QCR Holdings: A Strong Buy

Rising earnings estimates on the back of decent second quarter results – including a 4.8% earnings surprise – helped QCR Holdings Inc. (QCRH) achieve a Zacks #1 Rank (Strong Buy) on September 22. Moreover, the bank has delivered two positive earnings surprises in the last four quarters with an average beat of 44.7%.

With a solid year-to-date return of 58.6%, this stock offers an attractive investment opportunity.

The Rank Driver

Better than expected second-quarter earnings along with improving credit quality and robust asset position were the primary rank drivers for this stock.

On July 23, QCR Holdings reported its second quarter earnings per share of 44 cents, beating the Zacks Consensus Estimate of 42 cents by 4.8%. Strong results for the quarter were primarily aided by higher net interest income partly offset by higher operating expenses.

Net Interest income came in at $14.5 million, up nearly 4.0% from the prior-year quarter. Net interest margin was 3.16% as against 3.21% in the year-ago period.

However, non-interest income decreased 2.5% year over year to $4.1 million. The fall was mainly driven by lower trust department fees and deposit service fees.

Operating expenses increased 4.4% from the prior-year quarter to $13.1 million. The hike was driven by higher salaries and benefits as well as other expenses.

Provisions for loan/lease losses totaled $1.0 million, down 37.3% from the prior-year quarter. Net charge offs fell 42.6% on a year-over year basis to $1.9 million.

Total Assets summed to $2.04 billion, rising 8.8% on a year-over-year basis. As of June 30, 2012, QCR Holdings Tier 1 risk-based capital ratio was 11.40% and total capital ratio was 13.00%. Tier 1 leverage capital ratio stood at 8.2%.

Earnings Estimate Revisions

The Zacks Consensus Estimate for 2012 increased 3.9% to $1.87 per share based on 1 out of 2 upward revisions over the last 30 days. The current estimate implies a year-over-year growth of 102.7%.

For 2013, the Zacks Consensus Estimate moved up by 2.5% to $2.03 per share over the last 60 days.

Valuation

QCR Holdings currently trades at a forward P/E of 7.7x, a 31.8% discount to the peer group average of 11.4x. On a price-to-book basis, the shares are trading at 0.50x, a 56.5% discount to the peer group average of 1.15x.

National Bank has a trailing 12-month return on equity (ROE) of 8.8% compared with the peer group average of 9.3%.

About the Company

QCR Holdings, Inc. is the bank holding company of Quad City Bank and Trust Company. The Bank provides full-service commercial and consumer banking, and trust and asset management services for the Quad Cities, Cedar Rapids, and Rockford communities. It is headquartered in Moline, Illinois. The company has a market capitalization of roughly $70.09 million.

Other Zacks #1 Rank Financial companies include Republic First Bancorp Inc. (FRBK - Snapshot Report) and Pacific Continental Corp. (PCBK - Snapshot Report).