8-K: QCR Holdings Reports Record Net Income of $113.9 Million for Full Year 2024

QCR Holdings announces strong fourth quarter results and a record annual net income, driven by growth in net interest income and capital markets revenue.

Summary

• QCR Holdings, Inc. reported a net income of $30.2 million, or $1.77 per diluted share, for the fourth quarter of 2024.
• Adjusted net income for the quarter was $32.8 million, or $1.93 per diluted share.
• The company achieved a record annual net income of $113.9 million, or $6.71 per diluted share, for the full year 2024.
• Adjusted net income for the full year was $119.3 million, or $7.03 per diluted share.
• Net interest income for the fourth quarter reached a record $61.2 million.
• The net interest margin (NIM) expanded by 5 basis points to 2.95%, with an adjusted NIM (TEY) of 3.40%.
• Capital markets revenue was significant at $20.6 million for the quarter and $71.1 million for the year.
• Loan growth was robust at 10% prior to loan securitizations, and deposit growth was strong at 8% for the full year.
• Tangible book value per share increased by $1.21, or 10% annualized, during the fourth quarter.
• The TCE/TA ratio improved by 31 basis points to 9.55% in the fourth quarter.
• Nonperforming assets (NPAs) totaled $45.6 million at the end of the fourth quarter, representing 0.50% of total assets.
• Core deposits increased by $75.6 million, or 5% annualized, during the fourth quarter.
• The company expects adjusted NIM on a tax equivalent yield basis for the first quarter of 2025 to be in the range from static to an increase of 5 basis points.
• The company anticipates gross loan growth between 8% and 10% for the full year 2025, targeting net loan growth between 1% and 3% after factoring in loan securitization and runoff of m2 Equipment Finance loans.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with record earnings and strong growth in key areas. While there are some concerns about asset quality, the overall tone is optimistic and suggests continued success for the company.

Positives

• Record annual net income of $113.9 million, or $6.71 per diluted share.
• Record quarterly net interest income of $61.2 million.
• Significant capital markets revenue of $71.1 million for the full year.
• Robust loan growth of 10% prior to loan securitizations.
• Strong deposit growth of 8% for the full year.
• Tangible book value per share increased by $6.40, or 15% from the prior year.
• TCE/TA ratio improved by 80 basis points to 9.55% for the full year.
• The company successfully executed on its fourth low-income housing tax credit securitization during the fourth quarter.
• The company expects to continue growing its NIM in the first quarter of 2025.
• The company expects capital markets revenue from swap fees for the next twelve months to be in a range of $50 to $60 million.

Negatives

• Nonperforming assets (NPAs) increased by $9.9 million to $45.6 million at the end of the fourth quarter.
• The increase in NPAs was primarily due to three loans in discrete industries.
• The company recorded a total provision for credit losses of $5.2 million during the fourth quarter of 2024, representing a $1.7 million increase from the prior quarter.
• Accumulated other comprehensive income (AOCI) decreased $9.6 million during the fourth quarter of 2024 due to a decrease in the value of the company's available for sale securities portfolio and certain derivatives resulting from the change in long-term interest rates during the quarter.

Risks

• The company acknowledges that its criticized loans and classified loans to total loans and leases have increased.
• The company's future performance is subject to various factors, including economic conditions, changes in laws and regulations, increased competition, and cybersecurity risks.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Future Outlook

The company expects to continue growing its NIM in the first quarter of 2025 and anticipates gross loan growth between 8% and 10% for the full year 2025, targeting net loan growth between 1% and 3% after factoring in loan securitization and runoff of m2 Equipment Finance loans. The company expects capital markets revenue from swap fees for the next twelve months to be in a range of $50 to $60 million. For the first quarter of 2025 the company expects noninterest expense to be in the range of $52 to $55 million, an increase of 4% which aligns with the company's 9/6/5 strategic model.

Management Comments

• We delivered our strongest results of the year in the fourth quarter, generating record full year results, said Larry J. Helling, Chief Executive Officer.
• Our exceptional performance was highlighted by significant growth in net interest income, driven by margin expansion, and robust loan growth, said Larry J. Helling, Chief Executive Officer.
• We begin 2025 with a solid pipeline of loans and deposits, strong credit quality, and well-managed expenses, said Mr. Helling.
• Our focus remains on growing our franchise through relationship-driven banking and executing on our unique business model which delivers exceptional operational performance for our shareholders, said Mr. Helling.
• Our adjusted NIM on a tax equivalent yield basis improved by 6 basis points to 3.40% in the fourth quarter near the top end of our guidance range, said Todd A. Gipple, President and Chief Financial Officer.
• We were successful in significantly reducing our cost of interest-bearing deposits in the fourth quarter by 33 basis points, contributing to a significant decrease in our funding costs, said Todd A. Gipple, President and Chief Financial Officer.
• Our ability to aggressively react to the recent Fed interest rate cuts has contributed meaningfully to our NIM expansion, said Todd A. Gipple, President and Chief Financial Officer.
• The strong demand for affordable housing continues to support the sustainability of our LIHTC lending initiatives, said Mr. Gipple.
• Our LIHTC lending pipeline and related capital markets revenue remains solid, said Mr. Gipple.
• Our core expenses, while impacted by higher incentive compensation and system conversion expenses during the fourth quarter, remained well-controlled for the full year, decreasing $5.1 million, or 2% from the prior year, said Mr. Gipple.

Industry Context

QCR Holdings' performance reflects a broader trend in the banking industry where institutions are focused on growing net interest income through margin expansion and managing expenses efficiently. The company's success in capital markets, particularly through LIHTC lending, highlights the continued demand for affordable housing and the opportunities it presents for financial institutions. The company's focus on relationship-driven banking aligns with a strategy to maintain strong customer relationships and navigate the competitive landscape.

Comparison to Industry Standards

• QCR Holding's TCE/TA ratio of 9.55% is a strong result compared to industry standards.
• Many comparable regional banks such as First Interstate BancSystem (Montana) with a TCE/TA ratio of 8.75% and Commerce Bancshares (Missouri) with a TCE/TA ratio of 9.1% have lower ratios.
• QCR Holding's return on average assets of 1.29% is a solid result compared to industry standards.
• Many comparable regional banks such as Glacier Bancorp (Montana) with a ROAA of 1.1% and Columbia Banking System (Washington) with a ROAA of 0.9% have lower ratios.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and increased tangible book value per share.
• Employees may receive higher incentive-based compensation due to the company's strong performance.
• Customers will benefit from the company's continued focus on relationship-driven banking.
• The company's strong financial position allows it to continue supporting the communities it serves.

Next Steps

• The company will host an earnings call/webcast on January 23, 2025.
• The company plans to continue growing its franchise through relationship-driven banking.
• The company will execute on its unique business model to deliver exceptional operational performance for its shareholders.
• The company will continue to focus on growing capital and targeting TCE in the top quartile of the company's peer group.

Key Dates