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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

 

[     ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to________

 

Commission file number 0-22208

 

QCR HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

42-1397595

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

                                     

3551 7th Street, Moline, Illinois 61265

(Address of principal executive offices, including zip code)

 

(309) 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 the past 90 days.

Yes      [ X ]          No [   ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes      [ X ]          No [   ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.      (Check one):     

 

Large accelerated filer [   ]            Accelerated filer [ X ]            Non-accelerated filer [   ]     

Smaller reporting company [   ]          Emerging growth company [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      [    ]          No [ X ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: As of August 2, 2017, the Registrant had outstanding 13,181,153 shares of common stock, $1.00 par value per share.

 

 

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

     

 Page

Number(s) 

Part I

FINANCIAL INFORMATION

 
       
 

Item 1

Consolidated Financial Statements (Unaudited)

 
       
   

Consolidated Balance Sheets

                   3

   

As of June 30, 2017 and December 31, 2016

 
       
   

Consolidated Statements of Income

 
   

For the Three Months Ended June 30, 2017 and 2016

                   4

       
   

Consolidated Statements of Income

 
   

For the Six Months Ended June 30, 2017 and 2016

                   5

       
   

Consolidated Statements of Comprehensive Income

 
   

For the Three and Six Months Ended June 30, 2017 and 2016

                   6

       
   

Consolidated Statements of Changes in Stockholders' Equity

 
   

For the Three and Six Months Ended June 30, 2017 and 2016

                   7

       
   

Consolidated Statements of Cash Flows

 
   

For the Six Months Ended June 30, 2017 and 2016

                   8

       
   

Notes to Consolidated Financial Statements

10
       
   

Note 1.  Summary of Significant Accounting Policies

                 10

   

Note 2.  Investment Securities

                 12

   

Note 3.  Loans/Leases Receivable

                 17

   

Note 4.  Earnings Per Share

                 27

   

Note 5.  Fair Value

                 27

   

Note 6.  Business Segment Information

                 31

   

Note 7.  Regulatory Capital Requirements

                 32

   

Note 8. Acquisition of Guaranty Bank and Trust Company

                 34

       
 

Item 2

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

 
       
   

Introduction

                 35

   

General

                 35

   

Executive Overview

                 36

   

Long-Term Financial Goals

                 37

   

Strategic Developments

                 38

   

GAAP to Non-GAAP Reconciliations

                 40

   

Net Interest Income (Tax Equivalent Basis)

                 43

   

Critical Accounting Policies

                 48

   

Results of Operations

 
   

Interest Income

                 49

   

Interest Expense

                 49

   

Provision for Loan/Lease Losses

                 50

   

Noninterest Income

                 51

   

Noninterest Expense

                 54

   

Income Taxes

                 56

 

1

 

 

   

Financial Condition

                 56

   

Investment Securities

                 57

   

Loans/Leases

                 58

   

Allowance for Estimated Losses on Loans/Leases

                 61

   

Nonperforming Assets

                 63

   

Deposits

                 64

   

Borrowings

                 64

   

Stockholders' Equity

                 66

   

Liquidity and Capital Resources

                 67

   

Special Note Concerning Forward-Looking Statements

                 69

       
 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

                 70

       
 

Item 4

Controls and Procedures

                 72

       

Part II

OTHER INFORMATION

 
       
 

Item 1

Legal Proceedings

                 73

       
 

Item 1A

Risk Factors

                 73

       
 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

                 73

       
 

Item 3

Defaults upon Senior Securities

                 73

       
 

Item 4

Mine Safety Disclosures

                 73

       
 

Item 5

Other Information

                 73

       
 

Item 6

Exhibits

                 74

       

Signatures

 

                 75

 

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

 

2

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of June 30, 2017 and December 31, 2016

 

   

June 30,

   

December 31,

 
   

2017

   

2016

 

ASSETS

               

Cash and due from banks

  $ 77,161,353     $ 70,569,993  

Federal funds sold

    19,183,000       22,257,000  

Interest-bearing deposits at financial institutions

    53,171,325       63,948,925  
                 

Securities held to maturity, at amortized cost

    324,203,634       322,909,056  

Securities available for sale, at fair value

    269,281,713       251,113,139  

Total securities

    593,485,347       574,022,195  
                 

Loans receivable held for sale

    705,800       1,135,500  

Loans/leases receivable held for investment

    2,552,859,808       2,404,351,485  

Gross loans/leases receivable

    2,553,565,608       2,405,486,985  

Less allowance for estimated losses on loans/leases

    (33,356,632 )     (30,757,448 )

Net loans/leases receivable

    2,520,208,976       2,374,729,537  
                 

Bank-owned life insurance

    58,186,098       57,257,051  

Premises and equipment, net

    61,218,425       60,643,508  

Restricted investment securities

    16,103,925       14,997,025  

Other real estate owned, net

    5,173,521       5,523,104  

Goodwill

    13,110,913       13,110,913  

Core deposit intangible

    6,919,480       7,381,213  

Other assets

    33,264,332       37,503,284  

Total assets

  $ 3,457,186,695     $ 3,301,943,748  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

LIABILITIES

               

Deposits:

               

Noninterest-bearing

  $ 760,624,943     $ 797,415,090  

Interest-bearing

    2,109,609,296       1,871,846,183  

Total deposits

    2,870,234,239       2,669,261,273  
                 

Short-term borrowings

    18,217,393       39,971,387  

Federal Home Loan Bank advances

    106,500,000       137,500,000  

Other borrowings

    72,000,000       80,000,000  

Junior subordinated debentures

    33,546,425       33,480,202  

Other liabilities

    51,605,203       55,690,087  

Total liabilities

    3,152,103,260       3,015,902,949  
                 

STOCKHOLDERS' EQUITY

               

Preferred stock, $1 par value; shares authorized 250,000 June 2017 and December 2016 - No shares issued or outstanding

     -       -  

Common stock, $1 par value; shares authorized 20,000,000 June 2017 - 13,175,234 shares issued and outstanding December 2016 - 13,106,845 shares issued and outstanding

   

13,175,234

      13,106,845  

Additional paid-in capital

    158,001,006       156,776,642  

Retained earnings

    135,254,306       118,616,901  

Accumulated other comprehensive loss:

               

Securities available for sale

    (468,190 )     (1,527,433 )

Interest rate cap derivatives

    (878,921 )     (932,156 )

Total stockholders' equity

    305,083,435       286,040,799  

Total liabilities and stockholders' equity

  $ 3,457,186,695     $ 3,301,943,748  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

3

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended June 30,

 

   

2017

   

2016

 

Interest and dividend income:

               

Loans/leases, including fees

  $ 28,114,729     $ 20,238,179  

Securities:

               

Taxable

    1,260,575       1,192,541  

Nontaxable

    2,688,243       2,276,203  

Interest-bearing deposits at financial institutions

    219,714       62,242  

Restricted investment securities

    131,890       133,546  

Federal funds sold

    38,117       10,573  

Total interest and dividend income

    32,453,268       23,913,284  
                 

Interest expense:

               

Deposits

    2,990,603       1,344,398  

Short-term borrowings

    19,157       18,065  

FHLB advances

    354,213       415,933  

Other borrowings

    695,669       824,437  

Junior subordinated debentures

    346,929       301,638  

Total interest expense

    4,406,571       2,904,471  

Net interest income

    28,046,697       21,008,813  
                 

Provision for loan/lease losses

    2,022,993       1,197,850  

Net interest income after provision for loan/lease losses

    26,023,704       19,810,963  
                 

Noninterest income:

               

Trust department fees

    1,692,001       1,512,083  

Investment advisory and management fees

    868,835       692,738  

Deposit service fees

    1,458,359       946,810  

Gains on sales of residential real estate loans

    112,628       84,413  

Gains on sales of government guaranteed portions of loans

    87,053       1,603,890  

Swap fee income

    327,577       167,582  

Securities gains, net

    38,464       18,030  

Earnings on bank-owned life insurance

    459,359       480,520  

Debit card fees

    743,521       343,748  

Correspondent banking fees

    200,057       244,939  

Other

    794,664       667,648  

Total noninterest income

    6,782,518       6,762,401  
                 

Noninterest expense:

               

Salaries and employee benefits

    12,930,944       10,917,473  

Occupancy and equipment expense

    2,698,336       1,884,556  

Professional and data processing fees

    2,340,699       1,542,322  

Acquisition costs

    -       354,969  

FDIC insurance, other insurance and regulatory fees

    645,277       649,604  

Loan/lease expense

    260,284       154,349  

Net cost of operations of other real estate

    27,957       277,911  

Advertising and marketing

    567,588       433,451  

Bank service charges

    447,445       415,350  

Correspondent banking expense

    201,693       181,776  

Other

    1,284,406       931,992  

Total noninterest expense

    21,404,629       17,743,753  

Net income before income taxes

    11,401,593       8,829,611  

Federal and state income tax expense

    2,635,576       2,153,144  

Net income

  $ 8,766,017     $ 6,676,467  

Basic earnings per common share

  $ 0.67     $ 0.54  

Diluted earnings per common share

  $ 0.65     $ 0.53  

Weighted average common shares outstanding

    13,170,283       12,335,077  

Weighted average common and common equivalent shares outstanding

    13,516,592       12,516,474  

Cash dividends declared per common share

  $ 0.05     $ 0.04  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

4

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Six Months Ended June 30,

 

   

2017

   

2016

 

Interest and dividend income:

               

Loans/leases, including fees

  $ 55,326,146     $ 39,938,549  

Securities:

               

Taxable

    2,402,810       2,548,744  

Nontaxable

    5,335,965       4,518,218  

Interest-bearing deposits at financial institutions

    418,366       122,559  

Restricted investment securities

    262,320       264,110  

Federal funds sold

    52,760       23,163  

Total interest and dividend income

    63,798,367       47,415,343  

Interest expense:

               

Deposits

    5,223,359       2,634,196  

Short-term borrowings

    43,117       61,131  

FHLB advances

    757,682       857,637  

Other borrowings

    1,378,877       1,649,520  

Junior subordinated debentures

    679,752       606,524  

Total interest expense

    8,082,787       5,809,008  

Net interest income

    55,715,580       41,606,335  
                 

Provision for loan/lease losses

    4,128,102       3,270,835  

Net interest income after provision for loan/lease losses

    51,587,478       38,335,500  
                 

Noninterest income:

               

Trust department fees

    3,432,208       3,087,990  

Investment advisory and management fees

    1,830,434       1,351,123  

Deposit service fees

    2,774,749       1,877,889  

Gains on sales of residential real estate loans

    208,951       144,799  

Gains on sales of government guaranteed portions of loans

    1,037,694       2,482,418  

Swap fee income

    441,097       1,024,540  

Securities gains, net

    38,464       376,510  

Earnings on bank-owned life insurance

    929,046       874,129  

Debit card fees

    1,446,322       651,399  

Correspondent banking fees

    445,246       547,069  

Other

    1,482,061       1,167,008  

Total noninterest income

    14,066,272       13,584,874  
                 

Noninterest expense:

               

Salaries and employee benefits

    26,238,275       21,718,380  

Occupancy and equipment expense

    5,200,555       3,711,544  

Professional and data processing fees

    4,424,091       2,989,735  

Acquisition costs

    -       354,969  

FDIC insurance, other insurance and regulatory fees

    1,266,519       1,283,969  

Loan/lease expense

    553,822       317,168  

Net cost of operations of other real estate

    42,187       380,094  

Advertising and marketing

    1,177,019       819,710  

Bank service charges

    871,346       831,281  

Losses on debt extinguishment, net

    -       83,197  

Correspondent banking expense

    400,044       358,765  

Other

    2,503,888       1,849,439  

Total noninterest expense

    42,677,746       34,698,251  

Net income before income taxes

    22,976,004       17,222,123  

Federal and state income tax expense

    5,025,022       4,172,167  

Net income

  $ 17,950,982     $ 13,049,956  

Basic earnings per common share

  $ 1.36     $ 1.08  

Diluted earnings per common share

  $ 1.33     $ 1.07  

Weighted average common shares outstanding

    13,151,833       12,064,349  

Weighted average common and common equivalent shares outstanding

    13,502,505       12,235,212  

Cash dividends declared per common share

  $ 0.10     $ 0.08  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

5

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three and Six Months Ended June 30, 2017 and 2016

 

 

   

Three Months Ended June 30,

 
   

2017

   

2016

 

Net income

  $ 8,766,017     $ 6,676,467  
                 

Other comprehensive income:

               
                 

Unrealized gains on securities available for sale:

               

Unrealized holding gains arising during the period before tax

    1,170,310       2,081,800  

Less reclassification adjustment for gains included in net income before tax

    38,464       18,030  
      1,131,846       2,063,770  

Unrealized losses on interest rate cap derivatives:

               

Unrealized holding losses arising during the period before tax

    (132,352 )     (159,691 )

Less reclassification adjustment for ineffectiveness and caplet amortization before tax

    (136,639 )     20,154  
      4,287       (179,845 )
                 

Other comprehensive income, before tax

    1,136,133       1,883,925  

Tax expense

    434,394       703,292  

Other comprehensive income, net of tax

    701,739       1,180,633  
                 

Comprehensive income

  $ 9,467,756     $ 7,857,100  

 

 

   

Six Months Ended June 30,

 
   

2017

   

2016

 

Net income

  $ 17,950,982     $ 13,049,956  
                 

Other comprehensive income:

               
                 

Unrealized gains on securities available for sale:

               

Unrealized holding gains arising during the period before tax

    1,768,500       6,945,518  

Less reclassification adjustment for gains included in net income before tax

    38,464       376,510  
      1,730,036       6,569,008  

Unrealized losses on interest rate cap derivatives:

               

Unrealized holding losses arising during the period before tax

    (177,554 )     (549,627 )

Less reclassification adjustment for ineffectiveness and caplet amortization before tax

    (259,452 )     35,591  
      81,898       (585,218 )
                 

Other comprehensive income, before tax

    1,811,934       5,983,790  

Tax expense

    699,456       2,277,746  

Other comprehensive income, net of tax

    1,112,478       3,706,044  
                 

Comprehensive income

  $ 19,063,460     $ 16,756,000  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

6

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

Three Months and Six Months Ended June 30, 2017 and 2016

 

                           

Accumulated

         
           

Additional

           

Other

         
   

Common

   

Paid-In

   

Retained

   

Comprehensive

         
   

Stock

   

Capital

   

Earnings

   

Income (Loss)

   

Total

 

Balance, December 31, 2016

  $ 13,106,845     $ 156,776,642     $ 118,616,901     $ (2,459,589 )   $ 286,040,799  

Net income

    -       -       9,184,965       -       9,184,965  

Other comprehensive income, net of tax

    -       -       -       410,739       410,739  

Common cash dividends declared, $0.05 per share

    -       -       (656,574 )     -       (656,574 )

Proceeds from issuance of 3,573 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

    3,573       83,091       -       -       86,664  

Proceeds from issuance of 44,284 shares of common stock as a result of stock options exercised

    44,284       630,290       -       -       674,574  

Stock compensation expense

    -       388,753                       388,753  

Restricted stock awards - 13,289 shares of common stock

    13,289       (13,289 )     -       -       -  

Exchange of 6,772 shares of common stock in connection with stock options exercised and restricted stock vested

    (6,772 )     (283,518 )     -       -       (290,290 )

Balance, March 31, 2017

  $ 13,161,219     $ 157,581,969     $ 127,145,292     $ (2,048,850 )   $ 295,839,630  

Net income

    -       -       8,766,017       -       8,766,017  

Other comprehensive income, net of tax

    -       -       -       701,739       701,739  

Common cash dividends declared, $0.05 per share

    -       -       (657,003 )     -       (657,003 )

Proceeds from issuance of 4,582 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan

    4,582       170,061       -       -       174,643  

Proceeds from issuance of 8,027 shares of common stock as a result of stock options exercised

    8,027       109,392       -       -       117,419  

Stock compensation expense

    -       168,314                       168,314  

Restricted stock awards - 2,000 shares of common stock

    2,000       (2,000 )     -       -       -  

Exchange of 594 shares of common stock in connection with stock options exercised

    (594 )     (26,730 )     -       -       (27,324 )

Balance June 30, 2017

  $ 13,175,234     $ 158,001,006     $ 135,254,306     $ (1,347,111 )   $ 305,083,435  

 

                           

Accumulated

         
           

Additional

           

Other

         
   

Common

   

Paid-In

   

Retained

   

Comprehensive

         
   

Stock

   

Capital

   

Earnings

   

Income (Loss)

   

Total

 

Balance, December 31, 2015

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

Net income

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

Other comprehensive income, net of tax

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

Common cash dividends declared, $0.04 per share

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

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

    5,054       94,560       -       -       99,614  

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

    46,020       729,473       -       -       775,493  

Stock compensation expense

    -       382,761                       382,761  

Tax benefit of nonqualified stock options exercised

    -       22,508       -       -       22,508  

Restricted stock awards - 22,382 shares of common stock

    22,382       (22,382 )     -       -       -  

Exchange of 19,628 shares of common stock in connection with stock options exercised and restricted stock vested

    (19,628 )     (431,806 )     -       -       (451,434 )

Balance, March 31, 2016

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

Net income

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

Other comprehensive income, net of tax

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

Common cash dividends declared, $0.04 per share

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

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

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

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

    6,982       142,887       -       -       149,869  

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

    20,975       230,671       -       -       251,646  

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

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

Stock compensation expense

    -       187,569                       187,569  

Tax benefit of nonqualified stock options exercised

    -       87,858       -       -       87,858  

Restricted stock awards - 500 shares of common stock

    (500 )     500       -       -       -  

Balance June 30, 2016

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

 

See Notes to Consolidated Financial Statements (Unaudited)

 

 

7

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30, 2017 and 2016

 

   

2017

   

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 17,950,982     $ 13,049,956  

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

               

Depreciation

    1,847,963       1,552,176  

Provision for loan/lease losses

    4,128,102       3,270,835  

Stock-based compensation expense

    557,067       570,330  

Deferred compensation expense accrued

    724,422       623,831  

Losses on other real estate owned, net

    3,596       157,739  

Amortization of premiums on securities, net

    1,005,121       611,900  

Securities gains, net

    (38,464 )     (376,510 )

Loans originated for sale

    (32,130,683 )     (43,526,263 )

Proceeds on sales of loans

    33,807,027       45,160,830  

Gains on sales of residential real estate loans

    (208,951 )     (144,799 )

Gains on sales of government guaranteed portions of loans

    (1,037,694 )     (2,482,418 )

Losses on debt extinguishment, net

    -       83,197  

Amortization of core deposit intangible

    461,733       99,756  

Accretion of acquisition fair value adjustments, net

    (3,578,379 )     (61,065 )

Increase in cash value of bank-owned life insurance

    (929,046 )     (874,129 )

Decrease (increase) in other assets

    3,412,207       (4,330,548 )

Increase (decrease) in other liabilities

    (7,059,305 )     1,386,323  

Net cash provided by operating activities

  $ 18,915,698     $ 14,771,141  
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Net decrease (increase) in federal funds sold

    3,074,000       (975,000 )

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

    10,777,600       (11,293,339 )

Proceeds from sales of other real estate owned

    487,815       864,817  

Activity in securities portfolio:

               

Purchases

    (85,169,891 )     (97,132,279 )

Calls, maturities and redemptions

    33,079,683       96,704,276  

Paydowns

    21,606,220       13,321,512  

Sales

    13,554,075       61,075,145  

Activity in restricted investment securities:

               

Purchases

    (2,407,600 )     (1,857,200 )

Redemptions

    1,300,700       -  

Net increase in loans/leases originated and held for investment

    (146,365,255 )     (124,972,098 )

Purchase of premises and equipment

    (2,422,880 )     (2,953,356 )

Net cash used in investing activities

  $ (152,485,534 )   $ (67,217,522 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Net increase in deposit accounts

    201,041,035       92,920,820  

Net decrease in short-term borrowings

    (21,753,994 )     (93,100,968 )

Activity in FHLB advances:

               

Calls and maturities

    (6,000,000 )     (9,000,000 )

Net change in short-term and overnight advances

    (25,000,000 )     64,900,000  

Prepayments

    -       (10,524,197 )

Activity in other borrowings:

               

Calls, maturities and scheduled principal payments

    (8,000,000 )     -  

Prepayments

    -       (10,759,000 )

Retirement of junior subordinated debentures

    -       (3,955,000 )

Payment of cash dividends on common stock

    (1,179,146 )     (939,456 )

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

    -       29,828,916  

Proceeds from issuance of common stock, net

    1,053,300       914,099  

Net cash provided by financing activities

  $ 140,161,195     $ 60,285,214  

Net increase in cash and due from banks

    6,591,360       7,838,833  

Cash and due from banks, beginning

    70,569,993       41,742,321  

Cash and due from banks, ending

  $ 77,161,353     $ 49,581,154  

 

(Continued)

 

8

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - continued

Six Months Ended June 30, 2017 and 2016

 

   

2017

   

2016

 

Supplemental disclosure of cash flow information, cash payments for:

               

Interest

  $ 7,876,668     $ 5,852,789  

Income/franchise taxes, net

  $ 7,450,738     $ 4,869,300  
                 

Supplemental schedule of noncash investing activities:

               

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

  $ 1,112,478     $ 3,706,044  

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

  $ (317,614 )   $ (451,434 )

Tax benefit of nonqualified stock options exercised

  $ N/A     $ 110,366  

Transfers of loans to other real estate owned

  $ 141,828     $ 51,000  

Due to broker for purchases of securities

  $ (4,662,631 )   $ (1,500,000 )

Dividends payable

  $ 657,003     $ 520,701  

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

  $ -     $ 2,132,415  

Decrease (increase) in the fair market value of interest rate swap assets and liabilities

  $ (209,185 )   $ 6,823,332  

 

See Notes to Consolidated Financial Statements (Unaudited)

 

9

 

Part I

Item 1

QCR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2017

 

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, 2016, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2017. Accordingly, footnote disclosures, which would substantially duplicate the disclosures contained in the audited consolidated financial statements, have been omitted.

 

The financial information of the Company included herein has been prepared in accordance with U.S. GAAP for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Any differences appearing between the numbers presented in financial statements and management’s discussion and analysis are due to rounding. The results of the interim period ended June 30, 2017, are not necessarily indicative of the results expected for the year ending December 31, 2017, or for any other period.

 

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

 

Allowance: Allowance for estimated losses on loans/leases

Guaranty Bank: Guaranty Bank and Trust Company

AOCI: Accumulated other comprehensive income (loss)

HTM: Held to maturity

AFS: Available for sale

m2: m2 Lease Funds, LLC

ASC: Acocunting Standards Codification

NIM: Net interest margin

ASU: Accounting Standards Update

NPA: Nonperforming asset

BOLI: Bank-owned life insurance

NPL: Nonperforming loan

Caps: Interest rate cap derivatives

OREO: Other real estate owned

Community National: Community National Bancorporation

OTTI: Other-than-temporary impairment

CRBT: Cedar Rapids Bank & Trust Company

PCI: Purchased credit impaired

CRE: Commercial real estate

Provision: Provision for loan/lease losses

CSB: Community State Bank

QCBT: Quad City Bank & Trust Company

C&I: Commercial and industrial

RB&T: Rockford Bank & Trust Company

Dodd-Frank Act: Dodd-Frank Wall Street Reform and 

ROAA: Return on Average Assets

     Consumer Protection Act

SBA: U.S. Small Business Administration

EPS: Earnings per share

SEC: Securities and Exchange Commission

Exchange Act: Securities Exchange Act of 1934, as amended

TA: Tangible assets

FASB: Financial Accounting Standards Board

TCE: Tangible common equity

FDIC: Federal Deposit Insurance Corporation

TDRs: Troubled debt restructurings

FHLB: Federal Home Loan Bank

TEY: Tax equivalent yield

FRB: Federal Reserve Bank of Chicago

The Company: QCR Holdings, Inc.

GAAP: Generally Accepted Accounting Principles

USDA: U.S. Department of Agriculture

Guaranty: Guaranty Bankshares, Ltd.

 

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries which include four commercial banks: QCBT, CRBT, CSB and RB&T. All are state-chartered commercial banks. The Company also engages in direct financing lease contracts through m2, a wholly-owned subsidiary of QCBT. All material intercompany transactions and balances have been eliminated in consolidation.

 

The acquisition of CSB occurred on August 31, 2016; therefore, the Consolidated Balance Sheets included herein for both June 30, 2017 and December 31, 2016 include CSB. The Consolidated Statements of Income included herein include CSB for the quarter and six months ended June 30, 2017, however, do not include CSB for the comparative periods ending June 30, 2016. 

 

On June 8, 2017, the Company announced the signing of a definitive agreement to acquire Guaranty Bank, headquartered in Cedar Rapids, Iowa, from Guaranty. The transaction is expected to be completed late in the third quarter or early in the fourth quarter of 2017, subject to certain customary closing conditions.  The financial results of Guaranty are not recognized in this Report.  See Note 8 to the Consolidated Financial Statements for additional information about the planned acquisition.

 

10

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

Recent accounting developments: In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally effective for the Company on January 1, 2017, however, FASB issued ASU 2015-14 which defers the effective date in order to provide additional time for both public and private entities to evaluate the impact. ASU 2014-09 will now be effective for the Company on January 1, 2018 and it is not expected to have a significant impact on the Company’s consolidated financial statements.

 

In January 2016, FASB issued ASU 2016-01, Financial Instruments – Overall. ASU 2016-01 makes targeted adjustments to GAAP by eliminating the AFS 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 AFS 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 and it is not expected to have a significant impact on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases. Under ASU 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. However, the definition of initial direct costs was updated to include only initial direct costs that are considered incremental. This change in definition will change the manner in which the Company recognizes the costs associated with originating leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted for all entities. The Company is in the process of analyzing the impact of adoption on the Company’s consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses. Under the standard, assets measured at amortized costs (including loans, leases and AFS securities) will be presented at the net amount expected to be collected. Rather than the “incurred” model that is currently being utilized, the standard will require the use of a forward-looking approach to recognizing all expected credit losses at the beginning of an asset’s life. For public companies, ASU 2016-13 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.

 

Effective January 1, 2017, the Company adopted ASU 2016-09, Compensation – Stock Compensation. Under the standard, the excess tax benefit (deficiency) related to stock options exercised and restricted stock awards vested is recorded as an adjustment to income tax expense. In the past, this tax benefit (deficiency) was recorded directly to equity. This change in accounting resulted in $90 thousand of reduced income tax in the second quarter of 2017 and $623 thousand of reduced income tax expense in the first six months of 2017.

 

11

 

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 June 30, 2017 and December 31, 2016 are summarized as follows:

 

 

           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

(Losses)

   

Value

 

June 30, 2017:

                               

Securities HTM:

                               

Municipal securities

  $ 323,153,634     $ 2,027,969     $ (3,242,226 )   $ 321,939,377  

Other securities

    1,050,000       -       -       1,050,000  
    $ 324,203,634     $ 2,027,969     $ (3,242,226 )   $ 322,989,377  
                                 

Securities AFS:

                               

U.S. govt. sponsored agency securities

  $ 42,037,160     $ 96,651     $ (189,347 )   $ 41,944,464  

Residential mortgage-backed and related securities

    166,063,973       245,551       (1,894,691 )     164,414,833  

Municipal securities

    57,881,338       471,713       (252,541 )     58,100,510  

Other securities

    4,065,468       778,988       (22,550 )     4,821,906  
    $ 270,047,939     $ 1,592,903     $ (2,359,129 )   $ 269,281,713  
                                 

December 31, 2016:

                               

Securities HTM:

                               

Municipal securities

  $ 321,859,056     $ 2,200,577     $ (4,694,734 )   $ 319,364,899  

Other securities

    1,050,000       -       -       1,050,000  
    $ 322,909,056     $ 2,200,577     $ (4,694,734 )   $ 320,414,899  
                                 

Securities AFS:

                               

U.S. govt. sponsored agency securities

  $ 46,281,306     $ 132,886     $ (330,585 )   $ 46,083,607  

Residential mortgage-backed and related securities

    150,465,222       174,993       (2,938,088 )     147,702,127  

Municipal securities

    52,816,541       425,801       (637,916 )     52,604,426  

Other securities

    4,046,332       703,978       (27,331 )     4,722,979  
    $ 253,609,401     $ 1,437,658     $ (3,933,920 )   $ 251,113,139  

 

12

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

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

 

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

 

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 June 30, 2017 and December 31, 2016, 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

 

June 30, 2017:

                                               

Securities HTM:

                                               

Municipal securities

  $ 64,001,034     $ (1,792,524 )   $ 30,641,106     $ (1,449,702 )   $ 94,642,140     $ (3,242,226 )
                                                 

Securities AFS:

                                               

U.S. govt. sponsored agency securities

  $ 27,793,290     $ (184,702 )   $ 4,775,235     $ (4,645 )   $ 32,568,525     $ (189,347 )

Residential mortgage-backed and related securities

    129,347,074       (1,614,041 )     8,839,471       (280,650 )     138,186,545       (1,894,691 )

Municipal securities

    25,578,044       (234,044 )     336,441       (18,497 )     25,914,485       (252,541 )

Other securities

    926,800       (22,550 )     -       -       926,800       (22,550 )
    $ 183,645,208     $ (2,055,337 )   $ 13,951,147     $ (303,792 )   $ 197,596,355     $ (2,359,129 )
                                                 

December 31, 2016:

                                               

Securities HTM:

                                               

Municipal securities

  $ 122,271,533     $ (4,076,647 )   $ 13,010,803     $ (618,087 )   $ 135,282,336     $ (4,694,734 )
                                                 

Securities AFS:

                                               

U.S. govt. sponsored agency securities

  $ 21,788,139     $ (257,640 )   $ 5,499,012     $ (72,945 )   $ 27,287,151     $ (330,585 )

Residential mortgage-backed and related securities

    121,506,582       (2,641,664 )     7,437,615       (296,424 )     128,944,197       (2,938,088 )

Municipal securities

    34,152,822       (618,462 )     338,099       (19,454 )     34,490,921       (637,916 )

Other securities

    3,177,414       (27,331 )     -       -       3,177,414       (27,331 )
    $ 180,624,957     $ (3,545,097 )   $ 13,274,726     $ (388,823 )   $ 193,899,683     $ (3,933,920 )

 

At June 30, 2017, the investment portfolio included 568 securities. Of this number, 212 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 0.9% of the total amortized cost of the portfolio. Of these 212 securities, 30 securities had an unrealized loss for twelve months or more. All of the debt securities in unrealized loss positions are considered acceptable credit risks. Based upon an evaluation of the available evidence, including the recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary. In addition, the Company lacks the intent 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 June 30, 2017 and December 31, 2016, equity securities represented less than 1% of the total portfolio.

 

The Company did not recognize OTTI on any debt or equity securities for the three or six months ended June 30, 2017 and 2016.   

 

13

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

All sales of securities for the three and six months ended June 30, 2017 and 2016 were from securities identified as AFS. Information on proceeds received, as well as pre-tax gross gains and losses from sales on those securities are as follows:

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30, 2017

   

June 30, 2016

   

June 30, 2017

   

June 30, 2016

 
                                 

Proceeds from sales of securities

  $ 13,554,075     $ 5,548,294     $ 13,554,075     $ 61,075,145  

Pre-tax gross gains from sales of securities

    59,568       18,030       59,568       533,545  

Pre-tax gross losses from sales of securities

    (21,104 )     -       (21,104 )     (157,035 )

 

The amortized cost and fair value of securities as of June 30, 2017 by contractual maturity are shown below. Expected maturities of residential mortgage-backed and related securities may differ from contractual maturities because the residential mortgages underlying the residential mortgage-backed and related securities may be prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following table. “Other securities” AFS are excluded from the maturity categories as there is no fixed maturity date for those securities.

 

   

Amortized Cost

   

Fair Value

 

Securities HTM:

               

Due in one year or less

  $ 7,479,990     $ 7,478,528  

Due after one year through five years

    18,040,753       18,137,483  

Due after five years

    298,682,891       297,373,366  
    $ 324,203,634     $ 322,989,377  
                 

Securities AFS:

               

Due in one year or less

  $ 3,498,188     $ 3,504,089  

Due after one year through five years

    31,550,278       31,700,139  

Due after five years

    64,870,032       64,840,746  
    $ 99,918,498     $ 100,044,974  

Residential mortgage-backed and related securities

    166,063,973       164,414,833  

Other securities

    4,065,468       4,821,906  
    $ 270,047,939     $ 269,281,713  

 

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

 

   

Amortized Cost

   

Fair Value

 

Securities HTM:

               

Municipal securities

  $ 170,556,294     $ 170,715,228  
                 

Securities AFS:

               

U.S. govt. sponsored agency securities

    5,048,597       5,040,134  

Municipal securities

    41,135,349       41,095,251  
    $ 46,183,946     $ 46,135,385  

 

14

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

As of June 30, 2017, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 124 issuers with fair values totaling $107.9 million and revenue bonds issued by 126 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $272.2 million. The Company held investments in general obligation bonds in 21 states, including six states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 13 states, including six states in which the aggregate fair value exceeded $5.0 million.

 

As of December 31, 2016, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 116 issuers with fair values totaling $116.5 million and revenue bonds issued by 120 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $255.5 million. The Company held investments in general obligation bonds in 21 states, including five states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in twelve states, including six 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:

 

 

June 30, 2017:

                               

U.S. State:

 

Number of

Issuers

   

Amortized Cost

   

Fair Value

   

Average

Exposure Per

Issuer
(Fair Value)

 
                                 

Iowa

    26     $ 31,131,484     $ 31,242,925     $ 1,201,651  

North Dakota

    7       21,619,812       21,514,855       3,073,551  

Illinois

    19       14,872,773       15,051,806       792,200  

Missouri

    16       9,078,540       9,123,733       570,233  

Ohio

    10       8,716,542       8,588,019       858,802  

Texas

    8       5,347,075       5,336,188       667,024  

Other

    38       16,886,554       16,997,159       447,294  

Total general obligation bonds

    124     $ 107,652,780     $ 107,854,685     $ 869,796  

 

 

 

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  

 

15

 

Part I

Item 1

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

 

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

 

 

June 30, 2017:

                               

U.S. State:

 

Number of

Issuers

   

Amortized Cost

   

Fair Value

   

Average

Exposure Per

Issuer
(Fair Value)

 
                                 

Missouri

    54     $ 107,360,504     $ 106,983,845     $ 1,981,182  

Iowa

    27       57,862,675       57,834,419       2,142,016  

Indiana

    21       50,114,290       49,578,767       2,360,894  

Ohio

    5       19,691,358       19,493,348       3,898,670  

Kansas

    6       13,178,963       13,179,104       2,196,517  

North Dakota

    5       11,729,782       11,676,766       2,335,353  

Other

    8       13,444,620       13,438,953       1,679,869  

Total revenue bonds

    126     $ 273,382,192     $ 272,185,202     $ 2,160,200  

 

 

 

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  

 

Both general obligation and revenue bonds are diversified across many issuers. As of June 30, 2017 and December 31, 2016, the Company did not hold general obligation or revenue bonds of any single issuer, the aggregate book or market value of which exceeded 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 loan risk rating of 2, indicating very high quality. Additionally, many of these bonds are funding essential municipal services such as water, sewer, education, and medical facilities.

 

The Company’s municipal securities are owned by each of the four charters, whose investment policies set forth limits for various subcategories within the municipal securities portfolio. Each charter is monitored individually, and as of June 30, 2017, all were well within policy limitations approved by the board of directors. Policy limits are calculated as a percentage of each charter’s total risk-based capital.

 

As of June 30, 2017, the Company’s standard monitoring of its municipal securities portfolio had not uncovered any facts or circumstances resulting in significantly different credit 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.

 

16

 

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 June 30, 2017 and December 31, 2016 is presented as follows:

 

 

   

As of June 30,

   

As of December 31,

 
   

2017

   

2016

 
                 

C&I loans

  $ 942,538,419     $ 827,637,263  

CRE loans

               

Owner-occupied CRE

    317,225,055       332,387,621  

Commercial construction, land development, and other land

    179,316,027       165,149,491  

Other non owner-occupied CRE

    635,365,041       595,921,748  
      1,131,906,123       1,093,458,860  
                 

Direct financing leases *

    153,336,548       165,419,360  

Residential real estate loans **

    233,870,678       229,233,104  

Installment and other consumer loans

    84,047,403       81,665,695  
      2,545,699,171       2,397,414,282  

Plus deferred loan/lease origination costs, net of fees

    7,866,437       8,072,703  
      2,553,565,608       2,405,486,985  

Less allowance

    (33,356,632 )     (30,757,448 )
    $ 2,520,208,976     $ 2,374,729,537