QCR HOLDINGS INC
10-Ks and 10-Qs
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Table of Contents
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010.
Commission file number: 0-22208
QCR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 42-1397595 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) |
3551 7th Street, Moline, Illinois 61265
(Address of principal executive offices)
(Address of principal executive offices)
(309) 736-3580
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Common stock, $1.00 Par Value The NASDAQ Global Market
Common stock, $1.00 Par Value The NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Exchange Act:
Preferred Share Purchase Rights
Preferred Share Purchase Rights
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act.
Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
o
No
þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant, based on the last sales price quoted on The NASDAQ Global Market on June 30, 2010, the
last business day of the registrant’s most recently completed second fiscal quarter, was
approximately $39,425,051.
As of February 28, 2011, the Registrant had outstanding 4,703,866 shares of common stock, $1.00 par
value per share.
Documents incorporated by reference:
Part III of Form 10-K - Proxy statement for annual meeting of stockholders to be held in May 2011.
Part III of Form 10-K - Proxy statement for annual meeting of stockholders to be held in May 2011.
QCR HOLDINGS, INC. AND SUBSIDIARIES
INDEX
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| Exhibit 21.1 | ||||||||
| Exhibit 23.1 | ||||||||
| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32.1 | ||||||||
| Exhibit 32.2 | ||||||||
| Exhibit 99.1 | ||||||||
| Exhibit 99.2 | ||||||||
2
Table of Contents
| Item 1. |
Business
|
General.
QCR Holdings, Inc. (the “Company”) is a multi-bank holding company headquartered in
Moline, Illinois, that was formed in February 1993 under the laws of the state of Delaware. The
Company serves the Quad Cities, Cedar Rapids, and Rockford communities through the following three
wholly-owned banking subsidiaries, which provide full-service commercial and consumer banking and
trust and asset management services:
| • |
Quad City Bank and Trust Company (“Quad City Bank & Trust”), which is based in
Bettendorf, Iowa, and commenced operations in 1994;
|
| • |
Cedar Rapids Bank and Trust Company (“Cedar Rapids Bank & Trust”), which is based in
Cedar Rapids, Iowa, and commenced operations in 2001; and
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| • |
Rockford Bank and Trust Company (“Rockford Bank & Trust”), which is based in Rockford,
Illinois, and commenced operations in 2005.
|
The Company also engages in direct financing lease contracts through the 80% equity investment of
Quad City Bank & Trust in m2 Lease Funds, LLC (“m2 Lease Funds”), based in Brookfield, Wisconsin,
and in real estate holdings through its 91% equity investment in Velie Plantation Holding Company,
LLC (“Velie Plantation Holding Company”), based in Moline, Illinois.
Quad City Bancard, Inc. (“Bancard”), previously a wholly-owned subsidiary of the Company, conducted
the Company’s credit card issuing operation. Effective December 31, 2009, Bancard was dissolved
and liquidated. The credit card issuing operation was merged in as a department of Quad City Bank
& Trust.
During 2008, Bancard sold its merchant credit card acquiring business. The resulting gain on sale,
net of taxes and related expenses, was approximately $3.0 million. The current and comparative
financial results associated with the merchant credit card acquiring business have been reflected
as discontinued operations throughout the annual report.
On December 31, 2008, the Company sold its Milwaukee, Wisconsin subsidiary, First Wisconsin Bank
and Trust Company (“First Wisconsin Bank & Trust”), for $13.7 million which resulted in a pre-tax
gain on sale of approximately $495 thousand. The current and comparative financial results
associated with First Wisconsin Bank & Trust have been reflected as discontinued operations
throughout the annual report.
Subsidiary Banks.
Quad City Bank & Trust was capitalized on October 13, 1993, and commenced
operations on January 7, 1994. Quad City Bank & Trust is an Iowa-chartered commercial bank that is
a member of the Federal Reserve System with depository accounts insured by the Federal Deposit
Insurance Corporation (the “FDIC”) to the maximum amount permitted by law. Quad City Bank & Trust
provides full service commercial and consumer banking and trust and asset management services in
the Quad Cities and adjacent communities through its five offices that are located in Bettendorf
and Davenport, Iowa and in Moline, Illinois. Quad City Bank & Trust has the 80% equity investment
in m2 Lease Funds. Quad City Bank & Trust, on a consolidated basis with m2 Lease Funds, had total
segment assets of $1.03 billion and $975.8 million as of December 31, 2010 and 2009, respectively.
Cedar Rapids Bank & Trust is an Iowa-chartered commercial bank that is a member of the Federal
Reserve System with depository accounts insured by the FDIC to the maximum amount permitted by law.
The Company commenced operations in Cedar Rapids in June 2001, operating as a branch of Quad City
Bank & Trust. The Cedar Rapids branch operation then began functioning under the Cedar Rapids Bank
& Trust charter in September 2001. Cedar Rapids Bank & Trust provides full-service commercial and
consumer banking and trust and asset management services to Cedar Rapids, Iowa and adjacent
communities through its two facilities. The headquarters for Cedar Rapids Bank & Trust is located
in downtown Cedar Rapids, and its first branch location is located in northern Cedar Rapids. Cedar
Rapids Bank & Trust had total segment assets of $546.8 million and $542.7 million as of December
31, 2010 and 2009, respectively.
3
Table of Contents
Rockford Bank & Trust is an Illinois-chartered commercial bank that is a member of the Federal
Reserve System with depository accounts insured by the FDIC to the maximum amount permitted by law.
The Company commenced operations in Rockford, Illinois in September 2004, operating as a branch of
Quad City Bank & Trust, and that operation began functioning under the Rockford Bank & Trust
charter in January 2005. Rockford Bank & Trust provides full-service commercial and consumer
banking and trust and asset management services to Rockford and adjacent communities through its
original office located in downtown Rockford and its branch facility located on Guilford Road at
Alpine Road in Rockford. Rockford Bank & Trust had total segment assets of $271.4 million and
$265.8 million as of December 31, 2010 and 2009, respectively.
See Financial Statement Note 22 for additional business segment information.
Other Operating Subsidiaries.
On August 26, 2005, Quad City Bank & Trust acquired 80% of the
membership units of m2 Lease Funds. John Engelbrecht, the President and Chief Executive Officer of
m2 Lease Funds, retained 20% of the membership units. m2 Lease Funds, which is based in
Brookfield, Wisconsin, is engaged in the business of leasing machinery and equipment to commercial
and industrial businesses under direct financing lease contracts.
Beginning in 1998, the Company held a 20% equity investment in Velie Plantation Holding Company.
In 2006, the Company acquired an additional 37% of the membership units bringing its total equity
investment to 57%. During 2009, the Company acquired an additional 16% of the membership units to
bring its total equity investment to 73%. And, during the fourth quarter of 2010, the Company
acquired an additional 18% of the membership units to bring its total equity investment to 91%.
Velie Plantation Holding Company is engaged in holding the real estate property known as the Velie
Plantation Mansion in Moline, Illinois.
On January 1, 2008, Quad City Bank & Trust acquired 100% of the membership units of CMG Investment
Advisors, LLC, which is an investment management and advisory company. During 2010, the operating
subsidiary was renamed Quad City Investment Advisors, LLC.
Trust Preferred Subsidiaries.
Following is a listing of the Company’s non-consolidated
subsidiaries formed for the issuance of trust preferred securities, including pertinent information
as of December 31, 2010 and 2009:
| Interest | Interest | |||||||||||||||
| Rate as | Rate as | |||||||||||||||
| of | of | |||||||||||||||
| Name | Date Issued | Amount Issued | Interest Rate | 12/31/10 | 12/31/09 | |||||||||||
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QCR Holdings Statutory Trust II
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February 2004 | $ | 12,372,000 | 6.93%* | 6.93 | % | 6.93 | % | ||||||||
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QCR Holdings Statutory Trust III
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February 2004 | 8,248,000 | 2.85% over 3-month LIBOR | 3.15 | % | 3.10 | % | |||||||||
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QCR Holdings Statutory Trust IV
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May 2005 | 5,155,000 | 1.80% over 3-month LIBOR | 2.09 | % | 2.08 | % | |||||||||
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QCR Holdings Statutory Trust V
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February 2006 | 10,310,000 | 6.62%** | 6.62 | % | 6.62 | % | |||||||||
| * |
Rate is fixed until March 31, 2011, then becomes variable based on 3-month LIBOR plus 2.85%,
reset quarterly.
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| ** |
Rate is fixed until April 7, 2011, then becomes variable based on 3-month LIBOR plus 1.55%, reset
quarterly.
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Securities issued by Trust II mature in thirty years, but are callable at par anytime after seven
years from issuance. Securities issued by Trust III, Trust IV, and Trust V mature in thirty years,
but are callable at par anytime after five years from issuance.
4
Table of Contents
Other Ownership Interests.
The Company invests limited amounts of its capital in stocks of
financial institutions and mutual funds. In addition to its wholly-owned and majority-owned
subsidiaries, the Company owns a 20% equity position in Nobel Real Estate Investors, LLC. In June
2005, Cedar Rapids Bank & Trust entered into a joint venture as a 50% owner of Cedar Rapids
Mortgage Company, LLC.
The Company previously owned a 2.25% equity investment in Trisource Solutions, LLC (“Trisource”).
On July 2, 2010, the Company exercised a put option and sold its equity investment back to the
majority owner of Trisource for $750 thousand to be received in monthly installments through July
2012, with a final balloon payment to be made in August 2012. As a result, the gain (materially
all of the sales proceeds) is deferred and recognized on a cash basis.
Business.
The Company’s principal business consists of attracting deposits and investing those
deposits in loans/leases and securities. The deposits of the subsidiary banks are insured to the
maximum amount allowable by the FDIC. The Company’s results of operations are dependent primarily
on net interest income, which is the difference between the interest earned on its loans/leases and
securities and the interest paid on deposits and borrowings. The Company’s operating results are
affected by economic and competitive conditions, particularly changes in interest rates, government
policies and actions of regulatory authorities, as described more fully in this Form 10-K. Its
operating results also can be affected by trust fees, deposit service charge fees, gains on the
sale of residential real estate and government guaranteed loans, earnings from bank-owned life
insurance and other income. Operating expenses include employee compensation and benefits,
occupancy and equipment expense, professional and data processing fees, advertising and marketing
expenses, bank service charges, FDIC and other insurance, loan/lease expenses and other
administrative expenses.
The Company and its subsidiaries collectively employed 350 and 343 full-time equivalents (“FTEs”)
at December 31, 2010 and 2009, respectively.
The Board of Governors of the Federal Reserve System (the “Federal Reserve”) is the primary federal
regulator of the Company and its subsidiaries. In addition, Quad City Bank & Trust and Cedar
Rapids Bank & Trust are regulated by the Iowa Superintendent of Banking and Rockford Bank & Trust
is regulated by the State of Illinois Department of Financial and Professional Regulation. The
FDIC, as administrator of the Deposit Insurance Fund, has regulatory authority over the subsidiary
banks.
Lending/Leasing.
The Company and its subsidiaries provide a broad range of commercial and retail
lending and investment services to corporations, partnerships, individuals and government agencies.
The subsidiary banks actively market their services to qualified lending and deposit clients.
Officers actively solicit the business of new clients entering their market areas as well as
long-standing members of the local business community. The Company has an established
lending/leasing policy which includes a number of underwriting factors to be considered in making a
loan/lease, including, but not limited to, location, loan-to-value ratio, cash flow, collateral and
the credit history of the borrower.
In accordance with Iowa regulation, the legal lending limit to one borrower for Quad City Bank &
Trust and Cedar Rapids Bank & Trust, calculated as 15% of aggregate capital, was $14.5 million and
$8.5 million, respectively, as of December 31, 2010. In accordance with Illinois regulation, the
legal lending limit to one borrower for Rockford Bank & Trust, calculated as 25% of aggregate
capital, totaled $8.6 million as of December 31, 2010.
The Company recognizes the need to prevent excessive concentrations of credit exposure to any one
borrower or group of related borrowers. As such, the Company has established an in-house lending
limit, which is lower than each subsidiary bank’s legal lending limit, in an effort to manage
individual borrower exposure levels.
The in-house lending limit is the maximum amount of credit each subsidiary bank will extend to a
single borrowing entity or group of related entities. Under the in-house limit, total credit
exposure to a single borrowing entity or group of related entities will not exceed the following,
subject to certain exceptions:
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Quad City Bank & Trust:
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$7.5 million | |||
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Cedar Rapids Bank & Trust:
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$5.0 million | |||
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Rockford Bank & Trust:
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$3.0 million | |||
5
Table of Contents
On a consolidated basis, the in-house lending limit is $10.0 million and is the maximum amount of
credit that all affiliated banks when combined will extend to a single borrowing entity or group of
related entities.
As part of the loan monitoring activity at the three subsidiary banks, credit administration
personnel interact closely with senior bank management. The Company has a separate in-house loan
review function to analyze credits of the subsidiary banks. To complement the in-house loan
review, an independent third-party performs external loan reviews. Management has attempted to
identify problem loans at an early stage and to aggressively seek a resolution of these situations.
The Company recognizes that a diversified loan portfolio contributes to reducing risk in the
overall loan/lease portfolio. The specific loan/lease portfolio mix is subject to change based on
loan/lease demand, the business environment and various economic factors. The Company actively
monitors concentrations within the loan/lease portfolio to ensure appropriate diversification and
concentration risk is maintained.
Specifically, each subsidiary bank’s total loans as a percentage of assets may not exceed 85%. In
addition, following are established policy limits for the loan portfolio on a per loan type basis,
reflected as a percentage of the subsidiary bank’s average gross loans:
| Type of Loan | Maximum Percentage | |||
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One-to-four family residential
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30 | % | ||
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Multi-family
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15 | % | ||
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Farmland
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5 | % | ||
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Non-farm, nonresidential
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50 | % | ||
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Construction and land development
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20 | % | ||
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Commercial and industrial loans
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60 | % | ||
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Loans to individuals
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10 | % | ||
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Lease financing
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20 | % | ||
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Bank stock loans
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15 | % | ||
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All other loans
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10 | % | ||
The loan types above are as defined and reported in the subsidiary banks’ quarterly Reports of
Condition and Income (also known as Call Reports).
The following table presents total loans/leases by major loan/lease type and subsidiary as of
December 31, 2010 and 2009. Residential real estate loans held for sale are included in
residential real estate loans below.
| Quad City | m2 | Cedar Rapids | Rockford | Intercompany | Consolidated | |||||||||||||||||||||||||||||||||||||||
| Bank & Trust | Lease Funds | Bank & Trust | Bank & Trust | Elimination | Total | |||||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | $ | $ | % | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
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As of December 31, 2010:
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Commercial and industrial loans
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$ | 194,316 | 38 | % | $ | — | 0 | % | $ | 117,236 | 32 | % | $ | 54,073 | 27 | % | $ | — | $ | 365,625 | 31 | % | ||||||||||||||||||||||
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Commercial real estate loans
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239,338 | 46 | % | — | 0 | % | 197,774 | 54 | % | 118,763 | 58 | % | (2,158 | ) | 553,717 | 47 | % | |||||||||||||||||||||||||||
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Direct financing leases
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— | 0 | % | 83,010 | 97 | % | — | 0 | % | — | 0 | % | — | 83,010 | 7 | % | ||||||||||||||||||||||||||||
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Residential real estate loans
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34,820 | 7 | % | — | 0 | % | 32,155 | 9 | % | 15,222 | 7 | % | — | 82,197 | 7 | % | ||||||||||||||||||||||||||||
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Installment and other consumer loans
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49,664 | 9 | % | — | 0 | % | 21,243 | 5 | % | 15,333 | 8 | % | — | 86,240 | 8 | % | ||||||||||||||||||||||||||||
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Deferred loan/lease origination costs, net of fees
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30 | 0 | % | 2,342 | 3 | % | (628 | ) | 0 | % | 6 | 0 | % | — | 1,750 | 0 | % | |||||||||||||||||||||||||||
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$ | 518,168 | 100 | % | $ | 85,352 | 100 | % | $ | 367,780 | 100 | % | $ | 203,397 | 100 | % | $ | (2,158 | ) | $ | 1,172,539 | 100 | % | |||||||||||||||||||||
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As of December 31, 2009:
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Commercial and industrial loans
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$ | 217,873 | 39 | % | $ | — | 0 | % | $ | 148,420 | 39 | % | $ | 75,243 | 36 | % | $ | — | $ | 441,536 | 35 | % | ||||||||||||||||||||||
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Commercial real estate loans
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261,902 | 47 | % | — | 0 | % | 188,750 | 49 | % | 107,634 | 51 | % | (2,279 | ) | 556,007 | 45 | % | |||||||||||||||||||||||||||
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Direct financing leases
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— | 0 | % | 90,059 | 98 | % | — | 0 | % | — | 0 | % | — | 90,059 | 7 | % | ||||||||||||||||||||||||||||
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Residential real estate loans
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33,221 | 6 | % | — | 0 | % | 21,982 | 6 | % | 15,405 | 7 | % | — | 70,608 | 6 | % | ||||||||||||||||||||||||||||
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Installment and other consumer loans
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48,057 | 8 | % | — | 0 | % | 24,075 | 6 | % | 12,139 | 6 | % | — | 84,271 | 7 | % | ||||||||||||||||||||||||||||
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Deferred loan/lease origination costs, net of fees
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64 | 0 | % | 2,206 | 2 | % | (427 | ) | 0 | % | (4 | ) | 0 | % | — | 1,839 | 0 | % | ||||||||||||||||||||||||||
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$ | 561,117 | 100 | % | $ | 92,265 | 100 | % | $ | 382,800 | 100 | % | $ | 210,417 | 100 | % | $ | (2,279 | ) | $ | 1,244,320 | 100 | % | |||||||||||||||||||||
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6
Table of Contents
Proper pricing of loans is necessary to provide adequate return to the Company’s shareholders.
Loan pricing, as established by the subsidiary banks’ Asset/Liability Committee, shall include
consideration for the cost of funds, loan maturity and risk, origination and maintenance costs,
appropriate shareholder return, competitive factors, and the economic environment. The portfolio
contains a mix of loans with fixed and floating interest rates. Management
attempts to maximize the use of interest rate floors on its variable rate loan portfolio. Refer to
Item 7A. Quantitative and Qualitative Disclosures About Market Risk for more discussion on the
Company’s management of interest rate risk.
Commercial and Industrial Lending
As noted above, the subsidiary banks are active commercial and industrial lenders. The current
areas of emphasis include loans to small and mid-sized businesses with a wide range of operations
such as wholesalers, manufacturers, building contractors, business services companies, other banks,
and retailers. The banks provide a wide range of business loans, including lines of credit for
working capital and operational purposes, and term loans for the acquisition of facilities,
equipment and other purposes.
Loan approval is generally based on the following factors:
| • |
Ability and stability of current management of the borrower;
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| • |
Stable earnings with positive financial trends;
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Sufficient cash flow to support debt repayment;
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Earnings projections based on reasonable assumptions;
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| • |
Financial strength of the industry and business; and
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| • |
Value and marketability of collateral.
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For commercial and industrial loans, the Company assigns internal risk ratings which are largely
dependent upon the aforementioned approval factors. The risk rating is reviewed annually, at a
minimum, and on an as needed basis depending on the specific circumstances of the loan. See
Financial Statement Note 1 for additional information including the internal risk rating scale.
As part of the underwriting process, management reviews current borrower financial statements.
When appropriate, certain commercial and industrial loans may contain covenants requiring
maintenance of financial performance ratios such as:
| • |
Minimum debt service coverage ratio;
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| • |
Minimum current ratio;
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| • |
Maximum debt to tangible net worth ratio; and/or
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| • |
Minimum tangible net worth
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Establishment of these financial performance ratios depends on a number of factors including risk
rating and the specific industry.
7
Table of Contents
Collateral for these loans generally includes accounts receivable, inventory, equipment and real
estate. The lending policy specifies approved collateral types and corresponding maximum advance
percentages. The value of collateral pledged on loans must exceed the loan amount by a margin
sufficient to absorb potential erosion of its value in the event of foreclosure and cover the loan
amount plus costs incurred to convert it to cash. Approved non-real estate collateral types and
corresponding maximum advance percentages for each are listed below.
| Approved Collateral Type | Maximum Advance % | |
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Financial Instruments
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U.S. Government Securities
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90% of market value | |
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Securities of Federal Agencies
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90% of market value | |
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Municipal Bonds rated by Moody’s
As “A” or better
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80% of market value | |
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Listed Stocks
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75% of market value | |
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Mutual Funds
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75% of market value | |
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Cash Value Life Insurance
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95%, less policy loans | |
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Savings/Time Deposits (Bank)
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100% of current value | |
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General Business
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Accounts Receivable
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80% of eligible A/R | |
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Inventory
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50% of value | |
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Fixed Assets (Existing)
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50% of net book value, or 75% of orderly liquidation appraised value | |
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Fixed Assets (New)
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80% of cost, or higher if cross-collateralized with other assets | |
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Leasehold Improvements
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0% |
The lending policy specifies maximum term limits for commercial and industrial loans. For term
loans, the maximum term is 7 years. Generally, term loans range from 3 to 5 years. For lines of
credit, the maximum term is 365 days.
In addition, the subsidiary banks often take personal guarantees to help assure repayment. Loans
may be made on an unsecured basis if warranted by the overall financial condition of the borrower.
Commercial Real Estate Lending
The subsidiary banks also make commercial real estate loans. Commercial real estate loans are
subject to underwriting standards and processes similar to commercial and industrial loans, in
addition to those standards and processes specific to real estate loans. Collateral for these
loans generally includes the underlying real estate and improvements, and may include additional
assets of the borrower. The lending policy specifies maximum loan-to-value limits based on the
category of commercial real estate (commercial real estate loans on improved property, raw land,
land development, and commercial construction). These limits are the same limits established by
regulatory authorities. Following is a listing of these limits as well as some of the other
guidelines included in the lending policy for the major categories of commercial real estate loans:
| Maximum | ||||
| Commercial Real Estate Loan Types | Maximum Advance Rate ** | Term | ||
|
|
||||
|
Commercial Real Estate Loans on Improved Property *
|
80% | 7 years | ||
|
Raw Land
|
Lesser of 65% of ‘as is’ appraised value, or 90% of cost | 12 months | ||
|
Land Development
|
Lesser of 90% of project cost, or 75% of appraised value | 24 months | ||
|
Commercial Construction Loans
|
Lesser of 90% of project cost, or 80% of appraised value | 365 days |
| * |
Generally, the debt service coverage ratio must be a minimum of 1.15x for non-owner occupied
loans and 1.00x for owner-occupied loans. For loans greater than $500 thousand, the subsidiary
banks sensitivity test this ratio for deteriorated economic conditions, major changes in interest
rates, and/or significant increases in vacancy rates.
|
|
| ** |
These maximum rates are consistent with those established by regulatory authorities.
|
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The lending policy also includes guidelines for real estate appraisals, including minimum appraisal
standards based on certain transactions. In addition, the subsidiary banks often take personal
guarantees to help assure repayment.
In addition, management tracks the level of owner-occupied commercial real estate loans versus
non-owner occupied loans. Owner-occupied loans are generally considered to have less risk. As of
December 31, 2010 and 2009, approximately 26% and 29%, respectively, of the commercial real estate
loan portfolio was owner-occupied.
The Company’s lending policy limits non-owner occupied commercial real estate lending to 300% of
total risk-based capital, and limits construction, land development, and other land loans to 100%
of total risk-based capital. Exceeding these limits warrants the use of heightened risk management
practices in accordance with regulatory guidelines.
Following is a listing of the significant industries within the Company’s commercial real estate
loan portfolio as of December 31, 2010:
| As of December 31, | ||||||||
| 2010 | ||||||||
| Amount | % | |||||||
| (dollars in thousands) | ||||||||
|
|
||||||||
|
Lessors of Nonresidential Buildings
|
$ | 154,427 | 28 | % | ||||
|
Lessors of Residential Buildings
|
52,582 | 9 | % | |||||
|
Land Subdivision
|
30,572 | 6 | % | |||||
|
Lessors of Other Real Estate Property
|
19,688 | 4 | % | |||||
|
New Single Family Construction
|
16,053 | 3 | % | |||||
|
Other *
|
280,395 | 50 | % | |||||
|
|
||||||||
|
|
||||||||
|
Total Commercial Real Estate Loans
|
$ | 553,717 | 100 | % | ||||
|
|
||||||||
| * |
“Other” consists of all other industries. None of these had concentrations
greater than $15 million, or 2.7% of total commercial real estate loans.
|
Direct Financing Leasing
m2 Lease Funds leases machinery and equipment to commercial and industrial customers under direct
financing leases. All lease requests are subject to the credit requirements and criteria as set
forth in the lending/leasing policy. In all cases, a formal independent credit analysis of the
lessee is performed.
The following private and public sector business assets are generally acceptable to consider for
lease funding:
| • |
Computer systems
|
| • |
Photocopy systems
|
| • |
Fire trucks
|
| • |
Specialized road maintenance equipment
|
| • |
Medical equipment
|
| • |
Commercial business furnishings
|
| • |
Vehicles classified as heavy equipment
|
| • |
Aircraft
|
| • |
Equipment classified as plant or office equipment
|
| • |
Marine boat lifts
|
9
Table of Contents
m2 Lease Funds will generally refrain from funding leases of the following type:
| • |
Leases collateralized by non-marketable items
|
| • |
Leases collateralized by consumer items, such as vehicles, household goods, recreational
vehicles, boats, etc.
|
| • |
Leases collateralized by used equipment, unless its remaining useful life can be readily
determined
|
| • |
Leases with a repayment schedule exceeding 7 years
|
Residential Real Estate Lending
Generally, the subsidiary banks’ residential real estate loans conform to the underwriting
requirements of Freddie Mac and Fannie Mae to allow the subsidiary banks to resell loans in the
secondary market. The subsidiary banks structure most loans that will not conform to those
underwriting requirements as adjustable rate mortgages that mature or adjust in one to five years,
and then retain these loans in their portfolios. Servicing rights are not presently retained on
the loans sold in the secondary market. The lending policy establishes minimum appraisal and other
credit guidelines.
As mentioned above, the subsidiary banks sell the majority of their residential real estate loans
in the secondary market. The following table presents the originations and sales of residential
real estate loans for the Company.
| For the year ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (dollars in thousands) | ||||||||||||
|
|
||||||||||||
|
Originations of residential real estate loans
|
$ | 164,572 | $ | 157,180 | $ | 116,662 | ||||||
|
Sales of residential real estate loans
|
$ | 134,304 | $ | 141,619 | $ | 87,907 | ||||||
|
Percentage of sales to originations
|
82 | % | 90 | % | 75 | % | ||||||
Installment and Other Consumer Lending
The consumer lending department of each bank provides many types of consumer loans, including motor
vehicle, home improvement, home equity, signature loans and small personal credit lines. The
lending policy addresses specific credit guidelines by consumer loan type.
In some instances for all loans/leases, it may be appropriate to originate or purchase loans/leases
that are exceptions to the guidelines and limits established within the lending policy described
above. In general, exceptions to the lending policy do not significantly deviate from the
guidelines and limits established within the lending policy and, if there are exceptions, they are
generally noted as such and specifically identified in loan/lease approval documents.
Competition.
The Company currently operates in the highly competitive Quad Cities, Cedar Rapids,
and Rockford markets. Competitors include not only other commercial banks, credit unions, thrift
institutions, and mutual funds, but also, insurance companies, finance companies, brokerage firms,
investment banking companies, and a variety of other financial services and advisory companies.
Many of these competitors are not subject to the same regulatory restrictions as the Company. Many
of these unregulated competitors compete across geographic boundaries and provide customers
increasing access to meaningful alternatives to banking services. The Company competes in markets
with a number of much larger financial institutions with substantially greater resources and larger
lending limits.
10
Table of Contents
Appendices.
The commercial banking business is a highly regulated business. See Appendix A for a
summary of the federal and state statutes and regulations that are applicable to the Company and
its subsidiaries. Supervision, regulation and examination of banks and bank holding companies by
bank regulatory agencies are intended primarily for the protection of depositors rather than
stockholders of bank holding companies and banks.
See Appendix B for tables and schedules that show selected comparative statistical information
relating to the business of the Company required to be presented pursuant to federal securities
laws. Consistent with the information presented in Form 10-K, results are presented for the fiscal
years ended December 31, 2010, 2009, 2008, 2007, and 2006 and have been reclassified, as
appropriate, for discontinued operations.
Internet Site, Securities Filings and Governance Documents.
The Company maintains Internet sites
for itself and each of its three banking subsidiaries. The Company makes available free of charge
through these sites its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act after it electronically files such material with, or furnishes it to, the Securities and
Exchange Commission. Also available are many of its corporate governance documents, including the
Code of Conduct and Ethics Policy. The sites are
www.qcrh.com
,
www.qcbt.com
,
www.crbt.com
,
and
www.rkfdbank.com
.
| Item 1A. |
Risk Factors
|
In addition to the other information in this Annual Report on Form 10-K, stockholders or
prospective investors should carefully consider the following risk factors:
Difficult market conditions have affected the financial industry and may adversely affect us in the
future.
Dramatic declines in the U.S. housing market over the past few years, with falling home prices and
increasing foreclosures, unemployment and under-employment, have negatively impacted the credit
performance of mortgage loans and resulted in significant write-downs of asset values by financial
institutions, including government-sponsored entities as well as major commercial banks and
investment banks. These write-downs, initially of mortgage-backed securities but spreading to
credit default swaps and other derivative and cash securities, in turn, have caused many financial
institutions to seek additional capital from private and government entities, to merge with larger
and stronger financial institutions and, in some cases, to fail.
Reflecting concern about the stability of the financial markets in general and the strength of
counterparties, many lenders and institutional investors have reduced or ceased providing funding
to borrowers, including other financial institutions. This market turmoil and tightening of credit
have led to an increased level of commercial and consumer delinquencies, erosion of consumer
confidence, increased market volatility and widespread reduction of business activity in general.
The resulting economic pressure on consumers and erosion of confidence in the financial markets has
already adversely affected our industry and may adversely affect our business, financial condition
and results of operations. We cannot predict whether the difficult conditions in the financial
markets are likely to improve in the near future. A worsening of these conditions would likely
exacerbate the adverse effects of these difficult market conditions on us and other financial
institutions. In particular, we may face the following risks in connection with these events:
| • |
Our ability to assess the creditworthiness of our customers may be impaired if the
models and approaches we use to select, manage and underwrite the loans become less
predictive of future behaviors.
|
| • |
The models used to estimate losses inherent in the credit exposure require difficult,
subjective, and complex judgments, including forecasts of economic conditions and how these
economic predictions might impair the ability of the borrowers to repay their loans, which
may no longer be capable of accurate estimation and which may, in turn, impact the
reliability of the models.
|
| • |
Our ability to borrow from other financial institutions or to engage in sales of
mortgage loans to third parties on favorable terms, or at all, could be adversely affected
by further disruptions in the capital markets or other events, including deteriorating
investor expectations.
|
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Table of Contents
| • |
Competitive dynamics in the industry could change as a result of consolidation of
financial services companies in connection with current market conditions.
|
| • |
We expect to face increased regulation of our industry. Compliance with such regulation
may increase our costs and limit our ability to pursue business opportunities.
|
| • |
We expect to face increased capital requirements, both at the Company level and each of
its banking subsidiaries. In this regard, the Collins Amendment to the Dodd-Frank Act
requires the federal banking agencies to establish minimum leverage and risk-based capital
requirements that will apply to both insured banks and their holding companies.
Furthermore, the Group of Governors and Heads of Supervision, the oversight body of the
Basel Committee on Banking Supervision, recently announced an agreement to a strengthened
set of capital requirements for internationally active banking organizations, known as
Basel III. We expect U.S. banking authorities to follow the lead of Basel III and require
all U.S. banking organizations to maintain significantly higher levels of capital, which
may limit our ability to pursue business opportunities and adversely affect our results of
operations and growth prospects.
|
| • |
We may be required to pay significantly higher FDIC premiums because market developments
have significantly depleted the Deposit Insurance Fund, or DIF, and reduced the ratio of
reserves to insured deposits. Furthermore, the recently enacted Dodd-Frank Act requires
the FDIC to increase the DIF’s reserves against future losses, which will necessitate
increased assessments on depository institutions. Although the precise impact on us will
not be clear until implementing rules are issued, any future increases in assessments
applicable to us will decrease our earnings and could have a material adverse effect on the
value of, or market for, our common stock.
|
If current levels of market disruption and volatility continue or worsen, there can be no assurance
that we will not experience an adverse effect, which may be material, on our ability to access
capital and on our business, financial condition and results of operations.
Our business is concentrated in and dependent upon the continued growth and welfare of the Quad
Cities, Cedar Rapids, and Rockford markets.
We operate primarily in the Quad Cities, Cedar Rapids, and Rockford markets, and as a result, our
financial condition, results of operations and cash flows are subject to changes in the economic
conditions in those areas. We have developed a particularly strong presence in Bettendorf, Cedar
Rapids and Davenport, Iowa and Moline and Rockford, Illinois and their surrounding communities.
Our success depends upon the business activity, population, income levels, deposits and real estate
activity in these markets. Although our customers’ business and financial interests may extend well
beyond these market areas, adverse economic conditions that affect these market areas could reduce
demand for our products and services, affect the ability of our customers to repay their loans to
us, increase the levels of our non-performing and problem loans, and generally affect our financial
condition and results of operations. Because of our geographic concentration, we are less able than
other regional or national financial institutions to diversify our credit risks across multiple
markets.
Liquidity risks could affect operations and jeopardize our business, results of operations and
financial condition.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings,
the sale of loans and other sources could have a substantial negative effect on our liquidity. Our
primary sources of funds consist of cash from operations, deposits, investment maturities and
calls, and loan/lease repayments. Additional liquidity is provided by federal funds purchased from
the Federal Reserve Bank or other correspondent banks, FHLB advances, wholesale and customer
repurchase agreements, brokered time deposits, and the ability to borrow at the Federal Reserve
Bank’s Discount Window. Our access to funding sources in amounts adequate to finance or capitalize
our activities or on terms
that are acceptable to us could be impaired by factors that affect us directly or the financial
services industry or economy in general, such as further disruptions in the financial markets or
negative views and expectations about the prospects for the financial services industry.
12
Table of Contents
Since mid-2007, the financial services industry and the credit markets generally have been
materially and adversely affected by significant declines in asset values and by a lack of
liquidity. The liquidity issues have been particularly acute for regional and community banks, as
many of the larger financial institutions have significantly curtailed their lending to regional
and community banks to reduce their exposure to the risks of other banks. In addition, many of the
larger correspondent lenders have reduced or even eliminated federal funds lines for their
correspondent customers. Furthermore, regional and community banks generally have less access to
the capital markets than do the national and super-regional banks because of their smaller size and
limited analyst coverage. Any decline in available funding could adversely impact our ability to
originate loans/leases, invest in securities, meet our expenses, pay dividends to our shareholders,
or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any
of which could have a material adverse impact on our liquidity, business, results of operations and
financial condition.
We face intense competition in all phases of our business from other banks and financial
institutions.
The banking and financial services businesses in our markets are highly competitive. Our
competitors include large regional banks, local community banks, savings and loan associations,
securities and brokerage companies, mortgage companies, insurance companies, finance companies,
money market mutual funds, credit unions and other non-bank financial services providers. Many of
these competitors are not subject to the same regulatory restrictions as we are. Many of our
unregulated competitors compete across geographic boundaries and are able to provide customers with
a feasible alternative to traditional banking services. Additionally, if the regulatory trend
toward reducing restrictions on the interstate operations of financial institutions continues, we
will continue to experience increased competition as a result.
Increased competition in our markets may result in a decrease in the amounts of our loans and
deposits, reduced spreads between loan rates and deposit rates or loan terms that are more
favorable to the borrower. Any of these results could have a material adverse effect on our
ability to grow and remain profitable. If increased competition causes us to significantly
discount the interest rates we offer on loans or increase the amount we pay on deposits, our net
interest income could be adversely impacted. If increased competition causes us to modify our
underwriting standards, we could be exposed to higher losses from lending activities.
Additionally, many of our competitors are much larger in total assets and capitalization, have
greater access to capital markets, have larger lending limits and offer a broader range of
financial services than we can offer.
Our community banking strategy relies heavily on our subsidiaries’ independent management teams,
and the unexpected loss of key managers may adversely affect our operations.
We rely heavily on the success of our bank subsidiaries’ independent management teams.
Accordingly, much of our success to date has been influenced strongly by our ability to attract and
to retain senior management experienced in banking and financial services and familiar with the
communities in our market areas. Our ability to retain the executive officers and current
management teams of our operating subsidiaries will continue to be important to the successful
implementation of our strategy. It is also critical, as we manage our existing portfolio and grow,
to be able to attract and retain qualified additional management and loan officers with the
appropriate level of experience and knowledge about our market areas to implement our
community-based operating strategy. The unexpected loss of services of any key management
personnel, or the inability to recruit and retain qualified personnel in the future, could have an
adverse effect on our business, financial condition and results of operations.
The American Recovery and Reinvestment Act of 2010 that was signed into law in February 2010
includes extensive restrictions on our ability to pay retention awards, bonuses and other incentive
compensation during the period in which we have any outstanding securities held by the U.S.
Treasury that were issued under the Capital Purchase Program. Many of the restrictions may not be
limited to our senior executives and could cover other employees whose contributions to revenue and
performance can be significant. As long as we are subject to them, these limitations may adversely
affect our ability to recruit and retain these key employees in addition to our senior executive
officers, especially if we are competing for talent against institutions that are not subject to
the same restrictions.
13
Table of Contents
We are required to maintain capital to meet regulatory requirements, and if we fail to maintain
sufficient capital, whether due to losses, an inability to raise additional capital or otherwise,
our financial condition, liquidity and results of operations, as well as our ability to maintain
regulatory compliance, would be adversely affected.
The Company and each of its banking subsidiaries are required by federal and state regulatory
authorities to maintain adequate levels of capital to support their operations and we expect that
the capital requirements imposed by the regulators will increase in the future. Our ability to
raise additional capital, when and if needed, will depend on conditions in the capital markets,
economic conditions and a number of other factors, including investor perceptions regarding the
banking industry and market condition, and governmental activities, many of which are outside our
control, and on our financial condition and performance. Accordingly, we cannot assure you that we
will be able to raise additional capital if needed or on terms acceptable to us. Our failure to
meet these capital and other regulatory requirements could affect customer confidence, our ability
to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common and
preferred stock and to make distributions on our trust preferred securities, our ability to make
acquisitions, and our business, results of operations and financial condition.
Interest rates and other conditions impact our results of operations.
Our profitability is in large part a function of the spread between the interest rates earned on
investments and loans/leases and the interest rates paid on deposits and other interest bearing
liabilities. Like most banking institutions, our net interest spread and margin will be affected
by general economic conditions and other factors, including fiscal and monetary policies of the
federal government, that influence market interest rates and our ability to respond to changes in
such rates. At any given time, our assets and liabilities will be such that they are affected
differently by a given change in interest rates. As a result, an increase or decrease in rates,
the length of loan/lease terms or the mix of adjustable and fixed rate loans/leases in our
portfolio could have a positive or negative effect on our net income, capital and liquidity. We
measure interest rate risk under various rate scenarios and using specific criteria and
assumptions. A summary of this process, along with the results of our net interest income
simulations is presented at “Quantitative and Qualitative Disclosures about Market Risk” included
under Item 7A of Part II of this Form 10-K. Although we believe our current level of interest rate
sensitivity is reasonable and effectively managed, significant fluctuations in interest rates may
have an adverse effect on our business, financial condition and results of operations.
We must effectively manage our credit risk.
There are risks inherent in making any loan, including risks inherent in dealing with specific
borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of
collateral and risks resulting from changes in economic and industry conditions. We attempt to
minimize our credit risk through prudent loan application approval procedures, careful monitoring
of the concentration of our loans within specific industries and periodic independent reviews of
outstanding loans by our credit review department and an external third party. However, we cannot
assure you that such approval and monitoring procedures will reduce these credit risks.
The majority of our subsidiary banks’ loan portfolios are invested in commercial and industrial and
commercial real estate loans, and we focus on lending to small to medium-sized businesses. The
size of the loans we can offer to commercial customers is less than the size of the loans that our
competitors with larger lending limits can offer. This may limit our ability to establish
relationships with the area’s largest businesses. Smaller companies tend to be at a competitive
disadvantage and generally have limited operating histories, less sophisticated internal record
keeping and financial planning capabilities and fewer financial resources than larger companies. As
a result, we may assume greater lending risks than financial institutions that have a lesser
concentration of such loans and tend to make loans to larger, more established businesses.
Collateral for these loans generally includes accounts receivable, inventory, equipment and real
estate. However, depending on the overall financial condition of the borrower, some loans are made
on an unsecured basis. In addition to commercial and commercial real estate loans, our subsidiary
banks are also active in residential mortgage and consumer lending. Should the economic climate
fail to improve or worsen, our borrowers may experience financial difficulties, and the level of
non-performing loans, charge-offs and delinquencies could rise, which could negatively impact our
business.
14
Table of Contents
Commercial and industrial loans make up a large portion of our loan/lease portfolio.
Commercial and industrial loans/leases were $365.6 million, or approximately 31% of our total
loan/lease portfolio, as of December 31, 2010. Our commercial and industrial loans are primarily
made based on the identified cash flow of the borrower and secondarily on the underlying collateral
provided by the borrower. Most often, this collateral is accounts receivable, inventory, equipment
and real estate. Credit support provided by the borrower for most of these loans and the
probability of repayment is based on the liquidation value of the pledged collateral and
enforcement of a personal guarantee, if any exists. Whenever possible, we require a personal
guarantee on commercial loans. As a result, in the case of loans secured by accounts receivable,
the availability of funds for the repayment of these loans may be substantially dependent on the
ability of the borrower to collect amounts due from its customers. The collateral securing these
loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on
the success of the business. In addition, a continued decline in the United States economy or a
prolonged recovery period could harm or continue to harm the businesses of our commercial and
industrial customers and reduce the value of the collateral securing these loans.
Our loan/lease portfolio has a significant concentration of commercial real estate loans, which
involve risks specific to real estate values.
Commercial real estate lending comprises a significant portion of our lending business.
Specifically, commercial real estate loans were $553.7 million, or approximately 47% of our total
loan/lease portfolio, as of December 31, 2010. Of this amount, $144.0 million, or approximately
26%, is owner-occupied. The market value of real estate securing our commercial real estate loans
can fluctuate significantly in a short period of time as a result of market conditions in the
geographic area in which the real estate is located and in the past several years our market areas
have experienced a general weakening in real estate valuations. Continued adverse developments
affecting real estate values in one or more of our markets could increase the credit risk
associated with our loan portfolio. Additionally, real estate lending typically involves higher
loan principal amounts and the repayment of the loans generally is dependent, in large part, on
sufficient income from the properties securing the loans to cover operating expenses and debt
service. Economic events or governmental regulations outside of the control of the borrower or
lender could negatively impact the future cash flow and market values of the affected properties.
The problems that have occurred in the residential real estate and mortgage markets throughout much
of the United States have begun to spread to the commercial real estate market. In our market
areas, we have generally experienced a downturn in credit performance by our commercial real estate
loan customers, and in light of the uncertainty that exists in the economy and credit markets,
there can be no guarantee that we will not experience further deterioration in the performance of
commercial real estate and other real estate loans in the future. In such case, we may not be able
to realize the amount of security that we anticipated at the time of originating the loan, which
could cause us to increase our provision for loan losses and adversely affect our operating
results, financial condition and/or capital.
Our allowance for loan/lease losses may prove to be insufficient to absorb potential losses in our
loan/lease portfolio.
We established our allowance for loan/lease losses in consultation with management of our
subsidiaries and maintain it at a level considered adequate by management to absorb loan/lease
losses that are inherent in the portfolio. The amount of future loan/lease losses is susceptible
to changes in economic, operating and other conditions, including changes in interest rates, which
may be beyond our control, and such losses may exceed current estimates. At December 31, 2010, our
allowance for loan/lease losses as a percentage of total gross loans/leases was 1.74% and as a
percentage of total nonperforming loans/leases was approximately 49%. Because of the concentration
of commercial and industrial and commercial real estate loans in our loan portfolio, which tend to
be larger in amount than residential real estate loans, the movement of a small number of loans to
nonperforming status can have a significant impact on this ratio. Although management believes
that the allowance for loan/lease losses as of December 31, 2010 was adequate to absorb losses on
any existing loans/leases that may become uncollectible, in light of the current economic
environment, we cannot predict loan/lease losses with certainty, and we cannot assure you that our
allowance for loan/lease losses will prove sufficient to cover actual loan/lease losses in the
future, particularly if economic conditions worsen beyond what management currently expects.
Additional provisions to the allowance for loan/lease losses and loan/lease losses in excess of our
allowance for loan/lease losses may adversely affect our business, financial condition and results
of operations.
15
Table of Contents
Failure to pay interest on our debt or dividends on our preferred stock may adversely impact our
ability to pay common stock dividends.
As of December 31, 2010, we had $36.1 million of junior subordinated debentures held by four
business trusts that we control. Interest payments on the debentures, which totaled $1.9 million
for 2010, must be paid before we pay dividends on our capital stock, including our common stock.
We have the right to defer interest payments on the debentures for up to 20 consecutive quarters.
However, if we elect to defer interest payments, all deferred interest must be paid before we may
pay dividends on our capital stock. As of December 31, 2010, the Company had 25,000 shares of
non-cumulative perpetual preferred stock issued and outstanding. Although these non-cumulative
preferred shares will accrue no dividends, dividends will be payable on the preferred shares if
declared, but no dividends may be declared on the Company’s common stock unless and until dividends
have been declared on the outstanding shares. Deferral, of either interest payments on the
debentures or preferred dividends on the preferred shares, could cause a subsequent decline in the
market price of our common stock because the Company would not be able to pay dividends on its
common stock.
In addition, on February 13, 2009, we issued shares of cumulative perpetual senior preferred stock
to Treasury as part of the Capital Purchase Program. The terms of the senior preferred stock
restrict the payment of dividends on shares of our common stock. Without the prior consent of
Treasury, we are prohibited from increasing common stock dividends for the first three years while
Treasury holds the senior preferred stock. Further, we are prohibited from continuing to pay
dividends on our common stock unless we have fully paid all required dividends on the senior
preferred stock. Although we expect to be able to pay all required dividends on the senior
preferred stock (and to continue to pay dividends on common stock at current levels), there is no
guarantee that we will be able to do so.
Declines in asset values may result in impairment charges and adversely affect the value of our
investments, financial performance and capital.
The market value of investments in our securities portfolio has become increasingly volatile over
the past year, and as of December 31, 2010, we had gross unrealized losses of $2.8 million in our
investment portfolio (more than offset by gross unrealized gains of $3.9 million). The market value
of investments may be affected by factors other than the underlying performance of the servicer of
the securities or the mortgages underlying the securities, such as ratings downgrades, adverse
changes in the business climate and a lack of liquidity in the secondary market for certain
investment securities. On a quarterly basis, we formally evaluate investments and other assets for
impairment indicators. We may be required to record additional impairment charges if our
investments suffer a decline in value that is considered other-than-temporary. If we determine that
a significant impairment has occurred, we would be required to charge against earnings the
credit-related portion of the other-than-temporary impairment, which could have a material adverse
effect on our results of operations in the periods in which the write-offs occur.
Legislative and regulatory reforms applicable to the financial services industry may, if enacted or
adopted, have a significant impact on our business, financial condition and results of operations.
On July 21, 2010, the Dodd-Frank Act was signed into law, which significantly changes the
regulation of financial institutions and the financial services industry. The Dodd-Frank Act,
together with the regulations to be developed thereunder, includes provisions affecting large and
small financial institutions alike, including several provisions that will affect how community
banks, thrifts and small bank and thrift holding companies will be regulated in the future.
The Dodd-Frank Act, among other things, imposes new capital requirements on bank holding companies;
changes the base for FDIC insurance assessments to a bank’s average consolidated total assets minus
average tangible equity, rather than upon its deposit base, and permanently raises the current
standard deposit insurance limit to $250,000; and expands the FDIC’s authority to raise insurance
premiums. The legislation also calls for the FDIC to raise the ratio of reserves to deposits from
1.15% to 1.35% for deposit insurance purposes by September 30, 2020 and to “offset the effect” of
increased assessments on insured depository institutions with assets of less than $10 billion. The
Dodd-Frank Act also authorizes the Federal Reserve to limit interchange fees payable on debit card
transactions, establishes the Bureau of Consumer Financial Protection as an independent entity
within the Federal Reserve, which will have broad rulemaking, supervisory and enforcement authority
over consumer financial products and services, including deposit products, residential mortgages,
home-equity loans and credit cards, and contains provisions on mortgage-related matters, such as
steering incentives, determinations as to a borrower’s ability to repay and prepayment penalties.
The Dodd-Frank Act also includes provisions that affect corporate governance and executive
compensation at all publicly-traded companies.
16
Table of Contents
The Collins Amendment to the Dodd-Frank Act, among other things, eliminates certain trust preferred
securities from Tier 1 capital, but certain trust preferred securities issued prior to May 19, 2010
by bank holding companies with total consolidated assets of $15 billion or less will continue to be
includible in Tier 1 capital. This provision also requires the federal banking agencies to
establish minimum leverage and risk-based capital requirements that will apply to both insured
banks and their holding companies. Regulations implementing the Collins Amendment must be issued
within 18 months of July 21, 2010.
These provisions, or any other aspects of current or proposed regulatory or legislative changes to
laws applicable to the financial industry, if enacted or adopted, may impact the profitability of
our business activities or change certain of our business practices, including the ability to offer
new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest
spreads, and could expose us to additional costs, including increased compliance costs. These
changes also may require us to invest significant management attention and resources to make any
necessary changes to operations in order to comply, and could therefore also materially and
adversely affect our business, financial condition and results of operations. Our management is
actively reviewing the provisions of the Dodd-Frank Act, many of which are to be phased-in over the
next several months and years, and assessing its probable impact on our operations. However, the
ultimate effect of the Dodd-Frank Act on the financial services industry in general, and us in
particular, is uncertain at this time.
The U.S. Congress has also recently adopted additional consumer protection laws such as the Credit
Card Accountability Responsibility and Disclosure Act of 2010, and the Federal Reserve has adopted
numerous new regulations addressing banks’ credit card, overdraft and mortgage lending practices.
Additional consumer protection legislation and regulatory activity is anticipated in the near
future.
Such proposals and legislation, if finally adopted, would change banking laws and our operating
environment and that of our subsidiaries in substantial and unpredictable ways. We cannot
determine whether such proposals and legislation will be adopted, or the ultimate effect that such
proposals and legislation, if enacted, or regulations issued to implement the same, would have upon
our business, financial condition or results of operations.
Monetary policies and regulations of the Federal Reserve could adversely affect our business,
financial condition and results of operations.
In addition to being affected by general economic conditions, our earnings and growth are affected
by the policies of the Federal Reserve. An important function of the Federal Reserve is to
regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve
to implement these objectives are open market operations in U.S. government securities, adjustments
of the discount rate and changes in reserve requirements against bank deposits. These instruments
are used in varying combinations to influence overall economic growth and the distribution of
credit, bank loans, investments and deposits. Their use also affects interest rates charged on
loans or paid on deposits.
The monetary policies and regulations of the Federal Reserve have had a significant effect on the
operating results of commercial banks in the past and are expected to continue to do so in the
future. The effects of such policies upon our business, financial condition and results of
operations cannot be predicted.
Changes in future rules applicable to participants in the Capital Purchase Program could adversely
affect our business, results of operations and financial condition.
On February 13, 2009, we issued shares of perpetual senior preferred stock to Treasury as part of
the Capital Purchase Program. The rules and policies applicable to recipients of capital under the
Capital Purchase Program continue to evolve and their scope, timing and effect cannot be predicted.
Any changes in these rules and policies could adversely affect our business, results of operations
and financial condition.
Any redemption of the securities sold to the U.S. Treasury to avoid these restrictions would
require prior Federal Reserve and Treasury approval. Based on guidelines issued by the Federal
Reserve, institutions seeking to redeem
Capital Purchase Program preferred stock must demonstrate an ability to access the long-term debt
markets, successfully demonstrate access to public equity markets and meet a number of additional
requirements and considerations before such institutions can redeem any securities sold to the
Treasury.
17
Table of Contents
We have a continuing need for technological change, and we may not have the resources to
effectively implement new technology.
The financial services industry continues to undergo rapid technological changes with frequent
introductions of new technology-driven products and services. In addition to enabling us to better
serve our customers, the effective use of technology increases efficiency and the potential for
cost reduction. Our future success will depend in part upon our ability to address the needs of
our customers by using technology to provide products and services that will satisfy customer
demands for convenience as well as to create additional efficiencies in our operations as we
continue to grow our market share. Many of our larger competitors have substantially greater
resources to invest in technological improvements. As a result, they may be able to offer
additional or superior products to those that we will be able to offer, which would put us at a
competitive disadvantage. Accordingly, we cannot provide you with assurance that we will be able
to effectively implement new technology-driven products and services or be successful in marketing
such products and services to our customers.
System failure or breaches of our network security could subject us to increased operating costs as
well as litigation and other liabilities.
The computer systems and network infrastructure we use could be vulnerable to unforeseen problems.
Our operations are dependent upon our ability to protect our computer equipment against damage from
physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as
well as from security breaches, denial of service attacks, viruses, worms and other disruptive
problems caused by hackers. Any damage or failure that causes an interruption in our operations
could have a material adverse effect on our financial condition and results of operations.
Computer break-ins, phishing and other disruptions could also jeopardize the security of
information stored in and transmitted through our computer systems and network infrastructure,
which may result in significant liability to us and may cause existing and potential customers to
refrain from doing business with us. Although we, with the help of third-party service providers,
intend to continue to implement security technology and establish operational procedures to prevent
such damage, there can be no assurance that these security measures will be successful. In
addition, advances in computer capabilities, new discoveries in the field of cryptography or other
developments could result in a compromise or breach of the algorithms we and our third-party
service providers use to encrypt and protect customer transaction data. A failure of such security
measures could have a material adverse effect on our financial condition and results of operations.
We are subject to certain operational risks, including, but not limited to, customer or employee
fraud and data processing system failures and errors.
Employee errors and employee and customer misconduct could subject us to financial losses or
regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include
hiding unauthorized activities from us, improper or unauthorized activities on behalf of our
customers or improper use of confidential information. It is not always possible to prevent
employee errors and misconduct, and the precautions we take to prevent and detect this activity may
not be effective in all cases. Employee errors could also subject us to financial claims for
negligence.
We maintain a system of internal controls and insurance coverage to mitigate against operational
risks, including data processing system failures and errors and customer or employee fraud. Should
our internal controls fail to prevent or detect an occurrence, and if any resulting loss is not
insured or exceeds applicable insurance limits, such failure could have a material adverse effect
on our business, financial condition and results of operations.
18
Table of Contents
| Item 1B. |
Unresolved Staff Comments
|
There are no unresolved staff comments.
| Item 2. |
Properties
|
The following table is a listing of the Company’s operating facilities for its subsidiary banks:
| Facility | |||||||
| Square | Facility Owned or | ||||||
| Facility Address | Footage | Leased | |||||
|
|
|||||||
|
Quad City Bank & Trust
|
|||||||
|
|
|||||||
|
2118 Middle Road in Bettendorf, IA
|
6,700 | Owned | |||||
|
4500 Brady Street in Davenport, IA
|
36,000 | Owned | |||||
|
3551 7
th
Street in Moline, IL
|
30,000 | Owned | * | ||||
|
5405 Utica Ridge Road in Davenport, IA **
|
7,400 | Leased | |||||
|
1700 Division Street in Davenport, IA
|
12,000 | Owned | |||||
|
|
|||||||
|
Cedar Rapids Bank & Trust
|
|||||||
|
|
|||||||
|
500 1
st
Avenue NE, Suite 100 in Cedar Rapids, IA
|
36,000 | Owned | |||||
|
5400 Council Street in Cedar Rapids, IA
|
5,900 | Owned | |||||
|
|
|||||||
|
Rockford Bank & Trust
|
|||||||
|
|
|||||||
|
127 North Wyman Street in Rockford, IL
|
7,800 | Leased | |||||
|
4571 Guilford Road in Rockford, IL
|
20,000 | Owned | |||||
| * |
The building is owned by Velie Plantation Holding Company, in which the Company has a 91%
interest.
|
|
| ** |
Effective April 1, 2010, Quad City Bank & Trust moved its branch operations from 5515 Utica
Ridge Road in Davenport, Iowa to 5405 Utica Ridge Road in Davenport, Iowa. The previous facility
was also leased and had 6,000 square feet available.
|
The subsidiary banks intend to limit their investment in premises to no more than 50% of their
capital. Management believes that the facilities are of sound construction, in good operating
condition, are appropriately insured and are adequately equipped for carrying on the business of
the Company.
No individual real estate property or mortgage amounts to 10% or more of consolidated assets.
| Item 3. |
Legal Proceedings
|
There are no material pending legal proceedings to which the Company or any of its subsidiaries is
a party other than ordinary routine litigation incidental to their respective businesses.
| Item 4. |
[Removed and Reserved]
|
19
Table of Contents
| Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
Market Information.
The common stock, par value $1.00 per share, of the Company is listed on The
NASDAQ Global Market under the symbol “QCRH”. The stock began trading on NASDAQ on October 6,
1993. The Company transferred its listing from the NASDAQ Capital Market to the NASDAQ Global
Market on March 1, 2010. As of December 31, 2010, there were 4,611,182 shares of common stock
outstanding held by approximately 2,600 holders of record. The following table sets forth the high
and low sales prices of the common stock, as reported by NASDAQ for the periods indicated.
| 2010 Sales Price | 2009 Sales Price | 2008 Sales Price | ||||||||||||||||||||||
| High | Low | High | Low | High | Low | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
First quarter
|
$ | 10.000 | $ | 7.650 | $ | 11.930 | $ | 7.120 | $ | 17.020 | $ | 14.150 | ||||||||||||
|
Second quarter
|
14.400 | 8.730 | 11.000 | 7.760 | 16.200 | 12.130 | ||||||||||||||||||
|
Third quarter
|
10.970 | 8.930 | 10.980 | 9.470 | 16.200 | 9.700 | ||||||||||||||||||
|
Fourth quarter
|
9.520 | 6.745 | 10.490 | 7.060 | 14.240 | 9.440 | ||||||||||||||||||
Dividends on Common Stock.
On May 12, 2010, the Company declared a cash dividend of $0.04 per
share, or $183 thousand, which was paid on July 6, 2010, to stockholders of record as of June 21,
2010. On November 4, 2010, the Company declared a cash dividend of $0.04 per share, or $183
thousand, which was paid on January 7, 2011, to stockholders of record as of December 22, 2010. In
the future, it is the Company’s intention to continue to consider the payment of dividends on a
semi-annual basis. The Company anticipates an ongoing need to retain much of its operating income
to help provide the capital for continued growth, but believes that operating results have reached
a level that can sustain dividends to stockholders as well.
The Company is heavily dependent on dividend payments from its subsidiary banks to make dividend
payments on the Company’s preferred and common stock. Under applicable state laws, the banks are
restricted as to the maximum amount of dividends that they may pay on their common stock. Iowa and
Illinois law provide that state-chartered banks in those states may not pay dividends in excess of
their undivided profits.
The Company’s ability to pay dividends to its stockholders may be affected by both general
corporate law considerations and policies of the Federal Reserve applicable to bank holding
companies. The payment of dividends by any financial institution or its holding company is affected
by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines
and regulations, and a financial institution generally is prohibited from paying any dividends if,
following payment thereof, the institution would be undercapitalized.
The Company also has certain contractual restrictions on its ability to pay dividends. The Company
has issued junior subordinated debentures in four private placements. Under the terms of the
debentures, the Company may be prohibited, under certain circumstances, from paying dividends on
shares of its common stock. During the second quarter of 2010, the Company issued shares of
non-cumulative convertible perpetual preferred stock. See Financial Statement Note 12 for
additional detail on this issuance of preferred stock. Also, under the terms of this preferred
stock, the Company may be prohibited, under certain circumstances, from paying dividends on shares
of its common stock. None of these circumstances existed through the date of filing of this Form
10-K filed with the U.S. Securities and Exchange Commission.
20
Table of Contents
In addition, as a result of the Company’s issuance of the preferred stock to the U.S. Treasury on
February 13, 2009 under the Capital Purchase Program, the ability of the Company to declare or pay
dividends on its common stock is subject to restrictions, including the restriction on increasing
dividends from the last semi-annual cash dividend declared prior to October 14, 2008, which was
$0.04 per share. This restriction will terminate on the earlier of (a) the third anniversary of
the date of issuance of the preferred stock and (b) the date on which the preferred stock has been
redeemed in whole or the U.S. Treasury has transferred all of the preferred stock to one or more
third parties. Further, the ability of the Company to declare or pay dividends on its common stock
will be subject to restrictions in the event that the Company fails to declare and pay full
dividends on the preferred stock issued to the U.S. Treasury.
Purchase of Equity Securities by the Company.
There were no purchases of common stock by the
Company for the years ended December 31, 2010 and 2009. On December 31, 2008, the Company
repurchased 121,246 shares of its common stock. The common stock was repurchased at $13.25 per
share for a total cost of $1,606,510.
Stockholder Return Performance Graph.
The following graph indicates, for the period commencing
December 31, 2005 and ending December 31, 2010, a comparison of cumulative total returns for the
Company, the NASDAQ Composite Index and the SNL Bank NASDAQ Index prepared by SNL Securities,
Charlottesville, Virginia. The graph was prepared at the Company’s request by SNL Securities. The
information assumes that $100 was invested at the closing price in December 31, 2005 in the common
stock of the Company and each index, and that all dividends were reinvested.
QCR Holdings, Inc.
| Period Ending | ||||||||||||||||||||||||
| Index | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | 12/31/10 | ||||||||||||||||||
|
QCR Holdings, Inc.
|
$ | 100.00 | $ | 90.05 | $ | 73.04 | $ | 51.59 | $ | 43.46 | $ | 37.48 | ||||||||||||
|
NASDAQ Composite
|
100.00 | 110.39 | 122.15 | 73.32 | 106.57 | 125.91 | ||||||||||||||||||
|
SNL Bank NASDAQ
|
100.00 | 112.27 | 88.14 | 64.01 | 51.93 | 61.27 | ||||||||||||||||||
21
Table of Contents
| Item 6. |
Selected Financial Data
|
The following “Selected Financial Data” of the Company is derived in part from, and should be read
in conjunction with, our consolidated financial statements and the accompanying notes thereto. See
Item 8 “Financial Statements.” Results for past periods are not necessarily indicative of results
to be expected for any future period.
| Years Ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
|
|
||||||||||||||||||||
|
STATEMENT OF INCOME DATA
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Continuing Operations:
|
||||||||||||||||||||
|
Interest income
|
$ | 80,097 | $ | 85,611 | $ | 85,147 | $ | 82,491 | $ | 68,803 | ||||||||||
|
Interest expense
|
30,233 | 34,949 | 40,524 | 48,139 | 38,907 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net interest income
|
49,864 | 50,662 | 44,623 | 34,352 | 29,896 | |||||||||||||||
|
Provision for loan/lease losses
|
7,464 | 16,976 | 9,222 | 2,336 | 3,284 | |||||||||||||||
|
Non-interest income
|
15,406 | 15,547 | 13,931 | 13,499 | 10,998 | |||||||||||||||
|
Non-interest expense
|
48,549 | 46,937 | 42,334 | 35,734 | 34,063 | |||||||||||||||
|
Income tax expense
|
2,449 | 247 | 1,735 | 2,893 | 724 | |||||||||||||||
|
|
||||||||||||||||||||
|
Income from continuing operations
|
6,808 | 2,049 | 5,263 | 6,888 | 2,823 | |||||||||||||||
|
|
||||||||||||||||||||
|
Discontinued Operations:
|
||||||||||||||||||||
|
Income (loss) from discontinued operations, before taxes
|
— | — | 2,580 | (1,221 | ) | 378 | ||||||||||||||
|
Income tax expense (benefit)
|
— | — | 846 | (498 | ) | 133 | ||||||||||||||
|
|
||||||||||||||||||||
|
Income (loss) from discontinued operations
|
— | — | 1,734 | (723 | ) | 245 | ||||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
6,808 | 2,049 | 6,997 | 6,165 | 3,068 | |||||||||||||||
|
Less: net income attributable to noncontrolling interests
|
221 | 277 | 288 | 388 | 266 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income attributable to QCR Holdings, Inc.
|
6,587 | 1,772 | 6,709 | 5,777 | 2,802 | |||||||||||||||
|
Less: preferred stock dividends and discount accretion
|
4,128 | 3,844 | 1,785 | 1,072 | 164 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc. common stockholders
|
2,459 | (2,072 | ) | 4,924 | 4,705 | 2,638 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
PER COMMON SHARE DATA
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Income (loss) from continuing operations — BASIC (1)
|
$ | 0.54 | $ | (0.46 | ) | $ | 0.69 | $ | 1.19 | $ | 0.52 | |||||||||
|
Income (loss) from discontinued operations — BASIC (1)
|
— | — | 0.38 | (0.16 | ) | 0.05 | ||||||||||||||
|
Net income (loss) — BASIC (1)
|
0.54 | (0.46 | ) | 1.07 | 1.03 | 0.57 | ||||||||||||||
|
Income (loss) from continuing operations — DILUTED (1)
|
0.53 | (0.46 | ) | 0.69 | 1.18 | 0.52 | ||||||||||||||
|
Income (loss) from discontinued operations — DILUTED (1)
|
— | — | 0.37 | (0.16 | ) | 0.05 | ||||||||||||||
|
Net income (loss) — DILUTED (1)
|
0.53 | (0.46 | ) | 1.06 | 1.02 | 0.57 | ||||||||||||||
|
Cash dividends declared
|
0.08 | 0.08 | 0.08 | 0.08 | 0.08 | |||||||||||||||
|
Dividend payout ratio
|
14.81 | % | (17.39) | % | 7.48 | % | 7.77 | % | 14.04 | % | ||||||||||
|
|
||||||||||||||||||||
|
BALANCE SHEET DATA
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 1,836,635 | $ | 1,779,646 | $ | 1,605,629 | $ | 1,476,564 | $ | 1,271,675 | ||||||||||
|
Securities
|
424,847 | 370,520 | 256,076 | 220,557 | 194,774 | |||||||||||||||
|
Total loans/leases
|
1,172,539 | 1,244,320 | 1,214,690 | 1,056,988 | 960,747 | |||||||||||||||
|
Allowance for estimated losses on loans/leases
|
20,365 | 22,505 | 17,809 | 11,315 | 10,612 | |||||||||||||||
|
Deposits
|
1,114,816 | 1,089,323 | 1,058,959 | 884,005 | 875,447 | |||||||||||||||
|
Borrowings
|
566,060 | 542,895 | 431,820 | 435,786 | 303,390 | |||||||||||||||
|
Stockholders’ equity:
|
||||||||||||||||||||
|
Preferred
|
62,214 | 58,578 | 20,158 | 20,158 | 12,884 | |||||||||||||||
|
Common
|
70,357 | 67,017 | 72,337 | 67,629 | 59,361 | |||||||||||||||
|
|
||||||||||||||||||||
|
KEY RATIOS
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Return on average assets (2)
|
0.36 | % | 0.10 | % | 0.43 | % | 0.43 | % | 0.24 | % | ||||||||||
|
Return on average common stockholders’ equity (3)
|
3.58 | (2.97 | ) | 7.07 | 7.40 | 4.65 | ||||||||||||||
|
Return on average total stockholder’s equity (2)
|
5.03 | 1.43 | 7.47 | 7.55 | 4.77 | |||||||||||||||
|
Net interest margin, tax equivalent yield (4)
|
2.92 | 3.14 | 3.27 | 2.86 | 2.87 | |||||||||||||||
|
Efficiency ratio (5)
|
74.38 | 70.89 | 72.30 | 74.68 | 83.30 | |||||||||||||||
|
Loans to deposits
|
105.18 | 114.23 | 114.71 | 119.57 | 109.74 | |||||||||||||||
|
Nonperforming assets to total assets
|
2.73 | 2.27 | 1.58 | 0.51 | 0.58 | |||||||||||||||
|
Allowance for estimated losses on loans/leases to total loans/leases
|
1.74 | 1.81 | 1.47 | 1.07 | 1.10 | |||||||||||||||
|
Net charge-offs to average loans/leases
|
0.79 | 1.00 | 0.24 | 0.16 | 0.18 | |||||||||||||||
|
Average total stockholders’ equity to average total assets
|
7.13 | 7.18 | 5.78 | 5.66 | 5.09 | |||||||||||||||
| (1) |
Income (loss) amounts are attributable to QCR Holdings, Inc.
|
|
| (2) |
Numerator is net income attributable to QCR Holdings, Inc.
|
|
| (3) |
Numerator is net income (loss) available to QCR Holdings, Inc. common stockholders
|
|
| (4) |
Interest earned and yields on nontaxable investments ar determined on a tax equivalent basis
using a 34% tax rate
|
|
| (5) |
Non-interest expenses divided by the sum of net interest income before provision for loan/lease
losses and non-interest income
|
22
Table of Contents
| Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion provides additional information regarding our operations for the
twelve-month periods ending December 31, 2010, 2009, and 2008, and our financial condition at
December 31, 2010 and 2009. This discussion should be read in conjunction with “Selected
Financial Data” and our consolidated financial statements and the accompanying notes
thereto included or incorporated by reference elsewhere in this document.
OVERVIEW
The Company was formed in February 1993 for the purpose of organizing Quad City Bank & Trust. Over
the past eighteen years, the Company has grown to include two additional banking subsidiaries and a
number of nonbanking subsidiaries. As of December 31, 2010, the Company had $1.84 billion in
consolidated assets, including $1.17 billion in total loans/leases and $1.11 billion in deposits.
The Company recognized net income of $6.8 million for the year ended December 31, 2010, and net
income attributable to QCR Holdings, Inc. of $6.6 million which excludes the net income
attributable to noncontrolling interests of $221 thousand. After preferred stock dividends and
discount accretion of $4.1 million, the Company reported net income available to common
stockholders of $2.5 million, or diluted earnings per share of $0.53. For the same period in 2009,
the Company recognized net income of $2.0 million, and net income attributable to QCR Holdings,
Inc. of $1.8 million which excludes the net income attributable to noncontrolling interests of $277
thousand. After preferred stock dividends and discount accretion of $3.8 million, the Company
reported a net loss available to common stockholders of $2.1 million, or diluted loss per share of
$0.46. By comparison, for 2008, the Company recognized net income of $7.0 million, and net income
attributable to QCR Holdings, Inc. of $6.7 million which excludes the net income attributable to
noncontrolling interests of $288 thousand. After preferred stock dividends of $1.7 million, the
Company reported net income available to common stockholders of $4.9 million, or diluted earnings
per share of $1.06. As previously reported, the Company sold its merchant credit card acquiring
business and its Milwaukee, Wisconsin bank subsidiary in 2008. As a result, the Company recognized
income from discontinued operations totaling $1.7 million for the year ended December 31, 2008.
Following is a table that represents the various net income (loss) measurements for the years ended
December 31, 2010, 2009, and 2008.
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Net income
|
$ | 6,807,726 | $ | 2,048,831 | $ | 6,997,294 | ||||||
|
Less: Net income attributable to noncontrolling interests
|
221,047 | 276,923 | 288,436 | |||||||||
|
|
||||||||||||
|
Net income attributable to QCR Holdings, Inc.
|
$ | 6,586,679 | $ | 1,771,908 | $ | 6,708,858 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Amounts attributable to QCR Holdings, Inc.:
|
||||||||||||
|
Income from continuing operations
|
$ | 6,586,679 | $ | 1,771,908 | $ | 4,974,627 | ||||||
|
Income from discontinued operations
|
— | — | 1,734,231 | |||||||||
|
|
||||||||||||
|
Net income
|
$ | 6,586,679 | $ | 1,771,908 | $ | 6,708,858 | ||||||
|
|
||||||||||||
|
Less: Preferred stock dividends and discount accretion
|
4,128,104 | 3,843,924 | 1,784,500 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc. common stockholders
|
$ | 2,458,575 | $ | (2,072,016 | ) | $ | 4,924,358 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings (loss) per common share:
|
||||||||||||
|
Income (loss) from continuing operations attributable to QCR Holdings, Inc.
|
$ | 0.53 | $ | (0.46 | ) | $ | 0.69 | |||||
|
Income from discontinued operations attributable to QCR Holdings, Inc.
|
— | — | 0.37 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc.
|
$ | 0.53 | $ | (0.46 | ) | $ | 1.06 | |||||
|
|
||||||||||||
23
Table of Contents
For 2010, income from continuing operations attributable to QCR Holdings, Inc. was $6.6
million, or diluted earnings per share of $0.53, compared to income from continuing operations of
$1.8 million, or diluted loss per share of $0.46, for 2009. Net interest income declined slightly
year-over-year. Excluding a one-time positive adjustment to interest income related to the
resolution of a contingency related to a certain credit for $1.3 million in 2009, net interest
income increased $475 thousand, or 1%, year-over-year. Similarly, noninterest income declined
slightly year-over-year; however, excluding one-time gains on sales of securities of $1.5 million
in 2009, noninterest income grew $1.3 million, or 10%, year-over-year. Noninterest expense
increased $1.6 million, or 3%, as a result of increased health insurance costs across the employee
base and $617 thousand of losses on lease residual values. More than offsetting these items, the
Company’s provision for loan/lease losses decreased $9.5 million.
For 2009, income from continuing operations attributable to QCR Holdings, Inc. was $1.8 million, or
diluted loss per share of $0.46, compared to $5.0 million, or diluted earnings per share of $0.69,
for 2008. The Company experienced an increase in net interest income year-over-year of $6.2
million, or 14%. Additionally, the Company sold securities during the year which realized gains
totaling $1.5 million. More than offsetting these items, the Company’s provision for loan/lease
losses increased $7.8 million, or 84%, from $9.2 million for the year ended December 31, 2008 to
$17.0 million for the year ended December 31, 2009. Significant increases in FDIC insurance
expense and loan/lease expense related to nonperforming assets were the primary contributors to an
increase in noninterest expense of $4.4 million, or 10%.
As noted above, the Company’s net interest income declined slightly in 2010 compared to 2009.
Specifically, on a tax equivalent basis, net interest income totaled $50.3 million for 2010
compared to $51.1 million for 2009. Excluding the one-time positive adjustment to interest income
in 2009, declines in interest income were effectively offset by declines in interest expense. For
2010, average earning assets increased by $94.9 million, or 6%, and average interest-bearing
liabilities increased by $46.9 million, or 3%, when compared with average balances for 2009. A
comparison of yields, spreads and margins from 2010 to 2009 shows the following (on a tax
equivalent basis):
| • |
The average yield on interest-earning assets decreased 61 basis points from 5.29%
to 4.68%.
|
| • |
The average cost of interest-bearing liabilities decreased 41 basis points from
2.49% to 2.08%.
|
| • |
The net interest spread declined 20 basis points from 2.80% to 2.60%.
|
| • |
The net interest margin declined 22 basis points from 3.14% to 2.92%.
|
The Company’s net interest income grew significantly in 2009 compared to 2008. Specifically, on a
tax equivalent basis, net interest income grew $6.0 million, or 13%, from $45.1 million to $51.1
million. Of this increase, as mentioned above, $1.3 million was attributable to the recognition of
interest income for cash interest payments previously received on a commercial loan which had been
deferred pending the resolution of a contingency which was resolved in the third quarter of 2009.
For 2009, average earning assets increased by $247.8 million, or 18%, and average interest-bearing
liabilities increased by $159.0 million, or 13%, when compared with average balances for 2008. A
comparison of yields, spreads and margins from 2009 to 2008 shows the following (on a tax
equivalent basis):
| • |
The average yield on interest-earning assets decreased 92 basis points from 6.21%
to 5.29%.
|
| • |
The average cost of interest-bearing liabilities decreased 76 basis points from
3.25% to 2.49%.
|
| • |
The net interest spread declined 16 basis points from 2.96% to 2.80%.
|
| • |
The net interest margin declined 13 basis points from 3.27% to 3.14%.
|
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 including, but not limited to, the
use of alternative funding sources.
24
Table of Contents
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, | ||||||||||||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
| 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
|
$ | 63,430 | $ | 174 | 0.27 | % | $ | 45,850 | $ | 134 | 0.29 | % | $ | 5,631 | $ | 100 | 1.78 | % | ||||||||||||||||||
|
Interest-bearing deposits at
financial institutions
|
31,002 | 411 | 1.33 | 31,090 | 313 | 1.01 | 5,313 | 165 | 3.11 | |||||||||||||||||||||||||||
|
Investment securities (1)
|
400,224 | 11,457 | 2.86 | 312,043 | 12,180 | 3.90 | 230,342 | 12,279 | 5.33 | |||||||||||||||||||||||||||
|
Restricted investment securities
|
16,750 | 497 | 2.97 | 14,595 | 303 | 2.08 | 12,709 | 495 | 3.89 | |||||||||||||||||||||||||||
|
Gross loans/leases receivable (2) (3) (4)
|
1,209,587 | 67,999 | 5.62 | 1,222,493 | 73,145 | 5.98 | 1,124,255 | 72,566 | 6.45 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total interest earning assets
|
$ | 1,720,993 | 80,538 | 4.68 | $ | 1,626,071 | 86,075 | 5.29 | $ | 1,378,250 | 85,605 | 6.21 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Noninterest-earning assets:
|
||||||||||||||||||||||||||||||||||||
|
Cash and due from banks
|
$ | 34,559 | $ | 30,521 | $ | 32,651 | ||||||||||||||||||||||||||||||
|
Premises and equipment, net
|
31,557 | 30,868 | 31,535 | |||||||||||||||||||||||||||||||||
|
Less allowance for estimated
losses on loans/leases
|
(21,678 | ) | (21,831 | ) | (13,770 | ) | ||||||||||||||||||||||||||||||
|
Other
|
73,887 | 59,018 | 124,082 | |||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total assets
|
$ | 1,839,318 | $ | 1,724,647 | $ | 1,552,748 | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing liabilities:
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing demand deposits
|
$ | 388,207 | 3,674 | 0.95 | % | $ | 366,687 | 3,834 | 1.05 | % | $ | 299,417 | 5,709 | 1.91 | % | |||||||||||||||||||||
|
Savings deposits
|
37,495 | 97 | 0.26 | 48,596 | 323 | 0.66 | 57,955 | 806 | 1.39 | |||||||||||||||||||||||||||
|
Time deposits
|
465,160 | 8,911 | 1.92 | 511,359 | 14,217 | 2.78 | 443,122 | 17,379 | 3.92 | |||||||||||||||||||||||||||
|
Short-term borrowings
|
142,197 | 628 | 0.44 | 113,614 | 712 | 0.63 | 154,456 | 2,962 | 1.92 | |||||||||||||||||||||||||||
|
Federal Home Loan Bank advances
|
233,384 | 9,247 | 3.96 | 212,494 | 9,082 | 4.27 | 193,119 | 8,525 | 4.41 | |||||||||||||||||||||||||||
|
Junior subordinated debentures
|
36,085 | 1,945 | 5.39 | 36,085 | 2,016 | 5.59 | 36,085 | 2,389 | 6.62 | |||||||||||||||||||||||||||
|
Other borrowings (4)
|
150,430 | 5,732 | 3.81 | 117,271 | 4,765 | 4.06 | 62,975 | 2,754 | 4.37 | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total interest-bearing
liabilities
|
$ | 1,452,958 | 30,234 | 2.08 | $ | 1,406,106 | 34,949 | 2.49 | $ | 1,247,129 | 40,524 | 3.25 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Noninterest-bearing demand deposits
|
$ | 231,604 | $ | 171,968 | $ | 135,860 | ||||||||||||||||||||||||||||||
|
Other noninterest-bearing liabilities
|
23,690 | 22,759 | 79,956 | |||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total liabilities
|
$ | 1,708,252 | $ | 1,600,833 | $ | 1,462,945 | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Stockholders’ equity
|
131,066 | 123,814 | 89,803 | |||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total liabilities and
stockholders’ equity
|
$ | 1,839,318 | $ | 1,724,647 | $ | 1,552,748 | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Net interest income
|
$ | 50,304 | $ | 51,126 | $ | 45,081 | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Net interest spread
|
2.60 | % | 2.80 | % | 2.96 | % | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Net interest margin
|
2.92 | % | 3.14 | % | 3.27 | % | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Ratio of average interest earning
assets to average interest-
bearing liabilities
|
118.45 | % | 115.64 | % | 110.51 | % | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| (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 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 government-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 twelve months ended
December 31, 2010, this totalled $9.6 million.
|
25
Table of Contents
For the years ended December 31, 2010, 2009 and 2008
| Inc./(Dec.) | Components | |||||||||||
| from | of Change (1) | |||||||||||
| Prior Year | Rate | Volume | ||||||||||
| 2010 vs. 2009 | ||||||||||||
| (dollars in thousands) | ||||||||||||
|
INTEREST INCOME
|
||||||||||||
|
Federal funds sold
|
$ | 40 | $ | (8 | ) | $ | 48 | |||||
|
Interest-bearing deposits at other financial institutions
|
98 | 99 | (1 | ) | ||||||||
|
Investment securities (2)
|
(723 | ) | (3,693 | ) | 2,970 | |||||||
|
Restricted investment securities
|
194 | 144 | 50 | |||||||||
|
Gross loans/leases receivable (3) (4) (5)
|
(5,146 | ) | (4,381 | ) | (765 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total change in interest income
|
$ | (5,537 | ) | $ | (7,839 | ) | $ | 2,302 | ||||
|
|
||||||||||||
|
|
||||||||||||
|
INTEREST EXPENSE
|
||||||||||||
|
Interest-bearing demand deposits
|
$ | (160 | ) | $ | (377 | ) | $ | 217 | ||||
|
Savings deposits
|
(226 | ) | (164 | ) | (62 | ) | ||||||
|
Time deposits
|
(5,306 | ) | (4,112 | ) | (1,194 | ) | ||||||
|
Short-term borrowings
|
(84 | ) | (239 | ) | 155 | |||||||
|
Federal Home Loan Bank advances
|
165 | (691 | ) | 856 | ||||||||
|
Junior subordinated debentures
|
(71 | ) | (71 | ) | — | |||||||
|
Other borrowings (5)
|
967 | (311 | ) | 1,278 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total change in interest expense
|
$ | (4,715 | ) | $ | (5,965 | ) | $ | 1,250 | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Total change in net interest income
|
$ | (822 | ) | $ | (1,874 | ) | $ | 1,052 | ||||
|
|
||||||||||||
| Inc./(Dec.) | Components | |||||||||||
| from | of Change (1) | |||||||||||
| Prior Year | Rate | Volume | ||||||||||
| 2009 vs. 2008 | ||||||||||||
| (dollars in thousands) | ||||||||||||
|
INTEREST INCOME
|
||||||||||||
|
Federal funds sold
|
$ | 34 | $ | (147 | ) | $ | 181 | |||||
|
Interest-bearing deposits at other financial institutions
|
148 | (178 | ) | 326 | ||||||||
|
Investment securities (2)
|
(99 | ) | (3,790 | ) | 3,691 | |||||||
|
Restricted investment securities
|
(192 | ) | (257 | ) | 65 | |||||||
|
Gross loans/leases receivable (3) (4)
|
579 | (5,510 | ) | 6,089 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total change in interest income
|
$ | 470 | $ | (9,882 | ) | $ | 10,352 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
INTEREST EXPENSE
|
||||||||||||
|
Interest-bearing demand deposits
|
$ | (1,875 | ) | $ | (2,965 | ) | $ | 1,090 | ||||
|
Savings deposits
|
(483 | ) | (369 | ) | (114 | ) | ||||||
|
Time deposits
|
(3,162 | ) | (5,568 | ) | 2,406 | |||||||
|
Short-term borrowings
|
(2,250 | ) | (1,616 | ) | (634 | ) | ||||||
|
Federal Home Loan Bank advances
|
557 | (277 | ) | 834 | ||||||||
|
Junior subordinated debentures
|
(373 | ) | (373 | ) | — | |||||||
|
Other borrowings
|
2,011 | (208 | ) | 2,219 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total change in interest expense
|
$ | (5,575 | ) | $ | (11,376 | ) | $ | 5,801 | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Total change in net interest income
|
$ | 6,045 | $ | 1,494 | $ | 4,551 | ||||||
|
|
||||||||||||
| (1) |
The column “Inc/(Dec) 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 included in interest income from loans/leases
receivable in accordance with accounting and regulatory guidance.
|
|
| (4) |
Non-accrual loans/leases are included in the average balance for gross
loans/leases receivable in accordance with accounting and regulatory
guidance.
|
|
| (5) |
In accordance with ASC 860, effective January 1, 2010, the Company accounts
for some participations sold, including sales of government-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 twelve months ended December 31, 2010, this
totalled $9.6 million.
|
26
Table of Contents
The Company’s operating results are also impacted by various sources of noninterest income,
including trust department fees, investment advisory and management fees, deposit service fees,
gains from the sales of residential real estate loans and government guaranteed loans, earnings on
bank-owned life insurance, and other income. More than offsetting these items, the Company incurs
noninterest expenses which include salaries and employee benefits, occupancy and equipment expense,
professional and data processing fees, FDIC and other insurance expense, loan/lease expense, and
other administrative expenses.
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.
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 (also referred to as “allowance for estimated losses
on loans/leases”). The Company’s allowance for loan/lease losses 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 Estimated Losses on Loans/Leases.” Although management believes the level of the
allowance as of December 31, 2010 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, but not limited to, (1) the length of
time and extent to which the fair value has been less than amortized cost, (2) the financial
condition and near-term prospects of the issuer, (3) the current market conditions, and (4) the
intent of the Company to not sell the security prior to recovery and whether it is not
more-likely-than-not that the Company will be required to sell the security prior to recovery. 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.
27
Table of Contents
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010, 2009, and 2008
Overview
.
Net income attributable to QCR Holdings, Inc. for 2010 was $6.6 million, or
diluted earnings per share of $0.53 after preferred stock dividends and discount accretion of $4.1
million, compared to $1.8 million, or diluted loss per share of $0.46 after preferred stock
dividends of $3.8 million, for 2009. Net interest income declined slightly year-over-year.
Excluding a one-time positive adjustment to interest income related to the resolution of a
contingency related to a certain credit for $1.3 million in 2009, net interest income increased
$475 thousand, or 1%, year-over-year. Similarly, noninterest income declined slightly
year-over-year; however, excluding one-time gains on sales of securities of $1.5 million,
noninterest income grew $1.3 million, or 10%, year-over-year. Noninterest expense increased $1.6
million, or 3%, as a result of increased health insurance cost across the employee base and $617
thousand of losses on
lease residual values. More than offsetting these items, the Company’s provision for loan/lease
losses decreased $9.5 million.
Net income attributable to QCR Holdings, Inc. for 2009 was $1.8 million, or diluted loss per share
of $0.46 after preferred stock dividends and discount accretion of $3.8 million, compared to $6.7
million, or diluted earnings per share of $1.06 after preferred stock dividends of $1.8 million,
for 2008. During 2008, the Company sold its merchant credit card acquiring business and Milwaukee
banking subsidiary resulting in income from discontinued operations, net of taxes, of $1.7 million,
or $0.37 per share (on a diluted basis). The Company improved its net interest income by $6.2
million, or 14%, from $44.2 million for 2008 to $50.4 million for 2009. More than offsetting this
increase, the Company’s provision for loan/lease losses for 2009 increased $7.8 million, or 84%,
from 2008. Additionally, FDIC and other insurance expense increased $2.3 million, or 175%, during
2009. Loan/lease expenses related to carrying higher levels of nonperforming assets increased $1.2
million, or 164%, on a year-over-year basis.
Interest income
.
Interest income decreased $5.5 million, or 6%, from $85.6 million for
2009 to $80.1 million for 2010. The Company grew its interest-earning assets as the average
balance increased $94.9 million, or 6%, year-over-year. Most notably, the average balance of gross
loans/leases declined slightly, while the average balance of investment securities portfolio grew
$88.2 million, or 28%. This continued shift in interest-earning asset mix is the result of the
Company’s strong liquidity position and sources of funding coupled with weak loan/lease demand.
The impact of the net growth overall on interest income was more than offset by the shift in
interest-earning asset mix and the historically low interest rate environment.
Interest income increased $464 thousand, or 1%, from $85.1 million for 2008 to $85.6 million for
2009. Excluding the impact of the $1.3 million positive one-time adjustment to interest income in
the third quarter of 2009, interest income decreased $809 thousand, or 1%. As a result of the
economic recession and a historically low interest rate environment in 2009, the decline in the
rates earned on interest-earning assets outpaced the increase in interest income from the growth
realized across all interest-earning asset types.
Interest expense
. Interest expense decreased $4.7 million, or 13%, from $34.9 million for
2009 to $30.2 million for 2010. The Company was successful in leveraging the historically low
interest environment and its strong core deposit portfolio as it continued to manage down its cost
of deposits. Including non-interest bearing deposits, the average cost of deposits declined 54
basis points from 1.67% for 2009 down to 1.13% for 2010. The Company has placed an emphasis on
shifting the mix of deposits from brokered and other time deposits to non-maturity demand deposits.
Interest expense decreased $5.6 million, or 14%, from $40.5 million for 2008 to $34.9 million for
2009. With the economic recession and historically low levels of interest rates for 2009, the
Company’s ability to manage the cost of interest-bearing liabilities more than offset the impact of
increased volume on interest expense. Specifically, the average cost on interest bearing
liabilities decreased 76 basis points from 3.25% for 2008 down to 2.49% for 2009.
28
Table of Contents
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 1.74% of total gross
loans/leases at December 31, 2010, compared to 1.81% of total gross loans/leases at December 31,
2009, and compared to approximately 1.47% of total gross loans/leases at December 31, 2008.
The Company’s provision for loan/lease losses declined sharply from $17.0 million for 2009 to $7.5
million for 2010. The decline was the result of the following:
| • |
The Company experienced strengthening in its core loan portfolio as the level of
classified and criticized loans declined throughout the year (see table and further
discussion in the Allowance for Estimated Losses on Loans/Leases section). This trend
contributed to a reduction in nonperforming loans/leases in the fourth quarter of 2010.
|
| • |
Despite the decline in the fourth quarter, nonperforming loans/leases experienced a net
increase during 2010. The majority of the additions consisted of commercial credits which
management thoroughly reviewed and identified a strong collateral position that didn’t
require significant additional specific reserves, or the Company had already reserved
adequate amounts in the prior years while the loan/lease was still performing.
|
| • |
The Company’s loan/lease portfolio declined $71.8 million, or 6%, in 2010.
|
The Company’s provision for loan/lease losses increased significantly from $9.2 million for 2008 to
$17.0 million for 2009. This increase was the result of the following:
| • |
The Company’s nonperforming loans/leases grew $8.9 million, or 43%, from $21.1 million
at December 31, 2008 to $30.0 million at December 31, 2009. Management determined that the
majority of these nonperforming loans/leases required specific reserves.
|
| • |
Due to the economic recession and related uncertainty as to the severity and duration of
its impact on the national and local economies at that time, the Company continued to
increase the qualitative factors impacting the allowance for estimate losses on
loans/leases.
|
| • |
The Company grew its loan/lease portfolio 2% during 2009 as gross loans/leases increased
$29.6 million.
|
29
Table of Contents
Noninterest income
.
The following tables set forth the various categories of
noninterest income for the years ended December 31, 2010, 2009 and 2008.
| Years Ended | ||||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | $ Change | % Change | |||||||||||||
|
|
||||||||||||||||
|
Trust department fees
|
$ | 3,290,844 | $ | 2,883,482 | $ | 407,362 | 14.1 | % | ||||||||
|
Investment advisory and management fees, gross
|
1,812,903 | 1,507,557 | 305,346 | 20.3 | ||||||||||||
|
Deposit service fees
|
3,478,743 | 3,319,967 | 158,776 | 4.8 | ||||||||||||
|
Gains on sales of loans, net
|
3,169,514 | 1,677,312 | 1,492,202 | 89.0 | ||||||||||||
|
Securities gains, net
|
— | 1,488,391 | (1,488,391 | ) | (100.0 | ) | ||||||||||
|
Gains (losses) on sales of other real estate owned
|
(835,163 | ) | 177,736 | (1,012,899 | ) | (569.9 | ) | |||||||||
|
Earnings on bank-owned life insurance
|
1,331,085 | 1,243,324 | 87,761 | 7.1 | ||||||||||||
|
Credit card fees, net of processing costs
|
259,590 | 930,435 | (670,845 | ) | (72.1 | ) | ||||||||||
|
Other
|
2,898,372 | 2,318,843 | 579,529 | 25.0 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 15,405,888 | $ | 15,547,047 | $ | (141,159 | ) | (0.9 | )% | |||||||
|
|
||||||||||||||||
| Years Ended | ||||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2009 | 2008 | $ Change | % Change | |||||||||||||
|
|
||||||||||||||||
|
Trust department fees
|
$ | 2,883,482 | $ | 3,333,812 | $ | (450,330 | ) | (13.5 | )% | |||||||
|
Investment advisory and management fees, gross
|
1,507,557 | 1,975,236 | (467,679 | ) | (23.7 | ) | ||||||||||
|
Deposit service fees
|
3,319,967 | 3,134,869 | 185,098 | 5.9 | ||||||||||||
|
Gains on sales of loans, net
|
1,677,312 | 1,068,545 | 608,767 | 57.0 | ||||||||||||
|
Securities gains, net
|
1,488,391 | 199,500 | 1,288,891 | 646.1 | ||||||||||||
|
Gains on sales of other real estate owned
|
177,736 | 394,103 | (216,367 | ) | (54.9 | ) | ||||||||||
|
Earnings on bank-owned life insurance
|
1,243,324 | 1,016,864 | 226,460 | 22.3 | ||||||||||||
|
Credit card fees, net of processing costs
|
930,435 | 987,769 | (57,334 | ) | (5.8 | ) | ||||||||||
|
Other
|
2,318,843 | 1,820,373 | 498,470 | 27.4 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 15,547,047 | $ | 13,931,071 | $ | 1,615,976 | 11.6 | % | ||||||||
|
|
||||||||||||||||
Trust department fees continue to be a significant contributor to noninterest income. Income
is generated primarily from fees charged based on assets under administration for corporate and
personal trusts and for custodial services. Total trust assets under administration were $1.06
billion at December 31, 2010 compared to $1.22 billion at December 31, 2009 and compared to $815.5
million at December 31, 2008. The decline in total trust assets during 2010 was intentional and
consisted of assets held in safekeeping by Quad City Bank & Trust that were outsourced. Management
determined outsourcing allowed for enhanced service to the clients and increased profitability for
the Company. The majority of the trust department fees are determined based on the value of the
investments within the fully managed trusts. As the national economy continued to recover from the
recession, market values in many of these investments have experienced some recovery during 2010.
Investment advisory and management fees decreased 23.7% in 2009 over 2008 which was largely offset
by a 20.3% increase in 2010 compared to 2009. Similar to trust department fees, these fees are
largely determined based on the value of the investments managed. With the early stages of
economic recovery, market values of many of these investments have experienced increases during
2010.
30
Table of Contents
Deposit service fees have increased steadily over the past two years. The Company has placed
an emphasis on shifting the mix of deposits from brokered and retail time deposits to non-maturity
demand deposits. With this shift in mix, the Company has increased the number of demand deposit
accounts which tend to be lower in interest cost and higher in service fees.
Gains on sales of loans, net, increased significantly in 2009, and even more so in 2010. The gains
are recognized on sales of residential mortgages and the government guaranteed portions of small
business loans. Regarding the sales of residential mortgages, the Company experienced increased
loan origination and sales activity for these loan types in the 2009 and 2010 as a result of
reductions in interest rates and the resulting increases in residential mortgage refinancing
transactions. The Company sells the majority of the residential mortgages it originates. In 2010,
the Company increased its small business lending by taking advantage of programs offered by the
Small Business Administration (“SBA”) and United States Department of Agriculture (“USDA”). A
strong market for selling the government guaranteed portions of these loans existed in 2010. In
some cases, it is more beneficial for the Company to sell the government guaranteed portion at a
premium. The Company recognized gains on sales of the government guaranteed portions of SBA and
USDA loans totaling $1.5 million for 2010.
In 2009, the Company identified several U.S. government-sponsored agency securities with favorable
market positions which were sold at pre-tax gains totaling $1.5 million.
The Company recognized net losses on sales of foreclosed assets during 2010. By comparison, the
Company recognized net gains on sales of foreclosed assets for the same periods in 2009 and 2008.
These amounts tend to fluctuate depending on the individual property or equipment being sold.
The Company has experienced significant declines in credit card issuing fees, net of processing
costs, during 2010. The Company converted to a new third-party processor in the first quarter of
2010. The decreases are primarily the result of increased recurring costs of this new third-party
processor, one-time costs related to the conversion, and increased legal costs related to new
regulation within the credit card industry. The processor provides enhanced service which has
increased capacity, efficiencies, and future revenue opportunities as well as decreased the
Company’s exposure to fraud. It also has allowed significant reductions in current salaries and
benefits expense in the credit card services area. Management will continue to evaluate the
profitability of this business segment.
31
Table of Contents
Noninterest expenses
.
The following tables set forth the various categories of noninterest
expenses for the years ended December 31, 2010, 2009 and 2008.
| Years Ended | ||||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | $ Change | % Change | |||||||||||||
|
|
||||||||||||||||
|
Salaries and employee benefits
|
$ | 27,843,127 | $ | 26,882,185 | $ | 960,942 | 3.6 | % | ||||||||
|
Occupancy and equipment expense
|
5,472,248 | 5,372,101 | 100,147 | 1.9 | ||||||||||||
|
Professional and data processing fees
|
4,524,519 | 4,664,656 | (140,137 | ) | (3.0 | ) | ||||||||||
|
FDIC and other insurance
|
3,528,267 | 3,626,027 | (97,760 | ) | (2.7 | ) | ||||||||||
|
Loan/lease expense
|
1,657,552 | 1,997,583 | (340,031 | ) | (17.0 | ) | ||||||||||
|
Advertising and marketing
|
1,053,909 | 991,243 | 62,666 | 6.3 | ||||||||||||
|
Postage and telephone
|
1,004,176 | 1,060,690 | (56,514 | ) | (5.3 | ) | ||||||||||
|
Stationery and supplies
|
491,252 | 528,959 | (37,707 | ) | (7.1 | ) | ||||||||||
|
Bank service charges
|
420,252 | 306,473 | 113,779 | 37.1 | ||||||||||||
|
Other-than-temporary impairment losses on securities
|
113,800 | 206,369 | (92,569 | ) | (44.9 | ) | ||||||||||
|
Losses on lease residual values
|
617,000 | — | 617,000 | 100.0 | ||||||||||||
|
Other
|
1,822,961 | 1,300,740 | 522,221 | 40.1 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 48,549,063 | $ | 46,937,026 | $ | 1,612,037 | 3.4 | % | ||||||||
|
|
||||||||||||||||
| Years Ended | ||||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2009 | 2008 | $ Change | % Change | |||||||||||||
|
|
||||||||||||||||
|
Salaries and employee benefits
|
$ | 26,882,185 | $ | 26,124,160 | $ | 758,025 | 2.9 | % | ||||||||
|
Occupancy and equipment expense
|
5,372,101 | 5,091,545 | 280,556 | 5.5 | ||||||||||||
|
Professional and data processing fees
|
4,664,656 | 4,729,226 | (64,570 | ) | (1.4 | ) | ||||||||||
|
FDIC and other insurance
|
3,626,027 | 1,316,710 | 2,309,317 | 175.4 | ||||||||||||
|
Loan/lease expense
|
1,997,583 | 757,315 | 1,240,268 | 163.8 | ||||||||||||
|
Advertising and marketing
|
991,243 | 1,296,651 | (305,408 | ) | (23.6 | ) | ||||||||||
|
Postage and telephone
|
1,060,690 | 933,508 | 127,182 | 13.6 | ||||||||||||
|
Stationery and supplies
|
528,959 | 518,639 | 10,320 | 2.0 | ||||||||||||
|
Bank service charges
|
306,473 | 403,790 | (97,317 | ) | (24.1 | ) | ||||||||||
|
Other-than-temporary impairment losses on securities
|
206,369 | — | 206,369 | 100.0 | ||||||||||||
|
Other
|
1,300,740 | 1,162,145 | 138,595 | 11.9 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 46,937,026 | $ | 42,333,689 | $ | 4,603,337 | 10.9 | % | ||||||||
|
|
||||||||||||||||
Salaries and employee benefits, which is the largest component of non-interest expense,
increased 2.9% and 3.6% in 2009 and 2010, respectively. For 2010, the modest increase was largely
the result of increases in health insurance-related employee benefits for the majority of the
Company’s employees as the Company did not generally increase salaries across the employee base as
of January 1, 2010. Additionally, the Company did slightly expand its employee base from 343 FTEs
at December 31, 2009 to 350 FTEs at December 31, 2010. The majority of this modest growth occurred
in the fourth quarter. For 2009, the slight increase was primarily the result of customary annual
salary and benefits increases for the majority of the Company’s employees. The Company’s employee
base stabilized in 2009 as FTEs declined slightly.
32
Table of Contents
Professional and data processing fees declined slightly in 2010 and 2009. In 2009, the Company
renegotiated its contract with its core data processor and realized recurring cost savings.
Partially offsetting, the Company incurred elevated expenses for consulting and legal services
related to increased regulatory activity.
FDIC and other insurance expense experienced a significant increase in 2009, followed by a slight
decline in 2010. The reasons for the increase in 2009 were twofold and both related to expenses
for FDIC insurance. First, the FDIC introduced its new premium pricing system and assessment
methodology for deposit insurance coverage for all depository institutions in 2007. The system was
further modified in 2009. The result was increased premium cost for the subsidiary banks. Second,
the FDIC required a one-time special assessment from all insured depository institutions, including
the subsidiary banks, for the second quarter of 2009 which amounted to $794 thousand of additional
expense. For 2010, the decline was largely related to the aforementioned one-time special
assessment in the second quarter of 2009. For the remainder of 2009 and all of 2010, the FDIC has
not required additional one-time special assessments. Management expects FDIC assessments will
continue to be higher than historical levels.
Loan/lease expense increased significantly in 2009, and declined 17% during 2010. For 2009, the
Company incurred increased carrying costs and workout expenses related to the elevated level of
nonperforming assets. In the fourth quarter of 2010, the Company experienced declining levels of
nonperforming assets as some of the larger nonperforming assets were sold and additions to
nonperforming assets slowed. Despite the decline in 2010, the levels of loan/lease expense
continue to be elevated compared to historical levels.
During the Company’s periodic review of the investment portfolio in the third quarter of 2010,
management identified a single issue trust preferred security that experienced a decline in fair
value determined to be other-than-temporary. As a result, the Company wrote down the value of this
security and recognized a loss totaling $114 thousand. The Company does not own any other trust
preferred securities. For 2009, the Company’s periodic evaluation identified 11 publicly-traded
equity investment securities owned by the Holding Company that experienced declines in fair value
determined to be other-than-temporary. As a result, the Company wrote down the value of these
securities and recognized losses in the amount of $206 thousand.
During the first quarter of 2010, the Company recognized losses in residual values for two direct
financing equipment leases. The sharp declines in value were isolated and attributable to changes
in unique market conditions during the quarter related to the specific equipment. Specifically,
one of the affected leases related to auto-industry equipment. During the first quarter, several
like equipment dealers declared bankruptcy which led to disruption in the specific market. As a
result, pricing for new like equipment declined sharply. Similarly, for the other affected lease,
the underlying equipment was a commercial printer. The commercial printing industry has
experienced some challenges and pricing for this particular equipment experienced sharp declines
during the first quarter. In both cases, management determined the amount of the loss by comparing
the recorded estimated residual value of the affected leases to the estimated value at the end of
the lease term, as adjusted for the declined pricing for new like equipment. Management continues
to perform periodic and specific reviews of its residual values, and has identified modest residual
risk remaining in the lease portfolio.
Income tax expense
.
The provision for income taxes from continuing operations was $2.4
million for the year ended December 31, 2010 compared to $247 thousand for the year ended December
31, 2009 for an increase of $2.2 million. The increase was the result of significant growth in
income from continuing operations before income taxes of $6.9 million in 2010 compared to 2009.
Additionally, primarily due to an increase in the proportionate share of taxable income to total
income year-over-year, the Company experienced an increase in the effective tax rate from 10.8% for
2009 to 26.5% for 2010.
The provision for income taxes from continuing operations was $247 thousand for the year ended
December 31, 2009 compared to $1.7 million for the year ended December 31, 2008 for a decrease of
$1.5 million. The decrease was the result of a decrease in income from continuing operations
before income taxes of $4.7 million, or 67%, for 2009 when compared to 2008. Additionally,
primarily due to a decrease in the proportionate share of taxable income to total income from year
to year, the Company experienced a decrease in the effective tax rate from 24.8% for 2008 to 10.8%
for 2009.
33
Table of Contents
Discontinued Operations
.
The Company did not recognize any income or loss from
discontinued operations for the years ended December 31, 2010 and 2009.
Income from discontinued operations for the year ended December 31, 2008 totaled $1.7 million. As
previously mentioned, the Company sold its merchant credit card acquiring business and First
Wisconsin Bank & Trust during 2008. The gains on sales more than offset the operating loss by
First Wisconsin Bank & Trust.
FINANCIAL CONDITION
Overview
.
Total assets grew $57.0 million, or 3%, to $1.84 billion at December 31, 2010,
from $1.78 billion at December 31, 2009. The growth resulted primarily from an increase in its
securities available for sale portfolio and a net increase in the Company’s federal funds sold
position offset by a net decline in loans/leases. This net growth was funded primarily by
non-interest bearing deposits and Federal Home Loan Bank advances offset by a decline in brokered
and other time deposits.
Total assets of the Company increased by $174.0 million, or 11%, to $1.78 billion at December 31,
2009, from $1.61 billion at December 31, 2008. The growth primarily resulted from an increase in
the securities and loans/leases portfolios funded by increases in noninterest-bearing deposits and
customer repurchase agreements, wholesale repurchase agreements, and the issuance of preferred
stock.
Investment Securities.
The composition of the Company’s securities portfolio is managed to
meet liquidity needs while prioritizing the impact on asset-liability position and maximizing
return. The Company’s securities available for sale portfolio consists largely of U.S. government
sponsored agency securities. Residential mortgage-backed securities represents less than 1% of the
entire portfolio as of December 31, 2010 and 2009, respectively. The Company has not invested in
commercial mortgage-backed securities or pooled trust preferred securities.
The securities portfolio grew $54.3 million, or 15%, to $424.8 million at December 31, 2010, from
$370.5 million at December 31, 2009. The increase was the result of continued weak loan/lease
demand and the Company’s continued focus on liquidity.
Securities increased $114.4 million, or 45%, to $370.5 million at December 31, 2009, from $256.1
million at December 31, 2008. The increase was largely the result of increased collateral needs
for the customer and wholesale repurchase agreements at the subsidiary banks.
See Note 4 to the consolidated financial statements for additional information regarding the
Company’s investment securities.
Loans/Leases
.
The Company’s loan/lease portfolio declined $71.8 million, or 6%, from $1.24
billion at December 31, 2009, to $1.17 billion at December 31, 2010. The Company originated $382.3
million of new loans/leases to new and existing customers during 2010; however, this was outpaced
by payments and maturities as the Company’s markets continued to experience weak loan/lease demand.
For 2009, total loans/leases grew $29.6 million, or 2%. The Company originated $407.8 million of
new loans/leases to new and existing customers during 2009, which was partially offset by payments
and maturities.
Consistent with the intention of the U.S. Treasury’s Capital Purchase Program, the Company is
committed to providing transparency surrounding its utilization of the proceeds from participation
in the Capital Purchase Program, including its lending activities and support of the existing
communities served. A summary of activity for the year ended December 31, 2010 is presented in the
table on the following page.
34
Table of Contents
The majority of residential real estate loans originated by the Company were sold on the secondary
market to avoid the interest rate risk associated with long term fixed rate loans. Loans
originated for this purpose were classified as held for sale and are included in the residential
real estate loans in the following table.
| For the twelve months ended December 31, 2010 | ||||||||||||||||||||||||
| Quad City | m2 | Cedar Rapids | Rockford | Intercompany | Consolidated | |||||||||||||||||||
| Bank & Trust | Lease Funds | Bank & Trust | Bank & Trust | Elimination | Total | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
BALANCE AS OF DECEMBER 31, 2009:
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Commercial and industrial loans
|
$ | 217,873 | $ | — | $ | 148,420 | $ | 75,243 | $ | — | $ | 441,536 | ||||||||||||
|
Commercial real estate loans
|
261,902 | — | 188,750 | 107,634 | (2,279 | ) | 556,007 | |||||||||||||||||
|
Direct financing leases
|
— | 90,059 | — | — | — | 90,059 | ||||||||||||||||||
|
Residential real estate loans
|
33,221 | — | 21,982 | 15,405 | — | 70,608 | ||||||||||||||||||
|
Installment and other consumer loans
|
48,057 | — | 24,075 | 12,139 | — | 84,271 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
561,053 | 90,059 | 383,227 | 210,421 | (2,279 | ) | 1,242,481 | |||||||||||||||||
|
Plus deferred loan/lease origination costs, net of fees
|
64 | 2,206 | (427 | ) | (4 | ) | — | 1,839 | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Gross loans/leases receivable
|
$ | 561,117 | $ | 92,265 | $ | 382,800 | $ | 210,417 | $ | (2,279 | ) | $ | 1,244,320 | |||||||||||
|
|
||||||||||||||||||||||||
|
ORIGINATION OF NEW LOANS/LEASES:
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Commercial and industrial loans
|
48,867 | — | 43,909 | 11,809 | — | 104,585 | ||||||||||||||||||
|
Commercial real estate loans
|
38,182 | — | 37,737 | 16,817 | — | 92,736 | ||||||||||||||||||
|
Direct financing leases
|
— | 25,360 | — | — | — | 25,360 | ||||||||||||||||||
|
Residential real estate loans
|
75,531 | — | 42,992 | 16,144 | — | 134,667 | ||||||||||||||||||
|
Installment and other consumer loans
|
15,340 | — | 4,904 | 4,730 | — | 24,974 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 177,920 | $ | 25,360 | $ | 129,542 | $ | 49,500 | $ | — | $ | 382,322 | ||||||||||||
|
|
||||||||||||||||||||||||
|
PAYMENTS/MATURITIES/SALES/CHARGE-OFFS,
NET OF ADVANCES OR RENEWALS ON
EXISTING LOANS/LEASES:
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Commercial and industrial loans
|
(72,424 | ) | — | (75,093 | ) | (32,979 | ) | — | (180,496 | ) | ||||||||||||||
|
Commercial real estate loans
|
(60,746 | ) | — | (28,713 | ) | (5,688 | ) | 121 | (95,026 | ) | ||||||||||||||
|
Direct financing leases
|
— | (32,409 | ) | — | — | — | (32,409 | ) | ||||||||||||||||
|
Residential real estate loans
|
(73,932 | ) | — | (32,819 | ) | (16,327 | ) | — | (123,078 | ) | ||||||||||||||
|
Installment and other consumer loans
|
(13,733 | ) | — | (7,736 | ) | (1,536 | ) | — | (23,005 | ) | ||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | (220,835 | ) | $ | (32,409 | ) | $ | (144,361 | ) | $ | (56,530 | ) | $ | 121 | $ | (454,014 | ) | |||||||
|
|
||||||||||||||||||||||||
|
BALANCE AS OF DECEMBER 31, 2010:
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Commercial and industrial loans
|
194,316 | — | 117,236 | 54,073 | — | 365,625 | ||||||||||||||||||
|
Commercial real estate loans
|
239,338 | — | 197,774 | 118,763 | (2,158 | ) | 553,717 | |||||||||||||||||
|
Direct financing leases
|
— | 83,010 | — | — | — | 83,010 | ||||||||||||||||||
|
Residential real estate loans
|
34,820 | — | 32,155 | 15,222 | — | 82,197 | ||||||||||||||||||
|
Installment and other consumer loans
|
49,664 | — | 21,243 | 15,333 | — | 86,240 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
518,138 | 83,010 | 368,408 | 203,391 | (2,158 | ) | 1,170,789 | |||||||||||||||||
|
Plus deferred loan/lease origination costs, net of fees
|
30 | 2,342 | (628 | ) | 6 | — | 1,750 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Gross loans/leases receivable
|
$ | 518,168 | $ | 85,352 | $ | 367,780 | $ | 203,397 | $ | (2,158 | ) | $ | 1,172,539 | |||||||||||
|
|
||||||||||||||||||||||||
The mix of loan/lease types within the Company’s loan/lease portfolio is presented in the
following table.
| As of December 31, | |||||||||||||||||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
|
Commercial and industrial loans
|
$ | 365,625 | 31 | % | $ | 441,536 | 36 | % | $ | 439,117 | 36 | % | $ | 353,401 | 33 | % | $ | 396,599 | 41 | % | |||||||||||||||||||||
|
Commercial real estate loans
|
553,717 | 47 | % | 556,007 | 45 | % | 526,669 | 43 | % | 472,284 | 45 | % | 350,339 | 37 | % | ||||||||||||||||||||||||||
|
Direct financing leases
|
83,010 | 7 | % | 90,059 | 7 | % | 79,408 | 7 | % | 67,224 | 6 | % | 52,628 | 5 | % | ||||||||||||||||||||||||||
|
Residential real estate loans
|
82,197 | 7 | % | 70,608 | 6 | % | 79,228 | 7 | % | 83,328 | 8 | % | 81,634 | 9 | % | ||||||||||||||||||||||||||
|
Installment and other consumer loans
|
86,240 | 8 | % | 84,271 | 6 | % | 88,540 | 7 | % | 79,220 | 8 | % | 78,058 | 8 | % | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
|
Total loans/leases
|
$ | 1,170,789 | 100 | % | $ | 1,242,481 | 100 | % | $ | 1,212,962 | 100 | % | $ | 1,055,457 | 100 | % | $ | 959,258 | 100 | % | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
|
Plus deferred loan/lease origination costs, net of fees
|
1,750 | 1,839 | 1,727 | 1,531 | 1,489 | ||||||||||||||||||||||||||||||||||||
|
Less allowance for estimated losses on loans/leases
|
(20,365 | ) | (22,505 | ) | (17,809 | ) | (11,315 | ) | (10,612 | ) | |||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
|
Net loans/leases
|
$ | 1,152,174 | $ | 1,221,815 | $ | 1,196,880 | $ | 1,045,673 | $ | 950,135 | |||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
35
Table of Contents
The following table sets forth the remaining maturities by loan/lease type as of December 31,
2010. Maturities are based on contractual dates.
| Maturities After One Year | ||||||||||||||||||||
| Due in one | Due after one | Due after | Predetermined | Adjustable | ||||||||||||||||
| year or less | through 5 years | 5 years | interest rates | interest rates | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
Commercial and industrial loans
|
$ | 147,097 | $ | 181,714 | $ | 36,814 | $ | 126,870 | $ | 91,658 | ||||||||||
|
Commercial real estate loans
|
125,326 | 335,830 | 92,561 | 331,708 | 96,683 | |||||||||||||||
|
Direct financing leases
|
2,794 | 70,381 | 9,835 | 80,216 | — | |||||||||||||||
|
Residential real estate loans
|
2,095 | 407 | 79,695 | 37,131 | 42,971 | |||||||||||||||
|
Installment and other consumer loans
|
27,604 | 50,326 | 8,310 | 31,081 | 27,555 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 304,916 | $ | 638,658 | $ | 227,215 | $ | 607,006 | $ | 258,867 | ||||||||||
|
|
||||||||||||||||||||
Allowance for Estimated Losses on Loans/Leases
.
The allowance for estimated losses on
loans/leases was $20.4 million at December 31, 2010, which is a decrease of $2.1 million, or 10%,
from $22.5 million at December 31, 2009. For 2009, the allowance for estimated loss on
loans/leases increased $4.7 million, or 26%, from $17.8 million at December 31, 2008. The
following table summarizes the activity in the allowance for estimated losses on loans/leases.
| Years ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
|
Average amount of loans/leases outstanding,
before allowance for estimated losses on loans/leases
|
$ | 1,209,587 | $ | 1,222,493 | $ | 1,124,255 | $ | 1,001,633 | $ | 855,872 | ||||||||||
|
|
||||||||||||||||||||
|
Allowance for estimated losses on loans/leases:
|
||||||||||||||||||||
|
Balance, beginning of fiscal period
|
$ | 22,505 | $ | 17,809 | $ | 11,315 | $ | 10,612 | $ | 8,884 | ||||||||||
|
Charge-offs:
|
||||||||||||||||||||
|
Commercial and industrial
|
(2,609 | ) | (7,510 | ) | (1,205 | ) | (754 | ) | (1,245 | ) | ||||||||||
|
Commercial real estate
|
(5,922 | ) | (2,824 | ) | (805 | ) | (300 | ) | (95 | ) | ||||||||||
|
Direct financing leases
|
(999 | ) | (1,255 | ) | (264 | ) | (527 | ) | (75 | ) | ||||||||||
|
Residential real estate
|
(35 | ) | (314 | ) | (326 | ) | (174 | ) | (45 | ) | ||||||||||
|
Installment and other consumer
|
(1,135 | ) | (2,104 | ) | (1,085 | ) | (469 | ) | (460 | ) | ||||||||||
|
|
||||||||||||||||||||
|
Subtotal charge-offs
|
(10,700 | ) | (14,007 | ) | (3,685 | ) | (2,224 | ) | (1,920 | ) | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Recoveries:
|
||||||||||||||||||||
|
Commercial and industrial
|
380 | 344 | 313 | 160 | 260 | |||||||||||||||
|
Commercial real estate
|
381 | 98 | 420 | 167 | 2 | |||||||||||||||
|
Direct financing leases
|
163 | 52 | — | — | — | |||||||||||||||
|
Residential real estate
|
— | 40 | 81 | 173 | 52 | |||||||||||||||
|
Installment and other consumer
|
172 | 1,193 | 143 | 91 | 50 | |||||||||||||||
|
|
||||||||||||||||||||
|
Subtotal recoveries
|
1,096 | 1,727 | 957 | 591 | 364 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net charge-offs
|
(9,604 | ) | (12,280 | ) | (2,728 | ) | (1,633 | ) | (1,556 | ) | ||||||||||
|
Provision charged to expense
|
7,464 | 16,976 | 9,222 | 2,336 | 3,284 | |||||||||||||||
|
|
||||||||||||||||||||
|
Balance, end of fiscal year
|
$ | 20,365 | $ | 22,505 | $ | 17,809 | $ | 11,315 | $ | 10,612 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Ratio of net charge-offs to average loans/leases outstanding
|
0.79 | % | 1.00 | % | 0.24 | % | 0.16 | % | 0.18 | % | ||||||||||
The adequacy of the allowance for estimated losses on loans/leases was determined by
management based on factors that included the overall composition of the loan/lease portfolio,
types of loans/leases, historical loss experience, loan/lease delinquencies, potential substandard
and doubtful credits, economic conditions, collateral positions, government guarantees and other
factors that, in management’s judgment, deserved evaluation. To ensure that an adequate allowance
was maintained, provisions were made based on the increase/decrease in loans/leases and a detailed
analysis of the loan/lease portfolio. The loan/lease portfolio was reviewed and analyzed monthly
with specific detailed reviews completed on all credits risk-rated less than “fair quality” and
carrying aggregate exposure in excess of $100 thousand. The adequacy of the allowance for
estimated losses on loans/leases was monitored by the credit administration staff and reported to
management and the board of directors.
36
Table of Contents
During the year ended December 31, 2010, the Company’s two newest subsidiary banks, Cedar Rapids
Bank & Trust and Rockford Bank & Trust, decreased the duration for the historical charge-off
experience used in the quantitative factor from five years to three years. Based on the growth of
the loan portfolios of Cedar Rapids Bank & Trust and Rockford Bank & Trust over the past several
years, management determined decreasing the duration appropriately addressed the credit risk within
the current portfolios.
The Company experienced strengthening in its core loan portfolio as the level of criticized and
classified loans declined throughout the year, as reported in the following table.
| As of December 31, | ||||||||||||||||
| Internally Assigned Risk Rating * | 2010 | 2009 | $ Change | % Change | ||||||||||||
| (dollars in thousands) | ||||||||||||||||
|
|
||||||||||||||||
|
Special Mention (Rating 6)
|
$ | 43,551 | $ | 53,665 | $ | (10,114 | ) | (19 | )% | |||||||
|
Substandard (Rating 7) — Performing
|
42,498 | 87,892 | (45,394 | ) | (52 | ) | ||||||||||
|
Substandard (Rating 7) — Nonperforming
|
32,612 | 22,885 | 9,727 | 43 | ||||||||||||
|
Doubtful (Rating 8)
|
21 | 1,203 | (1,182 | ) | (98 | ) | ||||||||||
|
|
||||||||||||||||
|
|
$ | 118,682 | $ | 165,645 | $ | (46,963 | ) | (28 | ) | |||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Criticized Loans **
|
$ | 118,682 | $ | 165,645 | $ | (46,963 | ) | (28 | )% | |||||||
|
Classified Loans ***
|
75,131 | 111,980 | (36,849 | ) | (33 | ) | ||||||||||
| * |
Amounts above exclude the government guaranteed portion, if any. The Company assigns
internal risk ratings of Pass (Rating 2) for the government guaranteed portion.
|
|
| ** |
Criticized loans are defined as commercial and industrial and commercial real estate loans with
internally assigned risk ratings of 6, 7, or 8, regardless of performance.
|
|
| *** |
Classified loans are defined as commercial and industrial and commercial real estate loans with
internally assigned risk ratings of 7, or 8, regardless of performance.
|
The declining trend in criticized and classified loans contributed to a reduction in
nonperforming loans/leases in the fourth quarter of 2010. Furthermore, the majority of the
additions to nonperforming loans/leases consisted of commercial credits which management thoroughly
reviewed and identified a strong collateral position that didn’t require significant additional
specific reserves, or the Company had already reserved adequate amounts in the prior years while
the loan/lease was still performing. As a direct result, the allowance for estimated losses on
loans/leases as a percentage of total gross loans/leases was 1.74% at December 31, 2010, which was
a decline from 1.81% at December 31, 2009. By comparison, the allowance for estimated losses on
loans/leases as a percentage of total gross loans/leases was 1.47% at December 31, 2008.
37
Table of Contents
The following table presents the allowance for estimated losses on loans/leases by type and the
percentage of type to total loans/leases.
| As of December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Commercial and industrial loans
|
7,549 | 31 | % | 6,239 | 35 | % | 8,260 | 36 | % | 4,697 | 33 | % | 4,465 | 41 | % | |||||||||||||||||||||||||
|
Commercial real estate loans
|
9,087 | 47 | % | 11,147 | 45 | % | 6,255 | 43 | % | 4,064 | 45 | % | 3,943 | 37 | % | |||||||||||||||||||||||||
|
Direct financing leases
|
1,531 | 7 | % | 1,681 | 7 | % | 1,402 | 7 | % | 874 | 6 | % | 805 | 5 | % | |||||||||||||||||||||||||
|
Residential real estate loans
|
748 | 7 | % | 737 | 6 | % | 690 | 7 | % | 580 | 8 | % | 463 | 9 | % | |||||||||||||||||||||||||
|
Installment and other consumer loans
|
1,450 | 8 | % | 2,407 | 7 | % | 1,195 | 7 | % | 1,090 | 8 | % | 920 | 8 | % | |||||||||||||||||||||||||
|
Unallocated
|
— | NA | 294 | NA | 7 | NA | 10 | NA | 16 | NA | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
|
$ | 20,365 | 100 | % | $ | 22,505 | 100 | % | $ | 17,809 | 100 | % | $ | 11,315 | 100 | % | $ | 10,612 | 100 | % | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
| % |
- Represents the percentage of the certain type of loan/lease to total loans/leases
|
Although management believes that the allowance for estimated losses on loans/leases at December
31, 2010 was at a level adequate to absorb probable losses on existing loans/leases, there can be
no assurance that such losses will not exceed the estimated amounts or that the Company will not be
required to make additional provisions for loan/lease losses in the future. Unpredictable future
events could adversely affect cash flows for both commercial and individual borrowers, which could
cause the Company to experience increases in problem assets, delinquencies and losses on
loans/leases, and require additional increases in the provision. Asset quality is a priority for
the Company and its subsidiaries. The ability to grow profitably is in part dependent upon the
ability to maintain that quality. The Company continually focuses efforts at its subsidiary banks
and leasing company with the intention to improve the overall quality of the Company’s loan/lease
portfolio.
See Note 5 of the consolidated financial statements for additional information on the Company’s
allowance for estimated losses on loans/leases.
Nonperforming Assets
.
The table below presents the amounts of nonperforming assets.
| As of December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
Nonaccrual loans/leases (1) (2)
|
$ | 37,427 | $ | 28,742 | $ | 20,828 | $ | 6,488 | $ | 6,538 | ||||||||||
|
Accruing loans/leases past due 90 days or more
|
320 | 89 | 222 | 500 | 755 | |||||||||||||||
|
Troubled debt restructures — accruing
|
3,405 | 1,201 | — | — | — | |||||||||||||||
|
Other real estate owned
|
8,535 | 9,286 | 3,857 | 496 | 93 | |||||||||||||||
|
Other repossessed assets
|
366 | 1,071 | 450 | — | — | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 50,053 | $ | 40,389 | $ | 25,357 | $ | 7,484 | $ | 7,386 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Nonperforming loans/leases to total loans/leases
|
3.51 | % | 2.41 | % | 1.73 | % | 0.66 | % | 0.76 | % | ||||||||||
|
Nonperforming assets to total loans/leases plus reposessed property
|
4.24 | % | 3.22 | % | 2.08 | % | 0.71 | % | 0.77 | % | ||||||||||
|
Nonperforming assets to total assets
|
2.73 | % | 2.27 | % | 1.58 | % | 0.51 | % | 0.58 | % | ||||||||||
|
Texas ratio (3)
|
33.57 | % | 27.47 | % | 23.69 | % | 7.95 | % | 9.44 | % | ||||||||||
| (1) |
Includes government guaranteed portion
|
|
| (2) |
Includes troubled debt restructures of $12.6 million at December 31, 2010 and none for
the other periods presented
|
|
| (3) |
Texas Ratio = Nonperforming Assets (excluding Other Repossessed Assets) / Tangible
Equity plus Allowance for Estimated Losses on Loans/Leases. Texas Ratio is a non-GAAP
financial measure. Management included as this is considered by many investors and
analysts to be a metric with which to analyze and evaluate asset quality. Other companies
may calculate this ratio differently.
|
38
Table of Contents
The large majority of the Company’s nonperforming assets consist of nonaccrual loans/leases
and other real estate owned. For nonaccrual loans/leases, management has thoroughly reviewed these
loans/leases and has provided specific reserves as appropriate. Other real estate owned is carried
at the lower of carrying amount or fair value less costs to sell.
The policy of the Company is to place a loan/lease on nonaccrual status if: (a) payment in full of
interest or principal is not expected; or (b) principal or interest has been in default for a
period of 90 days or more unless the obligation is both in the process of collection and well
secured. A loan/lease is well secured if it is secured by collateral with sufficient
market value to repay principal and all accrued interest. A debt is in the process of collection
if collection of the debt is proceeding in due course either through legal action, including
judgment enforcement procedures, or in appropriate circumstances, through collection efforts not
involving legal action which are reasonably expected to result in repayment of the debt or in its
restoration to current status.
The Company experienced an increase in nonperforming assets of $9.7 million, or 24%, from $40.4
million at December 31, 2009, to $50.1 million at December 31, 2010. For 2009, nonperforming
assets grew $15.0 million, or 59%, from $25.4 million at December 31, 2008. The growth of
nonperforming assets slowed in 2010. Despite the net increase over the course of 2010, the
Company’s nonperforming assets declined in the fourth quarter.
Deposits
.
Deposits grew $25.5 million, or 2%, during 2010. For 2009, deposits increased
by $30.4 million, or 3%. The table below presents the composition of the Company’s deposit
portfolio.
| As of December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (dollars in thousands) | ||||||||||||
|
|
||||||||||||
|
Noninterest bearing demand deposits
|
$ | 276,827 | $ | 207,844 | $ | 161,126 | ||||||
|
Interest bearing demand deposits
|
424,819 | 393,732 | 355,990 | |||||||||
|
Savings deposits
|
35,805 | 34,620 | 31,756 | |||||||||
|
Time deposits
|
312,010 | 382,373 | 386,097 | |||||||||
|
Brokered time deposits
|
65,355 | 70,754 | 123,990 | |||||||||
|
|
||||||||||||
|
|
$ | 1,114,816 | $ | 1,089,323 | $ | 1,058,959 | ||||||
|
|
||||||||||||
The Company continued to grow noninterest bearing demand deposits during 2010 with an increase of
$69.0 million, or 33%. For 2009, this growth was consistent at $46.7 million, or 29%. A large
part of this growth is attributable to a strong focus on growing the correspondent banking business
at Quad City Bank & Trust. During 2010, Quad City Bank & Trust grew its noninterest bearing
correspondent bank deposits $25.2 million, or 45%, to $80.8 million. These increases and the
Company’s overall strong liquidity position have allowed the Company to reduce the level of
brokered and other time deposits which drives the reduction in the Company’s average cost of
deposits.
Short-term Borrowings
.
The subsidiary banks offer overnight repurchase agreements to some
of their major customers. Also, the subsidiary banks purchase Federal funds for short-term funding
needs from the Federal Reserve Bank, or from their correspondent banks. The table below presents
the composition of the Company’s short-term borrowings.
| As of December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (dollars in thousands) | ||||||||||||
|
|
||||||||||||
|
Overnight repurchase agreements with customers
|
$ | 118,904 | $ | 94,090 | $ | 68,107 | ||||||
|
Federal funds purchased
|
22,250 | 56,810 | 33,350 | |||||||||
|
|
||||||||||||
|
|
$ | 141,154 | $ | 150,900 | $ | 101,457 | ||||||
|
|
||||||||||||
39
Table of Contents
See Note 8 of the consolidated financial statements for additional information on the Company’s
short-term borrowings.
FHLB Advances and Other Borrowings
.
As a result of their memberships in the FHLB of Des
Moines and Chicago, the subsidiary banks have the ability to borrow funds for short-term or
long-term purposes under a variety of programs. The subsidiary banks utilized FHLB advances for
loan matching as a hedge against the possibility of rising interest rates or when these advances
provided a less costly source of funds than customer deposits. FHLB advances increased $22.9
million, or 11%, during 2010. For 2009, FHLB advances decreased slightly $2.8 million, or 1%. The
table below presents details of the Company’s FHLB advances.
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (dollars in thousands) | ||||||||
|
|
||||||||
|
Amount Due
|
$ | 238,750 | $ | 215,850 | ||||
|
Weighted Average Interest Rate at Year-End
|
3.84 | % | 4.14 | % | ||||
See Note 9 to the consolidated financial statements for additional information regarding FHLB
advances.
Other borrowings consist largely of wholesale structured repurchase agreements which the subsidiary
banks utilize as an alternative funding source to FHLB advances and customer deposits. The table
below presents the composition of the Company’s other borrowings.
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (dollars in thousands) | ||||||||
|
|
||||||||
|
Wholesale repurchase agreements
|
$ | 135,000 | $ | 135,000 | ||||
|
364-day revolving note
|
2,500 | 5,000 | ||||||
|
Series A subordinated notes
|
2,624 | — | ||||||
|
Secured borrowings — loan participations sold
|
9,936 | — | ||||||
|
Other
|
10 | 60 | ||||||
|
|
||||||||
|
|
$ | 150,070 | $ | 140,060 | ||||
|
|
||||||||
As a result of a change in accounting rules, effective January 1, 2010, the Company recorded $9.9
million of secured borrowings and $561 thousand of deferred gains related to sales of the
government guaranteed portion of certain loans as of December 31, 2010. These secured borrowings
do not bear interest and will mature within 90 days of the sales, at which time the sales will be
fully recognized for accounting purposes. In addition, during the first quarter of 2010, the
Company issued Series A Subordinated Notes in the amount of $2.7 million.
Additional information regarding other borrowings is described in Note 10 to the consolidated
financial statements.
40
Table of Contents
Stockholders’ Equity
.
The table below presents the composition of the Company’s
stockholders’ equity, including the common and preferred equity components.
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (dollars in thousands) | ||||||||
|
|
||||||||
|
Common stock
|
$ | 4,732 | $ | 4,675 | ||||
|
Additional paid in capital — common
|
24,328 | 23,656 | ||||||
|
Retained earnings
|
40,551 | 38,458 | ||||||
|
Accumulated other comprehensive income
|
704 | 136 | ||||||
|
Noncontrolling interests
|
1,648 | 1,700 | ||||||
|
Less: Treasury stock
|
(1,606 | ) | (1,606 | ) | ||||
|
|
||||||||
|
Total common stockholders’ equity
|
70,357 | 67,019 | ||||||
|
|
||||||||
|
Preferred stock
|
63 | 39 | ||||||
|
Additional paid in capital — preferred
|
62,151 | 58,539 | ||||||
|
|
||||||||
|
Total preferred stockholders’ equity
|
62,214 | 58,578 | ||||||
|
|
||||||||
|
|
||||||||
|
Total stockholders’ equity
|
$ | 132,571 | $ | 125,597 | ||||
|
|
||||||||
Stockholders’ equity increased $6.9 million, or 6%, during 2010. The majority of this increase
resulted from the issuance of Series E Non-Cumulative Perpetual Preferred Stock on June 30, 2010,
for an aggregate purchase price of $25.0 million. The issuance involved the exchange of $20.9
million, or all of the Series B and Series C Non-Cumulative Perpetual Preferred Stock, and $4.1
million of new capital from cash investors. The transaction provided $3.2 million, net of issuance
costs, of new capital to the Company. See Note 12 to the consolidated financial statements for
additional detail on this issuance. Additionally, net income attributable to QCR Holdings, Inc. of
$6.8 million increased retained earnings; however, this was partially offset by declaration and
accrual of preferred stock dividends and discount accretion totaling $4.1 million, and declaration
of common stock dividends of $366 thousand. Specifically regarding the preferred stock dividends,
the following details the dividend payments in 2010:
| • |
$536 thousand for two quarterly dividends on the outstanding shares of Series B
Non-Cumulative Perpetual Preferred Stock at a stated rate of 8.00% (this has been
discontinued with the exchange of this preferred stock as disclosed in Note 12),
|
| • |
$356 thousand for two quarterly dividends on the outstanding shares of Series C
Non-Cumulative Perpetual Preferred Stock at a stated rate of 9.50% (this has been
discontinued with the exchange of this preferred stock as disclosed in Note 12),
|
| • |
$2.4 million for four quarterly dividends on the outstanding shares of Series D
Cumulative Perpetual Preferred Stock at a stated rate of 5.00%, including the related
discount accretion, and
|
| • |
$876 thousand for the first two quarterly dividends on the outstanding shares of Series
E Non-Cumulative Perpetual Preferred Stock at a stated dividend rate of 7.00%.
|
It is the Company’s intention to consider the payment of common stock dividends on a semi-annual
basis.
For 2009, stockholders’ equity increased $33.1 million, or 36%. The majority of this increase
resulted from the Company’s participation in the Capital Purchase Program whereby the Company
issued $38.1 million, net of issuance costs, of cumulative perpetual preferred stock to the U.S.
Treasury. Additionally, net income attributable to QCR Holdings, Inc. of $1.8 million increased
retained earnings; however, this was more than offset by declaration and accrual of preferred stock
dividends and discount accretion totaling $3.8 million, and declaration of common stock dividends
of $363 thousand.
See Note 12 to the consolidated financial statements for additional information regarding the
Company’s preferred stock.
41
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures the ability of the Company to meet maturing obligations and its existing
commitments, to withstand fluctuations in deposit levels, to fund its operations, and to provide
for customers’ credit needs. The Company monitors liquidity risk through contingency planning
stress testing on a regular basis. The Company seeks to avoid over concentration of funding
sources and to establish and maintain contingent funding facilities that can be drawn upon if
normal funding sources become unavailable. One source of liquidity is cash and short-term assets,
such as interest-bearing deposits in other banks and Federal funds sold, which totaled $143.7
million at December 31, 2010, $71.8 million at December 31, 2009, and $56.3 million at December 31,
2008. The Company’s on balance sheet liquidity position has grown significantly over the past two
years.
The subsidiary banks have a variety of sources of short-term liquidity available to them, including
Federal funds purchased from correspondent banks, FHLB advances, structured wholesale repurchase
agreements, brokered certificates of deposits, lines of credit, borrowing at the Federal Reserve
Discount Window, sales of securities available for sale, and loan participations or sales. The
Company also generates liquidity from the regular principal payments and prepayments made on its
loan/lease portfolio. At December 31, 2010, the subsidiary banks had 16 lines of credit totaling
$153.5 million, of which $55.0 million was secured and $98.5 million was unsecured. At December
31, 2010, the entire $153.5 million was available. At December 31, 2009, the subsidiary banks had
20 lines of credit with upstream correspondent banks totaling $156.1 million, of which $26.6
million was secured and $129.5 million was unsecured. At December 31, 2009, $135.1 million was
available. Additionally, the Company has a single $20.0 million secured revolving credit note with
a maturity of April 1, 2011. As of December 31, 2010, the Company had $17.5 million available as
the note carried an outstanding balance of $2.5 million. See Note 10 to the consolidated financial
statements for additional information regarding the lines of credit and revolving credit note.
Throughout its history, the Company has secured additional capital through various resources,
including approximately $36.1 million through the issuance of trust preferred securities and $62.0
million through the issuance of preferred stock. See Financial Statement Notes 11 and 12 for
information on the issuance of trust preferred securities, and preferred stock, respectively.
As of December 31, 2010 and 2009, the Company and subsidiary banks remained “well-capitalized” in
accordance with regulatory capital requirements administered by the federal banking authorities.
See Financial Statement Note 16 for detail of the capital amounts and ratios for the Company and
subsidiary banks.
COMMITMENTS, CONTINGENCIES, CONTRACTUAL OBLIGATIONS, AND OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, the subsidiary banks make various commitments and incur certain
contingent liabilities that are not presented in the accompanying consolidated financial
statements. The commitments and contingent liabilities include various guarantees, commitments to
extend credit, and standby letters of credit.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The subsidiary banks evaluate each customer’s creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the banks upon
extension of credit, is based upon management’s credit evaluation of the counter-party. Collateral
held varies but may include accounts receivable, marketable securities, inventory, property, plant
and equipment, and income-producing commercial properties.
42
Table of Contents
Standby letters of credit are conditional commitments issued by the subsidiary banks to guarantee
the performance of a customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements and, generally, have terms of one year, or less. The
credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The banks hold collateral, as described above, supporting
those commitments if deemed necessary. In the event the customer does not perform in accordance
with the terms of the agreement with the third party, the banks would be required to fund the
commitments. The maximum potential amount of future payments the banks could be required to make
is represented by the contractual amount. If the commitment is funded, the banks would be entitled
to seek recovery from the customer. At December 31, 2010 and 2009, no amounts had been recorded as
liabilities for the banks’ potential obligations under these guarantees.
As of December 31, 2010 and 2009, commitments to extend credit aggregated $474.8 million and $476.5
million, respectively. As of December 31, 2010 and 2009, standby letters of credit aggregated
$11.5 million and $17.8 million, respectively. Management does not expect that all of these
commitments will be funded.
Additional information regarding commitments, contingencies, and off-balance sheet arrangements is
described in Note 18 of the consolidated financial statements.
The Company has various financial obligations, including contractual obligations and commitments,
which may require future cash payments. The following table presents, as of December 31, 2010,
significant fixed and determinable contractual obligations to third parties by payment date.
Further discussion of the nature of each obligation is included in the referenced note to the
consolidated financial statements.
| Financial | Payments Due by Period | |||||||||||||||||||||
| Statement | One Year | |||||||||||||||||||||
| Description | Note Reference | Total | or Less | 2 - 3 Years | 4 - 5 Years | After 5 Years | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||
|
Deposits without a stated maturity
|
N/A | $ | 737,451 | $ | 737,451 | $ | — | $ | — | $ | — | |||||||||||
|
Certificates of deposit
|
7 | 377,365 | 282,000 | 63,154 | 32,211 | — | ||||||||||||||||
|
Short-term borrowings
|
8 | 141,154 | 141,154 | — | — | — | ||||||||||||||||
|
FHLB advances
|
9 | 238,750 | 19,000 | 73,750 | 17,500 | 128,500 | ||||||||||||||||
|
Other borrowings
|
10 | 150,071 | 17,447 | — | 45,000 | 87,624 | ||||||||||||||||
|
Junior subordinated debentures
|
11 | 36,085 | — | — | — | 36,085 | ||||||||||||||||
|
Rental commitments
|
6 | 1,935 | 327 | 656 | 403 | 549 | ||||||||||||||||
|
Operating contracts
|
N/A | 10,549 | 4,535 | 4,300 | 1,714 | — | ||||||||||||||||
|
|
||||||||||||||||||||||
|
Total contractual cash obligations
|
$ | 1,693,360 | $ | 1,201,914 | $ | 141,860 | $ | 96,828 | $ | 252,758 | ||||||||||||
|
|
||||||||||||||||||||||
Purchase obligations represent obligations under agreements to purchase goods or services that
are enforceable and legally binding on the Company and that specify all significant terms,
including: fixed or minimum quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction. The Company had no purchase obligations
at December 31, 2010. The Company’s operating contract obligations represent short and long-term
lease payments for data processing equipment and services, software, and other equipment and
professional services.
43
Table of Contents
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and the accompanying notes have been prepared
in accordance with U.S. generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollar amounts without considering
the changes in the relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company’s operations. Unlike industrial
companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a
result, interest rates have a greater impact on the Company’s performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 2009, FASB issued two related accounting pronouncements changing the accounting principles
and disclosures requirements related to securitizations and special-purposed entities.
Specifically, these pronouncements eliminated the concept of a “qualifying special-purpose entity”,
changed the requirements for derecognizing financial assets and changed how a company determines
when an entity is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. These pronouncements also expanded existing disclosure
requirements to include more information about transfers of financial assets, including
securitization transactions, and where companies have continuing exposure to the risks related to
transferred financial assets. The Company adopted these new pronouncements on January 1, 2010, as
required. Transfers of financial assets include participation loans/leases sold by the Company’s
banking and leasing subsidiaries. For agreements of participation loans/leases sold that contain
language that fail to meet the definition of a participating interest and /or surrender control by
the selling institution, the Company is not allowed to recognize the sale and is required to record
as a secured borrowing. The adoption did not have a material impact to the financial statements
taken as a whole for the year ended December 31, 2010.
In January 2010, FASB issued ASU 2010-06,
Fair Value Measurements and Disclosures (Topic 820);
Improving Disclosures about Fair Value Measurements
. ASU 2010-06 requires new disclosures on
transfers into and out of Level 1 and 2 measurements of the fair value hierarchy and requires
separate disclosures about purchases, sales, issuances, and settlements relating to Level 3
measurements. It also clarifies existing fair value disclosures relating to the level of
disaggregation and inputs and valuation techniques used to measure fair value. It is effective for
the first reporting period (including interim periods) beginning after December 15, 2009, except
for the requirement to provide the Level 3 activity of purchase, sales, issuances, and settlements
on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. The
adoption of this pronouncement did not have a material impact on the Company’s consolidated
financial statements. The adoption of the exception is not expected to have a material impact on
the Company’s consolidated financial statements.
In January 2011, FASB issued ASU 2011-01,
Receivables (Topic 310): Deferral of the Effective Date
of Disclosures about Troubled Debt Restructurings in Update No. 2010-20
. The amendments in ASU
2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings
in ASU 2010-20,
Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
(which was adopted by the Company effective
December 31, 2010), for public entities. The delay is intended to allow the FASB time to complete
its deliberations on what constitutes a troubled debt restructuring. The effective date of the new
disclosures about troubled debt restructurings for public entities and the guidance for determining
what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance
is anticipated to be effective for interim and annual periods ending after June 15, 2011. The new
disclosures are not expected to have a material impact on the consolidated financial statements.
44
Table of Contents
FORWARD LOOKING STATEMENTS
This document (including information incorporated by reference) contains, and future oral and
written statements of the Company and its management may contain, forward-looking statements,
within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with
respect to the financial condition, results of operations, plans, objectives, future performance
and business of the Company. Forward-looking statements, which may be based upon beliefs,
expectations and assumptions of the Company’s management and on information currently available to
management, are generally identifiable by the use of words such as “believe,” “expect,”
“anticipate,” “bode,” “predict,” “suggest,” “project,” “appear,” “plan,” “intend,” “estimate,”
“may,” “will,” “would,” “could,” “should,” “likely,” or other similar expressions. Additionally,
all statements in this document, including forward-looking statements, speak only as of the date
they are made, and the Company undertakes no obligation to update any statement in light of new
information or future events.
The Company’s ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. The factors that could have a material adverse effect on the operations and
future prospects of the Company and its subsidiaries are detailed in the “Risk Factors” section
included under Item 1A. of Part I of this Form 10-K. In addition to the risk factors described in
that section, there are other factors that may impact any public company, including ours, which
could have a material adverse effect on the operations and future prospects of the Company and its
subsidiaries. These additional factors include, but are not limited to, the following:
| • |
The economic impact of past and any future terrorist attacks, acts of war or threats
thereof and the response of the United States to any such threats and attacks.
|
| • |
The costs, effects and outcomes of existing or future litigation.
|
| • |
Changes in accounting policies and practices, as may be adopted by state and federal
regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange
Commission or the Public Company Accounting Oversight Board.
|
| • |
The ability of the Company to manage the risks associated with the foregoing as well as
anticipated.
|
These risks and uncertainties should be considered in evaluating forward-looking statements and
undue reliance should not be placed on such statements.
| Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk
|
The Company, like other financial institutions, is subject to direct and indirect market risk.
Direct market risk exists from changes in interest rates. The Company’s net income is dependent on
its net interest income. Net interest income is susceptible to interest rate risk to the degree
that interest-bearing liabilities mature or reprice on a different basis than interest-earning
assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning
assets in a given period, a significant increase in market rates of interest could adversely affect
net interest income. Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease in net interest
income.
In an attempt to manage the Company’s exposure to changes in interest rates, management monitors
the Company’s interest rate risk. Each subsidiary bank has an asset/liability management committee
of the board of directors that meets quarterly to review the bank’s interest rate risk position and
profitability, and to make or recommend adjustments for consideration by the full board of each
bank. Internal asset/liability management teams consisting of members of the subsidiary banks’
management meet weekly to manage the mix of assets and liabilities to maximize earnings and
liquidity and minimize interest rate and other risks. Management also reviews the subsidiary
banks’ securities portfolios, formulates investment strategies, and oversees the timing and
implementation of transactions to assure attainment of the board’s objectives in the most effective
manner. Notwithstanding the Company’s interest rate risk management activities, the potential for
changing interest rates is an uncertainty that can have an adverse effect on net income.
45
Table of Contents
In adjusting the Company’s asset/liability position, the board of directors and management attempt
to manage the Company’s interest rate risk while maintaining or enhancing net interest margins. At
times, depending on the level of general interest rates, the relationship between long-term and
short-term interest rates, market conditions and competitive factors, the board of directors and
management may decide to increase the Company’s interest rate risk position somewhat in order to
increase its net interest margin. The Company’s results of operations and net portfolio values
remain vulnerable to increases in interest rates and to fluctuations in the difference between
long-term and short-term interest rates.
One method used to quantify interest rate risk is a short-term earnings at risk summary, which is a
detailed and dynamic simulation model used to quantify the estimated exposure of net interest
income to sustained interest rate changes. This simulation model captures the impact of changing
interest rates on the interest income received and interest expense paid on all interest sensitive
assets and liabilities reflected on the Company’s consolidated balance sheet. This sensitivity
analysis demonstrates net interest income exposure annually over a five-year horizon, assuming no
balance sheet growth and various interest rate scenarios including no change in rates; 200, 300,
400, and 500 basis point upward shifts; and a 100 basis point downward shift in interest rates,
where interest-bearing assets and liabilities reprice at their earliest possible repricing date.
The model assumes parallel and pro rata shifts in interest rates over a twelve-month period for the
200 basis point upward shift and 100 basis point downward shift. For the 400 basis point upward
shift, the model assumes a parallel and pro rata shift in interest rates over a twenty-four month
period. For the 500 basis point upward shift, the model assumes a flattening and pro rata shift in
interest rates over a twelve-month period where the short-end of the yield curve shifts upward
greater than the long-end of the yield curve. Effective with the modeling for the second quarter
of 2010, the Company added an interest rate scenario where interest rates experience a parallel and
instantaneous shift upward 300 basis points. The asset/liability management committee of the board
of directors has established policy limits of a 10% decline in net interest income for the 200 and
the newly added 300 basis point upward shifts and the 100 basis point downward shift.
Application of the simulation model analysis at December 31, 2010 demonstrated the following:
| NET INTEREST INCOME EXPOSURE in YEAR 1 | ||||||||
| INTEREST RATE SCENARIO | As of December 31, 2010 | As of December 31, 2009 | ||||||
|
|
||||||||
|
100 basis point downward shift
|
-1.9 | % | -0.9 | % | ||||
|
200 basis point upward shift
|
-3.0 | % | -5.1 | % | ||||
|
300 basis point upward shift *
|
-1.6 | % | N/A | |||||
| * |
Began modeling in the second quarter of 2010.
|
The simulation is within the board-established policy limit of a 10% decline in value for all three
scenarios.
Interest rate risk is considered to be one of the most significant market risks affecting the
Company. For that reason, the Company engages the assistance of a national consulting firm and its
risk management system to monitor and control the Company’s interest rate risk exposure. Other
types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not
arise in the normal course of the Company’s business activities.
46
Table of Contents
| Item 8. |
Financial Statements
|
QCR Holdings, Inc.
Index to Consolidated Financial Statements
| 48 | ||||
|
|
||||
|
Financial Statements
|
||||
|
|
||||
| 49 | ||||
|
|
||||
| 50 | ||||
|
|
||||
| 52 | ||||
|
|
||||
| 53-54 | ||||
|
|
||||
| 55-108 | ||||
|
|
47
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
QCR Holdings, Inc.
QCR Holdings, Inc.
We have audited the accompanying consolidated balance sheets of QCR Holdings, Inc. and subsidiaries
as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in
stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2010. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform an audit of its internal control
over financial reporting as of December 31, 2010. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of QCR Holdings, Inc. and subsidiaries as of December 31,
2010 and 2009, and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting
principles.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
March 7, 2011
March 7, 2011
|
McGladrey is the brand under which RSM McGladrey, Inc. and McGladrey & Pullen, LLP serve clients’ business needs.
The two firms operate as separate legal entities in an alternative practice structure. |
Member of RSM International network, a network of
independent accounting, tax and consulting firms. |
48
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
December 31, 2010 and 2009
| 2010 | 2009 | |||||||
|
Assets
|
||||||||
|
Cash and due from banks
|
$ | 42,030,806 | $ | 35,878,046 | ||||
|
Federal funds sold
|
61,960,000 | 6,598,333 | ||||||
|
Interest-bearing deposits at financial institutions
|
39,745,611 | 29,329,413 | ||||||
|
|
||||||||
|
Securities held to maturity, at amortized cost (Note 4)
|
300,000 | 350,000 | ||||||
|
Securities available for sale, at fair value (Note 4)
|
424,546,767 | 370,170,459 | ||||||
|
|
||||||||
|
|
424,846,767 | 370,520,459 | ||||||
|
|
||||||||
|
|
||||||||
|
Loans receivable, held for sale (Note 5)
|
14,084,859 | 6,135,130 | ||||||
|
Loans/leases receivable, held for investment (Note 5)
|
1,158,453,744 | 1,238,184,436 | ||||||
|
|
||||||||
|
|
1,172,538,603 | 1,244,319,566 | ||||||
|
Less allowance for estimated losses on loans/leases (Note 5)
|
(20,364,656 | ) | (22,504,734 | ) | ||||
|
|
||||||||
|
|
1,152,173,947 | 1,221,814,832 | ||||||
|
|
||||||||
|
|
||||||||
|
Premises and equipment, net (Note 6)
|
31,118,744 | 31,454,893 | ||||||
|
Goodwill
|
3,222,688 | 3,222,688 | ||||||
|
Accrued interest receivable
|
6,435,989 | 7,565,513 | ||||||
|
Bank-owned life insurance
|
33,565,390 | 29,694,077 | ||||||
|
Prepaid FDIC insurance
|
5,361,314 | 7,801,076 | ||||||
|
Restricted investment securities
|
16,668,700 | 15,210,100 | ||||||
|
Other real estate owned, net
|
8,534,711 | 9,286,371 | ||||||
|
Other assets
|
10,970,549 | 11,270,306 | ||||||
|
|
||||||||
|
Total assets
|
$ | 1,836,635,216 | $ | 1,779,646,107 | ||||
|
|
||||||||
|
|
||||||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Liabilities:
|
||||||||
|
Deposits:
|
||||||||
|
Noninterest-bearing
|
$ | 276,827,205 | $ | 207,843,554 | ||||
|
Interest-bearing
|
837,988,652 | 881,479,172 | ||||||
|
|
||||||||
|
Total deposits (Note 7)
|
1,114,815,857 | 1,089,322,726 | ||||||
|
|
||||||||
|
Short-term borrowings (Note 8)
|
141,154,499 | 150,899,571 | ||||||
|
Federal Home Loan Bank advances (Note 9)
|
238,750,000 | 215,850,000 | ||||||
|
Other borrowings (Note 10)
|
150,070,785 | 140,059,841 | ||||||
|
Junior subordinated debentures (Note 11)
|
36,085,000 | 36,085,000 | ||||||
|
Other liabilities
|
23,188,367 | 21,834,093 | ||||||
|
|
||||||||
|
Total liabilities
|
1,704,064,508 | 1,654,051,231 | ||||||
|
|
||||||||
|
Commitments and Contingencies (Note 18)
|
||||||||
|
|
||||||||
|
Stockholders’ Equity (Note 16):
|
||||||||
|
Preferred stock (Note 12), $1 par value, shares authorized 250,000
December 2010 — 63,237 shares issued and outstanding December 2009 — 38,805 shares issued and outstanding |
63,237 | 38,805 | ||||||
|
Common stock, $1 par value; shares authorized 20,000,000
December 2010 — 4,732,428 shares issued and 4,611,182 outstanding December 2009 — 4,674,536 shares issued and 4,553,290 outstanding |
4,732,428 | 4,674,536 | ||||||
|
Additional paid-in capital
|
86,478,269 | 82,194,330 | ||||||
|
Retained earnings
|
40,550,900 | 38,458,477 | ||||||
|
Accumulated other comprehensive income
|
704,165 | 135,608 | ||||||
|
Noncontrolling interests
|
1,648,219 | 1,699,630 | ||||||
|
|
||||||||
|
|
134,177,218 | 127,201,386 | ||||||
|
Treasury stock, December 2010 and 2009 — 121,246 common shares, at cost
|
1,606,510 | 1,606,510 | ||||||
|
|
||||||||
|
Total stockholders’ equity
|
132,570,708 | 125,594,876 | ||||||
|
|
||||||||
|
Total liabilities and stockholders’ equity
|
$ | 1,836,635,216 | $ | 1,779,646,107 | ||||
|
|
||||||||
See Notes to Consolidated Financial Statements.
49
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Years Ended December 31, 2010, 2009, and 2008
| 2010 | 2009 | 2008 | ||||||||||
|
Interest and dividend income:
|
||||||||||||
|
Loans/leases, including fees
|
$ | 67,999,191 | $ | 73,145,289 | $ | 72,565,834 | ||||||
|
Securities:
|
||||||||||||
|
Taxable
|
10,109,083 | 10,748,012 | 10,878,219 | |||||||||
|
Nontaxable
|
907,085 | 967,940 | 942,667 | |||||||||
|
Interest-bearing deposits at financial institutions
|
411,079 | 313,113 | 165,312 | |||||||||
|
Restricted investment securities
|
497,214 | 302,756 | 495,158 | |||||||||
|
Federal funds sold
|
173,714 | 133,723 | 99,814 | |||||||||
|
|
||||||||||||
|
Total interest and dividend income
|
80,097,366 | 85,610,833 | 85,147,004 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Interest expense:
|
||||||||||||
|
Deposits
|
12,681,625 | 18,374,065 | 23,894,324 | |||||||||
|
Short-term borrowings
|
628,255 | 711,801 | 2,962,169 | |||||||||
|
Federal Home Loan Bank advances
|
9,246,562 | 9,082,039 | 8,524,772 | |||||||||
|
Other borrowings
|
5,732,142 | 4,764,812 | 2,754,097 | |||||||||
|
Junior subordinated debentures
|
1,945,014 | 2,016,449 | 2,388,574 | |||||||||
|
|
||||||||||||
|
Total interest expense
|
30,233,598 | 34,949,166 | 40,523,936 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net interest income
|
49,863,768 | 50,661,667 | 44,623,068 | |||||||||
|
Provision for loan/lease losses (Note 5)
|
7,463,618 | 16,975,517 | 9,221,670 | |||||||||
|
|
||||||||||||
|
Net interest income after provision for loan/lease losses
|
42,400,150 | 33,686,150 | 35,401,398 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Noninterest income:
|
||||||||||||
|
Trust department fees
|
3,290,844 | 2,883,482 | 3,333,812 | |||||||||
|
Investment advisory and management fees, gross
|
1,812,903 | 1,507,557 | 1,975,236 | |||||||||
|
Deposit service fees
|
3,478,743 | 3,319,967 | 3,134,869 | |||||||||
|
Gains on sales of loans, net
|
3,169,514 | 1,677,312 | 1,068,545 | |||||||||
|
Securities gains, net
|
— | 1,488,391 | 199,500 | |||||||||
|
Gains (losses) on sales of other real estate owned
|
(835,163 | ) | 177,736 | 394,103 | ||||||||
|
Earnings on bank-owned life insurance
|
1,331,085 | 1,243,324 | 1,016,864 | |||||||||
|
Credit card fees, net of processing costs
|
259,590 | 930,435 | 987,769 | |||||||||
|
Other
|
2,898,372 | 2,318,843 | 1,820,373 | |||||||||
|
|
||||||||||||
|
Total noninterest income
|
15,405,888 | 15,547,047 | 13,931,071 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Noninterest expenses:
|
||||||||||||
|
Salaries and employee benefits
|
27,843,127 | 26,882,185 | 26,124,160 | |||||||||
|
Occupancy and equipment expense
|
5,472,248 | 5,372,101 | 5,091,545 | |||||||||
|
Professional and data processing fees
|
4,524,519 | 4,664,656 | 4,729,226 | |||||||||
|
FDIC and other insurance
|
3,528,267 | 3,626,027 | 1,316,710 | |||||||||
|
Loan/lease expense
|
1,657,552 | 1,997,583 | 757,315 | |||||||||
|
Advertising and marketing
|
1,053,909 | 991,243 | 1,296,651 | |||||||||
|
Postage and telephone
|
1,004,176 | 1,060,690 | 933,508 | |||||||||
|
Stationery and supplies
|
491,252 | 528,959 | 518,639 | |||||||||
|
Bank service charges
|
420,252 | 306,473 | 403,790 | |||||||||
|
Other-than-temporary impairment losses on securities
|
113,800 | 206,369 | — | |||||||||
|
Losses on lease residual values
|
617,000 | — | — | |||||||||
|
Other
|
1,822,961 | 1,300,740 | 1,162,145 | |||||||||
|
|
||||||||||||
|
Total noninterest expenses
|
48,549,063 | 46,937,026 | 42,333,689 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Income from continuing operations before income taxes
|
9,256,975 | 2,296,171 | 6,998,780 | |||||||||
|
Federal and state income tax expense from continuing operations (Note 13)
|
2,449,249 | 247,340 | 1,735,717 | |||||||||
|
|
||||||||||||
|
Income from continuing operations
|
6,807,726 | 2,048,831 | 5,263,063 | |||||||||
|
|
||||||||||||
(Continued)
50
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 2010, 2009, and 2008
Years Ended December 31, 2010, 2009, and 2008
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Discontinued operations (Note 2)
|
||||||||||||
|
Operating income from merchant credit card acquiring business
|
— | — | 361,160 | |||||||||
|
Gain on sale of merchant credit card acquiring business
|
— | — | 4,645,213 | |||||||||
|
Operating loss from First Wisconsin Bank & Trust
|
— | — | (2,921,371 | ) | ||||||||
|
Gain on sale of First Wisconsin Bank & Trust
|
— | — | 494,664 | |||||||||
|
|
||||||||||||
|
Income from discontinued operations before income taxes
|
— | — | 2,579,666 | |||||||||
|
Federal and state income tax expense from discontinued operations
|
— | — | 845,435 | |||||||||
|
|
||||||||||||
|
Income from discontinued operations
|
$ | — | $ | — | $ | 1,734,231 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income
|
$ | 6,807,726 | $ | 2,048,831 | $ | 6,997,294 | ||||||
|
Less: net income attributable to noncontrolling interests
|
221,047 | 276,923 | 288,436 | |||||||||
|
|
||||||||||||
|
Net income attributable to QCR Holdings, Inc.
|
$ | 6,586,679 | $ | 1,771,908 | $ | 6,708,858 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Amounts attributable to QCR Holdings, Inc.:
|
||||||||||||
|
Income from continuing operations
|
$ | 6,586,679 | $ | 1,771,908 | $ | 4,974,627 | ||||||
|
Income from discontinued operations
|
— | — | 1,734,231 | |||||||||
|
|
||||||||||||
|
Net income
|
$ | 6,586,679 | $ | 1,771,908 | $ | 6,708,858 | ||||||
|
|
||||||||||||
|
Less: preferred stock dividends and discount accretion
|
$ | 4,128,104 | $ | 3,843,924 | 1,784,500 | |||||||
|
|
||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc. common stockholders
|
$ | 2,458,575 | $ | (2,072,016 | ) | $ | 4,924,358 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings (loss) per common share (Note 17):
|
||||||||||||
|
Income (loss) from continuing operations attributable to QCR
Holdings, Inc.
|
$ | 0.54 | $ | (0.46 | ) | $ | 0.69 | |||||
|
Income from discontinued operations attributable to QCR Holdings, Inc.
|
— | — | 0.38 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc.
|
$ | 0.54 | $ | (0.46 | ) | $ | 1.07 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings (loss) per common share (Note 17):
|
||||||||||||
|
Income (loss) from continuing operations attributable to QCR Holdings, Inc.
|
$ | 0.53 | $ | (0.46 | ) | $ | 0.69 | |||||
|
Income from discontined operations attributable to QCR Holdings, Inc.
|
— | — | 0.37 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc.
|
$ | 0.53 | $ | (0.46 | ) | $ | 1.06 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Weighted average common shares outstanding
|
4,593,096 | 4,540,792 | 4,617,057 | |||||||||
|
Weighted average common and common equivalent shares outstanding
|
4,618,242 | 4,540,792 | 4,634,537 | |||||||||
|
|
||||||||||||
|
Cash dividends declared per common share
|
$ | 0.08 | $ | 0.08 | $ | 0.08 | ||||||
|
|
||||||||||||
See Notes to Consolidated Financial Statements.
51
Table of Contents
QCR Holdings,
Inc.
and Subsidiaries
and Subsidiaries
Consolidated Statements of Changes in
Stockholders’ Equity
Years Ended December 31, 2010, 2009, and 2008
Years Ended December 31, 2010, 2009, and 2008
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||||||
| Preferred | Common | Paid-In | Retained | Comprehensive | Noncontrolling | Treasury | ||||||||||||||||||||||||||
| Stock | Stock | Capital | Earnings | Income | Interests | Stock | Total | |||||||||||||||||||||||||
|
Balance, December 31, 2007
|
$ | 568 | $ | 4,597,744 | $ | 42,317,374 | $ | 36,338,566 | $ | 2,811,540 | $ | 1,720,863 | $ | — | $ | 87,786,655 | ||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | 6,708,858 | — | 288,436 | — | 6,997,294 | ||||||||||||||||||||||||
|
Other comprehensive income, net of tax
(Note 3)
|
— | — | — | — | 816,820 | — | — | 816,820 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Comprehensive income
|
7,814,114 | |||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Common cash dividends declared, $0.08 per share
|
— | — | — | (369,620 | ) | — | — | — | (369,620 | ) | ||||||||||||||||||||||
|
Preferred cash dividends declared
|
— | — | — | (1,784,500 | ) | — | — | — | (1,784,500 | ) | ||||||||||||||||||||||
|
Proceeds from issuance of 22,767 shares of
common stock as a result of stock purchased
under the Employee Stock Purchase Plan
(Note 15)
|
— | 22,767 | 246,037 | — | — | — | — | 268,804 | ||||||||||||||||||||||||
|
Proceeds from issuance of 7,305 shares of common
stock as a result of stock options exercised
(Note 15)
|
— | 7,305 | 82,410 | — | — | — | — | 89,715 | ||||||||||||||||||||||||
|
Exchange of 1,933 shares of common
stock in connection with options exercised
(Note 15)
|
— | (1,933 | ) | (27,284 | ) | — | — | — | — | (29,217 | ) | |||||||||||||||||||||
|
Tax benefit of nonqualified stock options exercised
|
— | — | 1,611 | — | — | — | — | 1,611 | ||||||||||||||||||||||||
|
Stock-based compensation expense
|
— | — | 475,120 | — | — | — | — | 475,120 | ||||||||||||||||||||||||
|
Restricted stock award
|
— | 5,000 | (5,000 | ) | — | — | — | — | — | |||||||||||||||||||||||
|
Other adjustments to noncontrolling interests
|
— | — | — | — | — | (151,001 | ) | — | (151,001 | ) | ||||||||||||||||||||||
|
Purchase of 121,246 shares of common stock for
the treasury
|
— | — | — | — | — | — | (1,606,510 | ) | (1,606,510 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, December 31, 2008
|
$ | 568 | $ | 4,630,883 | $ | 43,090,268 | $ | 40,893,304 | $ | 3,628,360 | $ | 1,858,298 | $ | (1,606,510 | ) | $ | 92,495,171 | |||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | 1,771,908 | — | 276,923 | — | 2,048,831 | ||||||||||||||||||||||||
|
Other comprehensive loss, net of tax (Note 3)
|
— | — | — | — | (3,492,752 | ) | — | — | (3,492,752 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Comprehensive loss
|
(1,443,921 | ) | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Common cash dividends declared, $0.08 per share
|
— | — | — | (362,811 | ) | — | — | — | (362,811 | ) | ||||||||||||||||||||||
|
Preferred cash dividends declared and accrued
|
— | — | — | (3,467,989 | ) | — | — | — | (3,467,989 | ) | ||||||||||||||||||||||
|
Discount accretion on cumulative preferred stock
|
— | — | 375,935 | (375,935 | ) | — | — | — | — | |||||||||||||||||||||||
|
Proceeds from issuance of 38,237 shares of preferred
stock and common stock warrant
|
38,237 | — | 38,014,586 | — | — | — | — | 38,052,823 | ||||||||||||||||||||||||
|
Proceeds from issuance of 28,575 shares of
common stock as a result of stock purchased
under the Employee Stock Purchase Plan
(Note 15)
|
— | 28,575 | 205,585 | — | — | — | — | 234,160 | ||||||||||||||||||||||||
|
Exchange of 830 shares of common stock in connection
with payroll taxes for restricted stock
(Note 15)
|
— | (830 | ) | (6,889 | ) | — | — | — | — | (7,719 | ) | |||||||||||||||||||||
|
Stock-based compensation expense
|
— | — | 609,713 | — | — | — | — | 609,713 | ||||||||||||||||||||||||
|
Restricted stock awards
|
— | 15,908 | (15,908 | ) | — | — | — | — | — | |||||||||||||||||||||||
|
Purchase of noncontrolling interests
|
— | — | (78,960 | ) | — | — | (231,040 | ) | — | (310,000 | ) | |||||||||||||||||||||
|
Other adjustments to noncontrolling interests
|
— | — | — | — | — | (204,551 | ) | — | (204,551 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, December 31, 2009
|
$ | 38,805 | $ | 4,674,536 | $ | 82,194,330 | $ | 38,458,477 | $ | 135,608 | $ | 1,699,630 | $ | (1,606,510 | ) | $ | 125,594,876 | |||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | 6,586,679 | — | 221,047 | — | 6,807,726 | ||||||||||||||||||||||||
|
Other comprehensive income, net of tax
(Note 3)
|
— | — | — | — | 568,557 | — | — | 568,557 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Comprehensive income
|
7,376,283 | |||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Common cash dividends declared, $0.08 per share
|
— | — | — | (366,152 | ) | — | — | — | (366,152 | ) | ||||||||||||||||||||||
|
Preferred cash dividends declared and accrued
|
— | — | — | (3,679,100 | ) | — | — | — | (3,679,100 | ) | ||||||||||||||||||||||
|
Discount accretion on cumulative preferred stock
|
— | — | 449,004 | (449,004 | ) | — | — | — | — | |||||||||||||||||||||||
|
Exchange of 268 shares of Series B Non-Cumulative
Perpetual Preferred Stock for 13,400 shares of Series E
Non-Cumulative Perpetual Convertible Preferred Stock
|
13,132 | — | (13,132 | ) | — | — | — | — | — | |||||||||||||||||||||||
|
Exchange of 300 shares of Series C Non-Cumulative
Perpetual Preferred Stock for 7,500 shares of Series E
Non-Cumulative Perpetual Convertible Preferred Stock
|
7,200 | — | (7,200 | ) | — | — | — | — | — | |||||||||||||||||||||||
|
Proceeds from issuance of 4,100 shares of Series E
Non-Cumulative Perpetual Convertible Preferred Stock
|
4,100 | — | 3,183,133 | — | — | — | — | 3,187,233 | ||||||||||||||||||||||||
|
Proceeds from issuance of warrants to purchase 54,000 shares
of common stock in conjunction with the issuance of
Series A Subordinated Notes
|
— | — | 84,240 | — | — | — | — | 84,240 | ||||||||||||||||||||||||
|
Proceeds from issuance of 28,907 shares of
common stock as a result of stock purchased
under the Employee Stock Purchase Plan
(Note 15)
|
— | 28,907 | 192,362 | — | — | — | — | 221,269 | ||||||||||||||||||||||||
|
Proceeds from issuance of 5,754 shares of common
stock as a result of stock options exercised
(Note 15)
|
— | 5,754 | 37,621 | — | — | — | — | 43,375 | ||||||||||||||||||||||||
|
Exchange of 367 shares of common stock in connection
with payroll taxes for restricted stock
(Note 15)
|
— | (367 | ) | (2,730 | ) | — | — | — | — | (3,097 | ) | |||||||||||||||||||||
|
Stock-based compensation expense
|
— | — | 533,271 | — | — | — | — | 533,271 | ||||||||||||||||||||||||
|
Restricted stock awards
|
— | 23,598 | (23,598 | ) | — | — | — | — | — | |||||||||||||||||||||||
|
Purchase of noncontrolling interests
|
— | — | (149,032 | ) | — | — | (270,968 | ) | — | (420,000 | ) | |||||||||||||||||||||
|
Other adjustments to noncontrolling interests
|
— | — | — | — | — | (1,490 | ) | — | (1,490 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance, December 31, 2010
|
$ | 63,237 | $ | 4,732,428 | $ | 86,478,269 | $ | 40,550,900 | $ | 704,165 | $ | 1,648,219 | $ | (1,606,510 | ) | $ | 132,570,708 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
52
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Years Ended December 31, 2010, 2009, and 2008
| 2010 | 2009 | 2008 | ||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||
|
Net income
|
$ | 6,807,726 | $ | 2,048,831 | $ | 6,997,294 | ||||||
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
||||||||||||
|
Depreciation
|
2,533,597 | 2,780,190 | 2,624,433 | |||||||||
|
Provision for loan/lease losses related to continuing operations
|
7,463,618 | 16,975,517 | 9,221,670 | |||||||||
|
Provision for loan/lease losses related to discontinuing operations
|
— | — | 1,699,112 | |||||||||
|
Deferred income taxes
|
1,256,004 | 2,758,856 | (1,816,719 | ) | ||||||||
|
Amortization of offering costs on subordinated debentures
|
14,317 | 14,317 | 14,317 | |||||||||
|
Stock-based compensation expense
|
488,112 | 512,963 | 298,921 | |||||||||
|
Losses (gains) on sales of other real estate owned, net
|
835,163 | (177,736 | ) | (394,103 | ) | |||||||
|
Gain on sale of merchant credit card acquiring business
|
— | — | (4,645,213 | ) | ||||||||
|
Gain on sale of First Wisconsin Bank & Trust
|
— | — | (494,664 | ) | ||||||||
|
Amortization of premiums on securities, net
|
3,411,202 | 2,044,767 | 133,819 | |||||||||
|
Securities gains, net
|
— | (1,488,391 | ) | (199,500 | ) | |||||||
|
Other-than-temporary impairment losses on securities
|
113,800 | 206,369 | — | |||||||||
|
Loans originated for sale
|
(172,623,744 | ) | (140,376,155 | ) | (88,775,395 | ) | ||||||
|
Proceeds on sales of loans
|
167,843,529 | 143,295,985 | 88,975,272 | |||||||||
|
Gains on sales of loans, net
|
(3,169,514 | ) | (1,677,312 | ) | (1,068,545 | ) | ||||||
|
Losses on lease residual values
|
617,000 | — | — | |||||||||
|
Decrease (increase) in accrued interest receivable
|
1,129,524 | 270,322 | (350,007 | ) | ||||||||
|
Decrease (increase) in prepaid FDIC insurance
|
2,439,762 | (7,801,076 | ) | — | ||||||||
|
Increase in cash value of bank-owned life insurance
|
(1,331,085 | ) | (1,243,324 | ) | (1,016,864 | ) | ||||||
|
Increase in other assets
|
(1,320,430 | ) | (3,339,319 | ) | (602,870 | ) | ||||||
|
Increase (decrease) in other liabilities
|
1,406,270 | (660,397 | ) | (2,810,645 | ) | |||||||
|
|
||||||||||||
|
Net cash provided by operating activities
|
17,914,851 | 14,144,407 | 7,790,313 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||
|
Net (increase) decrease in federal funds sold
|
(55,361,667 | ) | 14,097,565 | (31,775,898 | ) | |||||||
|
Net (increase) decrease in interest-bearing deposits at
financial institutions
|
(10,416,198 | ) | (27,215,509 | ) | 2,980,577 | |||||||
|
Proceeds from sales of other real estate owned
|
6,038,825 | 1,358,351 | 1,376,007 | |||||||||
|
Proceeds from sale of merchant credit card acquiring business, net
|
— | — | 4,732,009 | |||||||||
|
Proceeds from sale of First Wisconsin Bank & Trust, net
|
— | — | 13,324,553 | |||||||||
|
Activity in securities portfolio:
|
||||||||||||
|
Purchases
|
(383,018,764 | ) | (316,260,882 | ) | (140,985,829 | ) | ||||||
|
Calls, maturities and redemptions
|
325,649,238 | 169,176,856 | 102,733,654 | |||||||||
|
Paydowns
|
435,149 | 406,998 | 736,057 | |||||||||
|
Sales
|
— | 25,966,885 | 285,000 | |||||||||
|
Purchases of restricted investment securities
|
(1,458,600 | ) | (1,150,500 | ) | (2,512,500 | ) | ||||||
|
Activity in bank-owned life insurance:
|
||||||||||||
|
Purchases
|
(3,150,000 | ) | (1,000,002 | ) | — | |||||||
|
Surrender of policy
|
609,772 | — | — | |||||||||
|
Net (decrease) increase in loans/leases originated and held for investment
|
63,387,668 | (50,077,380 | ) | (195,569,104 | ) | |||||||
|
Purchase of premises and equipment
|
(2,197,448 | ) | (2,845,816 | ) | (2,258,536 | ) | ||||||
|
Net increase in cash related to discontinued operations, held for sale
|
— | — | (1,789,295 | ) | ||||||||
|
|
||||||||||||
|
Net cash used in investing activities
|
(59,482,025 | ) | (187,543,434 | ) | (248,723,305 | ) | ||||||
|
|
||||||||||||
(Continued)
53
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2010, 2009, and 2008
and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2010, 2009, and 2008
| 2010 | 2009 | 2008 | ||||||||||
|
Cash Flows from Financing Activities:
|
||||||||||||
|
Net increase in deposit accounts
|
$ | 25,493,131 | $ | 30,364,128 | $ | 227,545,345 | ||||||
|
Net (decrease) increase in short-term borrowings
|
(9,745,072 | ) | 49,442,621 | (68,160,318 | ) | |||||||
|
Activity in Federal Home Loan Bank advances:
|
||||||||||||
|
Advances
|
36,000,000 | 11,500,000 | 68,145,000 | |||||||||
|
Payments
|
(13,100,000 | ) | (14,345,000 | ) | (18,265,006 | ) | ||||||
|
Net increase in other borrowings
|
7,395,184 | 64,477,207 | 27,892,512 | |||||||||
|
Tax benefit of nonqualified stock options exercised
|
— | — | 1,611 | |||||||||
|
Proceeds from issuance of Series A Subordinated Notes and detachable
warrants to purchase 54,000 shares of common stock
|
2,700,000 | — | — | |||||||||
|
Payment of cash dividends on common and preferred stock
|
(4,052,089 | ) | (3,595,221 | ) | (1,974,870 | ) | ||||||
|
Proceeds from issuance of Series E Noncumulatieve Convertible
Perpetual Preferred Stock, net
|
3,187,233 | — | — | |||||||||
|
Proceeds from issuance of Series D Cumulative Perpetual Preferred
Stock and common stock warrant, net
|
— | 38,052,823 | — | |||||||||
|
Proceeds from issuance of common stock, net
|
261,547 | 226,441 | 329,302 | |||||||||
|
Purchase of noncontrolling interests
|
(420,000 | ) | (310,000 | ) | — | |||||||
|
Purchase of treasury stock
|
— | — | (1,606,510 | ) | ||||||||
|
|
||||||||||||
|
Net cash provided by financing activities
|
47,719,934 | 175,812,999 | 233,907,066 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and due from banks
|
6,152,760 | 2,413,972 | (7,025,926 | ) | ||||||||
|
Cash and due from banks, beginning
|
35,878,046 | 33,464,074 | 40,490,000 | |||||||||
|
|
||||||||||||
|
Cash and due from banks, ending
|
$ | 42,030,806 | $ | 35,878,046 | $ | 33,464,074 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Supplemental Disclosures of Cash Flow Information, cash payments for:
|
||||||||||||
|
Interest
|
$ | 31,017,369 | $ | 36,536,869 | $ | 40,526,554 | ||||||
|
Income and franchise taxes
|
3,236,558 | 2,557,505 | 2,306,448 | |||||||||
|
|
||||||||||||
|
Supplemental Schedule of Noncash Investing Activities:
|
||||||||||||
|
Change in accumulated other comprehensive income (loss), unrealized
gains (losses) on securities available for sale, net
|
568,557 | (3,492,752 | ) | 816,820 | ||||||||
|
Exchange of shares of common stock in connection with payroll
taxes for restricted stock and options exercised
|
(3,097 | ) | (7,719 | ) | (29,217 | ) | ||||||
|
Transfers of loans to other real estate owned
|
6,122,328 | 6,924,975 | 4,467,520 | |||||||||
|
|
||||||||||||
|
Proceeds from sale of First Wisconsin Bank & Trust, net
|
$ | — | $ | — | $ | 13,324,553 | ||||||
|
Assets sold:
|
||||||||||||
|
Cash and due from banks
|
— | — | 2,495,185 | |||||||||
|
Federal funds sold
|
— | — | 17,700,000 | |||||||||
|
Interest-bearing deposits at financial institutions
|
— | — | 1,567 | |||||||||
|
Securities available for sale, at fair value
|
— | — | 18,460,320 | |||||||||
|
Loans/leases receivable held for investment
|
— | — | 80,169,171 | |||||||||
|
Less: Allowance for estimated losses on loans/leases
|
— | — | (1,122,496 | ) | ||||||||
|
Premises and equipment, net
|
— | — | 468,522 | |||||||||
|
Goodwill
|
— | — | — | |||||||||
|
Intangilbe assets
|
— | — | 887,542 | |||||||||
|
Accrued interest receivable
|
— | — | 478,729 | |||||||||
|
Bank-owned life insurance
|
— | — | 2,453,660 | |||||||||
|
Other assets
|
— | — | 882,028 | |||||||||
|
|
||||||||||||
|
Total Assets
|
$ | — | $ | — | $ | 122,874,228 | ||||||
|
|
||||||||||||
|
Liabilities sold:
|
||||||||||||
|
Noninteresting-bearing deposits
|
$ | — | $ | — | $ | 8,943,882 | ||||||
|
Interest-bearing deposits
|
— | — | 89,070,083 | |||||||||
|
Short-term borrowings
|
— | — | 13,578,572 | |||||||||
|
Other liabilities
|
— | — | (368,528 | ) | ||||||||
|
|
||||||||||||
|
Total liabilities
|
$ | — | $ | — | $ | 111,224,009 | ||||||
|
|
||||||||||||
|
Accrued expenses related to sale of First Wisconsin Bank & Trust
|
— | — | 1,179,670 | |||||||||
|
|
||||||||||||
|
Gain on sale of First Wisconsin Bank & Trust
|
$ | — | $ | — | $ | 494,664 | ||||||
|
|
||||||||||||
See Notes to Consolidated Financial Statements.
54
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Nature of business
:
QCR Holdings, Inc. (the “Company”) is a bank holding company providing bank and bank related
services through its subsidiaries, Quad City Bank and Trust Company (“Quad City Bank & Trust”),
Cedar Rapids Bank and Trust Company (“Cedar Rapids Bank & Trust”), Rockford Bank and Trust Company
(“Rockford Bank & Trust”), m2 Lease Funds, LLC (“m2 Lease Funds”), Velie Plantation Holding
Company, LLC (“Velie Plantation Holding Company”), QCR Holdings Statutory Trust II (“Trust II”),
QCR Holdings Statutory Trust III (“Trust III”), QCR Holdings Statutory Trust IV (“Trust IV”), and
QCR Holdings Statutory Trust V (“Trust V”). Quad City Bank & Trust is a commercial bank that
serves the Iowa and Illinois Quad Cities and adjacent communities. Cedar Rapids Bank & Trust is a
commercial bank that serves Cedar Rapids, Iowa, and adjacent communities. Rockford Bank & Trust is
a commercial bank that serves Rockford, Illinois, and adjacent communities.
Quad City Bank & Trust and Cedar Rapids Bank & Trust are chartered and regulated by the state of
Iowa, and Rockford Bank & Trust is chartered and regulated by the state of Illinois. All three
subsidiary banks are insured and subject to regulation by the Federal Deposit Insurance Corporation
(“FDIC”), and are members of and regulated by the Federal Reserve System. m2 Lease Funds, which is
an 80% owned subsidiary, based in the Milwaukee, Wisconsin area, is engaged in the business of
direct financing lease contracts. Velie Plantation Holding Company, LLC, which is a 91% owned
subsidiary, is engaged in holding the real estate property known as the Velie Plantation Mansion in
Moline, Illinois. The Velie Plantation Mansion is the location for the Company’s headquarters.
Trust II, Trust III, Trust IV and Trust V were formed for the purpose of issuing various trust
preferred securities (see Note 11).
Quad City Bancard, Inc. (“Bancard”), previously a wholly-owned subsidiary of the Company, conducted
the Company’s credit card issuing operation and prior to the August 28, 2008 sale of the business,
the Company’s merchant acquiring operations. Effective December 31, 2009, Bancard was liquidated.
The credit card issuing operation was merged into the correspondent banking department of Quad
City Bank & Trust in 2009.
As noted above, during 2008 Bancard sold its merchant credit card acquiring business. The current
and comparative results related to the merchant credit card acquiring business have been reflected
as discontinued operations (see Note 2)
On December 31, 2008, the Company sold its Wisconsin-chartered bank, First Wisconsin Bank & Trust
Company (“First Wisconsin Bank & Trust”). The comparative results related to First Wisconsin Bank
& Trust have been reflected as discontinued operations (see Note 2).
Significant accounting policies:
Accounting estimates:
The preparation of financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for estimated losses on loans/leases, other-than-temporary
impairment of securities, and the fair value of financial instruments.
Principles of consolidation
: The accompanying consolidated financial statements include
the accounts of the Company and its subsidiaries, except Trust II, Trust III, Trust IV and Trust V,
which do not meet the criteria for consolidation. All material intercompany accounts and
transactions have been eliminated in consolidation. The results of discontinued operations have
been reported separately in the consolidated financial statements.
55
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Presentation of cash flows
: For purposes of reporting cash flows, cash and due from banks
include cash on hand and non-interest bearing amounts due from banks. Cash flows from federal
funds sold, interest bearing deposits at financial institutions, loans/leases, deposits, and
short-term and other borrowings are treated as net increases or decreases.
Cash and due from banks
: The subsidiary banks are required by federal banking regulations
to maintain certain cash and due from bank reserves. The reserve requirement was approximately
$846,000 and $270,000 as of December 31, 2010 and 2009, respectively.
Investment securities
: Investment securities held to maturity are those debt securities
that the Company has the ability and intent to hold until maturity regardless of changes in market
conditions, liquidity needs, or changes in general economic conditions. Such securities are
carried at cost adjusted for amortization of premiums and accretion of discounts. If the ability
or intent to hold to maturity is not present for certain specified securities, such securities are
considered available for sale as the Company intends to hold them for an indefinite period of time
but not necessarily to maturity. Any decision to sell a security classified as available for sale
would be based on various factors, including movements in interest rates, changes in the maturity
mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations,
and other factors. Securities available for sale are carried at fair value. Unrealized gains or
losses, net of taxes, are reported as increases or decreases in accumulated other comprehensive
income. Realized gains or losses, determined on the basis of the cost of specific securities sold,
are included in earnings.
All securities are evaluated to determine whether declines in fair value below their amortized cost
are other-than-temporary.
In estimating other-than-temporary impairment losses on available for sale debt securities,
management considers a number of factors including, but not limited to, (1) the length of time and
extent to which the fair value has been less than amortized cost, (2) the financial condition and
near-term prospects of the issuer, (3) the current market conditions, and (4) the intent of the
Company to not sell the security prior to recovery and whether it is not more-likely-than-not that
it will be required to sell the security prior to recovery. If the Company does not intend to sell
the security, and it is not more-likely-than-not the entity will be required to sell the security
before recovery of its amortized cost basis, the Company will recognize the credit component of an
other-than-temporary impairment of a debt security in earnings and the remaining portion in other
comprehensive income. For held to maturity debt securities, the amount of an other-than-temporary
impairment recorded in other comprehensive income for the noncredit portion would be amortized
prospectively over the remaining life of the security on the basis of the timing of future
estimated cash flows of the security.
In estimating other-than-temporary impairment losses on available for sale equity securities
management considers factors (1), (2) and (3) above as well as whether the Company has the intent
and the ability to hold the security until its recovery. If the Company (a) intends to sell an
impaired equity security and does not expect the fair value of the security to fully recover before
the expected time of sale, or (b) does not have the ability to hold the security until its
recovery, the security is deemed other-than-temporarily impaired and the impairment is charged to
earnings. The Company recognizes an impairment loss through earnings if based upon other factors
the loss is deemed to be other-than-temporary even if the decision to sell has not been made.
Loans receivable, held for sale
: Residential real estate loans which are originated and
intended for resale in the secondary market in the foreseeable future are classified as held for
sale. These loans are carried at the lower of cost or estimated market value in the aggregate. As
assets specifically acquired for resale, the origination of, disposition of, and gain/loss on these
loans are classified as operating activities in the statement of cash flows.
56
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Loans receivable, held for investment
: Loans that management has the intent and ability to
hold for the foreseeable future, or until pay-off or maturity occurs, are classified as held for
investment. These loans are stated at the amount of unpaid principal adjusted for charge-offs, the
allowance for estimated losses on loans, and any deferred fees and/or costs on originated loans.
Interest is credited to earnings as earned based on the principal amount outstanding. Deferred
direct loan origination fees and/or costs are amortized as an adjustment of the related loan’s
yield. As assets held for and used in the production of services, the origination and collection
of these loans are classified as investing activities in the statement of cash flows.
In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2010-20,
Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses
, which requires significant new disclosures about the allowance for credit losses
(also known as “allowance for estimated losses on loans/leases”) and the credit quality of
financing receivables. The requirements are intended to enhance transparency regarding credit
losses and the credit quality of loan and lease receivables. Under this statement, allowance for
credit losses and fair value are to be disclosed by portfolio segment, while credit quality
information, impaired financing receivables and nonaccrual status are to be presented by class of
financing receivable. A portfolio segment is defined by the ASU as the level at which an entity
develops and documents a systematic methodology to determine its allowance for credit losses. A
class of financing receivable is defined by the ASU as a further disaggregation of a portfolio
segment based on risk characteristics and the entity’s method for monitoring and assessing credit
risk. The disclosures are to be presented at the level of disaggregation that management uses when
assessing and monitoring the portfolio’s risk and performance. This ASU was effective for interim
and annual reporting periods ending on or after December 15, 2010. Accordingly, the Company has
included the new disclosures throughout these financial statements (see Note 1 and Note 5).
The Company’s portfolio segments are as follows:
| • |
Commercial and industrial
|
| • |
Commercial real estate
|
| • |
Residential real estate
|
| • |
Installment and other consumer
|
Direct financing leases would be considered a segment within the overall loan/lease portfolio. The
accounting policies for direct financing leases are disclosed below.
The Company’s classes of loans receivable are as follows:
| • |
Commercial and industrial
|
| • |
Owner-occupied commercial real estate
|
| • |
Commercial construction, land development, and other land loans that are not
owner-occupied commercial real estate
|
| • |
Other non-owner-occupied commercial real estate
|
| • |
Residential real estate
|
| • |
Installment and other consumer
|
Direct financing leases would be considered a class of financing receivable within the overall
loan/lease portfolio. The accounting policies for direct financing leases are disclosed below.
Generally, for all classes of loans receivable, loans are considered past due when contractual
payments are delinquent for 31 days or greater.
57
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
For all classes of loans receivable, loans will generally be placed on nonaccrual status when the
loan has become 90 days past due (unless the loan is well secured and in the process of
collection); or if any of the following conditions exist:
| • |
It becomes evident that the borrower will not make payments, or will not or cannot meet
the terms for renewal of a matured loan,
|
| • |
When full repayment of principal and interest is not expected,
|
| • |
When the loan is graded “doubtful”
|
| • |
When the borrower files bankruptcy and an approved plan of reorganization or liquidation
is not anticipated in the near future, or
|
| • |
When foreclosure action is initiated.
|
When a loan is placed on nonaccrual status, income recognition is ceased. Previously recorded but
uncollected amounts of interest on nonaccrual loans are reversed at the time the loan is placed on
nonaccrual status. Generally, cash collected on nonaccrual loans is applied to principal. Should
full collection of principal be expected, cash collected on nonaccrual loans can be recognized as
interest income.
For all classes of loans receivable, nonaccrual loans may be restored to accrual status provided
the following criteria are met:
| • |
The loan is current, and all principal and interest amounts contractually due have been
made,
|
| • |
All principal and interest amounts contractually due, including past due payments, are
reasonably assured of repayment within a reasonable period, and
|
| • |
There is a period of minimum repayment performance, as follows, by the borrower in
accordance with contractual terms:
|
| • |
Six months of repayment performance for contractual monthly payments, or
|
||
| • |
One year of repayment performance for contractual quarterly or semi-annual payments
|
Direct finance leases receivable, held for investment
: The Company leases machinery and
equipment to customers under leases that qualify as direct financing leases for financial reporting
and as operating leases for income tax purposes. Under the direct financing method of accounting,
the minimum lease payments to be received under the lease contract, together with the estimated
unguaranteed residual values (approximately 3% to 15% of the cost of the related equipment), are
recorded as lease receivables when the lease is signed and the lease property delivered to the
customer. The excess of the minimum lease payments and residual values over the cost of the
equipment is recorded as unearned lease income. Unearned lease income is recognized over the term
of the lease on a basis that results in an approximate level rate of return on the unrecovered
lease investment. Lease income is recognized on the interest method. Residual is the estimated
fair market value of the equipment on lease at lease termination. In estimating the equipment’s
fair value at lease termination, the Company relies on historical experience by equipment type and
manufacturer and, where available, valuations by independent appraisers, adjusted for known trends.
The Company’s estimates are reviewed continuously to ensure reasonableness; however, the amounts
the Company will ultimately realize could differ from the estimated amounts. If the review results
in a lower estimate than had been previously established, a determination is made as to whether the
decline in estimated residual value is other than temporary. If the decline in estimated
unguaranteed residual value is judged to be other than temporary, the accounting for the
transaction is revised using the changed estimate. The resulting reduction in the investment is
recognized as a loss in the period in which the estimate is changed. An upward adjustment of the
estimated residual value is not recorded.
The policies for delinquency and nonaccrual for direct financing leases are materially consistent
with those described above for all classes of loan receivables.
58
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
The Company defers and amortizes fees and certain incremental direct costs over the contractual
term of the lease as an adjustment to the yield. These initial direct leasing costs generally
approximate 4% of the leased asset’s cost. The unamortized direct costs are recorded as a
reduction of unearned lease income.
Troubled debt restructures
: Troubled debt restructuring exists when the Company, for
economic or legal reasons related to the borrower’s/lessee’s financial difficulties, grants a
concession (either imposed by court order, law, or agreement between the borrower/lessee and the
Company) to the borrower/lessee that it would not otherwise consider. The Company is attempting to
maximize its recovery of the balances of the loans/leases through these various concessionary
restructurings.
The following criteria, related to granting a concession, together or separately, create a troubled
debt restructure:
| • |
A modification of terms of a debt such as one or a combination of:
|
| • |
The reduction of the stated interest rate.
|
||
| • |
The extension of the maturity date or dates at a stated interest rate
lower than the current market rate for the new debt with similar risk.
|
||
| • |
The reduction of the face amount or maturity amount of the debt as
stated in the instrument or other agreement.
|
||
| • |
The reduction of accrued interest.
|
| • |
A transfer from the borrower/lessee to the Company of receivables from third parties,
real estate, other assets, or an equity position in the borrower to fully or partially
satisfy a loan.
|
| • |
The issuance or other granting of an equity position to the Company to fully or
partially satisfy a debt unless the equity position is granted pursuant to existing terms
for converting the debt into an equity position.
|
Allowance for estimated losses on loans/leases
: For all portfolio segments, the allowance
for estimated losses on loans/leases is established as losses are estimated to have occurred
through a provision for loan/lease losses charged to earnings. Loan/lease losses, for all
portfolio segments, are charged against the allowance when management believes the uncollectability
of a loan/lease balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
For all portfolio segments, the allowance for estimated losses on loans/leases is evaluated on a
regular basis by management and is based upon management’s periodic review of the collectability of
the loans/leases in light of historical experience, the nature and volume of the loan/lease
portfolio, adverse situations that may affect the borrower’s/lessee’s ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible to significant revision as more
information becomes available.
59
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
A discussion of the risk characteristics and the allowance for estimated losses on loans by each
portfolio segment follows:
For
commercial and industrial loans
, the Company focuses on small and mid-sized businesses
with primary operations as wholesalers, manufacturers, building contractors, business services
companies, other banks, and retailers. The Company provides a wide range of commercial and
industrial loans, including lines of credit for working capital and operational purposes, and term
loans for the acquisition of facilities, equipment and other purposes. Approval is generally based
on the following factors:
| • |
Ability and stability of current management of the borrower;
|
||
| • |
Stable earnings with positive financial trends;
|
||
| • |
Sufficient cash flow to support debt repayment;
|
||
| • |
Earnings projections based on reasonable assumptions;
|
||
| • |
Financial strength of the industry and business; and
|
||
| • |
Value and marketability of collateral.
|
Collateral for commercial and industrial loans generally includes accounts receivable, inventory,
equipment and real estate. The lending policy specifies approved collateral types and
corresponding maximum advance percentages. The value of collateral pledged on loans must exceed
the loan amount by a margin sufficient to absorb potential erosion of its value in the event of
foreclosure and cover the loan amount plus costs incurred to convert it to cash.
The lending policy specifies maximum term limits for commercial and industrial loans. For term
loans, the maximum term is 7 years. Generally, term loans range from 3 to 5 years. For lines of
credit, the maximum term is 365 days.
In addition, the Company often takes personal guarantees to help assure repayment. Loans may be
made on an unsecured basis if warranted by the overall financial condition of the borrower.
Commercial real estate loans
are subject to underwriting standards and processes similar to
commercial and industrial loans, in addition to those standards and processes specific to real
estate loans. Collateral for commercial real estate loans generally includes the underlying real
estate and improvements, and may include additional assets of the borrower. The lending policy
specifies maximum loan-to-value limits based on the category of commercial real estate (commercial
real estate loans on improved property, raw land, land development, and commercial construction).
These limits are the same limits established by regulatory authorities.
The lending policy also includes guidelines for real estate appraisals, including minimum appraisal
standards based on certain transactions. In addition, the Company often takes personal guarantees
to help assure repayment.
In addition, management tracks the level of owner-occupied commercial real estate loans versus
non-owner occupied loans. Owner-occupied loans are generally considered to have less risk. As of
December 31, 2010 and 2009, approximately 26% and 29%, respectively, of the commercial real estate
loan portfolio was owner-occupied.
The Company’s lending policy limits non-owner occupied commercial real estate lending to 300% of
total risk-based capital, and limits construction, land development, and other land loans to 100%
of total risk-based capital. Exceeding these limits warrants the use of heightened risk management
practices in accordance with regulatory guidelines.
60
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
In some instances for all loans/leases, it may be appropriate to originate or purchase loans/leases
that are exceptions to the guidelines and limits established within the lending policy described
above and below. In general, exceptions to the lending policy do not significantly deviate from
the guidelines and limits established within the lending policy and, if there are exceptions, they
are clearly noted as such and specifically identified in loan/lease approval documents.
For
commercial and industrial and commercial real estate loans
, the allowance for estimated
losses on loans consists of specific and general components.
The specific component relates to loans that are classified as impaired, as defined below. For
those loans that are classified as impaired, an allowance is established when the discounted cash
flows (or collateral value or observable market price) of the impaired loan is lower than the
carrying value of that loan.
For commercial and industrial loans and all classes of commercial real estate loans, a loan is
considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant payment delays and
payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a case-by-case
basis by either the present value of expected future cash flows discounted at the loan’s effective
interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan
is collateral dependent.
The general component consists of quantitative and qualitative factors and covers non-impaired
loans. The quantitative factors are based on historical charge-off experience and expected loss
given default derived from the Company’s internal risk rating process. See below for a detailed
description of the Company’s internal risk rating scale. The qualitative factors are determined
based on an assessment of internal and/or external influences on credit quality that are not fully
reflected in the historical loss or risk rating data.
For commercial and industrial and commercial real estate loans, the Company utilizes the following
internal risk rating scale:
1. Highest Quality — loans of the highest quality with no credit risk, including those fully
secured by subsidiary bank certificates of deposit and U.S. government securities.
2. Superior Quality — loans with very strong credit quality. Borrowers have exceptionally
strong earnings, liquidity, capital, cash flow coverage, and management ability. Includes loans
secured by high quality, marketable securities, certificates of deposit from other institutions,
and cash value of life insurance. Also includes loans supported by U.S. government, state, or
municipal guarantees.
3. Satisfactory Quality — loans with satisfactory credit quality. Established
borrowers with satisfactory financial condition, including credit quality, earnings, liquidity,
capital and cash flow coverage. Management is capable and experienced. Collateral coverage and
guarantor support, if applicable, are more than adequate. Includes loans secured by personal
assets and business assets including equipment, accounts receivable, inventory, and real estate.
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and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
4. Fair Quality — loans with moderate but still acceptable credit quality. The
primary repayment source remains adequate; however, management’s ability to maintain consistent
profitability is unproven or uncertain. Borrowers exhibit acceptable leverage and liquidity.
May include new businesses with inexperienced management or unproven performance records in
relation to peer, or borrowers operating in highly cyclical or deteriorating industries.
5. Early Warning — loans where the borrowers have generally performed as agreed,
however unfavorable financial trends exist or are anticipated. Earnings may be erratic, with
marginal cash flow or declining sales. Borrowers reflect leveraged financial condition and/or
marginal liquidity. Management may be new and a track record of performance has yet to be
developed. Financial information may be incomplete, and reliance on secondary repayment sources
may be increasing.
6. Special Mention — loans where the borrowers exhibit credit weaknesses or unfavorable
financial trends requiring close monitoring. Weaknesses and adverse trends are more pronounced
than Early Warning loans, and if left uncorrected, may jeopardize repayment according to the
contractual terms. Currently, no loss of principal or interest is expected. Borrowers in this
category have deteriorated to the point that it would be difficult to refinance with another
lender. Special Mention should be assigned to borrowers in turnaround situations. This rating
is intended as a transitional rating, therefore, it is generally not assigned to a borrower for
a period of more than one year.
7. Substandard — loans which are inadequately protected by the current sound worth
and paying capacity of the obligor or of the collateral pledged, if applicable. These loans
have a well-defined weakness or weaknesses which jeopardize repayment according to the
contractual terms. There is distinct loss potential if the weaknesses are not corrected.
Includes loans with insufficient cash flow coverage which are collateral dependent, other real
estate owned, and repossessed assets.
8. Doubtful — loans which have all the weaknesses inherent in a Substandard loan,
with the added characteristic that existing weaknesses make full principal collection, on the
basis of current facts, conditions and values, highly doubtful. The possibility of loss is
extremely high, but because of pending factors, recognition of a loss is deferred until a more
exact status can be determined. All doubtful loans will be placed on non-accrual, with all
payments, including principal and interest, applied to principal reduction.
For term commercial and industrial and commercial real estate loans or credit relationships with
aggregate exposure greater than $1,000,000, a loan review will be required within 15 months of the
most recent credit review. The review shall be completed in enough detail to, at a minimum,
validate the risk rating. Additionally, the review shall include an analysis of debt service
requirements, covenant compliance, if applicable, and collateral adequacy. The frequency of the
review is generally accelerated for loans with poor risk ratings.
The Company’s Loan Quality area will perform a documentation review of a sampling of commercial and
industrial and commercial real estate loans, the primary purpose of which is to ensure the credit
is properly documented and closed in accordance with approval authorities and conditions. A review
will also be performed by the Company’s Internal Audit Department of a sampling of commercial and
industrial and commercial real estate loans, according to an approved schedule. Validation of the
risk rating is part of Internal Audit’s review. Additionally, over the past several years, the
Company has contracted an independent outside third party to review a sampling of commercial and
industrial and commercial real estate loans. Validation of the risk rating is part of this review
as well.
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
The Company leases machinery and equipment to commercial and industrial customers under
direct
financing leases
. All lease requests are subject to the credit requirements and criteria as
set forth in the lending/leasing policy. In all cases, a formal independent credit analysis of the
lessee is performed.
For
direct financing leases
, the allowance for estimated lease losses consists of specific
and general components.
The specific component relates to leases that are classified as impaired, as defined for commercial
loans above. For those leases that are classified as impaired, an allowance is established when
the discounted cash flows (or collateral value or observable market price) of the impaired lease is
lower than the carrying value of that lease.
The general component consists of quantitative and qualitative factors and covers nonimpaired
leases. The quantitative factors are based on historical charge-off experience for the entire
lease portfolio. The qualitative factors are determined based on an assessment of internal and/or
external influences on credit quality that are not fully reflected in the historical loss data.
Generally, the Company’s residential real estate loans conform to the underwriting requirements of
Freddie Mac and Fannie Mae to allow the subsidiary banks to resell loans in the secondary market.
The subsidiary banks structure most loans that will not conform to those underwriting requirements
as adjustable rate mortgages that mature or adjust in one to five years, and then retain these
loans in their portfolios. Servicing rights are not presently retained on the loans sold in the
secondary market. The lending policy establishes minimum appraisal and other credit guidelines.
The Company provides many types of
installment and other consumer loans
including motor
vehicle, home improvement, home equity, signature loans and small personal credit lines. The
lending policy addresses specific credit guidelines by consumer loan type.
For
residential real estate loans
, and
installment and other consumer loans
, these
large groups of smaller balance homogenous loans are collectively evaluated for impairment. The
Company applies a quantitative factor based on historical charge-off experience in total for each
of these segments. Accordingly, the Company generally does not separately identify individual
residential real estate loans, and/or installment or other consumer loans for impairment
disclosures, unless such loans are the subject of a restructuring agreement due to financial
difficulties of the borrower.
During the year ended December 31, 2010, the Company’s two newest subsidiary banks, Cedar Rapids
Bank & Trust and Rockford Bank & Trust, decreased the duration for the historical charge-off
experience used in the quantitative factor from five years to three years. Based on the growth of
the loan portfolios of Cedar Rapids Bank & Trust and Rockford Bank & Trust over the past several
years, management determined decreasing the duration allowed for a more accurate assessment of the
credit risk within the current portfolios.
Troubled debt restructures are considered impaired loans/leases and are subject to the same
allowance methodology as described above for impaired loans/leases by portfolio segment.
Credit related financial instruments
: In the ordinary course of business, the Company has
entered into commitments to extend credit and standby letters of credit. Such financial
instruments are recorded when they are funded.
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Transfers of financial assets
: Transfers of financial assets are accounted for as sales
only when control over the assets has been surrendered. Control over transferred assets is deemed
to be surrendered when: (1) the assets have been isolated from the Company, (2) the transferee
obtains the right to pledge or exchange the assets it received, and no condition both constrains
the transferee from taking advantage of its right to pledge or exchange and provides more than a
modest benefit to the transferor, and (3) the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their maturity or the ability to
unilaterally cause the holder to return specific assets. In addition, for transfers of a portion
of financial assets (for example, participations of loan receivables), the transfer must meet the
definition of a “participating interest” in order to account for the transfer as a sale. Following
are the characteristics of a “participating interest”:
| • |
Pro-rata ownership in an entire financial asset.
|
| • |
From the date of the transfer, all cash flows received from entire financial assets are
divided proportionately among the participating interest holders in an amount equal to
their share of ownership.
|
| • |
The rights of each participating interest holder have the same priority, and no
participating interest holder’s interest is subordinated to the interest of another
participating interest holder. That is, no participating interest holder is entitled to
receive cash before any other participating interest holder under its contractual rights as
a participating interest holder.
|
| • |
No party has the right to pledge or exchange the entire financial asset unless all
participating interest holders agree to pledge or exchange the entire financial asset.
|
Premises and equipment
: Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily by the straight-line method over the estimated
useful lives of the assets.
Goodwill
: The Company has recorded goodwill from the purchase of 80% of m2 Lease Funds.
The goodwill is not being amortized, but is evaluated at least annually for impairment. An
impairment charge is recognized when the calculated fair value of the reporting unit, including
goodwill, is less than its carrying amount. Based on the annual analysis completed as of July 31,
2010, the Company believes that no goodwill impairment existed.
Bank-owned life insurance
: Bank-owned life insurance is carried at cash surrender value
with increases/decreases reflected as income/expense in the statement of operations.
Prepaid FDIC insurance:
In November 2009, the FDIC adopted a final rule amending the
assessment regulations to require insured depository institutions to prepay their quarterly
risk-based assessment for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. The
payment, which was made in December 2009, was recorded as a prepaid asset and is being amortized
over the assessment period.
Restricted investment securities
: Restricted investment securities represent Federal Home
Loan Bank and Federal Reserve Bank common stock. The stock is carried at cost. These equity
securities are “restricted” in that they can only be sold back to the respective institution or
another member institution at par. Therefore, they are less liquid than other tradable equity
securities. The Company views its investment in restricted stock as a long-term investment.
Accordingly, when evaluating for impairment, the value is determined based on the ultimate recovery
of the par value, rather than recognizing temporary declines in value. There have been no
other-than-temporary write-downs recorded on these securities.
Other real estate owned
: Real estate acquired through, or in lieu of, loan foreclosures,
is held for sale and initially recorded at fair value less cost to sell, establishing a new cost
basis. Subsequent to foreclosure, valuations are periodically performed by management and the
assets are carried at the lower of carrying amount or fair value less costs to sell. Subsequent
write-downs to fair value are charged to earnings.
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Treasury stock
: Treasury stock is accounted for by the cost method, whereby shares of
common stock reacquired are recorded at their purchase price. When treasury stock is reissued, any
difference between the sales proceeds, or fair value when issued for business combinations, and the
cost is recognized as a charge or credit to additional paid-in capital.
Stock-based compensation plans:
At December 31, 2010, the Company has four stock-based
employee compensation plans, which are described more fully in Note 15.
The Company accounts for stock-based compensation with measurement of compensation cost for all
stock-based awards at fair value on the grant date and recognition of compensation over the
requisite service period for awards expected to vest.
As discussed in Note 15, during the years ended December 31, 2010, 2009, and 2008, the Company
recognized stock-based compensation expense related to stock options, stock purchases, and stock
appreciation rights of $488,112, $512,963, and $298,921, respectively. As required, management
made an estimate of expected forfeitures and is recognizing compensation costs only for those
equity awards expected to vest.
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option
grants with the following assumptions for the indicated periods:
| 2010 | 2009 | 2008 | ||||
|
|
||||||
|
Dividend yield
|
.89% to .90% | .78% to 1.04% | 0.49% to 0.68% | |||
|
Expected volatility
|
26.72% to 26.88% | 24.70% to 38.72% | 23.58% to 25.13% | |||
|
Risk-free interest rate
|
3.86% to 4.21% | 3.27% to 4.12% | 3.27% to 4.34% | |||
|
Expected life of option grants
|
6 years | 6 years | 6 years | |||
|
Weighted-average grant date fair value
|
$2.89 | $2.71 | $5.05 |
The Company also uses the Black-Scholes option pricing model to estimate the fair value of stock
purchase grants with the following assumptions for the indicated periods:
| 2010 | 2009 | 2008 | ||||
|
|
||||||
|
Dividend yield
|
.85% to .96% | .80% | 0.56% to 0.64% | |||
|
Expected volatility
|
39.56% to 56.43% | 28.80% to 34.14% | 19.40% to 23.91% | |||
|
Risk-free interest rate
|
.13% to .29% | .22% to .36% | 1.98% to 3.41% | |||
|
Expected life of option grants
|
3 to 6 months | 3 to 6 months | 3 to 6 months | |||
|
Weighted-average grant date fair value
|
$1.81 | $1.64 | $2.00 |
The fair value is amortized on a straight-line basis over the vesting periods of the grants and
will be adjusted for subsequent changes in estimated forfeitures. The expected dividend yield
assumption is based on the Company’s current expectations about its anticipated dividend policy.
Expected volatility is based on historical volatility of the Company’s common stock price. The
risk-free interest rate for periods within the contractual life of the option is based on the U.S.
Treasury yield curve in effect at the time of the grant. The expected life of grants is derived
using the “simplified” method and represents the period of time that options are expected to be
outstanding. Historical data is used to estimate forfeitures used in the model. Two separate
groups of employees (employees subject to broad based grants, and executive employees and
directors) are used.
As of December 31, 2010, there was $412,234 of unrecognized compensation cost related to share
based payments, which is expected to be recognized over a weighted average period of 2.5 years.
65
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
The aggregate intrinsic value is calculated as the difference between the exercise price of the
underlying awards and the quoted price of the Company’s common stock for the 41,990 options that
were in-the-money at December 31, 2010. The aggregate intrinsic value at December 31, 2010 was
$6,870 on both options outstanding and exercisable. During the years ended December 31, 2010 and
2008, the aggregate intrinsic value of options exercised under the Company’s stock option plans was
$16,639 and $19,352, respectively, and determined as of the date of the option exercise. No
options were exercised during 2009.
Income taxes
: The Company files its tax return on a consolidated basis with its
subsidiaries. The entities follow the direct reimbursement method of accounting for income taxes
under which income taxes or credits which result from the inclusion of the subsidiaries in the
consolidated tax return are paid to or received from the parent company.
Deferred income taxes are provided under the liability method whereby deferred tax assets are
recognized for deductible temporary differences and net operating loss and tax credit carryforwards
and deferred tax liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and liabilities and their
tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon
examination by the taxing authorities, while others are subject to uncertainty about the merits of
the position taken or the amount of the position that would be ultimately sustained. The benefit
of a tax position is recognized in the financial statements in the period during which, based on
all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any.
Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that
is more than 50 percent likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that exceeds the
amount measured as described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheet along with any associated interest and penalties that would be payable
to the taxing authorities upon examination.
Interest and penalties associated with unrecognized tax benefits are classified as additional
income taxes in the statement of income.
Trust assets
: Trust assets held by the subsidiary banks in a fiduciary, agency, or
custodial capacity for their customers, other than cash on deposit at the subsidiary banks, are not
included in the accompanying consolidated financial statements since such items are not assets of
the subsidiary banks.
Earnings per common share
: See Note 17 for a complete description and calculation of basic
and diluted earnings per common share.
Reclassifications
: Certain amounts in the prior year financial statements have been
reclassified, with no effect on net income or stockholders’ equity, to conform with the current
period presentation.
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
New accounting pronouncements
: In June 2009, FASB issued two related accounting
pronouncements changing the accounting principles and disclosures requirements related to
securitizations and special-purposed entities. Specifically, these pronouncements eliminated the
concept of a “qualifying special-purpose entity”, changed the requirements for derecognizing
financial assets and changed how a company determines when an entity is insufficiently capitalized
or is not controlled through voting (or similar rights) should be consolidated. These
pronouncements also expanded existing disclosure requirements to include more information about
transfers of financial assets, including securitization transactions, and where companies have
continuing exposure to the risks related to transferred financial assets. The Company adopted
these new pronouncements on January 1, 2010, as required. Transfers of financial assets include
participation loans/leases sold by the Company’s banking and leasing subsidiaries. For agreements
of participation loans/leases sold that contain language that fail to meet the definition of a
participating interest and /or surrender control by the selling institution, the Company is not
allowed to recognize the sale and is required to record as a secured borrowing. The adoption did
not have a material impact to the financial statements taken as a whole for the year ended December
31, 2010.
In January 2010, FASB issued ASU 2010-06,
Fair Value Measurements and Disclosures (Topic 820);
Improving Disclosures about Fair Value Measurements
. ASU 2010-06 requires new disclosures on
transfers into and out of Level 1 and 2 measurements of the fair value hierarchy and requires
separate disclosures about purchases, sales, issuances, and settlements relating to Level 3
measurements. It also clarifies existing fair value disclosures relating to the level of
disaggregation and inputs and valuation techniques used to measure fair value. It is effective for
the first reporting period (including interim periods) beginning after December 15, 2009, except
for the requirement to provide the Level 3 activity of purchase, sales, issuances, and settlements
on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. The
adoption of this pronouncement did not have a material impact on the Company’s consolidated
financial statements. The adoption of the exception is not expected to have a material impact on
the Company’s consolidated financial statements.
In January 2011, FASB issued ASU 2011-01,
Receivables (Topic 310): Deferral of the Effective Date
of Disclosures about Troubled Debt Restructurings in Update No. 2010-20
. The amendments in ASU
2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings
in ASU 2010-20,
Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
(which was adopted by the Company effective
December 31, 2010), for public entities. The delay is intended to allow the FASB time to complete
its deliberations on what constitutes a troubled debt restructuring. The effective date of the new
disclosures about troubled debt restructurings for public entities and the guidance for determining
what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance
is anticipated to be effective for interim and annual periods ending after June 15, 2011. The new
disclosures are not expected to have a material impact on the consolidated financial statements.
67
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Sale of Merchant Credit Card Acquiring Business
. On August 29, 2008, the Company’s
subsidiary, Quad City Bancard, Inc., sold its merchant credit card acquiring business for $5.2
million and recorded an after-tax gain of approximately $3.0 million. Consequently, the business
related to merchant credit card acquiring has been accounted for as discontinued operations. The
assets and liabilities related to the merchant credit card acquiring business were not significant
as of December 31, 2008.
The results from discontinued operations of the merchant credit card acquiring business for the
year ending December 31, 2008 is presented in the following table. There was no 2010 or 2009
activity.
| 2008 | ||||
|
|
||||
|
Credit card fees, net of processing costs
|
$ | 693,445 | ||
|
Non-interest expense
|
332,285 | |||
|
|
||||
|
Income from discontinued operations,
excluding gain on sale, before income taxes
|
$ | 361,160 | ||
|
Gain on sale of discontinued operations
before income taxes
|
4,645,213 | |||
|
|
||||
|
Income from discontinued operations,
before income taxes
|
$ | 5,006,373 | ||
|
Income tax expense
|
1,775,716 | |||
|
|
||||
|
Income from discontinued operations, net of taxes
|
$ | 3,230,657 | ||
|
|
||||
Sale of First Wisconsin Bank & Trust
. On December 31, 2008, the Company sold First
Wisconsin Bank & Trust, its wholly-owned commercial banking subsidiary which served the Milwaukee,
Wisconsin market. The transaction involved the sale of 100% of the stock of First Wisconsin Bank &
Trust for $13.7 million and resulted in a pre-tax gain on sale of approximately $495,000. The
activity related to First Wisconsin Bank & Trust is accounted for as discontinued operations.
The assets and liabilities of First Wisconsin Bank & Trust as of December 31, 2008 are presented as
a supplemental disclosure in the Consolidated Statement of Cash Flows.
The results from discontinued operations of First Wisconsin Bank & Trust for the year ending
December 31, 2008 is presented in the following table. There was no 2010 or 2009 activity.
| 2008 | ||||
|
|
||||
|
Interest income
|
$ | 5,292,678 | ||
|
Interest expense
|
2,853,182 | |||
|
|
||||
|
Net interest income
|
2,439,496 | |||
|
Provision for loan losses
|
1,699,112 | |||
|
|
||||
|
Net interest income after provision for loan losses
|
740,384 | |||
|
Noninterest income
|
515,432 | |||
|
Noninterest expense
|
4,177,187 | |||
|
|
||||
|
Loss from discontinued operations,
excluding gain on sale, before income taxes
|
(2,921,371 | ) | ||
|
Gain on sale of discontinued operations before
income taxes
|
494,664 | |||
|
|
||||
|
|
(2,426,707 | ) | ||
|
Income tax benefit
|
(930,281 | ) | ||
|
|
||||
|
Loss from discontinued operations, net of taxes
|
$ | (1,496,426 | ) | |
|
|
||||
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Comprehensive income (loss) is the total of net income and other comprehensive income (loss), which
for the Company is comprised entirely of unrealized gains and losses on securities available for
sale.
Other comprehensive income (loss) for the years ended December 31, 2010, 2009, and 2008 is
comprised as follows:
| Tax | ||||||||||||
| Before | Expense | Net | ||||||||||
| Tax | (Benefit) | of Tax | ||||||||||
|
|
||||||||||||
|
Year ended December 31, 2010:
|
||||||||||||
|
Unrealized gains on securities available for sale:
|
||||||||||||
|
Unrealized holding gains arising during the period
|
$ | 803,133 | $ | 305,140 | $ | 497,993 | ||||||
|
Less reclassification adjustment for losses
included in net income
|
(113,800 | ) | (43,236 | ) | (70,564 | ) | ||||||
|
|
||||||||||||
|
Other comprehensive income
|
$ | 916,933 | $ | 348,376 | $ | 568,557 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Year ended December 31, 2009:
|
||||||||||||
|
Unrealized gains (losses) on securities available for
sale:
|
||||||||||||
|
Unrealized holding (losses) arising during the
period
|
$ | (3,953,187 | ) | $ | (1,293,749 | ) | $ | (2,659,438 | ) | |||
|
Less reclassification adjustment for net gains
included in net income
|
1,282,022 | 448,708 | 833,314 | |||||||||
|
|
||||||||||||
|
Other comprehensive loss
|
$ | (5,235,209 | ) | $ | (1,742,457 | ) | $ | (3,492,752 | ) | |||
|
|
||||||||||||
|
|
||||||||||||
|
Year ended December 31, 2008:
|
||||||||||||
|
Unrealized gains on securities available for sale:
|
||||||||||||
|
Unrealized holding gains arising during the period
|
$ | 1,100,541 | $ | 154,046 | $ | 946,495 | ||||||
|
Less reclassification adjustment for gains
included in net income
|
199,500 | 69,825 | 129,675 | |||||||||
|
|
||||||||||||
|
Other comprehensive income
|
$ | 901,041 | $ | 84,221 | $ | 816,820 | ||||||
|
|
||||||||||||
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The amortized cost and fair value of investment securities as of December 31, 2010 and 2009 are
summarized as follows:
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | (Losses) | Value | |||||||||||||
|
December 31, 2010:
|
||||||||||||||||
|
Securities held to maturity,
other bonds
|
$ | 300,000 | $ | — | $ | — | $ | 300,000 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Securities available for sale:
|
||||||||||||||||
|
U.S. govt. sponsored
agency securities
|
$ | 401,711,432 | $ | 3,218,843 | $ | (2,704,919 | ) | $ | 402,225,356 | |||||||
|
Municipal securities
|
20,134,611 | 579,215 | (110,346 | ) | 20,603,480 | |||||||||||
|
Residential
mortgage-backed
securities
|
64,912 | 5,526 | — | 70,438 | ||||||||||||
|
Trust preferred securities
|
86,200 | — | (8,200 | ) | 78,000 | |||||||||||
|
Other securities
|
1,414,661 | 168,331 | (13,499 | ) | 1,569,493 | |||||||||||
|
|
||||||||||||||||
|
|
$ | 423,411,816 | $ | 3,971,915 | $ | (2,836,964 | ) | $ | 424,546,767 | |||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
December 31, 2009:
|
||||||||||||||||
|
Securities held to maturity,
other bonds
|
$ | 350,000 | $ | — | $ | — | $ | 350,000 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Securities available for sale:
|
||||||||||||||||
|
U.S. govt. sponsored
agency securities
|
$ | 345,623,347 | $ | 1,525,150 | $ | (2,124,049 | ) | $ | 345,024,448 | |||||||
|
Municipal securities
|
22,005,875 | 922,942 | (79,025 | ) | 22,849,792 | |||||||||||
|
Residential
mortgage-backed
securities
|
481,460 | 14,847 | — | 496,307 | ||||||||||||
|
Trust preferred securities
|
200,000 | — | (100,800 | ) | 99,200 | |||||||||||
|
Other securities
|
1,641,759 | 66,737 | (7,784 | ) | 1,700,712 | |||||||||||
|
|
||||||||||||||||
|
|
$ | 369,952,441 | $ | 2,529,676 | $ | (2,311,658 | ) | $ | 370,170,459 | |||||||
|
|
||||||||||||||||
70
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 4. Investment Securities (Continued)
Gross unrealized losses and fair value, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, as of December 31, 2010
and 2009, are summarized as follows:
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
|
December 31, 2010:
|
||||||||||||||||||||||||
|
Securities available
for sale:
|
||||||||||||||||||||||||
|
U.S. govt. sponsored
agency securities
|
$ | 159,302,061 | $ | (2,704,919 | ) | $ | — | $ | — | $ | 159,302,061 | $ | (2,704,919 | ) | ||||||||||
|
Municipal securities
|
4,333,786 | (47,884 | ) | 678,378 | (62,462 | ) | 5,012,164 | (110,346 | ) | |||||||||||||||
|
Trust preferred
securities
|
86,200 | (8,200 | ) | — | — | 86,200 | (8,200 | ) | ||||||||||||||||
|
Other securities
|
226,250 | (12,671 | ) | 2,872 | (828 | ) | 229,122 | (13,499 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 163,948,297 | $ | (2,773,674 | ) | $ | 681,250 | $ | (63,290 | ) | $ | 164,629,547 | $ | (2,836,964 | ) | |||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
December 31, 2009:
|
||||||||||||||||||||||||
|
Securities available
for sale:
|
||||||||||||||||||||||||
|
U.S. govt. sponsored
agency securities
|
$ | 172,292,005 | $ | (2,001,229 | ) | $ | 2,877,180 | $ | (122,820 | ) | $ | 175,169,185 | $ | (2,124,049 | ) | |||||||||
|
Municipal securities
|
2,629,191 | (40,245 | ) | 1,086,919 | (38,780 | ) | 3,716,110 | (79,025 | ) | |||||||||||||||
|
Trust preferred
securities
|
— | — | 99,200 | (100,800 | ) | 99,200 | (100,800 | ) | ||||||||||||||||
|
Other securities
|
32,179 | (5,926 | ) | 1,842 | (1,858 | ) | 34,021 | (7,784 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 174,953,375 | $ | (2,047,400 | ) | $ | 4,065,141 | $ | (264,258 | ) | $ | 179,018,516 | $ | (2,311,658 | ) | |||||||||
|
|
||||||||||||||||||||||||
At December 31, 2010, the investment portfolio included 323 securities. Of this number, 102
securities have current unrealized losses with aggregate depreciation of less than 2% from the
amortized cost basis. Of these 102, 4 have had unrealized losses for twelve months or more. All
of the debt securities in unrealized loss positions are considered acceptable credit risks. Based
upon an evaluation of the available evidence, including the recent changes in market rates, credit
rating information and information obtained from regulatory filings, management believes the
declines in fair value for these debt securities are temporary. In addition, the Company does not
intend to sell these securities and/or it is not more-likely-than-not that the Company will be
required to sell these debt securities before their anticipated recovery. At December 31, 2010 and
2009, the Company’s equity securities represent less than 1% of the total portfolio.
71
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
For the year ended December 31, 2010, the Company’s evaluation determined the decline in fair value
for one individual issue trust preferred security was other-than-temporary. As a result, the
Company wrote down the value of this security and recognized a loss in the amount of $113,800. The
Company does not have any other investments in trust preferred securities. The Company did not
recognize other-than-temporary impairment on any debt securities for the year ended December 31,
2009 and 2008.
The Company did not recognize other-than-temporary impairment on any equity securities for the
years ended December 31, 2010 and 2008.
For the year ended December 31, 2009, the Company’s evaluation determined that 11 publicly-traded
equity securities experienced declines in fair value that were other-than-temporary. As a result,
the Company wrote down the value of these securities and recognized losses in the amount of
$206,369.
All sales of securities, as applicable, for the years ended December 31, 2010, 2009 and 2008,
respectively, were from securities identified as available for sale. Information on proceeds
received, as well as the gains from the sale of those securities is as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Proceeds from sales of securities
|
$ | — | $ | 25,966,885 | $ | 285,000 | ||||||
|
Gross gains from sales of
securities
|
— | 1,488,391 | 199,500 | |||||||||
The amortized cost and fair value of securities as of December 31, 2010, by contractual
maturity are shown below. Expected maturities of mortgage-backed securities may differ from
contractual maturities because the mortgages underlying the mortgage-backed securities may be
called or prepaid without any penalties. Therefore, these securities are not included in the
maturity categories in the following summary. Other securities are excluded from the maturity
categories as there is no fixed maturity date.
| Amortized | ||||||||
| Cost | Fair Value | |||||||
|
Securities held to maturity:
|
||||||||
|
Due in one year or less
|
$ | 100,000 | $ | 100,000 | ||||
|
Due after one year through five years
|
150,000 | 150,000 | ||||||
|
Due after five years
|
50,000 | 50,000 | ||||||
|
|
||||||||
|
|
$ | 300,000 | $ | 300,000 | ||||
|
|
||||||||
|
|
||||||||
|
Securities available for sale:
|
||||||||
|
Due in one year or less
|
$ | 13,261,194 | $ | 13,324,629 | ||||
|
Due after one year through five years
|
79,615,491 | 79,961,562 | ||||||
|
Due after five years
|
329,055,558 | 329,620,645 | ||||||
|
|
||||||||
|
|
$ | 421,932,243 | $ | 422,906,836 | ||||
|
Residential mortgage-backed securities
|
64,912 | 70,438 | ||||||
|
Other securities
|
1,414,661 | 1,569,493 | ||||||
|
|
||||||||
|
|
$ | 423,411,816 | $ | 424,546,767 | ||||
|
|
||||||||
As of December 31, 2010 and 2009, investment securities with a carrying value of $401,044,051 and
$365,266,357, respectively, were pledged on Federal Home Loan Bank advances, customer and wholesale
repurchase agreements, and for other purposes as required or permitted by law.
72
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The composition of the loan/lease portfolio as of December 31, 2010 and 2009 is presented as
follows:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Commercial and industrial loans
|
$ | 365,625,271 | $ | 441,535,998 | ||||
|
Commercial real estate loans
|
553,717,264 | 556,006,759 | ||||||
|
Direct financing leases *
|
83,009,647 | 90,058,839 | ||||||
|
Residential real estate loans **
|
82,196,622 | 70,608,131 | ||||||
|
Installment and other consumer loans
|
86,239,944 | 84,270,687 | ||||||
|
|
||||||||
|
|
1,170,788,748 | 1,242,480,414 | ||||||
|
Plus deferred loan/lease orgination costs, net of fees
|
1,749,855 | 1,839,152 | ||||||
|
|
||||||||
|
|
1,172,538,603 | 1,244,319,566 | ||||||
|
Less allowance for estimated losses on loans/leases
|
(20,364,656 | ) | (22,504,734 | ) | ||||
|
|
||||||||
|
|
$ | 1,152,173,947 | $ | 1,221,814,832 | ||||
|
|
||||||||
|
|
||||||||
|
* Direct financing leases:
|
||||||||
|
Net minimum lease payments to be received
|
$ | 94,921,417 | $ | 103,596,980 | ||||
|
Estimated unguaranteed residual values of leases
assets
|
1,204,865 | 2,100,265 | ||||||
|
Unearned lease/residual income
|
(13,116,635 | ) | (15,638,406 | ) | ||||
|
|
||||||||
|
|
83,009,647 | 90,058,839 | ||||||
|
Plus deferred lease origination costs, net of fees
|
2,341,628 | 2,206,748 | ||||||
|
|
||||||||
|
|
85,351,275 | 92,265,587 | ||||||
|
Less allowance for estimated losses on leases
|
(1,530,572 | ) | (1,681,377 | ) | ||||
|
|
||||||||
|
|
$ | 83,820,703 | $ | 90,584,210 | ||||
|
|
||||||||
Management performs an evaluation of the estimated unguaranteed residual values of leased
assets on an annual basis, at a minimum. The evaluation consists of discussions with reputable and
current vendors and management’s expertise and understanding of the current states of particular
industries to determine informal valuations of the equipment. As necessary and where available,
management will utilize valuations by independent appraisers. The large majority of leases with
residual values contain a lease options rider which requires the lessee to pay the residual value
directly, finance the payment of the residual value, or extend the lease term to pay the residual
value. In these cases, the residual value is protected and the risk of loss is minimal.
For the year ended December 31, 2010, the Company recognized losses totaling $617,000 in residual
values for two direct financing equipment leases. There were no losses during the years ended
December 31, 2009 and 2008. At December 31, 2010, the Company had 54 leases remaining with
residual values totaling $1,204,865 that were not protected with a lease end options rider. At
December 31, 2009, the Company had 61 leases with residual values totaling $2,100,265 that were not
protected with a lease end options rider. Management has performed specific evaluations of these
residual values and determined that the valuations are appropriate.
| ** |
Includes residential real estate loans held for sale totaling $14,084,859 and $6,135,130 as of
December 31, 2010 and 2009, respectively.
|
73
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 5. Loans/Leases Receivable (Continued)
Nonperforming loans/leases, in aggregate, as of December 31, 2010 and 2009 is presented as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
Nonaccrual loans/leases *
|
$ | 37,426,609 | $ | 28,741,799 | ||||
|
Accruing loans/leases past due 90 days or more
|
319,836 | 88,563 | ||||||
|
Troubled debt restructures — accruing
|
3,405,446 | 1,201,330 | ||||||
|
|
||||||||
|
|
$ | 41,151,891 | $ | 30,031,692 | ||||
|
|
||||||||
| * |
Nonaccrual loans/leases includes $12,631,343 of troubled debt restructures as of December 31,
2010. There were no troubled debt restructures on nonaccrual as of December 31, 2009.
|
The aging of the loan/lease portfolio by classes of loans/leases as of December 31, 2010 is
presented as follows:
| Accruing Past | ||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | Due 90 Days or | Nonaccrual | |||||||||||||||||||||
| Classes of Loans/Leases | Current | Past Due | Past Due | More | Loans/Leases | Total | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Commercial and Industrial
|
$ | 353,437,063 | $ | 300,224 | $ | 203,722 | $ | — | $ | 11,684,262 | $ | 365,625,271 | ||||||||||||
|
Commercial Real Estate
|
||||||||||||||||||||||||
|
Owner-Occupied Commercial Real Estate
|
139,880,634 | 236,910 | — | 103,015 | 1,190,468 | 141,411,027 | ||||||||||||||||||
|
Commercial Construction, Land Development, and
Other Land
|
55,552,352 | 746,545 | — | — | 9,230,161 | 65,529,058 | ||||||||||||||||||
|
Other Non Owner-Occupied Commercial Real Estate
|
335,171,858 | 275,000 | 546,019 | 70,125 | 10,714,177 | 346,777,179 | ||||||||||||||||||
|
Direct Financing Leases
|
79,708,979 | 1,605,836 | 92,244 | — | 1,602,588 | 83,009,647 | ||||||||||||||||||
|
Residential Real Estate
|
79,910,279 | 876,509 | — | 123,557 | 1,286,277 | 82,196,622 | ||||||||||||||||||
|
Installment and Other Consumer
|
84,214,010 | 101,770 | 182,349 | 23,139 | 1,718,676 | 86,239,944 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 1,127,875,175 | $ | 4,142,794 | $ | 1,024,334 | $ | 319,836 | $ | 37,426,609 | $ | 1,170,788,748 | ||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
As a percentage of total loan/lease portfolio
|
96.33 | % | 0.35 | % | 0.09 | % | 0.03 | % | 3.20 | % | 100.00 | % | ||||||||||||
Nonperforming loans/leases by classes of loans/leases as of December 31, 2010 is presented as
follows:
| Percentage of | ||||||||||||||||||||
| Accruing Past | Nonaccrual | Troubled Debt | Total | Total | ||||||||||||||||
| Due 90 Days or | Loans/Leases | Restructures - | Nonperforming | Nonperforming | ||||||||||||||||
| Classes of Loans/Leases | More | ** | Accruing | Loans/Leases | Loans/Leases | |||||||||||||||
|
|
||||||||||||||||||||
|
Commercial and Industrial
|
$ | — | $ | 11,684,262 | $ | 180,228 | $ | 11,864,490 | 28.83 | % | ||||||||||
|
Commercial Real Estate
|
||||||||||||||||||||
|
Owner-Occupied Commercial Real Estate
|
103,015 | 1,190,468 | — | 1,293,483 | 3.14 | % | ||||||||||||||
|
Commercial Construction, Land Development, and
Other Land
|
— | 9,230,161 | 961,879 | 10,192,040 | 24.77 | % | ||||||||||||||
|
Other Non Owner-Occupied Commercial Real Estate
|
70,125 | 10,714,177 | 2,100,837 | 12,885,139 | 31.31 | % | ||||||||||||||
|
Direct Financing Leases
|
— | 1,602,588 | 162,502 | 1,765,090 | 4.29 | % | ||||||||||||||
|
Residential Real Estate
|
123,557 | 1,286,277 | — | 1,409,834 | 3.43 | % | ||||||||||||||
|
Installment and Other Consumer
|
23,139 | 1,718,676 | — | 1,741,815 | 4.23 | % | ||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 319,836 | $ | 37,426,609 | $ | 3,405,446 | $ | 41,151,891 | 100.00 | % | ||||||||||
|
|
||||||||||||||||||||
| ** |
Nonaccrual loans/leases includes $12,631,343 of troubled debt restructures, including
$2,200,986 in commercial and industrial loans and $9,407,276 in commercial real estate.
|
74
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 5. Loans/Leases Receivable (Continued)
Changes in the allowance for estimated losses on loans/leases in aggregate for the years ended
December 31, 2010, 2009, and 2008 are presented as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Balance, beginning
|
$ | 22,504,734 | $ | 17,809,170 | $ | 11,315,253 | ||||||
|
Provisions charged to expense
|
7,463,618 | 16,975,517 | 9,221,670 | |||||||||
|
Loans/leases charged off
|
(10,700,276 | ) | (14,007,019 | ) | (3,684,889 | ) | ||||||
|
Recoveries on loans/leases
previously charged off
|
1,096,580 | 1,727,066 | 957,136 | |||||||||
|
|
||||||||||||
|
Balance, ending
|
$ | 20,364,656 | $ | 22,504,734 | $ | 17,809,170 | ||||||
|
|
||||||||||||
The allowance for estimated losses on loans/leases by impairment evaluation and by portfolio
segment as of December 31, 2010 is presented as follows:
| Commercial and | Commercial Real | Direct Financing | Residential Real | Installment and | ||||||||||||||||||||
| Industrial | Estate | Leases | Estate | Other Consumer | Total | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Allowance for loans/leases individually evaluated for impairment
|
$ | 3,331,437 | $ | 3,709,177 | $ | 335,000 | $ | 27,355 | $ | 49,777 | $ | 7,452,746 | ||||||||||||
|
Allowance for loans/leases collectively evaluated for impairment
|
4,217,485 | 5,378,138 | 1,195,572 | 720,673 | 1,400,042 | 12,911,910 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 7,548,922 | $ | 9,087,315 | $ | 1,530,572 | $ | 748,028 | $ | 1,449,819 | $ | 20,364,656 | ||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Loans/leases individually evaluated for impairment
|
$ | 8,824,670 | $ | 24,770,032 | $ | 1,765,090 | $ | 1,286,277 | $ | 1,611,098 | $ | 38,257,167 | ||||||||||||
|
Loans/leases collectively evaluated for impairment
|
356,800,601 | 528,947,232 | 81,244,557 | 80,910,345 | 84,628,846 | 1,132,531,581 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 365,625,271 | $ | 553,717,264 | $ | 83,009,647 | $ | 82,196,622 | $ | 86,239,944 | $ | 1,170,788,748 | ||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Allowance as a percentage of loans/leases individually
evaluated for impairment
|
37.75 | % | 14.97 | % | 18.98 | % | 2.13 | % | 3.09 | % | 19.48 | % | ||||||||||||
|
Allowance as a percentage of loans/leases collectively
evaluated for impairment
|
1.18 | % | 1.02 | % | 1.47 | % | 0.89 | % | 1.65 | % | 1.14 | % | ||||||||||||
|
|
||||||||||||||||||||||||
|
|
2.06 | % | 1.64 | % | 1.84 | % | 0.91 | % | 1.68 | % | 1.74 | % | ||||||||||||
|
|
||||||||||||||||||||||||
Loans/leases, in aggregate, considered to be impaired as of December 31, 2010, 2009 and 2008
are as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Impaired loans/leases for which an allowance has been provided
|
$ | 27,361,493 | $ | 21,874,214 | $ | 15,768,281 | ||||||
|
|
||||||||||||
|
Allowance provided for impaired loans/leases, included
in the allowance for estimated losses on loans/leases
|
$ | 7,452,746 | $ | 5,549,444 | $ | 5,291,743 | ||||||
|
|
||||||||||||
|
Impaired loans/leases for which no allowance has been provided
|
$ | 10,895,674 | $ | 4,052,593 | $ | 2,517,574 | ||||||
|
|
||||||||||||
75
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 5. Loans/Leases Receivable (Continued)
The following summarizes additional information regarding impaired loans/leases, in aggregate:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Average recorded investment in impaired
loans/leases
for the years ended
|
$ | 34,844,533 | $ | 24,185,391 | $ | 9,110,972 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Interest income on impaired loans/leases recognized
for the years ended
|
$ | 343,644 | $ | 124,499 | $ | 11,230 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Interest income on impaired loans/leases recognized
for cash payments received for the years ended
|
$ | 343,644 | $ | 124,499 | $ | 11,230 | ||||||
|
|
||||||||||||
76
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 5. Loans/Leases Receivable (Continued)
Loans/leases, by classes of financing receivable, considered to be impaired as of December 31, 2010
is presented as follows:
| Unpaid | ||||||||||||
| Recorded | Principal | Related | ||||||||||
| Classes of Loans/Leases | Investment | Balance | Allowance | |||||||||
|
|
||||||||||||
|
Impaired Loans/Leases with No Specific Allowance Recorded:
|
||||||||||||
|
Commercial and Industrial
|
$ | 1,459,790 | $ | 3,350,036 | $ | — | ||||||
|
Commercial Real Estate
|
||||||||||||
|
Owner-Occupied Commercial Real Estate
|
681,727 | 681,727 | — | |||||||||
|
Commercial Construction, Land Development, and
Other Land
|
2,538,621 | 2,872,083 | — | |||||||||
|
Other Non Owner-Occupied Commercial Real Estate
|
2,942,189 | 3,792,226 | — | |||||||||
|
Direct Financing Leases
|
953,994 | 953,994 | — | |||||||||
|
Residential Real Estate
|
758,031 | 758,031 | — | |||||||||
|
Installment and Other Consumer
|
1,561,322 | 1,561,322 | — | |||||||||
|
|
||||||||||||
|
|
$ | 10,895,674 | $ | 13,969,419 | $ | — | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Impaired Loans/Leases with Specific Allowance Recorded:
|
||||||||||||
|
Commercial and Industrial
|
$ | 7,364,880 | $ | 7,866,634 | $ | 3,331,436 | ||||||
|
Commercial Real Estate
|
||||||||||||
|
Owner-Occupied Commercial Real Estate
|
1,074,210 | 1,074,210 | 232,194 | |||||||||
|
Commercial Construction, Land Development, and
Other Land
|
7,660,458 | 7,660,458 | 1,818,193 | |||||||||
|
Other Non Owner-Occupied Commercial Real Estate
|
9,872,826 | 10,091,777 | 1,658,791 | |||||||||
|
Direct Financing Leases
|
811,096 | 811,096 | 335,000 | |||||||||
|
Residential Real Estate
|
528,246 | 528,246 | 27,355 | |||||||||
|
Installment and Other Consumer
|
49,777 | 49,777 | 49,777 | |||||||||
|
|
||||||||||||
|
|
$ | 27,361,493 | $ | 28,082,198 | $ | 7,452,746 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total Impaired Loans/Leases:
|
||||||||||||
|
Commercial and Industrial
|
$ | 8,824,670 | $ | 11,216,670 | $ | 3,331,436 | ||||||
|
Commercial Real Estate
|
||||||||||||
|
Owner-Occupied Commercial Real Estate
|
1,755,937 | 1,755,937 | 232,194 | |||||||||
|
Commercial Construction, Land Development, and
Other Land
|
10,199,079 | 10,532,541 | 1,818,193 | |||||||||
|
Other Non Owner-Occupied Commercial Real Estate
|
12,815,015 | 13,884,003 | 1,658,791 | |||||||||
|
Direct Financing Leases
|
1,765,090 | 1,765,090 | 335,000 | |||||||||
|
Residential Real Estate
|
1,286,277 | 1,286,277 | 27,355 | |||||||||
|
Installment and Other Consumer
|
1,611,099 | 1,611,099 | 49,777 | |||||||||
|
|
||||||||||||
|
|
$ | 38,257,167 | $ | 42,051,617 | $ | 7,452,746 | ||||||
|
|
||||||||||||
Impaired loans/leases for which no allowance has been provided have adequate collateral, based
on management’s current estimates.
77
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 5. Loans/Leases Receivable (Continued)
For each class of financing receivable, the following presents the recorded investment by credit
quality indicator as of December 31, 2010:
| Commercial Real Estate | ||||||||||||||||||||
| Non Owner-Occupied | ||||||||||||||||||||
| Commercial | ||||||||||||||||||||
| Owner- | Construction, | |||||||||||||||||||
| Occupied | Land | |||||||||||||||||||
| Commercial and | Commercial | Development, | Other Commercial | |||||||||||||||||
| Internally Assigned Risk Rating | Industrial | Real Estate | and Other Land | Real Estate | Total | |||||||||||||||
|
|
||||||||||||||||||||
|
Pass (Ratings 1 through 4)
|
$ | 260,934,236 | $ | 94,113,633 | $ | 30,403,459 | $ | 213,272,978 | $ | 598,724,306 | ||||||||||
|
Early Warning (Rating 5)
|
66,941,650 | 26,157,874 | 13,478,102 | 95,358,510 | 201,936,136 | |||||||||||||||
|
Special Mention (Rating 6)
|
10,457,805 | 7,510,519 | 10,338,187 | 15,244,142 | 43,550,653 | |||||||||||||||
|
Substandard (Rating 7)
|
27,270,474 | 13,629,001 | 11,309,310 | 22,901,549 | 75,110,334 | |||||||||||||||
|
Doubtful (Rating 8)
|
21,106 | — | — | — | 21,106 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 365,625,271 | $ | 141,411,027 | $ | 65,529,058 | $ | 346,777,179 | $ | 919,342,535 | ||||||||||
|
|
||||||||||||||||||||
| As of December 31, 2010 | ||||||||||||||||
| Direct | Installment and | |||||||||||||||
| Financing | Residential | Other | ||||||||||||||
| Delinquency Status* | Leases | Real Estate | Consumer | Total | ||||||||||||
|
|
||||||||||||||||
|
Performing
|
$ | 81,244,557 | $ | 80,786,788 | $ | 84,498,129 | $ | 246,529,474 | ||||||||
|
Nonperforming
|
1,765,090 | 1,409,834 | 1,741,815 | 4,916,739 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 83,009,647 | $ | 82,196,622 | $ | 86,239,944 | $ | 251,446,213 | ||||||||
|
|
||||||||||||||||
|
|
||
| * |
Performing = loans/leases accruing and less than
90 days past due.
Nonperforming = loans/leases on nonaccrual or accruing loans/leases that are greater than or
equal to 90 days past due.
|
For commercial and industrial and commercial real estate loans, the Company’s credit quality
indicator is internally assigned risk ratings. Each commercial loan is assigned a risk rating upon
origination. The risk rating is reviewed every 15 months, at a minimum, and on as needed basis
depending on the specific circumstances of the loan. See Note 1 for further discussion on the
Company’s risk ratings.
For direct financing leases, residential real estate loans, and installment and other consumer
loans, the Company’s credit quality indicator is performance determined by delinquency status.
Delinquency status is updated daily by the Company’s loan system.
78
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Loans are made in the normal course of business to directors, executive officers, and their related
interests. The terms of these loans, including interest rates and collateral, are similar to those
prevailing for comparable transactions with other persons. An analysis of the changes in the
aggregate committed amount of loans greater than or equal to $60,000 during the years ended
December 31, 2010, 2009, and 2008, was as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Balance, beginning
|
$ | 25,532,422 | $ | 26,400,842 | $ | 21,327,609 | ||||||
|
Net (decrease) increase
due to change in
related parties
|
(9,306,435 | ) | (47,727 | ) | (3,798,611 | ) | ||||||
|
Advances
|
13,576,200 | 5,451,123 | 20,948,422 | |||||||||
|
Repayments
|
(9,005,760 | ) | (6,271,816 | ) | (12,076,578 | ) | ||||||
|
|
||||||||||||
|
Balance, ending
|
$ | 20,796,427 | $ | 25,532,422 | $ | 26,400,842 | ||||||
|
|
||||||||||||
The Company’s loan portfolio includes a geographic concentration in the Midwest.
Additionally, the loan portfolio includes a concentration of loans in certain industries as of
December 31, 2010 as follows:
| Industry Name | Balance | |||
|
|
||||
|
Lessors of Non-Residential Buildings
|
$ | 154,426,911 | ||
|
Lessors of Residential Buildings
|
52,582,470 | |||
|
Bank Holding Companies
|
42,148,505 | |||
79
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The following summarizes the components of premises and equipment as of December 31, 2010 and 2009:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Land
|
$ | 5,525,022 | $ | 5,525,022 | ||||
|
Buildings (useful lives 15 to 50 years)
|
27,292,176 | 26,384,243 | ||||||
|
Furniture and equipment (useful lives 3 to 10
years)
|
19,197,666 | 17,959,643 | ||||||
|
|
||||||||
|
|
52,014,864 | 49,868,908 | ||||||
|
Less accumulated depreciation
|
20,896,120 | 18,414,015 | ||||||
|
|
||||||||
|
|
$ | 31,118,744 | $ | 31,454,893 | ||||
|
|
||||||||
Certain facilities are leased under operating leases. Rental expense was $464,447, $458,778,
and $510,308, for the years ended December 31, 2010, 2009, and 2008, respectively.
Future minimum rental commitments under noncancelable leases are as follows as of December 31,
2010:
| Year ending December 31: | ||||
|
2011
|
$ | 326,966 | ||
|
2012
|
327,811 | |||
|
2013
|
328,672 | |||
|
2014
|
278,181 | |||
|
2015
|
124,929 | |||
|
Thereafter
|
548,862 | |||
|
|
||||
|
|
$ | 1,935,421 | ||
|
|
||||
The aggregate amount of certificates of deposit, each with a minimum denomination of $100,000, was
$270,663,795 and $327,780,800 as of December 31, 2010 and 2009, respectively.
As of December 31, 2010, the scheduled maturities of certificates of deposit were as follows:
| Year ending December 31: | ||||
|
2011
|
$ | 281,999,885 | ||
|
2012
|
48,105,726 | |||
|
2013
|
15,047,800 | |||
|
2014
|
13,037,130 | |||
|
2015
|
19,174,568 | |||
|
|
||||
|
|
$ | 377,365,109 | ||
|
|
||||
80
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Short-term borrowings as of December 31, 2010 and 2009 are summarized as follows:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Overnight repurchase agreements with
customers
|
$ | 118,904,499 | $ | 94,089,571 | ||||
|
Federal funds purchased
|
22,250,000 | 56,810,000 | ||||||
|
|
||||||||
|
|
$ | 141,154,499 | $ | 150,899,571 | ||||
|
|
||||||||
Information concerning overnight repurchase agreements with customers is summarized as follows
as of December 31, 2010 and 2009:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Average daily balance during the period
|
$ | 108,232,012 | $ | 95,831,160 | ||||
|
Average daily interest rate during the period
|
0.41 | % | 0.62 | % | ||||
|
Maximum month-end balance during the period
|
$ | 135,143,147 | $ | 128,943,849 | ||||
|
Weighted average rate as of end of period
|
0.50 | % | 0.67 | % | ||||
|
|
||||||||
|
Securities underlying the agreements as of
end of period:
|
||||||||
|
Carrying value
|
$ | 157,042,240 | $ | 158,514,084 | ||||
|
Fair value
|
157,042,240 | 158,514,084 | ||||||
The securities underlying the agreements as of December 31, 2010 and 2009 were under the
Company’s control in safekeeping at third-party financial institutions.
Information concerning federal funds purchased is summarized as follows as of December 31, 2010 and
2009:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Average daily balance during the period
|
$ | 33,896,522 | $ | 17,754,319 | ||||
|
Average daily interest rate during the period
|
0.31 | % | 0.41 | % | ||||
|
Maximum month-end balance during the period
|
$ | 46,990,000 | $ | 57,150,000 | ||||
|
Weighted average rate as of end of period
|
0.27 | % | 0.35 | % | ||||
81
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The subsidiary banks are members of the Federal Home Loan Bank (“FHLB”) of Des Moines or Chicago.
As of December 31, 2010 and 2009, the subsidiary banks held $12,980,200 and $11,813,100,
respectively, of FHLB stock, which is included in restricted investment securities on the
consolidated balance sheet. Maturity and interest rate information on advances from FHLB as of
December 31, 2010 and 2009 is as follows:
| December 31, 2010 | ||||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Amount Due | Average | ||||||||||||||
| Interest Rate | with | Interest Rate | ||||||||||||||
| Amount Due | at Year-End | Putable Option * | at Year-End | |||||||||||||
|
Maturity:
|
||||||||||||||||
|
Year ending December 31:
|
||||||||||||||||
|
2011
|
$ | 19,000,000 | 2.99 | % | $ | 7,500,000 | 5.12 | % | ||||||||
|
2012
|
49,750,000 | 4.43 | 35,000,000 | 4.77 | ||||||||||||
|
2013
|
24,000,000 | 2.64 | 2,000,000 | 3.48 | ||||||||||||
|
2014
|
3,500,000 | 2.19 | — | — | ||||||||||||
|
2015
|
14,000,000 | 1.68 | — | — | ||||||||||||
|
Thereafter
|
128,500,000 | 4.11 | 118,500,000 | 4.13 | ||||||||||||
|
|
||||||||||||||||
|
Total FHLB
advances
|
$ | 238,750,000 | 3.84 | $ | 163,000,000 | 4.30 | ||||||||||
|
|
||||||||||||||||
| December 31, 2009 | ||||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Amount Due | Average | ||||||||||||||
| Interest Rate | with | Interest Rate | ||||||||||||||
| Amount Due | at Year-End | Putable Option * | at Year-End | |||||||||||||
|
Maturity:
|
||||||||||||||||
|
Year ending December 31:
|
||||||||||||||||
|
2010
|
$ | 8,100,000 | 5.16 | % | $ | 3,500,000 | 6.17 | % | ||||||||
|
2011
|
14,000,000 | 3.85 | 7,500,000 | 5.12 | ||||||||||||
|
2012
|
49,750,000 | 4.43 | 35,000,000 | 4.77 | ||||||||||||
|
2013
|
14,000,000 | 3.22 | 9,000,000 | 3.12 | ||||||||||||
|
2014
|
1,500,000 | 2.83 | — | — | ||||||||||||
|
Thereafter
|
128,500,000 | 4.11 | 128,500,000 | 4.11 | ||||||||||||
|
|
||||||||||||||||
|
Total FHLB
advances
|
$ | 215,850,000 | 4.14 | $ | 183,500,000 | 4.27 | ||||||||||
|
|
||||||||||||||||
| * |
Of the advances outstanding, a large portion have putable options which allow the FHLB, at
its discretion, to terminate the advances and require the subsidiary banks to repay at
predetermined dates prior to the stated maturity date of the advances.
|
Advances are collateralized by securities with a carrying value of $65,376,627 and $41,955,829 as
of December 31, 2010 and 2009, respectively, and by loans pledged of $386,087,610 and $399,879,863,
respectively, in aggregate. On pledged loans, the FHLB applies varying collateral maintenance
levels from 125% to 333% based on the loan type.
82
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Other borrowings as of December 31, 2010 and 2009 are summarized as follows:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Wholesale repurchase agreements
|
$ | 135,000,000 | $ | 135,000,000 | ||||
|
364-day revolving note
|
2,500,000 | 5,000,000 | ||||||
|
Series A subordinated notes
|
2,624,033 | — | ||||||
|
Secured borrowings — loan participations
sold
|
9,936,379 | — | ||||||
|
Other
|
10,373 | 59,841 | ||||||
|
|
||||||||
|
|
$ | 150,070,785 | $ | 140,059,841 | ||||
|
|
||||||||
Maturity and interest rate information concerning wholesale repurchase agreements is summarized as
follows:
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Interest Rate | Interest Rate | |||||||||||||||
| Amount Due | at Year-End | Amount Due | at Year-End | |||||||||||||
|
Maturity:
|
||||||||||||||||
|
Year ending December 31:
|
||||||||||||||||
|
2011
|
$ | 5,000,000 | 3.35 | % | $ | 5,000,000 | 3.35 | % | ||||||||
|
2012
|
— | — | 40,000,000 | 4.47 | ||||||||||||
|
2015
|
45,000,000 | 3.11 | — | — | ||||||||||||
|
Thereafter
|
85,000,000 | 3.76 | 90,000,000 | 3.76 | ||||||||||||
|
|
||||||||||||||||
|
Total Wholesale
Repurchase
Agreements
|
$ | 135,000,000 | 3.53 | $ | 135,000,000 | 3.96 | ||||||||||
|
|
||||||||||||||||
Each wholesale repurchase agreement has a one-time put option, at the discretion of the
counterparty, to terminate the agreement and require the subsidiary bank to repay at predetermined
dates prior to the stated maturity date of the agreement.
As of December 31, 2010 and 2009, embedded within $65,000,000 of the wholesale repurchase
agreements are interest rate cap options with varying terms. Of this $65,000,000, $35,000,000
matures in 2016 with the caps expiring in 2013 in conjunction with the one-time put option, and
$30,000,000 matures in 2019 with the caps expiring in 2014 in conjunction with the one-time put
option. The interest rate cap options are effected when the 3-month LIBOR rate increases to
certain levels. If that situation occurs, the rate paid will be decreased by the difference
between the 3-month LIBOR rate and the particular cap level. In no case will the rate paid fall
below 0.00%.
At December 31, 2009, the Company had a single $20,000,000 secured revolving credit note which
matures every 364 days. At December 31, 2009, the note carried a balance outstanding of
$5,000,000. Interest was payable monthly at the effective LIBOR rate plus 2.50% per annum, as
defined by the credit agreement. As of December 31, 2009, the interest rate on the note was 2.74%.
The note renewed on April 2, 2010. At December 31, 2010, the note carried a balance outstanding
of $2,500,000. Interest is payable monthly at the effective LIBOR rate plus 3.00% per annum, as
defined in the credit agreement. As of December 31, 2010, the interest rate on the note was 3.30%.
The current revolving note agreement contains certain covenants that place restrictions on
additional debt and stipulate minimum capital and various operating ratios.
83
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
On March 19, 2010, the Company closed a private placement offering resulting in the issuance of
2,700 units (each, a “Unit”) to accredited investors for an aggregate purchase price of $2,700,000,
or $1,000 per Unit. Each Unit consists of a 6.00% Series A Subordinated Note, due September 1,
2018 (collectively, the “Subordinated Notes”), $1,000 principal amount, and a detachable warrant
(collectively, the “Warrants”) to acquire 20 shares of the Company’s common stock, par value $1.00
per share (the “Common Stock”), at a per share exercise price equal to $10.00 per share, subject to
normal adjustments, as set forth in the Warrants.
The Subordinated Notes have a maturity date of September 1, 2018. The Subordinated Notes bear
interest payable semi-annually, in arrears, on June 30 and December 30 of each year, at a fixed
interest rate of 6.00% per year. Beginning on March 19, 2011, or any earlier date if the
Subordinated Notes cease to be deemed to be Tier 2 capital, the Company may, at its option, subject
to regulatory approvals, redeem some or all of the Subordinated Notes at a redemption price equal
to 100% of the principal amount of the redeemed notes, plus any accrued but unpaid interest.
The Warrants will expire on March 19, 2015. On or after March 19, 2011, the Warrants may be
exercised at any time prior to their expiration date, at the holder’s option, by payment of the
cash exercise price. The Company may require holders of the Warrants to convert each Warrant into
20 shares of Common Stock, if at any time after the first anniversary of their date of issuance,
the volume weighted-average per share price of the common stock equals or exceeds 130% of the
exercise price for at least 20 trading days in a period of 30 consecutive trading days. The
Warrants are detachable from the Subordinated Notes and, subject to any limitations imposed by
applicable securities laws, may be transferred separately from the Subordinated Notes at any time
after March 19, 2012.
The Subordinated Notes are intended to qualify as Tier 2 capital for regulatory purposes. The
Company used the net proceeds from the sale of the Units to further strengthen the capital
positions of the Company and specifically Rockford Bank & Trust.
As a result of the new accounting pronouncement related to transfers of financial assets, effective
January 1, 2010, the Company recorded $9,936,379 of secured borrowings and $561,053 of deferred
gains (recorded in other liabilities on the consolidated balance sheet) related to sales of the
government guaranteed portion of certain loans as of December 31, 2010. These secured borrowings
do not bear interest and will mature within 90 days of the sales in conjunction with the expiration
of the recourse period. At that time, the transfers are accounted for as sales and the gains
recognized.
Unused lines of credit of the subsidiary banks as of December 31, 2010 and 2009 are summarized as
follows:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Secured
|
$ | 55,035,769 | $ | 26,640,499 | ||||
|
Unsecured
|
98,500,000 | 108,500,000 | ||||||
|
|
||||||||
|
|
$ | 153,535,769 | $ | 135,140,499 | ||||
|
|
||||||||
The Company pledges the eligible portion of its municipal securities portfolio and select
commercial and industrial and commercial real estate loans to the Federal Reserve Bank of Chicago
for borrowing at the Discount Window.
84
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Junior subordinated debentures are summarized as of December 31, 2010 and 2009 as follows:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Note Payable to Trust II
|
$ | 12,372,000 | $ | 12,372,000 | ||||
|
Note Payable to Trust III
|
8,248,000 | 8,248,000 | ||||||
|
Note Payable to Trust IV
|
5,155,000 | 5,155,000 | ||||||
|
Note Payable to Trust V
|
10,310,000 | 10,310,000 | ||||||
|
|
||||||||
|
|
$ | 36,085,000 | $ | 36,085,000 | ||||
|
|
||||||||
A schedule of the Company’s trust preferred offerings outstanding as of December 31, 2010 and
2009, is as follows:
| Interest | Interest | |||||||||||||||||||
| Rate as | Rate as | |||||||||||||||||||
| of | of | |||||||||||||||||||
| Name | Date Issued | Amount Issued | Interest Rate | 12/31/10 | 12/31/09 | |||||||||||||||
|
|
||||||||||||||||||||
|
QCR Holdings Statutory Trust II
|
February 2004 | $ | 12,372,000 | 6.93%* | 6.93 | % | 6.93 | % | ||||||||||||
|
QCR Holdings Statutory Trust III
|
February 2004 | 8,248,000 | 2.85% over 3-month LIBOR | 3.15 | % | 3.10 | % | |||||||||||||
|
QCR Holdings Statutory Trust IV
|
May 2005 | 5,155,000 | 1.80% over 3-month LIBOR | 2.09 | % | 2.08 | % | |||||||||||||
|
QCR Holdings Statutory Trust V
|
February 2006 | 10,310,000 | 6.62%** | 6.62 | % | 6.62 | % | |||||||||||||
| * |
Rate is fixed until March 31, 2011, then becomes variable based on 3-month LIBOR plus
2.85%, reset quarterly.
|
|
| ** |
Rate is fixed until April 7, 2011, then becomes variable based on 3-month LIBOR plus 1.55%, reset
quarterly.
|
Securities issued by Trust II mature in thirty years, but are callable at par anytime after seven
years from issuance. Securities issued by Trust III, Trust IV, and Trust V mature in thirty
years, but are callable at par anytime after five years from issuance.
85
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Preferred stock is summarized as of December 31, 2010 and 2009 as follows:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Series B Non-Cumulative Perpetual Preferred Stock
|
$ | — | $ | 268 | ||||
|
Series C Non-Cumulative Perpetual Preferred Stock
|
— | 300 | ||||||
|
Series D Cumulative Perpetual Preferred Stock
|
38,237 | 38,237 | ||||||
|
Series E Non-Cumulative Convertible Perpetual
Preferred Stock
|
25,000 | — | ||||||
|
|
||||||||
|
|
$ | 63,237 | $ | 38,805 | ||||
|
|
||||||||
Series B Non-Cumulative Perpetual Preferred Stock
: The 268 shares of Series B
Non-Cumulative Perpetual Preferred Stock (“Series B Preferred Stock”) have a stated dividend rate
of 8.00%. Dividends are not accrued and are payable only if declared and no dividends may be
declared on the Company’s common stock unless and until dividends have been declared on the
outstanding shares of Series B Preferred Stock. The Company has the right at any time after the
first anniversary of the issuance of the shares of Series B Preferred Stock, subject to all
required regulatory approvals, to redeem all, but not less than all, of the shares then
outstanding. Any such redemption shall be made by the Company upon at least 30 days’ prior written
notice. The shares can be redeemed for an amount per share in cash which is equal to: (i) the sum
of (A) $50,000; plus (B) a premium in the amount of $4,000 multiplied by a fraction the numerator
of which is the total number of calendar days the shares being redeemed have been outstanding and
the denominator of which is 365; but (ii) less the aggregate amount of any dividends that have been
paid on the shares. The Series B Preferred Stock was not registered under the Securities Act of
1933 (the “Act”) and was issued pursuant to an exemption from registration under Regulation D of
the rules promulgated under the Act.
On June 30, 2010, the 268 shares of Series B Preferred Stock were exchanged in the issuance of
Series E Non-Cumulative Convertible Perpetual Preferred Stock (“Series E Preferred Stock”). See
below for detailed discussion of the issuance of Series E Preferred Stock.
Series C Non-Cumulative Perpetual Preferred Stock
: The 300 shares of Series C
Non-Cumulative Perpetual Preferred Stock (“Series C Preferred Stock”) have a stated dividend rate
of 9.50%. Dividends are not accrued and are payable only if declared and no dividends may be
declared on the Company’s common stock unless and until dividends have been declared on the
outstanding shares of Series C Preferred Stock. The Company has the right at any time after the
first anniversary of the issuance of the shares of Series C Preferred Stock, subject to all
required regulatory approvals, to redeem all, but not less than all, of the shares then
outstanding. Any such redemption shall be made by the Company upon at least 30 days’ prior written
notice. The shares shall be redeemed for an amount per share in cash which is equal to: (i) the
sum of (A) $25,000; plus (B) a premium in the amount of $2,375 multiplied by a fraction the
numerator of which is the total number of calendar days the shares being redeemed have been
outstanding and the denominator of which is 365; but (ii) less the aggregate amount of any
dividends that have been paid on the shares. The Series C Preferred Stock was not registered under
the Securities Act of 1933 (the “Act”) and was issued pursuant to an exemption from registration
under Regulation D of the rules promulgated under the Act.
On June 30, 2010, the 300 shares of Series C Preferred Stock were exchanged in the issuance of
Series E Preferred Stock. See below for detailed discussion of the issuance of Series E Preferred
Stock.
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12. Preferred Stock (Continued)
Series D Cumulative Perpetual Preferred Stock and Common Stock Warrant
: On February 13,
2009, the Company issued 38,237 shares of Series D Preferred Stock to the U.S. Department of the
Treasury (“Treasury”) for an aggregate purchase price of $38,237,000. The sale of Series D
Preferred Stock is a result of the Company’s participation in Treasury’s voluntary Capital Purchase
Program (“CPP”). This sale also includes the issuance of a warrant (“Warrant”) that allows
Treasury to purchase up to 521,888 shares of the Company’s common stock at an exercise price of
$10.99.
The Series D Preferred Stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of
5% per annum for the first five years, and 9% per annum thereafter. The Series D Preferred Stock
may be redeemed by the Company at any time, provided that the Company redeems at least 25 percent
of the aggregate issue price of the Series D Preferred Stock. Any redemption of the Series D
Preferred Stock will be at the per share liquidation amount of $1,000 per share, plus any accrued
and unpaid dividends.
Prior to the third anniversary of Treasury’s purchase of the Series D Preferred Stock, unless the
Series D Preferred Stock has been redeemed or Treasury has transferred all of the Series D
Preferred Stock to one or more third parties, the consent of Treasury will be required for the
Company to: (i) increase the dividend paid on its common Stock; or (ii) repurchase its common Stock
or other equity or capital securities, other than in connection with benefit plans consistent with
past practice. The Series D Preferred Stock is non-voting except for class voting rights on
matters that would adversely affect the rights of the holders of the Series D Preferred Stock.
The Warrant has a ten-year term and is immediately exercisable upon its issuance, with an exercise
price, subject to anti-dilution adjustments, equal to $10.99 per share of the Company’s common
Stock.
The Series D Preferred Stock and the Warrant were issued in a private placement exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Upon the request
of Treasury at any time, the Company has agreed to promptly enter into a deposit arrangement
pursuant to which the Series D Preferred Stock may be deposited and depositary shares representing
fractional shares of Series D Preferred Stock, may be issued. The Company has agreed to register
the Warrant and the shares of its common stock underlying the Warrant. Additionally, the Company
has also agreed to register the shares of Series D Preferred Stock upon the written request of
Treasury.
Treasury has the ability to unilaterally amend the CPP documents at any time to comply with changes
in the law, and as a result, the terms of the CPP could change.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into
law, which contains provisions that significantly impact CPP recipients both retroactively and
prospectively. Restrictions on repayment, including the Tier 1 qualified capital raise
requirement, have been removed allowing institutions to repay the CPP funds, in whole or in part,
upon consultation and approval from the Company’s primary federal banking regulator. If the
Treasury is repaid, it will liquidate the warrant it holds at the fair market value. ARRA has also
imposed more strict compensation limitations and expands the number of executives covered based
upon the amount of CPP funds received. These provisions apply to CPP recipients for all periods
the CPP capital is outstanding.
The proceeds received from the Treasury were allocated to the Series D Preferred Stock and the
Warrant based on relative fair value. The fair value of the Series D Preferred Stock was
determined through a discounted future cash flows model using a discount rate of 12%. The fair
value of the Warrant was calculated using the Black-Scholes option pricing model, which includes
assumptions regarding the Company’s dividend yield, stock price volatility, and the risk-free
interest rate. The relative fair value of the Series D Preferred Stock and the Warrant on February
13, 2009, was $35.8 million and $2.4 million, respectively.
87
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The Company calculated a discount on the Series D Preferred Stock in the amount of $2.4 million,
which is being amortized over a 5 year period. The effective cost on the Series D Preferred Stock,
including the accretion of the discount, is approximately 6.23%. In determining net income (loss)
attributable to the Company’s common stockholders, the periodic accretion and the cash dividend on
the preferred stock are subtracted from net income (loss) attributable to the Company.
Series E Non-Cumulative Convertible Perpetual Preferred Stock
: On June 30, 2010, the
Company closed a private placement offering resulting in the issuance of 25,000 shares of Series E
Preferred Stock for an aggregate purchase price of $25,000,000, or $1,000 per share (the liquidation amount). The private
placement was fully subscribed and involved the exchange of $20.9 million (gross amount before
related issuance costs) of the Company’s previously outstanding Series B and Series C Preferred
Stock and $4.1 million (gross amount before related issuance costs) of new capital from cash
investors.
The Series E Preferred Stock carries a stated dividend rate of 7.00% and is convertible by the
holder into shares of common stock at a per share conversion price of $12.15, subject to
anti-dilution adjustments upon the occurrence of certain events. In addition, the Company can
exercise a conversion option on or after the third anniversary of the issue date, at the same
$12.15 conversion price, subject to certain requirements regarding the Company’s common stock
price. The Series E Preferred Stock was not registered under the Securities Act of 1933 (the
“Act”) and was issued pursuant to an exemption from registration under Regulation D of the rules
promulgated under the Act.
The Company’s previously outstanding Series B and Series C Preferred Stock carried stated dividend
rates of 8.00% and 9.50%, respectively. All of the outstanding shares of Series B and Series C
Preferred Stock were exchanged for the newly issued shares of Series E Preferred Stock.
The Series E Preferred Stock is intended to qualify as Tier 1 capital for regulatory purposes. The
Company used the net proceeds from the issuance to further strengthen its capital and liquidity
positions.
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Federal and state income tax expense from continuing operations was comprised of the following
components for the years ended December 31, 2010, 2009, and 2008:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Current
|
$ | 1,193,245 | $ | (2,511,516 | ) | $ | 3,552,436 | |||||
|
Deferred
|
1,256,004 | 2,758,856 | (1,816,719 | ) | ||||||||
|
|
||||||||||||
|
|
$ | 2,449,249 | $ | 247,340 | $ | 1,735,717 | ||||||
|
|
||||||||||||
A reconciliation of the expected federal income tax expense to the income tax expense included
in the consolidated statements of income was as follows for the years ended December 31, 2010,
2009, and 2008:
| Years Ended December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| % of | % of | % of | ||||||||||||||||||||||
| Pretax | Pretax | Pretax | ||||||||||||||||||||||
| Amount | Income | Amount | Income | Amount | Income | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Computed “expected” tax expense
|
$ | 3,239,941 | 35.0 | % | $ | 803,660 | 35.0 | % | $ | 2,449,573 | 35.0 | % | ||||||||||||
|
Effect of graduated tax rates interest
|
(92,570 | ) | (1.0 | ) | (22,962 | ) | (1.0 | ) | (69,988 | ) | (1.0 | ) | ||||||||||||
|
Tax exempt income, net
|
(556,682 | ) | (6.0 | ) | (589,224 | ) | (25.7 | ) | (583,414 | ) | (8.4 | ) | ||||||||||||
|
Bank-owned life insurance
|
(451,457 | ) | (4.9 | ) | (421,618 | ) | (18.4 | ) | (344,724 | ) | (4.9 | ) | ||||||||||||
|
State income taxes, net of federal
benefit,
current year
|
330,917 | 3.6 | 229,531 | 10.0 | 315,475 | 4.5 | ||||||||||||||||||
|
Change in unrecognized tax benefits
|
71,671 | 0.8 | 290,454 | 12.7 | 144,293 | 2.1 | ||||||||||||||||||
|
Noncontrolling interests
|
(75,156 | ) | (0.8 | ) | (94,154 | ) | (4.1 | ) | (98,068 | ) | (1.4 | ) | ||||||||||||
|
Other
|
(17,415 | ) | (0.2 | ) | 51,653 | 2.3 | (77,430 | ) | (1.1 | ) | ||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 2,449,249 | 26.5 | % | $ | 247,340 | 10.8 | % | $ | 1,735,717 | 24.8 | % | ||||||||||||
|
|
||||||||||||||||||||||||
Changes in the unrecognized tax benefits included in liabilities are as follows for the years
ended December 31, 2010 and 2009:
| 2010 | 2009 | |||||||
|
|
||||||||
|
Balance, beginning
|
$ | 1,220,481 | $ | 1,053,951 | ||||
|
Impact of tax positions taken during current year
|
228,650 | 403,550 | ||||||
|
Gross decrease related to tax positions of prior years
|
(298,470 | ) | (9,700 | ) | ||||
|
Gross increase related to tax positions of prior years
|
37,982 | 75,272 | ||||||
|
Reduction as a result of a lapse of the applicable
statute of limitations
|
(154,618 | ) | (302,592 | ) | ||||
|
|
||||||||
|
Balance, ending
|
$ | 1,034,025 | $ | 1,220,481 | ||||
|
|
||||||||
Included in the unrecognized tax benefits liability at December 31, 2010 are potential
benefits of approximately $789,000 that, if recognized, would affect the effective tax rate.
89
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The liability for unrecognized tax benefits includes accrued interest for tax positions, which
either do not meet the more-likely-than-not recognition threshold or where the tax benefit is
measured at an amount less than the tax benefit claimed or expected to be claimed on an income tax
return. At December 31, 2010 and 2009, accrued interest on uncertain tax positions was
approximately $265,700 and $217,100, respectively. Estimated interest related to the underpayment
of income taxes is classified as a component of “income taxes” in the statements of operations and
totaled $48,600 and ($10,000) for the twelve months ended December 31, 2010 and 2009, respectively.
The Company’s federal income tax returns are open and subject to examination from the 2007 tax
return year and forward. Various state franchise and income tax returns are generally open from the
2006 and later tax return years based on individual state statute of limitations.
The net deferred tax assets included with other assets on the consolidated balance sheets consisted
of the following as of December 31, 2010 and 2009:
| 2010 | 2009 | |||||||
|
Deferred tax assets:
|
||||||||
|
Alternative minimum tax credits
|
$ | 1,325,806 | $ | 1,325,806 | ||||
|
Compensation
|
4,388,156 | 3,782,961 | ||||||
|
Loan/lease losses
|
6,505,382 | 7,646,951 | ||||||
|
Deferred loan origination fees, net
|
230,788 | 142,043 | ||||||
|
Other
|
214,181 | 225,099 | ||||||
|
|
||||||||
|
|
12,664,313 | 13,122,860 | ||||||
|
|
||||||||
|
|
||||||||
|
Deferred tax liabilities:
|
||||||||
|
Net unrealized gains on securities available for sale
|
430,786 | 82,410 | ||||||
|
Premises and equipment
|
885,228 | 1,108,361 | ||||||
|
Equipment financing leases
|
10,365,302 | 9,348,965 | ||||||
|
Investment accretion
|
43,516 | 42,939 | ||||||
|
Other
|
248,330 | 244,654 | ||||||
|
|
||||||||
|
|
11,973,162 | 10,827,329 | ||||||
|
|
||||||||
|
Net deferred tax asset
|
$ | 691,151 | $ | 2,295,531 | ||||
|
|
||||||||
The change in deferred income taxes was reflected in the consolidated financial statements as
follows for the years
ended December 31, 2010, 2009, and 2008:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Provision for income taxes
|
$ | 1,256,004 | $ | 2,758,856 | $ | (1,816,719 | ) | |||||
|
Statement of stockholders’ equity-accumulated other comprehensive income,
unrealized gains (losses) on securities
available for sale, net
|
348,376 | (1,742,457 | ) | 84,221 | ||||||||
|
|
||||||||||||
|
|
$ | 1,604,380 | $ | 1,016,399 | $ | (1,732,498 | ) | |||||
|
|
||||||||||||
90
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The Company has a profit sharing plan which includes a provision designed to qualify under Section
401(k) of the Internal Revenue Code of 1986, as amended, to allow for participant contributions.
All employees are eligible to participate in the plan. The Company matches 100% of the first 3% of
employee contributions, and 50% of the next 3% of employee contributions, up to a maximum amount of
4.5% of an employee’s compensation. Additionally, at its discretion, the Company may make
additional contributions to the plan which are allocated to the accounts of participants in the
plan based on relative compensation. Company contributions for the years ended December 31, 2010,
2009, and 2008 were as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Matching contribution
|
$ | 875,138 | $ | 856,781 | $ | 881,218 | ||||||
|
Discretionary contribution
|
99,400 | 22,212 | 77,000 | |||||||||
|
|
||||||||||||
|
|
$ | 974,538 | $ | 878,993 | $ | 958,218 | ||||||
|
|
||||||||||||
The Company has entered into nonqualified supplemental executive retirement plans (“SERPs”)
with certain executive officers. The SERPs allow certain executives to accumulate retirement
benefits beyond those provided by the qualified plans. During the years ended December 31, 2010,
2009, and 2008, the Company expensed $157,261, $340,608, and $874,240, respectively, related to
these plans. As of December 31, 2010 and 2009, the liability related to the SERPs was $2,556,955
and $2,516,694, respectively. Payments in the amount of $117,000 were made in both 2010 and 2009.
The Company has entered into deferred compensation agreements with certain executive officers.
Under the provisions of the agreements the officers may defer compensation and the Company matches
the deferral up to certain maximums. The Company’s matching contribution varies by officer and is
a maximum of between $10,000 and $20,000 annually. Interest on the deferred amounts is earned at
The Wall Street Journal
’s prime rate subject to a minimum of 6% and a maximum of 12% with
such limits differing by officer. The Company has also entered into deferred compensation
agreements with certain management officers. Under the provisions of the agreements the officers
may defer compensation and the Company matches the deferral up to certain maximums. The Company’s
matching contribution differs by officer and is a maximum between 4% and 10% of officer’s
compensation. Interest on the deferred amounts is earned at
The
Wall Street Journal
’s
prime rate plus one percentage point, and has a minimum of 4% and shall not exceed 8%. Upon
retirement, the officer will receive the deferral balance in 180 equal monthly installments. As of
December 31, 2010 and 2009, the liability related to the agreements totals $3,469,525 and
$2,734,989, respectively.
Changes in the deferred compensation agreements included in liabilities are as follows for the
years ended December 31, 2010, 2009 and 2008:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Balance, beginning
|
$ | 2,734,989 | $ | 2,931,741 | $ | 2,088,665 | ||||||
|
Company expense
|
369,950 | 474,431 | 496,043 | |||||||||
|
Employee deferrals
|
371,374 | 355,887 | 350,746 | |||||||||
|
Cash payments made
|
(6,788 | ) | (1,027,070 | ) | (3,713 | ) | ||||||
|
|
||||||||||||
|
Balance, ending
|
$ | 3,469,525 | $ | 2,734,989 | $ | 2,931,741 | ||||||
|
|
||||||||||||
91
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Stock-based compensation expense was reflected in the consolidated financial statements as follows
for the years ended December 31, 2010, 2009, and 2008.
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Stock option and incentive plans
|
$ | 475,835 | $ | 562,063 | $ | 426,765 | ||||||
|
Stock purchase plan
|
57,436 | 47,650 | 48,355 | |||||||||
|
Stock appreciation rights
|
(45,159 | ) | (96,750 | ) | (176,199 | ) | ||||||
|
|
||||||||||||
|
|
$ | 488,112 | $ | 512,963 | $ | 298,921 | ||||||
|
|
||||||||||||
Stock option and incentive plans:
The Company’s Board of Directors and its stockholders adopted in June 1993 the QCR Holdings, Inc.
Stock Option Plan (“Stock Option Plan”). Up to 225,000 shares of common stock may be issued to
employees and directors of the Company and its subsidiaries pursuant to the exercise of incentive
stock options or nonqualified stock options granted under the Stock Option Plan. All of the
options have been granted under this plan, and on June 30, 2003, the plan expired. The Company’s
Board of Directors adopted in November 1996 the QCR Holdings, Inc. 1997 Stock Incentive Plan (“1997
Stock Incentive Plan”). Up to 225,000 shares of common stock may be issued to employees and
directors of the Company and its subsidiaries pursuant to the exercise of nonqualified stock
options and restricted stock granted under the 1997 Stock Incentive Plan. As of December 31, 2006,
there were no remaining options available for grant under this plan. The Company’s Board of
Directors adopted in January 2004, and the stockholders approved in May 2004, the QCR Holdings,
Inc. 2004 Stock Incentive Plan (“2004 Stock Incentive Plan”). Up to 225,000 shares of common stock
may be issued to employees and directors of the Company and its subsidiaries pursuant to the
exercise of nonqualified stock options and restricted stock granted under the 2004 Stock Incentive
Plan. As of December 31, 2009, there were no remaining options available for grant under this
plan. The Company’s Board of Directors adopted in January 2008, and the stockholders approved in
May 2008, the QCR Holdings, Inc. 2008 Equity Incentive Plan (“2008 Equity Incentive Plan”). Up to
250,000 shares of common stock may be issued to employees and directors of the Company and its
subsidiaries pursuant to the exercise of nonqualified stock options and restricted stock granted
under the 2008 Equity Incentive Plan. As of December 31, 2010, there are 25,330 remaining options
available for grant under this plan. The Company’s Board of Directors adopted in February 2010,
and the stockholders approved in May 2010, the QCR Holdings, Inc. 2010 Equity Incentive Plan (“2010
Equity Incentive Plan”). Up to 350,000 shares of common stock may be issued to empoloyees and
directors of the Company and its subsidiaries pursuant to the exercise of the nonqualified stock
options and restricted stock granted under the 2010 Equity Incentive Plan. As of December 31,
2010, there are 350,000 remaining options available for grant under this plan. The Stock Option
Plan, the 1997 Stock Incentive Plan, the 2004 Stock Incentive Plan, the 2008 Equity Incentive Plan,
and the 2010 Equity Incentive Plan (collectively, “the stock option plans”) are administered by
the Compensation Committee appointed by the Board of Directors (the “Committee”).
The number and exercise price of options granted under the stock option plans is determined by the
Committee at the time the option is granted. In no event can the exercise price be less than the
value of the common stock at the date of the grant for incentive stock options. All options have a
10-year life and will vest and become exercisable from 1-to-5 years after the date of the grant.
Only nonqualified stock options have been issued to date.
92
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 15. Stock-Based Compensation (Continued)
In the case of nonqualified stock options, the stock option plans provide for the granting of “Tax
Benefit Rights” to certain participants at the same time as these participants are awarded
nonqualified options. Each Tax Benefit Right entitles a participant to a cash payment, which is
expensed by the Company, equal to the excess of the fair market value of a share of common stock on
the exercise date over the exercise price of the related option multiplied by the difference
between the rate of tax on ordinary income over the rate of tax on capital gains (federal and
state).
A summary of the stock option plans as of December 31, 2010, 2009, and 2008 and changes during the
years then ended is presented below:
| December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Exercise | Exercise | Exercise | ||||||||||||||||||||||
| Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Outstanding, beginning
|
474,416 | $ | 14.44 | 408,465 | $ | 15.38 | 332,077 | $ | 15.25 | |||||||||||||||
|
Granted
|
67,760 | 9.00 | 75,740 | 9.21 | 100,245 | 15.59 | ||||||||||||||||||
|
Exercised
|
(5,754 | ) | 10.24 | — | — | (7,305 | ) | 14.93 | ||||||||||||||||
|
Forfeited
|
(25,810 | ) | 9.68 | (9,789 | ) | 13.24 | (16,552 | ) | 15.38 | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Outstanding, ending
|
510,612 | 14.04 | 474,416 | 14.44 | 408,465 | 15.38 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Exercisable, ending
|
321,336 | 285,293 | 212,463 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Weighted average fair
value per option of
options granted
during the period
|
$ | 2.89 | $ | 2.71 | $ | 5.05 | ||||||||||||||||||
93
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 15. Stock-Based Compensation (Continued)
A further summary of options outstanding as of December 31, 2010 is presented below:
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Weighted | ||||||||||||||||||||
| Average | Weighted | Weighted | ||||||||||||||||||
| Remaining | Average | Average | ||||||||||||||||||
| Range of | Number | Contractual | Exercise | Number | Exercise | |||||||||||||||
| Exercise Prices | Outstanding | Life | Price | Exercisable | Price | |||||||||||||||
|
|
||||||||||||||||||||
|
$6.90
|
12,840 | 0.50 | $ | 6.90 | 12,840 | $ | 6.90 | |||||||||||||
|
$7.00 to $7.13
|
29,150 | 0.26 | 7.01 | 29,150 | 7.01 | |||||||||||||||
|
$7.45 to $8.93
|
11,750 | 7.21 | 8.25 | 3,750 | 7.80 | |||||||||||||||
|
$9.00 to $11.64
|
150,902 | 7.74 | 9.27 | 35,106 | 9.71 | |||||||||||||||
|
$13.25 to $16.85
|
158,665 | 6.69 | 15.94 | 99,869 | 15.96 | |||||||||||||||
|
$17.00 to $18.60
|
50,420 | 4.74 | 18.06 | 46,831 | 18.06 | |||||||||||||||
|
$18.67 to $20.90
|
67,885 | 4.16 | 19.48 | 64,790 | 19.50 | |||||||||||||||
|
$21.00 to $22.00
|
29,000 | 4.16 | 21.28 | 29,000 | 21.28 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
510,612 | 321,336 | ||||||||||||||||||
|
|
||||||||||||||||||||
Stock purchase plan:
The Company’s Board of Directors and its stockholders adopted in October 2002 the QCR Holdings,
Inc. Employee Stock Purchase Plan (the “Purchase Plan”). As of January 1, 2010, there were 77,115
shares of common stock available for issuance under the Purchase Plan. For each six-month offering
period, the Board of Directors will determine how many of the total number of available shares will
be offered. The purchase price is the lesser of 90% of the fair market value at the date of the
grant or the investment date. The investment date, as established by the Board of Directors of the
Company, is the date common stock is purchased after the end of each calendar quarter during an
offering period. The maximum dollar amount any one participant can elect to contribute in an
offering period is $7,500. Additionally, the maximum percentage that any one participant can elect
to contribute is 8% of his or her compensation for the years ended December 31, 2010 and 2009.
During the year ended December 31, 2010, 31,718 shares were granted and 28,907 purchased. Shares
granted during the year ended December 31, 2010 had a weighted average fair value of $1.81 per
share.
Stock appreciation rights:
The 1997 Stock Incentive Plan and 2004 Stock Incentive Plan allow the granting of stock
appreciation rights (“SARs”). SARs are rights entitling the grantee to receive cash equal to the
fair market value of the appreciation in the market value of a stated number of shares from the
date of grant. Like options, the number and exercise price of SARs granted is determined by the
Committee. The SARs vest 20% per year, and the term of the SARs may not exceed 10 years from the
date of the grant. As of December 31, 2010, 2009, and 2008, there were 36,350, 52,800, and 57,600
SARs, respectively, outstanding and exercisable. As of December 31, 2010 and 2009, the liability
related to the SARs totals $17,339 and $97,538, respectively. Payments made on SARs were $35,040,
$0, and $58,500 during the years ended December 31, 2010, 2009 and 2008, respectively.
94
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
A further summary of SARs is presented below:
| December 31, 2010 | Liability Recorded for SARs | |||||||||||||||||||
| Grant | Expiration | SARs | SARs | December 31, | ||||||||||||||||
| Date Price | Date | Outstanding | Exercisable | 2010 | 2009 | |||||||||||||||
|
|
||||||||||||||||||||
|
$6.90
|
6/29/11 | 28,350 | 28,350 | $ | 14,459 | $ | 72,860 | |||||||||||||
|
$7.00
|
4/10/11 | 8,000 | 8,000 | 2,880 | 20,970 | |||||||||||||||
|
$10.75
|
6/30/10 | — | — | — | 3,708 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
36,350 | 36,350 | $ | 17,339 | $ | 97,538 | ||||||||||||||
|
|
||||||||||||||||||||
The Company (on a consolidated basis) and the subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Company and subsidiary
banks’ financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the subsidiary banks must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company and
the subsidiary banks to maintain minimum amounts and ratios (set forth in the following table) of
total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and
of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of
December 31, 2010 and 2009, that the Company and the subsidiary banks met all capital adequacy
requirements to which they are subject.
95
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 16. Regulatory Capital Requirements and Restrictions on Dividends (Continued)
As of December 31, 2010, the most recent notification from the FDIC categorized the subsidiary
banks as well capitalized under the regulatory framework for prompt corrective action. To be
categorized as “well capitalized,” an institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no
conditions or events since the notification that management believes have changed the subsidiary
banks’ categories. The Company and the subsidiary banks’ actual capital amounts and ratios as of
December 31, 2010 and 2009 are also presented in the table (dollars in thousands).
| To Be Well | ||||||||||||||||||||||||||||||||
| Capitalized Under | ||||||||||||||||||||||||||||||||
| For Capital | Prompt Corrective | |||||||||||||||||||||||||||||||
| Actual | Adequacy Purposes | Action Provisions | ||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||
|
As of December 31, 2010:
|
||||||||||||||||||||||||||||||||
|
Company:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$ | 183,030 | 13.70 | % | $ | 106,870 | > | 8.0 | % | N/A | N/A | |||||||||||||||||||||
|
Tier 1 risk-based capital
|
161,939 | 12.12 | % | 53,435 | > | 4.0 | % | N/A | N/A | |||||||||||||||||||||||
|
Tier 1 leverage
|
161,939 | 8.71 | % | 74,342 | > | 4.0 | % | N/A | N/A | |||||||||||||||||||||||
|
Quad City Bank & Trust:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$ | 95,875 | 13.12 | % | $ | 58,455 | > | 8.0 | % | $ | 73,069 | > | 10.00 | % | ||||||||||||||||||
|
Tier 1 risk-based capital
|
86,821 | 11.88 | % | 29,228 | > | 4.0 | % | 43,841 | > | 6.00 | % | |||||||||||||||||||||
|
Tier 1 leverage
|
86,821 | 8.48 | % | 40,965 | > | 4.0 | % | 51,206 | > | 5.00 | % | |||||||||||||||||||||
|
Cedar Rapids Bank & Trust:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$ | 55,401 | 14.14 | % | $ | 31,335 | > | 8.0 | % | $ | 39,169 | > | 10.00 | % | ||||||||||||||||||
|
Tier 1 risk-based capital
|
50,465 | 12.88 | % | 15,667 | > | 4.0 | % | 23,501 | > | 6.00 | % | |||||||||||||||||||||
|
Tier 1 leverage
|
50,465 | 9.03 | % | 22,354 | > | 4.0 | % | 27,942 | > | 5.00 | % | |||||||||||||||||||||
|
Rockford Bank & Trust:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$ | 33,852 | 15.82 | % | $ | 17,119 | > | 8.0 | % | $ | 21,399 | > | 10.00 | % | ||||||||||||||||||
|
Tier 1 risk-based capital
|
31,171 | 14.57 | % | 8,560 | > | 4.0 | % | 12,839 | > | 6.00 | % | |||||||||||||||||||||
|
Tier 1 leverage
|
31,171 | 11.31 | % | 11,027 | > | 4.0 | % | 13,784 | > | 5.00 | % | |||||||||||||||||||||
96
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
| To Be Well | ||||||||||||||||||||||||||||||||
| Capitalized Under | ||||||||||||||||||||||||||||||||
| For Capital | Prompt Corrective | |||||||||||||||||||||||||||||||
| Actual | Adequacy Purposes | Action Provisions | ||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||
|
As of December 31, 2009:
|
||||||||||||||||||||||||||||||||
|
Company:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$ | 174,696 | 12.52 | % | $ | 111,668 | > | 8.0 | % | N/A | N/A | |||||||||||||||||||||
|
Tier 1 risk-based capital
|
155,464 | 11.14 | % | 55,834 | > | 4.0 | N/A | N/A | ||||||||||||||||||||||||
|
Tier 1 leverage
|
155,464 | 8.73 | % | 71,212 | > | 4.0 | N/A | N/A | ||||||||||||||||||||||||
|
Quad City Bank & Trust:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$ | 94,957 | 12.26 | % | $ | 61,973 | > | 8.0 | % | $ | 77,466 | > | 10.00 | % | ||||||||||||||||||
|
Tier 1 risk-based capital
|
85,250 | 11.00 | % | 30,987 | > | 4.0 | 46,480 | > | 6.00 | % | ||||||||||||||||||||||
|
Tier 1 leverage
|
85,250 | 8.55 | % | 39,891 | > | 4.0 | 49,864 | > | 5.00 | % | ||||||||||||||||||||||
|
Cedar Rapids Bank & Trust:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$ | 53,179 | 13.14 | % | $ | 32,386 | > | 8.0 | % | $ | 40,483 | > | 10.00 | % | ||||||||||||||||||
|
Tier 1 risk-based capital
|
48,092 | 11.88 | % | 16,193 | > | 4.0 | 24,290 | > | 6.00 | % | ||||||||||||||||||||||
|
Tier 1 leverage
|
48,092 | 8.93 | % | 21,552 | > | 4.0 | 26,940 | > | 5.00 | % | ||||||||||||||||||||||
|
Rockford Bank & Trust:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$ | 30,402 | 13.92 | % | $ | 17,470 | > | 8.0 | % | $ | 21,838 | > | 10.00 | % | ||||||||||||||||||
|
Tier 1 risk-based capital
|
27,660 | 12.67 | % | 8,735 | > | 4.0 | 13,103 | > | 6.00 | % | ||||||||||||||||||||||
|
Tier 1 leverage
|
27,660 | 10.56 | % | 10,475 | > | 4.0 | 13,094 | > | 5.00 | % | ||||||||||||||||||||||
The Company’s ability to pay dividends to its shareholders may be affected by both general
corporate law considerations and policies of the Federal Reserve applicable to bank holding
companies.
The payment of dividends by any financial institution or its holding company is affected by the
requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and
regulations, and a financial institution generally is prohibited from paying any dividends if,
following payment thereof, the institution would be undercapitalized. Notwithstanding the
availability of funds for dividends, however, the Federal Reserve may prohibit the payment of any
dividends by the Banks if the Federal Reserve determines such payment would constitute an unsafe or
unsound practice.
The Company also has certain contractual restrictions on its ability to pay dividends. The Company
has issued junior subordinated debentures in four private placements. Under the terms of the
debentures, the Company may be prohibited, under certain circumstances, from paying dividends on
shares of its common stock. Additionally, the Company has issued shares of non-cumulative
perpetual preferred stock and under the terms of this preferred stock, the Company may be
prohibited, under certain circumstances, from paying dividends on shares of its common stock. None
of these circumstances currently exist.
In addition, as a result of the Company’s issuance of the CPP Preferred Stock to Treasury on
February 13, 2009, the ability of the Company to declare or pay dividends on its common stock is
subject to restrictions, including the restriction on increasing dividends from the last
semi-annual cash dividend declared prior to October 14, 2008, which was $0.04 per share. This
restriction will terminate on the earlier of (a) the third anniversary of the date of issuance of
the Series D Preferred Stock and (b) the date on which the CPP Preferred Stock has been redeemed in
whole or Treasury has transferred all of the CPP Preferred Stock to one or more third parties.
Further, the ability of the Company to declare or pay dividends on its common stock will be subject
to restrictions in the event that the Company fails to declare and pay full dividends on the CPP
Preferred Stock.
97
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QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The following information was used in the computation of basic and diluted earnings per common
share for the years ended December 31, 2010, 2009, and 2008:
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Amounts attributable to QCR Holdings, Inc.:
|
||||||||||||
|
Income from continuing operations
|
6,586,679 | 1,771,908 | 4,974,627 | |||||||||
|
Income from discontinued operations
|
— | — | 1,734,231 | |||||||||
|
|
||||||||||||
|
Net income
|
6,586,679 | 1,771,908 | 6,708,858 | |||||||||
|
|
||||||||||||
|
Less: preferred stock dividends and discount accretion
|
4,128,104 | 3,843,924 | 1,784,500 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc. common stockholders
|
$ | 2,458,575 | $ | (2,072,016 | ) | $ | 4,924,358 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings (loss) per common share:
|
||||||||||||
|
Income (loss) from continuing operations attributable to QCR Holdings, Inc.
|
0.54 | (0.46 | ) | 0.69 | ||||||||
|
Income from discontinued operations attributable to QCR Holdings, Inc.
|
— | — | 0.38 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc.
|
$ | 0.54 | $ | (0.46 | ) | $ | 1.07 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings (loss) per common share:
|
||||||||||||
|
Income (loss) from continuing operations attributable to QCR Holdings, Inc.
|
0.53 | (0.46 | ) | 0.69 | ||||||||
|
Income from discontinued operations attributable to QCR Holdings, Inc.
|
— | — | 0.37 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc.
|
$ | 0.53 | $ | (0.46 | ) | $ | 1.06 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Weighted average common shares outstanding
|
4,593,096 | 4,540,792 | 4,617,057 | |||||||||
|
Weighted average common shares issuable upon exercise of stock options
and under the employee stock purchase plan*
|
25,146 | — | ** | 17,480 | ||||||||
|
|
||||||||||||
|
Weighted average common and common equivalent shares outstanding
|
4,618,242 | 4,540,792 | ** | 4,634,537 | ||||||||
| * |
Excludes anti-dilutive shares of 1,013,929 and 391,843 at December 31, 2010 and 2008,
respectively.
|
|
| ** |
In accordance with U.S. GAAP, the common equivalent shares are not considered in the calculation
of diluted earnings per share as the numerator is a net loss.
|
In the normal course of business, the subsidiary banks make various commitments and incur certain
contingent liabilities that are not presented in the accompanying consolidated financial
statements. The commitments and contingent liabilities include various guarantees, commitments to
extend credit, and standby letters of credit.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The subsidiary banks evaluate each customer’s creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the subsidiary
banks upon extension of credit, is based upon management’s credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, marketable securities, inventory,
property, plant and equipment, and income-producing commercial properties.
98
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 18. Commitments and Contingencies (Continued)
Standby letters of credit are conditional commitments issued by the subsidiary banks to guarantee
the performance of a customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements and, generally, have terms of one year or less. The
credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The subsidiary banks hold collateral, as described above,
supporting those commitments if deemed necessary. In the event the customer does not perform in
accordance with the terms of the agreement with the third party, the subsidiary banks would be
required to fund the commitments. The maximum potential amount of future payments the subsidiary
banks could be required to make is represented by the contractual amount. If the commitment is
funded, the subsidiary banks would be entitled to seek recovery from the customer. At December 31,
2010 and 2009 no amounts have been recorded as liabilities for the subsidiary banks’ potential
obligations under these guarantees.
As of December 31, 2010 and 2009, commitments to extend credit aggregated $474,833,000 and
$476,519,000, respectively. As of December 31, 2010 and 2009, standby letters of credit aggregated
$11,454,000 and $17,836,000, respectively. Management does not expect that all of these
commitments will be funded.
The Company has also executed contracts for the sale of mortgage loans in the secondary market in
the amount of $14,084,859 and $6,135,130 as of December 31, 2010 and 2009, respectively. These
amounts are included in loans held for sale at the respective balance sheet dates.
Residential mortgage loans sold to investors in the secondary market are sold with varying recourse
provisions. Essentially, all loan sales agreements require the repurchase of a mortgage loan by
the seller in situations such as, breach of representation, warranty, or covenant, untimely
document delivery, false or misleading statements, failure to obtain certain certificates or
insurance, unmarketability, etc. Certain loan sales agreements contain repurchase requirements
based on payment-related defects that are defined in terms of the number of days/months since the
purchase, the sequence number of the payment, and/or the number of days of payment delinquency.
Based on the specific terms stated in the agreements of investors purchasing residential mortgage
loans from the Company’s subsidiary banks, the Company had $68,875,211 and $71,379,478 of sold
residential mortgage loans with recourse provisions still in effect at December 31, 2010 and 2009,
respectively. The subsidiary banks did not repurchase any loans from secondary market investors
under the terms of loans sales agreements during the years ended December 31, 2010, and 2009. In
the opinion of management, the risk of recourse and the subsequent requirement of loan repurchase
to the subsidiary banks is not significant, and accordingly no liabilities have been established
related to such.
Aside from cash on-hand and in-vault, the majority of the Company’s cash is maintained at upstream
correspondent banks. The total amount of cash on deposit, certificates of deposit, and federal
funds sold exceeded federal insured limits by approximately $68,275,499 and $11,810,563 as of
December 31, 2010 and 2009, respectively. In the opinion of management, no material risk of loss
exists due to the financial condition of the upstream correspondent banks. In addition, some of
the Company’s cash maintained at upstream correspondent banks is in non-interest bearing deposit
accounts. In accordance with the FDIC’s Transaction Account Guarantee (“TAG”) Program, cash
maintained in non-interest bearing deposit accounts is fully insured at those institutions that did
not opt out of participation in the TAG Program. For those institutions that did not opt out, the
TAG Program was effective through December 31, 2010. Effective January 1, 2011 through December 31,
2012, the FDIC has carried forward similar unlimited insurance coverage for non-interest bearing
deposits.
In an arrangement with Goldman Sachs and Company (“Goldman Sachs”), certain subsidiary banks offer
a cash management program for select customers. Based on a predetermined minimum balance, which
must be maintained in the account, excess funds are automatically swept daily to an institutional
money market fund distributed by Goldman Sachs. At December 31, 2010 and 2009, the Company had
$59,978,364 and $127,969,621, respectively of customer funds invested in this cash management
program.
99
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
During 2009, the Company resolved contingencies relating to a commercial lending relationship
totaling $2,492,731. The contingencies related to a lawsuit involving the Company and its priority
on cash interest payments received and other collateral securing the loans. With the court ruling
in favor of the Company and the subsequent expiration of the appeal period, the contingencies were
reversed. As a result, the Company recognized interest income of $1,272,966 for cash interest
payments previously received and reserved. Additionally, the Company reduced its allowance for
estimated losses on loans/leases by $1,000,000. Lastly, the Company recognized non-interest income
of $219,765 for reimbursement of various loan-related costs that were reserved.
| Year Ended December 31, 2010 | ||||||||||||||||
| March | June | September | December | |||||||||||||
| 2010 | 2010 | 2010 | 2010 | |||||||||||||
|
|
||||||||||||||||
|
Total interest income
|
$ | 20,476,577 | $ | 20,359,099 | $ | 19,740,256 | $ | 19,521,434 | ||||||||
|
Total interest expense
|
7,656,009 | 7,828,007 | 7,576,681 | 7,172,901 | ||||||||||||
|
|
||||||||||||||||
|
Net interest income
|
12,820,568 | 12,531,092 | 12,163,575 | 12,348,533 | ||||||||||||
|
Provision for loan/lease losses
|
1,603,229 | 1,376,189 | 1,434,232 | 3,049,968 | ||||||||||||
|
Noninterest income
|
2,831,637 | 3,538,070 | 4,358,286 | 4,677,895 | ||||||||||||
|
Noninterest expense
|
12,441,922 | 12,214,586 | 12,133,765 | 11,758,790 | ||||||||||||
|
|
||||||||||||||||
|
Income before taxes
|
1,607,054 | 2,478,387 | 2,953,864 | 2,217,670 | ||||||||||||
|
Federal and state income tax expense
|
392,121 | 678,550 | 829,992 | 548,586 | ||||||||||||
|
|
||||||||||||||||
|
Net income
|
$ | 1,214,933 | $ | 1,799,837 | $ | 2,123,872 | $ | 1,669,084 | ||||||||
|
Less net income (loss) attributable to noncontrolling interests
|
(77,076 | ) | 62,336 | 109,786 | 126,001 | |||||||||||
|
|
||||||||||||||||
|
Net income attributable to QCR Holdings, Inc.
|
$ | 1,292,009 | $ | 1,737,501 | $ | 2,014,086 | $ | 1,543,083 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Earnings per common share:
|
||||||||||||||||
|
Basic
|
$ | 0.06 | $ | 0.15 | $ | 0.21 | $ | 0.11 | ||||||||
|
Diluted
|
$ | 0.06 | $ | 0.15 | $ | 0.21 | $ | 0.11 | ||||||||
| Year Ended December 31, 2009 | ||||||||||||||||
| March | June | September | December | |||||||||||||
| 2009 | 2009 | 2009 | 2009 | |||||||||||||
|
|
||||||||||||||||
|
Total interest income
|
$ | 20,783,195 | $ | 21,104,481 | $ | 22,572,962 | $ | 21,150,195 | ||||||||
|
Total interest expense
|
9,026,086 | 9,016,793 | 8,701,139 | 8,205,148 | ||||||||||||
|
|
||||||||||||||||
|
Net interest income
|
11,757,109 | 12,087,688 | 13,871,823 | 12,945,047 | ||||||||||||
|
Provision for loan/lease losses
|
4,358,543 | 4,875,745 | 3,526,892 | 4,214,337 | ||||||||||||
|
Noninterest income
|
3,656,041 | 3,811,962 | 4,116,708 | 3,962,336 | ||||||||||||
|
Noninterest expense
|
11,112,499 | 12,614,576 | 12,273,301 | 10,936,650 | ||||||||||||
|
|
||||||||||||||||
|
Income (loss) before taxes
|
(57,892 | ) | (1,590,671 | ) | 2,188,338 | 1,756,396 | ||||||||||
|
Federal and state income tax expense (benefit)
|
(293,682 | ) | (831,159 | ) | 563,399 | 808,782 | ||||||||||
|
|
||||||||||||||||
|
Net income (loss)
|
$ | 235,790 | $ | (759,512 | ) | $ | 1,624,939 | $ | 947,614 | |||||||
|
Less net income attributable to noncontrolling interests
|
151,446 | 60,932 | 35,919 | 28,626 | ||||||||||||
|
|
||||||||||||||||
|
Net income (loss) attributable to QCR Holdings, Inc.
|
$ | 84,344 | $ | (820,444 | ) | $ | 1,589,020 | $ | 918,988 | |||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Earnings (loss) per common share:
|
||||||||||||||||
|
Basic
|
$ | (0.14 | ) | $ | (0.42 | ) | $ | 0.12 | $ | (0.02 | ) | |||||
|
Diluted
|
$ | (0.14 | ) | $ | (0.42 | ) | $ | 0.12 | $ | (0.02 | ) | |||||
100
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The following is condensed financial information of QCR Holdings, Inc. (parent company only):
Condensed Balance Sheets
December 31, 2010 and 2009
December 31, 2010 and 2009
| 2010 | 2009 | |||||||
|
|
||||||||
|
Assets
|
||||||||
|
|
||||||||
|
Cash and due from banks
|
$ | 28,660 | $ | 2,903,876 | ||||
|
Interest-bearing deposits at financial institutions
|
181,949 | 181,009 | ||||||
|
Securities available for sale, at fair value
|
1,343,243 | 1,197,127 | ||||||
|
Investment in bank subsidiaries
|
170,831,946 | 163,065,573 | ||||||
|
Investment in nonbank subsidiaries
|
2,644,333 | 2,232,130 | ||||||
|
Other assets
|
5,120,332 | 2,499,664 | ||||||
|
|
||||||||
|
Total assets
|
$ | 180,150,463 | $ | 172,079,379 | ||||
|
|
||||||||
|
|
||||||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Liabilities:
|
||||||||
|
Other borrowings
|
$ | 5,124,033 | $ | 5,000,000 | ||||
|
Junior subordinated debentures
|
36,085,000 | 36,085,000 | ||||||
|
Other liabilities
|
8,018,941 | 7,099,133 | ||||||
|
|
||||||||
|
Total liabilities
|
49,227,974 | 48,184,133 | ||||||
|
|
||||||||
|
|
||||||||
|
Stockholders’ Equity:
|
||||||||
|
Preferred stock
|
63,237 | 38,805 | ||||||
|
Common stock
|
4,732,428 | 4,674,536 | ||||||
|
Additional paid-in capital
|
86,478,269 | 82,194,330 | ||||||
|
Retained earnings
|
40,550,900 | 38,458,477 | ||||||
|
Accumulated other comprehensive income
|
704,165 | 135,608 | ||||||
|
Treasury stock
|
(1,606,510 | ) | (1,606,510 | ) | ||||
|
|
||||||||
|
Total stockholders’ equity
|
130,922,489 | 123,895,246 | ||||||
|
|
||||||||
|
Total liabilities and stockholders’ equity
|
$ | 180,150,463 | $ | 172,079,379 | ||||
|
|
||||||||
101
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 20. Parent Company Only Financial Statements (Continued)
Condensed Statements of Operations
Years Ended December 31, 2010, 2009, and 2008
Years Ended December 31, 2010, 2009, and 2008
| 2010 | 2009 | 2008 | ||||||||||
|
|
||||||||||||
|
Total interest income
|
$ | 43,157 | $ | 34,285 | $ | 151,742 | ||||||
|
Securities gains, net
|
— | — | 199,500 | |||||||||
|
Equity in net income of bank subsidiaries related to continuing operations
|
11,223,115 | 6,921,939 | 9,323,385 | |||||||||
|
Equity in net income (loss) of nonbank subsidiaries related to continuing operations
|
199,285 | (282,712 | ) | 175,972 | ||||||||
|
Equity in net income (loss) of subsidiaries related to discontinued operations
|
— | — | 1,734,231 | |||||||||
|
Other
|
46,030 | 254,375 | 2,038,767 | |||||||||
|
|
||||||||||||
|
Total income
|
11,511,587 | 6,927,887 | 13,623,597 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Interest expense
|
2,296,446 | 2,303,020 | 2,703,617 | |||||||||
|
Salaries and employee benefits related to continuing operations
|
3,153,062 | 3,572,419 | 3,527,004 | |||||||||
|
Salaries and employee benefits related to discontinued operations*
|
— | — | 1,280,449 | |||||||||
|
Professional and data processing fees related to continuing operations
|
1,192,225 | 1,098,487 | 1,113,615 | |||||||||
|
Professional and data processing fees related to discontinued operations
|
— | — | 224,887 | |||||||||
|
Other-than-temporary impairment losses on securities
|
— | 206,369 | — | |||||||||
|
Other
|
743,859 | 504,750 | 505,608 | |||||||||
|
|
||||||||||||
|
Total expenses
|
7,385,592 | 7,685,045 | 9,355,180 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Income (loss) before income tax benefit
|
4,125,995 | (757,158 | ) | 4,268,417 | ||||||||
|
|
||||||||||||
|
Income tax benefit
|
2,460,684 | 2,529,066 | 2,440,441 | |||||||||
|
|
||||||||||||
|
Net income
|
$ | 6,586,679 | $ | 1,771,908 | $ | 6,708,858 | ||||||
|
|
||||||||||||
| * |
Consisted entirely of severance payments related to the sale of First Wisconsin Bank & Trust.
|
102
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Condensed Statements of Cash Flows
Years Ended December 31, 2010, 2009, and 2008
Years Ended December 31, 2010, 2009, and 2008
| 2010 | 2009 | 2008 | ||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||
|
Net income
|
$ | 6,586,679 | $ | 1,771,908 | $ | 6,708,858 | ||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Distributions in excess of (less than) earnings of:
|
||||||||||||
|
Bank subsidiaries
|
(4,573,115 | ) | 1,103,061 | 1,673,041 | ||||||||
|
Nonbank subsidiaries
|
(141,234 | ) | 558,254 | (62,744 | ) | |||||||
|
Depreciation
|
590 | 724 | 2,753 | |||||||||
|
Gain on sale of First Wisconsin Bank & Trust
|
— | — | (494,664 | ) | ||||||||
|
Securities gains, net
|
— | — | (199,500 | ) | ||||||||
|
Other-than-temporary impairment losses on securities
|
— | 206,369 | — | |||||||||
|
Stock-based compensation expense
|
533,271 | 609,713 | 475,120 | |||||||||
|
(Increase) decrease in accrued interest receivable
|
— | (319,186 | ) | 35,787 | ||||||||
|
(Increase) decrease in other assets
|
(2,935,064 | ) | (318,419 | ) | 1,601,300 | |||||||
|
Increase in other liabilities
|
926,645 | 358,824 | 2,523,615 | |||||||||
|
|
||||||||||||
|
Net cash provided by operating activities
|
397,772 | 3,971,248 | 12,263,566 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||
|
Net increase in interest-bearing deposits at financial instituions
|
(940 | ) | (1,948 | ) | (8,916 | ) | ||||||
|
Purchase of securities available for sale
|
(27,980 | ) | (221,365 | ) | (16,939 | ) | ||||||
|
Proceeds from sale of securities
|
— | — | 285,000 | |||||||||
|
Proceeds from sale of First Wisconsin Bank & Trust, net
|
— | — | 13,324,553 | |||||||||
|
Capital infusion, bank subsidiaries
|
(2,700,000 | ) | (36,935,000 | ) | (20,500,000 | ) | ||||||
|
Purchase of premises and equipment
|
— | — | (971 | ) | ||||||||
|
|
||||||||||||
|
Net cash used in investing activities
|
(2,728,920 | ) | (37,158,313 | ) | (6,917,273 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash Flows from Financing Activities:
|
||||||||||||
|
Net decrease in other borrowings
|
(2,491,727 | ) | — | (2,000,000 | ) | |||||||
|
Tax benefit of nonqualified stock options exercised
|
— | — | 1,611 | |||||||||
|
Proceeds from issuance of Series A Subordinated Notes and detachable warrants
to purchase 54,000 shares of common stock
|
2,700,000 | — | — | |||||||||
|
Payment of cash dividends on common and preferred stock
|
(4,052,089 | ) | (3,595,221 | ) | (1,974,870 | ) | ||||||
|
Proceeds from issuance of Series E Noncumulative Convertible Perpetual
Preferred Stock, net
|
3,187,233 | — | — | |||||||||
|
Proceeds from issuance of Series D Cumulative Perpetual Preferred Stock
and common stock warrant, net
|
— | 38,052,823 | — | |||||||||
|
Proceeds from issuance of common stock, net
|
261,547 | 226,441 | 329,302 | |||||||||
|
Purchase of noncontrolling interests
|
(149,032 | ) | (78,960 | ) | — | |||||||
|
Purchase of treasury stock
|
— | — | (1,606,510 | ) | ||||||||
|
|
||||||||||||
|
Net cash (used in) provided by financing activities
|
(544,068 | ) | 34,605,083 | (5,250,467 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net (decrease) increase in cash and due from banks
|
(2,875,216 | ) | 1,418,018 | 95,826 | ||||||||
|
|
||||||||||||
|
Cash and due from banks:
|
||||||||||||
|
Beginning
|
2,903,876 | 1,485,858 | 1,390,032 | |||||||||
|
|
||||||||||||
|
Ending
|
$ | 28,660 | $ | 2,903,876 | $ | 1,485,858 | ||||||
|
|
||||||||||||
103
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The measurement of fair value under U.S. GAAP uses a hierarchy intended to maximize the use of
observable inputs and minimize the use of unobservable inputs. This hierarchy includes three
levels and is based upon the valuation techniques used to measure assets and liabilities. The
three levels are as follows:
| • |
Level 1 — Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in markets;
|
| • |
Level 2 — Inputs to the valuation methodology include quoted prices for similar assets
and liabilities in active markets and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial
instrument; and
|
| • |
Level 3 — Inputs to the valuation methodology are unobservable and significant to the
fair value measurement
|
Assets measured at fair value on a recurring basis comprise the following at December 31, 2010 and
2009:
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | ||||||||||||||
| Markets for | Observable | Unobservable | ||||||||||||||
| Identical Assets | Inputs | Inputs | ||||||||||||||
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
|
||||||||||||||||
|
December 31, 2010:
|
||||||||||||||||
|
Securities available for sale:
|
||||||||||||||||
|
U.S. govt. sponsored agency securities
|
$ | 402,225,356 | $ | — | $ | 402,225,356 | $ | — | ||||||||
|
Municipal securities
|
20,603,480 | — | 20,603,480 | — | ||||||||||||
|
Residential mortgage-backed securities
|
70,438 | — | 70,438 | — | ||||||||||||
|
Trust preferred securities
|
78,000 | — | 78,000 | — | ||||||||||||
|
Other securities
|
1,569,493 | 209,680 | 1,359,813 | — | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 424,546,767 | $ | 209,680 | $ | 424,337,087 | $ | — | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
December 31, 2009:
|
||||||||||||||||
|
Securities available for sale:
|
||||||||||||||||
|
U.S. govt. sponsored agency securities
|
$ | 345,024,448 | $ | — | $ | 345,024,448 | $ | — | ||||||||
|
Municipal securities
|
22,849,792 | — | 22,849,792 | — | ||||||||||||
|
Residential mortgage-backed securities
|
496,307 | — | 496,307 | — | ||||||||||||
|
Trust preferred securities
|
99,200 | — | 99,200 | — | ||||||||||||
|
Other securities
|
1,700,712 | 169,939 | 1,530,773 | — | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 370,170,459 | $ | 169,939 | $ | 370,000,520 | $ | — | ||||||||
|
|
||||||||||||||||
There were no transfers of assets or liabilities between Levels 1, 2, and 3 of the fair value
hierarchy during the year ended December 31, 2010.
A small portion of the securities available for sale portfolio consists of common stocks issued by
various unrelated bank holding companies and mutual funds. The fair values used by the Company are
obtained from an independent pricing service, which represent quoted market prices for the
identical securities (Level 1 inputs).
104
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Note 21. Fair Value (Continued)
The large majority of the securities available for sale portfolio consist of U.S. government
sponsored agency securities whereby the Company obtains fair values from an independent pricing
service. The fair values are determined by pricing models that consider observable market data,
such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers
and live trading systems (Level 2 inputs).
Certain financial assets are measured at fair value on a non-recurring basis; that is, the assets
are not measured at fair value on an ongoing basis but are subject to fair value adjustments in
certain circumstances (for example, when there is evidence of impairment).
Assets measured at fair value on a non-recurring basis comprise the following at December 31, 2010
and 2009:
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | ||||||||||||||
| Markets for | Observable | Unobservable | ||||||||||||||
| Identical Assets | Inputs | Inputs | ||||||||||||||
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
December 31, 2010:
|
||||||||||||||||
|
Impaired loans/leases
|
$ | 21,501,447 | $ | — | $ | — | $ | 21,501,447 | ||||||||
|
Other real estate owned
|
9,217,488 | — | — | 9,217,488 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 30,718,935 | $ | — | $ | — | $ | 30,718,935 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
December 31, 2009:
|
||||||||||||||||
|
Impaired loans/leases
|
$ | 17,630,752 | $ | — | $ | — | $ | 17,630,752 | ||||||||
|
Other real estate owned
|
10,029,281 | — | — | 10,029,281 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 27,660,033 | $ | — | $ | — | $ | 27,660,033 | ||||||||
|
|
||||||||||||||||
Impaired loans/leases are evaluated and valued at the time the loan/lease is identified as
impaired, at the lower of cost or fair value and are classified as a Level 3 in the fair value
hierarchy. Fair value is measured based on the value of the collateral securing these
loans/leases. Collateral may be real estate and/or business assets including equipment, inventory
and/or accounts receivable and is determined based on appraisals by qualified licensed appraisers
hired by the Company. Appraised and reported values may be discounted based on management’s
historical knowledge, changes in market conditions from the time of valuation, and/or management’s
expertise and knowledge of the client and client’s business. Other real estate owned in the table
above consists of property acquired through foreclosures and settlements of loans. Property
acquired is carried at the lower of the principal amount of loans outstanding, or the estimated
fair value of the property, less disposal costs, and is classified as a Level 3 in the fair value
hierarchy. The estimated fair value of the property is determined based on appraisals by
qualified licensed appraisers hired by the Company. Appraised and reported values are discounted
based on management’s historical knowledge, changes in market conditions from the time of
valuation, and/or management’s expertise and knowledge of the property.
There have been no changes in valuation techniques used for any assets measured at fair value
during the year ended December 31, 2010.
105
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
The following table presents the carrying values and estimated fair values of financial assets and
liabilities carried on the Company’s consolidated balance sheets, including those financial assets
and liabilities that are not measured and reported at fair value on a recurring basis or
non-recurring basis:
| 2010 | 2009 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| Value | Fair Value | Value | Fair Value | |||||||||||||
|
Cash and due from banks
|
$ | 42,030,806 | $ | 42,030,806 | $ | 35,878,046 | $ | 35,878,046 | ||||||||
|
Federal funds sold
|
61,960,000 | 61,960,000 | 6,598,333 | 6,598,333 | ||||||||||||
|
Interest-bearing deposits at financial institutions
|
39,745,611 | 39,745,611 | 29,329,413 | 29,329,413 | ||||||||||||
|
Investment securities:
|
||||||||||||||||
|
Held to maturity
|
300,000 | 300,000 | 350,000 | 350,000 | ||||||||||||
|
Available for sale
|
424,546,767 | 424,546,767 | 370,170,459 | 370,170,459 | ||||||||||||
|
Loans/leases receivable, net
|
1,152,173,947 | 1,169,015,000 | 1,221,814,832 | 1,222,885,000 | ||||||||||||
|
Accrued interest receivable
|
6,435,989 | 6,435,989 | 7,565,513 | 7,565,513 | ||||||||||||
|
Deposits
|
1,114,815,857 | 1,118,245,000 | 1,089,322,726 | 1,094,430,000 | ||||||||||||
|
Short-term borrowings
|
141,154,499 | 141,154,499 | 150,899,571 | 150,899,571 | ||||||||||||
|
Federal Home Loan Bank advances
|
238,750,000 | 254,307,000 | 215,850,000 | 229,927,000 | ||||||||||||
|
Other borrowings
|
150,070,785 | 161,454,000 | 140,059,841 | 145,135,000 | ||||||||||||
|
Accrued interest payable
|
2,167,648 | 2,167,648 | 2,951,419 | 2,951,419 | ||||||||||||
The methodologies for estimating the fair value of financial assets and liabilities that are
measured at fair value on a recurring or non-recurring basis are discussed above. For certain
financial assets and liabilities, carrying value approximates fair value due to the nature of the
financial instrument. These instruments include: cash and due from banks, federal funds sold,
interest-bearing deposits at financial institutions, accrued interest receivable and payable,
demand and other non-maturity deposits, and short-term borrowings. The Company used the following
methods and assumptions in estimating the fair value of the following instruments:
Loans/leases receivable
: The fair values for variable rate loans equal their carrying
values. The fair values for all other types of loans/leases are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans/leases with similar terms to
borrowers with similar credit quality. The fair value of loans held for sale is based on quoted
market prices of similar loans sold in the secondary market.
Deposits
: The fair values disclosed for demand deposits equal their carrying amounts,
which represent the amount payable on demand. Fair values for time deposits are estimated using a
discounted cash flow calculation that applies interest rates currently being offered on time
deposits to a schedule of aggregate expected monthly maturities on time deposits.
Federal Home Loan Bank advances
: The fair value of these instruments is estimated using
discounted cash flow analyses, based on the Company’s current incremental borrowing rates for
similar types of borrowing arrangements.
Other borrowings
: The fair value for the wholesale repurchase agreements and fixed rate
other borrowings is estimated using rates currently available for debt with similar terms and
remaining maturities. The fair value for variable rate other borrowings is equal to its carrying
value.
Junior subordinated debentures
: It is not practicable to estimate the fair value of the
Company’s junior subordinated debentures as instruments with similar terms are not readily
available in the market place.
Commitments to extend credit
: The fair value of these commitments is not material.
106
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Selected financial and descriptive information is required to be disclosed for reportable operating
segments, applying a “management perspective” as the basis for identifying reportable segments.
The management perspective is determined by the view that management takes of the segments within
the Company when making operating decisions, allocating resources, and measuring performance. The
segments of QCR Holdings, Inc. have been defined by the structure of the Company’s internal
organization, focusing on the financial information that the Company’s operating decision-makers
routinely use to make decisions about operating matters.
The Company’s primary segment, Commercial Banking, is geographically divided by markets into the
secondary segments which are the three subsidiary banks wholly-owned by the Company: Quad City
Bank & Trust, Cedar Rapids Bank & Trust, and Rockford Bank & Trust. Each of these secondary
segments offer similar products and services, but are managed separately due to different pricing,
product demand, and consumer markets. Each offers commercial, consumer, and mortgage loans and
deposit services.
First Wisconsin Bank & Trust is accounted for as discontinued bank operations and has been properly
excluded where appropriate.
The Company’s Wealth Management segment represents trust and asset management and investment
management and advisory services offered at the Company’s three subsidiary banks in aggregate.
This segment generates income primarily from fees charged based on assets under administration for
corporate and personal trusts, custodial services, and investments managed. No assets of the
subsidiary banks have been allocated to the Wealth Management segment.
The Company’s All Other segment includes the operations of all other consolidated subsidiaries
and/or defined operating segments that fall below the segment reporting thresholds. This segment
includes the corporate operations of the parent and the real estate holding operations of Velie
Plantation Holding Company.
107
Table of Contents
QCR Holdings, Inc.
and Subsidiaries
and Subsidiaries
Notes to Consolidated Financial Statements
Selected financial information on the Company’s business segments, with all intercompany accounts
and transactions eliminated, is presented as follows for the years ended December 31, 2010, 2009,
and 2008:
| Commercial Banking | ||||||||||||||||||||||||||||
| Quad City | Cedar Rapids | Rockford | Wealth | Intercompany | Consolidated | |||||||||||||||||||||||
| Bank & Trust | Bank & Trust | Bank & Trust | Management | All other | Eliminations | Total | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Twelve Months Ended December 31, 2010
|
||||||||||||||||||||||||||||
|
Total revenue
|
$ | 47,708,698 | $ | 29,221,682 | $ | 13,718,493 | $ | 5,103,747 | $ | 147,577 | $ | (396,943 | ) | $ | 95,503,254 | |||||||||||||
|
Net interest income
|
28,664,024 | 15,568,717 | 8,041,016 | — | (2,409,989 | ) | — | 49,863,768 | ||||||||||||||||||||
|
Income from continuing operations
attributable to QCR Holdings, Inc.
|
5,767,982 | 3,565,637 | 729,714 | 1,159,782 | (4,581,870 | ) | (54,566 | ) | 6,586,679 | |||||||||||||||||||
|
Total assets
|
1,025,699,414 | 546,789,724 | 271,378,714 | — | 11,622,441 | (18,855,077 | ) | 1,836,635,216 | ||||||||||||||||||||
|
Provision for loan/lease losses
|
2,457,618 | 4,200,000 | 806,000 | — | — | — | 7,463,618 | |||||||||||||||||||||
|
Goodwill
|
3,222,688 | — | — | — | — | — | 3,222,688 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Twelve Months Ended December 31, 2009
|
||||||||||||||||||||||||||||
|
Total revenue
|
$ | 54,609,088 | $ | 28,835,238 | $ | 13,458,331 | $ | 4,391,039 | $ | 249,524 | $ | (385,340 | ) | $ | 101,157,880 | |||||||||||||
|
Net interest income
|
31,394,507 | 15,380,412 | 6,443,055 | — | (2,949,869 | ) | 393,562 | 50,661,667 | ||||||||||||||||||||
|
Income from continuing operations
attributable to QCR Holdings, Inc.
|
5,790,506 | 2,317,498 | (2,245,366 | ) | 672,647 | (4,633,185 | ) | (130,192 | ) | 1,771,908 | ||||||||||||||||||
|
Total assets
|
975,774,394 | 542,739,913 | 265,791,702 | — | 11,656,970 | (16,316,872 | ) | 1,779,646,107 | ||||||||||||||||||||
|
Provision for loan/lease losses
|
8,238,517 | 4,750,000 | 3,987,000 | — | — | — | 16,975,517 | |||||||||||||||||||||
|
Goodwill
|
3,222,688 | — | — | — | — | — | 3,222,688 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Twelve Months Ended December 31, 2008
|
||||||||||||||||||||||||||||
|
Total revenue
|
$ | 59,186,036 | $ | 27,012,564 | $ | 11,649,903 | $ | 5,309,048 | $ | 2,558,859 | $ | (6,638,335 | ) | $ | 99,078,075 | |||||||||||||
|
Net interest income
|
29,938,689 | 12,854,539 | 4,967,964 | — | (4,370,682 | ) | 1,232,558 | 44,623,068 | ||||||||||||||||||||
|
Income from continuing operations
attributable to QCR Holdings, Inc.
|
7,468,046 | 3,062,101 | (1,655,610 | ) | 832,630 | (4,255,358 | ) | (477,182 | ) | 4,974,627 | ||||||||||||||||||
|
Total assets
|
909,522,035 | 468,306,140 | 228,014,920 | — | 9,995,192 | (10,209,273 | ) | 1,605,629,014 | ||||||||||||||||||||
|
Provision for loan/lease losses
|
4,308,025 | 1,869,645 | 3,044,000 | — | — | — | 9,221,670 | |||||||||||||||||||||
|
Goodwill
|
3,222,688 | — | — | — | — | — | 3,222,688 | |||||||||||||||||||||
108
Table of Contents
| Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
None.
| Item 9A. |
Controls and Procedures
|
Evaluation of disclosure controls and procedures.
An evaluation was performed under the
supervision and with the participation of the Company’s management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the
Exchange Act) as of December 31, 2010. Based on that evaluation, the Company’s management,
including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s
disclosure controls and procedures were effective to ensure that information required to be
disclosed in the reports filed and submitted under the Exchange Act was recorded, processed,
summarized and reported as and when required.
Management’s Report on Internal Control over Financial Reporting.
The Company’s management is
responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial
reporting includes controls and procedures designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that: (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions of the Company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations, including the
possibility of human error and the circumvention of overriding controls. Accordingly, even
effective internal control can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the effectiveness of internal
control may vary over time.
The Company’s management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2010. Management’s assessment is based on the criteria
established in the
Internal Control — Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission and was designed to provide reasonable assurance that the
Company maintained effective internal control over financial reporting as of December 31, 2010.
Based on this assessment, management believes that the Company maintained effective internal
control over financial reporting as of December 31, 2010.
This annual report does not include an attestation report of the Company’s independent registered
public accounting firm regarding the effectiveness of internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s independent registered public
accounting firm pursuant to rules of the Securities Exchange Commission that permit the Company to
provide only the management’s report in this annual report.
Changes in Internal Control Over Financial Reporting.
During 2005, the Company underwent a
comprehensive effort to ensure compliance with the requirements under Section 404 of the
Sarbanes-Oxley Act of 2002. Continuing enhancements to the Company’s control environment were made
during 2010 as part of the Company’s ongoing efforts to improve internal control over financial
reporting. There have been no significant changes to the Company’s internal control over financial
reporting during the period covered by this report that have materially effected, or are reasonably
likely to affect, the Company’s internal control over financial reporting.
| Item 9B. |
Other Information
|
None.
109
Table of Contents
| Item 10. |
Directors, Executive Officers and Corporate Governance
|
The information required by this item is set forth under the captions “Election of Directors,”
“Corporate Governance and the Board of Directors” and “Section 16(a) Beneficial Ownership Reporting
Compliance” in the Company’s 2011 Proxy Statement and is incorporated herein by reference.
| Item 11. |
Executive Compensation
|
The information required by this item is set forth under the caption “Executive Compensation” in
the Company’s 2011 Proxy Statement and is incorporated herein by reference.
| Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
The information required by this item is set forth under the caption “Security Ownership of Certain
Beneficial Owners” in the Company’s 2011 Proxy Statement and is incorporated herein by reference,
or is presented below.
Equity Compensation Plan Information
The table below sets forth the following information as of December 31, 2010 for (i) all
compensation plans previously approved by the Company’s stockholders and (ii) all compensation
plans not previously approved by the Company’s stockholders:
| (a) |
the number of securities to be issued upon the exercise of outstanding options, warrants and rights;
|
||
| (b) |
the weighted-average exercise price of such outstanding options, warrants and rights; and
|
||
| (c) |
other than securities to be issued upon the exercise of such outstanding options, warrants and rights, the number of
securities remaining available for future issuance under the plans.
|
EQUITY COMPENSATION PLAN INFORMATION
| Number of securities | ||||||||||||
| Number of securities | remaining available for | |||||||||||
| to be issued upon | Weighted-average exercise | future issuance under | ||||||||||
| exercise of | price of outstanding | equity compensation plans | ||||||||||
| outstanding options, | options, warrants and | (excluding securities | ||||||||||
| warrants and rights | rights | reflected in column(a)) | ||||||||||
| Plan category | (a) | (b) | (c) | |||||||||
|
Equity compensation plans approved by stockholders
|
519,693 | $ | 13.90 | 519,693 | (1) | |||||||
|
Equity compensation plans
not approved by stockholders
|
— | — | — | |||||||||
|
|
||||||||||||
|
Total
|
519,693 | $ | 13.90 | 519,693 | (1) | |||||||
|
|
||||||||||||
| (1) |
Includes 45,397 shares available under the QCR Holdings, Inc. Employee Stock Purchase Plan.
|
110
Table of Contents
| Item 13. |
Certain Relationships and Related Transactions, and Director Independence
|
The information required by this item is set forth under the captions “Security Ownership of
Certain Beneficial Owners,” “Corporate Governance and the Board of Directors,” and “Transactions
with Management and Directors” in the Company’s 2011 Proxy Statement and is incorporated herein by
reference.
| Item 14. |
Principal Accountant Fees and Services
|
The information required by this item is set forth under the caption “Independent Registered Public
Accounting Firm” in the Company’s 2011 Proxy statement and is incorporated herein by reference.
| Item 15. |
Exhibits and Financial Statement Schedules
|
(a) 1. Financial Statements
These documents are listed in the Index to Consolidated Financial Statements under Item 8.
(a) 2. Financial Statement Schedules
Financial statement schedules are omitted, as they are not required or are not applicable,
or the required information is shown in the consolidated financial statements and the
accompanying notes thereto.
(a) 3. Exhibits
The following exhibits are either filed as a part of this Annual Report on Form 10-K or are
incorporated herein by reference:
| Exhibit | ||||
| Number | Exhibit Description | |||
|
|
||||
| 3.1 |
Certificate of Incorporation of QCR Holdings, Inc., as
amended (incorporated by reference to Exhibit 3.1 of the
Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2008).
|
|||
|
|
||||
| 3.2 |
Designations of Rights, Preferences and Limitations of
Series E Non-Cumulative Convertible Perpetual Preferred
Stock of the Registrant (incorporated herein by reference
to exhibit 99.1 of the Registrant’s Form 8-K filed on July
1, 2010).
|
|||
|
|
||||
| 3.3 |
Bylaws of QCR Holdings, Inc. (incorporated herein by
reference to Exhibit 3.1 of the Registrant’s Form 8-K dated
May 18, 2010).
|
|||
|
|
||||
| 4.1 |
Warrant to Purchase Common Stock (incorporated herein by
reference to Exhibit 4.2 of Registrant’s Form 8-K dated
February 13, 2009).
|
|||
|
|
||||
| 4.2 |
Form of 6.00% Series A Subordinated Note due September 1,
2018 (incorporated by reference to Exhibit 4.1 of
Registrant’s Form 8-K filed on March 22, 2010).
|
|||
111
Table of Contents
| Exhibit | ||||
| Number | Exhibit Description | |||
|
|
||||
| 4.3 |
Form of Warrant to Purchase
Common Stock (incorporated
herein by reference to
Exhibit 4.2 of Registrant’s
Form 8-K filed March 22,
2010).
|
|||
|
|
||||
| 10.1 |
Employment Agreement
between QCR Holdings, Inc.,
Quad City Bank and Trust
Company and Douglas M.
Hultquist dated January 1,
2004 (incorporated herein
by reference to Exhibit
10.2 of Registrant’s Annual
Report on Form 10-K for the
year ended December 31,
2003).
|
|||
|
|
||||
| 10.2 |
Lease Agreement between
Quad City Bank and Trust
Company and 56 Utica L.L.C.
(incorporated herein by
reference to Exhibit 10.5
of Registrant’s Annual
Report on Form 10-K for the
year ended June 30, 2000).
|
|||
|
|
||||
| 10.3 |
Employment Agreement
between Cedar Rapids Bank
and Trust Company and Larry
J. Helling dated January 1,
2004 (incorporated herein
by reference to Exhibit
10.6 of Registrant’s Annual
Report on Form 10-K for the
year ended December 31,
2003).
|
|||
|
|
||||
| 10.4 |
Employment Agreement
between QCR Holdings, Inc.
and Todd A. Gipple dated
January 1, 2004
(incorporated herein by
reference to Exhibit 10.11
of Registrant’s Annual
Report on Form 10-K for the
year ended December 31,
2003).
|
|||
|
|
||||
| 10.5 |
QCR Holdings, Inc. Employee
Stock Purchase Plan
(incorporated herein by
reference to Exhibit 10.1
of Registrant’s Form S-8,
file No. 333-101356 dated
November 20, 2002).
|
|||
|
|
||||
| 10.6 |
Dividend Reinvestment Plan
of QCR Holdings, Inc.
(incorporated herein by
reference to Exhibit 99.1
of Registrant’s Form S-3D,
File No. 333-102699 dated
January 24, 2003).
|
|||
|
|
||||
| 10.7 |
Indenture by and between
QCR Holdings, Inc. / QCR
Holdings Statutory Trust II
and U.S. Bank National
Association, as debenture
and institutional trustee,
dated February 18, 2004
(incorporated herein by
reference to Exhibit 10.1
of Registrant’s Quarterly
Report on Form 10-Q for the
quarter ended March 31,
2004).
|
|||
|
|
||||
| 10.8 |
Indenture by and between
QCR Holdings, Inc. / QCR
Holdings Statutory Trust
III and U.S. Bank National
Association, as debenture
and institutional trustee,
dated February 18, 2004
(incorporated herein by
reference to Exhibit 10.2
of Registrant’s Quarterly
Report on Form 10-Q for the
quarter ended March 31,
2004).
|
|||
|
|
||||
| 10.9 |
Lease Agreement between
Quad City Bank and Trust
Company and 127 North Wyman
Development, L.L.C. dated
November 3, 2004
(incorporated herein by
reference to Exhibit 10.1
of Registrant’s Quarterly
Report on Form 10-Q for the
period ended September 30,
2004).
|
|||
|
|
||||
| 10.10 |
2004 Stock Incentive Plan
of QCR Holdings, Inc.
(incorporated herein by
reference to Exhibit B of
Registrant’s Form Pre 14A,
filed March 5, 2004, File
No. 000-22208).
|
|||
|
|
||||
| 10.11 |
QCR Holdings, Inc. 2008 Equity Incentive
Plan (incorporated herein by reference to
Appendix A to QCR Holdings, Inc.’s
Definitive Proxy Statement on Schedule 14A
dated March 25, 2008).
|
|||
|
|
||||
| 10.12 |
Indenture by and between QCR Holdings,
Inc./QCR Holdings Statutory Trust IV and
Wells Fargo Bank, National Association, as
debenture and institutional trustee, dated
May 4, 2005 (incorporated herein by
reference to Exhibit 10.1 of Registrant’s
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005).
|
|||
112
Table of Contents
| Exhibit | ||||
| Number | Exhibit Description | |||
|
|
||||
| 10.13 |
Second Amended and Restated Operating
Agreement between Quad City Bank and Trust
Company and John Engelbrecht dated August
26, 2005 (incorporated herein by reference
to Exhibit 10.2 of Registrant’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2005).
|
|||
|
|
||||
| 10.14 |
Indenture by and between QCR Holdings,
Inc./QCR Holdings Statutory Trust V and
Wells Fargo Bank, National Association, as
debenture and institutional trustee, dated
February 24, 2006 (incorporated herein by
reference to Exhibit 10.27 of the
Registrant’s Annual Report on form 10-K for
the year ended December 31, 2005).
|
|||
|
|
||||
| 10.15 |
Employment Agreement by and between QCR
Holdings, Inc., Quad City Bank and Trust
Company and Michael A. Bauer, as amended
and restated December 14, 2006
(incorporated herein by reference to
Exhibit 10.31 of the Registrant’s Annual
Report on form 10-K for the year ended
December 31, 2006).
|
|||
|
|
||||
| 10.16 |
Letter Agreement, dated February 13, 2009,
by and between QCR Holdings, Inc., and the
United States Department of the Treasury,
which includes the Securities Purchase
Agreement — Standard Terms attached as
Exhibit A thereto, with respect to the
issuance and sale of Fixed Rate Cumulative
Perpetual Preferred Stock, Series D, and
the Warrant to Purchase Common Stock
(incorporated herein by reference to
Exhibit 10.1 of Registrant’s Form 8-K dated
February 13, 2009).
|
|||
|
|
||||
| 10.17 |
Form of Waiver, executed by each of the
Company’s senior executive officers
(incorporated herein by reference to
Exhibit 10.2 of Registrant’s Form 8-K dated
February 13, 2009).
|
|||
|
|
||||
| 10.18 |
Form of Omnibus Amendment, executed by the
Company and each of the Company’s senior
executive officers (incorporated herein by
reference to Exhibit 10.3 of Registrant’s
Form 8-K dated February 13, 2009).
|
|||
|
|
||||
| 10.19 |
First Amendment to the Employment Agreement
among QCR Holdings, Inc., Quad City Bank
and Trust Company and Douglas M. Hultquist
dated December 27, 2008 (incorporated by
reference to Exhibit 10.19 of the
Registrant’s Annual Report on Form 10-K for
the year ended December 31, 2008).
|
|||
|
|
||||
| 10.20 |
First Amendment to the Employment Agreement
between Cedar Rapids Bank and Trust
Companyand Larry J. Helling dated December
30, 2008 (incorporated by reference to
Exhibit 10.20 of the Registrant’s Annual
Report on Form 10-K for the year ended
December 31, 2008).
|
|||
|
|
||||
| 10.21 |
First Amendment to the Employment Agreement
between QCR Holdings, Inc. and Todd A.
Gipple dated December 30, 2008
(incorporated by reference to Exhibit 10.21
of the Registrant’s Annual Report on Form
10-K for the year ended December 31, 2008).
|
|||
|
|
||||
| 10.22 |
Executive Deferred Compensation Plan of QCR
Holdings, Inc. (incorporated by reference
to Exhibit 10.22 of the Registrant’s Annual
Report on Form 10-K for the year ended
December 31, 2008).
|
|||
|
|
||||
| 10.23 |
Executive Deferred Compensation Plan
Participation Agreement among QCR Holdings,
Inc., Quad City Bank and Trust Company and
Douglas M. Hultquist dated October 24, 2008
(incorporated by reference to Exhibit 10.23
of the Registrant’s Annual Report on Form
10-K for the year ended December 31, 2008).
|
|||
|
|
||||
| 10.24 |
Executive Deferred Compensation Plan
Participation Agreement between Cedar
Rapids Bank and Trust Company and Larry J.
Helling dated October 24, 2008
(incorporated by reference to Exhibit 10.24
of the Registrant’s Annual Report on Form
10-K for the year ended December 31, 2008).
|
|||
113
Table of Contents
| Exhibit | ||||
| Number | Exhibit Description | |||
|
|
||||
| 10.25 |
Executive Deferred Compensation Plan Participation Agreement between
QCR Holdings, Inc. and Todd A. Gipple dated October 24, 2008
(incorporated by reference to Exhibit 10.25 of the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2008).
|
|||
|
|
||||
| 10.26 |
Executive Deferred Compensation Plan Participation Agreement between
Quad City Bank and Trust Company and Michael A. Bauer dated December
31, 2008 (incorporated by reference to Exhibit 10.26 of the
Registrant’s Annual Report on Form 10-K for the year ended December
31, 2008).
|
|||
|
|
||||
| 10.27 |
Amended and Restated Non-Qualified Supplemental Executive Retirement
Plan of QCR Holdings, Inc. (incorporated by reference to Exhibit
10.27 of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2008).
|
|||
|
|
||||
| 10.28 |
Non-Qualified Supplemental Executive Retirement Plan Joinder
Agreement among QCR Holdings, Inc., Quad City Bank and Trust Company
and Douglas M. Hultquist dated December 31, 2008 (incorporated by
reference to Exhibit 10.28 of the Registrant’s Annual Report on Form
10-K for the year ended December 31, 2008).
|
|||
|
|
||||
| 10.29 |
Non-Qualified Supplemental Executive Retirement Plan Joinder
Agreement between Cedar Rapids Bank and Trust Company and Larry J.
Helling dated December 31, 2008 (incorporated by reference to
Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2008).
|
|||
|
|
||||
| 10.30 |
Non-Qualified Supplemental Executive Retirement Plan Joinder
Agreement between QCR Holdings, Inc. and Todd A. Gipple dated
December 31, 2008 (incorporated by reference to Exhibit 10.30 of the
Registrant’s Annual Report on Form 10-K for the year ended December
31, 2008).
|
|||
|
|
||||
| 10.31 |
Non-Qualified Supplemental Executive Retirement Plan Joinder
Agreement among QCR Holdings, Inc., Quad City Bank and Trust Company
and Michael A. Bauer dated December 31, 2008 (incorporated by
reference to Exhibit 10.31 of the Registrant’s Annual Report on Form
10-K for the year ended December 31, 2008).
|
|||
|
|
||||
| 10.32 |
2005 Deferred Income Plan of QCR Holdings, as amended and restated
on October 23, 2008 (incorporated by reference to Exhibit 10.32 of
the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2008).
|
|||
|
|
||||
| 21.1 |
Subsidiaries of QCR Holdings, Inc. (exhibit is being filed herewith).
|
|||
|
|
||||
| 23.1 |
Consent of Independent Registered Public Accounting Firm —
McGladrey & Pullen, LLP (exhibit is being filed herewith).
|
|||
|
|
||||
| 31.1 |
Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) (exhibit is being filed herewith).
|
|||
|
|
||||
| 31.2 |
Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) (exhibit is being filed herewith).
|
|||
|
|
||||
| 32.1 |
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (exhibit is being filed herewith).
|
|||
|
|
||||
| 32.2 |
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (exhibit is being filed herewith).
|
|||
|
|
||||
| 99.1 |
Certification of Chief Executive Officer pursuant to Section 111(b)
of the Emergency Economic Stabilization Act of 2008 (exhibit is
being filed herewith).
|
|||
|
|
||||
| 99.2 |
Certification of Chief Financial Officer pursuant to Section 111(b)
of the Emergency Economic Stabilization Act of 2008 (exhibit is
being filed herewith).
|
|||
114
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
QCR HOLDINGS, INC.
|
||||
| Dated: March 7, 2011 | By: | /s/ Douglas M. Hultquist | ||
| Douglas M. Hultquist | ||||
| President and Chief Executive Officer | ||||
| Dated: March 7, 2011 | By: | /s/ Todd A. Gipple | ||
| Todd A. Gipple | ||||
|
Executive Vice President, Chief Operating Officer,
and Chief Financial Officer |
||||
115
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant in the capacities and on the dates
indicated.
| Signature | Title | Date | ||
|
|
||||
|
/s/ James J. Brownson
|
Chairman of the Board of Directors | March 7, 2011 | ||
|
|
||||
|
/s/ Douglas M. Hultquist
|
President, Chief Executive Officer and Director | March 7, 2011 | ||
|
|
||||
|
/s/ Pat S. Baird
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ Todd A. Gipple
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ Larry J. Helling
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ Mark C. Kilmer
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ John K. Lawson
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ Charles M. Peters
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ Ronald G. Peterson
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ John A. Rife
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ Donna J. Sorensen, J.D.
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ John D. Whitcher
|
Director | March 7, 2011 | ||
|
|
||||
|
/s/ Marie Z. Ziegler
|
Director | March 7, 2011 |
116
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. [removed and Reserved]Part IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial StatementsNote 1. Nature Of Business and Significant Accounting PoliciesNote 1. Nature Of Business and Significant Accounting Policies (continued)Note 2. Discontinued OperationsNote 3. Comprehensive Income (loss)Note 4. Investment SecuritiesNote 4. Investment Securities (continued)Note 5. Loans/leases ReceivableNote 5. Loans/leases Receivable (continued)Note 6. Premises and EquipmentNote 7. DepositsNote 8. Short-term BorrowingsNote 9. Federal Home Loan Bank AdvancesNote 10. Other Borrowings and Unused Lines Of CreditNote 10. Other Borrowings and Unused Lines Of Credit (continued)Note 11. Junior Subordinated DebenturesNote 12. Preferred StockNote 12. Preferred Stock (continued)Note 13. Federal and State Income TaxesNote 13. Federal and State Income Taxes (continued)Note 14. Employee Benefit PlansNote 15. Stock-based CompensationNote 15. Stock-based Compensation (continued)Note 16. Regulatory Capital Requirements and Restrictions on DividendsNote 16. Regulatory Capital Requirements and Restrictions on Dividends (continued)Note 17. Earnings Per Common ShareNote 18. Commitments and ContingenciesNote 18. Commitments and Contingencies (continued)Note 19. Quarterly Results Of Operations (unaudited)Note 20. Parent Company Only Financial StatementsNote 20. Parent Company Only Financial Statements (continued)Note 21. Fair ValueNote 21. Fair Value (continued)Note 22. Business Segment InformationNote 22. Business Segment Information (continued)Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules