QCR Holdings Inc. 10-K Summary (Fiscal Year Ended Dec 31, 2009)
Business Context and Reporting Period
Company: QCR Holdings, Inc.
Reporting Period: Fiscal year ended December 31, 2009.
Business Overview: A multi-bank holding company headquartered in Moline, Illinois, operating three wholly-owned banking subsidiaries (Quad City Bank & Trust, Cedar Rapids Bank & Trust, and Rockford Bank & Trust) serving the Quad City, Cedar Rapids, and Rockford markets. The company also holds interests in a direct financing lease subsidiary (m2 Lease Funds) and a real estate holding company (Velie Plantation).
Corporate Actions: Effective December 31, 2009, the company dissolved its credit card subsidiary, Quad City Bancard, Inc., merging its operations into Quad City Bank & Trust. The company previously sold its Milwaukee subsidiary (First Wisconsin Bank & Trust) and its merchant credit card acquiring business in 2008, which are reported as discontinued operations.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Assets | $1,779.6 million | $1,605.6 million |
| Total Loans/Leases | $1,244.3 million | $1,214.7 million |
| Total Deposits | $1,089.3 million | $1,059.0 million |
| Net Interest Income | $50.4 million | $44.1 million |
| Provision for Loan/Lease Losses | $17.0 million | $9.2 million |
| Net Income (Continuing Ops) | $2.0 million | $5.3 million |
| Net Income Attributable to QCR | $1.8 million | $6.7 million |
| Diluted EPS (Common) | ($0.46) | $1.06 |
| Net Interest Margin | 3.15% | 3.27% |
| Allowance for Loan Losses | $22.5 million (1.81% of loans) | $17.8 million (1.47% of loans) |
| Nonperforming Assets | $40.4 million (2.27% of assets) | $25.4 million (1.58% of assets) |
Material Changes vs. Prior Period
- Profitability Decline: Net income attributable to common stockholders turned negative ($2.1 million loss) compared to a $4.9 million profit in 2008. This was primarily driven by a significant increase in preferred stock dividends and discount accretion ($3.8 million in 2009 vs. $1.8 million in 2008) due to the issuance of Series D preferred stock under the Capital Purchase Program.
- Provision for Loan Losses: The provision increased 84% to $17.0 million from $9.2 million, reflecting continued degradation in the loan portfolio and increased qualitative reserves due to economic uncertainty.
- Asset Quality Deterioration: Nonperforming assets rose 59% to $40.4 million. Nonaccrual loans increased 38% to $28.7 million. Net charge-offs surged to $12.3 million from $2.7 million.
- Net Interest Income Growth: Despite a decline in net interest margin (3.15% vs. 3.27%), net interest income grew 14% to $50.4 million, driven by an 18% increase in average earning assets.
- Expense Increases: Non-interest expenses rose 10% to $46.7 million. Key drivers included a 175% increase in FDIC insurance expense (due to special assessments and prepayments) and a 164% increase in loan/lease expenses related to nonperforming assets.
Guidance, Outlook, and Risks
Management Commentary: Management noted that while net interest income improved, the economic recession and credit market conditions significantly impacted asset quality. The company increased its allowance for loan losses to 1.81% of total loans to absorb probable losses. The company participated in the Treasury's Capital Purchase Program (CPP) in February 2009, issuing $38.2 million of preferred stock to strengthen capital.
Risks and Contingencies:
- Economic Conditions: Continued downturn in the U.S. economy and local markets (Quad City, Cedar Rapids, Rockford) poses risks to loan repayment and collateral values, particularly in commercial real estate (45% of loan portfolio).
- FDIC Assessments: The company paid $8.8 million in prepaid FDIC assessments in December 2009 covering 2009-2012, significantly impacting liquidity and expenses.
- Capital Purchase Program Restrictions: Participation in the CPP imposes restrictions on executive compensation and limits the ability to increase common stock dividends or repurchase common stock without Treasury consent.
- Liquidity: While the company maintains strong liquidity with $156.1 million in lines of credit, access to funding sources could be impaired by broader financial market disruptions.
Key Facts for Investor Verification
- Preferred Stock Impact: Verify the impact of the $3.8 million preferred stock dividend and accretion charge on common shareholder earnings, which turned a positive operating income into a net loss for common stockholders.
- Asset Quality Trends: Monitor the trajectory of nonperforming assets (currently 2.27% of total assets) and the adequacy of the allowance for loan losses (1.81% of loans) given the concentration in commercial real estate.
- FDIC Prepayments: Confirm the amortization schedule and cash flow impact of the $8.8 million FDIC prepayment made in December 2009.
- Capital Ratios: Verify that the company and its subsidiaries remain "well-capitalized" under regulatory standards despite the increase in nonperforming assets.
- Discontinued Operations: Note that 2008 results included $1.7 million of income from discontinued operations (sale of merchant acquiring business and First Wisconsin Bank), which is not present in 2009.