QCR Holdings, Inc. Receives BBB- Rating for Subordinated Notes

Strategic Insights -

QCR Holdings, Inc., a $9.2 billion-asset multi-bank holding company, has received a rating of BBB- with a Stable Outlook for its subordinated notes issued in two separate debt offerings. The notes, totaling $70 million, will be used to retire existing debt and have a callable feature on specific anniversary dates. The company's robust consolidated earnings results over the past few years are supported by strong noninterest income levels, solid net interest margin performance, and good expense management.

Key Takeaways:

  • The ratings are underpinned by QCR Holdings' robust consolidated earnings results, driven by strong noninterest income levels and solid net interest margin performance.
  • The company's capital markets revenue is primarily generated by fees from LIHTC borrower interest rate swap activity, which has led to steady fee income in the past several years.
  • However, LIHTC loans currently comprise a substantial percentage of total loans, potentially limiting earnings contribution in future periods.
  • Management has begun to securitize these loans, reducing absolute exposure and supporting liquidity.
  • Consolidated regulatory capital ratios are on an improving trend due to balance sheet management and retained earnings, although levels continue to trail rated peers by a margin.
  • Dividends constitute a small percentage of quarterly net income, and the company has not repurchased common shares in the past year.
  • Loan quality problems remain isolated, consistent with broader community banking trends.
  • Balance sheet liquidity is somewhat limited, with a relatively low 7% of total deposits consisting of cash and short-term investments plus the AFS investment book.

Statistics:

  • $70 million: Total amount of subordinated notes issued
  • $50 million: Amount of subordinated notes due September 15, 2035
  • $20 million: Amount of subordinated notes due September 15, 2037
  • 5 years: Callable feature on the $50 million note
  • 7 years: Callable feature on the $20 million note
  • 36 branches: Number of branches across six Midwestern regions
  • $6.7 billion: Total assets under management in trust and investment services
  • 7%: Balance sheet liquidity as a percentage of total deposits

Sources:

  • QCR Holdings, Inc. (NASDAQ: QCRH) news release on KBRA's rating assignment
  • Kroll Bond Rating Agency, LLC news release
  • QCR Holdings, Inc. company report on its subsidiary banks and financial services offerings