QCR Holdings Inc. 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for QCR Holdings, Inc., a bank holding company operating four subsidiary banks in Iowa, Illinois, and Wisconsin, and a credit card processing subsidiary. The report covers the quarterly and nine-month periods ended September 30, 2008. The company is classified as an accelerated filer and a smaller reporting company.
Key Financial Metrics
Period: Three Months Ended September 30, 2008
- Net Income: $4.31 million (Diluted EPS: $0.83)
- Net Income from Continuing Operations: $1.62 million (Diluted EPS: $0.25)
- Net Interest Income: $11.74 million
- Non-Interest Income: $3.31 million
- Non-Interest Expense: $10.58 million
- Provision for Loan/Lease Losses: $2.15 million
- Total Assets: $1.64 billion
- Total Deposits: $980.4 million
- Stockholders' Equity: $89.4 million
Period: Nine Months Ended September 30, 2008
- Net Income: $6.76 million (Diluted EPS: $1.17)
- Net Income from Continuing Operations: $5.31 million (Diluted EPS: $0.85)
- Net Interest Income: $33.07 million
- Non-Interest Income: $10.38 million
- Non-Interest Expense: $31.13 million
- Provision for Loan/Lease Losses: $4.49 million
- Cash Flow from Operating Activities: $6.23 million
- Cash Flow from Financing Activities: $162.91 million
Material Changes vs. Prior Period
Earnings and Discontinued Operations: Net income for the quarter increased significantly to $4.31 million from $1.59 million in the prior year quarter. This increase was primarily driven by a $4.65 million pre-tax gain from the sale of the merchant credit card acquiring business (discontinued operations). Earnings from continuing operations decreased slightly to $1.62 million from $1.73 million in the prior year quarter.
Net Interest Income: Net interest income increased 30% to $11.74 million for the quarter and 28% to $33.07 million for the nine-month period. This growth was fueled by a 13% increase in average earning assets and a 45 basis point improvement in net interest margin (to 3.44% for the quarter), despite a decline in average yields on assets.
Provision for Loan Losses: The provision for loan/lease losses increased 125% to $2.15 million for the quarter and 116% to $4.49 million for the nine-month period. Management attributed this to loan portfolio growth, specific commercial credit degradation, and increased qualitative reserve factors due to economic uncertainty.
Asset Quality: Nonperforming assets increased to $13.6 million (0.8% of total assets) from $7.5 million at year-end 2007. The allowance for loan losses increased to $14.5 million, representing 1.23% of gross loans.
Outlook, Risks, and Management Commentary
Discontinued Operations: The company sold its merchant credit card acquiring business for $5.2 million. Additionally, the company entered into a definitive agreement to sell its subsidiary, First Wisconsin Bank & Trust, for approximately $13.5 million, with closing expected by December 31, 2008. A gain of approximately $500,000 is expected from this sale.
Regulatory Environment: Management is evaluating participation in the U.S. Treasury's Capital Purchase Program and the FDIC's Temporary Liquidity Guarantee Program following the passage of the Emergency Economic Stabilization Act of 2008.
Capital Position: The company and its subsidiary banks remain "well capitalized" under regulatory guidelines. Total risk-based capital ratio for the company was 10.06% as of September 30, 2008.
Risks: Key risks include the impact of the national economic downturn on local markets, potential increases in loan losses, and interest rate risk. Management noted that while the allowance for loan losses is deemed adequate, unpredictable future events could require further provisions.
Investor Verification Checklist
- Verify the closing status and final proceeds of the First Wisconsin Bank & Trust sale.
- Monitor the trend in the provision for loan losses and nonperforming assets given the increased qualitative reserves.
- Assess the impact of the sale of the merchant credit card business on future non-interest income streams.
- Review the company's decision regarding participation in the Treasury Capital Purchase Program.
- Confirm the sustainability of the improved net interest margin in a declining interest rate environment.