QCRH - Earnings call transcript Q4 2020

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Operator

Greetings and welcome to the QCR Holdings, Inc. Earnings Conference Call for the Fourth Quarter and Full Year 2020. Yesterday, after market closed, the company distributed its fourth quarter and year-end earnings press release. If there is anyone on the call who has not received a copy, you may access it on the company's website www.qcrh.com.

In addition, the company has included a supplemental slide presentation with COVID-19 related disclosures that you can refer to during the call.

these the access also can slides website. on You are CEO CFO. and us today Gipple, Helling, management from and With Todd Larry President, COO Management call summary then will brief financial provide and results of we'll questions to the the from analysts. open a

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

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

on information these filings, SEC included on website. are available the Additional in the company's company's factors is which

substitute for most GAAP refer GAAP release on today the to non-GAAP information comparable may available reconciliation the press non-GAAP as measures, discussed be the management quantitative website, as and are other to well financial not the contains intended to the the which directly Additionally, but measures, to measures. supplement of

a may afternoon. on begin. reminder, you through this starting also call. accessible conference XXXX will and website. recorded company's QCR to after XX, February for over being sir, this be Holdings, It is available Mr. time, call Larry one completion will I'd to of replay hour be the the this As At like turn the Approximately call this conference Helling at

Larry Helling

to join financial year fourth with discussion I follow operator. you, brief for performance. on and today. thank you ladies us Welcome, details our will Thank time start taking additional Todd gentlemen, full quarter. with the the for will our regarding a results call and

the driven solid fourth and robust our for revenue including financial are by year fee in share. results earnings and record growth We quarter per a adjusted record were and record the net These pleased performance income identify in capitalize new that by impact crisis challenging loan highlighted with the manage income increase clients very but environment, net opportunities. to the helped continue growth interest a helped it of boost year and The to we on pandemic organic made adjusted our our growth the solid income. and

year down from non-core both XX% income $XXX Our core and the our demand strong grew This expenses book for income revenues X% We by X%. healthy adjusted were we existing loans grew items, adjusting PPP nearly value X%, for leverage. new interest grew client by of tangible our XX%. and by experienced and base strong demonstrating not swap After loans for income by net does clients. our net driven higher while fee and increased operating include the million

Our client specialty finance lending on production year strong products. group demand based for outstanding an volumes record generating our niche had

outlook Our near-term loan remain growth, loan pipelines our for healthy positive. remains and

organic we targeting loan our goal X%. However, commercial economic of growth visibility for until between in strong banking of with our and with loan XX% by the correspondent clients. grew from contributions year the which X%, robust XXXX full on better recovery, very core are deposits, We year we growth lower XXXX, core for than long-term funded and our the X% have slightly

our grow community-banking. the value clients market charters, on across relationship-based our We continue to that share which place reflects

of a XXXX, our rates protected significant up in for successfully we margin year, pandemic. the in the which result a was interest as slightly Additionally, net interest despite short-term drop

high we funds. as down drove cost by interest Our sheet balance initiatives eliminating wholesale our cost paid off

deposits non-interest on repricing meaningfully bearing also favorable We increased deposit capitalized opportunities. and

quality credit metrics strong. Our asset remained and

the the over built loan loss We of about and very our course feel year current reserve also good our reserves significantly level.

payment program of offering helping implemented early impacted deferrals relief on the cash all them year-ended. who liquidity. well our in the resumed loan we three pandemic, our payments, clients, and calls, preserve received to earnings Nearly, proactively As last payment discussed loan before relief we our our borrowers,

As We resiliency activity. on of and to total to exhibit this deferral, remaining improving X.XX% or markets, local the $XX speaks of economic of of portfolio. XX, our continue the portfolio we our December believe the loan which had million high loans only quality of

impact remains navigate pandemic it difficult environment. While will well are our our predict to clients, the on positioned that ultimate the banks to have this

are We the environment. help clients closely, portfolio our adapt monitoring with loan and to them economic to working current

believe and economy delivering the our performance making serve best dedication decision earnings Holdings We year. combined focus, continue QCR that the recovers. is service record our would the customer outstanding markets entire like I to the team way for and their hard to adapts with local work to to and client thank as for for

Our over and for our all the our organically will turn that and pursue continue In our that, our XXXX. to of team from information company, about to provide to to heart employees am they've of goal this I strategic believe entire positioned we results. well we and With proud both creation, are in emerge value fourth long-term call summary, I pandemic accomplished will profitable of Todd quarter growth acquisitions. further the through very

Todd Gipple

Larry. you, Thank

our financial I'll start I'll discussion focus those results, on review, warranted. items fourth with loan our I is As additional growth. quarter where some

production A production Our our lending loan fourth real finance was group. business commercial annualized specialty key our in was loan loans. from the driver X% estate strong and by growth quarter. core It lease largely new primarily was in driven during commercial

we area Larry finance. and tax lending of As in particular continue our project with mentioned, healthy in and demand opportunities, experience a maintain municipal credit relationships pipeline to this solid in

loan during and growth some strong lease quarter liquidity. was the excess funded with Our of our

some was growth slightly, of reductions higher deposits portfolio as as declined in higher-cost Our intentional deposits as broker deposit CDs. our cost well offset by core

$XXX X funds from ago. nearly by to we had driven record on bearing banking period, now only excluding activities only represent million continue deposits year-end, It strong reliance our of million interest net deposit tier to deposit wholesale This bearing also commercial our At our we provides which relationships. subordinated enhance one core capital. by XX% we reduced is to Over funding, million that non-interest lows. as reduce our now Additionally, down wholesale $XXX reliance has $XX year funding. debt grew of on helped total deposits same our Non-interest significantly end gathering our our of at XX% from base, from gathering has up clients as from wholesale deposit XXXX. margin. correspondent well the Not our

turning interest Now million, a income $XX.X linked net XXX,XXX our quarter the earnings, to on quarter was for basis. down

one-time by grew X.X%. rate by on charged million X the cost previously quarter, and assets we assets yield yield assets declined lower not interest earning both due off third in by points repeated points, at by experienced $X.X on average loans our and basis The on our driven was quarter. recoveries While quarter basis mix. those the from two the that third in declined to was The fourth primarily deposit which

a NIM As basis reported was down adjusted of our quarter, and result this points. seven XX our time basis NIM points one in the down recovery third was

actually basis of of guidance the well Excluding the quarter's our on impact ahead NIM call. last prior up quarter's adjusted one recoveries, point was interest

are XXXX. with throughout We very pleased our NIM performance

We rate funds of and significant cost aggressively earning from have as funds holding as to yields deposit reductions, wholesale cost driving while down asset higher rotation been well strategic through core timely onto low-cost successful deposits. in

sustained the diminishing. our rate move to into cost driving lower funds further continue environment, of ability interest low we As is

expect compression pricing net points. some four modest NIM to quarter we the Therefore, basis in in XXXX. range of six expect experience we loan While we pressure. to a On basis, to NIM adjusted first decline continue do

swap million generated income we level, the Now million million quarter lower below the $XX of XXXX. turning record the we the than to We third guided record swap quarter the was of above but our almost meaningfully $XX quarter. to, in million $XX million a $XX in quarter. in $XX.X income, produced $XX third strong which but non-interest We averaged million income for fee per the fee

the of demand of clients based this is by we banks expect for foreseeable loans swaps. mentioned, the in strong remains commercial of attractive our and healthy to we swap seeing Specialty as income loans to continue fixed that future. our source and lending. Group Specialty levels our sustainable as variable-rate at our Group, our production long-term the believe within well the sustainable rates lock use of The Finance of to their through Larry fee from we are pipeline converting As want core Finance swap continue Many in relationships on

in While did and we expect that that approximately don't achieving $XX quarters, million anticipate do we fees the the same we third level million $XX of XXXX. per high will fees swap be quarter for to fourth swap

compared the significant quarter our expenses. our fourth expense million third $XX.X the items $XX.X $XX totaled higher million. Now number There impacted than quarter turning were million $XX to million a to and guidance for for of expenses. of that to Non-interest

expense compensation we with benefits of expense the First, driven the results financial increased in the quarter half million incentive and strong by of in increased the $X.X second year. salary incurred

some we our funds of all charges incurred $X.X non-interest one-time at we Second, prepaid incurred these end profitability. below totaling in future high as came our guidance losses cost items, right expense $XX debt million of Adjusting in wholesale other $X.X just to for third, on some we And year range. improve million. extinguishment million

a of to return $XX noninterest the million range our in back that level to and ahead first to we will more Looking that be $XX anticipate expense we'll million. level quarter, of normalized

ago. point monetized represent basis status quarter. to off year the a over quality quarter points The total XX% be XX returned continues to improvement of primarily One during for quite basis strong. of to assets than due lower as number loans one a overall reduction or asset charged performing loans Nonperforming nonaccrual was linked-quarter in assets. Our improved now by and the either only

impact from in quarter. losses X.XX% allowance loan for at on were of our the represents for quarter, the of that million our and points loans times excluding the the end provision fourth balance non-performing We September. the reserves assets. Our the up PPP of prepared basis to level XX/XX/XX loans down remain This CECL five was $X.X as implement $XXX to The over from prior totaled fully and sheet seven leases lease in million total planned. now million $XX.X

their However, we the due on incurred needed to December the our close the methodology to at by time Act SEC the we CARES from lack stayed of on the of clarity legislation, XX/XX/XX. year, interpretation loss

were and we intend of to Our methodology loss at CECL XX/XX/XX identical capital. to CECL and adopt reserves respect With X/X/XX. under nearly the as incurred

abundant have strong needs. continue liquidity and levels to to capital very client's maintain our meet We

equity as you September common tangible the PPP exclude loans. ratio impact improved end the assets dilutive compared of to the Our at X.X% to to X.XX% of if tangible

significant well continue solid per and opportunities. remained provide share are power as take M&A earnings we capital, overall a future to Our advantage of grow earnings result, and positioned to

on The due to our basis, for fourth to tax quarter the our results, questions. ratio a context tax-exempt for in quarter ready up effective taxable are With first for linked came rate call Operator, rate financial a question. at Our was open earnings quarter XX%. the that lower lower your let's on revenue. slightly added of we

Operator

at the with your today Again, momentarily ladies our our Rulis pause begin Davidson. Instructions] gentlemen, go first [Operator Jeff from will this ahead session. question-and-answer We roster. we'll and Please D.A. question to from And time, assemble question. comes

Jeff Rulis

and Larry morning, Good Todd.

Larry Helling

Good morning, Jeff.

Todd Gipple

Good morning.

Jeff Rulis

expense growth is rate from extend side? ask about to maybe seeing for XX, expectations Wanted were range half year, of up sort the XX the of a kind pandemic. growth of of if further to the the there get on guide of that What or to we the longer back kind is expense there the things a incrementally but little that the in And then year. tooth bound and potentially for any you just expense in as open are kind to of the

Todd Gipple

going settle for that pretty that XX anticipate QX forward significant feels land that year have in we're feels elevated XX guidance We that good much the that range have really us. XX did range to swap be expense. as, some the Jeff. answer With But pulled in a being expenses respect We up. call should if at sustained the into trying where more If Great fees pretty see swap intentional, really XX XX. to would question. on some Sure, run XX to being to that that provided of really around for is short we that rate that we staying Thanks of incentives with was we like we to today. throughout year. non-interest did in for

Jeff Rulis

there comment -- CECL. the Todd your And last on

doesn't of adjustment sound somewhat am we're sort be immaterial wrong. big reading a going see I it to So day that or one like

Todd Gipple

loss immaterial, model that. appropriate opinion be would on their at were incurred didn't it -- on, spot there uncertainty Jeff, that to No. like were We back feel spooled We there to for disappointed year-end. final the it we up. wait SEC some give was

I top XX/XX. were very each think, other were the that at the third of quarter, on end they at they of right close,

So should adoption first here impact for be the day one in any not quarter. significant

Jeff Rulis

you. Got

maybe and last Okay one Larry. for perhaps one,

a think about Just the do if of that the been M&A thinking little growing that expectations. you at sort under you keep some buyback on if year, perhaps you've any but discussion over tool growth, consistent the capital bit if and of we growth, increase marking and Do methods? I point organic --sort other pretty your your side that of quiet level M&A, about -- throughout loan kind your capital using kind goes of of Thanks. of you eye -- first you're

Larry Helling

say, the question. first, even pandemic. I good another had through Jeff, would Yes, growth we've organic good

prospectively. see of a much depend our how we growth lot discussion will So on organic

But future. some you expect there normalize. would dialog targets, to in it's to with there discuss materializes, that later will to more potential and probably M&A something from it's we with potential things little year if the That's premature there the on we foreseeable be But do would Secondly, yet certainly know. hard M&A, none buyback. growth anticipate continue if anything. to the M&A went regard to horizon slower opportunities nothing as if in yes, predict of I is think but be a

Jeff Rulis

you could place? the in remind And Okay. authorization us

Larry Helling

so this to however, throughout dynamics If we we it go year to Yes, the back about and suspended talk the our want would changed sometime. Board year. later

Jeff Rulis

Okay.

Todd Gipple

a we we had that And on in first back to one, in to reinstitute at mid-March. do if a much of suspended the quarter. said, And Jeff, and we we'd Larry were used as buyback again, refresh Board we likely authorization the go back the target. a settle target,

Jeff Rulis

guys. you thank Great, Okay.

Todd Gipple

Thanks, Jeff.

Operator

comes Race Nathan from question Please next Our go your Piper Sandler. question. with from ahead

Nathan Race

guys. hi Yes,

Larry Helling

Good morning, Nate.

Todd Gipple

Nate. morning, Good

Nathan Race

outlook, out your And from for volumes PPP compression just the there? the and latest I year, kind out margin some that from last in adjusted obviously to terms from we about within round. expectations are think as from discussion guidance hoping the flows trying outlook here. that, just this I somewhere what to continue guess volumes the appreciate parse while on Maybe but of Todd, your of

Todd Gipple

in on with a some fixed high talk that providing maybe and Certainly in down kind guidance repricing. start bit Sure. big Nate, be us loan just loans little I'll level for of NIM of QX about compression forward PPP. rate a burn the certainly then headwind would yields

more floating rate We our those with are floaters. issue program, also so continuing LIBOR slot to are

a will So that continue to provide a of headwind. bit

off. we We that are still fortunate, to have opportunities some fight

will of We down cost to continue drive funds. our

floors. starting are bump We into to some

As you might the have noticed and looking table. at

of a incredibly bankers a we diminished through point, there, the fighting in opportunity have of basis get they company for can but there of talented So is terms reduction. all some cost funds bit every

here that a have excess again And successfully there, little while down we of in still So, QX. in bit opportunity work liquidity, QX. pretty

going to with the new liquidity, of to wave funding, certainly is in not that's going there Our is be roughly any in cost liquidity another excess PPP get nine estimate system. points basis it us QX, easier

quarter. at liquidity. benefit. that But the So we'll can, to excess we'll or quarter And full of delevering have work prepayment in fourth from a we some forcing did to see and of I the will hard the mean extent continue year then down we full did we some result some the we

outperform it's can that six help offset little just will to then, bit to PPP. a will But we the things about that. guidance And a to those bit. of So think, prudent range yes, do that we given softer four challenges, a all bit provide little in

round where in the might terms fees We K two on forgiveness. expecting. about in And that first insight the will Larry two some that's have well. provide not fees net lenders see on million $X.X Larry, good that's going roughly Again in but We Really know, We rest expect between then QX total activity, $X round some around what of we with our the and what that million dependent at and have might we point, quarter. XXX would of this million only want you accretion off. in $X rates forgiveness to maybe forgiveness have. remaining. in tail think PPP. roughly of all has in are I speculating

Larry Helling

that a much I will process Yes, the make say portal new easier. in Nate. would we've which got place

And the the loans so size are, we this can respond. feel restrictions qualify though There of our on good dollars who about and round ability second available our to -- for is There plenty time. as of clients.

us, XX% for So we two be the of will we'll of would first the certainly roughly for volume PPP estimate PPP active. and that the round be round of

help We but of are to round it same magnitude, won't proactively our to of PPP. trying first them, clients and the the going still be as

Nathan Race

it. strong quarter. loan for we releases, do level. your from charge-offs, CECL assuming provision outlook on strong of helpful. just continue I in the in or top obviously expect Got That's kind implementing guys very again here pretty given of year loan guess, pipeline, And for just you any outlook this to and strong to is kind have about guys as at growth the this reserve need recovery pretty should to growth a thinking this year year. then here already entering reserve with pretty a outlook expect And the first steady the of provide you

Larry Helling

he bit really where credit yet would Yes. additional Todd feels good. because it's any I'll to over let when finish clients publicly We're pandemic fourth talk ago, part certain to we and be Nate, whole we've It's this in so, improved -- started nine issues has in months impacted color. difficult had about probably I'd certainly I'll we ways. metrics which less or exactly XX that here it's -- anticipated, start if that are and will the victory pandemic that tell little a declare available premature quarter our the have in

a little may in so we've So in to impact of behind even bit us. we'd building the meaningful with as later of the late get clients challenges been in we the we've that result as component challenges that's tried that a our credit aggressive expect but why XXXX, year way or have handful the of some maybe reserve earnings

certainly or later we offs wanted to getting it's I'd X% from that beginning, but too that If reserve at we'll in -- down, our that go the it's year, over reserve need very numbers. the normalize less So the to level. [indiscernible]. probably We're say, those target predict charge possible early

Todd Gipple

think, nailed about I Larry XXX basis up points. Yes, been that. getting since April We've talking over

Now that the victory. thought, declare we pristine the it's level good far. -- thus little are to portfolio Larry's But really to reserve a there. we and feel is It's early how echo about of

Nathan Race

understandable. Yes,

Sounds color, all good. Thank guys. I you. appreciate the

Larry Helling

Nate. Thanks,

Todd Gipple

Nate. Thanks,

Operator

next our your from And Please ahead question. comes DelMonte Damon question KBW. from with go

Damon DelMonte

today. well Good guys. everybody doing Hope morning, is

question, the my So to growth. just first regards loan

You good us, the how contributed guys past referenced balances being a are and year? during much growth. the source the first as Specialty to actually Could the I outstanding you of that Finance growth Group remind guess, just what

Larry Helling

a it's the component Yes. been of meaningful Damon, our growth throughout year.

at of the things going One all banks. on almost

liquidity industrial for because of of clients, have look numbers normal clients the C&I just backed year. If actually and tremendous because our of hands, borrower's credit our in our you operating C&I during up at those our and PPP lines

activities. overpower commercial our estate other in SFG to of kind So both expansion because able equipment and of real finance that meaningful we've been and

with our money their because we we able of been that less on credit. of are in And spite lines just growth to borrowing have pleased good clients still so

really came sheets. growth commercial their the on balance because and in throughout clients deleverage equipment estate of company, real but from finance mostly and, So, the own

Damon DelMonte

to just of Got maybe a that on leads Has about relationship source it, and little in can opportunities through or it? that role of good growth? have loan how PPP perspective kind been capitalize playing on will be future you have And okay. came you been then, the able your a new

Larry Helling

in some say, more the source deposit and probably it's deposits be of phenomena. been I year, good even impact our funding a grown short created loan made about treasury the forward really term. would it going a costs. meaningful think our get What opportunities good And through bearing we on of we growth, talked it's and certainly better It's management particularly the I once will non-interest mix substantially throughout have and metrics, so our PPP

Damon DelMonte

Got it, okay.

all answered. I Everything that's that had. and had I asked else been think,

much. very you thank So

Larry Helling

Thanks, Damon.

Todd Gipple

Thanks, Damon.

Operator

next [Operator Please comes Montgomery. Martin question. Brian with Instructions] from question Janney go Our your from ahead

Brian Martin

Hey guys, morning. good

Larry Helling

Good morning, Brian.

Todd Gipple

morning, Good Brian.

Brian Martin

asset two pandemic, COVID levels. you quality where once It get in as where you guess I to if Hey, wanted some but to guess question. world. reserve you guess, you get where think you the if more the you X% you I give you levels today, -- can do -- reserve justifying, I I and where X% current point? mean, think the you look get Todd, seems post To that guys past your will to you that thought -- if if on some kind trend to I at are, if the challenging, of versus guess, are the or might level. a point with end up before may were

Todd Gipple

Sure, Brian.

to and up that like but of the would maintain reserves all think Larry's levels we foot see followed strong, troubled quite little maybe enter a bit to you sky reserves. due coming We will a time. with challenging could course, see in the credit but have XXX you comments, to the the those. open off industries, that, through reserves XXX-ish all we unallocated until I areas roughly we country. through off think, softened that maybe it's not the sure elevated bit terms feel would just expectations really the it discipline if range It we're earlier bit is I in gas will our more could be And and we're charge-offs for up CECL be CECL, our on only million a getting depend softening the after us us the a in we getting this the certainly to and as are way take some and also pace in we from of quite some charge-offs COVID to of I now, have factors. I seem those expect and and philosophy We see tell we making economic both to plenty longer-term $XX if of going of through of most ready

So up. at that. year, expect then ability runway really up, charge-offs and we And feel we to But to in were softened on good those about it's the depend term, handle if point, right top to numbers us on that. increase it's shows I really those level some pretty long from at Again this don't you'll going that degradation don't of necessarily of give reserves we show next know CECL's provision XX/XX. don't us. on see quality of asset to a unless going -- lot

Brian Martin

Yes, got you.

then Okay. one And more. maybe or two

in that. Just at would has other wondering, opportunity on say kind point, or out a partners. to or may you've talked the on it's bit it second the dialog struggle given, year for bankers looking I more little be more lot a guess, just you a that about the half been been, of pick-up maybe M&A the you of distant -- M&A there a of side, has where on find a guess this I discussions seen -- been of

Todd Gipple

want Sure, start you one. Larry, to that with

Larry Helling

has last to, the so, -- quiet there normalize. or know of because certainly unbelievably in you the a Yes, opportunity think was, I three quarters pick-up There people discussions, start, is things but I'll it are but as been starting to would for say. I

to to but talk than it I think quarters. be it's they to few but certainly be were last more when -- to are that's tough people willing going will there opportunities predict, some the about be going exactly,

Brian Martin

you. Got

how you points, then margin. your benefit forgiveness? basis on XQ, of might I forgiveness the Okay is It directionally and credits mean, just kind are you the just in the of about sounds in the look forgiveness beyond of the to four Todd, the liquidity, the about mostly I picture, what's like or just mean driving how just wondering I half mean therefore margin continued based the and half do last event first how much wondering, terms to in on or here six. XQ? appreciate how margin have year I one, thinking back a on kind in color think remaining the just big of the

Todd Gipple

guidance question, PPP four fees. Fair be for that. although of the forgiveness Included through to little takes million and recognition range. that bit would and of Brian. in again, $X basis that And Sure. that QX on our six puts went roughly softening in of point I

to on is or be While respect of the have the round we out just from half of from to expectations, don't two. back round one. don't maybe there have Larry big any PPP drag see necessarily our end of I of believe with volume yet clarity margin neutral we round kind of fees outcome. what PPP XX% I that we whatever we expect do there will as two lift fairly might year, had a be shared,

margin impact I think, it's really not much. going to

static, part, posted look think I QX, be QX that in I think, if you that our really number fairly should X.XX% guidance, adjusted we I we at for were to do.

Brian Martin

it. That's

questions. else has Okay. Everything appreciate so quarter, and guys nice you been I nice answered, thanks taking and year.

Todd Gipple

Thank you, Great. Brian.

Larry Helling

Brian. Thanks,

Operator

I'm And over for Helling like questions, back additional any comments. ladies closing to and conference time, Mr. turn gentlemen, the I'd at showing this no call to

Larry Helling

Have great the Thank during all joining for crisis. forward everyone and ongoing remains to that look healthy to of again and you, speaking We health with all a you operator. on our day And we hope you safe today. call thanks soon.

Operator

for you. joining. Ladies Thank you and call conference gentlemen, that, today's with conclude with we'll

now disconnect may your lines. You

QCR (QCRH) 28 Jan 212020 Q4 Earnings call transcript