QCR Holdings reports lower earnings in 2006

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By Jennifer DeWitt | Friday, February 2, 2007 1:13 AM CST | () comments

QCR Holdings Inc.’s rapid growth into new markets, higher expenses to fund the expansion as well as a compressed interest margin environment contributed to a 42 percent decline in earnings for 2006, the multi-bank holding company announced.

QCR, the parent company of Quad-City Bank & Trust, reported that net income for the year was $2.8 million, a decrease of $2.0 million from 2005. Diluted earnings per share were 57 cents per share for 2006, which compared to $1.04 for 2005 — a decrease of 45 percent.

“Our company experienced outstanding organic growth in 2006 with an increase in total assets of $229.1 million, or 22 percent,” said Todd Gipple, QCR’s executive vice president and chief financial officer. However, he added, “Operating results for the year were negatively impacted by the need to fuel this significant growth with sizeable increases in overhead, such as salary expense and occupancy expense.”

In addition, the growth came amid historically low net interest margins due to the inverted yield curve and unprecedented competition for core deposits in all of QCR’s markets, Gipple said.

“Recent experience with net interest margin results in each of our markets, and throughout the entire industry, created by extremely competitive pricing on both loans and deposits, will likely result in a longer period of start-up losses for our newest bank charters in Rockford (Ill.) and Milwaukee (Wis.),” Douglas Hultquist, QCR’s president and chief executive officer, said in a news release.

According to the earnings report, QCR’s total assets increased 22 percent, or $229.1 million, to $1.27 billion on Dec. 31, 2006, up from $1.04 billion on Dec. 31, 2005. During this same period, net loans/leases increased 27 percent, or $202.7 million, to $950.1 million from $747.4 million a year ago. Total deposits increased 25 percent to $875.4 million from $698.5 million in 2005. Stockholders’ equity rose to $70.9 million in 2006 as compared to $54.5 million a year earlier, due primarily to a preferred stock offering during the fourth quarter which resulted in a net capital contribution of $12.9 million.

Fourth quarter net income was significantly impacted by the increased provision expense associated with a single commercial credit in the Milwaukee market. The action reduced quarterly net income by $649,000. Resulting fourth quarter earnings were $246,000, or 2 cents per diluted share, compared to $520,000 or 11 cents per diluted share for the third quarter of 2006, and $1.3 million or 27 cents per diluted share for the fourth quarter of 2005. Without the fourth quarter provision, net income would have been $895,000 or 16 cents per diluted share.

“Despite the narrowing of our net interest spread for the sixth consecutive quarter, the company’s fourth quarter net interest income grew $159,000, or 2 percent, from the previous quarter, due primarily to our increased loan/lease volumes,” Hultquist said. “However, the positive effects of the strong loan/lease growth at our subsidiary banks and leasing company were not enough to neutralize the negative effects from both rate and volume increases in our interest bearing liabilities.”

Michael Bauer, Quad-City Bank’s president and CEO, said nonperforming assets at year-end were $7.4 million, up from $3.7 million one year ago. “A single commercial relationship at Quad-City Bank & Trust contributed $4.3 million to nonperforming assets, when the related loans were placed into nonaccrual status in June.”

Quad-City Bank reported total consolidated assets of $826.6 million at Dec. 31, 2006, an increase of $103.0 million from a year earlier. It also had net loans/leases of $626.2 million and deposits of $547.4 million – increases of 21 and 15 percent, respectively, from Dec. 31, 2005. For 2006, Quad-City Bank’s earnings were $6.3 million, a decrease of $368,000, or 6 percent, from one year ago.

QCR also owns a bank in Cedar Rapids, Iowa. Hultquist said the Milwaukee branch, which operates as a branch of the Rockford Bank & Trust, is expected to obtain its fourth bank charter early in 2007 and will become First Wisconsin Bank & Trust.

Jennifer DeWitt can be contacted at (563) 383-2318 or jdewitt@qctimes.com.