QCR HOLDINGS INC Q4 FY2024 earnings call

• Delivered record full-year results with net income of $114 million or $6.71 per diluted share, and adjusted net income of $119 million or $7.03 per diluted share.
• Strong net interest income growth of $11 million, 5% for the year, fueled by loans, investments, and higher yields on assets. Deposit costs began to stabilize.
• Non-interest income totaled $116 million, led by $71 million from capital markets revenue. Wealth management assets under management increased $1 billion (20%), with revenue up 15%.
• Core operating expenses well controlled, decreasing over 2% for the full year. Credit quality strong, with criticized loan balances improving $37 million and allowance for credit losses at 1.32% of total loans held for investment.
• Executed two loan LIHTC securitizations in 2024, plan to continue securitizations to support capital markets revenue, liquidity, and growth towards $10 billion in assets.

For the full year 2024, net interest income increased by $11 million, representing 5% growth, driven by strong increases in loans and investments and higher yields on those assets. Total non-interest income reached $116 million, with capital markets revenue contributing $71 million (including $1 million net gains from securitization). The wealth management business saw assets under management increase by $1 billion (20%) and total wealth management revenue rise 15%. Core deposits grew $474 million or 8% for the year. Total loans grew 10% prior to securitizations of $387 million of low-income housing tax credit loans, with a net growth of 4% for the year. For 2025, gross loan growth is anticipated to be 8% to 10%, with net loan growth targeted between 1% and 3% factoring in securitizations and m2 Equipment Finance run-off.

• 2025 gross loan growth expected to be 8% to 10%, with net loan growth targeted 1% to 3% factoring in securitizations and m2 Equipment Finance run-off.
• Net interest margin guidance for Q1 2025: static to up 5 basis points, with impact of expiring interest rate caps offset by core margin expansion. Swap fee income guidance for 2025: $50 million to $60 million.
• Continue to focus on core deposit growth to support loan growth and reduce reliance on higher-cost funding sources.

• Impact of expiring interest rate caps in Q1 2025, expected to reduce net interest margin by 4 basis points.
• Potential adverse effects of long-term interest rate movements on derivative valuations and regulatory capital ratios.
• Normalizing credit environment leading to potential increases in criticized loans and non-performing assets.
• Economic uncertainty affecting client sentiment and ability to make large capital investments, potentially impacting loan growth.

Q: What's the outlook for swap fee income in 2025?

A: Larry Helling stated the pipeline is robust but higher long-term rates could slow things in Q1, with fourth quarter guidance solid.

Q: How to think about margin in Q2 and beyond?

A: Todd Gipple explained margin expansion expected from further benefit of November rate cut, deposit betas outperforming loan betas, and new loan yields > roll-off rates, with optimism for continued modest margin improvement depending on yield curve slope.

Q: How planning to fund loan growth in 2025?

A: Todd Gipple said to fund with core deposits, continue to drive down loan-to-deposit ratio to low '90s, and focus on strong deposit betas.

Q: Impact of Fed rate cut on NIM?

A: Todd Gipple said every 25 basis point cut expected to lift NIM 2-3 basis points, annually $1.5M-$2M.

Q: Thoughts on capital, buyback, M&A?

A: Larry Helling said prudent to hold capital near-term, not active in buyback, M&A not priority, focus on organic growth.

Q: Securitization dynamics for future?

A: Todd Gipple said pivoting to one large securitization late in 2025 around $350M for better execution and financial results.

Q: LIHTC portfolio and loan growth outlook?

A: Larry Helling said clients cautious, growth in core commercial loan segment likely 2%-5%, focus on getting loan-to-deposit ratio to low-90s over next couple of years.