QCR Holdings, Inc. — Q1 2024 Form 10-Q
Business context and period. This unaudited filing covers the three months ended March 31, 2024. QCR is a regional bank holding company with four commercial bank subsidiaries, equipment finance, and wealth management operations. Unless noted, amounts below are in U.S. dollars.
Financial performance and position
- Earnings: Net income was $26.7 million and diluted EPS was $1.58, versus $27.2 million and $1.60 in Q1 2023. Adjusted net income and diluted EPS, non-GAAP, were $26.9 million and $1.59. Pretax income was $27.9 million; income tax expense was $1.2 million, a 4.2% effective rate.
- Income and margins: Net interest income was $54.7 million, down 4% year over year. Noninterest income was $26.9 million, up 4%; capital markets revenue was $16.5 million, down 3%. Net interest margin was 2.82% GAAP and 3.25% on a tax-equivalent basis (non-GAAP); adjusted tax-equivalent NIM was 3.24%. The non-GAAP efficiency ratio was 62.15%.
- Expenses and credit costs: Noninterest expense was $50.7 million, up 3.9% year over year. Provision for credit losses totaled $3.0 million, down from $3.9 million; loan and lease provision itself increased to $3.7 million from $2.5 million.
- Assets and loans: Total assets were $8.60 billion, up $60.7 million from year-end 2023. Net loans and leases were $6.56 billion, up $107.7 million during the quarter. The company reported annualized loan and lease growth of 6.4%. It classified $274.8 million of LIHTC construction and multifamily loans as held for sale in preparation for securitization.
- Credit quality: Nonperforming assets were $31.3 million, or 0.36% of assets, down from $34.2 million at year-end but above $23.0 million a year earlier. Nonperforming loans were 0.44% of loans; the allowance was 1.33% of loans held for investment. Criticized loans were 2.75% of total loans and leases, versus 2.99% at year-end.
- Deposits, debt, and liquidity: Deposits rose $292.8 million to $6.81 billion, while total borrowings fell $228.7 million to $489.6 million, primarily as deposit growth funded repayment of short-term FHLB advances. Cash, federal funds sold, and interest-bearing deposits totaled $158.0 million, down from $237.5 million at year-end. The company reported $713 million of available correspondent-bank credit lines and a fully available $50 million revolving credit line. Uninsured and uncollateralized deposits were $1.4 billion.
- Cash flow: Operating activities provided $2.7 million, investing activities used $82.1 million, and financing activities provided $63.2 million. Cash and due from banks declined $16.1 million to $81.0 million during the quarter.
- Capital: Stockholders’ equity was $907.3 million. The non-GAAP tangible common equity to tangible assets ratio improved to 8.94%, from 8.75% at year-end. The company’s total risk-based capital ratio was 14.30%; all subsidiary banks met “well-capitalized” requirements.
Material changes versus comparable periods
- Year-over-year interest income rose $20.8 million, but interest expense increased $22.9 million as deposit and funding costs rose. Average cost of interest-bearing liabilities increased to 3.86% from 2.74%.
- Management attributed about $1.3 million of additional interest expense to the maturity of $125 million of deposit caps and the conversion of $65 million of subordinated debt to a higher floating rate. Lower loan discount accretion and one fewer calendar day also weighed on quarterly net interest income.
- Versus Q4 2023, net income declined from $32.9 million and diluted EPS from $1.95. Noninterest income fell $20.9 million quarter over quarter, mainly because Q4 capital markets revenue included unusually high swap fees; noninterest expense fell $10.2 million, partly reflecting lower variable compensation.
- Compared with Q1 2023, deposits were higher and borrowings lower, while the securities portfolio’s reported net unrealized losses as a percentage of amortized cost were 6.98%, versus 4.96% at year-end 2023. The company said most unrealized losses reflected the interest-rate environment.
Outlook, commentary, and risks
- The filing provides no specific quarterly or full-year earnings guidance. Long-term strategic targets are annual organic loan and lease growth above 9%, fee-income growth above 6%, and noninterest expense growth below 5%; these are targets, not assurances.
- Management said LIHTC demand remained healthy, described a strong pipeline, and expects the business to remain a source of fee income in 2024. It plans to continue LIHTC loan securitizations as a liquidity and production-capacity tool. Swap-fee revenue may vary with borrower demand and interest rates.
- Interest-rate sensitivity modeling showed a 2.5% decline in year-one net interest income under a 200-basis-point upward parallel shift and a 1.5% increase under a 200-basis-point downward shift; both were within policy limits. Management characterized the balance sheet as moderately liability sensitive.
- Key risks include interest-rate and deposit-cost changes, competition for deposits, large or uninsured deposit withdrawals, credit deterioration, CRE and other borrower concentrations, securities valuation changes, and dependence on capital-markets and swap-fee income. The CRE portfolio included $201.1 million of office exposure, or 3.0% of total loans; management reported that about 41% of CRE loans were LIHTC and performing/pass-rated.
- Other items: the company has a $9.6 million remaining commitment for a new Cedar Rapids facility, expected to be completed in 2024. Management reported effective disclosure controls, no material change in internal control, no material pending litigation beyond routine matters, and no material change to the risk factors disclosed in its 2023 10-K.
Most important facts for investors to verify
- Whether deposit growth persists and remains sufficient to replace higher-cost wholesale funding, including the stability of correspondent and uninsured deposits.
- Whether deposit pricing and other funding costs continue to pressure net interest income and NIM, and how the maturing caps and floating-rate debt affect results.
- Performance of LIHTC lending and execution, timing, and economics of planned securitizations, including the $274.8 million of loans held for sale.
- Credit trends in multifamily, construction, CRE, and other criticized exposures; nonperforming assets were higher than a year earlier despite a decline from year-end.
- How the securities portfolio’s unrealized losses, liquidity needs, and interest-rate exposure evolve. The filing reports 527 of 651 securities in unrealized-loss positions and a $5.4 million quarterly decline in AOCI.
- Whether capital-markets revenue, which is sensitive to swap activity and market conditions, and expense growth support the company’s long-term targets.