QCR Holdings, Inc. — 2022 Form 10-K
Business context and reporting period. QCR Holdings is a multi-bank holding company serving Iowa and Missouri markets, with four banking subsidiaries and an equipment-finance business. This filing covers the fiscal year ended December 31, 2022; it does not provide a clear standalone fourth-quarter results summary. Results include Guaranty Federal Bancshares (GFED) from its April 1, 2022 acquisition.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets, year-end | $7.95 billion | $6.10 billion |
| Total loans and leases, year-end | $6.14 billion | $4.68 billion |
| Total deposits, year-end | $5.98 billion | $4.92 billion |
| Net interest income | $231.1 million | $178.2 million |
| Net interest margin (GAAP) | 3.49% | 3.30% |
| Net income | $99.1 million | $98.9 million |
| Diluted EPS | $5.87 | $6.20 |
| Noninterest income | $80.7 million | $100.4 million |
| Noninterest expense | $190.0 million | $153.7 million |
| Operating cash flow | $118.7 million | $88.2 million |
- Tax-equivalent NIM was 3.73%, versus 3.49% in 2021; adjusted tax-equivalent NIM excluding acquisition accretion was 3.60%, versus 3.47%.
- Net income was nearly unchanged, while diluted EPS declined as weighted-average shares increased, primarily from stock issued for GFED. Adjusted net income, a non-GAAP measure excluding specified items, was $114.9 million, up from $100.0 million.
- Loans and leases grew 31.2% as reported; growth excluding acquired and PPP loans was 14.6%. Deposits grew 21.6%. Management said asset sensitivity and rising rates helped lift net interest income.
- Provision for credit losses was $8.3 million, including $11.0 million pre-tax of GFED acquisition-related Day 2 provision on loans. The allowance for loan and lease losses was $87.7 million, or 1.43% of gross loans, at year-end.
- Net charge-offs were $6.6 million, or 0.06% of average loans and leases. Nonperforming assets were $8.9 million (0.11% of assets), up from $2.8 million (0.05%) in 2021; management attributed most of the increase to GFED.
- Year-end cash, federal funds sold and interest-bearing deposits totaled $184.0 million. Subsidiary banks had $372.8 million available under credit lines; the holding company’s $50 million revolving line was undrawn. Management reported the banks were well-capitalized.
- Borrowings on the consolidated balance sheet were $825.9 million, including $415.0 million of FHLB advances, $129.6 million of short-term borrowings, $232.7 million of subordinated notes and $48.6 million of junior subordinated debentures. Holding-company indebtedness was $281.3 million.
- Operating cash flow was $118.7 million; investing activities used $634.7 million and financing activities provided $538.2 million. The reported net increase in cash and due from banks was $22.2 million.
Material changes versus the prior comparable period
- GFED’s acquisition expanded the Springfield-area bank and materially increased consolidated assets, loans, deposits, staff and reported expenses. Consideration was $144.1 million, including $117.2 million in stock; the company recorded $63.5 million of goodwill.
- Net interest income rose 29.7%, while interest expense increased 180% as funding costs rose. Average cost of interest-bearing liabilities increased to 1.28% from 0.59%.
- Noninterest income fell 19.6%, mainly as swap fee and capital-markets revenue declined to $41.3 million from $61.0 million. Noninterest expense rose 23.6%, including acquisition and integration costs and additional months of GFED operations.
- Reported loan growth and deposit growth include the acquisition. Excluding acquired and PPP loans, loan growth was 14.6%, compared with 16.9% in 2021.
- Rising rates reduced the value of securities and hedging instruments: 2022 other comprehensive loss was $66.5 million, and tangible common equity to tangible assets fell to 7.93% from 9.87%. The filing reports gross unrealized securities losses of $116.7 million, partly offset by $5.5 million of gross gains.
- The company repurchased 970,000 shares for $53.0 million and issued 2.07 million shares in the GFED transaction. Common dividends declared remained $0.24 per share.
Guidance, outlook, risks and unusual items
- Management’s long-term strategic targets are annual organic loan and lease growth above 9%, fee-income growth above 6%, and annual noninterest expense growth below 5%. In 2022, corresponding reported metrics were 14.6%, negative 21.5% and 18.8%, respectively; the filing notes acquisition impacts and describes these as long-term targets, not guidance.
- Management cited a strong low-income-housing tax-credit project pipeline and expected that business to remain a source of fee income in 2023. Swap fee income remains dependent on borrower projects, market activity and interest rates.
- Major risks include a concentrated commercial real estate and commercial lending portfolio: CRE was about 64% of total loans and leases, while C&I was about 28%. Multifamily-related lending, including LIHTC, is a significant exposure. Higher rates, inflation, recession, weaker collateral values, and borrower repayment stress could affect credit quality and earnings.
- Liquidity and funding risks include competition for deposits, potential correspondent-deposit fluctuations, uninsured deposits of $1.6 billion, and increased wholesale funding. FHLB advances rose to $415.0 million from $15.0 million; management said it intends to reduce reliance on wholesale funding over time.
- Investment securities had an average duration of about 7.7 years. Management warned that forced sales could turn unrealized losses into earnings losses, including if liquidity needs require sales. The company’s interest-rate simulations showed a 6.1% decline in year-one net interest income under a 300-basis-point downward shock; other disclosed scenarios were within policy limits.
- GFED-related unusual items included $3.7 million of acquisition costs, $5.5 million of post-acquisition compensation, transition and integration costs, and $11.0 million pre-tax of Day 2 loan credit-loss provision. Adjusted results exclude specified items and are non-GAAP.
- The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting. The auditor and management excluded Guaranty Bank from the internal-control assessment for April 1 through October 10, 2022; the bank represented about 19.7% of consolidated assets at acquisition.
- No material pending legal proceedings were reported beyond ordinary routine litigation. The filing also identifies cyber and operational, regulatory, LIBOR transition, acquisition integration, and climate-related risks.
Important facts for investors to verify
- How much of earnings and balance-sheet growth reflects GFED versus organic performance, and whether integration costs or synergies persist.
- Deposit stability, uninsured and correspondent deposit concentrations, and the company’s ability to reduce FHLB and other wholesale funding as funding costs change.
- Credit quality trends, including criticized loans, nonperforming assets, charge-offs and allowance adequacy, especially in CRE, construction and C&I portfolios.
- Realized versus unrealized securities losses, the sensitivity of capital to further rate moves, and any liquidity-driven securities sales.
- Whether swap-fee and other fee income recover, and how operating expenses, efficiency and diluted EPS compare with management’s long-term targets.
- The terms and cost of holding-company debt, capital and dividend capacity, and the remaining share-repurchase authorization.