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| QCRH > SEC Filings for QCRH > Form 10-Q on 7-Aug-2012 | All Recent SEC Filings |
7-Aug-2012
Quarterly Report
GENERAL
QCR Holdings, Inc. is the parent company of Quad City Bank & Trust, Cedar Rapids Bank & Trust, and Rockford Bank & Trust.
Quad City Bank & Trust and Cedar Rapids Bank & Trust are Iowa-chartered commercial banks, and Rockford Bank & Trust is an Illinois-chartered commercial bank. All are members of the Federal Reserve System with depository accounts insured to the maximum amount permitted by law by the Federal Deposit Insurance Corporation ("FDIC").
· Quad City Bank & Trust commenced operations in 1994 and provides full-service commercial and consumer banking, and trust and asset management services, to the Quad City area and adjacent communities through its five offices that are located in Bettendorf and Davenport, Iowa and Moline, Illinois. Quad City Bank & Trust also provides leasing services through its 80%-owned subsidiary, m2 Lease Funds, located in Brookfield, Wisconsin. In addition, Quad City Bank & Trust owns 100% of Quad City Investment Advisors, LLC (formerly known as CMG Investment Advisors, LLC), which is an investment management and advisory company.
· Cedar Rapids Bank & Trust commenced operations in 2001 and provides full-service commercial and consumer banking, and trust and asset management services, to Cedar Rapids, Iowa and adjacent communities through its main office located on First Avenue in downtown Cedar Rapids, Iowa and its branch facility located on Council Street in northern Cedar Rapids. Cedar Rapids Bank & Trust also provides residential real estate mortgage lending services through its 50%-owned joint venture, Cedar Rapids Mortgage Company.
· Rockford Bank & Trust commenced operations in January 2005 and provides full-service commercial and consumer banking, and trust and asset management services, to Rockford, Illinois and adjacent communities through its main office located in downtown Rockford and its branch facility on Guilford Road at Alpine Road in Rockford.
The Company engages in real estate holdings through its 91% equity investment in Velie Plantation Holding Company, LLC, based in Moline, Illinois.
OVERVIEW
The Company recognized net income of $3.3 million for the quarter ended June 30, 2012, and net income attributable to QCR Holdings, Inc. of $3.1 million, which excludes the net income attributable to noncontrolling interests of $201 thousand. After preferred stock dividends of $936 thousand, the Company reported net income attributable to common stockholders of $2.1 million, or diluted earnings per common share of $0.44. By comparison, for the second quarter of 2011, the Company recognized net income of $2.8 million and net income attributable to QCR holdings, Inc. of $2.7 million, which excludes the net income attributable to noncontrolling interests of $98 thousand. After preferred stock dividends and discount accretion of $1.0 million, the Company reported net income attributable to common stockholders of $1.6 million, or diluted earnings per common share of $0.34.
For the six months ended June 30, 2012, the Company reported net income of $6.7 million, and net income attributable to QCR Holdings, Inc. of $6.3 million, which excludes the net income attributable to noncontrolling interests of $367 thousand. After preferred stock dividends of $1.9 million, the Company reported net income attributable to common stockholders of $4.4 million, or diluted earnings per common share of $0.91. For the same period in 2011, the Company recognized net income of $5.0 million and net income attributable to QCR Holdings, Inc. of $4.8 million, which excludes the net income attributable to noncontrolling interests of $204 thousand. After preferred stock dividends and discount accretion of $2.1 million, the Company reported net income attributable to common stockholders of $2.7 million, or diluted earnings per common share of $0.57.
Following is a table that represents the various net income measurements for the three and six months ended June 30, 2012 and 2011, respectively.
For the three months ended For the six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Net income $ 3,273,379 $ 2,773,214 $ 6,676,228 $ 5,004,698
Less: Net income attributable to
noncontrolling interests 201,223 98,245 367,254 204,769
Net income attributable to QCR Holdings,
Inc. $ 3,072,156 $ 2,674,969 $ 6,308,974 $ 4,799,929
Less: Preferred stock dividends and
discount accretion 935,786 1,035,742 1,874,411 2,068,113
Net income attributable to QCR Holdings,
Inc. common stockholders $ 2,136,370 $ 1,639,227 $ 4,434,563 $ 2,731,816
Diluted earnings per common share $ 0.44 $ 0.34 $ 0.91 $ 0.57
Weighted average common and common
equivalent shares outstanding 4,901,853 4,873,978 4,867,628 4,778,848
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Following is a table that represents the major income and expense categories.
For the three months ended For the six months ended
June 30, 2012 March 31, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Net interest income $ 14,515,493 $ 14,203,453 $ 13,951,055 $ 28,718,946 $ 26,159,857
Provision for loan/lease losses (1,048,469 ) (780,446 ) (1,672,221 ) (1,828,915 ) (2,739,885 )
Noninterest income 4,067,509 3,956,878 4,173,381 8,024,387 9,230,505
Noninterest expense (13,109,083 ) (12,738,080 ) (12,555,547 ) (25,847,163 ) (25,567,818 )
Federal and state income tax (1,152,071 ) (1,238,956 ) (1,123,454 ) (2,391,027 ) (2,077,961 )
Net income $ 3,273,379 $ 3,402,849 $ 2,773,214 $ 6,676,228 $ 5,004,698
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NET INTEREST INCOME
Net interest income, on a tax equivalent basis, increased $701 thousand, or 5%, to $14.8 million for the quarter ended June 30, 2012, from $14.1 million for the same period of 2011. The increase in net interest income was driven primarily by reduced interest expense. This was the result of continued reductions in the cost of deposits as well as growth in noninterest bearing deposits, which funded the earning asset growth and allowed the level of interest-bearing funding to remain relatively flat. Interest income was relatively flat as growth in loans and securities was effectively offset by continued decline in yields.
A comparison of yields, spread and margin from the second quarter of 2012 to the second quarter of 2011 is as follows (on a tax equivalent basis):
· The average yield on interest-earning assets decreased 32 basis points.
· The average cost of interest-bearing liabilities decreased 26 basis points.
· The net interest spread declined 6 basis points from 2.90% to 2.84%.
· The net interest margin declined 5 basis points from 3.21% to 3.16%.
Net interest income, on a tax equivalent basis, increased $2.8 million, or 10%, to $29.2 million for the first six months of 2012, from $26.4 million for the same period of 2011. The growth was primarily a function of reductions in the rates paid on all interest-bearing liabilities with most of the impact from declining cost of deposits. Secondarily, interest income grew as growth in loans and securities more than offset the decline in yields.
A comparison of yields, spread and margin from the first half of 2012 to the first half of 2011 is as follows (on a tax equivalent basis):
· The average yield on interest-earning assets decreased 17 basis points.
· The average cost of interest-bearing liabilities decreased 31 basis points.
· The net interest spread improved 14 basis points from 2.66% to 2.80%.
· The net interest margin improved 14 basis points from 2.99% to 3.13%.
The Company's management closely monitors and manages net interest margin. From a profitability standpoint, an important challenge for the Company's subsidiary banks and majority-owned leasing company is the improvement of their net interest margins. Management continually addresses this issue with pricing and other balance sheet management strategies. Over the past two years, the Company's management has emphasized improving its funding mix by reducing its reliance on wholesale funding which tends to be at a higher cost than deposits. In addition, with loan growth continuing to be modest, the Company's management has focused on growing and diversifying its securities portfolio.
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
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:
For the three months ended June 30,
2012 2011
Interest Average Interest Average
Average Earned Yield or Average Earned Yield or
Balance or Paid Cost Balance or Paid Cost
(dollars in thousands)
ASSETS
Interest earning
assets:
Federal funds sold $ - $ - 0.00 % $ 37,408 $ 24 0.26 %
Interest-bearing
deposits at financial
institutions 36,478 92 1.01 % 27,510 103 1.50 %
Investment securities
(1) 615,089 3,569 2.33 % 503,583 3,209 2.55 %
Restricted investment
securities 15,282 165 4.34 % 15,465 138 3.57 %
Gross loans/leases
receivable (2) (3) (4) 1,211,595 15,973 5.30 % 1,170,682 16,516 5.64 %
Total interest earning
assets $ 1,878,444 19,799 4.24 % $ 1,754,648 19,990 4.56 %
Noninterest-earning
assets:
Cash and due from banks $ 39,896 $ 43,598
Premises and equipment 31,529 30,684
Less allowance for
estimated losses on
loans/leases (19,183 ) (19,736 )
Other 74,938 73,058
Total assets $ 2,005,624 $ 1,882,252
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits $ 490,270 716 0.59 % $ 503,030 1,006 0.80 %
Savings deposits 42,448 6 0.06 % 38,426 16 0.17 %
Time deposits 354,285 908 1.03 % 362,254 1,300 1.44 %
Short-term borrowings 179,979 77 0.17 % 131,253 69 0.21 %
Federal Home Loan Bank
advances 205,162 1,829 3.59 % 209,889 1,978 3.77 %
Junior subordinated
debentures 36,085 259 2.89 % 36,085 252 2.79 %
Other borrowings (4) 136,648 1,224 3.60 % 141,486 1,290 3.65 %
Total interest-bearing
liabilities $ 1,444,877 5,019 1.40 % $ 1,422,423 5,911 1.66 %
Noninterest-bearing
demand deposits $ 391,475 $ 301,155
Other
noninterest-bearing
liabilities 25,331 24,131
Total liabilities $ 1,861,683 $ 1,747,709
Stockholders' equity 143,941 134,543
Total liabilities and
stockholders' equity $ 2,005,624 $ 1,882,252
Net interest income $ 14,780 $ 14,079
Net interest spread 2.84 % 2.90 %
Net interest margin 3.16 % 3.21 %
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities 130.01 % 123.36 %
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(1) Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate for each period presented.
(2) Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance.
(3) Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance.
(4) In accordance with ASC 860, effective January 1, 2010, the Company accounts for some participations sold, including sales of SBA-guaranteed portionsof loans during the recourse period, as secured borrowings. As such, these amounts are included in the average balance for gross loans/leases receivable and other borrowings. For the three months ended June 30, 2012 and 2011, this totaled $0.0 million and $1.3 million, respectively. During the second quarter of 2011, SBA removed the recourse provision for sales which allowed for sale accounting treatment at the time of sale; thus, the decline in average balance.
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Analysis of Changes of Interest Income/Interest Expense
For the three months ended June 30, 2012
Inc./(Dec.) Components
from of Change (1)
Prior Period Rate Volume
2012 vs. 2011
(dollars in thousands)
INTEREST INCOME
Federal funds sold $ (24 ) $ (12 ) $ (12 )
Interest-bearing deposits at financial institutions (11 ) (139 ) 128
Investment securities (2) 360 (1,470 ) 1,830
Restricted investment securities 27 39 (12 )
Gross loans/leases receivable (3) (4) (5) (543 ) (3,269 ) 2,726
Total change in interest income $ (191 ) $ (4,851 ) $ 4,660
INTEREST EXPENSE
Interest-bearing demand deposits $ (290 ) $ (265 ) $ (25 )
Savings deposits (10 ) (21 ) 11
Time deposits (392 ) (364 ) (28 )
Short-term borrowings 8 (64 ) 72
Federal Home Loan Bank advances (149 ) (102 ) (47 )
Junior subordinated debentures 7 7 -
Other borrowings (5) (66 ) (17 ) (49 )
Total change in interest expense $ (892 ) $ (826 ) $ (66 )
Total change in net interest income $ 701 $ (4,025 ) $ 4,726
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(1) The column "Inc./(Dec.) from Prior Period" 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 foreach period presented.
(3) Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting andregulatory guidance.
(4) Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting andregulatory guidance.
(5) In accordance with ASC 860, effective January 1, 2010, the Company accounts for some participations sold, including sales ofSBA-guaranteed portions of loans during the recourse period, as secured borrowings. As such, these amounts are included in the average balance for gross loans/leases receivable and other borrowings. For the three months ended June 30, 2012 and 2011, this totaled $0.0 million and $1.3 million, respectively. During the second quarter of 2011, SBA removed the recourse provision for sales which allowed sale accounting treatment at the time of sale; thus, the decline in average balance.
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
For the six months ended June 30,
2012 2011
Interest Average Interest Average
Average Earned Yield or Average Earned Yield or
Balance or Paid Cost Balance or Paid Cost
(dollars in thousands)
ASSETS
Interest earning
assets:
Federal funds sold $ - $ - 0.00 % $ 78,941 $ 90 0.23 %
Interest-bearing
deposits at financial
institutions 60,423 213 0.71 % 33,424 214 1.28 %
Investment securities
(1) 595,810 6,959 2.35 % 475,467 5,903 2.48 %
Restricted investment
securities 15,281 246 3.24 % 15,862 301 3.80 %
Gross loans/leases
receivable (2) (3) (4) 1,204,821 31,944 5.33 % 1,161,839 32,251 5.55 %
Total interest earning
assets 1,876,334 39,362 4.22 % $ 1,765,533 38,759 4.39 %
Noninterest-earning
assets:
Cash and due from banks $ 40,459 $ 41,141
Premises and equipment 31,600 30,821
Less allowance for
estimated losses on
loans/leases (19,047 ) (20,122 )
Other 75,838 69,680
Total assets $ 2,005,183 $ 1,887,053
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits $ 495,252 1,452 0.59 % $ 489,192 1,976 0.81 %
Savings deposits 41,725 13 0.06 % 37,501 31 0.17 %
Time deposits 350,043 1,880 1.08 % 365,477 2,740 1.50 %
Short-term borrowings 179,480 142 0.16 % 137,895 182 0.26 %
Federal Home Loan Bank
advances 205,650 3,693 3.61 % 217,891 4,122 3.78 %
Junior subordinated
debentures 36,085 527 2.94 % 36,085 733 4.06 %
Other borrowings (4) 136,273 2,482 3.66 % 145,039 2,569 3.54 %
Total interest-bearing
liabilities 1,444,507 10,189 1.42 % $ 1,429,080 12,353 1.73 %
Noninterest-bearing
demand deposits 390,021 $ 297,220
Other
noninterest-bearing
liabilities 26,046 27,833
Total liabilities 1,860,574 $ 1,754,133
Stockholders' equity 143,882 132,920
Total liabilities and
stockholders' equity 2,004,456 $ 1,887,053
Net interest income $ 29,173 $ 26,406
Net interest spread 2.80 % 2.66 %
Net interest margin 3.13 % 2.99 %
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities 129.89 % 123.54 %
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(1) Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate for each period presented.
(2) Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance.
(3) Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance.
(4) In accordance with ASC 860, effective January 1, 2010, the Company accounts for some participations sold, including sales of SBA-guaranteed portionsof loans during the recourse period, as secured borrowings. As such, these amounts are included in the average balance for gross loans/leases receivable and other borrowings. For the six months ended June 30, 2012 and 2011, this totaled $0.0 million and $4.9 million, respectively. During the second quarter of 2011, SBA removed the recourse provision for sales which allowed for sale accounting treatment at the time of sale; thus, the decline in average balance.
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Analysis of Changes of Interest Income/Interest Expense
For the six months ended June 30, 2012
Inc./(Dec.) Components
from of Change (1)
Prior Period Rate Volume
2012 vs. 2011
(dollars in thousands)
INTEREST INCOME
Federal funds sold $ (90 ) $ (45 ) $ (45 )
Interest-bearing deposits at financial institutions (1 ) (246 ) 245
Investment securities (2) 1,056 (866 ) 1,922
Restricted investment securities (55 ) (44 ) (11 )
Gross loans/leases receivable (3) (4) (5) (307 ) (2,626 ) 2,319
Total change in interest income $ 603 $ (3,827 ) $ 4,430
INTEREST EXPENSE
Interest-bearing demand deposits $ (524 ) $ (595 ) $ 71
Savings deposits (18 ) (27 ) 9
Time deposits (860 ) (747 ) (113 )
Short-term borrowings (40 ) (148 ) 108
Federal Home Loan Bank advances (429 ) (192 ) (237 )
Junior subordinated debentures (206 ) (206 ) -
Other borrowings (5) (87 ) 192 (279 )
Total change in interest expense $ (2,164 ) $ (1,723 ) $ (441 )
Total change in net interest income $ 2,767 $ (2,104 ) $ 4,871
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(1) The column "Inc./(Dec.) from Prior Period" is segmented into the changes attributable to variations in volume and thechanges 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 foreach period presented.
(3) Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting andregulatory guidance.
(4) Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting andregulatory guidance.
(5) In accordance with ASC 860, effective January 1, 2010, the Company accounts for some participations sold, including sales ofSBA-guaranteed portions of loans during the recourse period, as secured borrowings. As such, these amounts are included in the average balance for gross loans/leases receivable and other borrowings. For the three months ended June 30, 2012 and 2011, this totaled $0.0 million and $4.9 million, respectively. During the second quarter of 2011, SBA removed the recourse provision for sales which allowed sale accounting treatment at the time of sale; thus, the decline in average balance.
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