QCR HOLDINGS INC Q3 FY2024 earnings call

• Strong financial performance with significant growth in net interest income and margin expansion.
• Strong capital markets and wealth management revenue; wealth management assets under management grew by nearly $1 billion year-to-date (18%).
• Core deposits grew 8.5% annualized, cost of funds stable. Core expenses well controlled; non-interest expenses increased 2% annualized after adjusting for one-time items.
• Credit quality excellent: non-performing assets and classified/criticized loans below historical averages; provision for credit losses $2 million lower due to improved credit quality.
• LIHTC lending program a key strategic initiative, generating capital markets revenue and ideal for securitization; next securitization targeted for Q4.
• Capital levels solid, focused on increasing regulatory capital and delivering top-tier financial performance.

In the third quarter, QCR Holdings had strong financial performance. Net interest income increased significantly by nearly $3.6 million (6%), driven by loan and investment balance growth and margin expansion. Annualized year-to-date total loan growth was 6% including securitized loans. Total non-interest income was $27 million, with capital markets revenue at $16 million and wealth management revenue $4.5 million. Core deposits grew robustly at 8.5% annualized. Tangible book value increased significantly. Net income was $28 million ($1.64 per diluted share) and adjusted net income was $30 million ($1.78 per diluted share), with adjusted ROAA 1.35% and adjusted ROAE 12.60%.

• Adjusted NIM TEY guidance for Q4 updated to increase in the range of 2 basis points to 7 basis points (absent additional Fed rate cuts; 1-2 basis points added for each 25 basis point cut in early November).
• Reaffirmed capital markets revenue guidance for next 12 months at $50 million to $60 million.
• Non-interest expenses expected to remain in the range of $49 million to $52 million in Q4.
• Anticipate continued growth in net interest income for Q4 assuming stable funding mix and no additional Fed action.

• Economic volatility and interest rate changes could impact financial performance.
• Credit stress in micro businesses (some of which were in m2's portfolio) could affect credit quality.
• Impact of reaching $10 billion asset level, including potential Durbin Act implications, though plans in place to manage expenses and revenues to mitigate impact.

Q: Circled back on margin commentary, specifically guidance for Q4 and rate cut impact A: Todd Gipple said Q4 NIM TEY guidance is 2-7 basis points (adds 1-2 basis points for each 25 basis point cut in early November) Q: Asked about deposits tied to index that reprice A: Todd Gipple mentioned $2.2 billion of immediately repriced core deposits were taken down 50 basis points after Fed cut, $685 million of high beta deposits taken down 10-60 basis points; total RSLs ~$3.8 billion, RSAs ~$3.2 billion Q: Outlook for expenses, confidence in staying within $49-52 million range A: Todd Gipple said benefit from ~$900,000 reduced expenses from m2 decision, and potential higher incentives if earnings continue growing, but confident can stay within range Q: Margin expansion in Q4, function of repricing deposits vs securitization A: Todd Gipple said about half of margin expansion in Q4 is from deposit repricing holding loan yield, half from securitizations in Q3 and on deck for Q4 Q: Economics on securitizations, improvement seen A: Todd Gipple said Q3 securitization had modest loss of $473,000 (better than initial expectation), and Q4 securitization expected to have better economics with lower transaction costs Q: Margin outlook for 2025, direction A: Todd Gipple said expects continued margin accretion if Fed continues cutting rates, with more detailed guidance on 2025 in January Q: Credit, net charge-offs and criticized loans related to m2 A: Larry Helling said net charge-offs had bulk from m2, criticized loans drop is combination of upgrades, charge-offs, and credit stress in micro businesses Q: Loan demand, customer behavior post Fed cut, competitive landscape A: Larry Helling said pricing power good, loan demand improving modestly, traditional commercial pipeline improving, competitive landscape evolved but pricing power maintained Q: Deposit growth, Durbin impact on crossing $10 billion A: Todd Gipple said focused on core deposit growth, QCR Holdings likely to cross $10 billion in ~2 years; Durbin impact not as big for them, with plans in place to manage expenses and revenues to mitigate impact