qcrh_10qa1-093011.htm
 
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q/A

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 2011

[    ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from    ________ to________

Commission file number 0-22208

QCR HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
 
Delaware 42-1397595
(State or other jurisdiction of incorporation or organization)
 (I.R.S. Employer ID Number)
 
3551 7th Street, Moline, Illinois 61265
(Address of principal executive offices)

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [    ]        No [ X ]    
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: As of November 1, 2011, the Registrant had outstanding 4,749,234 shares of common stock, $1.00 par value per share.

 
 
 

EXPLANATORY NOTE
 
On November 7, 2011, QCR Holdings, Inc. (“we”, “us”, “our” or the “Company”) inadvertently filed a draft version of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (the “Draft 10-Q”) due to an error by our filing agent. We are filing this amended quarterly report on Form 10-Q/A (the "Form 10-Q/A") to replace the Draft 10-Q. Investors should not rely on any information included in the Draft 10-Q, which is superseded in its entirety by this Form 10-Q/A.
 


 
 
 
QCR HOLDINGS, INC. AND SUBSIDIARIES


INDEX
       
Page Number(s)
Part I
FINANCIAL INFORMATION
    
         
 
Item 1.
Consolidated Financial Statements (Unaudited)
    
         
   
Consolidated Balance Sheets
  
2
   
As of September 30, 2011 and December 31, 2010
    
         
   
Consolidated Statements of Income
  
3
   
For the Three Months Ended September 30, 2011 and 2010
    
         
   
Consolidated Statements of Income
  
4
   
For the Nine Months Ended September 30, 2011 and 2010
    
         
   
Consolidated Statement of Changes in Stockholders' Equity
  
5-6
   
For the Nine Months Ended September 30, 2011 and 2010
    
         
   
Consolidated Statements of Cash Flows
  
7
   
For the Nine Months Ended September 30, 2011 and 2010
    
         
   
Notes to the Consolidated Financial Statements
  
8-32
         
 
Item 2.
Management's Discussion and Analysis of Financial Condition and
  
33-65
   
Results of Operations
    
         
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  
66-67
         
 
Item 4.
Controls and Procedures
  
68
         
         
         
Part II
OTHER INFORMATION
    
         
 
Item 1.
Legal Proceedings
  
69
         
 
Item 1.A.
Risk Factors
  
69
         
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  
69
         
 
Item 3.
Defaults upon Senior Securities
  
69
         
 
Item 4.
[Removed and Reserved]
  
69
         
 
Item 5.
Other Information
  
69
         
 
Item 6.
Exhibits
  
70
         
Signatures
 
  
71-72
         

 
1
 
Part I
Item 1
QCR HOLDINGS, INC. AND SUBSIDIARIES
  
             
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
  
As of September 30, 2011 and December 31, 2010
  
             
             
   
September 30,
    
December 31,
  
   
2011
    
2010
  
ASSETS
            
Cash and due from banks
   $ 45,431,711     $ 42,030,806  
Federal funds sold
     5,790,000       61,960,000  
Interest-bearing deposits at financial institutions
     24,665,359       39,745,611  
                 
Securities held to maturity, at amortized cost
     200,000       300,000  
Securities available for sale, at fair value
     525,711,786       424,546,767  
Total securities
     525,911,786       424,846,767  
                 
                 
Loans receivable held for sale
     5,287,924       14,084,859  
Loans/leases receivable held for investment
     1,192,293,786       1,158,453,744  
Gross loans/leases receivable
     1,197,581,710       1,172,538,603  
Less allowance for estimated losses on loans/leases
     (19,578,486 )     (20,364,656 )
Net loans/leases receivable
     1,178,003,224       1,152,173,947  
                 
Premises and equipment, net
     30,946,211       31,118,744  
Goodwill
     3,222,688       3,222,688  
Accrued interest receivable
     6,812,857       6,435,989  
Bank-owned life insurance
     41,597,883       33,565,390  
Prepaid FDIC insurance
     3,998,438       5,361,314  
Restricted investment securities
     15,238,000       16,668,700  
Other real estate owned, net
     8,287,592       8,534,711  
Other assets
     9,054,743       10,970,549  
                 
Total assets
   $ 1,898,960,492     $ 1,836,635,216  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
LIABILITIES
                
Deposits:
                
Noninterest-bearing
   $ 326,710,313     $ 276,827,205  
Interest-bearing
     880,758,933       837,988,652  
Total deposits
     1,207,469,246       1,114,815,857  
                 
Short-term borrowings
     143,586,491       141,154,499  
Federal Home Loan Bank advances
     204,750,000       238,750,000  
Other borrowings
     140,129,755       150,070,785  
Junior subordinated debentures
     36,085,000       36,085,000  
Other liabilities
     23,771,127       23,188,367  
Total liabilities
     1,755,791,619       1,704,064,508  
                 
STOCKHOLDERS' EQUITY
                
Preferred stock, $1 par value; shares authorized 250,000 September 2011 - 65,090 shares issued and outstanding December 2010 - 63,237 shares issued and outstanding
     65,090       63,237  
Common stock, $1 par value; shares authorized 20,000,000 September 2011 - 4,868,480 shares issued and 4,747,234 outstanding December 2010 - 4,732,428 shares issued and 4,611,182 outstanding
     4,868,480       4,732,428  
Additional paid-in capital
     90,673,628       86,478,269  
Retained earnings
     43,071,950       40,550,900  
Accumulated other comprehensive income
     4,172,634       704,165  
Noncontrolling interests
     1,923,601       1,648,219  
Less treasury stock, September 2011 and December 2010 - 121,246 common shares, at cost
     (1,606,510 )     (1,606,510 )
Total stockholders' equity
     143,168,873       132,570,708  
Total liabilities and stockholders' equity
   $ 1,898,960,492     $ 1,836,635,216  
 
See Notes to Consolidated Financial Statements
 
2
QCR HOLDINGS, INC. AND SUBSIDIARIES
  
             
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
  
Three Months Ended September 30,
  
             
             
             
   
2011
    
2010
  
Interest and dividend income:
            
Loans/leases, including fees
   $ 16,215,725     $ 16,710,323  
Securities:
                
Taxable
     2,877,574       2,595,301  
Nontaxable
     244,209       224,703  
Interest-bearing deposits at financial institutions
     97,714       55,289  
Restricted investment securities
     126,333       116,175  
Federal funds sold
     7,875       38,465  
Total interest and dividend income
     19,569,430       19,740,256  
                 
Interest expense:
                
Deposits
     2,201,070       3,151,191  
Short-term borrowings
     65,502       132,290  
Federal Home Loan Bank advances
     1,931,259       2,345,944  
Other borrowings
     1,301,144       1,452,204  
Junior subordinated debentures
     241,751       495,052  
Total interest expense
     5,740,726       7,576,681  
                 
Net interest income
     13,828,704       12,163,575  
                 
Provision for loan/lease losses
     2,456,965       1,434,232  
Net interest income after provision for loan/lease losses
     11,371,739       10,729,343  
                 
Noninterest income:
                
Trust department fees
     762,133       803,423  
Investment advisory and management fees, gross
     549,515       419,416  
Deposit service fees
     893,685       902,787  
Gains on sales of loans, net
     408,364       1,109,724  
Securities gains
     443,614       -  
Gains (losses) on sales of other real estate owned, net
     42,262       (188,158 )
Earnings on bank-owned life insurance
     331,440       353,003  
Credit card issuing fees, net of processing costs
     178,636       34,866  
Other
     725,658       923,225  
Total noninterest income
     4,335,307       4,358,286  
                 
Noninterest expense:
                
Salaries and employee benefits
     7,651,695       6,910,016  
Occupancy and equipment expense
     1,359,758       1,410,429  
Professional and data processing fees
     1,077,435       1,096,100  
FDIC and other insurance
     578,776       887,509  
Loan/lease expense
     839,993       678,535  
Advertising and marketing
     277,376       292,148  
Postage and telephone
     242,103       252,512  
Stationery and supplies
     122,582       135,064  
Bank service charges
     186,351       112,742  
Other-than-temporary impairment losses on securities
     -       113,800  
Other
     437,080       244,910  
Total noninterest expense
     12,773,149       12,133,765  
                 
Net income before income taxes
     2,933,897       2,953,864  
Federal and state income tax expense
     667,296       829,992  
Net income
   $ 2,266,601     $ 2,123,872  
Less: Net income attributable to noncontrolling interests
     103,446       109,786  
Net income attributable to QCR Holdings, Inc.
   $ 2,163,155     $ 2,014,086  
                 
                 
Less: Preferred stock dividends
     2,188,058       1,028,686  
Net income (loss) attributable to QCR Holdings, Inc. common stockholders
   $ (24,903 )   $ 985,400  
                 
Earnings (loss) per common share attributable to QCR Holdings, Inc. common shareholders
  
Basic
   $ (0.01 )   $ 0.21  
Diluted
   $ (0.01 )   $ 0.21  
                 
Weighted average common shares outstanding
     4,866,692       4,598,566  
Weighted average common and common equivalent shares outstanding
     4,866,692       4,619,574  
                 
Cash dividends declared per common share
   $ -     $ -  
See Notes to Consolidated Financial Statements

 
3
 
QCR HOLDINGS, INC. AND SUBSIDIARIES
  
             
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended September 30,
  
             
             
             
   
2011
    
2010
  
Interest and dividend income:
            
Loans/leases, including fees
   $ 48,466,331     $ 51,324,123  
Securities:
                
Taxable
     8,035,495       7,771,242  
Nontaxable
     743,368       681,001  
Interest-bearing deposits at financial institutions
     311,807       347,105  
Restricted investment securities
     427,818       328,762  
Federal funds sold
     97,919       123,699  
Total interest and dividend income
     58,082,738       60,575,932  
                 
Interest expense:
                
Deposits
     6,948,265       9,940,844  
Short-term borrowings
     248,079       450,539  
Federal Home Loan Bank advances
     6,053,134       6,903,991  
Other borrowings
     3,870,062       4,307,558  
Junior subordinated debentures
     974,637       1,457,765  
Total interest expense
     18,094,177       23,060,697  
                 
Net interest income
     39,988,561       37,515,235  
                 
Provision for loan/lease losses
     5,196,850       4,413,650  
Net interest income after provision for loan/lease losses
     34,791,711       33,101,585  
                 
Noninterest income:
                
Trust department fees
     2,607,668       2,438,473  
Investment advisory and management fees, gross
     1,630,976       1,325,910  
Deposit service fees
     2,623,018       2,585,873  
Gains on sales of loans, net
     1,923,185       1,831,856  
Securities gains
     1,472,528       -  
Losses on sales of other real estate owned, net
     (90,492 )     (632,806 )
Earnings on bank-owned life insurance
     1,032,493       973,659  
Credit card issuing fees, net of processing costs
     397,132       231,439  
Other
     1,969,304       1,973,589  
Total noninterest income
     13,565,812       10,727,993  
                 
Noninterest expense:
                
Salaries and employee benefits
     22,480,731       20,869,335  
Occupancy and equipment expense
     4,017,506       4,147,101  
Professional and data processing fees
     3,338,935       3,379,080  
FDIC and other insurance
     2,149,093       2,575,000  
Loan/lease expense
     1,772,290       1,658,647  
Advertising and marketing
     836,459       701,603  
Postage and telephone
     703,803       750,611  
Stationery and supplies
     380,754       379,347  
Bank service charges
     525,007       284,134  
Prepayment fees on Federal Home Loan Bank advances
     832,099       -  
Losses on lease residual values
     -       617,000  
Other-than-temporary impairment losses on securities
     118,847       113,800  
Other
     1,185,443       1,314,615  
Total noninterest expense
     38,340,967       36,790,273  
                 
Net income before income taxes
     10,016,556       7,039,305  
Federal and state income tax expense
     2,745,257       1,900,663  
Net income
   $ 7,271,299     $ 5,138,642  
Less: Net income attributable to noncontrolling interests
     308,215       95,046  
Net income attributable to QCR Holdings, Inc.
     6,963,084     $ 5,043,596  
                 
                 
Less: Preferred stock dividends
     4,256,171       3,099,418  
Net income attributable to QCR Holdings, Inc. common stockholders
     2,706,913     $ 1,944,178  
                 
Earnings per common share attributable to QCR Holdings, Inc. common shareholders
  
Basic
   $ 0.56     $ 0.42  
Diluted
   $ 0.56     $ 0.42  
                 
Weighted average common shares outstanding
     4,795,382       4,587,883  
Weighted average common and common equivalent shares outstanding
     4,847,433       4,617,102  
                 
Cash dividends declared per common share
   $ 0.04     $ 0.04  
See Notes to Consolidated Financial Statements
 
4
 

 
 
QCR HOLDINGS, INC. AND SUBSIDIARIES
  
                                                 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
  
Nine Months Ended September 30, 2011 and 2010
  
                                                 
   
Preferred
    
Common
    
Additional
Paid-In
    
Retained
    
Accumulated
Other
Comprehensive
    
Noncontrolling
    
Treasury
        
   
Stock
    
Stock
    
Capital
    
Earnings
    
Income (Loss)
    
Interests
    
Stock
    
Total
  
Balance December 31, 2010
   $ 63,237     $ 4,732,428     $ 86,478,269     $ 40,550,900     $ 704,165     $ 1,648,219     $ (1,606,510 )   $ 132,570,708  
Comprehensive income:
                                                                
Net income
     -       -       -       2,124,960       -       106,524       -       2,231,484  
Other comprehensive loss, net of tax
     -       -       -       -       (1,345,554 )     -       -       (1,345,554 )
Comprehensive income
                                                             885,930  
Preferred cash dividends declared and accrued
     -       -       -       (915,462 )     -       -       -       (915,462 )
Discount accretion on cumulative preferred stock
     -       -       116,909       (116,909 )     -       -       -       -  
Proceeds from issuance of 9,081 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan
     -       9,081       49,249       -       -       -       -       58,330  
Proceeds from issuance of 24,300 shares of common stock as a result of stock options exercised
     -       24,300       146,067       -       -       -       -       170,367  
Exchange of 2,171 shares of common stock in connection with stock options exercised
     -       (2,171 )     (14,070 )     -       -       -       -       (16,241 )
Stock compensation expense
     -       -       206,569                                       206,569  
Restricted stock awards
     -       69,924       (69,924 )     -       -       -       -       -  
Other adjustments to noncontrolling interests
     -       -       -       -       -       (2,065 )     -       (2,065 )
Balance March 31, 2011
   $ 63,237     $ 4,833,562     $ 86,913,069     $ 41,643,489     $ (641,389 )   $ 1,752,678     $ (1,606,510 )   $ 132,958,136  
Comprehensive income:
                                                                
Net income
     -       -       -       2,674,969       -       98,245       -       2,773,214  
Other comprehensive income, net of tax
     -       -       -       -       2,409,728       -       -       2,409,728  
Comprehensive income
                                                             5,182,942  
Common cash dividends declared, $0.04 per share
     -       -       -       (185,863 )     -       -       -       (185,863 )
Preferred cash dividends declared and accrued
     -       -       -       (915,462 )     -       -       -       (915,462 )
Discount accretion on cumulative preferred stock
     -       -       120,280       (120,280 )     -       -       -       -  
Proceeds from issuance of 11,355 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan
     -       11,355       61,582       -       -       -       -       72,937  
Proceeds from issuance of 10,967 shares of common stock as a result of stock options exercised
     -       10,967       65,205       -       -       -       -       76,172  
Exchange of 379 shares of common stock in connection with stock options exercised
     -       (379 )     (3,033 )     -       -       -       -       (3,412 )
Stock compensation expense
     -       -       141,370                                       141,370  
Other adjustments to noncontrolling interests
     -       -       -       -       -       (2,066 )     -       (2,066 )
Balance June 30, 2011
   $ 63,237     $ 4,855,505     $ 87,298,473     $ 43,096,853     $ 1,768,339     $ 1,848,857     $ (1,606,510 )   $ 137,324,754  
Comprehensive income:
                                                                
Net income
     -       -       -       2,163,155       -       103,446       -       2,266,601  
Other comprehensive income, net of tax
     -       -       -       -       2,404,295       -       -       2,404,295  
Comprehensive income
                                                             4,670,896  
Preferred cash dividends declared
     -       -       -       (835,802 )     -       -       -       (835,802 )
Discount accretion on cumulative preferred stock
     -       -       1,352,256       (1,352,256 )     -       -       -       -  
Proceeds from the issuance of 40,090 shares of Series F Non-Cumulative Perpetual Preferred Stock
     40,090       -       40,034,251       -       -       -       -       40,074,341  
Redemption of 38,237 shares of Series D Cumulative Perpetual Preferred Stock
     (38,237 )     -       (38,198,763 )     -       -       -       -       (38,237,000 )
Proceeds from issuance of 7,975 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan
     -       7,975       43,251       -       -       -       -       51,226  
Stock compensation expense
     -       -       149,160                                       149,160  
Restricted stock awards
     -       5,000       (5,000 )                                     -  
Other adjustments to noncontrolling interests
     -       -       -       -       -       (28,702 )     -       (28,702 )
Balance September 30, 2011
   $ 65,090     $ 4,868,480     $ 90,673,628     $ 43,071,950     $ 4,172,634     $ 1,923,601     $ (1,606,510 )   $ 143,168,873  
 
(continued)
 
5
 
QCR HOLDINGS, INC. AND SUBSIDIARIES
  
                                                 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (continued)
  
Nine Months Ended September 30, 2011 and 2010
  
                                                 
                                                 
               
Additional
          
Accumulated
Other
                    
   
Preferred
    
Common
    
Paid-In
    
Retained
    
Comprehensive
    
Noncontrolling
    
Treasury
        
   
Stock
    
Stock
    
Capital
    
Earnings
    
Income
    
Interests
    
Stock
    
Total
  
Balance December 31, 2009
   $ 38,805     $ 4,674,536     $ 82,194,330     $ 38,458,477     $ 135,608     $ 1,699,630     $ (1,606,510 )   $ 125,594,876  
Comprehensive income:
                                                                
Net income
     -       -       -       1,292,009       -       (77,076 )     -       1,214,933  
Other comprehensive income, net of tax
     -       -       -       -       1,663,236       -       -       1,663,236  
Comprehensive income
                                                             2,878,169  
Preferred cash dividends declared and accrued
     -       -       -       (924,088 )     -       -       -       (924,088 )
Discount accretion on cumulative preferred stock
     -       -       109,331       (109,331 )     -       -       -       -  
Proceeds from issuance of warrants to purchase 54,000 shares of common stock in conjunction with the issuance of Series A Subordinated Notes
     -       -       84,240       -       -       -       -       84,240  
Proceeds from issuance of 6,270 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan
     -       6,270       40,849       -       -       -       -       47,119  
Exchange of 367 shares of common stock in connection with payroll taxes for restricted stock
     -       (367 )      (2,730 )      -       -       -       -       (3,097 ) 
Stock compensation expense
     -       -       181,489                                       181,489  
Restricted stock awards
     -       23,598       (23,598 )     -       -       -       -       -  
Other adjustments to noncontrolling interests
     -       -       -       -       -       (2,065 )     -       (2,065 )
Balance March 31, 2010
   $ 38,805     $ 4,704,037     $ 82,583,911     $ 38,717,067     $ 1,798,844     $ 1,620,489     $ (1,606,510 )   $ 127,856,643  
Comprehensive income:
                                                                
Net income
     -       -       -       1,737,501       -       62,336       -       1,799,837  
Other comprehensive income, net of tax
     -       -       -       -       2,043,708       -       -       2,043,708  
Comprehensive income
                                                             3,843,545  
Common cash dividends declared, $0.04 per share
     -       -       -       (182,730 )     -       -       -       (182,730 )
Preferred cash dividends declared and accrued
     -       -       -       (924,088 )     -       -       -       (924,088 )
Discount accretion on cumulative preferred stock
     -       -       113,225       (113,225 )     -       -       -       -  
Exchange of 268 shares of Series B Non-Cumulative Perpetual Preferred Stock for 13,400 shares of Series E Non-Cumulative Perpetual Convertible Preferred Stock
     13,132       -       (13,132 )     -       -       -       -       -  
Exchange of 300 shares of Series C Non-Cumulative Perpetual Preferred Stock for 7,500 shares of Series E Non-Cumulative Perpetual Convertible Preferred Stock
     7,200       -       (7,200 )     -       -       -       -       -  
Proceeds from issuance of 4,100 shares of Series E Non-Cumulative Perpetual Convertible Preferred Stock
     4,100       -       3,199,333       -       -       -       -       3,203,433  
Proceeds from issuance of 9,629 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan
     -       9,629       62,733       -       -       -       -       72,362  
Proceeds from the issuance of 1,504 shares of common stock in connection with options exercised
     -       1,504       11,715       -       -       -       -       13,219  
Stock compensation expense
     -       -       112,693       -       -       -       -       112,693  
Other adjustments to noncontrolling interests
     -       -       -       -       -       4,706       -       4,706  
Balance June 30, 2010
   $ 63,237     $ 4,715,170     $ 86,063,278     $ 39,234,525     $ 3,842,552     $ 1,687,531     $ (1,606,510 )   $ 133,999,783  
Comprehensive income:
                                                                
Net income
     -       -       -       2,014,086       -       109,786       -       2,123,872  
Other comprehensive income, net of tax
     -       -       -       -       160,545       -       -       160,545  
Comprehensive income
                                                             2,284,417  
Preferred cash dividends declared and accrued
     -       -       -       (915,462 )     -       -       -       (915,462 )
Discount accretion on cumulative preferred stock
     -       -       113,224       (113,224 )     -       -       -       -  
Proceeds from issuance of 6,420 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan
     -       6,420       41,827       -       -       -       -       48,247  
Proceeds from the issuance of 750 shares of common stock in connection with options exercised
     -       750       4,907       -       -       -       -       5,657  
Additional issuance cost related to the Series E Non-Cumulative Perpetual Convertible Preferred Stock
     -       -       (16,200 )     -       -       -       -       (16,200 )
Stock compensation expense
     -       -       118,448                                       118,448  
Other adjustments to noncontrolling interests
     -       -       -       -       -       (2,066 )     -       (2,066 )
Balance September 30, 2010
   $ 63,237     $ 4,722,340     $ 86,325,484     $ 40,219,925     $ 4,003,097     $ 1,795,251     $ (1,606,510 )   $ 135,522,824  
 
See Notes to Consolidated Financial Statements
 
6
 
QCR HOLDINGS, INC. AND SUBSIDIARIES
  
             
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  
Nine Months Ended September 30,  
         
 
 
             
   
2011
    
2010
  
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net income
   $ 7,271,299     $ 5,138,642  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation
     1,866,403       1,926,876  
Provision for loan/lease losses
     5,196,850       4,413,650  
Amortization of offering costs on subordinated debentures
     10,738       10,738  
Stock-based compensation expense
     547,087       467,768  
Losses on sales of other real estate owned, net
     90,492       632,806  
Amortization of premiums on securities, net
     2,541,408       2,555,204  
Securities gains
     (1,472,528 )     -  
Other-than-temporary impairment losses on securities
     118,847       113,800  
Loans originated for sale
     (65,240,469 )     (103,689,462 )
Proceeds on sales of loans
     75,960,589       95,662,334  
Gains on sales of loans, net
     (1,923,185 )     (1,831,856 )
Prepayment fees on Federal Home Loan Bank advances
     832,099       -  
Losses on lease residual values
     -       617,000  
(Decrease) increase in accrued interest receivable
     (376,868 )     447,886  
Decrease in prepaid FDIC insurance
     1,362,876       1,788,261  
Increase in cash value of bank-owned life insurance
     (1,032,493 )     (973,659 )
Increase in other assets
     (278,687 )     (651,803 )
Increase in other liabilities
     955,174       1,504,602  
Net cash provided by operating activities
   $ 26,429,632     $ 8,132,787  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
                
Net decrease (increase) in federal funds sold
     56,170,000       (15,356,667 )
Net decrease (increase) in interest-bearing deposits at financial institutions
     15,080,252       (7,152,522 )
Proceeds from sales of foreclosed assets
     8,376,898       1,759,607  
Activity in securities portfolio:
                
Purchases
     (458,081,700 )     (294,445,750 )
Calls, maturities and redemptions
     302,145,002       243,389,938  
Paydowns
     4,977,152       400,605  
Sales
     54,326,191       -  
Activity in restricted investment securities:
                
Purchases
     (245,000 )     (1,704,350 )
Redemptions
     1,675,700       204,800  
Activity in bank-owned life insurance:
                
Purchases
     (7,000,000 )     (3,150,000 )
Surrender of policy
     -       609,772  
Net (increase) decrease in loans/leases originated and held for investment
     (48,043,333 )     51,105,615  
Purchase of premises and equipment
     (1,693,870 )     (2,025,145 )
Net cash used in investing activities
   $ (72,312,708 )   $ (26,364,097 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
                
Net increase (decrease) in deposit accounts
     92,653,389       (2,589,804 )
Net increase (decrease) in short-term borrowings
     2,431,992       (14,481,044 )
Activity in Federal Home Loan Bank advances:
                
Advances
     5,000,000       36,000,000  
Calls and maturities
     (24,000,000 )     (13,100,000 )
Prepayments
     (15,832,099 )     -  
Net (decrease) increase in other borrowings
     (9,941,030 )     7,536,866  
Proceeds from issuance of Series A Subordinated Notes and detachable warrants to purchase 54,000 shares of common stock
     -       2,700,000  
Payment of cash dividends on common and preferred stock
     (3,274,991 )     (3,136,626 )
Proceeds from issuance of Series E Noncumulative Convertible
     -       3,187,233  
Perpetual Preferred Stock, net
                
Proceeds from issuance of Series F Noncumulative Perpetual Preferred Stock
     40,074,341       -  
Redemption of Series D Cumulative Perpetual Preferred Stock
     (38,237,000 )     -  
Proceeds from issuance of common stock, net
     409,379       183,507  
Net cash provided by financing activities
   $ 49,283,981     $ 16,300,132  
                 
Net increase (decrease) in cash and due from banks
     3,400,905       (1,931,178 )
Cash and due from banks, beginning
     42,030,806       35,878,046  
Cash and due from banks, ending
   $ 45,431,711     $ 33,946,868  
                 
Supplemental disclosure of cash flow information, cash payments for:
          
Interest
   $ 18,521,222     $ 23,362,893  
                 
Income/franchise taxes
   $ 1,196,948     $ 1,497,611  
                 
Supplemental schedule of noncash investing activities:
                
Change in accumulated other comprehensive income, unrealized gains on securities available for sale, net
   $ 3,468,469     $ 3,867,489  
                 
Transfers of loans to other real estate owned
   $ 8,220,271     $ 5,442,568  
 
See Notes to Consolidated Financial Statements
 
7
 
QCR HOLDINGS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2011

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The financial information of the Company included herein has been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X.  Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.  Any differences appearing between the numbers presented in financial statements and management’s discussion and analysis are due to rounding.  The results of the interim period ended September 30, 2011, are not necessarily indicative of the results expected for the year ending December 31, 2011.

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

Reclassifications:  Certain amounts in the prior year financial statements have been reclassified, with no effect on net income or stockholders’ equity, to conform with current period presentation.
 
Recent accounting developments:  In April 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-2, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.  ASU 2011-2 amends ASC Topic 310, Receivables, by clarifying guidance for creditors in determining whether a concession has been granted and whether a debtor is experiencing financial difficulties.  The Company adopted ASU 2011-2 effective for the interim period ending September 30, 2011 and applied ASU 2011-2 retrospectively to January 1, 2011.  Adoption did not have a material impact on the consolidated financial statements.  See Note 3 for disclosure of the Company’s troubled debt restructurings.
 
 
8
 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued
 
In April 2011, FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements. ASU 2011-03 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion. ASU 2011-03 will be effective for the Company on January 1, 2012 and is not expected to have a significant impact on the Company’s consolidated financial statements.
 
In May 2011, FASB issued ASU 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS.  ASU 2011-04 amends Topic 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 is effective for annual periods beginning after December 15, 2011, and is not expected to have a significant impact on the Company’s consolidated financial statements.
 
In June 2011, FASB issued ASU 2011-05, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income. ASU 2011-05 amends Topic 220, Comprehensive Income, to require that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 is effective for annual periods beginning after December 15, 2011, and is not expected to have a significant impact on the Company’s consolidated financial statements.

In September 2011, FASB issued ASU 2011-08, Intangibles – Goodwill and Other: Testing Goodwill for Impairment.  ASU 2011-08 allows the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining the need to perform step one of the annual test for goodwill impairment.  ASU 2011-08 is effective for annual periods beginning after December 15, 2011.  Early adoption is permitted.  The Company decided to early adopt ASU 2011-08 as of September 30, 2011 and the adoption did not have any effect on the Company’s consolidated financial statements.
 
 
9
 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

NOTE 2 – INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of September 30, 2011 and December 31, 2010 are summarized as follows:
 
         
Gross
    
Gross
        
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
   
Cost
    
Gains
    
(Losses)
    
Value
  
September 30, 2011:
                        
Securities held to maturity, other bonds
   $ 200,000     $ -     $ -     $ 200,000  
                                 
Securities available for sale:
                                
U.S. govt. sponsored agency securities
   $ 412,874,368     $ 2,280,889     $ (371,420 )   $ 414,783,837  
Residential mortgage-backed securities
     80,069,540       3,382,915       -       83,452,455  
Municipal securities
     24,580,364       1,410,952       -       25,991,316  
Trust preferred securities
     86,200       -       (14,400 )     71,800  
Other securities
     1,346,972       106,442       (41,036 )     1,412,378  
    $ 518,957,444     $ 7,181,198     $ (426,856 )   $ 525,711,786  
                                 
December 31, 2010:
                                
Securities held to maturity, other bonds
   $ 300,000     $ -     $ -     $ 300,000  
                                 
Securities available for sale:
                                
U.S. govt. sponsored agency securities
   $ 401,711,432     $ 3,218,843     $ (2,704,919 )   $ 402,225,356  
Residential mortgage-backed securities
     64,912       5,526       -       70,438  
Municipal securities
     20,134,611       579,215       (110,346 )     20,603,480  
Trust preferred securities
     86,200       -       (8,200 )     78,000  
Other securities
     1,414,661       168,331       (13,499 )     1,569,493  
    $ 423,411,816     $ 3,971,915     $ (2,836,964 )   $ 424,546,767  
 
 
 
10
 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2011 and December 31, 2010, are summarized as follows:
 
   
Less than 12 Months
    
12 Months or More
    
Total
  
         
Gross
          
Gross
          
Gross
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
   
Value
    
Losses
    
Value
    
Losses
    
Value
    
Losses
  
September 30, 2011:
                                    
Securities available for sale:
                                    
U.S. govt. sponsored agency securities
   $ 102,397,415     $ (371,420 )   $ -     $ -     $ 102,397,415     $ (371,420 )
Trust preferred securities
     71,800       (14,400 )     -       -       71,800       (14,400 )
Other securities
     301,176       (40,510 )     2,725       (526 )     303,901       (41,036 )
    $ 102,770,391     $ (426,330 )   $ 2,725     $ (526 )   $ 102,773,116     $ (426,856 )
                                                 
December 31, 2010:
                                                
Securities available for sale:
                                                
U.S. govt. sponsored agency securities
   $ 159,302,061     $ (2,704,919 )   $ -     $ -     $ 159,302,061     $ (2,704,919 )
Municipal securities
     4,333,786       (47,884 )     678,378       (62,462 )     5,012,164       (110,346 )
Trust preferred securities
     86,200       (8,200 )     -       -       86,200       (8,200 )
Other securities
     226,250       (12,671 )     2,872       (828 )     229,122       (13,499 )
    $ 163,948,297     $ (2,773,674 )   $ 681,250     $ (63,290 )   $ 164,629,547     $ (2,836,964 )


At September 30, 2011, the investment portfolio included 331 securities.  Of this number, 54 securities had current unrealized losses with aggregate depreciation less than 1% from the amortized cost basis.  Of these 54, one had unrealized losses for twelve months or more.  All of the debt securities in unrealized loss positions are considered acceptable credit risks.  Based upon an evaluation of the available evidence, including the recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary.  In addition, the Company does not intend to sell these securities and it is not more-likely-than-not that the Company will be required to sell these debt securities before their anticipated recovery.  At September 30, 2011 and December 31, 2010, equity securities represented less than 1% of the total portfolio.

The Company did not recognize other-than-temporary impairment on any debt securities for the three and nine months ended September 30, 2011.   During the three months ended September 30, 2010, the Company’s evaluation determined the decline in fair value for one individual issue trust preferred security was other-than-temporary.  As a result, the Company wrote down the value of this security and recognized a loss totaling $113,800.  The Company does not have any other investments in trust preferred securities.

During the second quarter of 2011, the Company’s evaluation determined that two privately held equity securities experienced declines in fair value that were other-than-temporary.  As a result, the Company wrote down the value of these securities and recognized losses in the amount of $118,847.  The Company did not recognize other-than-temporary impairment on any of its equity securities during the first or third quarters of 2011.  Additionally, the Company did not recognize other-than-temporary impairment on any of its equity securities for the three and nine months ended September 30, 2010.

 
11
 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

All sales of securities, as applicable, for the three and nine months ended September 30, 2011 and 2010, respectively, were from securities identified as available for sale.  Information on proceeds received, as well as pre-tax gross gains from sales of those securities is as follows:
 
   
Three Months Ended
    
Nine Months Ended
  
   
September 30, 2011
    
September 30, 2010
    
September 30, 2011
    
September 30, 2010
  
                         
Proceeds from sales of securities
   $ 8,601,107     $ -     $ 54,326,191     $ -  
Pre-tax gross gains from sales of securities
     443,614       -       1,472,528       -  
                                 
 
The amortized cost and fair value of securities as of September 30, 2011 by contractual maturity are shown below.  A portion of the Company’s U.S. government sponsored agency securities contain call options which allow the issuer, at its discretion, to call the security at predetermined dates prior to the contractual maturity date. Expected maturities of residential mortgage-backed securities may differ from contractual maturities because the residential mortgages underlying the residential mortgage-backed securities may be called or prepaid without any penalties.  Therefore, these securities are not included in the maturity categories in the following table.  “Other securities” are excluded from the maturity categories as there is no fixed maturity date.
 
   
Amortized
        
   
Cost
    
Fair Value
  
Securities held to maturity:
            
Due in one year or less
   $ 50,000     $ 50,000  
Due after one year through five years
     100,000       100,000  
Due after five years
     50,000       50,000  
    $ 200,000     $ 200,000  
                 
Securities available for sale:
                
Due in one year or less
   $ 2,803,210     $ 2,811,980  
Due after one year through five years
     68,117,087       68,470,834  
Due after five years
     366,620,635       369,564,139  
    $ 437,540,932     $ 440,846,953  
Residential mortgage-backed securities
     80,069,540       83,452,455  
Other securities
     1,346,972       1,412,378  
    $ 518,957,444     $ 525,711,786  
                 
 
12
 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

NOTE 3 – LOANS/LEASES RECEIVABLE

The composition of the loan/lease portfolio as of September 30, 2011 and December 31, 2010 is presented as follows:
 
   
As of September 30,
    
As of December 31,
  
   
2011
    
2010
  
             
Commercial and industrial loans
   $ 363,997,365     $ 365,625,271  
Commercial real estate loans