QCR Holdings Inc. 10-Q Summary: Quarter Ended March 31, 2010
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for QCR Holdings, Inc., a Delaware corporation and parent company of three state-chartered commercial banks: Quad City Bank & Trust, Cedar Rapids Bank & Trust, and Rockford Bank & Trust. The report covers the three-month period ended March 31, 2010. The company operates primarily in Iowa and Illinois, offering commercial and consumer banking, trust services, and leasing.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Income (Attributable to QCR) | $1,292,009 | $84,344 |
| Net Income (Common Stockholders) | $258,590 | ($611,384) |
| Earnings Per Share (Diluted) | $0.06 | ($0.14) |
| Total Assets | $1,832,334,025 | $1,680,909,646 |
| Net Interest Income | $12,820,568 | $11,757,109 |
| Net Interest Margin | 3.07% | 3.10% |
| Provision for Loan/Lease Losses | $1,603,229 | $4,358,543 |
| Allowance for Loan Losses | $22,885,490 | $21,173,000 |
| Cash and Due from Banks | $25,784,537 | $24,651,875 |
| Total Deposits | $1,149,288,831 | $1,058,959,000 |
| Stockholders' Equity | $127,856,643 | $129,793,543 |
Material Changes vs. Prior Period
- Profitability: Net income attributable to QCR Holdings increased significantly to $1.29 million from $84 thousand in Q1 2009, driven by a substantial reduction in the provision for loan losses and improved net interest income.
- Asset Growth: Total assets grew by approximately $52.7 million (3%) compared to the prior year, primarily due to increases in federal funds sold and the securities portfolio.
- Loan Portfolio: Gross loans/leases receivable declined slightly by $5.8 million (less than 1%) due to weakened loan demand in the company's markets, despite $61.2 million in new originations.
- Expense Management: Non-interest expenses increased by 15.2% to $12.8 million. This increase was largely due to $617,000 in losses on lease residual values and $363,713 in writedowns of foreclosed assets, which were not present in the prior year.
- Capital Structure: The company issued $2.7 million in Series A Subordinated Notes and warrants in March 2010 to strengthen capital positions.
Guidance, Outlook, and Risks
- Outlook: Management anticipates continued higher FDIC assessment costs due to new pricing systems. The company intends to offer up to $25.0 million of a new series of convertible preferred stock in the second quarter of 2010.
- Asset Quality: Nonperforming assets increased to $42.9 million (2.34% of total assets) from $40.4 million at year-end 2009. The allowance for loan losses to gross loans ratio increased to 1.85%.
- Market Risk: The company faces interest rate risk. Simulation models indicate that a 200 basis point increase in rates would result in a 5.10% decrease in net interest income in year one, which remains within the board's 10% policy limit.
- Unusual Items: The quarter included specific losses on two direct financing equipment leases ($617,000) and writedowns on foreclosed assets ($363,713). Additionally, a change in accounting rules effective Jan 1, 2010, resulted in the recording of $9.5 million in secured borrowings related to loan sales.
Investor Verification Checklist
- Nonperforming Assets Trend: Verify the trajectory of nonperforming assets, which rose to $42.9 million, and the adequacy of the 1.85% allowance coverage ratio.
- Lease Residual Values: Investigate the specific market conditions that caused the $617,000 loss on equipment lease residual values to assess if this is an isolated event or indicative of broader portfolio risk.
- Loan Demand: Confirm the status of loan demand in the Quad City, Cedar Rapids, and Rockford markets, as the loan portfolio shrank despite new originations.
- Capital Plan Execution: Monitor the proposed Q2 2010 offering of convertible preferred stock and its impact on dilution and capital ratios.
- FDIC Costs: Review future quarters for the sustained impact of increased FDIC insurance premiums on non-interest expenses.