QCR
Annual Report 2018

Plain-text annual report

2018 BOARD CHAIR STATEMENT On behalf of the entire board of QCR Holdings, it is my privilege to deliver a brief message about our great organization. In November of 2018, we announced that Doug Hultquist, our President, CEO and Co-founder of QCRH, had made the decision to retire in May of 2019. Doug was gracious enough to give the Board plenty of advance notice, and indeed we took this extra time to thoroughly engage in a succession planning process. We thank Doug for his many years of leadership, dedication, unparalleled work ethic and attention to detail. We are fortunate that both the Board and future management will have Doug in and around the company in the future and look forward to his support and friendship for many years. As part of this process, the Company announced that Larry Helling and Todd Gipple will become Chief Executive Officer and President, respectively. The Board has total confidence in the new management team and knows our customers, communities and investors will be well served in the future. Notwithstanding the inevitable retirements and required changes in leadership, the strategy of the Company remains the same. We continue to fully embrace the community banking model in our chosen markets whereby we bring local decision-making and bigger bank products and services to our customers. Such an approach requires strong local management as well as local Board member support. We believe this approach to be of interest to many other vibrant markets around the Midwest, as well. While the banking industry faced considerable market headwinds in 2018, QCR Holdings delivered strong and improved performance, and is well-situated for continued growth in the years ahead. The Board wishes to thank our investors and customers. We look forward to the years ahead, as we are well positioned for long-term growth. Pat Baird Chair of the board SUMMARY OF FINANCIAL RESULTS 2014 - 2018 (in thousands) 2014 2015 2016 2017 2018 Net interest income Non-interest income $69,071 $76,296 $94,517 $116,065 $142,395 21,282 24,364 31,037 30,482 41,541 Non-interest expense (65,554) (73,192) (81,486) (97,424) (119,143) Pre-tax pre-provision net income 24,799 27,468 44,068 49,123 64,793 Provision for loan/lease losses (6,807) (6,871) (7,478) (8,470) (12,658) Net income before taxes 17,992 20,597 36,590 40,653 52,135 Income taxes Net income (3,039) (3,669) (8,903) (4,946) (9,015) $14,953 $16,928 $27,687 $35,707 $43,120 1 QCR Holdings, Inc.WE ARE RELATIONSHIP DRIVEN CEO STATEMENT The May 23, 2019, QCR Holdings’ annual meeting will be my final day as President and Chief Executive Officer. Last November I announced my retirement. Your company will be in great hands with the well-known and proven leadership of Larry Helling as Chief Executive Officer and Todd Gipple as President. I deeply value the confidence Mike Bauer had 25 years ago when the two of us, along with 16 other employees, created Quad City Bank & Trust. I am richly blessed to have had the opportunity of two wonderful careers, first as a CPA and then as a banker. Thank you to my over 755 QCRH teammates who are constantly delivering val- ue and innovative solutions to clients in each of our markets. Thank you to each and every shareholder for your confidence and ownership in QCR Holdings. I hope to see you at the annual meeting in May and feel energized knowing “the best is yet to come”. Douglas M. Hultquist President and CEO On behalf of your Board of Directors and Team Members of QCR Holdings, Inc. we are pleased to present our 2018 annual report. We believe our results show we are a relationship driven organization® that continues to differentiate and deliver value to our clients and shareholders. Today, QCR Holdings, Inc. is a nearly $5 billion multi-bank holding company serving over 156,000 clients in four states. Our independent charters pro- vide the flexibility to successfully attract and retain clients while our holding company provides high credit standards that ensure common underwriting and on-going asset quality. 2018 was a year of significant achieve- ments at QCR Holdings: record annual net income of $43.1 million, the addi- tion of our fifth independent charter with the merger with Springfield Bancshares, the acquisition of the Bates Companies, and the beginning of the next 25 years of QCR Holdings. For our shareholders, 2018’s diluted earnings per share of $2.86 was an 9.1% in- crease over the prior year. While QCRH’s tangible book value increased 5.9% in the past 12 months to $24.04 per share, QCRH’s stock price declined 25%; similar to the broader financial sector. The regional bank industry price to earnings ratio declined 27.5% over the past twelve months from of 15.3% to 11.1%. A partially inverted yield curve, increased competition for deposits, tar- iff concerns and uncertainty about the Federal Reserve’s future rate actions all contributed to the conservative investor sentiment toward the sector. In 2018 QCRH organically grew loans by 9.8% and deposits by 8.3% while continuing to deliver increased value to shareholders. QCRH continues to seek acquisitions and mergers that fit the Company’s strategic model and, most importantly, the culture of building relationships. A special thanks to Linda Neuman, who retires from the QCRH board on May 23, for her dedicated service as a director of Quad City Bank & Trust since 2008 and as a director of QCR Holdings since 2013. We appreciate your valuable insight and wise counsel. As importantly, QCRH’s strategy recog- nizes the value of unique and diversified products and services. In 2018, 23% of QCRH’s total revenue was generated from fee-based businesses: correspon- dent banking, wealth management and swap/loan sales, primarily. This diversi- fied stream of products helps QCRH bet- 3 QCR Holdings, Inc.ter serve its clients and deliver a more steady stream of earnings to sharehold- ers. The Company’s noninterest income increased 36.3% in the past 12 months to $41.5 million. 2018 MILESTONES Addition of SFC Bank: In July, we wel- comed the 56 employees, 4,200 clients and 175 shareholders of Springfield First Community Bank in Springfield, MO as it became the fifth charter of QCRH. Under CEO Rob Fulp’s leadership, in 10 years SFC grew from a de novo to a $633 million bank with nearly pristine asset quality. SFC’s commitment to relation- ships makes it a wonderful cultural fit with QCRH. Bates Companies: Recognizing that effective wealth management is all about relationships and trust, George Bates and his team at the Bates Financial Companies in Rockford, IL joined QCRH in October. The addition of the Bates Companies increased QCRH’s wealth as- sets under management by $704 million to over $4 billion. 25th Anniversary: This past October we celebrated the 25th anniversary of the founding of QCR Holdings. Of the 18 employees who took in the first deposit on January 7, 1994, 8 are still with the Company. That’s dedication! There have been many challenges over the years but even more accomplishments. The consistent commitment to our values sets QCRH apart from our peers. As we begin the next 25 years of our business, we continue to focus on the fundamen- tal values which guide the men and women of QCR Holdings and enhance long-term shareholder value. 2018 HIGHLIGHTS AND RESULTS Quad City Bank & Trust – Under the leadership of President and CEO, John Anderson, the Company’s first subsid- iary bank (1994), assets grew to $1.6 billion by December 31, 2018. Loans and leases grew 8.5% in 2018 while its Wealth Management businesses grew 10.1%. Quad City Bank & Trust’s net income of $20.6 million for the year ended December 31, 2018 decreased from $23.8 million in 2017 primarily due to changes in the tax law, which inflated 2017’s net income. Cedar Rapids Bank & Trust – CEO Larry Helling, one of the founders of Cedar Rapids Bank & Trust (2001), and James Klein, President, led their team to a re- cord net income of $20.7 million for the year ended December 31, 2018, a 79.3% increase in earnings from the prior year. The increase is primarily attributed to the success of the bank’s Specialty Fi- nance Group and the first full year after the acquisition of Guaranty Bank & Trust. Rockford Bank & Trust – Rockford Bank & Trust – Led by President and CEO, Tom Budd (2005), closed the year at $509.6 million in assets, a 10.4% increase from the prior year. Taking advantage of con- ditions in the market, RB&T also report- ed 10.8% growth in loans, 18.7% growth in core deposits and added staff to key positions to help carry the momentum forward in 2019. In addition, the acquisi- tion of Bates Companies was completed in October and will bolster an already robust product offering and further strengthen RB&T’s mission to provide exceptional service and comprehensive wealth management options locally. CONSOLIDATED EARNINGS (in thousands) 2014 2015 2016 2017 2018 Quad City Bank & Trust (1) $ 10,451 $ 11,762 $ 15,411 $ 23,794 $ 20,559 Cedar Rapids Bank & Trust (2) (3) Rockford Bank & Trust (3) Community State Bank (3) Springfield First Community Bank (3) 8,006 1,877 - - 8,108 2,189 - - 12,729 11,535 20,680 3,201 2,127 - 2,698 7,076 - 706 8,449 4,816 Parent Co. & Eliminations (3) (5,381) (5,131) (5,781) (9,397) (12,090) Consolidated Earnings $ 14,953 $ 16,928 $ 27,687 $ 35,707 $ 43,120 (1) Includes m2 Lease Funds. (2) Includes net income of Guaranty Bank & Trust in 2017, which was merged with Cedar Rapids Bank & Trust in December 2017. (3) Includes acquisition and post-acquisition costs. 4 QCR Holdings, Inc.The Wealth Management Division provides a distinguishable competitive advantage. It was further enhanced in October of 2018 with the addition of the Bates Companies under the leadership of George Bates in Rockford, IL. Community State Bank – Community State Bank (2016), CEO, Ron Nagel and President Kurt Gibson led their team to a record net income of $8.5 million for the year ended December 31, 2018, which compares to $ 7.1 million in 2017. Total assets for Community State Bank at December 31, 2018 were $ 785.4 mil- lion a 17% increase from the prior year. Loan growth exceeded 19% while core deposit growth was 5% for the year. m2 Lease Funds – m2 Lease Funds, a wholly owned subsidiary of Quad City Bank & Trust accounts for approximately 6% of the total QCRH loans. The m2 Lease Funds business model of provid- ing prompt and responsive turnarounds in a simple and straight forward manner remains sound. m2 works with all of our banks and nationwide as well with leas- ing specialists located in Iowa, Wiscon- sin, Minnesota, South Carolina, North Carolina, Florida, California, Pennsylva- nia and Georgia. m2 has a high yielding portfolio that averaged 8% in 2018. Our People - We know our people are the key differentiator in each of our markets. We also know, what gets measured gets done. At QCR Holdings every employee gets measured on “Living the Brand”. That means making sure that each employee’s performance is so good that our clients, internal and external, will always experience great relationships, service and advice. It is our hope that by placing daily emphasis on our Brand Promise every client will truly see People you can bank on® in everything we do. Tom Budd, President and CEO, Rockford Bank & Trust welcomes George Bates, Bates Financial Group Our ability to provide clients with a continuum of services is crucial to deep- ening relationships. With offerings in portfolio management, investment ser- vices, trust administration and financial planning, we add non-interest income to the organization. In 2018, assets under management totaled $4.3 billion with $704 million coming from the Bates Companies. Our veteran staff added 2,873 new relationships in total. In October 2018, Community State Bank CEO Ron Nagel, retired after 42 years in the banking industry. Kurt Gibson assumed the CEO responsibilities, in addition to his role as president. We thank Ron for his years of leadership at CSB and wish him well. Springfield Bancshares (SFC Bank) merged with QCR Holdings in July of 2018. Thanks to the focused leadership of Rob Fulp, CEO, and Monte McNew, President, of Springfield First Communi- ty Bank, $4.8 million of earnings for the six months since merger were contribut- ed to QCRH’s earnings in 2018. The bank had 10% growth in assets, ending the year at $632.8 million. QCRH STRATEGIC ADVANTAGES The Correspondent Banking Division continues to deliver exceptional client service to downstream banks in Illinois, Iowa, Missouri and Wisconsin. In 2018, we served 190 banks with an average of $417.4 million on deposit with QCBT. Our veteran team of bankers provides many layers of expertise in areas such as Cash Management, Safekeeping, Bank Stock and Participation Loans, Trust and Investment services and leases. Douglas M. Hultquist President and Chief Executive Officer, QCR Holdings, Inc. Larry J. Helling Chief Executive Officer-Elect, QCR Holdings, Inc. Todd A. Gipple President-Elect, QCR Holdings, Inc. 5 QCR Holdings, Inc.Board of Directors LEFT TO RIGHT Patrick S. Baird Chair of the Board, QCR Holdings, Inc., Retired President and Chief Executive Officer, AEGON USA, LLC Todd A. Gipple President-Elect, Chief Operating Officer and Chief Financial Officer, QCR Holdings, Inc. Donna J. Sorensen, J.D. President, Sorensen Consulting Timothy B. O’Reilly Chief Executive Officer, Managing Partner, O’Reilly Hospitality Management, LLC Mary Kay Bates President and Chief Executive Officer, Bank Midwest Michael L. Peterson President and Owner, Peterson Genetics, Inc. Douglas M. Hultquist President and Chief Executive Officer, Co-Founder, QCR Holdings, Inc. Larry J. Helling Chief Executive Officer-Elect, QCR Holdings, Inc. John-Paul E. Besong Retired Executive, Rockwell Collins George T. Ralph III Owner, GTR Realty Advisors, LLC Linda K. Neuman Founder and Principal, Iowa Arbitrators, Associate Justice, Iowa Supreme Court (Retired) Mark C. Kilmer President, The Republic Companies Marie Z. Ziegler Vice Chair of the Board, QCR Holdings, Inc., Retired Executive, Deere & Company 6 QCR Holdings, Inc.Executive Management Team Front Row Seated (left to right) Cynthia M. Carlson EVP, Wealth Management, Quad City Bank & Trust Anne E. Howard * SVP, Director of Human Resources Elizabeth A. Grabin * SVP, Chief Accounting Officer Shawna M. Graham * SVP, Chief Risk Officer Stacey J. Bentley President and Chief Executive Officer, Community Bank & Trust Richard W. Couch President and Chief Operating Officer, m2 Lease Funds, LLC Back Row Standing (left to right) M. Randolph Westlund EVP, Chief Investment Officer John A. Rodriguez * EVP, Chief Information Officer, Operations and Cashier, Cedar Rapids Bank & Trust Peter J. Benson EVP and Chief Legal Officer John R. McEvoy * EVP, Chief Operations Officer and Cashier, Quad City Bank & Trust Monte C. McNew President, SFC Bank * Also serves on Group Operations Management Team Robert C. Fulp Chief Executive Officer, SFC Bank Douglas M. Hultquist President and Chief Executive Officer, Co-Founder Larry J. Helling Chief Executive Officer, Cedar Rapids Bank & Trust Chief Executive Officer - Elect, QCR Holdings, Inc Todd A. Gipple * President-Elect, Chief Operating Officer and Chief Financial Officer, QCR Holdings, Inc. John R. Oakes * SVP, Treasurer John H. Anderson President and Chief Executive Officer, Quad City Bank & Trust, EVP, Chief Deposit Officer, QCR Holdings, Inc. Thomas D. Budd President and Chief Executive Officer, Rockford Bank & Trust John R. Engelbrecht Founder and Chief Executive Officer, m2 Lease Funds, LLC Kurt A. Gibson President and Chief Executive Officer, Community State Bank Michael J. Wyffels * SVP, Information Technology Dana L. Nichols EVP, Chief Credit Officer Christopher J. Lindell EVP, Corporate Communications, Investor Relations, and Corporate Secretary Group Operations Management Team (not pictured) Beth L. Easterla VP, Deposit Operations and Electronic Banking Manager Kathleen M. Francque EVP, Correspondent Banking and Information Services, Quad City Bank & Trust Pamela J. Goodwin SVP, Loan Operations Manager Todd C. Kerska SVP, Senior Operations Officer Jill A. Lechtenberg VP, Enterprise Business Transformation Services Kathy A. Nichols EVP, Retail Banking and Cashier, Community State Bank Shellee R. Showalter SVP, Director of Investor Services and Compensation Tonia F. Taylor SVP, Director of Compliance 2018 COMPANY HIGHLIGHTS RECORD $43.1 MILLION NET INCOME ANNUAL ORGANIC LOAN GROWTH 9.8% SFC BANK Becomes 5th Independent Charter 21% INCREASE in Wealth Management WE BEGIN OUR NEXT 25 YEARS ASSET GROWTH (MILLIONS) (1) Includes acquisition of Community State Bank (2) Includes acquisition of Guaranty Bank & Trust (3) Includes merger with Springfield Bancshares and acquisition of Bates Companies $1000 $800 $600 $400 $200 $0 $967 $709 $681 $130 $68 2014 2015 2016(1) 2017(2) 2018(3) BOOK VALUE VS. FAIR MARKET VALUE YEAR-END / COMMON STOCK (MILLIONS) BOOK VALUE FAIR MARKET VALUE $600 $300 $0 1993 2003 2016 2017 2018 Our Mission We make financial dreams a reality. TOTAL ASSETS (Millions) 12.31.18 12.31.17 12.31.16 $4,950 $3,983 $3,302 $0 $2,500 $5,000 GROSS LOANS/LEASES (Millions) 12.31.18 12.31.17 12.31.16 $3,733 $2,964 $2,405 $0 $2,000 $4,000 TOTAL DEPOSITS (Millions) 12.31.18 12.31.17 12.31.16 $3,977 $3,267 $2,669 $0 $2,500 $5,000 Throughout 2018, QCRH continued to focus on the following seven stated initiatives in an effort to further improve profitability and drive shareholder value: LOANS/ASSETS Strong organic loan and lease growth to maintain loans and leases to a total assets ratio in the range of 73%-78% WHOLESALE FUNDING Focus on growing core deposits to maintain reliance on wholesale funding to less than 15% of assets 75.4% 13.8% FEE INCOME STREAMS Generate gains on the sale of USDA and SBA loans, and fee income on interest rate swaps, as a significant and consistent component of core revenue $11.2 MILLION GROW WEALTH MANAGEMENT Grow wealth management net income by 10% annually 31.7% MANAGE NONINT EXPENSE Carefully manage noninterest expense growth (year-over-year) 11.8% NPA’S/ASSETS Maintain asset quality metrics at better than peer levels 0.56% ACQUIRER PARTICIPANT Participate as an acquire in the consolidation taking place in our markets to further boost ROAA, improve efficiency ratio and increase EPS SFC Bank Bates 9 QCR Holdings, Inc.Our Values Achievement Collaboration Personal Responsibility Innovation Fulfillment Every day at QCR Holdings we celebrate and recognize our most valuable resource - each and every employee. Our dedicated employees, who believe in and live our stated values, dependably deliver value to our clients and shareholders. QCRH’s competitive advantage comes from five autonomous charters with local boards who understand and serve the needs of their local markets. However, to ensure strategic alignment, effectiveness and efficiency, our charters work closely together through our Strategy and Lead- ership Team (SALT). The team includes the Chief Executive Officers, Presidents and other senior leaders. In addition, we have dedicated teams in our Group Operations (GO) which provide common services to our charters, for example, Team Treasury, Information Technology, Loan Processing and Human Resources. Ultimately, we have one set of values at QCR Holdings which aligns us to deliver results for our clients, communities, employees and shareholders. In the following pages we celebrate and highlight our values at work. Our values of Achievement, Collaboration, Personal Responsibil- ity, Innovation, and Fulfillment are basic and fundamental beliefs that guide and motivate our attitudes and actions. Our values help us determine what is important to us. Our values create what we strive for daily…a Culture of High Performance. WE WORK TO WIN. Like most values, achievement begins with the individual. Our employees, directors, teams, charters, group operations are all compelled to win, and to achieve. To win over our clients with outstanding service, we strive to achieve more than we have done in the past and to achieve more than our competitors. Through the collective achievements of QCR Holdings’ banks and teams, in 2018, QCR Holdings delivered record net income of $43.1 million, a 20.7% increase from the prior year. In two cases, Quad City Bank & Trust and Cedar Rapids Bank & Trust, have achieved the number one market share of deposits in their markets. Deposits by Charter ($ millions) Rank in MSA Market Deposits as of 6.30.18 % MSA Market Share Quad City Bank & Trust Cedar Rapids Bank & Trust Community State Bank Springfield First Community Bank Rockford Bank & Trust Community Bank & Trust* 1 1 8 7 8 11 $ 1,284 $ 971 $ 596 $ 439 $ 376 $ 110 15.60% 16.40% 3.2% 4.40% 6.10% 3.10% MSA: Metropolitan Statistical Area. Source: FDIC Summary of Deposits. * A Division of Cedar Rapids Bank & Trust Lesly Couper, Rockford Bank & Trust, was selected as one of the 2018 Rockford Cham- ber of Commerce People You Should Know. Community State Bank won first place in The Des Moines Register poll for Ankeny’s Best Bank. Quad City Bank & Trust was voted top five in the “Banking” category and the “Personal Loans” category by Locals Love Us. Key Merger A significant achievement in 2018 was the merger with Springfield Bancshares (SFC Bank) located in Springfield, MO. In their 10th year of operation, SFC Bank has grown to $633 million in assets. Award Winning Service to Others Not surprisingly, 2018 brought several recognitions of individual’s achievement. For instance, Larry Helling, CEO-Elect of QCRH was recognized with the Howard Hall Excellence in Business Award. This award is given to a premier business leader who exemplifies the outstanding, enduring busi- ness values of Howard Hall and his passion for a vibrant Cedar Rapids. Howard Hall (1894-1971) was an industrialist and philan- thropist who used his influence to create a better local economy and community. Wealth Management Expertise Wealth Management, with over $4.3 billion of assets under management, provides a strategic advantage for QCR Holdings. In 2018 the QCR Holdings’ Wealth Management teams achieved a record $3.0 million in net income. The addition of the Bates Companies in Rockford, IL was a significant achievement and brings 2,371 new relationships to QCRH. 2018 NET INCOME REACHES $43.1 MILLION $43.1 $35.7 $27.7 $ million $50 $16.9 $15.0 $25 $0 2014 2015 2016 2017 2018 11 QCR Holdings, Inc.WE LEARN FROM EACH OTHER. Unlike achievement which begins with the individual, the value of collaboration requires two or more people to make it happen. At QCR Holdings, collaboration enables us to be both decentralized and centralized at the same time. Collaboration requires leadership, cooperation and most importantly, trust. Delivering record net income required massive collaboration at QCR Holdings. Examples of our 2018 collaboration efforts include: Community State Bank 2018 Technology Uplift, Enterprise Business Transformation – Best in Class, Group Operations, SFG (Specialty Finance Group), and the addition of SFC Bank. Strategic Collaboration QCR Holdings’ unique multi-charter struc- ture provides valuable collaboration for its QCRH local boards. This past year the directors of Quad City Bank & Trust, Cedar Rapids Bank & Trust, Rockford Bank & Trust, Springfield First Community Bank, Com- munity State Bank and m2 held a multi-day strategic session with executive and senior leadership. Community Collaboration Amerock Hotel, Rockford Illinois, is a $64 million project to transform the former Amerock factory in downtown Rockford into a four-star Embassy Suites. This project will provide the first downtown hotel in Rock- ford and create a positive impact for the city. A community wide collaboration effort, the project benefited from QCRH’s internal collaboration as Rockford Bank & Trust, Cedar Rapids Bank & Trust, and Specialty Finance Group (SFG) worked together to help move the development forward. Collaborating for Growth Asset/Liability Management (ALM) is one of the most important tools for decision making in banking that helps to maximize shareholder value. The QCRH banks hold a weekly ALM meeting to provide insight on the company’s risks and opportunities. The collaboration manages the sources of funds (deposits and debt) and the uses of funds (loans and bonds). In the case of Commu- nity State Bank, a $785 million bank, has the analysis and tools that are usually only available to a $5 billion organization. ALM is a great example of how collaboration is allowing QCR Holdings to do more together than what the individual charters could do on their own. COLLABORATION IS ABOUT DOING MORE TOGETHER THAN WE CAN DO ON OUR OWN. 12 Collaborating for Effectiveness Community State Bank, located in the robust central Iowa market, became part of QCR Holdings in 2016. Since that time, Com- munity State Bank’s assets have grown from $582 million to $785 million, a 35% increase in just over two years. Net income has increased 53% from $5.5 million in 2015 to $8.5 million in 2018, a 26% improvement in return on assets from 0.94% to 1.18%. This success is a result of local talent, local deci- sion-making and a local identity. In addition, Community State Bank’s collaboration with other QCRH banks and QCRH’s Group Operations team, played an important part of this success. Partnering with other QCRH charters, Community State Bank now attracts more commercial customers with a sophisticated, intuitive, customer-friendly Treasury Management products. Over the past year, Community State Bank complet- ed a technology uplift, joining the same platform as other QCRH charters. The new platform provides additional opportunities for the sharing of resources between all QCRH charters. QCR Holdings, Inc.WE OWN IT. The many examples that follow show QCR Holdings employees taking personal responsibility both at work and in their communities. On a daily basis, our clients experience the commitment and follow-through of every dedicated employee of QCR Holdings. In 2018 QCRH employees volunteered 24,582 hours, a 39% increase from the prior year, in the communities we live in and serve. Employees take personal responsibility to help their communities by generously giving their time and giving their treasures as well. QCRH employees proudly volunteer with organizations such as United Way, Habitat for Humanity, the Greater Cedar Rapids Community Foundation, the YMCA, Golden Apple Foundation of Rockford, and Second Sight, just to name a few. Care Packages As a designated Home Base Business, em- ployees of Community State Bank recently gave of their time and talent to give back to local military men and women who are currently serving overseas. During this com- pany-wide initiative, employees and Bank customers were encouraged to donate care items at any of CSB’s 10 locations. Commu- nity State Bank employees and Des Moines University Podiatric students boxed 115 large care packages that were sent over- seas. Community State Bank also received $1,226.97 in cash donations that were used for postage. IN 2018, QCRH EMPLOYEES VOLUNTEERED 24,582 HOURS IN THEIR COMMUNITIES. Safe Families Amy Loner, Rockford Bank & Trust, and her husband are a host family for an organi- zation called Safe Families for Children. A family in crisis can call Safe Families and temporarily place their child with a host family while they work on getting out of whatever crisis they are in (homelessness, lost job, domestic abuse, mental health/ill- ness, etc). In 2018 they hosted four different children (at different times) for various pe- riods of time. The shortest was a weekend, the longest was 7 weeks. Financial Literacy Rockford Bank & Trust Financial Scholars program provides financial literacy materials to over 1,000 local high school students each year. The program provides our future gener- ations with a more thorough understanding of financial concepts so they are better pre- pared to make decisions that will help them achieve their financial goals in the future. Charlie O’Reilly SFC Bank Director and former President and CEO of O’Reilly Auto Parts Hunger Relief Charlie O’Reilly, director and founding shareholder of SFC Bank in Springfield, was instrumental in creating the O’Reilly Center for Hunger Relief. The Ozarks Food Harvest is providing food to 270 hunger-relief organizations across 28 Ozarks counties reaching nearly 30,000 individuals weekly and distributing more than 17 million meals annually. The O’Reilly Center provides resources and facilities to the Food Harvest. 13 QCR Holdings, Inc.WE MAKE IT BETTER. We know we can “make it better.” Doing so requires continual innovation. Just as our local charters provide simplicity to meet our clients’ need, we are continually striving to improve our banking products to make them simple and accessible. Innovation Committee Recognizing the need for more effective innovation, in 2018, QCRH created a team to improve innovation. The cross-functional team, led by Todd Gipple, QCRH Presi- dent-Elect, Chief Financial Officer and Chief Operating Officer, reaches all parts of the or- ganization. The team focuses on: (1) provid- ing QCRH’s clients increased capabilities and products, (2) better utilization of existing QCRH capabilities and (3) improved collabo- ration throughout QCRH. We appreciate that innovation happens at many levels and that innovation needs to be encouraged. Innovative Community Room In 2018, Quad City Bank & Trust revealed a remodel of its West Davenport branch and introduced a new, innovative community room. Designed to serve as a free meeting space for local nonprofits, it was intentionally built using modular walls, state-of-the-art technology and versatile furniture to easily adapt as the ways people connect and col- laborate continue to change. Quad City Bank & Trust will also use this space for training opportunities and educational seminars that drive business and strengthen client relationships. Innovative Agreement m2 Lease Funds continues to be consid- ered THE innovator in the leasing business with one of the simplest, two page, “plain English” lease agreements in the industry with quick turnaround. m2 Lease Funds has the experience to innovate, advise and execute lease programs for commercial and industrial equipment. Innovative Partnership The recently completed Rockford Bank & Trust Pavilion at the nationally recognized Aldeen Golf Club is a stunningly designed building that provides the perfect can- vas for weddings, meetings and special events. Rockford Bank & Trust’s innovative partnership and collaborative efforts with the Rockford Park District and the Aldeen Foundation provide a rare opportunity to enhance the RB&T brand while creating a unique space for the community to gather. MATT RITTER SVP, Chief Information Officer Clear Lake Bank & Trust “After working with a variety of correspondent banks for more than 20 years, making the change to Quad City Bank & Trust has proven to be a wise and prudent decision. The Correspondent Banking Team provides personal service tailored to our needs, routine follow up calls & visits, competitive pricing, and overall outstanding service.” Pauline M. Herb VP, Treasury Management Cedar Rapids Bank & Trust Innovative Treasury Management Innovation, sophistication and simplicity best describe the Treasury Management solution QCR Holdings offers its clients. Our online business banking solution easily serves companies from a sole proprietor to corporations with thousands of employ- ees. Each bank maintains a local Treasury Management team that provides innovative solutions usually only offered by big banks. Innovative Clients Successful, innovative clients require an in- novative financial partner like Cedar Rapids Bank & Trust. CCB Packaging, a world-wide industry leader in innovations, offers state- of-the-art, automated packaging solutions at very competitive rates. Cedar Rapids Bank & Trust’s innovative financing options has allowed CCB to meet the needs of it’s clients. visit www.ccbpackaging.com to learn more about CCB Packaging. 14 QCR Holdings, Inc.WE HAVE FUN. As a service industry, whose success depends on employees eager to serve and confident of their career choice, QCR Holdings is known for employing the best people. Finding and retaining the best people requires a workplace filled with respect and fulfillment. A work-life balance and a healthy dose of fun are keys to our value of fulfillment. fun, wet, and wild event! The Community Bank & Trust Facebook event reached over 61,000 local faces and had 800 interactions with our photo album. Dancing for a Difference Dave Stoltenberg of Cedar Rapids Bank & Trust helped make a direct and meaning- ful impact on the students of Xavier High School by participating in Dancing with the Saints, a high-energy live event in which community “stars” and their dance pros per- form in front of nearly 1,000 attendees. Dave danced his heart out for votes via online donations to help supplement the school’s tuition assistance programs. to QCRH/Quad City Bank & Trust for being top fundraisers in their Over the Edge event. Employees and the Company contributed in an effort to get chosen to rappel down the side of a local hotel. We had three employ- ees – Cathy Loughead, Kitty Dougherty, and Nicole Ford - who rappelled down Hotel Blackhawk as part of this event. Dog Days Of Summer Doggie Dip - A community and fur driven event featuring 750 Cedar Valley residents and 402 of our four legged friends! Wow – that’s a lot of legs! The community (and their dogs) are invited out to the Falls Aquatic Center in Cedar Falls to enjoy one of the last days of summer, sponsored by Community Bank & Trust. Dogs go down the slides, jump off diving boards, dive for toys – it’s a sight to see! Over half the staff volunteer for this Summer Fun Each summer, Quad City Bank & Trust hosts a VIP reception for clients at the Riverfront Pops, in partnership with the Quad City Symphony Orchestra. As a marquee fund- raising event in the Quad Cities, the casual and festive atmosphere offers a genuine feeling of goodwill and community pride while giving employees a chance to net- work with key stakeholders and raise money for music education in the Quad Cities. 15 All Employee Retreat You have driven our past…you will drive our future, was the theme of the 25 year anniversary event. For the first time in our company’s history, all employees from every entity gathered in a single space to celebrate as a team at an event we called DRVN25. We took time to meet the people we often only work with remotely and we heard from the company co-founders about the past 25 years and what they see for the next 25 years. With over 750 employees, rep- resenting every generation, we took this op- portunity to engage the keynote speakers from Bridgeworks to learn about bridging generational gaps in the workplace. Raising (FUN)ds and Awareness Big Brothers Big Sisters presented an award QCR Holdings, Inc.QCR HOLDINGS IS HEADQUARTERED IN MOLINE, ILLINOIS AND OPERATES FIVE LOCALLY MANAGED AND GOVERNED CHARTERS IN FOUR STATES, SUPPORTED BY A CENTRALIZED OPERATIONAL TEAM. 4 STATES 5 CHARTERS 27 FACILITIES 755+ EMPLOYEES 1 FAMILY 16 QCR Holdings, Inc.YEAR-END 2011-2018 QCRH Price/Share QCR HOLDINGS KBWR Regional Banking Index $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 KBWR % Change 146 % 126% 106% 86% 66% 46% 26% 6% 2011 2012 2013 2014 2015 2016 2017 2018 DEPOSIT MIX 2017-2018 ($ MILLIONS) 2018 2017 $3,977 $3,267 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 Noninterest-bearing Interest-bearing Time Deposits Brokered Deposits LOAN MIX 2017-2018 ($ MILLIONS. EXCLUDES DEFERRED LOAN/LEASE ORIGINATION COSTS, NET OF FEES.) 2018 2017 $3,723 $2,957 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 Comm & Industrial Comm Real Estate Direct Financing Leases Residential Real Estate Installment & Consumer 17 QCR Holdings, Inc.CONSOLIDATED FINANCIAL HIGHLIGHTS As of December 31, 2018 December 31, 2017 (dollars in thousands) CONDENSED BALANCE SHEET Cash and due from banks Federal funds sold and interest-bearing deposits Securities Net loans/leases Intangibles Goodwill Other assets Total assets Total deposits Total borrowings Other liabilities Total stockholders' equity Total liabilities and stockholders' equity ANALYSIS OF LOAN DATA Loan/lease mix: Commercial and industrial loans Commercial real estate loans Direct financing leases Residential real estate loans Installment and other consumer loans Deferred loan/lease origination costs, net of fees Total loans/leases Less allowance for estimated losses on loans/leases Net loans/leases ANALYSIS OF SECURITIES DATA Securities mix: U.S. government sponsored agency securities Municipal securities Residential mortgage-backed and related securities Other securities Total securities ANALYSIS OF DEPOSIT DATA Deposit mix: Noninterest-bearing demand deposits Interest-bearing demand deposits Time deposits Brokered deposits Total deposits ANALYSIS OF BORROWINGS DATA Borrowings mix: Term FHLB advances Overnight FHLB advances Wholesale structured repurchase agreements Customer repurchase agreements Federal funds purchased Junior subordinated debentures Other Total borrowings Amount $ Amount $ 85,523 159,596 662,969 3,692,907 17,450 77,832 253,433 4,949,710 3,977,031 404,969 94,572 473,138 4,949,710 1,429,410 1,766,111 117,968 290,759 119,382 9,124 3,732,754 39,847 3,692,907 36,411 459,409 159,249 7,900 662,969 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 75,722 85,962 652,382 2,930,130 9,079 28,334 201,056 3,982,665 3,266,655 309,480 53,243 353,287 3,982,665 1,134,516 1,303,492 141,448 258,646 118,611 7,773 2,964,486 34,356 2,930,130 38,097 445,050 163,301 5,934 652,382 $ 791,101 $ 789,548 2,204,206 704,903 1,855,893 516,058 276,821 3,977,031 $ 105,156 3,266,655 $ $ 76,327 $ 56,600 190,165 35,000 2,084 26,690 37,670 135,400 35,000 7,003 6,990 37,486 $ 37,033 404,969 $ 31,000 309,479 18 QCR Holdings, Inc. CONSOLIDATED FINANCIAL HIGHLIGHTS INCOME STATEMENT Interest income Interest expense Net interest income Provision for loan/lease losses Net interest income after provision for loan/lease losses Trust department fees Investment advisory and management fees Deposit service fees Gain on sales of residential real estate loans Gain on sales of government guaranteed portions of loans Swap fee income Securities gains (losses), net Earnings on bank-owned life insurance Debit card fees Correspondent banking fees Other Total noninterest income Salaries and employee benefits Occupancy and equipment expense Professional and data processing fees Acquisition costs Post-acquisition compensation, transition and integration costs FDIC insurance, other insurance and regulatory fees Loan/lease expense Net cost of operation of other real estate Advertising and marketing Bank service charges Correspondent banking expense CDI amortization Other Total noninterest expense Net income before taxes Income tax expense Net income Basic EPS Diluted EPS For the Year Ended December 31, December 31, 2018 2017 (dollars in thousands, except per share data) $ 182,879 $ 135,517 40,484 142,395 19,452 116,065 12,658 129,737 $ 8,470 107,595 $ $ 8,707 $ 7,188 4,726 6,420 901 405 10,787 - 1,632 3,263 852 3,848 3,870 5,919 409 1,164 3,095 (88) 1,802 2,942 916 3,265 $ 41,541 $ 30,482 $ 68,994 $ 55,722 12,884 11,452 1,795 2,086 3,594 1,544 2,489 3,552 1,838 821 1,692 6,402 10,938 10,757 1,069 4,310 2,752 1,164 2 2,625 1,771 807 1,001 4,506 $ 119,143 $ 97,424 $ 52,135 $ 40,653 9,015 43,120 $ 4,946 35,707 $ $ 2.92 $ 2.68 $ 2.86 $ 2.61 Weighted average common shares outstanding Weighted average common and common equivalent shares outstanding 14,768,687 15,064,730 13,325,128 13,680,472 19 QCR Holdings, Inc. CONSOLIDATED FINANCIAL HIGHLIGHTS COMMON SHARE DATA Common shares outstanding Book value per common share (1) Tangible book value per common share (2) Closing stock price Market capitalization Market price / book value Market price / tangible book value Earnings per common share (basic) LTM (3) Price earnings ratio LTM (3) TCE / TA (4) CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Beginning balance Net income Other comprehensive income (loss), net of tax Common stock cash dividends declared Proceeds from issuance of 678,670 shares of common stock as a result of the acquisition of Guaranty Bank & Trust, net of issuance costs of $138,071 Proceeds from issuance of 1,689,414 shares of common stock as a result of the merger with Springfield Bancshares, net of issuance costs of $106,237 Proceeds from issuance of 23,501 shares of common stock, common stock as a result of the acquisition of Bates Companies Other (5) Ending balance REGULATORY CAPITAL RATIOS: Total risk-based capital ratio Tier 1 risk-based capital ratio Tier 1 leverage capital ratio Common equity tier 1 ratio KEY PERFORMANCE RATIOS AND OTHER METRICS Return on average assets (annualized) Return on average total equity (annualized) Net interest margin Net interest margin (TEY) (Non-GAAP)(6) (8) Efficiency ratio (Non-GAAP) (8) Gross loans and leases / total assets Full-time equivalent employees (7) AVERAGE BALANCES Assets Loans/leases Deposits Total stockholders' equity For the Year Ended December 31, 2018 December 31, 2017 (dollars in thousands, except per share data) 15,718,208 13,918,168 $30.10 $24.04 $32.09 $504,397 106.61% 133.49% $2.92 10.98 x 7.78% $25.38 $22.70 $42.85 $596,393 168.81% 188.81% $2.69 15.93 x 8.01% $ 353,287 $ 286,041 43,120 (3,205) (3,547) - 80,531 1,000 35,707 1,092 (2,665) 30,741 - - $ 1,952 473,138 2,371 353,287 $ 10.69% 9.77% 8.87% 8.89% 0.98% 10.62% 3.46% 3.62% 64.77% 75.41% 755 11.15% 10.14% 8.98% 9.10% 1.01% 11.51% 3.50% 3.78% 66.48% 74.43% 641 $ 4,392,121 3,352,357 3,602,221 405,973 $ 3,519,848 2,611,888 2,916,577 310,210 (1) Includes accumulated other comprehensive income (loss). (2) Includes accumulated other comprehensive income (loss) and excludes intangible assets. (3) LTM : Last twelve months. (4) TCE / TCA : tangible common equity / total tangible assets. (5) Includes mostly common stock issued for options exercised and the employee stock purchase plan, as well as stock-based compensation. (6) TEY : Tax equivalent yield. (7) Full-time equivalent employees increased in 2018 due to the merger with Springfield Bancshares and acquisition of the Bates Companies, as well as new positions created to build scale. (8) See GAAP to Non-GAAP reconciliations. 1 20 QCR Holdings, Inc. CONSOLIDATED FINANCIAL HIGHLIGHTS ANALYSIS OF NET INTEREST INCOME AND MARGIN December 31, 2018 December 31, 2017 For the Year Ended Average Balance Interest Earned or Paid Average Yield or Cost Average Balance Interest Earned or Paid Average Yield or Cost (dollars in thousands) Fed funds sold $ 20,472 $ 338 Interest-bearing deposits at financial institutions Securities (1) Restricted investment securities Loans (1) Total earning assets (1) Interest-bearing deposits Time deposits Short-term borrowings Federal Home Loan Bank advances Other borrowings Junior subordinated debentures Total interest-bearing liabilities Net interest income / spread (1) Net interest margin Net interest margin (TEY) (Non-GAAP) (1) Adjusted net interest margin (TEY) (Non-GAAP) (1) 66,275 659,017 22,023 3,352,357 1,267 23,621 1,093 163,197 $ 4,120,144 $ 189,516 $ 2,043,314 766,020 $ 18,651 12,024 19,458 202,715 69,623 37,578 3,138,708 $ 271 4,193 3,346 1,999 40,484 $ $ 149,032 1.65% 1.91% 3.58% 4.96% 4.87% 4.60% 0.91% 1.57% 1.39% 2.07% 4.81% 5.32% 1.29% 3.31% 3.46% 3.62% 3.48% $ 17,577 $ 149 78,842 590,761 15,768 2,611,888 874 22,460 631 120,618 $ 3,314,836 $ 144,732 $ 1,622,723 528,834 $ 7,992 5,020 22,596 120,206 73,394 34,030 2,401,783 $ 114 1,981 2,879 1,466 19,452 $ $ 125,280 0.85% 1.11% 3.80% 4.00% 4.62% 4.37% 0.49% 0.95% 0.50% 1.65% 3.92% 4.31% 0.81% 3.56% 3.50% 3.78% 3.64% (1) Includes nontaxable securities and loans. Interest earned and yields on nontaxable securities and loans are determined on a tax equivalent basis using a 35% tax rate for years including and prior to December 31, 2017 and 21% for years after December 31, 2017. ROLLFORWARD OF ALLOWANCE FOR LOAN/LEASE LOSSES Beginning balance Provision charged to expense Loans/leases charged off Recoveries on loans/leases previously charged off Ending balance NONPERFORMING ASSETS Nonaccrual loans/leases Accruing loans/leases past due 90 days or more Troubled debt restructures - accruing Total nonperforming loans/leases Other real estate owned Other repossessed assets Total nonperforming assets ASSET QUALITY RATIOS Nonperforming assets / total assets Allowance / total loans/leases (1) Allowance / nonperforming loans/leases (1) December 31, 2018 December 31, 2017 (dollars in thousands) $ 34,356 $ 30,757 12,658 (7,919) 8,470 (5,373) $ 752 39,847 $ 502 34,356 $ 14,260 $ 11,441 632 3,659 18,551 9,378 89 7,113 18,643 13,558 $ 8 27,937 $ 80 32,281 0.56% 1.07% 214.80% 0.81% 1.16% 184.28% (1) Upon acquisition and per GAAP, acquired loans are recorded at market value which eliminated the allowance and impacts these ratios. 1 21 1 QCR Holdings, Inc. CONSOLIDATED FINANCIAL HIGHLIGHTS GAAP TO NON-GAAP RECONCILIATIONS ADJUSTED NIM (TEY)* Net interest income (GAAP) Plus: Tax-equivalent adjustment Net interest income - tax equivalent (non-GAAP) Less: Acquisition accounting net accretion Adjusted net interest income December 31, 2018 December 31, 2017 (dollars in thousands) $ $ 142,395 6,637 149,032 5,527 143,505 116,065 9,215 125,280 4,774 120,506 $ $ Average earning assets $ 4,120,144 $ 3,314,836 NIM (GAAP) NIM (TEY) (non-GAAP) Adjusted NIM (TEY) (non-GAAP) 3.46% 3.62% 3.48% 3.50% 3.78% 3.64% EFFICIENCY RATIO Noninterest expense (GAAP) Net interest income (GAAP) Noninterest income (GAAP) Total income $ 119,143 $ 97,424 $ $ 142,395 41,541 183,936 $ $ 116,065 30,482 146,547 Efficiency ratio (noninterest expense/total income) (non-GAAP) 64.77% 66.48% * Nonrecurring items (after-tax) are calculated using an estimated effective tax rate of 35% for each year including and prior to December 31, 2017 and 21% for each year after December 31, 2017. 22 QCR Holdings, Inc. STOCK LISTING INFORMATION The common stock of QCR Holdings, Inc. is traded on the NASDAQ Global Market under the symbol QCRH COMMON STOCK Calendar 2018 High Low 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Calendar 2017 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter $ 40.83 $30.93 49.40 49.20 47.35 High 40.70 44.30 41.95 Low $ 49.70 $ 41.50 50.00 49.80 45.00 39.85 40.45 40.65 DIVIDEND INFORMATION Record Date Payment Date Amount Per Share 12.21.18 01.01.19 09.21.18 10.03.18 06.15.18 07.05.18 03.16.18 04.04.18 12.15.17 01.04.18 09.15.17 10.04.17 06.16.17 07.06.17 03.17.17 04.05.17 $ .06 $ .06 $ .06 $ .06 $ .05 $ .05 $ .05 $ .05 Annual Meeting of Stockholders Investor Information The Annual Meeting of the Stockholders of QCR Holdings, Inc. will be held: Stockholders, investors, and analysts interested in additional information may contact: Thursday, May 23, 2019 at 8:00 am CDT Quad City Bank & Trust Lobby 3551 Seventh Street Moline, IL 61265 Annual Report on Form 10-K Copies of the QCR Holdings, Inc. annual report on Form 10-K and exhibits filed with the Securities and Exchange Commission (SEC) are available to stockholders without charge by accessing our internet site at www.qcrh.com or by writing or calling: Elizabeth A. Grabin Senior Vice President, Chief Accounting Officer QCR Holdings, Inc. 3551 Seventh Street Moline, IL 61265 309.743.7724 The SEC maintains an internet site that contains reports, proxy, and information statements and other information about issuers that file electronically with the SEC. The address of that site is: www.sec.gov. Stock Transfer Agent Inquiries regarding stock transfer, registration, lost certificates, or changes in name and address should be directed to the stock transfer agent and registrar by writing: American Stock Transfer & Trust Company, LLC Operations Center 6201 15th Avenue Brooklyn, NY 11219 Todd A. Gipple President-Elect, Chief Operating Officer and Chief Financial Officer QCR Holdings, Inc. 3551 Seventh Street Moline, IL 61265 309.743.7745 Christopher J. Lindell Executive Vice President, Investor Relations and Corporate Secretary QCR Holdings, Inc. 500 First Avenue NE, Cedar Rapids, IA 52401 319.743.7006 Independent Registered Public Accounting Firm RSM US LLP, Davenport, IA Corporate Counsel Lane & Waterman LLP, Davenport, IA Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL Internet Information Information on our subsidiaries’ history, locations, products and services can be accessed on the internet at: www.qcbt.com www.crbt.com www.communitybt.com www.rkfdbank.com www.bankcsb.com www.sfcbank.com www.m2lease.com 23 QCR Holdings, Inc.WE ARE RELATIONSHIP DRIVEN 3551 SEVENTH STREET MOLINE, IL 61265 www.qcrh.com Copyright © 2019 

Continue reading text version or see original annual report in PDF format above