QCRH

QCR Holdings Inc. 10-Q Summary: Quarter Ended March 31, 2007

Business Context and Reporting Period

This filing is a Quarterly Report (Form 10-Q) for QCR Holdings, Inc., a Delaware corporation and parent company of four subsidiary banks (Quad City, Cedar Rapids, Rockford, and First Wisconsin) and a credit card processing subsidiary (Bancard). The report covers the three-month period ended March 31, 2007. During this period, the Company completed the acquisition of a Wisconsin bank charter, creating First Wisconsin Bank & Trust.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased by $5.4 million (31%) year-over-year, driven primarily by a $5.1 million increase in interest income due to higher loan volumes and improved asset yields.
• Expense Increases: Noninterest expenses rose $1.0 million (12%) to $9.2 million. This was largely due to a 13% increase in salaries and benefits (driven by expansion) and a one-time $239,000 loss on the disposal of fixed assets (vacant lots contributed for retail development).
• Provision for Loan Losses: The provision decreased by $137,000 (25%) to $406,000, reflecting a stable loan portfolio with net recoveries of $56,000 for the quarter.
• Preferred Stock Dividends: The Company issued preferred stock in late 2006. Q1 2007 included $268,000 in preferred dividends, reducing net income available to common shareholders compared to the prior year which had no preferred dividends.
• Asset Mix: Loans/leases receivable held for investment grew by $30.2 million (3%) to $990.9 million. Securities available for sale decreased by $14.8 million as proceeds were reinvested in interest-bearing deposits.

Guidance, Outlook, and Risks

• Dividend Policy: On April 26, 2007, the Company declared a common dividend of $0.04 per share (payable July 6, 2007) and a preferred dividend of $268,000. Management intends to consider semi-annual common dividends and quarterly preferred dividends.
• Capital Strategy: A previously disclosed private placement of common stock to fund the Wisconsin bank acquisition was terminated. The acquisition was funded via preferred stock issuance and existing capital.
• Interest Rate Risk: The Company is subject to interest rate risk. Simulations indicate a 200 basis point increase in rates could decrease net interest income by 3.64%, while a 200 basis point decrease could increase it by 1.41%.
• Contingencies: The Company has $540.2 million in commitments to extend credit and $16.4 million in standby letters of credit. There are no material pending legal proceedings.
• Forward-Looking Statements: Management notes that future results depend on economic conditions, loan portfolio quality, and interest rate movements. No specific earnings guidance for the full year 2007 was provided in this text.

Investor Verification Checklist

• Asset Quality: Verify the concentration of nonaccrual loans, noting that one relationship accounts for $3.9 million (84% of nonaccruals) and assess the collateral coverage for these credits.
• Expense Run-Rate: Confirm whether the $239,000 fixed asset loss is a one-time event or indicative of ongoing facility costs, and monitor salary expense growth relative to revenue.
• Liquidity Position: Review the reliance on Federal Home Loan Bank (FHLB) advances, which increased by $13.4 million, versus core deposit growth which was flat.
• Preferred Stock Impact: Assess the impact of the $268,000 quarterly preferred dividend obligation on future earnings available to common shareholders.
• Integration Progress: Monitor the operational integration and performance of the newly acquired First Wisconsin Bank & Trust.