U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22208
QCR HOLDINGS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 42-1397595
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer ID Number)
incorporation or organization)
3551 7th Street, Suite 204, Moline, Illinois 61265
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(Address of principal executive offices)
(309) 736-3580
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ x ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: As of May 1, 2004, the
Registrant had outstanding 2,814,805 shares of common stock, $1.00 par value per
share.
1
QCR HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets, March 31, 2004 and
December 31, 2003 3
Consolidated Statements of Income, For the Three
Months Ended March 31, 2004 and 2003 4
Consolidated Statements of Cash Flows, For the Three
Months Ended March 31, 2004 and 2003 5
Notes to Consolidated Financial Statements 6-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-19
Item 3 Quantitative and Qualitative Disclosures About Market
Risk 20
Item 4 Controls and Procedures 20-21
Part II OTHER INFORMATION
Item 1 Legal Proceedings 22
Item 2 Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 22
Item 3 Defaults Upon Senior Securities 22
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 22
Signatures 23
2
QCR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 2004 and December 31, 2003
March 31, December 31,
2004 2003
------------------------------
ASSETS
Cash and due from banks ....................................................... $ 27,982,428 $ 24,427,573
Federal funds sold ............................................................ 3,620,000 4,030,000
Interest-bearing deposits at financial institutions ........................... 9,252,257 10,426,092
Securities held to maturity, at amortized cost ................................ 400,062 400,116
Securities available for sale, at fair value .................................. 131,035,636 128,442,926
------------------------------
131,435,698 128,843,042
------------------------------
Loans receivable held for sale ................................................ 4,455,639 3,790,031
Loans receivable held for investment .......................................... 557,209,272 518,681,380
Less: Allowance for estimated losses on loans ................................. (9,476,012) (8,643,012)
------------------------------
552,188,899 513,828,399
------------------------------
Premises and equipment, net ................................................... 12,945,866 12,028,532
Accrued interest receivable ................................................... 3,803,811 3,646,108
Bank-owned life insurance ..................................................... 15,126,153 3,085,797
Other assets .................................................................. 11,506,032 9,724,012
------------------------------
Total assets .......................................................... $ 767,861,144 $ 710,039,555
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing ......................................................... $ 114,349,314 $ 130,962,916
Interest-bearing ............................................................ 397,884,135 380,688,947
------------------------------
Total deposits ........................................................ 512,233,449 511,651,863
------------------------------
Short-term borrowings ......................................................... 85,673,698 51,609,801
Federal Home Loan Bank advances ............................................... 88,180,691 76,232,348
Other borrowings .............................................................. 0 10,000,000
Junior subordinated debentures ................................................ 32,620,000 12,000,000
Other liabilities ............................................................. 6,199,208 6,722,808
------------------------------
Total liabilities ..................................................... 724,907,046 668,216,820
------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; shares authorized 5,000,000; ...................... 2,872,808 2,863,990
March 2004 - shares issued 2,882,808 and outstanding 2,812,662 December 2003
- 2,863,990 and 2,803,844 respectively
Additional paid-in capital .................................................... 17,243,809 17,143,868
Retained earnings ............................................................. 21,702,666 20,866,749
Accumulated other comprehensive income ........................................ 1,989,351 1,802,664
------------------------------
43,808,634 42,677,271
Less cost of 60,146 common shares acquired for the treasury ................... (854,536) (854,536)
------------------------------
Total stockholders' equity ............................................ 42,954,098 41,822,735
------------------------------
Total liabilities and stockholders' equity ............................ $ 767,861,144 $ 710,039,555
==============================
See Notes to Consolidated Financial Statements
3
QCR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31
2004 2003
-----------------------
Interest and dividend income:
Loans, including fees ........................................... $7,468,485 $6,809,229
Securities:
Taxable ....................................................... 991,405 806,169
Nontaxable .................................................... 142,812 120,257
Interest-bearing deposits at financial institutions ............. 71,515 123,062
Federal funds sold .............................................. 4,590 47,350
-----------------------
Total interest and dividend income ........................ 8,678,807 7,906,067
-----------------------
Interest expense:
Deposits ........................................................ 1,503,181 1,869,065
Short-term borrowings ........................................... 142,250 87,308
Federal Home Loan Bank advances ................................. 800,135 766,247
Other borrowings ................................................ 35,878 51,960
Junior subordinated debentures .................................. 421,425 283,376
-----------------------
Total interest expense .................................... 2,902,869 3,057,956
-----------------------
Net interest income ....................................... 5,775,938 4,848,111
Provision for loan losses ........................................ 856,841 1,330,427
-----------------------
Net interest income after provision for loan losses 4,919,097 3,517,684
-----------------------
Noninterest income:
Merchant credit card fees, net of processing costs .............. 539,198 337,493
Trust department fees ........................................... 680,804 561,142
Deposit service fees ............................................ 409,344 330,848
Gains on sales of loans, net .................................... 261,418 955,409
Other ........................................................... 473,518 303,931
-----------------------
Total noninterest income .................................. 2,364,282 2,488,823
-----------------------
Noninterest expenses:
Salaries and employee benefits .................................. 3,151,801 2,884,792
Professional and data processing fees ........................... 465,276 429,070
Advertising and marketing ....................................... 213,792 148,756
Occupancy and equipment expense ................................. 730,990 651,697
Stationery and supplies ......................................... 136,945 110,277
Postage and telephone ........................................... 166,280 153,565
Bank service charges ............................................ 137,842 111,682
Insurance ....................................................... 106,040 106,806
Loss on redemption of junior subordinated debentures ............ 747,490 --
Other ........................................................... 238,178 187,198
-----------------------
Total noninterest expenses ................................ 6,094,634 4,783,843
-----------------------
Income before income taxes ................................ 1,188,745 1,222,664
Federal and state income taxes .................................... 352,828 395,716
-----------------------
Net income ................................................ $ 835,917 $ 826,948
=======================
Earnings per common share: *
Basic ........................................................... $ 0.20 $ 0.20
Diluted ......................................................... $ 0.19 $ 0.19
Weighted average common shares outstanding ...................... 4,214,475 4,150,518
Weighted average common and common equivalent ................... 4,338,620 4,241,589
shares outstanding
Comprehensive income .............................................. $1,022,604 $ 902,380
=======================
* Share and per share data has been retroactively adjusted to effect a 3:2
common stock split declared on April 22, 2004, as if it had occurred on
January 1, 2003.
See Notes to Consolidated Financial Statements
4
QCR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31
2004 2003
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................... $ 835,917 $ 826,948
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ....................................................... 329,183 260,564
Provision for loan losses .......................................... 856,841 1,330,427
Amortization of offering costs on subordinated debentures .......... 7,196 7,376
Loss on redemption of junior subordinated debentures ............... 747,490 --
Amortization of premiums on securities, net ........................ 310,661 113,510
Loans originated for sale .......................................... (20,203,620) (62,183,071)
Proceeds on sales of loans ......................................... 19,799,430 66,168,038
Net gains on sales of loans ........................................ (261,418) (955,409)
Net losses on sales of premises and equipment ...................... 0 40,299
Tax benefit of nonqualified stock options exercised ................ 83,301 97,538
Increase in accrued interest receivable ............................ (157,703) (127,440)
(Increase) decrease in other assets ................................ (2,650,990) 11,608,294
Decrease in other liabilities ...................................... (355,762) (2,174,955)
---------------------------
Net cash provided by (used in) operating activities ............ $ (659,474) $15,012,119
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold .................................. 410,000 1,710,000
Net decrease in interest-bearing deposits at financial institution ... 1,173,835 558,407
Activity in securities portfolio:
Purchases .......................................................... (16,913,019) (11,597,571)
Calls and maturities ............................................... 13,950,000 4,000,000
Paydowns ........................................................... 360,673 1,391,185
Activity in bank-owned life insurance:
Purchases .......................................................... (11,950,717) --
Increase in cash value ............................................. (89,639) (24,257)
Net loans originated and held for investment ......................... (38,551,733) (26,201,294)
Purchase of premises and equipment ................................... (1,250,899) (314,430)
Proceeds from sales of premises and equipment ........................ 4,382 222,067
----------------------------
Net cash used in investing activities .......................... $(52,857,117) $(30,255,893)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts ..................................... 581,586 12,807,265
Net increase in short-term borrowings ................................ 34,063,897 2,522,364
Activity in Federal Home Loan Bank advances:
Advances ........................................................... 18,000,000 3,900,000
Payments ........................................................... (6,051,657) (1,444,308)
Net (decrease) increase in other borrowings .......................... (10,000,000) 2,000,000
Proceeds from issuance of junior subordinated debentures ............. 20,620,000 --
Payment of cash dividends ............................................ (167,838) (138,146)
Proceeds (cost) from issuance of common stock, net ................... 25,458 (55,798)
----------------------------
Net cash provided by financing activities ...................... $ 57,071,446 $19,591,377
----------------------------
Net increase in cash and due from banks ........................ 3,554,855 4,347,603
Cash and due from banks, beginning ..................................... 24,427,573 24,906,003
----------------------------
Cash and due from banks, ending ........................................ $ 27,982,428 $ 29,253,606
============================
Supplemental disclosure of cash flow information, cash payments for:
Interest ............................................................. $ 3,778,526 $ 3,449,277
============================
Income/franchise taxes ............................................... $ 44,635 $ 1,624,553
============================
Supplemental schedule of noncash investing activities:
Change in accumulated other comprehensive income,
unrealized gains on securities available for sale, net ............. $ 186,687 $ 75,432
============================
See Notes to Consolidated Financial Statements
5
Part I
Item 1
QCR HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include information
or footnotes necessary for a fair presentation of financial position, results of
operations and changes in financial condition in conformity with accounting
principles generally accepted in the United States of America. However, all
adjustments that are, in the opinion of management, necessary for a fair
presentation have been included. Any differences appearing between numbers
presented in financial statements and management's discussion and analysis are
due to rounding. Results for the period ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004.
Certain amounts in the prior period financial statements have been reclassified,
with no effect on net income or stockholders' equity, to conform with the
current period presentation.
Principles of consolidation: The accompanying consolidated financial statements
include the accounts of QCR Holdings, Inc. (the "Company"), a Delaware
corporation, and its wholly owned subsidiaries, Quad City Bank and Trust Company
("Quad City Bank & Trust"), Cedar Rapids Bank and Trust Company ("Cedar Rapids
Bank & Trust"), Quad City Bancard, Inc. ("Bancard"), and Quad City Liquidation
Corporation ("QCLC"). All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company also wholly owns QCR Holdings
Capital Trust I ("Trust I"), QCR Holdings Statutory Trust II ("Trust II"), and
QCR Holdings Statutory Trust III ("Trust III"). These three entities were all
established by the Company for the sole purpose of issuing trust preferred
securities. As required by a ruling of the Securities and Exchange Commission in
December 2003, the Company's equity investments in these entities are not
consolidated, but are included in other assets on the consolidated balance sheet
for $1.0 million in aggregate. In addition to these six wholly owned
subsidiaries, the Company has an aggregate investment of $389 thousand in three
associated companies, Nobel Electronic Transfer, LLC, Nobel Real Estate
Investors, LLC, and Velie Plantation Holding Company. The Company owns 20%
equity positions in each of these associated companies.
Stock-based compensation plans: The Company accounts for its stock-based
employee compensation plans under the recognition and measurement principles of
APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
Three Months Ended March 31,
----------------------------
2004 2003
----------------------------
Net income, as reported ........................ $ 835,917 $ 826,948
Deduct total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects ........... (33,699) (26,197)
-------------------------
Net income ............................. $ 802,218 $ 800,751
=========================
Earnings per share: *
Basic:
As reported ................................ $ 0.20 $ 0.20
Pro forma .................................. $ 0.19 $ 0.19
Diluted:
As reported ................................ 0.19 0.19
Pro forma .................................. 0.19 0.19
* Share and per share data has been retroactively adjusted to effect a 3:2
common stock split declared on
6
April 22, 2004, as if it had occurred on January 1, 2003.
In determining compensation cost using the fair value method prescribed in
Statement No. 123, the value of each grant is estimated at the grant date with
the following weighted-average assumptions for grants during the three months
ended March 31, 2004 and 2003: dividend rate of 0.38% to 0.43% for the three
months ended March 31, 2004 and 0.59% for the three months ended March 31, 2003;
expected price volatility of 23.87% to 24.69%; risk-free interest rate based
upon current rates at the date of grants (4.10% to 4.57% for stock options and
0.95% to 1.29% for the employee stock purchase plan); and expected lives of 10
years for stock options and 3 months to 6 months for the employee stock purchase
plan.
NOTE 2 - EARNINGS PER SHARE
The following information was used in the computation of earnings per share on a
basic and diluted basis. Share and per share data has been retroactively
adjusted to effect a 3:2 common stock split declared on April 22, 2004 and
payable on May 28, 2004, as if it had occurred on January 1, 2003.
Three months ended
March 31,
-----------------------
2004 2003
-----------------------
Net income, basic and diluted
Earnings ......................................... $ 835,917 $ 826,948
=======================
Weighted average common shares
Outstanding ...................................... 4,214,475 4,150,518
Weighted average common shares
issuable upon exercise of stock
options under the employee
stock purchase plan .............................. 124,145 91,071
-----------------------
Weighted average common and
common equivalent shares
outstanding ...................................... 4,338,620 4,241,589
=======================
NOTE 3 - BUSINESS SEGMENT INFORMATION
Selected financial information on the Company's business segments is presented
as follows for the three-month periods ended March 31, 2004 and 2003,
respectively.
Three Months Ended March 31,
---------------------------------
2004 2003
---------------------------------
Revenue:
Commercial banking ................. $ 9,649,545 $ 9,354,948
Credit card processing ............. 584,679 381,510
Trust management ................... 680,804 561,142
All other .......................... 128,061 97,290
---------------------------------
Total revenue ................ $ 11,043,089 $ 10,394,890
=================================
Net income (loss):
Commercial banking ................. $ 1,269,619 $ 879,706
Credit card processing ............. 244,864 157,707
Trust management ................... 199,475 128,652
All other .......................... (878,041) (339,117)
---------------------------------
Total net income ............. $ 835,917 $ 826,948
=================================
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company's 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.
7
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.
Standby letters of credit are conditional commitments issued by the 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 March 31, 2004 and December 31, 2003, no
amounts were recorded as liabilities for the banks' potential obligations under
these guarantees.
As of March 31, 2004 and December 31, 2003, commitments to extend credit
aggregated $207.0 million and $194.9 million, respectively. As of March 31, 2004
and December 31, 2003, standby letters of credit aggregated $10.0 million and
$6.0 million, 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 $4.5 million and $3.8 million, at March 31,
2004 and December 31, 2003, respectively. These amounts are included in loans
held for sale at the respective balance sheet dates.
Bancard is subject to the risk of cardholder chargebacks and its merchants being
incapable of refunding the amount charged back. Management attempts to mitigate
such risk by regular monitoring of merchant activity and in appropriate cases,
holding cash reserves deposited by the merchant.
The Company also has a guarantee to MasterCard International, Incorporated,
which is backed up by a performance bond in the amount of $1.0 million. As of
March 31, 2004 and December 31, 2003, there were no significant pending
liabilities.
A significant portion of residential mortgage loans sold to investors in the
secondary market are sold with recourse. Specifically, certain loan sales
agreements provide that if the borrower becomes delinquent a number of payments
or a number of days, within six months to one year of the sale, the banks must
repurchase the loan from the subject investor. The banks did not repurchase any
loans from secondary market investors under the terms of these loan sales
agreements during the three months ended March 31, 2004 and the year ended
December 31, 2003, respectively. In the opinion of management, the risk of
recourse to the banks is not significant and, accordingly, no liability has been
established related to such.
NOTE 5 - JUNIOR SUBORDINATED DEBENTURES
In June 1999, the Company issued 1,200,000 shares of 9.2% cumulative trust
preferred securities through a newly formed subsidiary, Trust I, which used the
proceeds from the sale of the trust preferred securities to purchase junior
subordinated debentures of the Company. These securities were $12.0 million at
both March 31, 2004 and December 31, 2003. In February 2004, the Company issued,
in a private transaction, $8.0 million of floating rate trust preferred
securities and $12.0 million of fixed rate trust preferred securities through
two newly formed subsidiaries, Trust II and Trust III, respectively. Trust II
and Trust III also used the proceeds from the sale of the trust preferred
securities to purchase junior subordinated debentures of the Company. These
securities were $20.0 million in aggregate at March 31, 2004. In February 2004,
the Company used net proceeds from the new issuance for general corporate
purposes, and intends to redeem on June 30, 2004, the $12.0 million of 9.2%
cumulative trust preferred securities issued by Trust I in 1999. The quarter
ended March 31, 2004 reflected a $747 thousand loss on the anticipated
redemption of these trust preferred securities at their earliest call date,
which resulted from the one-time write-off of unamortized costs related to the
issuance of the trust preferred securities in 1999.
8
NOTE 6 - RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standard Board has issued Interpretation (FIN) No. 46
"Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin No. 51.", which, for the Company, was effective for the year
ending December 31, 2003. FIN 46 establishes accounting guidance for
consolidation of variable interest entities (VIE), that function to support the
activities of the primary beneficiary. The primary beneficiary of a VIE entity
is the entity that absorbs a majority of the VIE's expected losses, receives a
majority of the VIE's expected residual returns, or both, as a result of
ownership, controlling interest, contractual relationship or other business
relationship with a VIE. Prior to the implementation of FIN 46, VIEs were
generally consolidated by an enterprise when the enterprise had a controlling
financial interest through ownership of a majority of voting interest in the
entity. Under the provisions of FIN 46, QCR Holdings Capital Trust I no longer
met the criteria for consolidation and, as such, is no longer consolidated in
these financial statements. FIN 46 was adopted on December 31, 2003 via a
retroactive restatement of the prior year's financial statements. There was no
cumulative effect on stockholders' equity from this adoption. In addition, under
FIN 46, QCR Holdings Statutory Trust II and Trust III, which were established
during the three months ended March 31, 2004, although 100% owned by the
Company, do not meet the criteria for consolidation, and as such, are not
consolidated in these financial statements.
In July 2003, the Board of Governors of the Federal Reserve System issued a
supervisory letter instructing bank holding companies to continue to include
trust preferred securities in their Tier I capital for regulatory capital
purposes until notice is given to the contrary. The Federal Reserve intends to
review the regulatory implications of this accounting change and, if necessary
or warranted, provide further appropriate guidance. No further definitive
guidance has been issued to date and, as such, the $12 million in trust
preferred securities issued by QCR Capital Trust I were included in Tier I
capital for regulatory capital purposes, up to the regulatory maximum of 25%, at
both March 31, 2004 and December 31, 2003. There can be no assurance that the
Federal Reserve will continue to permit institutions to include trust preferred
securities in Tier I capital in the future. Assuming the Company was not
permitted to include these securities in Tier I capital at both March 31, 2004
and December 31, 2003, the Company would still exceed the regulatory required
minimums for capital adequacy purposes.
In February 2004, the Company issued, in a private transaction, $8.0 million of
floating rate capital securities and $12.0 million of fixed rate capital
securities of QCR Holdings Statutory Trust II ("Trust II") and QCR Holdings
Statutory Trust III ("Trust III"), respectively. The securities represent
undivided beneficial interests in Trust II and Trust III, which were established
by the Company for the purpose of issuing the trust preferred securities. Trust
II and Trust III used the proceeds from the sale of the trust preferred
securities to purchase junior subordinated debentures of the Company. In
February 2004, the Federal Reserve provided confirmation to the Company for
their treatment of these new issuances as Tier 1 capital for regulatory capital
purposes, subject to current established limitations. The Company used its net
proceeds for general corporate purposes, and intends to redeem on June 30, 2004,
the $12.0 million of 9.2% cumulative trust preferred securities issued by Trust
I in 1999.
The Accounting Standards Executive Committee has issued Statement of Position
(SOP) 03-3 "Accounting for Certain Loans or Debt Securities Acquired in a
Transfer". This Statement applies to all loans acquired in a transfer, including
those acquired in the acquisition of a bank or a branch, and provides that such
loans be accounted for at fair value with no allowance for loan losses, or other
valuation allowance, permitted at the time of acquisition. The difference
between cash flows expected at the acquisition date and the investment in the
loan should be recognized as interest income over the life of the loan. If
contractually required payments for principal and interest are less than
expected cash flows, this amount should not be recognized as a yield adjustment,
a loss accrual, or a valuation allowance. For the Company, this Statement is
effective for calendar year 2005 and, early adoption, although permitted, is not
planned. No significant impact is expected on the consolidated financial
statements at the time of adoption.
9
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
QCR Holdings, Inc. is the parent company of Quad City Bank & Trust, Cedar Rapids
Bank & Trust, and Quad City Bancard, Inc.
Quad City Bank & Trust and Cedar Rapids Bank & Trust are Iowa-chartered
commercial banks that are members of the Federal Reserve System with depository
accounts insured to the maximum amount permitted by law by the Federal Deposit
Insurance Corporation. Quad City Bank & Trust commenced operations in 1994 and
provides full-service commercial and consumer banking, and trust and asset
management services to the Quad City area and adjacent communities through its
four offices that are located in Bettendorf and Davenport, Iowa and Moline,
Illinois. Cedar Rapids Bank & Trust commenced operations in 2001 and provides
full-service commercial and consumer banking service to Cedar Rapids and
adjacent communities through its office located in the GreatAmerica Building in
downtown Cedar Rapids, Iowa.
Bancard provides merchant and cardholder credit card processing services. In
October 2002, the Company sold Bancard's independent sales organization (ISO)
related merchant credit card operations to iPayment, Inc. Until September 24,
2003, Bancard continued to temporarily process transactions for iPayment, Inc.,
and approximately 32,500 merchants. Since iPayment, Inc. discontinued processing
with Bancard, processing volumes have decreased significantly. Bancard does,
however, continue to provide credit card processing for its local merchants and
agent banks and for cardholders of the Company's subsidiary banks.
OVERVIEW
Net income for the first quarter of 2004 was $836 thousand as compared to net
income of $827 thousand for the same period in 2003, an increase of $9 thousand
or 1%. Basic earnings per share for both the first quarter of fiscal 2003 and
the first quarter of 2004 were $0.20. As a result of the common stock split
announced on April 23, 3004 and payable on May 28, 2004, all share and per share
data has been retroactively adjusted to effect a three-for-two common stock
split as if it had occurred on January 1, 2003. For the quarter ended March 31,
2004, net interest income improved by $928 thousand, or 19%, while, as a result
of the dramatic drop in residential mortgage refinancing and the proportionate
decrease in gain on sales of loans, noninterest income declined by $125
thousand, or 5%, to combine for a net improvement of $803 thousand when compared
to the same period in 2003. Enhancing this 11% improvement in revenue for the
Company was a decline in the provision for loan losses of 36%. The first quarter
of 2004 reflected an increase in noninterest expense of 27% when compared to the
same period in 2003. The increase in noninterest expense was predominately due
to the one-time write-off of unamortized costs relating to the issuance of trust
preferred securities ("TPS"), in combination with growth in salaries and
employee benefits. After-tax income at Cedar Rapids Bank & Trust was $114
thousand for the three months ended March 31, 2004, as compared to after-tax
losses of $54 thousand for the same period in 2003. Profitability at the new
bank charter has increased at a pace anticipated by management, and Cedar Rapids
Bank & Trust's growth has been more rapid than expected, as total assets were
$171.0 million at March 31, 2004.
In March 2004, as a result of the Company's intent to redeem $12.0 million of
trust preferred securities issued in 1999 at their June 30, 2004 call date, the
Company realized significant non-recurring expense in the form of a write-off of
unamortized TPS issuance costs. This refinancing strategy, expected to provide
long-term benefits for the Company, resulted in an increase to noninterest
expense of $747 thousand, and combined with the additional interest costs of the
new trust preferred securities, reduced first quarter after-tax net income $558
thousand, or $0.13 in diluted earnings per share. Excluding this one-time
write-off of unamortized TPS issuance costs and the additional interest costs,
net income for the three months ended March 31, 2004 would have been $1.4
million, or diluted earnings per share of $0.32. Although excluding the impact
of this event is a non-GAAP measure, management believes that it is important to
provide such information due to the non-recurring nature of this expense and to
more accurately compare the results of the periods presented.
The Company's operating results are derived largely from net interest income.
Net interest income is the difference between interest income, principally from
loans and investment securities, and interest expense, principally on borrowings
and customer deposits. Changes in net interest income result from changes in
volume, net interest spread and net interest margin. Volume refers to the
average dollar levels of interest-earning assets and interest-bearing
liabilities. Net interest spread refers to the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities. Net interest margin refers to the net interest income divided by
average interest-earning assets and is influenced by the level and relative mix
of interest-earning assets and interest-bearing liabilities.
10
The Company realized a 0.03% increase in the net interest spread increasing from
3.07% for the three months ended March 31, 2003 to 3.10% for the three months
ended March 31, 2004. The average yield on interest-earning assets decreased
0.47% for the three months ended March 31, 2004 when compared to the same period
ended March 31, 2003. At the same time, the average cost of interest-bearing
liabilities decreased 0.50%. The stability of the net interest spread resulted
in only a minor reduction in the Company's net interest margin percentage. For
the three months ended March 31, 2004, the net interest margin was 3.45%
compared to 3.47% for the same period in 2003. Without the intended redemption
of $12.0 million of capital securities issued in June, 1999, the related
issuance of $20.6 million in new trust preferred securities, and the subsequent
pay-off of the Company's $10.0 million line of credit, the Company's net
interest margin would have actually improved 0.05% from the comparable period
one year ago to 3.52% for the three months ended March 31, 2004. Management
aggressively managed the Company's cost of funds through the dramatic drop in
short-term interest rates in 2001 and the continuation of a low interest rate
environment throughout 2002 and 2003, and continues to closely monitor and
manage net interest margin.
Consolidated Average Balance Sheets and Analysis of Net Interest Earnings
For the three months ended March 31,
-----------------------------------------------------------------
2004 2003
------------------------------ ---------------------------------
Interest Average Interest Average
Average Earned Yield or Average Earned Yield or
Balance or Paid Cost Balance or Paid Cost
-----------------------------------------------------------------
ASSETS
Interest earnings assets:
Federal funds sold ............................ $ 4,368 $ 5 0.46% $ 19,118 $ 47 0.98%
Interest-bearing deposits at
financial institutions ...................... 10,956 71 2.59% 13,820 123 3.56%
Investment securities (1) ..................... 125,819 1,208 3.84% 81,473 988 4.85%
Gross loans receivable (2) .................... 536,763 7,468 5.57% 451,251 6,809 6.04%
------------------- ----------------------
Total interest earning assets ......... 677,906 8,752 5.16% 565,662 7,967 5.63%
Noninterest-earning assets:
Cash and due from banks ....................... $ 29,625 $ 26,063
Premises and equipment ........................ 12,477 9,050
Less allowance for estimated losses on loans .. l(8,972) (7,186)
Other ......................................... 26,161 14,259
-------- ---------
Total assets ............................... $737,197 $ 607,848
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits .............. $172,094 322 0.75% $ 141,034 365 1.04%
Savings deposits .............................. 14,571 12 0.33% 11,977 17 0.57%
Time deposits ................................. 202,297 1,169 2.31% 193,312 1,488 3.08%
Short-term borrowings ......................... 63,883 142 0.89% 38,119 87 0.91%
Federal Home Loan Bank advances ............... 83,553 800 3.83% 76,104 766 4.03%
Junior subordinated debentures ................ 22,310 422 7.57% 12,000 283 9.43%
Other borrowings .............................. 5,000 36 2.88% 6,000 52 3.47%
------------------- ----------------------
Total interest-bearing
liabilities ............................ 563,708 2,903 2.06% 478,546 3,058 2.56%
Noninterest-bearing demand .................... 120,858 86,112
Other noninterest-bearing
liabilities ................................ 10,989 6,090
Total liabilities ............................. 695,555 570,748
Stockholders' equity .......................... 41,642 37,100
-------- ---------
Total liabilities and
stockholders' equity ..................... $737,197 $ 607,848
======== =========
Net interest income ........................... $5,849 $ 4,909
====== ========
Net interest spread ........................... 3.10% 3.07%
====== ======
Net interest margin ........................... 3.45% 3.47%
====== ======
Ratio of average interest earning assets to
average interest-bearing liabilities ........ 120.26% 118.20%
======== ========
(1) Interest earned and yields on nontaxable investment securities are
determined on a tax equivalent basis using a 34% tax rate for each period
presented.
(2) Loan fees are not material and are included in interest income from loans
receivable.
11
Analysis of Changes of Interest Income/Interest Expense
For the three months ended March 31, 2004
Components
Inc./(Dec.) of Change (1)
from ------------------
Prior Period Rate Volume
--------------------------------
2004 vs. 2003
--------------------------------
(Dollars in Thousands)
INTEREST INCOME
Federal funds sold ................................ $ (42) $ (17) $ (25)
Interest-bearing deposits at financial institutions (52) (30) (22)
Investment securities (2) ......................... 220 (1,130) 1,350
Gross loans receivable (3) ........................ 659 (2,816) 3,475
--------------------------------
Total change in interest income ........... $ 785 $(3,993) $ 4,778
--------------------------------
INTEREST EXPENSE
Interest-bearing demand deposits .................. $ (43) $ (382) $ 339
Savings deposits .................................. (5) (23) 18
Time deposits ..................................... (319) (736) 417
Short-term borrowings ............................. 55 (15) 70
Federal Home Loan Bank advances ................... 34 (188) 222
Junior subordinated debentures .................... 139 (338) 477
Other borrowings .................................. (16) (8) (8)
--------------------------------
Total change in interest expense .......... $ (155) $(1,690) $ 1,535
--------------------------------
Total change in net interest income ............... $ 940 $(2,303) $ 3,243
================================
(1) The column "increase/decrease from prior period" is segmented into the
changes attributable to variations in volume and the changes attributable
to changes in interest rates. The variations attributable to simultaneous
volume and rate changes have been proportionately allocated to rate and
volume.
(2) Interest earned and yields on nontaxable investment securities are
determined on a tax equivalent basis using a 34% tax rate for each period
presented.
(3) Loan fees are not material and are included in interest income from loans
receivable.
CRITICAL ACCOUNTING POLICY
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 losses.
The Company's allowance for loan loss methodology incorporates a variety of risk
considerations, both quantitative and qualitative in establishing an allowance
for loan 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, changes in nonperforming
loans, and other factors. Quantitative factors also incorporate known
information about individual loans, 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 state of certain industries. Size and complexity of
individual credits in relation to loan structure, existing loan 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 portfolio, it will enhance its methodology accordingly. Management
may report a materially different amount for the provision for loan losses in
the statement of operations to change the allowance for loan losses if its
assessment of the above factors were different. This discussion and analysis
should be read in conjunction with the Company's financial statements and the
accompanying notes presented elsewhere herein, as well as the portion of this
Management's Discussion and Analysis, which discusses the allowance for loan
losses in the section entitled "Financial Condition." Although management
believes the levels of the allowance as of both March 31, 2004 and December 31,
2003 were adequate to absorb losses inherent in the loan portfolio, a decline in
local economic conditions, or other factors, could result in increasing losses
that cannot be reasonably predicted at this time.
12
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
Interest income increased by $773 thousand to $8.7 million for the three-month
period ended March 31, 2004 when compared to $7.9 million for the quarter ended
March 31, 2003. The increase of 10% in interest income was attributable to
greater average, outstanding balances in interest earning assets, principally
with respect to loans receivable, partially offset by significant reductions in
interest rates. The Company's average yield on interest-earning assets decreased
0.47% for the three months ended March 31, 2004 when compared to the three
months ended March 31, 2003.
Interest expense decreased by $156 thousand from $3.1 million for the
three-month period ended March 31, 2003 to $2.9 million for the three-month
period ended March 31, 2004. The 5% decrease in interest expense was the result
of a combination of significant reductions in interest rates, principally with
respect to customers' deposits in subsidiary banks, almost entirely offset by
greater average, outstanding balances in interest-bearing liabilities,
principally with respect to junior subordinated debentures and customers'
deposits in subsidiary banks. The Company's average cost of interest-bearing
liabilities was 2.06% for the three months ended March 31, 2004, which was down
0.50% when compared to the three months ended March 31, 2003. Without the
intended redemption of $12.0 million of trust preferred securities issued in
1999, the related issuance of new trust preferred securities, and the subsequent
pay-off of the Company's line of credit, the Company's average cost of
interest-bearing liabilities would have instead decreased from 2.56% for the
comparable period one year ago to 2.00% for the three months ended March 31,
2004. Although excluding the impact of these events is a non-GAAP measure,
management believes that it is important to provide such information due to the
non-recurring nature of the related expense and to more accurately compare the
results of the periods presented.
At March 31, 2004 and December 31, 2003, the Company had an allowance for
estimated losses on loans of 1.69% and 1.65%, respectively, of gross loans. The
provision for loan losses decreased by $474 thousand from $1.3 million for the
three-month period ended March 31, 2003 to $857 thousand for the three-month
period ended March 31, 2004. During the first quarter of 2004, management made
monthly provisions for loan losses based upon a number of factors, including the
increase in loans and a detailed analysis of the loan portfolio. During the
first quarter of 2004, the $857 thousand provision to the allowance for loan
losses was attributed 77%, or $661 thousand, to net growth in the loan
portfolio, and 23%, or $196 thousand, to downgrades within the portfolio. For
the three months ended March 31, 2004, there were no commercial loan
charge-offs, and there were commercial recoveries of $10 thousand. Consumer loan
charge-offs and recoveries totaled $59 thousand and $25 thousand, respectively,
during the quarter. Credit card loans accounted for 39% of the first quarter
consumer charge-offs. Residential real estate loans had no charge-offs or
recoveries for the three months ended March 31, 2004.
Noninterest income of $2.4 million for the three-month period ended March 31,
2004 was a $125 thousand, or 5%, decrease from $2.5 million for the three-month
period ended March 31, 2003. Noninterest income during each of the quarters in
comparison consisted primarily of income from the merchant credit card
operation, fees from the trust department, depository service fees, gains on the
sale of residential real estate mortgage loans, and other miscellaneous income.
The quarter ended March 31, 2004, when compared to the same quarter in 2003,
posted a $202 thousand increase in fees earned by the merchant credit card
operations of Bancard. Gains on the sale of residential real estate mortgage
loans, net, decreased $694 thousand from the quarter ended March 31, 2003 to the
same quarter in 2004, as a result of the significant decline in the refinancing
of residential home mortgages. Additional variations in noninterest income
consisted of a $120 thousand increase in trust department fees, a $78 thousand
increase in deposit service fees, and a $170 thousand increase in other
noninterest income. Other noninterest income in each quarter consisted primarily
of investment advisory and management fees, earnings on the cash surrender value
of life insurance, and income from associated companies.
Merchant credit card fees, neet of processing costs for the three months ended
March 31, 2004 increased by 60% to $539 thousand from $337 thousand for the
first quarter of 2003. In October 2002, the Company sold Bancard's ISO related
merchant credit card operations to iPayment, Inc., and Bancard's core business
focus was shifted to processing for its agent banks, cardholders, and local
merchants. Through September 2003, Bancard continued to process ISO related
transactions for iPayment, Inc. for a fixed monthly service fee, which increased
as the temporary processing period was extended. For the first quarter of 2003,
fixed monthly service fees collected from iPayment totaled $225 thousand, and
Bancard's core merchant credit card fees, net of processing costs were $182
thousand. In September 2003, the transfer of the ISO related Visa/Mastercard
processing activity to iPayment, Inc. was completed and significantly reduced
Bancard's exposure to risk of credit card loss that the ISO activity carried
with it. Bancard had established and carried ISO reserves, which provided
coverage for this exposure. In March 2004, the Company recognized a recovery of
$144 thousand from a reduction in these ISO reserves. Less this recovery and an
additional $50 thousand of service fees collected from iPayment, Bancard's core
merchant credit card fees, net of processing costs were $345 thousand for the
first three months of 2004, or an improvement of 190% over the first three
months of the previous year.
13
For the quarter ended March 31, 2004, trust department fees increased $120
thousand, or 21%, to $681 thousand from $561 thousand for the same quarter in
2003. There was continued development of existing trust relationships and the
addition of new trust customers throughout the past twelve months, as well as an
improvement in market values of securities held in trust accounts, when compared
to one year ago. Each of these factors had a resulting impact in the calculation
and realization of trust fees.
Deposit service fees increased $78 thousand, or 24%, to $409 thousand from $331
thousand for the three-month periods ended March 31, 2004 and March 31, 2003,
respectively. This increase was primarily a result of the growth in noninterest
bearing demand deposit accounts of $24.4 million, or 27%, since March 31, 2003.
Service charges and NSF (non-sufficient funds) charges related to demand deposit
accounts were the main components of deposit service fees.
Gains on sales of loans, net, were $261 thousand for the three months ended
March 31, 2004, which reflected a decrease of 73%, or $694 thousand, from $955
thousand for the three months ended March 31, 2003. The decrease resulted from
the steep decline in mortgage refinances, which has been experienced in recent
months, and its effect on the subsequent sale of the majority of residential
mortgages into the secondary market. Management anticipates that the level of
gains on sales of loans, net, will continue to be depressed significantly from
those experienced throughout much of 2003.
For the quarter ended March 31, 2004, other noninterest income increased $170
thousand, or 56%, to $474 thousand from $304 thousand for the same quarter in
2003. The increase was primarily due to a combination of the improved generation
of investment advisory and management fees from the subsidiary banks' investment
center operations, increased earnings on the cash surrender value of life
insurance, and the increase in income from associated companies.
Noninterest expenses for the three months ended March 31, 2004 were $6.1
million, as compared to $4.8 million for the same period in 2003, for an
increase of $1.3 million, or 27%. The primary contributor to this significant
increase was the $747 thousand loss on redemption of junior subordinated
debentures, which reflected the write-off of unamortized TPS issuance costs
related to the intended redemption, on June 30, 2004, of $12.0 million of
capital securities issued in June 1999. Other significant components of
noninterest expenses were salaries and benefits, occupancy and equipment
expenses, and professional and data processing fees, for both quarters.
The following table sets forth the various categories of noninterest expenses
for the three months ended March 31, 2004 and 2003.
Noninterest Expenses
Three months ended
March 31,
-----------------------
2004 2003 % change
----------------------------------
Salaries and employee benefits ..................... $3,151,801 $2,884,792 9.3%
Professional and data processing fees .............. 465,276 429,070 8.4%
Advertising and marketing .......................... 213,792 148,756 43.7%
Occupancy and equipment expense .................... 730,990 651,697 12.2%
Stationery and supplies ............................ 136,945 110,277 24.2%
Postage and telephone .............................. 166,280 153,565 8.3%
Bank service charges ............................... 137,842 111,682 23.4%
Insurance .......................................... 106,040 106,806 (0.7)%
Loss on redemption of junior subordinated debentures 747,490 -- NA
Other .............................................. 238,178 187,198 27.2%
Total noninterest expenses ................. $6,094,634 4,783,843 27.4%
14
The quarter ended March 31, 2004 reflected a $747 thousand loss on the
anticipated redemption of trust preferred securities at their earliest call date
of June 30, 2004. For the quarter ended March 31, 2004, total salaries and
benefits increased to $3.2 million or $267 thousand over the previous year's
quarter total of $2.9 million. The increase of $267 thousand was primarily due
to the Company's increase in employees from 198 full time equivalents to 222
from year-to-year, in combination with increased expenses related to both tax
benefit rights and stock appreciation rights. Advertising and marketing fees
increased 44% from $149 thousand for the three months ended March 31, 2003 to
$214 thousand for the same three-month period in 2004. The $65 thousand increase
was predominately due to special events and marketing materials showcasing the
ten year anniversary of Quad City Bank & Trust. Other noninterest expense
increased $51 thousand, or 27%, for the three months ended March 31, 2004 when
compared to the like period in 2003. The increase was primarily due to loan
expense incurred proportionate to the growth in the loan portfolios at the
subsidiary banks. Occupancy and equipment expense increased $79 thousand, or
12%, from quarter to quarter. The increase was a proportionate reflection of the
additional furniture, fixtures and equipment and leasehold improvements at the
subsidiary banks. Stationary and supplies experienced a $27 thousand increase
for the first three months of 2004, when compared to the like period in 2003.
Increases in the volume of bank forms and copier/fax supplies used at the
subsidiary banks were the primary contributors to the 24% increase. Bank service
charges increased 23% from $112 thousand for the first quarter of 2003 to $138
thousand for the comparable quarter in 2004. The $26 thousand increase was a
reflection of the increase in activity between the subsidiary banks and their
upstream banks.
The provision for income taxes was $353 thousand for the three-month period
ended March 31, 2004 compared to $396 thousand for the three-month period ended
March 31, 2003 for a decrease of $43 thousand, or 11%. The decrease was the
result of a decrease in income before income taxes of $34 thousand, or 3%, for
the 2004 quarter when compared to the 2003 quarter, in combination with a
decrease in the effective tax rate from 32.4 % in 2003 to 29.7% in 2004.
FINANCIAL CONDITION
Total assets of the Company increased by $57.9 million, or 8%, to $767.9 million
at March 31, 2004 from $710.0 million at December 31, 2003. The growth resulted
primarily from increases in the loan portfolio and in bank-owned life insurance,
funded by the issuance of junior subordinated debentures and short-term
borrowings.
Cash and due from banks increased by $3.6 million, or 15%, to $28.0 million at
March 31, 2004 from $24.4 million at December 31, 2003. Cash and due from banks
represented both cash maintained at its subsidiary banks, as well as funds that
the Company and its banks had deposited in other banks in the form of
non-interest bearing demand deposits.
Federal funds sold are inter-bank funds with daily liquidity. At March 31, 2004,
the subsidiary banks had $3.6 million invested in such funds. This amount
decreased by $410 thousand, or 10%, from $4.0 million at December 31, 2003. The
decrease was primarily due to the management of liquidity positions at both
subsidiary banks
Interest-bearing deposits at financial institutions decreased by $1.1 million,
or 11%, to $9.3 million at March 31, 2004 from $10.4 million at December 31,
2003. Included in interest-bearing deposits at financial institutions are demand
accounts, money market accounts, and certificates of deposit. The decrease was
the result of decreases in money market accounts of $184 thousand and maturities
of certificates of deposit totaling $990 thousand.
Securities increased by $2.6 million, or 2%, to $131.4 million at March 31, 2004
from $128.8 million at December 31, 2003. The increase was the result of a
number of transactions in the securities portfolio. Paydowns of $361 thousand
were received on mortgage-backed securities, and the amortization of premiums,
net of the accretion of discounts, was $311 thousand. Maturities and calls of
securities occurred in the amount of $13.9 million. These portfolio decreases
were offset by a combination of the purchase of an additional $16.9 million of
securities, classified as available for sale, and an increase in the fair value
of securities, classified as available for sale, of $301 thousand.
15
Total loans receivable increased by $39.2 million, or 8%, to $561.7 million at
March 31, 2004 from $522.5 million at December 31, 2003. The increase was the
result of the origination or purchase of $112.1 million of commercial business,
consumer and real estate loans, less loan charge-offs, net of recoveries, of $24
thousand, and loan repayments or sales of loans of $72.9 million. During the
three months ended March 31, 2004, Quad City Bank & Trust contributed $72.2
million, or 64%, and Cedar Rapids Bank & Trust contributed $39.9 million, or
36%, of the Company's loan originations or purchases. Cedar Rapids Bank & Trust
participated $7.9 million, or 20%, of their originations during the period to
Quad City Bank & Trust. The mix of loan types within the Company's portfolio at
March 31, 2004 reflected 83% commercial, 8% real estate and 9% consumer loans.
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.
The allowance for estimated losses on loans was $9.5 million at March 31, 2004
compared to $8.7 million at December 31, 2003, an increase of $833 thousand, or
10%. The allowance for estimated losses on loans was determined based on factors
that included the overall composition of the loan portfolio, types of loans,
past loss experience, loan delinquencies, potential substandard and doubtful
credits, economic conditions, and other factors that, in management's judgement,
deserved evaluation. To ensure that an adequate allowance was maintained,
provisions were made based on a number of factors, including the increase in
loans and a detailed analysis of the loan portfolio. The loan portfolio was
reviewed and analyzed monthly utilizing the percentage allocation method. In
addition, specific reviews were completed on all credits risk-rated less than
"fair quality" and carrying aggregate exposure in excess of $250 thousand. The
adequacy of the allowance for estimated losses on loans was monitored by the
loan review staff, and reported to management and the board of directors.
Although management believes that the allowance for estimated losses on loans at
March 31, 2004 was at a level adequate to absorb losses on existing loans, 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
losses in the future. 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 is focusing efforts at its
subsidiary banks in an attempt to improve the overall quality of the Company's
loan portfolio. A slowdown in economic activity beginning in 2001 severely
impacted several major industries as well as the economy as a whole. Even though
there are numerous indications of emerging strength, it is not certain that this
strength is sustainable. In addition, consumer confidence may still be
negatively impacted by the substantial decline in equity security prices
experienced in the period from 2000 through 2002. These events could still
adversely affect cash flows for both commercial and individual borrowers, as a
result of which, the Company could experience increases in problem assets,
delinquencies and losses on loans, and require further increases in the
provision.
Net charge-offs for the three months ended March 31 were $24 thousand in 2003
and $769 thousand in 2003. One measure of the adequacy of the allowance for
estimated losses on loans is the ratio of the allowance to the gross loan
portfolio. The allowance for estimated losses on loans as a percentage of gross
loans was 1.69% at March 31, 2004 and 1.65% at December 31, 2003.
At March 31, 2004, total nonperforming assets were $7.4 million compared to $5.0
million at December 31, 2003. The $2.4 million increase was the result of a $1.6
million increase in nonaccrual loans in combination with an increase of $851
thousand in accruing loans past due 90 days or more. All of the nonperforming
assets were located in the loan portfolio at Quad City Bank & Trust. The loans
in the Cedar Rapids Bank & Trust loan portfolio have been originated since the
bank's inception in 2001, and none of the loans have been categorized as
nonperforming assets. As the loan portfolio at Cedar Rapids Bank & Trust
matures, it is likely that there will be nonperforming loans or charge-offs
associated with the portfolio.
Nonaccrual loans were $5.8 million at March 31, 2004 compared to $4.2 million at
December 31, 2003, an increase of $1.6 million. The increase in nonaccrual loans
was comprised of increases in commercial loans of $1.3 million, real estate
loans of $211 thousand and consumer loans of $56 thousand. The $1.3 million
increase in nonaccrual commercial loans for the quarter was primarily due to the
addition of two commercial lending relationships totaling $1.1 million at Quad
City Bank & Trust. Six large commercial lending relationships at Quad City Bank
& Trust, with an aggregate outstanding balance of $4.5 million, comprised 78% of
the nonaccrual loans at March 31, 2004. Management increased the Company's
percentage of allowance for estimated loan losses to total loans from 1.65% at
December 31, 2003 to 1.69% at March 31, 2004. Management is closely monitoring
the Company's loan portfolio and the level of allowance for loan losses.
Management continues to focus efforts to improve the overall quality of the loan
portfolio. Nonaccrual loans represented approximately one percent of the
Company's held for investment loan portfolio at March 31, 2004.
16
From December 31, 2003 to March 31, 2004, accruing loans past due 90 days or
more increased from $756 thousand to $1.6 million. Six lending relationships at
Quad City Bank & Trust comprised $1.5 million, or 95%, of this balance at March
31, 2004. Three of these six relationships, carrying an aggregate balance of
$894 thousand, became current with their payments early in the second quarter of
2004.
Premises and equipment showed an increase of $917 thousand, or 8%, to climb to
$12.9 million at March 31, 2004 from $12.0 million at December 31, 2003. During
the three-month period there were purchases of additional furniture, fixtures
and equipment and leasehold improvements of $1.2 million, which were partially
offset by depreciation expense of $329 thousand.
In August 2003, Quad City Bank & Trust purchased the northern segment of its
Brady Street facility in Davenport, which had previously been owned by the
developer of the property. Project costs incurred during the first quarter of
2004 totaled $527 thousand. In September 2003, the Company announced plans for a
fifth Quad City Bank & Trust banking facility, to be located in west Davenport.
During October 2003, the Company purchased a site for this location, and during
the first quarter of 2004, the Company experienced costs of $19 thousand for
demolition and site preparation. Total costs for this project are anticipated to
be approximately $1.7 million, which will likely be completed in late 2004 or
early 2005. In the fall of 2003, Quad City Bank & Trust initiated the purchase
of check and document imaging hardware and software. During the first quarter of
2004, purchases related to this project totaled $432 thousand. In February 2004,
Cedar Rapids Bank & Trust announced plans to build a facility in downtown Cedar
Rapids. The Bank's main office will be relocated to this site in early 2005,
when completion is anticipated. Costs for this facility during the first quarter
of 2004 were $21 thousand, and total costs are projected to be $5.0 million at
completion. Cedar Rapids Bank & Trust also intends to construct a branch office
during 2004.
Accrued interest receivable on loans, securities and interest-bearing deposits
with financial institutions increased by $158 thousand, or 4%, to $3.8 million
at March 31, 2004 from $3.6 million at December 31, 2003.
Bank-owned life insurance increased by $12.0 million from $3.1 million at
December 31, 2003 to $15.1 million at March 31, 2004. The subsidiary banks
purchased life insurance of $8.0 million in connection with the establishment of
benefit plans for the executive officers of the Company. These plans prescribe
the payment of supplemental retirement benefits to the executive officers at
retirement. In addition, the Company purchased life insurance totaling $3.9
million on the lives of a number of senior management personnel in connection
with the execution of employment agreements and the establishment of deferred
compensation arrangements with these officers. These new purchases during the
quarter, combined with the existing bank-owned life insurance, resulted in each
subsidiary bank holding investments in bank-owned life insurance contracts near
the regulatory maximum allowable. These purchases were made due to the
significant tax-equivalent yields available on bank-owned life insurance, and
the possibility of legislative action that could restrict or eliminate the tax
advantaged status of future purchases of bank-owned life insurance. Earnings on
bank-owned life insurance totaled $90 thousand for the quarter ended March 31,
2004, and benefit expense associated with the supplemental retirement benefits
and deferred compensation arrangements was $37 thousand and $1 thousand,
respectively, for the same period.
Other assets increased by $1.8 million, or 18%, to $11.5 million at March 31,
2004 from $9.7 million at December 31, 2003. Other assets included $5.4 million
of equity in Federal Reserve Bank and Federal Home Loan Bank stock, $1.4 million
in investments in unconsolidated companies, $540 thousand of accrued trust
department fees, $408 thousand of unamortized prepaid TPS offering expenses,
$398 thousand of prepaid Visa/Mastercard processing charges, other miscellaneous
receivables, and various prepaid expenses.
Deposits increased by $582 thousand, or less than 1%, to $512.2 million at March
31, 2004 from $511.6 million at December 31, 2003. The increase resulted from an
$11.2 million net decrease in non-interest bearing, NOW, money market and
savings accounts offset by an $11.8 million net increase in interest-bearing
certificates of deposit. As anticipated for several quarters, the merchant
credit card processing for the independent sales organization ("ISO") portfolio,
which was sold to iPayment, Inc. in October 2001, was transferred to another
processor on February 1, 2004. Funds related to this transfer accounted for $9.8
million of the decrease in non-interest bearing deposits from December 31, 2003
to March 31, 2004.
17
Short-term borrowings increased $34.1 million, or 66%, from $51.6 million at
December 31, 2003 to $85.7 million at March 31, 2004. The subsidiary banks offer
short-term repurchase agreements to some of their major customers. Also, on
occasion, the subsidiary banks purchase Federal funds for short-term funding
needs from the Federal Reserve Bank, or from their correspondent banks.
Short-term borrowings were comprised of customer repurchase agreements of $41.6
million and $34.7 million at March 31, 2004 and December 31, 2003, respectively,
as well as federal funds purchased of $44.1 million at March 31, 2004 and $16.9
million at December 31, 2003.
Federal Home Loan Bank advances increased by $12.0 million, or 16%, to $88.2
million at March 31, 2004 from $76.2 million at December 31, 2003. As a result
of their memberships in the FHLB of Des Moines, the subsidiary banks have the
ability to borrow funds for short or long-term purposes under a variety of
programs. FHLB advances are utilized for loan matching as a hedge against the
possibility of rising interest rates, and when these advances provide a less
costly or more readily available source of funds than customer deposits.
Other borrowings were eliminated at March 31, 2004 for a decrease of $10.0
million from December 31, 2003. In September 2001, the Company had drawn a $5.0
million advance on a line of credit at an upstream correspondent bank as partial
funding for the initial capitalization of Cedar Rapids Bank & Trust. In February
and July 2003, the Company drew additional advances of $2.0 million and $3.0
million, respectively, as funding to maintain the required level of regulatory
capital at Cedar Rapids Bank & Trust in light of the bank's growth. In February
2004, the Company formed two trusts, which, in a private transaction, issued
$8.0 million of floating rate trust preferred securities and $12.0 million of
fixed rate trust preferred securities. Partial proceeds from this transaction
were used to pay off the $10.0 million unsecured credit note balance existing on
that date.
Junior subordinated debentures increased $20.6 million, or 172%, from $12.0
million at December 31, 2003 to $32.6 million at March 31, 2004. In June 1999,
the Company issued 1,200,000 shares of trust preferred securities through a
newly formed subsidiary, Trust I. These securities were $12.0 million at both
March 31, 2004 and December 31, 2003. The Company intends to redeem these
securities on June 30, 2004. In February 2004, the Company formed two new
subsidiaries and issued, in a private transaction, the $8.0 million of floating
rate trust preferred securities and $12.0 million of fixed rate trust preferred
securities of Trust II and Trust III, respectively.
Other liabilities were $6.2 million at March 31, 2004, down $524 thousand, or
8%, from $6.7 million at December 31, 2003. Other liabilities were comprised of
unpaid amounts for various products and services, and accrued but unpaid
interest on deposits. At March 31, 2004, the most significant components of
other liabilities were $1.7 million of accounts payable, $3.4 million of accrued
expenses, and $1.1 million of interest payable.
Common stock at March 31, 2004 was $2.9 million, which was unchanged from
December 31, 2003. A slight increase of $9 thousand was the result of stock
issued from the net exercise of stock options and stock purchased under the
employee stock purchase plan. On April 23, 2004, the Company announced that the
board of directors had declared a three-for-two common stock split to be paid in
the form of a fifty percent stock dividend on May 28, 2004 to stockholders of
record on May 10, 2004.
Additional paid-in capital totaled $17.2 million at March 31, 2004 up $100
thousand, or 1%, from $17.1 million at December 31, 2003. The increase resulted
primarily from proceeds received in excess of the $1.00 per share par value for
the 8,818 shares of common stock issued as the result of the net exercise of
stock options and stock purchased under the employee stock purchase plan.
Retained earnings increased by $836 thousand, or 4%, to $21.7 million at March
31, 2004 from $20.9 million at December 31, 2003. The increase reflected net
income for the three-month period. On April 23, 2004, the Company announced that
the board of directors had declared a cash dividend of $0.04 per share, or
approximately $169 thousand, to be paid on July 2, 2004, to stockholders of
record on June 18, 2004.
Unrealized gains on securities available for sale, net of related income taxes,
totaled $2.0 million at March 31, 2004 as compared to $1.8 million at December
31, 2003. The increase in gains of $187 thousand was attributable to increases
during the period in fair value of the securities identified as available for
sale.
At both March 31, 2004 and December 31, 2003, the Company held 90,219 treasury
shares at a total cost of $855 thousand. The weighted average cost of the shares
was $9.47. Share and per share data has been retroactively adjusted to effect a
3:2 common stock split declared on April 22, 2004 and payable on May 28, 2004,
as if it had occurred on January 1, 2003. On April 30, 2004, these treasury
shares were retired by the Company.
18
LIQUIDITY
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 liquidity of the
Company primarily depends upon cash flows from operating, investing, and
financing activities. Net cash used in operating activities, consisting
primarily of funds used for loan originations, was $659 thousand for the three
months ended March 31, 2004 compared to $15.0 million net cash provided in the
same period in 2003. Net cash used in investing activities, consisting
principally of loan originations to be held for investment and purchases of
available for sale securities, was $52.9 million for the three months ended
March 31, 2004 and $30.3 million for the three months ended March 31, 2003. Net
cash provided by financing activities, consisting primarily of proceeds from
short-term borrowings and the issuance of junior subordinated debentures, for
the three months ended March 31, 2004 was $57.1 million, and for the same period
in 2003 was $19.6 million.
The Company has a variety of sources of short-term liquidity available to it,
including federal funds purchased from correspondent banks, sales of securities
available for sale, FHLB advances, lines of credit and loan participations or
sales. At March 31, 2004, the subsidiary banks had nine lines of credit totaling
$61.0 million, of which $8.0 million was secured and $53.0 million was
unsecured. At December 31, 2003, the subsidiary banks had seven lines of credit
totaling $41.0 million, of which $4.0 million was secured and $37.0 million was
unsecured. At both March 31, 2004 and December 31, 2003, the Company also had an
unsecured revolving credit note, which matures on July 21, 2004, at its primary
correspondent bank for $15.0 million. At March 31, 2004, there was no
outstanding balance on this note. At December 31, 2003, the note had an
outstanding balance of $10.0 million.
On February 18, 2004, the Company issued $8.0 million of floating rate trust
preferred securities and $12.0 million of fixed rate trust preferred securities.
The securities represent undivided beneficial interests in Trust II and Trust
III, which were established by the Company for the purpose of issuing the trust
preferred securities. The securities issued by Trust II and Trust III mature in
30 years. The floating rate trust preferred securities are callable at par after
five years and the fixed rate trust preferred securities are callable at par
after seven years. The floating rate trust preferred securities have a variable
rate based on the three-month LIBOR, reset quarterly, with the initial rate set
at 3.97%, and the fixed rate trust preferred securities have a fixed rate of
6.93%, payable quarterly, for seven years, at which time they will convert to a
variable rate based on the three-month LIBOR, reset quarterly. Both Trust II and
Trust III used the proceeds from the sale of the trust preferred securities to
purchase junior subordinated debentures of QCR Holdings, Inc. The Company
incurred issuance costs of $410 thousand, which are being amortized over the
lives of the securities.
The Company used the net proceeds for general corporate purposes, which included
the pay-off of the $10.0 million balance on the Company's unsecured revolving
credit note and an infusion of $2.0 million to Cedar Rapids Bank & Trust for
capital maintenance purposes. Management's intention is to use the balance of
the proceeds toward the redemption, in June 2004, of the $12.0 million of 9.2%
cumulative trust preferred securities issued by Trust I in 1999. Based on this
intention, $747 thousand of unamortized issuance costs related to the trust
preferred securities of Trust I were expensed as of March 31, 2004.
On April 23, 2004, the Company announced a cash dividend of $0.04 per share, or
approximately $169 thousand, payable on July 2, 2004 to shareholders of record
on June 18, 2004. It is the Company's intention 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, however believes that operating results have reached a level that can
sustain dividends to stockholders as well.
19
Part I
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company realizes income principally from the spread between the interest
earned on loans, investments and other interest-earning assets and the interest
paid on deposits and borrowings. Loan volumes and yields, as well as the volume
of and rates on investments, deposits and borrowings, are affected by market
interest rates. Additionally, because of the terms and conditions on many of the
investments and the loan and deposit accounts, a change in interest rates could
also affect the projected maturities in the securities and loan portfolios
and/or the deposit base, which could alter the Company's sensitivity to future
changes in interest rates. Accordingly, management considers interest rate risk
to be a significant market risk.
Interest rate risk management focuses on maintaining consistent growth in net
interest income within policy limits approved by the board of directors, while
taking into consideration, among other factors, the Company's overall credit,
operating income, operating cost, and capital profile. The subsidiary banks'
ALM/Investment Committees, which includes senior management representatives and
members of the board of directors, monitor and manage interest rate risk to
maintain an acceptable level of change to net interest income as a result of
changes in interest rates.
One method used to quantify interest rate risk is the net portfolio value
analysis. This analysis calculates the difference between the present value of
liabilities and the present value of expected cash flows from assets and
off-balance sheet contracts. The most recent net portfolio value analysis, as of
December 31, 2003, projected that net portfolio value would decrease by
approximately 6.15% if interest rates would rise 200 basis points over the next
year. It projected an increase in net portfolio value of approximately 4.36% if
interest rates would drop 200 basis points. Both simulations are within the
board-established policy limits of a 10% decline in value.
Part I
Item 4
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 Securities and Exchange Act of 1934, as amended) as of
March 31, 2004. 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. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls.
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995. This document 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," "appear," "plan," "intend,"
"estimate," "may," "will," "would," "could," "should" 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.
20
The Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
effect on the operations and future prospects of the Company and its
subsidiaries include, but are not limited to, the following:
o The strength of the United States economy in general and the strength of
the local economies in which the Company conducts its operations which may
be less favorable than expected and may result in, among other things, a
deterioration in the credit quality and value of the Company's assets.
o 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.
o The effects of, and changes in, federal, state and local laws, regulations
and policies affecting banking, securities, insurance and monetary and
financial matters.
o The effects of changes in interest rates (including the effects of changes
in the rate of prepayments of the Company's assets) and the policies of the
Board of Governors of the Federal Reserve System.
o The ability of the Company to compete with other financial institutions as
effectively as the Company currently intends due to increases in
competitive pressures in the financial services sector.
o The inability of the Company to obtain new customers and to retain existing
customers.
o The timely development and acceptance of products and services, including
products and services offered through alternative delivery channels such as
the Internet.
o Technological changes implemented by the Company and by other parties,
including third party vendors, which may be more difficult or more
expensive than anticipated or which may have unforeseen consequences to the
Company and its customers.
o The ability of the Company to develop and maintain secure and reliable
electronic systems.
o The ability of the Company to retain key executives and employees and the
difficulty that the Company may experience in replacing key executives and
employees in an effective manner.
o Consumer spending and saving habits which may change in a manner that
affects the Company's business adversely.
o Business combinations and the integration of acquired businesses which may
be more difficult or expensive than expected.
o The costs, effects and outcomes of existing or future litigation.
o Changes in accounting policies and practices, as may be adopted by state
and federal regulatory agencies and the Financial Accounting Standards
Board.
o 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.
Additional information concerning the Company and its business, including other
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
21
Part II
QCR HOLDINGS, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
There are no material pending legal proceedings to which the Company or
its subsidiaries is a party other than ordinary routine litigation
incidental to their respective businesses.
Item 2 Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities - None
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Security Holders - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 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
(exhibit is being filed herewith).
10.2 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
(exhibit is being filed herewith).
31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a)
31.2 Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a)
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.
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.
(b) Reports on Form 8-K
A report on Form 8-K was filed on January 29, 2004 under Item 12,
which reported the Company's financial information, including
earnings for the quarter ended December 31, 2003, in the form of
a press release.
A report on Form 8-K was filed on February 19, 2004 under Item 5,
which announced the Company's issuance of $8.0 million of
floating rate capital securities and $12.0 million of fixed rate
capital securities, in the form of a press release.
A report on Form 8-K was filed on March 24, 2004 under Item 12,
which reported the Company's financial information, including
earnings for the quarter ended December 31, 2003, in the form of
a shareholder letter dated March 2004.
A report on Form 8-K was filed on April 23, 2004, which reported
the Company's financial information, including earnings for the
quarter ended March 31, 2004, pursuant to Item 12, as well as the
Company's declaration of a 3:2 common stock split and also, a
cash dividend of $0.04 per share, pursuant to Item 5.
22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QCR HOLDINGS, INC.
(Registrant)
Date May 13, 2004 /s/ Michael A. Bauer
--------------------------
Michael A. Bauer, Chairman
Date May 13, 2004 /s/ Douglas M. Hultquist
--------------------------
Douglas M. Hultquist,
President Chief Executive
Officer
Date May 13, 2004 /s/ Todd A. Gipple
--------------------------
Todd A. Gipple, Executive
Vice President
Chief Financial Officer
23