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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 EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 2011

[    ]  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 incorporation or organization)  (I.R.S. Employer ID Number)
 
3551 7th Street, Moline, Illinois 61265
(Address of principal executive offices)

(309) 736-3580
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days.  Yes [ X ]   No  [    ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  [    ]   No  [    ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [   ]     Accelerated filer  [   ]     Non-accelerated filer  [   ]     Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 2, 2011, the Registrant had outstanding 4,729,163 shares of common stock, $1.00 par value per share.

 
 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

INDEX

       
Page Number(s)
Part I
FINANCIAL INFORMATION
   
         
 
Item 1.
Consolidated Financial Statements (Unaudited)
   
         
   
Consolidated Balance Sheets
 
2
   
As of March 31, 2011 and December 31, 2010
   
         
   
Consolidated Statements of Income
 
3
   
For the Three Months Ended March 31, 2011 and 2010
   
         
   
Consolidated Statement of Changes in Stockholders' Equity
 
4
   
For the Three Months Ended March 31, 2011 and 2010
   
         
   
Consolidated Statements of Cash Flows
 
5
   
For the Three Months Ended March 31, 2011 and 2010
   
         
   
Notes to the Consolidated Financial Statements
 
6-24
         
 
Item 2.
Management's Discussion and Analysis of Financial Condition and
 
25-48
   
Results of Operations
   
         
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
49-50
         
 
Item 4.
Controls and Procedures
 
51
         
         
Part II
OTHER INFORMATION
   
         
 
Item 1.
Legal Proceedings
 
52
         
 
Item 1.A.
Risk Factors
 
52
         
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
52
         
 
Item 3.
Defaults upon Senior Securities
 
52
         
 
Item 4.
[Removed and Reserved]
 
52
         
 
Item 5.
Other Information
 
52
         
 
Item 6.
Exhibits
 
52
         
Signatures
 
 
53
 
 
 
1

 
QCR HOLDINGS, INC. AND SUBSIDIARIES
 
             
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
As of March 31, 2011 and December 31, 2010
 
             
             
   
March 31,
2011
   
December 31,
2010
 
ASSETS
           
Cash and due from banks
  $ 35,738,911     $ 42,030,806  
Federal funds sold
    69,260,000       61,960,000  
Interest-bearing deposits at financial institutions
    28,374,628       39,745,611  
                 
Securities held to maturity, at amortized cost
    300,000       300,000  
Securities available for sale, at fair value
    491,257,812       424,546,767  
     Total securities
    491,557,812       424,846,767  
                 
                 
Loans receivable held for sale
    1,268,230       14,084,859  
Loans/leases receivable held for investment
    1,154,499,741       1,158,453,744  
     Gross loans/leases receivable
    1,155,767,971       1,172,538,603  
Less allowance for estimated losses on loans/leases
    (20,730,016 )     (20,364,656 )
     Net loans/leases receivable
    1,135,037,955       1,152,173,947  
                 
Premises and equipment, net
    30,852,151       31,118,744  
Goodwill
    3,222,688       3,222,688  
Accrued interest receivable
    6,535,666       6,435,989  
Bank-owned life insurance
    33,909,801       33,565,390  
Prepaid FDIC insurance
    4,739,932       5,361,314  
Restricted investment securities
    15,421,400       16,668,700  
Other real estate owned, net
    8,357,604       8,534,711  
Other assets
    10,685,566       10,970,549  
                 
     Total assets
  $ 1,873,694,114     $ 1,836,635,216  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
LIABILITIES
               
Deposits:
               
   Noninterest-bearing
  $ 281,236,549     $ 276,827,205  
   Interest-bearing
    913,621,337       837,988,652  
     Total deposits
    1,194,857,886       1,114,815,857  
                 
Short-term borrowings
    134,871,743       141,154,499  
Federal Home Loan Bank advances
    210,250,000       238,750,000  
Other borrowings
    143,629,848       150,070,785  
Junior subordinated debentures
    36,085,000       36,085,000  
Other liabilities
    21,041,501       23,188,367  
     Total liabilities
    1,740,735,978       1,704,064,508  
                 
STOCKHOLDERS' EQUITY
               
Preferred stock, $1 par value; shares authorized 250,000
    63,237       63,237  
March 2011 and December 2010 - 63,237 shares issued and outstanding
 
Common stock, $1 par value;  shares authorized 20,000,000
    4,833,562       4,732,428  
March 2011 - 4,833,562 shares issued and 4,712,316 outstanding
 
December 2010 - 4,732,428 shares issued and 4,611,182 outstanding
 
Additional paid-in capital
    86,913,069       86,478,269  
Retained earnings
    41,643,489       40,550,900  
Accumulated other comprehensive income (loss)
    (641,389 )     704,165  
Noncontrolling interests
    1,752,678       1,648,219  
      134,564,646       134,177,218  
Treasury Stock, March 2011 and December 2010 - 121,246 common shares, at cost
    1,606,510       1,606,510  
     Total stockholders' equity
    132,958,136       132,570,708  
     Total liabilities and stockholders' equity
    1,873,694,114     $ 1,836,635,216  
                 
See Notes to Consolidated Financial Statements
 
 
2

 
QCR HOLDINGS, INC. AND SUBSIDIARIES
 
   
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
Three Months Ended March 31,
 
         
             
   
2011
   
2010
 
Interest and dividend income:
           
     Loans/leases, including fees
  $ 15,734,640     $ 17,513,489  
     Securities:
               
           Taxable
    2,336,239       2,462,680  
           Nontaxable
    239,346       228,724  
     Interest-bearing deposits at financial institutions
    111,149       144,918  
     Restricted investment securities
    163,520       105,479  
     Federal funds sold
    66,338       21,287  
          Total interest and dividend income
    18,651,232       20,476,577  
                 
Interest expense:
               
      Deposits
    2,425,554       3,375,009  
      Short-term borrowings
    113,666       168,846  
      Federal Home Loan Bank advances
    2,143,376       2,244,077  
      Other borrowings
    1,279,179       1,389,119  
      Junior subordinated debentures
    480,655       478,958  
          Total interest expense
    6,442,430       7,656,009  
                 
          Net interest income
    12,208,802       12,820,568  
                 
Provision for loan/lease losses
    1,067,664       1,603,229  
          Net interest income after provision for loan/lease losses
    11,141,138       11,217,339  
                 
Noninterest income:
               
     Trust department fees
    950,802       905,788  
     Investment advisory and management fees, gross
    531,218       434,695  
     Deposit service fees
    872,672       822,768  
     Gains on sales of loans, net
    759,693       168,954  
     Securities gains
    880,312       -  
     Losses on sales of other real estate owned, net
    (25,098 )     (342,546 )
     Earnings on bank-owned life insurance
    344,411       334,506  
     Credit card issuing fees, net of processing costs
    141,160       86,142  
     Other
    601,954       421,330  
          Total noninterest income
    5,057,124       2,831,637  
                 
Noninterest expense:
               
     Salaries and employee benefits
    7,473,503       6,891,004  
     Occupancy and equipment expense
    1,289,455       1,371,346  
     Professional and data processing fees
    1,124,522       1,157,398  
     FDIC and other insurance
    882,730       803,526  
     Loan/lease expense
    276,228       569,015  
     Advertising and marketing
    224,729       166,241  
     Postage and telephone
    230,185       262,740  
     Stationery and supplies
    134,643       120,398  
     Bank service charges
    161,178       61,251  
     Prepayment fees on Federal Home Loan Bank advances
    832,099       -  
     Losses on lease residual values
    -       617,000  
     Other
    382,999       422,003  
          Total noninterest expense
    13,012,271       12,441,922  
                 
          Net income before income taxes
    3,185,991       1,607,054  
Federal and state income tax expense
    954,507       392,121  
          Net income
  $ 2,231,484     $ 1,214,933  
          Less:  Net income (loss) attributable to noncontrolling interests
    106,524       (77,076 )
          Net income attributable to QCR Holdings, Inc.
  $ 2,124,960     $ 1,292,009  
                 
                 
          Less: Preferred stock dividends
    1,032,371       1,033,419  
          Net income attributable to QCR Holdings, Inc. common stockholders
    1,092,589     $ 258,590  
                 
Earnings per common share attributable to QCR Holdings, Inc. common shareholders
 
          Basic
  $ 0.23       0.06  
          Diluted
  $ 0.23       0.06  
                 
          Weighted average common shares outstanding
    4,671,715       4,573,765  
          Weighted average common and common equivalent shares outstanding     4,683,717       4,582,319  
                 
Cash dividends declared per common share
  $ -     $ -  
                 
See Notes to Consolidated Financial Statements
 
 
3

 
QCR HOLDINGS, INC. AND SUBSIDIARIES
 
                                                 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
 
Three Months Ended March 31, 2011 and 2010
 
                                                 
   
Preferred
   
Common
   
Additional
Paid-In
   
Retained
   
Accumulated
Other
Comprehensive
   
Noncontrolling
   
Treasury
       
   
Stock
   
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Interests
   
Stock
   
Total
 
Balance December 31, 2010
  $ 63,237     $ 4,732,428     $ 86,478,269     $ 40,550,900     $ 704,165     $ 1,648,219     $ (1,606,510 )   $ 132,570,708  
Comprehensive income:
                                                               
Net income
    -       -       -       2,124,960       -       106,524       -       2,231,484  
Other comprehensive loss, net of tax
    -       -       -       -       (1,345,554 )     -       -       (1,345,554 )
Comprehensive income
                                                            885,930  
Preferred cash dividends declared and accrued
    -       -       -       (915,462 )     -       -       -       (915,462 )
Discount accretion on cumulative preferred stock
    -       -       116,909       (116,909 )     -       -       -       -  
Proceeds from issuance of 9,081 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan
    -       9,081       49,249       -       -       -       -       58,330  
Proceeds from issuance of 24,300 shares of common stock as a result of stock options exercised
    -       24,300       146,067       -       -       -       -       170,367  
Exchange of 2,171 shares of common stock in connection with stock options exercised
    -       (2,171 )     (14,070 )     -       -       -       -       (16,241 )
Stock compensation expense
    -       -       206,569                                       206,569  
Restricted stock awards
    -       69,924       (69,924 )     -       -       -       -       -  
Other adjustments to noncontrolling interests
    -       -       -       -       -       (2,065 )     -       (2,065 )
Balance March 31, 2011
  $ 63,237     $ 4,833,562     $ 86,913,069     $ 41,643,489     $ (641,389 )   $ 1,752,678     $ (1,606,510 )   $ 132,958,136  
                                                                 
                                                             
   
Preferred
   
Common
   
Additional
Paid-In
   
Retained
   
Accumulated
Other
Comprehensive
   
Noncontrolling
   
Treasury
         
   
Stock
   
Stock
   
Capital
   
Earnings
   
Income
   
Interests
   
Stock
   
Total
 
Balance December 31, 2009
  $ 38,805     $ 4,674,536     $ 82,194,330     $ 38,458,477     $ 135,608     $ 1,699,630     $ (1,606,510 )   $ 125,594,876  
Comprehensive income:
                                                               
Net income
    -       -       -       1,292,009       -       (77,076 )     -       1,214,933  
Other comprehensive income, net of tax
    -       -       -       -       1,663,236       -       -       1,663,236  
Comprehensive income
                                                            2,878,169  
Preferred cash dividends declared and accrued
    -       -       -       (924,088 )     -       -       -       (924,088 )
Discount accretion on cumulative preferred stock
    -       -       109,331       (109,331 )     -       -       -       -  
Proceeds from issuance of warrants to purchase 54,000 shares of common stock in conjunction with the issuance of Series A Subordinated Notes
    -       -       84,240       -       -       -       -       84,240  
Proceeds from issuance of 6,270 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan
    -       6,270       40,849       -       -       -       -       47,119  
Exchange of 367 shares of common stock in connection with payroll taxes for restricted stock
    -       (367 )     (2,730 )     -       -       -       -       (3,097 )
Stock compensation expense
    -       -       181,489                                       181,489  
Restricted stock awards
    -       23,598       (23,598 )     -       -       -       -       -  
Other adjustments to noncontrolling interests
    -       -       -       -       -       (2,065 )     -       (2,065 )
Balance March 31, 2010
  $ 38,805     $ 4,704,037     $ 82,583,911     $ 38,717,067     $ 1,798,844     $ 1,620,489     $ (1,606,510 )   $ 127,856,643  
                                                                 
See Notes to Consolidated Financial Statements
 
 
4

 
QCR HOLDINGS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
         
 
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
            Net income
  $ 2,231,484     $ 1,214,933  
            Adjustments to reconcile net income to net cash
               
            provided by operating activities:
               
            Depreciation
    595,249       651,432  
            Provision for loan/lease losses
    1,067,664       1,603,229  
            Amortization of offering costs on subordinated debentures
    3,579       3,579  
            Stock-based compensation expense
    246,074       202,995  
            Losses on sales of foreclosed assets, net
    25,098       342,546  
            Amortization of premiums on securities, net
    888,895       922,718  
            Securities gains
    (880,312 )     -  
            Loans originated for sale
    (20,240,641 )     (14,794,145 )
            Proceeds on sales of loans
    33,816,963       17,221,270  
            Gains on sales of loans, net
    (759,693 )     (168,954 )
            Prepayment fees on Federal Home Loan Bank advances
    832,099       -  
            Losses on lease residual values
    -       617,000  
            Increase in accrued interest receivable
    (99,677 )     (102,488 )
            Decrease in prepaid FDIC insurance
    621,382       564,847  
            Increase in cash value of bank-owned life insurance
    (344,411 )     (334,506 )
            Decrease (increase) in other assets
    1,114,324       (151,088 )
            Decrease in other liabilities
    (2,002,950 )     (1,997,266 )
               Net cash provided by operating activities
  $ 17,115,127     $ 5,796,102  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
          Net increase in federal funds sold
    (7,300,000 )     (54,471,667 )
          Net decrease in interest-bearing deposits at financial institutions
    11,370,983       5,058,430  
          Proceeds from sales of foreclosed assets
    1,850,360       21,167  
          Activity in securities portfolio:
               
               Purchases
    (168,245,889 )     (75,051,624 )
               Calls, maturities and redemptions
    61,590,000       59,500,000  
               Paydowns
    361,643       99,503  
               Sales
    37,394,079       -  
          Redemptions (purchases) of restricted investment securities, net
    1,247,300       (907,300 )
          Activity in bank-owned life insurance:
               
               Purchases
    -       (3,150,000 )
               Surrender of policy
    -       609,774  
          Net decrease in loans/leases originated and held for investment
    1,553,348       1,667,807  
          Purchase of premises and equipment
    (328,656 )     (871,786 )
               Net cash used in investing activities
  $ (60,506,832 )   $ (67,495,696 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
          Net increase in deposit accounts
    80,042,029       59,966,105  
          Net decrease in short-term borrowings
    (6,282,756 )     (34,636,000 )
          Activity in Federal Home Loan Bank advances:
               
               Advances
    -       18,000,000  
               Calls and maturities
    (13,500,000 )     (2,900,000 )
               Prepayments
    (15,832,099 )     -  
          Net (decrease) increase in other borrowings
    (6,440,937 )     9,537,679  
          Proceeds from issuance of Series A Subordinated Notes and detachable warrants
    -       2,700,000  
to purchase 54,000 shares of common stock
               
          Payment of cash dividends on common and preferred stock
    (1,098,883 )     (1,105,721 )
          Proceeds from issuance of common stock, net
    212,456       44,022  
               Net cash provided by financing activities
  $ 37,099,810     $ 51,606,085  
                 
               Net decrease in cash and due from banks
    (6,291,895 )     (10,093,509 )
Cash and due from banks, beginning
    42,030,806       35,878,046  
Cash and due from banks, ending
  $ 35,738,911     $ 25,784,537  
                 
Supplemental disclosure of cash flow information, cash payments for:
         
          Interest
  $ 6,590,262     $ 7,945,264  
                 
          Income/franchise taxes
  $ 368,270     $ 370,032  
                 
Supplemental schedule of noncash investing activities:
               
          Change in accumulated other comprehensive income,
               
               unrealized (losses) gains on securities available for sale, net
  $ (1,345,554 )   $ 1,663,236  
                 
          Transfers of loans to other real estate owned
  $ 1,698,351     $ -  
                 
See Notes to Consolidated Financial Statements
 
 
5

 
Part I
Item 1
QCR HOLDINGS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2011

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation:  The interim unaudited consolidated financial statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended December 31, 2010, including QCR Holdings, Inc.’s (the “Company”) Form 10-K filed with the Securities and Exchange Commission on March 7, 2011.  Accordingly, footnote disclosures, which would substantially duplicate the disclosures contained in the audited consolidated financial statements, have been omitted.

The financial information of the Company included herein has been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X.  Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.  Any differences appearing between the numbers presented in financial statements and management’s discussion and analysis are due to rounding.  The results of the interim period ended March 31, 2011, are not necessarily indicative of the results expected for the year ending December 31, 2011.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries which include three state-chartered commercial banks:  Quad City Bank & Trust Company (“QCBT”), Cedar Rapids Bank & Trust Company (“CRBT”), and Rockford Bank & Trust Company (“RB&T”).  The Company also engages in direct financing lease contracts through its 80% equity investment by QCBT in m2 Lease Funds, LLC (“m2 Lease Funds”), and in real estate holdings through its 91% equity investment in Velie Plantation Holding Company, LLC (“VPHC”).  All material intercompany transactions and balances have been eliminated in consolidation.

Reclassifications:  Certain amounts in the prior year financial statements have been reclassified, with no effect on net income or stockholders’ equity, to conform with current period presentation.
 
Recent accounting developments:  In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820); Improving Disclosures about Fair Value Measurements.  ASU 2010-06 requires new disclosures on transfers into and out of Level 1 and 2 measurements of the fair value hierarchy and requires separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements.  It also clarifies existing fair value disclosures relating to the level of disaggregation and inputs and valuation techniques used to measure fair value.  It is effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchase, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010.  The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.
 
 
6

 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued
 
In January 2011, FASB issued ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.  FASB determined that certain provisions relating to troubled debt restructures (“TDRs”) should be deferred until additional guidance and clarification on the definition of TDRs is issued.  In April 2011, FASB issued ASU 2011-2, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.  ASU 2011-2 amends ASC Topic 310, Receivables, by clarifying guidance for creditors in determining whether a concession has been granted and whether a debtor is experiencing financial difficulties.  The amendments are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.  ASU 2011-2 also makes disclosure requirements deferred under ASU 2011-1 effective for interim and annual periods beginning on or after June 15, 2011.  The Company has evaluated the effect of ASU 2011-2 and believes adoption will not have a material impact on the consolidated financial statements.

NOTE 2 – INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of March 31, 2011 and December 31, 2010 are summarized as follows:
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
(Losses)
   
Value
 
March 31, 2011:
                       
Securities held to maturity,
                   
other bonds
  $ 300,000     $ -     $ -     $ 300,000  
                                 
Securities available for sale:
                         
U.S. govt. sponsored agency securities
  $ 390,497,368     $ 1,456,272     $ (3,494,796 )   $ 388,458,844  
Residential mortgage-backed securities
    73,324,511       223,610       (367,835 )     73,180,286  
Municipal securities
    26,974,063       1,008,347       (59,977 )     27,922,433  
Trust preferred securities
    86,200       -       (26,200 )     60,000  
Other securities
    1,421,258       215,869       (878 )     1,636,249  
    $ 492,303,400     $ 2,904,098     $ (3,949,686 )   $ 491,257,812  
                                 
December 31, 2010:
                               
Securities held to maturity,
                         
other bonds
  $ 300,000     $ -     $ -     $ 300,000  
                                 
Securities available for sale:
                         
U.S. govt. sponsored agency securities
  $ 401,711,432     $ 3,218,843     $ (2,704,919 )   $ 402,225,356  
Residential mortgage-backed securities
    64,912       5,526       -       70,438  
Municipal securities
    20,134,611       579,215       (110,346 )     20,603,480  
Trust preferred securities
    86,200       -       (8,200 )     78,000  
Other securities
    1,414,661       168,331       (13,499 )     1,569,493  
    $ 423,411,816     $ 3,971,915     $ (2,836,964 )   $ 424,546,767  
 
 
7

 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2011 and December 31, 2010, are summarized as follows:
 
   
Less than 12 Months
   
12 Months or More
   
Total
 
         
Gross
         
Gross
         
Gross
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
March 31, 2011:
                                   
Securities available for sale:
                                   
U.S. govt. sponsored agency securities
  $ 213,178,135     $ (3,494,796 )   $ -     $ -     $ 213,178,135     $ (3,494,796 )
Residential mortgage-backed securities
    20,973,089       (367,835 )     -       -       20,973,089       (367,835 )
Municipal securities
    1,815,775       (15,398 )     704,528       (44,579 )     2,520,303       (59,977 )
Trust preferred securities
    60,000       (26,200 )     -       -       60,000       (26,200 )
Other securities
    -       -       2,822       (878 )     2,822       (878 )
    $ 236,026,999     $ (3,904,229 )   $ 707,350     $ (45,457 )   $ 236,734,349     $ (3,949,686 )
                                                 
December 31, 2010:
                                               
Securities available for sale:
                                               
U.S. govt. sponsored agency securities
  $ 159,302,061     $ (2,704,919 )   $ -     $ -     $ 159,302,061     $ (2,704,919 )
Municipal securities
    4,333,786       (47,884 )     678,378       (62,462 )     5,012,164       (110,346 )
Trust preferred securities
    86,200       (8,200 )     -       -       86,200       (8,200 )
Other securities
    226,250       (12,671 )     2,872       (828 )     229,122       (13,499 )
    $ 163,948,297     $ (2,773,674 )   $ 681,250     $ (63,290 )   $ 164,629,547     $ (2,836,964 )
 
At March 31, 2011, the investment portfolio included 353 securities.  Of this number, 122 securities had current unrealized losses with aggregate depreciation less than 2% from the amortized cost basis.  Of these 122, seven had unrealized losses for twelve months or more.  All of the debt securities in unrealized loss positions are considered acceptable credit risks.  Based upon an evaluation of the available evidence, including the recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary.  In addition, the Company does not intend to sell these securities and it is not more-likely-than-not that the Company will be required to sell these debt securities before their anticipated recovery.  At March 31, 2011 and December 31, 2010, equity securities represented less than 1% of the total portfolio.

The Company did not recognize other-than-temporary impairment on any debt or equity securities for the three months ended March 31, 2011 and 2010.

During the first quarter of 2011, the Company sold a portion of its U.S. government sponsored agency securities portfolio.  The Company received proceeds of $37,394,079 and recognized pre-tax gross gains of $880,312.  For the three months ended March 31, 2010, there were no sales of investment securities.
 
 
8

 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

The amortized cost and fair value of securities as of March 31, 2011 by contractual maturity are shown below.  Expected maturities of residential mortgage-backed securities may differ from contractual maturities because the residential mortgages underlying the residential mortgage-backed securities may be called or prepaid without any penalties.  Therefore, these securities are not included in the maturity categories in the following summary.  Other securities are excluded from the maturity categories as there is no fixed maturity date.
 
   
Amortized
       
   
Cost
   
Fair Value
 
Securities held to maturity:
           
Due after one year through five years
  $ 250,000     $ 250,000  
Due after five years
    50,000       50,000  
    $ 300,000     $ 300,000  
                 
Securities available for sale:
               
Due in one year or less
  $ 11,580,676     $ 11,628,873  
Due after one year through five years
    83,992,519       84,117,506  
Due after five years
    321,984,436       320,694,898  
    $ 417,557,631     $ 416,441,277  
Residential mortgage-backed securities
    73,324,511       73,180,286  
Other securities
    1,421,258       1,636,249  
    $ 492,303,400     $ 491,257,812  
 
 
9

 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

NOTE 3 – LOANS/LEASES RECEIVABLE

The composition of the loan/lease portfolio as of March 31, 2011 and December 31, 2010 is presented as follows:
 
   
As of March 31,
   
As of December 31,
 
   
2011
   
2010
 
             
Commercial and industrial loans
  $ 357,471,083     $ 365,625,271  
Commercial real estate loans
               
Owner-occupied commercial real estate
    154,616,199       141,411,027  
Commercial construction, land development, and other land
    59,916,498       65,529,058  
Other non owner-occupied commercial real estate
    335,238,402       346,777,179  
      549,771,099       553,717,264  
                 
Direct financing leases *
    83,993,417       83,009,647  
Residential real estate loans **
    79,707,747       82,196,622  
Installment and other consumer loans
    82,855,412       86,239,944  
      1,153,798,758       1,170,788,748  
Plus deferred loan/lease orgination costs, net of fees
    1,969,213       1,749,855  
      1,155,767,971       1,172,538,603  
Less allowance for estimated losses on loans/leases
    (20,730,016 )     (20,364,656 )
    $ 1,135,037,955     $ 1,152,173,947  
                 
                 
* Direct financing leases:
               
Net minimum lease payments to be received
  $ 95,805,731     $ 94,921,417  
Estimated unguaranteed residual values of leased assets
    1,172,271       1,204,865  
Unearned lease/residual income
    (12,984,585 )     (13,116,635 )
      83,993,417       83,009,647  
Plus deferred lease origination costs, net of fees
    2,543,943       2,341,628  
      86,537,360       85,351,275  
Less allowance for estimated losses on leases
    (1,467,934 )     (1,530,572 )
    $ 85,069,426     $ 83,820,703  
 
**Includes residential real estate loans held for sale totaling $1,268,230 and $14,084,859 as of March 31, 2011 and December 31, 2010, respectively.

Management performs an evaluation of the estimated unguaranteed residual values of leased assets on an annual basis, at a minimum.  The evaluation consists of discussions with reputable and current vendors and management’s expertise and understanding of the current states of particular industries to determine informal valuations of the equipment.  As necessary and where available, management will utilize valuations by independent appraisers.  The large majority of leases with residual values contain a lease options rider which requires the lessee to pay the residual value directly, finance the payment of the residual value, or extend the lease term to pay the residual value.  In these cases, the residual value is protected and the risk of loss is minimal.
 
 
10

 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

For the three months ended March 31, 2011, there were no losses on residual values.  For the three months ended March 31, 2010, the Company recognized losses totaling $617,000 in residual values for two direct financing equipment leases.  At March 31, 2011, the Company had 49 leases remaining with residual values totaling $1,172,271 that were not protected with a lease end options rider.  At December 31, 2010, the Company had 54 leases remaining with residual values totaling $1,204,865 that were not protected with a lease end options rider.  Management has performed specific evaluations of these residual values and determined that the valuations are appropriate.

The aging of the loan/lease portfolio by classes of loans/leases as of March 31, 2011 is presented as follows:
 
Classes of Loans/Leases
 
Current
   
30-59 Days Past Due
   
60-89 Days Past Due
   
Accruing Past Due 90 Days or More
   
Nonaccrual Loans/Leases
   
Total
 
                                     
Commercial and Industrial
  $ 341,766,382     $ 4,607,643     $ 51,611     $ -     $ 11,045,447     $ 357,471,083  
Commercial Real Estate
                                               
Owner-Occupied Commercial Real Estate
    151,030,259       1,255,637       802,240       100,429       1,427,634       154,616,199  
Commercial Construction, Land Development, and Other Land
    55,282,015       -       -       -       4,634,483       59,916,498  
Other Non Owner-Occupied Commercial Real Estate
    317,447,115       4,350,907       2,054,363       -       11,386,017       335,238,402  
Direct Financing Leases
    80,935,506       1,740,170       76,700       -       1,241,041       83,993,417  
Residential Real Estate
    77,323,134       1,120,458       -       -       1,264,155       79,707,747  
Installment and Other Consumer
    81,136,987       457,853       80,334       22,670       1,157,568       82,855,412  
    $ 1,104,921,398     $ 13,532,668     $ 3,065,248     $ 123,099     $ 32,156,345     $ 1,153,798,758  
                                                 
As a percentage of total loan/lease portfolio
    95.76 %     1.17 %     0.27 %     0.01 %     2.79 %     100.00 %
 
The aging of the loan/lease portfolio by classes of loans/leases as of December 31, 2010 is presented as follows:
 
Classes of Loans/Leases
 
Current
   
30-59 Days Past Due
   
60-89 Days Past Due
   
Accruing Past Due 90 Days or More
   
Nonaccrual Loans/Leases
   
Total
 
                                     
Commercial and Industrial
  $ 353,437,063     $ 300,224     $ 203,722     $ -     $ 11,684,262     $ 365,625,271  
Commercial Real Estate
                                               
Owner-Occupied Commercial Real Estate
    139,880,634       236,910       -       103,015       1,190,468       141,411,027  
Commercial Construction, Land Development, and Other Land
    55,552,352       746,545       -       -       9,230,161       65,529,058  
Other Non Owner-Occupied Commercial Real Estate
    335,171,858       275,000       546,019       70,125       10,714,177       346,777,179  
Direct Financing Leases
    79,708,979       1,605,836       92,244       -       1,602,588       83,009,647  
Residential Real Estate
    79,910,279       876,509       -       123,557       1,286,277       82,196,622  
Installment and Other Consumer
    84,214,010       101,770       182,349       23,139       1,718,676       86,239,944  
    $ 1,127,875,175     $ 4,142,794     $ 1,024,334     $ 319,836     $ 37,426,609     $ 1,170,788,748  
                                                 
As a percentage of total loan/lease portfolio
    96.33 %     0.35 %     0.09 %     0.03 %     3.20 %     100.00 %
 
 
11

 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Nonperforming loans/leases by classes of loans/leases as of March 31, 2011 is presented as follows:
 
Classes of Loans/Leases
 
Accruing Past Due 90 Days or More
   
Nonaccrual Loans/Leases *
   
Troubled Debt Restructures - Accruing
   
Total Nonperforming Loans/Leases
   
Percentage of Total Nonperforming Loans/Leases
 
                               
Commercial and Industrial
  $ -     $ 11,045,447     $ 1,075,817     $ 12,121,264       33.99 %
Commercial Real Estate
                                       
Owner-Occupied Commercial Real Estate
    100,429       1,427,634       -       1,528,063       4.29 %
Commercial Construction, Land Development, and Other Land
    -       4,634,483       961,879       5,596,362       15.69 %
Other Non Owner-Occupied Commercial Real Estate
    -       11,386,017       954,352       12,340,369       34.61 %
Direct Financing Leases
    -       1,241,041       387,339       1,628,380       4.57 %
Residential Real Estate
    -       1,264,155       -       1,264,155       3.55 %
Installment and Other Consumer
    22,670       1,157,568