* “Other” consists of all other industries. None of these had concentrations greater than ~~$21.0~~$26.1 million, or 2%, of total CRE loans as of December 31, ~~2016.~~2017.

Following is a breakdown of non owner-occupied CRE by property type as of December 31, 2017 and 2016:

A portion of the ~~Company’s~~Company’s construction portfolio is considered non-residential construction. Following is a summary of industry concentrations within that category as of December 31, 2017 and 2016:

Additionally, the Company had approximately $81.3 million and $103.0 million of residential construction loans outstanding as of December 31, ~~2016.~~2017 and 2016, respectively. Of this amount, approximately 79% was considered speculative, while 21% was pre-sold at December 31, 2017 and approximately 75% was considered speculative, while 25% was ~~pre-sold.~~pre-sold at December 31, 2016.

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m2 leases machinery and equipment to C&I customers under direct financing leases. All lease requests are subject to the credit requirements and criteria as set forth in the lending/leasing policy. In all cases, a formal independent credit analysis of the lessee is performed.

The following private and public sector business assets are generally acceptable to consider for lease funding:

Generally, the subsidiary ~~banks’~~banks’ residential real estate loans conform to the underwriting requirements of Freddie Mac and Fannie Mae to allow the subsidiary banks to resell loans in the secondary market. The subsidiary banks structure most loans that will not conform to those underwriting requirements as adjustable rate mortgages that adjust in one to five years, and then retain these loans in their portfolios. Servicing rights are generally not retained on the loans sold in the secondary market. The Company’s lending policy establishes minimum appraisal and other credit guidelines.

The following table presents the originations and sales of residential real estate loans for the Company. Included in originations is activity related to the refinancing of previously held in-house mortgages.

The consumer lending department of each subsidiary bank provides many types of consumer loans, including home improvement, home equity, motor vehicle, signature loans and small personal credit lines. The Company’s lending policy addresses specific credit guidelines by consumer loan type. In particular, for home equity loans and home equity lines of credit, the minimum credit bureau score is ~~680.~~650. For both home equity loans and lines of credit, the maximum advance rate is 90% of value with a minimum credit bureau score of 720, and the maximum advance rate is 80% of value with a credit bureau score of 680 to 719. The maximum term on home equity loans is 10 years and maximum amortization is 15 years. The maximum term on home equity lines of credit is ~~five~~10 years.

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In some instances for all loans/leases, it may be appropriate to originate or purchase loans/leases that are exceptions to the guidelines and limits established within the Company’s lending policy described above. In general, exceptions to the lending policy do not significantly deviate from the guidelines and limits established within the lending policy and, if there are exceptions, they are generally noted as such and specifically identified in loan/lease approval documents.

Competition.The Company currently operates in the highly competitive Quad Cities, Cedar Rapids, Waterloo/Cedar Falls, Des Moines, and Rockford markets. Competitors include not only other commercial banks, credit unions, thrift institutions, and mutual funds, but also insurance companies, FinTech companies, finance companies, brokerage firms, investment banking companies, and a variety of other financial services and advisory companies. Many of these competitors are not subject to the same regulatory restrictions as the Company. Many of these unregulated competitors compete across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services. The Company competes in markets with a number of much larger financial institutions with substantially greater resources and larger lending limits.

Appendices.The commercial banking business is a highly regulated business. See Appendix A for a summary of the federal and state statutes and regulations that are applicable to the Company and its subsidiaries. Supervision, regulation and examination of banks and bank holding companies by bank regulatory agencies are intended primarily for the protection of depositors rather than stockholders of bank holding companies and banks.

See Appendix B for tables and schedules that show selected financial statistical information relating to the business of the Company required to be presented pursuant to federal securities laws. Consistent with the information presented in the Form 10-K, results are presented as of and for the fiscal years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014,~~2015, as applicable.

Internet Site, Securities Filings and Governance Documents. The Company maintains an Internet site at~~www.qcrh.com~~. www.qcrh.com. The Company makes available free of charge through this site its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. These filings are available athttp://www.snl.com/IRW/Docs/1024092. Also available are many of its corporate governance documents, including the Code of Conduct (http://www.snl.com/IRW/govdocs/1024092).

In addition to the other information in this Annual Report on Form 10-K, stockholders or prospective investors should carefully consider the following risk factors:

Conditions in the financial market and economic conditions, including conditions in themarkets in whichwe operate, generally may adversely affect ourbusiness.

Our general financial performance is highly dependent upon the business environment in the markets where we operate and in particular, the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services it offers. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment, natural disasters, or a combination of these or other factors.

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While economic conditions have improved since the recession, there can be no assurance that this improvement will continue. Uncertainty regarding continuing economic improvement may result in changes in consumer and business spending, borrowing, and savings habits. Downturns in the markets where our banking operations occur could result in a decrease in demand for our products and services, an increase in loan delinquencies and defaults, high or increased levels of problem assets and foreclosures and reduced wealth management fees resulting from lower asset values. Such conditions could adversely affect the credit quality of our loans, financial condition and results of operations.

Potential future acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and adversely affect our financial results.

As part of our business strategy, we may consider acquisitions of other banks or financial institutions or branches, assets or deposits of such organizations. There is no assurance, however, that we will determine to pursue any of these opportunities or that if we determine to pursue them that we will be successful. Acquisitions involve numerous risks, any of which could harm our business, including:

Future acquisitions may involve the issuance of our equity securities as payment or in connection with financing the business or assets acquired, and as a result, could dilute the ownership interests of existing stockholders. In addition, consummating these transactions could result in the incurrence of additional debt and related interest expense, as well as unforeseen liabilities, all of which could have a material adverse effect on our business, results of operations and financial condition. The failure to successfully evaluate and execute acquisitions or otherwise adequately address the risks associated with acquisitions could have a material adverse effect on our business, results of operations and financial condition.

There are risks inherent in making any loan, including risks inherent in dealing with specific borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions. We attempt to minimize our credit risk through prudent loan application approval procedures, careful monitoring of the concentration of our loans within specific industries and periodic independent reviews of outstanding loans by our credit review department and an external third party. However, we cannot assure you that such approval and monitoring procedures will reduce these credit risks.

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The majority of our subsidiary ~~banks’~~banks’ loan portfolios are invested in C&I and CRE loans, and we focus on lending to small to medium-sized businesses. The size of the loans we can offer to commercial customers is less than the size of the loans that our competitors with larger lending limits can offer. This may limit our ability to establish relationships with the area’s largest businesses. Smaller companies tend to be at a competitive disadvantage and generally have limited operating histories, less sophisticated internal record keeping and financial planning capabilities and fewer financial resources than larger companies. As a result, we may assume greater lending risks than financial institutions that have a lesser concentration of such loans and tend to make loans to larger, more established businesses. Collateral for these loans generally includes accounts receivable, inventory, equipment and real estate. However, depending on the overall financial condition of the borrower, some loans are made on an unsecured basis. In addition to C&I and CRE loans, our subsidiary banks are also active in residential mortgage and consumer lending. Our borrowers may experience financial difficulties, and the level of nonperforming loans, charge-offs and delinquencies could rise, which could negatively impact our business through increased provision, reduced interest income on loans/leases, and increased expenses incurred to carry and resolve problem loans/leases.

C&I loans were ~~$827.6 million,~~$1.1 billion, or approximately ~~34%~~38% of our total loan/lease portfolio, as of December 31, ~~2016.~~2017. Our C&I loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral is accounts receivable, inventory, equipment and real estate. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation value of the pledged collateral and enforcement of a personal guarantee, if any exists. Whenever possible, we require a personal guarantee or cosigner on commercial loans. ~~As a result, in~~In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing these loans may lose value over time, may be difficult to appraise, and may fluctuate in value based on the success of the business. In addition, a prolonged recovery period could harm or continue to harm the businesses of our C&I customers and reduce the value of the collateral securing these loans.

Our loan/lease portfolio has a significant concentration of CRE loans, which involve risks specific to real estate values.

CRE lending comprises a significant portion of our lending business. Specifically, CRE loans were ~~$1.1~~$1.3 billion, or approximately ~~46%~~44% of our total loan/lease portfolio, as of December 31, ~~2016.~~2017. Of this amount, ~~$332.4~~$332.7 million, or approximately ~~30%~~26%, was owner-occupied. The market value of real estate securing our CRE loans can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in one or more of our markets could increase the credit risk associated with our loan portfolio. Additionally, real estate lending typically involves higher loan principal amounts and the repayment of the loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and market values of the affected properties.

The problems that have occurred in the residential real estate and mortgage markets throughout much of the U.S. in prior years also affected the commercial real estate market. In our market areas, we generally experienced a downturn in credit performance by our CRE loan customers in prior years relative to historical norms, and despite recent improvements in certain aspects of the economy, a level of uncertainty continues to exist in the economy and credit ~~markets.~~markets. There can be no guarantee that we will not experience further deterioration in the performance of CRE and other real estate loans in the future. In such case, we may not be able to realize the amount of security that we anticipated at the time of originating the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results, financial condition and/or capital.

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Our allowance may prove to be insufficient to absorb losses in our loan/lease portfolio.

We establish our allowance for loan and lease losses in consultation with management of our subsidiaries and maintain it at a level considered adequate by management to absorb loan/lease losses that are inherent in the portfolio. The amount of future loan/lease losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and such losses may exceed current estimates. At December 31, ~~2016,~~2017, our allowance as a percentage of total gross loans/leases was ~~1.28%~~1.16%, and as a percentage of total NPLs was ~~144.85%~~184.28%. In accordance with GAAP for acquisition accounting, the loans acquired through the acquisition of Guaranty Bank and CSB were recorded at fair value; therefore, there was no allowance associated with Guaranty Bank’s and CSB’s loans at acquisition. Management continues to evaluate the allowance needed on the acquired ~~CSB~~ loans factoring in the net remaining discount ($~~10.1~~8.1 million at December 31, ~~2016)~~2017). When factoring this remaining discount into the Company’s allowance to total loans and leases calculation, the Company’s allowance as a percentage of total loans and leases increases from ~~1.28%~~1.16% to ~~1.70%~~1.43%.

In addition, we had net charge-offs as a percentage of gross average loans/leases of ~~0.14%~~0.19% for the year ended December 31, ~~2016.~~2017. Because of the concentration of C&I and CRE loans in our loan portfolio, which tend to be larger in amount than residential real estate and installment loans, the movement of a small number of loans to nonperforming status can have a significant impact on these ratios. Although management believes that the allowance as of December 31, ~~2016~~2017 was adequate to absorb losses on any existing loans/leases that may become uncollectible, we cannot predict loan/lease losses with certainty, and we cannot assure you that our allowance will prove sufficient to cover actual loan/lease losses in the future, particularly if economic conditions are more difficult than what management currently expects. Additional provisions and loan/lease losses in excess of our allowance may adversely affect our business, financial condition and results of operations.

The ~~Company’s~~Company’s information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on the Company’s business.

The Company relies heavily on internal and outsourced technologies, communications, and information systems to conduct its business. Additionally, in the normal course of business, the Company collects, processes and retains sensitive and confidential information regarding our customers. As the Company’s reliance on technology has increased, so have the potential risks of a technology-related operation interruption (such as disruptions in the Company’s customer relationship management, general ledger, deposit, loan, or other systems) or the occurrence of a cyber-attacks (such as unauthorized access to the Company’s systems). These risks have increased for all financial institutions as new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others have also increased. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against financial institutions, retailers and government agencies, particularly denial of service attacks that are designed to disrupt key business or government services, such as customer-facing web sites. The Company is not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. It is also possible that a cyber incident, such as a security breach, may remain undetected for a period of time, further exposing the Company to technology-related risks. However, applying guidance from the Federal Financial Institutions Examination Council, the Company has analyzed and will continue to analyze security related to device specific considerations, user access topics, transaction-processing and network integrity.

The Company also faces risks related to cyber-attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding the ~~Company’s~~Company’s customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and its processors. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that the Company does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact the Company through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks relating to them. Despite third-party security risks that are beyond our control, the Company offers its customers protection against fraud and attendant losses for unauthorized use of debit cards in order to stay competitive in the marketplace. Offering such protection (including the cost of replacing compromised cards) to our customers exposes the Company to potential losses which, in the event of a data breach at one or more retailers of considerable magnitude, may adversely affect its business, financial condition, and results of operations. Further cyber-attacks or other breaches in the future, whether affecting the Company or others, could intensify consumer concern and regulatory focus and result in increased costs, all of which could have a material adverse effect on the Company’s business. To the extent we are involved in any future cyber-attacks or other breaches, the Company’s reputation could be affected, which could also have a material adverse effect on the Company’s business, financial condition or results of operations.

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System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.

The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, as well as that of our customers engaging in internet banking activities, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. Any interruption in, or breach of security of, our computer systems and network infrastructure, or that of our internet banking customers, could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. The Company may also need to spend additional resources to enhance protective and detective measures or to conduct investigations to remediate any vulnerabilities that arise.

We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.

Employee errors and employee and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.

We maintain a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors and customer or employee fraud. Despite having business continuity plans and other safeguards, the Company could still be affected. Should our internal controls fail to prevent or detect an occurrence, and if any resulting loss is not insured or exceeds applicable insurance limits, such failure could have a material adverse effect on our business, financial condition and results of operations.

We may be materially and adversely affected by the highly regulated environment in which we operate.

The Company and its bank subsidiaries are subject to extensive federal and state regulation, supervision and examination. Banking regulations are primarily intended to protect ~~depositors’~~depositors’ funds, FDIC funds, customers and the banking system as a whole, rather than stockholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things.

As a bank holding company, we are subject to regulation and supervision primarily by the Federal Reserve. QCBT, CRBT and ~~CRBT,~~CSB, as Iowa-chartered state member banks, are subject to regulation and supervision primarily by both the Iowa Superintendent and the Federal Reserve. ~~CSB, as an Iowa-chartered state non-member bank, is subject to regulation and supervision primarily by both the Iowa Superintendent and the FDIC.~~ RB&T, as an Illinois-chartered state member bank, is subject to regulation and supervision primarily by both the IDFPR and the Federal Reserve. We and our banks undergo periodic examinations by these regulators, who have extensive discretion and authority to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies.

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The primary federal and state banking laws and regulations that affect us are described in Appendix A to this report. These laws, regulations, rules, standards, policies and interpretations are constantly evolving and may change significantly over time. For example, the Dodd-Frank Act significantly changed the regulation of financial institutions and the financial services industry. In addition, in recent years the Federal Reserve has adopted numerous new regulations addressing ~~banks’~~banks’ overdraft and mortgage lending practices. Further, the Basel III regulatory capital reforms increased both the amount and quality of capital that financial institutions must hold.

U.S. financial institutions are also subject to numerous monitoring, recordkeeping, and reporting requirements designed to detect and prevent illegal activities such as money laundering and terrorist financing. These requirements are imposed primarily through the Bank Secrecy Act which was most recently amended by the Patriot Act. We have instituted policies and procedures to protect us and our employees, to the extent reasonably possible, from being used to facilitate money laundering, terrorist financing and other financial crimes. There can be no guarantee, however, that these policies and procedures are effective.

Failure to comply with applicable laws, regulations or policies could result in sanctions by regulatory agencies, civil monetary penalties, and/or damage to our reputation, which could have a material adverse effect on us. Although we have policies and procedures designed to mitigate the risk of any such violations, there can be no assurance that such violations will not occur.

The financial services industry, as well as the broader economy, may be subject to new legislation, regulation, and government policy.

At this time, it is difficult to predict the legislative and regulatory changes that will result from the combination of a new President of the United States and the first year since 2010 in which both Houses of Congress and the White House have majority memberships from the same political party. Recently, however, both the new President and senior members of the House of Representatives have advocated for significant reduction of financial services regulation, to include amendments to the Dodd-Frank Act and structural changes to the CFPB. The new Administration and Congress also may cause broader economic changes due to changes in governing ideology and governing style. New appointments to the Federal Reserve could affect monetary policy and interest rates, and changes in fiscal policy could affect broader patterns of trade and economic growth. Future legislation, regulation, and government policy could affect the banking industry as a whole, including our business and results of operations, in ways that are difficult to predict. In addition, our results of operations also could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies.

Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments of the discount rate and changes in reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

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Our profitability is in large part a function of the spread between the interest rates earned on investments and loans/leases and the interest rates paid on deposits and other interest bearing liabilities. Like most banking institutions, our net interest spread and margin will be affected by general economic conditions and other factors, including fiscal and monetary policies of the federal government that influence market interest rates and our ability to respond to changes in such rates. At any given time, our assets and liabilities will be such that they are affected differently by a given change in interest rates. As a result, an increase or decrease in rates, the length of loan/lease terms, the mix of adjustable and fixed rate loans/leases in our portfolio, the length of time deposits and borrowings, and the rate sensitivity of our deposit customers could have a positive or negative effect on our net income, capital and liquidity. We measure interest rate risk under various rate scenarios using specific criteria and assumptions. A summary of this process, along with the results of our net interest income simulations is presented at “Quantitative and Qualitative Disclosures about Market Risk” included under Item 7A of Part II of this Form 10-K. Although we believe our current level of interest rate sensitivity is reasonable and effectively managed, significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations.

We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected.

The Company and each of its banking subsidiaries are required by federal and state regulatory authorities to maintain adequate levels of capital to support their operations, which have recently increased due to the effectiveness of the Basel III regulatory capital reforms. We intend to grow our business organically and to explore opportunities to grow our business by taking advantage of attractive acquisition opportunities, and such growth plans may require us to raise additional capital to ensure that we have adequate levels of capital to support such growth on top of our current operations. Our ability to raise additional capital, when and if needed or desired, will depend on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry and market conditions, and governmental activities, many of which are outside our control, and on our financial condition and performance. Accordingly, we cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. Our failure to meet these capital and other regulatory requirements could affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common and preferred stock and to make distributions on our trust preferred securities, our ability to make acquisitions, and our business, results of operations and financial condition.

Failure to pay interest on our debt may adversely impact our ability to pay common stock dividends.

As of December 31, ~~2016,~~2017, we had ~~$33.5~~$40.2 million of junior subordinated debentures held by ~~five~~six business trusts that we control. Interest payments on the debentures, which totaled ~~$1.2~~$1.5 million for ~~2016,~~2017, must be paid before we pay dividends on our capital stock, including our common stock. We have the right to defer interest payments on the debentures for up to 20 consecutive quarters. However, if we elect to defer interest payments, all deferred interest must be paid before we may pay dividends on our capital stock. Deferral of interest payments on the debentures could cause a subsequent decline in the market price of our common stock because we would not be able to pay dividends on our common stock.

We are a bank holding company, and our operations are primarily conducted by our subsidiary banks, which are subject to significant federal and state regulation. When available, cash to pay dividends to our stockholders is derived primarily from dividends received from our subsidiary banks. Our ability to receive dividends or loans from our subsidiary banks is restricted. Dividend payments by our subsidiaries to us in the future will require generation of future earnings by them and could require regulatory approval if any proposed dividends are in excess of prescribed guidelines. Further, as a structural matter, our right to participate in the assets of our subsidiary banks in the event of a liquidation or reorganization of any of the banks would be subject to the claims of the creditors of such bank, including depositors, which would take priority except to the extent we may be a creditor with a recognized claim. As of December 31, ~~2016,~~2017, our subsidiary banks had deposits and other liabilities in the aggregate of approximately ~~$3.0~~$3.6 billion.

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Declines in asset values may result in impairment charges and adversely affect the value of our investments, financial performance and capital.

The market value of investments in our securities portfolio has become increasingly volatile in recent years, and as of December 31, ~~2016,~~2017, we had gross unrealized losses of ~~$8.6~~$5.4 million, or ~~1.5%~~0.8% of amortized cost, in our investment portfolio (partially offset by gross unrealized gains of ~~$3.6~~$4.5 million). The market value of investments may be affected by factors other than the underlying performance of the servicer of the securities or the mortgages underlying the securities, such as ratings downgrades, adverse changes in the business climate and a lack of liquidity in the secondary market for certain investment securities. On a quarterly basis, we formally evaluate investments and other assets for impairment indicators. We may be required to record additional impairment charges if our investments suffer a decline in value that is considered other-than-temporary. If we determine that a significant impairment has occurred, we would be required to charge against earnings the credit-related portion of the OTTI, which could have a material adverse effect on our results of operations in the periods in which the write-offs occur. Based on management’s evaluation, it was determined that the gross unrealized losses at December 31, ~~2016~~2017 were temporary and primarily a function of the changes in certain market interest rates.

Liquidity risks could affect operations and jeopardize our business, results of operations and financial condition.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of securities and/or loans and other sources could have a substantial negative effect on our liquidity. Our primary sources of funds consist of cash from operations, deposits, investment maturities, repayments, and calls, and loan/lease repayments. Additional liquidity is provided by federal funds purchased from the FRB or other correspondent banks, FHLB advances, wholesale and customer repurchase agreements, brokered deposits, and the ability to borrow at the FRB’s Discount Window. Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.

During periods of economic turmoil, the financial services industry and the credit markets generally may be materially and adversely affected by significant declines in asset values ~~and~~and depressed levels of liquidity. Furthermore, regional and community banks generally have less access to the capital markets than do the national and super-regional banks because of their smaller size and limited analyst coverage. Any decline in available funding could adversely impact our ability to originate loans/leases, invest in securities, meet our expenses, pay dividends to our stockholders, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, results of operations and financial condition.

~~SBA lending is an important~~~~part of our business.~~ The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a preferred lender under the SBA loan programs and our ability to comply with applicable SBA lending requirements.

As an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose other restrictions, including revocation of the ~~lender’s~~lender’s Preferred Lender status. If we lose our status as a Preferred Lender, we may lose our ability to compete effectively with other SBA Preferred Lenders, and as a result we would experience a material adverse effect to our financial results. Any changes to the SBA program, including changes to the level of guaranty provided by the federal government on SBA loans or changes to the level of funds appropriated by the federal government to the various SBA programs, may also have an adverse effect on our business, results of operations and financial condition.

Historically we have sold the guaranteed portion of our SBA 7(a) loans in the secondary market. These sales have resulted in our earning premium income and/or have created a stream of future servicing income. There can be no assurance that we will be able to continue originating these loans, that a secondary market will exist or that we will continue to realize premiums upon the sale of the guaranteed portion of these loans. When we sell the guaranteed portion of our SBA 7(a) loans, we incur credit risk on the retained, non-guaranteed portion of the loans.

In the event of a loss resulting from default and the SBA determines there is a deficiency in the manner in which the loan was originated, funded or serviced by the us, the SBA may require us to repurchase the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from us, any of which could adversely affect our business, results of operations and financial condition.

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Our business is concentrated in and dependent upon the continued growth and welfare of the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls,Des Moines/Ankeny, and Rockford markets.

We operate primarily in the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls, Des Moines/Ankeny and Rockford markets, and as a result, our financial condition, results of operations and cash flows are subject to changes in the economic conditions in those areas. We have developed a particularly strong presence in Bettendorf, Cedar Falls, Cedar Rapids, Davenport, Waterloo, and Ankeny, Iowa and Moline, Rock Island, and Rockford, Illinois and their surrounding communities. Our success depends upon the business activity, population, income levels, deposits and real estate activity in these markets. Although our customers’ business and financial interests may extend well beyond these market areas, adverse economic conditions that affect these market areas could reduce demand for our products and services, affect the ability of our customers to repay their loans to us, increase the levels of our nonperforming and problem loans, and generally affect our financial condition and results of operations. Because of our geographic concentration, we are less able than other regional or national financial institutions to diversify our credit risks across multiple markets.

We face intense competition in all phases of our business from other banks and financial institutions.

The banking and financial services businesses in our markets are highly competitive. Our competitors include large regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions, online lenders and other non-bank financial services providers. Many of these competitors are not subject to the same regulatory restrictions as we are. Many of our unregulated competitors compete across geographic boundaries and are able to provide customers with a feasible alternative to traditional banking services.

Increased competition in our markets may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan/lease rates and deposit rates or loan/lease terms that are more favorable to the borrower. Any of these results could have a material adverse effect on our ability to grow and remain profitable. If increased competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted. If increased competition causes us to modify our underwriting standards, we could be exposed to higher losses from lending and leasing activities. Additionally, many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, have larger lending limits and offer a broader range of financial services than we can offer.

The stock market can be volatile, and fluctuations in our operating results and other factors, could cause our stock price to decline.

The stock market has experienced, and may continue to experience, fluctuations that significantly impact the market prices of securities issued by many companies. Most recently, like the stock of other financial institutions generally, the price of the ~~Company’s~~Company’s common stock as reported on the ~~NASDAQ~~Nasdaq Global Market has increased substantially since the U.S. presidential election. Market fluctuations could also adversely affect our stock price. These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, loss of investor confidence, interest rate changes, or international currency fluctuations, may negatively affect the market price of our common stock. Moreover, our operating results may fluctuate and vary from period to period due to the risk factors set forth herein. As a result, period-to-period comparisons should not be relied upon as an indication of future performance. Our stock price could fluctuate significantly in response to our quarterly or annual results and the impact of these risk factors on our operating results or financial position.

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If securities or industry analysts do not publish or cease publishing research reports about us, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, the price of our stock could decline.

The trading market for our common stock can be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If there is limited or no securities or industry analyst coverage of us, the market price for our stock could be negatively impacted. Moreover, if any of the analysts who elect to cover us downgrade our common stock, provide more favorable relative recommendations about our competitors or if our operating results or prospects do not meet their expectations, the market price of our common stock may decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

Our ability to engage in routine funding and other transactions could be negatively affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions. We could experience increases in deposits and assets as a result of the difficulties or failures of other banks and government-sponsored financial institutions, which would increase the capital we need to support our growth.

Our community banking strategy relies heavily on our ~~subsidiaries’~~subsidiaries’ independent management teams, and the unexpected loss of key managers may adversely affect our operations.

We rely heavily on the success of our bank ~~subsidiaries’~~subsidiaries’ independent management teams. Accordingly, much of our success to date has been influenced strongly by our ability to attract and to retain senior management experienced in banking and financial services and familiar with the communities in our market areas. Our ability to retain the executive officers and current management teams of our operating subsidiaries will continue to be important to the successful implementation of our strategy. It is also critical, as we manage our existing portfolio and grow, to be able to attract and retain qualified additional management and loan officers with the appropriate level of experience and knowledge about our market areas to implement our community-based operating strategy. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition and results of operations. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution.

We have a continuing need for technological change, and we may not have the resources to effectively implement new technology.

The financial services industry continues to undergo rapid technological changes with frequent introductions of new technology-driven products and services. In addition to enabling us to better serve our customers, the effective use of technology increases efficiency and the potential for cost reduction. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow our market share. Many of our larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage. Accordingly, we cannot provide you with assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers.

Reputational risk, or the risk to our business, financial condition or results of operations from negative publicity, is inherent in our business. Negative publicity can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, inadequate protection of customer data, ethical behavior of our employees, and from actions taken by regulators, ratings agencies and others as a result of that conduct. Damage to our reputation could impact our ability to attract new or maintain existing loan and deposit customers, employees and business relationships.

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The preparation of our consolidated financial statements requires us to make estimates and judgments, which are subject to an inherent degree of uncertainty and which may differ from actual results.

Our consolidated financial statements are prepared in accordance with U.S. GAAP and general reporting practices within the financial services industry, which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Some accounting policies, such as those pertaining to our allowance, require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results may differ from these estimates and judgments under different assumptions or conditions, which may have a material adverse effect on our financial condition or results of operations in subsequent periods.

From time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations.

For example, ~~the~~the FASB has adopted a new accounting standard that will be effective for our first fiscal year after December 15, 2019. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances. This will change the current method of providing allowances that are probable, which may require us to increase our allowance, and to greatly increase the types of data we will need to collect and review to determine the appropriate level of the allowance. Any increase in our allowance or expenses incurred to determine the appropriate level of the allowance may have a material adverse effect on our financial condition and results of operations.

Secondary mortgage, government guaranteed loan and interest rate swap market conditions could have a material impact on our financial condition and results of operations.

Currently, we sell a portion of the residential real estate and government guaranteed loans we originate. The profitability of these operations depends in large part upon our ability to make loans and to sell them in the secondary market at a gain. Thus, we are dependent upon the existence of an active secondary market and our ability to profitably sell loans into that market.

In addition to being affected by interest rates, the secondary markets are also subject to investor demand for residential mortgages and government guaranteed loans and investor yield requirements for those loans. These conditions may fluctuate or even worsen in the future. As a result, a prolonged period of secondary market illiquidity may reduce our loan production volumes and could have a material adverse effect on our financial condition and results of operations.

The interest rate swap market is dependent upon market conditions. If interest rates move, interest rate swap transactions may no longer make sense for the Company and/or its customers. Interest rate swaps are generally appropriate for commercial customers with a certain level of expertise and comfort with derivatives, so our success is dependent upon the ability to make loans to these types of commercial customers. Additionally, our ability to execute interest rate swaps is also dependent upon counterparties that are willing to enter into the interest rate swap that is equal and offsetting to the interest rate swap we enter into with the commercial customer.

Consumers and businesses are increasingly using non-banks to complete their financial transactions, which could adversely affect our business and results of operations.

Technology and other changes are allowing consumers and businesses to complete financial transactions that historically have involved banks through alternative methods. For example, the wide acceptance of Internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. Customers can now maintain funds in prepaid debit cards or digital currencies, and pay bills and transfer funds directly without the direct assistance of banks. The diminishing role of banks as financial intermediaries has resulted and could continue to result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the potential loss of lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations.

Table of ~~our stock could decline.~~

Contents

New lines of business or new products and services may subject us to additional risks.

From time to time, we may seek to implement new lines of business or offer new products and services within existing lines of business in our current markets or new markets. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible, which could in turn have a material negative effect on our operating results.

~~Item 1B.~~

Item 1B. Unresolved Staff Comments

There are no unresolved staff comments.

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Item 2.

Properties

The following table is a listing of the ~~Company’s~~Company’s operating facilities:

Facility Address	Facility Square Footage	Facility ~~Owned~~ Owned or Leased

*QCR Holdings, Inc.*
3551 7th Street in Moline, IL (1)	30,000	Owned

*QCBT*
2118 Middle Road in Bettendorf, IA	6,700	Owned
4500 N Brady Street in Davenport, IA	36,000	Owned
5405 Utica Ridge Road in Davenport, IA	7,400	Leased
1700 Division Street in Davenport, IA	12,000	Owned

*CRBT*
500 1st Avenue NE, in Cedar Rapids, IA	48,000	Owned
5400 Council Street in Cedar Rapids, IA	5,900	Owned
422 Commercial Street in Waterloo, IA (2)	25,000	Owned
11 Tower Park Drive in Waterloo, IA (2)	6,000	Owned
312 W 1^st Street in Cedar Falls, IA (2)	4,800	Owned
2711 Bever Ave SE, Cedar Rapids, IA (3)	2,200	Owned
191 Jacolyn Dr NW, Cedar Rapids, IA (3)	1,700	Owned
700 25th St, Marion, IA (3)	3,400	Owned


*CSB*
817 N Ankeny Boulevard, in Ankeny, IA	13,000	Owned
200 8th Street SE, in Altoona, IA	6,000	Owned
902 SE Oralabor Road, in Ankeny, IA	3,900	Owned
1640 SW White Birch Circle, in Ankeny, IA	15,700	Owned
3540 E 33rd Street, in Des Moines, IA	3,900	Owned
1401 E Euclid, in Des Moines, IA	4,500	Owned
6175 Merle Hay Road, in Johnston, IA	9,200	Owned
1025 N Hickory Boulevard, in Pleasant Hill, IA	4,500	Owned
4811 SE 14th Street, in Des Moines, IA	3,500	Owned
460 SE University Avenue, in Waukee, IA	6,000	Owned

*RB&T*
4571 Guilford Road in Rockford, IL	20,000	Owned
308 West State Street in Rockford, IL	1,100	Leased

m2
175 North Patrick Boulevard in Brookfield, WI	6,500	Leased

(1) This facility is utilized as a branch of QCBT in addition to housing the holding company.

~~(2)~~(2) Branches of Community Bank & Trust, a division of CRBT.

(3) Branches acquired in 2017 through the purchase of Guaranty Bank.

The subsidiary banks intend to limit their investment in premises to no more than 50% of their capital. Management believes that the facilities are of sound construction, in good operating condition, are appropriately insured, and are adequately equipped for carrying on the business of the Company.

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No individual real estate property amounts to 10% or more of consolidated assets.

Item 3.

Legal Proceedings

There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party other than ordinary routine litigation incidental to their respective businesses.

Item 4.Mine Safety Disclosures

~~Mine Safety Disclosures~~

Not applicable.

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Part II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information.The common stock, par value $1.00 per share, of the Company is listed on The ~~NASDAQ~~Nasdaq Global Market under the symbol “QCRH”. The stock began trading on ~~NASDAQ~~Nasdaq on October 6, 1993. The Company transferred its listing from the ~~NASDAQ~~Nasdaq Capital Market to the ~~NASDAQ~~Nasdaq Global Market on March 1, 2010. As of February 28, ~~2017,~~2018, there were ~~13,140,013~~13,931,628 shares of common stock outstanding held by ~~approximately 747~~741 holders of record. Additionally, there are an estimated ~~2,700~~3,548 beneficial holders whose stock was held in the street name by brokerage houses and other nominees as of that date. The following table sets forth the high and low sales prices of the common stock, as reported by ~~NASDAQ~~Nasdaq for the periods indicated.

	2016 Sales Price				2015 Sales Price				2014 Sales Price				2017 Sales Price				2016 Sales Price
	High		Low		High		Low		High		Low		High		Low		High		Low

First quarter	$	24.15	$	18.05	$	18.19	$	16.91	$	17.48	$	16.99	$	45.00	$	40.65	$	24.15	$	18.05
Second quarter		28.74		22.96		22.75		17.51		17.96		17.00		49.80		40.45		28.74		22.96
Third quarter		32.19		26.41		23.23		19.58		18.10		16.96		50.00		39.85		32.19		26.41
Fourth quarter		44.80		30.31		24.90		21.00		18.20		17.50		49.70		41.50		44.80		30.31

Dividends~~Dividends~~ on Common Stock.Dividends paid on common stock during the years ending December 31, ~~2016~~2017 and ~~2015~~2016 are as follows:

Declaration Date

Amount Declared

Per Share

Record Date

Total Amount

Paid to

Stockholders

(in thousands)

Date Paid

Amount Declared

Per Share

Record Date

Total Amount

Paid to

Stockholders

(in

thousands)

Date Paid

May 20, 2015

$0.04

June 19, 2015

$466

July 8, 2015

November 20, 2015

$0.04

December 18, 2015

$469

January 6, 2016

February 11, 2016

$0.04

March 18, 2016

$471

April 6, 2016

$0.04

March 18, 2016

$471

April 6, 2016

May 13, 2016

$0.04

June 17, 2016

$521

July 6, 2016

$0.04

June 17, 2016

$521

July 6, 2016

August 25, 2016

$0.04

September 16, 2016

$521

October 5, 2016

$0.04

September 16, 2016

$521

October 5, 2016

December 15, 2016

$0.04

December 23, 2016

$523

January 6, 2017

$0.04

December 23, 2016

$522

January 6, 2017

February 9, 2017

$0.05

March 17, 2017

$657

April 5, 2017

May 12, 2017

$0.05

June 16, 2017

$657

July 6, 2017

August 24, 2017

$0.05

September 15, 2017

$658

October 4, 2017

November 16, 2017

$0.05

December 15, 2017

$693

January 4, 2018

The Company is heavily dependent on dividend payments from its subsidiary banks to provide cash flow for the operations of the holding company and dividend payments on the Company’s common stock. Under applicable state laws, the banks are restricted as to the maximum amount of dividends that they may pay on their common stock. Iowa and Illinois law provide that state-chartered banks in those states may not pay dividends in excess of their undivided profits.

The ~~Company’s~~Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. See Appendix A for additional information regarding regulatory restrictions on the payment of dividends.

The Company also has certain contractual restrictions on its ability to pay dividends. The Company has issued junior subordinated debentures in private placements. Under the terms of the debentures, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. None of these circumstances existed through the date of filing of this Form 10-K. See Note 16 to the Consolidated Financial Statements for additional information regarding dividend restrictions.

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P~~Purchase~~urchase of Equity Securities by the Company.There were no purchases of common stock by the Company during the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014.~~2015.

Stockholder Return Performance Graph.The following graph indicates, for the period commencing December 31, ~~2011~~2012 and ending December 31, ~~2016,~~2017, a comparison of cumulative total returns for the Company, the ~~NASDAQ~~Nasdaq Composite Index, and the SNL Bank ~~NASDAQ~~Nasdaq Index prepared by SNL Financial, Charlottesville, Virginia. The graph was prepared at the Company’s request by SNL Financial. The information assumes that $100 was invested at the closing price on December 31, ~~2011~~2012 in the common stock of the Company and in each index, and that all dividends were reinvested.

	*Period Ending*												Period Ending
*Index*	12/31/11		12/31/12		12/31/13		12/31/14		12/31/15		12/31/16		12/31/12	12/31/13	12/31/14	12/31/15	12/31/16	12/31/17
QCR Holdings, Inc.		100.00		146.22		189.26		199.37		272.09		487.65	100.00	129.43	136.35	186.08	333.50	331.53
NASDAQ Composite		100.00		117.45		164.57		188.84		201.98		219.89
SNL Bank NASDAQ		100.00		119.19		171.31		177.42		191.53		265.56
Nasdaq Composite Index													100.00	140.12	160.78	171.97	187.22	242.71
SNL Bank Nasdaq Index													100.00	143.73	148.86	160.70	222.81	234.58

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Item 6. Selected Financial Data

~~Selected Financial Data~~

The following “Selected Financial Data” of the Company is derived in part from, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto. See Item 8. Financial Statements. Results for past periods are not necessarily indicative of results to be expected for any future period.

	Years Ended December 31,															Years Ended December 31,
	2016			2015			2014			2013			2012			2017			2016			2015			2014			2013
	(dollars in thousands, except per share data)															(dollars in thousands, except per share data)
STATEMENT OF INCOME DATA
Interest income	$	106,468		$	90,003		$	85,965		$	81,872		$	77,376		$	135,517		$	106,468		$	90,003		$	85,965		$	81,872
Interest expense		11,951			13,707			16,894			17,767			19,727			19,452			11,951			13,707			16,894			17,767
Net interest income		94,517			76,296			69,071			64,105			57,649			116,065			94,517			76,296			69,071			64,105
Provision for loan/lease losses		7,478			6,871			6,807			5,930			4,371			8,470			7,478			6,871			6,807			5,930
Non-interest income		31,037			24,364			21,282			26,846			18,953			30,482			31,037			24,364			21,282			26,846
Non-interest expense (1)		81,486			73,192			65,554			65,465			54,591			97,424			81,486			73,192			65,554			65,465
Income tax expense		8,903			3,669			3,039			4,618			4,534			4,946			8,903			3,669			3,039			4,618
Net income		27,687			16,928			14,953			14,938			13,106
Less: net income attributable to noncontrolling interests		-			-			-			-			488
Net income attributable to QCR Holdings, Inc.		27,687			16,928			14,953			14,938			12,618			35,707			27,687			16,928			14,953			14,938
Less: preferred stock dividends and discount accretion		-			-			1,082			3,168			3,496			-			-			-			1,082			3,168
Net income attributable to QCR Holdings, Inc. common stockholders		27,687			16,928			13,871			11,770			9,122			35,707			27,687			16,928			13,871			11,770

PER COMMON SHARE DATA

Net income - Basic (2)	$	2.20		$	1.64		$	1.75		$	2.13		$	1.88		$	2.68		$	2.20		$	1.64		$	1.75		$	2.13
Net income - Diluted (2)		2.17			1.61			1.72			2.08			1.85			2.61			2.17			1.61			1.72			2.08
Cash dividends declared		0.16			0.08			0.08			0.08			0.08			0.20			0.16			0.08			0.08			0.08
Dividend payout ratio		7.27	%		4.88	%		4.57	%		3.76	%		4.26	%		7.46	%		7.27	%		4.88	%		4.57	%		3.76	%
Closing stock price	$	43.30		$	24.29		$	17.86		$	17.03		$	13.22		$	42.85		$	43.30		$	24.29		$	17.86		$	17.03

BALANCE SHEET DATA

Total assets	$	3,301,944		$	2,593,198		$	2,524,958		$	2,394,953		$	2,093,730		$	3,982,665		$	3,301,944		$	2,593,198		$	2,524,958		$	2,394,953
Securities		574,022			577,109			651,539			697,210			602,239			652,382			574,022			577,109			651,539			697,210
Total loans/leases		2,405,487			1,798,023			1,630,003			1,460,280			1,287,388			2,964,485			2,405,487			1,798,023			1,630,003			1,460,280
Allowance		30,757			26,141			23,074			21,448			19,925			34,356			30,757			26,141			23,074			21,448
Deposits		2,669,261			1,880,666			1,679,668			1,646,991			1,374,114			3,266,655			2,669,261			1,880,666			1,679,668			1,646,991
Borrowings		290,952			444,162			662,558			563,381			547,758			309,480			290,952			444,162			662,558			563,381
Stockholders' equity:
Preferred		-			-			-			29,799			53,163			-			-			-			-			29,799
Common		286,041			225,886			144,079			117,778			87,271			353,287			286,041			225,886			144,079			117,778

KEY RATIOS

ROAA (3)		0.97	%		0.66	%		0.61	%		0.64	%		0.62	%		1.01	%		0.97	%		0.66	%		0.61	%		0.64	%
ROACE (2)		10.56			8.79			10.49			11.48			10.84			11.51			10.56			8.79			10.49			11.48
ROAE (3)		10.56			8.79			10.48			10.24			8.90			11.51			10.56			8.79			10.48			10.24
NIM, tax equivalent yield (Non-GAAP) (4) (6)		3.75			3.37			3.15			3.03			3.14			3.78			3.75			3.37			3.15			3.03
Efficiency ratio (Non-GAAP) (5) (6)		64.90			72.71			72.55			71.98			71.27			66.48			64.90			72.71			72.55			71.98
Loans/leases to assets		72.85			69.34			64.56			60.97			61.49			74.43			72.85			69.34			64.56			60.97
Loans/leases to deposits		90.12			95.61			97.04			88.66			93.69			90.75			90.12			95.61			97.04			88.66
NPAs to total assets		0.82			0.74			1.31			1.28			1.41			0.81			0.82			0.74			1.31			1.28
Allowance to total loans/leases		1.28			1.45			1.42			1.47			1.55			1.16			1.28			1.45			1.42			1.47
Allowance to NPLs		144.85			223.33			114.78			104.70			78.47			184.28			144.85			223.33			114.78			104.70
Net charge-offs to average loans/leases		0.14			0.22			0.34			0.31			0.27			0.19			0.14			0.22			0.34			0.31
Average total stockholders' equity to average total assets		9.21			7.55			5.82			6.26			7.00			8.81			9.21			7.55			5.82			6.26

(1)

Non-interest expense includes several one-time expenses - most notably, $5.4 million and $2.4 million of acquisition and post-acquisition compensation, transition and integration costs for 2017 and 2016, respectively. See Note 2 to the Consolidated Financial Statements for additional information regarding the acquisition of Guaranty Bank and CSB. Additionally, 2016 and 2015, respectively, included $4.6 million and $7.2 million of losses on debt extinguishment ~~for 2016 and~~ ~~2015, respectively,~~ related to the prepayment of certain borrowings further described in Notes 10 and 11 to the Consolidated Financial Statements. Acquisition costs of $2.4 million are also included in the 2016 amount. See Note 2 to the Consolidated Financial Statements for additional informationregarding the acquisition of CSB.borrowings.

(2)

Numerator is net income attributable to QCR Holdings, Inc. common stockholders

(3)

Numerator is net income attributable to QCR Holdings, Inc.

(4)

Interest earned and yields on nontaxable investments and nontaxable loans are determined on a tax equivalent basis using a 35% tax rate

(5)

Non-interest expenses divided by the sum of net interest income before provision for loan/lease losses and non-interest income

(6)

See GAAP to Non-GAAP reconciliations.

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~~Item 7.~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides additional information regarding our operations for the years ending December 31, ~~2016, 2015,~~ 2017, 2016, and ~~2014,~~2015, and our financial condition atat December 31, ~~2016~~2017 and ~~2015.~~2016. This discussion should be read in conjunction with “Selected Financial Data” and our consolidated financial statements and the accompanying notes thereto included or incorporated by reference elsewhere in this document.

Additionally, a comprehensive list of the acronyms and abbreviations used throughout this discussion is included in Note 1 to the Consolidated Financial Statements.

GENERAL

The Company was formed in February 1993 for the purpose of organizing ~~QCBT.~~QCBT. Over the past ~~twenty-three~~twenty-four years, the Company has grown to include three additional banking subsidiaries ~~(including the 2016 acquisition of CSB)~~ and a number of nonbanking subsidiaries. As of December 31, ~~2016,~~2017, the Company had ~~$3.30~~$4.0 billion in consolidated assets, including ~~$2.41~~$3.0 billion in total loans/leases and ~~$2.67~~$3.3 billion in deposits.

~~EXECUTIVE OVERVIEW~~ The financial results of both Guaranty Bank and CSB for the periods since acquisition are included in this report.

EXECUTIVE OVERVIEW

The Company reported net income of $35.7 million for the year ended December 31, 2017, and diluted EPS of $2.61. For the same period in 2016, the Company reported net income of $27.7 million, ~~for the year ended December 31, 2016,~~ and diluted EPS of $2.17. ~~For the same period in~~By comparison, for 2015, the Company reported net income of $16.9 million, and diluted EPS of $1.61. ~~By comparison, for 2014, the Company reported net income of $15.0 million, and diluted EPS of $1.72, after preferred stock dividends of $1.1 million.~~

The year ended December 31, ~~2016~~2017 was highlighted by several significant items:

●

The successful acquisition of ~~CSB and the related common stock offering~~Guaranty Bank (described in Note 2 to the Consolidated Financial Statements);

●

Net interest income improvement ~~Several balance sheet restructurings (described in Notes 10 and 11~~of 23%, when comparing 2017 to ~~the Consolidated Financial Statements);~~2016;

●

~~NIM improvement~~Organic deposit growth of ~~38 basis points, year-over-year, primarily attributable to~~14.4% for the ~~acquisition~~year;

●

Organic loan and lease growth of ~~CSB and balance sheet restructurings;~~15.2% for the year;

●

~~Loan and lease~~Solid wealth management revenue growth of ~~10.5% for the year;~~21%; and

●

Strong gains on the sale of government guaranteed portions of loans and swap fee income totaling ~~$4.9~~$4.3 million for the year.

Following is a table that represents the various net income measurements for ~~the~~the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014.~~2015.

	Year Ended December 31,						Year Ended December 31,
	2016		2015		2014		2017		2016		2015

Net income	$	27,686,787	$	16,927,881	$	14,952,537
Less: Preferred stock dividends and discount accretion		-		-		1,081,877
Net income attributable to QCR Holdings, Inc. common stockholders	$	27,686,787	$	16,927,881	$	13,870,660	$	35,706,507	$	27,686,787	$	16,927,881

Diluted EPS	$	2.17	$	1.61	$	1.72	$	2.61	$	2.17	$	1.61

Weighted average common and common equivalent shares outstanding*		12,766,003		10,499,841		8,048,661		13,680,472		12,766,003		10,499,841

*The 2017 and 2016 increase in the weighted average common and common equivalent shares outstanding was primarily due to the common stock ~~issuance~~issued in connection with the acquisitions of CSB and Guaranty Bank discussed in Note 2 to the Consolidated Financial Statements. ~~The 2015 increase was primarily due to the common stock issuance discussed in Note 16 to the Consolidated Financial Statements.~~

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~~The~~The Company reported core net income (non-GAAP) of ~~$29.4~~$36.3 million, with diluted core EPS of ~~$2.31.~~$2.66. See section titled “GAAP to Non-GAAP Reconciliations” for additional information. Core net income for the year excludes a number of non-recurring items, most significantly ~~$1.8~~$3.5 million of after-tax acquisition and post-acquisition related costs. See Note 13 to the Consolidated Financial Statements for additional information regarding the impact of Tax Act on deferred tax assets and income tax expense.

Following is a table that represents the major income and expense categories.

	Year Ended December 31,						Year Ended December 31,
	2016		2015		2014		2017		2016		2015

Net interest income	$	94,516,777	$	76,296,724	$	69,071,128	$	116,065,281	$	94,516,777	$	76,296,724
Provision for loan/lease losses		7,478,166		6,870,900		6,807,000		8,469,919		7,478,166		6,870,900
Noninterest income		31,036,875		24,363,321		21,281,279		30,482,292		31,036,875		24,363,321
Noninterest expense		81,485,912		73,192,022		65,553,900		97,424,697		81,485,912		73,192,022
Federal and state income tax		8,902,787		3,669,242		3,038,970		4,946,450		8,902,787		3,669,242
Net income	$	27,686,787	$	16,927,881	$	14,952,537	$	35,706,507	$	27,686,787	$	16,927,881

~~The~~

The following are some noteworthy developments in the Company’s financial results:

●

Net interest income grew $21.5 million, or 23% in 2017, compared to the prior year. Net interest income for 2016 grew $18.2 million, or 24% ~~in 2016, compared to the prior year. Of this increase, $10.0 million was attributable to the acquisition of CSB in the third quarter. Net interest income for 2015 grew $7.2 million, or 10%~~, compared to ~~2014.~~2015.

●

Provision ~~Provision~~increased $992 thousand when comparing 2017 to 2016, while provision increased $607 thousand ~~from the prior year, while holding relatively flat~~ when comparing ~~2015~~2016 to ~~2014. The increase in 2016 was attributable to the addition of CSB.~~2015.

●

Noninterest income decreased $555 thousand, or 2%, when compared to the prior year. Noninterest income increased $6.7 million, or 27% ~~in 2016, compared to the prior year.~~

~~Gains on the sale of government guaranteed portion of loans and swap fee income increased $1.8 million in 2016, compared to the prior year.~~

~~Securities gains increased $3.8 million in 2016, compared to the prior year. Most of this was related to the sale of an equity security described in Note 3 to the Consolidated Financial Statements.~~

~~CSB contributed $1.6 million of noninterest income in the period since acquisition.~~

●

~~Noninterest income increased $3.1 million, or 14%~~, when comparing 2016 to 2015, primarily due to ~~2014.~~

●

~~Noninterest expense increased $8.3~~$4.6 million ~~or 11% in 2016, compared to the prior year.~~

~~Acquisition costs totaled $2.4 million~~of gains on sale of securities associated with a balance sheet restructuring strategy executed in 2016.

o●

~~The net cost of operations of other real estate~~Noninterest expense increased ~~$1.7~~$15.9 million, or 20% in ~~2016. The~~2017, compared to the prior year ~~included a large gain on the sale of an OREO property.~~including certain costs related to our recent acquisitions, including:

o○

Acquisition ~~CSB contributed $6.3~~and post-acquisition compensation, transition and integration costs totaled $5.4 million and $2.4 million in 2017 and 2016, respectively. The increase primarily was due to legal and accounting costs with the acquisition of ~~noninterest expense in~~Guaranty Bank and IT integration and conversion costs associated with the ~~period since acquisition.~~acquisition of Guaranty Bank and CSB.

●○

Professional and data processing fees increased $3.6 million in 2017, primarily due to the acquisitions of Guaranty Bank and CSB and increased legal fees.

○

Salaries and benefits increased $9.4 million with the addition of personnel with the Guaranty Bank and CSB acquisitions.

●

Noninterest expense increased ~~$7.6~~$8.3 million, when comparing ~~2015~~2016 to ~~2014.~~2015. Included in ~~2015~~2016 noninterest expense was ~~$7.2~~$4.6 million of losses on debt extinguishment, ~~net.~~net, as well as $2.4 million of acquisition and post-acquisition related costs

LONG-TERM FINANCIAL GOALS

~~The~~The Company has established certain financial goals by which it manages its business and measures its performance. The goals are periodically updated to reflect business developments. While the Company is determined to work prudently to achieve these goals, there is no assurance that they will be met. Moreover, the Company’s ability to achieve these goals will be affected by the factors discussed under “Forward Looking Statements” as well as the factors detailed in the “Risk Factors” section included under Item 1A. of Part I of this Form 10-K. The Company’s long-term financial goals are as follows:

●

Improve balance sheet efficiency by maintaining a gross loans and leases to total assets ratio in the range of 70 73 – ~~75%~~78%;

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●

Improve profitability (measured by NIM and ROAA);

●

Improve ~~profitability (measured by NIM and ROAA);~~

●

~~Continue to improve~~ asset quality by reducing NPAs to total assets to ~~less than~~below 0.75% and maintain ~~net~~ charge-offs as a percentage of average loans/leases of under 0.25% annually;

●

~~Reduce~~Maintain reliance on wholesale funding toat less than 15% of total assets;

●

Grow noninterest bearing deposits to more than 30% of total assets;

●

~~Increase the m2 commercial loan and lease portfolio~~Continue to ~~$250 million;~~

●

~~Generate~~focus on generating gains on sales of government guaranteed portions of loans and swap fee income ofto more than ~~$4.0~~$4 million annually; and

●

Grow wealth management ~~fee~~segment net income by 10% annually.

The following table shows the evaluation of the ~~Company’s~~Company’s long-term financial goals.

							For the Year Ending
			For the Year Ending
			December 31, 2016	December 31, 2015			December 31, 2017	December 31, 2016
Goal	Key Metric (1)	Target (2)	(dollars in thousands)		Key Metric (1)	Target (2)	(dollars in thousands)
Balance sheet efficiency	Gross loans and leases to total assets	70% - 75%	73%	69%	Gross loans and leases to total assets	73% - 78%	74%	73%
	NIM TEY (non-GAAP)	> 3.75%	3.75%	3.37%	NIM TEY (non-GAAP)	> 3.85%	3.78%	3.75%
Profitability	ROAA	> 1.10%	0.97%	0.66%	ROAA	> 1.10%	1.01%	0.97%
	Core ROAA (non-GAAP)	> 1.10%	1.03%	0.82%	Core ROAA (non-GAAP)	> 1.10%	1.03%	1.03%
	NPAs to total assets	< 0.75%	0.82%	0.74%
Asset quality					NPAs to total assets	< 0.75%	0.81%	0.82%
Asset quality	Net charge-offs to average loans/leases	< 0.25% annually	0.14%	0.22%	Net charge-offs to average loans/leases	< 0.25% annually	0.19%	0.14%
Lower reliance on wholesale funding	Wholesale funding to total assets	< 15%	11%	20%	Wholesale funding to total assets	< 15%	10%	11%
Funding mix	Noninterest bearing deposits as a percentage of total assets	> 30%	24%	24%	Noninterest bearing deposits as a percentage of total assets	> 30%	20%	24%
m2 commercial loans and leases	Total loans and leases	$250 million	$211 million	$201 million
Consistent, high quality noninterest income revenue streams	Gains on sales of government guaranteed portions of loans and swap fee income	> $4 million annually	$4.9 million	$3.0 million	Gains on sales of government guaranteed portions of loans and swap fee income	> $4 million annually	$4.3 million	$4.9 million
Consistent, high quality noninterest income revenue streams	Grow wealth management fee income	> 10% annually	1%	7%	Grow wealth management segment net income	> 10% annually	35%	1%

(1)	Non-GAAP calculations are provided, when applicable. Refer to GAAP to non-GAAP reconciliation table for details.

(2)	Targets will be re-evaluated and adjusted as appropriate.

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STRATEGIC DEVELOPMENTS

The Company took the following actions to support our corporate strategy and the long-term financial goals shown above.

●

Organic ~~loan~~loan and lease growth for the year was ~~10.5%~~15.2%. This ~~was within~~exceeded the Company’s target organic growth rate of 10-12%. A portion of this growth was in the C&I category. As of December 31, ~~2016,~~2017, this segment of the portfolio accounted for ~~34%~~38% of total loans and leases. The Company has also grown CRE loans, with that segment now representing ~~46%~~44% of the portfolio as of December 31, ~~2016.~~2017. The strong organic loan and lease growth has continued to help move the loan and lease to total asset ratio upward to ~~73%~~74%, from ~~69%~~73% in the prior year and ~~65%~~69% two years ago. The Company has reached the targeted loan and lease to total asset ratio in the range of ~~70%~~73% - ~~75%~~78%. Going forward, the Company will strive to maintain the ratio in this range.

●

The Company intends to continue to participate in a prudent manner as an acquirer in the consolidation taking place in our markets to further boost ROAA and improve the Company’s efficiency ratio. In the ~~third~~fourth quarter of ~~2016,~~2017, the Company acquired ~~CSB,~~Guaranty Bank, headquartered in ~~Ankeny,~~Cedar Rapids, Iowa. See Note 2 of the Consolidated Financial Statements for additional details.

●

The Company ~~continued~~continues to focus on reducing the NPAs to total assets ratio. The ratio of NPAs to total assets ~~increased~~decreased slightly from ~~0.74% at December 31, 2015 to~~ 0.82% at December 31, 2016 ~~due~~ to the addition of two large credits in the fourth quarter of 2016. The Company is not anticipating significant losses related to these two credits. The Company also believes that these issues were isolated and not reflective of the overall portfolio.0.81% at December 31, 2017. The Company remains committed to improving asset quality ~~ratios~~ in ~~2017.~~2018.

●

Management ~~continued~~continues to focus on reducing the Company’s reliance on wholesale funding. The restructuring executed in 2016 (as described in Notes 10 and 11 of the Consolidated Financial Statements) further reduced the Company’s reliance on long-term wholesale funding. These prepayments, along with the addition of CSB and Guaranty Bank, which ~~has a~~have very strong core funding ~~base~~bases with minimal wholesale borrowings, assisted in lowering the Company’s reliance on wholesale funding as a percentage of assets down to ~~11%~~10% as of December 31, ~~2016.~~2017. Management will focus on growing core deposits as a means for funding loan and lease growth and maintaining a reliance on wholesale funding at less than 15% of total assets.

●

Correspondent banking continues to be a core line of business for the Company. The Company is competitively positioned with experienced staff, software systems and processes to continue growing in the three states currently served – Iowa, Illinois and Wisconsin. The Company acts as the correspondent bank for ~~181~~187 downstream banks with ~~average~~ total noninterest bearing deposits of ~~$353.9~~$260.9 million ~~during the fourth quarter~~and total interest bearing deposits of ~~2016.~~$236.5 million as of December 31, 2017. This line of business provides a strong source of noninterest bearing and interest bearing deposits, fee income, high-quality loan participations and bank stock loans.

●

The Company provides commercial leasing services through its wholly-owned subsidiary, m2 Lease Funds, which has lease specialists in Iowa, Wisconsin, Minnesota, North Carolina, South Carolina, Florida, California, Colorado, Texas, Massachusetts, and Pennsylvania. Historically, this portfolio has been high yielding, with an average gross yield in 2016 approximating 7.8%.

●

SBA and USDA lending is a specialty lending area on which the Company has focused. Once these loans are originated, the government-guaranteed portion of the loan can be sold to the secondary market for premiums. The Company ~~intends~~aims to continue to make this a more consistent source of noninterest income.

●

As a result of the historically low interest rate environment, the Company is focused on executing interest rate swaps on select commercial loans. The interest rate swaps allow the commercial borrowers to pay a fixed interest rate while the Company receives a variable interest rate as well as an upfront fee dependent on the pricing. Management believes that these swaps help position the Company more favorably for rising rate environments. The Company will continue to review opportunities to execute these swaps at all of its subsidiary banks, as the circumstances are appropriate for the borrower and the Company.

●

Wealth management is another core line of business for the Company and includes a full range of products, including trust services, brokerage and investment advisory services, asset management, estate planning and financial planning. As of December 31, ~~2016~~2017 the Company had ~~$1.9~~$2.6 billion of total financial assets in trust (and related) accounts and ~~$889~~$971 million of total financial assets in brokerage (and related) accounts. Continued growth in assets under management will help to drive trust and investment advisory fees. The Company offers trust and investment advisory services to the correspondent banks that it serves. As management focuses on growing fee income, expanding market share will continue to be a primary strategy.

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GAAP TO NON-GAAP RECONCILIATIONS

The following table presents certain non-GAAP financial measures related to the ~~“TCE/~~“TCE/TA ratio”, “core net income”, “core net income attributable to QCR Holdings, Inc. common stockholders”, “core EPS”, “core ROAA”, “NIM (TEY)”, and “efficiency ~~ratio” and “Texas~~ ratio”. In compliance with applicable rules of the SEC, all non-GAAP measures are reconciled to the most directly comparable GAAP measure, as follows:

●

TCE/TA ratio (non-GAAP) is reconciled to stockholders’ equity and total assets

●

Core net income, core net income attributable to QCR Holdings, Inc. common stockholders, core EPS and core ROAA (all non-GAAP measures) are reconciled to net income

●

NIM~~NIM~~ (TEY) (non-GAAP) is reconciled to NIM

●

Efficiency ratio (non-GAAP) is reconciled to noninterest expense, net interest income and noninterest income

●

~~Texas ratio (non-GAAP) is reconciled to nonperforming loans and stockholders’ equity~~

The TCE/TA non-GAAP ratio has been a focus for investors and management believes that this ratio may assist investors in analyzing the Company’s capital position without regard to the effects of intangible assets.

The table below also includes several “core” non-GAAP measurements of financial performance. The Company's management believes that these measures are important to investors as they exclude non-recurring income and expense items; therefore, they provide a better comparison for analysis and may provide a better indicator of future ~~run-rates.~~results.

NIM (TEY) is a financial measure that the Company’s management utilizes to take into account the tax benefit associated with certain loans and securities. It is standard industry practice to measure net interest margin using tax-equivalent measures.

The efficiency ratio ~~and Texas~~is a ratio ~~are both ratios~~ that management utilizes to compare the Company to peers. Both are also standard in the banking industry and widely utilized by investors.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

	As of
	December 31,			December 31,
GAAP TO NON-GAAP RECONCILIATIONS	2017			2016
	(dollars in thousands, except per share data)
TCE/TA RATIO

Stockholders' equity (GAAP)	$	353,287		$	286,041
Less: Intangible assets		37,413			22,522
TCE (non-GAAP)	$	315,874		$	263,519

Total assets (GAAP)	$	3,982,665		$	3,301,944
Less: Intangible assets		37,413			22,522
TA (non-GAAP)	$	3,945,252		$	3,279,422

TCE/TA ratio (non-GAAP)		8.01	%		8.04	%

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	As of
	December 31,			December 31,
GAAP TO NON-GAAP RECONCILIATIONS	2016			2015
	(dollars in thousands, except per share data)
TCE/TA RATIO
Stockholders' equity (GAAP)	$	286,041		$	225,886
Less: Intangible assets		22,522			4,694
TCE (non-GAAP)	$	263,519		$	221,192

Total assets (GAAP)	$	3,301,944		$	2,593,198
Less: Intangible assets		22,522			4,694
TA (non-GAAP)	$	3,279,422		$	2,588,504

TCE/TA ratio (non-GAAP)		8.04	%		8.55	%

	For the Year Ended									For the Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
CORE NET INCOME	2016			2015			2014			2017			2016			2015

Net income (GAAP)	$	27,687		$	16,928		$	14,953		$	35,707		$	27,687		$	16,928

Less nonrecurring items (post-tax) (*):
Income:
Securities gains	$	2,985		$	519		$	60		$	(57	)	$	2,985		$	519
Lawsuit award		-			252			-			-			-			252
Total nonrecurring income (non-GAAP)	$	2,985		$	771		$	60
Total nonrecurring income (loss) (non-GAAP)										$	(57	)	$	2,985		$	771

Expense:
Losses on debt extinguishment	$	2,975		$	4,671		$	-		$	-		$	2,975		$	4,671
Acquisition costs		1,763			-			-			695			1,086			-
Post-acquisition compensation, transition and integration costs											2,802			677			-
Accrual adjustments		-			(487	)		-			-			-			(487	)
Other non-recurring expenses		-			513			-			-			-			513
Total nonrecurring expense (non-GAAP)	$	4,738		$	4,697		$	-		$	3,497		$	4,738		$	4,697

Core net income (non-GAAP)	$	29,440		$	20,854		$	14,893
Less: Preferred stock dividends		-			-			1,082
Adjustment of tax expense related to the Tax Act										$	2,919		$	-		$	-

Core net income attributable to QCR Holdings, Inc. common stockholders (non-GAAP)	$	29,440		$	20,854		$	13,811		$	36,342		$	29,440		$	20,854

CORE EARNINGS PER COMMON SHARE

Core net income attributable to QCR Holdings, Inc. common stockholders (non-GAAP) (from above)	$	29,440		$	20,854		$	13,811		$	36,342		$	29,440		$	20,854

Weighted average common shares outstanding		12,570,767			10,345,286			7,925,220			13,325,128			12,570,767			10,345,286
Weighted average common and common equivalent shares outstanding		12,766,003			10,499,841			8,048,661			13,680,472			12,766,003			10,499,841

Core EPS (non-GAAP):
Basic	$	2.34		$	2.02		$	1.74		$	2.73		$	2.34		$	2.02
Diluted	$	2.31		$	1.99		$	1.72		$	2.66		$	2.31		$	1.99

CORE ROAA

Core net income (non-GAAP) (from above)	$	29,440		$	20,854		$	14,893		$	36,342		$	29,440		$	20,854

Average Assets	$	2,846,699		$	2,549,921		$	2,453,678		$	3,519,848		$	2,846,699		$	2,549,921

Core ROAA (non-GAAP)		1.03	%		0.82	%		0.61	%		1.03	%		1.03	%		0.82	%

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	For the Year Ended									For the Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
GAAP TO NON-GAAP RECONCILIATIONS (CONTINUED)	2016			2015			2014			2017			2016			2015
	(dollars in thousands)									(dollars in thousands)
NIM (TEY)

Net interest income (GAAP)	$	94,517		$	76,296		$	69,071		$	116,065		$	94,517		$	76,296

Plus: Tax equivalent adjustment		6,021			4,881			3,977			9,215			6,021			4,881

Net interest income - tax equivalent (Non-GAAP)	$	100,538		$	81,177		$	73,048		$	125,280		$	100,538		$	81,177

Average earning assets	$	2,678,359		$	2,406,213		$	2,319,441		$	3,314,836		$	2,678,359		$	2,406,213

NIM (GAAP)		3.53	%		3.17	%		2.98	%		3.50	%		3.53	%		3.17	%
NIM (TEY) (Non-GAAP)		3.75	%		3.37	%		3.15	%		3.78	%		3.75	%		3.37	%

EFFICIENCY RATIO

Noninterest expense (GAAP)	$	81,486		$	73,192		$	65,554		$	97,424		$	81,486		$	73,192

Net interest income (GAAP)	$	94,517		$	76,296		$	69,071		$	116,065		$	94,517		$	76,296
Noninterest income (GAAP)		31,037			24,363			21,281			30,482			31,037			24,363
Total income	$	125,554		$	100,659		$	90,352		$	146,547		$	125,554		$	100,659

Efficiency ratio (noninterest expense/total income) (Non-GAAP)		64.90	%		72.71	%		72.55	%		66.48	%		64.90	%		72.71	%

TEXAS RATIO

Nonaccrual loans/leases	$	13,919		$	10,648		$	18,588
Accruing loans/leases past due 90 days or more		967			3			93
TDRs - accruing		6,347			1,054			1,421
OREO		5,523			7,151			12,768
NPLs (excluding other repossessed assets)	$	26,756		$	18,856		$	32,870

Total stockholders' equity (GAAP)	$	286,041		$	225,886		$	144,079

Less: Intangible assets		22,522			4,694			4,894

Plus: Allowance (GAAP)		30,757			26,141			23,074

Tangible equity plus allowance	$	294,276		$	247,333		$	162,259

Texas Ratio (Non-GAAP)		9.09	%		7.62	%		20.26	%

*Nonrecurring items (after-tax) are calculated using an estimated effective tax rate of 35%.

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NET INTEREST INCOME AND MARGIN (TAX EQUIVALENT BASIS) (Non-GAAP)

Net interest income, on a tax equivalent basis, grew ~~$19.4~~$24.7 million, or ~~24%~~25%, in ~~2016.~~2017. Net interest income improved due to several factors:

●

The acquisition of CSB, whose strong net interest margin has significantly contributed to the Company’s results;

●

Organic loan and lease growth was strong throughout the year. Average gross loans/leases grew 28% in 2017 (including the acquisition of Guaranty Bank); and

●

The Company’s strategy to grow the Company’s portfolio of tax exempt municipal securities. This has contributed to the 24 basis point increase in the investment securities yield in 2017.

A comparison of yields, spreads and margins from 2016 to 2017 shows the following (on a tax equivalent basis):

●

The average yield on interest-earning assets increased 17 basis points from 4.20% to 4.37%.

●

The average cost of interest-bearing liabilities increased 16 basis points from 0.65% to 0.81%.

●

The net interest spread improved 1 basis point from 3.55% to 3.56%.

●

The NIM improved 3 basis points from 3.75% to 3.78%.

Net interest income, on a tax equivalent basis, grew $19.4 million, or 24%, in 2016 compared to 2015. Net interest income improved due to several factors:

●

The acquisition of CSB resulted in an additional $10.2 million for the period ~~since acquisition;~~ending December 31, 2016;

●

The ~~Company’s~~Company’s strategy to redeploy funds from the taxable securities portfolio into higher yielding loans and leases;

●

Organic loan and lease growth was strong throughout the year. Average gross loans/leases grew 19.6% in 2016 (including the acquisition of CSB); and

●

Continued balance sheet restructuring, as further described in Notes 10 and 11 to the Consolidated Financial Statements.

A comparison of yields, spreads and margins from 2015 to 2016 shows the following (on a tax equivalent basis):

●

The average yield on ~~interest-earning~~interest-earning assets increased 26 basis points from 3.94% to 4.20%.

●

The average cost of interest-bearing liabilities decreased 16 basis points from 0.81% to 0.65%.

●

The net interest spread improved 42 basis points from 3.13% to 3.55%.

●

The NIM improved 38 basis points from 3.37% to 3.75%.

~~Net interest income, on a tax equivalent basis, grew $8.1 million, or 11%, in 2015 compared to 2014. Net interest income improved due to several factors:~~

●

~~The Company’s strategy to redeploy funds from the taxable securities portfolio into higher yielding loans and leases;~~

●

~~Organic loan and lease growth was strong throughout the year. Average gross loans/leases grew 10.9% in 2015; and~~

●

~~The Company’s balance sheet restructuring and deleveraging strategy that was executed in the second quarter of 2015. Refer to Notes 10 and 11 to the Consolidated Financial Statements.~~

~~A comparison of yields, spreads and margins from 2014 to 2015 shows the following (on a tax equivalent basis):~~

●

~~The average yield on interest-earning assets increased 6 basis points from 3.88% to 3.94%.~~

●

~~The average cost of interest-bearing liabilities decreased 18 basis points from 0.99% to 0.81%.~~

●

~~The net interest spread improved 24 basis points from 2.89% to 3.13%.~~

●

~~The NIM improved 22 basis points from 3.15% to 3.37%.~~

The ~~Company’s~~Company’s management closely monitors and manages NIM. From a profitability standpoint, an important challenge for the Company’s subsidiary banks and leasing company is the improvement of their net interest margins. Management continually addresses this issue with pricing and other balance sheet management strategies.

The improvement in ~~margin~~NIM in 2017 and 2016 was partially the result of the acquisition of CSB. CSB’s margin will fluctuate based on the amortization and accretion of purchase accounting adjustments, most notably the discount on the acquired loan portfolio. This benefit can fluctuate based on prepayments of both PCI and performing loans. As loans prepay, the associated discount/premium is accelerated.

~~The~~The Company continues to place an emphasis on shifting its balance sheet mix. With a stated goal of maintaining loans/leases as a percentage of assets in a range of ~~70%-75%~~73%-78%, the Company funded its loan/lease growth with a mixture of core deposits and cash from the investment securities portfolio. Cash from called securities and the targeted sales of securities was redeployed into the loan portfolio, resulting in a significant increase in yield, while minimizing any extension of duration. Additionally, the Company recognized net gains on these sales due to the ~~previousrate~~previous rate environment. As rates rise, the Company should also have less market volatility in the investment securities portfolio, as this becomes a smaller portion of the balance sheet.

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~~The~~ There still exists some higher cost legacy borrowings and the Company continues to monitor and evaluate both prepayment and debt restructuring opportunities ~~within the wholesale funding portion of the balance sheet,~~ as executing on such a strategy could potentially increase NIM at a much quicker pace than holding the debt until maturity.

The ~~Company’s~~Company’s average balances, interest income/expense, and rates earned/paid on major balance sheet categories are presented in the following table:

	Years Ended December 31,
	2016								2015								2014								Years Ended December 31,
				Interest		Average						Interest		Average						Interest		Average			2017								2016								2015
	Average			Earned		Yield or			Average			Earned		Yield or			Average			Earned		Yield or						Interest		Average						Interest		Average						Interest		Average
	Balance			or Paid		Cost			Balance			or Paid		Cost			Balance			or Paid		Cost			Average			Earned		Yield or			Average			Earned		Yield or			Average			Earned		Yield or
																									Balance			or Paid		Cost			Balance			or Paid		Cost			Balance			or Paid		Cost
	(dollars in thousands)																								(dollars in thousands)
ASSETS
Interest earning assets:
Federal funds sold	$	15,142		$	45		0.30	%	$	17,418		$	25		0.14	%	$	17,263		$	21		0.12	%	$	17,577		$	149		0.85	%	$	15,142		$	45		0.30	%	$	17,418		$	25		0.14	%
Interest-bearing deposits at financial institutions		70,757			393		0.56			66,897			304		0.45			56,620			299		0.53			78,842			874		1.11			70,757			393		0.56			66,897			304		0.45
Investment securities (1)		535,912			19,054		3.56			599,648			18,380		3.07			688,827			18,679		2.71			590,761			22,460		3.80			535,912			19,054		3.56			599,648			18,380		3.07
Restricted investment securities		13,993			522		3.73			14,727			504		3.42			16,349			529		3.24			15,768			631		4.00			13,993			522		3.73			14,727			504		3.42
Gross loans/leases receivable (1) (2) (3)		2,042,555			92,475		4.53			1,707,523			75,671		4.43			1,540,382			70,414		4.57			2,611,888			120,618		4.62			2,042,555			92,475		4.53			1,707,523			75,671		4.43
Total interest earning assets	$	2,678,359			112,489		4.20		$	2,406,213			94,884		3.94		$	2,319,441			89,942		3.88		$	3,314,836			144,732		4.37		$	2,678,359			112,489		4.20		$	2,406,213			94,884		3.94

Noninterest-earning assets:
Cash and due from banks	$	53,650							$	45,178							$	44,905							$	67,559							$	53,650							$	45,178
Premises and equipment, net		44,773								38,162								36,372								62,719								44,773								38,162
Less allowance for estimated losses on loans/leases		(28,686	)							(25,027	)							(22,726	)							(33,193	)							(28,686	)							(25,027	)
Other		98,603								85,395								75,686								107,927								98,603								85,395
Total assets	$	2,846,699							$	2,549,921							$	2,453,678							$	3,519,848							$	2,846,699							$	2,549,921

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,092,687			3,843		0.35	%	$	821,043			1,836		0.22	%	$	741,061			1,832		0.25	%	$	1,622,723			7,992		0.49	%	$	1,092,687			3,843		0.35	%	$	821,043			1,836		0.22	%
Time deposits		436,070			2,175		0.50			388,691			2,660		0.68			392,167			2,677		0.68			528,834			5,020		0.95			436,070			2,175		0.50			388,691			2,660		0.68
Short-term borrowings		50,899			94		0.18			151,141			210		0.14			162,732			234		0.14			22,596			114		0.50			50,899			94		0.18			151,141			210		0.14
Federal Home Loan Bank advances		114,797			1,284		1.12			154,268			3,511		2.28			218,704			6,026		2.76			120,206			1,981		1.65			114,797			1,284		1.12			154,268			3,511		2.28
Other borrowings		98,105			3,318		3.38			126,902			4,234		3.34			147,091			4,891		3.33			73,394			2,879		3.92			98,105			3,318		3.38			126,902			4,234		3.34
Junior subordinated debentures		33,735			1,237		3.67			40,364			1,256		3.11			40,356			1,234		3.06			34,030			1,466		4.31			33,735			1,237		3.67			40,364			1,256		3.11
Total interest-bearing liabilities	$	1,826,293			11,951		0.65		$	1,682,409			13,707		0.81		$	1,702,111			16,894		0.99		$	2,401,783			19,452		0.81		$	1,826,293			11,951		0.65		$	1,682,409			13,707		0.81

Noninterest-bearing demand deposits	$	714,867							$	641,848							$	575,549							$	765,019							$	714,867							$	641,848
Other noninterest-bearing liabilities		43,464								33,175								33,284								42,836								43,464								33,175
Total liabilities	$	2,584,624							$	2,357,432							$	2,310,944							$	3,209,638							$	2,584,624							$	2,357,432

Stockholders' equity		262,075								192,489								142,734								310,210								262,075								192,489
Total liabilities and stockholders' equity	$	2,846,699							$	2,549,921							$	2,453,678							$	3,519,848							$	2,846,699							$	2,549,921

Net interest income				$	100,538							$	81,177							$	73,048							$	125,280							$	100,538							$	81,177
Net interest spread							3.55	%							3.13	%							2.89	%							3.56	%							3.55	%							3.13	%
Net interest margin							3.53	%							3.17	%							2.98	%							3.50	%							3.53	%							3.17	%
Net interest margin (TEY)(Non-GAAP)							3.75	%							3.37	%							3.15	%							3.78	%							3.75	%							3.37	%
Ratio of average interest earning assets toaverage interest-bearing liabilities		146.66	%							143.02	%							136.27	%
Ratio of average interest earning assets to average interest-bearing liabilities																										138.02	%							146.66	%							143.02	%

(1) Interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 35% tax rate in each year presented.

(2) Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance.

(3) Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance.

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The ~~Company’s~~Company’s components of change in net interest income are presented in the following table:

	For the years ended December 31, 2016, 2015 and 2014																		For the years ended December 31, 2017, 2016 and 2015

	Inc./(Dec.)			Components						Inc./(Dec.)			Components						Inc./(Dec.)			Components						Inc./(Dec.)			Components
	from			of Change (1)						from			of Change (1)						from			of Change (1)						from			of Change (1)
	Prior Year			Rate			Volume			Prior Year			Rate			Volume			Prior Year			Rate			Volume			Prior Year			Rate			Volume
	2016 vs. 2015									2015 vs. 2014									2017 vs. 2016									2016 vs. 2015
	(dollars in thousands)									(dollars in thousands)									(dollars in thousands)									(dollars in thousands)
INTEREST INCOME
Federal funds sold	$	20		$	23		$	(3	)	$	4		$	4		$	-		$	104		$	96		$	8		$	20		$	23		$	(3	)
Interest-bearing deposits at other financial institutions		89			70			19			5			(45	)		50			481			431			50			89			70			19
Investment securities (2)		674			2,753			(2,079	)		(299	)		2,276			(2,575	)		3,406			1,376			2,030			674			2,753			(2,079	)
Restricted investment securities		18			44			(26	)		(25	)		30			(55	)		109			40			69			18			44			(26	)
Gross loans/leases receivable (2) (3)		16,804			1,669			15,135			5,256			(2,202	)		7,458			28,143			1,886			26,257			16,804			1,669			15,135

Total change in interest income	$	17,605		$	4,559		$	13,046		$	4,941		$	63		$	4,878		$	32,243		$	3,829		$	28,414		$	17,605		$	4,559		$	13,046

INTEREST EXPENSE
Interest-bearing demand deposits	$	2,007		$	1,273		$	734		$	4		$	(184	)	$	188		$	4,149		$	1,876		$	2,273		$	2,007		$	1,273		$	734
Time deposits		(485	)		(782	)		297			(17	)		7			(24	)		2,845			2,302			543			(485	)		(782	)		297
Short-term borrowings		(116	)		54			(170	)		(24	)		(8	)		(16	)		20			94			(74	)		(116	)		54			(170	)
Federal Home Loan Bank advances		(2,227	)		(1,482	)		(745	)		(2,515	)		(934	)		(1,581	)		697			634			63			(2,227	)		(1,482	)		(745	)
Other borrowings		(916	)		58			(974	)		(658	)		15			(673	)		(439	)		478			(917	)		(916	)		58			(974	)
Junior subordinated debentures		(19	)		205			(224	)		22			22			-			229			218			11			(19	)		205			(224	)

Total change in interest expense	$	(1,756	)	$	(674	)	$	(1,082	)	$	(3,188	)	$	(1,082	)	$	(2,106	)	$	7,501		$	5,602		$	1,899		$	(1,756	)	$	(674	)	$	(1,082	)

Total change in net interest income	$	19,361		$	5,233		$	14,128		$	8,129		$	1,145		$	6,984		$	24,742		$	(1,773	)	$	26,515		$	19,361		$	5,233		$	14,128

(1)	The column "Inc/(Dec) from Prior Year" is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates. The variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume.

(2)	Interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 35% tax rate in each year presented.

(3)	Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance.

The ~~Company’s~~Company’s operating results are also impacted by various sources of noninterest income, including trust department fees, investment advisory and management fees, deposit service fees, gains from the sales of residential real estate loans and government guaranteed loans, earnings on BOLI, and other income. Offsetting these items, the Company incurs noninterest expenses, which include salaries and employee benefits, occupancy and equipment expense, professional and data processing fees, FDIC and other insurance expense, loan/lease expense, and other administrative expenses.

The ~~Company’s~~Company’s operating results are also affected by economic and competitive conditions, particularly changes in interest rates, income tax rates, government policies, and actions of regulatory authorities.

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C~~CRITICAL~~RITICAL ACCOUNTING POLICIES

The ~~Company’s~~Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred.

ALLOWANCE FOR LOAN AND LEASE LOSSES

Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified its most critical accounting policy to be that related to the allowance.

The ~~Company’s~~Company’s allowance methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance that management believes is appropriate at each reporting date. Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values, governmental guarantees, payment status, changes in nonperforming loans/leases, and other factors. Quantitative factors also incorporate known information about individual loans/leases, including borrowers’ sensitivity to interest rate movements.

Qualitative factors include the general economic environment in the ~~Company’s~~Company’s markets, including economic conditions both locally and nationally, and in particular, the economic health of certain industries. Size and complexity of individual credits in relation to loan/lease structure, existing loan/lease policies and pace of portfolio growth are other qualitative factors that are considered in the methodology. As the Company adds new products and increases the complexity of its loan/lease portfolio, it enhances its methodology accordingly.

Management may report a materially different amount for the provision in the statement of operations to change the allowance if its assessment of the above factors were different. The discussion regarding the ~~Company’s~~Company’s allowance should be read in conjunction with the Company’s financial statements and the accompanying notes presented elsewhere in this Form 10-K, as well as the portion of this MD&A section entitled “Financial Condition – Allowance for Estimated Losses on Loans/Leases.”

Although management ~~believes~~believes the level of the allowance as of December 31, ~~2016~~2017 was adequate to absorb losses inherent in the loan/lease portfolio, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time.

~~OTHER-THAN-TEMPORARY IMPAIRMENT~~

The Company’s assessment of OTTI of its securities portfolio is another critical accounting policy as a result of the level of judgment required by management. Available-for-sale and held to maturity securities are evaluated to determine whether declines in fair value below their cost are other-than-temporary.

In estimating OTTI losses, management considers a number of factors including, but not limited to: (1) the length of time and extent to which the fair value has been less than amortized cost; (2) the financial condition and near-term prospects of the issuer; (3) the current market conditions; and (4) the lack of intent of the Company to sell the security prior to recovery and whether it is not more-likely-than-not that the Company will be required to sell the security prior to recovery. The discussion regarding the Company’s assessment of OTTI should be read in conjunction with the Company’s financial statements and the accompanying notes presented elsewhere in this Form 10-K.

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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2017, 2016, and 2015~~, and 201~~4

I~~INTEREST~~NTEREST INCOME

For 2017, interest income grew $29.0 million, or 27%. In total, the Company’s average interest-earning assets increased $636.5 million, or 24%, year-over-year. Average loans/leases grew 28%, while average securities grew 10%. The acquisition of CSB occurred in the third quarter of 2016, therefore 2017 was the first full year that CSB was included in the Company’s financial results. The acquisition of Guaranty Bank in the fourth quarter of 2017contributed to the increase in interest income and average interest-earning assets.

For 2016, interest income grew $16.5 million, or 18%. In total, the Company’s average interest-earning assets increased $272.1 million, or 11%, year-over-year. Average loans/leases grew 20%, while average securities declined 11%. This shift was part of the Company’s strategy to shift the mix of earning assets from lower yielding securities to higher yielding loans/leases. The acquisition of CSB also contributed to the increase in interest income and average interest-earning assets.

Additionally, the Company continued to diversify its securities portfolio, ~~including~~including increasing its portfolio of tax exempt municipal securities. The large majority of these are privately placed debt issuances by municipalities located in the Midwest and require a thorough underwriting process before investment. Execution of this strategy has led to increased interest income on a tax equivalent basis over the past several years. Management understands that this strategy has extended the duration of its securities portfolio and continually evaluates the combined benefit of increased interest income and reduced effective income tax rate and the impact on interest rate risk.

For 2015, interest income grew $4.0 million, or 5%. In total, the Company’s average interest-earning assets increased $86.8 million, or 4%, year-over-year. This growth more than offset the continued impact of declining average yields on loans/leases. Average loans/leases grew 11%, while average securities declined 13%. This shift was part of the Company’s strategy to shift the mix of earning assets from lower yielding securities to higher yielding loans/leases.

~~In 2015, the Company diversified its securities portfolio by increasing its portfolio of tax-exempt municipal securities, as described above.~~

The Company intends to continue to grow quality loans and leases as well as diversify the securities portfolio to maximize yield while minimizing credit and interest rate risk.

I~~INTEREST~~NTEREST EXPENSE

Comparing 2017 to 2016, interest expense increased $7.5 million, or 63%, year-over-year. Average interest-bearing liabilities increased 32% in 2017. The acquisition of CSB occurred in the third quarter of 2016, therefore 2017 was the first full year that CSB was included in the Company’s financial results which contributed to the increase in interest expense and average interest-bearing liabilities. Guaranty Bank, acquired in the fourth quarter of 2017, also contributed to the increase in interest expense and average interest-bearing liabilities. The Company’s cost of funds increased because the Company has rate sensitive deposits that have repriced with the increase in certain market rates.

Comparing 2016 to 2015, interest expense declined $1.8 million, or 13%, year-over-year. Average interest-bearing liabilities increased 9% in 2016. The Company was successful in continuing to manage down its cost of funds ~~as follows:~~

●

~~Continued growth in noninterest bearing deposit accounts (average noninterest bearing balances grew 11% in 2016); and~~

●

~~Continued~~through continued growth in noninterest bearing deposit accounts (average noninterest bearing balances grew 11% in 2016, primarily due to successful growth in the correspondent banking area) and continued shift of funding from high-cost borrowings to deposits and/or low-cost borrowings. Average interest bearing deposits increased 26%, while average borrowings decreased 37% during 2016.

Comparing 2015 to 2014, interest expense declined $3.2 million, or 19%, year-over-year. Average interest-bearing liabilities declined 1% in 2015. The Company was successful in continuing to manage down its cost of funds as follows:

●

~~Continued reduction of interest rates paid on deposits without runoff (the average cost of interest-bearing deposits fell from 0.40% for 2014 to 0.37% for 2015);~~

●

~~Continued growth in noninterest bearing deposit accounts (average noninterest bearing balances grew 12% in 2015, primarily due to successful growth in the correspondent banking area); and~~

●

~~Continued shift of funding from high-cost borrowings to deposits and/or low-cost borrowings. Average interest bearing deposits increased 7%, while average borrowings decreased 17% during 2015.~~

The ~~Company’s~~Company’s management intends to continue to shift the mix of funding from wholesale funds to core deposits, including noninterest-bearing deposits. Continuing this trend is expected to strengthen the Company’s franchise value, reduce funding costs, and increase fee income opportunities through deposit service charges.

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P~~PROVISION~~ROVISION FOR LOAN/LEASE LOSSES

The provision is established based on a number of factors, including the Company’s historical loss experience, delinquencies and charge-off trends, the local and national economy and the risk associated with the loans/leases in the portfolio as described in more detail in the “Critical Accounting Policies” section.

The ~~Company’s~~Company’s provision totaled ~~$7.5~~$8.5 million for ~~2016, which was up $607~~2017, an increase of $992 thousand from ~~2015.~~2016. Notably, CSB incurred ~~$1.5~~$2.8 million of provision expense for the ~~partial year since acquisition.~~full year. As acquired loans renew, the discount associated with those loans is accreted and the Company must re-establish a loan loss reserve. When comparing ~~2015~~2016 to ~~2014,~~2015, the Company’s provision ~~was flat.~~increased by $607 thousand. In 2016, CSB incurred $1.5 million of provision expense for the partial year since acquisition.

~~The~~The Company had an allowance of 1.16% of total gross loans/leases at December 31, 2017, compared to 1.28% of total gross loans/leases at December 31, 2016, and compared to 1.45% of total gross loans/leases at December 31, ~~2015, and compared to 1.42% of total gross loans/leases at December 31, 2014.~~2015.

~~The~~The Company’s allowance to total NPLs was ~~145%~~184.28% at December 31, 2017, which was up from 144.85% at December 31, 2016, ~~which was~~and down from ~~223%~~223.33% at December 31, ~~2015, and up from 115% at December 31, 2014.~~2015.

The ~~decrease~~fluctuations in these ratios ~~from 2015 to 2016 was~~were the result of the acquisitions of CSB and Guaranty Bank. In accordance with GAAP for acquisition ~~of CSB. Upon acquisition and per GAAP,~~accounting, acquired ~~loans/leases are~~loans must be recorded at fair ~~value which~~value; therefore, no accreted allowance was associated with these loans. As acquired loans renew, the discount associated with those loans is eliminated and the ~~allowance and impacted these ratios.~~Company must establish an allowance.

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N~~NONINTEREST~~ONINTEREST INCOME. The following tables set forth the various categories of noninterest income for the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014.~~2015.

	Years Ended
	December 31, 2017			December 31, 2016		$ Change			% Change

Trust department fees	$	7,187,820		$	6,164,137	$	1,023,683			16.6	%
Investment advisory and management fees		3,869,699			2,992,811		876,888			29.3
Deposit service fees		5,919,317			4,439,455		1,479,862			33.3
Gains on sales of residential real estate loans, net		408,655			431,313		(22,658	)		(5.3	)
Gains on sales of government guaranteed portions of loans, net		1,163,741			3,159,073		(1,995,332	)		(63.2	)
Swap fee income		3,094,939			1,708,204		1,386,735			81.2
Securities gains, net		(87,885	)		4,592,398		(4,680,283	)		(101.9	)
Earnings on bank-owned life insurance		1,802,443			1,771,396		31,047			1.8
Debit card fees		2,941,703			1,814,488		1,127,215			62.1
Correspondent banking fees		915,647			1,050,142		(134,495	)		(12.8	)
Other		3,266,213			2,913,458		352,755			12.1
Total noninterest income	$	30,482,292		$	31,036,875	$	(554,583	)		(1.8	)%

	Years Ended
	December 31, 2016		December 31, 2015		$ Change			% Change

Trust department fees	$	6,164,137	$	6,131,209	$	32,928			0.5	%
Investment advisory and management fees		2,992,811		2,971,964		20,847			0.7
Deposit service fees		4,439,455		3,784,935		654,520			17.3
Gains on sales of residential real estate loans, net		431,313		322,872		108,441			33.6
Gains on sales of government guaranteed portions of loans, net		3,159,073		1,304,575		1,854,498			142.2
Swap fee income		1,708,204		1,717,552		(9,348	)		(0.5	)
Securities gains, net		4,592,398		798,983		3,793,415			474.8
Earnings on bank-owned life insurance		1,771,396		1,762,107		9,289			0.5
Debit card fees		1,814,488		1,244,912		569,576			45.8
Correspondent banking fees		1,050,142		1,190,411		(140,269	)		(11.8	)
Other		2,913,458		3,133,801		(220,343	)		(7.0	)
Total noninterest income	$	31,036,875	$	24,363,321	$	6,673,554			27.4	%

Years Ended

December 31,
2015

December 31,
2014

$ Change

% Change

Trust department fees
$ 6,131,209 $ 5,715,151 $ 416,058 7.3
%
Investment advisory and management fees
2,971,964 2,798,170 173,794 6.2
Deposit service fees
3,784,935 3,809,539 (24,604 ) (0.6 )
Gains on sales of residential real estate loans, net
322,872 460,721 (137,849 ) (29.9 )
Gains on sales of government guaranteed portions of loans, net
1,304,575 2,040,638 (736,063 ) (36.1 )
Swap fee income
1,717,552 154,800 1,562,752 1,009.5
Securities gains, net
798,983 92,363 706,620 765.0
Earnings on bank-owned life insurance
1,762,107 1,721,507 40,600 2.4
Debit card fees
1,244,912 1,143,738 101,174 8.8
Correspondent banking fees
1,190,411 1,064,030 126,381 11.9
Other
3,133,801 2,280,622 853,179 37.4
Total noninterest income
$ 24,363,321 $ 21,281,279 $ 3,082,042 14.5
%

In recent years, the Company has been successful in expanding its ~~wealth~~wealth management customer base. ~~While trust~~Trust department fees continue to be a significant contributor to noninterest income and, due to ~~poor~~favorable market conditions, ~~in early 2016,~~ coupled with ~~a large amount of distributions to clients and beneficiaries,~~strong growth in assets under management, trust department fees increased ~~only 1%~~17% in the current year. Comparatively, trust fee income increased 7%1% when comparing ~~2015~~2016 to ~~2014.~~2015. Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. The majority of the trust department fees are determined based on the value of the investments within the fully managed trusts. Additionally, the Company recently started offering trust operations services to correspondent banks.

~~Management~~Management has placed a stronger emphasis on growing its investment advisory and management services. Part of this initiative has been to restructure the Company’s Wealth Management Division to allow for more efficient delivery of products and services through selective additions of talent as well as leverage of and collaboration among existing resources (including the aforementioned trust department). Similar to trust department fees, fees from these ~~fees~~services are largely determined based on the value of the investments managed. And, similar to the trust department, the Company has had some success in expanding its customer base. ~~However, due~~Due to ~~poor~~this growth and favorable market conditions in ~~early 2016,~~2017, investment advisory and management fees increased ~~only 1%~~29% in ~~2016.~~2017. Comparatively, investment advisory and management fees increased 6%1% in ~~2015.~~2016. The acquisition of CSB also contributed to this increase, as it had an established investment advisory and management services department at acquisition.

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Deposit service fees expanded 33% in 2017 and 17% in ~~2016, while they contracted slightly~~2016. The increases in ~~the prior year. The majority of the current year increase was~~both years were the result of the addition of ~~CSB, whose deposit service fees for the partial year were $590 thousand.~~CSB. Additionally, the Company continues its emphasis on shifting the mix of deposits from brokered and retail time deposits to non-maturity demand deposits across all its markets. With this shift in mix, the Company has increased the number of demand deposit accounts, which tend to be lower in interest cost and higher in service fees. The Company plans to continue this shift in mix and to further focus on growing deposit service fees.

Gains on sales of residential real estate loans ~~increased~~decreased 5% in 2017, while increasing 34% in 2016, while decreasing 30% in 2015. Most of the increase in the current year was attributable to the addition of CSB, which recognized $97 thousand of gains on the sales of residential real estate in the partial year.2016. Overall, with the ~~sustained historically~~continued low interest rate environment, refinancing activity has slowed, as many of the Company’s existing and prospective customers have already executed a refinancing. Therefore, this area has become a much smaller contributor to overall noninterest income.

The ~~Company’s~~Company’s gains on the sale of government-guaranteed portions of loans for ~~2016 increased 142%~~2017 decreased 63%, while ~~decreasing 36%~~increasing 142% in the prior year. Given the nature of these gains, large fluctuations can happen from quarter-to-quarter and year-to-year. ~~Results for the current year are reflective of the strong demand for these types of loans in 2016.~~ As one of its core strategies, the Company continues to leverage its expertise by taking advantage of programs offered by the SBA and the USDA. The Company’s portfolio of government-guaranteed loans has grown as a direct result of the Company’s strong expertise in SBA and USDA lending. In some cases, it is more beneficial for the Company to sell the government-guaranteed portion on the secondary market for a premium rather than retain the loans in the Company’s portfolio. Sales activity for government-guaranteed portions of loans tends to fluctuate depending on the demand for loans that fit the criteria for the government guarantee. Further, the size of the transactions can vary and, as the gain is determined as a percentage of the guaranteed amount, the resulting gain on sale can vary. Lastly, a strategy for improved pricing is packaging loans together for sale. From time to time, the Company may execute on this strategy, which may delay the gains on sales of some loans to achieve better pricing. The Company has added additional talent and is executing on strategies in an effort to make this a more consistent and larger source of revenue. The pipelines for SBA and USDA lending are strong, and management believes that the Company will continue to have success in this category.

As a result of the ~~sustained historically~~continued low interest rate environment, the Company was able to execute numerous interest rate swaps on select commercial loans over the past two years. The interest rate swaps allow the commercial borrowers to pay a fixed interest rate while the Company receives a variable interest rate as well as an upfront fee dependent upon the pricing. Management believes that these swaps help position the Company more favorably for rising rate environments. Management will continue to review opportunities to execute these swaps at all of its subsidiary banks, as the circumstances are appropriate for the borrower and the Company. Swap fee income totaled ~~$1.7~~$3.1 million in ~~2016,~~2017, compared to $1.7 million in ~~2015~~2016 and ~~$155 thousand~~$1.7 million in ~~2014.~~2015. Future levels of swap fee income are dependent upon prevailing interest rates.

Securities ~~gains~~losses (net) were ~~$4.6 million~~$88 thousand for the current year, compared to ~~$799 thousand~~securities gains (net) of $4.6 million for the prior ~~year. The~~year and $799 thousand in 2015. In 2016, the Company took advantage of market opportunities by selling approximately $130.2 million of investments that were ~~low-yielding during 2016.~~low-yielding. Proceeds were then used to purchase higher-yielding tax-exempt municipal bonds and to fund loan and lease growth. Additionally, in the third quarter of 2016, the Company sold an equity investment and recognized a gain of $4.0 million, which was then used to reduce wholesale borrowings and further de-lever the balance sheet. ~~In 2015, the Company sold approximately $81.4 million of investments that were low-yielding, using the proceeds to reinvest in loans and higher-yielding tax-exempt municipal bonds.~~

Earnings on BOLI increased 2% in 2017 and 1% in ~~2016 and 2% in 2015.~~2016. There were no purchases of BOLI in ~~2015~~2016 or ~~2016.~~2017. Yields on BOLI (based on a simple average and excluding the impact of the federal income tax exemption) were 3.05% for 2017, 3.09% for 2016, and 3.23% for ~~2015, and 3.26% for 2014.~~2015. Notably, a small portion of the Company’s BOLI is variable rate whereby the returns are determined by the performance of the equity market. Management intends to continue to review its BOLI investments to be consistent with policy and regulatory limits in conjunction with the rest of its earning assets in an effort to maximize returns while minimizing risk.

Debit card fees are the interchange fees paid on certain debit card customer transactions. Debit card fees increased ~~46%~~62% in ~~2016,~~2017, compared to 9%46% in the prior year. The primary reason for the increase in ~~2016~~both years was the addition of CSB, which ~~had debit card fees totaling $503 thousand for the partial year since acquisition. Additionally, these~~has a large retail customer base and therefore generates significant interchange revenue. These fees can vary based on customer debit card usage, so fluctuations from period to period may occur. As an opportunity to maximize fees, the Company offers a deposit product with a modestly higher interest rate that incentivizes debit card activity.

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Correspondent banking fees decreased ~~12%~~13% in ~~2016, while they increased~~2017 and decreased 12% in the prior year. As interest rates rise, the correspondent bank deposit ~~balances rise, they~~accounts receive a higher earnings credit, which then reduces the direct fees that the Company receives. ~~Notably, there was an earnings credit rate increase implemented in the first quarter of 2016 as a direct result of the increase in market rates in December 2015.~~ Management will continue to evaluate earnings credit rates and the resulting impact on deposit balances and fees while balancing the ability to grow market share. Correspondent banking continues to be a core strategy for the Company, as this line of business provides a high level of noninterest bearing deposits that can be used to fund loan growth as well as a steady source of fee income. The Company now serves approximately ~~181~~187 banks in Iowa, Illinois and Wisconsin.

Other noninterest income ~~decreased~~increased 12% in 2017, while decreasing 7% in ~~2016, while increasing 37%~~2016. The primary reason for the increase was rental income due to the acquisition of Guaranty Bank. Rental income totaled $176 thousand in ~~2015. The Company recognized $387 thousand of non-recurring~~2017 as compared to no rental income in ~~2015 from the favorable conclusion of a lawsuit.~~2016.

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NONINTEREST EXPENSES. The following tables set forth the various categories of noninterest expenses for the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014.~~2015.

	Years Ended											Years Ended
	December 31, 2016		December 31, 2015			$ Change			% Change			December 31, 2017		December 31, 2016		$ Change			% Change

Salaries and employee benefits	$	46,317,060	$	42,967,915		$	3,349,145			7.8	%	$	55,722,288	$	46,317,060	$	9,405,228			20.3	%
Occupancy and equipment expense		8,404,605		7,042,706			1,361,899			19.3			10,938,037		8,404,605		2,533,432			30.1
Professional and data processing fees		7,113,443		5,523,447			1,589,996			28.8			10,757,057		7,113,443		3,643,614			51.2
Acquisition costs		2,441,173		-			2,441,173			100.0			1,068,918		1,400,004		(331,086	)		(23.6	)
Post-acquisition compensation, transition and integration costs													4,309,565		1,041,169		3,268,396			313.9
FDIC insurance, other insurance and regulatory fees		2,549,314		2,724,968			(175,654	)		(6.4	)		2,752,270		2,549,314		202,956			8.0
Loan/lease expense		662,299		882,591			(220,292	)		(25.0	)		1,163,708		662,299		501,409			75.7
Net cost of operations of other real estate		591,303		(1,092,401	)		1,683,704			(154.1	)		1,599		591,303		(589,704	)		(99.7	)
Advertising and marketing		2,127,566		1,900,539			227,027			11.9			2,624,951		2,127,566		497,385			23.4
Bank service charges		1,692,957		1,486,265			206,692			13.9			1,770,942		1,692,957		77,985			4.6
Losses on debt extinguishment, net		4,577,668		7,185,601			(2,607,933	)		(36.3	)		-		4,577,668		(4,577,668	)		(100.0	)
Correspondent banking expense		750,646		703,495			47,151			6.7			807,077		750,646		56,431			7.5
CDI amortization													1,000,561		442,850		557,711			125.9
Other		4,257,878		3,866,896			390,982			10.1			4,507,724		3,815,028		692,696			18.2
Total noninterest expense	$	81,485,912	$	73,192,022		$	8,293,890			11.3	%	$	97,424,697	$	81,485,912	$	15,938,785			19.6	%

	Years Ended											Years Ended
	December 31, 2015			December 31, 2014		$ Change			% Change			December 31, 2016		December 31, 2015			$ Change			% Change

Salaries and employee benefits	$	42,967,915		$	40,337,055	$	2,630,860			6.5	%	$	46,317,060	$	42,967,915		$	3,349,145			7.8	%
Occupancy and equipment expense		7,042,706			7,385,526		(342,820	)		(4.6	)		8,404,605		7,042,706			1,361,899			19.3
Professional and data processing fees		5,523,447			6,191,574		(668,127	)		(10.8	)		7,113,443		5,523,447			1,589,996			28.8
Acquisition costs													1,400,004		-			1,400,004			100.0
Post-acquisition compensation, transition and integration costs													1,041,169		-			1,041,169			100.0
FDIC insurance, other insurance and regulatory fees		2,724,968			2,895,494		(170,526	)		(5.9	)		2,549,314		2,724,968			(175,654	)		(6.4	)
Loan/lease expense		882,591			665,602		216,989			32.6			662,299		882,591			(220,292	)		(25.0	)
Net cost of operations of other real estate		(1,092,401	)		603,092		(1,695,493	)		(281.1	)
Net cost of (income from) operations of other real estate													591,303		(1,092,401	)		1,683,704			(154.1	)
Advertising and marketing		1,900,539			1,985,121		(84,582	)		(4.3	)		2,127,566		1,900,539			227,027			11.9
Bank service charges		1,486,265			1,291,017		195,248			15.1			1,692,957		1,486,265			206,692			13.9
Losses on debt extinguishment		7,185,601			-		7,185,601			100.0			4,577,668		7,185,601			(2,607,933	)		(36.3	)
Correspondent banking expense		703,495			635,630		67,865			10.7			750,646		703,495			47,151			6.7
CDI amortization													442,850		199,512			243,338			122.0
Other		3,866,896			3,563,789		303,107			8.5			3,815,028		3,667,384			147,644			4.0
Total noninterest expense	$	73,192,022		$	65,553,900	$	7,638,122			11.7	%	$	81,485,912	$	73,192,022		$	8,293,890			11.3	%

Management places strong emphasis on overall cost containment and is committed to improving the Company’s general efficiency.

Salaries and employee benefits, which is the largest component of noninterest expense, increased 20% and 8% in 2017 and 7%2016, respectively. This increase was primarily related to the acquisition of CSB late in the third quarter of 2016 and ~~2015, respectively. The increase~~the acquisition of Guaranty Bank in ~~2016 was~~the fourth quarter of 2017.

Occupancy and equipment expense increased 30% in 2017 and increased 19% in 2016. These increases were largely due to the addition of CSB’s cost structure, which contributed $3.3 million for the partial year since the acquisition. The increase in 2015 was due to merit increases, increases in health insurance costs, higher accrued incentive compensation based on core results, and talent additions in wealth management, commercial banking, correspondent banking and equipment leasing.

~~Occupancy and equipment expense increased 19%~~CSB late in 2016 and ~~decreased 5%~~the acquisition of Guaranty Bank in ~~2015. The increase in 2016 was largely due to~~ the ~~addition~~fourth quarter of CSB’s cost structure, which contributed $926 thousand of occupancy and equipment expense for the partial year since acquisition. The decrease in 2015 was primarily due to the relocation of RB&T’s downtown facility. Additionally, the Company adjusted certain accrued expenses, a portion of which included occupancy expense.2017.

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Professional and data processing fees increased 51% in 2017 and increased 29% in ~~2016 and decreased 11% in 2015.~~2016. This increased expense ~~in 2016~~ was mostly due to the ~~addition~~additions of ~~CSB for~~Guaranty Bank and CSB. Legal expense was elevated due to a legal matter at RBT where two employees have been charged with wrongdoing in connection with an SBA loan application. The Company anticipates these legal expenses will continue until the ~~partial year. CSB’s~~court proceedings are completed, which the Company expects to be sometime in late 2018. Neither RB&T, nor the Company, have been charged in the case. Generally, professional and data processing fees ~~totaled $840 thousand for the period since acquisition. The prior year also included an adjustment of~~can fluctuate depending on certain ~~accrued expenses, including data processing expense.~~one-time project costs. Management will continue to focus on minimizing such one-time costs and driving recurring costs down through contract negotiation or managed reduction in activity where costs are determined on a usage basis.

Acquisition costs totaled ~~$2.4~~$1.1 million and $1.4 million for ~~2016.~~2017 and 2016, respectively. These costs were comprised primarily of legal, accounting and investment banking costs related to the ~~acquisition of CSB, as~~acquisitions described in Note 2 to the Consolidated Financial Statements.

Post-acquisition compensation, transition and integration costs totaled $4.3 million and $1.0 million for 2017 and 2016, respectively. These costs were comprised primarily of personnel costs, IT integration, and conversion costs related to the acquisitions described in Note 2 to the Consolidated Financial Statements.

FDIC and other insurance expense increased 8% in 2017 and decreased 6% in ~~2016 and 2015.~~2016. The ~~decrease~~increase in expense was due to the acquisition of CSB, partially offset by a decrease in the assessment rate designated by the FDIC. ~~Partially offsetting this was the acquisition of CSB, which had $45 thousand of FDIC and other insurance expense.~~

Loan/lease expense increased 76% in 2017 and decreased 25% in ~~2016 and increased 33% in 2015.~~2016. The Company incurred elevated levels of expense during ~~2015~~2017 for certain existing NPLs in connection with the work-out of these loans. Generally, loan/lease expense has a direct relationship with the level of NPLs; however, it may deviate depending upon the individual NPLs.

Net cost of operations of other real estate ~~includes~~includes gains/losses on the sale of OREO, write-downs of OREO and all income/expenses associated with OREO. ~~In 2015, this included a $1.2 million gain on~~Net costs of operations totaled $2 thousand for 2017 and $591 thousand for 2016. Occupancy rates for one of the ~~sale of a large~~ OREO properties managed by the Company have improved over the past year, increasing cash flow from the property ~~that also reduced NPAs by $3.2 million.~~and reducing net operating costs.

~~Advertising~~Advertising and marketing expense increased 23% in 2017 and increased 12% in ~~2016 and decreased 4% in 2015. A portion of the~~2016. The increase in ~~2016~~expense was due to the ~~addition~~additions of CSB ~~which had $137 thousand of advertising~~ and ~~marketing expense for the partial year since acquisition.~~Guaranty Bank.

Bank service charges, a large portion of which include indirect costs incurred to provide services to QCBT’s correspondent banking customer portfolio, increased ~~significantly~~ over the past two years ~~(14%~~(5% in ~~2016~~2017 and ~~15%~~14% in ~~2015)~~2016). The increases were due, in large part, to the success QCBT has had in growing its correspondent banking customer ~~portfolio over the past two years.~~portfolio. As transaction volumes continue to increase and the number of correspondent banking clients increases, the associated expenses will also increase. ~~This may not directly correlate to correspondent banking balances, as quarter-end balances can fluctuate.~~

In 2016, the Company incurred $4.6 million in losses on debt extinguishment (net), while inin 2015, the Company incurred $7.2 million of losses on debt extinguishment (net). These losses relate to the prepayment of certain FHLB advances and wholesale structured repurchase agreements. Additionally, the Company recognized gains on extinguishment related to the repurchase of junior subordinated debentures that were acquired at a discount through auction. ~~Refer to Notes 10, 11, and 12 of the Consolidated Financial Statements for additional information.~~

Correspondent banking expense increased 8% in 2017 and 7% in ~~2016 and 11% in 2015.~~2016. These are direct costs incurred to provide services to QCBT’s correspondent banking customer portfolio, including safekeeping and cash management services. The increases in both years were due, in large part, to the success QCBT has had in growing its correspondent banking customer portfolio.

Core deposit intangible amortization expense increased 126% in 2017 and 122% in 2016. Increases were due to the acquisition of Guaranty Bank and CSB.

Other noninterest expense increased ~~10%~~18% in ~~2016~~2017 and 9%4% in ~~2015.~~2016. Included in other noninterest expense are items such as subscriptions, sales and use tax and expenses related to wealth management. A portion of this increase inis also related to the ~~addition~~additions of ~~CSB’s cost structure.~~CSB and Guaranty Bank.

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I~~INCOME~~NCOME TAX EXPENSE

The provision for income taxes was $4.9 million for 2017, or an effective tax rate of 12.2%, compared to $8.9 million for 2016, or an effective tax rate of 24.3%, and compared to $3.7 million for 2015, or an effective tax rate of 17.8%~~, and compared to $3.0 million for 2014, or an~~. The effective tax rate for 2017 was significantly impacted by a $2.9 million income tax benefit for the re-valuation of ~~16.9%. In general, taxable~~deferred taxes at the lower federal income ~~streams grew at~~tax rate as a ~~faster pace than nontaxable~~result of the Tax Act. See Note 13 to the Consolidated Financial Statements for additional information regarding the impact of Tax Act on deferred tax assets and income ~~streams in 2016, therefore increasing the effective tax rate.~~tax.

Refer to the reconciliation of the expected income tax ~~expense~~rate to the effective tax rate that is included in Note 13 to the Consolidated Financial Statements for additional details.

FINANCIAL CONDITION, AS OF THE YEARS ENDED DECEMBER 31, ~~2016~~ 2017AND ~~2015~~2016

OVERVIEW

Following is a table that represents the major categories of the ~~Company’s~~Company’s balance sheet.

	As of December 31,
	2016					2015					As of December 31,
	(dollars in thousands)										2017					2016
											(dollars in thousands)
	Amount		%			Amount		%			Amount		%			Amount		%
Cash, federal funds sold, and interest-bearing deposits	$	156,776		5	%	$	97,906		4	%	$	161,684		4	%	$	156,776		5	%
Securities		574,022		17	%		577,109		22	%		652,382		16	%		574,022		17	%
Net loans/leases		2,374,730		72	%		1,771,882		68	%		2,930,130		74	%		2,374,730		72	%
Other assets		196,416		6	%		146,301		6	%		238,469		6	%		196,416		6	%
Total assets	$	3,301,944		100	%	$	2,593,198		100	%	$	3,982,665		100	%	$	3,301,944		100	%

Total deposits	$	2,669,261		81	%	$	1,880,666		72	%	$	3,266,655		82	%	$	2,669,261		81	%
Total borrowings		290,952		9	%		444,162		17	%		309,480		8	%		290,952		9	%
Other liabilities		55,690		2	%		42,484		2	%		53,243		1	%		55,690		2	%
Total stockholders' equity		286,041		8	%		225,886		9	%		353,287		9	%		286,041		8	%
Total liabilities and stockholders' equity	$	3,301,944		100	%	$	2,593,198		100	%	$	3,982,665		100	%	$	3,301,944		100	%

In ~~2016,~~2017, total assets grew $680.7 million, or 21%. This included $259.6 million in assets acquired and new goodwill of $15.2 million as part of the Guaranty Bank acquisition (further described in Note 2 to the Consolidated Financial Statements). The Company organically grew its net loan/lease portfolio $362.9 million, which was primarily funded by deposit growth. Deposits grew $384.9 million, or 14% during 2017, excluding the $212.5 million of deposits acquired. Borrowings decreased $2.5 million, or 1% during 2017, excluding the $21.1 million of borrowings acquired.

In 2016, total assets grew $708.7 million, or 27%. This included $581.7 million in assets acquired and new goodwill of $9.9 million as part of the CSB acquisition (further described in Note 2 to the Consolidated Financial Statements). The Company organically grew its net loan/lease portfolio $183.8 million, which was partly funded by cash from the securities portfolio, as it decreased $105.7 million, or 18%, excluding the $102.6 million of securities acquired in 2016. Deposits grew $302.3 million, or 16% during 2016, excluding the $486.3 million of deposits acquired. Borrowings decreased $153.2 million, or 34% during 2016, mostly due the balance sheet restructuring activities that took place throughout ~~the year,~~2016, the details of which are in Notes 10 and 11 to the Consolidated Financial Statements.

In 2015, total assets grew $68.2 million, or 3%. The Company organically grew its net loan/lease portfolio $165.0 million, which was partly funded by cash from the securities portfolio, as it decreased $74.4 million, or 11% (mostly due to the sale of securities). Deposits grew $201.0 million, or 12% during 2015. Borrowings decreased $218.4 million, or 33% during 2015, mostly due the balance sheet restructuring activities that took place throughout 2015, the details of which are in Notes 10 and 11 to the Consolidated Financial Statements.

INVESTMENT SECURITIES

The composition of the ~~Company’s~~Company’s securities portfolio is managed to meet liquidity needs while prioritizing the impact on interest rate risk and maximizing return, while minimizing credit risk. The Company has further diversified the portfolio by decreasing U.S government sponsored agency securities, while increasing residential mortgage-backed and related securities and tax-exempt municipal securities. Of the latter, the large majority are privately placed tax-exempt debt issuances by municipalities located in the Midwest (with some in or near the Company’s existing markets) and require a thorough underwriting process before investment.

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Following is a breakdown of the ~~Company’s~~Company’s securities portfolio by type as of December 31, 2017, 2016, ~~2015,~~ and ~~2014.~~2015.

	2016						2015						2014
	Amount			%			Amount			%			Amount			%			2017						2016						2015
	(dollars in thousands)																		Amount			%			Amount			%			Amount			%
																			(dollars in thousands)
U.S. govt. sponsored agency securities	$	46,084			8	%	$	213,537			37	%	$	307,869			47	%	$	38,097			6	%	$	46,084			8	%	$	213,537			37	%
Municipal securities		374,463			65	%		280,203			49	%		229,230			35	%		445,049			68	%		374,463			65	%		280,203			49	%
Residential mortgage-backed and related securities		147,702			26	%		80,670			14	%		111,423			17	%		163,301			25	%		147,702			26	%		80,670			14	%
Other securities		5,773			1	%		2,699			0	%		3,017			1	%		5,935			1	%		5,773			1	%		2,699			0	%
	$	574,022			100	%	$	577,109			100	%	$	651,539			100	%	$	652,382			100	%	$	574,022			100	%	$	577,109			100	%

As a % of total assets		17.38	%					22.25	%					25.80	%					16.38	%					17.38	%					22.25	%
Net unrealized losses as a % of amortized cost		(0.87	)%					(0.03	)%					(0.19	)%					(0.18	)%					(0.87	)%					(0.03	)%
Duration (in years)		6.0						6.2						5.1						7.0						6.0						6.2
Yield on investment securities (tax equivalent)		3.56	%					3.07	%					2.71	%					3.80	%					3.56	%					3.07	%

Management monitors the level of unrealized gains/losses including performing quarterly reviews of individual securities for evidence of OTTI. Management identified no OTTI in 2017, 2016 ~~2015~~ or ~~2014.~~ 2015.

In 2016, the duration of the securities portfolio stayed relatively flat. Duration was extended from the strong growth in longer term fixed rate municipal securities, but was offset by the duration shortening of agency and mortgage-backed securities portfolios resulting from targeted sales of longer duration investments and as the remaining agency portfolio rolled closer to maturities or call dates.

~~In 2015,~~2017, the duration of the securities portfolio increased due, in large part, to the continued shift in mix. Duration was extended from the strong growth in longer term fixed rate municipal securities.

In 2016, the duration of the securities portfolio stayed relatively flat. Duration was extended from the strong growth in longer term fixed rate municipal securities, but was partially offset by the duration shortening of agency and mortgage-backed securities portfolios resulting from targeted sales of longer duration investments and as the remaining agency portfolio rolled closer to maturities or call dates.

The Company has not invested in non-agency commercial or residential mortgage-backed securities or pooled trust preferred securities. Additionally, the Company has not invested in the types of securities subject to the Volcker Rule (a provision of the Dodd-Frank Act).

~~See~~See Note 3 to the Consolidated Financial Statements for additional information regarding the Company’s investment securities.

LOANS/LEASES

The ~~Company’s~~Company’s organic loan/lease portfolio grew $366.5 million, or 15%, during 2017. The remaining growth in the loan/lease portfolio was related to the acquisition of Guaranty Bank (further described in Note 2 to the Consolidated Financial Statements). Notably, C&I loans increased $306.9 million, or 37% and CRE loans grew $210.0 million, or 19%.

The Company’s organic loan/lease portfolio grew $188.4 million, or 11%, during 2016. The remaining growth in the loan/lease portfolio was related to the acquisition of CSB (further described in Note 2 to the Consolidated Financial Statements). Notably, C&I loans increased $179.5 million, or 28%. and CRE loans grew $369.1 million, or 51%. CSB’s loan portfolio was heavily reliant on high-quality CRE, with that category representing 63% of their total loan portfolio as of December 31, 2016. This reliance increased the Company’s overall reliance on CRE.

The Company’s total loan/lease portfolio grew $166.9 million, or 10%, during 2015. Notably, C&I loans increased $124.2 million, or 24%. Although CRE loans grew $22.2 million, or 3%, this sector of the loan/lease portfolio is becoming a smaller percentage of total loans/leases (down from 43% in 2014 to 40% in 2015).

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The mix of loan/lease types within the ~~Company’s~~Company’s loan/lease portfolio is presented in the following table.

	As of December 31,
	2016						2015						2014						2013						2012
	Amount			%			Amount			%			Amount			%			Amount			%			Amount			%			As of December 31,
																															2017						2016						2015						2014						2013
	(dollars in thousands)																														Amount			%			Amount			%			Amount			%			Amount			%			Amount			%
																															(dollars in thousands)
C&I loans	$	827,637			34	%	$	648,160			36	%	$	523,927			32	%	$	431,688			30	%	$	394,244			31	%	$	1,134,516			38	%	$	827,637			34	%	$	648,160			36	%	$	523,927			32	%	$	431,688			30	%
CRE loans		1,093,459			46	%		724,369			41	%		702,140			43	%		671,753			46	%		593,979			46	%		1,303,492			44	%		1,093,459			46	%		724,369			41	%		702,140			43	%		671,753			46	%
Direct financing leases		165,419			7	%		173,656			10	%		166,032			10	%		128,902			9	%		103,686			8	%		141,448			5	%		165,419			7	%		173,656			10	%		166,032			10	%		128,902			9	%
Residential real estate loans		229,233			10	%		170,433			9	%		158,633			10	%		147,356			10	%		115,582			9	%		258,646			9	%		229,233			10	%		170,433			9	%		158,633			10	%		147,356			10	%
Installment and other consumer loans		81,666			3	%		73,669			4	%		72,607			5	%		76,034			5	%		76,720			6	%		118,611			4	%		81,666			3	%		73,669			4	%		72,607			5	%		76,034			5	%

Total loans/leases	$	2,397,414			100	%	$	1,790,287			100	%	$	1,623,339			100	%	$	1,455,733			100	%	$	1,284,211			100	%	$	2,956,713			100	%	$	2,397,414			100	%	$	1,790,287			100	%	$	1,623,339			100	%	$	1,455,733			100	%

Plus deferred loan/lease origination costs, net of fees		8,073						7,736						6,664						4,547						3,176						7,773						8,073						7,736						6,664						4,547
Less allowance		(30,757	)					(26,141	)					(23,074	)					(21,448	)					(19,925	)					(34,356	)					(30,757	)					(26,141	)					(23,074	)					(21,448	)
Net loans/leases	$	2,374,730					$	1,771,882					$	1,606,929					$	1,438,832					$	1,267,462					$	2,930,130					$	2,374,730					$	1,771,882					$	1,606,929					$	1,438,832

Historically, the Company structures most residential real estate loans to conform to the underwriting requirements of Freddie Mac and Fannie Mae to allow the subsidiary banks to resell the loans on the secondary market to avoid the interest rate risk associated with longer term fixed rate loans and recognizing noninterest income from the gain on sale. Loans originated for this purpose were classified as held for sale and are included in the residential real estate loans in the table above. Historically, the subsidiary banks structure most loans that will not conform to those underwriting requirements as adjustable rate mortgages that mature or adjust in one to five years, and then retain these loans in their portfolios. The Company holds a limited amount of 15-year fixed rate residential real estate loans originated in prior years that met certain credit guidelines. In addition, the Company has not originated any subprime, Alt-A, no documentation, or stated income residential real estate loans throughout its history.

The following ~~tables~~tables set forth the remaining maturities by loan/lease type as of December 31, ~~2016~~2017 and ~~2015.~~2016. Maturities are based on contractual dates.

	As of December 31, 2016
				Due after one						Maturities After One Year						As of December 31, 2017
	Due in one			through 5			Due after			Predetermined			Adjustable												Maturities After One Year
	year or less			years			5 years			interest rates			interest rates			Due in one			Due after one			Due after			Predetermined			Adjustable
	(dollars in thousands)															year or less			through 5 years			5 years			interest rates			interest rates
																(dollars in thousands)
C&I loans	$	280,778		$	326,656		$	220,203		$	354,499		$	192,360		$	378,849		$	427,347		$	328,320		$	505,345		$	250,322
CRE loans		183,027			581,650			328,782			625,806			284,626			225,712			715,661			362,119			734,844			342,936
Direct financing leases		5,999			154,002			5,418			159,420			-			8,504			127,853			5,091			132,944			-
Residential real estate loans		7,018			6,432			215,783			166,069			56,146			6,793			7,546			244,307			184,284			67,569
Installment and other consumer loans		17,040			44,727			19,899			28,439			36,187			28,908			54,565			35,138			43,817			45,886
	$	493,862		$	1,113,467		$	790,085		$	1,334,233		$	569,319		$	648,766		$	1,332,972		$	974,975		$	1,601,234		$	706,713

Percentage of total loans/leases		21	%		46	%		33	%		70	%		30	%		22	%		45	%		33	%		69	%		31	%

	As of December 31, 2015
				Due after one						Maturities After One Year						As of December 31, 2016
	Due in one			through 5			Due after			Predetermined			Adjustable												Maturities After One Year
	year or less			years			5 years			interest rates			interest rates			Due in one			Due after one			Due after			Predetermined			Adjustable
	(dollars in thousands)															year or less			through 5 years			5 years			interest rates			interest rates
																(dollars in thousands)
C&I loans	$	224,414		$	280,857		$	142,889		$	275,094		$	148,652		$	280,778		$	326,656		$	220,203		$	354,499		$	192,360
CRE loans		102,009			426,821			195,539			439,108			183,252			183,027			581,650			328,782			625,806			284,626
Direct financing leases		5,034			163,010			5,612			168,622			-			5,999			154,002			5,418			159,420			-
Residential real estate loans		2,774			2,418			165,241			116,224			51,435			7,018			6,432			215,783			166,069			56,146
Installment and other consumer loans		21,072			40,619			11,978			26,499			26,098			17,040			44,727			19,899			28,439			36,187
	$	355,303		$	913,725		$	521,259		$	1,025,547		$	409,437		$	493,862		$	1,113,467		$	790,085		$	1,334,233		$	569,319

Percentage of total loans/leases		20	%		51	%		29	%		71	%		29	%		21	%		46	%		33	%		70	%		30	%

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As CRE loans have historically been the ~~Company’s~~Company’s largest portfolio segment, management places a strong emphasis on monitoring the composition of the Company’s CRE loan portfolio. For example, management tracks the level of owner-occupied CRE loans relative to non owner-occupied loans. Owner-occupied loans are generally considered to have less risk. As of December 31, ~~2016~~2017 and ~~2015,~~2016, respectively, approximately ~~30%~~26% and ~~35%~~30% of the CRE loan portfolio was owner-occupied. The decrease in this percentage in ~~2016~~2017 was mostly due to the addition of ~~CSB,~~Guaranty Bank, which had a slightly lower owner-occupied percentage as compared to the ~~other three~~legacy charters. ~~CSB’s~~Guaranty Bank’s percentage of owner-occupied loans was ~~20%~~18% of their CRE ~~portfolio, while the other three charters were collectively at 34%.~~portfolio.

Over the past several ~~quarters,~~years, the Company has been successful in shifting the mix of its commercial loan portfolio by adding more C&I loans. C&I loans grew ~~$179.5~~$306.9 million, or ~~28%~~37% over the past twelve months. A portion of this growth was attributable to the acquisition of ~~CSB,~~Guaranty Bank, which had ~~$101.5~~$44.7 million of C&I loans at acquisition.

A syndicated loan is a commercial loan provided by a group of lenders and is structured, arranged and administered by one or several commercial or investment banks known as arrangers. The nationally syndicated loans invested in by the Company consist of fully funded, highly liquid term loans for which there is a liquid secondary market. The amount of nationally syndicated loans totaled $51.2 million and $46.5 million as of December 31, 2017 and 2016, respectively.

The Company also has several loans that are syndicated to borrowers in our existing markets or purchased from peer banks that we have a relationship with. These loans were immaterial as of December 31, 2017 and 2016.

See Note 4 to the Consolidated Financial Statements for additional information on the Company’s loan/lease portfolio.

ALLOWANCE FOR ~~ESTIMATED~~ESTIMATED LOSSES ON LOANS/LEASES

The allowance totaled $34.4 million at December 31, 2017, which was an increase of $3.6 million, or 12%, from $30.8 million at December 31, 2016. Provision totaled $8.5 million for 2017 and outpaced net charge-offs of $4.9 million (or 19 basis points of average loans/leases outstanding).

The allowance totaled $30.8 million at December 31, 2016, which was an increase of $4.6 million, or 18%, from $26.1 million at December 31, 2015. Provision totaled $7.5 million for 2016 and outpaced net charge-offs of $2.9 million (or 14 basis points of average loans/leases outstanding).

The allowance totaled $26.1 million at December 31, 2015, which was an increase of $3.1 million, or 13%, from $23.1 million at December 31, 2014. Provision totaled $6.9 million for 2015 and outpaced net charge-offs of $3.8 million (or 22 basis points of average loans/leases outstanding).

The increase in allowance in both ~~2016~~2017 and ~~2015~~2016 was primarily due to a combination of general allocations related to loan growth, as well as changes in qualitative and quantitative factors. Additionally, a portion of the increase in ~~2016~~both years was due to the acquisition of CSB. Although purchase accounting eliminates the allowance at acquisition, as acquired loans refinance and new loans are originated, an allowance must be established. ~~CSB’s provision for the partial year~~

Table of ~~2016 was $1.5 million.~~

Contents

The following table summarizes the activity in the allowance.

Years ended December 31,

2016

2015

2014

2013

2012

(dollars in thousands)

Average amount of loans/leases outstanding, before allowance
$ 2,042,555 $ 1,707,523 $ 1,540,382 $ 1,425,364 $ 1,219,623

Allowance:

Balance, beginning of fiscal period
$ 26,141 $ 23,074 $ 21,448 $ 19,925 $ 18,789
Charge-offs:

C&I
(527 ) (454 ) (1,476 ) (963 ) (683 )
CRE
(24 ) (2,560 ) (2,756 ) (3,573 ) (2,232 )
Direct financing leases
(2,503 ) (1,789 ) (1,504 ) (917 ) (740 )
Residential real estate
(77 ) (170 ) (131 ) (162 ) (4 )
Installment and other consumer
(113 ) (252 ) (269 ) (229 ) (717 )
Subtotal charge-offs
(3,244 ) (5,225 ) (6,136 ) (5,844 ) (4,376 )

Recoveries:

C&I
109 634 363 626 663
CRE
33 502 418 574 222
Direct financing leases
93 136 68 12 77
Residential real estate
1 4 10 17 -
Installment and other consumer
146 145 96 208 179
Subtotal recoveries
382 1,421 955 1,437 1,141
Net charge-offs
(2,862 ) (3,804 ) (5,181 ) (4,407 ) (3,235 )
Provision charged to expense
7,478 6,871 6,807 5,930 4,371
Balance, end of fiscal year
$ 30,757 $ 26,141 $ 23,074 $ 21,448 $ 19,925

Ratio of net charge-offs to average loans/leases outstanding
0.14 % 0.22 % 0.34 % 0.31 % 0.27 %

	Years ended December 31,
	2017			2016			2015			2014			2013
	(dollars in thousands)
Average amount of loans/leases outstanding, before allowance	$	2,611,888		$	2,042,555		$	1,707,523		$	1,540,382		$	1,425,364

Allowance:
Balance, beginning of fiscal year	$	30,757		$	26,141		$	23,074		$	21,448		$	19,925
Charge-offs:
C&I		(1,150	)		(527	)		(454	)		(1,476	)		(963	)
CRE		(1,795	)		(24	)		(2,560	)		(2,756	)		(3,573	)
Direct financing leases		(2,285	)		(2,503	)		(1,789	)		(1,504	)		(917	)
Residential real estate		(102	)		(77	)		(170	)		(131	)		(162	)
Installment and other consumer		(41	)		(113	)		(252	)		(269	)		(229	)
Subtotal charge-offs		(5,373	)		(3,244	)		(5,225	)		(6,136	)		(5,844	)

Recoveries:
C&I		191			109			634			363			626
CRE		43			33			502			418			574
Direct financing leases		186			93			136			68			12
Residential real estate		29			1			4			10			17
Installment and other consumer		53			146			145			96			208
Subtotal recoveries		502			382			1,421			955			1,437
Net charge-offs		(4,871	)		(2,862	)		(3,804	)		(5,181	)		(4,407	)
Provision charged to expense		8,470			7,478			6,871			6,807			5,930
Balance, end of fiscal year	$	34,356		$	30,757		$	26,141		$	23,074		$	21,448

Net charge-offs to average loans/leases outstanding		0.19	%		0.14	%		0.22	%		0.34	%		0.31	%

~~The~~The adequacy of the allowance was determined by management based on factors that included the overall composition of the loan/lease portfolio, types of loans/leases, historical loss experience, loan/lease delinquencies, potential substandard and doubtful credits, economic conditions, collateral positions, government guarantees and other factors that, in management's judgment, deserved evaluation. To ensure that an adequate allowance was maintained, provisions were made based on the increase/decrease in loans/leases and a detailed analysis of the loan/lease portfolio. The loan/lease portfolio was reviewed and analyzed quarterly with specific detailed reviews completed on all credits risk-rated less than “fair quality” and carrying aggregate exposure in excess of $250 thousand. The adequacy of the allowance was monitored by the credit administration staff and reported to management and the board of directors.

The following is a table that reports the historical trends of criticized and classified loan totals as of December 31, 2017, 2016 ~~2015~~ and ~~2014.~~2015.

	As of December 31,						As of December 31,
Internally Assigned Risk Rating *	2016		2015		2014		2017		2016		2015
	(dollars in thousands)
							(dollars in thousands)
Special Mention (Rating 6)	$	20,082	$	37,289	$	32,958	$	31,024	$	20,082	$	37,289
Substandard (Rating 7)		49,035		27,962		35,715		43,435		49,035		27,962
Doubtful (Rating 8)		-		-		-		271		-		-
	$	69,117	$	65,251	$	68,673	$	74,730	$	69,117	$	65,251

Criticized Loans **	$	69,117	$	65,251	$	68,673	$	74,730	$	69,117	$	65,251
Classified Loans ***	$	49,035	$	27,962	$	35,715	$	43,706	$	49,035	$	27,962

* Amounts above exclude the government guaranteed portion, if any. The Company assigns internal risk ratings of Pass (Rating 2) for the government guaranteed portion.

** Criticized loans are defined as C&I and CRE loans with internally assigned risk ratings of 6, 7, or 8, regardless of performance.

*** Classified loans are defined as C&I and CRE loans with internally assigned risk ratings of 7 or 8, regardless of performance.

Table of Contents

~~Criticized~~

Criticized loans ~~stayed relatively flat over the past three years, while classified~~increased 8% in 2017 and 6% in 2016. Classified loans decreased ~~22%~~11% in ~~2015 and then increased~~2017 after increasing 75% in 2016.

NPLs ~~(consisting~~(consisting of nonaccrual loans/leases, accruing loans/leases past due 90 days or more, and accruing TDRs) decreased $2.6 million, or 12%, during 2017. NPLs increased $9.5 million, or 81%, during 2016 due to the addition of two large credits in the fourth quarter. NPLs declined $8.4 million, or 42%, during 2015 and $383 thousand, or 2%, during 2014. Furthermore, NPLs have declined $26.1 million, or 55% from their peak at September 30, 2010.

2016. See the table in the following section for further detail on NPLs and NPAs. ~~The level of allowance as a percentage of gross loans/leases increased slightly from 2014 to 2015.~~

In2017 and 2016, allowance as a percentage of gross loans/leases decreased due to the ~~acquisition~~acquisitions of ~~CSB.~~CSB and Guaranty Bank. In accordance with GAAP for acquisition accounting, ~~the~~acquired loans ~~acquired through the acquisition of CSB~~ were recorded at fair value; therefore, there was no allowance associated with ~~CSB’s~~these loans at acquisition. Management continues to evaluate the allowance needed on the acquired ~~CSB~~ loans factoring in the net remaining discount ($~~10.1~~8.1 million at December 31, ~~2016)~~2017). When factoring this remaining discount into the Company’s allowance to total loans and leases calculation, the Company’s allowance as a percentage of total loans and leases increases from ~~1.28%~~1.16% to ~~1.70%~~1.43%. This elimination of CSB’s allowance also resulted in a decrease of the allowance to NPLs ratio, as CSB’s nonperforming loans no longer have reserves allocated to them and instead, have a loan discount amount that is separate from the allowance.

The following table summarizes the trend in allowance as a percentage of gross loans/leases and as a percentage of NPLs as of December 31, 2017, 2016, ~~2015,~~ and ~~2014.~~2015.

	As of December 31,									As of December 31,
	2016			2015			2014			2017			2016			2015

Allowance / Gross Loans/Leases		1.28	%		1.45	%		1.42	%		1.16	%		1.28	%		1.45	%
Allowance / NPLs		144.85	%		223.33	%		114.78	%		184.28	%		144.85	%		223.33	%

The following table presents the allowance by type and the percentage of loan/lease type to total loans/leases.

	As of December 31,
	2016					2015					2014					2013					2012
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%			As of December 31,
																										2017					2016					2015					2014					2013
	(dollars in thousands)																									Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
																										(dollars in thousands)
C&I loans		12,545		34	%		10,484		36	%		8,834		32	%		5,649		30	%		4,532		31	%		14,323		38	%		12,545		34	%		10,484		36	%		8,834		32	%		5,649		30	%
CRE loans		11,671		46	%		9,375		41	%		8,353		43	%		10,705		46	%		11,070		46	%		13,963		44	%		11,671		46	%		9,375		41	%		8,353		43	%		10,705		46	%
Direct financing leases		3,112		7	%		3,395		10	%		3,359		10	%		2,517		9	%		1,990		8	%		2,382		5	%		3,112		7	%		3,395		10	%		3,359		10	%		2,517		9	%
Residential real estate loans		2,342		10	%		1,790		9	%		1,526		10	%		1,396		10	%		1,070		9	%		2,466		9	%		2,342		10	%		1,790		9	%		1,526		10	%		1,396		10	%
Installment and other consumer loans		1,087		3	%		1,097		4	%		1,002		5	%		1,181		5	%		1,263		6	%		1,222		4	%		1,087		3	%		1,097		4	%		1,002		5	%		1,181		5	%
	$	30,757		100	%	$	26,141		100	%	$	23,074		100	%	$	21,448		100	%	$	19,925		100	%	$	34,356		100	%	$	30,757		100	%	$	26,141		100	%	$	23,074		100	%	$	21,448		100	%

% - Represents the percentage of the certain type of loan/lease to total loans/leases

Although management ~~believes~~believes that the allowance at December 31, ~~2016 was~~2017 is at a level adequate to absorb probable losses on existing loans/leases, there can be no assurance that such losses will not exceed the estimated amounts or that the Company will not be required to make additional provisions for loan/lease losses in the future. Unpredictable future events could adversely affect cash flows for both commercial and individual borrowers, which could cause the Company to experience increases in problem assets, delinquencies and losses on loans/leases, and require additional increases in the provision. Asset quality is a priority for the Company and its subsidiaries. The ability to grow profitably is in part dependent upon the ability to maintain that quality. The Company continually focuses efforts at its subsidiary banks and its leasing company with the intention to improve the overall quality of the Company’s loan/lease portfolio.

See Note 4 to the Consolidated Financial Statements for additional information on the Company’s allowance.

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NONPERFORMING ASSETS

The table below presents the amounts of NPAs.

	As of December 31,
	2016			2015			2014			2013			2012
																As of December 31,
	(dollars in thousands)															2017			2016			2015			2014			2013
																(dollars in thousands)
Nonaccrual loans/leases (1) (2)	$	13,919		$	10,648		$	18,588		$	17,878		$	17,932		$	11,441		$	13,919		$	10,648		$	18,588		$	17,878
Accruing loans/leases past due 90 days or more		967			3			93			84			159			89			967			3			93			84
TDRs - accruing		6,347			1,054			1,421			2,523			7,300			7,113			6,347			1,054			1,421			2,523
NPLs		21,233			11,705			20,102			20,485			25,391			18,643			21,233			11,705			20,102			20,485
OREO		5,523			7,151			12,768			9,729			3,955			13,558			5,523			7,151			12,768			9,729
Other repossessed assets		202			246			155			346			212			80			202			246			155			346
NPAs	$	26,958		$	19,102		$	33,025		$	30,560		$	29,558		$	32,281		$	26,958		$	19,102		$	33,025		$	30,560

NPLs to total loans/leases		0.88	%		0.65	%		1.23	%		1.40	%		1.97	%		0.63	%		0.88	%		0.65	%		1.23	%		1.40	%
NPAs to total loans/leases plus repossessed property		1.12	%		1.06	%		2.01	%		2.08	%		2.29	%		1.08	%		1.12	%		1.06	%		2.01	%		2.08	%
NPAs to total assets		0.82	%		0.74	%		1.31	%		1.28	%		1.41	%		0.81	%		0.82	%		0.74	%		1.31	%		1.28	%
Texas ratio (Non-GAAP) (3)		9.09	%		7.62	%		20.26	%		18.43	%		18.68	%

(1)

Includes government guaranteed ~~portions~~portions of loans, if applicable.

(2)

~~Includes~~Includes TDRs of $2.3 million at December 31, 2017, $2.3 million at December 31, 2016, $1.5 million at December 31, 2015, $5.0 million at December 31, 2014, and $10.9 million at December 31, ~~2013, and $5.7 million at December 31, 2012.~~

~~(3)~~

~~Texas Ratio = NPAs (excluding Other Repossessed Assets) / Tangible Equity plus Allowance. Texas Ratio is a non-GAAP financial measure (see GAAP to Non-GAAP Reconciliations for more information).~~2013.

~~The~~The large majority of the Company’s NPAs consists of nonaccrual loans/leases, accruing TDRs and OREO. For nonaccrual loans/leases, management thoroughly reviewed these loans/leases and provided specific allowances as appropriate. OREO is carried at the lower of carrying amount or fair value less costs to sell.

The policy of the Company is to place a loan/lease on nonaccrual status if: (a) payment in full of interest or principal is not ~~expected;~~expected; or (b) principal or interest has been in default for a period of 90 days or more unless the obligation is both in the process of collection and well secured. A loan/lease is well secured if it is secured by collateral with sufficient market value to repay principal and all accrued interest. A debt is in the process of collection if collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to current status.

In ~~2016,~~2017, the Company’s NPAs increased $5.3 million, or 20%. OREO increased $8.0 million primarily due to the addition of one large non owner-occupied CRE relationship.

In 2016, the Company’s NPAs increased $7.9 million, or 41%. Nonaccrual loans increased $3.3 million as a result of one large credit that was added in the fourth quarter, partially offset by paydowns of nonaccrual loans. Accruing loans/leases past due 90 days or more increased $964 thousand, mostly due to loans acquired through the purchase of CSB. TDRs increased $5.3 million due to one large credit that was restructured in the fourth quarter of 2016. OREO decreased $1.6 million during the year.

In 2015, the Company’s NPAs decreased $13.9 million, or 42%. Nonaccrual loans decreased $7.9 million as a result of improving performance and pay downs. OREO decreased $5.6 million due to the sale of two large properties during the year, one of which was sold at a gain of $1.2 million.

The ~~Company’s~~Company’s lending/leasing practices remain unchanged and asset quality remains a top priority for management.

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D~~DEPOSITS~~EPOSITS

Deposits grew ~~$788.6~~$597.3 million during 2017 ($384.8 million of organic growth, excluding the $212.5 million of deposits acquired through the purchase of Guaranty Bank). For 2016, deposits grew $788.6 million ($302.3 million of organic growth, excluding the $486.3 million of deposits acquired through the purchase of CSB). ~~For 2015, deposits grew $201.0 million, or 12%.~~ The table below presents the composition of the Company’s deposit portfolio.

	As of December 31,
	2016					2015					2014
	Amount		%			Amount		%			Amount		%			As of December 31,
																2017					2016					2015
	(dollars in thousands)															Amount		%			Amount		%			Amount		%
																(dollars in thousands)
Noninterest-bearing demand deposits	$	797,415		30	%	$	615,292		33	%	$	511,992		31	%	$	789,548		24	%	$	797,415		30	%	$	615,292		33	%
Interest-bearing demand deposits		1,369,226		51	%		886,294		47	%		778,570		46	%		1,855,893		57	%		1,369,226		51	%		886,294		47	%
Time deposits		439,169		17	%		309,974		16	%		306,364		18	%		516,058		16	%		439,169		17	%		309,974		16	%
Brokered deposits*		63,451		2	%		69,106		4	%		82,742		5	%		105,156		3	%		63,451		2	%		69,106		4	%
	$	2,669,261		100	%	$	1,880,666		100	%	$	1,679,668		100	%	$	3,266,655		100	%	$	2,669,261		100	%	$	1,880,666		100	%

*Includes brokered money market balances of $25.1 million, $22.0 million ~~$16.0 million~~ and ~~$13.5~~$16.0 million as of December 31, 2017, 2016 ~~2015~~ and ~~2014,~~2015, respectively.

The Company has been successful in growing its noninterest-bearing deposit portfolio over the past several years, growing average balances 7% in 2017 and 11% in ~~2016 and 12% in 2015.~~2016. Year-end balances can fluctuate a great deal due to large customer and correspondent bank activity. Trends have shown that this fluctuation is generally temporary.

Management will continue to focus on growing its noninterest bearing deposit portfolio, including its correspondent banking business at QCBT, as well as shifting the mix from brokered and other higher cost deposits to lower cost core deposits. With the significant success achieved by QCBT in growing its correspondent banking business, QCBT has developed procedures to proactively monitor this industry concentration of deposits and loans. Other deposit-related industry concentrations and large accounts are monitored by the internal asset liability management committee. See discussion regarding policy limits on bank stock loans in the Lending/Leasing section under Item 1 – Business in Part I of this Form 10-K.

SHORT-TERM BORROWINGS

The ~~subsidiary~~subsidiary banks offer overnight repurchase agreements to some of their major customers. Also, the subsidiary banks purchase federal funds for short-term funding needs from the FRB, or from their correspondent banks. The table below presents the composition of the Company’s short-term borrowings.

	As of December 31,
	2016		2015		2014
							As of December 31,
	(dollars in thousands)						2017		2016		2015
							(dollars in thousands)
Overnight repurchase agreements with customers	$	8,131	$	73,873	$	137,252	$	7,003	$	8,131	$	73,873
Federal funds purchased		31,840		70,790		131,100		6,990		31,840		70,790
	$	39,971	$	144,663	$	268,352	$	13,993	$	39,971	$	144,663

In ~~2015 and~~ 2016, the Company shifted ~~some~~ overnight customer repurchase agreement funds to insured deposit products which do not require collateral, helping to free up additional liquidity for the Company. This also ~~allows~~allowed the Company to further execute on the strategy of rotating out of investment securities into loans and leases.

Regarding the ~~Company’s~~Company’s federal funds purchased, this fluctuates based on the short-term funding needs of the Company’s subsidiary banks. See Note 9 to the Consolidated Financial Statements for additional information on the Company’s short-term borrowings.

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FHLB ADVANCES AND OTHER BORROWINGS

As a result of their memberships in the FHLB of Des Moines and Chicago, the subsidiary banks have the ability to borrow funds for short-term or long-term purposes under a variety of ~~programs.~~programs. The subsidiary banks utilize FHLB advances for loan matching as a hedge against the possibility of rising interest rates or when these advances provide a less costly source of funds than customer deposits. For 2017, FHLB advances increased $54.5 million, or 40%, due to the timing of strong loan and lease growth which temporarily outpaced the Company’s deposit growth. The FHLB advance increases were overnight advances. There were no increases in term advances. See Note 10 of the Consolidated Financial Statements for additional details. For 2016, FHLB advances decreased $13.5 million, or 9%, as several prepayments of advances were included in balance sheet restructurings throughout the year. See Note 10 of the Consolidated Financial Statements for additional details. For 2015, FHLB advances decreased $52.5 million, or 26%, as several prepayments of advances were included in balance sheet restructurings throughout the year. See Note 10 of the Consolidated Financial Statements for additional details.

	As of December 31,
	2016			2015			2014
										As of December 31,
	(dollars in thousands)									2017			2016			2015
										(dollars in thousands)
Amount Due	$	137,500		$	151,000		$	203,500		$	192,000		$	137,500		$	151,000
Weighted Average Interest Rate at Year-End		1.25	%		1.37	%		2.83	%		1.82	%		1.25	%		1.37	%

Other borrowings consist largely of wholesale structured repurchase agreements which the subsidiary banks utilize as an alternative funding source to FHLB advances and customer deposits. The table below presents the composition of the Company’s other borrowings.

	As of December 31,
	2016		2015		2014
							As of December 31,
	(dollars in thousands)						2017		2016		2015
							(dollars in thousands)
Wholesale structured repurchase agreements	$	45,000	$	110,000	$	130,000	$	35,000	$	45,000	$	110,000
Term note		30,000		-		17,625
Term notes								31,000		30,000		-
Revolving line of credit		5,000		-		-		-		5,000		-
Series A subordinated notes		-		-		2,657
	$	80,000	$	110,000	$	150,282	$	66,000	$	80,000	$	110,000

In 2017, other borrowings decreased $14 million with the paydown of $5.0 million revolving line of credit and the maturity of $10.0 million wholesale structured repurchase agreement. In 2016, other borrowings decreased $30 million. ~~In 2015, other borrowings decreased $40 million.~~

See Notes 10 and 11 to the Consolidated Financial Statements for additional information regarding FHLB advances, other borrowings and the balance sheet restructurings that occurred in 2015 and 2016.

It is ~~management’s~~management’s intention to continue to reduce its reliance on wholesale funding, including FHLB advances, wholesale structured repurchase agreements, and brokered deposits. Replacement of this funding with core deposits helps to reduce interest expense as the wholesale funding tends to be higher cost. However, the Company may choose to utilize wholesale funding sources to supplement funding needs, as this is a way for the Company to effectively and efficiently manage interest rate risk.

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STOCKHOLDERS’ EQUITY

The table below presents the composition of the ~~Company’s~~Company’s stockholders’ equity.

	As of December 31,
	2016			2015			2014
	Amount			Amount			Amount			As of December 31,
										2017			2016			2015
	(dollars in thousands)									Amount			Amount			Amount
										(dollars in thousands)
Common stock	$	13,107		$	11,761		$	8,074		$	13,918		$	13,107		$	11,761
Additional paid in capital		156,777			123,283			61,669			189,078			156,777			123,283
Retained earnings		118,617			92,966			77,877			151,962			118,617			92,966
AOCI		(2,460	)		(2,124	)		(1,935	)		(1,671	)		(2,460	)		(2,124	)
Less: Treasury stock		-			-			(1,606	)
Total stockholders' equity		286,041			225,886			144,079		$	353,287		$	286,041		$	225,886

TCE/TA ratio (non-GAAP)		8.04	%		8.55	%		5.52	%		8.01	%		8.04	%		8.55	%

*TCE/TA ratio is a non-GAAP measure. Refer to the GAAP to Non-GAAP Reconciliations section of this report for more information.

As of December 31, 2017, 2016 ~~2015~~ and ~~2014,~~2015, no preferred stock was outstanding.

In connection with the acquisition of Guaranty Bank in the fourth quarter of 2017, the Company issued 678,670 shares of its common stock at a price of $45.50 per share. This issuance significantly increased common stock and additional paid in capital in comparison to the prior year. Refer to Note 2 of the Consolidated Financial Statements for additional information.

In connection with the acquisition of CSB in the third quarter of 2016, the Company sold 1,215,000 shares of its common stock at a price of $24.75 per share, for net proceeds of $29.8 million, after deducting expenses. This offering significantly increased common stock and additional paid in capital in comparison to the prior year. Refer to Note 2 of the Consolidated Financial Statements for additional information.

In 2015, the Company sold 3,680,000 shares of its common stock at a price of $18.25 per share, for net proceeds of $63.5 million, after deducting expenses. This offering significantly increased common stock and additional paid in capital in comparison to the prior year. Refer to Note 16 of the Consolidated Financial Statements for additional information.

The following table presents the rollforward of ~~stockholders’~~stockholders’ equity for the years ended December 31, 2017 and 2016, ~~and 2015,~~ respectively.

	For the Years Ended December 31,						For the Years Ended December 31,
	2016			2015			2017			2016
	(dollars in thousands)						(dollars in thousands)
Beginning balance	$	225,886		$	144,079		$	286,041		$	225,886
Net income		27,686			16,928			35,707			27,686
Other comprehensive loss, net of tax		(336	)		(189	)
Other comprehensive income (loss), net of tax								1,093			(336	)
Common cash dividends declared		(2,036	)		(935	)		(2,665	)		(2,036	)
Proceeds from issuance of 3,680,000 shares of common stock, net of costs		-			63,484
Proceeds from issuance of 678,670 shares of common stock, net of costs								30,741			-
Proceeds from issuance of 1,215,000 shares of common stock, net of costs		29,829			-			-			29,829
Other *		5,012			2,519			2,370			5,012
Ending balance	$	286,041		$	225,886		$	353,287		$	286,041

*Includes mostly common stock issued for options exercised and the employee stock purchase plans, as well as stock-based compensation.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity measures the ability of the Company to meet maturing obligations and its existing commitments, to withstand fluctuations in deposit levels, to fund its operations, and to provide for ~~customers’~~customers’ credit needs. The Company monitors liquidity risk through contingency planning stress testing on a regular basis. The Company seeks to avoid over concentration of funding sources and to establish and maintain contingent funding facilities that can be drawn upon if normal funding sources become unavailable. One source of liquidity is cash and short-term assets, such as interest-bearing deposits in other banks and federal funds sold, which averaged $164.0 million during 2017, $139.5 million during 2016 and $129.5 million during ~~2015 and $118.8 million during 2014.~~2015. The Company’s on balance sheet liquidity position can fluctuate based on short-term activity in deposits and loans.

The subsidiary banks have a variety of sources of short-term ~~liquidity~~liquidity available to them, including federal funds purchased from correspondent banks, FHLB advances, structured repos, brokered deposits, lines of credit, borrowing at the Federal Reserve Discount Window, sales of securities available for sale, and loan/lease participations or sales. The Company also generates liquidity from the regular principal payments and prepayments made on its loan/lease portfolio, and on the regular principal payments on its securities portfolio.

At December 31, ~~2016,~~2017, the subsidiary banks had 34 lines of credit totaling $375.0 million, of which $3.0 million was secured and $372.0 million was unsecured. At December 31, 2017, the full $375.0 million was available.

At December 31, 2016, the subsidiary banks had 33 lines of credit totaling $381.4 million, of which $34.4 million was secured and $347.0 million was unsecured. At December 31, 2016, $361.4 million was available as $20.0 million was utilized for short-term borrowing needs at QCBT.

At December 31, 2015, the subsidiary banks had 32 lines of credit totaling $346.6 million, of which $14.6 million was secured and $332.0 million was unsecured. At December 31, 2015, $286.6 million was available as $60.0 million was utilized for short-term borrowing needs at QCBT.

The Company has emphasized growing the number and amount of lines of credit in an effort to strengthen this contingent source of liquidity. Additionally, the Company maintains ~~its~~a $10.0 million secured revolving credit note with a variable interest rate and a maturity of June 30, ~~2017.~~2018. At December 31, ~~2016,~~2017, the ~~Company had $5.0~~full $10.0 million ~~outstanding on this revolving credit note and had $5.0 million~~was available. See Note 11 to the Consolidated Financial Statements for additional information.

Investing activities used cash of $410.5 million during 2017 compared to $169.0 million during 2016, ~~compared to~~and $66.1 million during ~~2015, and $129.9 million during 2014.~~2015. Proceeds from calls, maturities, pay downs, and sales of securities were $152.6 million for 2017 compared to $285.2 million for 2016, ~~compared to~~and $308.8 million for ~~2015, and $137.3 million for 2014.~~2015. Purchases of securities used cash of $179.8 million for 2017 compared to $179.6 million for 2016, ~~compared to~~and $232.1 million for ~~2015, and $76.3 million for 2014.~~2015. The net increase in loans/leases used cash of $375.2 million for 2017 compared to $187.5 million for 2016, ~~compared to~~and $172.8 million for ~~2015, and $180.3 million for 2014.~~2015. The Company paid net cash of $3.4 million and $69.9 million related to the acquisition of ~~CSB.~~Guaranty Bank and CSB, respectively.

Financing activities provided cash of $382.0 million for 2017 compared to $154.4 million for 2016, ~~compared to~~and $39.5 million for ~~2015, and $100.6 million for 2014.~~2015. Net increases in deposits totaled $385.1 million, $302.4 million, and $201.0 million for 2017, 2016, and ~~$32.7 million for 2016,~~ 2015, ~~and 2014,~~ respectively. Net short-term borrowings decreased $39.1 million, $104.7 million and $123.7 million in 2017 and 2016 and 2015, ~~respectively, while they increased $119.1 million in 2014.~~respectively. In 2017, 2016, and 2015, respectively, the Company used $4.1 million, $104.7 million, and $120.7 million to prepay select FHLB advances and other borrowings. In 2016, the Company received $29.8 million of proceeds from the common stock offering of 1.2 million shares of common stock. InShort-term FHLB advances increased $60.9 million, $20.5 million. and $47.0 million in 2017, 2016, and 2015, ~~the Company received $63.5 million of proceeds from the public common stock offering of 3.7 million shares of common stock.~~respectively.

Total cash provided by operating activities was $33.7 million for 2017, compared to $43.4 million for 2016, ~~compared to~~and $30.1 million for ~~2015, and $25.6 million for 2014.~~2015.

Throughout its history, the Company has secured additional capital through various resources, including common and preferred stock and the issuance of trust preferred securities.

~~The~~The Company filed a universal shelf registration statement on Form S-3 with the SEC on October 27, 2016, as amended on January 11, 2017. Declared effective by the SEC on January 31, 2017, the registration statement allows the Company to offer and sell various types of securities, including common stock, preferred stock, debt securities and/or warrants, from time to time up to an aggregate amount of $100 million. The Company utilized $30.1 million of its previous $100 million shelf registration filing through the offer and sale of its common stock in the second quarter of 2016 to help fund the acquisition of CSB (see Note 2 to the Consolidated Financial Statements). This Form S-3 filing ~~replenishes~~replenished the amount available to the previous level of $100 million. The specific terms and prices of any securities offered pursuant to the registration statement will be determined at the time of any future offering and described in a separate prospectus supplement, which would be filed with the SEC at the time of the particular offering, if any. There were no securities issued under this shelf registration statement during 2017.

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As of December 31, ~~2016~~2017 and ~~2015,~~2016, the subsidiary banks remained “well-capitalized” in accordance with regulatory capital requirements administered by the federal banking authorities. See Note 16 to the Consolidated Financial Statements for detail of the capital amounts and ratios for the Company and subsidiary banks.

COMMITMENTS, CONTINGENCIES, CONTRACTUAL OBLIGATIONS, AND OFF-BALANCE SHEET ~~ARRANGEMENTS~~ARRANGEMENTS

In the normal course of business, the subsidiary banks make various commitments and incur certain contingent liabilities that are not presented in the accompanying consolidated financial statements. The commitments and contingent liabilities include various guarantees, commitments to extend credit, and standby letters of credit.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary banks evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the banks upon extension of credit, is based upon management's credit evaluation of the ~~counter-party.~~counter-party. Collateral held varies but may include accounts receivable, marketable securities, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the subsidiary banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year, or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The banks hold collateral, as described above, supporting those commitments if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the banks would be required to fund the commitments. The maximum potential amount of future payments the banks could be required to make is represented by the contractual amount. If the commitment is funded, the banks would be entitled to seek recovery from the ~~customer.~~customer. At December 31, ~~2016~~2017 and ~~2015,~~2016, no amounts had been recorded as liabilities for the banks' potential obligations under these guarantees.

As of December 31, ~~2016~~2017 and ~~2015,~~2016, commitments to extend credit aggregated ~~$666,778,085~~$791,550,060 and ~~$480,475,033,~~$666,778,085, respectively. As of December 31, ~~2016~~2017 and ~~2015,~~2016, standby letters of credit aggregated ~~$15,697,469~~$17,283,025 and ~~$13,067,100,~~$15,697,469, respectively. Management does not expect that all of these commitments will be funded.

Additional information regarding commitments, contingencies, and off-balance sheet ~~arrangements~~arrangements is described in Note 18 to the Consolidated Financial Statements.

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~~The~~The Company has various financial obligations, including contractual obligations and commitments, which may require future cash payments. The following table presents, as of December 31, ~~2016,~~2017, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.

	Financial		Payments Due by Period										Financial		Payments Due by Period
	Statement				One Year								Statement				One Year
Description	Note Reference		Total		or Less		2 - 3 Years		4 - 5 Years		After 5 Years		Note Reference		Total		or Less		2 - 3 Years		4 - 5 Years		After 5 Years
			(dollars in thousands)
															(dollars in thousands)
Deposits without a stated maturity		N/A	$	2,188,683	$	2,188,683	$	-	$	-	$	-		N/A	$	2,670,583	$	2,670,583	$	-	$	-	$	-
Certificates of deposit		8		480,578		367,577		95,167		17,834		-		8		596,072		478,334		104,375		13,296		67
Short-term borrowings		9		39,971		39,971		-		-		-		9		13,993		13,993		-		-		-
FHLB advances		10		137,500		112,500		25,000		-		-		10		192,000		190,400		1,600		-		-
Other borrowings		11		80,000		21,000		22,000		37,000		-		11		66,000		7,750		50,500		7,750		-
Junior subordinated debentures		12		33,480		-		-		-		33,480		12		37,486		-		-		-		37,486
Rental commitments		5		616		226		390		-		-		5		1,294		364		615		252		63
Purchase obligations		5		1,800		1,800		-		-		-
Operating contracts		N/A		28,332		9,928		16,197		2,207		-		N/A		34,363		11,752		11,424		5,891		5,296
Total contractual cash obligations			$	2,990,960	$	2,741,685	$	158,754	$	57,041	$	33,480			$	3,611,791	$	3,373,176	$	168,514	$	27,189	$	42,912

Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding on the Company and that specify all significant terms, including: (1) fixed or minimum quantities to be purchased; (2) fixed, minimum or variable price provisions; and (3) the approximate timing of the transaction. The Company had a $1.8 million purchase obligation at December 31, 2016, related to a branch remodel (further described in Note 5 to the Consolidated Financial Statements.

The Company's operating contract obligations represent short and long-term ~~lease~~contractual payments for data processing equipment and services, software, and other equipment and professional services.

IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements of the Company and the accompanying notes have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollar amounts without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.

FORWARD LOOKING STATEMENTS

This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the ~~Company’s~~Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “bode,” “predict,” “suggest,” “project,” “appear,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should,” “likely,” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

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The ~~Company’s~~Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries are detailed in the “Risk Factors” section included under Item 1A. of Part I of this Form 10-K. In addition to the risk factors described in that section, there are other factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries. These additional factors include, but are not limited to, the following:

●

The strength of the local and national economy.

●

Changes in the interest rate environment.

●

~~The economic impact of exceptional weather occurrences such as tornadoes, floods and blizzards.~~

●

The economic impact of past and any future terrorist attacks, acts of war or threats thereof and the response of the United States to any such threats and attacks.

●

The impact of cybersecurity risks.

●

The costs, effects and outcomes of existing or future litigation.

●

Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the FASB, the SEC or the PCAOB.

●

Unexpected results of acquisitions (including the acquisition ofGuaranty Bank and CSB), which may include failure to realize the anticipated benefits of the acquisition.

●

The economic impact of exceptional weather occurrences such as tornadoes, floods and blizzards.

●

The ability of the Company to manage the risks associated with the foregoing as well as anticipated.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company, like other financial institutions, is subject to direct and indirect market risk. Direct market risk exists from changes in interest rates. The ~~Company’s~~Company’s net income is dependent on its net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income.

In an attempt to manage the ~~Company’s~~Company’s exposure to changes in interest rates, management monitors the Company’s interest rate risk. Each subsidiary bank has an asset/liability management committee of the board of directors that meets quarterly to review the bank’s interest rate risk position and profitability, and to make or recommend adjustments for consideration by the full board of each bank.

Internal asset/liability management teams consisting of members of the subsidiary ~~banks’~~banks’ management meet weekly to manage the mix of assets and liabilities to maximize earnings and liquidity and minimize interest rate and other risks. Management also reviews the subsidiary banks’ securities portfolios, formulates investment strategies, and oversees the timing and implementation of transactions to assure attainment of the board's objectives in the most effective manner. Notwithstanding the Company’s interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income.

In adjusting the ~~Company’s~~Company’s asset/liability position, the board of directors and management attempt to manage the Company’s interest rate risk while maintaining or enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long-term and short-term interest rates, market conditions and competitive factors, the board of directors and management may decide to increase the Company’s interest rate risk position somewhat in order to increase its net interest margin. The Company’s results of operations and net portfolio values remain vulnerable to increases in interest rates and to fluctuations in the difference between long-term and short-term interest rates.

One method used to quantify interest rate risk is a short-term earnings at risk summary, which is a detailed and dynamic simulation model used to quantify the estimated exposure of net interest income to sustained interest rate changes. This simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest sensitive assets and liabilities reflected on the ~~Company’s~~Company’s consolidated balance sheet. This sensitivity analysis demonstrates net interest income exposure annually over a five-year horizon, assuming no balance sheet growth, no balance sheet mix change, and various interest rate scenarios including no change in rates; 200, 300, 400, and 500 basis point upward shifts; and a 100 basis point downward shift in interest rates, where interest-bearing assets and liabilities reprice at their earliest possible repricing date.

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The model assumes parallel and pro rata shifts in interest rates over a twelve-month period for the 200 basis point upward shift and 100 basis point downward shift. For the 400 basis point upward shift, the model assumes a parallel and pro rata shift in interest rates over a twenty-four month period. For the 500 basis point upward shift, the model assumes a flattening and pro rata shift in interest rates over a twelve-month period where the short-end of the yield curve shifts upward greater than the long-end of the yield curve.

Further, in recent years, the Company added additional interest rate scenarios where interest rates experience a parallel and instantaneous shift (“shock”) upward of 100, 200, 300, and 400 basis points and a parallel and instantaneous shock downward of 100 basis points. The Company will run additional interest rate scenarios on an as-needed basis.

The asset/liability management committees of the subsidiary bank boards of directors have established policy limits of a 10% decline in net interest income for the 200 basis point upward parallel shift and the 100 basis point downward parallel shift. For the 300 basis point upward shock, the established policy limit is a 25% decline in net interest income. The increased policy limit is appropriate as the shock scenario is extreme and unlikely and warrants a higher limit than the more realistic and traditional parallel/pro-rata shift scenarios.

Application of the simulation model analysis for select interest rate scenarios at December 31, 2017, 2016 ~~2015~~ and ~~2014~~2015 demonstrated the following:

				NET INTEREST INCOME EXPOSURE in YEAR 1												NET INTEREST INCOME EXPOSURE in YEAR 1
INTEREST RATE SCENARIO	POLICY LIMIT			As of December 31, 2016			As of December 31, 2015			As of December 31, 2014			POLICY LIMIT			As of December 31, 2017			As of December 31, 2016			As of December 31, 2015

100 basis point downward shift		-10.0	%		-1.7	%		-2.1	%		-1.7	%		-10.0	%		0.3	%		-1.7	%		-2.1	%
200 basis point upward shift		-10.0	%		-1.2	%		-2.7	%		-5.0	%		-10.0	%		-3.7	%		-1.2	%		-2.7	%
300 basis point upward shock		-25.0	%		-1.4	%		-7.1	%		-11.9	%		-25.0	%		-8.4	%		-1.4	%		-7.1	%

The simulation is within the board-established policy limits for all three scenarios. Additionally, for all of the various interest rate scenarios modeled and measured by management (as described above), the results at December 31, ~~2016~~2017 were well within established risk tolerances as established by policy or by best practice (if the interest rate scenario didn’t have a specific policy limit).

In 2014, the Company executed two interest rate cap transactions, each with a notional value of $15.0 million, for a total of $30.0 million. The interest rate caps purchased essentially set a ceiling to the interest rate paid on the $30.0 million of short-term FHLB advances that are being hedged, minimizing the interest rate risk associated with rising interest rates. The Company will continue to analyze and evaluate similar transactions as an alternative and cost effective way to mitigate interest rate risk.

Interest rate risk is considered to be one of the most significant market risks affecting the Company. For that reason, the Company engages the assistance of a national consulting firm and its risk management system to monitor and control the ~~Company’s~~Company’s interest rate risk exposure. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company’s business activities.

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Item 8.

8. Financial Statements

QCR Holdings, Inc.

Index to Consolidated Financial Statements


Report of Independent Registered Public Accounting Firm

Financial Statements

Consolidated Balance Sheets as of December 31, 2017 and 2016 ~~and 2015~~

Consolidated Statements of Income for the years ended December 31, 2017, 2016, and 2015 ~~and 2014~~

Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014~~2015

Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014~~2015

Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014~~2015

Notes to consolidated financial ~~statements:~~statements:

●	Note 1:	Nature of Business and Significant Accounting Policies
●	Note 2:	~~Acquisition of Community State Bank and Common Stock Offering~~Acquisitions
●	Note 3:	Investment Securities
●	Note 4:	Loans/Leases Receivable
●	Note 5:	Premises and Equipment
●	Note 6:	Goodwill and Intangibles
●	Note 7:	Derivatives and Hedging Activities
●	Note 8:	Deposits
●	Note 9:	Short-Term Borrowings
●	Note 10:	FHLB Advances
●	Note 11:	Other Borrowings and Unused Lines of Credit
●	Note 12:	Junior Subordinated Debentures
●	Note 13:	Federal and State Income Taxes
●	Note 14:	Employee Benefit Plans
●	Note 15:	Stock-Based Compensation
●	Note 16:	Regulatory Capital Requirements and Restrictions on Dividends
●	Note 17:	Earnings Per Share
●	Note 18:	Commitments and Contingencies
●	Note 19:	Quarterly Results of Operations (Unaudited)
●	Note 20:	Parent Company Only Financial Statements
●	Note 21:	Fair Value
●	Note 22:	Business Segment Information
●	~~Note 23:~~	~~Acquisition of Noncontrolling Interest in m2 Lease Funds~~

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors ~~and Stockholders~~

of QCR Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of QCR Holdings, Inc. and subsidiaries (the Company) as of December 31, ~~2016~~2017 and ~~2015, and~~2016, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, ~~2016. These~~2017, and the related notes to the consolidated financial statements ~~are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.~~

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether(collectively, the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

statements). In our opinion, the ~~consolidated~~ financial statements ~~referred to above~~ present fairly, in all material respects, the financial position of ~~QCR Holdings, Inc. and subsidiaries~~the Company as of December 31, ~~2016~~2017 and ~~2015,~~2016, and the results of ~~their~~its operations and ~~their~~its cash flows for each of the three years in the period ended December 31, ~~2016,~~2017, in conformity with ~~U.S.~~accounting principles generally accepted ~~accounting principles.~~in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), ~~QCR Holdings, Inc. and subsidiaries’~~the Company's internal control over financial reporting as of December 31, ~~2016,~~2017, based on criteria established inInternal ~~Control —~~ Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March ~~10, 2017~~9, 2018 expressed an unqualified opinion on the effectiveness of ~~QCR Holdings, Inc. and subsidiaries’~~the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company's auditor since 1993.

Davenport, Iowa

March ~~10, 2017~~9, 2018

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QCR Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2017 and 2016

Assets	2017			2016
Cash and due from banks	$	75,721,663		$	70,569,993
Federal funds sold		30,197,000			22,257,000
Interest-bearing deposits at financial institutions		55,765,012			63,948,925

Securities held to maturity, at amortized cost		379,474,205			322,909,056
Securities available for sale, at fair value		272,907,907			251,113,139
Total securities		652,382,112			574,022,195

Loans receivable, held for sale		645,001			1,135,500
Loans/leases receivable, held for investment		2,963,840,399			2,404,351,485
Gross loans/leases receivable		2,964,485,400			2,405,486,985
Less allowance for estimated losses on loans/leases		(34,355,728	)		(30,757,448	)
Net loans/leases receivable		2,930,129,672			2,374,729,537

Bank-owned life insurance		59,059,494			57,257,051
Premises and equipment, net		62,838,255			60,643,508
Restricted investment securities, at cost		19,782,525			14,997,025
Other real estate owned, net		13,558,308			5,523,104
Goodwill		28,334,092			13,110,913
Core deposit intangible		9,078,953			7,381,213
Other assets		45,817,687			37,503,284
Total assets	$	3,982,664,773		$	3,301,943,748

Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	789,547,696		$	797,415,090
Interest-bearing		2,477,107,360			1,871,846,183
Total deposits		3,266,655,056			2,669,261,273

Short-term borrowings		13,993,122			39,971,387
Federal Home Loan Bank advances		192,000,000			137,500,000
Other borrowings		66,000,000			80,000,000
Junior subordinated debentures, net		37,486,487			33,480,202
Other liabilities		53,242,979			55,690,087
Total liabilities		3,629,377,644			3,015,902,949

Commitments and Contingencies

Stockholders' Equity:
Preferred stock, $1 par value; shares authorized 250,000
December 2017 and 2016 - No shares issued or outstanding		-			-
Common stock, $1 par value; shares authorized 20,000,000		13,918,168			13,106,845
December 2017 - 13,918,168 shares issued and outstanding
December 2016 - 13,106,845 shares issued and outstanding
Additional paid-in capital		189,077,550			156,776,642
Retained earnings		151,962,661			118,616,901
Accumulated other comprehensive loss:
Securities available for sale		(866,223	)		(1,527,433	)
Interest rate cap derivatives		(805,027	)		(932,156	)
Total stockholders' equity		353,287,129			286,040,799
Total liabilities and stockholders' equity	$	3,982,664,773		$	3,301,943,748

See Notes to Consolidated Financial Statements.

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QCR Holdings, Inc. and Subsidiaries

Consolidated Statements of Income

Years Ended December 31, 2017, 2016, and 2015

2017

2016

2015

Interest and dividend income:

Loans/leases, including fees

117,465,275

91,235,049

74,615,499

Securities:

Taxable

5,144,336

4,585,300

6,772,244

Nontaxable

11,253,351

9,686,844

7,782,370

Interest-bearing deposits at financial institutions

873,988

393,048

304,602

Restricted investment securities

631,049

522,047

503,764

Federal funds sold

149,319

45,447

24,774

Total interest and dividend income

135,517,318

106,467,735

90,003,253

Interest expense:

Deposits

13,011,906

6,018,366

4,495,538

Short-term borrowings

113,981

93,934

210,306

Federal Home Loan Bank advances

1,981,593

1,284,212

3,511,541

Other borrowings

2,878,879

3,317,513

4,233,193

Junior subordinated debentures

1,465,678

1,236,933

1,255,951

Total interest expense

19,452,037

11,950,958

13,706,529

Net interest income

116,065,281

94,516,777

76,296,724

Provision for loan/lease losses

8,469,919

7,478,166

6,870,900

Net interest income after provision for loan/lease losses

107,595,362

87,038,611

69,425,824

Noninterest income:

Trust department fees

7,187,820

6,164,137

6,131,209

Investment advisory and management fees

3,869,699

2,992,811

2,971,964

Deposit service fees

5,919,317

4,439,455

3,784,935

Gains on sales of residential real estate loans, net

408,655

431,313

322,872

Gains on sales of government guaranteed portions of loans, net

1,163,741

3,159,073

1,304,575

Swap fee income

3,094,939

1,708,204

1,717,552

Securities gains (losses), net

(87,885

)

4,592,398

798,983

Earnings on bank-owned life insurance

1,802,443

1,771,396

1,762,107

Debit card fees

2,941,703

1,814,488

1,244,912

Correspondent banking fees

915,647

1,050,142

1,190,411

Other

3,266,213

2,913,458

3,133,801

Total noninterest income

30,482,292

31,036,875

24,363,321

Noninterest expenses:

Salaries and employee benefits

55,722,288

46,317,060

42,967,915

Occupancy and equipment expense

10,938,037

8,404,605

7,042,706

Professional and data processing fees

10,757,057

7,113,443

5,523,447

Acquisition costs

1,068,918

1,400,004

Post-acquisition compensation, transition and integration costs

4,309,565

1,041,169

FDIC insurance, other insurance and regulatory fees

2,752,270

2,549,314

2,724,968

Loan/lease expense

1,163,708

662,299

882,591

Net cost of (income from) operations of other real estate

1,599

591,303

(1,092,401

)

Advertising and marketing

2,624,951

2,127,566

1,900,539

Bank service charges

1,770,942

1,692,957

1,486,265

Losses on debt extinguishment, net

4,577,668

7,185,601

Correspondent banking expense

807,077

750,646

703,495

CDI amortization

1,000,561

442,850

199,512

Other

4,507,724

3,815,028

3,667,384

Total noninterest expenses

97,424,697

81,485,912

73,192,022

Income before income taxes

40,652,957

36,589,574

20,597,123

Federal and state income tax expense

4,946,450

8,902,787

3,669,242

Net income

35,706,507

27,686,787

16,927,881

Basic earnings per common share

2.68

2.20

1.64

Diluted earnings per common share

2.61

2.17

1.61

Weighted average common shares outstanding

13,325,128

12,570,767

10,345,286

Weighted average common and common equivalent shares outstanding

13,680,472

12,766,003

10,499,841

Cash dividends declared per common share

0.20

0.16

0.08

See Notes to Consolidated Financial Statements.

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QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2017, 2016, and 2015

2017

2016

2015

Net income

35,706,507

27,686,787

16,927,881

Other comprehensive income (loss):

Unrealized gains on securities available for sale:

Unrealized holding gains arising during the period before tax

1,257,289

4,258,154

1,144,314

Less reclassification adjustment for gains (losses) included in net income before tax

(87,885

)

4,592,398

798,983

1,345,174

(334,244

)

345,331

Unrealized losses on interest rate cap derivatives:

Unrealized holding losses arising during the period before tax

(69,827

)

(279,497

)

(631,363

)

Less reclassification adjustment for ineffectiveness and caplet amortization before tax

(484,891

)

(75,290

)

(15,895

)

415,064

(204,207

)

(615,468

)

Other comprehensive income (loss), before tax

1,760,238

(538,451

)

(270,137

)

Tax expense (benefit)

668,085

(202,691

)

(81,524

)

Other comprehensive income (loss), net of tax

1,092,153

(335,760

)

(188,613

)

Comprehensive income

36,798,660

27,351,027

16,739,268

See Notes to Consolidated Financial Statements

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QCR Holdings, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

Years Ended December 31, 2017, 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

16,927,881

Other comprehensive loss, net of tax

(188,613

)

(188,613

)

Common cash dividends declared, $0.08 per share

(934,682

)

(934,682

)

Issuance of 3,680,000 shares of common stock, net of issuance costs

3,680,000

59,804,123

63,484,123

Issuance of 24,033 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

24,033

375,120

399,153

Issuance of 79,638 shares of common stock as s result of stock options exercised

79,638

1,091,402

1,171,040

Stock-based compensation expense

941,469

Tax benefit of nonqualified stock options exercised

93,096

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

(121,246

)

(580,886

)

(904,378

)

1,606,510

Restricted stock awards - 28,846 shares of common stock

28,846

(28,846

)

Exchange of 4,631 shares of common stock in connection with stock options exercised and restricted stock vested

(4,631

)

(81,595

)

(86,226

)

Balance, December 31, 2015

11,761,083

123,282,851

92,965,645

(2,123,829

)

225,885,750

Net income

27,686,787

Other comprehensive loss, net of tax

(335,760

)

(335,760

)

Common cash dividends declared, $0.16 per share

(2,035,531

)

(2,035,531

)

Issuance of 1,215,000 shares of common stock, net of issuance costs

1,215,000

28,613,916

29,828,916

Issuance of 20,192 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

20,192

417,336

437,528

Issuance of 111,423 shares of common stock as a result of stock options exercised

111,423

1,556,823

1,668,246

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

2,132,415

Stock-based compensation expense

947,174

Tax benefit of nonqualified stock options exercised

394,149

Restricted stock awards - 21,882 shares of common stock

21,882

(21,882

)

Exchange of 22,735 shares of common stock in connection with stock options exercised and restricted stock vested

(22,735

)

(546,140

)

(568,875

)

Balance, December 31, 2016

13,106,845

156,776,642

118,616,901

(2,459,589

)

286,040,799

Net income

35,706,507

Other comprehensive loss, net of tax

1,092,153

Reclassification of certain tax effects from accumulated other comprehensive income

303,814

(303,814

)

Common cash dividends declared, $0.20 per share

(2,664,561

)

(2,664,561

)

Issuance of 678,670 shares of common stock as a result of the acquisition of Guaranty Bank & Trust, net of issuance cost

678,670

30,062,744

30,741,414

Issuance of 13,318 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

13,318

454,822

468,140

Issuance of 114,100 shares of common stock as a stock as a result of stock options exercised

114,100

1,611,338

1,725,438

Stock-based compensation expense

1,187,036

Restricted stock awards - 28,289 shares of common stock

28,289

(28,289

)

Exchange of 23,054 shares of common stock in connection with stock options exercised and restricted stock vested

(23,054

)

(986,743

)

(1,009,797

)

Balance, December 31, 2017

13,918,168

189,077,550

151,962,661

(1,671,250

)

353,287,129

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QCR Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2017, 2016, and 2015

2017

2016

2015

Cash Flows from Operating Activities:

Net income

35,706,507

27,686,787

16,927,881

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

Depreciation

3,948,934

3,424,140

3,065,031

Provision for loan/lease losses

8,469,919

7,478,166

6,870,900

Deferred income taxes

(6,029,555

)

(3,066,407

)

(2,004,532

)

Stock-based compensation expense

1,187,036

947,174

941,469

Deferred compensation expense accrued

1,425,717

1,171,406

1,023,827

Losses (gains) on sale of other real estate owned, net

(151,211

)

243,858

(1,021,242

)

Amortization of premiums on securities, net

1,839,196

1,302,962

1,040,275

Securities (gains) losses, net

87,885

(4,592,398

)

(798,983

)

Loans originated for sale

(49,578,773

)

(74,329,667

)

(38,748,100

)

Proceeds on sales of loans

51,641,668

77,850,553

40,362,697

Gains on sales of residential real estate loans, net

(408,655

)

(431,313

)

(322,872

)

Gains on sales of government guaranteed portions of loans, net

(1,163,741

)

(3,159,073

)

(1,304,575

)

Losses on debt extinguishment, net

4,577,668

7,185,601

Amortization of core deposit intangible

1,000,561

442,849

199,512

Accretion of acquisition fair value adjustments, net

(5,040,873

)

(3,718,160

)

(367,009

)

Increase in cash value of bank-owned life insurance

(1,802,443

)

(1,771,396

)

(1,762,107

)

(Increase) decrease in other assets

826,449

(943,891

)

(3,910,486

)

Increase (decrease) in other liabilities

(8,245,340

)

10,269,563

2,721,335

Net cash provided by operating activities

33,713,281

43,382,821

30,098,622

Cash Flows from Investing Activities:

Net decrease (increase) in federal funds sold

(7,940,000

)

(1,709,000

)

26,930,000

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

12,137,820

(12,904,803

)

(979,283

)

Proceeds from sales of other real estate owned

1,138,520

2,084,696

7,696,026

Activity in securities portfolio:

Purchases

(179,785,944

)

(179,598,630

)

(232,092,732

)

Calls, maturities and redemptions

43,010,478

117,876,284

211,942,737

Paydowns

38,495,801

33,169,638

15,476,369

Sales

71,091,580

134,188,737

81,410,368

Activity in restricted investment securities:

Purchases

(4,824,000

)

(1,098,200

)

(3,752,450

)

Redemptions

515,000

2,450,000

4,476,100

Net increase in loans/leases originated and held for investment

(375,226,301

)

(187,496,180

)

(172,786,032

)

Purchase of premises and equipment

(5,760,802

)

(6,032,416

)

(4,394,255

)

Net cash paid for acquisitions

(3,368,909

)

(69,905,355

)

Net cash used in investing activities

(410,516,757

)

(168,975,229

)

(66,073,152

)

Cash Flows from Financing Activities:

Net increase in deposits

385,082,234

302,390,928

200,988,645

Net decrease in short-term borrowings

(39,080,308

)

(104,691,329

)

(123,688,954

)

Activity in Federal Home Loan Bank advances:

Term advances

1,600,000

5,000,000

Calls and maturities

(8,000,000

)

(24,000,000

)

(26,000,000

)

Net change in short-term and overnight advances

60,900,000

20,500,000

47,000,000

Prepayments

(4,108,027

)

(31,008,668

)

(84,401,601

)

Activity in other borrowings:

Proceeds from other borrowings

7,000,000

35,000,000

Calls, maturities and scheduled principal payments

(21,000,000

)

(7,350,000

)

Prepayments

(69,769,000

)

(34,559,000

)

Retirement of junior subordinated debentures

(3,955,000

)

(1,762,000

)

Payment of cash dividends on common and preferred stock

(2,494,260

)

(1,981,541

)

(782,054

)

Net proceeds from common stock offering

29,828,916

63,484,123

Proceeds from issuance of common stock, net

2,055,507

2,105,774

1,552,673

Net cash provided by financing activities

381,955,146

154,420,080

39,481,832

Net increase in cash and due from banks

5,151,670

28,827,672

3,507,302

Cash and due from banks, beginning

70,569,993

41,742,321

38,235,019

Cash and due from banks, ending

75,721,663

70,569,993

41,742,321

Continued

Table of Contents

QCR Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows - Continued

Years Ended December 31, 2017, 2016, and 2015

2017

2016

2015

Supplemental Disclosures of Cash Flow Information, cash payments for:

Interest

19,053,645

11,926,012

14,027,512

Income and franchise taxes

13,039,516

10,758,611

2,619,288

Supplemental Schedule of Noncash Investing and Financing Activities:

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

1,092,153

(335,760

)

(188,613

)

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

(1,009,797

)

(568,875

)

(68,706

)

Tax benefit of nonqualified stock options exercised

394,149

93,096

Transfers of loans to other real estate owned

9,022,514

51,000

1,577,060

Due to broker for purchases of securities

2,655,492

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

2,132,415

Increase (decrease) in the fair market value of interest rate swap assets and liabilities

2,058,957

(706,244

)

1,568,548

Dividends payable

692,874

522,573

468,583

Supplemental disclosure of cash flow information for acquisitions:

Fair value of assets acquired:

Cash and due from banks *

4,434,511

10,094,645

Federal funds sold

698,000

Interest-bearing deposits at financial institutions

3,953,907

14,730,157

Securities

49,703,419

102,640,029

Loans receivable, net

192,517,677

419,029,277

Premises and equipment, net

4,808,343

20,684,880

Restricted investment securities

476,500

1,512,900

Other real estate owned

650,000

Core deposit intangible

2,698,301

6,352,653

Other assets

997,810

5,283,937

Total assets acquired

259,590,468

581,676,478

Fair value of liabilities assumed:

Deposits

212,467,514

486,298,262

Short-term borrowings

13,102,043

FHLB advances

4,108,027

20,368,877

Junior subordinated debentures

3,857,275

Other liabilities

2,595,883

4,897,564

Total liabilities assumed

236,130,742

511,564,703

Net assets acquired

23,459,726

70,111,775

Consideration paid:

Cash paid *

7,803,420

80,000,000

Common stock

30,879,485

Total consideration paid

38,682,905

80,000,000

Goodwill

15,223,179

9,888,225

* Net cash paid at closing totaled $3,368,909 for acquisition of Guaranty Bank in 2017.

Net cash paid at closing totaled $69,905,355 for acquisition of CSB in 2016.

See Notes to Consolidated Financial Statements.

Table of Contents

QCR Holdings, Inc. and Subsidiaries

~~Consolidated Balance Sheets~~

~~December 31, 2016 and 2015~~

2016

2015

Assets
Cash and due from banks
$ 70,569,993 $ 41,742,321
Federal funds sold
22,257,000 19,850,000
Interest-bearing deposits at financial institutions
63,948,925 36,313,965

Securities held to maturity, at amortized cost
322,909,056 253,674,159
Securities available for sale, at fair value
251,113,139 323,434,982
Total securities
574,022,195 577,109,141

Loans receivable, held for sale
1,135,500 565,850
Loans/leases receivable, held for investment
2,404,351,485 1,797,456,825
Gross loans/leases receivable
2,405,486,985 1,798,022,675
Less allowance for estimated losses on loans/leases
(30,757,448 ) (26,140,906 )
Net loans/leases receivable
2,374,729,537 1,771,881,769

Bank-owned life insurance
57,257,051 55,485,655
Premises and equipment, net
60,643,508 37,350,352
Restricted investment securities
14,997,025 14,835,925
Other real estate owned, net
5,523,104 7,150,658
Goodwill
13,110,913 3,222,688
Core deposit intangible
7,381,213 1,471,409
Other assets
37,503,284 26,784,392
Total assets
$ 3,301,943,748 $ 2,593,198,275

Liabilities and Stockholders' Equity

Liabilities:

Deposits:

Noninterest-bearing
$ 797,415,090 $ 615,292,211
Interest-bearing
1,871,846,183 1,265,373,973
Total deposits
2,669,261,273 1,880,666,184

Short-term borrowings
39,971,387 144,662,716
Federal Home Loan Bank advances
137,500,000 151,000,000
Other borrowings
80,000,000 110,000,000
Junior subordinated debentures
33,480,202 38,499,052
Other liabilities
55,690,087 42,484,573
Total liabilities
3,015,902,949 2,367,312,525

Commitments and Contingencies

Stockholders' Equity:

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

December 2016 and 2015 - No shares issued or outstanding
- -
Common stock, $1 par value; shares authorized 20,000,000
13,106,845 11,761,083
December 2016 - 13,106,845 shares issued and outstanding

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

Additional paid-in capital
156,776,642 123,282,851
Retained earnings
118,616,901 92,965,645
Accumulated other comprehensive loss:

Securities available for sale
(1,527,433 ) (1,324,408 )
Interest rate cap derivatives
(932,156 ) (799,421 )
Total stockholders' equity
286,040,799 225,885,750
Total liabilities and stockholders' equity
$ 3,301,943,748 $ 2,593,198,275

~~See Notes to Consolidated Financial Statements.~~

~~QCR Holdings, Inc. and Subsidiaries~~

~~Consolidated Statements of Income~~

~~Years Ended December 31, 2016, 2015, and 2014~~

2016

2015

2014

Interest and dividend income:

Loans/leases, including fees
$ 91,235,049 $ 74,615,499 $ 69,423,001
Securities:

Taxable
4,585,300 6,772,244 9,618,436
Nontaxable
9,686,844 7,782,370 6,074,896
Interest-bearing deposits at financial institutions
393,048 304,602 299,227
Restricted investment securities
522,047 503,764 528,660
Federal funds sold
45,447 24,774 21,036
Total interest and dividend income
106,467,735 90,003,253 85,965,256

Interest expense:

Deposits
6,018,366 4,495,538 4,508,921
Short-term borrowings
93,934 210,306 233,930
Federal Home Loan Bank advances
1,284,212 3,511,541 6,025,749
Other borrowings
3,317,513 4,233,193 4,890,909
Junior subordinated debentures
1,236,933 1,255,951 1,234,619
Total interest expense
11,950,958 13,706,529 16,894,128
Net interest income
94,516,777 76,296,724 69,071,128
Provision for loan/lease losses
7,478,166 6,870,900 6,807,000
Net interest income after provision for loan/lease losses
87,038,611 69,425,824 62,264,128

Noninterest income:

Trust department fees
6,164,137 6,131,209 5,715,151
Investment advisory and management fees
2,992,811 2,971,964 2,798,170
Deposit service fees
4,439,455 3,784,935 3,809,539
Gains on sales of residential real estate loans, net
431,313 322,872 460,721
Gains on sales of government guaranteed portions of loans, net
3,159,073 1,304,575 2,040,638
Swap fee income
1,708,204 1,717,552 154,800
Securities gains, net
4,592,398 798,983 92,363
Earnings on bank-owned life insurance
1,771,396 1,762,107 1,721,507
Debit card fees
1,814,488 1,244,912 1,143,738
Correspondent banking fees
1,050,142 1,190,411 1,064,030
Other
2,913,458 3,133,801 2,280,622
Total noninterest income
31,036,875 24,363,321 21,281,279

Noninterest expenses:

Salaries and employee benefits
46,317,060 42,967,915 40,337,055
Occupancy and equipment expense
8,404,605 7,042,706 7,385,526
Professional and data processing fees
7,113,443 5,523,447 6,191,574
Acquisition costs
2,441,173 - -
FDIC insurance, other insurance and regulatory fees
2,549,314 2,724,968 2,895,494
Loan/lease expense
662,299 882,591 665,602
Net cost of operations of other real estate
591,303 (1,092,401 ) 603,092
Advertising and marketing
2,127,566 1,900,539 1,985,121
Bank service charges
1,692,957 1,486,265 1,291,017
Losses on debt extinguishment, net
4,577,668 7,185,601 -
Correspondent banking expense
750,646 703,495 635,630
Other
4,257,878 3,866,896 3,563,789
Total noninterest expenses
81,485,912 73,192,022 65,553,900
Income before income taxes
36,589,574 20,597,123 17,991,507
Federal and state income tax expense
8,902,787 3,669,242 3,038,970
Net income
$ 27,686,787 $ 16,927,881 $ 14,952,537

Less: preferred stock dividends
- - 1,081,877
Net income attributable to QCR Holdings, Inc. common stockholders
$ 27,686,787 $ 16,927,881 $ 13,870,660

Basic earnings per common share
$ 2.20 $ 1.64 $ 1.75
Diluted earnings per common share
$ 2.17 $ 1.61 $ 1.72

Weighted average common shares outstanding
12,570,767 10,345,286 7,925,220
Weighted average common and common equivalent shares outstanding
12,766,003 10,499,841 8,048,661

Cash dividends declared per common share
$ 0.16 $ 0.08 $ 0.08

~~See Notes to Consolidated Financial Statements.~~

~~QCR HOLDINGS, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~Years Ended December 31, 2016, 2015, and 2014~~

2016

2015

2014

Net income
$ 27,686,787 $ 16,927,881 $ 14,952,537

Other comprehensive income (loss):

Unrealized gains on securities available for sale:

Unrealized holding gains arising during the period before tax
4,258,154 1,144,314 19,697,118
Less reclassification adjustment for gains included in net income before tax
4,592,398 798,983 92,363
(334,244 ) 345,331 19,604,755
Unrealized losses on interest rate cap derivatives:

Unrealized holding losses arising during the period before tax
(279,497 ) (631,363 ) (584,264 )
Less reclassification adjustment for ineffectiveness and caplet amortization before tax
(75,290 ) (15,895 ) 30,147
(204,207 ) (615,468 ) (614,411 )

Other comprehensive income (loss), before tax
(538,451 ) (270,137 ) 18,990,344
Tax expense (benefit)
(202,691 ) (81,524 ) 7,281,574
Other comprehensive income (loss), net of tax
(335,760 ) (188,613 ) 11,708,770

Comprehensive income
$ 27,351,027 $ 16,739,268 $ 26,661,307

~~See~~ Notes to Consolidated Financial Statements

~~QCR Holdings, Inc. and Subsidiaries~~

~~Consolidated Statements of Changes in Stockholders' Equity~~

~~Years Ended December 31, 2016, 2015, and 2014~~

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
- - - 14,952,537 - - 14,952,537
Other comprehensive income, net of tax
- - - - 11,708,770 - 11,708,770
Common cash dividends declared, $0.08 per share
- - - (631,009 ) - - (631,009 )
Preferred cash dividends declared and accrued
- - - (1,081,877 ) - - (1,081,877 )
Redemption of 29,867 shares of Series F Non-cumulativePerpetual Preferred Stock
(29,867 ) - (29,794,055 ) - - - (29,823,922 )
Proceeds from issuance of 25,321 shares ofcommon stock as a result of stock purchasedunder the Employee Stock Purchase Plan
- 25,321 353,566 - - - 378,887
Proceeds from issuance of 23,659 shares of commonstock as a result of stock options exercised
- 23,659 218,095 - - - 241,754
Stock-based compensation expense
- - 891,619 - - - 891,619
Tax benefit of nonqualified stock options exercised
- - 42,954 - - - 42,954
Restricted stock awards - 30,055 shares of common stock
- 30,055 (30,055 ) - - - -
Exchange of 10,300 shares of common stock in connectionwith restricted stock vested
- (10,300 ) (167,684 ) - - - (177,984 )
Balance, December 31, 2014
$ - $ 8,074,443 $ 61,668,968 $ 77,876,824 $ (1,935,216 ) $ (1,606,510 ) $ 144,078,509
Net income
- - - 16,927,881 - - 16,927,881
Other comprehensive loss, net of tax
- - - - (188,613 ) - (188,613 )
Common cash dividends declared, $0.08 per share
- - - (934,682 ) - - (934,682 )
Proceeds from issuance of 3,680,000 share of commonstock, net of issuance costs
- 3,680,000 59,804,123 - - - 63,484,123
Proceeds from issuance of 24,033 shares ofcommon stock as a result of stock purchasedunder the Employee Stock Purchase Plan
- 24,033 375,120 - - - 399,153
Proceeds from issuance of 79,638 shares of commonstock as a result of stock options exercised
- 79,638 1,091,402 - - - 1,171,040
Stock-based compensation expense
- - 941,469 - - - 941,469
Tax benefit of nonqualified stock options exercised
- - 93,096 - - - 93,096
Retirement of treasury stock, 121,246 shares ofcommon stock
- (121,246 ) (580,886 ) (904,378 ) - 1,606,510 -
Restricted stock awards - 28,846 shares of common stock
- 28,846 (28,846 ) - - - -
Exchange of 4,631 shares of common stock in connectionwith stock options exercised and restricted stock vested
- (4,631 ) (81,595 ) - - - (86,226 )
Balance, December 31, 2015
$ - $ 11,761,083 $ 123,282,851 $ 92,965,645 $ (2,123,829 ) $ - $ 225,885,750
Net income
- - - 27,686,787 - - 27,686,787
Other comprehensive loss, net of tax
- - - - (335,760 ) - (335,760 )
Common cash dividends declared, $0.16 per share
- - - (2,035,531 ) - - (2,035,531 )
Proceeds from issuance of 1,215,000 shares of commonstock, net of issuance costs
- 1,215,000 28,613,916 - - - 29,828,916
Proceeds from issuance of 20,192 shares ofcommon stock as a result of stock purchasedunder the Employee Stock Purchase Plan
- 20,192 417,336 - - - 437,528
Proceeds from issuance of 111,423 shares of commonstock as a result of stock options exercised
- 111,423 1,556,823 - - - 1,668,246
Tax basis adjustment related to the acquisition ofnoncontrolling interest in m2 Lease Funds
- - 2,132,415 - - - 2,132,415
Stock-based compensation expense
- - 947,174 - - - 947,174
Tax benefit of nonqualified stock options exercised
- - 394,149 - - - 394,149
Restricted stock awards - 21,882 shares of common stock
- 21,882 (21,882 ) - - - -
Exchange of 22,735 shares of common stock in connectionwith stock options exercised and restricted stock vested
- (22,735 ) (546,140 ) - - - (568,875 )
Balance, December 31, 2016
$ - $ 13,106,845 $ 156,776,642 $ 118,616,901 $ (2,459,589 ) $ - $ 286,040,799

~~See Notes to Consolidated Financial Statements.~~

~~QCR Holdings, Inc. and Subsidiaries~~

~~Consolidated Statements of Cash Flows~~

~~Years Ended December 31, 2016, 2015, and 2014~~

2016

2015

2014

Cash Flows from Operating Activities:

Net income
$ 27,686,787 $ 16,927,881 $ 14,952,537
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation
3,424,140 3,065,031 2,812,645
Provision for loan/lease losses
7,478,166 6,870,900 6,807,000
Deferred income taxes
(3,066,407 ) (2,004,532 ) (1,165,009 )
Stock-based compensation expense
947,174 941,469 891,619
Deferred compensation expense accrued
1,155,549 1,023,827 1,311,627
Losses (gains) on sale of other real estate owned, net
243,858 (1,021,242 ) 447,272
Amortization of premiums on securities, net
1,302,962 1,040,275 1,809,804
Securities gains, net
(4,592,398 ) (798,983 ) (92,363 )
Loans originated for sale
(74,329,667 ) (38,748,100 ) (58,128,415 )
Proceeds on sales of loans
77,850,553 40,362,697 61,435,064
Gains on sales of residential real estate loans, net
(431,313 ) (322,872 ) (460,721 )
Gains on sales of government guaranteed portions of loans, net
(3,159,073 ) (1,304,575 ) (2,040,638 )
Losses on debt extinguishment, net
4,577,668 7,185,601 -
Amortization of core deposit intangible
442,849 199,512 199,512
Accretion of acquisition fair value adjustments, net
(3,718,160 ) (367,009 ) (674,539 )
Increase in cash value of bank-owned life insurance
(1,771,396 ) (1,762,107 ) (1,721,507 )
Increase in other assets
(943,891 ) (3,910,486 ) (1,198,107 )
Increase in other liabilities
10,285,420 2,721,335 414,134
Net cash provided by operating activities
43,382,821 30,098,622 25,599,915

Cash Flows from Investing Activities:

Net (increase) decrease in federal funds sold
(1,709,000 ) 26,930,000 (7,345,000 )
Net increase in interest-bearing deposits at financial institutions
(12,904,803 ) (979,283 ) (2,289,765 )
Proceeds from sales of other real estate owned
2,084,696 7,696,026 1,593,714
Purchase of derivative instruments
- - (2,071,650 )
Activity in securities portfolio:

Purchases
(179,598,630 ) (232,092,732 ) (76,256,503 )
Calls, maturities and redemptions
117,876,284 211,942,737 35,247,090
Paydowns
33,169,638 15,476,369 23,611,559
Sales
134,188,737 81,410,368 78,476,422
Activity in restricted investment securities:

Purchases
(1,098,200 ) (3,752,450 ) (1,912,050 )
Redemptions
2,450,000 4,476,100 3,380,100
Net increase in loans/leases originated and held for investment
(187,496,180 ) (172,786,032 ) (180,325,359 )
Purchase of premises and equipment
(6,032,416 ) (4,394,255 ) (2,035,855 )
Net cash paid for Community State Bank acquisition
(69,905,355 ) - -
Net cash used in investing activities
(168,975,229 ) (66,073,152 ) (129,927,297 )

Cash Flows from Financing Activities:

Net increase in deposits
302,390,928 200,988,645 32,695,797
Net (decrease) increase in short-term borrowings
(104,691,329 ) (123,688,954 ) 119,058,703
Activity in Federal Home Loan Bank advances:

Term advances
- 5,000,000 6,000,000
Calls and maturities
(24,000,000 ) (26,000,000 ) (27,850,000 )
Net change in short-term and overnight advances
20,500,000 47,000,000 (6,000,000 )
Prepayments
(31,008,668 ) (84,401,601 ) -
Activity in other borrowings:

Proceeds from other borrowings
35,000,000 - 10,000,000
Calls, maturities and scheduled principal payments
- (7,350,000 ) (2,125,000 )
Prepayments
(69,769,000 ) (34,559,000 ) -
Retirement of junior subordinated debentures
(3,955,000 ) (1,762,000 ) -
Payment of cash dividends on common and preferred stock
(1,981,541 ) (782,054 ) (1,964,608 )
Net proceeds from common stock offering, 3,680,000 shares issued
- 63,484,123 -
Net proceeds from common stock offering, 1,215,000 shares issued
29,828,916 - -
Redemption of 29,867 shares of Series F Noncumulative Perpetual Preferred Stock, net
- - (29,823,922 )
Proceeds from issuance of common stock, net
2,105,774 1,552,673 620,641
Net cash provided by financing activities
154,420,080 39,481,832 100,611,611
Net (decrease) increase in cash and due from banks
28,827,672 3,507,302 (3,715,771 )
Cash and due from banks, beginning
41,742,321 38,235,019 41,950,790
Cash and due from banks, ending
$ 70,569,993 $ 41,742,321 $ 38,235,019

Continued

~~QCR Holdings, Inc. and Subsidiaries~~

~~Consolidated Statements of Cash Flows - Continued~~

~~Years Ended December 31, 2016, 2015, and 2014~~

2016

2015

2014

Supplemental Disclosures of Cash Flow Information, cash payments for:

Interest
$ 11,926,012 $ 14,027,512 $ 16,826,619
Income and franchise taxes
10,758,611 2,619,288 4,541,000

Supplemental Schedule of Noncash Investing and Financing Activities:

Change in accumulated other comprehensive income, unrealized gains (losses) onsecurities available for sale and derivative instruments, net
(335,760 ) (188,613 ) 11,708,770
Exchange of shares of common stock in connection with payroll taxes for restricted stock andoptions exercised
(568,875 ) (68,706 ) (177,984 )
Tax benefit of nonqualified stock options exercised
394,149 93,096 42,954
Transfers of loans to other real estate owned
51,000 1,577,060 5,594,256
Due from broker for sales of securities
- - 2,290,930
Due to broker for purchases of securities
2,655,492 - -
Tax basis adjustment related to the acquisition of noncontrolling interest in m2 Lease Funds
2,132,415 - -
Decrease (increase) in the fair market value of interest rate swap assets and liabilities
706,244 (1,568,548 ) (59,588 )
Dividends payable
522,573 468,583 315,955

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, 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
5,283,937 - -
Total assets acquired
$ 581,676,478 $ - $ -

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
$ 70,111,775 $ - $ -
Consideration paid:

Cash paid *
$ 80,000,000 $ - $ -
Total consideration paid
$ 80,000,000 $ - $ -
Goodwill
$ 9,888,225 $ - $ -

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

~~See Notes to Consolidated Financial Statements.~~

~~QCR Holdings, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

Note 1.Nature of Business and Significant Accounting Policies

Basis of presentation:

The acronyms and abbreviations identified below are used in the Notes to the Consolidated Financial Statements, as well as in the other sections of this Form ~~10-K~~10-K (including appendices). It may be helpful to refer back to this page as you read this report.

	Allowance: Allowance for estimated losses on loans/leases		~~HTM: Held to maturity~~Goldman Sachs: Goldman Sachs and Company
	AOCI: Accumulated other comprehensive income (loss)	HTM: Held to maturity
AFS: Available for sale	Iowa Superintendent: Iowa Superintendent of Banking
	~~AFS: Available for sale~~ASC: Accounting Standards Codification		LCR: Liquidity Coverage Ratio
ASC 805: Business Combination Standard	~~ASC: Accounting Standards Codification~~		m2:m2 Lease Funds, LLC
	~~ASC 805: Business Combination Standard~~ASU: Accounting Standards Update		MD&A: Management's Discussion & Analysis
	~~ASU: Accounting Standards Update~~		~~NIM: Net interest margin~~
	BHCA: Bank Holding Company Act of 1956		~~NPA: Nonperforming asset~~MSA: Metropolitan Statistical Area
	BOLI: Bank-owned life insurance		~~NPL: Nonperforming loan~~NIM: Net interest margin
	Caps: Interest rate cap derivatives		~~NSFR: Net Stable Funding Ratio~~NPA: Nonperforming asset
	CFPB: Bureau of Consumer Financial Protection	NPL: Nonperforming loan
Community National: Community National Bancorporation	NSFR: Net Stable Funding Ratio
CNB: Community National Bank	OREO: Other real estate owned
	~~Community National: Community National Bancorporation~~		~~OTTI: Other-than-temporary impairment~~
	~~CNB: Community National Bank~~		~~PCAOB: Public Company Accounting Oversight Board~~
	CRA: Community Reinvestment Act		~~PCI: Purchased credit impaired~~OTTI: Other-than-temporary impairment
	CRBT: Cedar Rapids Bank & Trust Company	PCAOB: Public Company Accounting Oversight Board
CRE: Commercial real estate	PCI: Purchased credit impaired
CRE Guidance: Interagency Concentrations in Commercial Real Estate	Provision: Provision for loan/lease losses
	~~CRE: Commercial real estate~~ Lending, Sound Risk Management Practices guidance		PUD LOC: Public Unit Deposit Letter of Credit
	~~CRE Guidance: Interagency Concentrations in Commercial Real Estate~~CSB: Community State Bank		QCBT: Quad City Bank & Trust Company
	~~Lending, Sound Risk Management Practices guidance~~C&I: Commercial and industrial		RB&T: Rockford Bank & Trust Company
	~~CSB: Community State Bank~~		~~ROAA: Return on Average Assets~~
	~~C&I: Commercial and industrial~~		~~ROACE: Return on Average Common Equity~~
	Dodd-Frank Act: Dodd-Frank Wall Street Reform and		~~ROAE:~~ROAA: Return on Average ~~Equity~~Assets
	Consumer Protection Act		~~SBA: U.S. Small Business Administration~~ROACE: Return on Average Common Equity
	IDFPR: Illinois Department of Financial & Professional Regulation	ROAE: Return on Average Equity
DGCL: Delaware General Corporation Law	SBA: U.S. Small Business Administration
DIF: Deposit Insurance Fund	SBLF: Small Business Lending Fund
	~~DGCL: Delaware General Corporation Law~~EPS: Earnings per share		SEC: Securities and Exchange Commission
	~~DIF: Deposit Insurance Fund~~Exchange Act: Securities Exchange Act of 1934, as amended		SERPs: Supplemental Executive Retirement Plans
	~~EPS: Earnings per share~~		~~TA: Tangible assets~~
	~~Exchange Act: Securities Exchange Act of 1934, as amended~~		~~TCE: Tangible common equity~~
	FASB: Financial Accounting Standards Board		~~TDRs: Troubled debt restructurings~~TA: Tangible assets
	FDIC: Federal Deposit Insurance Corporation		~~TEY:~~ Tax ~~equivalent yield~~Act: Tax Cuts and Jobs Act
	Federal Reserve: Board of Governors of the Federal Reserve System	TCE: Tangible common equity
FHLB: Federal Home Loan Bank	TDRs: Troubled debt restructurings
FICO: Financing Corporation	TEY: Tax equivalent yield
FRB: Federal Reserve Bank of Chicago	The Company: QCR Holdings, Inc.
	~~FHLB: Federal Home Loan Bank~~FTEs: Full-time equivalents		Treasury: U.S. Department of the Treasury
	~~FICO: Financing Corporation~~GAAP: Generally Accepted Accounting Principles		USA Patriot Act: Uniting and Strengthening America by
	~~FRB: Federal Reserve Bank of Chicago~~Guaranty: Guaranty Bankshares, Ltd.		Providing Appropriate Tools Required to Intercept and
	~~FTEs: Full-time equivalents~~Guaranty Bank: Guaranty Bank and Trust Company		Obstruct Terrorism Act of 2001
	~~GAAP: Generally Accepted Accounting Principles~~		USDA: U.S. Department of Agriculture
	~~Goldman Sachs: Goldman Sachs and Company~~

Table of Contents

QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

Nature of business:

QCR Holdings, Inc. is a bank holding company ~~providing~~that has elected to operate as a financial holding company under the BHCA. The Company provides bank and bank-related services through its banking subsidiaries, QCBT, CRBT, CSB and RB&T. The Company also engages in direct financing lease contracts through its wholly-owned equity investment by QCBT in m2, headquartered in Milwaukee, Wisconsin.

~~QCR Holdings, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~Note 1.Nature of Business and Significant Accounting Policies (continued)~~

On October 1, 2017 the Company acquired Guaranty Bank, headquartered in Cedar Rapids, Iowa, from Guaranty. On December 2, 2017, the Company merged Guaranty Bank with and into CRBT, with CRBT as the surviving bank.On August 31, 2016, the Company acquired Community State Bank in Ankeny, Iowa (Des Moines MSA).The financial results of the acquisitions of both Guaranty Bank and CSB for the ~~period~~periods since acquisition are included in this report. See Note 2 to the Consolidated Financial Statements for additional information.

QCBT is a commercial bank that serves the Iowa and Illinois Quad Cities and adjacent communities. CRBT is a commercial bank that serves Cedar Rapids, Iowa, and adjacent communities including Cedar Falls and Waterloo, Iowa. CSB is a commercial bank that serves Des Moines, Iowa, and adjacent communities. RB&T is a commercial bank that serves Rockford, Illinois, and adjacent communities.

QCBT, CRBT, and CSB are chartered and regulated by the state of Iowa, and RB&T is chartered and regulated by the state of Illinois. All four subsidiary banks are insured and subject to regulation by the ~~FDIC. QCBT, CRBT~~FDIC and ~~RB&T~~all are members of and regulated by the Federal Reserve System. ~~CSB has not yet become a member of the Federal Reserve, but plans to apply for membership in early 2017.~~

The remaining subsidiaries of the Company consist of ~~five~~six non-consolidated subsidiaries formed for the issuance of trust preferred securities. See Note 1112 for a listing of these subsidiaries and additional information.

~~Significant accounting policies:~~

Significant accounting policies:

Accounting estimates: The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance, OTTI of securities, the fair value of financial instruments, and the fair value of ~~financial instruments.~~assets acquired/liabilities assumed in a business combination.

Principles of consolidation: The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, except those six subsidiaries formed for the issuance of trust preferred securities which do not meet the criteria for consolidation. See Note 1112 for a detailed listing of these subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Table of Contents

QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

Presentation of cash flows: For purposes of reporting cash flows, cash and due from banks include cash on hand and noninterest bearing amounts due from banks. Cash flows from federal funds sold, interest bearing deposits at financial institutions, loans/leases, deposits, and short-term borrowings are treated as net increases or decreases.

Cash and due from banks: The subsidiary banks are required by federal banking regulations to maintain certain cash and due from bank reserves. The reserve requirement was approximately ~~$42,233,000~~$41,803,000 and ~~$30,532,000~~$42,233,000 as of December 31, ~~2016~~ 2017 and ~~2015,~~2016, respectively.

Investment securities: Investment securities held to maturity are those debt securities that the Company has the ability and intent to hold until maturity regardless of changes in market conditions, liquidity needs, or changes in general economic conditions. Such securities are carried at cost adjusted for amortization of premiums and accretion of discounts. If the ability or intent to hold to maturity is not present for certain specified securities, such securities are considered AFS as the Company intends to hold them for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations, and other factors. Securities AFS are carried at fair value. Unrealized gains or losses, net of taxes, are reported as increases or decreases in AOCI. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.

All securities are evaluated to determine whether declines in fair value below their amortized cost are other-than-temporary.

In estimating OTTI losses on AFS debt securities, management considers a number of factors including, but not limited to, ~~(1)~~(1) the length of time and extent to which the fair value has been less than amortized cost, ~~(2)~~(2) the financial condition and near-term prospects of the issuer, ~~(3)~~(3) the current market conditions, and ~~(4)~~(4) the lack of intent of the Company to sell the security prior to recovery and whether it is not ~~more-likely-than-not~~ more-likely-than-not that it will be required to sell the security prior to recovery.

If the Company lacks the intent to sell the security, and it is not ~~more-likely-than-not~~ more-likely-than-not the entity will be required to sell the security before recovery of its amortized cost basis, the Company will recognize the credit component of an OTTI of a debt security in earnings and the remaining portion in other comprehensive income. For held to maturity debt securities, the amount of an OTTI recorded in other comprehensive income for the noncredit portion would be amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

In estimating OTTI losses on AFS equity securities management considers factors (1), (2) and (3) above as well as whether the Company lacks the intent to sell the security and the ability to hold the security until its recovery. If the Company (a) intends to sell an impaired equity security and does not expect the fair value of the security to fully recover before the expected time of sale, or (b) does not have the ability to hold the security until its recovery, the security is deemed other-than-temporarily impaired and the impairment is charged to earnings. The Company recognizes an impairment loss through earnings if based upon other factors the loss is deemed to be other-than-temporary even if the decision to sell has not been made.

Loans receivable, held for sale: Residential real estate loans which are originated and intended for resale in the secondary market in the foreseeable future are classified as held for sale. These loans are carried at the lower of cost or estimated market value in the aggregate. As assets specifically acquired for resale, the origination of, disposition of, and gain/loss on these loans are classified as operating activities in the statement of cash flows.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

Loans receivable, held for investment: Loans that management has the intent and ability to hold for the foreseeable future, or until pay-off or maturity occurs, are classified as held for investment. These loans are stated at the amount of unpaid principal adjusted for charge-offs, the allowance, and any deferred fees and/or costs on originated loans. Interest is credited to earnings as earned based on the principal amount outstanding. Deferred direct loan origination fees and/or costs are amortized as an adjustment of the related loan’s yield. As assets held for and used in the production of services, the origination and collection of these loans are classified as investing activities in the statement of cash flows.

The Company discloses the allowance for credit losses (also known as the allowance) ~~and fair value~~ by portfolio segment, and credit quality information, impaired financing receivables, nonaccrual status, and TDRs by class of financing receivable. A portfolio segment is the level at which the Company develops and documents a systematic methodology to determine its allowance for credit losses. A class of financing receivable is a further disaggregation of a portfolio segment based on risk characteristics and the Company’s method for monitoring and assessing credit risk. See the following information and Note 4.

The ~~Company’s~~Company’s portfolio segments are as follows:

●

C&I

●

CRE

●

Residential real estate

●

Installment and other consumer

Direct financing leases are considered a segment within the overall loan/lease portfolio.

The Company’s classes of loans receivable are as follows:

●

C&I

●

Owner-occupied CRE

●

Commercial construction, land development, and other land loans that are not owner-occupied CRE

●

Other non-owner-occupied CRE

●

Residential real estate

●

Installment and other consumer

Direct financing leases are considered a class of financing receivable within the overall loan/lease portfolio. The accounting policies for direct financing leases are disclosed below.

Generally, for all classes of loans receivable, loans are considered past due when contractual payments are delinquent for 31 days or greater.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

For ~~all~~all classes of loans receivable, loans will generally be placed on nonaccrual status when the loan has become 90 days past due (unless the loan is well secured and in the process of collection); or if any of the following conditions exist:

●

It becomes evident that the borrower will not make payments, or will not or cannot meet the terms for renewal of a matured ~~loan;~~loan;

●

When full repayment of principal and interest is not ~~expected;~~

expected●

~~When the loan is graded “doubtful”~~;

●

When the loan is graded “doubtful”;

●

When the borrower files bankruptcy and an approved plan of reorganization or liquidation is not anticipated in the near ~~future;~~future; or

●

When foreclosure action is initiated.

When a loan is placed on nonaccrual status, income recognition is ceased. Previously recorded but uncollected amounts of interest on nonaccrual loans are reversed at the time the loan is placed on nonaccrual status. Generally, cash collected on nonaccrual loans is applied to principal. Should full collection of principal be expected, cash collected on nonaccrual loans can be recognized as interest income.

For all classes of loans receivable, nonaccrual loans may be restored to accrual status provided the following criteria are met:

●

The loan is current, and all principal and interest amounts contractually due have been ~~made;~~made;

●

All principal and interest amounts contractually due, including past due payments, are ~~reasonably~~reasonably assured of repayment within a reasonable period; and

●

There is a period of minimum repayment performance, as follows, by the borrower in accordance with contractual terms:

o○

Six months of repayment performance for contractual monthly payments, or

o○

One year of repayment performance for contractual quarterly or semi-annual ~~payments.~~payments.

Direct finance leases receivable, held for investment: The Company leases machinery and equipment to customers under leases that qualify as direct financing leases for financial reporting and as operating leases for income tax purposes. Under the direct financing method of accounting, the minimum lease payments to be received under the lease contract, together with the estimated unguaranteed residual values (approximately 3% to 25% of the cost of the related equipment), are recorded as lease receivables when the lease is signed and the lease property delivered to the customer. The excess of the minimum lease payments and residual values over the cost of the equipment is recorded as unearned lease income. Unearned lease income is recognized over the term of the lease on a basis that results in an approximate level rate of return on the unrecovered lease investment.

Lease income is recognized on the interest method. Residual value is the estimated fair market value of the equipment on lease at lease termination. In estimating the equipment’s fair value at lease termination, the Company relies on historical experience by equipment type and manufacturer and, where available, valuations by independent appraisers, adjusted for known trends.

The ~~Company’s~~Company’s estimates are reviewed continuously to ensure reasonableness; however, the amounts the Company will ultimately realize could differ from the estimated amounts. If the review results in a lower estimate than had been previously established, a determination is made as to whether the decline in estimated residual value is other-than-temporary. If the decline in estimated unguaranteed residual value is judged to be other-than-temporary, the accounting for the transaction is revised using the changed estimate. The resulting reduction in the investment is recognized as a loss in the period in which the estimate is changed. An upward adjustment of the estimated residual value is not recorded.

~~The~~The policies for delinquency and nonaccrual for direct financing leases are materially consistent with those described above for all classes of loan receivables.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

The Company defers and amortizes fees and certain incremental direct costs over the contractual term of the lease as an adjustment to the yield. These initial direct leasing costs generally approximate 5.5% of the leased asset’s cost. The unamortized direct costs are recorded as a reduction of unearned lease income.

TDRs: TDRs exist when the Company, for economic or legal reasons related to the borrower’s/lessee’s financial difficulties, grants a concession (either imposed by court order, law, or agreement between the borrower/lessee and the Company) to the borrower/lessee that it would not otherwise consider. The Company ~~is attempting~~attempts to maximize its recovery of the balances of the loans/leases through these various concessionary restructurings.

The following criteria, related to granting a concession, together or separately, create a TDR:

●

A modification of terms of a debt such as one or a combination of:

o○

The reduction of the stated interest ~~rate.~~rate to a rate lower than the current market rate for new debt with similar risk.

○

The extension of the maturity date or dates at a stated interest rate lower than the current market rate for ~~the~~ new debt with similar risk.

○

The reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.

○

The reduction of accrued interest.

●

A transfer from the ~~borrower/~~borrower/lessee to the Company of receivables from third parties, real estate, other assets, or an equity position in the borrower to fully or partially satisfy a loan.

●

The issuance or other granting of an equity position to the Company to fully or partially satisfy a debt unless the equity position is granted pursuant to existing terms for converting the debt into an equity position.

Allowance:For all portfolio segments, the allowance is established as losses are estimated to have occurred through a provision that is charged to earnings. Loan/lease losses, for all portfolio segments, are charged against the allowance when management believes the uncollectability of a loan/lease balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

For all portfolio segments, the allowance is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans/leases in light of historical experience, the nature and volume of the loan/lease portfolio, adverse situations that may affect the borrower’s/lessee’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Table of Contents

QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

A discussion of the risk characteristics and the allowance by each portfolio segment follows:

For ~~QCR Holdings, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~Note 1. Nature of Business and Significant Accounting Policies (continued)~~

~~For~~C&I loans,, the Company focuses on small and mid-sized businesses with primary operations as wholesalers, manufacturers, building contractors, business services companies, other banks, and retailers. The Company provides a wide range of C&I loans, including lines of credit for working capital and operational purposes, and term loans for the acquisition of facilities, equipment and other purposes. Approval is generally based on the following factors:

●

Ability and stability of current management of the borrower;

●

Stable earnings with positive financial trends;

●

Sufficient cash flow to support debt repayment;

●

Earnings projections based on reasonable assumptions;

●

Financial strength of the industry and business; and

●

Value and marketability of collateral.

Collateral for C&I loans generally includes accounts receivable, inventory, equipment and real estate. The Company’s lending policy specifies approved collateral types and corresponding maximum advance percentages. The value of collateral pledged on loans must exceed the loan amount by a margin sufficient to absorb potential erosion of its value in the event of foreclosure and cover the loan amount plus costs incurred to convert it to cash.

The Company’s lending policy specifies maximum term limits for C&I loans. For term loans, the maximum term is generally 7 ~~years. Generally, term loans range~~ years with average terms ranging from 3 to 5 years. For lines of credit, the maximum term is ~~typically~~ generally 365 days.

In addition, the Company often takes personal guarantees or cosigners to help assure repayment. Loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower.

CRE~~CRE~~ loans are subject to underwriting standards and processes similar to C&I loans, in addition to those standards and processes specific to real estate loans. Collateral for CRE loans generally includes the underlying real estate and improvements, and may include additional assets of the borrower. The Company’s lending policy specifies maximum loan-to-value limits based on the category of CRE (CRE loans on improved property, raw land, land development, and commercial construction). These limits are the same limits established by regulatory authorities.

The Company’s lending policy also includes guidelines for real estate appraisals, including minimum appraisal standards based on certain transactions. In addition, the Company often takes personal guarantees to help assure repayment.

In addition, management tracks the level of owner-occupied CRE loans versus non-owner occupied loans. Owner-occupied loans are generally considered to have less risk. As of December 31, ~~2016~~ 2017 and ~~2015,~~2016, approximately ~~30%~~26% and ~~35%~~30%, respectively, of the CRE loan portfolio was owner-occupied.

The ~~Company’s~~Company’s lending policy ~~limits~~incorporates regulatory guidelines which stipulate that non-owner occupied CRE lending to in excess of 300% of total risk-based capital, and ~~limits~~ construction, land development, and other land loans to in excess of 100% of total risk-based ~~capital. Exceeding these limits warrants~~capital warrant the use of heightened risk management ~~practices in accordance with regulatory guidelines.~~practices. As of December 31, ~~2016~~ 2017 and ~~2015,~~2016, QCBT, CRBT and RB&T were in compliance with these limits. Although the CSB’s loan portfolio has historically been real estate dominated and its real estate portfolio levels exceed these policy limits, it has established a Credit Risk Committee to routinely monitor its real estate loan portfolio. CSB’s real estate levels, while still elevated at December 31, ~~2016,~~ 2017, have declined since December 31, ~~2015.~~2016.

In some instances for all loans/leases, it may be appropriate to originate or purchase loans/leases that are exceptions to the guidelines and limits established within the Company’s lending policy described above and below. In general, exceptions to the lending policy do not significantly deviate from the guidelines and limits established within the Company’s lending policy and, if there are exceptions, they are clearly noted as such and specifically identified in loan/lease approval documents.

Table of Contents

QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

For ~~For~~C&I and CRE loans,, the allowance consists of specific and general components.

The specific component relates to loans that are classified as impaired, as defined below. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan are lower than the carrying value of that loan.

For C&I loans and all classes of CRE loans, a loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a case-by-case basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

The general component consists of quantitative and qualitative factors and covers non-impaired loans. The quantitative factors are based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. See below for a detailed description of the Company’s internal risk rating scale. The qualitative factors are determined based on an assessment of internal and/or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

For C&I and CRE loans, the Company utilizes the following internal risk rating scale:

1.1. Highest Quality (Pass) – loans of the highest quality with no credit risk, including those fully secured by subsidiary bank certificates of deposit and U.S. government securities.

2.2. Superior Quality (Pass) – loans with very strong credit quality. Borrowers have exceptionally strong earnings, liquidity, capital, cash flow coverage, and management ability. Includes loans secured by high quality marketable securities, certificates of deposit from other institutions, and cash value of life insurance. Also includes loans supported by U.S. government, state, or municipal guarantees.

3.3. Satisfactory Quality (Pass)–loans with satisfactory credit quality. Established borrowers with satisfactory financial condition, including credit quality, earnings, liquidity, capital and cash flow coverage. Management is capable and experienced. Collateral coverage and guarantor support, if applicable, are more than adequate. Includes loans secured by personal assets and business assets, including equipment, accounts receivable, inventory, and real estate.

4.4. Fair Quality (Pass)–loans with moderate but still acceptable credit quality. The primary repayment source remains adequate; however, management’s ability to maintain consistent profitability is unproven or uncertain. Borrowers exhibit acceptable leverage and liquidity. May include new businesses with inexperienced management or unproven performance records in relation to peer, or borrowers operating in highly cyclical or declining industries.

Table of Contents

QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

5.5. Early Warning (Pass)–loans where the borrowers have generally performed as agreed, however unfavorable financial trends exist or are anticipated. Earnings may be erratic, with marginal cash flow or declining sales. Borrowers reflect leveraged financial condition and/or marginal liquidity. Management may be new and a track record of performance has yet to be developed. Financial information may be incomplete, and reliance on secondary repayment sources may be increasing.

6.6. Special Mention – loans where the borrowers exhibit credit weaknesses or unfavorable financial trends requiring close monitoring. Weaknesses and adverse trends are more pronounced than Early Warning loans, and if left uncorrected, may jeopardize repayment according to the contractual terms. Currently, no loss of principal or interest is expected. Borrowers in this category have deteriorated to the point that it would be difficult to refinance with another lender. Special Mention should be assigned to borrowers in turnaround situations. This rating is intended as a transitional rating, therefore, it is generally not assigned to a borrower for a period of more than one year.

~~7. Substandard–~~7. Substandard – loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if applicable. These loans have a well-defined weakness or weaknesses which jeopardize repayment according to the contractual terms. There is distinct loss potential if the weaknesses are not corrected. Includes loans with insufficient cash flow coverage which are collateral dependent, other real estate owned, and repossessed assets.

~~8. Doubtful–~~8. Doubtful – loans which have all the weaknesses inherent in a Substandard loan, with the added characteristic that existing weaknesses make full principal collection, on the basis of current facts, conditions and values, highly doubtful. The possibility of loss is extremely high, but because of pending factors, recognition of a loss is deferred until a more exact status can be determined. All doubtful loans will be placed on non-accrual, with all payments, including principal and interest, applied to principal reduction.

The Company has certain loans risk-rated 7 (substandard), which are not classified as impaired based on the facts of the credit. For these non-impaired and risk-rated 7 loans, the Company does notfollow the same allowance methodology as it does for all other non-impaired, collectively evaluated loans. Rather, the Company performs a more detailed analysis including evaluation of the cash flow and collateral valuations. Based upon this evaluation, an estimate of the probable loss in this portfolio is collectively evaluated under ASC ~~450-20.~~450-20. These non-impaired risk-rated 7 loans exist primarily in the C&I and CRE segments.

For term C&I and CRE loans ~~or credit relationships with aggregate exposure~~ greater than ~~$1,000,000,~~$1,000,000, a loan review is required within 15 months of the most recent credit review. The review is completed in enough detail to, at a minimum, validate the risk rating. Additionally, the review shall include an analysis of debt service requirements, covenant compliance, if applicable, and collateral adequacy. The frequency of the review is generally accelerated for loans with poor risk ratings.

The Company’s Loan Quality area performs a documentation review of a sampling of C&I and CRE loans, the primary purpose of which is to ensure the credit is properly documented and closed in accordance with approval authorities and conditions. A review is also performed by the Company’s Internal Audit Department of a sampling of C&I and CRE loans for proper documentation, according to an approved schedule. Validation of the risk rating is also part of Internal Audit’s review (performed by Internal Loan Review). Additionally, over the past several years, the Company has contracted an independent outside third party to review a sampling of C&I and CRE loans. Validation of the risk rating is part of this review as well.

The Company leases machinery and equipment to C&I customers underdirect financing ~~leases~~.leases. All lease requests are subject to the credit requirements and criteria as set forth in the lending/leasing policy. In all cases, a formal independent credit analysis of the lessee is performed.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

For direct financing leases, the allowance consists of specific and general components.

The specific component relates to leases that are classified as impaired, as defined for commercial loans above. For those leases that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired lease is lower than the carrying value of that lease.

The general component consists of quantitative and qualitative factors and covers nonimpaired leases. The quantitative factors are based on historical charge-off experience for the entire lease portfolio. The qualitative factors are determined based on an assessment of internal and/or external influences on credit quality that are not fully reflected in the historical loss data.

Generally, the Company’sresidential real estate loans conform to the underwriting requirements of Freddie Mac and Fannie Mae to allow the subsidiary banks to resell loans in the secondary market. The subsidiary banks structure most loans that will not conform to those underwriting requirements as adjustable rate mortgages that mature or adjust in one to five years or fixed rate mortgages that mature in 15 years, and then retain these loans in their portfolios. Servicing rights are not presently retained on the loans sold in the secondary market. The Company’s lending policy establishes minimum appraisal and other credit guidelines.

The Company provides many types ofinstallment and other consumer loans including motor vehicle, home improvement, home equity, signature loans and small personal credit lines. The Company’s lending policy addresses specific credit guidelines by consumer loan type.

For ~~For~~residential real estate loans, and installment and other consumer loans,, these large groups of smaller balance homogenous loans are collectively evaluated for impairment. The Company applies a quantitative factor based on historical charge-off experience in total for each of these segments. Accordingly, the Company generally does not separately identify individual residential real estate loans, and/or installment or other consumer loans for impairment disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

TDRs are considered impaired loans/leases and are subject to the same allowance methodology as described above for impaired loans/leases by portfolio segment. Once a loan is classified as a TDR, it will remain a TDR until the loan is paid off, charged off, moved to OREO or restructured into a new note without a concession. TDR status may also be removed if the TDR was restructured in a prior calendar year, is current, accruing interest and shows sustained performance.

Credit related financial instruments: In the ordinary course of business, the Company has entered into commitments to extend credit and standby letters of credit. Such financial instruments are recorded when they are funded.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

Transfers of financial assets: Transfers of financial assets are accounted for as sales only when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: ~~(1)~~(1) the assets have been isolated from the Company, ~~(2)~~(2) the transferee obtains the right to pledge or exchange the assets it received, and no condition both constrains the transferee from taking advantage of its right to pledge or exchange and provides more than a modest benefit to the transferor, and ~~(3)~~(3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets. In addition, for transfers of a portion of financial assets (for example, participations of loan receivables), the transfer must meet the definition of a “participating interest” in order to account for the transfer as a sale. Following are the characteristics of a “participating interest”:

●

Pro-rata ownership in an entire financial ~~asset.~~asset.

●

From the date of the transfer, all cash flows received from entire financial assets are divided proportionately among the participating interest holders in an amount equal to their share of ownership.

●

The rights of each participating interest holder have the same priority, and no participating interest ~~holder’s~~holder’s interest is subordinated to the interest of another participating interest holder. That is, no participating interest holder is entitled to receive cash before any other participating interest holder under its contractual rights as a participating interest holder.

●

No party has the right to pledge or exchange the entire financial asset unless all participating interest holders agree to pledge or exchange the entire financial asset.

BOLI: BOLI is carried at cash surrender value with increases/decreases reflected as income/expense in the statement of income.

Premises and equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets.

Restricted investment securities: Restricted investment securities represent FHLB and FRB common stock. The stock is carried at cost. These equity securities are “restricted” in that they can only be sold back to the respective institution or another member institution at par. Therefore, they are less liquid than other tradable equity securities. The Company views its investment in restricted stock as a long-term investment. Accordingly, when evaluating for impairment, the value is determined based on the ultimate recovery of the par value, rather than recognizing temporary declines in value. There have been no other-than-temporary write-downs recorded on these securities.

OREO: Real estate acquired through, or in lieu of, loan foreclosures, is held for sale and initially recorded at fair value less costs to sell, establishing a new cost basis. Any writedown to fair value taken at the time of foreclosure is charged to the allowance. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less costs to sell. Subsequent write-downs to fair value are charged to earnings.

Repossessed assets: Equipment or other non-real estate property acquired through, or in lieu of foreclosure, is held for sale and initially recorded at fair value less costs to sell.

Goodwill: The Company recorded goodwill totaling ~~$3,222,688~~$3,222,688 from QCBT’s purchase of 80% of m2 in August 2005.Goodwill totaling $9,888,225 was also recognized as part of the acquisition of CSB in 2016. The goodwill is not being amortized, but is evaluated at least annually for impairment. An impairment charge is recognized when the calculated fair value of the reporting unit, including goodwill, is less than its carrying amount. Based on the annual analysis completed as of September 30, ~~2016,~~ 2017, the Company determined that the goodwill was not impaired. Goodwill totaling ~~$9,888,225~~$15,223,179 was also recognized as part of the acquisition of ~~CSB~~Guaranty Bank in ~~2016.~~2017. See Note 2 to the Consolidated Financial Statements for additional information. This goodwill is not being amortized, and will be evaluated annually for impairment beginning in ~~future years.~~2018.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

Core deposit intangible: The Company has recorded a core deposit intangible from ~~the acquisition of CNB.~~historical acquisitions including CNB, CSB and Guaranty Bank. The core deposit intangible was the portion of the acquisition purchase price which represented the value assigned to the existing deposit base at acquisition. ~~The Company also recorded a core deposit intangible from the acquisition of CSB.~~ See ~~Note~~ Notes 2 and 7 to the Consolidated Financial Statements for additional information. The core deposit intangibles have a finite life and are amortized over the estimated useful life of the deposits (estimated to be ten years).

Swap transactions: The Company offers a loan swap program to certain commercial loan customers. Through this program, the Company originates a variable rate loan with the customer. The Company and the swap customer will then enter into a fixed interest rate swap. Lastly, an identical offsetting swap is entered into by the Company with a counterparty. These “back-to-back” swap arrangements are intended to offset each other and allow the Company to book a variable rate loan, while providing the customer with a contract for fixed interest payments. In these arrangements, the Company’s net cash flow is equal to the interest income received from the variable rate loan originated with the customer. These customer swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities. Additionally, the Company receives an upfront fee from the counterparty, dependent upon the pricing that is recognized upon receipt from the counterparty. Swap fee income totaled ~~$1.7~~$3.1 million, ~~$1.7~~$1.7 million and ~~$155 thousand~~$1.7 million for the years ending December 31,2017,2016 ~~2015~~ and ~~2014,~~2015, respectively.

Derivatives and hedging activities: The Company enters into derivative financial instruments as part of its strategy to manage its exposure to changes in interest rates.

Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying index (such as a rate, security price or price index) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying index.

The derivative financial instruments currently used by the Company to manage its exposure to interest rate risk include: ~~(1)~~(1) interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market (although this type of derivative is negligible); and ~~(2)~~(2) interest rate caps to manage the interest rate risk of certain short-term fixed rate liabilities.

Interest rate caps are valued by the transaction counterparty on a monthly basis and corroborated by a third party annually. The company uses the hypothetical derivative method to assess and measure effectiveness in accordance with ASC 815, Derivatives and Hedging.

Preferred stock: The Company currently has 250,000 shares of preferred stock authorized, but none outstanding as of December 31, ~~2016~~ 2017 and ~~2015.~~2016. Should the Company have preferred stock outstanding in the future, dividends declared on those shares would be deducted from net income to arrive at net income available to common stockholders. Net income available to common stockholders would then be used in the earnings per share computations.

Treasury ~~stock~~stock: Treasury stock is accounted for by the cost method, whereby shares of common stock reacquired are recorded at their purchase price. When treasury stock is reissued, any difference between the sales proceeds, or fair value when issued for business combinations, and the cost is recognized as a charge or credit to additional paid-in capital. The Company’s then outstanding treasury stock was retired in 2015.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

Stock-based compensation plans: The Company accounts for stock-based compensation with measurement of compensation cost for all stock-based awards at fair value on the grant date and recognition of compensation over the requisite service period for awards expected to vest.

As discussed in Note 15, during the years ended December 31, 2017,2016, ~~2015,~~ and ~~2014,~~2015, the Company recognized stock-based compensation expense ~~related~~for the grant-date fair value of stock based awards that are expected to ~~stock option~~vest over the requisite service period of $1,187,035,$947,174 and ~~incentive plans, stock purchase plans, and restricted stock awards of $947,174, $941,469, and $891,619,~~$941,469, respectively. As required, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest.

The Company ~~uses~~uses the Black-Scholes option pricing model to estimate the fair value of stock option grants with the following assumptions for the indicated periods:

	2016			2015			2014			2017				2016				2015
Dividend yield	.35%	to	.51%	.37%	to	.46%		.47%			0.36%	to	0.47%		0.35%	to	0.51%		0.37%	to	0.46%
Expected volatility	29.32%	to	29.37%	28.92%	to	29.32%	29.07%	to	29.18%
Expected volatility											29.64%	to	29.95%		29.32%	to	29.37%		28.92%	to	29.32%
Risk-free interest rate	1.73%	to	2.18%	1.89%	to	2.37%	2.69%	to	2.82%		2.50%	to	2.81%		1.73%	to	2.18%		1.89%	to	2.37%
Expected life of option grants (years)		6			6			6
Expected life of option grants (in years)												6				6				6
Weighted-average grant date fair value		$7.31			$5.11			$5.68				$14.75				$7.31				$5.11

The ~~Company~~Company also uses the Black-Scholes option pricing model to estimate the fair value of stock purchase grants with the following assumptions for the indicated periods:

	2016			2015			2014			2017				2016				2015
Dividend yield	.33%	to	.59%	.37%	to	.45%	.46%	to	.47%		0.37%	to	0.42%		0.33%	to	0.59%		0.37%	to	0.45%
Expected volatility	12.70%	to	15.60%	8.81%	to	13.10%	16.96%	to	19.35%
Expected volatility											19.80%	to	19.86%		12.70%	to	15.60%		8.81%	to	13.10%
Risk-free interest rate	.39%	to	.57%	.09%	to	.16%	.04%	to	.12%		0.67%	to	1.18%		0.39%	to	0.57%		0.09%	to	.016%
Expected life of purchase grants (months)	3	to	6	3	to	6	3	to	6
Expected life of purchase grants (in months)											3	to	6		3	to	6		3	to	6
Weighted-average grant date fair value		$3.28			$2.39			$2.37				$6.42				$3.28				$2.39

The fair value is amortized on a straight-line basis over the vesting periods of the grants and will be adjusted for subsequent changes in estimated forfeitures. The expected dividend yield assumption is based on the Company's current expectations about its anticipated dividend policy. Expected volatility is based on historical volatility of the Company's common stock price. The risk-free interest rate for periods within the contractual life of the option or purchase is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of the option and purchase grants is derived using the “simplified” method and represents the period of time that options and purchases are expected to be outstanding. Historical data is used to estimate forfeitures used in the model. Two separate groups of employees (employees subject to broad based grants, and executive employees and directors) are used.

As of December 31, ~~2016,~~2017, there was ~~$828,178~~$961,972 of unrecognized compensation cost related to ~~share based payments,~~stock options granted, which is expected to be recognized over a weighted average period of ~~2.07~~1.92 years.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's common stock for the ~~587,961~~495,004 options that were in-the-money at December 31, ~~2016.~~ 2017. The aggregate intrinsic value at December 31, ~~2016~~ 2017 was ~~$16.7~~$13.2 million on options outstanding and ~~$11.8~~$10.5 million on options exercisable. During the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014,~~2015, the aggregate intrinsic value of options exercised under the Company's stock option plans was ~~$1,525,902, $480,354,~~$1,055,193,$1,525,902, and ~~$173,105,~~$480,354, respectively, and determined as of the date of the option exercise.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

Restricted stock awards grantedmay not be sold or otherwise transferred until the service periods have lapsed. During the vesting periods, participants have voting rights and receive dividends. Upon termination of employment, common shares upon which the service periods have not lapsed must be returned to the Company.

All restricted share awards are classified as equity awards. The grant-date fair value of equity-classified restricted stock awards is amortized as compensation expense on a straight-line basis over the period restrictions lapse.

As of December 31, 2017, there was $1,210,425 of unrecognized compensation cost related to nonvested restricted stock awards expected to be recognized over a period of 2.60 years.

Income taxes: The Company files its tax return on a consolidated basis with its subsidiaries. The entities follow the direct reimbursement method of accounting for income taxes under which income taxes or credits which result from the inclusion of the subsidiaries in the consolidated tax return are paid to or received from the parent company.

Deferred income taxes are provided under the liability method whereby deferred tax assets are recognized for deductible temporary differences and net operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the ~~effects~~effects of changes in tax laws and rates on the date of enactment.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the ~~statements~~statements of income.

Trust assets: Trust assets held by the subsidiary banks in a fiduciary, agency, or custodial capacity for their customers, other than cash on deposit at the subsidiary banks, are not included in the accompanying consolidated financial statements since such items are not assets of the subsidiary banks.

Earnings per share: See Note 17 for a complete description and calculation of basic and diluted earnings per share.

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

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

New accounting pronouncements:

In May 2014, FASB issued ASU ~~2014-09,~~2014-09,Revenue from Contracts with Customers. ASU ~~2014-09~~2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU ~~2014-09~~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~~2014-09 was originally effective for the Company on January 1, 2017, however, FASB issued ASU ~~2015-14~~2015-14 which ~~defers~~deferred the effective date in order to provide additional time for both public and private entities to evaluate the impact. ASU ~~2014-09 will now be effective for~~2014-09 was adopted by the Company on January 1, ~~2018. ASU 2014-09 will not impact interest income recognition; however, it will require the Company to change how it recognizes certain recurring revenue streams within trust~~ 2018 and ~~investment management fees, however it is not expected to have a~~had no significant financial impact on the Company’s consolidated financial statements. ~~The Company continues~~Under the standard, additional disclosures related to ~~evaluate the potential impact on other components of noninterest income. At adoption, the Company~~non-interest income will ~~adjust beginning retained earnings for the cumulative effect, if that adjustment is deemed material.~~be required.

In January 2016, FASB issued ASU ~~2016-01,~~2016-01,Financial Instruments – Overall. ASU ~~2016-01~~2016-01 makes targeted adjustments to GAAP by eliminating the available for sale classification for equity securities and requiring equity investments to be measured at fair value with changes in fair value recognized in net income. The standard also requires public business entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes. The standard clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. It also requires an entity to present separately (within other comprehensive income) the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the standard eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. ASU ~~2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The~~2016-01was adopted by the Company ~~is in~~on January 1, 2018 and had no significant impact on the ~~process of analyzing the impact of adoption.~~consolidated financial statements.

In February 2016, the FASB issued ASU ~~2016-02,~~2016-02,Leases. Under ASU ~~2016-02,~~2016-02, lessees will be required to recognize a lease liability measured on a discounted basis and a right-of-use asset for all leases (with the exception of short-term leases). Lessor accounting is largely unchanged under ASU ~~2016-02.~~2016-02. However, the definition of initial direct costs was updated to include only initial direct costs that are considered incremental. This change in definition will change the manner in which the Company recognizes the costs associated with originating leases. ASU ~~2016-02~~2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted for all entities. The Company is in the process of analyzing the impact of adoption on the Company’s consolidated financial statements.

~~In March 2016,~~ The Company is in the ~~FASB issued ASU 2016-09,~~~~Compensation – Stock Compensation~~~~. ASU 2016-09 aims to simplify~~process of analyzing the ~~accounting for companies that issue share-based payment awards to their employees. Simplification includes the income tax consequences, classification~~impact of awards as either equity or liabilities, and classification on the statement of cash flows of share-based payment awards. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and it is not expected to have a significant impactadoption on the Company’s consolidated financial statements.

Effective January 1, 2017. The Company adopted ASU 2016-09,Compensation – Stock Compensation. Under the standard, the excess tax benefit (deficiency) related to stock options exercised and restricted stock awards vested is recorded as an adjustment to income tax expense. In the past, this tax benefit (deficiency) was recorded directly to equity. This change in accounting resulted in $1.2 million of reduced income tax expense for 2017.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.Nature of Business and Significant Accounting Policies (continued)

In June 2016, the FASB issued ASU ~~2016-13,~~2016-13,Financial Instruments – Credit Losses. Under the standard, assets measured at amortized cost (including loans, leases and AFS securities) will be presented at the net amount expected to be collected. Rather than the “incurred” model that is currently being utilized, the standard will require the use of a forward-looking approach to recognizing all expected credit losses at the beginning of an asset’s life. For public companies, ASU ~~2016-13~~2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Companies may choose to early adopt for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of analyzing the impact of adoption on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02,Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Under the standard, entities are allowed to make a one-time reclassification from AOCI to retained earnings for the effect of remeasuring deferred tax liabilities and assets originally recorded in other comprehensive income as a result of the change in the federal tax rate as defined by the Tax Act. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Companies may choose to early adopt for fiscal years or interim periods that have not been issued or made available for issuance as of February 14, 2018. The Company chose to early adopt ASU 2018-02 and apply the guidance to the consolidated financial statements for the year ended December 31, 2017. The reclassification from AOCI to retained earnings for 2017 totaled $304 thousand and is presented in the Consolidated Statements of Changes in Stockholders’ Equity.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable

The composition of the loan/lease portfolio as of December 31, ~~2016~~2017 and ~~2015~~2016 is presented as follows:

	2016			2015			2017			2016

C&I loans	$	827,637,263		$	648,159,892		$	1,134,516,315		$	827,637,263
CRE loans
Owner-occupied CRE		332,387,621			252,523,164			332,742,477			332,387,621
Commercial construction, land development, and other land		165,149,491			49,083,844			186,402,404			165,149,491
Other non owner-occupied CRE		595,921,748			422,761,757			784,347,000			595,921,748
		1,093,458,860			724,368,765			1,303,491,882			1,093,458,860

Direct financing leases *		165,419,360			173,655,605			141,448,232			165,419,360
Residential real estate loans **		229,233,104			170,432,530			258,646,265			229,233,104
Installment and other consumer loans		81,665,695			73,669,493			118,610,799			81,665,695
		2,397,414,282			1,790,286,285			2,956,713,493			2,397,414,282
Plus deferred loan/lease origination costs, net of fees		8,072,703			7,736,390			7,771,907			8,072,703
		2,405,486,985			1,798,022,675			2,964,485,400			2,405,486,985
Less allowance		(30,757,448	)		(26,140,906	)		(34,355,728	)		(30,757,448	)
	$	2,374,729,537		$	1,771,881,769		$	2,930,129,672		$	2,374,729,537


* Direct financing leases:
Net minimum lease payments to be received	$	184,274,802		$	195,476,230		$	156,583,887		$	184,274,802
Estimated unguaranteed residual values of leased assets		1,085,154			1,165,706			929,932			1,085,154
Unearned lease/residual income		(19,940,596	)		(22,986,331	)		(16,065,587	)		(19,940,596	)
		165,419,360			173,655,605			141,448,232			165,419,360
Plus deferred lease origination costs, net of fees		5,881,778			6,594,582			4,624,027			5,881,778
		171,301,138			180,250,187			146,072,259			171,301,138
Less allowance		(3,111,898	)		(3,395,088	)		(2,382,098	)		(3,111,898	)
	$	168,189,240		$	176,855,099		$	143,690,161		$	168,189,240

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~~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 during the years ended~~ At December 31, ~~2016, 2015, and 2014. At December 31, 2016,~~2017, the Company had 1310 leases remaining with residual values totaling ~~$1,085,164~~$929,932 that were not protected with a lease end options rider. At December 31, ~~2015,~~ 2016, the Company had 1613 leases remaining with residual values totaling ~~$1,165,706~~$1,085,164 that were not protected with a lease end options rider. Management has performed specific evaluations of these unguaranteed residual values and determined that the valuations are appropriate. There were no losses related to unguaranteed residual values during the years ended December 31, 2017, 2016, and 2015.

**Includes residential real estate loans held for sale totaling ~~$1,135,500~~$645,001 and ~~$565,850~~$1,135,500 as of December 31, ~~2016~~ 2017 and ~~2015,~~2016, respectively.

102

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Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable (continued)

Changes in accretable yield for the loans acquired in the CSB and Guaranty Bank acquisitions are as follows:

For the year ended December 31, 2017

PCI

Performing

Loans

Total

Balance at the beginning of the period

(194,306

)

(9,115,614

)

(9,309,920

)

Discount added at acquisition

(219,902

)

(2,223,989

)

(2,443,891

)

Accretion recognized

223,076

5,059,528

5,282,604

Balance at the end of the period

(191,132

)

(6,280,075

)

(6,471,207

)

For the year ended December 31, 2016

PCI

Performing

Loans

Total

Balance at the beginning of the period

Discount added at acquisition

(277,579

)

(11,916,009

)

(12,193,588

)

Accretion recognized

83,273

2,800,395

2,883,668

Balance at the end of the period

(194,306

)

(9,115,614

)

(9,309,920

)

The aging of the loan/lease portfolio by classes of ~~loans/~~loans/leases as of December 31, ~~2016~~ 2017 and ~~2015~~2016 is presented as follows:

	2016																		2017
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			Current			30-59 Days Past Due			60-89 Days Past Due			Accruing Past Due 90 Days or More			Nonaccrual Loans/Leases			Total

C&I	$	821,637,507		$	1,455,185		$	10,551		$	346,234		$	4,187,786		$	827,637,263		$	1,124,734,486		$	8,306,829		$	243,647		$	-		$	1,231,353		$	1,134,516,315
CRE
Owner-Occupied CRE		331,812,571			-			242,902			-			332,148			332,387,621			331,868,142			540,435			-			-			333,900			332,742,477
Commercial Construction, Land Development, and Other Land		160,760,034			35,638			-			-			4,353,819			165,149,491			181,558,092			-			-			-			4,844,312			186,402,404
Other Non Owner-Occupied CRE		594,384,926			100,673			-			-			1,436,149			595,921,748			782,526,249			572,877			4,146			-			1,243,728			784,347,000
Direct Financing Leases		161,452,627			730,627			574,700			215,225			2,446,181			165,419,360			137,708,397			1,305,191			259,600			-			2,175,044			141,448,232
Residential Real Estate		227,023,552			473,478			365,581			294,854			1,075,639			229,233,104			253,261,821			3,552,709			393,410			74,519			1,363,806			258,646,265
Installment and Other Consumer		81,199,766			204,973			63,111			110,501			87,344			81,665,695			117,773,259			517,537			56,760			14,152			249,091			118,610,799
	$	2,378,270,983		$	3,000,574		$	1,256,845		$	966,814		$	13,919,066		$	2,397,414,282		$	2,929,430,446		$	14,795,578		$	957,563		$	88,671		$	11,441,234		$	2,956,713,493

As a percentage of total loan/lease portfolio		99.20	%		0.13	%		0.05	%		0.04	%		0.58	%		100.00	%		99.08	%		0.50	%		0.03	%		0.00	%		0.39	%		100.00	%

	2015																		2016
Classes of Loans/Leases	Current			30-59 Days Past Due			60-89 Days Past Due			AccruingPast Due 90 Days or More			Nonaccrual Loans/Leases			Total			Current			30-59 Days Past Due			60-89 Days Past Due			Accruing Past Due 90 Days or More			Nonaccrual Loans/Leases			Total

C&I	$	640,725,241		$	1,636,860		$	5,816		$	-		$	5,791,975		$	648,159,892		$	821,637,507		$	1,455,185		$	10,551		$	346,234		$	4,187,786		$	827,637,263
CRE
Owner-Occupied CRE		251,612,752			182,949			-			-			727,463			252,523,164			331,812,571			-			242,902			-			332,148			332,387,621
Commercial Construction, Land Development, and Other Land		48,890,040			-			-			-			193,804			49,083,844			160,760,034			35,638			-			-			4,353,819			165,149,491
Other Non Owner-Occupied CRE		420,819,874			614,732			219,383			-			1,107,768			422,761,757			594,384,926			100,673			-			-			1,436,149			595,921,748
Direct Financing Leases		170,021,289			1,490,818			439,314			2,843			1,701,341			173,655,605			161,452,627			730,627			574,700			215,225			2,446,181			165,419,360
Residential Real Estate		166,415,118			2,800,589			200,080			-			1,016,743			170,432,530			227,023,552			473,478			365,581			294,854			1,075,639			229,233,104
Installment and Other Consumer		73,134,197			412,052			14,127			-			109,117			73,669,493			81,199,766			204,973			63,111			110,501			87,344			81,665,695
	$	1,771,618,511		$	7,138,000		$	878,720		$	2,843		$	10,648,211		$	1,790,286,285		$	2,378,270,983		$	3,000,574		$	1,256,845		$	966,814		$	13,919,066		$	2,397,414,282

As a percentage of total loan/lease portfolio		98.96	%		0.40	%		0.05	%		0.00	%		0.59	%		100.00	%		99.20	%		0.13	%		0.05	%		0.04	%		0.58	%		100.00	%

103

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Notes to Consolidated Financial Statements

Note 4. 4. Loans/Leases Receivable ~~(continued)~~(continued)

NPLs by classes of loans/leases as of December 31, ~~2016~~ 2017 and ~~2015~~2016 is presented as follows:

	2016											2017
Classes of Loans/Leases	Accruing Past Due 90 Days or More		Nonaccrual Loans/Leases *		Accruing TDRs		Total NPLs		Percentage of Total NPLs			Accruing Past Due 90 Days or More		Nonaccrual Loans/Leases *		Accruing TDRs		Total NPLs		Percentage of Total NPLs

C&I	$	346,234	$	4,187,786	$	4,733,997	$	9,268,017		43.65	%	$	-	$	1,231,353	$	5,224,182	$	6,455,535		34.63	%
CRE
Owner-Occupied CRE		-		332,148		-		332,148		1.56	%		-		333,900		107,322		441,222		2.37	%
Commercial Construction, Land Development, and Other Land		-		4,353,819		-		4,353,819		20.51	%		-		4,844,312		-		4,844,312		25.99	%
Other Non Owner-Occupied CRE		-		1,436,149		-		1,436,149		6.77	%		-		1,243,728		-		1,243,728		6.67	%
Direct Financing Leases		215,225		2,446,181		1,008,244		3,669,650		17.28	%		-		2,175,044		1,494,448		3,669,492		19.68	%
Residential Real Estate		294,854		1,075,639		585,541		1,956,034		9.21	%		74,519		1,363,806		272,493		1,710,818		9.18	%
Installment and Other Consumer		110,501		87,344		18,746		216,591		1.02	%		14,152		249,091		14,027		277,270		1.49	%
	$	966,814	$	13,919,066	$	6,346,528	$	21,232,408		100.00	%	$	88,671	$	11,441,234	$	7,112,472	$	18,642,377		100.00	%

*At December 31, ~~2016,~~ 2017, nonaccrual loans/leases included ~~$2,300,479~~$2,282,495 of TDRs, including ~~$48,501~~$122,598 in C&I loans, ~~$1,380,047~~$1,336,871 in CRE loans, ~~$816,149~~$700,255 in direct financing leases, ~~$43,579~~$115,190 in residential real estate loans, and ~~$12,203~~$7,581 in installment loans.

	2015											2016
Classes of Loans/Leases	Accruing Past Due 90 Days or More		Nonaccrual Loans/Leases **		Accruing TDRs		Total NPLs		Percentage of Total NPLs			Accruing Past Due 90 Days or More		Nonaccrual Loans/Leases **		Accruing TDRs		Total NPLs		Percentage of Total NPLs

C&I	$	-	$	5,791,975	$	173,087	$	5,965,062		50.96	%	$	346,234	$	4,187,786	$	4,733,997	$	9,268,017		43.65	%
CRE
Owner-Occupied CRE		-		727,463		-		727,463		6.22	%		-		332,148		-		332,148		1.56	%
Commercial Construction, Land Development, and Other Land		-		193,804		-		193,804		1.66	%		-		4,353,819		-		4,353,819		20.51	%
Other Non Owner-Occupied CRE		-		1,107,768		-		1,107,768		9.46	%		-		1,436,149		-		1,436,149		6.77	%
Direct Financing Leases		2,843		1,701,341		-		1,704,184		14.56	%		215,225		2,446,181		1,008,244		3,669,650		17.28	%
Residential Real Estate		-		1,016,743		402,044		1,418,787		12.12	%		294,854		1,075,639		585,541		1,956,034		9.21	%
Installment and Other Consumer		-		109,117		478,625		587,742		5.02	%		110,501		87,344		18,746		216,591		1.02	%
	$	2,843	$	10,648,211	$	1,053,756	$	11,704,810		100.00	%	$	966,814	$	13,919,066	$	6,346,528	$	21,232,408		100.00	%

***At December 31, ~~2015,~~ 2016, nonaccrual loans/leases included ~~$1,533,657~~$2,300,479 of TDRs, including ~~$1,164,423~~$48,501 in C&I loans, ~~$193,804~~$1,380,047 in CRE loans, ~~$42,098~~$816,149 in direct financing leases, ~~$119,305~~$43,579 in residential real estate loans, and ~~$14,027~~$12,203 in installment loans.

104

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Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable (continued)

Changes in the allowance by portfolio segment for the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014~~2015 are presented as follows:

	Year Ended December 31, 2016
																			Year Ended December 31, 2017
	C&I			CRE			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total			C&I			CRE			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total

Balance, beginning	$	10,484,080		$	9,375,117		$	3,395,088		$	1,790,150		$	1,096,471		$	26,140,906		$	12,545,110		$	11,670,609		$	3,111,898		$	2,342,344		$	1,087,487		$	30,757,448
Provisions (credits) charged to expense		2,478,912			2,286,953			2,127,463			628,114			(43,276	)		7,478,166
Provisions charged to expense																				2,736,296			4,044,460			1,369,624			197,034			122,505			8,469,919
Loans/leases charged off		(527,152	)		(24,304	)		(2,503,417	)		(76,820	)		(112,490	)		(3,244,183	)		(1,149,790	)		(1,795,229	)		(2,284,910	)		(102,088	)		(41,196	)		(5,373,213	)
Recoveries on loans/leases previously charged off		109,270			32,843			92,764			900			146,782			382,559			191,420			42,848			185,486			29,141			52,679			501,574
Balance, ending	$	12,545,110		$	11,670,609		$	3,111,898		$	2,342,344		$	1,087,487		$	30,757,448		$	14,323,036		$	13,962,688		$	2,382,098		$	2,466,431		$	1,221,475		$	34,355,728

	Year Ended December 31, 2015
																			Year Ended December 31, 2016
	C&I			CRE			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total			C&I			CRE			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total

Balance, beginning	$	8,833,832		$	8,353,386		$	3,359,400		$	1,525,952		$	1,001,795		$	23,074,365		$	10,484,080		$	9,375,117		$	3,395,088		$	1,790,150		$	1,096,471		$	26,140,906
Provisions charged to expense		1,470,526			3,080,611			1,688,031			430,087			201,645			6,870,900
Provisions (credits) charged to expense																				2,478,912			2,286,953			2,127,463			628,114			(43,276	)		7,478,166
Loans/leases charged off		(453,782	)		(2,560,749	)		(1,788,772	)		(169,996	)		(251,838	)		(5,225,137	)		(527,152	)		(24,304	)		(2,503,417	)		(76,820	)		(112,490	)		(3,244,183	)
Recoveries on loans/leases previously charged off		633,504			501,869			136,429			4,107			144,869			1,420,778			109,270			32,843			92,764			900			146,782			382,559
Balance, ending	$	10,484,080		$	9,375,117		$	3,395,088		$	1,790,150		$	1,096,471		$	26,140,906		$	12,545,110		$	11,670,609		$	3,111,898		$	2,342,344		$	1,087,487		$	30,757,448

	Year Ended December 31, 2014
																			Year Ended December 31, 2015
	C&I			CRE			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total			C&I			CRE			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total

Balance, beginning	$	5,648,774		$	10,705,434		$	2,517,217		$	1,395,849		$	1,180,774		$	21,448,048		$	8,833,832		$	8,353,386		$	3,359,400		$	1,525,952		$	1,001,795		$	23,074,365
Provisions (credits) charged to expense		4,297,253			(13,326	)		2,278,132			251,030			(6,089	)		6,807,000
Provisions charged to expense																				1,470,526			3,080,611			1,688,031			430,087			201,645			6,870,900
Loans/leases charged off		(1,475,885	)		(2,756,083	)		(1,504,181	)		(130,900	)		(268,656	)		(6,135,705	)		(453,782	)		(2,560,749	)		(1,788,772	)		(169,996	)		(251,838	)		(5,225,137	)
Recoveries on loans/leases previously charged off		363,690			417,361			68,232			9,973			95,766			955,022			633,504			501,869			136,429			4,107			144,869			1,420,778
Balance, ending	$	8,833,832		$	8,353,386		$	3,359,400		$	1,525,952		$	1,001,795		$	23,074,365		$	10,484,080		$	9,375,117		$	3,395,088		$	1,790,150		$	1,096,471		$	26,140,906

105

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Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable (continued)

The allowance by impairment evaluation and by portfolio segment as of December 31, ~~2016~~ 2017 and ~~2015~~2016 is presented as follows:

	2016																		2017
	C&I			CRE			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total			C&I			CRE			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total

Allowance for impaired loans/leases	$	1,771,537		$	693,919		$	848,919		$	289,112		$	39,481		$	3,642,968		$	715,627		$	1,429,460		$	504,469		$	355,167		$	38,596		$	3,043,319
Allowance for nonimpaired loans/leases		10,773,573			10,976,690			2,262,979			2,053,232			1,048,006			27,114,480			13,607,409			12,533,228			1,877,629			2,111,264			1,182,879			31,312,409
	$	12,545,110		$	11,670,609		$	3,111,898		$	2,342,344		$	1,087,487		$	30,757,448		$	14,323,036		$	13,962,688		$	2,382,098		$	2,466,431		$	1,221,475		$	34,355,728


Impaired loans/leases	$	8,936,451		$	6,112,114		$	3,256,264		$	1,661,180		$	106,090		$	20,072,099		$	6,248,209		$	6,529,262		$	3,669,492		$	1,704,846		$	202,354		$	18,354,163
Nonimpaired loans/leases		818,700,812			1,087,346,746			162,163,096			227,571,924			81,559,605			2,377,342,183			1,128,268,106			1,296,962,620			137,778,740			256,941,419			118,408,445			2,938,359,330
	$	827,637,263		$	1,093,458,860		$	165,419,360		$	229,233,104		$	81,665,695		$	2,397,414,282
																			$	1,134,516,315		$	1,303,491,882		$	141,448,232		$	258,646,265		$	118,610,799		$	2,956,713,493

Allowance as a percentage of impaired loans/leases		19.82	%		11.35	%		26.07	%		17.40	%		37.21	%		18.15	%		11.45	%		21.89	%		13.75	%		20.83	%		19.07	%		16.58	%
Allowance as a percentage of nonimpaired loans/leases		1.32	%		1.01	%		1.40	%		0.90	%		1.28	%		1.14	%		1.21	%		0.97	%		1.36	%		0.82	%		1.00	%		1.07	%
Total allowance as a percentage of total loans/leases		1.52	%		1.07	%		1.88	%		1.02	%		1.33	%		1.28	%		1.26	%		1.07	%		1.68	%		0.95	%		1.03	%		1.16	%

2015

C&I

CRE

Direct Financing Leases

Residential Real Estate

Installment and Other Consumer

Total

Allowance for impaired loans/leases
$ 2,592,270 $ 76,934 $ 306,193 $ 185,801 $ 143,089 $ 3,304,287
Allowance for nonimpaired loans/leases
7,891,810 9,298,183 3,088,895 1,604,349 953,382 22,836,619
$ 10,484,080 $ 9,375,117 $ 3,395,088 $ 1,790,150 $ 1,096,471 $ 26,140,906

Impaired loans/leases
$ 5,286,482 $ 2,029,035 $ 1,701,341 $ 1,418,787 $ 587,742 $ 11,023,387
Nonimpaired loans/leases
642,873,410 722,339,730 171,954,264 169,013,743 73,081,751 1,779,262,898
$ 648,159,892 $ 724,368,765 $ 173,655,605 $ 170,432,530 $ 73,669,493 $ 1,790,286,285

Allowance as a percentage of impaired loans/leases
49.04 % 3.79 % 18.00 % 13.10 % 24.35 % 29.98 %
Allowance as a percentage of nonimpaired loans/leases
1.23 % 1.29 % 1.80 % 0.95 % 1.30 % 1.28 %
Total allowance as a percentage of total loans/leases
1.62 % 1.29 % 1.96 % 1.05 % 1.49 % 1.45 %

2016

C&I

CRE

Direct Financing

Leases

Residential Real

Estate

Installment and

Other Consumer

Total

Allowance for impaired loans/leases

1,771,537

693,919

848,919

289,112

39,481

3,642,968

Allowance for nonimpaired loans/leases

10,773,573

10,976,690

2,262,979

2,053,232

1,048,006

27,114,480

12,545,110

11,670,609

3,111,898

2,342,344

1,087,487

30,757,448

Impaired loans/leases

8,936,451

6,112,114

3,256,264

1,661,180

106,090

20,072,099

Nonimpaired loans/leases

818,700,812

1,087,346,746

162,163,096

227,571,924

81,559,605

2,377,342,183

827,637,263

1,093,458,860

165,419,360

229,233,104

81,665,695

2,397,414,282

Allowance as a percentage of impaired loans/leases

19.82

11.35

26.07

17.40

37.21

18.15

Allowance as a percentage of nonimpaired loans/leases

1.32

1.01

1.40

0.90

1.28

1.14

Total allowance as a percentage of total loans/leases

1.52

1.07

1.88

1.02

1.33

1.28

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Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable (continued)

Information for impaired loans/leases is presented in the tables below. The recorded investment represents customer balances net of any partial charge-offs recognized on the loan/lease. The unpaid principal balance represents the recorded balance outstanding on the loan/lease prior to any partial charge-offs.

Loans/leases, by classes of financing receivable, considered to be impaired as of and for the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014~~2015 are presented as follows:

	2016												2017
Classes of Loans/Leases	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized for Cash Payments Received		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized for Cash Payments Received

Impaired Loans/Leases with No Specific Allowance Recorded:
C&I	$	841,895	$	951,600	$	-	$	2,858,343	$	16,748	$	16,748	$	1,634,269	$	1,644,706	$	-	$	1,406,310	$	71,183	$	71,183
CRE
Owner-Occupied CRE		-		93,774		-		312,242		-		-		289,261		289,261		-		79,317		11,902		11,902
Commercial Construction, Land Development, and Other Land		-		-		-		-		-		-		-		-		-		-		-		-
Other Non Owner-Occupied CRE		1,196,549		1,196,549		-		1,322,654		-		-		1,171,565		1,171,565		-		1,176,738		-		-
Direct Financing Leases		1,690,121		1,690,121		-		1,731,982		43,461		43,461		2,944,540		2,944,540		-		2,879,695		132,167		132,167
Residential Real Estate		853,294		892,495		-		964,590		9,903		9,903		943,388		1,018,167		-		685,807		1,161		1,161
Installment and Other Consumer		55,734		55,734		-		321,175		4,475		4,475		134,245		134,245		-		126,474		-		-
	$	4,637,593	$	4,880,273	$	-	$	7,510,986	$	74,587	$	74,587	$	7,117,268	$	7,202,484	$	-	$	6,354,341	$	216,413	$	216,413

Impaired Loans/Leases with Specific Allowance Recorded:
C&I	$	8,094,556	$	8,098,395	$	1,771,537	$	2,959,495	$	17,742	$	17,742	$	4,613,940	$	4,617,879	$	715,627	$	4,584,142	$	203,221	$	203,221
CRE
Owner-Occupied CRE		322,148		322,148		57,398		385,269		-		-		151,962		151,962		48,462		221,260		-		-
Commercial Construction, Land Development, and Other Land		4,353,817		4,353,817		577,611		1,022,930		-		-		4,844,312		4,844,312		1,379,235		4,447,831		-		-
Other Non Owner-Occupied CRE		239,600		239,600		58,910		47,920		-		-		72,163		72,163		1,763		44,667		-		-
Direct Financing Leases		1,566,143		1,566,143		848,919		841,733		36,303		36,303		724,953		724,953		504,469		625,107		-		-
Residential Real Estate		807,886		882,018		289,112		573,211		11,675		11,675		761,458		761,458		355,167		549,286		14,990		14,990
Installment and Other Consumer		50,356		50,356		39,481		40,384		527		527		68,109		68,109		38,596		40,152		410		410
	$	15,434,506	$	15,512,477	$	3,642,968	$	5,870,942	$	66,247	$	66,247	$	11,236,897	$	11,240,836	$	3,043,319	$	10,512,445	$	218,621	$	218,621

Total Impaired Loans/Leases:
C&I	$	8,936,451	$	9,049,995	$	1,771,537	$	5,817,838	$	34,490	$	34,490	$	6,248,209	$	6,262,585	$	715,627	$	5,990,452	$	274,404	$	274,404
CRE
Owner-Occupied CRE		322,148		415,922		57,398		697,511		-		-		441,222		441,222		48,462		300,577		11,902		11,902
Commercial Construction, Land Development, and Other Land		4,353,817		4,353,817		577,611		1,022,930		-		-		4,844,312		4,844,312		1,379,235		4,447,831		-		-
Other Non Owner-Occupied CRE		1,436,149		1,436,149		58,910		1,370,574		-		-		1,243,728		1,243,728		1,763		1,221,405		-		-
Direct Financing Leases		3,256,264		3,256,264		848,919		2,573,715		79,764		79,764		3,669,492		3,669,492		504,469		3,504,802		132,167		132,167
Residential Real Estate		1,661,180		1,774,513		289,112		1,537,801		21,578		21,578		1,704,846		1,779,625		355,167		1,235,093		16,151		16,151
Installment and Other Consumer		106,090		106,090		39,481		361,559		5,002		5,002		202,354		202,354		38,596		166,626		410		410
	$	20,072,099	$	20,392,750	$	3,642,968	$	13,381,928	$	140,834	$	140,834	$	18,354,163	$	18,443,318	$	3,043,319	$	16,866,786	$	435,034	$	435,034

Impaired loans/leases for which no allowance has been provided have adequate collateral, based on ~~management’s~~management’s current estimates.

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Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable (continued)

	2015												2016
Classes of Loans/Leases	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized for Cash Payments Received		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized for Cash Payments Received

Impaired Loans/Leases with No Specific Allowance Recorded:
C&I	$	234,636	$	346,072	$	-	$	380,495	$	7,436	$	7,436	$	841,895	$	951,600	$	-	$	2,858,343	$	16,748	$	16,748
CRE
Owner-Occupied CRE		256,761		350,535		-		447,144		-		-		-		93,774		-		312,242		-		-
Commercial Construction, Land Development, and Other Land		-		228,818		-		117,406		-		-		-		-		-		-		-		-
Other Non Owner-Occupied CRE		1,578,470		1,578,470		-		2,953,888		-		-		1,196,549		1,196,549		-		1,322,654		-		-
Direct Financing Leases		871,884		871,884		-		892,281		4,142		4,142		1,690,121		1,690,121		-		1,731,982		43,461		43,461
Residential Real Estate		613,486		649,064		-		1,047,001		3,929		3,929		853,294		892,495		-		964,590		9,903		9,903
Installment and Other Consumer		377,304		377,304		-		817,854		9,563		9,563		55,734		55,734		-		321,175		4,475		4,475
	$	3,932,541	$	4,402,147	$	-	$	6,656,069	$	25,070	$	25,070	$	4,637,593	$	4,880,273	$	-	$	7,510,986	$	74,587	$	74,587

Impaired Loans/Leases with Specific Allowance Recorded:
C&I	$	5,051,846	$	5,055,685	$	2,592,270	$	4,811,046	$	-	$	-	$	8,094,556	$	8,098,395	$	1,771,537	$	2,959,495	$	17,742	$	17,742
CRE
Owner-Occupied CRE		-		-		-		-		-		-		322,148		322,148		57,398		385,269		-		-
Commercial Construction, Land Development, and Other Land		193,804		205,804		76,934		195,986		-		-		4,353,817		4,353,819		577,611		1,022,930		-		-
Other Non Owner-Occupied CRE		-		-		-		-		-		-		239,600		239,600		58,910		47,920		-		-
Direct Financing Leases		829,457		829,457		306,193		474,458		-		-		1,566,143		1,566,143		848,919		841,733		36,303		36,303
Residential Real Estate		805,301		805,301		185,801		712,085		7,913		7,913		807,886		882,018		289,112		573,211		11,675		11,675
Installment and Other Consumer		210,438		210,438		143,089		189,539		5,693		5,693		50,356		50,356		39,481		40,384		527		527
	$	7,090,846	$	7,106,685	$	3,304,287	$	6,383,114	$	13,606	$	13,606	$	15,434,506	$	15,512,479	$	3,642,968	$	5,870,942	$	66,247	$	66,247

Total Impaired Loans/Leases:
C&I	$	5,286,482	$	5,401,757	$	2,592,270	$	5,191,541	$	7,436	$	7,436	$	8,936,451	$	9,049,995	$	1,771,537	$	5,817,838	$	34,490	$	34,490
CRE
Owner-Occupied CRE		256,761		350,535		-		447,144		-		-		322,148		415,922		57,398		697,511		-		-
Commercial Construction, Land Development, and Other Land		193,804		434,622		76,934		313,392		-		-		4,353,817		4,353,819		577,611		1,022,930		-		-
Other Non Owner-Occupied CRE		1,578,470		1,578,470		-		2,953,888		-		-		1,436,149		1,436,149		58,910		1,370,574		-		-
Direct Financing Leases		1,701,341		1,701,341		306,193		1,366,739		4,142		4,142		3,256,264		3,256,264		848,919		2,573,715		79,764		79,764
Residential Real Estate		1,418,787		1,454,365		185,801		1,759,086		11,842		11,842		1,661,180		1,774,513		289,112		1,537,801		21,578		21,578
Installment and Other Consumer		587,742		587,742		143,089		1,007,393		15,256		15,256		106,090		106,090		39,481		361,559		5,002		5,002
	$	11,023,387	$	11,508,832	$	3,304,287	$	13,039,183	$	38,676	$	38,676	$	20,072,099	$	20,392,752	$	3,642,968	$	13,381,928	$	140,834	$	140,834

Impaired loans/leases for which no allowance has been provided have adequate collateral, based on ~~management’s~~management’s current estimates.

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Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable (continued)

	2014												2015
Classes of Loans/Leases	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized for Cash Payments Received		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Interest Income Recognized for Cash Payments Received

Impaired Loans/Leases with No Specific Allowance Recorded:
C&I	$	246,308	$	342,391	$	-	$	525,543	$	7,599	$	7,599	$	234,636	$	346,072	$	-	$	380,495	$	7,436		$	7,436
CRE
Owner-Occupied CRE		67,415		163,638		-		548,464		-		-		256,761		350,535		-		447,144		-			-
Commercial Construction, Land Development, and Other Land		31,936		143,136		-		1,656,401		-		-		-		228,818		-		117,406		-			-
Other Non Owner-Occupied CRE		491,717		491,717		-		4,925,681		13,283		13,283		1,578,470		1,578,470		-		2,953,888		-			-
Direct Financing Leases		561,414		561,414		-		867,657		31,911		31,911		871,884		871,884		-		892,281		4,142			4,142
Residential Real Estate		1,060,770		1,060,770		-		1,269,213		3,032		3,032		613,486		649,064		-		1,047,001		3,929			3,929
Installment and Other Consumer		613,804		813,804		-		893,971		-		-		377,304		377,304		-		817,854		9,563			9,563
	$	3,073,364	$	3,576,870	$	-	$	10,686,930	$	55,825	$	55,825	$	3,932,541	$	4,402,147	$	-	$	6,656,069	$	25,070		$	25,070

Impaired Loans/Leases with Specific Allowance Recorded:
C&I	$	7,033,401	$	8,190,495	$	3,300,199	$	3,159,985	$	14,837	$	14,837	$	5,051,846	$	5,055,685	$	2,592,270	$	4,811,046	$	-		$	-
CRE
Owner-Occupied CRE		620,896		620,896		4,462		316,743		-		-		-		-		-		-		-	��		-
Commercial Construction, Land Development, and Other Land		337,076		577,894		12,087		528,564		-		-		193,804		205,804		76,934		195,986		-			-
Other Non Owner-Occupied CRE		5,884,343		6,583,934		1,153,471		4,240,000		-		-		-		-		-		-		-			-
Direct Financing Leases		777,858		777,858		356,996		514,144		-		-		829,457		829,457		306,193		474,458		-			-
Residential Real Estate		727,958		763,537		151,663		538,678		2,967		2,967		805,301		805,301		185,801		712,085		7,913			7,913
Installment and Other Consumer		494,229		494,229		265,795		386,009		3,564		3,564		210,438		210,438		143,089		189,539		5,693			5,693
	$	15,875,761	$	18,008,843	$	5,244,673	$	9,684,123	$	21,368	$	21,368	$	7,090,846	$	7,106,685	$	3,304,287	$	6,383,114	$	13,606		$	13,606

Total Impaired Loans/Leases:
C&I	$	7,279,709	$	8,532,886	$	3,300,199	$	3,685,528	$	22,436	$	22,436	$	5,286,482	$	5,401,757	$	2,592,270	$	5,191,541	$	7,436		$	7,436
CRE
Owner-Occupied CRE		688,311		784,534		4,462		865,207		-		-		256,761		350,535		-		447,144		-			-
Commercial Construction, Land Development, and Other Land		369,012		721,030		12,087		2,184,965		-		-		193,804		434,622		76,934		313,392		-			-
Other Non Owner-Occupied CRE		6,376,060		7,075,651		1,153,471		9,165,681		13,283		13,283		1,578,470		1,578,470		-		2,953,888		-			-
Direct Financing Leases		1,339,272		1,339,272		356,996		1,381,801		31,911		31,911		1,701,341		1,701,341		306,193		1,366,739		4,142			4,142
Residential Real Estate		1,788,728		1,824,307		151,663		1,807,891		5,999		5,999		1,418,787		1,454,365		185,801		1,759,086		11,842			11,842
Installment and Other Consumer		1,108,033		1,308,033		265,795		1,279,980		3,564		3,564		587,742		587,742		143,089		1,007,393		15,256			15,256
	$	18,949,125	$	21,585,713	$	5,244,673	$	20,371,053	$	77,193	$	77,193	$	11,023,387	$	11,508,832	$	3,304,287	$	13,039,183	$	38,676		$	38,676

Impaired loans/leases for which no allowance has been provided have adequate collateral, based on ~~management’s~~management’s current estimates.

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Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable (continued)

For C&I and CRE loans, the Company’s credit quality indicator is internally assigned risk ratings. Each commercial loan is assigned a risk rating upon origination. The risk rating is reviewed every 15 months, at a minimum, and on an as needed basis depending on the specific circumstances of the loan. See Note 1 for further discussion on the Company’s risk ratings.

For direct financing leases, residential real estate loans, and installment and other consumer loans, the ~~Company’s~~Company’s credit quality indicator is performance determined by delinquency status. Delinquency status is updated daily by the Company’s loan system.

For each class of financing receivable, the following presents the recorded investment by credit quality ~~indicator~~indicator as of December 31, ~~2016~~ 2017 and ~~2015:~~2016:

	2016													2017
			CRE													CRE
					Non Owner-Occupied													Non Owner-Occupied
Internally Assigned Risk Rating	C&I		Owner-Occupied CRE		Commercial Construction, Land Development, and Other Land		Other CRE		Total		As a % of Total			C&I		Owner-Occupied CRE		Commercial Construction, Land Development, and Other Land		Other CRE		Total		As a % of Total

Pass (Ratings 1 through 5)	$	796,568,451	$	314,447,662	$	158,108,465	$	582,854,048	$	1,851,978,626		96.40	%	$	1,098,722,101	$	318,293,608	$	179,142,839	$	767,119,909	$	2,363,278,457		96.94	%
Special Mention (Rating 6)		6,305,772		7,559,380		1,780,000		4,437,122		20,082,274		1.05	%		10,944,924		8,230,060		1,780,000		10,068,870		31,023,854		1.27	%
Substandard (Rating 7)		24,763,040		10,380,369		5,261,026		8,630,578		49,035,013		2.55	%		24,578,731		6,218,809		5,479,565		7,158,221		43,435,326		1.78	%
Doubtful (Rating 8)		-		210		-		-		210		0.00	%		270,559		-		-		-		270,559		0.01	%
	$	827,637,263	$	332,387,621	$	165,149,491	$	595,921,748	$	1,921,096,123		100.00	%	$	1,134,516,315	$	332,742,477	$	186,402,404	$	784,347,000	$	2,438,008,197		100.00	%

2016

Delinquency Status *

Direct Financing Leases

Residential Real Estate

Installment and Other Consumer

Total

As a % of
Total

Performing
$ 161,749,710 $ 227,277,070 $ 81,449,104 $ 470,475,884 98.77 %
Nonperforming
3,669,650 1,956,034 216,591 5,842,275 1.23 %
$ 165,419,360 $ 229,233,104 $ 81,665,695 $ 476,318,159 100.00 %

2017

Delinquency Status *

Direct Financing

Leases

Residential Real

Estate

Installment and

Other Consumer

Total

As a % of

Total

Performing

137,778,740

256,935,448

118,333,529

513,047,716

98.91

Nonperforming

3,669,492

1,710,818

277,270

5,657,580

1.09

141,448,232

258,646,265

118,610,799

518,705,296

100.00

	2015													2016
			CRE													CRE
					Non Owner-Occupied													Non Owner-Occupied
Internally Assigned Risk Rating	C&I		Owner-Occupied CRE		Commercial Construction, Land Development, and Other Land		Other CRE		Total		As a % of Total			C&I		Owner-Occupied CRE		Commercial Construction, Land Development, and Other Land		Other CRE		Total		As a % of Total

Pass (Ratings 1 through 5)	$	616,200,797	$	238,119,608	$	46,929,876	$	406,027,442	$	1,307,277,723		95.24	%	$	796,568,451	$	314,447,662	$	158,108,465	$	582,854,048	$	1,851,978,626		96.40	%
Special Mention (Rating 6)		18,031,845		8,630,658		1,780,000		8,846,286		37,288,789		2.72	%		6,305,772		7,559,380		1,780,000		4,437,122	$	20,082,274		1.05	%
Substandard (Rating 7)		13,927,250		5,772,898		373,968		7,888,029		27,962,145		2.04	%		24,763,040		10,380,369		5,261,026		8,630,578	$	49,035,013		2.55	%
Doubtful (Rating 8)		-		-		-		-		-		0.00	%		-		210		-		-	$	210		0.00	%
	$	648,159,892	$	252,523,164	$	49,083,844	$	422,761,757	$	1,372,528,657		100.00	%	$	827,637,263	$	332,387,621	$	165,149,491	$	595,921,748	$	1,921,096,123		100.00	%

	2015											2016
Delinquency Status *	Direct Financing Leases		Residential Real Estate		Installment and Other Consumer		Total		As a % of Total			Direct Financing Leases		Residential Real Estate		Installment and Other Consumer		Total		As a % of Total

Performing	$	171,951,421	$	169,013,743	$	73,081,751	$	414,046,913		99.11	%	$	161,749,710	$	227,277,070	$	81,449,104	$	470,475,884		98.77	%
Nonperforming		1,704,184		1,418,787		587,742		3,710,715		0.89	%		3,669,650		1,956,034		216,591	$	5,842,275		1.23	%
	$	173,655,605	$	170,432,530	$	73,669,493	$	417,757,628		100.00	%	$	165,419,360	$	229,233,104	$	81,665,695	$	476,318,159		100.00	%

*Performing = loans/leases accruing and less than 90 days past ~~due.~~due. Nonperforming = loans/leases on nonaccrual, accruing loans/leases that are greater than or equal to 90 days past due, and accruing troubled debt restructurings.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable (continued)

As of December 31, 2017 and 2016, TDRs totaled $9,394,967 and $8,647,007, respectively.

~~As of December 31, 2016 and 2015, TDRs totaled $8,647,007 and $2,587,413, respectively.~~

For each class of financing receivable, the following presents the number and recorded investment of TDRs, by type of concession, that were restructured during the years ended December 31, ~~2016~~ 2017 and ~~2015.~~2016. The difference between the pre-modification recorded investment and the post-modification recorded investment would be any partial charge-offs at the time of restructuring. The specific allowance is as of December 31, ~~2016~~ 2017 and ~~2015,~~2016, respectively. The following excludes any TDRs that were restructured and paid off or charged off in the same year.

	2016								2017
Classes of Loans/Leases	Number of Loans / Leases		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Specific Allowance		Number of Loans / Leases		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Specific Allowance

CONCESSION - Extension of Maturity
C&I		3	$	247,476	$	247,476	$	60,767
Direct Financing Leases		4		410,653		410,653		38,476		3	$	115,236	$	115,236	$	-
Residential Real Estate		1		277,092		277,092		187,492
		8	$	935,221	$	935,221	$	286,735		3	$	115,236	$	115,236	$	-

CONCESSION - Significant Payment Delay
C&I		7	$	4,562,427	$	4,562,427	$	813,041		7	$	826,531	$	826,531	$	62,596
CRE - Owner Occupied										1	$	107,322	$	107,322		-
Direct Financing Leases		13		1,149,493		1,149,493		125,940		24		1,703,255		1,703,255		-
		20	$	5,711,920	$	5,711,920	$	938,981		32	$	2,637,108	$	2,637,108	$	62,596

CONCESSION - Interest Rate Adjusted Below Market
CRE - Other		1	$	1,233,740	$	1,233,740	$	-
		1	$	1,233,740	$	1,233,740	$	-

TOTAL		29	$	7,880,881	$	7,880,881	$	1,225,716		35	$	2,752,344	$	2,752,344	$	62,596

	2015								2016
Classes of Loans/Leases	Number of Loans/Leases		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Specific Allowance		Number of Loans/Leases		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Specific Allowance

CONCESSION - Interest rate adjusted below market
Installment and Other Consumer		2	$	37,979	$	37,979	$	12,013
CONCESSION - Extension of Maturity
C&I										3	$	247,476	$	247,476	$	60,767
Direct Financing Leases										4		410,653		410,653		38,476
Residential Real Estate										1		277,092		277,092		187,492
										8	$	935,221	$	935,221	$	286,735

CONCESSION - Significant Payment Delay
C&I										7	$	4,562,427	$	4,562,427	$	813,041
Direct Financing Leases										13		1,149,493		1,149,493		125,940
										20	$	5,711,920	$	5,711,920	$	938,981

CONCESSION - Interest Rate Adjusted Below Market
CRE - Other										1	$	1,233,740	$	1,233,740	$	-
		2	$	37,979	$	37,979	$	12,013		1	$	1,233,740	$	1,233,740	$	-

TOTAL		2	$	37,979	$	37,979	$	12,013		29	$	7,880,881	$	7,880,881	$	1,225,716

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 4. Loans/Leases Receivable (continued)

Of the TDRs reported above, ~~eight~~seven with a post-modification recorded investment totaling ~~$2,008,424~~$279,245 were on nonaccrual as of December 31, ~~2016~~ 2017 and ~~one~~eight with a post-modification recorded investment totaling ~~$14,027~~$2,008,424 was on nonaccrual as of December 31, ~~2015.~~2016.

For the ~~years~~year ended December 31, ~~2016 and 2015,~~ 2017, the Company had nosix TDRs totaling $251,940 that redefaulted within 12 months subsequent to restructure, where default is defined as delinquency of 90 days or more and/or placement on nonaccrual status. For the year ended December 31, 2016, the Company had no TDRs that redefaulted within 12 months subsequent to restructure.

Not included in the table above, ~~the~~the Company had ~~three~~two TDRs that were restructured and charged off in ~~2016,~~2017, totaling ~~$341,952.~~$65,623. There were nothree TDRs that were both restructured and charged off in ~~2015.~~

~~QCR Holdings, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~Note 4. Loans/Leases Receivable (continued)~~2016, totaling $341,952.

Loans are made in the normal course of business to directors, executive officers, and their related interests. The terms of these loans, including interest rates and collateral, are similar to those prevailing for comparable transactions with other persons. An analysis of the changes in the aggregate committed amount of loans greater than or equal to ~~$60,000~~$60,000 during the years ended December 31, 2017, 2016, ~~2015,~~ and ~~2014,~~2015, is as follows:

	2016			2015			2014			2017			2016			2015

Balance, beginning	$	42,012,313		$	42,469,111		$	39,192,966		$	61,608,976		$	42,012,313		$	42,469,111
Net increase (decrease) due to change in related parties		19,945,960			(3,606,418	)		1,040,278			11,926,759			19,945,960			(3,606,418	)
Advances		4,806,616			19,040,675			13,284,475			13,090,798			4,806,616			19,040,675
Repayments		(5,155,913	)		(15,891,055	)		(11,048,608	)		(20,184,585	)		(5,155,913	)		(15,891,055	)
Balance, ending	$	61,608,976		$	42,012,313		$	42,469,111		$	66,441,948		$	61,608,976		$	42,012,313

The ~~Company’s~~Company’s loan portfolio includes a geographic concentration in the Midwest. Additionally, the loan portfolio ~~included~~includes a concentration of loans in certain industries as of December 31, ~~2016~~ 2017 and ~~2015~~2016 as follows:

	2016					2015					2017					2016
Industry Name	Balance		Percentage of Total Loans/Leases			Balance		Percentage of Total Loans/Leases			Balance		Percentage of Total Loans/Leases			Balance		Percentage of Total Loans/Leases

Lessors of Non-Residential Buildings	$	359,040,649		15	%	$	311,138,005		17	%	$	400,622,681		14	%	$	359,040,649		15	%
Lessors of Residential Buildings		166,036,201		7	%		91,811,101		5	%		370,353,561		12	%		166,036,201		7	%
Administration of Urban Planning & Community & Rural Development												83,343,541		3	%		37,097,000		2	%
Bank Holding Companies												66,950,294		2	%		66,069,612		3	%
Nonresidential Property Managers		76,504,076		3	%		10,500,305		1	%		51,984,722		2	%		76,504,076		3	%
Bank Holding Companies		66,069,612		3	%		55,840,984		3	%

Concentrations within the leasing portfolio are monitored by equipment type – none of which represent a concentration within the total loans/leases portfolio. Within the leasing portfolio, diversification is spread among construction, manufacturing and the service industries. Geographically, the lease portfolio is diversified across all 50 states. No individual state represents a concentration within the total loan/lease portfolio.

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QCR Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Item 9.9. Changes in and Disagreements ~~with~~with Accountants on Accounting and Financial Disclosure

Evaluation of disclosure controls and procedures. An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d – 15(e) promulgated under the Exchange Act) as of December 31, ~~2016.~~2017. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports filed and submitted under the Exchange Act was: (1) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures; and (2) recorded, processed, summarized and reported as and when required.

Managemen~~Management’s~~t’s Report on Internal Control ~~over~~over Financial Reporting.The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting includes controls and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

The ~~Company’s~~Company’s management has excluded ~~CSB~~Guaranty Bank from its assessment of internal control over financial reporting as of December 31, ~~2016,~~2017, because ~~CSB~~Guaranty Bank was acquired by the Company in the ~~third~~fourth quarter of ~~2016.~~2017.

The ~~Company’s~~Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2016.~~2017. Management’s assessment is based on the criteria established in theInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 and was designed to provide reasonable assurance that the Company maintained effective internal control over financial reporting as of December 31, ~~2016.~~2017. Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, ~~2016.~~2017.

RSM US LLP, the Company’s independent registered public accounting firm has issued an attestation report on the Company’s internal control over financial reporting as of December 31, ~~2016,~~2017, which is included on the following pages of this Form 10-K.

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We have audited QCR Holdings, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, ~~2016,~~2017, based on criteria established inInternal ~~Control —~~ Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of QCR Holdings, Inc. and ~~subsidiaries’~~subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017 and our report dated March 9, 2018 expressed an unqualified opinion.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Guaranty Bank and Trust from its assessment of internal control over financial reporting as of December 31, 2017, because it was acquired by the Company in a purchase business combination in the fourth quarter of 2017. We have also excluded this entity from our audit of internal control over financial reporting. Guaranty Bank and Trust operated as a wholly-owned subsidiary of QCR Holdings, Inc. from October 1, 2017 (the date of acquisition) until it was merged into Cedar Rapids Bank & Trust on December 2, 2017. Guaranty Bank and Trust’s total assets represented approximately 7% of QCR Holdings, Inc.’s related consolidated assets as of the date of the merger.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting ~~included~~ in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the ~~company's~~Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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Definition and Limitations of Internal Control ~~over~~Over Financial Reporting management has excluded Community State Bank from its assessment of internal control over financial reporting as of December 31, 2016, because it was acquired by the Company in a purchase business combination in the third quarter of 2016. We have also excluded Community State Bank from our audit of internal control over financial reporting. Community State Bank is a wholly owned subsidiary whose total assets and net income represent approximately 18 percent and 8 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2016.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that ~~(a)~~(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; ~~(b)~~(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and ~~(c)~~(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~In our opinion, QCR Holdings, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in~~~~Internal Control — Integrated Framework~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.~~

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of QCR Holdings, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016 and our report dated March 10, 2017 expressed an unqualified opinion.

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Changes in Internal Control ~~Over~~Over Financial Reporting. There have been no significant changes to the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting. On May 14, 2013, COSO issued an updated version of its Internal Control – Integrated Framework (“2013 Framework”). Originally issued in 1992 (“1992 Framework”), the framework helps organizations design, implement and evaluate the effectiveness of internal control concepts and simplify their use and application. The 1992 Framework remained effective during the transition, which extended to December 15, 2014, after which time COSO considered it as superseded by the 2013 Framework. The Company transitioned to the 2013 Framework as of December 31, 2014.

The information required by ~~this~~this item is set forth under the captions “Proposal 1: Election of Directors,” “Corporate Governance and the Board of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s ~~2017~~2018 Proxy Statement and is incorporated herein by reference.

The information required by this item is set forth under the ~~captions~~captions “Executive Compensation” and “Director Compensation” in the Company’s ~~2017~~2018 Proxy Statement and is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is set forth under the caption “Security Ownership of Certain Beneficial Owners” in the ~~Company’s 2017~~Company’s 2018 Proxy Statement and is incorporated herein by reference.

The table below sets forth the following information as of December 31, ~~2016~~2017 for (i) all compensation plans previously approved by the Company’s stockholders and (ii) all compensation plans not previously approved by the Company’s stockholders:

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Item 13.Certain Relationships and Related Transactions, and Director Independence

The information required by this item is set forth under the captions “Corporate Governance and the Board of Directors” and “Transactions with ~~Management~~Management and Directors” in the Company’s ~~2017~~2018 Proxy Statement and is incorporated herein by reference.

The information required by this item is set forth under the caption ~~“Proposal~~“Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm” in the Company’s ~~2017~~2018 Proxy Statement and is incorporated herein by reference.

These documents are listed in the Index to Consolidated Financial Statements under Item 8.

Financial statement schedules are omitted, as they are not required or are not applicable, or the required information is shown in the consolidated financial statements and the accompanying notes thereto.

The following exhibits are either filed as a part of this Annual Report on Form 10-K or are incorporated herein by reference:

146

147

148

149

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Delaware	42-1397595
(State of incorporation)	(I.R.S. Employer Identification No.)

		Notes to Consolidated Financial Statements
		Note 1: Nature of Business and Significant Accounting Policies		7172
		Note 2: ~~Acquisition of Community State Bank and Common Stock Offering~~Acquisitions		8788
		Note 3: Investment Securities	91
		~~Note 4: Loans/Leases Receivable~~	96
		Note ~~5: Premises and Equipment~~4: Loans/Leases Receivable		~~107~~102
		Note ~~6: Goodwill~~5: Premises and ~~Intangibles~~Equipment		~~108~~113
		Note ~~7: Derivatives~~6: Goodwill and ~~Hedging Activities~~Intangibles		~~109~~114
		Note ~~8: Deposits~~7: Derivatives and Hedging Activities		~~110~~115
		Note ~~9: Short-Term Borrowings~~8: Deposits		~~110~~116
		Note ~~10: FHLB Advances~~9: Short-Term Borrowings		~~111~~116
		Note 10: FHLB Advances		117
		Note 11: Other Borrowings and Unused Lines of Credit	~~113~~
		~~Note 12: Junior Subordinated Debentures~~	~~116~~
		~~Note 13: Federal and State Income Taxes~~	~~117~~
		~~Note 14: Employee Benefit Plans~~	119
		Note ~~15: Stock-Based Compensation~~12: Junior Subordinated Debentures		~~120~~121
		Note 13: Federal and State Income Taxes		122
		Note 14: Employee Benefit Plans		125
		Note 15: Stock-Based Compensation		126
		Note 16: Regulatory Capital Requirements and Restrictions on Dividends	~~123~~
		~~Note 17: Earnings Per Share~~	~~126~~
		~~Note 18: Commitments and Contingencies~~	~~127~~
		~~Note 19: Quarterly Results of Operations (Unaudited)~~	129
		Note ~~20: Parent Company Only Financial Statements~~17: Earnings Per Share		~~130~~131
		Note ~~21: Fair Value~~18: Commitments and Contingencies		132
		Note 19: Quarterly Results of Operations (Unaudited)		133
		Note ~~22: Business Segment Information~~20: Parent Company Only Financial Statements		~~136~~134
		Note ~~23: Acquisition of Noncontrolling Interest in m2 Lease Funds~~21: Fair Value		137
		Note 22: Business Segment Information		140
	Item 9.	~~138~~Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		142
	Item 9A.	Controls and Procedures		142
	Item 9B.	Other Information		145

Part III
	Item 9.	~~Changes in and Disagreements With Accountants on Accounting and Financial Disclosure~~	~~139~~
	~~Item 9A.~~	~~Controls and Procedures~~	~~139~~
	~~Item 9B.~~	~~Other Information~~	~~142~~

~~Part III~~
	~~Item~~ 10.	Directors, Executive Officers and Corporate Governance		~~142~~145
	Item 11.	Executive Compensation		~~142~~145
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		~~142~~145
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		~~143~~146
	Item 14.	Principal Accountant Fees and Services		~~143~~146

Part IV
	Item 15.	Exhibits and Financial Statement Schedules		~~143~~146
	Item 16.	Form 10-K Summary		~~146~~149

Signatures				~~147~~150
Appendix A. Supervision and Regulation
Appendix B. Guide 3 Information

Name	Date Issued	Amount Issued as of 12/31/16		Amount Issued as of 12/31/15		Interest Rate	Interest Rate as of 12/31/2016			Interest Rate as of 12/31/2015			Date Issued	Amount Issued as of 12/31/17		Amount Issued as of 12/31/16		Interest Rate	Interest Rate as of 12/31/2017		Interest Rate as of 12/31/2016

QCR Holdings Statutory Trust II	February 2004	$	10,310,000	$	10,310,000	2.85% over 3-month LIBOR		3.85	%		3.18	%	February 2004	$	10,310,000	$	10,310,000	2.85% over 3-month LIBOR		4.54%		3.85%
QCR Holdings Statutory Trust III	February 2004		8,248,000		8,248,000	2.85% over 3-month LIBOR		3.85	%		3.18	%	February 2004		8,248,000		8,248,000	2.85% over 3-month LIBOR		4.54%		3.85%
QCR Holdings Statutory Trust IV	May 2005		-		5,155,000	1.80% over 3-month LIBOR		N/A			2.12	%
QCR Holdings Statutory Trust V	February 2006		10,310,000		10,310,000	1.55% over 3-month LIBOR		2.43	%		1.87	%	February 2006		10,310,000		10,310,000	1.55% over 3-month LIBOR		2.91%		2.43%
Community National Statutory Trust II	September 2004		3,093,000		3,093,000	2.17% over 3-month LIBOR		3.17	%		2.74	%	September 2004		3,093,000		3,093,000	2.17% over 3-month LIBOR		3.80%		3.17%
Community National Statutory Trust III	March 2007		3,609,000		3,609,000	1.75% over 3-month LIBOR		2.71	%		2.26	%	March 2007		3,609,000		3,609,000	1.75% over 3-month LIBOR		3.32%		2.71%
Guaranty Bankshares Statutory Trust I													May 2005		4,640,000		-	1.75% over 3-month LIBOR		3.34%		N/A
		$	35,570,000	$	40,725,000	Weighted Average Rate		3.26	%		2.60	%		$	40,210,000	$	35,570,000	Weighted Average Rate		3.82%		3.26%

	High Quality	Medium Quality	Low Quality
	(Risk Ratings 1-3)	(Risk Rating 4)	(Risk Ratings 5-8)
	(dollars in thousands)
QCBT	$13,500	$11,250	$7,750
CRBT	$9,500	$8,000	$5,500
CSB	$9,500	$8,000	$5,500
RB&T	$4,000	$3,250	$2,250

QCRH Consolidated	$22,000	$16,500	$11,000

Approved Collateral Type	Maximum Advance %

Financial Instruments
U.S. Government Securities	90% of market value
Securities of Federal Agencies	90% of market value
Municipal Bonds rated by ~~Moody’s~~ Moody’s As “A” or better	80% of market value
Listed Stocks	75% of market value
Mutual Funds	75% of market value
Cash Value Life Insurance	95%, less policy loans
Savings/Time Deposits (Bank)	100% of current value
Penny Stocks	0%
General Business
Accounts Receivable	80% of eligible accounts
Inventory	50% of value
Crop and Grain Inventories	80% of current market value
Livestock	80% of purchase price, or current market value; or higher if cross-collateralized with other assets

Fixed Assets (Existing)	50% of net book value, or 75% of orderly liquidation appraised value

Fixed Assets (New)	80% of cost, or higher if cross-collateralized with other assets

Leasehold Improvements	0%

				Page Number(s)
Part I
	Item 1.	Business		5
	Item 1A.	Risk Factors		14
	Item 1B.	Unresolved Staff Comments		25
	Item 2.	Properties		26
	Item 3.	Legal Proceedings		2627
	Item 4.	Mine Safety Disclosures		2627

Part II
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27	28
	Item 6.	Selected Financial Data		2930
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations
		General	30
		~~Executive Overview~~	30
		~~Long-Term Financial Goals~~	31
		~~Strategic Developments~~Executive Overview		31
		Long-Term Financial Goals		32
		~~GAAP to Non-GAAP Reconciliations~~Strategic Developments		34
		GAAP to Non-GAAP Reconciliations		35
		Net Interest Income and Margin (Tax Equivalent Basis)		3738
		Critical Accounting Policies	40
		~~Results of Operations~~
		~~Interest Income~~	41
		~~Interest Expense~~Results of Operations	41
		~~Provision for Loan/Lease Losses~~Interest Income		42
		~~Noninterest Income~~Interest Expense		42
		Provision for Loan/Lease Losses		43
		Noninterest ~~Expenses~~Income		4644
		~~Income Tax Expense~~Noninterest Expenses		4847
		~~Financial Condition~~Income Tax Expense
		~~Overview~~	48
		~~Investment Securities~~	48
		~~Loans/Leases~~	49
		Financial Condition
		Overview		49
		Investment Securities		49
		Loans/Leases		50
		Allowance for Estimated Losses on Loans/Leases		5152
		Nonperforming Assets	54
		~~Deposits~~	55
		~~Short-Term Borrowings~~Deposits	55
		~~FHLB Advances and Other Borrowings~~	56
		~~Stockholders' Equity~~Short-Term Borrowings		56
		FHLB Advances and Other Borrowings		57
		~~Liquidity and Capital Resources~~Stockholders' Equity		58
		~~Commitments, Contingencies, Contractual Obligations,~~Liquidity and ~~Off-Balance Sheet Arrangements~~Capital Resources		59
		~~Impact of Inflation~~Commitments, Contingencies, Contractual Obligations, and ~~Changing Prices~~Off-Balance Sheet Arrangements		60
		Impact of Inflation and Changing Prices		61
		Forward-Looking Statements		6061
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		6162
	Item 8.	Consolidated Financial Statements		6364
		Consolidated Balance Sheets as of December 31, ~~2016~~2017 and ~~2015~~2016		6566
		Consolidated Statements of Income for the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014~~2015		6667
		Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014~~2015		6768
		Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014~~2015		6869
		Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 ~~2015~~ and ~~2014~~2015		6970

						m2																						Consolidated										m2																						Consolidated
	QCBT					Lease Funds					CRBT						CSB						RB&T					Total					QCBT					Lease Funds					CRBT						CSB						RB&T					Total
																																	$		%			$		%			$			%			$			%			$		%			$		%
																																	(dollars in thousands)
As of December 31, 2017:
C&I loans																																	$	384,401		42	%	$	66,758		31	%	$	402,146			41	%	$	148,198			30	%	$	133,013		36	%	$	1,134,516		38	%
CRE loans																																		384,684		42	%		-		-			455,443			47	%		291,254			60	%		172,111		47	%		1,303,492		44	%
Direct financing leases																																		-		-			141,290		66	%		-			-			158			-			-		-			141,448		5	%
Residential real estate loans																																		114,818		12	%		-		-			62,755			6	%		38,831			8	%		42,242		12	%		258,646		9	%
Installment and other consumer loans																																		36,360		4	%		-		-			54,448			6	%		10,814			2	%		16,989		5	%		118,611		4	%
Deferred loan/lease origination costs, net of fees																																		1,254		-			7,188		3	%		(821	)		-			(180	)		-			331		-			7,772		-
	$		%			$		%			$			%			$			%			$		%			$		%			$	921,517		100	%	$	215,236		100	%	$	973,971			100	%	$	489,075			100	%	$	364,686		100	%	$	2,964,485		100	%
	(dollars in thousands)
As of December 31, 2016:

C&I loans	$	314,310		39	%	$	38,668		18	%	$	276,130			42	%	$	101,530			24	%	$	96,999		31	%	$	827,637		34	%	$	314,310		39	%	$	38,668		18	%	$	276,130			42	%	$	101,530			24	%	$	96,999		31	%	$	827,637		34	%
CRE loans		355,850		45	%		-		-	%		305,655			47	%		272,174			63	%		159,780		51	%		1,093,459		46	%		355,850		45	%		-		-			305,655			47	%		272,174			63	%		159,780		51	%		1,093,459		46	%
Direct financing leases		-		-	%		165,026		78	%		-			-	%		393			-	%		-		-	%		165,419		7	%		-		-			165,026		78	%		-			-			393			-			-		-			165,419		7	%
Residential real estate loans		99,626		12	%		-		-	%		43,706			7	%		43,383			10	%		42,518		14	%		229,233		10	%		99,626		12	%		-		-			43,706			7	%		43,383			10	%		42,518		14	%		229,233		10	%
Installment and other consumer loans		28,694		4	%		-		-	%		27,117			4	%		12,132			3	%		13,723		4	%		81,666		3	%		28,694		4	%		-		-			27,117			4	%		12,132			3	%		13,723		4	%		81,666		3	%
Deferred loan/lease origination costs, net of fees		918		-	%		7,351		4	%		(395	)		-	%		(102	)		-	%		301		-	%		8,073		-	%		918		-			7,351		4	%		(395	)		-			(102	)		-			301		-			8,073		-
	$	799,398		100	%	$	211,045		100	%	$	652,213			100	%	$	429,510			100	%	$	313,321		100	%	$	2,405,487		100	%	$	799,398		100	%	$	211,045		100	%	$	652,213			100	%	$	429,510			100	%	$	313,321		100	%	$	2,405,487		100	%

As of December 31, 2015:	(dollars in thousands)
																													��
C&I loans	$	267,367		39	%	$	20,120		10	%	$	263,792			43	%	$	-			-	%	$	96,881		33	%	$	648,160		36	%
CRE loans		296,157		43	%		-		-	%		285,866			46	%		-			-	%		142,346		48	%		724,369		41	%
Direct financing leases		-		-	%		173,656		86	%		-			-	%		-			-	%		-		-	%		173,656		10	%
Residential real estate loans		86,920		13	%		-		-	%		43,345			7	%		-			-	%		40,168		14	%		170,433		9	%
Installment and other consumer loans		35,862		5	%		-		-	%		23,970			4	%		-			-	%		13,837		5	%		73,669		4	%
Deferred loan/lease origination costs, net of fees		457		-	%		7,343		4	%		(358	)		-	%		-			-	%		294		-	%		7,736		-	%
	$	686,763		100	%	$	201,119		100	%	$	616,615			100	%	$	-			-	%	$	293,526		100	%	$	1,798,023		100	%

CRE Loan Types	Maximum Advance Rate **	Maximum Term

CRE Loans on Improved Property *	80%	7 years
Raw Land	Lesser of 90% of project cost, or 65% of ~~"as~~ "as is" appraised value	12 months
Land Development	Lesser of 85% of project cost, or 75% of ~~"as-completed"~~ "as-completed" appraised value	24 months
Commercial Construction Loans	Lesser of 85% of project cost, or 80% of ~~"as-completed"~~ "as-completed" appraised value	365 days
Residential Construction Loans to Builders	Lesser of 90% of project cost, or 80% of ~~"as-completed"~~ "as-completed" appraised value	12 months

	For the year ended December 31,
	2016			2015			2014			For the year ended December 31,
	(dollars in thousands)									2017			2016			2015
										(dollars in thousands)
Originations of residential real estate loans	$	52,721		$	41,279		$	72,146		$	38,079		$	52,721		$	41,279
Sales of residential real estate loans	$	35,499		$	23,726		$	33,100		$	33,165		$	35,499		$	23,726
Percentage of sales to originations		67	%		57	%		46	%		87	%		67	%		57	%

	As of		As of
	August 31, 2016		October 1, 2017
ASSETS
Cash and due from banks	$	10,094,645	$	4,434,511
Federal funds sold		698,000
Interest-bearing deposits at financial institutions		14,730,157		3,953,907
Securities		102,640,029		49,703,419
Loans/leases receivable, net		419,029,277		192,517,677
Premises and equipment		20,684,880		4,808,343
Restricted investment securities				476,500
Core deposit intangible		6,352,653		2,698,301
Restricted investment securities		1,512,900
Other real estate owned		650,000
Other assets		5,283,937		997,810
Total assets acquired	$	581,676,478	$	259,590,468

LIABILITIES
Deposits	$	486,298,262	$	212,467,514
Short-term borrowings				13,102,043
FHLB advances		20,368,877		4,108,027
Junior subordinated debentures				3,857,275
Other liabilities		4,897,564		2,595,883
Total liabilities assumed	$	511,564,703		236,130,742
Net assets acquired	$	70,111,775	$	23,459,726

CONSIDERATION PAID:
Cash	$	80,000,000	$	7,803,420
Common stock				30,879,485
Total consideration paid	$	80,000,000		38,682,905
Goodwill	$	9,888,225	$	15,223,179

			Gross		Gross							Gross		Gross
										Amortized		Unrealized		Unrealized			Fair
										Cost		Gains		(Losses)			Value
December 31, 2017:
Securities held to maturity:
Municipal securities										$	378,424,205	$	2,763,718	$	(2,488,119	)	$	378,699,804
Other securities											1,050,000		-		-			1,050,000
										$	379,474,205	$	2,763,718	$	(2,488,119	)	$	379,749,804

Securities available for sale:
U.S. govt. sponsored agency securities										$	38,409,157	$	37,344	$	(349,967	)	$	38,096,534
Residential mortgage-backed and related securities											165,459,470		155,363		(2,313,529	)		163,301,304
Municipal securities											66,176,364		660,232		(211,100	)		66,625,496
Other securities											4,014,004		896,384		(25,815	)		4,884,573
	Amortized		Unrealized		Unrealized			Fair		$	274,058,995	$	1,749,323	$	(2,900,411	)	$	272,907,907
	Cost		Gains		(Losses)			Value
December 31, 2016:
Securities held to maturity:
Municipal securities	$	321,859,056	$	2,200,577	$	(4,694,734	)	$	319,364,899	$	321,859,056	$	2,200,577	$	(4,694,734	)	$	319,364,899
Other securities		1,050,000		-		-			1,050,000		1,050,000		-		-			1,050,000
	$	322,909,056	$	2,200,577	$	(4,694,734	)	$	320,414,899	$	322,909,056	$	2,200,577	$	(4,694,734	)	$	320,414,899

Securities available for sale:
U.S. govt. sponsored agency securities	$	46,281,306	$	132,886	$	(330,585	)	$	46,083,607	$	46,281,306	$	132,886	$	(330,585	)	$	46,083,607
Residential mortgage-backed and related securities		150,465,222		174,993		(2,938,088	)		147,702,127		150,465,222		174,993		(2,938,088	)		147,702,127
Municipal securities		52,816,541		425,801		(637,916	)		52,604,426		52,816,541		425,801		(637,916	)		52,604,426
Other securities		4,046,332		703,978		(27,331	)		4,722,979		4,046,332		703,978		(27,331	)		4,722,979
	$	253,609,401	$	1,437,658	$	(3,933,920	)	$	251,113,139	$	253,609,401	$	1,437,658	$	(3,933,920	)	$	251,113,139

December 31, 2015:
Securities held to maturity:
Municipal securities	$	252,624,159	$	3,190,558	$	(1,173,432	)	$	254,641,285
Other securities		1,050,000		-		-			1,050,000
	$	253,674,159	$	3,190,558	$	(1,173,432	)	$	255,691,285

Securities available for sale:
U.S. govt. sponsored agency securities	$	216,281,416	$	104,524	$	(2,848,561	)	$	213,537,379
Residential mortgage-backed and related securities		81,442,479		511,095		(1,283,439	)		80,670,135
Municipal securities		26,764,981		872,985		(59,378	)		27,578,588
Other securities		1,108,124		540,919		(163	)		1,648,880
	$	325,597,000	$	2,029,523	$	(4,191,541	)	$	323,434,982

	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
			Gross					Gross					Gross					Gross					Gross					Gross
																Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
																Value		Losses			Value		Losses			Value		Losses
December 31, 2017:
Securities held to maturity:
Municipal securities																$	23,750,826	$	(354,460	)	$	72,611,780	$	(2,133,659	)	$	96,362,606	$	(2,488,119	)

Securities available for sale:
U.S. govt. sponsored agency securities																$	28,576,258	$	(200,022	)	$	3,640,477	$	(149,945	)	$	32,216,735	$	(349,967	)
Residential mortgage-backed and related securities																	88,927,779		(871,855	)		57,931,731		(1,441,674	)		146,859,510		(2,313,529	)
Municipal securities																	10,229,337		(41,151	)		9,997,433		(169,949	)		20,226,770		(211,100	)
Other securities																	923,535		(25,815	)		-		-			923,535		(25,815	)
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			$	128,656,909	$	(1,138,843	)	$	71,569,641	$	(1,761,568	)	$	200,226,550	$	(2,900,411	)
	Value		Losses			Value		Losses			Value		Losses
December 31, 2016:
Securities held to maturity:
Municipal securities	$	122,271,533	$	(4,076,647	)	$	13,010,803	$	(618,087	)	$	135,282,336	$	(4,694,734	)	$	122,271,533	$	(4,076,647	)	$	13,010,803	$	(618,087	)	$	135,282,336	$	(4,694,734	)

Securities available for sale:
U.S. govt. sponsored agency securities	$	21,788,139	$	(257,640	)	$	5,499,012	$	(72,945	)	$	27,287,151	$	(330,585	)	$	21,788,139	$	(257,640	)	$	5,499,012	$	(72,945	)	$	27,287,151	$	(330,585	)
Residential mortgage-backed and related securities		121,506,582		(2,641,664	)		7,437,615		(296,424	)		128,944,197		(2,938,088	)		121,506,582		(2,641,664	)		7,437,615		(296,424	)		128,944,197		(2,938,088	)
Municipal securities		34,152,822		(618,462	)		338,099		(19,454	)		34,490,921		(637,916	)		34,152,822		(618,462	)		338,099		(19,454	)		34,490,921		(637,916	)
Other securities		3,177,414		(27,331	)		-		-			3,177,414		(27,331	)		3,177,414		(27,331	)		-		-			3,177,414		(27,331	)
	$	180,624,957	$	(3,545,097	)	$	13,274,726	$	(388,823	)	$	193,899,683	$	(3,933,920	)	$	180,624,957	$	(3,545,097	)	$	13,274,726	$	(388,823	)	$	193,899,683	$	(3,933,920	)

December 31, 2015:
Securities held to maturity:
Municipal securities	$	14,803,408	$	(294,438	)	$	19,927,581	$	(878,994	)	$	34,730,989	$	(1,173,432	)

Securities available for sale:
U.S. govt. sponsored agency securities	$	112,900,327	$	(1,397,591	)	$	64,476,661	$	(1,450,970	)	$	177,376,988	$	(2,848,561	)
Residential mortgage-backed and related securities		40,356,921		(730,466	)		19,836,637		(552,973	)		60,193,558		(1,283,439	)
Municipal securities		2,220,800		(31,807	)		848,329		(27,571	)		3,069,129		(59,378	)
Other securities		411		(163	)		-		-			411		(163	)
	$	155,478,459	$	(2,160,027	)	$	85,161,627	$	(2,031,514	)	$	240,640,086	$	(4,191,541	)

	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities held to maturity:
Due in one year or less	$	23,795,317	$	23,816,249	$	2,912,158	$	2,909,816
Due after one year through five years		16,362,018		16,406,132		20,838,734		20,896,388
Due after five years		282,751,721		280,192,518		355,723,313		355,943,600
	$	322,909,056	$	320,414,899
					$	379,474,205	$	379,749,804
Securities available for sale:
Due in one year or less	$	3,103,329	$	3,102,013	$	1,991,755	$	1,996,584
Due after one year through five years		44,550,460		44,614,611		26,984,843		26,986,584
Due after five years		51,444,058		50,971,409		75,608,923		75,738,862
	$	99,097,847	$	98,688,033	$	104,585,521	$	104,722,030
Residential mortgage-backed and related securities		150,465,222		147,702,127		165,459,470		163,301,304
Other securities		4,046,332		4,722,979		4,014,004		4,884,573
	$	253,609,401	$	251,113,139	$	274,058,995	$	272,907,907

December 31, 2016:
December 31, 2017:
U.S. State:	Number of Issuers		Amortized Cost		Fair Value		Average Exposure Per Issuer (Fair Value)		Number of Issuers		Amortized Cost		Fair Value		Average Exposure Per Issuer (Fair Value)

Illinois										20	$	19,328,700	$	19,514,024	$	975,701
Iowa		27	$	32,258,612	$	32,231,936	$	1,193,775		16		13,881,689		13,969,512		873,095
Illinois		19		29,214,559		29,308,438		1,542,549
Missouri										17		9,243,355		9,308,287		547,546
North Dakota		7		22,169,050		21,499,075		3,071,296		7		21,626,574		21,724,197		3,103,457
Missouri		14		8,291,192		8,323,245		594,518
Ohio		8		6,790,398		6,651,897		831,487		9		8,002,705		7,938,028		882,003
Texas										17		11,253,775		11,308,848		665,226
Other		41		18,481,496		18,458,044		450,196		45		24,000,278		24,215,119		538,114
Total general obligation bonds		116	$	117,205,307	$	116,472,635	$	1,004,074		131	$	107,337,076	$	107,978,015	$	824,260

	2016		2015

Land	$	12,936,223	$	6,655,796
Buildings (useful lives 15 to 50 years)		51,546,499		34,615,006
Furniture and equipment (useful lives 3 to 10 years)		28,458,946		24,953,570
Premises and equipment		92,941,668		66,224,372
Less accumulated depreciation		32,298,160		28,874,020
Premises and equipment, net	$	60,643,508	$	37,350,352

	2016		2017		2016
	Amount		Amount		Amount
			(dollars in thousands)
	(dollars in thousands)

Administration of urban planning & rural development			$	83,344	$	37,097
Hotels & motels				73,200		35,992
Bank holding companies	$	66,070		66,950		66,070
Skilled nursing care facilities		43,864		60,989		43,864
Administration of urban planning & rural development		37,097
Hotels & motels		35,992
General medical & surgical hospitals		33,175		35,217		33,175

	2016
	Amount		%

	(dollars in thousands)

Retail	$	128,394		21	%
Multi-family		112,960		19	%
Office		97,878		16	%
Industrial/warehouse		46,149		8	%
Hotel/motel		33,828		6	%
Other		176,713		30	%
Total income-producing CRE	$	595,922		100	%

	2017					2016
	Amount		%			Amount		%
	(dollars in thousands)
Retail	$	169,655		22	%	$	128,394		22	%
Multi-family		143,685		18	%		112,960		19	%
Office		133,174		17	%		97,878		16	%
Hotel/motel		76,186		10	%		33,828		6	%
Industrial/warehouse		37,401		5	%		46,149		8	%
Other		224,246		29	%		176,713		30	%
Total income-producing CRE	$	784,347		100	%	$	595,922		100	%

	2016					2017					2016
	Amount		%			Amount		%			Amount		%
						(dollars in thousands)
	(dollars in thousands)

Multi-family						$	16,416		19	%	$	17,991		19	%
Retail	$	14,647		16	%		12,033		14	%		14,647		16	%
Multi-family		17,991		19	%
Office		9,342		10	%		11,580		13	%		9,342		10	%
Hotel/motel							8,407		10	%		1,983		2	%
Industrial/warehouse		5,810		6	%		3,604		4	%		5,810		6	%
Hotel/motel		1,983		2	%
Other		43,707		47	%		36,195		41	%		43,707		47	%
Total non-residential construction loans	$	93,480		100	%	$	88,235		100	%	$	93,480		100	%

Year ending December 31:
2017		226,283
2018		226,643		363,791
2019		162,833		355,727
2020				259,798
2021				159,708
2022				91,969
Thereafter				62,858
	$	615,759	$	1,293,851

	2016		2015
Balance at the beginning of period	$	3,222,688	$	3,222,688
Goodwill from acquisition of CSB		9,888,225		-
Balance at the end of period	$	13,110,913	$	3,222,688

Years ending December 31,	Amount
2018	$	1,218,202
2019		1,196,331
2020		1,169,934
2021		1,139,012
2022		1,103,565
Thereafter		3,251,909
	$	9,078,953

	Year Ended						Year Ended
	December 31, 2016			December 31, 2015			December 31, 2017			December 31, 2016
Unrealized loss at beginning of period, net of tax	$	(799,421	)	$	(399,367	)	$	(932,156	)	$	(799,421	)
Amount reclassified from accumulated other comprehensive incometo noninterest income related to hedge ineffectiveness		(76,797	)		(156	)
Amount reclassified from accumulated other comprehensive incometo interest expense related to caplet amortization		152,087			16,051
Amount reclassified from accumulated other comprehensive income to noninterest income related to hedge ineffectiveness								-			(76,797	)
Amount reclassified from accumulated other comprehensive income to noninterest expense related to hedge ineffectiveness								79,757			-
Amount reclassified from accumulated other comprehensive income to interest expense related to caplet amortization								405,134			152,087
Amount of loss recognized in other comprehensive income, net of tax		(208,025	)		(415,949	)		(357,762	)		(208,025	)
Unrealized loss at end of period, net of tax	$	(932,156	)	$	(799,421	)	$	(805,027	)	$	(932,156	)

Year ending December 31:
2017	$	367,576,999
2018		61,637,914	$	478,334,220
2019		33,529,173		86,231,955
2020		11,294,524		18,143,039
2021		6,539,314		8,223,919
2022				5,071,695
Thereafter				67,050
	$	480,577,924	$	596,071,878

	December 31, 2016
			Weighted					Weighted
			Average			Amount Due		Average
			Interest Rate			with		Interest Rate
	Amount Due		at Year-End			Putable Option *		at Year-End
Maturity:
Year ending December 31:
2017	$	112,500,000		0.78	%	$	-		-
2018		25,000,000		3.35			-		-
Total FHLB advances	$	137,500,000		1.25	%	$	-		-

	December 31, 2015										December 31, 2017					December 31, 2016
			Weighted					Weighted					Weighted					Weighted
			Average			Amount Due		Average					Average					Average
			Interest Rate			with		Interest Rate					Interest Rate					Interest Rate
	Amount Due		at Year-End			Putable Option *		at Year-End			Amount Due		at Year-End			Amount Due		at Year-End
Maturity:
Year ending December 31:
2016	$	103,000,000		0.56	%	$	2,000,000		4.00	%
2017		18,000,000		2.89			-		-		$	-		-		$	112,500,000		0.78	%
2018		30,000,000		3.27			5,000,000		2.84			190,400,000		1.82			25,000,000		3.35
2020												1,600,000		1.75			-		-
Total FHLB advances	$	151,000,000		1.37	%	$	7,000,000		3.17	%	$	192,000,000		1.82	%	$	137,500,000		1.25	%

2015
Date of Restructuring	Amount		Weighted Average Interest Rate			Range of Maturity Dates	Prepayment Fees

Second Quarter of 2015	$	75,500,000		4.36	%	May 2016 to June 2019	$	5,692,185
Fourth Quarter of 2015		3,000,000		3.98	%	May 2018		209,416
Total for 2015	$	78,500,000		4.35	%		$	5,901,601

	Actual					For Capital Adequacy Purposes With Capital Conservation Buffer*						To Be Well Capitalized Under Prompt Corrective Action Provisions																For Capital					To Be Well
	Amount		Ratio			Amount			Ratio			Amount			Ratio													Adequacy Purposes					Capitalized Under
As of December 31, 2016:
																							For Capital					With Capital					Prompt Corrective
																		Actual					Adequacy Purposes					Conservation Buffer*					Action Provisions
																		Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2017:
Company:
Total risk-based capital	$	327,440		11.56	%	$	244,289	>		8.625	%	$	283,233	>		10.0	%	$	383,282		11.15	%	$	275,090	>	8.00	%	$	318,073	>	9.250	%	$	343,862	>	10.00	%
Tier 1 risk-based capital		296,366		10.46	%		187,642	>		6.625			226,587	>		8.0			348,530		10.14	%		206,317	>	6.00			249,300	>	7.250			275,090	>	8.00
Tier 1 leverage		296,366		9.10	%		130,229	>		4.000			162,787	>		5.0			348,530		8.98	%		155,256	>	4.00			155,256	>	4.000			194,070	>	5.00
Common equity Tier 1		266,419		9.41	%		145,157	>		5.125			184,102	>		6.5			313,012		9.10	%		154,738	>	4.50			197,721	>	5.750			223,510	>	6.50
Quad City Bank & Trust:
Total risk-based capital	$	142,990		12.27	%	$	100,494	>		8.625	%	$	116,515	>		10.0	%	$	160,112		12.35	%	$	103,711	>	8.00	%	$	119,916	>	9.250	%	$	129,639	>	10.00	%
Tier 1 risk-based capital		129,524		11.12	%		77,191	>		6.625			93,212	>		8.0			147,472		11.38	%		77,783	>	6.00			93,988	>	7.250			103,711	>	8.00
Tier 1 leverage		129,524		9.18	%		56,445	>		4.000			70,556	>		5.0			147,472		9.52	%		61,985	>	4.00			61,985	>	4.000			77,481	>	5.00
Common equity Tier 1		129,524		11.12	%		59,714	>		5.125			75,735	>		6.5			147,472		11.38	%		58,337	>	4.50			74,542	>	5.750			84,265	>	6.50
Cedar Rapids Bank & Trust:
Total risk-based capital	$	106,791		12.82	%	$	71,828	>		8.625	%	$	83,279	>		10.0	%	$	138,492		11.88	%	$	93,272	>	8.00	%	$	107,846	>	9.250	%	$	116,590	>	10.00	%
Tier 1 risk-based capital		96,369		11.57	%		55,173	>		6.625			66,623	>		8.0			126,601		10.86	%		69,954	>	6.00			84,528	>	7.250			93,272	>	8.00
Tier 1 leverage		96,369		10.69	%		36,061	>		4.000			45,076	>		5.0			126,601		11.68	%		43,348	>	4.00			43,348	>	4.000			54,185	>	5.00
Common equity Tier 1		96,369		11.57	%		42,681	>		5.125			54,132	>		6.5			126,601		10.86	%		52,465	>	4.50			67,039	>	5.750			75,783	>	6.50
Community State Bank:
Total risk-based capital	$	68,216		13.81	%	$	42,609	>		8.625	%	$	49,402	>		10.0	%	$	66,271		11.71	%	$	45,293	>	8.00	%	$	52,370	>	9.250	%	$	56,616	>	10.00	%
Tier 1 risk-based capital		66,746		13.51	%		32,729	>		6.625			39,522	>		8.0			61,941		10.94	%		33,970	>	6.00			41,047	>	7.250			45,293	>	8.00
Tier 1 leverage		66,746		11.75	%		22,726	>		4.000			28,408	>		5.0			61,941		9.77	%		25,354	>	4.00			25,354	>	4.000			31,693	>	5.00
Common equity Tier 1		66,746		13.51	%		25,319	>		5.125			32,111	>		6.5			61,941		10.94	%		25,477	>	4.50			32,554	>	5.750			36,801	>	6.50
Rockford Bank & Trust:
Total risk-based capital	$	42,007		12.26	%	$	29,551	>		8.625	%	$	34,262	>		10.0	%	$	45,684		11.28	%	$	32,413	>	8.00	%	$	37,477	>	9.250	%	$	40,516	>	10.00	%
Tier 1 risk-based capital		37,716		11.01	%		22,699	>		6.625			27,410	>		8.0			40,615		10.02	%		24,310	>	6.00			29,374	>	7.250			32,413	>	8.00
Tier 1 leverage		37,716		9.57	%		15,772	>		4.000			19,716	>		5.0			40,615		8.94	%		18,177	>	4.00			18,177	>	4.000			22,721	>	5.00
Common equity Tier 1		37,716		11.01	%		17,559	>		5.125			22,270	>		6.5			40,615		10.02	%		18,232	>	4.50			23,297	>	5.750			26,335	>	6.50

	Year Ended December 31, 2016								Year Ended December 31, 2017
	March		June		September		December		March		June		September		December
	2016		2016		2016		2016		2017		2017		2017		2017

Total interest income	$	23,502,059	$	23,913,284	$	26,816,735	$	32,235,657	$	31,345,099	$	32,453,268	$	33,840,865	$	37,878,086
Total interest expense		2,904,537		2,904,471		3,185,958		2,955,992		3,676,216		4,406,571		5,284,517		6,084,733
Net interest income		20,597,522		21,008,813		23,630,777		29,279,665		27,668,883		28,046,697		28,556,348		31,793,353
Provision for loan/lease losses		2,072,985		1,197,850		1,607,986		2,599,345		2,105,109		2,022,993		2,086,436		2,255,381
Noninterest income		6,822,473		6,762,401		10,423,401		7,028,600		7,283,754		6,782,518		6,701,303		9,714,717
Noninterest expense		16,954,498		17,743,753		24,480,483		22,307,178		21,273,117		21,404,629		23,395,747		31,351,204
Income before taxes		8,392,512		8,829,611		7,965,709		11,401,742		11,574,411		11,401,593		9,775,468		7,901,485
Federal and state income tax expense		2,019,023		2,153,144		1,858,208		2,872,412
Federal and state income tax expense (benefit)										2,389,446		2,635,576		1,921,533		(2,000,105	)
Net income	$	6,373,489	$	6,676,467	$	6,107,501	$	8,529,330	$	9,184,965	$	8,766,017	$	7,853,935	$	9,901,590

EPS:
Basic	$	0.54	$	0.54	$	0.47	$	0.65	$	0.70	$	0.67	$	0.60	$	0.72
Diluted	$	0.53	$	0.53	$	0.46	$	0.64	$	0.68	$	0.65	$	0.58	$	0.70

Condensed Balance Sheets
December 31, 2017 and 2016
	2016			2015
Assets							2017			2016

Cash and due from banks	$	6,929,755		$	3,650,133		$	4,325,582		$	6,929,755
Interest-bearing deposits at financial institutions		651			701			601			651
Securities available for sale, at fair value		1,545,565			1,398,255			1,690,726			1,545,565
Loans/leases receivable, held for investment								1,710,000			-
Investment in bank subsidiaries		345,866,288			256,709,890			410,105,525			345,866,288
Investment in nonbank subsidiaries		1,154,642			1,318,227			2,956,337			1,154,642
Premises and equipment, net		5,104,677			4,502,435			4,947,572			5,104,677
Other assets		15,245,521			12,797,292			11,630,304			15,245,521
Total assets	$	375,847,099		$	280,376,933		$	437,366,647		$	375,847,099

Liabilities and Stockholders' Equity
Liabilities:
Other borrowings	$	35,000,000		$	-		$	31,000,000		$	35,000,000
Junior subordinated debentures		33,480,202			38,499,052			37,486,487			33,480,202
Other liabilities		21,326,098			15,992,131			15,593,031			21,326,098
Total liabilities		89,806,300			54,491,183			84,079,518			89,806,300

Stockholders' Equity:
Common stock		13,106,845			11,761,083			13,918,168			13,106,845
Additional paid-in capital		156,776,642			123,282,851			189,077,550			156,776,642
Retained earnings		118,616,901			92,965,645			151,962,661			118,616,901
Accumulated other comprehensive loss		(2,459,589	)		(2,123,829	)		(1,671,250	)		(2,459,589	)
Total stockholders' equity		286,040,799			225,885,750			353,287,129			286,040,799
Total liabilities and stockholders' equity	$	375,847,099		$	280,376,933		$	437,366,647		$	375,847,099

Condensed Statements of Income
Years Ended December 31, 2017, 2016, and 2015

	2016			2015			2014		2017		2016			2015

Total interest income	$	74,489		$	69,774		$	40,815	$	12,802	$	74,489		$	69,774
Equity in net income of bank subsidiaries		33,467,712			22,059,086			20,333,194		45,103,593		33,467,712			22,059,086
Equity in net income of nonbank subsidiaries		32,674			32,823			32,675		75,344		32,674			32,823
Securities gains		37,596			262,800			-		6,312		37,596			262,800
Other		(2,933	)		(4,436	)		7,486		2,700		(2,933	)		(4,436	)
Total income		33,609,538			22,420,047			20,414,170		45,200,751		33,609,538			22,420,047

Interest expense		1,735,769			1,679,909			1,986,752		2,658,414		1,735,769			1,679,909
Salaries and employee benefits		4,607,887			4,847,507			4,671,719		5,021,998		4,607,887			4,847,507
Professional fees		949,442			1,121,094			1,100,714		1,344,721		949,442			1,121,094
Acquisition costs		1,713,602			-			-		1,068,918		1,400,004			-
Post-acquisition compensation, transition and integration costs										3,151,384		313,598			-
Gains on debt extinguishment		(1,200,000	)		(300,000	)		-		-		(1,200,000	)		(300,000	)
Other		988,057			949,041			635,081		1,134,139		988,057			949,041
Total expenses		8,794,757			8,297,551			8,394,266		14,379,574		8,794,757			8,297,551

Income before income tax benefit		24,814,781			14,122,496			12,019,904		30,821,177		24,814,781			14,122,496

Income tax benefit		2,872,006			2,805,385			2,932,633		4,885,330		2,872,006			2,805,385
Net income	$	27,686,787		$	16,927,881		$	14,952,537	$	35,706,507	$	27,686,787		$	16,927,881

Condensed Statements of Cash Flows
Years Ended December 31, 2017, 2016, and 2015

	2016			2015			2014			2017			2016			2015
Cash Flows from Operating Activities:
Net income	$	27,686,787		$	16,927,881		$	14,952,537		$	35,706,507		$	27,686,787		$	16,927,881
Adjustments to reconcile net income to net cash provided by operating activities:
Earnings of bank subsidiaries		(33,467,712	)		(22,059,086	)		(20,333,194	)		(45,103,593	)		(33,467,712	)		(22,059,086	)
Earnings of nonbank subsidiaries		(32,674	)		(32,823	)		(32,675	)		(75,344	)		(32,674	)		(32,823	)
Distributions from bank subsidiaries		26,000,000			9,700,000			20,500,000			21,000,000			26,000,000			9,700,000
Distributions from nonbank subsidiaries		32,860			32,695			32,684			38,734			32,860			32,695
Accretion of acquisition fair value adjustments		136,150			137,317			133,905			149,010			136,150			137,317
Depreciation		222,256			174,757			100,158			225,947			222,256			174,757
Stock-based compensation expense		947,174			941,469			891,619			1,187,036			947,174			941,469
Securities gains, net		(37,596	)		(262,801	)		-			(6,312	)		(37,596	)		(262,801	)
Gains on debt extinguishment		(1,200,000	)		(300,000	)		-			-			(1,200,000	)		(300,000	)
Decrease (increase) in other assets		(2,346,253	)		(5,929,110	)		1,912,597			(968,808	)		(2,346,253	)		(5,929,110	)
(Decrease) increase in other liabilities		5,105,251			5,502,390			2,644,458			(6,918,921	)		5,105,251			5,502,390
Net cash provided by operating activities		23,046,243			4,832,689			20,802,089			5,234,256			23,046,243			4,832,689

Cash Flows from Investing Activities:
Net increase in interest-bearing deposits at financial institutions		50			189,426			(2,726	)		50			50			189,426
Activity in securities portfolio:
Purchases		(3,873,060	)		(1,764,137	)		(40,523	)		-			(3,873,060	)		(1,764,137	)
Calls, maturities and redemptions		3,800,000			1,772,719			71,429			6,312			3,800,000			1,772,719
Sales		132,738			489,828			-			31,713			132,738			489,828
Capital infusion, bank subsidiaries		-			(45,600,000	)		-			-			-			(45,600,000	)
Net cash paid for Community State Bank acquisition		(80,000,000	)		-			-
Net cash paid for acquisitions											(3,368,909	)		(80,000,000	)		-
Purchase of premises and equipment		(824,498	)		(1,517,157	)		(16,618	)		(68,842	)		(824,498	)		(1,517,157	)
Net cash (used in) provided by investing activities		(80,764,770	)		(46,429,321	)		11,562			(3,399,676	)		(80,764,770	)		(46,429,321	)

Cash Flows from Financing Activities:
Activity in other borrowings:
Proceeds from other borrowings		35,000,000			-			10,000,000			7,000,000			35,000,000			-
Calls, maturities and scheduled principal payments		-			(2,350,000	)		(2,359,207	)		(11,000,000	)		-			(2,350,000	)
Prepayments		-			(19,395,116	)		-			-			-			(19,395,116	)
Retirement of junior subordinated debentures		(3,955,000	)		(1,762,000	)		-			-			(3,955,000	)		(1,762,000	)
Payment of cash dividends on common and preferred stock		(1,981,541	)		(782,054	)		(1,964,608	)		(2,494,260	)		(1,981,541	)		(782,054	)
Net proceeds from common stock offering, 3,680,000 shares issued		-			63,484,123			-			-			-			63,484,123
Net proceeds from common stock offering, 1,215,000 shares issued		29,828,916			-			-			-			29,828,916			-
Redemption of 29,867 shares of Series F Noncumulative Perpetual Preferred Stock, net		-			-			(29,823,922	)
Proceeds from issuance of common stock, net		2,105,774			1,552,673			620,641			2,055,507			2,105,774			1,552,673
Net cash provided by (used in) financing activities		60,998,149			40,747,626			(23,527,096	)		(4,438,753	)		60,998,149			40,747,626

Net increase (decrease) in cash and due from banks		3,279,622			(849,006	)		(2,713,445	)		(2,604,173	)		3,279,622			(849,006	)

Cash and due from banks:
Beginning		3,650,133			4,499,139			7,212,584			6,929,755			3,650,133			4,499,139
Ending	$	6,929,755		$	3,650,133		$	4,499,139		$	4,325,582		$	6,929,755		$	3,650,133

			Fair Value Measurements at Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)

December 31, 2016:
Securities available for sale:
U.S. govt. sponsored agency securities	$	46,083,607	$	-	$	46,083,607	$	-
Residential mortgage-backed securities		147,702,127		-		147,702,127		-
Municipal securities		52,604,426		-		52,604,426		-
Other securities		4,722,979		1,361		4,721,618		-
Interest rate caps		576,527		-		576,527		-
Interest rate swaps - assets		2,338,281		-		2,338,281
Total assets measured at fair value	$	254,027,947	$	1,361	$	254,026,586	$	-

Interest rate swaps - liabilities	$	2,338,281	$	-	$	2,338,281	$	-
Total liabilities measured at fair value	$	2,338,281	$	-	$	2,338,281	$	-

December 31, 2015:
Securities available for sale:
U.S. govt. sponsored agency securities	$	213,537,379	$	-	$	213,537,379	$	-
Residential mortgage-backed securities		80,670,135		-		80,670,135		-
Municipal securities		27,578,588		-		27,578,588		-
Other securities		1,648,880		411		1,648,469		-
Interest rate caps		856,024		-		856,024		-
Interest rate swaps - assets		3,044,525		-		3,044,525
Total assets measured at fair value	$	327,335,531	$	411	$	327,335,120	$	-

Interest rate swaps - liabilities	$	3,044,525	$	-	$	3,044,525	$	-
Total liabilities measured at fair value	$	3,044,525	$	-	$	3,044,525	$	-

			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
			Quoted Prices		Significant						Quoted Prices		Significant
			in Active		Other		Significant				in Active		Other		Significant
			Markets for		Observable		Unobservable				Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs				Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)		Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2017:
Impaired loans/leases									$	8,972,337	$	-	$	-	$	8,972,337
Other real estate owned										14,642,973		-		-		14,642,973
									$	23,615,310	$	-	$	-	$	23,615,310

December 31, 2016:
Impaired loans/leases	$	12,823,121	$	-	$	-	$	12,823,121	$	12,823,121	$	-	$	-	$	12,823,121
Other real estate owned		5,964,952		-		-		5,964,952		5,964,952		-		-		5,964,952
	$	18,788,073	$	-	$	-	$	18,788,073	$	18,788,073	$	-	$	-	$	18,788,073

December 31, 2015:
Impaired loans/leases	$	4,545,966	$	-	$	-	$	4,545,966
Other real estate owned		7,722,711		-		-		7,722,711
	$	12,268,677	$	-	$	-	$	12,268,677

	Commercial Banking								Wealth					Intercompany			Consolidated
	QCBT		CRBT		CSB		RB&T		Management		All other			Eliminations			Total

Twelve Months Ended December 31, 2016
Total revenue	$	59,442,052	$	37,242,901	$	11,408,277	$	16,043,894	$	9,156,948	$	109,563		$	4,100,975		$	137,504,610
Net interest income		45,081,080		29,205,047		10,004,729		11,887,201		-		(1,661,280	)		-			94,516,777
Provision for loan/lease losses		4,168,166		950,000		1,460,000		900,000		-		-			-			7,478,166
Net income		14,116,751		12,317,545		2,132,252		3,235,711		1,665,453		(5,780,925	)		-			27,686,787
Goodwill		3,222,688		-		9,888,225		-		-		-			-			13,110,913
Core deposit intangible		-		1,271,897		6,109,316		-		-		-			-			7,381,213
Total assets		1,395,785,241		913,055,738		600,075,798		391,154,780		-		34,998,902			(33,126,711	)		3,301,943,748

Twelve Months Ended December 31, 2015
Total revenue	$	52,914,705	$	37,593,652	$	-	$	14,816,300	$	9,103,173	$	363,432		$	(424,688	)	$	114,366,574
Net interest income		40,416,563		26,635,659		-		10,854,637		-		(1,610,135	)		-			76,296,724
Provision for loan/lease losses		4,367,234		1,750,000		-		753,666		-		-			-			6,870,900
Net income		10,333,111		7,695,867		-		2,402,522		1,627,586		(5,131,205	)		-			16,927,881
Goodwill		3,222,688		-		-		-		-		-			-			3,222,688
Core deposit intangible		-		1,471,409		-		-		-		-			-			1,471,409
Total assets		1,336,571,694		866,872,406		-		367,471,639		-		27,605,704			(5,323,168	)		2,593,198,275

Twelve Months Ended December 31, 2014
Total revenue	$	48,878,342	$	35,972,996	$	-	$	14,286,757	$	8,513,322	$	80,978		$	(485,860	)	$	107,246,535
Net interest income		36,539,635		24,215,815		-		10,261,615		-		(1,945,937	)		-			69,071,128
Provision for loan/lease losses		3,800,667		1,855,333		-		1,151,000		-		-			-			6,807,000
Net income		9,065,183		7,562,252		-		2,149,676		1,556,082		(5,380,656	)		-			14,952,537
Goodwill		3,222,688		-		-		-		-		-			-			3,222,688
Core deposit intangible		-		1,670,921		-		-		-		-			-			1,670,921
Total assets		1,320,684,456		840,331,777		-		353,448,134		-		17,727,123			(7,233,390	)		2,524,958,100

EQUITY COMPENSATION PLAN INFORMATION	EQUITY COMPENSATION PLAN INFORMATION								EQUITY COMPENSATION PLAN INFORMATION
Plan category		Number of securities to be issued upon exercise of outstanding options, warrants, and rights		Weighted-average exercise price of outstanding options, warrants, and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))				Number of securities to be issued upon exercise of outstanding options, warrants, and rights		Weighted-average exercise price of outstanding options, warrants, and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
		(a)		(b)		(c)				(a)		(b)		(c)

Equity compensation plans approved by stockholders			591,534	$	14.89		600,579	(1)			516,223		$17.24		526,712	(1)

Equity compensation plans not approved by stockholders			-		-		-				-		-		-

Total			591,534	$	14.89		600,579	(1)			516,223		$17.24		526,712	(1)

Exhibit Number		Exhibit ~~Number~~Description

2.1*		Purchase and Assumption Agreement between QCR Holdings, Inc. and Guaranty Bankshares, Ltd., dated as of June 8, 2017 (incorporated by reference to Exhibit ~~Description~~2.1 of the Company's Form 8-K filed with the SEC on June 8, 2017.

3.1		Certificate of Incorporation of QCR Holdings, Inc., as amended (incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q/A Amendment No. 1 for the period ended September 30, 2011).

3.2		Bylaws of QCR Holdings, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant's Form 8-K ~~dated~~filed November 20, 2015).

4.1		Amended and Restated Rights Agreement between QCR Holdings, Inc. and Quad City Bank and Trust Company dated May 8, 2013 (incorporated by reference to Exhibit 4.1 of Registrant’s Form 8-K filed May 8, 2013).

4.2		First Amendment to Amended and Restated Rights Agreement between QCR Holdings, Inc. and Quad City Bank and Trust Company dated February 11, 2016 (incorporated by reference to Exhibit 4.1 of Registrant’s Form 8-K filed on February 18, 2016).

4.3		Certain instruments defining the rights of holders of long-term debt of the Company, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the Company and its subsidiaries on a consolidated basis, have not been filed as exhibits. The Company hereby agrees to furnish a copy of any of these agreements to the Securities and Exchange Commission upon request.

~~10.1~~10.1+		Employment Agreement between QCR Holdings, Inc., Quad City Bank and Trust Company and Douglas M. Hultquist dated January 1, 2004 (incorporated by reference to Exhibit 10.2 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003).

~~10.2~~10.2+		Employment Agreement between Cedar Rapids Bank and Trust Company and Larry J. Helling dated January 1, 2004 (incorporated by reference to Exhibit 10.6 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003).

~~10.3~~10.3+		Employment Agreement between QCR Holdings, Inc. and Todd A. Gipple dated January 1, 2004 (incorporated by reference to Exhibit 10.11 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003).

10.4		Dividend Reinvestment Plan of QCR Holdings, Inc. (incorporated by reference to Exhibit 99.1 of Registrant’s Form S-3D, File No. 333-102699 dated January 24, 2003).

10.5		Second Amended and Restated Operating Agreement between Quad City Bank and Trust Company and John Engelbrecht dated August 26, 2005 (incorporated by reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).

~~10.6~~10.6+		First Amendment to the Employment Agreement among QCR Holdings, Inc., Quad City Bank and Trust Company and Douglas M. Hultquist dated December 27, 2008 (incorporated by reference to Exhibit 10.19 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).

~~10.7~~10.7+		First Amendment to the Employment Agreement between Cedar Rapids Bank and Trust Company and Larry J. Helling dated December 30, 2008 (incorporated by reference to Exhibit 10.20 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).

~~10.8~~10.8+		First Amendment to the Employment Agreement between QCR Holdings, Inc. and Todd A. Gipple dated December 30, 2008 (incorporated by reference to Exhibit 10.21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).

~~10.9~~10.9+		Executive Deferred Compensation Plan of QCR Holdings, Inc. (incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).

~~10.10~~10.10+		Amended and Restated Executive Deferred Compensation Plan Participation Agreement among QCR Holdings, Inc., Quad City Bank and Trust Company and Douglas M. Hultquist dated December 19, 2013 ~~(filed as an~~(incorporated by reference to exhibit 10.11 to the ~~10-K filed~~Registrant's Annual Report on ~~March 12, 2015)~~Form10-K for the year ended December 31, 2014).

~~10.11~~10.11+		Amended and Restated Executive Deferred Compensation Plan Participation Agreement between Cedar Rapids Bank and Trust Company and Larry J. Helling dated December 19, 2013 ~~(filed as an~~(incorporated by reference to exhibit 10.12 to the ~~10-K filed~~Registrant's Annual Report on ~~March 12, 2015)~~Form10-K for the year ended December 31, 2014).

~~10.12~~10.12+		Amended and Restated Executive Deferred Compensation Plan Participation Agreement between QCR Holdings, Inc. and Todd A. Gipple dated December 19, 2013 ~~(filed as an~~(incorporated by reference to exhibit 10.13 to the Registrant's Annual Report on Form 10-K ~~filed on March 12, 2015)~~for the year ended December 31, 2014).

~~10.13~~10.13+		Non-Qualified Supplemental Executive Retirement Plan Joinder Agreement among QCR Holdings, Inc., Quad City Bank and Trust Company and Douglas M. Hultquist dated December 31, 2008 (incorporated by reference to Exhibit 10.28 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).

~~10.14~~10.14+		First Amendment to the Non-Qualified Supplemental Executive Retirement Plan Joinder Agreement among QCR Holdings, Inc., Quad City Bank and Trust Company and Douglas M. Hultquist dated December 29, 2015 (incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K dated December 31, 2015).

~~10.15~~10.15+		Non-Qualified Supplemental Executive Retirement Plan Joinder Agreement between Cedar Rapids Bank and Trust Company and Larry J. Helling dated December 31, 2008 (incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).

~~10.16~~10.16+		Non-Qualified Supplemental Executive Retirement Plan Joinder Agreement between QCR Holdings, Inc. and Todd A. Gipple dated December 31, 2008 (incorporated by reference to Exhibit 10.30 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).

~~10.17~~10.17+		Non-Qualified Supplemental Executive Retirement Plan Joinder Agreement among QCR Holdings, Inc., Quad City Bank and Trust Company and Michael A. Bauer dated December 31, 2008 (incorporated by reference to Exhibit 10.31 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008).

~~10.18~~10.18+		QCR Holdings, Inc. Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A dated March 21, 2012).

10.19		Amendment No. 1 to the Second Amended and Restated Operating Agreement between Quad City Bank and Trust Company and John Engelbrecht, dated August 26, 2012 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012).

~~10.20~~10.20+		QCR Holdings, Inc. 2013 Equity Incentive Plan (incorporated by reference to Appendix A to the Registrant's Definitive Proxy Statement on Schedule 14A dated March 20, 2013).

~~10.21~~10.21+		Form of Participation Agreement under the QCR Holdings, Inc. Executive Deferred Compensation Plan ~~(filed as an~~(incorporated by reference to exhibit 10.23 to the Registrant's Annual Report on Form 10-K ~~filed on March 12, 2015)~~for the year ended December 31, 2014).

~~10.22~~10.22+		Employment Agreement between Quad City Bank and Trust Company and John Anderson dated October 30, 2009 ~~(filed as an~~(incorporated by reference to exhibit 10.24 to the Registrant's Annual Report on Form 10-K ~~filed on March 12, 2015)~~for the year ended December 31, 2014).

~~10.23~~10.23+		First Amendment to the Employment Agreement between Quad City Bank and Trust Company and John Anderson dated December 18, 2012 ~~(filed as an~~(incorporated by reference to exhibit 10.25 to the Registrant's Annual Report on Form 10-K ~~filed on March 12, 2015)~~for the year ended December 31, 2014).

~~10.24~~10.24+		Employment Agreement between Rockford Bank and Trust Company and Thomas Budd dated December 30, 2008 ~~(filed as an~~(incorporated by reference to exhibit 10.26 to the Registrant's Annual Report on Form 10-K ~~filed on March 12, 2015)~~for the year ended December 31, 2014).

~~10.25~~10.25+		First Amendment to the Employment Agreement between Rockford Bank and Trust Company and Thomas Budd dated December 30, 2008 ~~(filed as an~~(incorporated by reference to exhibit 10.27 to the Registrant's Annual Report on Form 10-K ~~filed on March 12, 2015)~~for the year ended December 31, 2014).

~~10.26~~10.26+		Employment Agreement between QCR Holdings, Inc. and Cathie Whiteside dated August 27, 2007 ~~(filed as an~~(incorporated by reference to exhibit 10.28 to the Registrant's Annual Report on Form 10-K ~~filed on March 12, 2015)~~for the year ended December 31, 2014).

~~10.27~~10.27+		First Amendment to the Employment Agreement between QCR Holdings, Inc. and Cathie Whiteside dated December 28, 2008 ~~(filed as an~~(incorporated by reference to exhibit 10.29 to the Registrant's Annual Report on Form 10-K ~~filed on March 12, 2015)~~for the year ended December 31, 2014).

~~10.28~~10.28+		QCR Holdings, Inc. 2016 Equity Incentive Plan (incorporated by reference to Appendix A of the ~~Company’s~~Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 1, 2016).

10.29		Form of Securities Purchase Agreement between QCR Holdings, Inc. and certain investors dated May 20, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 23, 2016).

~~10.30~~10.30+		Stock Purchase Agreement between QCR Holdings, Inc. and Van Diest Investment Company dated May 23, 2016 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 23, 2016).

~~10.31~~		QCR Holdings, Inc., Non-Qualified Supplemental Executive Retirement Plan, as amended and restated December 22, 2016 (incorporated by reference to Exhibit 10.1 of the ~~Company’s~~Registrant’s Current Report on Form 8-K filed on December 28, 2016).

~~10.32~~10.31+		Non-Qualified Supplemental Executive Retirement Plan Joinder Agreement between Quad City Bank and Trust Company and John H. Anderson dated December 22, 2016 (incorporated by reference to Exhibit 10.2 of the ~~Company’s~~Registrant’s Current Report on Form 8-K filed on December 28, 2016).