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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 September 30, 2016

 

[    ] 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 November 2, 2016, the Registrant had outstanding 13,075,670 shares of common stock, $1.00 par value per share.

 

 
 

 

  

QCR HOLDINGS, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

       

Page

Number(s)

Part I

FINANCIAL INFORMATION

   
         
 

Item 1        Consolidated Financial Statements (Unaudited)

   
         
   

Consolidated Balance Sheets As of September 30, 2016 and December 31, 2015

 

                   3

         
   

Consolidated Statements of Income For the Three Months Ended September 30, 2016 and 2015

    4
         
   

Consolidated Statements of Income For the Nine Months Ended September 30, 2016 and 2015

    5
         
   

Consolidated Statements of Comprehensive Income For the Three and Nine Months Ended September 30, 2016 and 2015

    6
         
   

Consolidated Statements of Changes in Stockholders' Equity For the Three and Nine Months Ended September 30, 2016 and 2015

    7
         
   

Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2016 and 2015

    9
         
   

Notes to Consolidated Financial Statements

   
         
   

Note 1. Summary of Significant Accounting Policies

 

                 11

   

Note 2. Investment Securities

 

                 13

   

Note 3. Loans/Leases Receivable

 

                 18

   

Note 4. Borrowings

 

                 28

   

Note 5. Earnings Per Share

 

30

   

Note 6. Fair Value

 

31

   

Note 7. Business Segment Information

 

34

   

Note 8. Regulatory Capital Requirements

 

36

   

Note 9. Acquisition of Community State Bank and Common Stock Offering

 

                 38

   

Note 10. Related Party Transactions

 

                 41

         
 

Item 2        Management's Discussion and Analysis of Financial Condition and Results of Operations

   
         
   

Introduction

 

                 42

   

General

 

                 42

   

Executive Overview

 

                 43

   

Long-Term Financial Goals

 

                 44

   

Strategic Developments

 

                 45

   

GAAP to Non-GAAP Reconciliations

 

                 47

   

Net Interest Income (Tax Equivalent Basis)

 

                 49

   

Critical Accounting Policies

 

                 54

 

 
1

 

 

   

Results of Operations

   
   

Interest Income

 

                 55

   

Interest Expense

 

                 55

   

Provision for Loan/Lease Losses

 

                 56

   

Noninterest Income

 

                 57

   

Noninterest Expense

 

                 61

   

Income Taxes

 

                 63

   

Financial Condition

 

                 64

   

Investment Securities

 

                 64

   

Loans/Leases

 

                 66

   

Allowance for Estimated Losses on Loans/Leases

 

                 68

   

Nonperforming Assets

 

                 70

   

Deposits

 

                 71

   

Borrowings

 

                 71

   

Stockholders' Equity

 

                 73

   

Liquidity and Capital Resources

 

                 73

   

Special Note Concerning Forward-Looking Statements

 

                 76

         
 

Item 3        Quantitative and Qualitative Disclosures About Market Risk

 

                 77

         
 

Item 4        Controls and Procedures

 

                 79

         

Part II

OTHER INFORMATION

   
         
 

Item 1        Legal Proceedings

 

                 80

         
 

Item 1A     Risk Factors

 

                 80

         
 

Item 2        Unregistered Sales of Equity Securities and Use of Proceeds

 

                 80

         
 

Item 3        Defaults upon Senior Securities

 

                 80

         
 

Item 4        Mine Safety Disclosures

 

                 80

         
 

Item 5        Other Information

 

                 80

         
 

Item 6        Exhibits

 

                 81

         

Signatures

 

 

 

                 82

 

Throughout the Notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations, we use certain acronyms and abbreviations, as defined in Note 1.

 

 
2

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of September 30, 2016 and December 31, 2015

 

   

September 30,

   

December 31,

 
   

2016

   

2015

 

ASSETS

               

Cash and due from banks

  $ 61,213,134     $ 41,742,321  

Federal funds sold

    21,022,000       19,850,000  

Interest-bearing deposits at financial institutions

    75,025,417       36,313,965  
                 

Securities held to maturity, at amortized cost

    306,740,174       253,674,159  

Securities available for sale, at fair value

    258,190,081       323,434,982  

Total securities

    564,930,255       577,109,141  
                 

Loans receivable held for sale

    1,377,875       565,850  

Loans/leases receivable held for investment

    2,359,222,637       1,797,456,825  

Gross loans/leases receivable

    2,360,600,512       1,798,022,675  

Less allowance for estimated losses on loans/leases

    (28,826,835 )     (26,140,906 )

Net loans/leases receivable

    2,331,773,677       1,771,881,769  
                 

Bank-owned life insurance

    56,810,035       55,485,655  

Premises and equipment, net

    59,484,141       37,350,352  

Restricted investment securities

    14,999,425       14,835,925  

Other real estate owned, net

    5,807,603       7,150,658  

Goodwill

    13,631,626       3,222,688  

Core deposit intangible

    7,613,593       1,471,409  

Other assets

    68,675,203       26,784,392  

Total assets

  $ 3,280,986,109     $ 2,593,198,275  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

LIABILITIES

               

Deposits:

               

Noninterest-bearing

  $ 764,614,548     $ 615,292,211  

Interest-bearing

    1,830,298,205       1,265,373,973  

Total deposits

    2,594,912,753       1,880,666,184  
                 

Short-term borrowings

    60,015,417       144,662,716  

Federal Home Loan Bank advances

    138,642,529       151,000,000  

Other borrowings

    80,000,000       110,000,000  

Junior subordinated debentures

    33,446,578       38,499,052  

Other liabilities

    93,111,672       42,484,573  

Total liabilities

    3,000,128,949       2,367,312,525  
                 

STOCKHOLDERS' EQUITY

               

Preferred stock, $1 par value; shares authorized 250,000

    -       -  

September 2016 and December 2015 - No shares issued or outstanding

               

Common stock, $1 par value; shares authorized 20,000,000

    13,075,307       11,761,083  

September 2016 - 13,075,307 shares issued and outstanding

               

December 2015 - 11,761,083 shares issued and outstanding

               

Additional paid-in capital

    155,950,678       123,282,851  

Retained earnings

    110,610,144       92,965,645  

Accumulated other comprehensive income (loss):

               

Securities available for sale

    2,379,584       (1,324,408 )

Interest rate cap derivatives

    (1,158,553 )     (799,421 )

Total stockholders' equity

    280,857,160       225,885,750  

Total liabilities and stockholders' equity

  $ 3,280,986,109     $ 2,593,198,275  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

 
3

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended September 30,

 

   

2016

   

2015

 

Interest and dividend income:

               

Loans/leases, including fees

  $ 23,001,107     $ 19,278,335  

Securities:

               

Taxable

    1,057,204       1,639,534  

Nontaxable

    2,510,169       2,021,804  

Interest-bearing deposits at financial institutions

    103,216       66,604  

Restricted investment securities

    132,047       127,172  

Federal funds sold

    12,992       7,663  

Total interest and dividend income

    26,816,735       23,141,112  
                 

Interest expense:

               

Deposits

    1,472,031       1,140,419  

Short-term borrowings

    12,541       63,815  

Federal Home Loan Bank advances

    420,570       537,473  

Other borrowings

    974,634       944,903  

Junior subordinated debentures

    306,182       316,976  

Total interest expense

    3,185,958       3,003,586  
                 

Net interest income

    23,630,777       20,137,526  
                 

Provision for loan/lease losses

    1,607,986       1,635,263  

Net interest income after provision for loan/lease losses

    22,022,791       18,502,263  
                 

Noninterest income:

               

Trust department fees

    1,518,600       1,531,964  

Investment advisory and management fees

    765,977       782,442  

Deposit service fees

    1,150,869       984,631  

Gains on sales of residential real estate loans, net

    144,105       84,609  

Gains on sales of government guaranteed portions of loans, net

    218,785       759,668  

Swap fee income

    333,772       62,700  

Securities gains, net

    4,251,773       56,580  

Earnings on bank-owned life insurance

    450,251       407,018  

Debit card fees

    475,182       333,144  

Correspondent banking fees

    253,823       310,759  

Participation service fees on commercial loan participations

    237,456       201,822  

Fee income from early termination of leases

    95,129       89,332  

Credit card issuing fees

    137,620       133,904  

Lawsuit award

    -       387,045  

Other

    390,059       277,068  

Total noninterest income

    10,423,401       6,402,686  
                 

Noninterest expense:

               

Salaries and employee benefits

    11,202,460       10,583,361  

Occupancy and equipment expense

    2,086,331       1,863,648  

Professional and data processing fees

    1,931,329       1,742,268  

Acquisition costs

    2,046,036       -  

FDIC insurance, other insurance and regulatory fees

    582,835       702,136  

Loan/lease expense

    102,678       90,415  

Net cost of operations of other real estate

    133,055       (1,117,671 )

Advertising and marketing

    547,768       460,411  

Postage and communications

    237,569       220,895  

Stationery and supplies

    167,887       144,967  

Bank service charges

    415,401       392,352  

Losses on debt extinguishment, net

    4,137,310       -  

Correspondent banking expense

    205,998       176,977  

Other

    683,826       687,332  

Total noninterest expense

    24,480,483       15,947,091  
                 

Net income before income taxes

    7,965,709       8,957,858  

Federal and state income tax expense

    1,858,208       2,468,871  
                 

Net income

  $ 6,107,501     $ 6,488,987  
                 

Basic earnings per common share

  $ 0.47     $ 0.55  

Diluted earnings per common share

  $ 0.46     $ 0.55  
                 

Weighted average common shares outstanding

    13,066,777       11,713,993  

Weighted average common and common equivalent shares outstanding

    13,269,703       11,875,930  
                 

Cash dividends declared per common share

  $ 0.04     $ -  

 

See Notes to Consolidated Financial Statements (Unaudited) 

 

 
4

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Nine Months Ended September 30,

 

   

2016

   

2015

 

Interest and dividend income:

               

Loans/leases, including fees

  $ 62,939,656     $ 55,528,578  

Securities:

               

Taxable

    3,605,948       5,317,794  

Nontaxable

    7,028,387       5,642,692  

Interest-bearing deposits at financial institutions

    225,775       208,323  

Restricted investment securities

    396,157       377,651  

Federal funds sold

    36,155       18,416  

Total interest and dividend income

    74,232,078       67,093,454  
                 

Interest expense:

               

Deposits

    4,106,227       3,296,351  

Short-term borrowings

    73,672       181,084  

Federal Home Loan Bank advances

    1,278,207       2,982,834  

Other borrowings

    2,624,154       3,285,231  

Junior subordinated debentures

    912,706       937,375  

Total interest expense

    8,994,966       10,682,875  
                 

Net interest income

    65,237,112       56,410,579  
                 

Provision for loan/lease losses

    4,878,821       5,694,384  

Net interest income after provision for loan/lease losses

    60,358,291       50,716,195  
                 

Noninterest income:

               

Trust department fees

    4,606,590       4,676,535  

Investment advisory and management fees

    2,117,100       2,250,918  

Deposit service fees

    3,028,758       2,790,456  

Gains on sales of residential real estate loans, net

    288,904       266,284  

Gains on sales of government guaranteed portions of loans, net

    2,701,203       899,987  

Swap fee income

    1,358,312       1,182,630  

Securities gains, net

    4,628,283       473,513  

Earnings on bank-owned life insurance

    1,324,380       1,318,909  

Debit card fees

    1,126,581       912,030  

Correspondent banking fees

    800,892       915,759  

Participation service fees on commercial loan participations

    694,175       647,598  

Fee income from early termination of leases

    172,922       250,892  

Credit card issuing fees

    413,348       403,713  

Lawsuit award

    -       387,045  

Other

    746,827       775,142  

Total noninterest income

    24,008,275       18,151,411  
                 

Noninterest expense:

               

Salaries and employee benefits

    32,920,840       32,709,765  

Occupancy and equipment expense

    5,797,875       5,507,533  

Professional and data processing fees

    4,921,064       4,683,480  

Acquisition costs

    2,401,005       -  

FDIC insurance, other insurance and regulatory fees

    1,866,804       2,151,756  

Loan/lease expense

    419,846       601,888  

Net cost of operations of other real estate

    513,149       (1,088,696 )

Advertising and marketing

    1,367,478       1,368,152  

Postage and communications

    711,226       683,993  

Stationery and supplies

    490,682       424,330  

Bank service charges

    1,246,682       1,088,806  

Losses on debt extinguishment, net

    4,220,507       6,894,185  

Correspondent banking expense

    564,763       517,770  

Other

    1,736,813       1,775,637  

Total noninterest expense

    59,178,734       57,318,599  
                 

Net income before income taxes

    25,187,832       11,549,007  

Federal and state income tax expense

    6,030,375       1,405,949  
                 

Net income

  $ 19,157,457     $ 10,143,058  
                 

Basic earnings per common share

  $ 1.55     $ 1.03  

Diluted earnings per common share

  $ 1.52     $ 1.01  
                 

Weighted average common shares outstanding

    12,398,491       9,878,882  

Weighted average common and common equivalent shares outstanding

    12,580,042       10,024,441  
                 

Cash dividends declared per common share

  $ 0.12     $ 0.04  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

 
5

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three and Nine Months Ended September 30, 2016 and 2015

 

    Three Months Ended September 30,  
    2016     2015  

Net income

  $ 6,107,501     $ 6,488,987  
                 

Other comprehensive income (loss):

               
                 

Unrealized gains (losses) on securities available for sale:

               

Unrealized holding gains arising during the period before tax

    3,682,514       4,155,252  

Less reclassification adjustment for gains included in net income before tax

    4,251,773       56,580  
      (569,259 )     4,098,672  

Unrealized losses on interest rate cap derivatives:

               

Unrealized holding losses arising during the period before tax

    (16,327 )     (419,219 )

Less reclassification adjustment for ineffectiveness and caplet amortization before tax

    33,246       20,099  
      (49,573 )     (439,318 )
                 

Other comprehensive income (loss), before tax

    (618,832 )     3,659,354  

Tax expense (benefit)

    (257,648 )     1,402,871  

Other comprehensive income (loss), net of tax

    (361,184 )     2,256,483  
                 

Comprehensive income

  $ 5,746,317     $ 8,745,470  

 

 

    Nine Months Ended September 30,  
   

2016

   

2015

 

Net income

  $ 19,157,457     $ 10,143,058  
                 

Other comprehensive income:

               
                 

Unrealized gains on securities available for sale:

               

Unrealized holding gains arising during the period before tax

    10,628,032       4,598,599  

Less reclassification adjustment for gains included in net income before tax

    4,628,283       473,513  
      5,999,749       4,125,086  

Unrealized losses on interest rate cap derivatives:

               

Unrealized holding losses arising during the period before tax

    (552,510 )     (672,169 )

Less reclassification adjustment for ineffectiveness and caplet amortization before tax

    82,281       30,562  
      (634,791 )     (702,731 )
                 

Other comprehensive income, before tax

    5,364,958       3,422,355  

Tax expense

    2,020,098       1,323,928  

Other comprehensive income, net of tax

    3,344,860       2,098,427  
                 

Comprehensive income

  $ 22,502,317     $ 12,241,485  

 

See Notes to Consolidated Financial Statements (Unaudited) 

 

 
6

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

Three and Nine Months Ended September 30, 2016 and 2015

 

                           

Accumulated

         
           

Additional

           

Other

         
   

Common

   

Paid-In

   

Retained

   

Comprehensive

         
   

Stock

   

Capital

   

Earnings

   

Income (Loss)

   

Total

 

Balance December 31, 2015

  $ 11,761,083     $ 123,282,851     $ 92,965,645     $ (2,123,829 )   $ 225,885,750  

Net income

    -       -       6,373,489       -       6,373,489  

Other comprehensive income, net of tax

    -       -       -       2,525,411       2,525,411  

Common cash dividends declared, $0.04 per share

    -       -       (470,873 )     -       (470,873 )

Proceeds from issuance of 5,054 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

    5,054       94,560       -       -       99,614  

Proceeds from issuance of 46,020 shares of common stock as a result of stock options exercised

    46,020       729,473       -       -       775,493  

Stock compensation expense

    -       382,761                       382,761  

Tax benefit of nonqualified stock options exercised

    -       22,508       -       -       22,508  

Restricted stock awards

    22,382       (22,382 )     -       -       -  

Exchange of 15,689 shares of common stock in connection with stock options exercised

    (15,689 )     (346,834 )                     (362,523 )

Exchange of 3,939 shares of common stock in connection with restricted stock vested, net

    (3,939 )     (84,972 )     -       -       (88,911 )

Balance March 31, 2016

  $ 11,814,911     $ 124,057,965     $ 98,868,261     $ 401,582     $ 235,142,719  

Net income

    -       -       6,676,467       -       6,676,467  

Other comprehensive income, net of tax

    -       -       -       1,180,633       1,180,633  

Common cash dividends declared, $0.04 per share

    -       -       (520,701 )     -       (520,701 )

Proceeds from the issuance of 1,215,000 shares of common stock, net of issuance costs

    1,215,000       28,613,916       -       -       29,828,916  

Proceeds from issuance of 6,982 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

    6,982       142,887       -       -       149,869  

Proceeds from issuance of 20,975 shares of common stock as a result of stock options exercised

    20,975       230,671       -       -       251,646  

Tax basis adjustment related to the acquisition of noncontrolling interest in m2 Lease Funds

    -       2,132,415       -       -       2,132,415  

Stock compensation expense

    -       187,569                       187,569  

Tax benefit of nonqualified stock options exercised

    -       87,858       -       -       87,858  

Restricted stock awards

    (500 )     500       -       -       -  

Balance June 30, 2016

  $ 13,057,368     $ 155,453,781     $ 105,024,027     $ 1,582,215     $ 275,117,391  

Net income

    -       -       6,107,501       -       6,107,501  

Other comprehensive loss, net of tax

    -       -       -       (361,184 )     (361,184 )

Common cash dividends declared, $0.04 per share

    -       -       (521,384 )     -       (521,384 )

Proceeds from issuance of 4,085 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

    4,085       85,217       -       -       89,302  

Proceeds from issuance of 14,692 shares of common stock as a result of stock options exercised

    14,692       173,890       -       -       188,582  

Stock compensation expense

    -       190,211       -       -       190,211  

Tax benefit of nonqualified stock options exercised

    -       72,694       -       -       72,694  

Exchange of 838 shares of common stock in connection with stock options exercised

    (838 )     (25,115 )     -       -       (25,953 )

Balance September 30, 2016

  $ 13,075,307     $ 155,950,678     $ 110,610,144     $ 1,221,031     $ 280,857,160  

 

(Continued)

 

 
7

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) - continued

Three and Nine Months Ended September 30, 2016 and 2015

 

                           

Accumulated

                 
           

Additional

           

Other

                 
   

Common

   

Paid-In

   

Retained

   

Comprehensive

   

Treasury

         
   

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

    -       -       -       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  

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

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

Restricted stock awards

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

Balance March 31, 2015

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

Net loss

    -       -       (523,818 )     -       -       (523,818 )

Other comprehensive loss, net of tax

    -       -       -       (2,378,921 )     -       (2,378,921 )

Common cash dividends declared, $0.04 per share

    -       -       (464,706 )     -       -       (464,706 )

Proceeds from issuance of 3,680,000 shares of common stock, net of issuance costs

    3,680,000       59,804,123       -       -       -       63,484,123  

Proceeds from issuance of 8,558 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

    8,558       128,927       -       -       -       137,485  

Proceeds from issuance of 17,240 shares of common stock as a result of stock options exercised

    17,240       238,717       -       -       -       255,957  

Tax benefit of nonqualified stock options exercised

    -       15,827       -       -       -       15,827  

Exchange of 630 shares of common stock in connection with stock options exercised

    (630 )     (10,616 )     -       -       -       (11,246 )

Stock compensation expense

    -       186,751       -       -       -       186,751  

Restricted stock awards

    1,616       (1,616 )     -       -       -       -  

Balance June 30, 2015

  $ 11,819,824     $ 122,511,186     $ 81,066,189     $ (2,093,272 )   $ (1,606,510 )   $ 211,697,417  

Net income

    -       -       6,488,987       -       -       6,488,987  

Other comprehensive income, net of tax

    -       -       -       2,256,483       -       2,256,483  

Adjustment to common cash dividends declared

    -       -       (1,393 )     -       -       (1,393 )

Proceeds from issuance of 5,394 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

    5,394       81,309       -       -       -       86,703  

Proceeds from issuance of 24,711 shares of common stock as a result of stock options exercised

    24,711       318,732       -       -       -       343,443  

Tax benefit of nonqualified stock options exercised

    -       39,632       -       -       -       39,632  

Retirement of treasury stock, 121,246 shares of common stock

    (121,246 )     (580,886 )     (904,378 )     -       1,606,510       -  

Stock compensation expense

    -       203,967       -       -       -       203,967  

Restricted stock awards

    228       (228 )     -       -       -       -  

Balance September 30, 2015

  $ 11,728,911     $ 122,573,712     $ 86,649,405     $ 163,211     $ -     $ 221,115,239  

 

See Notes to Consolidated Financial Statements (Unaudited) 

 

 
8

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2016 and 2015

 

   

2016

   

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 19,157,457     $ 10,143,058  

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

               

Depreciation

    2,422,257       2,283,558  

Provision for loan/lease losses

    4,878,821       5,694,384  

Stock-based compensation expense

    760,541       758,493  

Deferred compensation expense accrued

    910,439       767,292  

Losses (gains) on other real estate owned, net

    130,280       (1,204,016 )

Amortization of premiums on securities, net

    968,553       756,876  

Securities gains, net

    (4,628,283 )     (473,513 )

Loans originated for sale

    (57,160,485 )     (29,968,289 )

Proceeds on sales of loans

    59,838,717       31,154,335  

Gains on sales of residential real estate loans

    (288,904 )     (266,284 )

Gains on sales of government guaranteed portions of loans

    (2,701,203 )     (899,987 )

Losses on debt extinguishment, net

    4,220,507       6,894,185  

Amortization of core deposit intangible

    210,469       149,634  

Accretion of acquisition fair value adjustments, net

    (690,379 )     (334,990 )

Increase in cash value of bank-owned life insurance

    (1,324,380 )     (1,318,909 )

Increase in other assets

    (2,480,461 )     (5,211,555 )

Decrease in other liabilities

    1,614,477       4,269,482  

Net cash provided by operating activities

  $ 25,838,423     $ 23,193,754  
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Net decrease (increase) in federal funds sold

    (474,000 )     12,450,000  

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

    (23,981,295 )     3,059,051  

Proceeds from sales of other real estate owned

    1,913,775       6,774,151  

Activity in securities portfolio:

               

Purchases

    (111,622,489 )     (200,249,686 )

Calls, maturities and redemptions

    109,421,584       187,029,003  

Paydowns

    21,939,878       11,859,406  

Sales

    87,772,898       65,889,838  

Activity in restricted investment securities:

               

Purchases

    (25,700 )     (2,806,650 )

Redemptions

    1,375,100       3,435,200  

Net increase in loans/leases originated and held for investment

    (144,605,204 )     (129,356,790 )

Purchase of premises and equipment

    (3,871,166 )     (4,327,671 )

Net cash paid for Community State Bank acquisition

    (69,905,355 )     -  

Net cash used in investing activities

  $ (132,061,974 )   $ (46,244,148 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Net increase in deposit accounts

    227,918,002       175,656,866  

Net decrease in short-term borrowings

    (84,647,299 )     (100,787,458 )

Activity in Federal Home Loan Bank advances:

               

Term advances

    -       5,000,000  

Calls and maturities

    (19,000,000 )     (24,000,000 )

Net change in short-term and overnight advances

    1,300,000       24,000,000  

Prepayments

    (10,524,197 )     (81,192,185 )

Activity in other borrowings:

               

Proceeds from other borrowings

    35,000,000       -  

Calls, maturities and scheduled principal payments

    -       (7,350,000 )

Prepayments

    (50,320,407 )     (29,177,000 )

Retirement of junior subordinated debentures

    (3,955,000 )     -  

Payment of cash dividends on common stock

    (1,460,157 )     (782,054 )

Net proceeds from the common stock offering, 3,680,000 shares issued

    -       63,484,123  

Net proceeds from the common stock offering, 1,215,000 shares issued

    29,828,916       -  

Proceeds from issuance of common stock, net

    1,554,506       1,016,324  

Net cash provided by financing activities

  $ 125,694,364     $ 25,868,616  
                 

Net increase in cash and due from banks

    19,470,813       2,818,222  

Cash and due from banks, beginning

    41,742,321       38,235,019  

Cash and due from banks, ending

  $ 61,213,134     $ 41,053,241  

 

(Continued)

 

 
9

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - continued

Nine Months Ended September 30, 2016 and 2015

 

   

2016

   

2015

 

Supplemental disclosure of cash flow information, cash payments for:

               

Interest

  $ 9,081,850     $ 10,880,589  
                 

Income/franchise taxes

  $ 9,487,002     $ 1,985,275  
                 

Supplemental schedule of noncash investing activities:

               

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

  $ 3,344,860     $ 2,098,427  
                 

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

  $ (477,387 )   $ (68,706 )
                 

Tax benefit of nonqualified stock options exercised

  $ 183,060     $ 71,110  
                 

Transfers of loans to other real estate owned

  $ 51,000     $ 942,782  
                 

Due from broker for sales of securities

  $ 32,078,011     $ -  
                 

Due to broker for purchases of securities

  $ 15,190,000     $ -  
                 

Due to counterparties for prepayment of FHLB advances and other borrowings

  $ (24,575,903 )   $ -  
                 

Tax basis adjustment related to the acquisition of noncontrolling interest in m2 Lease Funds

  $ 2,132,415     $ -  
                 

Supplemental disclosure of cash flow information for Community State Bank acquisition:

               

Fair value of assets acquired:

               

Cash and due from banks *

  $ 10,094,645     $ -  

Federal funds sold

    698,000       -  

Interest-bearing deposits at financial institutions

    14,730,157       -  

Securities

    102,640,029       -  

Loans/leases receivable held for investment, net

    419,029,277       -  

Premises and equipment, net

    20,684,880       -  

Core deposit intangible

    6,352,653       -  

Restricted investment securities

    1,512,900       -  

Other real estate owned

    650,000       -  

Other assets

    4,763,224       -  

Total assets acquired

  $ 581,155,765     $ -  
                 

Fair value of liabilities assumed:

               

Deposits

  $ 486,298,262     $ -  

FHLB advances

    20,368,877       -  

Other liabilities

    4,897,564       -  

Total liabilities assumed

  $ 511,564,703     $ -  
                 

Net assets acquired

  $ 69,591,062     $ -  

Consideration paid:

               

Cash paid *

  $ 80,000,000     $ -  

Total consideration paid

  $ 80,000,000     $ -  
                 

Goodwill

  $ 10,408,938     $ -  

* Net cash paid at closing totaled $69,905,355

 

See Notes to Consolidated Financial Statements (Unaudited)

 

 
10

 

 

Part I

Item 1

QCR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2016

 

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, 2015, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2016. 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. GAAP 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 September 30, 2016, are not necessarily indicative of the results expected for the year ending December 31, 2016, or for any other period.

 

The acronyms and abbreviations identified below are used throughout this Quarterly Report on Form 10-Q. It may be helpful to refer back to this page as you read this report.

 

Allowance: Allowance for estimated losses on loans/leases

FRB: Federal Reserve Bank of Chicago

AOCI: Accumulated other comprehensive income (loss)

GAAP: Generally Accepted Accounting Principles

AFS: Available for sale

HTM: Held to maturity

ASC: Accounting Standards Codification

m2: m2 Lease Funds, LLC

ASC 805: Business Combinations Standard

MD&A: Management's Discussion & Analysis

ASU: Accounting Standards Update

NIM: Net interest margin

BOLI: Bank-owned life insurance

NPA: Nonperforming asset

Caps: Interest rate cap derivatives

NPL: Nonperforming loan

Community National: Community National Bancorporation

OREO: Other real estate owned

CNB: Community National Bank

OTTI: Other-than-temporary impairment

CRBT: Cedar Rapids Bank & Trust Company

PCI: Purchased credit impaired

CRE: Commercial real estate