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EX-32.1 - EXHIBIT 32.1 - QCR HOLDINGS INCex32-1.htm
 

UNITED STATES 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 ended March 31, 2015

 

[    ]

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 Identification No.)

 

3551 7th Street, Moline, Illinois 61265

(Address of principal executive offices, including zip code)

 

(309) 743-7724

(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 the 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 Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).           Yes      [ X ]          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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 

Large accelerated filer [    ]           Accelerated filer [ X ]           Non-accelerated filer [    ]           Smaller reporting company [    ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).           Yes [    ]          No [ X ]    

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: As of April 29, 2015, the Registrant had outstanding 7,995,810 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 As of March 31, 2015 and December 31, 2014

 

                   2

         
   

Consolidated Statements of Income For the Three Months Ended March 31, 2015 and 2014

 

                   3

         
   

Consolidated Statements of Comprehensive Income For the Three Months Ended March 31, 2015 and 2014

 

                   4

         
   

Consolidated Statements of Changes in Stockholders' Equity For the Three Months Ended March 31, 2015 and 2014

 

                   5

         
   

Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2015 and 2014

 

6-7

         
   

Notes to the Consolidated Financial Statements

 

8-30

         
 

Item 2

Management's Discussion and Analysis of Financial Condition and  Results of Operations

 

31-57

         
 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

58-60

         
 

Item 4

Controls and Procedures

 

                 61

         

Part II

OTHER INFORMATION

   
         
 

Item 1

Legal Proceedings

 

                 62

         
 

Item 1A

Risk Factors

 

                 62

         
 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

                 62

         
 

Item 3

Defaults upon Senior Securities

 

                 62

         
 

Item 4

Mine Safety Disclosures

 

                 62

         
 

Item 5

Other Information

 

                 62

         
 

Item 6

Exhibits

 

                 63

         

Signatures

 

 

                 64

 

 
1

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of March 31, 2015 and December 31, 2014

 

   

March 31,

   

December 31,

 
   

2015

   

2014

 

ASSETS

               

Cash and due from banks

  $ 45,138,266     $ 38,235,019  

Federal funds sold

    14,035,000       46,780,000  

Interest-bearing deposits at financial institutions

    17,118,983       35,334,682  
                 

Securities held to maturity, at amortized cost

    215,146,171       199,879,574  

Securities available for sale, at fair value

    422,258,100       451,659,630  

Total securities

    637,404,271       651,539,204  
                 

Loans receivable held for sale

    789,000       553,000  

Loans/leases receivable held for investment

    1,653,662,236       1,629,450,070  

Gross loans/leases receivable

    1,654,451,236       1,630,003,070  

Less allowance for estimated losses on loans/leases

    (23,883,273 )     (23,074,365 )

Net loans/leases receivable

    1,630,567,963       1,606,928,705  
                 

Premises and equipment, net

    38,473,407       36,021,128  

Bank-owned life insurance

    54,202,287       53,723,548  

Restricted investment securities

    15,702,075       15,559,575  

Other real estate owned, net

    13,245,314       12,767,636  

Goodwill

    3,222,688       3,222,688  

Core deposit intangible

    1,621,043       1,670,921  

Other assets

    20,927,709       23,174,994  

Total assets

  $ 2,491,659,006     $ 2,524,958,100  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

LIABILITIES

               

Deposits:

               

Noninterest-bearing

  $ 582,510,208     $ 511,991,864  

Interest-bearing

    1,151,759,179       1,167,676,149  

Total deposits

    1,734,269,387       1,679,668,013  
                 

Short-term borrowings

    183,335,719       268,351,670  

Federal Home Loan Bank advances

    196,500,000       203,500,000  

Other borrowings

    149,109,915       150,282,492  

Junior subordinated debentures

    40,457,936       40,423,735  

Other liabilities

    36,990,084       38,653,681  

Total liabilities

    2,340,663,041       2,380,879,591  
                 

STOCKHOLDERS' EQUITY

               

Common stock, $1 par value; shares authorized 20,000,000 March 2015 - 8,113,040 shares issued and 7,991,794 outstanding December 2014 - 8,074,443 shares issued and 7,953,197 outstanding

    8,113,040       8,074,443  

Additional paid-in capital

    62,149,073       61,668,968  

Retained earnings

    82,054,713       77,876,824  

Accumulated other comprehensive income (loss):

               

Securities available for sale

    922,686       (1,535,849 )

Interest rate cap derivatives

    (637,037 )     (399,367 )

Less treasury stock, March 2015 and December 2014 - 121,246 common shares, at cost

    (1,606,510 )     (1,606,510 )

Total stockholders' equity

    150,995,965       144,078,509  

Total liabilities and stockholders' equity

  $ 2,491,659,006     $ 2,524,958,100  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

 
2

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended March 31,

 

   

2015

   

2014

 

Interest and dividend income:

               

Loans/leases, including fees

  $ 18,004,519     $ 16,775,590  

Securities:

               

Taxable

    1,942,765       2,582,794  

Nontaxable

    1,730,568       1,454,056  

Interest-bearing deposits at financial institutions

    77,054       90,527  

Restricted investment securities

    142,318       128,925  

Federal funds sold

    4,506       3,319  

Total interest and dividend income

    21,901,730       21,035,211  
                 

Interest expense:

               

Deposits

    1,072,445       1,101,593  

Short-term borrowings

    64,025       51,696  

Federal Home Loan Bank advances

    1,443,715       1,555,976  

Other borrowings

    1,231,886       1,171,531  

Junior subordinated debentures

    307,442       305,174  

Total interest expense

    4,119,513       4,185,970  

Net interest income

    17,782,217       16,849,241  

Provision for loan/lease losses

    1,710,456       1,094,162  

Net interest income after provision for loan/lease losses

    16,071,761       15,755,079  
                 

Noninterest income:

               

Trust department fees

    1,633,395       1,500,342  

Investment advisory and management fees

    710,043       648,992  

Deposit service fees

    1,116,983       1,045,885  

Gains on sales of residential real estate loans

    86,140       63,487  

Gains on sales government guaranteed portions of loans

    70,973       194,019  

Securities gains

    421,066       20,625  

Earnings on bank-owned life insurance

    478,739       454,164  

Swap fee income

    726,207       62,000  

Debit card fees

    238,000       230,605  

Correspondent banking fees

    319,621       232,143  

Participation service fees on commercial loan participations

    221,949       206,194  

Losses on other real estate owned, net

    (28,953 )     (18,048 )

Other

    255,778       106,433  

Total noninterest income

    6,249,941       4,746,841  
                 

Noninterest expense:

               

Salaries and employee benefits

    11,034,452       10,017,918  

Occupancy and equipment expense

    1,794,171       1,894,288  

Professional and data processing fees

    1,470,517       1,584,406  

FDIC and other insurance

    719,057       714,750  

Loan/lease expense

    466,613       345,636  

Advertising and marketing

    418,237       337,587  

Postage and telephone

    248,956       290,675  

Stationery and supplies

    142,555       151,751  

Bank service charges

    337,458       298,032  

Other

    600,308       505,377  

Total noninterest expense

    17,232,324       16,140,420  

Net income before income taxes

    5,089,378       4,361,500  

Federal and state income tax expense

    911,489       472,285  

Net income

  $ 4,177,889     $ 3,889,215  

Less: Preferred stock dividends

    -       708,008  

Net income attributable to QCR Holdings, Inc. common stockholders

  $ 4,177,889     $ 3,181,207  

Earnings per common share attributable to QCR Holdings, Inc. common shareholders

               

Basic

  $ 0.52     $ 0.40  

Diluted

  $ 0.52     $ 0.40  

Weighted average common shares outstanding

    7,975,910       7,901,035  

Weighted average common and common equivalent shares outstanding

    8,097,444       8,030,043  

Cash dividends declared per common share

  $ -     $ -  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

 
3

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended March 31, 2015 and 2014

 

   

Three Months Ended March 31,

 
   

2015

   

2014

 

Net income

  $ 4,177,889     $ 3,889,215  
                 

Other comprehensive income:

               
                 

Unrealized gains on securities available for sale:

               

Unrealized holding gains arising during the period before tax

    4,402,337       8,490,174  

Less reclassification adjustment for gains included in net income before tax

    421,066       20,625  
      3,981,271       8,469,549  

Unrealized losses on interest rate cap derivatives:

               

Unrealized holding losses arising during the period before tax

    (372,384 )     -  

Less reclassification adjustment for ineffectiveness and caplet amortization before tax

    901       -  
      (373,285 )     -  
                 

Other comprehensive income, before tax

    3,607,986       8,469,549  

Tax expense

    1,387,121       3,238,765  

Other comprehensive income, net of tax

    2,220,865       5,230,784  
                 

Comprehensive income attributable to QCR Holdings, Inc.

  $ 6,398,754     $ 9,119,999  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

 
4

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

Three Months Ended March 31, 2015 and 2014

 

                                   

Accumulated

                 
                   

Additional

           

Other

                 
   

Preferred

   

Common

   

Paid-In

   

Retained

   

Comprehensive

   

Treasury

         
   

Stock

   

Stock

   

Capital

   

Earnings

   

Income (Loss)

   

Stock

   

Total

 

Balance December 31, 2014

  $ -     $ 8,074,443     $ 61,668,968     $ 77,876,824     $ (1,935,216 )   $ (1,606,510 )   $ 144,078,509  

Net income

    -       -       -       4,177,889       -       -       4,177,889  

Other comprehensive income, net of tax - unrealized gains on securities available for sale of $2,458,535, unrealized losses on interest rate cap derivatives of $237,670

    -       -       -       -       2,220,865       -       2,220,865  

Proceeds from issuance of 5,679 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

    -       5,679       82,641       -       -       -       88,320  

Proceeds from issuance of 9,688 shares of common stock as a result of stock options exercised

    -       9,688       94,728       -       -       -       104,416  

Stock compensation expense

    -       -       367,775                               367,775  

Tax benefit of nonqualified stock options exercised

    -       -       15,651       -       -       -       15,651  

Restricted stock awards

    -       26,502       (26,502 )     -       -       -       -  

Exchange of 3,272 shares of common stock in connection with restricted stock vested, net

    -       (3,272 )     (54,188 )     -       -       -       (57,460 )

Balance March 31, 2015

  $ -     $ 8,113,040     $ 62,149,073     $ 82,054,713     $ 285,649     $ (1,606,510 )   $ 150,995,965  

 

                                   

Accumulated

                 
                   

Additional

           

Other

                 
   

Preferred

   

Common

   

Paid-In

   

Retained

   

Comprehensive

   

Treasury

         
   

Stock

   

Stock

   

Capital

   

Earnings

   

Income (Loss)

   

Stock

   

Total

 

Balance December 31, 2013

  $ 29,867     $ 8,005,708     $ 90,154,528     $ 64,637,173     $ (13,643,986 )   $ (1,606,510 )   $ 147,576,780  

Net income

    -       -       -       3,889,215       -       -       3,889,215  

Other comprehensive income, net of tax - unrealized gains on securities available for sale of $5,230,784, unrealized losses on interest rate cap derivatives of $0

    -       -       -       -       5,230,784       -       5,230,784  

Preferred cash dividends declared

    -       -       -       (708,008 )     -       -       (708,008 )

Redemption of 15,000 shares of Series F Noncumulative Perpetual Preferred Stock

    (15,000 )     -       (14,985,000 )     -       -       -       (15,000,000 )

Proceeds from issuance of 6,189 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

    -       6,189       78,256       -       -       -       84,445  

Proceeds from issuance of 9,814 shares of common stock as a result of stock options exercised

    -       9,814       85,582       -       -       -       95,396  

Stock compensation expense

    -       -       347,752                               347,752  

Tax benefit of nonqualified stock options exercised

    -       -       18,647       -       -       -       18,647  

Restricted stock awards

    -       27,197       (27,197 )     -       -       -       -  

Exchange of 10,300 shares of common stock in connection with restricted stock vested, net

    -       (10,300 )     (167,684 )     -       -       -       (177,984 )

Balance March 31, 2014

  $ 14,867     $ 8,038,608     $ 75,504,884     $ 67,818,380     $ (8,413,202 )   $ (1,606,510 )   $ 141,357,027  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

 
5

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31, 2015 and 2014

 

   

2015

   

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 4,177,889     $ 3,889,215  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    745,268       692,562  

Provision for loan/lease losses

    1,710,456       1,094,162  

Stock-based compensation expense

    367,775       347,752  

Deferred compensation expense accrued

    437,600       347,850  

Losses on other real estate owned, net

    28,953       18,048  

Amortization of premiums on securities, net

    214,427       535,951  

Securities gains

    (421,066 )     (20,625 )

Loans originated for sale

    (6,647,937 )     (6,354,404 )

Proceeds on sales of loans

    6,569,050       7,678,600  

Gains on sales of residential real estate loans

    (86,140 )     (63,487 )

Gains on sales of government guaranteed portions of loans

    (70,973 )     (194,019 )

Amortization of core deposit intangible

    49,878       49,878  

Accretion of acquisition fair value adjustments, net

    (178,380 )     (161,042 )

Increase in cash value of bank-owned life insurance

    (478,739 )     (454,164 )

Decrease in other assets

    486,879       3,804,360  

Decrease in other liabilities

    (1,840,279 )     (8,049,459 )

Net cash provided by operating activities

  $ 5,064,661     $ 3,161,178  
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Net decrease in federal funds sold

    32,745,000       27,865,000  

Net decrease (increase) in interest-bearing deposits at financial institutions

    18,215,699       (11,344,360 )

Proceeds from sales of other real estate owned

    331,151       97,120  

Activity in securities portfolio:

               

Purchases

    (124,568,138 )     (26,142,834 )

Calls, maturities and redemptions

    83,794,967       10,563,599  

Paydowns

    4,073,422       6,547,632  

Sales

    54,971,056       7,020,625  

Activity in restricted investment securities:

               

Purchases

    (146,300 )     (1,040,000 )

Redemptions

    3,800       814,900  

Net increase in loans/leases originated and held for investment

    (25,689,344 )     (33,066,658 )

Purchase of premises and equipment

    (3,197,547 )     (563,035 )

Net cash provided by (used in) investing activities

  $ 40,533,766     $ (19,248,011 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Net increase in deposit accounts

    54,603,339       24,915,536  

Net increase (decrease) in short-term borrowings

    (85,015,951 )     16,276,145  

Activity in Federal Home Loan Bank advances:

               

Term advances

    5,000,000       -  

Calls and maturities

    (5,000,000 )     (20,350,000 )

Net change in short-term and overnight advances

    (7,000,000 )     24,700,000  

Principal payments on term debt

    (1,175,000 )     (200,000 )

Payment of cash dividends on common and preferred stock

    (315,955 )     (941,177 )

Redemption of 15,000 shares of Series F Noncumulative Perpetual Preferred Stock, net

    -       (15,000,000 )

Proceeds from issuance of common stock, net

    208,387       179,841  

Net cash provided by (used in) by financing activities

  $ (38,695,180 )   $ 29,580,345  

Net increase in cash and due from banks

    6,903,247       13,493,512  

Cash and due from banks, beginning

    38,235,019       41,950,790  

Cash and due from banks, ending

  $ 45,138,266     $ 55,444,302  

 

(Continued)

 

 
6

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - continued

Three Months Ended March 31, 2015 and 2014

 

   

2015

   

2014

 

Supplemental disclosure of cash flow information, cash payments for:

               

Interest

  $ 4,103,459     $ 4,140,254  

Income/franchise taxes

  $ 1,618,064     $ 1,365,000  

Supplemental schedule of noncash investing activities:

               

Change in accumulated other comprehensive income, unrealized gains on securities available for sale and derivative instruments, net

  $ 2,220,865     $ 5,230,784  

Exchange of shares of common stock in connection with payroll taxes for restricted stock and in connection with stock options exercised

  $ (57,460 )   $ (177,984 )

Transfers of loans to other real estate owned

  $ 837,782     $ 60,750  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

 
7

 

 

Part I

Item 1

QCR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2015

 

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, 2014, included in QCR Holdings, Inc.’s (the “Company”) Form 10-K filed with the Securities and Exchange Commission on March 12, 2015. 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, 2015, are not necessarily indicative of the results expected for the year ending December 31, 2015.

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries which include three commercial banks: Quad City Bank & Trust Company (“QCBT”), Cedar Rapids Bank & Trust Company (“CRBT”), and Rockford Bank & Trust Company (“RB&T”). QCBT, CRBT, and RB&T are all state-chartered commercial banks. The Company also engages in direct financing lease contracts through m2 Lease Funds, LLC (“m2 Lease Funds”), a wholly-owned subsidiary of QCBT. All material intercompany transactions and balances have been eliminated in consolidation.

 

Recent accounting developments: In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective of ASU 2014-04 is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU 2014-04 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Adoption did not have an impact on the Company’s consolidated financial statements.

 

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 is effective on January 1, 2017 and it is not expected to have a significant impact on the Company’s financial statements.

 

 
8

 

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

In June 2014, FASB issued ASU 2014-11, Transfers and Servicing. ASU 2014-11 requires that repurchase-to-maturity transactions be accounted for as secured borrowings, consistent with the accounting for other repurchase agreements. In addition, ASU 2014-11 requires separate accounting for repurchase financings, which entail the transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty. The standard requires entities to disclose certain information about transfers accounted for as sales in transactions that are economically similar to repurchase agreements. In addition, ASU 2014-11 requires disclosures related to collateral and remaining tenor and of the potential risks associated with repurchase agreements, securities lending transactions and repurchase-to-maturity transactions. ASU 2014-11 was effective on January 1, 2015 and adoption did not have an impact on the Company’s consolidated financial statements.

 

In August 2014, FASB issued ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure. ASU 2014-14 requires creditors to reclassify loans that are within the scope of the ASU to “other receivables” upon foreclosure, rather than reclassifying them as other real estate owned. The most common types of government guaranteed loans include those guaranteed by the Federal Housing Authority (FHA), U.S. Department of Housing and Urban Development (HUD), U.S. Department of Veterans Affairs (VA) and the U.S. Small Business Administration (SBA). The separate other receivable recorded upon foreclosure is to be measured based on the amount of the loan balance (principal and interest) the creditor expects to recover from the guarantor. ASU 2014-14 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Adoption did not have an impact on the Company’s consolidated financial statements.

 

In February 2015, FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis. ASU 2015-02 is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The ASU also reduces the number of consolidation models from four to two. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and adoption is not expected to have a significant impact on the Company’s consolidated financial statements.

 

Reclassifications: Certain amounts in the prior year consolidated financial statements have been reclassified, with no effect on net income or stockholders’ equity, to conform with the current period presentation.

 

 
9

 

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

NOTE 2 – INVESTMENT SECURITIES

 

The amortized cost and fair value of investment securities as of March 31, 2015 and December 31, 2014 are summarized as follows:

 

           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

(Losses)

   

Value

 

March 31, 2015

                               

Securities held to maturity:

                               

Municipal securities

  $ 214,096,171     $ 2,303,569     $ (1,812,743 )   $ 214,586,997  

Other securities

    1,050,000       -       -       1,050,000  
    $ 215,146,171     $ 2,303,569     $ (1,812,743 )   $ 215,636,997  
                                 

Securities available for sale:

                               

U.S. govt. sponsored agency securities

  $ 300,131,663     $ 444,159     $ (1,395,567 )   $ 299,180,255  

Residential mortgage-backed and related securities

    90,632,701       1,192,895       (462,296 )     91,363,300  

Municipal securities

    28,649,282       1,107,755       (43,723 )     29,713,314  

Other securities

    1,370,532       630,797       (98 )     2,001,231  
    $ 420,784,178     $ 3,375,606     $ (1,901,684 )   $ 422,258,100  
                                 

December 31, 2014:

                               

Securities held to maturity:

                               

Municipal securities

  $ 198,829,574     $ 2,420,298     $ (1,186,076 )   $ 200,063,796  

Other securities

    1,050,000       -       -       1,050,000  
    $ 199,879,574     $ 2,420,298     $ (1,186,076 )   $ 201,113,796  
                                 

Securities available for sale:

                               

U.S. govt. sponsored agency securities

  $ 312,959,760     $ 173,685     $ (5,263,873 )   $ 307,869,572  

Residential mortgage-backed and related securities

    110,455,925       1,508,331       (541,032 )     111,423,224  

Municipal securities

    29,408,740       1,053,713       (62,472 )     30,399,981  

Other securities

    1,342,554       625,145       (846 )     1,966,853  
    $ 454,166,979     $ 3,360,874     $ (5,868,223 )   $ 451,659,630  

 

 

The Company’s held to maturity municipal securities consist largely of private issues of municipal debt. The municipalities are located within the Midwest. The municipal debt investments are underwritten using specific guidelines with ongoing monitoring.

 

The Company’s residential mortgage-backed and related securities portfolio consists entirely of government sponsored or government guaranteed securities. The Company has not invested in commercial mortgage-backed securities or pooled trust preferred securities.

 

 
10

 

 

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, 2015 and December 31, 2014, 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, 2015:

                                               

Securities held to maturity:

                                               

Municipal securities

  $ 48,692,267     $ (991,314 )   $ 30,617,292     $ (821,429 )   $ 79,309,559     $ (1,812,743 )
                                                 

Securities available for sale:

                                               

U.S. govt. sponsored agency securities

  $ 102,286,952     $ (435,457 )   $ 93,948,175     $ (960,110 )   $ 196,235,127     $ (1,395,567 )

Residential mortgage-backed and related securities

    27,194,344       (126,489 )     22,421,887       (335,807 )     49,616,231       (462,296 )

Municipal securities

    598,285       (2,790 )     1,339,977       (40,933 )     1,938,262       (43,723 )

Other securities

    476       (98 )     -       -       476       (98 )
    $ 130,080,057     $ (564,834 )   $ 117,710,039     $ (1,336,850 )   $ 247,790,096     $ (1,901,684 )
                                                 

December 31, 2014:

                                               

Securities held to maturity:

                                               

Municipal securities

  $ 20,419,052     $ (587,992 )   $ 38,779,545     $ (598,084 )   $ 59,198,597     $ (1,186,076 )
                                                 

Securities available for sale:

                                               

U.S. govt. sponsored agency securities

  $ 23,970,085     $ (102,695 )   $ 255,743,056     $ (5,161,178 )   $ 279,713,141     $ (5,263,873 )

Residential mortgage-backed and related securities

    10,710,671       (10,139 )     37,570,774       (530,893 )     48,281,445       (541,032 )

Municipal securities

    920,935       (1,773 )     4,425,337       (60,699 )     5,346,272       (62,472 )

Other securities

    243,004       (846 )     -       -       243,004       (846 )
    $ 35,844,695     $ (115,453 )   $ 297,739,167     $ (5,752,770 )   $ 333,583,862     $ (5,868,223 )

 

 

At March 31, 2015, the investment portfolio included 474 securities. Of this number, 161 securities were in an unrealized loss position. The aggregate losses of these securities totaled less than 1% of the total amortized cost of the portfolio. Of these 161 securities, 59 securities had an unrealized loss 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, 2015 and December 31, 2014, 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, 2015 and 2014.   

 

 
11

 

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

All sales of securities for the three months ended March 31, 2015 and 2014, respectively, were from securities identified as available for sale. Information on proceeds received, as well as pre-tax gross gains and losses from sales on those securities are as follows:

 

   

Three Months Ended

 
   

March 31, 2015

   

March 31, 2014

 
                 

Proceeds from sales of securities

  $ 54,971,056     $ 7,020,625  

Pre-tax gross gains from sales of securities

    573,684       20,625  

Pre-tax gross losses from sales of securities

    (152,618 )     -  

 

The amortized cost and fair value of securities as of March 31, 2015 by contractual maturity are shown below. Expected maturities of residential mortgage-backed and related securities may differ from contractual maturities because the residential mortgages underlying the residential mortgage-backed and related securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following table. “Other securities” available for sale are excluded from the maturity categories as there is no fixed maturity date for those securities.

 

   

Amortized Cost

   

Fair Value

 

Securities held to maturity:

               

Due in one year or less

  $ 3,866,598     $ 3,871,276  

Due after one year through five years

    18,512,988       18,595,028  

Due after five years

    192,766,585       193,170,693  
    $ 215,146,171     $ 215,636,997  
                 

Securities available for sale:

               

Due in one year or less

  $ 34,982,411     $ 34,994,562  

Due after one year through five years

    104,102,115       104,066,092  

Due after five years

    189,696,419       189,832,915  
    $ 328,780,945     $ 328,893,569  

Residential mortgage-backed and related securities

    90,632,701       91,363,300  

Other securities

    1,370,532       2,001,231  
    $ 420,784,178     $ 422,258,100  

 

Portions of the U.S. government sponsored agency securities and municipal securities contain call options, at the discretion of the issuer, to terminate the security at par and at predetermined dates prior to the stated maturity, summarized as follows:

 

   

Amortized Cost

   

Fair Value

 

Securities held to maturity:

               

Municipal securities

  $ 127,760,995     $ 128,323,293  
                 

Securities available for sale:

               

U.S. govt. sponsored agency securities

    185,507,330       184,490,370  

Municipal securities

    17,800,256       18,353,901  
    $ 203,307,586     $ 202,844,271  

 

 
12

 

  

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

As of March 31, 2015, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 70 issuers with fair values totaling $56.2 million and revenue bonds issued by 84 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $188.1 million. The Company held investments in general obligation bonds in 17 states, including three states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in eleven states, including four states in which the aggregate fair value exceeded $5.0 million.

 

As of December 31, 2014, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 77 issuers with fair values totaling $68.8 million and revenue bonds issued by 64 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $161.7 million. The Company held investments in general obligation bonds in 19 states, including three states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in eight states, including four states in which the aggregate fair value exceeded $5.0 million.

 

The amortized cost and fair values of the Company’s portfolio of general obligation bonds are summarized in the following tables by the issuer’s state:

 

March 31, 2015:

 

U.S. State:

 

Number of Issuers

   

Amortized Cost

   

Fair Value

   

Average Exposure Per Issuer (Fair Value)

 
                                 

Iowa

    15     $ 21,431,325     $ 21,602,520     $ 1,440,168  

Missouri

    11       7,091,686       7,085,546       644,141  

Illinois

    9       11,925,483       12,255,809       1,361,757  

Other

    35       14,918,372       15,295,418       437,012  

Total general obligation bonds

    70     $ 55,366,866     $ 56,239,293     $ 803,418  

 

 

December 31, 2014:

 

U.S. State:

 

Number of Issuers

   

Amortized Cost

   

Fair Value

   

Average Exposure Per Issuer (Fair Value)

 
                                 

Iowa

    14     $ 20,156,969     $ 20,446,655     $ 1,460,475  

Missouri

    11       8,424,928       8,426,047       766,004  

Illinois

    10       22,447,799       22,784,638       2,278,464  

Other

    42       16,838,719       17,110,831       407,401  

Total general obligation bonds

    77     $ 67,868,415     $ 68,768,171     $ 893,093  

 

 
13

 

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

The amortized cost and fair values of the Company’s portfolio of revenue bonds are summarized in the following tables by the issuer’s state:

 

March 31, 2015:

 

U.S. State:

 

Number of Issuers

   

Amortized Cost

   

Fair Value

   

Average Exposure Per Issuer (Fair Value)

 
                                 

Missouri

    35     $ 66,627,817     $ 66,749,366     $ 1,907,125  

Iowa

    25       73,326,036       73,890,396       2,955,616  

Indiana

    11       25,563,200       25,397,220       2,308,838  

Kansas

    3       12,120,688       12,100,898       4,033,633  

Other

    10       9,740,846       9,923,138       992,314  

Total revenue bonds

    84     $ 187,378,587     $ 188,061,018     $ 2,238,822  

 

 

December 31, 2014:

 

U.S. State:

 

Number of Issuers

   

Amortized Cost

   

Fair Value

   

Average Exposure Per Issuer (Fair Value)

 
                                 

Missouri

    30     $ 62,358,276     $ 62,584,516     $ 2,086,151  

Iowa

    20       59,417,246       60,402,941       3,020,147  

Indiana

    8       17,991,200       17,925,721       2,240,715  

Kansas

    2       12,307,866       12,332,528       6,166,264  

Other

    4       8,295,311       8,449,900       2,112,475  

Total revenue bonds

    64     $ 160,369,899     $ 161,695,606     $ 2,526,494  

 

Both general obligation and revenue bonds are diversified across many issuers. As of March 31, 2015 and December 31, 2014, the Company did not hold general obligation or revenue bonds of any single issuer, the aggregate book or market value of which exceeded 10% of the Company’s stockholders’ equity. Of the general obligation and revenue bonds in the Company’s portfolio, the majority are unrated bonds that represent small, private issuances. All unrated bonds were underwritten according to loan underwriting standards and have an average risk rating of 2, indicating very high quality. Additionally, many of these bonds are funding essential municipal services (water, sewer, education, medical facilities).

 

The Company’s municipal securities are owned by each of the three charters, whose investment policies set forth limits for various subcategories within the municipal securities portfolio. Each charter is monitored individually and as of March 31, 2015, all were well-within policy limitations approved by the board of directors. Policy limits are calculated as a percentage of total risk-based capital.

 

As of March 31, 2015, the Company’s standard monitoring of its municipal securities portfolio had not uncovered any facts or circumstances resulting in significantly different credits ratings than those assigned by a nationally recognized statistical rating organization, or in the case of unrated bonds, the rating assigned using the credit underwriting standards.

 

 
14

 

 

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, 2015 and December 31, 2014 is presented as follows:

 

   

As of March 31,

   

As of December 31,

 
   

2015

   

2014

 
                 

Commercial and industrial loans

  $ 534,885,417     $ 523,927,140  

Commercial real estate loans

               

Owner-occupied commercial real estate

    263,646,328       260,069,080  

Commercial construction, land development, and other land

    60,040,330       68,118,989  

Other non owner-occupied commercial real estate

    385,995,048       373,952,353  
      709,681,706       702,140,422  
                 

Direct financing leases *

    167,244,011       166,032,416  

Residential real estate loans **

    163,739,861       158,632,492  

Installment and other consumer loans

    71,902,576       72,606,480  
      1,647,453,571       1,623,338,950  

Plus deferred loan/lease origination costs, net of fees

    6,997,665       6,664,120  
      1,654,451,236       1,630,003,070  

Less allowance for estimated losses on loans/leases

    (23,883,273 )     (23,074,365 )
    $ 1,630,567,963     $ 1,606,928,705  
                 
                 

* Direct financing leases:

               

Net minimum lease payments to be received

  $ 189,170,774     $ 188,181,432  

Estimated unguaranteed residual values of leased assets

    1,481,232       1,488,342  

Unearned lease/residual income

    (23,407,995 )     (23,637,358 )
      167,244,011       166,032,416  

Plus deferred lease origination costs, net of fees

    6,654,946       6,639,244  
      173,898,957       172,671,660  

Less allowance for estimated losses on leases

    (3,310,973 )     (3,442,915 )
    $ 170,587,984     $ 169,228,745  

 

*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. There were no losses related to residual values for the three months ended March 31, 2015 and 2014.

 

**Includes residential real estate loans held for sale totaling $789,000 and $553,000 as of March 31, 2015, and December 31, 2014, respectively.

 

 
15

 

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

The aging of the loan/lease portfolio by classes of loans/leases as of March 31, 2015 and December 31, 2014 is presented as follows:

 

   

As of March 31, 2015

 

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

  $ 528,547,287     $ 319,076     $ 27,433     $ 149,600     $ 5,842,021     $ 534,885,417  

Commercial Real Estate

                                               

Owner-Occupied Commercial Real Estate

    262,328,777       713,875       -       -       603,676       263,646,328  

Commercial Construction, Land Development, and Other Land

    59,785,010       -