QCR Holdings, Inc. — Q1 2012 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2012; balance-sheet comparisons are to December 31, 2011. QCR is a bank holding company operating Quad City Bank & Trust, Cedar Rapids Bank & Trust, Rockford Bank & Trust, and related leasing and wealth-management businesses. Amounts below are U.S. dollars.
Key financial metrics
| Metric | Q1 2012 | Comparable period / change |
|---|---|---|
| Interest and dividend income | $19.4 million | Up 4% year over year |
| Net interest income | $14.2 million reported; $14.4 million tax-equivalent | Up 16% reported; up 17% tax-equivalent year over year |
| Net interest margin | 3.09% tax-equivalent | 2.78% a year earlier; down 9 basis points from Q4 2011 |
| Provision for loan/lease losses | $780,000 | $1.1 million a year earlier |
| Noninterest income / expense | $4.0 million / $12.7 million | Income down 22%; expense down 2% year over year |
| Net income / common diluted EPS | $3.4 million / $0.48 | $2.2 million / $0.23 a year earlier |
| Operating cash flow | $5.6 million | $17.1 million a year earlier |
| Total assets | $1.99 billion | Up 1% from year-end 2011 |
| Loans, net of allowance | $1.19 billion | Up $10.8 million from year-end |
| Deposits | $1.30 billion | Up $91.3 million, or 8%, from year-end |
| Total borrowings | $526.0 million | Down from $590.6 million at year-end |
| Stockholders’ equity | $145.8 million | Up $1.3 million from year-end |
Material changes and operating trends
- Common-stockholder income more than doubled year over year, supported by higher net interest income and a lower loan-loss provision. Lower funding costs helped: reported interest expense fell 20% year over year.
- Noninterest income declined $1.1 million year over year. Q1 2011 included $880,000 of securities gains; Q1 2012 had none. Loan-sale gains also fell, while losses on sales of other real estate owned increased.
- Noninterest expense was lower despite higher salaries and benefits; Q1 2011 included an $832,000 fee for prepaying FHLB advances.
- Loan growth remained modest, while securities grew about 9% during Q1. Management attributed the margin decline from Q4 to continued deposit growth outpacing loan growth and higher excess liquidity.
- Asset quality improved overall: nonperforming assets were $38.9 million, down from $40.5 million at year-end and $44.2 million a year earlier. Nonperforming loans/leases were $30.6 million; the allowance was $19.0 million, or 1.57% of gross loans/leases.
Liquidity, capital, outlook, and risks
- Cash, federal funds sold, and interest-bearing deposits totaled $64.7 million at quarter-end. The company reported $281.3 million available across subsidiary-bank credit lines and $16.4 million available on its $20.0 million revolving line.
- All three subsidiary banks met the regulatory “well capitalized” thresholds. Their total risk-based capital ratios ranged from 13.27% to 15.14%; Tier 1 leverage ratios ranged from 8.25% to 11.01%. The company’s Tier 1 leverage ratio was 8.60%.
- Management said it intends to reduce reliance on wholesale funding and continue building core deposits. It provided no numerical earnings or margin guidance; interim results are not necessarily indicative of full-year results.
- Key risks include interest-rate changes affecting net interest income and portfolio values, loan and lease credit losses, and continued weak loan demand. Commercial real estate represented 48% of loans/leases; non-owner-occupied property and construction/development exposures warrant attention. Management stated the allowance was adequate but cautioned that future losses could exceed estimates.
- The Series F preferred dividend rate remained 5%; qualified small-business lending was $69.5 million, or 15%, below its SBLF baseline. Common dividends were not declared in the quarter. Management reported effective disclosure controls, no material change in internal controls, and no material pending legal proceedings beyond routine litigation.
Important facts for investors to verify
- Whether deposit growth can be converted into quality loan growth without further pressuring net interest margin.
- Credit performance in commercial real estate, including construction and non-owner-occupied exposures, and trends in nonperforming assets, restructurings, charge-offs, and allowance coverage.
- The sustainability of earnings growth given the absence of Q1 2011 securities gains and the quarter’s lower loan-sale gains.
- Liquidity and funding mix, including availability and cost of wholesale funding and the company’s ability to continue reducing reliance on it.
- How qualified small-business lending develops relative to the SBLF baseline and any resulting effect on the Series F preferred dividend rate.