we are particularly sensitive to is we have a group of almost 200 downstream correspondent banks throughout Iowa, Illinois, and Wisconsin.

And so we have to be somewhat sensitive about competing with them. And quite honestly, we are only interested in going into the bigger markets in the upper Midwest. And I would say that's at least 100,000 population or more.

But certainly we are willing to engage with folks and listen to what their succession plans are and that type of thing. And our first choice is always organic growth. Second would be end market, and then third would be a market expansion, like we did with CSB last year.

--------------------------------------------------------------------------------

Damon DelMonte, Keefe, Bruyette & Woods, Inc. - Analyst [36]

--------------------------------------------------------------------------------

That's great, that's helpful. Thanks. I thought the call was very useful. It provided some good concise and detailed comments on the quarter, so very helpful. Thanks a lot.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

Nathan Race, Piper Jaffray.

--------------------------------------------------------------------------------

Nathan Race, Piper Jaffray & Co. - Analyst [38]

--------------------------------------------------------------------------------

Just a question on the hires that you made late in 2016. Just curious how much of an impact those individuals had on the deposit growth, on the trust fee income growth that you guys generated here in the first quarter?

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [39]

--------------------------------------------------------------------------------

There's really some momentum in the Des Moines market with the additions we made over there, with a couple of very experienced folks. So quite honestly, Nathan, I'd say so far they are slightly exceeding our expectations.

--------------------------------------------------------------------------------

Nathan Race, Piper Jaffray & Co. - Analyst [40]

--------------------------------------------------------------------------------

That's great. And then can you speak to what the pipeline looks like for additional hires? And kind of what your appetite is to add additional folks across the commercial team within your footprint going forward?

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [41]

--------------------------------------------------------------------------------

Always looking for talented commercial people. And they are becoming harder and harder to find because they are very sought after.

But we, as you mentioned, made some hires in Des Moines. We just recently made a hire in Cedar Rapids in a significant commercial lending position. So I think we've got a strong group already, but we are always looking for talented folks that have that skill set.

--------------------------------------------------------------------------------

Nathan Race, Piper Jaffray & Co. - Analyst [42]

--------------------------------------------------------------------------------

Got it. And then just changing gears a little bit, the leasing business was a little disappointing, I think, to some extent in 2016. It obviously got off to another slow start here in the first quarter. Can you kind of update us on your expectations for that segment as we go through the year?

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [43]

--------------------------------------------------------------------------------

You bet. And it was pretty much a slow 2016 for the entire leasing industry. And we just had our spring Board meeting last week, as a matter of fact, and talked about year to date. And it's picking up here in March and April a little bit.

But we are also finding more financial institutions getting into the leasing business. So it's becoming more competitive. I'm proud of our folks; they've held rate in terms of what we are yielding on those leases.

We are also always looking for talented producers that have particular expertise in some segments. Those folks are getting harder to find as well because a lot of folks are chasing them down.

--------------------------------------------------------------------------------

Nathan Race, Piper Jaffray & Co. - Analyst [44]

--------------------------------------------------------------------------------

Understood. I appreciate all the color, guys, and thanks for holding the call. I thought it was very helpful.

--------------------------------------------------------------------------------

Operator [45]

--------------------------------------------------------------------------------

(Operator Instructions) Brian Martin, FIG Partners.

--------------------------------------------------------------------------------

Brian Martin, FIG Partners, LLC - Analyst [46]

--------------------------------------------------------------------------------

Sorry, I just joined here a couple minutes ago, so I may have missed what you guys talked about earlier. I'll catch up later. But just wanted to touch base on -- and maybe you commented on it, but just on M&A and just kind of the temperature.

I guess maybe if you can talk about kind of what you are hearing on pricing out there as you kind of look at opportunities. And I think you guys have kind of said you are definitely open to that and looking at it.

Just kind of wondering if anything's changed over the last maybe six months -- three to six months as far as the opportunities that you are seeing. And just kind of with the pricing being up on a handful of deals that have gotten announced this year, just kind of what the temperature of the potential targets are out there and how that's coming along.

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [47]

--------------------------------------------------------------------------------

Sure, Brian. Yes, Doug did give a little bit of an update on that just before you joined. But really to summarize that a bit, we continue to look for organic growth first, and then looking at fill-in deals in our existing markets. And that now would include the Des Moines metro; we would like to be larger there. And then some new markets that we have in mind.

With respect to pricing, it certainly increased here over the last couple of quarters. We know we set the bar pretty high in terms of the execution we had on the CSB Ankeny deal. That was a very good deal for us. And we are very happy about that, and pricing has run up since then.

We are going to hold very tight to our financial metrics in terms of future M&A. We expect strong EPS accretion, very modest TBV dilution. And realistically, we've added to those metrics that we expect any deal to be accretive to ROAA as soon as the cost saves are implemented.

We really need to continue to have M&A help us with our efforts on improving ROA. And it's probably rather obvious, but we want to make sure that's clear.

In terms of flow, fair amount of opportunities. And yet, holding onto our financial metrics will funnel those a bit and narrow the field. We really don't have anything imminent at this point, but would continue to look to that as one of our key strategies.

--------------------------------------------------------------------------------

Brian Martin, FIG Partners, LLC - Analyst [48]

--------------------------------------------------------------------------------

Okay. And the optimal size that you guys would say would be -- I guess is there a minimum size? Or just kind of how large would you go on a transaction?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [49]

--------------------------------------------------------------------------------

Fairly large would be available, and certainly larger deals are more efficient in terms of all the work that goes into them. With the end market fill-in deals, of course, Brian, those are going to be smaller. And that's okay, because those could be done a little more efficiently and still add to franchise value quite quickly.

So we'd be open to some smaller deals in existing markets. For new markets, we'd probably scope that out at closer to $1 billion in size. We would expect those to be at least the size of CSB at $600 million. But we don't want to go into a new market and not have some scale.

--------------------------------------------------------------------------------

Brian Martin, FIG Partners, LLC - Analyst [50]

--------------------------------------------------------------------------------

Okay, fair enough. And just kind of as you guys look to the organic and the external growth this year, I guess is there optimism regarding one of them more than the other at this point in time? Or it's fairly even as you look at it?

It sounds like there's a lot of opportunities out there. And I guess from the organic side, I guess you are equally as optimistic, is that the way you would characterize it today?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [51]

--------------------------------------------------------------------------------

Yes, Brian. Doug started the call talking about organic loan growth, and that our current expectation is still to be in that annualized 10% to 12% for the full year. Early on, we are a bit slow for that growth, but we are still very optimistic about organic growth.

And that's really our main focus. The M&A opportunities will of course be a little more sporadic. So we can just continue to focus on organic growth leading the charge there.

--------------------------------------------------------------------------------

Brian Martin, FIG Partners, LLC - Analyst [52]

--------------------------------------------------------------------------------

Okay. That's helpful. I appreciate it, guys. Thanks.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

Daniel Cardenas, Raymond James.

--------------------------------------------------------------------------------

Daniel Cardenas, Raymond James & Associates, Inc. - Analyst [54]

--------------------------------------------------------------------------------

Good morning, guys. A couple quick questions. Just going back to the loan growth we saw this quarter, could you maybe give us a little bit of color as to what impact, if any, paydowns and payoffs had on the balances in Q1?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [55]

--------------------------------------------------------------------------------

Sure. We did have some paydowns and some payoffs that netted us down to that 5% growth rate. Nothing troubling in terms of losing clients to competitors, but certainly some paydowns netted us down to that 5%. Don't think that that's really specific to any of our four charters, but we did experience some of that in Q1.

--------------------------------------------------------------------------------

Daniel Cardenas, Raymond James & Associates, Inc. - Analyst [56]

--------------------------------------------------------------------------------

Okay. And then as -- maybe give some color as to how the loan growth unfolded during the quarter. Was it pretty much even throughout January, February, March, or was it more back-end loaded or front-end loaded?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [57]

--------------------------------------------------------------------------------

It was back-end loaded. We got off to a slow start first of the year, and saw a lot better results towards the end of the quarter. So it was back-end loaded, which, as you know, bodes well for future quarters.

--------------------------------------------------------------------------------

Daniel Cardenas, Raymond James & Associates, Inc. - Analyst [58]

--------------------------------------------------------------------------------

Right. And then maybe you said your pipelines look good, but would you consider them to be maybe more robust coming into Q2 versus the end of the year?

--------------------------------------------------------------------------------

Todd Gipple, QCR Holdings, Inc. - EVP, COO, and CFO [59]

--------------------------------------------------------------------------------

For sure. Yes.

--------------------------------------------------------------------------------

Daniel Cardenas, Raymond James & Associates, Inc. - Analyst [60]

--------------------------------------------------------------------------------

Okay. And then quickly just jumping over to the SBA, what does that pipeline look like right now? And maybe some color as to where the premiums are at currently?

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [61]

--------------------------------------------------------------------------------

That pipeline has improved as well, Dan, and premiums have come off slightly, maybe 10% overall. It's not real consistent, but that seems to be picking up here. And I think both on the SBA and USDA side, we are pretty optimistic for the next three quarters.

--------------------------------------------------------------------------------

Daniel Cardenas, Raymond James & Associates, Inc. - Analyst [62]

--------------------------------------------------------------------------------

Great. Appreciate the call, guys. Thank you.

--------------------------------------------------------------------------------

Operator [63]

--------------------------------------------------------------------------------

This concludes our question-and-answer session. I would now like to turn the conference back over to Doug Hultquist for any closing remarks.

--------------------------------------------------------------------------------

Doug Hultquist, QCR Holdings, Inc. - President and CEO [64]

--------------------------------------------------------------------------------

Thanks very much, and appreciate all of you listening into our very first call. Appreciate the comments you've made this morning and the good questions that you have asked.

If you would like any more color, feel free to line up a call, and we'd also certainly solicit any more input you've got in terms of suggestions on content of these earnings calls. But this has been suggested to us for quite a while, and it does seem to be an efficient way to get the message across. So thanks for taking time out of your busy schedules to join us this morning.

--------------------------------------------------------------------------------

Operator [65]

--------------------------------------------------------------------------------

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.