| oThe reduction of the stated interest rate to a rate lower than the current market rate for new debt with similar risk. oThe extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk. oThe reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement. oThe reduction of accrued interest. | The reduction of the stated interest rate.
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| o·
| 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.
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| o
| The reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.
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| o
| The reduction of accrued interest.
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| A transfer from the 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. |
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| · | | 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. |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Account Policies (continued) 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. A discussion of the risk characteristics and the allowance by each portfolio segment follows: QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (continued)
ForC&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; |
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| · | | Stable earnings with positive financial trends; |
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| · | | Sufficient cash flow to support debt repayment; |
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| · | | Earnings projections based on reasonable assumptions; |
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| · | | Financial strength of the industry and business; and |
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| · | | 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 rangeyears with average terms ranging from 3 to 5 years. For low-income housing tax credit permanent loans, the maximum term is generally up to 20 years. For lines of credit, the maximum term is typicallygenerally 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 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, 20162018 and 2015,2017, approximately 30%28% and 35%26%, respectively, of the CRE loan portfolio was owner-occupied. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Account Policies (continued) The Company’s lending policy limitsincorporates regulatory guidelines which stipulate that non-owner occupied CRE lending toin excess of 300% of total risk-based capital, and limits construction, land development, and other land loans toin excess of 100% of total risk-based capital. Exceeding these limits warrantscapital warrant the use of heightened risk management practices in accordance with regulatory guidelines.practices. As of December 31, 20162018 and 2015,2017, QCBT, CRBT and RB&T were in compliance with these limits. Although the CSB’s and SFC Bank’s loan portfolio hashave historically been real estate dominated and itsthe real estate portfolio levels at each bank exceed these policy limits, it has established a Credit Risk Committee has been established to routinely monitor its real estate loan portfolio. CSB’s real estate levels, while still elevated at December 31, 2016,2018, have declined since December 31, 2015. 2017. 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. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (continued)
ForC&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.
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| 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. | | 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 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements 2. Superior Quality (Pass) – loans with very strong credit quality. Borrowers have exceptionally strong earnings, liquidity, capital, cash flow coverage,
Note 1. Nature of Business 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.Significant Account Policies (continued) 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. 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.
| 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. |
| 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. | | 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. |
QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (continued)
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. 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–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–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.
| 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 – 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 not follow 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, 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 Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Account Policies (continued) 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. 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. Forresidential 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. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant AccountingAccount 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) the assets have been isolated from the Company, (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) 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. |
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| · | | 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. |
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| · | | The rights of each participating interest holder have the same priority, and no participating interest 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. |
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| · | | 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. Repossessed assets are included in other assets on the consolidated balance sheets. Goodwill: The Company has recorded goodwill totaling $3,222,688 from QCBT’s purchase of 80% of m2 in August 2005.various business combinations. 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, 2016,2018, which used a quantitative approach, the Company determined that the goodwill was not impaired. Goodwill totaling $9,888,225 was also recognized as part of the acquisition of CSB in 2016. See Note 2 to the Consolidated Financial Statements for additional information. This goodwill is not being amortized, and will be evaluated annually for impairment in future years. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant AccountingAccount 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, and from its merger with Springfield Banchshares. 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 NoteNotes 2 and 6 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). Customer list intangible: The Company has recorded a customer list intangible from the Bates Companies acquisition. The customer list intangible was the portion of the acquisition purchase price which represented the value assigned to the existing customer base at acquisition. See Notes 2 and 6 to the Consolidated Financial Statements for addition information. The customer list intangible has a finite life and will be amortized over the estimated useful life (estimated to be fifteen 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$10.8 million, $1.7$3.1 million and $155 thousand$1.7 million for the years ending December 31, 2016, 20152018, 2017 and 2014,2016, 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) 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) interest rate caps to manage the interest rate risk of certain short-term fixed rate liabilities. liabilities; and (3) interest rate swaps on variable rate trust preferred securities. Interest rate caps and interest rate swaps 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, 20162018 and 2015.2017. 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.computation Treasury 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 treasury stock was retired in 2015.
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. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Account Policies (continued) As discussed in Note 15, during the years ended December 31, 2016, 2015,2018, 2017, and 2014,2016, the Company recognized stock-based compensation expense relatedfor the grant-date fair value of stock based awards that are expected to stock optionvest over the requisite service period of $1,443,346, $1,187,036 and incentive plans, stock purchase plans, and restricted stock awards of $947,174, $941,469, and $891,619, 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 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 | | 2018 | | 2017 | | 2016 | | Dividend yield | | .35% | to | .51% | | .37% | to | .46% | | | .47% | | | | 0.45% to 0.48% | | | 0.36% to 0.47% | | | 0.35% to 0.51% | | Expected volatility | | 29.32% | to | 29.37% | | 28.92% | to | 29.32% | | 29.07% | to | 29.18% | | | 29.51% to 29.59% | | | 29.64% to 29.95% | | | 29.32% to 29.37% | | Risk-free interest rate | | 1.73% | to | 2.18% | | 1.89% | to | 2.37% | | 2.69% | to | 2.82% | | | 2.60% to 2.94% | | | 2.50% to 2.81% | | | 1.73% to 2.18% | | Expected life of option grants (years) | | | 6 | | | | 6 | | | | 6 | | | Expected life of option grants (in years) | | | | 6 years | | | 6 years | | | 6 years | | Weighted-average grant date fair value | | | $7.31 | | | | $5.11 | | | | $5.68 | | | $ | 14.68 | | $ | 14.75 | | $ | 7.31 | |
The 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 | | 2018 | | 2017 | | 2016 | | Dividend yield | | .33% | to | .59% | | .37% | to | .45% | | .46% | to | .47% | | | 0.37% to 0.51% | | | 0.37% to 0.42% | | | 0.33% to 0.59% | | Expected volatility | | 12.70% | to | 15.60% | | 8.81% | to | 13.10% | | 16.96% | to | 19.35% | | | 20.90% to 21.40% | | | 19.80% to 19.86% | | | 12.70% to 15.60% | | Risk-free interest rate | | .39% | to | .57% | | .09% | to | .16% | | .04% | to | .12% | | | 1.59% to 2.22% | | | 0.67% to 1.18% | | | 0.39% to 0.57% | | 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 months | | | 3 to 6 months | | | 3 to 6 months | | Weighted-average grant date fair value | | | $3.28 | | | | $2.39 | | | | $2.37 | | | $ | 6.63 | | $ | 6.42 | | $ | 3.28 | |
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'sCompany’s current expectations about its anticipated dividend policy. Expected volatility is based on historical volatility of the Company'sCompany’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, 2016,2018, there was $828,178$704,659 of unrecognized compensation cost related to share based payments,stock options granted, which is expected to be recognized over a weighted average period of 2.071.66 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'sCompany’s common stock for the 587,961411,030 options that were in-the-money at December 31, 2016.2018. The aggregate intrinsic value at December 31, 20162018 was $16.7$7.1 million on options outstanding and $11.8$6.3 million on options exercisable. During the years ended December 31, 2016, 20152018, 2017 and 2014,2016, the aggregate intrinsic value of options exercised under the Company'sCompany’s stock option plans was $1,525,902, $480,354,$365,107, $1,005,193, and $173,105,$1,525,902, respectively, and determined as of the date of the option exercise. Restricted stock awards granted may 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.
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant AccountingAccount Policies (continued) As of December 31, 2018, there was $1,976,929 of unrecognized compensation cost related to nonvested restricted stock awards expected to be recognized over a period of 1.51 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 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 thebenefits 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 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 statementsConsolidated 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. Revenue Recognition: As of January 1, 2018, the Company adopted ASU 2014‑09 using the modified retrospective approach. The adoption of the guidance had no material impact on the measurement or recognition of revenue as approximately 89% of the Company's revenue (based on 2017 audited financial results) is outside the scope of this guidance; however, additional disclosures have been added in accordance with the ASU. Descriptions of our revenue-generating contracts with customers that are within the scope of ASU 2014‑09, which are presented in our income statements as components of non-interest income are as follows: Trust department and Investment advisory and management fees: This is a contract between the Company and its customers for fiduciary and/or investment administration services on trust and brokerage accounts. Trust services and brokerage fee income is determined as a percentage of assets under management and is recognized over the period the underlying trust account is serviced. Such contracts are generally cancellable at any time, with the customer subject to a pro-rated fee in the month of termination. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Account Policies (continued) Deposit service fees: The deposit contract obligates the Company to serve as a custodian of the customer's deposited funds and is generally terminable at will by either party. The contract permits the customer to access the funds on deposit and request additional services related to the deposit account. Deposit account related fees, including analysis charges, overdraft/nonsufficient fund charges, service charges, debit card usage fees, overdraft fees and wire transfer fees are within the scope of the guidance; however, revenue recognition practices did not change under the guidance, as deposit agreements are considered day-to-day contracts. Income for deposit accounts is recognized over the statement cycle period (typically on a monthly basis) or at the time the service is provided, if additional services are requested. Correspondent banking fees: A contract between the Company and its correspondent banks for corresponding banking services. 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. Correspondent banking fee income is tied to transaction activity and revenue is recognized monthly as earned for services provided. Reclassifications: Certain amounts in the prior year financial statementsyear’s Consolidated Financial Statements have been reclassified, with no effect on net income, comprehensive income or stockholders’ equity, to conform with the current period presentation. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and SignificantNew Accounting Policies (continued)Prounouncement:
New accounting pronouncements: In
In May 2014, FASB issued ASU 2014-09,2014‑09, Revenue from Contracts with Customers.Customers. ASU 2014-092014‑09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-092014‑09 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 2014-092014‑09 was originally effective for the Company on January 1, 2017,2018, however, FASB issued ASU 2015-142015‑14 which defersdeferred 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 for2014‑09 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 trust2018 and investment management fees, however it is not expected to have ahad no significant impact on the Company’s consolidated financial statements. The Company continues to evaluate the potential impact on other components of noninterest income. At adoption, the Company will adjust beginning retained earnings for the cumulative effect, if that adjustment is deemed material.Consolidated Financial Statements.
In January 2016, FASB issued ASU 2016-01,2016‑01, Financial Instruments – Overall. ASU 2016-012016‑01 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. Thewas adopted by the Company is inon January 1, 2018 and had no significant impact on the process of analyzing the impact of adoption.Company’s 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 2016-022016‑02 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 Companystandard was adopted on January 1, 2019 and is in the process of analyzing the impact of adoption on the Company’s consolidated financial statements. In March 2016, the FASB issued ASU 2016-09,Compensation – Stock Compensation. ASU 2016-09 aims to simplify the accounting for companies that issue share-based payment awards to their employees. Simplification includes the income tax consequences, classification 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 ano significant impact on the Company’s consolidated financial statements.Consolidated Financial Statements.
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant AccountingAccount 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 2016-132016‑13 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.Consolidated Financial Statements. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). ASU 2017-04 is intended to simplify goodwill impairment testing by eliminating the second step of the analysis. ASU 2017-04 requires entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. This guidance is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect this guidance to have a significant impact on its 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. Note 2. Mergers/Acquisitions General The narrative in this subsection applies to all mergers and acquisitions detailed throughout this footnote. Loans acquired in a business combination are recorded and initially measured at their estimated fair value as of the acquisition date. Credit discounts are included in the determination of fair value. A third party valuation consultant assisted with the determination of fair value. Purchased loans are segregated into two categories: PCI loans and non-PCI (performing) loans. PCI loans are accounted for in accordance with ASC 310‑30, as they display significant credit deterioration since origination and it is probable, as of the acquisition date, that the Company will be unable to collect all contractually required payments from the borrower. Performing loans are accounted for in accordance with ASC 310‑20, as these loans do not have evidence of significant credit deterioration since origination and it is probable that the contractually required payments will be received from the borrower. For PCI loans, the difference between the contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable discount. Further, any excess cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the expected remaining life of the loan. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized by recording an allowance for loan and lease losses and provision for loan losses. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. Mergers/Acquisitions (continued) For performing loans, the difference between the estimated fair value of the loans and the principal balance outstanding is accreted over the remaining life of the loans. Bates Companies On October 1, 2018, the Company acquired the Bates Companies, headquartered in Rockford, Illinois. The acquisition enhanced the wealth management services of the Company by adding approximately $704 million of assets under management at acquisition. In the acquisition, the Company acquired 100% of the Bates Companies’ outstanding common stock for aggregate consideration of $3.0 million cash and up to $3.0 million of the Company’s common stock. Of the total cash consideration, $1.5million in cash was paid at closing funded through operating cash. The additional $1.5 million was recorded as a promissory note and will be repaid in five equal, annual installments of $300,000 each on the first through fifth anniversaries of the closing date. Interest will be paid at a rate of 2.18% per annum, based on the applicable federal rate as of the closing date. This $1.5 million promissory note is included in Other Liabilities on the Consolidated Balance Sheet. Additionally, in a private placement exempt from registration with the SEC, the Company issued 23,501 shares of Company stock in December 2018. Assuming all future performance based targets are met, total stock consideration can reach $3.0 million, which would result in the Company issuing approximately 47,003 additional common shares based on the 10-day volume weighted average of the closing stock price of the Company ending five days prior to closing. The contingent consideration for the additional common shares, totaling $2.0 million, is included in Other Liabilities on the Consolidated Balance Sheet. During 2018, the Company incurred $394 thousand of expenses related to the acquisition, comprised primarily of legal and accounting costs. The Company recorded estimates for the customer list intangible and goodwill during 2018, as purchase accounting calculations were not yet complete. The Company expects the initial purchase accounting to be complete in the first quarter of 2019. The Company recorded a customer list intangible totaling $1,854,932 which is the portion of the acquisition purchase price which represents the value assigned to the existing customer base. The customer list intangible has a finite life and is amortized over the estimated useful life of the customer base. The Company recorded goodwill totaling $3,766,074 which is the excess of the consideration paid over the fair value of the net assets acquired. This goodwill is not deductible for tax purposes. See Note 6 to the Consolidated Financial Statements for additional information. The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the acquisition date, net of applicable income tax effects.The Company considers all purchase accounting adjustments as provisional and fair values are subject to refinement for up to one year after the closing date. Unaudited pro forma combined operating results for the years ended December 31, 2018 and 2017, giving effect to the Bates Companies acquisition as if it had occurred as of January 1, 2017, are as follows: | | | | | | | | | Year Ended December 31, | | | 2018 | | 2017 | | | (dollars in thousands, except per share data) | | | | | | | | Net interest income | | $ | 142,368 | | $ | 116,029 | Noninterest income | | $ | 44,455 | | $ | 33,044 | Net income | | $ | 44,032 | | $ | 35,627 | | | | | | | | Earnings per common share: | | | | | | | Basic | | $ | 2.98 | | $ | 2.67 | Diluted | | $ | 2.92 | | $ | 2.60 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. Mergers/Acquisitions (continued) The pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2017 or of future results of operations of the consolidated entities. Springfield Bancshares, Inc. On July 1, 2018, the Company merged with Springfield Bancshares, the holding company of SFC Bank, headquartered in Springfield, Missouri. The Company acquired 100% of Springfield Bancshares common stock in the merger. SFC Bank is a Missouri-chartered bank that operates one location in the Springfield, Missouri market. As a result of the transaction, SFC Bank became the Company’s fifth independent charter. The merger with Springfield Bancshares allowed the Company to enter the Springfield, Missouri market which is consistent with the Company’s strategic plan to selectively acquire other high-performing financial institutions in vibrant mid-sized metropolitan markets with a high concentration of commercial clients. Financial metrics related to the transaction were favorable, as measured by EPS and ROAA accretion. Stockholders of Springfield Bancshares received 0.3060 shares of the Company’s common stock and $1.50 in cash in exchange for each common share of Springfield Bancshares held. On June 29, 2018, the last trading date before the closing, the Company’s common stock closed at $47.45, resulting in stock consideration valued at $80.6 million and total consideration paid by the Company of $89.0 million. To help fund the cash portion of the purchase price, on June 29, 2018, the Company borrowed $4.1 million on its existing $10.0 million revolving line of credit. The Company also borrowed $4.9 million on this same revolving line of credit to fund the repayment of certain debt assumed in the merger shortly after closing. This note is included within Other Borrowings on the Consolidated Balance Sheets. The remaining cash consideration paid to the shareholders of Springfield Bancshares came from operating cash. The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the merger date, net of applicable income tax effects. The Company considers all purchase accounting adjustments as provisional and fair values are subject to refinement for up to one year after the closing date. During the fourth quarter of 2018, various measurement period adjustments were made. The result of these adjustments was an increase to goodwill of $447 thousand. The excess of the consideration paid over the fair value of the net assets acquired is recorded as goodwill. This goodwill is not deductible for tax purposes. The fair values of the assets acquired and liabilities assumed, after measurement period adjustments to date, including the consideration paid and resulting goodwill is as follows. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. Mergers/Acquisitions (continued) | | | | | | As of | | | July 1, 2018 | ASSETS | | | | Cash and due from banks | | $ | 4,586,326 | Interest-bearing deposits at financial institutions | | | 62,924,396 | Securities | | | 4,845,441 | Loans/leases receivable, net | | | 477,336,699 | Bank-owned life insurance | | | 7,091,883 | Premises and equipment | | | 6,091,978 | Restricted investment securities | | | 3,654,200 | Intangibles | | | 8,208,728 | Other assets | | | 1,470,689 | Total assets acquired | | $ | 576,210,340 | | | | | LIABILITIES | | | | Deposits | | $ | 439,579,328 | Short-term borrowings | | | 1,143,478 | FHLB advances | | | 74,539,463 | Other borrowings | | | 9,543,810 | Other liabilities | | | 8,408,463 | Total liabilities assumed | | $ | 533,214,542 | Net assets acquired | | $ | 42,995,798 | | | | | CONSIDERATION PAID: | | | | Cash | | $ | 8,333,535 | Common stock | | | 80,637,194 | Total consideration paid | | $ | 88,970,729 | Goodwill | | $ | 45,974,931 |
The following table presents the purchased loans as of the merger date: | | | | | | | | | | | | PCI | | Performing | | | | | | Loans | | Loans | | Total | Contractually required principal payments | | $ | 7,552,912 | | $ | 479,439,547 | | $ | 486,992,459 | Nonaccretable discount | | | (1,562,455) | | | — | | | (1,562,455) | Principal cash flows expected to be collected | | $ | 5,990,457 | | $ | 479,439,547 | | $ | 485,430,004 | Accretable discount | | | (293,445) | | | (7,799,860) | | | (8,093,305) | Fair Value of acquired loans | | $ | 5,697,012 | | $ | 471,639,687 | | $ | 477,336,699 |
Changes in accretable yield for the loans acquired are as follows: | | | | | | | | | | | | For the year ended December 31, 2018 | | | PCI | | Performing | | | | | | Loans | | Loans | | Total | Discount added at acquisition | | $ | (293,445) | | $ | (7,799,860) | | $ | (8,093,305) | Reclassification of nonaccretable discount to accretable | | | (891,569) | | | — | | | (891,569) | Accretion recognized | | | 525,704 | | | 1,950,795 | | | 2,476,499 | Balance at the end of the period | | $ | (659,310) | | $ | (5,849,065) | | $ | (6,508,375) |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. Mergers/Acquisitions (continued) During 2018, there was no nonaccretable discount that was recognized due to the repayment of PCI loans. However, $892 thousand of nonaccretable discount was reclassified to accretable during the third quarter of 2018 due to significant improvement on one specific credit subsequent to the merger date. Of this amount, $396 thousand was accreted to income in 2018, while the remainder will be accreted over the next 8 months, which is the remaining contractual life of the loan. Premises and equipment acquired with a fair value of $6.1million includes one branch location. The fair value was determined with the assistance of a third party appraiser. The buildings and building write-ups will be recognized in depreciation expense over 39 years. The Company recorded a core deposit intangible totaling $8.2 million which is the portion of the merger purchase price which represents the value assigned to the existing deposit base. The core deposit intangible has a finite life and is amortized using an accelerated method over the estimated useful life of the deposits (estimated to be ten years). See Note 6 to the Consolidated Financial Statements for additional information. FHLB advances and other borrowings assumed with a fair value of $84.1 million included $40.0 million in overnight FHLB advances, $34.5 million of FHLB term advances, $4.7 million in subordinated debentures and a $4.8 million bank stock loan. The $4.8 million bank stock loan was paid off immediately after the merger date on July 2, 2018, at its book value. See Note 10 and 11 to the Consolidated Financial Statements for additional information. During 2018, the Company incurred $1.4 million of expenses related to the merger comprised primarily of legal, accounting, and investment banking costs. These costs are presented on their own line within the consolidated statements of income. SFC Bank results are included in the consolidated statements of income effective on the merger date. For the period July 1, 2018 to December 31, 2018, SFC Bank reported revenues of $15.2 million and net income of $4.8 million, which included $391 thousand of after tax post-acquisition, compensation, transition and integration costs. Unaudited pro forma combined operating results for the years ended December 31, 2018 and 2017, giving effect to the merger with Springfield Bancshares as if it had occurred as of January 1, 2017, are as follows: | | | | | | | | | Year Ended December 31, | | | 2018 | | 2017 | | | (dollars in thousands, except per share data) | | | | | | | | Net interest income | | $ | 153,229 | | $ | 136,190 | Noninterest income | | $ | 42,538 | | $ | 32,395 | Net income | | $ | 49,542 | | $ | 42,316 | | | | | | | | Earnings per common share: | | | | | | | Basic | | $ | 3.17 | | $ | 2.82 | Diluted | | $ | 3.11 | | $ | 2.75 |
The pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the merger occurred on January 1, 2017 or of future results of operations of the consolidated entities. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. Mergers/Acquisitions (continued) Guaranty Bank and Trust On October 1, 2017 the Company acquired Guaranty Bank, headquartered in Cedar Rapids, Iowa, from Guaranty. Guaranty Bank is an Iowa-chartered bank that operates five banking locations throughout the Cedar Rapids metropolitan area. The acquisition of Guaranty Bank allowed the Company to grow its market share in the Cedar Rapids market. Guaranty Bank has a strong core deposit base and retail franchise. Although Guaranty already had strong earnings, the Company has identified several opportunities for enhanced future earnings performance. Lastly, financial metrics related to the transaction were favorable, as measured by EPS accretion, ROAA accretion and earn back of tangible book value dilution. In the acquisition, the Company acquired 100% of Guaranty Bank’s outstanding common stock and purchased certain assets and assumed certain liabilities of Guaranty for aggregate consideration consisting of 79% QCR Holdings common stock (678,670 shares) and 21% cash ($7.8 million). On September 29, 2017, the last trading date before the closing, the Company’s common stock closed at $45.50, resulting in stock consideration valued at $30.9 million and total consideration paid by the Company of $38.7 million. To help fund the cash portion of the purchase price, on September 27, 2017, the Company executed a $7.0 million four-year term note with principal and interest due quarterly. See further information in Note 11. This note is included within other borrowings on the December 31, 2017 Consolidated Balance Sheets. The remaining cash consideration paid to Guaranty came from operating cash. The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the acquisition date, net of applicable income tax effects. The Company considers all purchase accounting adjustments to be finalized. The excess of the consideration paid over the fair value of the net assets acquired is recorded as goodwill. This goodwill is deductible over 15 years for tax purposes. The Company has several areas of specialization, including government guaranteed lending, C&I lending, interest rate swaps, leasing, wealth management, private banking and municipal bond offerings that will be offered in this expanded market, increasing future earnings potential. Guaranty Bank has a strong core deposit base. There is also value added to the Company through having an expanded footprint in a market that has strong growth potential. The experience and value of the personnel at Guaranty Bank and their knowledge of the expanded market is also beneficial. On December 2, 2017, the Company merged Guaranty Bank with and into CRBT, with CRBT as the surviving bank. As part of the merger, the Guaranty Bank branches located at 302 3rd Avenue SE, Cedar Rapids, Iowa and 1819 42nd Street NE, Cedar Rapids, Iowa, permanently closed. The three remaining Guaranty Bank branches have become banking offices of CRBT. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. AcquisitionMergers/Acquisitions (continued) The fair values of the assets acquired and liabilities assumed including the consideration paid and resulting goodwill is as follows: | | | | | | As of | | | October 1, 2017 | ASSETS | | | | Cash and due from banks | | $ | 4,434,511 | Interest-bearing deposits at financial institutions | | | 3,953,907 | Securities | | | 49,703,419 | Loans/leases receivable, net | | | 192,517,677 | Premises and equipment | | | 4,808,343 | Restricted investment securities | | | 476,500 | Core deposit intangible | | | 2,698,301 | Other assets | | | 997,810 | Total assets acquired | | $ | 259,590,468 | | | | | LIABILITIES | | | | Deposits | | $ | 212,467,514 | Short-term borrowings | | | 13,102,043 | FHLB advances | | | 4,108,027 | Junior subordinated debentures | | | 3,857,275 | Other liabilities | | | 2,595,883 | Total liabilities assumed | | $ | 236,130,742 | Net assets acquired | | $ | 23,459,726 | | | | | CONSIDERATION PAID: | | | | Cash | | $ | 7,803,420 | Common stock | | | 30,879,485 | Total consideration paid | | $ | 38,682,905 | Goodwill | | $ | 15,223,179 |
The following table presents the purchased loans as of the acquisition date: | | | | | | | | | | | | PCI | | Performing | | | | | | Loans | | Loans | | Total | Contractually required principal payments | | $ | 3,126,327 | | $ | 192,982,439 | | $ | 196,108,766 | Nonaccretable discount | | | (1,147,198) | | | — | | | (1,147,198) | Principal cash flows expected to be collected | | $ | 1,979,129 | | $ | 192,982,439 | | $ | 194,961,568 | Accretable discount | | | (219,902) | | | (2,223,989) | | | (2,443,891) | Fair Value of acquired loans | | $ | 1,759,227 | | $ | 190,758,450 | | $ | 192,517,677 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. Mergers/Acquisitions (continued) Changes in accretable yield for the loans acquired are as follows: | | | | | | | | | | | | For the year ended December 31, 2018 | | | PCI | | Performing | | | | | Loans | | Loans | | Total | Balance at the beginning of the period | | $ | (165,832) | | $ | (2,197,153) | | $ | (2,362,985) | Accretion recognized | | | 157,775 | | | 584,563 | | | 742,338 | Balance at the end of the period | | $ | (8,057) | | $ | (1,612,590) | | $ | (1,620,647) | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2017 | | | PCI | | Performing | | | | | Loans | | Loans | | Total | Balance at the beginning of the period | | $ | — | | $ | — | | $ | — | Discount added at acquisition | | | (219,902) | | | (2,223,989) | | | (2,443,891) | Accretion recognized | | | 54,070 | | | 26,836 | | | 80,906 | Balance at the end of the period | | $ | (165,832) | | $ | (2,197,153) | | $ | (2,362,985) |
During 2018 and 2017, there was also $137 thousand and $158 thousand, respectively, of nonaccretable discount that was recognized due to the repayment of PCI loans. Premises and equipment acquired with a fair value of $4.8 million includes five branch locations with a fair value of $4.6 million. The fair value was determined with the assistance of a third party appraiser. The buildings and related fair value adjustments will be recognized in depreciation expense over 39 years. The Company recorded a core deposit intangible totaling $2.7 million which is the portion of the acquisition purchase price which represents the value assigned to the existing deposit base. The core deposit intangible has a finite life and is amortized using an accelerated method over the estimated useful life of the deposits (estimated to be ten years). See Note 6 to the Consolidated Financial Statements for additional information. During 2017, the Company incurred $805 thousand of expenses related to the acquisition, comprised primarily of legal, accounting and investment banking costs. These acquisition costs are presented on their own line within the consolidated statements of income. Also during 2017, the Company incurred $3.1 million of post-acquisition expenses, comprised primarily of personnel costs, IT integration, and conversion costs. Guaranty Bank results are included in the consolidated statements of income effective on the acquisition date. Unaudited pro forma combined operating results for the years ended December 31, 2017 and 2016, giving effect to the Guaranty Bank acquisition as if it had occurred as of January 1, 2016, are as follows: | | | | | | | | | Year Ended December 31, | | | 2017 | | 2016 | | | (dollars in thousands, except per share data) | | | | | | | | Net interest income | | $ | 122,923 | | $ | 102,902 | Noninterest income | | $ | 32,703 | | $ | 34,238 | Net income | | $ | 38,728 | | $ | 27,103 | | | | | | | | Earnings per common share: | | | | | | | Basic | | $ | 2.80 | | $ | 2.05 | Diluted | | $ | 2.73 | | $ | 2.02 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. Mergers/Acquisitions (continued) The pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2016 or of future results of operations of the consolidated entities. Community State Bank and Common Stock Offering On August 31, 2016, the Company acquired Community State Bank from Van Diest Investment Company. CSB is headquartered in Ankeny, Iowa and is an Iowa-chartered bank that operates ten banking locations throughout the Des Moines metropolitan area. The Company purchased 100% of the outstanding common stock of CSB for cash consideration of $80.0 million. The acquisition of CSB allowed the Company to expand its footprint into the Des Moines market. CSB hashad an experienced and capable leadership team that iswas committed to leading the Company’s efforts in the Des Moines area. CSB hashad demonstrated significant improvement in earnings and asset quality during the last three years. Additionally, CSB hashad a strong core deposit base and retail franchise. Although CSB already hashad strong earnings, the Company hashad identified several opportunities for enhanced future earnings performance. With $581 million of assets acquired, the Company believesbelieved this acquisition iswas large enough to provide meaningful impact on the financial results, but iswas not too large to overstrain existing infrastructure. Lastly, financial metrics related to the transaction were favorable, as measured by EPS accretion and earn-back of tangible book value dilution. In connection with the acquisition, during the second 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. The shares were offered to institutional investors in a registered direct offering conducted without an underwriter or placement agent. The offering was a partial take-down of a previously filed shelf registration and closed on May 23, 2016. Cash received from the common stock offering was used to help finance the purchase price of the acquisition. Additionally, the Company drew $5.0 million on its $10.0 million revolving line of credit and fully funded its $30.0 million term facility. Both of these facilities are described further in Note 11 to the Consolidated Financial Statements. Cash dividends of $15.2 million from QCBT and CRBT were used to fund the remainder of the purchase price. The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the acquisition date, net of applicable income tax effects. The Company considers all purchase accounting adjustments as provisional and fair values are subject to refinement for up to one year after the closing date. The excess of the consideration paid over the fair value of the net assets acquired is recorded as goodwill. This goodwill is not deductible for tax purposes. The Company has several areas of specialization, including government guaranteed lending, C&I lending, interest rate swaps, leasing, wealth management, private banking and municipal bond offerings that will be offered in this new market, increasing future earnings potential. There is also value added to the Company through having a footprint in a market that has strong growth potential. Additionally, there are qualitative benefits gained through the addition of a new charter including better leverage of centralized operations and increased lending limits. The experience and value of the personnel at CSB and their knowledge of the Des Moines MSA is also beneficial. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 2.Acquisition of Community State Bank and Common Stock Offering Mergers/Acquisitions (continued) The fair values of the assets acquired and liabilities assumed including the consideration paid and resulting goodwill is as follows: | | | As of | | | | | August 31, 2016 | | ASSETS | | | | | 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 | | | 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 | | | | | | | | LIABILITIES | | | | | 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 | | $ | 80,000,000 | | Total consideration paid | | $ | 80,000,000 | | Goodwill | | $ | 9,888,225 | |
Loans acquired in a business combination are recorded and initially measured at their estimated fair value as of the acquisition date. Credit discounts are included in the determination of fair value. A third party valuation consultant assisted with the determination of fair value.
Purchased loans are segregated into two categories: PCI loans and non-PCI (performing) loans. PCI loans are accounted for in accordance with ASC 310-30, as they display significant credit deterioration since origination and it is probable, as of the acquisition date, that the Company will be unable to collect all contractually required payments from the borrower. Performing loans are accounted for in accordance with ASC 310-20, as these loans do not have evidence of significant credit deterioration since origination and it is probable that the contractually required payments will be received from the borrower.
For PCI loans, the difference between the contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable discount. Further, any excess cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the expected remaining life of the loan. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized by recording an allowance for loan and lease losses and provision for loan losses.
For performing loans, the difference between the estimated fair value of the loans and the principal balance outstanding is accreted over the remaining life of the loans.
| | | | | | As of | | | August 31, 2016 | ASSETS | | | | 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 | | | 20,684,880 | Restricted investment securities | | | 1,512,900 | Core deposit intangible | | | 6,352,653 | Other real estate owned | | | 650,000 | Other assets | | | 5,283,937 | Total assets acquired | | $ | 581,676,478 | | | | | LIABILITIES | | | | 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 | | $ | 80,000,000 | Total consideration paid | | $ | 80,000,000 | Goodwill | | $ | 9,888,225 |
QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2. Acquisition of Community State Bank and Common Stock Offering (continued)
The following table presents the purchased loans as of the acquisition date: | | | | | | | | | | | | PCI | | Performing | | | | | | Loans | | Loans | | Total | Contractually required principal payments | | $ | 8,349,688 | | $ | 427,398,400 | | $ | 435,748,088 | Nonaccretable discount | | | (4,525,223) | | | — | | | (4,525,223) | Principal cash flows expected to be collected | | $ | 3,824,465 | | $ | 427,398,400 | | $ | 431,222,865 | Accretable discount | | | (277,579) | | | (11,916,009) | | | (12,193,588) | Fair Value of acquired loans | | $ | 3,546,886 | | $ | 415,482,391 | | $ | 419,029,277 |
| | | PCI | | | Performing | | | | | | | | | Loans | | | Loans | | | Total | | Contractually required principal payments | | $ | 8,349,688 | | | $ | 427,398,400 | | | $ | 435,748,088 | | Nonaccretable discount | | | (4,525,223 | ) | | | - | | | | (4,525,223 | ) | Principal cash flows expected to be collected | | $ | 3,824,465 | | | $ | 427,398,400 | | | $ | 431,222,865 | | Accretable discount | | | (277,579 | ) | | | (11,916,009 | ) | | | (12,193,588 | ) | Fair Value of acquired loans | | $ | 3,546,886 | | | $ | 415,482,391 | | | $ | 419,029,277 | |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. Mergers/Acquisitions (continued) Changes in accretable yield for the loans acquired wereare as follows: | | | | | | | | | | | | | | For the year ended December 31, 2018 | | | | PCI | | Performing | | | | | | | Loans | | Loans | | Total | Balance at the beginning of the period | | | $ | (25,300) | | $ | (4,082,922) | | $ | (4,108,222) | Accretion recognized | | | | 25,300 | | | 1,888,043 | | | 1,913,343 | Balance at the end of the period | | | $ | — | | $ | (2,194,879) | | $ | (2,194,879) | | | | | | | | | | | | | | | For the year ended December 31, 2017 | | | | PCI | | Performing | | | | | | | Loans | | Loans | | Total | Balance at the beginning of the period | | | $ | (194,306) | | $ | (9,115,614) | | $ | (9,309,920) | Accretion recognized | | | | 169,006 | | | 5,032,692 | | | 5,201,698 | Balance at the end of the period | | | $ | (25,300) | | $ | (4,082,922) | | $ | (4,108,222) | | | | | | | | | | | | | | | For the year ended December 31, 2016 | | | For the year ended December 31, 2016 | | | | PCI | | | Performing | | | | | | | PCI | | Performing | | | | | | | Loans | | | Loans | | | Total | | | Loans | | Loans | | Total | Balance at the beginning of the period | | $ | - | | | $ | - | | | $ | - | | | $ | — | | $ | — | | $ | — | Discount added at acquisition | | | (277,579 | ) | | | (11,916,009 | ) | | | (12,193,588 | ) | | | (277,579) | | | (11,916,009) | | | (12,193,588) | Accretion recognized | | | 83,273 | | | | 2,800,395 | | | | 2,883,668 | | | | 83,273 | | | 2,800,395 | | | 2,883,668 | Balance at the end of the period | | $ | (194,306 | ) | | $ | (9,115,614 | ) | | $ | (9,309,920 | ) | | $ | (194,306) | | $ | (9,115,614) | | $ | (9,309,920) |
During the year,2018, 2017 and 2016, there was also $25 thousand, $198 thousand and $186 thousand, respectively, of nonaccretable discount that was recognized due to the repayment of PCI loans. Premises and equipment acquired with a fair value of $20,684,880$20.7 million includes ten branch locations with a fair value of $19,735,000,$19.7 million, including a write-up of $8,334,437. Of this write-up amount, $2,648,208 is attributable to land, while the remaining $5,686,229 is attributable to the buildings.$8.3 million. The fair value was determined with the assistance of a third party appraiser. The buildings and building write-ups will be recognized in depreciation expense over 39 years. The Company recorded a core deposit intangible totaling $6,352,653$6.4 million which is the portion of the acquisition purchase price which represents the value assigned to the existing deposit base. The core deposit intangible has a finite life and is amortized using an accelerated method over the estimated useful life of the deposits (estimated to be ten years). See Note 6 to the Consolidated Financial Statements for additional information. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2. Acquisition of Community State Bank and Common Stock Offering (continued)
During the current year,2016, the Company incurred $2.4$1.4 million of expenses related to the acquisition, comprised primarily of legal, accounting, and investment banking costs and personnel costs. These acquisition costs are presented on their own line within the consolidated statements of income. Also during 2016, the Company incurred $1.0 million of post-acquisition expenses, comprised primarily of personnel costs, IT integration, and conversion costs. CSB results are included in the consolidated statements of income effective on the acquisition date. For the period August 31, 2016 to December 31, 2016, CSB reported revenues of $11.4 million and net income of $2.1 million, which included $473 thousand of after tax acquisition costs. During the current year, the Company incurred $1.2 million of post-acquisition compensation, transition and integration costs, comprised entirely of a fee that was paid for a core processor conversion of CSB. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2. Mergers/Acquisitions (continued) Unaudited pro forma combined operating results for the yearsyear ended December 31, 2016, and 2015, giving effect to the CSB acquisition as if it had occurred as of January 1, 2015, areis as follows: | | | | | | | | | Year Ended December 31, | | | | 2016 | | | | Year Ended December 31, | | | (dollars in thousands, | | | | 2016 | | | 2015 | | | except per share data) | | | | | | | | | | | | | | | Net interest income | | $ | 110,035 | | | $ | 98,483 | | | $ | 110,035 | | Noninterest income | | $ | 34,773 | | | $ | 31,051 | | | $ | 34,773 | | Net income | | $ | 34,137 | | | $ | 22,118 | | | $ | 34,137 | | | | | | | | | | | | | | | | Earnings per common share: | | | | | | | | | | | | | Basic | | $ | 2.62 | | | $ | 1.91 | | | $ | 2.62 | | Diluted | | $ | 2.58 | | | $ | 1.89 | | | $ | 2.58 | |
The pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2015 or of future results of operations of the consolidated entities. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3. Investment Securities The amortized cost and fair value of investment securities as of December 31, 20162018 and 20152017 are summarized as follows: | | | | | | | | | | | | | | | | | | Gross | | Gross | | | | | | Amortized | | Unrealized | | Unrealized | | Fair | | | Cost | | Gains | | (Losses) | | Value | December 31, 2018: | | | | | | | | | | | | | Securities HTM: | | | | | | | | | | | | | Municipal securities | | $ | 400,862,885 | | $ | 5,661,095 | | $ | (6,802,765) | | $ | 399,721,215 | Other securities | | | 1,050,000 | | | — | | | (632) | | | 1,049,368 | | | $ | 401,912,885 | | $ | 5,661,095 | | $ | (6,803,397) | | $ | 400,770,583 | | | | | | | | | | | | | | Securities AFS: | | | | | | | | | | | | | U.S. govt. sponsored agency securities | | $ | 37,150,434 | | $ | 38,620 | | $ | (777,663) | | $ | 36,411,391 | Residential mortgage-backed and related securities | | | 163,697,973 | | | 181,868 | | | (4,630,581) | | | 159,249,260 | Municipal securities | | | 59,069,259 | | | 179,748 | | | (702,985) | | | 58,546,022 | Other securities | | | 6,754,164 | | | 100,700 | | | (5,089) | | | 6,849,775 | | | $ | 266,671,830 | | $ | 500,936 | | $ | (6,116,318) | | $ | 261,056,448 |
| | | | | | | Gross | | | Gross | | | | | | | | | | | | | | | | | | | | | Amortized | | | Unrealized | | | Unrealized | | | Fair | | | | | | Gross | | Gross | | | | | | | Cost | | | Gains | | | (Losses) | | | Value | | | Amortized | | Unrealized | | Unrealized | | Fair | December 31, 2016: | | | | | | | | | | | | | | | | | | Securities held to maturity: | | | | | | | | | | | | | | | | | | | | | Cost | | Gains | | (Losses) | | Value | December 31, 2017: | | | | | | | | | | | | | | Securities HTM: | | | | | | | | | | | | | | Municipal securities | | $ | 321,859,056 | | | $ | 2,200,577 | | | $ | (4,694,734 | ) | | $ | 319,364,899 | | | $ | 378,424,205 | | $ | 2,763,718 | | $ | (2,488,119) | | $ | 378,699,804 | 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 | | | $ | 379,474,205 | | $ | 2,763,718 | | $ | (2,488,119) | | $ | 379,749,804 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | | | | | | Securities AFS: | | | | | | | | | | | | | | U.S. govt. sponsored agency securities | | $ | 46,281,306 | | | $ | 132,886 | | | $ | (330,585 | ) | | $ | 46,083,607 | | | $ | 38,409,157 | | $ | 37,344 | | $ | (349,967) | | $ | 38,096,534 | Residential mortgage-backed and related securities | | | 150,465,222 | | | | 174,993 | | | | (2,938,088 | ) | | | 147,702,127 | | | | 165,459,470 | | | 155,363 | | | (2,313,529) | | | 163,301,304 | Municipal securities | | | 52,816,541 | | | | 425,801 | | | | (637,916 | ) | | | 52,604,426 | | | | 66,176,364 | | | 660,232 | | | (211,100) | | | 66,625,496 | Other securities | | | 4,046,332 | | | | 703,978 | | | | (27,331 | ) | | | 4,722,979 | | | | 4,014,004 | | | 896,384 | | | (25,815) | | | 4,884,573 | | | | $ | 253,609,401 | | | $ | 1,437,658 | | | $ | (3,933,920 | ) | | $ | 251,113,139 | | | $ | 274,058,995 | | $ | 1,749,323 | | $ | (2,900,411) | | $ | 272,907,907 | | | | | | | | | | | | | | | | | | | | 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 | | |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 3. Investment Securities (continued) The Company’s HTM municipal securities consist largely of private issues of municipal debt. The municipalities are located primarily within the Midwest. The municipal debt investments are underwritten using specific guidelines with ongoing monitoring. The Company’s residential mortgage-backed and related securities portfolio consists entirely of government sponsored or government guaranteed securities. The Company has not invested in commercial mortgage-backed securities or pooled trust preferred securities. QCR Holdings, Inc.As discussed in Note 1, effective January 1, 2018, equity securities (previously included in other securities) are no longer included in available for sale securities and, Subsidiaries
Notes to Consolidated Financial Statements
Note 3. Investment Securities (continued)
instead, are carried in other assets at fair value with changes in fair value recognized in net income. Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 20162018 and 2015,2017, are summarized as follows: | | | | | | | | | | | | | | | | | | | | | Less than 12 Months | | 12 Months or More | | Total | | | | | Gross | | | | Gross | | | | Gross | | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | | Value | | Losses | | Value | | Losses | | Value | | Losses | December 31, 2018: | | | | | | | | | | | | | | | | | | | Securities HTM: | | | | | | | | | | | | | | | | | | | Municipal securities | | $ | 114,200,687 | | $ | (2,186,574) | | $ | 69,412,341 | | $ | (4,616,191) | | $ | 183,613,028 | | $ | (6,802,765) | Other securities | | | 549,368 | | | (632) | | | — | | | — | | | 549,368 | | | (632) | | | $ | 114,750,055 | | $ | (2,187,206) | | $ | 69,412,341 | | $ | (4,616,191) | | $ | 184,162,396 | | $ | (6,803,397) | | | | | | | | | | | | | | | | | | | | Securities AFS: | | | | | | | | | | | | | | | | | | | U.S. govt. sponsored agency securities | | $ | 1,565,136 | | $ | (33,278) | | $ | 29,605,388 | | $ | (744,385) | | $ | 31,170,524 | | $ | (777,663) | Residential mortgage-backed and related securities | | | 12,809,544 | | | (147,592) | | | 133,533,963 | | | (4,482,989) | | | 146,343,507 | | | (4,630,581) | Municipal securities | | | 28,356,204 | | | (394,235) | | | 15,932,376 | | | (308,750) | | | 44,288,580 | | | (702,985) | Other securities | | | 4,249,075 | | | (5,089) | | | — | | | | | | 4,249,075 | | | (5,089) | | | $ | 46,979,959 | | $ | (580,194) | | $ | 179,071,727 | | $ | (5,536,124) | | $ | 226,051,686 | | $ | (6,116,318) |
| | | Less than 12 Months | | | 12 Months or More | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | Less than 12 Months | | 12 Months or More | | Total | | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | | | Gross | | | | Gross | | | | Gross | | | | Value | | | Losses | | | Value | | | Losses | | | Value | | | Losses | | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | December 31, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | Securities held to maturity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Value | | Losses | | Value | | Losses | | Value | | Losses | December 31, 2017: | | | | | | | | | | | | | | | | | | | | Securities HTM: | | | | | | | | | | | | | | | | | | | | Municipal securities | | $ | 122,271,533 | | | $ | (4,076,647 | ) | | $ | 13,010,803 | | | $ | (618,087 | ) | | $ | 135,282,336 | | | $ | (4,694,734 | ) | | $ | 23,750,826 | | $ | (354,460) | | $ | 72,611,780 | | $ | (2,133,659) | | $ | 96,362,606 | | $ | (2,488,119) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | | Securities AFS: | | | | | | | | | | | | | | | | | | | | U.S. govt. sponsored agency securities | | $ | 21,788,139 | | | $ | (257,640 | ) | | $ | 5,499,012 | | | $ | (72,945 | ) | | $ | 27,287,151 | | | $ | (330,585 | ) | | $ | 28,576,258 | | $ | (200,022) | | $ | 3,640,477 | | $ | (149,945) | | $ | 32,216,735 | | $ | (349,967) | Residential mortgage-backed and related securities | | | 121,506,582 | | | | (2,641,664 | ) | | | 7,437,615 | | | | (296,424 | ) | | | 128,944,197 | | | | (2,938,088 | ) | | | 88,927,779 | | | (871,855) | | | 57,931,731 | | | (1,441,674) | | | 146,859,510 | | | (2,313,529) | Municipal securities | | | 34,152,822 | | | | (618,462 | ) | | | 338,099 | | | | (19,454 | ) | | | 34,490,921 | | | | (637,916 | ) | | | 10,229,337 | | | (41,151) | | | 9,997,433 | | | (169,949) | | | 20,226,770 | | | (211,100) | Other securities | | | 3,177,414 | | | | (27,331 | ) | | | - | | | | - | | | | 3,177,414 | | | | (27,331 | ) | | | 923,535 | | | (25,815) | | | — | | | — | | | 923,535 | | | (25,815) | | | | $ | 180,624,957 | | | $ | (3,545,097 | ) | | $ | 13,274,726 | | | $ | (388,823 | ) | | $ | 193,899,683 | | | $ | (3,933,920 | ) | | $ | 128,656,909 | | $ | (1,138,843) | | $ | 71,569,641 | | $ | (1,761,568) | | $ | 200,226,550 | | $ | (2,900,411) | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | ) | |
At December 31, 2016,2018, the investment portfolio included 556611 securities. Of this number, 267350 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 1.5%1.9% of the total aggregate amortized cost. Of these 267350 securities, 18188 securities had an unrealized loss for 12 months or more. All of the debt securities in unrealized loss positions are considered acceptable credit risks. Based upon an evaluation of the available evidence, including the recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary. In addition, the Company lacks the intent to sell these securities and/orand it is not more-likely-than-not that the Company will be required to sell these debt securities before their anticipated recovery. At December 31, 2016 Table of Contents QCR Holdings, Inc. and 2015, the Company’s equity securities represent less than 1% of the total portfolio.Subsidiaries Notes to Consolidated Financial Statements Note 3. Investment Securities (continued) The Company did not recognize OTTI on any debt or equityinvestment securities for the years ended December 31, 2016, 20152018, 2017 or 2014. 2016. All sales of securities as applicable, for the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively, were from securities identified as AFS. Information on proceeds received, as well as the gains and losses from the sale of those securities are as follows: | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | | | 2018 | | 2017 | | 2016 | | | | | | | | | | | | | | | | | | | | | | | | | Proceeds from sales of securities | | $ | 134,188,737 | | | $ | 81,410,368 | | | $ | 78,476,422 | | | | $ | 1,938,043 | | $ | 71,091,580 | | $ | 134,188,737 | Gross gains from sales of securities | | | 4,845,009 | | | | 1,045,444 | | | | 517,116 | | | | | — | | | 67,351 | | | 4,845,009 | Gross losses from sales of securities | | | (252,611 | ) | | | (246,461 | ) | | | (424,753 | ) | | | | — | | | (155,236) | | | (252,611) |
In September 2016, the Company sold an equity security and recognized a pre-tax gross gain on the sale of $4,010,877.$4.0 million. The equity security was acquired by the Company at no cost as part of a membership in the invested company in 2002. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3. Investment Securities (continued)
The amortized cost and fair value of securities as of December 31, 2016,2018, by contractual maturity are shown below. Expected maturities of mortgage-backed and related securities may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following summary. “Other securities” available for sale are excluded from the maturity categories as there is no fixed maturity date for those securities. | | | Amortized Cost | | | Fair Value | | | | | | | | Securities held to maturity: | | | | | | | | | | | | | Amortized Cost | | Fair Value | Securities HTM: | | | | | | | | Due in one year or less | | $ | 23,795,317 | | | $ | 23,816,249 | | | $ | 2,232,726 | | $ | 2,237,767 | Due after one year through five years | | | 16,362,018 | | | | 16,406,132 | | | | 27,569,566 | | | 27,716,775 | Due after five years | | | 282,751,721 | | | | 280,192,518 | | | | 372,110,593 | | | 370,816,041 | | | | $ | 322,909,056 | | | $ | 320,414,899 | | | $ | 401,912,885 | | $ | 400,770,583 | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | Securities AFS: | | | | | | | | Due in one year or less | | $ | 3,103,329 | | | $ | 3,102,013 | | | $ | 2,665,560 | | $ | 2,665,829 | Due after one year through five years | | | 44,550,460 | | | | 44,614,611 | | | | 29,140,442 | | | 28,856,751 | Due after five years | | | 51,444,058 | | | | 50,971,409 | | | | 71,167,855 | | | 70,284,608 | | | | $ | 99,097,847 | | | $ | 98,688,033 | | | | 102,973,857 | | | 101,807,188 | Residential mortgage-backed and related securities | | | 150,465,222 | | | | 147,702,127 | | | | 163,697,973 | | | 159,249,260 | Other securities | | | 4,046,332 | | | | 4,722,979 | | | | | | $ | 253,609,401 | | | $ | 251,113,139 | | | $ | 266,671,830 | | $ | 261,056,448 |
Portions of the U.S. government sponsored agencies and municipal securities contain call options, at the discretion of the issuer, to terminate the security at predetermined dates prior to the stated maturity, summarized as follows: | | | | | | | | | Amortized Cost | | Fair Value | Securities HTM: | | | | | | | Municipal securities | | $ | 209,953,250 | | $ | 208,366,466 | | | | | | | | Securities AFS: | | | | | | | U.S. govt. sponsored agency securities | | | 4,999,072 | | | 4,918,050 | Municipal securities | | | 49,715,648 | | | 49,110,178 | Other securities | | | 6,505,918 | | | 6,602,900 | | | $ | 61,220,638 | | $ | 60,631,128 |
| | | Amortized Cost | | | Fair Value | | Securities held to maturity: | | | | | | | | | Municipal securities | | $ | 179,399,031 | | | $ | 176,447,494 | | | | | | | | | | | | Securities available for sale: | | | | | | | | | U.S. govt. sponsored agency securities | | | 5,058,440 | | | | 5,083,493 | | Municipal securities | | | 40,032,698 | | | | 39,633,259 | | | | | $ | 45,091,138 | | | $ | 44,716,752 | |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 3. Investment Securities (continued) As of December 31, 20162018 and 2015,2017, investment securities with a carrying value of $118,811,905$100.9 million and $248,277,471,$78.6 million, respectively, were pledged on FHLB advances, customer and wholesale repurchase agreements, and for other purposes as required or permitted by law. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3. Investment Securities (continued)
As of December 31, 2016,2018, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 116110 issuers with fair values totaling $116.5$86.4 million and revenue bonds issued by 120160 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $255.5$371.9 million. The Company held investments in general obligation bonds in 2126 states, including 56 states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 1219 states, including 67 states in which the aggregate fair value exceeded $5.0 million. As of December 31, 2015,2017, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 82131 issuers with fair values totaling $67.8$108.0 million and revenue bonds issued by 92145 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $214.4$337.3 million. The Company held investments in general obligation bonds in 1926 states, including four6 states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in nine16 states, including four7 states in which the aggregate fair value exceeded $5.0 million. The amortized cost and fair values of the Company’s portfolio of general obligation bonds are summarized in the following tables by the issuer’s state:
December 31, 2016: | | | | | | | | | | | | | | | | | U.S. State: | | Number of Issuers | | | Amortized Cost | | | Fair Value | | | Average Exposure Per Issuer (Fair Value) | | | | | | | | | | | | | | | | | | | | Iowa | | | 27 | | | $ | 32,258,612 | | | $ | 32,231,936 | | | $ | 1,193,775 | | Illinois | | | 19 | | | | 29,214,559 | | | | 29,308,438 | | | | 1,542,549 | | North Dakota | | | 7 | | | | 22,169,050 | | | | 21,499,075 | | | | 3,071,296 | | Missouri | | | 14 | | | | 8,291,192 | | | | 8,323,245 | | | | 594,518 | | Ohio | | | 8 | | | | 6,790,398 | | | | 6,651,897 | | | | 831,487 | | Other | | | 41 | | | | 18,481,496 | | | | 18,458,044 | | | | 450,196 | | Total general obligation bonds | | | 116 | | | $ | 117,205,307 | | | $ | 116,472,635 | | | $ | 1,004,074 | |
December 31, 2015: | | | | | | | | | | | | | | | | | U.S. State: | | Number of Issuers | | | Amortized Cost | | | Fair Value | | | Average Exposure Per Issuer (Fair Value) | | | | | | | | | | | | | | | | | | | | Iowa | | | 15 | | | $ | 19,974,939 | | | $ | 20,247,108 | | | $ | 1,349,807 | | Illinois | | | 9 | | | | 10,928,700 | | | | 11,264,348 | | | | 1,251,594 | | North Dakota | | | 5 | | | | 10,890,000 | | | | 11,050,235 | | | | 2,210,047 | | Missouri | | | 12 | | | | 7,924,800 | | | | 7,986,856 | | | | 665,571 | | Other | | | 41 | | | | 16,965,393 | | | | 17,229,485 | | | | 420,231 | | Total general obligation bonds | | | 82 | | | $ | 66,683,832 | | | $ | 67,778,032 | | | $ | 826,561 | |
QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3. Investment Securities (continued)
The amortized cost and fair values of the Company’s portfolio of revenue bonds are summarized in the following tables by the issuer’s state:
December 31, 2016: | | | | | | | | | | | | | | | | | U.S. State: | | Number of Issuers | | | Amortized Cost | | | Fair Value | | | Average Exposure Per Issuer (Fair Value) | | | | | | | | | | | | | | | | | | | | Missouri | | | 47 | | | $ | 90,784,441 | | | $ | 89,664,013 | | | $ | 1,907,745 | | Iowa | | | 31 | | | | 70,788,393 | | | | 71,142,393 | | | | 2,294,916 | | Indiana | | | 22 | | | | 47,994,737 | | | | 47,582,138 | | | | 2,162,824 | | Kansas | | | 6 | | | | 13,476,366 | | | | 13,427,491 | | | | 2,237,915 | | North Dakota | | | 4 | | | | 8,089,067 | | | | 7,796,381 | | | | 1,949,095 | | Ohio | | | 3 | | | | 13,650,000 | | | | 13,405,222 | | | | 4,468,407 | | Other | | | 7 | | | | 12,687,286 | | | | 12,479,052 | | | | 1,782,722 | | Total revenue bonds | | | 120 | | | $ | 257,470,290 | | | $ | 255,496,690 | | | $ | 2,129,139 | |
December 31, 2015: | | | | | | | | | | | | | | | | | U.S. State: | | Number of Issuers | | | Amortized Cost | | | Fair Value | | | Average ExposurePer Issuer (Fair Value) | | | | | | | | | | | | | | | | | | | | Missouri | | | 41 | | | $ | 78,593,590 | | | $ | 79,015,378 | | | $ | 1,927,204 | | Iowa | | | 26 | | | | 70,773,660 | | | | 71,659,410 | | | | 2,756,131 | | Indiana | | | 17 | | | | 40,018,381 | | | | 40,210,320 | | | | 2,365,313 | | Kansas | | | 3 | | | | 11,748,679 | | | | 11,821,055 | | | | 3,940,352 | | Other | | | 5 | | | | 11,570,998 | | | | 11,735,678 | | | | 2,347,136 | | Total revenue bonds | | | 92 | | | $ | 212,705,308 | | | $ | 214,441,841 | | | $ | 2,330,890 | |
Both general obligation and revenue bonds are diversified across many issuers. As of December 31, 20162018, the Company held revenue bonds of one single issuer, located in Ohio, the aggregate book or market value of which exceeded 5% of the Company’s stockholders’ equity. The issuer’s financial condition is strong and 2015,the source of repayment is diversified. The Compan monitors the investment and concentration closely. As of December 31, 2017, the Company did not hold general obligation or revenue bonds of any single issuer, the aggregate book or market value of which exceeded 6%5% of the Company’s stockholders’ equity. Of the general obligation and revenue bonds in the Company’s portfolio, the majority are unrated bonds that represent small, private issuances. All unrated bonds were underwritten according to loan underwriting standards and have an average risk rating of 2, indicating very high quality. Additionally, many of these bonds are funding essential municipal services (water, sewer, education, medical facilities).
The Company’s municipal securities are owned by each of the fourfive charters, whose investment policies set forth limits for various subcategories within the municipal securities portfolio. Each charter is monitored individually and as of December 31, 2016,2018, all were well-within policy limitations approved by the board of directors. Policy limits are calculated as a percentage of total risk-based capital. As of December 31, 2016,2018, the Company’s standard monitoring of its municipal securities portfolio had not uncovered any facts or circumstances resulting in significantly different credits ratings than those assigned by a nationally recognized statistical rating organization, or in the case of unrated bonds, the rating assigned using the credit underwriting standards.
Table of Contents 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, 20162018 and 20152017 is presented as follows: | | | 2016 | | | 2015 | | | | | | | | | | | | | | | | | | | | | | C&I loans | | $ | 827,637,263 | | | $ | 648,159,892 | | | | | | | | | | | | 2018 | | 2017 | | | | | | | | | C&I loans * | | | $ | 1,429,409,587 | | $ | 1,134,516,315 | CRE loans | | | | | | | | | | | | | | | Owner-occupied CRE | | | 332,387,621 | | | | 252,523,164 | | | | 500,653,731 | | | 332,742,477 | Commercial construction, land development, and other land | | | 165,149,491 | | | | 49,083,844 | | | | 236,787,308 | | | 186,402,404 | Other non owner-occupied CRE | | | 595,921,748 | | | | 422,761,757 | | | | 1,028,669,736 | | | 784,347,000 | | | | | 1,093,458,860 | | | | 724,368,765 | | | | 1,766,110,775 | | | 1,303,491,882 | | | | | | | | | | | | | | | | | Direct financing leases * | | | 165,419,360 | | | | 173,655,605 | | | Residential real estate loans ** | | | 229,233,104 | | | | 170,432,530 | | | Direct financing leases ** | | | | 117,968,682 | | | 141,448,232 | Residential real estate loans *** | | | | 290,759,398 | | | 258,646,265 | Installment and other consumer loans | | | 81,665,695 | | | | 73,669,493 | | | | 119,381,780 | | | 118,610,799 | | | | | 2,397,414,282 | | | | 1,790,286,285 | | | | 3,723,630,222 | | | 2,956,713,493 | Plus deferred loan/lease origination costs, net of fees | | | 8,072,703 | | | | 7,736,390 | | | | 9,123,820 | | | 7,771,907 | | | | | 2,405,486,985 | | | | 1,798,022,675 | | | | 3,732,754,042 | | | 2,964,485,400 | Less allowance | | | (30,757,448 | ) | | | (26,140,906 | ) | | | (39,847,108) | | | (34,355,728) | | | | $ | 2,374,729,537 | | | $ | 1,771,881,769 | | | $ | 3,692,906,934 | | $ | 2,930,129,672 | | | | | | | | | | | | | | | | | | | | | | | * Direct financing leases: | | | | | | | | | | ** Direct financing leases: | | | | | | | | Net minimum lease payments to be received | | $ | 184,274,802 | | | $ | 195,476,230 | | | $ | 130,370,520 | | $ | 156,583,887 | Estimated unguaranteed residual values of leased assets | | | 1,085,154 | | | | 1,165,706 | | | | 828,402 | | | 929,932 | Unearned lease/residual income | | | (19,940,596 | ) | | | (22,986,331 | ) | | | (13,230,240) | | | (16,065,587) | | | | | 165,419,360 | | | | 173,655,605 | | | | 117,968,682 | | | 141,448,232 | Plus deferred lease origination costs, net of fees | | | 5,881,778 | | | | 6,594,582 | | | | 3,642,707 | | | 4,624,027 | | | | | 171,301,138 | | | | 180,250,187 | | | | 121,611,389 | | | 146,072,259 | Less allowance | | | (3,111,898 | ) | | | (3,395,088 | ) | | | (1,792,486) | | | (2,382,098) | | | | $ | 168,189,240 | | | $ | 176,855,099 | | | $ | 119,818,903 | | $ | 143,690,161 |
* Includes equipment financing agreements outstanding at m2, totaling $103.4 million and $66.8 million as of December 31, 2018 and 2017, respectively. **Management performs an evaluation of the estimated unguaranteed residual values of leased assets on an annual basis, at a minimum. The evaluation consists of discussions with reputable and current vendors and management’s expertise and understanding of the current states of particular industries to determine informal valuations of the equipment. As necessary and where available, management will utilize valuations by independent appraisers. The large majority of leases with residual values contain a lease options rider which requires the lessee to pay the residual value directly, finance the payment of the residual value, or extend the lease term to pay the residual value. In these cases, the residual value is protected and the risk of loss is minimal. There were no losses related to residual values during the years ended December 31, 2016, 2015, and 2014. At December 31, 2016,2018, the Company had 13nine leases remaining with residual values totaling $1,085,164$828 thousand that were not protected with a lease end options rider. At December 31, 2015,2017, the Company had 1610 leases remaining with residual values totaling $1,165,706approximately $930 thousand 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, 2018, 2017, and 2016. *** Includes residential real estate loans held for sale totaling $1,135,500$1.3 million and $565,850$645 thousand as of December 31, 20162018 and 2015,2017, respectively. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued) Changes in accretable yield for the loans acquired in the mergers and acquisitions are as follows: | | | | | | | | | | | | For the year ended December 31, 2018 | | | PCI | | Performing | | | | | | Loans | | Loans | | Total | Balance at the beginning of the period | | $ | (191,132) | | $ | (6,280,075) | | $ | (6,471,207) | Discount added at acquisition | | | (293,445) | | | (7,799,860) | | | (8,093,305) | Reclassification of nonaccretable discount to accretable | | | (891,569) | | | — | | | (891,569) | Accretion recognized | | | 708,779 | | | 4,423,401 | | | 5,132,180 | Balance at the end of the period | | $ | (667,367) | | $ | (9,656,534) | | $ | (10,323,901) |
| | | | | | | | | | | | For the year ended December 31, 2017 | | | PCI | | Performing | | | | | Loans | | 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 | | 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) |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 4. Loans/Leases Receivable (continued) The aging of the loan/lease portfolio by classes of loans/leases as of December 31, 20162018 and 20152017 is presented as follows: | | | 2016 | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 821,637,507 | | | $ | 1,455,185 | | | $ | 10,551 | | | $ | 346,234 | | | $ | 4,187,786 | | | $ | 827,637,263 | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 331,812,571 | | | | - | | | | 242,902 | | | | - | | | | 332,148 | | | | 332,387,621 | | Commercial Construction, Land Development, and Other Land | | | 160,760,034 | | | | 35,638 | | | | - | | | | - | | | | 4,353,819 | | | | 165,149,491 | | Other Non Owner-Occupied CRE | | | 594,384,926 | | | | 100,673 | | | | - | | | | - | | | | 1,436,149 | | | | 595,921,748 | | Direct Financing Leases | | | 161,452,627 | | | | 730,627 | | | | 574,700 | | | | 215,225 | | | | 2,446,181 | | | | 165,419,360 | | Residential Real Estate | | | 227,023,552 | | | | 473,478 | | | | 365,581 | | | | 294,854 | | | | 1,075,639 | | | | 229,233,104 | | Installment and Other Consumer | | | 81,199,766 | | | | 204,973 | | | | 63,111 | | | | 110,501 | | | | 87,344 | | | | 81,665,695 | | | | | $ | 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 | | | 99.20 | % | | | 0.13 | % | | | 0.05 | % | | | 0.04 | % | | | 0.58 | % | | | 100.00 | % |
| | | 2015 | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 640,725,241 | | | $ | 1,636,860 | | | $ | 5,816 | | | $ | - | | | $ | 5,791,975 | | | $ | 648,159,892 | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 251,612,752 | | | | 182,949 | | | | - | | | | - | | | | 727,463 | | | | 252,523,164 | | Commercial Construction, Land Development, and Other Land | | | 48,890,040 | | | | - | | | | - | | | | - | | | | 193,804 | | | | 49,083,844 | | Other Non Owner-Occupied CRE | | | 420,819,874 | | | | 614,732 | | | | 219,383 | | | | - | | | | 1,107,768 | | | | 422,761,757 | | Direct Financing Leases | | | 170,021,289 | | | | 1,490,818 | | | | 439,314 | | | | 2,843 | | | | 1,701,341 | | | | 173,655,605 | | Residential Real Estate | | | 166,415,118 | | | | 2,800,589 | | | | 200,080 | | | | - | | | | 1,016,743 | | | | 170,432,530 | | Installment and Other Consumer | | | 73,134,197 | | | | 412,052 | | | | 14,127 | | | | - | | | | 109,117 | | | | 73,669,493 | | | | | $ | 1,771,618,511 | | | $ | 7,138,000 | | | $ | 878,720 | | | $ | 2,843 | | | $ | 10,648,211 | | | $ | 1,790,286,285 | | | | | | | | | | | | | | | | | | | | | | | | | | | | As a percentage of total loan/lease portfolio | | | 98.96 | % | | | 0.40 | % | | | 0.05 | % | | | 0.00 | % | | | 0.59 | % | | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | Accruing Past | | | | | | | | | | 30-59 Days | | 60-89 Days | | Due 90 Days or | | Nonaccrual | | | | Classes of Loans/Leases | | Current | | Past Due | | Past Due | | More | | Loans/Leases | | Total | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 1,423,404,998 | | $ | 930,321 | | $ | 597,261 | | $ | 389,138 | | $ | 4,087,869 | | $ | 1,429,409,587 | | CRE | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 500,138,489 | | | — | | | 193,157 | | | 106,470 | | | 215,615 | | | 500,653,731 | | Commercial Construction, Land Development, and Other Land | | | 234,704,132 | | | 1,763,953 | | | — | | | — | | | 319,223 | | | 236,787,308 | | Other Non Owner-Occupied CRE | | | 1,022,663,569 | | | 483,953 | | | — | | | — | | | 5,522,214 | | | 1,028,669,736 | | Direct Financing Leases | | | 114,077,839 | | | 1,641,883 | | | 487,938 | | | — | | | 1,761,022 | | | 117,968,682 | | Residential Real Estate | | | 284,844,646 | | | 3,877,474 | | | 205,446 | | | 89,342 | | | 1,742,490 | | | 290,759,398 | | Installment and Other Consumer | | | 118,343,671 | | | 355,685 | | | 24,324 | | | 46,794 | | | 611,306 | | | 119,381,780 | | | | $ | 3,698,177,344 | | $ | 9,053,269 | | $ | 1,508,126 | | $ | 631,744 | | $ | 14,259,739 | | $ | 3,723,630,222 | | | | | | | | | | | | | | | | | | | | | | As a percentage of total loan/lease portfolio | | | 99.32 | % | | 0.24 | % | | 0.04 | % | | 0.02 | % | | 0.38 | % | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | | 2017 | | | | | | | | | | Accruing Past | | | | | | | | | | 30-59 Days | | 60-89 Days | | Due 90 Days or | | Nonaccrual | | | | Classes of Loans/Leases | | Current | | Past Due | | Past Due | | More | | Loans/Leases | | Total | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 1,124,734,486 | | $ | 8,306,829 | | $ | 243,647 | | $ | — | | $ | 1,231,353 | | $ | 1,134,516,315 | | CRE | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 331,868,142 | | | 540,435 | | | — | | | — | | | 333,900 | | | 332,742,477 | | Commercial Construction, Land Development, and Other Land | | | 181,558,092 | | | — | | | — | | | — | | | 4,844,312 | | | 186,402,404 | | Other Non Owner-Occupied CRE | | | 782,526,249 | | | 572,877 | | | 4,146 | | | — | | | 1,243,728 | | | 784,347,000 | | Direct Financing Leases | | | 137,708,397 | | | 1,305,191 | | | 259,600 | | | — | | | 2,175,044 | | | 141,448,232 | | Residential Real Estate | | | 253,261,821 | | | 3,552,709 | | | 393,410 | | | 74,519 | | | 1,363,806 | | | 258,646,265 | | Installment and Other Consumer | | | 117,773,259 | | | 517,537 | | | 56,760 | | | 14,152 | | | 249,091 | | | 118,610,799 | | | | $ | 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 | | | 99.08 | % | | 0.50 | % | | 0.03 | % | | 0.00 | % | | 0.39 | % | | 100.00 | % |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued) NPLs by classes of loans/leases as of December 31, 20162018 and 20152017 is presented as follows: | | | | | | | | | | | | | | | | | | | | 2018 | | | | | Accruing Past | | | | | | | | | | | | | 2016 | | | Due 90 Days or | | Nonaccrual | | | | | | Percentage of | | Classes of Loans/Leases | | Accruing Past Due 90 Days or More | | | Nonaccrual Loans/Leases * | | | Accruing TDRs | | | Total NPLs | | | Percentage of Total NPLs | | | More* | | Loans/Leases** | | Accruing TDRs | | Total NPLs | | Total NPLs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 346,234 | | | $ | 4,187,786 | | | $ | 4,733,997 | | | $ | 9,268,017 | | | | 43.65 | % | | $ | 389,138 | | $ | 4,087,869 | | $ | 454,229 | | $ | 4,931,236 | | 26.58 | % | CRE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | - | | | | 332,148 | | | | - | | | | 332,148 | | | | 1.56 | % | | | 106,470 | | | 215,615 | | | — | | | 322,085 | | 1.74 | % | Commercial Construction, Land Development, and Other Land | | | - | | | | 4,353,819 | | | | - | | | | 4,353,819 | | | | 20.51 | % | | | — | | | 319,223 | | | — | | | 319,223 | | 1.72 | % | Other Non Owner-Occupied CRE | | | - | | | | 1,436,149 | | | | - | | | | 1,436,149 | | | | 6.77 | % | | | — | | | 5,522,214 | | | 2,984,057 | | | 8,506,271 | | 45.86 | % | Direct Financing Leases | | | 215,225 | | | | 2,446,181 | | | | 1,008,244 | | | | 3,669,650 | | | | 17.28 | % | | | — | | | 1,761,022 | | | 111,423 | | | 1,872,445 | | 10.09 | % | Residential Real Estate | | | 294,854 | | | | 1,075,639 | | | | 585,541 | | | | 1,956,034 | | | | 9.21 | % | | | 89,342 | | | 1,742,490 | | | 100,040 | | | 1,931,872 | | 10.41 | % | Installment and Other Consumer | | | 110,501 | | | | 87,344 | | | | 18,746 | | | | 216,591 | | | | 1.02 | % | | | 46,794 | | | 611,306 | | | 9,189 | | | 667,289 | | 3.60 | % | | | | $ | 966,814 | | | $ | 13,919,066 | | | $ | 6,346,528 | | | $ | 21,232,408 | | | | 100.00 | % | | $ | 631,744 | | $ | 14,259,739 | | $ | 3,658,938 | | $ | 18,550,421 | | 100.00 | % |
* As of December 31, 2018 accruing past due 90 days or more included $495,608 of TDRs, including $389,138 in C&I loans and $106,470 in CRE loans. ** At December 31, 2016,2018, nonaccrual loans/leases included $2,300,479$2,311,198 of TDRs, including $48,501$265,181 in C&I loans, $1,380,047$1,378,090 in CRE loans, $816,149$321,050 in direct financing leases, $43,579$343,535 in residential real estate loans, and $12,203$3,342 in installment loans. | | | | | | | | | | | | | | | | | | | | 2017 | | | | | Accruing Past | | | | | | | | | | | | | 2015 | | | Due 90 Days or | | Nonaccrual | | | | | | Percentage of | | Classes of Loans/Leases | | Accruing Past Due 90 Days or More | | | Nonaccrual Loans/Leases ** | | | Accruing TDRs | | | Total NPLs | | | Percentage of Total NPLs | | | More | | Loans/Leases *** | | Accruing TDRs | | Total NPLs | | Total NPLs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | - | | | $ | 5,791,975 | | | $ | 173,087 | | | $ | 5,965,062 | | | | 50.96 | % | | $ | — | | $ | 1,231,353 | | $ | 5,224,182 | | $ | 6,455,535 | | 34.63 | % | CRE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | - | | | | 727,463 | | | | - | | | | 727,463 | | | | 6.22 | % | | | — | | | 333,900 | | | 107,322 | | | 441,222 | | 2.37 | % | Commercial Construction, Land Development, and Other Land | | | - | | | | 193,804 | | | | - | | | | 193,804 | | | | 1.66 | % | | | — | | | 4,844,312 | | | — | | | 4,844,312 | | 25.99 | % | Other Non Owner-Occupied CRE | | | - | | | | 1,107,768 | | | | - | | | | 1,107,768 | | | | 9.46 | % | | | — | | | 1,243,728 | | | — | | | 1,243,728 | | 6.67 | % | Direct Financing Leases | | | 2,843 | | | | 1,701,341 | | | | - | | | | 1,704,184 | | | | 14.56 | % | | | — | | | 2,175,044 | | | 1,494,448 | | | 3,669,492 | | 19.68 | % | Residential Real Estate | | | - | | | | 1,016,743 | | | | 402,044 | | | | 1,418,787 | | | | 12.12 | % | | | 74,519 | | | 1,363,806 | | | 272,493 | | | 1,710,818 | | 9.18 | % | Installment and Other Consumer | | | - | | | | 109,117 | | | | 478,625 | | | | 587,742 | | | | 5.02 | % | | | 14,152 | | | 249,091 | | | 14,027 | | | 277,270 | | 1.49 | % | | | | $ | 2,843 | | | $ | 10,648,211 | | | $ | 1,053,756 | | | $ | 11,704,810 | | | | 100.00 | % | | $ | 88,671 | | $ | 11,441,234 | | $ | 7,112,472 | | $ | 18,642,377 | | 100.00 | % |
*** At December 31, 2015,2017, nonaccrual loans/leases included $1,533,657$2,282,495 of TDRs, including $1,164,423$122,598 in C&I loans, $193,804$1,336,871 in CRE loans, $42,098$700,255 in direct financing leases, $119,305$115,190 in residential real estate loans, and $14,027$7,581 in installment loans. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued) Changes in the allowance by portfolio segment for thethe; years ended December 31, 2016, 2015,2018, 2017, and 20142016 are presented as follows: | | | Year Ended December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | 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 | | | (527,152 | ) | | | (24,304 | ) | | | (2,503,417 | ) | | | (76,820 | ) | | | (112,490 | ) | | | (3,244,183 | ) | Recoveries on loans/leases previously charged off | | | 109,270 | | | | 32,843 | | | | 92,764 | | | | 900 | | | | 146,782 | | | | 382,559 | | Balance, ending | | $ | 12,545,110 | | | $ | 11,670,609 | | | $ | 3,111,898 | | | $ | 2,342,344 | | | $ | 1,087,487 | | | $ | 30,757,448 | |
| | | Year Ended December 31, 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | Provisions charged to expense | | | 1,470,526 | | | | 3,080,611 | | | | 1,688,031 | | | | 430,087 | | | | 201,645 | | | | 6,870,900 | | Loans/leases charged off | | | (453,782 | ) | | | (2,560,749 | ) | | | (1,788,772 | ) | | | (169,996 | ) | | | (251,838 | ) | | | (5,225,137 | ) | Recoveries on loans/leases previously charged off | | | 633,504 | | | | 501,869 | | | | 136,429 | | | | 4,107 | | | | 144,869 | | | | 1,420,778 | | Balance, ending | | $ | 10,484,080 | | | $ | 9,375,117 | | | $ | 3,395,088 | | | $ | 1,790,150 | | | $ | 1,096,471 | | | $ | 26,140,906 | |
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Direct Financing | | Residential Real | | Installment and | | | | | | C&I | | | CRE | | | Direct Financing Leases | | | Residential Real Estate | | | Installment and Other Consumer | | | Total | | | C&I | | CRE | | Leases | | Estate | | Other Consumer | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, beginning | | $ | 5,648,774 | | | $ | 10,705,434 | | | $ | 2,517,217 | | | $ | 1,395,849 | | | $ | 1,180,774 | | | $ | 21,448,048 | | | $ | 14,323,036 | | $ | 13,962,688 | | $ | 2,382,098 | | $ | 2,466,431 | | $ | 1,221,475 | | $ | 34,355,728 | Provisions (credits) charged to expense | | | 4,297,253 | | | | (13,326 | ) | | | 2,278,132 | | | | 251,030 | | | | (6,089 | ) | | | 6,807,000 | | | Provisions charged to expense | | | | 7,161,066 | | | 4,094,223 | | | 1,068,161 | | | 193,153 | | | 141,846 | | | 12,658,449 | Loans/leases charged off | | | (1,475,885 | ) | | | (2,756,083 | ) | | | (1,504,181 | ) | | | (130,900 | ) | | | (268,656 | ) | | | (6,135,705 | ) | | | (5,358,683) | | | (387,499) | | | (2,002,227) | | | (126,566) | | | (44,422) | | | (7,919,397) | Recoveries on loans/leases previously charged off | | | 363,690 | | | | 417,361 | | | | 68,232 | | | | 9,973 | | | | 95,766 | | | | 955,022 | | | | 294,798 | | | 49,839 | | | 344,454 | | | 23,618 | | | 39,619 | | | 752,328 | Balance, ending | | $ | 8,833,832 | | | $ | 8,353,386 | | | $ | 3,359,400 | | | $ | 1,525,952 | | | $ | 1,001,795 | | | $ | 23,074,365 | | | $ | 16,420,217 | | $ | 17,719,251 | | $ | 1,792,486 | | $ | 2,556,636 | | $ | 1,358,518 | | $ | 39,847,108 |
| | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2017 | | | | | | | Direct Financing | | Residential Real | | Installment and | | | | | C&I | | CRE | | Leases | | Estate | | Other Consumer | | Total | | | | | | | | | | | | | | | | | | | | Balance, beginning | | $ | 12,545,110 | | $ | 11,670,609 | | $ | 3,111,898 | | $ | 2,342,344 | | $ | 1,087,487 | | $ | 30,757,448 | Provisions charged to expense | | | 2,736,296 | | | 4,044,460 | | | 1,369,624 | | | 197,034 | | | 122,505 | | | 8,469,919 | Loans/leases charged off | | | (1,149,790) | | | (1,795,229) | | | (2,284,910) | | | (102,088) | | | (41,196) | | | (5,373,213) | Recoveries on loans/leases previously charged off | | | 191,420 | | | 42,848 | | | 185,486 | | | 29,141 | | | 52,679 | | | 501,574 | Balance, ending | | $ | 14,323,036 | | $ | 13,962,688 | | $ | 2,382,098 | | $ | 2,466,431 | | $ | 1,221,475 | | $ | 34,355,728 |
| | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2016 | | | | | | | Direct Financing | | Residential Real | | Installment and | | | | | C&I | | CRE | | Leases | | Estate | | Other Consumer | | Total | | | | | | | | | | | | | | | | | | | | Balance, beginning | | $ | 10,484,080 | | $ | 9,375,117 | | $ | 3,395,088 | | $ | 1,790,150 | | $ | 1,096,471 | | $ | 26,140,906 | 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 | | | (527,152) | | | (24,304) | | | (2,503,417) | | | (76,820) | | | (112,490) | | | (3,244,183) | Recoveries on loans/leases previously charged off | | | 109,270 | | | 32,843 | | | 92,764 | | | 900 | | | 146,782 | | | 382,559 | Balance, ending | | $ | 12,545,110 | | $ | 11,670,609 | | $ | 3,111,898 | | $ | 2,342,344 | | $ | 1,087,487 | | $ | 30,757,448 | | | | | | | | | | | | | | | | | | | |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued) : The allowance by impairment evaluation and by portfolio segment as of December 31, 20162018 and 20152017 is presented as follows: | | | 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 | % |
| | | 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 | % |
| | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | Direct Financing | | Residential Real | | Installment and | | | | | | C&I | | CRE | | Leases | | Estate | | Other Consumer | | Total | | | | | | | | | | | | | | | | | | | | | | Allowance for impaired loans/leases | | $ | 972,647 | | $ | 2,123,685 | | $ | 194,008 | | $ | 257,014 | | $ | 111,191 | | $ | 3,658,545 | | Allowance for nonimpaired loans/leases | | | 15,447,570 | | | 15,595,566 | | | 1,598,478 | | | 2,299,622 | | | 1,247,327 | | | 36,188,563 | | | | $ | 16,420,217 | | $ | 17,719,251 | | $ | 1,792,486 | | $ | 2,556,636 | | $ | 1,358,518 | | $ | 39,847,108 | | | | | | | | | | | | | | | | | | | | | | Impaired loans/leases | | $ | 4,499,451 | | $ | 10,446,748 | | $ | 2,248,597 | | $ | 2,109,612 | | $ | 898,150 | | $ | 20,202,558 | | Nonimpaired loans/leases | | | 1,424,910,136 | | | 1,755,664,027 | | | 115,720,085 | | | 288,649,786 | | | 118,483,630 | | | 3,703,427,664 | | | | $ | 1,429,409,587 | | $ | 1,766,110,775 | | $ | 117,968,682 | | $ | 290,759,398 | | $ | 119,381,780 | | $ | 3,723,630,222 | | | | | | | | | | | | | | | | | | | | | | Allowance as a percentage of impaired loans/leases | | | 21.62 | % | | 20.33 | % | | 8.63 | % | | 12.18 | % | | 12.38 | % | | 18.11 | % | Allowance as a percentage of nonimpaired loans/leases | | | 1.08 | % | | 0.89 | % | | 1.38 | % | | 0.80 | % | | 1.05 | % | | 0.98 | % | Total allowance as a percentage of total loans/leases | | | 1.15 | % | | 1.00 | % | | 1.52 | % | | 0.88 | % | | 1.14 | % | | 1.07 | % |
| | | | | | | | | | | | | | | | | | | | | | 2017 | | | | | | | | Direct Financing | | Residential Real | | Installment and | | | | | | C&I | | CRE | | Leases | | Estate | | Other Consumer | | Total | | | | | | | | | | | | | | | | | | | | | | Allowance for impaired loans/leases | | $ | 715,627 | | $ | 1,429,460 | | $ | 504,469 | | $ | 355,167 | | $ | 38,596 | | $ | 3,043,319 | | Allowance for nonimpaired loans/leases | | | 13,607,409 | | | 12,533,228 | | | 1,877,629 | | | 2,111,264 | | | 1,182,879 | | | 31,312,409 | | | | $ | 14,323,036 | | $ | 13,962,688 | | $ | 2,382,098 | | $ | 2,466,431 | | $ | 1,221,475 | | $ | 34,355,728 | | | | | | | | | | | | | | | | | | | | | | Impaired loans/leases | | $ | 6,248,209 | | $ | 6,529,262 | | $ | 3,669,492 | | $ | 1,704,846 | | $ | 202,354 | | $ | 18,354,163 | | Nonimpaired loans/leases | | | 1,128,268,106 | | | 1,296,962,620 | | | 137,778,740 | | | 256,941,419 | | | 118,408,445 | | | 2,938,359,330 | | | | $ | 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 | | | 11.45 | % | | 21.89 | % | | 13.75 | % | | 20.83 | % | | 19.07 | % | | 16.58 | % | Allowance as a percentage of nonimpaired loans/leases | | | 1.21 | % | | 0.97 | % | | 1.36 | % | | 0.82 | % | | 1.00 | % | | 1.07 | % | Total allowance as a percentage of total loans/leases | | | 1.26 | % | | 1.07 | % | | 1.68 | % | | 0.95 | % | | 1.03 | % | | 1.16 | % |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued) InformationLoans/leases, by classes of financing receivable, considered to be impaired as of and for impaired loans/leases isthe years ended December 31, 2018, 2017, and 2016 are 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.
| | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | Interest Income | | | | | | | | | Average | | | | Recognized for | | | Recorded | | Unpaid Principal | | Related | | Recorded | | Interest Income | | Cash Payments | Classes of Loans/Leases | | Investment | | Balance | | Allowance | | Investment | | Recognized | | Received | | | | | | | | | | | | | | | | | | | | Impaired Loans/Leases with No Specific Allowance Recorded: | | | | | | | | | | | | | | | | | | | C&I | | $ | 1,846,136 | | $ | 4,539,729 | | $ | — | | $ | 2,346,184 | | $ | 209,854 | | $ | 209,854 | CRE | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 106,470 | | | 106,470 | | | — | | | 106,892 | | | — | | | — | Commercial Construction, Land Development, and Other Land | | | 506,603 | | | 506,603 | | | — | | | 101,321 | | | — | | | — | Other Non Owner-Occupied CRE | | | 1,804,125 | | | 1,804,125 | | | — | | | 540,298 | | | — | | | — | Direct Financing Leases | | | 1,929,061 | | | 1,929,061 | | | — | | | 2,193,339 | | | 60,483 | | | 60,483 | Residential Real Estate | | | 983,753 | | | 1,058,532 | | | — | | | 723,424 | | | 9,043 | | | 9,043 | Installment and Other Consumer | | | 761,465 | | | 761,465 | | | — | | | 198,035 | | | 290 | | | 290 | | | $ | 7,937,613 | | $ | 10,705,985 | | $ | — | | $ | 6,209,493 | | $ | 279,670 | | $ | 279,670 | | | | | | | | | | | | | | | | | | | | Impaired Loans/Leases with Specific Allowance Recorded: | | | | | | | | | | | | | | | | | | | C&I | | $ | 2,653,315 | | $ | 2,653,315 | | $ | 972,647 | | $ | 1,118,374 | | $ | 43,052 | | $ | 43,052 | CRE | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 304,043 | | | 660,329 | | | 38,533 | | | 176,874 | | | — | | | — | Commercial Construction, Land Development, and Other Land | | | 148,795 | | | 148,795 | | | 33,095 | | | 159,389 | | | — | | | — | Other Non Owner-Occupied CRE | | | 7,576,712 | | | 7,576,712 | | | 2,052,057 | | | 3,054,716 | | | 57,760 | | | 57,760 | Direct Financing Leases | | | 319,536 | | | 319,536 | | | 194,008 | | | 273,352 | | | — | | | — | Residential Real Estate | | | 1,125,859 | | | 1,125,859 | | | 257,014 | | | 552,539 | | | 11,515 | | | 11,515 | Installment and Other Consumer | | | 136,685 | | | 136,685 | | | 111,191 | | | 124,812 | | | — | | | — | | | $ | 12,264,945 | | $ | 12,621,231 | | $ | 3,658,545 | | $ | 5,460,056 | | $ | 112,327 | | $ | 112,327 | | | | | | | | | | | | | | | | | | | | Total Impaired Loans/Leases: | | | | | | | | | | | | | | | | | | | C&I | | $ | 4,499,451 | | $ | 7,193,044 | | $ | 972,647 | | $ | 3,464,558 | | $ | 252,906 | | $ | 252,906 | CRE | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 410,513 | | | 766,799 | | | 38,533 | | | 283,766 | | | — | | | — | Commercial Construction, Land Development, and Other Land | | | 655,398 | | | 655,398 | | | 33,095 | | | 260,710 | | | — | | | — | Other Non Owner-Occupied CRE | | | 9,380,837 | | | 9,380,837 | | | 2,052,057 | | | 3,595,014 | | | 57,760 | | | 57,760 | Direct Financing Leases | | | 2,248,597 | | | 2,248,597 | | | 194,008 | | | 2,466,691 | | | 60,483 | | | 60,483 | Residential Real Estate | | | 2,109,612 | | | 2,184,391 | | | 257,014 | | | 1,275,963 | | | 20,558 | | | 20,558 | Installment and Other Consumer | | | 898,150 | | | 898,150 | | | 111,191 | | | 322,847 | | | 290 | | | 290 | | | $ | 20,202,558 | | $ | 23,327,216 | | $ | 3,658,545 | | $ | 11,669,549 | | $ | 391,997 | | $ | 391,997 |
Loans/leases, by classes of financing receivable, considered to be impaired as of and for the years ended December 31, 2016, 2015, and 2014 are presented as follows:
| | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired Loans/Leases with No Specific Allowance Recorded: | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 841,895 | | | $ | 951,600 | | | $ | - | | | $ | 2,858,343 | | | $ | 16,748 | | | $ | 16,748 | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | - | | | | 93,774 | | | | - | | | | 312,242 | | | | - | | | | - | | Commercial Construction, Land Development, and Other Land | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Other Non Owner-Occupied CRE | | | 1,196,549 | | | | 1,196,549 | | | | - | | | | 1,322,654 | | | | - | | | | - | | Direct Financing Leases | | | 1,690,121 | | | | 1,690,121 | | | | - | | | | 1,731,982 | | | | 43,461 | | | | 43,461 | | Residential Real Estate | | | 853,294 | | | | 892,495 | | | | - | | | | 964,590 | | | | 9,903 | | | | 9,903 | | Installment and Other Consumer | | | 55,734 | | | | 55,734 | | | | - | | | | 321,175 | | | | 4,475 | | | | 4,475 | | | | | $ | 4,637,593 | | | $ | 4,880,273 | | | $ | - | | | $ | 7,510,986 | | | $ | 74,587 | | | $ | 74,587 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 322,148 | | | | 322,148 | | | | 57,398 | | | | 385,269 | | | | - | | | | - | | Commercial Construction, Land Development, and Other Land | | | 4,353,817 | | | | 4,353,817 | | | | 577,611 | | | | 1,022,930 | | | | - | | | | - | | Other Non Owner-Occupied CRE | | | 239,600 | | | | 239,600 | | | | 58,910 | | | | 47,920 | | | | - | | | | - | | Direct Financing Leases | | | 1,566,143 | | | | 1,566,143 | | | | 848,919 | | | | 841,733 | | | | 36,303 | | | | 36,303 | | Residential Real Estate | | | 807,886 | | | | 882,018 | | | | 289,112 | | | | 573,211 | | | | 11,675 | | | | 11,675 | | Installment and Other Consumer | | | 50,356 | | | | 50,356 | | | | 39,481 | | | | 40,384 | | | | 527 | | | | 527 | | | | | $ | 15,434,506 | | | $ | 15,512,477 | | | $ | 3,642,968 | | | $ | 5,870,942 | | | $ | 66,247 | | | $ | 66,247 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Impaired Loans/Leases: | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 8,936,451 | | | $ | 9,049,995 | | | $ | 1,771,537 | | | $ | 5,817,838 | | | $ | 34,490 | | | $ | 34,490 | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 322,148 | | | | 415,922 | | | | 57,398 | | | | 697,511 | | | | - | | | | - | | Commercial Construction, Land Development, and Other Land | | | 4,353,817 | | | | 4,353,817 | | | | 577,611 | | | | 1,022,930 | | | | - | | | | - | | Other Non Owner-Occupied CRE | | | 1,436,149 | | | | 1,436,149 | | | | 58,910 | | | | 1,370,574 | | | | - | | | | - | | Direct Financing Leases | | | 3,256,264 | | | | 3,256,264 | | | | 848,919 | | | | 2,573,715 | | | | 79,764 | | | | 79,764 | | Residential Real Estate | | | 1,661,180 | | | | 1,774,513 | | | | 289,112 | | | | 1,537,801 | | | | 21,578 | | | | 21,578 | | Installment and Other Consumer | | | 106,090 | | | | 106,090 | | | | 39,481 | | | | 361,559 | | | | 5,002 | | | | 5,002 | | | | | $ | 20,072,099 | | | $ | 20,392,750 | | | $ | 3,642,968 | | | $ | 13,381,928 | | | $ | 140,834 | | | $ | 140,834 | |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 4. Loans/Leases Receivable (continued) | | | | | | | | | | | | | | | | | | | | | 2017 | | | | | | | | | | | | | | | | Interest Income | | | | | | | | | | | | Average | | | | Recognized for | | | Recorded | | Unpaid Principal | | Related | | Recorded | | Interest Income | | Cash Payments | Classes of Loans/Leases | | Investment | | Balance | | Allowance | | Investment | | Recognized | | Received | | | | | | | | | | | | | | | | | | | | Impaired Loans/Leases with No Specific Allowance Recorded: | | | | | | | | | | | | | | | | | | | C&I | | $ | 1,634,269 | | $ | 1,644,706 | | $ | — | | $ | 1,406,310 | | $ | 71,183 | | $ | 71,183 | CRE | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 289,261 | | | 289,261 | | | — | | | 79,317 | | | 11,902 | | | 11,902 | Commercial Construction, Land Development, and Other Land | | | — | | | — | | | — | | | — | | | — | | | — | Other Non Owner-Occupied CRE | | | 1,171,565 | | | 1,171,565 | | | — | | | 1,176,738 | | | — | | | — | Direct Financing Leases | | | 2,944,540 | | | 2,944,540 | | | — | | | 2,879,695 | | | 132,167 | | | 132,167 | Residential Real Estate | | | 943,388 | | | 1,018,167 | | | — | | | 685,807 | | | 1,161 | | | 1,161 | Installment and Other Consumer | | | 134,245 | | | 134,245 | | | — | | | 126,474 | | | — | | | — | | | $ | 7,117,268 | | $ | 7,202,484 | | $ | — | | $ | 6,354,341 | | $ | 216,413 | | $ | 216,413 | | | | | | | | | | | | | | | | | | | | Impaired Loans/Leases with Specific Allowance Recorded: | | | | | | | | | | | | | | | | | | | C&I | | $ | 4,613,940 | | $ | 4,617,879 | | $ | 715,627 | | $ | 4,584,142 | | $ | 203,221 | | $ | 203,221 | CRE | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 151,962 | | | 151,962 | | | 48,462 | | | 221,260 | | | — | | | — | Commercial Construction, Land Development, and Other Land | | | 4,844,312 | | | 4,844,312 | | | 1,379,235 | | | 4,447,831 | | | — | | | — | Other Non Owner-Occupied CRE | | | 72,163 | | | 72,163 | | | 1,763 | | | 44,667 | | | — | | | — | Direct Financing Leases | | | 724,953 | | | 724,953 | | | 504,469 | | | 625,107 | | | — | | | — | Residential Real Estate | | | 761,458 | | | 761,458 | | | 355,167 | | | 549,286 | | | 14,990 | | | 14,990 | Installment and Other Consumer | | | 68,109 | | | 68,109 | | | 38,596 | | | 40,152 | | | 410 | | | 410 | | | $ | 11,236,897 | | $ | 11,240,836 | | $ | 3,043,319 | | $ | 10,512,445 | | $ | 218,621 | | $ | 218,621 | | | | | | | | | | | | | | | | | | | | Total Impaired Loans/Leases: | | | | | | | | | | | | | | | | | | | C&I | | $ | 6,248,209 | | $ | 6,262,585 | | $ | 715,627 | | $ | 5,990,452 | | $ | 274,404 | | $ | 274,404 | CRE | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 441,222 | | | 441,222 | | | 48,462 | | | 300,577 | | | 11,902 | | | 11,902 | Commercial Construction, Land Development, and Other Land | | | 4,844,312 | | | 4,844,312 | | | 1,379,235 | | | 4,447,831 | | | — | | | — | Other Non Owner-Occupied CRE | | | 1,243,728 | | | 1,243,728 | | | 1,763 | | | 1,221,405 | | | — | | | — | Direct Financing Leases | | | 3,669,492 | | | 3,669,492 | | | 504,469 | | | 3,504,802 | | | 132,167 | | | 132,167 | Residential Real Estate | | | 1,704,846 | | | 1,779,625 | | | 355,167 | | | 1,235,093 | | | 16,151 | | | 16,151 | Installment and Other Consumer | | | 202,354 | | | 202,354 | | | 38,596 | | | 166,626 | | | 410 | | | 410 | | | $ | 18,354,163 | | $ | 18,443,318 | | $ | 3,043,319 | | $ | 16,866,786 | | $ | 435,034 | | $ | 435,034 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 4. Loans/Leases Receivable (continued) | | | | | | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | | | Interest Income | | | | | | | | | | | | Average | | | | Recognized for | | | Recorded | | Unpaid Principal | | Related | | Recorded | | Interest Income | | Cash Payments | Classes of Loans/Leases | | Investment | | Balance | | Allowance | | Investment | | Recognized | | Received | | | | | | | | | | | | | | | | | | | | Impaired Loans/Leases with No Specific Allowance Recorded: | | | | | | | | | | | | | | | | | | | C&I | | $ | 841,895 | | $ | 951,600 | | $ | — | | $ | 2,858,343 | | $ | 16,748 | | $ | 16,748 | CRE | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | — | | | 93,774 | | | — | | | 312,242 | | | — | | | — | Commercial Construction, Land Development, and Other Land | | | — | | | — | | | — | | | — | | | — | | | — | Other Non Owner-Occupied CRE | | | 1,196,549 | | | 1,196,549 | | | — | | | 1,322,654 | | | — | | | — | Direct Financing Leases | | | 1,690,121 | | | 1,690,121 | | | — | | | 1,731,982 | | | 43,461 | | | 43,461 | Residential Real Estate | | | 853,294 | | | 892,495 | | | — | | | 964,590 | | | 9,903 | | | 9,903 | Installment and Other Consumer | | | 55,734 | | | 55,734 | | | — | | | 321,175 | | | 4,475 | | | 4,475 | | | $ | 4,637,593 | | $ | 4,880,273 | | $ | — | | $ | 7,510,986 | | $ | 74,587 | | $ | 74,587 | | | | | | | | | | | | | | | | | | | | 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 | CRE | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 322,148 | | | 322,148 | | | 57,398 | | | 385,269 | | | — | | | — | Commercial Construction, Land Development, and Other Land | | | 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 | | | 1,566,143 | | | 1,566,143 | | | 848,919 | | | 841,733 | | | 36,303 | | | 36,303 | Residential Real Estate | | | 807,886 | | | 882,018 | | | 289,112 | | | 573,211 | | | 11,675 | | | 11,675 | Installment and Other Consumer | | | 50,356 | | | 50,356 | | | 39,481 | | | 40,384 | | | 527 | | | 527 | | | $ | 15,434,506 | | $ | 15,512,479 | | $ | 3,642,968 | | $ | 5,870,942 | | $ | 66,247 | | $ | 66,247 | | | | | | | | | | | | | | | | | | | | Total Impaired Loans/Leases: | | | | | | | | | | | | | | | | | | | C&I | | $ | 8,936,451 | | $ | 9,049,995 | | $ | 1,771,537 | | $ | 5,817,838 | | $ | 34,490 | | $ | 34,490 | CRE | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 322,148 | | | 415,922 | | | 57,398 | | | 697,511 | | | — | | | — | Commercial Construction, Land Development, and Other Land | | | 4,353,817 | | | 4,353,819 | | | 577,611 | | | 1,022,930 | | | — | | | — | Other Non Owner-Occupied CRE | | | 1,436,149 | | | 1,436,149 | | | 58,910 | | | 1,370,574 | | | — | | | — | Direct Financing Leases | | | 3,256,264 | | | 3,256,264 | | | 848,919 | | | 2,573,715 | | | 79,764 | | | 79,764 | Residential Real Estate | | | 1,661,180 | | | 1,774,513 | | | 289,112 | | | 1,537,801 | | | 21,578 | | | 21,578 | Installment and Other Consumer | | | 106,090 | | | 106,090 | | | 39,481 | | | 361,559 | | | 5,002 | | | 5,002 | | | $ | 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 current estimates. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued)
| | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired Loans/Leases with No Specific Allowance Recorded: | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 234,636 | | | $ | 346,072 | | | $ | - | | | $ | 380,495 | | | $ | 7,436 | | | $ | 7,436 | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 256,761 | | | | 350,535 | | | | - | | | | 447,144 | | | | - | | | | - | | 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 | | | | - | | | | - | | Direct Financing Leases | | | 871,884 | | | | 871,884 | | | | - | | | | 892,281 | | | | 4,142 | | | | 4,142 | | Residential Real Estate | | | 613,486 | | | | 649,064 | | | | - | | | | 1,047,001 | | | | 3,929 | | | | 3,929 | | Installment and Other Consumer | | | 377,304 | | | | 377,304 | | | | - | | | | 817,854 | | | | 9,563 | | | | 9,563 | | | | | $ | 3,932,541 | | | $ | 4,402,147 | | | $ | - | | | $ | 6,656,069 | | | $ | 25,070 | | | $ | 25,070 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired Loans/Leases with Specific Allowance Recorded: | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 5,051,846 | | | $ | 5,055,685 | | | $ | 2,592,270 | | | $ | 4,811,046 | | | $ | - | | | $ | - | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Commercial Construction, Land Development, and Other Land | | | 193,804 | | | | 205,804 | | | | 76,934 | | | | 195,986 | | | | - | | | | - | | Other Non Owner-Occupied CRE | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Direct Financing Leases | | | 829,457 | | | | 829,457 | | | | 306,193 | | | | 474,458 | | | | - | | | | - | | Residential Real Estate | | | 805,301 | | | | 805,301 | | | | 185,801 | | | | 712,085 | | | | 7,913 | | | | 7,913 | | Installment and Other Consumer | | | 210,438 | | | | 210,438 | | | | 143,089 | | | | 189,539 | | | | 5,693 | | | | 5,693 | | | | | $ | 7,090,846 | | | $ | 7,106,685 | | | $ | 3,304,287 | | | $ | 6,383,114 | | | $ | 13,606 | | | $ | 13,606 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Impaired Loans/Leases: | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 5,286,482 | | | $ | 5,401,757 | | | $ | 2,592,270 | | | $ | 5,191,541 | | | $ | 7,436 | | | $ | 7,436 | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 256,761 | | | | 350,535 | | | | - | | | | 447,144 | | | | - | | | | - | | Commercial Construction, Land Development, and Other Land | | | 193,804 | | | | 434,622 | | | | 76,934 | | | | 313,392 | | | | - | | | | - | | Other Non Owner-Occupied CRE | | | 1,578,470 | | | | 1,578,470 | | | | - | | | | 2,953,888 | | | | - | | | | - | | Direct Financing Leases | | | 1,701,341 | | | | 1,701,341 | | | | 306,193 | | | | 1,366,739 | | | | 4,142 | | | | 4,142 | | Residential Real Estate | | | 1,418,787 | | | | 1,454,365 | | | | 185,801 | | | | 1,759,086 | | | | 11,842 | | | | 11,842 | | Installment and Other Consumer | | | 587,742 | | | | 587,742 | | | | 143,089 | | | | 1,007,393 | | | | 15,256 | | | | 15,256 | | | | | $ | 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 current estimates.
QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued)
| | | 2014 | | Classes of Loans/Leases | | 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 | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 67,415 | | | | 163,638 | | | | - | | | | 548,464 | | | | - | | | | - | | Commercial Construction, Land Development, and Other Land | | | 31,936 | | | | 143,136 | | | | - | | | | 1,656,401 | | | | - | | | | - | | Other Non Owner-Occupied CRE | | | 491,717 | | | | 491,717 | | | | - | | | | 4,925,681 | | | | 13,283 | | | | 13,283 | | Direct Financing Leases | | | 561,414 | | | | 561,414 | | | | - | | | | 867,657 | | | | 31,911 | | | | 31,911 | | Residential Real Estate | | | 1,060,770 | | | | 1,060,770 | | | | - | | | | 1,269,213 | | | | 3,032 | | | | 3,032 | | Installment and Other Consumer | | | 613,804 | | | | 813,804 | | | | - | | | | 893,971 | | | | - | | | | - | | | | | $ | 3,073,364 | | | $ | 3,576,870 | | | $ | - | | | $ | 10,686,930 | | | $ | 55,825 | | | $ | 55,825 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | 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 | | | | - | | | | - | | 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 | | | | - | | | | - | | Residential Real Estate | | | 727,958 | | | | 763,537 | | | | 151,663 | | | | 538,678 | | | | 2,967 | | | | 2,967 | | Installment and Other Consumer | | | 494,229 | | | | 494,229 | | | | 265,795 | | | | 386,009 | | | | 3,564 | | | | 3,564 | | | | | $ | 15,875,761 | | | $ | 18,008,843 | | | $ | 5,244,673 | | | $ | 9,684,123 | | | $ | 21,368 | | | $ | 21,368 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Impaired Loans/Leases: | | | | | | | | | | | | | | | | | | | | | | | | | C&I | | $ | 7,279,709 | | | $ | 8,532,886 | | | $ | 3,300,199 | | | $ | 3,685,528 | | | $ | 22,436 | | | $ | 22,436 | | CRE | | | | | | | | | | | | | | | | | | | | | | | | | Owner-Occupied CRE | | | 688,311 | | | | 784,534 | | | | 4,462 | | | | 865,207 | | | | - | | | | - | | Commercial Construction, Land Development, and Other Land | | | 369,012 | | | | 721,030 | | | | 12,087 | | | | 2,184,965 | | | | - | | | | - | | Other Non Owner-Occupied CRE | | | 6,376,060 | | | | 7,075,651 | | | | 1,153,471 | | | | 9,165,681 | | | | 13,283 | | | | 13,283 | | Direct Financing Leases | | | 1,339,272 | | | | 1,339,272 | | | | 356,996 | | | | 1,381,801 | | | | 31,911 | | | | 31,911 | | Residential Real Estate | | | 1,788,728 | | | | 1,824,307 | | | | 151,663 | | | | 1,807,891 | | | | 5,999 | | | | 5,999 | | Installment and Other Consumer | | | 1,108,033 | | | | 1,308,033 | | | | 265,795 | | | | 1,279,980 | | | | 3,564 | | | | 3,564 | | | | | $ | 18,949,125 | | | $ | 21,585,713 | | | $ | 5,244,673 | | | $ | 20,371,053 | | | $ | 77,193 | | | $ | 77,193 | |
Impaired loans/leases for which no allowance has been provided have adequate collateral, based on management’s current estimates.
QCR Holdings, Inc. and Subsidiaries
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. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 4. Loans/Leases Receivable (continued) For direct financing leases, residential real estate loans, and installment and other consumer loans, the 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 as of December 31, 20162018 and 2015:2017: | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | CRE | | | | | | | | | | | | | | | Non-Owner Occupied | | | | | | | | | | | | | Commercial | | | | | | | | | | | | | | Construction, | | | | | | | | | | | | | | Land | | | | | | | | | | | | Owner-Occupied | | Development, | | | | | | As a % of | | Internally Assigned Risk Rating | | C&I | | CRE | | and Other Land | | Other CRE | | Total | | Total | | | | | | | | | | | | | | | | | | | | | Pass (Ratings 1 through 5) | | $ | 1,294,417,614 | | $ | 487,948,800 | | $ | 230,473,570 | | $ | 1,008,626,078 | | $ | 3,021,466,062 | | 97.72 | % | Special Mention (Rating 6) | | | 23,302,472 | | | 9,599,493 | | | 3,847,691 | | | 5,308,625 | | | 42,058,281 | | 1.36 | % | Substandard (Rating 7) | | | 8,286,398 | | | 3,105,438 | | | 2,466,047 | | | 14,735,033 | | | 28,592,916 | | 0.92 | % | Doubtful (Rating 8) | | | — | | | — | | | — | | | — | | | — | | — | % | | | $ | 1,326,006,484 | | $ | 500,653,731 | | $ | 236,787,308 | | $ | 1,028,669,736 | | $ | 3,092,117,259 | | 100.00 | % |
| | | 2016 | | | | | | | | | CRE | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass (Ratings 1 through 5) | | $ | 796,568,451 | | | $ | 314,447,662 | | | $ | 158,108,465 | | | $ | 582,854,048 | | | $ | 1,851,978,626 | | | | 96.40 | % | Special Mention (Rating 6) | | | 6,305,772 | | | | 7,559,380 | | | | 1,780,000 | | | | 4,437,122 | | | | 20,082,274 | | | | 1.05 | % | Substandard (Rating 7) | | | 24,763,040 | | | | 10,380,369 | | | | 5,261,026 | | | | 8,630,578 | | | | 49,035,013 | | | | 2.55 | % | Doubtful (Rating 8) | | | - | | | | 210 | | | | - | | | | - | | | | 210 | | | | 0.00 | % | | | | $ | 827,637,263 | | | $ | 332,387,621 | | | $ | 165,149,491 | | | $ | 595,921,748 | | | $ | 1,921,096,123 | | | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | Direct Financing | | Residential Real | | Installment and | | | | As a % of | | Delinquency Status * | | C&I | | Leases | | Estate | | Other Consumer | | Total | | Total | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 102,712,527 | | $ | 116,096,237 | | $ | 288,827,527 | | $ | 118,714,491 | | $ | 626,350,782 | | 99.18 | % | Nonperforming | | | 690,576 | | | 1,872,445 | | | 1,931,871 | | | 667,289 | | | 5,162,181 | | 0.82 | % | | | $ | 103,403,103 | | $ | 117,968,682 | | $ | 290,759,398 | | $ | 119,381,780 | | $ | 631,512,963 | | 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 | | | | | | | CRE | | | | | | | | | | | | | | | Non-Owner Occupied | | | | | | | | | | | | | Commercial | | | | | | | | | | | | | | Construction, | | | | | | | | | | | | | | Land | | | | | | | | | | | | Owner-Occupied | | Development, | | | | | | As a % of | | Internally Assigned Risk Rating | | C&I | | CRE | | and Other Land | | Other CRE | | Total | | Total | | | | | | | | | | | | | | | | | | | | | Pass (Ratings 1 through 5) | | $ | 1,031,963,703 | | $ | 318,293,608 | | $ | 179,142,839 | | $ | 767,119,909 | | $ | 2,296,520,059 | | 96.85 | % | Special Mention (Rating 6) | | | 10,944,924 | | | 8,230,060 | | | 1,780,000 | | | 10,068,870 | | | 31,023,854 | | 1.31 | % | Substandard (Rating 7) | | | 24,578,731 | | | 6,218,809 | | | 5,479,565 | | | 7,158,221 | | | 43,435,326 | | 1.83 | % | Doubtful (Rating 8) | | | 270,559 | | | — | | | — | | | — | | | 270,559 | | 0.01 | % | | | $ | 1,067,757,917 | | $ | 332,742,477 | | $ | 186,402,404 | | $ | 784,347,000 | | $ | 2,371,249,799 | | 100.00 | % |
| | | 2015 | | | | | | | | | CRE | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass (Ratings 1 through 5) | | $ | 616,200,797 | | | $ | 238,119,608 | | | $ | 46,929,876 | | | $ | 406,027,442 | | | $ | 1,307,277,723 | | | | 95.24 | % | Special Mention (Rating 6) | | | 18,031,845 | | | | 8,630,658 | | | | 1,780,000 | | | | 8,846,286 | | | | 37,288,789 | | | | 2.72 | % | Substandard (Rating 7) | | | 13,927,250 | | | | 5,772,898 | | | | 373,968 | | | | 7,888,029 | | | | 27,962,145 | | | | 2.04 | % | Doubtful (Rating 8) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 0.00 | % | | | | $ | 648,159,892 | | | $ | 252,523,164 | | | $ | 49,083,844 | | | $ | 422,761,757 | | | $ | 1,372,528,657 | | | | 100.00 | % |
| | | 2015 | | Delinquency Status * | | 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 | % | Nonperforming | | | 1,704,184 | | | | 1,418,787 | | | | 587,742 | | | | 3,710,715 | | | | 0.89 | % | | | | $ | 173,655,605 | | | $ | 170,432,530 | | | $ | 73,669,493 | | | $ | 417,757,628 | | | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | 2017 | | | | | | Direct Financing | | Residential Real | | Installment and | | | | As a % of | | Delinquency Status * | | C&I | | Leases | | Estate | | Other Consumer | | Total | | Total | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 65,847,177 | | $ | 137,778,740 | | $ | 256,935,447 | | $ | 118,333,529 | | $ | 578,894,893 | | 98.88 | % | Nonperforming | | | 911,220 | | | 3,669,492 | | | 1,710,818 | | | 277,270 | | | 6,568,800 | | 1.12 | % | | | $ | 66,758,397 | | $ | 141,448,232 | | $ | 258,646,265 | | $ | 118,610,799 | | $ | 585,463,693 | | 100.00 | % |
*Performing = loans/leases accruing and less than 90 days past 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.
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued) AsTDRs totaled $6,465,744 and $9,394,967 as of December 31, 20162018 and 2015, TDRs totaled $8,647,007 and $2,587,413,2017, 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, 20162018 and 2015.2017. 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, 20162018 and 2015,2017, respectively. The following excludes any TDRs that were restructured and paid off or charged off in the same year. | | | | | | | | | | | | | | 2018 | | | | | Pre- | | Post- | | | | | | | | Modification | | Modification | | | | | | Number of | | Recorded | | Recorded | | Specific | Classes of Loans/Leases | | Loans / Leases | | Investment | | Investment | | Allowance | | | | | | | | | | | | | CONCESSION - Significant Payment Delay | | | | | | | | | | | | C&I | | 5 | | $ | 425,649 | | $ | 425,649 | | $ | 250,000 | Other Non Owner-Occupied CRE | | 1 | | | 500,000 | | | 500,000 | | | 60,000 | Residential Real Estate | | 1 | | | 46,320 | | | 46,320 | | | — | Direct Financing Leases | | 3 | | | 75,066 | | | 75,066 | | | — | | | 10 | | $ | 1,047,035 | | $ | 1,047,035 | | $ | 310,000 | | | | | | | | | | | | | CONCESSION - Extension of Maturity | | | | | | | | | | | | Other Non Owner-Occupied CRE | | 2 | | $ | 2,975,703 | | $ | 2,975,703 | | $ | 1,492,057 | Residential Real Estate | | 2 | | | 100,215 | | | 100,215 | | | 8,392 | | | 4 | | $ | 3,075,918 | | $ | 3,075,918 | | $ | 1,500,449 | | | | | | | | | | | | | TOTAL | | 14 | | $ | 4,122,953 | | $ | 4,122,953 | | $ | 1,810,449 | | | | | | | | | | | | |
| | | 2016 | | Classes of Loans/Leases | | 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 | | 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 | | | $ | - | | | | | | 1 | | | $ | 1,233,740 | | | $ | 1,233,740 | | | $ | - | | | | | | | | | | | | | | | | | | | | TOTAL | | | 29 | | | $ | 7,880,881 | | | $ | 7,880,881 | | | $ | 1,225,716 | |
| | | | | | | | | | | | | | | | 2017 | | | | | | Pre- | | Post- | | | | | | | | | Modification | | Modification | | | | | | | 2015 | | | Number of | | Recorded | | Recorded | | Specific | Classes of Loans/Leases | | Number of Loans/Leases | | | Pre- Modification Recorded Investment | | | Post- Modification Recorded Investment | | | Specific Allowance | | | Loans/Leases | | Investment | | Investment | | Allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CONCESSION - Interest rate adjusted below market | | | | | | | | | | | | | | | | | | Installment and Other Consumer | | | 2 | | | $ | 37,979 | | | $ | 37,979 | | | $ | 12,013 | | | | | | | | | | | | | | | | CONCESSION - Significant Payment Delay | | | | | | | | | | | | | C&I | | | 7 | | $ | 826,531 | | $ | 826,531 | | $ | 62,596 | CRE - Owner Occupied | | | 1 | | | 107,322 | | | 107,322 | | | — | Direct Financing Leases | | | 24 | | | 1,703,255 | | | 1,703,255 | | | — | | | | 32 | | $ | 2,637,108 | | $ | 2,637,108 | | $ | 62,596 | | | | | | | | | | | | | | CONCESSION - Extension of Maturity | | | | | | | | | | | | | Direct Financing Leases | | | 3 | | $ | 115,236 | | $ | 115,236 | | $ | — | | | | | 2 | | | $ | 37,979 | | | $ | 37,979 | | | $ | 12,013 | | | 3 | | $ | 115,236 | | $ | 115,236 | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL | | | 2 | | | $ | 37,979 | | | $ | 37,979 | | | $ | 12,013 | | | 35 | | $ | 2,752,344 | | $ | 2,752,344 | | $ | 62,596 |
Of the TDRs reported above, eightthree with a post-modification recorded investment totaling $2,008,424$796,320 were on nonaccrual as of December 31, 20162018 and oneseven with a post-modification recorded investment totaling $14,027 was$279,245 were on nonaccrual as of December 31, 2015.2017. For the yearsyear ended December 31, 2016 and 2015,2018, the Company had no fiveTDRs totaling $398,869 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, 2017, the Company had six 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. Not included in the table above, the Company had three13 TDRs that were restructured and charged off in 2016,2018, totaling $341,952.$895,563. There were notwo TDRs that were both restructured and charged off in 2015.2017, totaling $65,623. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued) 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 during the years ended December 31, 2016, 2015,2018, 2017, and 2014,2016, is as follows: | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Balance, beginning | | $ | 42,012,313 | | | $ | 42,469,111 | | | $ | 39,192,966 | | | $ | 66,441,948 | | $ | 61,608,976 | | $ | 42,012,313 | Net increase (decrease) due to change in related parties | | | 19,945,960 | | | | (3,606,418 | ) | | | 1,040,278 | | | Net increase due to change in related parties | | | | 41,797,001 | | | 11,926,759 | | | 19,945,960 | Advances | | | 4,806,616 | | | | 19,040,675 | | | | 13,284,475 | | | | 43,453,609 | | | 13,090,798 | | | 4,806,616 | Repayments | | | (5,155,913 | ) | | | (15,891,055 | ) | | | (11,048,608 | ) | | | (26,196,333) | | | (20,184,585) | | | (5,155,913) | Balance, ending | | $ | 61,608,976 | | | $ | 42,012,313 | | | $ | 42,469,111 | | | $ | 125,496,225 | | $ | 66,441,948 | | $ | 61,608,976 |
The Company’s loan portfolio includes a geographic concentration in the Midwest. Additionally, the loan portfolio includedincludes a concentration of loans in certain industries as of December 31, 20162018 and 20152017 as follows: | | | | | | | | | | | | | | | | 2018 | | 2017 | | | | | | | | Percentage of | | | | | Percentage of | | | | | 2016 | | | 2015 | | | | | | Total | | | | | Total | | Industry Name | | Balance | | | Percentage of Total Loans/Leases | | | Balance | | | Percentage of Total Loans/Leases | | | Balance | | Loans/Leases | | Balance | | Loans/Leases | | | | | | | | | | | | | | | | | | | | | Lessors of Non-Residential Buildings | | $ | 359,040,649 | | | | 15 | % | | $ | 311,138,005 | | | | 17 | % | | $ | 632,534,255 | | 17 | % | $ | 400,622,681 | | 14 | % | Lessors of Residential Buildings | | | 166,036,201 | | | | 7 | % | | | 91,811,101 | | | | 5 | % | | | 594,345,563 | | 16 | % | | 370,353,561 | | 12 | % | Administration of Urban Planning & Community & Rural Development | | | | 111,579,461 | | 3 | % | | 83,343,541 | | 3 | % | Hotels | | | | 83,105,821 | | 2 | % | | 73,199,925 | | 2 | % | Bank Holding Companies | | | | 75,600,713 | | 2 | % | | 66,950,294 | | 2 | % | Nonresidential Property Managers | | | 76,504,076 | | | | 3 | % | | | 10,500,305 | | | | 1 | % | | | 70,211,971 | | 2 | % | | 51,984,722 | | 2 | % | 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. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 5. Premises and Equipment The following summarizes the components of premises and equipment as of December 31, 20162018 and 2015:2017: | | | 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 | |
As a result of the acquisition of CSB in 2016, the Company assumed ownership of the related fixed assets, valued at approximately $20.7 million as of the acquisition date. This accounts for the increase in premises and equipment during 2016.
| | | | | | | | | 2018 | | 2017 | | | | | | | | Land | | $ | 15,581,430 | | $ | 13,466,930 | Buildings (useful lives 15 to 50 years) | | | 64,299,322 | | | 53,633,788 | Furniture and equipment (useful lives 3 to 10 years) | | | 36,399,218 | | | 31,984,631 | Premises and equipment | | | 116,279,970 | | | 99,085,349 | Less accumulated depreciation | | | 40,697,852 | | | 36,247,094 | Premises and equipment, net | | $ | 75,582,118 | | $ | 62,838,255 |
Certain facilities are leased under operating leases. Rental expense was $334,977, $339,839,$555,436, $348,467, and $484,868$334,977 for the years ended December 31, 2016, 2015,2018, 2017, and 2014,2016, respectively. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 5. Premises and Equipment (continued) Future minimum rental commitments under noncancelable leases are as follows as of December 31, 2016:2018: | | | | | Year ending December 31: | | | | | | | | 2017 | | | 226,283 | | | 2018 | | | 226,643 | | | 2019 | | | 162,833 | | | | 591,688 | 2020 | | | | 452,457 | 2021 | | | | 200,167 | 2022 | | | | 123,828 | 2023 | | | | 73,035 | Thereafter | | | | 1,403 | | | | $ | 615,759 | | | $ | 1,442,578 |
During 2016, the Company entered into a material related party transaction with an entity that is owned and controlled by a CRBT director. That business was chosen as the general contractor for the remodel of the Waterloo branch. The business was the original contractor for the branch and is recognized as a leader in Iowa and the Midwest market for the design and construction of financial services and professional office buildings. Based on the entity’s expertise, its experience as the original designer/builder of the branch location and a decline to bid from two other contractors, management chose the entity as the general contractor. Management determined that the bids received from the entity were at market rates. The project total iswas estimated at $3.7 million. This iswas the full contract price, as subcontractors will bewere utilized to complete the work. It is estimated that the entity will receivereceived $2.2 million for its work as the general contractor, including payments for a portion of the actual construction costs as the entity is completingcompleted a portion of the subcontracting work in addition to being the general contractor. As of December 31, 2016,2017, the Company had anproject was complete and there was no outstanding commitment of $1.8 million left on the $3.7 million contract for the remodel of the Waterloo branch. QCR Holdings, Inc. and Subsidiariesremaining.
Notes to Consolidated Financial Statements
Note 6. Goodwill and Intangibles The following table presents the changes in the carrying amount of goodwill as offor the years ended December 31, 20162018, 2017 and 2015:2016: | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Balance at the beginning of period | | $ | 28,334,092 | | $ | 13,110,913 | | $ | 3,222,688 | Goodwill from merger with Springfield Bancshares | | | 45,974,931 | | | — | | | — | Goodwill from acquisition of the Bates Companies | | | 3,766,074 | | | — | | | — | Goodwill from acquisition of Guaranty Bank | | | — | | | 15,223,179 | | | — | Goodwill from acquisition of Guaranty Bank - measurement period adjustment | | | (243,195) | | | — | | | — | Goodwill from acquisition of CSB | | | — | | | — | | | 9,888,225 | Balance at the end of period | | $ | 77,831,902 | | $ | 28,334,092 | | $ | 13,110,913 |
| | | 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 | |
See Note 2
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to the Consolidated Financial Statements for additional information regarding Note 6. Goodwill and Intangibles (continued) The following table presents the acquisition of CSBchanges in core deposit intangibles (included in Intangibles on the consolidated balance sheets) during the years ended December 31, 2018 ,2017 and the related goodwill.2016: | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Balance at the beginning of the period | | $ | 9,078,953 | | $ | 7,381,213 | | $ | 1,471,409 | Core deposit intangible from merger with Springfield Bancshares | | | 8,208,728 | | | — | | | — | Core deposit intangible from acquisition of Guaranty Bank | | | — | | | 2,698,301 | | | — | Core deposit intangible from acquisition of CSB | | | — | | | — | | | 6,352,653 | Amortization expense | | | (1,692,431) | | | (1,000,561) | | | (442,849) | Balance at the end of the period | | $ | 15,595,250 | | $ | 9,078,953 | | $ | 7,381,213 | | | | | | | | | | | Gross carrying amount | | $ | 19,254,809 | | $ | 11,046,081 | | $ | 8,347,780 | Accumulated amortization | | | (3,659,559) | | | (1,967,128) | | | (966,567) | Net book value | | $ | 15,595,250 | | $ | 9,078,953 | | $ | 7,381,213 |
The Company has other intangible assets consistingfollowing table presents the estimated amortization of the core deposit intangibles. The Company recognized a core deposit intangible that related to the acquisition of CNB in 2013. In 2016, the Company added a core deposit related to the acquisition of CSB, which totaled $6.4 million. See Note 2 to the Consolidated Financial Statements for additional information regarding the acquisition of CSB.intangibles: | | | | Years ending December 31, | | Amount | 2019 | | $ | 2,129,141 | 2020 | | | 2,084,985 | 2021 | | | 2,032,204 | 2022 | | | 1,970,792 | 2023 | | | 1,776,065 | Thereafter | | | 5,602,063 | | | $ | 15,595,250 |
The following table presents the changes in customer list intangible (included in Intangibles on the carrying amount of core deposit intangibles, gross carrying amount, accumulated amortization, and net book value as ofconsolidated balance sheets) during the year ended December 31, 2016 and 2015:2018: | | | 2016 | | | 2015 | | Balance at the beginning of the period | | $ | 1,471,409 | | | $ | 1,670,921 | | Core deposit intangibles from acquisition of CSB | | | 6,352,653 | | | | - | | Amortization expense | | | (442,849 | ) | | | (199,512 | ) | Balance at the end of the period | | $ | 7,381,213 | | | $ | 1,471,409 | | | | | | | | | | | | | | | | | | | | | | Gross carrying amount | | $ | 8,347,780 | | | $ | 1,995,127 | | Accumulated amortization | | | (966,567 | ) | | | (523,718 | ) | Net book value | | $ | 7,381,213 | | | $ | 1,471,409 | |
| | | | | | 2018 | Balance at the beginning of period | | $ | — | Customer list intangible from acquisition of Bates Companies | | | 1,854,932 | Balance at the end of period | | | 1,854,932 | | | | |
The following table presents the estimated amortization expense of the core depositcustomer list intangible: | | | | Years ending December 31, | | Amount | 2019 | | $ | 123,662 | 2020 | | | 123,662 | 2021 | | | 123,662 | 2022 | | | 123,662 | 2023 | | | 123,662 | Thereafter | | | 1,236,622 | | | $ | 1,854,932 |
Years ending December 31, | | Amount | | 2017 | | $ | 923,467 | | 2018 | | | 910,263 | | 2019 | | | 893,886 | | 2020 | | | 874,331 | | 2021 | | | 851,600 | | Thereafter | | | 2,927,666 | | | | | $ | 7,381,213 | |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 7. Derivatives and Hedging Activities Below is a summary of theThe Company uses interest rate swap and cap derivatives held byinstruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates. The Company entered into interest rate caps on June 5, 2014 to hedge against the risk of rising interest rates on short-term liabilities. The short-term liabilities consist of $30.0 million of 1-month FHLB advances, and the benchmark rate hedged is 1-month LIBOR. The interest rate caps are designated as of December 31, 2016 and 2015.a cash flow hedge in accordance with ASC 815. An initial premium of $2.1 million was paid upfront for the two caps. The fair value of these instruments will fluctuate with market value changes, as well as amortizationdetails of the initial premiuminterest rate caps are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance Sheet | | | | | 1-Month LIBOR | | | Fair Value as of | | Hedged Instrument | | Effective Date | | Maturity Date | | Location | | | Notional Amount | | Strike Rate | | | December 31, 2018 | | | December 31, 2017 | | 1-month FHLB Advance | | 6/3/2014 | | 6/5/2019 | | Other Assets | | $ | 15,000,000 | | 0.93 | % | | $ | 116,775 | | | $ | 190,085 | | 1-month FHLB Advance | | 6/5/2014 | | 6/5/2021 | | Other Assets | | | 15,000,000 | | 1.43 | % | | | 342,037 | | | | 316,615 | | | | | | | | | | $ | 30,000,000 | | | | | $ | 458,812 | | | $ | 506,700 | | | | | | | | | | | | | | | | | | | | | | |
On June 21, 2018, the Company entered into interest rate swaps to hedge against the risk of rising rates on its variable rate trust preferred securities. The floating rate trust preferred securities are tied to 3-month LIBOR, and the interest expense.rate swaps utilize 3-month LIBOR, so the hedge is effective. The interest rate swaps are designated as a cash flow hedge in accordance with ASC 815. The details of the interest rate swaps are as follows: Effective Date | Maturity Date | Balance Sheet Location | | Notional Amount | | Accounting Treatment | | December 31, 2016 Fair Value | | | December 31, 2015 Fair Value | | June 5, 2014 | June 5, 2019 | Other Assets | | $ | 15,000,000 | | Cash Flow Hedging | | $ | 179,939 | | | $ | 321,112 | | June 5, 2014 | June 5, 2021 | Other Assets | | | 15,000,000 | | Cash Flow Hedging | | | 396,588 | | | | 534,912 | | | | | | | $ | 30,000,000 | | | | $ | 576,527 | | | $ | 856,024 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance Sheet | | | | | | | | | | | | Fair Value as of | | Hedged Instrument | | Effective Date | | Maturity Date | | Location | | | Notional Amount | | Receive Rate | | | Pay Rate | | December 31, 2018 | | | QCR Holdings Statutory Trust II | | 9/30/2018 | | 9/30/2028 | | Other Liabilities | | $ | 10,000,000 | | 5.65 | % | | | 5.85 | % | | $ | (298,367) | | | QCR Holdings Statutory Trust III | | 9/30/2018 | | 9/30/2028 | | Other Liabilities | | | 8,000,000 | | 5.65 | % | | | 5.85 | % | | | (238,693) | | | QCR Holdings Statutory Trust V | | 7/7/2018 | | 7/7/2028 | | Other Liabilities | | | 10,000,000 | | 3.99 | % | | | 4.54 | % | | | (287,716) | | | Community National Statutory Trust II | | 9/20/2018 | | 9/20/2028 | | Other Liabilities | | | 3,000,000 | | 4.96 | % | | | 5.17 | % | | | (89,008) | | | Community National Statutory Trust III | | 9/15//2018 | | 9/15/2028 | | Other Liabilities | | | 3,500,000 | | 4.54 | % | | | 4.75 | % | | | (103,858) | | | Guaranty Bankshares Statutory Trust I | | 9/15/2018 | | 9/15/2028 | | Other Liabilities | | | 4,500,000 | | 4.54 | % | | | 4.75 | % | | | (133,532) | | | | | | | | | | | $ | 39,000,000 | | 4.94 | % | | | 5.24 | % | | $ | (1,151,174) | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in the fair values of derivative financial instruments accounted for as cash flow hedges to the extent they are effective hedges, are recorded as a component of accumulated other comprehensive income. The following is a summary of how AOCI was impacted during the reporting periods: | | | | | | | | | | | Year Ended | | | Year Ended | | | | December 31, 2016 | | | December 31, 2015 | | | December 31, 2018 | | December 31, 2017 | Unrealized loss at beginning of period, net of tax | | $ | (799,421 | ) | | $ | (399,367 | ) | | $ | (805,027) | | $ | (932,156) | 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 expense related to hedge ineffectiveness | | | | 27,407 | | | 79,757 | Amount reclassified from accumulated other comprehensive income to interest expense related to caplet amortization | | | | 575,247 | | | 405,134 | Amount of loss recognized in other comprehensive income, net of tax | | | (208,025 | ) | | | (415,949 | ) | | | (1,073,815) | | | (357,762) | Unrealized loss at end of period, net of tax | | $ | (932,156 | ) | | $ | (799,421 | ) | | $ | (1,276,188) | | $ | (805,027) |
Changes in the fair value related to the ineffective portion of cash flow hedges, are reported in noninterest income during the period of the change. As shown in the table above, $76,797$27 thousand and $156$80 thousand of incomeexpense from the change in fair value for the years ending December 31, 20162018 and 2015,2017, respectively, was due to ineffectiveness. The Company has also entered into interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with a third part financial institution. Because the Company acts as an intermediary for the customer, changes in the fair value of the underlying derivative contracts, for the most part, offset each other and do not significantly impact the Company’s results of operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2018 | | | December 31, 2017 | | | | | | | | | Estimated | | | | | | Estimated | | | | | | Notional Amount | | | Fair Value | | | Notional Amount | | | Fair Value | | Non-Hedging Interest Rate Derivatives Assets: | | | | | | | | | | | | | | | Interest rate swap contracts | | | $ | 445,021,807 | | $ | 22,195,713 | | $ | 230,434,728 | | $ | 4,397,238 | | | | | | | | | | | | | | | | | Non-Hedging Interest Rate Derivatives Liabilities: | | | | | | | | | | | | | | | Interest rate swap contracts | | | $ | 445,021,807 | | $ | 22,195,713 | | $ | 230,434,728 | | $ | 4,397,238 | |
Swap fee income totaled $10.8 million, $3.1 million and $1.7 million for the years ended December 31, 2018, 2017, and 2016, respectively. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 8. Deposits The aggregate amount of certificates of deposit, each with a minimum denomination of $250,000, was $300,852,485$592.7 million and $235,565,570$364.3 million as of December 31, 20162018 and 2015,2017, respectively. As of December 31, 2016,2018, the scheduled maturities of certificates of deposit were as follows: | | | | Year ending December 31: | | | | 2019 | | $ | 796,333,079 | 2020 | | | 116,147,111 | 2021 | | | 31,872,141 | 2022 | | | 20,834,858 | 2023 | | | 9,258,973 | Thereafter | | | 257,874 | | | $ | 974,704,036 |
Year ending December 31: | | | | | 2017 | | $ | 367,576,999 | | 2018 | | | 61,637,914 | | 2019 | | | 33,529,173 | | 2020 | | | 11,294,524 | | 2021 | | | 6,539,314 | | | | | $ | 480,577,924 | |
The Company has public entity deposits that are collateralized by investment securities with carrying values as follows: | | | | | | | | | 2018 | | 2017 | U.S. govt. sponsored agency securities | | $ | 980,160 | | $ | 983,670 | Residential mortgage-backed and related securities | | | 9,882,921 | | | 9,035,755 | | | $ | 10,863,081 | | $ | 10,019,425 |
The Company had a $40.0$80.8 million PUD LOC with the FHLB of Des Moines and an $7.0a $11.0 million PUD LOC with the FHLB of Chicago for the purpose of providing additional collateral on public deposits as of December 31, 2016.2018. As of December 31, 2015,2017, the Company had a $45.0$35.0 million PUD LOC with the FHLB of Des Moines and an $8.0a $10.1 million PUD LOC with the FHLB of Chicago. There were no amounts outstanding under these letters of credit as of December 31, 20162018 or 2015.2017. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 9. Short-Term Borrowings Short-term borrowings as of December 31, 20162018 and 20152017 are summarized as follows: | | | 2016 | | | 2015 | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | Overnight repurchase agreements with customers | | $ | 8,131,387 | | | $ | 73,872,716 | | | $ | 2,084,157 | | $ | 7,003,122 | Federal funds purchased | | | 31,840,000 | | | | 70,790,000 | | | | 26,690,000 | | | 6,990,000 | | | | $ | 39,971,387 | | | $ | 144,662,716 | | | $ | 28,774,157 | | $ | 13,993,122 |
The Company’s overnight repurchase agreements with customers are collateralized by investment securities with carrying values as follows: | | | | | | | | | | | 2016 | | | 2015 | | | 2018 | | 2017 | U.S. govt. sponsored agency securities | | $ | 630,077 | | | $ | 29,499,803 | | | $ | 3,661,995 | | $ | 2,077,702 | Residential mortgage-backed and related securities | | | 19,090,261 | | | | 65,888,911 | | | | 20,654,345 | | | 18,816,280 | Total securities pledged to overnight customer repurchase agreements | | $ | 19,720,338 | | | $ | 95,388,714 | | | | 24,316,340 | | | 20,893,982 | Less: overcollateralized position | | | 11,588,951 | | | | 21,515,998 | | | | 22,232,183 | | | 13,890,860 | | | | $ | 8,131,387 | | | $ | 73,872,716 | | | $ | 2,084,157 | | $ | 7,003,122 |
Inherent in the overnight purchase agreements is a risk that the fair value of the collateral pledged on the agreements could decline below the amount obligated under our customer repurchase agreements. The Company considers this risk minimal. The Company monitors balances daily to ensure that collateral is sufficient to meet obligations. Additionally, the Company maintains an overcollateralized position that is sufficient to cover any minor interest rate movements. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 9. Short-Term Borrowings (continued)
The securities underlying the agreements as of December 31, 20162018 and 20152017 were under the Company'sCompany’s control in safekeeping at third-party financial institutions. Information concerning overnight repurchase agreements with customers is summarized as follows as of December 31, 20162018 and 2015:2017: | | | 2016 | | | 2015 | | | | | | | | | | | | | | | | | | | | 2018 | 2017 | Average daily balance during the period | | $ | 30,082,866 | | | $ | 121,186,231 | | | $ | 7,830,860 | | $ | 7,475,824 | | Average daily interest rate during the period | | | 0.07 | % | | | 0.11 | % | | | 0.38 | % | | 0.08 | % | Maximum month-end balance during the period | | $ | 59,833,229 | | | $ | 159,407,193 | | | $ | 10,391,529 | | $ | 11,829,201 | | Weighted average rate as of end of period | | | 0.02 | % | | | 0.11 | % | | | 0.90 | % | | 0.15 | % |
Information concerning federal funds purchased is summarized as follows as of December 31, 20162018 and 2015:2017: | | | | | | | | | | 2018 | 2017 | Average daily balance during the period | | $ | 13,059,102 | | $ | 13,486,239 | | Average daily interest rate during the period | | | 2.18 | % | | 1.31 | % | Maximum month-end balance during the period | | $ | 32,330,000 | | $ | 33,650,000 | | Weighted average rate as of end of period | | | 2.46 | % | | 1.24 | % |
| | | 2016 | | | 2015 | | | | | | | | | | | | Average daily balance during the period | | $ | 19,105,595 | | | $ | 32,826,489 | | Average daily interest rate during the period | | | 0.56 | % | | | 0.41 | % | Maximum month-end balance during the period | | $ | 51,750,000 | | | $ | 126,220,000 | | Weighted average rate as of end of period | | | 0.70 | % | | | 0.57 | % |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note10. 10. FHLB Advances The subsidiary banks are members of the FHLB of Des Moines or Chicago. Maturity and interest rate information on advances from the FHLB as of December 31, 20162018 and 20152017 is as follows: | | | 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 | | | | | | | | | 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: | | | | | | | | | | | | | | | | | 2016 | | $ | 103,000,000 | | | | 0.56 | % | | $ | 2,000,000 | | | | 4.00 | % | 2017 | | | 18,000,000 | | | | 2.89 | | | | - | | | | - | | 2018 | | | 30,000,000 | | | | 3.27 | | | | 5,000,000 | | | | 2.84 | | Total FHLB advances | | $ | 151,000,000 | | | | 1.37 | % | | $ | 7,000,000 | | | | 3.17 | % |
*Of the advances outstanding, a portion have putable options which allow the FHLB, at its discretion, to terminate the advances and require the subsidiary banks to repay at predetermined dates prior to the stated maturity date of the advances.
| | | | | | | | | | | | | | December 31, 2018 | | December 31, 2017 | | | | | | | Weighted | | | | | Weighted | | | | | | | Average | | | | | Average | | | | | | | Interest Rate | | | | | Interest Rate | | | | Amount Due | | at Year-End | | Amount Due | | at Year-End | | Maturity: | | | | | | | | | | | | Year ending December 31: | | | | | | | | | | | | 2018 | | $ | — | | — | | $ | 190,400,000 | | 1.82 | % | 2019 | | | 239,957,672 | | 2.60 | | | — | | — | | 2020 | | | 11,484,203 | | 1.74 | | | 1,600,000 | | 1.75 | | 2021 | | | 15,050,164 | | 2.32 | | | — | | — | | Total FHLB advances | | $ | 266,492,039 | | 2.55 | % | $ | 192,000,000 | | 1.82 | % |
QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10. FHLB Advances (continued)
Advances are collateralized by loans of $669,513,037$1.3 billion and $480,466,274$850.1 million as of December 31, 20162018 and 2015,2017, respectively, in aggregate. On pledged loans, the FHLB applies varying collateral maintenance levels from 125% to 333% based on the loan type. Although advance balances have decreased significantlyAdvances are also collateralized by securities of $26.9 million and $6.7 million as of December 31, 2018 and 2017, respectively, in 2015 and 2016, theaggregate. The Company continues to pledge loans under blanket liens to provide off balance sheet liquidity. As of December 31, 20162018 and included with the 20162019 maturity grouping above are $104.5$190.2 million of short-term advances from the FHLB. These advances have maturities ranging from 1 day to 1 month. Short-term and overnight advances totaled $84.0$165.4 million as of December 31, 20152017 and had maturities ranging from 1 day to 1 month. Throughout 2015 and 2016, the Company has executed several balance sheet restructuring strategies in an effort to reduce reliance on wholesale funding. These strategies will continue to be evaluated in the future. A summary of prepayments of FHLB advances related to these restructurings is summarized in the following table for the yearsyear ended December 31, 2016 and 2015, respectively:2016. 2016 | | Date of Restructuring | | Amount | | | Weighted Average Interest Rate | | Range of Maturity Dates | | Prepayment Fees | | | | | | | | | | | | | | | | | First Quarter of 2016 | | $ | 10,000,000 | | | | 3.86 | % | December 2017 | | $ | 524,197 | | Third Quarter of 2016 | | | 5,000,000 | | | | 2.84 | % | February 2018 | | | 127,310 | | Fourth Quarter of 2016 | | | 15,000,000 | | | | 3.14 | % | September 2017 to November 2017 | | | 357,161 | | Total for 2016 | | $ | 30,000,000 | | | | 3.33 | % | | | $ | 1,008,668 | |
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 | |
| | | | | | | | | | | 2016 | | | | | | Weighted | | | | | | | | | | | Average | | Range of | | Prepayment | Date of Restructuring | | Amount | | Interest Rate | | Maturity Dates | | Fees | First Quarter of 2016 | | $ | 10,000,000 | | 3.86 | % | December 2017 | | $ | 524,197 | Third Quarter of 2016 | | | 5,000,000 | | 2.84 | % | February 2018 | | | 127,310 | Fourth Quarter of 2016 | | | 15,000,000 | | 3.14 | % | September 2017 to November 2017 | | | 357,161 | Total for 2016 | | $ | 30,000,000 | | 3.33 | % | | | $ | 1,008,668 |
All prepayment fees shown in the table above are included in losses on debt extinguishment in the statements of income. As of December 31, 20162018 and 2015,2017, the subsidiary banks held $9,271,300$15.7 million and $9,135,900,$11.7 million, respectively, of FHLB stock, which is included in restricted investment securities on the consolidated balance sheet.
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 11. Other Borrowings and Unused Lines of Credit Other borrowings as of December 31, 20162018 and 20152017 are summarized as follows: | | | 2016 | | | 2015 | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | Wholesale structured repurchase agreements | | $ | 45,000,000 | | | $ | 110,000,000 | | | $ | 35,000,000 | | $ | 35,000,000 | Term note | | | 30,000,000 | | | | - | | | Term notes | | | | 23,250,000 | | | 31,000,000 | Subordinated debentures | | | | 4,782,318 | | | — | Revolving line of credit | | | 5,000,000 | | | | - | | | | 9,000,000 | | | — | | | | $ | 80,000,000 | | | $ | 110,000,000 | | | $ | 72,032,318 | | $ | 66,000,000 |
The Company’s wholesale structured repurchase agreements are collateralized by investment securities with carrying values as follows: | | | 2016 | | | 2015 | | | | | | | | U.S. govt. sponsored agency securities | | $ | 20,798,703 | | | $ | 129,824,128 | | | | | | 2018 | | 2017 | Residential mortgage-backed and related securities | | | 31,321,028 | | | | - | | | $ | 38,870,228 | | $ | 40,503,002 | Total securities pledged to wholesale customer repurchase agreements | | $ | 52,119,731 | | | $ | 129,824,128 | | | | 38,870,228 | | | 40,503,002 | Less: overcollateralized position | | | 7,119,731 | | | | 19,824,128 | | | | 3,870,228 | | | 5,503,002 | | | | $ | 45,000,000 | | | $ | 110,000,000 | | | $ | 35,000,000 | | $ | 35,000,000 |
Inherent in the wholesale structured repurchase agreements is a risk that the fair value of the collateral pledged on the agreements could decline below the amount obligated under the agreements. The Company considers this risk minimal. The Company maintains an overcollateralized position that is sufficient to cover any minor interest rate movements. Throughout 2015 and 2016, the Company has executed several balance sheet restructuring strategies in an effort to reduce reliance on wholesale funding. These strategies will continue to be evaluated in the future. A summary of prepayments of wholesale structured repurchase agreements related to thosethese restructurings is summarized in the following table for the yearsyear ended December 31, 2016 and 2015, respectively:2016. 2016 | | Date of Restructuring | | Amount | | | Weighted Average Interest Rate | | Range of Maturity Dates | | Prepayment Fees | | | | | | | | | | | | | | | | | First Quarter of 2016 | | $ | 10,000,000 | | | | 3.97 | % | July 2018 | | $ | 759,000 | | Third Quarter 2016 | | | 55,000,000 | | | | 3.27 | % | February 2019 to September 2020 | | | 4,010,000 | | Total for 2016 | | $ | 65,000,000 | | | | 3.38 | % | | | $ | 4,769,000 | |
2015 | | Date of Restructuring | | Amount | | | Weighted Average Interest Rate | | Range of Maturity Dates | | Prepayment Fees | | | | | | | | | | | | | | | | | Second Quarter of 2015 | | $ | 10,000,000 | | | | 4.40 | % | May 2019 | | $ | 1,202,000 | | Fourth Quarter of 2015 | | | 5,000,000 | | | | 3.46 | % | May 2019 | | | 382,000 | | Total for 2015 | | $ | 15,000,000 | | | | 4.09 | % | | | $ | 1,584,000 | |
| | | | | | | | | | | | | 2016 | | | | | | Weighted | | Range of | | | | | | | | | Average | | Maturity | | | Prepayment | Date of Restructuring | | Amount | | Interest Rate | | Dates | | | Fees | First Quarter of 2016 | | $ | 10,000,000 | | 3.97 | % | July 2018 | | $ | 759,000 | Third Quarter of 2016 | | | 55,000,000 | | 3.27 | % | February 2019 to September 2020 | | | 4,010,000 | Total for 2016 | | $ | 65,000,000 | | 3.38 | % | | | $ | 4,769,000 |
All prepayment fees shown in the table above are included in losses on debt extinguishment in the statements of income. There were no material modifications of borrowings during 2016, 20152018 or 2014. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 11. Other Borrowings and Unused Lines of Credit (continued)
2017. Maturity and interest rate information concerning wholesale structured repurchase agreements is summarized as follows: | | | | | | | | | | | | | | | | December 31, 2016 | | | December 31, 2015 | | | December 31, 2018 | December 31, 2017 | | | | | | | | Weighted | | | | | | | Weighted | | | | | | Weighted | | | | | Weighted | | | | | | | | | Average | | | | | | | Average | | | | | | Average | | | | | Average | | | | | | | | | Interest Rate | | | | | | | Interest Rate | | | | | | Interest Rate | | | | | Interest Rate | | | | | Amount Due | | | at Year-End | | | Amount Due | | | at Year-End | | | Amount Due | | at Year-End | | Amount Due | | at Year-End | | Maturity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year ending December 31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | $ | 10,000,000 | | | 3.00 | % | | | $ | 10,000,000 | | | 3.00 | % | | | 2018 | | | - | | | 0.00 | | | | | 10,000,000 | | | 3.97 | | | | 2019 | | | 10,000,000 | | | 3.44 | | | | | 45,000,000 | | | 3.40 | | | | $ | 10,000,000 | | 3.59 | % | $ | 10,000,000 | | 3.44 | % | 2020 | | | 25,000,000 | | | 2.48 | | | | | 45,000,000 | | | 2.66 | | | | | 25,000,000 | | 2.48 | | | 25,000,000 | | 2.48 | | Total Wholesale Structured Repurchase Agreements | | $ | 45,000,000 | | | 2.81 | % | | | $ | 110,000,000 | | | 3.11 | % | | | $ | 35,000,000 | | 2.80 | % | $ | 35,000,000 | | 2.76 | % |
Each wholesale structured repurchase agreement
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 11. Other Borrowings and Unused Lines of Credit (continued) The Company has two term notes. The first is a one-time put option, at the discretion of the counterparty, to terminate the agreement and require the subsidiary bank to repay at predetermined dates prior to the statedterm note with a maturity date of December 31, 2021. The outstanding balance on the agreement. Of the $45.0term note totals $18.0 million in wholesale structured repurchase agreements outstandingand $24.0 million at December 31, 2016, $25.0 million no longer have put options2018 and $20.0 million are putable in 2017. At December 31, 2014,2017, respectively. Interest on the Company had a 4-year term note with principal and interest due quarterly. Interest wasis calculated at the effective LIBOR rate plus 3.00% per annum (3.23%(5.52% and 4.56% at December 31, 2014)2018 and 2017, respectively). The proceeds from this note were used to fund a portion of the cash consideration for the acquisition of CSB. The second is a term note originated in the third quarter of 2017 with a maturity date of December 31, 2021 and a balance totaled $17,625,000outstanding of $5.3 million and $7.0 million at December 31, 2014. After two quarterly principal payments totaling $2,350,000 were made in January2018 and April 2015, the resulting balance of the term debt was $15,275,000. In May 2015, the Company repaid this term note in its entirety without prepayment penalty and using proceeds from a common stock offering. Additional information regarding the common stock offering2017, respectively. Interest is described in Note 16 to the Consolidated Financial Statements.
As of December 31, 2015, the Company maintained a $40.0 million revolving line of credit note, with interest calculated at the effective LIBOR rate plus 2.50%3.00% per annum (3.10%(5.52% and 4.56% at December 31, 2015)2018 and 2017, respectively). AtThe proceeds from this note were used to fund a portion of the cash consideration for the acquisition of Guaranty Bank. The collateral on both borrowings is the original stock certificates and stock powers of all bank subsidiaries.
For the term notes, the Company is required to make quarterly principal payments of $1,937,500 with maturity information as of December 31, 2015,2018, summarized as follows: | | | | | | As of December 31, 2018 | 2019 | | $ | 7,750,000 | 2020 | | | 7,750,000 | 2021 | | | 7,750,000 | | | $ | 23,250,000 |
As part of the merger with Springfield Bancshares, the Company had not borrowedassumed two subordinated debentures with a fair value of $4.8 million. Maturity and interest rate information concerning the subordinated debentures is summarized as follows: | | | | | | Amount Outstanding | Interest Rate | | | | as of December 31, 2018 | as of December 31, 2018 | | Maturity Date | | | | | | Subordinated debenture dated 4/30/16 | $ 2,000,000 | 4.00 | % | 4/30/2026 | Subordinated debenture dated 9/15/16 | 3,000,000 | 4.00 | % | 9/15/2026 | Market Value Discount per ASC 805 | (217,682) | | | | Total Subordinated Debentures | $ 4,782,318 | | | | | | | | |
The interest rate on this revolving credit notethe subordinated debentures is fixed for the first five years of the term and hadthen converts to floating for the full amount available. Atremaining term, at a rate of Prime floating daily. The debentures may be called after a minimum of five years following issuance and at the renewal date in June 2016,prior approval of the note was amended to provideappropriate regulatory agencies. The subordinated debentures are unsecured. The Company has a $10.0 million revolving line of credit note and a $30.0for which the outstanding balance is $9.0 million term note commitment with a five-year term.as of December 31, 2018. Interest on the revolving line of credit is calculated at the effective LIBOR rate plus 2.50% per annum (3.27%(5.02% at December 31, 2016)2018). Interest on the term note is calculated at the effective LIBOR rate plus 3.00% per annum (3.77% at December 31, 2016). Upon closing of the acquisition of CSB, the Company utilized the full $30.0 million term note commitment and borrowed $5.0 millionThe collateral on the revolving line of credit note. Foris the term note,original stock certificates and stock powers of all bank subsidiaries. In February 2019, the Company is requiredcompleted a subordinated notes offering, a portion of the proceeds of which were used to make quarterly principal paymentspay off outstanding term notes and the revolving line of $1.5 million with maturitycredit. See Note 23 of the Consolidated Financial Statements for further information as of December 31, 2016, summarized as follows:on this subsequent event. | | | As of December 31, 2016 | | 2017 | | | 6,000,000 | | 2018 | | | 6,000,000 | | 2019 | | | 6,000,000 | | 2020 | | | 6,000,000 | | 2021 | | | 6,000,000 | | | | | $ | 30,000,000 | |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 11. Other Borrowings and Unused Lines of Credit (continued) As of December 31, 2014, the Company had Series A subordinated notes outstanding totaling $2.7 million with a maturity date of September 1, 2018 and interest payable semi-annually, in arrears, on June 30 and December 30 of each year. This debt was at a fixed rate of 6.00% per year. In June 2015, the Company redeemed all of these subordinated notes using proceeds from a common stock offering, leaving no remaining balance as of December 31, 2015. There was no penalty related to this redemption.
Unused lines of credit of the subsidiary banks as of December 31, 20162018 and 20152017 are summarized as follows: | | | 2016 | | | 2015 | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | Secured | | $ | 34,409,192 | | | $ | 14,601,432 | | | $ | 1,690,108 | | $ | 2,967,441 | Unsecured | | | 347,000,000 | | | | 332,000,000 | | | | 362,000,000 | | | 372,000,000 | | | | $ | 381,409,192 | | | $ | 346,601,432 | | | $ | 363,690,108 | | $ | 374,967,441 |
The Company pledges the eligible portion of its municipal securities portfolio and select C&I and CRE loans to the Federal Reserve Bank of Chicago for borrowing at the Discount Window. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12. Junior12.Junior Subordinated Debentures Junior subordinated debentures are summarized as of December 31, 20162018 and 20152017 as follows: | | | 2016 | | | 2015 | | | | | | | | | | | | Note Payable to QCR Holdings Capital Trust II | | $ | 10,310,000 | | | $ | 10,310,000 | | Note Payable to QCR Holdings Capital Trust III | | | 8,248,000 | | | | 8,248,000 | | Note Payable to QCR Holdings Capital Trust IV | | | - | | | | 5,155,000 | | Note Payable to QCR Holdings Capital Trust V | | | 10,310,000 | | | | 10,310,000 | | Note Payable to Community National Trust II | | | 3,093,000 | | | | 3,093,000 | | Note Payable to Community National Trust III | | | 3,609,000 | | | | 3,609,000 | | Market Value Discount per ASC 805* | | | (2,089,798 | ) | | | (2,225,948 | ) | | | | $ | 33,480,202 | | | $ | 38,499,052 | |
*Discount on junior subordinated debt acquired in 2013 as part of the purchase of Community National
|
| | | | | | | | | 2018 | 2017 | Note Payable to QCR Holdings Capital Trust II | | $ | 10,310,000 | | $ | 10,310,000 | Note Payable to QCR Holdings Capital Trust III | | | 8,248,000 | | | 8,248,000 | Note Payable to QCR Holdings Capital Trust V | | | 10,310,000 | | | 10,310,000 | Note Payable to Community National Trust II | | | 3,093,000 | | | 3,093,000 | Note Payable to Community National Trust III | | | 3,609,000 | | | 3,609,000 | Note Payable to Guaranty Bankshares Statutory Trust I* | | | 4,640,000 | | | 4,640,000 | Market Value Discount per ASC 805** | | | (2,539,957) | | | (2,723,513) | | | $ | 37,670,043 | | $ | 37,486,487 |
* As part of the acquisition of Guaranty Bank, the Company assumed one junior subordinated debenture with a fair value of $3,857,275. ** Market value discount includes discount on junior subordinated debt acquired in 2013 as part of the purchase of Community National and junior subordinated debt acquired in 2017 as part of the purchase of Guaranty Bank. A schedule of the Company’s non-consolidated subsidiaries formed for the issuance of trust preferred securities, including the amounts outstanding as of December 31, 20162018 and 2015,2017, is as follows: Name | Date Issued | | Amount Outstanding December 31, 2016 | | | Amount Outstanding December 31, 2015 | | Interest Rate | | Interest Rate as of December 31, 2016 | | | Interest Rate as of December 31, 2015 | | | | | | | | | | | | | | | | | | | | | | QCR Holdings Statutory Trust II* | February 2004 | | $ | 10,310,000 | | | $ | 10,310,000 | | 2.85% over 3-month LIBOR | | | 3.85% | | | | 3.18% | | QCR Holdings Statutory Trust III | February 2004 | | | 8,248,000 | | | | 8,248,000 | | 2.85% over 3-month LIBOR | | | 3.85% | | | | 3.18% | | 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% | | Community National Statutory Trust II | September 2004 | | | 3,093,000 | | | | 3,093,000 | | 2.17% over 3-month LIBOR | | | 3.17% | | | | 2.74% | | Community National Statutory Trust III | March 2007 | | | 3,609,000 | | | | 3,609,000 | | 1.75% over 3-month LIBOR | | | 2.71% | | | | 2.26% | | | | | | $ | 35,570,000 | | | $ | 40,725,000 | | Weighted Average Rate | | | 3.26% | | | | 2.60% | |
| | | | | | | | | | | | | | | | | | Amount | | Amount | | | | | | | | | | | Outstanding | | Outstanding | | | | | | | | | | | December 31, | | December 31, | | | | Interest Rate as of | | Interest Rate as of | | Name | Date Issued | | 2018 | | 2017 | | Interest Rate | | December 31, 2018 | | December 31, 2017 | | QCR Holdings Statutory Trust II* | February 2004 | | $ | 10,310,000 | | $ | 10,310,000 | | 2.85% over 3-month LIBOR | | 5.65 | % | 4.54 | % | QCR Holdings Statutory Trust III | February 2004 | | | 8,248,000 | | | 8,248,000 | | 2.85% over 3-month LIBOR | | 5.65 | % | 4.54 | % | QCR Holdings Statutory Trust V | February 2006 | | | 10,310,000 | | | 10,310,000 | | 1.55% over 3-month LIBOR | | 3.99 | % | 2.91 | % | Community National Statutory Trust II | September 2004 | | | 3,093,000 | | | 3,093,000 | | 2.17% over 3-month LIBOR | | 4.96 | % | 3.80 | % | Community National Statutory Trust III | March 2007 | | | 3,609,000 | | | 3,609,000 | | 1.75% over 3-month LIBOR | | 4.54 | % | 3.32 | % | Guaranty Bankshares Statutory Trust I | May 2005 | | | 4,640,000 | | | 4,640,000 | | 1.75% over 3-month LIBOR | | 4.54 | % | 3.34 | % | | | | $ | 40,210,000 | | $ | 40,210,000 | | Weighted Average Rate | | 4.94 | % | 3.82 | % |
*Original amount issued for QCR Holdings Statutory Trust II was $12,372,000. Securities issued by all of the trusts listed above mature 30 years from the date of issuance, but all are currently callable at par at any time. Interest rate reset dates vary by Trust. During 2015, the Company acquired and extinguished $2.1 million of the QCR Holdings Statutory Trust II junior subordinated debentures and recorded a $300,000 gain on the extinguishment, which is included within the overall net losses on debt extinguishments in the statements of income. The Company was able to acquire the related security at a discount through auction, which resulted in the gain. The interest rate on this debenture floated at LIBOR plus 2.85% and had a rate of 3.18% at the time of extinguishment.
In 2016, the Company extinguished $5.1 million of the QCR Holdings Capital Trust IV junior subordinated debentures (the full balance outstanding) and recorded a $1.2 million gain on extinguishment (pre-tax), as the Company was able to acquire the related security at a discount through auction. This gain is included within the overall net losses on debt extinguishments in the statements of income for 2016. The interest rate on these debentures floated at 3-month3‑month LIBOR plus 1.80% and had a rate of 2.42% at the time of extinguishment. QCR Holdings Capital Trust IV was dissolved after the extinguishment.
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 12.Junior Subordinated Debentures (continued) Interest rate swaps are also used for the purpose of hedging interest rate risk on junior subordinated debt. See Note 7 to the Consolidated Financial Statements for the details of these instruments. Note 13. Federal and State Income Taxes Federal and state income tax expense was comprised of the following components for the years ended December 31, 2016, 2015,2018, 2017, and 2014:2016: | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Current | | $ | 11,969,194 | | | $ | 5,673,774 | | | $ | 4,203,979 | | | $ | 2,722,635 | | $ | 10,976,005 | | $ | 11,969,194 | Deferred | | | (3,066,407 | ) | | | (2,004,532 | ) | | | (1,165,009 | ) | | | 6,292,477 | | | (6,029,555) | | | (3,066,407) | | | | $ | 8,902,787 | | | $ | 3,669,242 | | | $ | 3,038,970 | | | $ | 9,015,112 | | $ | 4,946,450 | | $ | 8,902,787 |
A reconciliation of the expected federal income tax expense to the income tax expense included in the consolidated statements of income was as follows for the years ended December 31, 2016, 2015,2018, 2017, and 2014:2016: | | | Years Ended December 31, | | | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | | Year Ended December 31, | | | | | | | | | % of | | | | | | | % of | | | | | | | % of | | | 2018 | | 2017 | | 2016 | | | | | | | | | Pretax | | | | | | | Pretax | | | | | | | Pretax | | | | | | % of | | | | | % of | | | | | % of | | | | | Amount | | | Income | | | Amount | | | Income | | | Amount | | | Income | | | | | | Pretax | | | | | Pretax | | | | | Pretax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amount | | Income | | Amount | | Income | | Amount | | Income | | Computed "expected" tax expense | | $ | 12,806,351 | | | | 35.0 | % | | $ | 7,208,993 | | | | 35.0 | % | | $ | 6,297,027 | | | | 35.0 | % | | $ | 10,948,310 | | 21.0 | % | $ | 14,228,535 | | 35.0 | % | $ | 12,806,351 | | 35.0 | % | Effect of graduated tax rates | | | (250,013 | ) | | | (0.7 | ) | | | (76,973 | ) | | | (0.4 | ) | | | (79,529 | ) | | | (0.4 | ) | | | — | | — | | | — | | — | | | (250,013) | | (0.7) | | Tax exempt income, net | | | (4,343,270 | ) | | | (11.9 | ) | | | (3,461,438 | ) | | | (16.8 | ) | | | (2,646,275 | ) | | | (14.7 | ) | | | (3,957,851) | | (7.6) | | | (5,653,979) | | (13.9) | | | (4,343,270) | | (11.9) | | Bank-owned life insurance | | | (619,988 | ) | | | (1.7 | ) | | | (616,737 | ) | | | (3.0 | ) | | | (585,312 | ) | | | (3.3 | ) | | | (342,667) | | (0.6) | | | (630,855) | | (1.5) | | | (619,988) | | (1.7) | | State income taxes, net of federal benefit,current year | | | 1,245,524 | | | | 3.4 | | | | 767,557 | | | | 3.7 | | | | 497,068 | | | | 2.8 | | | State income taxes, net of federal benefit, current year | | | | 2,680,581 | | 5.2 | | | 1,764,671 | | 4.3 | | | 1,245,524 | | 3.4 | | Change in unrecognized tax benefits | | | 121,008 | | | | 0.3 | | | | 223,668 | | | | 1.1 | | | | (55,728 | ) | | | (0.3 | ) | | | (44,629) | | (0.1) | | | (53,699) | | (0.1) | | | 121,008 | | 0.3 | | New Markets Tax Credits and other credits | | | | (154,200) | | (0.3) | | | (341,268) | | (0.8) | | | (180,000) | | (0.5) | | Acquisition costs | | | 176,050 | | | | 0.5 | | | | - | | | | - | | | | - | | | | - | | | | 226,599 | | 0.4 | | | — | | — | | | 176,050 | | 0.5 | | Excess tax benefit on stock options exercised and restricted stock awards vested | | | | (425,142) | | (0.8) | | | (1,219,483) | | (3.0) | | | — | | — | | Re-measurement of deferred tax asset to incorporate newly enacted tax rates | | | | — | | — | | | (2,918,606) | | (7.2) | | | — | | — | | Other | | | (232,875 | ) | | | (0.6 | ) | | | (375,828 | ) | | | (1.8 | ) | | | (388,281 | ) | | | (2.1 | ) | | | 84,111 | | 0.1 | | | (228,866) | | (0.6) | | | (52,875) | | (0.1) | | | | | $ | 8,902,787 | | | | 24.3 | % | | $ | 3,669,242 | | | | 17.8 | % | | $ | 3,038,970 | | | | 17.0 | % | | Federal and state income tax expense | | | $ | 9,015,112 | | 17.3 | % | $ | 4,946,450 | | 12.2 | % | $ | 8,902,787 | | 24.3 | % |
Changes in the unrecognized tax benefits included in other liabilities are as follows for the years ended December 31, 20162018 and 2015:2017: | | | 2016 | | | 2015 | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | Balance, beginning | | $ | 1,225,959 | | | $ | 1,002,291 | | | $ | 1,293,268 | | $ | 1,346,967 | Impact of tax positions taken during current year | | | 319,047 | | | | 468,055 | | | | 286,994 | | | 333,253 | Gross increase related to tax positions of prior years | | | 17,789 | | | | 16,965 | | | Gross decrease related to tax positions of prior years | | | | (178,058) | | | (40,584) | Reduction as a result of a lapse of the applicable statute of limitations | | | (215,828 | ) | | | (261,352 | ) | | | (153,565) | | | (346,368) | Balance, ending | | $ | 1,346,967 | | | $ | 1,225,959 | | | $ | 1,248,639 | | $ | 1,293,268 |
Included in the unrecognized tax benefits liability at December 31, 20162018 are potential benefits of approximately $1,124,000$1.0 million that, if recognized, would affect the effective tax rate. The liability for unrecognized tax benefits includes accrued interest for tax positions, which either do not meet the more-likely-than-not recognition threshold or where the tax benefit is measured at an amount less than the tax benefit claimed or expected to be claimed on an income tax return. At December 31, 20162018 and 2015,2017, accrued interest on uncertain tax positions was approximately $223,000$205 thousand and $221,000,$150 thousand, respectively. Estimated interest related to the underpayment of income taxes is classified as a component of “income taxes”tax expense” in the statements of income. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 13. Federal and State Income Taxes (continued)
The Company’s federal income tax returns are open and subject to examination from the 20132015 tax return year and later. Various state franchise and income tax returns are generally open from the 20122014 and later tax return years based on individual state statutestatutes of limitations. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 13. Federal and State Income Taxes (continued) The net deferred tax assets consisted of the following as of December 31, 20162018 and 2015:2017: | | | 2016 | | | 2015 | | Deferred tax assets: | | | | | | | | | Alternative minimum tax credits | | $ | 6,513,502 | | | $ | 5,475,062 | | New markets tax credits | | | 1,797,587 | | | | 2,700,000 | | Net unrealized losses on securities available for sale and derivative instruments | | | 1,470,759 | | | | 1,268,068 | | Compensation | | | 8,737,976 | | | | 8,687,856 | | Loan/lease losses | | | 10,479,227 | | | | 8,802,271 | | Net operating loss carryforwards, federal and state | | | 1,879,746 | | | | 2,069,093 | | Other | | | 247,594 | | | | 452,854 | | | | | | 31,126,391 | | | | 29,455,204 | | Deferred tax liabilities: | | | | | | | | | Premises and equipment | | | 4,899,107 | | | | 1,173,966 | | Equipment financing leases | | | 22,050,540 | | | | 25,059,159 | | Acquisition fair value adjustments | | | 1,336,338 | | | | 1,755,874 | | Investment accretion | | | 46,581 | | | | 44,462 | | Deferred loan origination fees, net | | | 261,915 | | | | 137,461 | | Other | | | 456,219 | | | | 678,227 | | | | | | 29,050,700 | | | | 28,849,149 | | Net deferred tax asset | | $ | 2,075,691 | | | $ | 606,055 | |
| | | | | | | | | 2018 | | 2017 | Deferred tax assets: | | | | | | | Alternative minimum tax credits | | $ | 2,911,031 | | $ | 6,513,502 | Historic tax credits | | | 1,937,170 | | | — | New markets tax credits | | | — | | | 2,164,727 | Net unrealized losses on securities available for sale and derivative instruments | | | 1,687,162 | | | 498,860 | Compensation | | | 6,771,593 | | | 6,282,603 | Loan/lease losses | | | 9,548,985 | | | 8,029,714 | Net operating loss carryforwards, federal and state | | | 849,335 | | | 959,627 | Other | | | 52,738 | | | 34,962 | | | | 23,758,014 | | | 24,483,995 | Deferred tax liabilities: | | | | | | | Premises and equipment | | | 2,716,592 | | | 2,400,397 | Equipment financing leases | | | 18,329,372 | | | 15,367,705 | Acquisition fair value adjustments | | | 2,739,038 | | | 1,864,599 | Investment accretion | | | 30,533 | | | 30,656 | Deferred loan origination fees, net | | | 482,380 | | | 115,153 | Other | | | 424,335 | | | 430,125 | | | | 24,722,250 | | | 20,208,635 | Net deferred tax assets (liabilities) | | $ | (964,236) | | $ | 4,275,360 |
At December 31, 2016,2018, the Company had $5.1$4.0 million of federal tax net operating loss carryforwards which are set to expire in varying amounts between 2029 and 2033. At December 31, 2016,2018, the Company had $3.7$2.1 million of state tax net operating loss carryforwards which are set to expire in varying amounts between 2023 and 2028. All of the federal tax net operating loss carryforwards and the majority of the state tax net operating loss carryforwards were acquired from Community National and CNB. The change in deferred income taxes was reflected in the consolidated financial statementsConsolidated Financial Statements as follows for the yearsendedyears ended December 31, 2016, 2015,2018, 2017, and 2014: | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | Provision for income taxes | | $ | (3,066,407 | ) | | $ | (2,004,532 | ) | | $ | (1,165,009 | ) | Net deferred tax asset acquired from CSB | | | (3,310,553 | ) | | | - | | | | - | | Net deferred tax asset resulting from market valueadjustments of acquisition of CSB | | | 5,110,015 | | | | - | | | | - | | Statement of stockholders' equity-Accumulated other comprehensive income (loss) | | | (202,691 | ) | | | (81,524 | ) | | | 7,281,574 | | | | | $ | (1,469,636 | ) | | $ | (2,086,056 | ) | | $ | 6,116,565 | |
2016:
| | | | | | | | | | | | 2018 | | 2017 | | 2016 | Provision for income taxes | | $ | 6,292,477 | | $ | (6,029,555) | | $ | (3,066,407) | Net deferred tax asset acquired | | | — | | | — | | | (3,310,553) | Net deferred tax asset resulting from acquisition adjustments | | | (52,717) | | | 243,195 | | | 5,110,015 | Re-measurement of deferred tax asset to incorporate newly enacted tax rates | | | — | | | 2,918,606 | | | — | Statement of stockholders' equity- Other comprehensive income (loss) | | | (1,000,164) | | | 668,085 | | | (202,691) | | | $ | 5,239,596 | | $ | (2,199,669) | | $ | (1,469,636) |
The Tax Act was enacted on December 22, 2017 and reduces the federal corporate tax rate from 35% to 21%. As a result, the Company revalued the deferred tax assets and liabilities to reflect the lower federal corporate tax rate, which resulted in the Company recognizing a benefit of $2.9 million in the fourth quarter of 2017. Additionally, while the Tax Act eliminated the corporate alternative minimum tax, it did preserve the alternative minimum tax credit and the usability. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 14. Employee Benefit Plans The Company has a profit sharing plan which includes a provision designed to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended, to allow for participant contributions. All employees are eligible to participate in the plan. The Company matches 100% of the first 3% of employee contributions, and 50% of the next 3% of employee contributions, up to a maximum amount of 4.5% of an employee'semployee’s compensation. Additionally, at its discretion, the Company may make additional contributions to the plan which are allocated to the accounts of participants in the plan based on relative compensation. CompanyThere were no discretionary contributions for the years ended December 31, 2016, 2015,2018, 2017 and 20142016. Company matching contributions for the years ended December 31, 2018, 2017, and 2016 were as follows: | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | Matching contribution | | $ | 1,365,111 | | | $ | 1,314,276 | | | $ | 1,179,979 | | Discretionary contribution | | | - | | | | - | | | | 198,800 | | | | | $ | 1,365,111 | | | $ | 1,314,276 | | | $ | 1,378,779 | |
| | | | | | | | | | | | 2018 | | 2017 | | 2016 | Matching contribution | | $ | 2,000,257 | | $ | 1,663,198 | | $ | 1,365,111 |
The Company has entered into nonqualified SERPssupplemental executive retirement plans (SERPs) with certain executive officers. The SERPs allow certain executives to accumulate retirement benefits beyond those provided by the qualified plans. During the years ended December 31, 2016, 2015, and 2014, the Company expensed $322,575, $297,826, and $650,016, respectively, related to these plans. As of December 31, 2016 and 2015,Changes in the liability related to the SERPs, included in other liabilities, was $4,093,355are as follows for the years ended December 31, 2018, 2017 and $3,934,605, respectively. Payments to former executives in the amounts of $163,825, $163,824 and $117,000 were made in 2016, 2015 and 2014, respectively.2016: | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Balance, beginning | | $ | 4,330,313 | | $ | 4,093,355 | | $ | 3,934,605 | Increase in | | | 456,782 | | | 400,784 | | | 322,575 | Cash payments made | | | (163,826) | | | (163,826) | | | (163,825) | Balance, ending | | $ | 4,623,269 | | $ | 4,330,313 | | $ | 4,093,355 |
The Company has entered into deferred compensation agreements with certain executive officers. Under the provisions of the agreements, the officers may defer compensation and the Company matches the deferral up to certain maximums. The Company’s matching contribution varies by officer and is a maximum of between $8,000 and $25,000 annually. Interest on the deferred amounts is earned atThe Wall Street Journal’s prime rate subject to a minimum of 4% and a maximum of 12% with such limits differing by officer. The Company has also entered into deferred compensation agreements with certain other officers. Under the provisions of the agreements the officers may defer compensation and the Company matches the deferral up to certain maximums. The Company’s matching contribution differs by officer and is a maximum between 4% and 10% of the officer’s compensation. Interest on the deferred amounts is earned atThe Wall Street Journal’s prime rate plus one percentage point, and has a minimum of 4% and shall not exceed 8%. Upon retirement, the officer will receive the deferral balance in 180 equal monthly installments. As of December 31, 20162018 and 2015,2017, the liability related to the agreements totaled $10,389,326$15.0 million and $8,875,025,$12.3 million, respectively. Changes in the deferred compensation agreements, included in other liabilities, are as follows for the years ended December 31, 2016, 2015,2018, 2017, and 2014: | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | Balance, beginning | | $ | 8,875,025 | | | $ | 7,503,692 | | | $ | 6,224,368 | | Company expense | | | 832,974 | | | | 726,001 | | | | 661,611 | | Employee deferrals | | | 744,168 | | | | 693,656 | | | | 628,589 | | Cash payments made | | | (62,841 | ) | | | (48,324 | ) | | | (10,876 | ) | Balance, ending | | $ | 10,389,326 | | | $ | 8,875,025 | | | $ | 7,503,692 | |
2016:
| | | | | | | | | | | | 2018 | | 2017 | | 2016 | Balance, beginning | | $ | 12,346,935 | | $ | 10,455,183 | | $ | 8,875,025 | Employee deferrals | | | 1,406,959 | | | 932,921 | | | 794,168 | Company match and interest | | | 1,367,776 | | | 1,024,933 | | | 848,831 | Cash payments made | | | (92,265) | | | (66,102) | | | (62,841) | Balance, ending | | $ | 15,029,405 | | $ | 12,346,935 | | $ | 10,455,183 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 15. Stock-Based Compensation Stock-based compensation expense was reflected in the consolidated financial statements as follows for the years ended December 31, 2016, 2015, and 2014.
| | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | Stock option and incentive plans | | $ | 885,757 | | | $ | 885,524 | | | $ | 832,845 | | Stock purchase plan | | | 61,417 | | | | 55,945 | | | | 58,774 | | | | | $ | 947,174 | | | $ | 941,469 | | | $ | 891,619 | |
Stock option and incentive plans:
The Company’s Board of Directors adopted in January 2008, and the stockholders approved in May 2008, the QCR Holdings, Inc. 2008 Equity Incentive Plan (“2008 Equity Incentive Plan”). The Company’s Board of Directors adopted in February 2010, and the stockholders approved in May 2010, the QCR Holdings, Inc. 2010 Equity Incentive Plan (“2010 Equity Incentive Plan”). The Company’s Board of Directors adopted in February 2013, and the stockholders approved in May 2013, the QCR Holdings, Inc. 2013 Equity Incentive Plan (“2013 Equity Incentive Plan”). The Company’s Board of Directors adopted in February 2016, and the stockholders approved in May 2016, the QCR Holdings, Inc. 2016 Equity Incentive Plan (“2016 Equity Incentive Plan”). Up to 250,000, 350,000, 350,000, and 400,000 shares of common stock, respectively, may be issued to employees and directors of the Company and its subsidiaries pursuant to equity incentive awards granted under these plans. The 2008 Equity Incentive Plan, the 2010 Equity Incentive Plan, the 2013 Equity Incentive Plan, and the 2016 Equity Incentive Plan (collectively, “the stock option plans”the “Stock Option Plans”) are administered by the Compensation Committee of the Board of Directors (the “Committee”). As of December 31, 2016,2018, there were 412,658302,066 remaining shares of common stock available for grant under the stock option plans;Stock Option Plans; however, such additional shares may be issued only under the 2016 Equity Incentive Plan. The number and exercise price of options granted under the stock option plans are determined by the Committee at the time the option is granted. In no event can the exercise price be less than the value of the common stock at the date of the grant for incentive stock options. All options have a 10-year10‑year life and will vest and become exercisable from 3-to-73‑to‑7 years after the date of the grant. Only nonqualified stock options have been issued to date. Stock-based compensation expense was reflected in the Consolidated Financial Statements as follows for the years ended December 31, 2018, 2017, and 2016.
| | | | | | | | | | | | 2018 | | 2017 | | 2016 | Stock options | | $ | 471,849 | | $ | 554,435 | | $ | 424,904 | Restricted stock awards | | | 856,731 | | | 552,907 | | | 460,853 | Stock purchase plan | | | 114,766 | | | 79,694 | | | 61,417 | | | $ | 1,443,346 | | $ | 1,187,036 | | $ | 947,174 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 15. Stock-Based CompensationCompensastion (continued) Stock options: A summary of the stock option plans as of December 31, 2016, 2015,2018, 2017, and 20142016 and changes during the years then ended is presented below: | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | | December 31, | | | | | | | | Weighted | | | | | | | Weighted | | | | | | | Weighted | | | 2018 | | 2017 | | 2016 | | | | | | | | Average | | | | | | | Average | | | | | | | Average | | | | | | Weighted | | | | | Weighted | | | | | Weighted | | | | | | | | Exercise | | | | | | | Exercise | | | | | | | Exercise | | | | | | Average | | | | | Average | | | | | Average | | | | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | | | | | | Exercise | | | | | Exercise | | | | | Exercise | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | Price | | Shares | | Price | | Shares | | Price | Outstanding, beginning | | | 623,176 | | | $ | 13.88 | | | | 661,771 | | | $ | 13.89 | | | | 662,506 | | | $ | 13.82 | | | | 513,554 | | $ | 17.13 | | | 587,961 | | $ | 14.83 | | | 623,176 | | $ | 13.88 | Granted | | | 76,749 | | | | 22.92 | | | | 73,403 | | | | 17.63 | | | | 82,609 | | | | 17.11 | | | | 16,315 | | | 44.02 | | | 43,250 | | | 43.86 | | | 76,749 | | | 22.92 | Exercised | | | (111,423 | ) | | | 14.97 | | | | (79,638 | ) | | | 14.70 | | | | (23,659 | ) | | | 10.22 | | | | (60,127) | | | 13.56 | | | (114,100) | | | 15.12 | | | (111,423) | | | 14.97 | Forfeited | | | (541 | ) | | | 18.36 | | | | (32,360 | ) | | | 20.69 | | | | (59,685 | ) | | | 19.02 | | | | (170) | | | 16.81 | | | (3,557) | | | 26.74 | | | (541) | | | 18.36 | Outstanding, ending | | | 587,961 | | | | 14.83 | | | | 623,176 | | | | 13.88 | | | | 661,771 | | | | 13.89 | | | | 469,572 | | | 18.52 | | | 513,554 | | | 17.13 | | | 587,961 | | | 14.83 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercisable, ending | | | 385,372 | | | | | | | | 405,832 | | | | | | | | 420,429 | | | | | | | | 358,270 | | | | | | 354,269 | | | | | | 385,372 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average fair value per optionof options granted during the period | | $ | 7.31 | | | | | | | $ | 5.11 | | | | | | | $ | 5.68 | | | | | | | Weighted average fair value per option granted | | | $ | 14.68 | | | | | $ | 14.75 | | | | | $ | 7.31 | | | |
A further summary of options outstanding as of December 31, 2018 is presented below: | | | | | | | | | | | | | | | Options Outstanding | | | | | | | | | | Weighted | | | | | Options Exercisable | | | | | Average | | Weighted | | | | Weighted | | | | | Remaining | | Average | | | | Average | Range of | | Number | | Contractual | | Exercise | | Number | | Exercise | Exercise Prices | | Outstanding | | Life | | Price | | Exercisable | | Price | $7.99 to $8.93 | | 24,175 | | 2.07 | | $ | 8.10 | | 24,175 | | $ | 8.10 | $9.00 to $9.30 | | 121,724 | | 2.10 | | | 9.21 | | 121,724 | | | 9.21 | $15.08 to $16.13 | | 74,703 | | 4.24 | | | 15.63 | | 72,303 | | | 15.64 | $17.10 to $18.00 | | 125,137 | | 5.56 | | | 17.31 | | 99,573 | | | 17.29 | $21.71 to $31.53 | | 66,291 | | 7.11 | | | 22.92 | | 29,633 | | | 22.64 | $42.65 to $48.50 | | 57,542 | | 8.46 | | | 43.94 | | 10,862 | | | 43.79 | | | 469,572 | | | | | | | 358,270 | | | |
Restricted stock awards: A summary of changes in the Company’s nonvested restricted stock awards as of December 31, 2018, 2017 and 2016 is presented below: | | | | | | Options Outstanding | | | | | | | | | | | | | | | Weighted | | | | | | | Options Exercisable | | | | | | | | | | | | Average | | | Weighted | | | | | | | Weighted | | | | | | | | | | | | Remaining | | | Average | | | | | | | Average | | Range of | | | Number | | | Contractual | | | Exercise | | | Number | | | Exercise | | Exercise Prices | | | Outstanding | | | Life | | | Price | | | Exercisable | | | Price | | | | | | | | | | | | | | | | | | | | | | | | | | | | $7.99 | to | $8.93 | | | | 35,040 | | | | 3.84 | | | $ | 8.18 | | | | 35,040 | | | $ | 8.18 | | | $9.00 | to | $9.30 | | | | 160,707 | | | | 3.82 | | | | 9.22 | | | | 147,200 | | | | 9.22 | | | $15.00 | to | $16.85 | | | | 168,164 | | | | 3.64 | | | | 15.69 | | | | 147,291 | | | | 15.69 | | | $17.10 | to | $18.00 | | | | 145,551 | | | | 7.56 | | | | 17.25 | | | | 55,341 | | | | 17.25 | | | $21.71 | to | $31.53 | | | | 78,499 | | | | 9.09 | | | | 21.71 | | | | 500 | | | | 21.71 | | | | | | | | | 587,961 | | | | | | | | | | | | 385,372 | | | | | |
| | | | | | | | | | | | December 31, | | | 2018 | | 2017 | | 2016 | Outstanding, beginning | | | 46,389 | | | 39,438 | | | 45,046 | Granted* | | | 37,315 | | | 28,289 | | | 22,382 | Released | | | (19,605) | | | (21,338) | | | (27,490) | Forfeited | | | — | | | — | | | (500) | Outstanding, ending | | | 64,099 | | | 46,389 | | | 39,438 | | | | | | | | | | | Weighted average fair value per share granted | | $ | 43.50 | | $ | 44.44 | | $ | 22.64 |
* Includes 22,660 of restricted stock awards and 14,655 of restricted stock units. The total grant value of restricted stock awards that were released during the years ended December 31, 2018, 2017 and 2016 was $622 thousand, $509 thousand and $474 thousand, respectively. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 15. Stock-Based Compensation (continued): Stock purchase plan: The Company’s Board of Directors and its stockholders adopted in October 2002 the QCR Holdings, Inc. Employee Stock Purchase Plan (the “Purchase Plan”). On May 2, 2012, the Company’s stockholders approved a complete amendment and restatement of the Purchase Plan. As of January 1, 2016,2018, there were 206,632175,507 shares of common stock available for issuance under the Purchase Plan. For each six-month offering period, the Board of Directors will determine how many of the total number of available shares will be offered. The purchase price is the lesser of 90%85% of the fair market value at the date of the grant or the investment date. The investment date, as established by the Board of Directors, is the date common stock is purchased after the end of each calendar quarter during an offering period. The maximum dollar amount any one participant can elect to contribute in an offering period is $7,500.$10,000. Additionally, the maximum percentage that any one participant can elect to contribute is 8%10% of his or her compensation for the yearsyear ended December 31, 2016, 2015,2018 and 2014.2017 and 8% for the year ended December 31, 2016. Information for the stock purchase plan for the years ended December 31, 2016, 2015,2018, 2017, and 20142016 is presented below: | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | Shares granted | | | 18,711 | | | | 23,408 | | | | 24,811 | | Shares purchased | | | 20,192 | | | | 24,033 | | | | 25,321 | | Weighted average fair value per share granted | | $ | 3.28 | | | $ | 2.39 | | | $ | 2.37 | |
| | | | | | | | | | | | 2018 | | 2017 | | 2016 | Shares granted | | | 17,305 | | | 12,414 | | | 18,711 | Shares purchased | | | 15,528 | | | 13,318 | | | 20,192 | Weighted average fair value per share granted | | $ | 6.63 | | $ | 6.42 | | $ | 3.28 |
QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 16. Regulatory Capital Requirements and Restrictions on Dividends The Company (on a consolidated basis) and the subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and subsidiary banks’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the subsidiary banks must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the subsidiary banks to maintain minimum amounts and ratios (set forth in the following table) of total common equity Tier 1 and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets, each as defined by regulation. Management believes, as of December 31, 20162018 and 2015,2017, that the Company and the subsidiary banks met all capital adequacy requirements to which they are subject. Under the regulatory framework for prompt corrective action, to be categorized as “well capitalized,” an institution must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage and common equity Tier 1 ratios as set forth in the following tables. The Company and the subsidiary banks’ actual capital amounts and ratios as of December 31, 20162018 and 20152017 are also presented in the following table (dollars in thousands). As of December 31, 20162018 and 2015,2017, the subsidiary banks met the requirements to be “well capitalized”. | | | Actual | | | For Capital Adequacy Purposes With Capital Conservation Buffer* | | | To Be Well Capitalized Under Prompt Corrective Action Provisions | | | | | Amount | | | Ratio | | | Amount | | | | Ratio | | | Amount | | | | Ratio | | As of December 31, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | Company: | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 327,440 | | | | 11.56 | % | | $ | 244,289 | | > | | | 8.625 | % | | $ | 283,233 | | > | | | 10.0 | % | Tier 1 risk-based capital | | | 296,366 | | | | 10.46 | % | | | 187,642 | | > | | | 6.625 | | | | 226,587 | | > | | | 8.0 | | Tier 1 leverage | | | 296,366 | | | | 9.10 | % | | | 130,229 | | > | | | 4.000 | | | | 162,787 | | > | | | 5.0 | | Common equity Tier 1 | | | 266,419 | | | | 9.41 | % | | | 145,157 | | > | | | 5.125 | | | | 184,102 | | > | | | 6.5 | | Quad City Bank & Trust: | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 142,990 | | | | 12.27 | % | | $ | 100,494 | | > | | | 8.625 | % | | $ | 116,515 | | > | | | 10.0 | % | Tier 1 risk-based capital | | | 129,524 | | | | 11.12 | % | | | 77,191 | | > | | | 6.625 | | | | 93,212 | | > | | | 8.0 | | Tier 1 leverage | | | 129,524 | | | | 9.18 | % | | | 56,445 | | > | | | 4.000 | | | | 70,556 | | > | | | 5.0 | | Common equity Tier 1 | | | 129,524 | | | | 11.12 | % | | | 59,714 | | > | | | 5.125 | | | | 75,735 | | > | | | 6.5 | | Cedar Rapids Bank & Trust: | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 106,791 | | | | 12.82 | % | | $ | 71,828 | | > | | | 8.625 | % | | $ | 83,279 | | > | | | 10.0 | % | Tier 1 risk-based capital | | | 96,369 | | | | 11.57 | % | | | 55,173 | | > | | | 6.625 | | | | 66,623 | | > | | | 8.0 | | Tier 1 leverage | | | 96,369 | | | | 10.69 | % | | | 36,061 | | > | | | 4.000 | | | | 45,076 | | > | | | 5.0 | | Common equity Tier 1 | | | 96,369 | | | | 11.57 | % | | | 42,681 | | > | | | 5.125 | | | | 54,132 | | > | | | 6.5 | | Community State Bank: | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 68,216 | | | | 13.81 | % | | $ | 42,609 | | > | | | 8.625 | % | | $ | 49,402 | | > | | | 10.0 | % | Tier 1 risk-based capital | | | 66,746 | | | | 13.51 | % | | | 32,729 | | > | | | 6.625 | | | | 39,522 | | > | | | 8.0 | | Tier 1 leverage | | | 66,746 | | | | 11.75 | % | | | 22,726 | | > | | | 4.000 | | | | 28,408 | | > | | | 5.0 | | Common equity Tier 1 | | | 66,746 | | | | 13.51 | % | | | 25,319 | | > | | | 5.125 | | | | 32,111 | | > | | | 6.5 | | Rockford Bank & Trust: | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 42,007 | | | | 12.26 | % | | $ | 29,551 | | > | | | 8.625 | % | | $ | 34,262 | | > | | | 10.0 | % | Tier 1 risk-based capital | | | 37,716 | | | | 11.01 | % | | | 22,699 | | > | | | 6.625 | | | | 27,410 | | > | | | 8.0 | | Tier 1 leverage | | | 37,716 | | | | 9.57 | % | | | 15,772 | | > | | | 4.000 | | | | 19,716 | | > | | | 5.0 | | Common equity Tier 1 | | | 37,716 | | | | 11.01 | % | | | 17,559 | | > | | | 5.125 | | | | 22,270 | | > | | | 6.5 | |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 16. Regulatory Capital Requirements and Restrictions on Dividends (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For Capital | | To Be Well | | | | | | | | | | | | | | Adequacy Purposes | | Capitalized Under | | | | | | | | | 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, 2018: | | | | | | | | | | | | | | | | | | | | | | Company: | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 460,416 | | 10.69 | % | $ | 344,551 | > | 8.00 | % | $ | 425,305 | > | 9.875 | % | $ | 430,689 | > | 10.00 | % | Tier 1 risk-based capital | | | 420,569 | | 9.77 | % | | 258,413 | > | 6.00 | | | 339,168 | > | 7.875 | | | 344,551 | > | 8.00 | | Tier 1 leverage | | | 420,569 | | 8.87 | % | | 189,858 | > | 4.00 | | | 189,858 | > | 4.000 | | | 237,322 | > | 5.00 | | Common equity Tier 1 | | | 382,899 | | 8.89 | % | | 193,810 | > | 4.50 | | | 274,564 | > | 6.375 | | | 279,948 | > | 6.50 | | Quad City Bank & Trust: | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 162,009 | | 11.38 | % | $ | 113,900 | > | 8.00 | % | $ | 140,596 | > | 9.875 | % | $ | 142,376 | > | 10.00 | % | Tier 1 risk-based capital | | | 148,529 | | 10.43 | % | | 85,425 | > | 6.00 | | | 112,121 | > | 7.875 | | | 113,900 | > | 8.00 | | Tier 1 leverage | | | 148,529 | | 9.04 | % | | 65,744 | > | 4.00 | | | 65,744 | > | 4.000 | | | 82,180 | > | 5.00 | | Common equity Tier 1 | | | 148,529 | | 10.43 | % | | 64,069 | > | 4.50 | | | 90,764 | > | 6.375 | | | 92,544 | > | 6.50 | | Cedar Rapids Bank & Trust: | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 146,292 | | 11.55 | % | $ | 101,310 | > | 8.00 | % | $ | 125,054 | > | 9.875 | % | $ | 126,637 | > | 10.00 | % | Tier 1 risk-based capital | | | 133,982 | | 10.58 | % | | 75,982 | > | 6.00 | | | 99,727 | > | 7.875 | | | 101,310 | > | 8.00 | | Tier 1 leverage | | | 133,982 | | 9.98 | % | | 53,682 | > | 4.00 | | | 53,682 | > | 4.000 | | | 67,103 | > | 5.00 | | Common equity Tier 1 | | | 133,982 | | 10.58 | % | | 56,987 | > | 4.50 | | | 80,731 | > | 6.375 | | | 82,314 | > | 6.50 | | Community State Bank: | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 75,233 | | 11.24 | % | $ | 53,567 | > | 8.00 | % | $ | 66,122 | > | 9.875 | % | $ | 66,959 | > | 10.00 | % | Tier 1 risk-based capital | | | 69,101 | | 10.32 | % | | 40,175 | > | 6.00 | | | 52,730 | > | 7.875 | | | 53,567 | > | 8.00 | | Tier 1 leverage | | | 69,101 | | 9.19 | % | | 30,070 | > | 4.00 | | | 30,070 | > | 4.000 | | | 37,588 | > | 5.00 | | Common equity Tier 1 | | | 69,101 | | 10.32 | % | | 30,131 | > | 4.50 | | | 42,686 | > | 6.375 | | | 43,523 | > | 6.50 | | Rockford Bank & Trust: | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 50,648 | | 10.89 | % | $ | 37,208 | > | 8.00 | % | $ | 45,929 | > | 9.875 | % | $ | 46,511 | > | 10.00 | % | Tier 1 risk-based capital | | | 44,821 | | 9.64 | % | | 27,906 | > | 6.00 | | | 36,627 | > | 7.875 | | | 37,208 | > | 8.00 | | Tier 1 leverage | | | 44,821 | | 8.93 | % | | 20,081 | > | 4.00 | | | 20,081 | > | 4.000 | | | 25,101 | > | 5.00 | | Common equity Tier 1 | | | 44,821 | | 9.64 | % | | 20,930 | > | 4.50 | | | 29,650 | > | 6.375 | | | 30,232 | > | 6.50 | | Springfield First Community Bank: | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 57,051 | | 12.24 | % | $ | 37,278 | > | 8.00 | % | $ | 46,016 | > | 9.875 | % | $ | 46,598 | > | 10.00 | % | Tier 1 risk-based capital | | | 51,279 | | 11.00 | % | | 27,959 | > | 6.00 | | | 36,696 | > | 7.875 | | | 37,278 | > | 8.00 | | Tier 1 leverage | | | 51,279 | | 9.39 | % | | 21,849 | > | 4.00 | | | 21,849 | > | 4.000 | | | 27,312 | > | 5.00 | | Common equity Tier 1 | | | 51,279 | | 11.00 | % | | 20,969 | > | 4.50 | | | 29,706 | > | 6.375 | | | 30,289 | > | 6.50 | |
| | | Actual | | | For Capital Adequacy Purposes* | | | To Be Well Capitalized Under Prompt Corrective Action Provisions | | | | | | | | | | | | | | | | | | | | | | | | | | Amount | | | Ratio | | | Amount | | | | Ratio | | | Amount | | | | Ratio | | | | | | | | | | | | | For Capital | | To Be Well | | As of December 31, 2015: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adequacy Purposes | | Capitalized Under | | | | | | | | | | 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 | | $ | 280,273 | | | | 13.11 | % | | $ | 170,969 | | > | | | 8.0 | % | | $ | 213,711 | | > | | | 10.0 | % | | $ | 383,282 | | 11.15 | % | $ | 275,090 | > | 8.00 | % | $ | 318,073 | > | 9.25 | % | $ | 343,862 | > | 10.00 | % | Tier 1 risk-based capital | | | 253,891 | | | | 11.88 | % | | | 128,227 | | > | | | 6.0 | | | | 170,969 | | > | | | 8.0 | | | | 348,530 | | 10.14 | % | | 206,317 | > | 6.00 | | | 249,300 | > | 7.25 | | | 275,090 | > | 8.00 | | Tier 1 leverage | | | 253,891 | | | | 9.75 | % | | | 104,163 | | > | | | 4.0 | | | | 130,203 | | > | | | 5.0 | | | | 348,530 | | 8.98 | % | | 155,256 | > | 4.00 | | | 155,256 | > | 4.00 | | | 194,070 | > | 5.00 | | Common equity Tier 1 | | | 220,800 | | | | 10.33 | % | | | 96,170 | | > | | | 4.5 | | | | 138,912 | | > | | | 6.5 | | | | 313,012 | | 9.10 | % | | 154,738 | > | 4.50 | | | 197,721 | > | 5.75 | | | 223,510 | > | 6.50 | | Quad City Bank & Trust: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 135,477 | | | | 12.50 | % | | $ | 86,726 | | > | | | 8.0 | % | | $ | 108,407 | | > | | | 10.0 | % | | $ | 160,112 | | 12.35 | % | $ | 103,711 | > | 8.00 | % | $ | 119,916 | > | 9.25 | % | $ | 129,639 | > | 10.00 | % | Tier 1 risk-based capital | | | 123,498 | | | | 11.39 | % | | | 65,044 | | > | | | 6.0 | | | | 86,726 | | > | | | 8.0 | | | | 147,472 | | 11.38 | % | | 77,783 | > | 6.00 | | | 93,988 | > | 7.25 | | | 103,711 | > | 8.00 | | Tier 1 leverage | | | 123,498 | | | | 8.87 | % | | | 55,718 | | > | | | 4.0 | | | | 69,648 | | > | | | 5.0 | | | | 147,472 | | 9.52 | % | | 61,985 | > | 4.00 | | | 61,985 | > | 4.00 | | | 77,481 | > | 5.00 | | Common equity Tier 1 | | | 123,498 | | | | 11.39 | % | | | 48,783 | | > | | | 4.5 | | | | 70,465 | | > | | | 6.5 | | | | 147,472 | | 11.38 | % | | 58,337 | > | 4.50 | | | 74,542 | > | 5.75 | | | 84,265 | > | 6.50 | | Cedar Rapids Bank & Trust: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 105,285 | | | | 14.39 | % | | $ | 58,537 | | > | | | 8.0 | % | | $ | 73,172 | | > | | | 10.0 | % | | $ | 138,492 | | 11.88 | % | $ | 93,272 | > | 8.00 | % | $ | 107,846 | > | 9.25 | % | $ | 116,590 | > | 10.00 | % | Tier 1 risk-based capital | | | 96,118 | | | | 13.14 | % | | | 43,903 | | > | | | 6.0 | | | | 58,537 | | > | | | 8.0 | | | | 126,601 | | 10.86 | % | | 69,954 | > | 6.00 | | | 84,528 | > | 7.25 | | | 93,272 | > | 8.00 | | Tier 1 leverage | | | 96,118 | | | | 10.96 | % | | | 35,079 | | > | | | 4.0 | | | | 43,848 | | > | | | 5.0 | | | | 126,601 | | 11.68 | % | | 43,348 | > | 4.00 | | | 43,348 | > | 4.00 | | | 54,185 | > | 5.00 | | Common equity Tier 1 | | | 96,118 | | | | 13.14 | % | | | 32,927 | | > | | | 4.5 | | | | 47,562 | | > | | | 6.5 | | | | 126,601 | | 10.86 | % | | 52,465 | > | 4.50 | | | 67,039 | > | 5.75 | | | 75,783 | > | 6.50 | | Community State Bank: | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | | $ | 66,271 | | 11.71 | % | $ | 45,293 | > | 8.00 | % | $ | 52,370 | > | 9.25 | % | $ | 56,616 | > | 10.00 | % | Tier 1 risk-based capital | | | | 61,941 | | 10.94 | % | | 33,970 | > | 6.00 | | | 41,047 | > | 7.25 | | | 45,293 | > | 8.00 | | Tier 1 leverage | | | | 61,941 | | 9.77 | % | | 25,354 | > | 4.00 | | | 25,354 | > | 4.00 | | | 31,693 | > | 5.00 | | Common equity Tier 1 | | | | 61,941 | | 10.94 | % | | 25,477 | > | 4.50 | | | 32,554 | > | 5.75 | | | 36,801 | > | 6.50 | | Rockford Bank & Trust: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital | | $ | 38,544 | | | | 11.96 | % | | $ | 25,772 | | > | | | 8.0 | % | | $ | 32,216 | | > | | | 10.0 | % | | $ | 45,684 | | 11.28 | % | $ | 32,413 | > | 8.00 | % | $ | 37,477 | > | 9.25 | % | $ | 40,516 | > | 10.00 | % | Tier 1 risk-based capital | | | 34,514 | | | | 10.71 | % | | | 19,329 | | > | | | 6.0 | | | | 25,772 | | > | | | 8.0 | | | | 40,615 | | 10.02 | % | | 24,310 | > | 6.00 | | | 29,374 | > | 7.25 | | | 32,413 | > | 8.00 | | Tier 1 leverage | | | 34,514 | | | | 9.59 | % | | | 14,401 | | > | | | 4.0 | | | | 18,001 | | > | | | 5.0 | | | | 40,615 | | 8.94 | % | | 18,177 | > | 4.00 | | | 18,177 | > | 4.00 | | | 22,721 | > | 5.00 | | Common equity Tier 1 | | | 34,514 | | | | 10.71 | % | | | 14,497 | | > | | | 4.5 | | | | 20,940 | | > | | | 6.5 | | | | 40,615 | | 10.02 | % | | 18,232 | > | 4.50 | | | 23,297 | > | 5.75 | | | 26,335 | > | 6.50 | |
*The minimums under Basel III phase in higherincrease by .625% (the capital conservation buffer) for all ratios other than Tier 1 leverage annually until 2019.The2019. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 16. Regulatory Capital Requirements and Restrictions on Dividends (continued) The fully phased-in minimums are 10.5% (Total risk-based capital), 8.5% (Tier 1 risk-based capital), and 7.0% (Common equity Tier 1). AtDecember 31, 2015, the New Basel III minimums mirrored the minimums required for capital adequacy purposes. The first phase-in of the Basel IIIcapital conservation buffer occurred in 2016. The 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. Notwithstanding the availability of funds for dividends, however, the Federal Reserve may prohibit the payment of any dividends by the subsidiary banks if the Federal Reserve determines such payment would constitute an unsafe or unsound practice. The Company also has certain contractual restrictions on its ability to pay dividends. The Company has issued junior subordinated debentures in four private placements and assumed twothree issues of junior subordinated debentures in connection with the Community National acquisition.acquisitions. Under the terms of the debentures, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. These circumstances did not exist at December 31, 20162018 or 2015. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 16. Regulatory Capital Requirements and Restrictions on Dividends (continued)
On May 13, 2015, the Company announced the closing of an underwritten public offering of 3,680,000 shares of its common stock at a price of $18.25 per share. The net proceeds to the Company, after deducting the underwriting discount and offering expenses, totaled $63.5 million. As a result of the capital raise, the Company’s regulatory capital ratios increased significantly.
2017. The Company filed a universal shelf registration statement on Form S-3S‑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 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. QCR Holdings, Inc. and Subsidiaries
Notes to In February 2019, the Company completed a subordinated notes offering. See Note 23 of the Consolidated Financial Statements
for further information on this subordinated notes offering. Note 17. Earnings per Share The following information was used in the computation of basic and diluted EPS for the years ended December 31, 2016, 2015,2018, 2017, and 2014:2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Net income | | $ | 43,119,699 | | $ | 35,706,507 | | $ | 27,686,787 | | | | | | | | | | | | | | | | | | | | | Basic EPS | | $ | 2.92 | | $ | 2.68 | | $ | 2.20 | Diluted EPS | | $ | 2.86 | | $ | 2.61 | | $ | 2.17 | | | | | | | | | | | Weighted average common shares outstanding* | | | 14,768,687 | | | 13,325,128 | | | 12,570,767 | Weighted average common shares issuable upon exercise of stock options and | | | | | | | | | | under the employee stock purchase plan** | | | 296,043 | | | 355,344 | | | 195,236 | Weighted average common and common equivalent shares outstanding | | | 15,064,730 | | | 13,680,472 | | | 12,766,003 |
| | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | EPS attributable to QCR Holdings, Inc. common stockholders | | | | | | | | | | | | | Basic | | $ | 2.20 | | | $ | 1.64 | | | $ | 1.75 | | Diluted | | $ | 2.17 | | | $ | 1.61 | | | $ | 1.72 | | | | | | | | | | | | | | | | Weighted average common shares outstanding* | | | 12,570,767 | | | | 10,345,286 | | | | 7,925,220 | | Weighted average common shares issuable upon exercise of stock optionsand under the employee stock purchase plan** | | | 195,236 | | | | 154,555 | | | | 123,441 | | Weighted average common and common equivalent shares outstanding | | | 12,766,003 | | | | 10,499,841 | | | | 8,048,661 | |
*The increase in weighted average common shares outstanding from 20142016 to 20152018 was primarily due to the common stock issuance discussedissuances that occurred in Note 16 toconjunction with the Consolidated Financial Statements. The increase in weighted average common shares outstanding from 2015 to 2016 was primarily due to the common stock issuance discussed in Note 2 to the Consolidated Financial Statements.Springfield Bancshares merger and Guaranty Bank acquisition. **Excludes anti-dilutive shares of 17,739, 36,572,91,954, 49,919, and 124,98317,739 at December 31, 2018, 2017 and 2016, 2015 and 2014, respectively.respectively. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 18. Commitments and Contingencies 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.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'scustomer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the subsidiary banks upon extension of credit, is based upon management'smanagement’s credit evaluation of the counterparty. 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 subsidiary 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 subsidiary banks would be required to fund the commitments. The maximum potential amount of future payments the subsidiary banks could be required to make is represented by the contractual amount. If the commitment is funded, the subsidiary banks would be entitled to seek recovery from the customer. At December 31, 20162018 and 2015,2017, no amounts had been recorded as liabilities for the subsidiary banks’ potential obligations under these guarantees. As of December 31, 20162018 and 2015,2017, commitments to extend credit aggregated $666,778,085$1.2 billion and $480,475,033,$791.6 million, respectively. As of December 31, 20162018 and 2015,2017, standby letters of credit aggregated $15,697,469$20.3 million and $13,067,100,$17.3 million, respectively. Management does not expect that all of these commitments will be funded. The Company has also executed contracts for the sale of mortgage loans in the secondary market in the amount of $1,135,500$1.3 million and $565,850$645 thousand as of December 31, 20162018 and 2015,2017, respectively. These amounts are included in loans held for sale at the respective balance sheet dates. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 18. Commitments and Contingencies (continued)
Residential mortgage loans sold to investors in the secondary market are sold with varying recourse provisions. Essentially, all loan sales agreements require the repurchase of a mortgage loan by the seller in situations such as breach of representation, warranty, or covenant, untimely document delivery, false or misleading statements, failure to obtain certain certificates of insurance, unmarketability, etc. Certain loan sales agreements contain repurchase requirements based on payment-related defects that are defined in terms of the number of days/months since the purchase, the sequence number of the payment, and/or the number of days of payment delinquency. Based on the specific terms stated in the agreements of investors purchasing residential mortgage loans from the Company’s subsidiary banks, the Company had $916,900$12.4 million and $524,400$300 thousand of sold residential mortgage loans with recourse provisions still in effect at December 31, 20162018 and 2015,2017, respectively. The subsidiary banks did not repurchase any loans from secondary market investors under the terms of loans sales agreements during the years ended December 31, 2016, 2015,2018, 2017, and 2014.2016. In the opinion of management, the risk of recourse and the subsequent requirement of loan repurchase to the subsidiary banks is not significant, and accordingly no liabilities have been established related to such. Aside from cash on-hand and in-vault, the majority of the Company'sCompany’s cash is maintained at upstream correspondent banks. The total amount of cash on deposit, certificates of deposit, and federal funds sold exceeded federal insured limits by approximately $135.6$52.6 million and $101.0$42.9 million as of December 31, 20162018 and 2015,2017, respectively. In the opinion of management, no material risk of loss exists due to the financial condition of the upstream correspondent banks. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 18. Commitments and Contingencies (continued) In an arrangement with Goldman Sachs, CRBT offers a cash management program for select customers. Based on a predetermined minimum balance, which must be maintained in the account, excess funds are automatically swept daily to an institutional money market fund administered by Goldman Sachs. At December 31, 20162018 and 2015,2017, the Company had $117,985,224$96.6 million and $105,290,874,$136.0 million, respectively of customer funds invested in this cash management program. In the opinion of management, no material risk of loss exists due to the financial condition of Goldman Sachs. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 19. Quarterly Results of Operations (Unaudited) | | | Year Ended December 31, 2016 | | | | | March | | | June | | | September | | | December | | | | | 2016 | | | 2016 | | | 2016 | | | 2016 | | | | | | | | | | | | | | | | | | | | Total interest income | | $ | 23,502,059 | | | $ | 23,913,284 | | | $ | 26,816,735 | | | $ | 32,235,657 | | Total interest expense | | | 2,904,537 | | | | 2,904,471 | | | | 3,185,958 | | | | 2,955,992 | | Net interest income | | | 20,597,522 | | | | 21,008,813 | | | | 23,630,777 | | | | 29,279,665 | | Provision for loan/lease losses | | | 2,072,985 | | | | 1,197,850 | | | | 1,607,986 | | | | 2,599,345 | | Noninterest income | | | 6,822,473 | | | | 6,762,401 | | | | 10,423,401 | | | | 7,028,600 | | Noninterest expense | | | 16,954,498 | | | | 17,743,753 | | | | 24,480,483 | | | | 22,307,178 | | Income before taxes | | | 8,392,512 | | | | 8,829,611 | | | | 7,965,709 | | | | 11,401,742 | | Federal and state income tax expense | | | 2,019,023 | | | | 2,153,144 | | | | 1,858,208 | | | | 2,872,412 | | Net income | | $ | 6,373,489 | | | $ | 6,676,467 | | | $ | 6,107,501 | | | $ | 8,529,330 | | | | | | | | | | | | | | | | | | | | EPS: | | | | | | | | | | | | | | | | | Basic | | $ | 0.54 | | | $ | 0.54 | | | $ | 0.47 | | | $ | 0.65 | | Diluted | | $ | 0.53 | | | $ | 0.53 | | | $ | 0.46 | | | $ | 0.64 | |
| | | Year Ended December 31, 2015 | | | | | | | | | | | | | | | | | March | | | June | | | September | | | December | | | Year Ended December 31, 2018 | | | | 2015 | | | 2015 | | | 2015 | | | 2015 | | | March | | June | | September | | December | | | | | | | | | | | | | | | | | | | | 2018 | | 2018 | | 2018 | | 2018 | Total interest income | | $ | 21,901,730 | | | $ | 22,050,612 | | | $ | 23,141,112 | | | $ | 22,909,799 | | | $ | 39,546,296 | | $ | 40,798,214 | | $ | 49,830,471 | | $ | 52,704,261 | Total interest expense | | | 4,119,513 | | | | 3,559,776 | | | | 3,003,586 | | | | 3,023,654 | | | | 7,143,378 | | | 8,713,718 | | | 11,516,988 | | | 13,109,573 | Net interest income | | | 17,782,217 | | | | 18,490,836 | | | | 20,137,526 | | | | 19,886,145 | | | | 32,402,918 | | | 32,084,496 | | | 38,313,483 | | | 39,594,688 | Provision for loan/lease losses | | | 1,710,456 | | | | 2,348,665 | | | | 1,635,263 | | | | 1,176,516 | | | | 2,539,839 | | | 2,300,735 | | | 6,205,828 | | | 1,612,047 | Noninterest income | | | 6,252,896 | | | | 5,495,829 | | | | 6,402,686 | | | | 6,211,910 | | | | 8,541,449 | | | 8,912,266 | | | 8,808,825 | | | 15,278,554 | Noninterest expense | | | 17,235,279 | | | | 24,136,229 | | | | 15,947,091 | | | | 15,873,423 | | | | 25,863,497 | | | 26,369,823 | | | 30,499,610 | | | 36,410,489 | Income (loss) before taxes | | | 5,089,378 | | | | (2,498,229 | ) | | | 8,957,858 | | | | 9,048,116 | | | Income before taxes | | | | 12,541,031 | | | 12,326,204 | | | 10,416,870 | | | 16,850,706 | Federal and state income tax expense (benefit) | | | 911,489 | | | | (1,974,411 | ) | | | 2,468,871 | | | | 2,263,293 | | | | 1,991,070 | | | 1,880,819 | | | 1,608,035 | | | 3,535,188 | Net income (loss) | | $ | 4,177,889 | | | $ | (523,818 | ) | | $ | 6,488,987 | | | $ | 6,784,823 | | | Net income | | | $ | 10,549,961 | | $ | 10,445,385 | | $ | 8,808,835 | | $ | 13,315,518 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EPS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | $ | 0.52 | | | $ | (0.05 | ) | | $ | 0.55 | | | $ | 0.58 | | | $ | 0.76 | | $ | 0.75 | | $ | 0.56 | | $ | 0.85 | Diluted | | $ | 0.52 | | | $ | (0.05 | ) | | $ | 0.55 | | | $ | 0.57 | | | $ | 0.74 | | $ | 0.73 | | $ | 0.55 | | $ | 0.84 |
| | | | | | | | | | | | | | | Year Ended December 31, 2017 | | | March | | June | | September | | December | | | 2017 | | 2017 | | 2017 | | 2017 | Total interest income | | $ | 31,345,099 | | $ | 32,453,268 | | $ | 33,840,865 | | $ | 37,878,086 | Total interest expense | | | 3,676,216 | | | 4,406,571 | | | 5,284,517 | | | 6,084,733 | Net interest income | | | 27,668,883 | | | 28,046,697 | | | 28,556,348 | | | 31,793,353 | Provision for loan/lease losses | | | 2,105,109 | | | 2,022,993 | | | 2,086,436 | | | 2,255,381 | Noninterest income | | | 7,283,754 | | | 6,782,518 | | | 6,701,303 | | | 9,714,717 | Noninterest expense | | | 21,273,117 | | | 21,404,629 | | | 23,395,747 | | | 31,351,204 | Income before taxes | | | 11,574,411 | | | 11,401,593 | | | 9,775,468 | | | 7,901,485 | Federal and state income tax expense | | | 2,389,446 | | | 2,635,576 | | | 1,921,533 | | | (2,000,105) | Net income | | $ | 9,184,965 | | $ | 8,766,017 | | $ | 7,853,935 | | $ | 9,901,590 | | | | | | | | | | | | | | EPS: | | | | | | | | | | | | | Basic | | $ | 0.70 | | $ | 0.67 | | $ | 0.60 | | $ | 0.72 | Diluted | | $ | 0.68 | | $ | 0.65 | | $ | 0.58 | | $ | 0.70 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 20. Parent Company Only Financial Statements The following is condensed financial information of QCR Holdings, Inc. (parent company only): Condensed Balance Sheets
December 31, 20162018 and 2015
| | | 2016 | | | 2015 | | | Assets | | | | | | | | | | | | | | | | | | | Cash and due from banks | | $ | 6,929,755 | | | $ | 3,650,133 | | Interest-bearing deposits at financial institutions | | | 651 | | | | 701 | | Securities available for sale, at fair value | | | 1,545,565 | | | | 1,398,255 | | Investment in bank subsidiaries | | | 345,866,288 | | | | 256,709,890 | | Investment in nonbank subsidiaries | | | 1,154,642 | | | | 1,318,227 | | Premises and equipment, net | | | 5,104,677 | | | | 4,502,435 | | Other assets | | | 15,245,521 | | | | 12,797,292 | | Total assets | | $ | 375,847,099 | | | $ | 280,376,933 | | | | | | | | | | | | Liabilities and Stockholders' Equity | | | | | | | | | Liabilities: | | | | | | | | | Other borrowings | | $ | 35,000,000 | | | $ | - | | Junior subordinated debentures | | | 33,480,202 | | | | 38,499,052 | | Other liabilities | | | 21,326,098 | | | | 15,992,131 | | Total liabilities | | | 89,806,300 | | | | 54,491,183 | | | | | | | | | | | | Stockholders' Equity: | | | | | | | | | Common stock | | | 13,106,845 | | | | 11,761,083 | | Additional paid-in capital | | | 156,776,642 | | | | 123,282,851 | | Retained earnings | | | 118,616,901 | | | | 92,965,645 | | Accumulated other comprehensive loss | | | (2,459,589 | ) | | | (2,123,829 | ) | Total stockholders' equity | | | 286,040,799 | | | | 225,885,750 | | Total liabilities and stockholders' equity | | $ | 375,847,099 | | | $ | 280,376,933 | |
2017
| | | | | | | | | 2018 | | 2017 | Assets | | | | | | | Cash and due from banks | | $ | 6,606,126 | | $ | 4,325,582 | Interest-bearing deposits at financial institutions | | | 1,000,552 | | | 601 | Securities available for sale, at fair value | | | — | | | 1,690,726 | Loans/leases receivable, held for investment | | | — | | | 1,710,000 | Investment in bank subsidiaries | | | 532,163,635 | | | 410,105,525 | Investment in nonbank subsidiaries | | | 4,879,873 | | | 2,956,337 | Premises and equipment, net | | | 6,956,040 | | | 4,947,572 | Goodwill | | | 3,766,074 | | | — | Intangibles | | | 1,854,932 | | | — | Other assets | | | 14,794,944 | | | 11,630,304 | Total assets | | $ | 572,022,176 | | $ | 437,366,647 | | | | | | | | Liabilities and Stockholders' Equity | | | | | | | Liabilities: | | | | | | | Other borrowings | | $ | 32,250,000 | | $ | 31,000,000 | Junior subordinated debentures | | | 37,670,043 | | | 37,486,487 | Other liabilities | | | 28,963,730 | | | 15,593,031 | Total liabilities | | | 98,883,773 | | | 84,079,518 | | | | | | | | Stockholders' Equity: | | | | | | | Common stock | | | 15,718,208 | | | 13,918,168 | Additional paid-in capital | | | 270,760,511 | | | 189,077,550 | Retained earnings | | | 192,203,333 | | | 151,962,661 | Accumulated other comprehensive loss | | | (5,543,649) | | | (1,671,250) | Total stockholders' equity | | | 473,138,403 | | | 353,287,129 | Total liabilities and stockholders' equity | | $ | 572,022,176 | | $ | 437,366,647 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 20. Parent Company Only Financial Statements (continued) Condensed Statements of Income
Years Ended December 31, 2016, 2015,2018, 2017, and 20142016
| | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | Total interest income | | $ | 74,489 | | | $ | 69,774 | | | $ | 40,815 | | Equity in net income of bank subsidiaries | | | 33,467,712 | | | | 22,059,086 | | | | 20,333,194 | | Equity in net income of nonbank subsidiaries | | | 32,674 | | | | 32,823 | | | | 32,675 | | Securities gains | | | 37,596 | | | | 262,800 | | | | - | | Other | | | (2,933 | ) | | | (4,436 | ) | | | 7,486 | | Total income | | | 33,609,538 | | | | 22,420,047 | | | | 20,414,170 | | | | | | | | | | | | | | | | Interest expense | | | 1,735,769 | | | | 1,679,909 | | | | 1,986,752 | | Salaries and employee benefits | | | 4,607,887 | | | | 4,847,507 | | | | 4,671,719 | | Professional fees | | | 949,442 | | | | 1,121,094 | | | | 1,100,714 | | Acquisition costs | | | 1,713,602 | | | | - | | | | - | | Gains on debt extinguishment | | | (1,200,000 | ) | | | (300,000 | ) | | | - | | Other | | | 988,057 | | | | 949,041 | | | | 635,081 | | Total expenses | | | 8,794,757 | | | | 8,297,551 | | | | 8,394,266 | | | | | | | | | | | | | | | | Income before income tax benefit | | | 24,814,781 | | | | 14,122,496 | | | | 12,019,904 | | | | | | | | | | | | | | | | Income tax benefit | | | 2,872,006 | | | | 2,805,385 | | | | 2,932,633 | | Net income | | $ | 27,686,787 | | | $ | 16,927,881 | | | $ | 14,952,537 | |
| | | | | | | | | | | | 2018 | | 2017 | | 2016 | Total interest income | | $ | 87,532 | | $ | 12,802 | | $ | 74,489 | Equity in net income of bank subsidiaries | | | 55,209,382 | | | 45,103,593 | | | 33,467,712 | Equity in net income of nonbank subsidiaries | | | (435,941) | | | 75,344 | | | 32,674 | Securities gains | | | — | | | 6,312 | | | 37,596 | Other | | | (322,119) | | | 2,700 | | | (2,933) | Total income | | | 54,538,854 | | | 45,200,751 | | | 33,609,538 | | | | | | | | | | | Interest expense | | | 3,637,126 | | | 2,658,414 | | | 1,735,769 | Salaries and employee benefits | | | 6,597,881 | | | 5,021,998 | | | 4,607,887 | Professional fees | | | 1,871,655 | | | 1,344,721 | | | 949,442 | Acquisition costs | | | 1,654,323 | | | 1,068,918 | | | 1,400,004 | Post-acquisition compensation, transition and integration costs | | | 165,314 | | | 3,151,384 | | | 313,598 | Gains on debt extinguishment | | | — | | | — | | | (1,200,000) | Other | | | 1,026,016 | | | 1,134,139 | | | 988,057 | Total expenses | | | 14,952,315 | | | 14,379,574 | | | 8,794,757 | | | | | | | | | | | Income before income tax benefit | | | 39,586,539 | | | 30,821,177 | | | 24,814,781 | | | | | | | | | | | Income tax benefit | | | 3,533,160 | | | 4,885,330 | | | 2,872,006 | Net income | | $ | 43,119,699 | | $ | 35,706,507 | | $ | 27,686,787 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 20. Parent Company Only Financial Statements (continued) Condensed Statements of Cash Flows
Years Ended December 31, 2016, 2015,2018, 2017, and 20142016
| | | 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: | | | | | | | | | | | | | Earnings of bank subsidiaries | | | (33,467,712 | ) | | | (22,059,086 | ) | | | (20,333,194 | ) | Earnings of nonbank subsidiaries | | | (32,674 | ) | | | (32,823 | ) | | | (32,675 | ) | Distributions from bank subsidiaries | | | 26,000,000 | | | | 9,700,000 | | | | 20,500,000 | | Distributions from nonbank subsidiaries | | | 32,860 | | | | 32,695 | | | | 32,684 | | Accretion of acquisition fair value adjustments | | | 136,150 | | | | 137,317 | | | | 133,905 | | Depreciation | | | 222,256 | | | | 174,757 | | | | 100,158 | | Stock-based compensation expense | | | 947,174 | | | | 941,469 | | | | 891,619 | | Securities gains, net | | | (37,596 | ) | | | (262,801 | ) | | | - | | Gains on debt extinguishment | | | (1,200,000 | ) | | | (300,000 | ) | | | - | | Decrease (increase) in other assets | | | (2,346,253 | ) | | | (5,929,110 | ) | | | 1,912,597 | | (Decrease) increase in other liabilities | | | 5,105,251 | | | | 5,502,390 | | | | 2,644,458 | | Net cash provided by operating activities | | | 23,046,243 | | | | 4,832,689 | | | | 20,802,089 | | | | | | | | | | | | | | | | Cash Flows from Investing Activities: | | | | | | | | | | | | | Net increase in interest-bearing deposits at financial institutions | | | 50 | | | | 189,426 | | | | (2,726 | ) | Activity in securities portfolio: | | | | | | | | | | | | | Purchases | | | (3,873,060 | ) | | | (1,764,137 | ) | | | (40,523 | ) | Calls, maturities and redemptions | | | 3,800,000 | | | | 1,772,719 | | | | 71,429 | | Sales | | | 132,738 | | | | 489,828 | | | | - | | Capital infusion, bank subsidiaries | | | - | | | | (45,600,000 | ) | | | - | | Net cash paid for Community State Bank acquisition | | | (80,000,000 | ) | | | - | | | | - | | Purchase of premises and equipment | | | (824,498 | ) | | | (1,517,157 | ) | | | (16,618 | ) | Net cash (used in) provided by investing activities | | | (80,764,770 | ) | | | (46,429,321 | ) | | | 11,562 | | | | | | | | | | | | | | | | Cash Flows from Financing Activities: | | | | | | | | | | | | | Activity in other borrowings: | | | | | | | | | | | | | Proceeds from other borrowings | | | 35,000,000 | | | | - | | | | 10,000,000 | | Calls, maturities and scheduled principal payments | | | - | | | | (2,350,000 | ) | | | (2,359,207 | ) | Prepayments | | | - | | | | (19,395,116 | ) | | | - | | 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 (used in) financing activities | | | 60,998,149 | | | | 40,747,626 | | | | (23,527,096 | ) | Net increase (decrease) in cash and due from banks | | | 3,279,622 | | | | (849,006 | ) | | | (2,713,445 | ) | | | | | | | | | | | | | | | Cash and due from banks: | | | | | | | | | | | | | Beginning | | | 3,650,133 | | | | 4,499,139 | | | | 7,212,584 | | Ending | | $ | 6,929,755 | | | $ | 3,650,133 | | | $ | 4,499,139 | |
| | | | | | | | | | | | 2018 | | 2017 | | 2016 | Cash Flows from Operating Activities: | | | | | | | | | | Net income | | $ | 43,119,699 | | $ | 35,706,507 | | $ | 27,686,787 | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | Earnings of bank subsidiaries | | | (55,209,382) | | | (45,103,593) | | | (33,467,712) | Earnings (losses) of nonbank subsidiaries | | | 435,941 | | | (75,344) | | | (32,674) | Distributions from bank subsidiaries | | | 34,500,000 | | | 21,000,000 | | | 26,000,000 | Distributions from nonbank subsidiaries | | | 63,270 | | | 38,734 | | | 32,860 | Accretion of acquisition fair value adjustments | | | 183,556 | | | 149,010 | | | 136,150 | Depreciation | | | 248,827 | | | 225,947 | | | 222,256 | Stock-based compensation expense | | | 1,443,346 | | | 1,187,036 | | | 947,174 | Securities gains, net | | | — | | | (6,312) | | | (37,596) | Gains on debt extinguishment | | | — | | | — | | | (1,200,000) | Decrease (increase) in other assets | | | 2,232,402 | | | (968,808) | | | (2,346,253) | (Decrease) increase in other liabilities | | | (7,226,127) | | | (6,918,921) | | | 5,105,251 | Net cash provided by operating activities | | | 19,791,532 | | | 5,234,256 | | | 23,046,243 | | | | | | | | | | | Cash Flows from Investing Activities: | | | | | | | | | | Net increase (decrease) in interest-bearing deposits at financial institutions | | | (999,951) | | | 50 | | | 50 | Activity in securities portfolio: | | | | | | | | | | Purchases | | | — | | | — | | | (3,873,060) | Calls, maturities and redemptions | | | — | | | 6,312 | | | 3,800,000 | Sales | | | — | | | 31,713 | | | 132,738 | Capital infusion, bank subsidiaries | | | (3,500,000) | | | — | | | — | Net cash paid for acquisitions | | | (5,182,804) | | | (3,368,909) | | | (80,000,000) | Purchase of premises and equipment | | | (2,257,295) | | | (68,842) | | | (824,498) | Net cash (used in) investing activities | | | (11,940,050) | | | (3,399,676) | | | (80,764,770) | | | | | | | | | | | Cash Flows from Financing Activities: | | | | | | | | | | Activity in other borrowings: | | | | | | | | | | Proceeds from other borrowings | | | 9,000,000 | | | 7,000,000 | | | 35,000,000 | Calls, maturities and scheduled principal payments | | | (12,550,000) | | | (11,000,000) | | | — | Retirement of junior subordinated debentures | | | — | | | — | | | (3,955,000) | Payment of cash dividends on common and preferred stock | | | (3,300,091) | | | (2,494,260) | | | (1,981,541) | Proceeds from issuance of common stock, net | | | 1,279,153 | | | 2,055,507 | | | 31,934,690 | Net cash provided by (used in) financing activities | | | (5,570,938) | | | (4,438,753) | | | 60,998,149 | | | | | | | | | | | Net increase (decrease) in cash and due from banks | | | 2,280,544 | | | (2,604,173) | | | 3,279,622 | | | | | | | | | | | Cash and due from banks: | | | | | | | | | | Beginning | | | 4,325,582 | | | 6,929,755 | | | 3,650,133 | Ending | | $ | 6,606,126 | | $ | 4,325,582 | | $ | 6,929,755 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 21. Fair Value Accounting guidance on fair value measurements uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows: | ●
| · | | Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in markets; |
| ●
| · | | Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and |
| ●
| · | | Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement |
Assets measured at fair value on a recurring basis comprised the following at December 31, 20162018 and 2015: | | | | | | | 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 | | | $ | - | |
2017: | | | | | | | | | | | | | | | | | | 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, 2018: | | | | | | | | | | | | | Securities AFS: | | | | | | | | | | | | | U.S. govt. sponsored agency securities | | $ | 36,411,391 | | $ | — | | $ | 36,411,391 | | $ | — | Residential mortgage-backed and related securities | | | 159,249,260 | | | — | | | 159,249,260 | | | — | Municipal securities | | | 58,546,022 | | | — | | | 58,546,022 | | | — | Other securities | | | 6,849,775 | | | — | | | 6,849,775 | | | — | Interest rate caps | | | 458,812 | | | — | | | 458,812 | | | — | Interest rate swaps - assets | | | 22,195,713 | | | — | | | 22,195,713 | | | — | Total assets measured at fair value | | $ | 283,710,973 | | $ | — | | $ | 283,710,973 | | $ | — | | | | | | | | | | | | | | Interest rate swaps - liabilities | | $ | 23,346,887 | | $ | — | | $ | 23,346,887 | | $ | — | Total liabilities measured at fair value | | $ | 23,346,887 | | $ | — | | $ | 23,346,887 | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017: | | | | | | | | | | | | | Securities AFS: | | | | | | | | | | | | | U.S. govt. sponsored agency securities | | $ | 38,096,534 | | $ | — | | $ | 38,096,534 | | $ | — | Residential mortgage-backed and related securities | | | 163,301,304 | | | — | | | 163,301,304 | | | — | Municipal securities | | | 66,625,496 | | | — | | | 66,625,496 | | | — | Other securities | | | 4,884,573 | | | 1,028 | | | 4,883,545 | | | — | Interest rate caps | | | 506,700 | | | — | | | 506,700 | | | — | Interest rate swaps - assets | | | 4,397,238 | | | — | | | 4,397,238 | | | — | Total assets measured at fair value | | $ | 277,811,845 | | $ | 1,028 | | $ | 277,810,817 | | $ | — | | | | | | | | | | | | | | Interest rate swaps - liabilities | | $ | 4,397,238 | | $ | — | | $ | 4,397,238 | | $ | — | Total liabilities measured at fair value | | $ | 4,397,238 | | $ | — | | $ | 4,397,238 | | $ | — |
QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 21. Fair Value (continued)
There were no transfers of assets or liabilities between Levels 1, 2, and 3 of the fair value hierarchy during the years ended December 31, 20162018 or 2015. A small portion of the securities available for sale portfolio consists of common stock issued by various unrelated bank holding companies and mutual funds. The fair values used by the Company are obtained from an independent pricing service, which represent quoted market prices for the identical securities (Level 1 inputs).
2017. The remainder of the securities available for sale portfolio consists of securities whereby the Company obtains fair values from an independent pricing service. The fair values are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2 inputs). Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 21. Fair Value (continued) Interest rate caps are used for the purpose of hedging interest rate risk. See Note 7 to the Consolidated Financial Statements for the details of these instruments. The fair values are determined by pricing models that consider observable market data for derivative instruments with similar structures (Level 2 inputs). Interest rate swaps are executed for select commercial customers. The interest rate swaps are further described inSee Note 17 to the Consolidated Financial Statements.Statements for the detail of these instruments. The fair values are determined by comparing the contractual rate on the swap with the then-current market rate for the remaining term of the transaction (Level 2 inputs). Interest rate swaps are also used for the purpose of hedging interest rate risk on junior subordinated debt. See Note 7 to the Consolidated Financial Statements for the details of these instruments. The fair values are determined by comparing the contract rate on the swap with the then-current market rate for the remaining term of the transaction (Level 2 inputs). Certain financial assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets measured at fair value on a non-recurring basis comprised the following at December 31, 20162018 and 2015:2017: | | | | | | | 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: | | | | | | | | | | | | | | | | | Impaired loans/leases | | $ | 12,823,121 | | | $ | - | | | $ | - | | | $ | 12,823,121 | | Other real estate owned | | | 5,964,952 | | | | - | | | | - | | | | 5,964,952 | | | | | $ | 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 | |
| | | | | | | | | | | | | | | | | | 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, 2018: | | | | | | | | | | | | | Impaired loans/leases | | $ | 9,656,912 | | $ | — | | $ | — | | $ | 9,656,912 | OREO | | | 10,127,954 | | | — | | | — | | | 10,127,954 | | | $ | 19,784,866 | | $ | — | | $ | — | | $ | 19,784,866 | | | | | | | | | | | | | | December 31, 2017: | | | | | | | | | | | | | Impaired loans/leases | | $ | 8,972,337 | | $ | — | | $ | — | | $ | 8,972,337 | OREO | | | 14,642,973 | | | — | | | — | | | 14,642,973 | | | $ | 23,615,310 | | $ | — | | $ | — | | $ | 23,615,310 |
Impaired loans/leases are evaluated and valued at the time the loan/lease is identified as impaired, at the lower of cost or fair value, and are classified as a Level 3 in the fair value hierarchy. Fair value is measured based on the value of the collateral securing these loans/leases. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 21. Fair Value (continued)
Other real estate owned in the table above consists of property acquired through foreclosures and settlements of loans. Property acquired is carried at the estimated fair value of the property, less disposal costs, and is classified as a Level 3 in the fair value hierarchy. The estimated fair value of the property is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the property. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 21. Fair Value (continued) The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value: | | | | | | | | | | | | | | | | | | | | | | Quantitative Information about Level Fair Value Measurements | | | | | Quantitative Information about Level Fair Value Measurements | | | Fair Value | | Fair Value | | | | | | | | | | | | | | | December 31, 2016 Fair Value | | | December 31, 2015 Fair Value | | Valuation Technique | Unobservable Input | | Range | | | December 31, | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | Valuation Technique | | Unobservable Input | | Range | | Impaired loans/leases | | $ | 12,823,121 | | | $ | 4,545,966 | | Appraisal of collateral | Appraisal adjustments | | -10.00% | to | -50.00% | | | $ | 9,656,912 | | $ | 8,972,337 | | Appraisal of collateral | | Appraisal adjustments | | (10.00) | % | to | | (30.00) | % | Other real estate owned | | | 5,964,952 | | | | 7,722,711 | | Appraisal of collateral | Appraisal adjustments | | 0.00% | to | -35.00% | | | OREO | | | | 10,127,954 | | | 14,642,973 | | Appraisal of collateral | | Appraisal adjustments | | 0.00 | % | to | | (35.00) | % |
For impaired loans/leases and other real estate owned, the Company records carrying value at fair value less disposal or selling costs. The amounts reported in the tables above are fair values before the adjustment for disposal or selling costs. There have been no changes in valuation techniques used for any assets measured at fair value during the years ended December 31, 20162018 or 2015. 2017. The following table presents the carrying values and estimated fair values of financial assets and liabilities carried on the Company’s consolidated balance sheet, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis: | | Fair Value | | As of December 31, 2016 | | | As of December 31, 2015 | | | | Hierarchy | | Carrying | | | Estimated | | | Carrying | | | Estimated | | | | Level | | Value | | | Fair Value | | | Value | | | Fair Value | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | Level 1 | | $ | 70,569,993 | | | $ | 70,569,993 | | | $ | 41,742,321 | | | $ | 41,742,321 | | Federal funds sold | Level 2 | | | 22,257,000 | | | | 22,257,000 | | | | 19,850,000 | | | | 19,850,000 | | Interest-bearing deposits at financial institutions | Level 2 | | | 63,948,925 | | | | 63,948,925 | | | | 36,313,965 | | | | 36,313,965 | | Investment securities: | | | | | | | | | | | | | | | | | | HTM | Level 2 | | | 322,909,056 | | | | 320,414,899 | | | | 253,674,159 | | | | 255,691,285 | | AFS | See Previous Table | | | 251,113,139 | | | | 251,113,139 | | | | 323,434,982 | | | | 323,434,982 | | Loans/leases receivable, net | Level 3 | | | 11,873,260 | | | | 12,823,121 | | | | 4,209,228 | | | | 4,545,966 | | Loans/leases receivable, net | Level 2 | | | 2,362,856,277 | | | | 2,344,462,740 | | | | 1,767,672,541 | | | | 1,764,178,772 | | Interest rate caps | Level 2 | | | 576,527 | | | | 576,527 | | | | 856,024 | | | | 856,024 | | Interest rate swaps - assets | Level 2 | | | 2,338,281 | | | | 2,338,281 | | | | 3,044,525 | | | | 3,044,525 | | Deposits: | | | | | | | | | | | | | | | | | | Nonmaturity deposits | Level 2 | | | 2,188,683,349 | | | | 2,188,683,349 | | | | 1,516,599,081 | | | | 1,516,599,081 | | Time deposits | Level 2 | | | 480,577,924 | | | | 479,605,000 | | | | 364,067,103 | | | | 364,192,000 | | Short-term borrowings | Level 2 | | | 39,971,387 | | | | 39,971,387 | | | | 144,662,716 | | | | 144,662,716 | | FHLB advances | Level 2 | | | 137,500,000 | | | | 138,338,000 | | | | 151,000,000 | | | | 153,143,000 | | Other borrowings | Level 2 | | | 80,000,000 | | | | 81,282,000 | | | | 110,000,000 | | | | 116,061,000 | | Junior subordinated debentures | Level 2 | | | 33,480,202 | | | | 24,881,494 | | | | 38,499,052 | | | | 27,642,093 | | Interest rate swaps - liabilities | Level 2 | | | 2,338,281 | | | | 2,338,281 | | | | 3,044,525 | | | | 3,044,525 | |
| | | | | | | | | | | | | | | | | Fair Value | | As of December 31, 2018 | | As of December 31, 2017 | | | Hierarchy | | Carrying | | Estimated | | Carrying | | Estimated | | | Level | | Value | | Fair Value | | Value | | Fair Value | Cash and due from banks | | Level 1 | | $ | 85,522,685 | | $ | 85,522,685 | | $ | 75,721,663 | | $ | 75,721,663 | Federal funds sold | | Level 2 | | | 26,398,000 | | | 26,398,000 | | | 30,197,000 | | | 30,197,000 | Interest-bearing deposits at financial institutions | | Level 2 | | | 133,198,095 | | | 133,198,095 | | | 55,765,012 | | | 55,765,012 | Investment securities: | | | | | | | | | | | | | | | HTM | | Level 2 | | | 401,912,885 | | | 400,770,583 | | | 379,474,205 | | | 379,749,804 | AFS | | See Previous Table | | | 261,056,448 | | | 261,056,448 | | | 272,907,907 | | | 272,907,907 | Loans/leases receivable, net | | Level 3 | | | 8,941,585 | | | 9,656,912 | | | 8,307,719 | | | 8,972,337 | Loans/leases receivable, net | | Level 2 | | | 3,683,965,349 | | | 3,639,329,000 | | | 2,921,821,953 | | | 2,892,963,000 | Interest rate caps | | Level 2 | | | 458,812 | | | 458,812 | | | 506,700 | | | 506,700 | Interest rate swaps - assets | | Level 2 | | | 22,195,713 | | | 22,195,713 | | | 4,397,238 | | | 4,397,238 | Deposits: | | | | | | | | | | | | | | | Nonmaturity deposits | | Level 2 | | | 3,002,326,538 | | | 3,002,326,538 | | | 2,670,583,178 | | | 2,670,583,178 | Time deposits | | Level 2 | | | 974,704,036 | | | 968,906,000 | | | 596,071,878 | | | 591,772,000 | Short-term borrowings | | Level 2 | | | 28,774,157 | | | 28,774,157 | | | 13,993,122 | | | 13,993,122 | FHLB advances | | Level 2 | | | 266,492,039 | | | 265,926,000 | | | 192,000,000 | | | 192,115,000 | Other borrowings | | Level 2 | | | 72,032,318 | | | 72,703,000 | | | 66,000,000 | | | 66,520,000 | Junior subordinated debentures | | Level 2 | | | 37,670,043 | | | 29,992,198 | | | 37,486,487 | | | 29,253,624 | Interest rate swaps - liabilities | | Level 2 | | | 23,346,887 | | | 23,346,887 | | | 4,397,238 | | | 4,397,238 |
Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 21. Fair Value (continued)
The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include: cash and due from banks, federal funds sold, interest-bearing deposits at financial institutions, non-maturity deposits, and short-term borrowings. The Company used the following methods and assumptions in estimating the fair value of the following instruments:
Securities held to maturity:The fair values are estimated using pricing models that consider certain observable market data and some observable inputs, such as rate and term.
Loans/leases receivable: The fair values for all types of loans/leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans/leases with similar terms to borrowers with similar credit quality. The fair value of loans held for sale is based on quoted market prices of similar loans sold in the secondary market.
Deposits: The fair values disclosed for demand deposits equal their carrying amounts, which represent the amount payable on demand. Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregate expected monthly maturities on time deposits.
FHLB advances and junior subordinated debentures: The fair value of these instruments is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.
Other borrowings: The fair value for the wholesale repurchase agreements and fixed rate other borrowings is estimated using rates currently available for debt with similar terms and remaining maturities. The fair value for variable rate other borrowings is equal to its carrying value.
Commitments to extend credit: The fair value of these commitments is not material.
Note 22. Business Segment Information Selected financial and descriptive information is required to be disclosed for reportable operating segments, applying a “management perspective” as the basis for identifying reportable segments. The management perspective is determined by the view that management takes of the segments within the Company when making operating decisions, allocating resources, and measuring performance. The segments of the Company have been defined by the structure of the Company’s internal organization, focusing on the financial information that the Company’s operating decision-makers routinely use to make decisions about operating matters. The Company’s primary segment, Commercial Banking, is geographically divided by markets into the secondary segments which are the fourfive subsidiary banks wholly-owned by the Company: QCBT, CRBT, CSB, RB&T and RB&T.SFC Bank. Each of these secondary segments offer similar products and services, but are managed separately due to different pricing, product demand, and consumer markets. Each offers commercial, consumer, and mortgage loans and deposit services. The Company’s Wealth Management segment represents trust and asset management and investment management and advisory services offered at the Company’s three subsidiary banks in aggregate. This segment generates income primarily from fees charged based on assets under administration for corporate and personal trusts, custodial services, and investments managed. No assets of the subsidiary banks have been allocated to the Wealth Management segment. QCR Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 22. Business Segment Information (continued)
The Company’s All Other segment includes the corporate operations of the parent and operations of all other consolidated subsidiaries and/or defined operating segments that fall below the segment reporting thresholds. Table of Contents QCR Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 22. Business Segment Information (continued) Selected financial information on the Company'sCompany’s business segments, with all intercompany accounts and transactions eliminated, is presented as follows as of and for the years ended December 31, 2016, 2015,2018, 2017, and 2014: | | | 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 | |
2016:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial Banking | | Wealth | | | | | Intercompany | | Consolidated | | | QCBT | | CRBT | | Guaranty Bank* | | CSB | | SFC Bank | | RB&T | | Management | | All other | | Eliminations | | Total | Twelve Months Ended December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 69,691,414 | | $ | 69,864,300 | | $ | — | | $ | 36,069,287 | | $ | 15,153,047 | | $ | 20,848,171 | | $ | 13,432,963 | | $ | 232,624 | | $ | (871,470) | | $ | 224,420,336 | Net interest income | | | 48,682,464 | | | 43,038,038 | | | — | | | 28,762,834 | | | 11,834,782 | | | 13,638,969 | | | — | | | (3,561,502) | | | — | | | 142,395,585 | Provision | | | 3,692,928 | | | 1,833,226 | | | — | | | 1,523,462 | | | 990,000 | | | 4,618,833 | | | — | | | — | | | — | | | 12,658,449 | Net income (loss) | | | 18,346,840 | | | 20,044,067 | | | — | | | 8,389,007 | | | 4,816,326 | | | 667,809 | | | 2,951,991 | | | (12,096,341) | | | — | | | 43,119,699 | Goodwill | | | 3,222,688 | | | 14,979,984 | | | — | | | 9,888,225 | | | 45,974,931 | | | — | | | — | | | 3,766,074 | | | — | | | 77,831,902 | Intangibles | | | — | | | 3,186,136 | | | — | | | 4,674,613 | | | 7,734,501 | | | — | | | — | | | 1,854,932 | | | — | | | 17,450,182 | Total assets | | | 1,623,368,583 | | | 1,379,222,278 | | | — | | | 785,363,891 | | | 632,849,228 | | | 509,621,731 | | | — | | | 45,671,799 | | | (26,387,315) | | | 4,949,710,195 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Twelve Months Ended December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 58,055,715 | | $ | 45,367,035 | | $ | 1,806,078 | | $ | 31,944,152 | | $ | — | | $ | 18,035,971 | | $ | 11,057,519 | | $ | 232,660 | | $ | (499,520) | | $ | 165,999,610 | Net interest income | | | 46,407,078 | | | 31,042,302 | | | 1,551,356 | | | 27,020,674 | | | — | | | 12,707,651 | | | — | | | (2,663,780) | | | — | | | 116,065,281 | Provision | | | 3,908,919 | | | 1,050,000 | | | — | | | 2,783,000 | | | — | | | 728,000 | | | — | | | — | | | — | | | 8,469,919 | Net income (loss) | | | 22,095,055 | | | 10,712,174 | | | 346,835 | | | 7,047,671 | | | — | | | 2,660,364 | | | 2,241,494 | | | (9,397,086) | | | — | | | 35,706,507 | Goodwill | | | 3,222,688 | | | 15,223,179 | | | — | | | 9,888,225 | | | — | | | — | | | — | | | — | | | — | | | 28,334,092 | Intangibles | | | — | | | 3,693,592 | | | — | | | 5,385,361 | | | — | | | — | | | — | | | — | | | — | | | 9,078,953 | Total assets | | | 1,541,777,558 | | | 1,307,376,687 | | | — | | | 670,516,373 | | | — | | | 461,650,765 | | | — | | | 28,267,478 | | | (26,924,088) | | | 3,982,664,773 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Twelve Months Ended December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 59,442,052 | | $ | 37,242,901 | | $ | — | | $ | 11,406,291 | | $ | — | | $ | 16,043,894 | | $ | 9,156,948 | | $ | 109,563 | | $ | 4,100,975 | | $ | 137,502,624 | Net interest income | | | 45,081,080 | | | 29,205,047 | | | — | | | 10,004,729 | | | — | | | 11,887,201 | | | — | | | (1,661,280) | | | — | | | 94,516,777 | Provision | | | 4,168,166 | | | 950,000 | | | — | | | 1,460,000 | | | — | | | 900,000 | | | — | | | — | | | — | | | 7,478,166 | Net income (loss) | | | 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 | Intangibles | | | — | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
QCR Holdings, Inc. and Subsidiaries* Represents financial results for Guaranty Bank for the period from October 1, 2017 through December 2, 2017, when Guaranty Bank was merged into CRBT.
Notes to Consolidated Financial Statements
Note 23. Acquisition of Noncontrolling Interest in m2 Lease FundsSubsequent Event: Subordinated Notes On August 27, 2012,February 12, 2019 the Company’s largest subsidiary bank, QCBT, entered intoCompany completed an amendmentunderwritten public offering of $65.0 million in aggregate principal amount of 5.375% Fixed-to-Floating Rate Subordinated Notes maturing on February 15, 2029. Net proceeds, after deducting the underwriting discount and estimated expenses, were approximately $63.5 million. Immediately following issuance, the Company repaid term notes totaling $21.4 million and the outstanding balance of $9.0 million on its revolving line of credit. This debt is included in Other Borrowings on the December 31, 2018 Consolidated Balance Sheet with balances of $23.3 million and $9.0 million, respectively, as of that date. The Company intends to the operating agreement of m2 and purchaseduse the remaining 20% noncontrollingnet proceeds from this offering for general corporate purposes, including the pursuit of possible opportunistic acquisitions of similar or complementary financial service organizations, repaying indebtedness, financing investments and capital expenditures, repurchasing shares of our common stock, investing in the subsidiary banks as regulatory capital and other strategic opportunities that may arise in the future. The Subordinated Notes bear interest in m2 for $4,501,442. The purchase priceat a fixed rate of 5.375% per year until and related acquisition costs exceededincluding February 12, 2024. After this date, the book value by $2,133,417. This excess was reflected as a reduction in additional paid in capital on the Company’s consolidated financial statementsinterest rate will change to three-month LIBOR plus 282 points until the final payout in 2015. The acquisition was structured in two payments with the initial payment of $1,653,755 made on September 11, 2012 and the final payment of $3,307,509 due in September 2015. QCBT calculated the present value of this future payment using a discount rate of 5% and recorded a resulting liability of $2,847,687. QCBT accreted the discount of $459,822 using the effective yield method over the three year period to the final paymentmaturity date. Accretion totaled $80,820 and $155,716 for the years ended December 31, 2015 and 2014, respectively. The final payment made in 2015 eliminated any further liability. In conjunction with the purchase agreement, the Company also entered into an agreement with the Chief Executive OfficerThe Notes are subordinate to all exisiting debt and former 20% owner of m2, whereby he was provided additional consideration equal to 20% of the earnings of m2 for the period from September 2012 through the earlier of August 2015 or his separation from service. The payment under this arrangement was also due in September 2015. Because the payment was contingent upon future service, QCBT was accruing the liability and related compensation expense over the service period. Expense totaled $593,611 and $701,634 for the years ended December 31, 2015 and 2014, respectively. The final payment made in 2015 eliminated any further liability.general creditors.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures 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)13a‑15(e) and 15d – 15(e) promulgated under the Exchange Act) as of December 31, 2016.2018. 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. Management’s Report on Internal Control 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)13a‑15(f) and 15d-15(f)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 management has excluded CSBSFC Bank and the Bates Companies from its assessment of internal control over financial reporting as of December 31, 2016,2018, because CSB wasthey were acquired by the Company in the third and fourth quarter of 2016. 2018, respectively. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016.2018. 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, 2016.2018. Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2016.2018. 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, 2016,2018, which is included on the following pages of this Form 10-K.10‑K. Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of QCR Holdings, Inc. Opinion on the Internal Control Over Financial Reporting We have audited QCR Holdings, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2016,2018, 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, 2018, 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, 2018 and 2017, 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, 2018 and our report dated March 15, 2019 expressed an unqualified opinion. As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Springfield First Community Bank (SFC Bank) and Bates Financial Advisors, Inc., Bates Financial Services, Inc., Bates Securities, Inc., and Bates Financial Group, Inc. (Bates Companies) from its assessment of internal control over financial reporting as of December 31, 2018, because they were acquired by the Company in business combinations in the third and fourth quarter, respectively, of 2018. We have also excluded these entities from our audit of internal control over financial reporting. SFC Bank and the Bates Companies are wholly owned subsidiaries whose total assets represent approximately 13% and less than 1%, respectively, of the Company’s consolidated assets as of December 31, 2018. Basis for Opinion 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'sCompany’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. As described in Management’s Report on
Definition and Limitations of Internal Control overOver 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 inInternal 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.
 
Davenport, Iowa March 10, 201715, 2019
Changes in Internal Control Overover Financial Reporting.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 likelylike to materially 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. Item 9B.Other Information None. Part III Item 10.Directors, Executive Officers and Corporate Governance The information required by 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 20172019 Proxy Statement and is incorporated herein by reference. Item 11.Executive Compensation The information required by this item is set forth under the captions “Executive Compensation” and “Director Compensation” in the Company’s 20172019 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 20172019 Proxy Statement and is incorporated herein by reference. The table below sets forth the following information as of December 31, 20162018 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: | (a) | | The number of securities to be issued upon the exercise of outstanding options, warrants, and rights; |
| (b) | | The weighted-average exercise price of such outstanding options, warrants, and rights; and |
| (c) | | Other than securities to be issued upon the exercise of such outstanding options, warrants, and rights, the number of securities remaining available for future issuance under the plans. |
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)) | | | | | (a) | | | (b) | | | (c) | | | | | | | | | | | | | | | | Equity compensation plans approved by stockholders | | | 591,534 | | | $ | 14.89 | | | | 600,579 | (1) | | | | | | | | | | | | | | | Equity compensation plans not approved by stockholders | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | Total | | | 591,534 | | | $ | 14.89 | | | | 600,579 | (1) |
| | | | | | | | | | | EQUITY COMPENSATION PLAN INFORMATION | | | | | | | | | Number of securities remaining | | | | Number of securities to be | | | | | available for future issuance | | | | issued upon exercise of | | Weighted-average exercise price | | under equity compensation | | | | outstanding options, warrants, | | of outstanding options, | | plans (excluding securities | | Plan category | | and rights | | warrants, and rights | | reflected in column (a)) | | | | (a) | | | (b) | | (c) | | Equity compensation plans approved by stockholders | | 488,673 | | $ | 18.62 | | 460,268 | (1) | | | | | | | | | | Equity compensation plans not approved by stockholders | | — | | | — | | — | | | | | | | | | | | Total | | 488,673 | | $ | 18.62 | | 460,268 | (1) |
| (1) | | Includes 187,921158,202 shares available under the QCR Holdings, Inc. Employee Stock Purchase Plan.Plan. |
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 and Directors” in the Company’s 20172019 Proxy Statement and is incorporated herein by reference. Item 14.Principal Accountant Fees and Services The information required by this item is set forth under the caption “Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm” in the Company’s 20172019 Proxy Statement and is incorporated herein by reference. Part IV Item 15.Exhibits and Financial Statement Schedules | (a) | | 1. Financial Statements |
These documents are listed in the Index to Consolidated Financial Statements under Item 8. | (a) | | 2. Financial Statement Schedules |
Financial statement schedules are omitted, as they are not required or are not applicable, or the required information is shown in the consolidated financial statementsConsolidated Financial Statements and the accompanying notes thereto. The following exhibits are either filed as a part of this Annual Report on Form 10-K10‑K or are incorporated herein by reference: Exhibit
Number | | Exhibit Description | | | | 3.12.1*
| | Agreement and Plan of Merger with Springfield Bancshares, Inc. dated as of April 17, 2018 (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed with the SEC on April 18, 2018). | | | | | 3.1 | | Certificate of Incorporation of QCR Holdings, Inc., as amended (incorporated by reference to Exhibit 3.1 of the Registrant’sCompany’s Quarterly Report on Form 10-Q/10‑Q/A Amendment No. 1 for the period ended September 30, 2011). | | | | | 3.2 | 3.2
| | Bylaws of QCR Holdings, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant'sCompany’s Form 8-K dated November 20, 2015)8‑K filed February 19, 2019). | | | | | 4.1 | 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’sCompany’s Form 8-K8‑K filed May 8, 2013). | | | | | 4.2 | 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’sCompany’s Form 8-K8‑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. |
10.2
10.3+ | | 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’sCompany’s Annual Report on Form 10-K10‑K for the year ended December 31, 2003). | | | | 10.310.4+
| | Employment Agreement between QCR Holdings, Inc. and Todd A. Gipple dated January 1, 2004 (incorporated by reference to Exhibit 10.11 of Registrant’sCompany’s Annual Report on Form 10-K10‑K for the year ended December 31, 2003). | | | | | 10.5 | 10.4
| | Dividend Reinvestment Plan of QCR Holdings, Inc. (incorporated by reference to Exhibit 99.1 of Registrant’sCompany’s Form S-3D,S‑3D, File No. 333-102699333‑102699 dated January 24, 2003). | | | | | 10.6 | 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 10.210.1 of Registrant’sCompany’s Quarterly Report on Form 10-Q10‑Q for the quarter ended September 30, 2005). | | | | 10.610.7+
| | 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’sCompany’s Annual Report on Form 10-K10‑K for the year ended December 31, 2008). | | | | 10.710.8+
| | 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’sCompany’s Annual Report on Form 10-K10‑K for the year ended December 31, 2008). | | | | 10.810.9+
| | 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’sCompany’s Annual Report on Form 10-K10‑K for the year ended December 31, 2008). | | | | 10.910.10+
| | Executive Deferred Compensation Plan of QCR Holdings, Inc. (incorporated by reference to Exhibit 10.22 of the Registrant’sCompany’s Annual Report on Form 10-K10‑K for the year ended December 31, 2008). | | | | 10.1010.11+
| | 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 filedCompany’s Annual Report on March 12, 2015)Form10‑K for the year ended December 31, 2014). | | | | 10.1110.12+
| | 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 filedCompany’s Annual Report on March 12, 2015)Form10‑K for the year ended December 31, 2014). | | | | 10.1210.13+
| | 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 10-K filedCompany’s Annual Report on March 12, 2015)Form 10‑K for the year ended December 31, 2014). | | | | 10.1310.14+
| | 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’sCompany’s Annual Report on Form 10-K10‑K for the year ended December 31, 2008). | 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 Company’s Annual Report on Form 10‑K for the year ended December 31, 2008). |
10.16+ | | Non-Qualified Supplemental Executive Retirement Plan Joinder Agreement among QCR Holdings, Inc., and Todd A. Gipple dated December 31, 2008 (incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10‑K for the year ended December 31, 2008). | 10.1410.17+
| | 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'sCompany’s Form 8-K8‑K dated December 31, 2015). | | | | | 10.18 | 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
| | 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
| | 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
| | Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Appendix A to the Registrant’sCompany’s Definitive Proxy Statement on Schedule 14A dated March 21, 2012). | | | | | 10.19 | 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’sCompany’s Quarterly Report on Form 10-Q10‑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'sCompany’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 10-K filedCompany’s Annual Report on March 12, 2015)Form 10‑K 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 10-K filedCompany’s Annual Report on March 12, 2015)Form 10‑K 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 10-K filedCompany’s Annual Report on March 12, 2015)Form 10‑K 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 10-K filedCompany’s Annual Report on March 12, 2015)Form 10‑K 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 10-K filedCompany’s Annual Report on March 12, 2015)Form 10‑K 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 10-K filedCompany’s Annual Report on March 12, 2015)Form 10‑K 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 10-K filedCompany’s Annual Report on March 12, 2015)Form 10‑K 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 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
10.29+ | | 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 Current Report on Form 8-K8‑K filed on December 28, 2016). | | | | 10.3210.30+
| | 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 Current Report on Form 8-K8‑K filed on December 28, 2016). | | | | 10.3310.31+
| | Form of QCR Holdings, Inc. 2016 Equity Incentive Plan Nonqualified Stock Option Award Agreement (incorporated by reference to Exhibit 4.5 of the Company’s Form S-8S‑8 filed on October 27, 2016 (File No. 333-214282)333‑214282)). |
| | 10.3410.32+
| | Form of QCR Holdings, Inc. 2016 Equity Incentive Plan Restricted Stock Award Agreement (incorporated by reference to Exhibit 4.6 of the Company’s Form S-8S‑8 filed on October 27, 2016 (File No. 333-214282)333‑214282)). | | | | 10.3510.33+
| | Form of QCR Holdings, Inc. 2016 Equity Incentive Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 4.7 of the Company’s Form S-8S‑8 filed on October 27, 2016 (File No. 333-214282)333‑214282)). | 10.34+ | | Transitional Employment Agreement, dated November 19, 2018, between QCR Holdings, Inc. and Douglas M. Hultquist (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed November 19, 2018). | 21.110.35+
| | Employment Agreement, dated November 19, 2018, between QCR Holdings, Inc. and Larry Helling (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed November 19, 2018). | 10.36+ | | Employement Agreement, dated November 19, 2018, between QCR Holdings, Inc. and Todd Gipple (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed November 19, 2018). | | 21.1 | | Subsidiaries of QCR Holdings, Inc. (exhibit is being filed herewith). | | | | | 23.1 | 23.1
| | Consent of Independent Registered PublicPubic Accounting Firm —- RSM US LLP (exhibit is being filed herewith). | | | | | 31.1 | 31.1
| | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)13a‑14(a)/15d-14(a)15d‑14(a) (exhibit is being filed herewith). | | | | | 31.2 | 31.2
| | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)13a‑14(a)/15d-14(a)15d‑14(a) (exhibit is being filed herewith). | | | | | 32.1 | 32.1
| | Certification of Chief ExecutiveExecutivve Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (exhibit is being filed herewith). | | | | | 32.2 | 32.2
| | Certification of Chief FinancialFinanical Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (exhibit is being filed herewith). | | | | 101
| | |
| 101 | | Interactive Data File | | | | | | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at December 31, 20162018 and December 31, 2015;2017; (ii) Consolidated Statements of Income for the years ended December 31, 2016,2018, December 31, 20152017 and December 31, 2014;2016; (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016,2018, December 31, 2015,2017, and December 31, 2014;2016; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2016,2018, December 31, 20152017 and December 31, 2014;2016; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2016,2018, December 31, 20152017 and December 31, 2014;2016; and (vi) Notes to Consolidated Financial Statements. | | | | * | | The Company has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b) of Regulation S-K. The Company will furnish a copy of any omitted schedule or similar attachment to the SEC upon request. | + | | A compensatory arrangement. | | | |
Item 16.16. Form 10-K10‑K Summary None SIGNATURES 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. | QCR HOLDINGS, INC. | | | | | | Dated: March 10, 2017 15, 2019 | By: | /s/ Douglas M. Hultquist | | | | Douglas M. Hultquist | | | | President and Chief Executive Officer | | | | | | | | Dated: March 10, 201715, 2019 | By: | /s/ Todd A. Gipple | | | | Todd A. Gipple | | | | Executive Vice President, Chief Operating Officer andChiefand Chief Financial Officer | | | | | | Dated: March 10, 201715, 2019 | By: | /s/ Elizabeth A. Grabin | | | | Elizabeth A. Grabin | | | | FirstSenior Vice President, Controller & Director of FinancialReporting | Chief Accounting Officer | | | (Principal Accounting Officer) | |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated. SIGNATURES | | | | | Signature | | Title | | Date | | | | | | /s/ Patrick S. Baird | | Chair of the Board of Directors | | March 10, 201715, 2019 | Patrick S. Baird | | | | | | | | | | /s/ Marie Z. Ziegler | | Vice-Chair of the Board of Directors | | March 15, 2019 | Marie Z. Ziegler | | | | | | | | | | /s/ Douglas M. Hultquist | | President, Chief Executive | | March 10, 201715, 2019 | Douglas M. Hultquist | | Officer and Director | | | | | | /s/ James J. Brownson
| | Director
| March 10, 2017
| James J. Brownson
| | | | | | | | /s/ John Paul E. Besong | | Director | | March 10, 201715, 2019 | John Paul E. Besong | | | | | | | | | | /s/ Todd A. Gipple | | Executive Vice President, Chief | | March 10, 201715, 2019 | Todd A. Gipple | | Chief Operating Officer, Chief Financial
| | | | | Officer and Director | | | | | | | | /s/ Larry J. Helling | | Director | | March 10, 201715, 2019 | Larry J. Helling | | | | | | | | | | /s/ Mark C. Kilmer | | Director | | March 10, 201715, 2019 | Mark C. Kilmer | | | | | | | | | | /s/ Linda K. Neuman | | Director | | March 10, 201715, 2019 | Linda K. Neuman | | | | | | | | | | /s/ Michael L. Peterson | | Director | | March 10, 201715, 2019 | Michael L. Peterson | | | | | | | | | | /s/ Ronald G. PetersonTimothy O’Reilly | | Director | | March 10, 201715, 2019 | Ronald G. PetersonTimothy O’Reilly
| | | | | | | | | | /s/ George T. Ralph III | | Director | | March 10, 201715, 2019 | George T. Ralph III | | | | | | | | | | /s/ Donna J. Sorensen, J.D. | | Director | | March 10, 201715, 2019 | Donna J. Sorensen, J.D. | | | | | | | | | | /s/ Marie Z. ZieglerMary Kay Bates | | Vice-Chair of the Board of DirectorsDirector
| | March 10, 201715, 2019 | Marie Z. ZieglerMary Kay Bates
| | | | |
Appendix A
SUPERVISION AND REGULATION
GeneralAppendix A
SUPERVISION AND REGULATION General FDIC-insured institutions, their holding companies and their affiliates are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Iowa Superintendent,Division of Banking, the IDFPR, the Missouri Division of Finance, the Federal Reserve, the FDIC and the CFPB. Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board, securities laws administered by the SEC and state securities authorities, and anti-money laundering laws enforced by the Treasury have an impact on the business of the Company. The effect of these statutes, regulations, regulatory policies and accounting rules are significant to the Company’s operations and results. Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of FDIC-insured institutions, their holding companies and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than stockholders. These laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of the Company’s business, the kinds and amounts of investments the Company and the Banks may make, reserve requirements, required capital levels relative to assets, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with the Company’s and the Banks’ insiders and affiliates and the Company’s payment of dividends. In reaction to the last several years,global financial crisis and particularly following the passage of the Dodd Frank Act, the Company has experienced heightened regulatory requirements and scrutiny following the global financial crisis and as a result of the Dodd-Frank Act.scrutiny. Although the reforms primarily targeted systemically important financial service providers, their influence filtered down in varying degrees to community banks over time and the reforms have caused the Company’s compliance and risk management processes, and the costs thereof, to increase. While it is anticipated thatAfter the Trump administration will not increase2016 federal elections, momentum to decrease the regulatory burden on community banks gathered strength. In May 2018, the Economic Growth, Regulatory Relief and may reduce someConsumer Protection Act (the “Regulatory Relief Act”) was enacted to modify or remove certain financial reform rules and regulations. While the Regulatory Relief Act maintains most of the burdens associated with implementation ofregulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion, like the Company, and for large banks with assets of more than $50 billion. Many of these changes are intended to result in meaningful regulatory relief for community banks and their holding companies, including new rules that may make the capital requirements less complex. For a discussion of capital requirements, see “-The Role of Capital.” It also eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving the Banks of any requirement to engage in mandatory stress tests or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds. The Company believes these reforms are favorable to its operations, but the true impact of the new administration is impossibleremains difficult to predict with any certainty.until rulemaking is complete and the reforms are fully implemented. ThisThe supervisory and regulatory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.
regulations. The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and its subsidiaries,subsidiary banks, beginning with a discussion of the continuing regulatory emphasis on the Company’s capital levels. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision. Regulatory Emphasis onThe Role of Capital
Regulatory capital represents the net assets of a banking organization available to absorb losses. Because of the risks attendant to their business, FDIC-insured institutions are generally required to hold more capital than other businesses, which directly affects the Company’s earnings capabilities. While capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress. Certain provisions of the Dodd-Frank Act and Basel III, discussed below, establish strengthened capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously. Minimum Required Capital Levels.Banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983. The minimums have been expressed in terms of ratios of capital divided by total assets. As discussed below, bank capital measures have become more sophisticated over the years and have focused more on the quality of capital and the risk of assets. Bank holding companies have historically had to comply with less stringent capital standards than their bank subsidiaries and have been able to raise capital with hybrid instruments such as trust preferred securities. The Dodd-Frank Act mandated the Federal Reserve to establish minimum capital levels for holding companies on a consolidated basis as stringent as those required for FDIC-insured institutions. A result of this change is that the proceeds of hybrid instruments, such as trust preferred securities, are beingwere excluded from capital over a phase-out period. However, if such securities were issued prior to May 19, 2010 by bank holding companies with less than $15 billion of assets, they may be retained, subject to certain restrictions. Because the Company has assets of less than $15 billion, the Company is able to maintain its trust preferred proceeds as capital but the Company has to comply with new capital mandates in other respects and will not be able to raise capital in the future through the issuance of trust preferred securities. The Basel International Capital Accords.The risk-based capital guidelines for U.S. banks since 1989 were based upon the 1988 capital accord known as “Basel I” adopted by the international Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. bank regulatory agencies on an interagency basis. The accord recognized that bank assets for the purpose of the capital ratio calculations needed to be assigned risk weightedweights (the theory being that riskier assets should require more capital) and that off-balance sheet exposures needed to be factored in the calculations. Basel I had a very simple formula for assigning risk weights to bank assets from 0% to 100% based on four categories. In 2008, the banking agencies collaboratively began to phase-in capital standards based on a second capital accord, referred to as “Basel II,” for large or “core” international banks (generally defined for U.S. purposes as having total assets of $250 billion or more, or consolidated foreign exposures of $10 billion or more) known as “advanced approaches” banks. The primary focus of Basel II was on the calculation of risk weights based on complex models developed by each advanced approaches bank. Because most banks were not subject to Basel II, the U.S. bank regulators worked to improve the risk sensitivity of Basel I standards without imposing the complexities of Basel II. This “standardized approach” increased the number of risk-weight categories and recognized risks well above the original 100% risk weighting. The standardized approachweight. It is institutionalized by the Dodd-Frank Act for all banking organizations, even for the advanced approaches banks, as a floor. On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis. The Basel III Rule.In July of 2013, the U.S. federal banking agencies approved the implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rule”). In contrast to capital requirements historically, which were in the form of guidelines, Basel III was released in the form of enforceable regulations by each of the regulatory agencies. The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies” (generally holding companies with consolidated assets of less than $1$3 billion that do not have securities registered with the SEC). Banking organizations became subject to the Basel III Rule on January 1, 2015 and all parts of it were fully phased-in as of January 1, 2019. The Basel III Rule required higher capital levels, increased the required quantity and quality of capital and required more detailed categories of risk weighting of riskier, more opaque assets. Forfor nearly every class of assets, the Basel III Ruleit requires a more complex, detailed and calibrated assessment of credit risk and calculation of risk weightings. weight amounts. Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments. The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations). A number of instruments that qualified as Tier 1 Capital under Basel I do not qualify, or their qualifications changed. For example, noncumulative perpetual preferred stock, which qualified as simple Tier 1 Capital under Basel I, does not qualify as Common Equity Tier 1 Capital, but qualifies as Additional Tier 1 Capital. The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and requires deductions from Common Equity Tier 1 Capital in the event that such assets exceed a certain percentage of a banking institution’s Common Equity Tier 1 Capital. The Basel III Rule requiredminimum capital ratios as of January 1, 2015, as follows: | ●
| · | | A ratio of minimum Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets; |
| ●
| · | | An increase in the minimum required amount of Tier 1 Capital from 4% to 6% of risk-weighted assets; |
| ●
| · | | A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and |
| ●
| · | | A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances. |
In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer being phased in over three years beginning in 2016 (which,fully phased-in as of January 1, 2017, was phased in half-way to 1.25%).2019. The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the fully phased-in conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital. Banking organizations (except for large, internationally active banking organizations) became subject to the new rules on January 1, 2015. However, there are separate phase-in/phase-out periods for: (i) the capital conservation buffer; (ii) regulatory capital adjustments and deductions; (iii) nonqualifying capital instruments; and (iv) changes to the prompt corrective action rules discussed below. The phase-in periods commenced on January 1, 2016 and extend until 2019.
Well-Capitalized Requirements.The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, roll-over or renew brokered deposits. Higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 Capital less all intangible assets), well above the minimum levels. Under the capital regulations of the FDIC and Federal Reserve, in order to be well-capitalized,well‑capitalized, a banking organization must maintain: | ●
| · | | A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more; |
| ●
| · | | A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more (6% under Basel I); |
| ●
| · | | A ratio of Total Capital to total risk-weighted assets of 10% or more (the same as Basel I); and |
| ●
| · | | A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater. |
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2016:2018: (i) none of the Banks were subject to a directive from the Iowa Superintendent,Division of Banking, the IDFPR, the Missouri Division of Finance, the Federal Reserve or the FDIC, as applicable, to increase its capital and (ii) the Banks were well-capitalized, as defined by FDIC regulations. As of December 31, 2016,2018, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. Prompt Corrective Action.An FDIC-insured institution’s capital playsThe concept of an important role in connection withinstitution being “well-capitalized” is a part of a regulatory enforcement as well. Federal lawregime that provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions.institutions based on the capital level of each particular institution. The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution. The Potential for Community Bank Capital Simplification. Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, Congress provided a potential Basel III “off-ramp” for institutions, like the Company, with total consolidated assets of less than $10 billion. Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single CBLR of between 8% and 10%. On November 21, 2018, the agencies proposed setting the CBLR at 9% of tangible equity to total assets for a qualifying bank to be well-capitalized. Under the proposal, a community bank organization would be eligible to elect the new framework if it has less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%. The electing institution would not be required to calculate the existing risk-based and leverage capital requirements of the Basel III Rule and would not need to risk weight its assets for purposes of capital calculations. The Company is in the process of considering the Federal Reserve’s CBLR proposal and will await the final regulation to determine whether it will elect the framework. Regulation and Supervision of the Company General.The Company, as the sole stockholder of the Banks, is a bank holding company. As a bank holding company, the Company is registered with, and is subject to regulation supervision and enforcement by, the Federal Reserve under the BHCA. The Company is legally obligated to act as a source of financial strength to the Banks and to commit resources to support the Banks in circumstances where the Company might not otherwise do so. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is required to file with the Federal Reserve periodic reports of the Company’s operations and such additional information regarding the Company and its subsidiaries as the Federal Reserve may require. Acquisitions, Activities and Change in ControlFinancial Holding Company Election.The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its FDIC-insured institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company. Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and examiners must rate them well-managed in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements, see “Regulatory Emphasis on“—The Role of Capital” above. The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking ... as to be a proper incident thereto.” This authority would permitpermits the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services. The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies. The Company operates Bates Financial Advisors, Inc., a registered investment advisor, and Bates Securities, Inc., a broker-dealer, as nonbanking subsidiaries under this authority. Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally. The Company has elected to operate as a financial holding company. In order to become and maintain ourits status as a financial holding company, the Company and the Banks must be well-capitalized, well-managed, and the Banks must have a least a satisfactory CRA rating. If the Federal Reserve determines that a financial holding company is not well-capitalized or well-managed, the companyCompany has a period of time in which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any limitations on the companyCompany it believes to be appropriate. Furthermore, if the Federal Reserve determines that a financial holding company’s subsidiary bank has not received a satisfactory CRA rating, thethat company will not be able to commence any new financial activities or acquire a company that engages in such activities. Change in Control. Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership. Capital Requirements.Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements. For a discussion of capital requirements, see “—Regulatory Emphasis onThe Role of Capital” above. Dividend Payments.The 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.As a Delaware corporation, the Company is subject to the limitations of the DGCL, which allow the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends will have to maintain 2.5% in Common Equity Tier 1 attributable to the capital conservation buffer to be phased in over three years beginning in 2016. See “—Regulatory Emphasis on Capital” above. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (i) the company’s net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-banknonbank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends will have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer to be phased in over three years beginning in 2016.buffer. See “—Regulatory Emphasis onThe Role of Capital” above. Incentive Compensation.There have been a number of developments in recent years focused on incentive compensation plans sponsored by bank holding companies and banks, reflecting recognition by the bank regulatory agencies and Congress that flawed incentive compensation practices in the financial industry were one of many factors contributing to the global financial crisis. Layered on top of that are the abuses in the headlines dealing with product cross-selling incentive plans. The result is interagency guidance on sound incentive compensation practices and proposed rulemaking by the agencies required under Section 956 of the Dodd-Frank Act.practices. The interagency guidance recognized three core principles: effectiveprinciples. Effective incentive plans should: (i) provide employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Much of the guidance addresses large banking organizations and, because of the size and complexity of their operations, the regulators expect those organizations to maintain systematic and formalized policies, procedures, and systems for ensuring that the incentive compensation arrangements for all executive and non-executive employees covered by this guidance are identified and reviewed, and appropriately balance risks and rewards. Smaller banking organizations like the Company that use incentive compensation arrangements are expected to be less extensive, formalized, and detailed than those of the larger banks. Section 956 of the Dodd-Frank Act required the banking agencies, the National Credit Union Administration, the SEC and the Federal Housing Finance Agency to jointly prescribe regulations that prohibit types of incentive-based compensation that encourage inappropriate risk taking and to disclose certain information regarding such plans. On June 10, 2016, the agencies released an updated proposed rule for comment. Section 956 will only apply to banking organizations with assets of greater than $1 billion. The Company has consolidated assets greater than $1 billion and less than $50 billion and the Company is considered a Level 3 banking organization under the proposed rules. The proposed rules contain mostly general principles and reporting requirements for Level 3 institutions so there are no specific prescriptions or limits, deferral requirements or claw-back mandates. Risk management and controls are required, as is board or committee level approval and oversight. Management expects to review its incentive plans in light of the proposed rulemaking and guidance and implement policies and procedures that mitigate unreasonable risk.
Monetary Policy.The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries. Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S. government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits. Federal Securities Regulation.The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Exchange Act. Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. Corporate Governance.The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies. ItThe Dodd Frank Act increased stockholder influence over boards of directors by requiring companies to give stockholders a non-bindingnonbinding vote on executive compensation and so-called “golden parachute” payments, and authorizing the SEC to promulgate rules that would allow stockholders to nominate and solicit voters for their own candidates using a company’s proxy materials. The legislation also directed the Federal Reserve to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded. Supervision and Regulation of the Banks General.The Company owns fourfive subsidiary banks: QCBT, CRBT and CSB are chartered under Iowa law (collectively, the “Iowa Banks”) and RB&T is chartered under Illinois law. SFC Bank is chartered under Missouri law. The deposit accounts of the Banks are insured by the FDIC’s DIF to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category. QCBT, CRBT and RB&TAll five of the Company’s subsidiary banks are members of the Federal Reserve System (“member banks”). QCBT owns QCIA, a registered investment advisor, as a wholly-owned subsidiary. As Iowa-chartered, FDIC-insured banks, the Iowa Banks are subject to the examination, supervision, reporting and enforcement requirements of the Iowa Superintendent,Division of Banking, as the chartering authority for Iowa banks. As an Illinois-chartered, FDIC-insured bank, RB&T is subject to the examination, supervision, reporting and enforcement requirements of the IDFPR, as the chartering authority for Illinois banks. QCBT, CRBTAs a Missouri-chartered, FDIC-insured bank, SFC Bank is subject to the examination, supervision, reporting and RB&Tenforcement requirements of the Missouri Division of Finance, as the chartering authority for Missouri banks. The Banks are also subject to the examination, reporting and enforcement requirements of the Federal Reserve, as the primary federal regulator of member banks. CSB is subject to the examination, reporting and enforcement requirements of the FDIC, designated by federal law as the primary federal regulator of insured state banks that, like CSB, are not members of the Federal Reserve System. In addition, the FDIC, as administrator of the DIF, has regulatory authority over the Banks. Deposit Insurance.As FDIC-insured institutions, the Banks are required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification. Effective July 1, 2016,For institutions like the FDIC changed its pricing system for banks under $10 billion, soBanks that minimumare not considered large and maximum initial base assessment rateshighly complex banking organizations, assessments are establishednow based on supervisory ratings.examination ratings and financial ratios. The initialtotal base assessment rates currently range from three1.5 basis points to 30 basis points. At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. The assessment base against which an FDIC-insured institution’s deposit insurance premiums paid to the DIF arehas been calculated issince effectiveness of the Dodd-Frank Act based on its average consolidated total assets less its average tangible equity. This method shiftsshifted the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than U.S. deposits. The reserve ratio is the DIFFDIC insurance fund balance divided by estimated insured deposits. The Dodd-Frank Act altered the minimum reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to FDIC-insured institutions when the reserve ratio exceeds certain thresholds. The reserve ratio reached 1.15%1.36% on JuneSeptember 30, 2016, when revised factors were put in place for calculating2018. (most recent available), exceeding the assessment. If thestatutory required minimum reserve ratio does not reachof 1.35% by December 31, 2018 (provided it is at least 1.15%), the FDIC will impose a shortfall assessment on March 31, 2019 on insured depository institutions with total consolidated assets of $10 billion or more.. The FDIC will provide assessment credits to insured depository institutions, like the Banks, with total consolidated assets of less than $10 billion for the portion of their regular assessments that contribute to growth in the reserve ratio between 1.15% and 1.35%. The FDIC will apply the credits each quarter that the reserve ratio is at least 1.38% to offset the regular deposit insurance assessments of institutions with credits. FICO Assessments.In addition to paying basic deposit insurance assessments, FDIC-insured institutions must pay FICO assessments. FICO is a mixed-ownership governmental corporation chartered by the former Federal Home Loan Bank Board pursuant to the Competitive Equality Banking Act of 1987 to function as a financing vehicle for the recapitalization of the former Federal Savings and Loan Insurance Corporation. FICO issued 30-year30‑year noncallable bonds of approximately $8.1 billion that mature in 20172018 through 2019. FICO’s authority to issue bonds ended on December 12, 1991. Since 1996, federal legislation has required that all FDIC-insured institutions pay assessments to cover interest payments on FICO’s outstanding obligations. The FICO assessment rate is adjusted quarterly and for the fourth quarter of 20162018 was 0.560 basis points (5632 cents per $100 dollars of assessable deposits).deposits. Supervisory Assessments.Each of the Banks is required to pay supervisory assessments to its respective state banking regulator to fund the operations of that agency. The amount of the assessment payable by each Bank is calculated on the basis of that Bank’s total assets. During the year ended December 31, 2016,2018, the Iowa Banks paid supervisory assessments to the Iowa SuperintendentDivision of Banking totaling $234,420$288 thousand and RB&T paid supervisory assessments to the IDFPR totaling $57,132.$42 thousand. SFC Bank paid supervisory assessments to the Missouri Division of Finance totaling $47 thousand. Capital Requirements.Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “—Regulatory Emphasis onThe Role of Capital” above. Liquidity Requirements.Liquidity is a measure of the ability and ease with which bank assets may be converted to cash. Liquid assets are those that can be converted to cash quickly if needed to meet financial obligations. To remain viable, FDIC-insured institutions must have enough liquid assets to meet their near-term obligations, such as withdrawals by depositors. Because the global financial crisis was in part a liquidity crisis, Basel III also includes a liquidity framework that requires FDIC-insured institutions to measure their liquidity against specific liquidity tests. One test, referred to as the LCR, is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar30‑calendar day liquidity stress scenario. The other test, known as the NSFR, is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon. These tests provide an incentive for banks and holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source and rely on stable funding like core deposits (in lieu of brokered deposits). In addition to liquidity guidelines already in place, the federal bank regulatory agencies implemented the Basel III LCR in September 2014, which requires large financial firms to hold levels of liquid assets sufficient to protect against constraints on their funding during times of financial turmoil, and havein 2016 proposed implementation of the NSFR. While the LCR only appliesthese rules do not, and will not, apply to the largest banking organizations in the country, as will the NSFR, certain elements are expected to filter down to all FDIC-insured institutions. The Company continuesBanks, they continue to review the Company’stheir liquidity risk management policies in light of the LCR and NSFR. developments. Liability of Commonly Controlled Institutions.Under federal law, institutions insured by the FDIC may be liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of commonly controlled FDIC-insured depository institutions or any assistance provided by the FDIC to commonly controlled FDIC-insured depository institutions in danger of default. Because the Company controls each of the Banks, the Banks are commonly-controlled for purposes of these provisions of federal law. Dividend Payments.The primary source of funds for the Company is dividends from the Banks. In general, the Banks may only pay dividends either out of their historical net income after any required transfers to surplus or reserves have been made or out of their retained earnings. The Federal Reserve Act also imposes limitations on the amount of dividends that may be paid by state member banks, such as the Banks. Without prior Federal Reserve approval, a state member bank may not pay dividends in any calendar year that, in the aggregate, exceed the bank’s calendar year-to-date net income plus the bank’s retained net income for the two preceding calendar years. The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, each of the Banks exceeded its minimum capital requirements under applicable guidelines as of December 31, 2016.2018. Notwithstanding the availability of funds for dividends, however, the Federal Reserve, the FDIC, the IDFPR, the Iowa Division of Banking or the Iowa Superintendent,Missouri Division of Finance, as applicable, may prohibit the payment of dividends by one of the Banks if it determines such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends will have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer to be phased in over three years beginning in 2016.buffer. See “—Regulatory Emphasis onThe Role of Capital” above. State Bank Investments and Activities.The Banks are permitted to make investments and engage in activities directly or through subsidiaries as authorized by Illinois, or Iowa and Missouri law, as applicable. However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF. These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Banks. Insider Transactions.The Banks are subject to certain restrictions imposed by federal law on “covered transactions” between each Bank and its “affiliates.” The Company is an affiliate of the Banks for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by any of the Banks. The Dodd-Frank Act enhancesenhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained. Certain limitations and reporting requirements are also placed on extensions of credit by each Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal stockholders of the Company and to “related interests” of such directors, officers and principal stockholders. In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or the Banks, or a principal stockholder of the Company, may obtain credit from banks with which any of the Banks maintains a correspondent relationship. Safety and Soundness Standards/Risk Management.The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of FDIC-insured institutions. The guidelines set forth standards forapply to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. In general, the safety and soundness guidelinesstandards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. IfWhile regulatory standards do not have the force of law, if an institution fails to comply with any of the standards set forthoperates in the guidelines,an unsafe and unsound manner, the FDIC-insured institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments. During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions they supervise. Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets. The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk. In particular, recent regulatory pronouncements have focused on operational risk, which arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses. New products and services, third-party risk and cybersecurity are critical sources of operational risk that FDIC-insured institutions are expected to address in the current environment. Each Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls. Branching Authority.The Iowa Banks have the authority under Iowa law to establish branches anywhere in the State of Iowa, subject to receipt of all required regulatory approvals. In 1997, the Company formed a de novo Illinois bank that was merged into QCBT, resulting in QCBT establishing a branch office in Illinois. Under Illinois law, QCBT may continue to establish offices in Illinois to the same extent permitted for an Illinois bank (subject to certain conditions, including certain regulatory notice requirements). Similarly, RB&T has the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. SFC Bank has the authority under Missouri law to establish branches anywhere in the State of Missouri, subject to receipt of all required regulatory approvals. Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments. Transaction Account Reserves.Federal Reserve regulations require FDIC-insured institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). For 2017:2019: the first $15.5$16.3 million of otherwise reservable balances are exempt from reserves and have a zero percentzero-percent reserve requirement; for transaction accounts aggregating more than $15.5between $16.3 million to $115.1$124.2 million, the reserve requirement is 3% of totalthose transaction accounts;account balances; and for net transaction accounts in excess of $115.1$124.2 million, the reserve requirement is 3% up to $115.1 million plus 10% of the aggregate amount of total transaction accountsaccount balances in excess of $115.1$124.2 million. These reserve requirements are subject to annual adjustment by the Federal Reserve. Federal Home Loan Bank System.The Banks are each a member of the FHLB, which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances. All advances from the FHLB are required to be fully collateralized as determined by the FHLB. Community Reinvestment Act Requirements.The Community Reinvestment Act requires the Banks to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess each Bank’s record of meeting the credit needs of its communities. Applications for additional acquisitions would be affected by the evaluation of the Bank’s effectiveness in meeting its Community Reinvestment Act requirements. Anti-Money Laundering.The USA Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and has significant implications for FDIC-insured institutions, brokers, dealers and other businesses involved in the transfer of money. The USA Patriot Act mandates financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters: (i) ongoing due diligencecustomer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities. Privacy and Cybersecurity. The Banks are subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public confidential information of their customers. These laws require the Banks to periodically disclose their privacy policies and practices relating to sharing such information and permit consumers to opt out of their ability to share information with unaffiliated third parties under certain circumstances. They also impact the Banks’ ability to share information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. In addition, the Banks are required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures, for the protection of personal and confidential information, are in effect across all businesses and geographic locations. Concentrations in Commercial Real Estate.Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate is one example of regulatory concern. The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance (“CRE Guidance”) provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) commercial real estate loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital. The CRE Guidance does not limit banks’ levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations. On December 18, 2015, the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards. The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk. As of December 31, 2016,2018, QCBT, CRBT and RB&T were in compliance with the 300% guideline for commercial real estate loans. Although 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 portfolio. CSB’s real estate levels, while still elevated at December 31, 2016 have declined when compared to the prior year. Consumer Financial Services.The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws. The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Banks, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. FDIC-insured institutions with $10 billion or less in assets, like the Banks, continue to be examined by their applicable bank regulators. Because abuses in connection with residential mortgages were a significant factor contributing to the global financial crisis, many new rules issued by the CFPB and required by the Dodd-Frank Act addressaddressed mortgage and mortgage-related products, their underwriting, origination, servicing and sales. The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices. In addition to numerous disclosure requirements, the Dodd-FrankDodd‑Frank Act imposed new standards for mortgage loan originations on all lenders, including all FDIC-insured institutions,banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s “abilityability to repay,” while also establishing a presumption of compliance for certain “qualified mortgages.” In addition,The Regulatory Relief Act provided relief in connection with mortgages for banks with assets of less than $10 billion, and, as a result, mortgages the Dodd-Frank Act generally required lenders or securitizersBanks make are now considered to retain an economic interestbe qualified mortgages if they are held in portfolio for the credit risk relating to loans thatlife of the lender sells, and other asset-backed securities that the securitizer issues, if the loans have not complied with the ability-to-repay standards.loan. The Company does not currently expect the CFPB’s rules to have a significant impact on the Banks’its operations, except for higher compliance costs. Regulation of the Bates Companies and QCIA The Bates Companies and QCIA provide financial investment services as part of the wealth management operations of the Company. Bates Financial Advisors, Inc. and QCIA are investment advisers registered with the SEC. The SEC has supervisory, examination and enforcement authority over their respective operations. The SEC’s focus is primarily for the protection of investors under the federal securities laws. Bates Securities, Inc. is a broker-dealer that executes trades in investment products primarily for customers of Bates Financial Advisors, Inc. It is a member of FINRA and is regulated by the SEC. FINRA is a non-governmental organization that regulates member brokerage firms with an emphasis on investor protection and market integrity. Appendix B Guide 3 Information The following tables and schedules show selected comparative financial information required by the SEC Securities Act Guide 3, regarding the business of the Company for the periods shown. I. Distribution of Assets, Liabilities and Stockholders Equity; Interest Rates and Interest Differential A. and B. Consolidated Average Balance Sheets and Analysis of Net Interest Earnings The information requested is disclosed in the MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2018. C. Analysis of Changes of Interest Income/Interest Expense The information requested is disclosed in the MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2018. II. Investment Portfolio The following tables present the amortized cost and fair value of investment securities as of December 31, 2018, 2017, and 2016 | | | | | | | | | | | | | | | | | | Gross | | Gross | | | | | | Amortized | | Unrealized | | Unrealized | | Fair | | | Cost | | Gains | | (Losses) | | Value | | | (dollars in thousands) | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | Securities held to maturity: | | | | | | | | | | | | | Municipal securities | | $ | 400,863 | | $ | 5,661 | | $ | (6,802) | | $ | 399,722 | Other securities | | | 1,050 | | | — | | | (1) | | | 1,049 | | | | | | | | | | | | | | Totals | | $ | 401,913 | | $ | 5,661 | | $ | (6,803) | | $ | 400,771 | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | U.S. gov't.sponsored agency securities | | $ | 37,150 | | $ | 39 | | $ | (778) | | $ | 36,411 | Residential mortgage-backed and related securities | | | 163,699 | | | 181 | | | (4,631) | | | 159,249 | Municipal securities | | | 59,069 | | | 180 | | | (703) | | | 58,546 | Other securities | | | 6,754 | | | 101 | | | (5) | | | 6,850 | | | | | | | | | | | | | | Totals | | $ | 266,672 | | $ | 501 | | $ | (6,117) | | $ | 261,056 | | | | | | | | | | | | | | December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | Securities held to maturity: | | | | | | | | | | | | | Municipal securities | | $ | 378,424 | | $ | 2,764 | | $ | (2,488) | | $ | 378,700 | Other securities | | | 1,050 | | | — | | | — | | | 1,050 | | | | | | | | | | | | | | Totals | | $ | 379,474 | | $ | 2,764 | | $ | (2,488) | | $ | 379,750 | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | U.S. gov't.sponsored agency securities | | $ | 38,409 | | $ | 37 | | $ | (349) | | $ | 38,097 | Residential mortgage-backed and related securities | | | 165,460 | | | 155 | | | (2,313) | | | 163,301 | Municipal securities | | | 66,176 | | | 660 | | | (211) | | | 66,625 | Other securities | | | 4,014 | | | 897 | | | (27) | | | 4,885 | | | | | | | | | | | | | | Totals | | $ | 274,059 | | $ | 1,749 | | $ | (2,900) | | $ | 272,908 | | | | | | | | | | | | | | December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | Securities held to maturity: | | | | | | | | | | | | | Municipal securities | | $ | 321,859 | | $ | 2,201 | | $ | (4,695) | | $ | 319,365 | Other securities | | | 1,050 | | | — | | | — | | | 1,050 | | | | | | | | | | | | | | Totals | | $ | 322,909 | | $ | 2,201 | | $ | (4,695) | | $ | 320,415 | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | U.S. gov't.sponsored agency securities | | $ | 46,281 | | $ | 133 | | $ | (331) | | $ | 46,083 | Residential mortgage-backed and related securities | | | 150,465 | | | 175 | | | (2,938) | | | 147,702 | Municipal securities | | | 52,817 | | | 426 | | | (638) | | | 52,605 | Other securities | | | 4,046 | | | 704 | | | (27) | | | 4,723 | | | | | | | | | | | | | | Totals | | $ | 253,609 | | $ | 1,438 | | $ | (3,934) | | $ | 251,113 | | | | | | | | | | | | | |
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NOTE: Stock of the Federal Home Loan Bank and Federal Reserve Bank are NOT included in the above. The Company carries these investments within restricted investment securities on the consolidated balance sheets. Following is a summary of the carrying value of all of the Company's restricted investment securities as of December 31, 2018, 2017, and 2016: | | | | | | | | | | | | As of December 31, | | | 2018 | | 2017 | | 2016 | | | (dollars in thousands) | | | | | | | | | | | Federal Home Loan Bank | | $ | 15,732 | | $ | 11,697 | | $ | 9,271 | Federal Reserve Bank | | | 9,903 | | | 8,032 | | | 5,672 | Other | | | 54 | | | 54 | | | 54 | Totals | | $ | 25,689 | | $ | 19,783 | | $ | 14,997 |
B. Investment Securities, Maturities, and Yields The following table presents the maturity of securities held on December 31, 2018 and the weighted average stated coupon rates by range of maturity: | | | | | | | | | | | | Weighted | | | | Amortized | | Average | | | | Cost | | Yield | | | | (dollars in thousands) | | | | | | | | | U.S. gov't.sponsored agency securities: | | | | | | | Within 1 year | | $ | 21 | | 3.78 | % | After 1 but within 5 years | | | 13,274 | | 2.00 | % | After 5 but within 10 years | | | 2,054 | | 3.31 | % | After 10 years | | | 21,801 | | 3.04 | % | | | | | | | | Total | | $ | 37,150 | | 2.68 | % | | | | | | | | Residential mortgage-backed and related securities: | | | | | | | After 1 but within 5 years | | $ | 19,639 | | 2.10 | % | After 5 but within 10 years | | | 67,581 | | 2.55 | % | After 10 years | | | 76,479 | | 2.57 | % | | | | | | | | Total | | $ | 163,699 | | 2.51 | % | | | | | | | | Municipal securities: | | | | | | | Within 1 year | | $ | 4,878 | | 2.85 | % | After 1 but within 5 years | | | 42,138 | | 2.83 | % | After 5 but within 10 years | | | 86,585 | | 3.32 | % | After 10 years | | | 326,331 | | 3.71 | % | | | | | | | | Total | | $ | 459,932 | | 3.55 | % | | | | | | | | Other securities: | | | | | | | After 1 but within 5 years | | $ | 1,298 | | 3.64 | % | After 5 but within 10 years | | | 6,506 | | 5.42 | % | | | | | | | | Total | | $ | 7,804 | | 5.12 | % | | | | | | | | | | | | | | | NOTE: Yields above are NOT computed on a tax equivalent basis | | | | | | | | | | | | | |
C. As of December 31, 2018, there were no securities with aggregate book value and market value purchased from a single issuer (as defined by Section 2(4) of the Securities Act of 1933) that exceeded 10% of stockholders' equity. III. Loan/Lease Portfolio A. Types of Loans/Leases The information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2018. B. Maturities and Sensitivities of Loans/Leases to Changes in Interest Rates The information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2018. C. Risk Elements 1. Nonaccrual, Past Due and Restructured Loans/Leases The gross interest income that would have been recorded if nonaccrual loans/leases and performing troubled debt restructurings had been current in accordance with their original terms was $511,915 and $230 respectively, for the year ended December 31, 2018. The amount of interest collected on nonaccrual loans/leases and performing troubled debt restructurings that was included in interest income was none and $391,997, respectively, for the year ended December 31, 2018. The remaining information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2018. 2. Potential Problem Loans/Leases. To management's best knowledge, there are no such significant loans/leases that have not been disclosed in the table presented in the MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2018. 3. Foreign Outstandings. None. 4. Loan/Lease Concentrations. As of December 31, 2018, there were two concentrations of loans/leases exceeding 10% of total loans/leases, which is not otherwise disclosed in Item III. A. Those concentrations are Lessors of Non-Residential Buildings & Dwellings at 18% and Lessors of Residential Buildings & Dwellings at 17%. D. Other Interest-Bearing Assets As of December 31, 2018, there are no interest-bearing assets required to be disclosed in this Appendix. IV. Summary of Loan/Lease Loss Experience A. Analysis of the Allowance for Estimated Losses on Loans/Leases The information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2018. B. Allocation of the Allowance for Estimated Losses on Loans/Leases The information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2018. V. Deposits. The average amount of and average rate paid for the categories of deposits for the years ended December 31, 2018, 2017, and 2016 are included in the consolidated average balance sheets and can be found in the MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2018. The Company has no deposits by foreign depositors in domestic offices as of December 31, 2018. Included in interest bearing deposits at December 31, 2018, were certificates of deposit totaling $734,189,000 that were $100,000 or greater. Maturities of these certificates were as follows: | | | | | | December 31, | | | 2018 | | | (dollars in thousands) | | | | | One to three months | | $ | 257,957 | Three to six months | | | 170,203 | Six to twelve months | | | 187,552 | Over twelve months | | | 118,477 | | | | | Total certificates of deposit greater than or equal to $100,000 | | $ | 734,189 |
VI. Return on Equity and Assets. The following tables present the return on assets and equity and the equity to assets ratio of the Company: | | | | | | | | | | | | | Years ended | | | | December 31, | | | | 2018 | | 2017 | | 2016 | | | | (dollars in thousands) | | | | | | | | | | | | | Average total assets | | $ | 4,392,121 | | $ | 3,519,848 | | $ | 2,846,699 | | Average equity | | | 405,973 | | | 310,210 | | | 262,075 | | Net income | | | 43,120 | | | 35,707 | | | 27,687 | | Return on average assets | | | 0.98 | % | | 1.01 | % | | 0.97 | % | Return on average common equity | | | 10.62 | % | | 11.51 | % | | 10.56 | % | Return on average total equity | | | 10.62 | % | | 11.51 | % | | 10.56 | % | Dividend payout ratio | | | 8.22 | % | | 7.46 | % | | 7.27 | % | Average equity to average assets ratio | | | 9.24 | % | | 8.81 | % | | 9.21 | % |
VII. Short Term Borrowings. The following tables present the information requested on short-term borrowings of the Company: Short-term borrowings as of December 31, 2018, 2017, and 2016 are summarized as follows: | | | | | | | | | | | | 2018 | | 2017 | | 2016 | | | (dollars in thousands) | | | | | | | | | | | Overnight repurchase agreements with customers | | $ | 2,084 | | $ | 7,003 | | $ | 8,131 | Federal funds purchased | | | 26,690 | | | 6,990 | | | 31,840 | | | $ | 28,774 | | $ | 13,993 | | $ | 39,971 |
Information concerning overnight repurchase agreements with customers is summarized as follows: | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | | | | (dollars in thousands) | | | | | | | | | | | | | Average daily balance during the period | | $ | 7,831 | | $ | 7,476 | | $ | 30,083 | | Average daily interest rate during the period | | | 0.38 | % | | 0.08 | % | | 0.07 | % | Maximum month-end balance during the period | | $ | 10,392 | | $ | 11,829 | | $ | 59,833 | | Weighted average rate as of end of period | | | 0.90 | % | | 0.15 | % | | 0.18 | % | | | | | | | | | | | | Securities underlying the agreements as of end of period: | | | | | | | | | | | Carrying value | | $ | 20,760 | | $ | 20,894 | | $ | 19,720 | | Fair value | | | 20,760 | | | 20,894 | | | 19,720 | |
Information concerning federal funds purchased is summarized as follows: | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | | | | (dollars in thousands) | | | | | | | | | | | | | Average daily balance during the period | | $ | 13,059 | | $ | 13,486 | | $ | 19,106 | | Average daily interest rate during the period | | | 2.18 | % | | 1.31 | % | | 0.56 | % | Maximum month-end balance during the period | | $ | 32,330 | | $ | 33,650 | | $ | 51,750 | | Weighted average rate as of end of period | | | 2.46 | % | | 1.24 | % | | 0.70 | % |
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