Add
QCRH to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| QCRH > SEC Filings for QCRH > Form 10-K on 6-Mar-2009 | All Recent SEC Filings |
6-Mar-2009
Annual Report
• The average cost of interest-bearing liabilities decreased 108 basis points from 4.33% to 3.25%.
• The net interest spread improved 50 basis points from 2.54% to 3.04%.
• The net interest margin improved 40 basis points from 2.92% to 3.32%.
Net interest income significantly increased $4.6 million, or 15%, to
$35.0 million for 2007, from $30.4 million for 2006. For 2007, average earning
assets increased by $159.6 million, or 15%, and average interest-bearing
liabilities increased by $149.1 million, or 15%, when compared with average
balances for 2006. A comparison of yields, spreads and margins from 2007 to 2006
shows the following:
• The average yield on interest-earning assets increased 32 basis points
from 6.55% to 6.87%.
• The average cost of interest-bearing liabilities increased 29 basis points from 4.04% to 4.33%.
• The net interest spread improved 3 basis points from 2.51% to 2.54%.
• The net interest margin improved 5 basis points from 2.87% to 2.92%.
The Company's management closely monitors and manages net interest margin. From a profitability standpoint, an important challenge for the Company's subsidiary banks is the improvement of their net interest margins. Management continually addresses this issue with the use of alternative funding sources and pricing strategies.
The Company's average balances, interest income/expense, and rates earned/paid on major balance sheet categories, as well as the components of change in net interest income, are presented in the following tables:
Years Ended December 31,
2008 2007 2006
Interest Average Interest Average Interest Average
Average Earned Yield or Average Earned Yield or Average Earned Yield or
Balance or Paid Cost Balance or Paid Cost Balance or Paid Cost
(Dollars in Thousands)
ASSETS
Interest earnings assets:
Federal funds sold $ 5,631 $ 100 1.78 % $ 5,450 $ 248 4.55 % $ 10,230 $ 475 4.64 %
Interest-bearing deposits at at
financial institutions 5,313 165 3.11 6,142 346 5.63 6,440 320 4.97
Investment securities (1) 230,342 12,279 5.33 204,364 10,605 5.19 185,468 8,381 4.52
Gross loans/leases receivable (2)
(3) 1,124,255 73,381 6.53 1,001,633 72,446 7.23 855,872 60,098 7.02
Total interest earning assets 1,365,541 85,925 6.29 1,217,589 83,645 6.87 1,058,010 69,274 6.55
Noninterest-earning assets:
Cash and due from banks $ 32,651 $ 36,880 $ 35,318
Premises and equipment, net 31,535 31,705 27,755
Less allowance for estimated
losses on loans/leases (13,770 ) (11,178 ) (9,780 )
Other 136,791 76,486 42,234
Total assets $ 1,552,748 $ 1,351,482 $ 1,153,537
|
LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing demand deposits $ 299,417 5,709 1.91 % $ 305,699 10,790 3.53 % $ 272,484 9,082 3.33 % Savings deposits 57,955 806 1.39 31,300 651 2.08 32,065 703 2.19 Time deposits 443,122 17,379 3.92 404,544 19,786 4.89 380,524 17,280 4.54 Short-term borrowings 154,456 2,962 1.92 141,778 5,217 3.68 97,580 3,169 3.25 Federal Home Loan Bank advances 193,119 8,525 4.41 160,474 7,237 4.51 135,282 5,609 4.15 Junior subordinated debentures 36,085 2,389 6.62 36,085 2,623 7.27 34,796 2,490 7.16 Other borrowings 62,975 2,754 4.37 31,398 1,835 5.84 9,456 574 6.07 Total interest-bearing liabilities 1,247,129 40,524 3.25 1,111,278 48,139 4.33 962,187 38,907 4.04 Noninterest-bearing demand deposits 135,860 125,117 119,561 Other noninterest-bearing liabilities 79,956 38,511 14,026 Total liabilities 1,462,945 1,274,906 1,095,774 Minority interest in consolidated subsidiaries 1,851 1,558 Stockholders' equity 87,952 75,018 57,763 Total liabilities and stockholders' equity $ 1,552,748 $ 1,351,482 $ 1,153,537 Net interest income $ 45,401 $ 35,506 $ 30,367 Net interest spread 3.04 % 2.54 % 2.51 % Net interest margin 3.32 % 2.92 % 2.87 % Ratio of average interest earning assets to average interest- bearing liabilities 109.49 % 109.57 % 109.96 % |
(1) Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate in each year presented.
(2) Loan/lease fees are not material and are included in interest income from loans/leases receivable.
(3) Non-accrual loans are not material and are included in the average balance for gross loans/leases receivable.
For the years ended December 31, 2008, 2007 and 2006
Inc./(Dec.) Components
from of Change (1)
Prior Year Rate Volume
2008 vs. 2007
(Dollars in Thousands)
INTEREST INCOME
Federal funds sold $ (148 ) $ (156 ) $ 8
Interest-bearing deposits at other financial
institutions (181 ) (139 ) (42 )
Investment securities (2) 1,674 296 1,378
Gross loans/leases receivable (2) (3) (4) 935 (7,453 ) 8,388
Total change in interest income $ 2,280 $ (7,452 ) $ 9,732
|
INTEREST EXPENSE
Interest-bearing demand deposits $ (5,081 ) $ (4,863 ) $ (218 )
Savings deposits 155 (267 ) 422
Time deposits (2,407 ) (4,172 ) 1,765
Short-term borrowings (2,255 ) (2,687 ) 432
Federal Home Loan Bank advances 1,288 (156 ) 1,444
Junior subordinated debentures (234 ) (234 ) -
Other borrowings 919 (555 ) 1,474
Total change in interest expense $ (7,615 ) $ (12,934 ) $ 5,319
Total change in net interest income $ 9,895 $ 5,482 $ 4,413
Inc./(Dec.) Components
from of Change (1)
Prior Year Rate Volume
2007 vs. 2006
(Dollars in Thousands)
INTEREST INCOME
Federal funds sold $ (227 ) $ (9 ) $ (218 )
Interest-bearing deposits at other financial
institutions 26 42 (16 )
Investment securities (2) 2,223 1,317 906
Gross loans/leases receivable (2) (3) (4) 12,349 1,852 10,497
Total change in interest income $ 14,371 $ 3,202 $ 11,169
|
INTEREST EXPENSE Interest-bearing demand deposits $ 1,708 $ 557 $ 1,151 Savings deposits (52 ) (35 ) (17 ) Time deposits 2,506 1,377 1,129 Short-term borrowings 2,048 465 1,583 Federal Home Loan Bank advances 1,628 521 1,107 Junior subordinated debentures 133 40 93 Other borrowings 1,261 (22 ) 1,283 Total change in interest expense $ 9,232 $ 2,903 $ 6,329 Total change in net interest income $ 5,139 $ 299 $ 4,840 |
(1) The column "increase/decrease from prior year" is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates. The variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume.
(2) Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate in each year presented.
(3) Loan/lease fees are not material and are included in interest income from loans/leases receivable.
(4) Non-accrual loans are not material and are included in the average balance for gross loans/leases receivable.
The Company's operating results are also affected by sources of non-interest
income, including trust department fees, deposit service fees, investment
advisory and management fees, gains from the sales of residential real estate
loans and other income. The Company's operating results are also affected by
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities. The majority of the
subsidiary banks' loan portfolios are invested in commercial loans. Deposits
from commercial customers represent a significant funding source, as well.
Trust department income continues to be a significant contributor to
non-interest income. During 2008, trust department fees contributed $3.3 million
which was a decrease of $339 thousand, or 9%, from $3.7 million for 2007. Trust
department fees contributed $3.0 million to our non-interest income during 2006.
Income is generated primarily from fees charged based on assets under
administration for corporate and personal trusts and for custodial services.
Assets under administration at December 31, 2008 totaled $811.9 million which is
a decrease of $378.0 million, or 32% from $1.19 billion at December 31, 2007.
The majority of trust department income consists of fees determined by the
performance of the investments within the managed trusts. Due to the economic
recession, the majority of these asset values have decreased significantly over
the year.
The Company's operating results were also affected by non-interest expenses,
which include employee compensation and benefits, occupancy and equipment
expense, professional and data processing, and other administrative expenses.
The Company has continued to add resources to accommodate both our historical
growth and anticipated future growth. As such, overhead expenses have had a
significant impact on earnings.
CRITICAL ACCOUNTING POLICIES
The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. The financial
information contained within these statements is, to a significant extent,
financial information that is based on approximate measures of the financial
effects of transactions and events that have already occurred.
Based on its consideration of accounting policies that involve the most complex
and subjective decisions and assessments, management has identified its most
critical accounting policy to be that related to the allowance for loan/lease
losses. The Company's allowance for loan/lease loss methodology incorporates a
variety of risk considerations, both quantitative and qualitative in
establishing an allowance for loan/lease loss that management believes is
appropriate at each reporting date. Quantitative factors include the Company's
historical loss experience, delinquency and charge-off trends, collateral
values, governmental guarantees, payment status, changes in nonperforming
loans/leases, and other factors. Quantitative factors also incorporate known
information about individual loans/leases, including borrowers' sensitivity to
interest rate movements. Qualitative factors include the general economic
environment in the Company's markets, including economic conditions throughout
the Midwest, and in particular, the economic health of certain industries. Size
and complexity of individual credits in relation to loan/lease structure,
existing loan/lease policies and pace of portfolio growth are other qualitative
factors that are considered in the methodology. As the Company adds new products
and increases the complexity of its loan/lease portfolio, it enhances its
methodology accordingly. Management may report a materially different amount for
the provision for loan/lease losses in the statement of operations to change the
allowance for loan/lease losses if its assessment of the above factors were
different. The discussion regarding the Company's allowance for loan/lease
losses should be read in conjunction with the Company's financial statements and
the accompanying notes presented elsewhere in this Form 10-K, as well as the
portion of this Management's Discussion and Analysis section entitled "Financial
Condition - Allowance for Loan/Lease Losses." Although management believes the
level of the allowance as of December 31, 2008 was adequate to absorb losses
inherent in the loan/lease portfolio, a decline in local economic conditions, or
other factors, could result in increasing losses that cannot be reasonably
predicted at this time.
The Company's assessment of other-than-temporary impairment of its
available-for-sale securities portfolio is another critical accounting policy as
a result of the level of judgment required by management. Available-for-sale
securities are evaluated to determine whether declines in fair value below their
cost are other-than-temporary. In estimating other-than-temporary impairment
losses management considers a number of factors including (1) the length of time
and extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer and (3) the intent and ability
of the Company to retain its investment for a period of time sufficient to allow
for anticipated recovery in fair value. The discussion regarding the Company's
assessment of other-than-temporary impairment should be read in conjunction with
the Company's financial statements and the accompanying notes presented
elsewhere in this Form 10-K. As of December 31, 2008, management's evaluation
determined that any declines in fair value of the available-for-sale securities
were temporary.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, and 2006
Overview. Net income for 2008 was $6.7 million compared to net income of
$5.8 million for 2007, which is an increase of $931 thousand, or 16%. Basic
earnings per share for 2008 were $1.07 compared to $1.03 for 2007. During 2008,
Bancard sold its merchant credit card acquiring business resulting in a gain on
sale of approximately $3.0 million, net of taxes and related expenses, or $0.65
per share. The Company was successful in improving its net interest income
during 2008 as net interest income increased $9.9 million, or 28%, from 2007.
Offsetting these increases, the Company's provision for loan/lease losses for
2008 increased $6.9 million, or 295%, from 2007, and noninterest expenses for
2008 increased $6.6 million, or 18%, from 2007.
Net income for 2007 was $5.8 million compared to net income of $2.8 million for
2006 for an increase of $3.0 million, or 107%. Basic earnings per share for 2007
were $1.03 compared to $0.57 for 2006. The increase in net income was comprised
of an increase in net interest income after provision for loan losses of
$6.1 million in combination with an increase in aggregate non-interest income of
$1.9 million, offset by an increase in non-interest expenses of $1.7 million.
The primary factor which contributed to the improvement in net income from 2006
to 2007 was the increase in net interest margin from 2.87% to 2.92% coupled with
the growth in average earning assets and liabilities of 15%.
Interest income. Interest income increased $2.3 million, or 3%, from
$83.1 million for 2007 to $85.5 million for 2008. As a result of the
deteriorating economy and a significant declining interest rate environment in
2008, the majority of the increase in interest income was a result of growth in
interest-earning assets, principally loans and leases.
Interest income grew $16.7 million from $68.8 million for 2006 to $85.5 million
for 2007. The 24% increase in interest income was attributable to greater
average outstanding balances in interest-earning assets, principally loans and
leases receivable, in combination with an improved aggregate asset yield. The
average yield on interest earning assets for 2007 was 6.87% compared to 6.55%
for 2006.
Interest expense. Interest expense decreased $7.6 million, or 16%, from
$48.1 million for 2007 to $40.5 million for 2008. With the economic recession
and drop in rates during 2008, the Company was successful in managing its cost
of funds as the average cost on interest bearing liabilities decreased 108 basis
points from 4.33% for 2007 down to 3.25% for 2008.
Interest expense increased by $9.2 million, from $38.9 million for 2006 to
$48.1 million for 2007. The 24% increase in interest expense was primarily
attributable to a general increase in interest rates, in combination with
greater average outstanding balances in interest-bearing liabilities, primarily
customer deposits. The average cost on interest bearing liabilities was 4.33%
for 2007 compared to 4.04% for 2006.
Provision for loan/lease losses. The provision for loan/lease losses is
established based on a number of factors, including the Company's historical
loss experience, delinquencies and charge-off trends, the local and national
economy and the risk associated with the loans/leases in the portfolio as
described in more detail in the "Critical Accounting Policies" section.
The Company had an allowance for estimated losses on loans/leases of
approximately 1.47% of total gross loans/leases at December 31, 2008, compared
to approximately 1.07% of total gross loans/leases at December 31, 2007, and
compared to approximately 1.10% of total gross loans/leases at December 31,
2006.
During 2008, the Company's provision for loan/lease losses increased
significantly from $2.3 million for 2007 to $9.2 million. This increase was a
result of the following:
• The Company grew its loan portfolio 15% during 2008 as gross loans/leases
increased from $1.1 billion as of December 31, 2007 to $1.2 billion as of
December 31, 2008,
• Due to the economic recession and related uncertainty as to the severity and duration of its impact on the national and local economies, the Company increased the qualitative factors impacting the allowance for estimate losses on loans/leases, and
• The Company experienced some degradation in specific commercial credits within the loan portfolio that required specific reserves.
The provision for loan/lease losses decreased to $2.3 million for 2007, compared to $3.3 million for 2006. During both periods, management made monthly provisions for loan/lease losses based upon a number of factors; principally the increase in loans/leases and a detailed analysis of the loan/lease portfolio. In 2007, the Company experienced $96.2 million of growth within the loan/lease portfolio which was the largest contributor to the $2.3 million of provision expense. Net charge-offs to average loans/leases improved from 0.18% for 2006 to 0.14% for 2007. The ability to grow profitably is, in part, dependent upon the ability to maintain asset quality. Management has a significant focus on the monitoring and maintenance of the overall quality of the Company's loan/lease portfolio.
Non-interest income. The following tables set forth the various categories of non-interest income for the years ended December 31, 2008, 2007 and 2006.
Years Ended
December 31, December 31,
2008 2007 $ Change % Change
Credit card fees, net of processing
costs $ 987,769 $ 746,725 $ 241,044 32.3 %
Trust department fees 3,333,812 3,672,501 (338,689 ) (9.2 )
Deposit service fees 3,134,869 2,606,724 528,145 20.3
Gains on sales of loans, net 1,068,545 1,219,800 (151,255 ) (12.4 )
Securities gains, net 199,500 - 199,500 100.0
Gains on sales of foreclosed assets 394,103 1,007 393,096 100.0
Gains on sales of other assets - 435,791 (435,791 ) (100.0 )
Earnings on bank-owned life
insurance 1,016,864 846,071 170,793 20.2
Investment advisory and management
fees, gross 1,975,236 1,575,887 399,349 25.3
Other 1,500,415 1,745,396 (244,981 ) (14.0 )
. . .
|
|
|