QCR Holdings, Inc. Announces Third Quarter Earnings and Successful Closing of Des Moines Acquisition

MOLINE, Ill., Oct. 27, 2016 (GLOBE NEWSWIRE) — QCR Holdings, Inc. (NASDAQ:QCRH) today announced net income of $6.1 million and diluted earnings per share (“EPS”) of $0.46 for the quarter ended September 30, 2016.  This included $1.5 million of acquisition costs (after-tax) related to the previously announced acquisition of Community State Bank (“CSB”).  Excluding these acquisition costs and other non-core items, the Company reported core net income (non-GAAP) of $7.5 million and diluted EPS of $0.57.  By comparison, for the quarter ended June 30, 2016, the Company reported net income of $6.7 million and diluted EPS of $0.53.  This included $231 thousand of acquisition costs (after-tax) related to CSB.  For the third quarter of 2015, the Company reported net income of $6.5 million and diluted EPS of $0.55.

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 and other non-core items, the Company reported core net income (non-GAAP) of $20.6 million and diluted EPS of $1.64.  By comparison, for the nine months ended September 30, 2015, the Company reported net income of $10.1 million and diluted EPS of $1.01.  This included several nonrecurring items, including $4.5 million of losses on debt extinguishments (after-tax) related to the balance sheet restructuring that took place in the second quarter of 2015.

“Our core operating performance for the first nine months of 2016 has been solid,” commented Douglas M. Hultquist, President and Chief Executive Officer, “and we continue to strategize and explore ways to improve our profitability through our ongoing key initiatives.  Our core return on average assets (non-GAAP) has improved from 0.77% to 1.02%, when comparing the first nine months of 2015 to the same period of the current year.  This is the result of solid loan growth, reductions in wholesale borrowings, continued margin improvements, and strong fee income.”

Organic Loan and Lease Growth Strong at 10.6% Annualized Year-To-Date
Swap Fee Income and Gains on the Sale of Government Guaranteed Loans Total $4.1 Million Year-To-Date

During the third quarter of 2016, the Company’s total assets increased $597.6 million, or 22%, to a total of $3.28 billion, while total loans and leases grew $437.8 million.  Of the $437.8 million of loan growth, $419.5 million related to the acquisition of CSB, while the remaining $18.3 million was organic growth.  The organic loan and lease growth was funded primarily by deposits, which increased $140.1 million in the third quarter, excluding the acquisition of CSB.  This deposit growth also allowed the Company to further reduce borrowings.

“Loan and lease growth, excluding the effects of the acquisition, totaled $143.1 million, or an annualized rate of 10.6%, for the first nine months of the year,” commented Todd A. Gipple, Executive Vice President, Chief Operating Officer and Chief Financial Officer.  “Strong loan and lease growth has helped us meet our targeted annual organic growth rate of 10-12% and continues to keep our loan and leases to asset ratio within our targeted range of 70-75%.”

“Swap fee income and gains on the sale of government guaranteed loans were strong for the first nine months of 2016, totaling $4.1 million,” said Mr. Gipple.  “We plan to continue executing these types of transactions, as they provide unique and beneficial solutions for our clients.  We also look forward to offering these products in our newest market, Des Moines/Ankeny.”

Net Interest Margin Expanded 9 Basis Points in Third Quarter

Net interest income totaled $23.6 million for the quarter ended September 30, 2016.  By comparison, net interest income totaled $21.0 million and $20.1 million for the quarters ended June 30, 2016 and September 30, 2015, respectively.  Net interest income totaled $65.2 million for the nine months ended September 30, 2016, an increase of 15.6% from the same period of the prior year.  Net interest income attributable to CSB totaled $2.3 million for the partial quarter.

“Net interest margin increased nine basis points from the prior quarter to 3.71%,” stated Mr. Gipple.  He added, “The improvement in margin this quarter was attributable to the addition of Community State Bank.  CSB’s strong margin and solid earnings will contribute significantly to our efforts to achieve upper-quartile ROAA performance and continue to drive shareholder value.  For the month of September 2016, CSB had $546.0 million in average earning assets with a net interest margin of 4.99%.  CSB’s net interest margin prior to acquisition typically ranged from 3.80% to 4.00%.  This has increased due to purchase accounting adjustments, primarily the accretion of the loan discount, including the acceleration of discounts related to the payoff of purchased credit impaired loans.”

Nonperforming Assets to Total Assets Ratio Flat During the Third Quarter

Nonperforming assets (“NPAs”) increased $3.8 million in the current quarter, which was due to the acquisition of CSB.  The ratio of NPAs to total assets was 0.69% at September 30, 2016, which was down from 0.70% at June 30, 2016 and down from 0.80% a year ago. 

“Asset quality at our newest charter, CSB, is strong and very much in line with the rest of our subsidiaries, resulting in a slight reduction of our NPAs to total assets ratio this quarter.  We remain committed to further improving asset quality,” stated Mr. Hultquist. 

The Company’s provision for loan and lease losses totaled $1.6 million for the third quarter of 2016, which was up $410 thousand from the prior quarter, and flat as compared to the third quarter of 2015.  The increase in provision in the third quarter of 2016 is primarily attributable to the addition of CSB.  As of September 30, 2016, the Company’s allowance to total loans and leases was 1.22%, which was down from 1.46% at June 30, 2016 and down from 1.45% at September 30, 2015. 

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 ($12.7 million at September 30, 2016).  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 1.22% to 1.76%.

Capital Levels Remain Strong

The Company’s total risk-based capital ratio was 11.45%, the common equity tier 1 ratio was 9.32% and the tangible common equity to tangible assets ratio decreased to 7.92%, all as of September 30, 2016.  For comparison, these respective ratios were 14.29%, 11.72% and 10.10% as of June 30, 2016.  The decrease in the Company’s capital ratios was primarily due to the acquisition of CSB.

Acquisition of Community State Bank, Headquartered in Des Moines/Ankeny, Iowa

“We are excited about adding such a talented team to the Company and are encouraged by the opportunity for strong growth in Ankeny and the entire Des Moines MSA,” stated Mr. Gipple.

As of September 30, 2016, CSB had total assets of $580.2 million, consisting primarily of loans totaling $419.5 million and a securities portfolio of $90.2 million.  These assets were funded by $481.3 million of deposits and $15.3 million of borrowings.  CSB reported net income for the partial quarter of $189 thousand, which included $473 thousand of after tax acquisition costs.    

Preliminary purchase accounting adjustments were recorded in the third quarter and the resulting accounting marks and the net dilution to tangible book value per share were more favorable than projected when the Company announced the CSB transaction in May of 2016.

Actual dilution to tangible book value per share from the transaction, including the common stock issuance of $30.1 million in May of 2016, was only $1.03 per share, or 4.91%.  This compares favorably to the $1.25 per share and 6.11% dilution that was projected.

“The terms of the transaction required CSB to retain its earnings through the closing date.  Due to better than projected CSB earnings and more favorable valuation marks, our earn-back on the tangible book value dilution from the transaction should be even more rapid than the three year earn-back we cited in our transaction announcement this past May,” stated Mr. Gipple.

Significant One-Time Gain Used to Further Restructure Balance Sheet
And Strengthen Net Interest Margin

This quarter, the Company had the opportunity to sell an investment and recognize a gain of approximately $4.0 million.  This gain was utilized to further reduce wholesale borrowings by $60 million at a blended rate of 3.24% and further de-lever the balance sheet with the sale of $28 million in securities yielding 1.48%.  The remaining funding was replaced by a mix of core deposits and overnight borrowings.  These transactions were recorded near the end of the quarter.  The positive impact on future earnings will be an increase in net interest income of approximately $1.3 million annually, increasing NIM by approximately 10 basis points. 

Filing of Form S-3 Shelf Registration Statement

The Company today filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”).  When declared effective by the SEC, the registration statement will allow QCR Holdings, Inc. to offer and sell various types of securities, including common stock, preferred stock, debt securities and/or warrants, from time to time up to an aggregate amount of $100 million.  The Company utilized $30.1 million of its previous shelf registration filing through the offer and sale of its common stock in the second quarter of 2016 to help fund the acquisition of CSB.  This Form S-3 filing will replenish the amount available to the previous $100 million.  The specific terms and prices of any securities offered pursuant to the registration statement will be determined at the time of any future offering and described in a separate prospectus supplement, which would be filed with the SEC at the time of the particular offering, if any.

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.

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, including the Basel III regulatory capital reforms, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations issued thereunder; (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 CSB), 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 SEC.

Contact: Todd A. Gipple Executive Vice President Chief Operating Officer Chief Financial Officer (309) 743-7745