QCR Holdings, Inc. Announces Net Income of $3.0 Million for the Fourth Quarter of 2014 and Net Income of $15.0 Million for the Year

MOLINE, Ill., Feb. 3, 2015 (GLOBE NEWSWIRE) -- QCR Holdings, Inc. (Nasdaq:QCRH) today announced net income of $3.0 million for the quarter ended December 31, 2014, or diluted earnings per common share ("EPS") of $0.37, with no preferred stock dividends due to the redemption of all outstanding shares of Series F Preferred Stock in the second quarter of 2014. By comparison, for the quarter ended September 30, 2014, the Company reported net income of $4.1 million, or diluted EPS of $0.50, with no preferred stock dividends. For the fourth quarter of 2013, the Company reported net income of $3.8 million, or diluted EPS of $0.50, after preferred stock dividends of $736 thousand. The Company reported net income of $15.0 million for the year ended December 31, 2014, or diluted EPS of $1.72, after preferred stock dividends of $1.1 million. By comparison, for the year ended December 31, 2013, the Company reported net income of $14.9 million, or diluted EPS of $2.08, after preferred stock dividends of $3.2 million. Core earnings (excluding one-time items) totaled $14.5 million for the year ending December 31, 2014 and $13.3 million for the year ending December 31, 2013.

"While we are very disappointed with our earnings results this quarter, our recurring revenue trends are positive," said Doug Hultquist, President and Chief Executive Officer. He added, "Pre-tax, pre-provision net income of $7.0 million was 13% higher than the prior quarter. Our reduced net income in the fourth quarter was primarily driven by increased provision expense totaling $3.6 million, or $2.6 million more than the third quarter. We believe that it was important to aggressively address a few specific asset quality issues this quarter. We have historically demonstrated better than peer asset quality metrics, both during and subsequent to the credit crisis, and we are focused on reducing nonperforming assets as a percentage of total assets to less than 1.00% as quickly as possible."

Net Interest Margin Expanded 5 Basis Points from Prior Quarter
And 16 Basis Points Compared to Fourth Quarter of 2013

Net interest income totaled $17.8 million for the quarter ended December 31, 2014. By comparison, net interest income totaled $17.5 million and $16.9 million for the quarter ended September 30, 2014 and December 31, 2013, respectively. Net interest income for the year ended December 31, 2014 of $69.1 million increased $5.0 million, or 8%, compared to 2013 results.

"We had another strong quarter of net interest margin expansion and succeeded in growing net interest margin by five basis points to 3.20%," stated Mr. Hultquist. He added, "This represents the fourth consecutive quarter of net interest margin expansion, as we continue to redeploy funds from the securities portfolio into loans and leases, with a goal of growing loans and leases from our current level of 63% to more than 70% of total assets. Additionally, we are focused on improving our funding mix through growth in noninterest bearing deposits and reductions in high-cost wholesale funding. We believe that our execution of these strategies will help us move closer to our return on assets goal of 1.00%."

Loans and Lease Growth Strong at $56.8 Million, or 4%, in the Current Quarter

During the fourth quarter of 2014, the Company's total assets increased $74.4 million, or 3%, to a total of $2.52 billion, while net loans and leases grew $56.8 million, or 4%, during the quarter. The loan and lease growth was funded by securities sales and borrowings. 

"We have had solid success growing loans and leases in 2014, with growth of $168.1 million since December 31, 2013, resulting in a 12% growth rate," commented Todd A. Gipple, Executive Vice President, Chief Operating Officer, and Chief Financial Officer. "This growth was split between commercial and industrial loans ($92.2 million, or 21%, over prior year-end), commercial real estate loans ($30.4 million, or 5%, over prior year-end) and leases ($37.1 million, or 29%, over prior year-end). This growth was purely organic and is the highest growth rate the Company has experienced since pre-recession periods. These results were driven by our employees' dedication to growing loans and leases and improving the Company's balance sheet mix, resulting in improved returns for our shareholders."

"Gains on the sale of government guaranteed loans were very strong this quarter at $1.2 million," said Mr. Hultquist. "We have some very talented bankers in this line of business and we are adding additional talent and executing on strategies in an effort to make this a more consistent and larger source of revenue for our Company."

 Nonperforming Assets Decreased $6.4 Million During Fourth Quarter

Nonperforming loans and leases at December 31, 2014 were $20.1 million, which were down $8.4 million from September 30, 2014. In addition, the ratio of nonperforming assets ("NPAs") to total assets was 1.31% at December 31, 2014, which was down from 1.61% at September 30, 2014. Generally, the vast majority of the Company's NPAs consist of nonaccrual loans and leases, accruing troubled debt restructurings, and other real estate owned. 

 "Our nonperforming assets decreased $6.4 million, or 16%, and there were no significant additions to NPAs during the current quarter," stated Mr. Gipple. "In the fourth quarter of 2014, the Company placed a very strong emphasis on improving asset quality metrics, as evidenced by elevated provision expense and charge-offs. The second and third quarter increases in nonperforming assets were disappointing and we wanted to be proactive this quarter in reducing this trend. Therefore, in the fourth quarter, the Company increased provision expense and we were aggressive in charging off and charging down NPAs to position the Company for a successful 2015. The Company will also continue to strongly emphasize the importance of credit quality by tying incentive plans to asset quality measurements, as appropriate."

The Company's provision for loan/lease losses totaled $3.6 million for the fourth quarter of 2014, which was up $2.6 million from the prior quarter, and up $1.7 million compared to the fourth quarter of 2013. The Company had net charge-offs of $3.2 million for the fourth quarter of 2014 which, when coupled with the provision of $3.6 million, increased the Company's allowance for loan/lease losses ("allowance") to $23.1 million at December 31, 2014. The Company had a $2.0 million charge-off in the fourth quarter of 2014 that was spread among all of the Company's subsidiary banks, but was related to a single credit relationship. As of December 31, 2014, the Company's allowance to total loans/leases was 1.42%, which was down from 1.45% at September 30, 2014, and down from 1.47% at December 31, 2013. In accordance with generally accepted accounting principles for acquisition accounting, the loans acquired through the acquisition of Community National Bank ("CNB") in May 2013 were recorded at market value; therefore, there was no allowance associated with CNB's loans at acquisition. Management continues to evaluate the allowance needed on the acquired CNB loans factoring in the net remaining discount ($1.3 million at December 31, 2014) originally established upon acquisition. The Company's allowance to total nonperforming loans/leases was 115% at December 31, 2014, which was up from 80% at September 30, 2014, and up from 105% at December 31, 2013. 

Capital Levels Remain Strong
Tangible Common Equity Ratio and Tangible Book Value Continue to Grow

Mr. Gipple stated, "In addition to fully converting or redeeming all preferred equity and eliminating our preferred dividend commitment in the second quarter of 2014, the execution of our capital plan continues to demonstrate our ability to organically reach our intended target for our tangible common equity ("TCE") ratio of 6.5% through continued earnings growth and prudent management of capital.  Since December of 2013, the Company's TCE ratio has grown from 4.71% to 5.52%, while at the same time, tangible book value has increased from $14.29 per share to $17.50 per share. We have been able to accomplish these results without a separate common equity issuance that could have been dilutive to earnings per share and tangible book value per share." He continued, "The Company and our subsidiary banks continue to maintain capital at levels above the existing well-capitalized minimum requirements administered by the federal regulatory agencies. Our capital plan is also consistent with the requirements of the new regulatory capital guidelines that are effective for the reporting period ending March 31, 2015 under Basel III."

As previously announced, on June 30, 2014, the Company filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission ("SEC"). This registration statement, declared effective by the SEC on July 14, 2014, will allow the Company to issue various types of securities, from time to time, up to an aggregate amount of $75.0 million. The specific terms and prices of the securities will be determined at the time of any future offering and described in a separate prospectus supplement, which would be filed with the SEC at the time of the particular offering, if any. Mr. Gipple added, "By taking the additional action of filing the shelf registration statement, we are in a position to more quickly take advantage of accretive acquisition opportunities."

Financial highlights for the Company's primary subsidiaries were as follows:

• Quad City Bank & Trust, the Company's first subsidiary bank which opened in 1994, had total consolidated assets of $1.32 billion at December 31, 2014, which were up $46.7 million from September 30, 2014, and up $75.6 million from December 31, 2013. For the fourth quarter of 2014, loans/leases grew $22.9 million, or 3%. The Bank realized net income of $2.0 million for the fourth quarter of 2014, compared to $2.6 million for the same period of 2013, which is a decrease of $587 thousand, mostly due to increased provision for loan and lease losses. Net income for the year ending December 31, 2014 was $10.5 million, compared to $10.3 million for the year ending December 31, 2013.
   
• Included in the discussion above and consolidated with Quad City Bank & Trust, m2 Lease Funds, LLC, the Company's leasing subsidiary acquired in 2005, grew leases $7.7 million, or 5%, during the fourth quarter of 2014. Leases have grown $43.7 million since December 31, 2013. m2 realized pre-tax net income of $504 thousand for the fourth quarter of 2014, which was a decrease of $436 thousand compared to the same period in 2013, mostly due to increased provision for loan and lease losses.  Pre-tax net income for the year ending December 31, 2014 was $3.5 million, compared to $3.6 million for the year ending December 31, 2013, which was a decrease of $119 thousand, due to increased provision for loan and lease losses.
   
• Cedar Rapids Bank & Trust, which opened in 2001, had total assets of $840.3 million at December 31, 2014, which was an increase of $18.0 million, or 2%, from September 30, 2014, and an increase of $36.1 million, or 5%, from December 31, 2013. The Bank grew loans $23.7 million, or 4%, during the fourth quarter of 2014. The Bank realized net income of $2.1 million for the fourth quarter of 2014, which was an increase of $460 thousand over the same period in 2013. Strong revenue from gains on the sale of government guaranteed loans more than offset increased provision for loan and lease losses. Net income for the year ending December 31, 2014 was $8.0 million, compared to $6.7 million for the year ending December 31, 2013.
   
• Rockford Bank & Trust, which opened in 2005, had total assets of $353.4 million at December 31, 2014, which was an increase of $6.9 million, or 2%, from September 30, 2014, and an increase of $14.1 million, or 4%, from December 31, 2013. During the fourth quarter, loans increased $10.5 million, or 4%. The Bank realized net income of $323 thousand for the fourth quarter of 2014, which was a decrease of $214 thousand over the same period in 2013, mostly due to increased provision for loan and lease losses. Net income for the year ending December 31, 2014 was $1.9 million, compared to $1.6 million for the year ending December 31, 2013.   

QCR Holdings, Inc., headquartered in Moline, Illinois, is a relationship-driven, multi-bank holding company, which serves the Quad City, Cedar Rapids, and Rockford communities through its wholly owned subsidiary banks. Quad City Bank & Trust Company, which is based in Bettendorf, Iowa, and commenced operations in 1994, Cedar Rapids Bank & Trust Company, which is based in Cedar Rapids, Iowa, and commenced operations in 2001, and Rockford Bank & Trust Company, which is based in Rockford, Illinois, and commenced operations in 2005, provide full-service commercial and consumer banking and trust and asset management services. Quad City Bank & Trust Company also engages in commercial leasing through its wholly owned subsidiary, m2 Lease Funds, LLC, based in Milwaukee, Wisconsin. With the acquisition of Community National Bancorporation on May 13, 2013, the Company now serves the Waterloo/Cedar Falls, Iowa community through Community Bank & Trust, a division of Cedar Rapids Bank & Trust Company. 

Special Note Concerning Forward-Looking Statements. This document contains, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, are generally identifiable by the use of words such as "believe," "expect," "anticipate," "predict," "suggest," "appear," "plan," "intend," "estimate," "annualize," "may," "will," "would," "could," "should" or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

A number of factors, many of which are beyond the ability of the Company to control or predict, could cause actual results to differ materially from those in its forward-looking statements. These factors include, among others, the following: (i) the strength of the local and national economy; (ii) the economic impact of any future terrorist threats and attacks, and the response of the United States to any such threats and attacks; (iii) changes in state and federal laws, regulations and governmental policies concerning the Company's general business, including Basel III, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations issued thereunder; (iv) changes in interest rates and prepayment rates of the Company's assets; (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) the integration of acquired entities, including CNB; (viii) the loss of key executives or employees; (ix) changes in consumer spending; (x)  unexpected outcomes of existing or new litigation involving the Company; and (xi) changes in accounting policies and practices. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the SEC.