Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- QCR Holdings Inc (QCRH, Financial) reported strong second-quarter results with net income of $29 million, or $1.72 per diluted share.
- Net interest income increased by nearly 3% in the second quarter, driven by higher average loan balances and an expanded margin.
- The company experienced robust fee income, particularly from capital markets revenue of $18 million and wealth management revenue growth of 26% year-to-date.
- Asset quality remains excellent with a decline in total criticized loans for the third consecutive quarter and stable credit trends.
- QCR Holdings Inc (QCRH) maintained tight control over operating expenses, achieving a nearly 2% decrease compared to the previous quarter.
Negative Points
- Non-performing assets as a percentage of total assets increased slightly, driven primarily by a few specific relationships.
- The company expects a modest loss on the upcoming securitization of tax-exempt LIHTC loans in the third quarter.
- Total deposits declined modestly during the quarter, indicating potential challenges in deposit growth.
- The company is cautious about capital deployment due to macroeconomic uncertainties, including geopolitical tensions and upcoming elections.
- The efficiency ratio, although improved, may not be sustainable at the current level in the long term.
Q & A Highlights
Q: Could you remind us of the amount of rate-sensitive liabilities that would reprice immediately when the Fed decides to cut rates?
A: We have about $4.2 billion in rate-sensitive liabilities (RSLs), which would give us roughly 3 basis points of margin expansion for every 25 basis point cut. This translates to approximately $2.2 million in annual net interest income (NII) run rate, worth about $0.11 in EPS. — Todd Gipple, President and CFO
Q: Does the full-year loan growth guidance of 2% to 4% still hold with the two securitizations?
A: Yes, net of securitization, we are still guiding towards that range. — Larry Helling, CEO
Q: Can you quantify the potential assets under management (AUM) that could come over from new hires in the Southwest Missouri and Central Iowa markets?
A: The new hires were lift-outs of established organizations, bringing clients over and leveraging strong referrals from our bankers. We already have about $210 million in AUM in Des Moines and about $50 million in Southwest Missouri, both growing. — Todd Gipple, President and CFO
Q: What are your updated thoughts on the sub-debt that is repricing soon?
A: We are evaluating the sub-debt market and our cash position. We might consider a combination of refinancing and pay down. We will likely have more clarity by January with full-year results. — Todd Gipple, President and CFO
Q: How much upside to the margin do you see from here, absent rate cuts, from repricing of the loan book?
A: We expect stable deposit mix and cost, with new loan production ramping up. Even without rate cuts, we anticipate margin expansion between static and five basis points in Q4. — Todd Gipple, President and CFO
Q: How much in the way of loans do you have repricing in the next couple of quarters or the next 12 months?
A: We had $600 million of new production in Q2 at 777 basis points and $400 million of payoffs at 690 basis points. This churn will continue to benefit margin. — Todd Gipple, President and CFO
Q: What are your thoughts on the use of capital going forward, given the current build?
A: Given the uncertainty in the economy and global events, we plan to hold on to capital in the near term to ensure we are positioned to deal with any uncertainties. — Larry Helling, CEO
Q: Are you seeing more opportunities for M&A given current market conditions?
A: M&A is not our focus at the moment. We are concentrating on funding our organic growth and executing our core business strategies. — Larry Helling, CEO
Q: Is the current efficiency ratio level sustainable going forward?
A: We aim to operate in the higher 50s to lower 60s range in the next year or two, focusing on operating leverage and expense management. — Todd Gipple, President and CFO
Q: What was the increase in nonaccruals driven by, and what sectors did the charge-offs come from?
A: The increase in nonaccruals was primarily driven by a medical building dispute. Charge-offs were mainly in small business sectors struggling with inflation and wage pressures. — Larry Helling, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
