EPS of $0.86 Driven by Record Pre-Provision/Pre-Tax Adjusted Net Income
Second Quarter 2020 Highlights
- Net income of $13.7 million, or $0.86 per diluted share
- Adjusted net income (non-GAAP) of $14.0 million, or $0.88 per diluted share
- Noninterest income of $28.6 million
- Net interest margin was stable, excluding the impact of excess liquidity
- Record pre-provision, pre-tax adjusted net income (non-GAAP) of $36.8 million
- Pre-provision, pre-tax adjusted ROAA (non-GAAP) of 2.54%
- Provision expense of $19.9 million for the quarter, increasing ALLL by 33 bps to 1.47%
- Nonperforming assets to total assets of 0.24%, improving 8 basis points from the prior quarter
- Annualized core loan and lease growth (non-GAAP) of 8.4% for the quarter, excluding SBA Paycheck Protection Program (PPP) loans
- Annualized deposit growth of 17.2% for the quarter
- PPP loan participation of 1,655 totaling $358 million to both new and existing clients
MOLINE, Ill., July 27, 2020 (GLOBE NEWSWIRE) -- QCR Holdings, Inc. (NASDAQ: QCRH) (the Company) today announced net income of $13.7 million and diluted earnings per share (EPS) of $0.86 for the second quarter of 2020, compared to net income of $11.2 million and diluted EPS of $0.70 for the first quarter of 2020. Pre-provision, pre-tax adjusted net income (non-GAAP) increased $14.0 million in the second quarter, compared to the first quarter led by strong loan growth, net interest income, and record swap fee income. Provision expense increased $11.5 million in the second quarter, compared to the first quarter. This increase was due primarily to qualitative factors in response to deteriorating economic prospects as a result of the COVID-19 pandemic.
The Company reported adjusted net income (non-GAAP) of $14.0 million and adjusted diluted EPS (non-GAAP) of $0.88 for the second quarter of 2020, compared to adjusted net income (non-GAAP) of $12.4 million and adjusted diluted EPS (non-GAAP) of $0.77 for the first quarter of 2020. For the second quarter of 2019, net income and diluted EPS were $13.5 million and $0.85, respectively, and adjusted net income (non-GAAP) and adjusted diluted EPS (non-GAAP) were $14.1 million and $0.88, respectively.
|For the Quarter Ended|
|June 30,||March 31,||June 30,|
|$ in millions (except per share data)||2020||2020||2019|
|Adjusted Net Income (non-GAAP)||$||14.0||$||12.4||$||14.1|
|Adjusted Diluted EPS (non-GAAP)||$||0.88||$||0.77||$||0.88|
|Pre-Provision/Pre-Tax Adjusted Income (non-GAAP)||$||36.8||$||22.8||$||19.3|
|Pre-Provision/Pre-Tax Adjusted ROAA (non-GAAP)||2.54||%||1.84||%||1.52||%|
|See GAAP to non-GAAP reconciliations|
We are very pleased with our core operating performance for the second quarter, commented Larry J. Helling, Chief Executive Officer. We delivered record pre-provision, pre-tax adjusted net income, driven by strong loan growth, strong fee income, and careful management of noninterest expenses. In addition to successfully funding over $350 million of PPP loans to both new and existing customers, we grew our core loans by over 8% on an annualized basis. Our core deposit gathering was even stronger during the quarter with the outsized growth in deposits creating significant excess liquidity that led to compression in our net interest margin.
Additionally, asset quality remains strong and our current credit metrics improved during the quarter. We reduced nonperforming assets by 21%, through the sale of an OREO property, Helling said. While we do not currently see meaningful degradation of specific credits in our portfolio, we chose to be prudent and increased our provision for loan losses during the quarter in order to build reserves against future potential credit issues related to COVID-19.
QCRH continues to successfully navigate the challenges presented by the COVID-19 pandemic, including supporting impacted clients through the QCRH Loan Relief Program, enabling clients to defer payments and preserve cash and liquidity. Its difficult to predict the ultimate impact that this Pandemic will have on our clients. However, we believe our banks are well positioned to deal with the Pandemic, Helling said. All of our employees are dedicated to helping our clients weather this storm, and we have seasoned credit teams at all charters experienced in dealing with significant economic downturns.
Annualized Loan and Lease Growth of 8.4%, excluding PPP loans (non-GAAP)
During the second quarter of 2020, the Companys total loans and leases increased by $435.6 million to a total of $4.1 billion. Included in this amount was $358.1 million of PPP loans made to both new and existing customers. Excluding the PPP loans, loan and lease growth during the quarter was 8.4% on an annualized basis (non-GAAP), reflecting healthy demand across all markets. Core deposits (excluding brokered deposits) increased $338.6 million, or 8.7% on a linked quarter basis. Brokered deposits declined by $159.3 million as the Company allowed certain higher cost brokered deposits to run off the balance sheet. Throughout the quarter, deposits grew significantly with average deposit growth of $777.9 million, or 19.7% for the quarter. The Companys correspondent banking portfolio contributed to the majority of this outsized growth as our correspondent bank clients grew liquidity with deposit growth significantly outpacing loans. These outsized liquidity balances temporarily shifted off balance sheet at quarter-end. The percentage of wholesale funds to total assets was 8.9% as of the second quarter, which was down from 10.1% in the first quarter of 2020 as the Companys need for wholesale funding declined due to the strong growth in core deposits. At quarter-end, the percentage of gross loans and leases to total assets was 73.9%, which was up from 70.8% in the first quarter, primarily driven by the increase in PPP loan balances.
Despite the uncertainty caused by the COVID-19 pandemic, we delivered solid loan growth for the quarter in addition to the $358 million of PPP loans that we funded, added Helling. Loan production improved in both our core commercial lending business and our Specialty Finance Group. Excluding our PPP loan production, loan and lease growth for the first six months of 2020 has been 5.0% on an annualized basis, and given our current pipeline, we believe that we will be able to achieve organic loan growth of between 3% and 5% for the full year.
Net Interest Income of $40.9 million
Net interest income for the second quarter of 2020 totaled $40.9 million, compared to $37.7 million for the first quarter of 2020 and $38.0 million for the second quarter of 2019. The increase was primarily due to growth in average interest earning assets of $791.6 million, or 17.7% on a linked quarter basis, of which $404.9 million of the increase was due to excess cash derived from the aforementioned outsized deposit growth. Partially offsetting the impact of the higher average balance of interest earning assets, was a lower reported net interest margin, due to the significant excess liquidity. Acquisition-related net accretion totaled $736 thousand (pre-tax) for the second quarter of 2020, up slightly from the first quarter of 2020 and down from $1.1 million for the second quarter of 2019. Adjusted net interest income (non-GAAP) was $41.9 million for the second quarter of 2020, compared to $38.9 million for the first quarter of 2020 and $38.7 million for the second quarter of 2019.
In the second quarter, NIM was 3.14% and, on a tax-equivalent yield basis (non-GAAP), NIM was 3.27%, a decrease of 26 basis points and 29 basis points from the first quarter of 2020, respectively. Adjusted NIM (non-GAAP), excluding acquisition-related net accretion was 3.21%, down 29 basis points from the first quarter. The decline in adjusted NIM (non-GAAP) during the quarter was entirely due to the significant excess liquidity carried for the quarter. Average excess liquidity of $404.9 million with modest negative arbitrage contributed approximately 30 basis points to the NIM dilution. Excluding the impact of excess liquidity, the Companys NIM was stable as cost of funds declines offset pricing pressure on earning assets.
|For the Quarter Ended|
|June 30,||March 31,||June 30,|
|Adjusted NIM (TEY)(non-GAAP)||3.21||%||3.50||%||3.31||%|
| See GAAP to non-GAAP reconciliations |
Our deposit costs decreased significantly during the quarter as we gathered core deposits and reduced our wholesale funding, allowing us to reduce our total cost of interest-bearing funds by 53 basis points. However, our average loan yields also decreased due to the sharp decline in short-term interest rates, and when combined with the significant excess liquidity that we carried during the quarter, our adjusted NIM was adversely impacted by 29 basis points, stated Todd A. Gipple, President, Chief Operating Officer and Chief Financial Officer. Excluding the impact of the excess liquidity, adjusted NIM would have been stable from the first quarter.
Noninterest Income of $28.6 million
Noninterest income for the second quarter of 2020 totaled $28.6 million, compared to $15.2 million for the first quarter of 2020. The increase was primarily due to $19.9 million in swap fee income, up $13.1 million from the first quarter of 2020. Wealth management revenue was $3.6 million for the quarter, down from $4.0 million in the first quarter due to a full quarter of lower fair market values of the assets under management. Noninterest income increased 67.7% when compared to the second quarter of 2019.
Continued strong production from our Specialty Finance Group and our core banks led to a record $19.9 million in swap fee income during the quarter. Swap fee income totaled $26.7 million for the first six months of 2020, putting us on track to exceed last years record amount, added Mr. Gipple. Our current expectation is that for the remainder of 2020, this fee income source will be approximately $30 to $32 million for the six month period.
Noninterest Expenses of $33.1 million
Noninterest expense for the second quarter of 2020 totaled $33.1 million, compared to $31.4 million for the first quarter of 2020. The linked quarter increase was primarily due to increased salary and benefits expense of $2.8 million with increased bonus and commission expense in the quarter driven by the strong financial results and higher than anticipated swap fee income. This was partially offset by a $600 thousand decline in disposition costs, a $285 thousand decline in occupancy and equipment costs and a $345 thousand increase in gains and income from the operations of other real estate. In addition, the first quarter of 2020 included a goodwill impairment charge of $500 thousand.
NPAs at Historical Lows
Building Reserves for COVID-19
Nonperforming assets (NPAs) totaled $13.3 million, a decrease of $3.6 million from the first quarter of 2020. The decrease was primarily due to the disposition of other real estate owned. The ratio of NPAs to total assets decreased to 0.24% at June 30, 2020, compared to 0.32% at March 31, 2020, and down from 0.45% at June 30, 2019.
The Companys provision for loan and lease losses totaled $19.9 million for the second quarter of 2020, up from $8.4 million in the prior quarter. The linked quarter increase in the provision for loan and lease losses was primarily due to increased qualitative factors in response to the COVID-19 pandemic. As of June 30, 2020, the Companys allowance to total loans and leases was 1.47%, which was up from 1.14% at March 31, 2020, and from 1.05% at June 30, 2019. Excluding the impact of the $358 million in PPP loans, the allowance for estimated losses on loans and leases to total loans and leases was 1.61% (non-GAAP).
In accordance with GAAP for acquisition accounting, 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 of $5.5 million at June 30, 2020.
Strong Capital Levels
As of June 30, 2020, the Companys total risk-based capital ratio was 13.74%, the common equity tier 1 ratio was 10.28%, and the tangible common equity to tangible assets ratio was 8.48% (non-GAAP). By comparison, these respective ratios were 13.54%, 10.31% and 8.76% as of March 31, 2020. The decline in the tangible common equity to tangible assets ratio was primarily the result of asset growth associated with the increase in PPP loans during the quarter. Excluding the impact of the PPP loans, the tangible common equity to tangible assets ratio was 9.03% (non-GAAP).
Focus on Three Strategic Long-Term Initiatives
As part of the Companys 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.
It should be noted that these initiatives are long-term targets. Due to the impact of the COVID-19 pandemic, the Company may not be able to achieve these goals for the full year 2020.
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 Companys loan exposures and deferrals. Investors, analysts and other interested persons may find this presentation on the Securities and Exchange Commissions EDGAR filing system at www.sec.gov/edgar.shtml , or on the Companys website at www.qcrh.com .
Conference Call Details
The Company will host an earnings call/webcast tomorrow, July 28, 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 August 11, 2020. The replay access information is 877-344-7529 (international 412-317-0088); access code 10145663. A webcast of the teleconference can be accessed at the Companys 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.
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 June 30, 2020, the Company had approximately $5.6 billion in assets, $4.1 billion in loans and $4.3 billion in deposits. For additional information, please visit the Companys 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 Companys 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 2020 presidential election and 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, widespread disease or pandemics (including the COVID-19 pandemic in the United States), 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 (including the new current expected credit loss (CECL) impairment standards, that will change how the Company estimates credit losses when implemented); (iv) changes in state and federal laws, regulations and governmental policies concerning the Companys general business; (v) changes in interest rates and prepayment rates of the Companys 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; and (xi) unexpected outcomes of existing or new litigation involving the Company. 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 Companys financial results, is included in the Companys filings with the Securities and Exchange Commission.
Todd A. Gipple
Chief Operating Officer
Chief Financial Officer
Kim K. Garrett
Investor Relations Manager
|QCR Holdings, Inc.|
| Consolidated Financial Highlights |
| (Unaudited) |
|Held for Sale||Held for Sale||Held for Sale||Held for Sale|
|As of||As of||As of||As of||As of|
|June 30,||March 31,||December 31,||September 30,||June 30,||June 30,||March 31,||December 31,||September 30,|
|(dollars in thousands)|
|CONDENSED BALANCE SHEET|
|Cash and due from banks||$||88,577||$||169,827||$||76,254||$||91,671||$||87,919||$||-||$||-||$||-||$||11,031|
|Federal funds sold and interest-bearing deposits||142,900||206,708||157,691||197,263||205,497||-||-||-||2,415|
|Assets held for sale||10,765||10,758||11,966||465,547||-||-||-||-||-|
|Liabilities held for sale||1,588||3,130||5,003||470,530||-||-||-||-||-|
|Total stockholders' equity||556,020||539,139||535,351||519,743||504,300||-||-||-||-|
|Total liabilities and stockholders' equity||$||5,604,761||$||5,232,075||$||4,909,050||$||5,292,382||$||5,194,852||$||1,588||$||3,130||$||5,003||$||470,530|
|ANALYSIS OF LOAN PORTFOLIO|
|Commercial and industrial loans||$||1,850,110||$||1,484,979||$||1,507,825||$||1,469,978||$||1,548,657|
|Commercial real estate loans||1,869,162||1,783,086||1,736,396||1,687,922||1,837,473|
|Direct financing leases||79,105||83,324||87,869||92,307||101,180|
|Residential real estate loans||241,069||237,742||239,904||245,667||293,479|
|Installment and other consumer loans||99,150||106,728||109,352||106,540||120,947|
|Deferred loan/lease origination costs, net of fees||1,663||8,809||8,859||7,856||8,783|
|Less allowance for estimated losses on loans/leases||60,827||42,233||36,001||36,116||41,104|
|ANALYSIS OF SECURITIES PORTFOLIO|
|U.S. government sponsored agency securities||$||17,472||$||19,457||$||20,078||$||21,268||$||35,762|
|Residential mortgage-backed and related securities||145,672||122,853||120,587||123,880||159,228|
|Asset backed securities||39,797||28,499||16,887||10,957||-|
|ANALYSIS OF DEPOSITS|
|Noninterest-bearing demand deposits||$||1,177,482||$||829,782||$||777,224||$||782,232||$||795,951|
|Interest-bearing demand deposits||2,488,755||2,440,907||2,407,502||2,245,557||2,505,956|
|ANALYSIS OF BORROWINGS|
|Term FHLB advances||$||90,000||$||55,000||$||50,000||$||60,000||$||46,433|
|Overnight FHLB advances (1)||55,000||40,000||109,300||135,800||59,300|
|Other short-term borrowings||24,818||13,067||13,423||18,526||19,191|
|Junior subordinated debentures||37,916||37,877||37,838||37,797||37,755|
|(1) At the most recent quarter-end, the weighted-average rate of these overnight borrowings was 0.37%.|
|QCR Holdings, Inc.|
|Consolidated Financial Highlights|
| (Unaudited) |
|For the Quarter Ended|
|June 30,||March 31,||December 31,||September 30,||June 30,|
|(dollars in thousands, except per share data)|
|Net interest income||40,948||37,698||39,919||40,719||38,013|
|Provision for loan/lease losses||19,915||8,367||979||2,012||1,941|
|Net interest income after provision for loan/lease losses||$||21,033||$||29,331||$||38,940||$||38,707||$||36,072|
|Trust department fees||$||2,227||$||2,312||$||2,365||$||2,340||$||2,361|
|Investment advisory and management fees||1,399||1,727||1,589||1,782||1,888|
|Deposit service fees||1,286||1,477||1,787||1,813||1,658|
|Gain on sales of residential real estate loans||1,196||652||823||890||489|
|Gain on sales of government guaranteed portions of loans||-||-||159||519||39|
|Swap fee income||19,927||6,804||7,409||9,797||7,891|
|Securities gains (losses), net||65||-||26||(3||)||(52||)|
|Earnings on bank-owned life insurance||612||329||533||489||412|
|Debit card fees||775||758||766||886||914|
|Correspondent banking fees||198||215||194||189||172|
|Gain on sale of assets and liabilities of subsidiary||-||-||12,286||-||-|
|Total noninterest income||$||28,626||$||15,196||$||29,805||$||19,906||$||17,065|
|Salaries and employee benefits||$||21,304||$||18,519||$||24,220||$||24,215||$||22,749|
|Occupancy and equipment expense||3,748||4,032||4,019||3,860||3,533|
|Professional and data processing fees||3,646||3,369||3,570||4,030||3,031|
|Post-acquisition compensation, transition and integration costs||70||151||1,855||884||708|
|FDIC insurance, other insurance and regulatory fees||908||683||523||542||926|
|Net cost of (income from) and gains/losses on operations of other real estate||(332||)||13||232||2,078||1,182|
|Advertising and marketing||552||682||1,670||1,056||1,037|
|Bank service charges||501||504||516||502||508|
|Losses on debt extinguishment, net||429||147||288||148||-|
|Correspondent banking expense||212||...|