QCRH

QCR Holdings, Inc. 10-Q Summary

Business Context and Reporting Period

Company: QCR Holdings, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: QCR Holdings is the parent company of three state-chartered commercial banks: Quad City Bank & Trust, Cedar Rapids Bank & Trust, and Rockford Bank & Trust. The company operates in Iowa and Illinois, providing commercial and consumer banking, trust services, and leasing operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Turnaround: The company reported net income of $1.80 million for the quarter, a significant improvement from a net loss of $0.76 million in the same period in 2009. For the six-month period, net income was $3.01 million compared to a loss of $0.52 million in 2009.
• Provision Reduction: The provision for loan/lease losses decreased significantly to $1.38 million for the quarter (down from $4.88 million in Q2 2009) and $2.98 million for the six months (down from $9.23 million in 2009).
• Asset Growth: Total assets increased by $56.1 million (3%) to $1.84 billion compared to December 31, 2009, driven primarily by a $54.5 million increase in the securities portfolio.
• Loan Portfolio Contraction: Gross loans/leases receivable declined by $33.5 million (3%) during the first half of 2010 due to weakened loan demand and payments outpacing originations.
• Non-Interest Income: Credit card issuing fees dropped 62% due to increased processing costs from a new third-party processor. Conversely, investment advisory fees increased 34% due to recovering market values.

Guidance, Outlook, and Risks

• Capital Strengthening: On June 30, 2010, the company completed a private placement of Series E Non-Cumulative Convertible Perpetual Preferred Stock, raising $25.0 million. This included an exchange of existing Series B and C preferred stock and $4.1 million in new cash capital.
• Regulatory Impact: The company highlighted the recent enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (July 21, 2010). Management notes uncertainty regarding the ultimate impact, which could increase operating costs, require higher capital/liquidity levels, or curtail revenue opportunities.
• Asset Quality: Nonperforming assets increased to $46.9 million (2.56% of total assets) from $40.4 million at year-end 2009. However, management believes the allowance for loan losses (1.78% of gross loans) remains adequate due to strong collateral positions on specific nonperforming credits.
• Unusual Items: The company recorded a $294,000 loss due to wire transfer fraud in the second quarter of 2010. Additionally, losses on lease residual values ($617,000) and writedowns of foreclosed assets ($364,000) were recognized in the first half of 2010.

Investor Verification Checklist

• Capital Adequacy: Verify the impact of the new Series E preferred stock issuance on Tier 1 capital ratios and regulatory compliance.
• Asset Quality Trends: Monitor the ratio of nonperforming assets to total assets, which rose to 2.56%, and the adequacy of the allowance for loan losses relative to charge-offs.
• Loan Demand: Assess the sustainability of the loan portfolio contraction and the company's ability to deploy capital profitably in a low-interest-rate environment.
• Regulatory Compliance Costs: Evaluate potential future cost increases associated with the implementation of Dodd-Frank provisions.
• Fraud Exposure: Review internal controls regarding the $294,000 wire transfer fraud loss to ensure remediation measures are effective.