QCR Holdings, Inc.

good day and welcome to the qcr holdings incorporated fourth quarter 2021 financial results conference call all participants will be in a listen only mode should you need assistance please signal conference specialist by pressing the star key followed by zero after today's presentation there will be an opportunity to ask questions to ask a question you may press star then one on your telephone keypad and to withdraw your question please press star then two please note this event is being recorded I would now like to turn the conference over to Mr. Larry Helling, CEO. Please go ahead, sir.

Thank you, operator. Welcome, ladies and gentlemen, and thank you for taking the time to join us today. I will start the call with a brief discussion regarding our full year performance. Todd will follow with additional details on our financial results for the fourth quarter. We are very pleased with our financial performance in the fourth quarter and for the full year. highlighted by record net income and earnings per share. Our 2021 record results were driven by robust loan growth and expanded net interest margin, solid fee income, carefully managed expenses, and excellent credit quality. Our adjusted net income increased 58% for the year and diluted EPS by 63%. We grew our tangible book value per share by nearly $6 to just over $38 per share, representing 18% year-over-year growth. Additionally, we strengthened our capital ratios in 2021 with our tangible common equity to tangible assets ratio, improving by 82 basis points to 9.87% at year-end. We experienced healthy demand from our client base and grew loans by nearly 17% when excluding PPP loans. We capitalized on strengthening economic conditions in our markets and continue to gain market share across our charters. Our clients value our local charter model, which is reflected in our robust growth in both loans and deposits. Our specialty finance group had another outstanding year generating strong production in our niche lending products. Additionally, our traditional lending business finished the year strong with fourth quarter annualized loan growth of 8%, accelerating the trend that we began to see in the third quarter. Our loan pipelines remain healthy and our near-term outlook for loan growth remains positive. Therefore, we are targeting organic loan growth of between 8% and 10% for the full year 2022, consistent with our long-term goals. We funded our loan growth in 2021 with core deposits and excess liquidity that we were carrying on the balance sheet as we began the year. Core deposits grew by 7% for the year, with strong contributions from our core commercial and correspondent banking clients. In addition, the composition of those deposits continued to improve as non-interest-bearing demand deposits increased by nearly 11% year over year, while interest-bearing demand deposits grew by over 8%. Additionally, we successfully protected our net interest margin in 2021, which was up nine basis points for the year on an adjusted basis, despite the challenging interest rate environment. Our balance sheet initiatives paid off as we constructed a more efficient balance sheet combined with strong loan growth, funded with core deposits and utilization of excess liquidity. We successfully drove down our interest costs by significantly increasing non-interest-bearing deposits and capitalizing on favorable deposit repricing opportunities. We had another year of solid revenue generation with strong contributions from both net interest income and fee-based income. which adds diversity to our revenue stream. We are particularly proud of our wealth management group, which grew assets under management by 23% in 2021. This team added more than 1,000 relationships over the past three years. Our asset quality and credit metrics improved significantly during the year and remain extremely strong. Non-performing assets improved 80% over the course of the year to just $2.8 million at year end and represents a record low of five basis points of total assets. We had minimal net charge off during the year and we feel very good about our current reserve level, which when excluding PPP loans is 1.69%. Our excellent credit quality is a function or a disciplined and consistent underwriting along with improving economic conditions across our markets. Before turning the call over to Todd, I would like to provide an update on our anticipated acquisition of Guarantee Federal Bank shares. We are excited about this transaction as it will significantly enhance our market position in the vibrant Springfield and Southwest Missouri markets. Guarantee Bank has a deep-rooted and prominent brand, a long history of profitable growth, and a talented team of bankers. Guaranty is also known for its commitment to exceptional client service and relationship banking, including outstanding community support. We share these same values, making the combination a natural fit. Bringing the two teams together from both banks will enable us to extend our high performing and profitable niche business lines into those markets, serve our combined client base more effectively, accelerate our earnings growth, and improve shareholder returns. We expect this transaction to close early in the second quarter and look forward to welcoming Guaranty Bank to the team. In conclusion, I would like to thank the entire QCR Holdings team for their hard work and dedication to outstanding client service and for delivering record earnings performance for the year. Our employees are the heart of our company, And I'm proud of all they've accomplished in 2021. With that, I will turn the call over to Todd to provide further information about our fourth quarter results.

Thank you, Larry. Good morning, everyone. Thanks for joining us today. As I review our fourth quarter financial results, I will focus on those items where some additional discussion is warranted. Let's start with net interest income. Our adjusted net interest income for the quarter was a record $49.2 million, and up $744,000, or 1.5%, from our previous record set in the third quarter. This strong performance was due to the continued strong loan and lease growth that Larry discussed, as well as our ability to protect our net interest margin in this challenging interest rate environment. We funded our robust loan and lease growth during the quarter with a combination of core deposit growth and excess liquidity. Core deposits increased $52 million during the quarter, driven by a $72 million increase in non-maturity deposits, partially offset by a $20 million increase in time deposits. We continue to intentionally rotate out of higher cost CD balances and improve the mix of our deposit base. While the cost of our total interest-bearing deposits improved a modest one basis point from the third quarter, for the full year we created a 26 basis point improvement. These lower deposit costs have helped us protect and actually expand our net interest margin during 2021. While adjusted NIM compressed by four basis points this quarter, we were able to improve NIM by nine basis points for the full year. The quarterly decline in adjusted NIM was closer to two basis points after excluding the impact of lower PPP income and elevated excess liquidity, matching our guidance for the quarter. We had elevated liquidity during much of the quarter, driven by strong seasonal deposit growth, with the majority of our strong loan growth occurring in December. We are very pleased with our NIM performance throughout 2021. We have been successful in holding on to earning asset yields while driving down our cost of funds. As we near a potential rising rate environment, our ability to further drive down our cost of funds has diminished and we continue to experience loan pricing pressure. Therefore, we do expect some modest NIM compression in the first quarter with adjusted NIM expected to decline in the range of two to four basis points. That being said, we are well positioned for rising rates as our balance sheet is solidly asset sensitive. Now turning to our non-interest income of $23 million for the quarter, which was lower than the near record non-interest income of $34.7 million we generated in the third quarter. We produced capital markets revenue from swap fees of $13 million, slightly below the lower end of our guidance range of $14 million. Our full year swap revenue was $61 million, averaging just over $15 million per quarter and within our guidance range. Over the last eight quarters, capital markets revenue from swap fees has averaged $17 million, which gives us continued confidence in the sustainability of this important source of fee income and supports our reaffirmed guidance range of $14 to $18 million per quarter. We continue to expect strong, sustainable levels of swap production based on the demand we are seeing from the relationships within our specialty finance group, as well as in our traditional commercial lending business. Many of our clients continue to lock in attractive fixed long-term rates by converting their variable rate loans through the use of swaps. Now turning to our expenses. Non-interest expense for the fourth quarter totaled $39.4 million. compared to $41.4 million for the third quarter and within our guidance range of $38 to $40 million. The linked quarter improvement was primarily due to lower incentive-based salary and benefits expense of $3.4 million as a result of a decrease in capital markets revenue. Partially offsetting this decrease was a $584,000 increase in advertising and marketing and a $624,000 increase in acquisition costs. For the year, we are pleased with our overall cost control as non-interest expenses increased by just 1.3% year-over-year, well within our long-term goal of keeping expense growth below 5% per year. While we will remain disciplined in managing our operating expenses, like many other companies, we are experiencing some upward pressure in compensation and other direct costs. However, we still believe that we will be able to keep our annual expense growth below 5%. Looking ahead to the first quarter, we anticipate that our level of non-interest expense will be in a range of $39 to $41 million. Our overall asset quality continues to be quite strong. Non-performing assets improved by 60% for the quarter and 80% for the year and, as Larry mentioned, now represent only five basis points of total assets, 20 basis points lower than one year ago. The linked quarter improvement was primarily due to the payoff of one non-accrual loan during the quarter. Additionally, we recorded a $3.2 million negative provision for credit losses in the fourth quarter, primarily due to continued strong asset quality and a corresponding reduction in the qualitative factor related to the pandemic. Our allowance for credit losses excluding the impact of the remaining $28 million in PPP loans was 1.69% to total loans and leases down 10 basis points from the end of September. This allowance now represents over 28 times our non-performing assets. With respect to capital, we continue to grow our strong capital levels as our tangible common equity to tangible assets ratio improved at 9.87% at year end compared to 9.54% at the end of September. Finally, Our effective tax rate for the quarter was 18.9% and 18.6% for the full year. The rate was slightly lower on a linked quarter basis due to a lower ratio of taxable earnings to tax exempt revenue in the fourth quarter. We are very pleased with our 2021 financial performance that resulted in a 63% increase in earnings per share and a $6 increase in tangible book value per share. We are well positioned both financially and strategically to continue to grow tangible book value and produce strong earnings per share. With that added context on our fourth quarter and full year financial results, let's open up the call for your questions. Operator, we're ready for our first question.