QCRH - Earnings call transcript Q3 2017

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Operator

Greetings and welcome to the QCR Holdings Inc.

Third Quarter 2017 Conference Call. Yesterday after market close, QCR distributed its third quarter press release and we hope that you have had an opportunity to review the results. If there is anyone on the call who has not received a copy, you may access it at the company's website www.qcrh.com. With us today from management are Doug Hultquist, President and CEO; and Todd Gipple, Executive Vice President, COO and CFO. brief up the from the a we and analysts. provide open will call will summary quarter of then Management to questions

everyone the falls under Before like guidelines of information call, the as the Exchange will that defined Commission. statements remind by management today we the and some providing I be forward-looking of Securities begin to would

future point the As part predictions our call statements concerning company's made results materially beliefs, any statements could of of these from forward-looking the out guidelines, actual and those during that I and hopes, must expectations, differ this projected.

on is the which these may Additional website. website time information filings company's on obtained SEC's factors company's to the time in be XX-Q or from and XX-K the included

and website I to the accessible As a will the turn at reminder, be QCR. until this time, X, this company's XXXX. will At now Doug Hultquist call over recorded on Mr. conference November being is

Doug Hultquist

share X.X additional costs Officer, of $X.XX, who related Todd share per and diluted we Officer Financial with Chief our acquisition will for welcome the XX, color provide we'll Chief everyone. I core call I and excluding of financial the morning ended the September recap and XXXX. Thank third reported our you quarter of and Gipple and earnings earnings for third our earnings quarter million for $X.XX. turn over joining call of diluted some to some quarter on earnings Operating earnings you announced will Yesterday, to us today results. the Good million to highlights Initially, like then per would of quarterly X.X

to factors. quarter, were this earnings down the core slightly was primarily prior due three While from

quarter. discount from the loan X.X million acquisition-related accretion down First, was second

down and gains from government the slightly slow swap QX was and guaranteed loans fee of levels. continued to be Second, sale income from

margin. positive further benefits legal continue our core were very a note, and interest growth Finally, net elevated expanded this On salaries of strong expense we demonstrate quarter. and to

revenue comparing a management of of to and increased X% and the when XX% wealth on strong year period for basis. ago. the Additionally, earnings core first an months of share year-over-year with year XX.X per This another for and QX to up continues same QX Earnings increase $X.XX strong a were the million versus be nearly is $XX.X income and nine a in year-to-date net represents of on million XX% basis. diluted EPS $X.XX

Charter our of the We the solid have very our in X.XX% Bank Trust run in is Cedar to further Guaranty company made third on after and further We're our Iowa. X.XX% existing the compared opportunity headquartered our and Cedar for the acquisition people Rapids now XXXX. our market Rapids we as Right and to pleased average quarter, Bank also clients improving position in of the Rapids, combine months with of Guaranty nine progress Trust first return have strengthen year-to-date of Cedar to announced great assets rate and community. the closing

XX% basis, of XX% C&I us rate loan XX% growth our is in puts at annualized targeted of QX. additional Before results, year-to-date want of We past an our comment an growth few this rate This again this on to than a financial ask provide from did much very portfolio. I to growth loan on some with annualized higher items of on to Todd growth annually. I organic which had strong comments XX.X% our quarter

banking market model. as from our success We continue relationship-based community attract competitors to we have clients significant to share taking our

million the as large of CRE press credit of amount release, any increased in this other right to that X.X credit discussed is that and overall of X.XX% portfolio to past our this increase non-performing was believe non-accrual due an assets quarter strong. not total in This We isolated QX. issue in remain was at the As on metrics assets. one indicative placed the end of deterioration

Bank bank company, in until we property we acquire so Rockford the application. anticipate charged to by where the Legal legal in into completed, in as other end. working to legal were quarter the title are and which been proceedings to past Neither the this connection result can wrongdoing property very real elevated stabilize anticipate begin We two will moving SBA expect a officers in estate charged we have XXXX. an court continue these We quickly, are due loan nor with Rockford a the expenses the matter case. year work with project for sometime expenses are to

return Our results improvement on ROAA far peer in our long-term strategic our believe of have that quartile the we and progress X.XX%. thus initiatives goal We in related goals XXXX continued strategic group. focus focused good on And our made upper of achieving in is ROAA the this on assets. core average strategic are with

quarter. Todd the for more our on to for will financial I it Now detail over turn results

Todd Gipple

was provide linked quarter a on reported press up the approximately linked Thanks for begin Doug, everyone. morning us comments review to basis. in some the our a of more a level results financial Net release today. page of wanted three variances tables. key financial call good our I color interest again basis. $XXX,XXX quarter on presented on These of joining on income the high Thanks with results on

was of If the down of on The income NIM approximately the the we X.XX% guaranteed were Noninterest by grew continue driven and on and in at Provision basis. discount was NIM on linked million moving accretion, quality. X.XX%. did a again growth this asset increase nearly impact quarter loans strong versus income to large an more million. sale than non-accrual expanded quarter, strong a on continued government than interest versus of percentage isolated was core quarter $X.X was at expense core linked interest net $XXX,XXX. further actually core of see loan solid our our in QX in while see you negligible percentage we relatively net which a linked one increase basis strong in remove loan absent Gains flat $X.X $X MPAs QX the loan income identical QX, to quarter QX growth, more basis million a loan

have given years in source loans, this the fluctuate from past of of the we types revenue and quarter nature can experienced significantly timing these As quarter. to

and continues have from in fees strong we We XXX,XXX $XXX,XXX management We now in in in million modest have X.X in million XXXX. in trust billion expenses is custody up be X.X and consecutive under XXX RIA QX, assets three and Wealth Swap in Noninterest assets, year-over-year thus reporting far now now under management have added billion also XXX had brokerage assets. increased down grew management and XX% new quarters in results another relationships of QX. with modest and $XXX very management QX QX. after two in areas. in approximately X.X accounts gains Wealth primarily revenue in revenue $XXX,XXX to QX. assets were billion in

benefits XXX,XXX open increased increased strong First, some with to due and incentive our year-to-date consistent salaries positions filling loan compensation primarily operating and and results. growth

increased and due data Doug primarily to discussed legal processing as Second, fees fees up previously. were XXX,XXX professional

on XXX,XXX October recorded related our that costs X. and to in we integration Finally, closed other one-time acquisition acquisition

of We costs the will expect to XXXX. by incur majority the QX, have wrapped additional acquisition these in but of end costs

net an of core million per X.X X.XX% in The XX% be first X.X versus of we've the approximately exercise QX. the of in of period which versus tax Our goal XXXX as share. months in $X.XX first Core benefit of a of continued for progress recognized which was approximately EPS in tax ROAA from of consider increase XXXX, XXX,XXX the we Doug XXXX rate EPS these same nine net just represents linked achieving XX.XX% in was options to under an efficiency $X.XX on results reduced income in core and impact stock mentioned income ROAA. million quarter ratio XX% quartile good slightly XX.X nine reduced QX. of of on our for earlier slightly for QX upper of basis Core million months as is the to earnings of was

of an as and peer efficiency Strong of focus initiatives our year, income per to to loans core range strong place in in to at in of financial and growing than less markets progress generating improve at focus consistent annually, further carefully to deposits funding XX% maintain in is past ratio asset management in significant achievement filing; wholesale significant leases levels, and XX% assets on look at to we fee gains income USDA has years on over ROAA. continue XX%, the revenue, least ratio, metrics key of the net XX% the resulted two performance on increase have grow our loan sale we on remainder core growth, continue our ROAA, and loans noninterest and our than reliance of peer consolidation growth our to a focus to on swaps As earnings better the highlighted and improvement will total seven expense finally, the maintain our managed on assets, and by our organic on participate SBA the quality initiatives, in of of a levels taking component we acquirer and seven boost maintain which lease to these share. continue

quartile goal initiatives We each to upper of need to these continue peer will our execute performance. on to achieve of

October position important the have client X, initiative as priced With XXX continue and million a under bankers, XX community Rapids legacy XXX While XXX basis and exceptional Bank we deposits great people in negotiated Trust. occurred M&A this and after support adds transaction, to in our dominant Cedar was the community points core strengthens talented wealth of strong fit the it added management Cedar million had it clients with in Rapids Guaranty combined as at we on corporal management to acquisition Rapids further to did platform. of now assets Bank with our of transaction in for loans, our quarter and our end, on outcome the closing Bank's bank Cedar our the a long million in Guaranty and just great shareholders service, execute company. This market.

are and the company. employees, shareholders to pleased our Bank clients Guaranty welcome We of to

wrap it Now to to Doug I'll up. back turn

Doug Hultquist

comments for that bit Todd. insight a hope now phone have can the open We lines questions. the provided Thanks numbers. I more our into

Operator

from question Davidson. of will first D.A. come The Instructions] Jeff [Operator Rulis

Unidentified Analyst

can on higher seasonality. swap And time than from Matt is this this be occur line I item didn't in question said generally about were around? to sales due to tend my A that you income XQ that for but know This they gain income, and fee loan Why volatile, lower understanding be expected. Jeff.

Todd Gipple

of XXX,XXX about from of to about the And question. just tends great all QX. fee more components and recap, fee a nature Todd, is around just down in QX. This of around total little choppy a from we in had And or that deals. seasonality actually three be to of less these QX million XXX,XXX start that We over revenue had income a fast X

it the based of on color you be nature choppy done. So that deals about tends that have more a pipeline. already We the much to expecting been in tell provide don't lot But expectations seasonality, here just booked getting stronger in typically I deals are these about results can less here the of QX on October here. we forward in

about to large line in and makes deals to that hope less of very sense. some more little So, about get hard being seasonality, just finish these the nature

Unidentified Analyst

for level, you loan could normalized growth growth, to said XQ us. would that on that more at be you quantify Moving a

Todd Gipple

think of know back pace our say with high would that realistically, expectations. very that XX% would back I of the pleased we while to end that, don't we're And that could very at be continue. I quarters

year likely quarter three very this have year to the it's I XX%. in we're first going going have think but of a we've a not considering to we're accomplished strong what quarters, third

Unidentified Analyst

for high annualized to you fourth quarter? the would mid maybe So say single digits

Todd Gipple

down in We guidance typically but just we off don't on be forward XX% expect would pipelines, a loan based provide I the to from don't QX, Yeah. this cliff certainly suggest range. on fall that growth, to

XX% we're So year-to-date.

XX%. to the over upper might Our the down closer the last XX% to range has end migrate been range we a XX%. little three guess is of typical versus My increasing the years back

Operator

Instructions] question Piper The [Operator comes Nathan Jaffray. next from Race of

Nathan Race

sounds It a expenses. still the but what's in of of to Rockford a what guys you was going on the of transpired here, early run into of in convert thinking based expect to normalized about in kind quarter here it be as in I just on Guaranty fourth start to rate is expense are we curious when then kind wanted of get and XX? there like terms little Just terms you the

Todd Gipple

expect you we point, pretty CRBT. is news schedule. of that good has the scheduled to terms The convert we'd cycle long At for Nate. Guaranty time know We've as Sure, merging X. in a that had Guaranty into some on and be December bank that

implemented into on the 'XX, the not but but those majority all a will that end, about should We to year end, have of vast by expected will leak roughly accomplished the in be by cost assets. bringing early best saves probably million part we're of think XXX some year it

be ROA. this expect We to accretive to

to So somewhere in once the converted, all XXX the saves points are XXX basis once implemented. range

in So that in announce but little by early have number to we to cooked our bit along to XX/XX, expectation efficiently the saves QX is pretty a into year. might of things expect cost roll be XX% primarily 'XX, moving

Nathan Race

this terms quality - just curious Banking like would in of this forth? And was around of Quad changing so the any then color gears any details kind what it collateral, credit thinking about underlying what looks other is industry appreciate credit City so other and it Trust, quarter, just and

Doug Hultquist

to Doug. continue to political it's had decided weren't regarding agreed and three paid Nate, in typically, the as one to due issues, years some for we property. Yeah. developer invest was don't the borrower. And going that This they provide the information

get So next through matters performance property. better out the that weeks, working we'll on couple of and get of legal all

Nathan Race

thinking quarter. deposit obviously to a And about little last just bit just it's lastly slowed growth, relative

about you relationships curious the and in to the thinking growth are of you how XXXX? overall a thinking like like float some bit forward just little It terms core sized decent bringing funding thinking just looks in So on just opportunities? what guys guys of are sequentially, balances increased about looks so pipeline kind deposit going about fundamental how

Todd Gipple

relationships quarters. Great at bit that those was after amount. Sure, for borrowings market We We've has in we shift has million did XX% we growth in wins about on a last liquidity about loans very bodes the core than the moved was into more back at been the some that doing couple and talk here to our a the paid part borrowings. in we right, of that relationships. million have already typically been deposit big to Nate. QX Primarily like. fair find QX quarter and versus had And some terms back Growing started of the in to that at We Quad of benefit started down But more it end funding overnight down deposit They're catch roughly of funding has and large Good to are down to more you're large borrowings and and XXX City in quarter ended XXX million did in off stress we're wholesale core relying our size. now, transition growth bit since in those over on those come primarily that is funding. and to a that XX question. with FHLB. XXX wholesale. has paid of roughly much well at here our back got it news did elevated but up QX quarter, million back more paid a of

Operator

The will of from FIG next question Martin come Partners. Brian

Brian Martin

think we be sure Todd, out up added just continued of bit? far strip the just little for you a when number Doug, is as maybe expenses this this a maybe kind and component. of I the much quarter ongoing you I you legal could about or guess, but for not can what Rockford line I'm quarters, - guess may additional for core range what as will mean, just look that how Hey, maybe I couple of a in was as expense a additive versus at be quarter the just that

Todd Gipple

goes good Yeah. Sure from most everyone this news can, interested is where the here. And in you think would and what interested is is I most in certainly Brian. be

on amount retention the insurance through here. burned coverage have We our

expense now, expect very forward. What going on really start that line candidly matter. to arrears be a a insurance to some say going proceeds from this in we we're trying mirror this the is pretty coming So spending now And litigation recovery proceeds to to neutral the to I'm going going to forward, bit to and we're in expect much recovery, going go of forward here that in on on start insurance in QX, we're are be what we basis. those seeing

And So if primarily due I I being believe documents. makes just QX, of increase we this on production saw sense. earnings expenses, going anticipate don't forward, roughly a of in those XXXK that drag legal an to

Brian Martin

kind I in kind later Yes. it out as 'XX, quarter of to point I maybe you and more so level work 'XX, should back of a on kind maybe. but goes X.X some level was little last assume should under more that it get around bit at guess, themselves the things million, we think 'XX of moderate as into

Todd Gipple

Certainly.

Brian Martin

then lumpiness is business trying And that that but trends look enough. when there kind in understand just you far you targets going and strong, optimistic that just of that is term as you achieve SBA, get the like to business I there, don't kind level USDA get to opportunities, you is there the the still longer any market expect to, would you quite the anything Fair guess and this income, out the have fourth that I to sounds year, you're it just doing. mean I as some of normally swap maybe how guess, is kind guess are doing quarter how to, Okay. I at of and on is today need on

Doug Hultquist

of to do we've as also know, and would the small typically it's projects that you business take very we SBA we've conventionally preferred competitors time question That's found with a to with Yeah. good they're mentioned finding lot as unpredictable. before more doing the to USDA, consummation. loans have and large a come are And our Brian. We're of

Really should difficult rates what income all of. hope be that taking QX there good a if you think Fed be and to swap Wednesday, but what's advantage going be good to about out that or opportunity so higher should the fixing commercial think yesterday the in said predict. very continues, they a our expected off and the about and borrowers because to think and we're time on, talking start the So we to time to we're be considering for borrowers forth I

Brian Martin

more enough. Fair to the are add Okay. talked hiring quarter, Doug. it were for these folks? just more guess, it maybe SBA don't more back was the is and opportunities of know, to you on side? quarter, tied were about producers unit And them hired SBA you commercial any or I minute, to a I there of this the operational this mean, I kind broadly

Doug Hultquist

Brian Yeah. and actually SBA. Pretty quite if I outsourcing look either. on or yet I doing nothing of function that path broadly really list not some the right that's as but We've at decided contemplated the haven't

Brian Martin

Okay. that release. fourth additive came of the hiring aboard? And kind in reflected not Is so out quarter, I to most quarter, called line the did in quarter guess you whoever this from it the is you of the this salary

Doug Hultquist

Yeah.

QX not in jump think expect another I would in we line that big item.

that to we've QX. of QX. cooked carried open most through in that really It was primarily filling have some positions We

Brian Martin

core Todd, seems give it about margin of in on mix benefit would like fair of just far, just fourth that offer here that thinking thus kind you a bit maybe little if for the about, maybe so how whatever there increase and accretion, can the the kind quarter. helpful? thinking a both of a on of the on be this kind piece just it borrowings margin the just margin there's the commentary Fed like and Can side shifting quarter on maybe down sounds have you the context kind you're margin in amount you're it bit was come the you're how down you and any the of just accretion then And just as

Todd Gipple

here and in, overnights the touch to and QX, our at When books You than quarter. higher us. QX helping other report, expect too, other that consolidated bet, in to X.XX their do again we some some basis from changes of immediately of in in reliance on come there is Guaranty in Brian the going at the some improvements of end we margin. reduced margin public on had booked at is in point traction a loans will add the but that X.XX information to see those their as We We see funding end we help that call margin the upside quarter. you're get right. a us terms our mix blended do all the on

and will very we on our are core that well we net in as see expectations know wild of that. card discount happens about So be expansion modest all interest we're continue some The terms to to income pleased margin basis dollars a accretion.

so we quarter, And didn't third really first at accretion portfolio CSB. out it accelerated any the see time of this in that was

get normalized was then we're accretion, a QX. QX. and accretion Right as all issue around the acceleration. all have report Guaranty steady just in when coming expectation So going that portfolio booked of very it a off in is when our any we might XXXK polished we now, enough, course, QX over wasn't similar that one-time other XXX,XXX And that absent you and we that working QX, in to we're up complex we'll those if numbers of that here know little much have guess on

Brian Martin

them you maybe of for how it's there thinking - there opportunities just seeing kind perspective are integrated Guaranty now the just are as I'll just from through hop the and you as from an M&A good last picture about work guess, of it get maybe and Doug, M&A getting out an finish kind big maybe perspective, still that And far you're continued 'XX? more into and I to converted, guess guys here I thing talk you've, and as line off, you've to M&A get

Doug Hultquist

conversations always certainly markets. try a do, imminent still advantage the pipelines some scale in open. few which of the we We're Nothing obviously, folks, Brian those to we keep interested, to had but continue Yeah. see with and right

down So be we open continuing path. that to will

Operator

this question-and-answer closing any like would session. conference Doug the back And concludes remarks. our to turn Hultquist over for I to now

Doug Hultquist

all where pause able hoping to for Well, interest. occurred short good explain quarter. we but I the your the appreciate and still somewhat were better we're Obviously, we results, heading into fourth hopefully, feel

support So your and have good everybody. all appreciate weekend a interest and

Operator

you The conference today's has concluded. now attending Thank for presentation.

Have You may your disconnect now a great lines. day.

QCR (QCRH) 3 Nov 172017 Q3 Earnings call transcript