QCR Holdings Inc. 10-Q Summary: Period Ended June 30, 2009
Business Context and Reporting Period
This 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) and a credit card processing subsidiary. The report covers the three and six months ended June 30, 2009. The company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Net Income (Loss) Attributable to QCR Holdings | $(820,444) | $(736,100) |
| Net Income (Loss) Attributable to Common Stockholders | $(1,905,646) | $(2,517,030) |
| Diluted EPS (Common) | $(0.42) | $(0.56) |
| Total Assets | $1,700,856,552 | $1,700,856,552 |
| Net Interest Income | $12,204,846 | $24,164,897 |
| Provision for Loan/Lease Losses | $4,875,745 | $9,234,288 |
| Net Cash Provided by Operating Activities | N/A | $8,947,011 |
| Stockholders' Equity | $127,180,256 | $127,180,256 |
Material Changes vs. Prior Period
- Profitability Decline: The company reported a net loss for the quarter and six months ended June 30, 2009, compared to net income of $1.77 million and $2.46 million, respectively, for the same periods in 2008. This reversal was primarily driven by a significant increase in the provision for loan/lease losses and higher FDIC assessments.
- Provision for Loan Losses: The provision increased by $3.5 million (164%) for the quarter and $6.9 million (295%) for the six months compared to 2008, reflecting economic uncertainty and specific credit degradation.
- Net Interest Income: Net interest income increased by $1.0 million (9%) for the quarter and $2.9 million (13%) for the six months compared to the prior year, driven by a 21% increase in average earning assets, partially offset by lower yields.
- Non-Interest Expense: Total non-interest expense rose 18.5% for the quarter and 14.4% for the six months. FDIC and other insurance expenses surged 367% for the quarter due to a one-time special assessment and new premium pricing methodologies.
- Asset Quality: Nonperforming assets increased 41% to $33.7 million (1.98% of total assets) from $23.8 million at year-end 2008. The allowance for loan losses increased to 1.84% of gross loans.
Guidance, Outlook, and Risks
- Capital Position: The company participated in the Treasury Capital Purchase Program (TCPP), issuing Series D Preferred Stock and a common stock warrant for $38.2 million in February 2009. This strengthened stockholders' equity by $34.7 million since December 31, 2008.
- Regulatory Status: All subsidiary banks are categorized as "well capitalized" under regulatory frameworks.
- Forward-Looking Statements: Management notes that results are not necessarily indicative of future performance. Risks include the impact of the national economy on local markets, potential increases in problem assets, and interest rate risk.
- Covenant Violation: As of June 30, 2009, the company was in violation of one operating covenant on a $20 million secured revolving credit note. Management expects to receive a waiver from the lender.
- Impairment: The company recognized other-than-temporary impairment losses of $192,014 for the quarter and $206,369 for the six months on publicly-traded equity securities.
Investor Verification Checklist
- Loan Loss Adequacy: Verify the sufficiency of the allowance for loan losses (1.84% of gross loans) given the 41% increase in nonperforming assets and the economic environment.
- TCPP Impact: Review the terms of the Series D Preferred Stock, including the increasing dividend rate (5% for 5 years, then 9%) and restrictions on common stock repurchases and dividends.
- Covenant Compliance: Confirm the status of the waiver for the operating covenant violation on the $20 million revolving credit note.
- FDIC Assessments: Assess the sustainability of the significantly higher FDIC insurance costs in future quarters.
- Asset Quality Trends: Monitor the trend of nonaccrual loans and net charge-offs, which increased to $4.3 million for the six months ended June 30, 2009.