10-Q 1 qcrh_10q-033113.htm FORM 10-Q qcrh_10q-033113.htm
 
U.S. 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 ending March 31, 2013

[    ] 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) 743-7761
(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 May 1, 2013, the Registrant had outstanding 4,946,362 shares of common stock, $1.00 par value per share.

 
 

 
 
QCR HOLDINGS, INC. AND SUBSIDIARIES

INDEX


       
Page
Number(s)
 
Part I
FINANCIAL INFORMATION
     
           
 
Item 1.
Consolidated Financial Statements (Unaudited)
     
           
   
Consolidated Balance Sheets
As of March 31, 2013 and December 31, 2012
    2  
             
   
Consolidated Statements of Income
For the Three Months Ended March 31, 2013 and 2012
    3  
             
   
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2013 and 2012
    4  
             
   
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended March 31, 2013 and 2012
    5  
             
   
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2013 and 2012
    6  
             
   
Notes to the Consolidated Financial Statements
    7-25  
             
 
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
    26-52  
             
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    53-54  
             
 
Item 4.
Controls and Procedures
    55  
             
Part II
OTHER INFORMATION
       
             
 
Item 1.
Legal Proceedings
    56  
             
 
Item 1.A.
Risk Factors
    56  
             
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    56  
             
 
Item 3.
Defaults upon Senior Securities
    56  
             
 
Item 4.
Mine Safety Disclosures
    56  
             
 
Item 5.
Other Information
    56  
             
 
Item 6.
Exhibits
    57  
             
Signatures
 
    58  
 
 
1

 
 
QCR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of March 31, 2013 and December 31, 2012
 
   
March 31,
2013
   
December 31,
2012
 
ASSETS
           
Cash and due from banks
  $ 33,254,137     $ 61,568,446  
Federal funds sold
    -       26,560,000  
Interest-bearing deposits at financial institutions
    33,781,655       22,359,490  
                 
Securities held to maturity, at amortized cost
    87,006,209       72,079,385  
Securities available for sale, at fair value
    605,545,374       530,159,986  
Total securities
    692,551,583       602,239,371  
                 
Loans receivable held for sale
    2,260,506       4,577,233  
Loans/leases receivable held for investment
    1,289,535,005       1,282,810,406  
Gross loans/leases receivable
    1,291,795,511       1,287,387,639  
Less allowance for estimated losses on loans/leases
    (20,769,462 )     (19,925,204 )
Net loans/leases receivable
    1,271,026,049       1,267,462,435  
                 
Premises and equipment, net
    31,453,220       31,262,390  
Goodwill
    3,222,688       3,222,688  
Bank-owned life insurance
    46,059,176       45,620,489  
Restricted investment securities
    15,297,700       15,747,850  
Other real estate owned, net
    3,679,419       3,954,538  
Other assets
    13,665,025       13,732,795  
                 
Total assets
  $ 2,143,990,652     $ 2,093,730,492  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
LIABILITIES
               
Deposits:
               
Noninterest-bearing
  $ 496,513,304     $ 450,659,723  
Interest-bearing
    923,979,954       923,454,377  
Total deposits
    1,420,493,258       1,374,114,100  
                 
Short-term borrowings
    171,853,471       171,082,961  
Federal Home Loan Bank advances
    205,350,000       202,350,000  
Other borrowings
    138,241,912       138,239,762  
Junior subordinated debentures
    36,085,000       36,085,000  
Other liabilities
    29,768,580       31,424,848  
Total liabilities
    2,001,792,221       1,953,296,671  
                 
STOCKHOLDERS' EQUITY
               
Preferred stock, $1 par value; shares authorized 250,000 March 2013 - 54,867 shares issued and outstanding December 2012 - 54,867 shares issued and outstanding
    54,867       54,867  
Common stock, $1 par value; shares authorized 20,000,000 March 2013 - 5,057,562 shares issued and 4,936,316 outstanding December 2012 - 5,039,448 shares issued and 4,918,202 outstanding
    5,057,562       5,039,448  
Additional paid-in capital
    79,041,338       78,912,791  
Retained earnings
    55,780,849       53,326,542  
Accumulated other comprehensive income
    3,870,325       4,706,683  
Less treasury stock, March 2013 and December 2012 - 121,246 common shares, at cost
    (1,606,510 )     (1,606,510 )
Total stockholders' equity
    142,198,431       140,433,821  
Total liabilities and stockholders' equity
  $ 2,143,990,652     $ 2,093,730,492  
 
See Notes to Consolidated Financial Statements
 
 
2

 
 
QCR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31,
 
   
2013
   
2012
 
Interest and dividend income:
           
Loans/leases, including fees
  $ 15,088,827     $ 15,970,837  
Securities:
               
Taxable
    2,460,449       2,805,814  
Nontaxable
    802,473       395,826  
Interest-bearing deposits at financial institutions
    59,754       120,005  
Restricted investment securities
    125,105       81,322  
Federal funds sold
    874       -  
Total interest and dividend income
    18,537,482       19,373,804  
                 
Interest expense:
               
Deposits
    1,116,791       1,715,740  
Short-term borrowings
    64,267       64,944  
Federal Home Loan Bank advances
    1,732,812       1,864,321  
Other borrowings
    1,190,755       1,257,393  
Junior subordinated debentures
    241,540       267,953  
Total interest expense
    4,346,165       5,170,351  
                 
Net interest income
    14,191,317       14,203,453  
                 
Provision for loan/lease losses
    1,057,782       780,446  
Net interest income after provision for loan/lease losses
    13,133,535       13,423,007  
                 
Noninterest income:
               
Trust department fees
    1,039,670       883,732  
Investment advisory and management fees
    609,341       521,462  
Deposit service fees
    907,823       904,406  
Gains on sales of residential real estate loans
    291,151       291,433  
Gains on sales of government guaranteed portions of loans
    845,224       107,657  
Earnings on bank-owned life insurance
    438,687       438,402  
Credit card issuing fees, net of processing costs
    49,954       127,015  
Losses on other real estate owned, net
    (446,630 )     (189,204 )
Other
    1,468,809       871,975  
Total noninterest income
    5,204,029       3,956,878  
                 
Noninterest expense:
               
Salaries and employee benefits
    8,742,683       8,124,680  
Occupancy and equipment expense
    1,428,870       1,352,263  
Professional and data processing fees
    1,140,061       1,150,190  
FDIC and other insurance
    555,911       580,856  
Loan/lease expense
    245,091       218,734  
Advertising and marketing
    264,568       276,016  
Postage and telephone
    218,691       288,240  
Stationery and supplies
    110,670       142,966  
Bank service charges
    275,495       199,729  
Acquisition costs (Note 8)
    356,578       -  
Other
    619,882       404,406  
Total noninterest expense
    13,958,500       12,738,080  
                 
Net income before income taxes
    4,379,064       4,641,805  
Federal and state income tax expense
    1,113,920       1,238,956  
Net income
  $ 3,265,144     $ 3,402,849  
Less: Net income attributable to noncontrolling interests
    -       166,031  
Net income attributable to QCR Holdings, Inc.
  $ 3,265,144     $ 3,236,818  
                 
                 
Less: Preferred stock dividends
    810,837       938,625  
Net income attributable to QCR Holdings, Inc. common stockholders
    2,454,307     $ 2,298,193  
                 
Earnings per common share attributable to QCR Holdings, Inc. common shareholders
 
Basic
  $ 0.50     $ 0.48  
Diluted
  $ 0.49     $ 0.48  
                 
Weighted average common shares outstanding
    4,927,591       4,800,407  
Weighted average common and common equivalent shares outstanding      5,034,342        4,833,399  
                 
Cash dividends declared per common share
  $ -     $ -  
 
See Notes to Consolidated Financial Statements
 
 
3

 
 
QCR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended March 31,
 
   
2013
   
2012
 
Net income
  $ 3,265,144     $ 3,402,849  
                 
Other comprehensive loss:
               
Unrealized gains (losses) on securities available for sale:
               
Unrealized holding losses arising during the period before tax
    (1,356,552 )     (2,460,571 )
Less reclassification adjustment for gains (losses) included in net income before tax
    -       -  
      (1,356,552 )     (2,460,571 )
Tax benefit
    (520,194 )     (943,336 )
Other comprehensive loss, net of tax
    (836,358 )     (1,517,235 )
                 
Comprehensive income attributable to QCR Holdings, Inc.
  $ 2,428,786     $ 1,885,614  
 
See Notes to Consolidated Financial Statements
 
 
4

 
 
QCR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended March 31, 2013 and 2012
 
   
Preferred
Stock
   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Noncontrolling
Interests
   
Treasury
Stock
   
Total
 
Balance December 31, 2012
  $ 54,867     $ 5,039,448     $ 78,912,791     $ 53,326,542     $ 4,706,683     $ -     $ (1,606,510 )   $ 140,433,821  
Net income
    -       -       -       3,265,144       -       -       -       3,265,144  
Other comprehensive loss, net of tax
    -       -       -       -       (836,358 )     -       -       (836,358 )
Preferred cash dividends declared
    -       -       -       (810,837 )     -       -       -       (810,837 )
Proceeds from issuance of 5,884
   shares of common stock as a
   result of stock purchased
   under the Employee Stock
   Purchase Plan
    -       5,884       63,487       -       -       -       -       69,371  
Proceeds from issuance of
   19,278 shares of common
   stock as a result of stock
   options exercised
    -       19,278       153,550       -       -       -       -       172,828  
Exchange of 7,048 shares of
   common stock in connection
   with stock options exercised
    -       (7,048 )     (111,628 )     -       -       -       -       (118,676 )
Stock compensation expense
    -       -       293,798                                       293,798  
Tax benefit of nonqualified stock options exercised
    -       -       35,251       -       -       -       -       35,251  
Restricted stock awards
    -       16,798       (16,798 )     -       -       -       -       -  
Exchange of 16,798 shares of
    common stock in connection
    with payroll taxes for restricted
    stock
    -       (16,798 )     (289,113 )     -       -       -       -       (305,911 )
Balance March 31, 2013
  $ 54,867     $ 5,057,562     $ 79,041,338     $ 55,780,849     $ 3,870,325     $ -     $ (1,606,510 )   $ 142,198,431  
 
 
   
Preferred
Stock
   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Noncontrolling
Interests
   
Treasury
Stock
   
Total
 
Balance December 31, 2011
  $ 65,090     $ 4,879,435     $ 89,702,533     $ 44,585,902     $ 4,754,714     $ 2,051,538     $ (1,606,510 )   $ 144,432,702  
Net income
    -       -       -       3,236,818       -       166,031       -       3,402,849  
Other comprehensive loss, net of tax
    -       -       -       -       (1,517,235 )     -       -       (1,517,235 )
Preferred cash dividends declared
    -       -       -       (938,625 )     -       -       -       (938,625 )
Proceeds from issuance of 7,767 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan
    -       7,767       55,566       -       -       -       -       63,333  
Proceeds from issuance of 276 shares of common stock as a result of stock options exercised
    -       276       2,374       -       -       -       -       2,650  
Exchange of 576 shares of common stock in connection with payroll taxes for restricted stock
    -       (576 )     (2,103 )     -       -       -       -       (2,679 )
Stock compensation expense
    -       -       326,245                                       326,245  
Restricted stock awards
    -       57,770       (57,770 )     -       -       -       -       -  
Other adjustments to noncontrolling interests
    -       -       -       -       -       (2,066 )     -       (2,066 )
Balance March 31, 2012
  $ 65,090     $ 4,944,672     $ 90,026,845     $ 46,884,095     $ 3,237,479     $ 2,215,503     $ (1,606,510 )   $ 145,767,174  
 
See Notes to Consolidated Financial Statements.
 
 
5

 
 
QCR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 3,265,144     $ 3,402,849  
Adjustments to reconcile net income to net cash provided by operating activities:
         
Depreciation
    584,884       591,465  
Provision for loan/lease losses
    1,057,782       780,446  
Stock-based compensation expense
    293,798       326,245  
Losses on other real estate owned, net
    446,630       189,204  
Amortization of premiums on securities, net
    974,045       983,617  
Loans originated for sale
    (26,928,996 )     (24,070,517 )
Proceeds on sales of loans
    30,382,098       24,972,257  
Gains on sales of residential real estate loans, net
    (291,151 )     (291,433 )
Gains on sales of government guaranteed portions of loans, net
    (845,224 )     (107,657 )
Increase in cash value of bank-owned life insurance
    (438,687 )     (438,402 )
Decrease in other assets
    587,964       565,316  
Decrease in other liabilities
    (1,853,653 )     (1,330,446 )
Net cash provided by operating activities
  $ 7,234,634     $ 5,572,944  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Net decrease in federal funds sold
    26,560,000       20,785,000  
Net (increase) decrease in interest-bearing deposits at financial institutions
    (11,422,165 )     1,262,389  
Proceeds from sales of other real estate owned
    15,989       209,383  
Activity in securities portfolio:
               
Purchases
    (187,650,573 )     (159,077,553 )
Calls, maturities and redemptions
    82,114,256       98,751,724  
Paydowns
    12,893,508       5,720,417  
Activity in restricted investment securities:
               
Purchases
    (1,743,750 )     (189,400 )
Redemptions
    2,193,900       334,000  
Net increase in loans/leases originated and held for investment
    (7,125,623 )     (12,234,648 )
Purchase of premises and equipment
    (775,714 )     (539,900 )
Net cash used in investing activities
  $ (84,940,172 )   $ (44,978,588 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase in deposit accounts
    46,379,158       91,291,345  
Net increase (decrease) in short-term borrowings
    770,510       (63,635,950 )
Activity in Federal Home Loan Bank advances:
               
Advances
    46,000,000       4,000,000  
Calls and maturities
    (43,000,000 )     (5,000,000 )
Net increase in other borrowings
    2,150       2,025  
Payment of cash dividends on common and preferred stock
    (1,002,789 )     (1,214,611 )
Proceeds from issuance of common stock, net
    242,200       65,983  
Net cash provided by financing activities
  $ 49,391,229     $ 25,508,792  
                 
Net decrease in cash and due from banks
    (28,314,309 )     (13,896,852 )
Cash and due from banks, beginning
    61,568,446       53,136,710  
Cash and due from banks, ending
  $ 33,254,137     $ 39,239,858  
                 
Supplemental disclosure of cash flow information, cash payments for:
               
Interest
  $ 4,472,977     $ 5,141,834  
                 
Income/franchise taxes
  $ 717,300     $ 591,000  
                 
Supplemental schedule of noncash investing activities:
               
Change in accumulated other comprehensive income, unrealized losses on securities available for sale, net
  $ (836,358 )   $ (1,517,235 )
                 
Exchange of shares of common stock in connection with payroll taxes for restricted stock and in connection with
   stock options exercised
  $ (424,587 )   $ (2,679 )
                 
Transfers of loans to other real estate owned
  $ 187,500     $ 185,000  
 
See Notes to Consolidated Financial Statements
 
 
6

 
 
Part I
Item 1
QCR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2013

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, 2012, including QCR Holdings, Inc.’s (the “Company”) Form 10-K filed with the Securities and Exchange Commission on March 11, 2013.  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 March 31, 2013, are not necessarily indicative of the results expected for the year ending December 31, 2013.

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 wholly-owned equity investment by QCBT in m2 Lease Funds, LLC (“m2 Lease Funds”).  All material intercompany transactions and balances have been eliminated in consolidation.

 
Recent accounting developments:  In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-11, Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities.  ASU 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet, and instruments and transactions subject to an agreement similar to a master netting arrangement.  In January 2013, FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.  Both ASU 2011-11 and ASU 2013-01 were effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods.  Adoption did not have a significant impact on the Company’s consolidated financial statements.

In February 2013, FASB issued ASU 2013-02, Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.  ASU 2013-02 supersedes and replaces the presentation requirements for reclassifications out of accumulated other comprehensive income (“AOCI”) in ASUs 2011-05 and 2011-12, which were adopted by the Company during the current year.  The amendments require an entity to provide information about the amounts reclassified out of AOCI by component.  In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income if the amount reclassified is required to be reclassified in its entirety in the same reporting period.  For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required.  Adoption did not have a significant impact on the Company’s consolidated financial statements.

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

 
7

 
 
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 March 31, 2013 and December 31, 2012 are summarized as follows:
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
(Losses)
   
Fair
Value
 
March 31, 2013:
                       
Securities held to maturity:
                       
Municipal securities
  $ 86,356,209     $ 746,173     $ (407,348 )   $ 86,695,034  
Other securities
    650,000       -       -       650,000  
    $ 87,006,209     $ 746,173     $ (407,348 )   $ 87,345,034  
                                 
Securities available for sale:
                               
U.S. govt. sponsored agency securities
  $ 402,488,606     $ 1,769,562     $ (418,236 )   $ 403,839,932  
Residential mortgage-backed and related securities
    171,863,065       3,381,118       (441,951 )     174,802,232  
Municipal securities
    23,485,794       1,543,985       (38,738 )     24,991,041  
Trust preferred securities
    86,200       99,120       -       185,320  
Other securities
    1,365,794       366,719       (5,664 )     1,726,849  
    $ 599,289,459     $ 7,160,504     $ (904,589 )   $ 605,545,374  
                                 
December 31, 2012:
                               
Securities held to maturity:
                               
Municipal securities
  $ 71,429,385     $ 997,969     $ (71,648 )   $ 72,355,706  
Other securities
    650,000       -       -       650,000  
    $ 72,079,385     $ 997,969     $ (71,648 )   $ 73,005,706  
                                 
Securities available for sale:
                               
U.S. govt. sponsored agency securities
  $ 336,570,995     $ 2,198,655     $ (160,279 )   $ 338,609,371  
Residential mortgage-backed and related securities
    160,035,196       3,736,821       (170,914 )     163,601,103  
Municipal securities
    24,508,015       1,696,555       (18,834 )     26,185,736  
Trust preferred securities
    86,200       53,200       -       139,400  
Other securities
    1,347,113       300,732       (23,469 )     1,624,376  
    $ 522,547,519     $ 7,985,963     $ (373,496 )   $ 530,159,986  
 
The Company’s held to maturity municipal securities consist largely of private issues of municipal debt.  The municipalities are located within the Midwest with a portion in or adjacent to the communities of QCBT and CRBT.  The municipal debt investments are underwritten using specific guidelines with ongoing monitoring.

The Company’s residential mortgage-backed and related securities portfolio consists entirely of government sponsored or government guaranteed securities.  The Company has not invested in commercial mortgage-backed securities or pooled trust preferred securities.
 
 
8

 

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 March 31, 2013 and December 31, 2012, are summarized as follows:

   
Less than 12 Months
   
12 Months or More
   
Total
 
   
Fair
Value
   
Gross
Unrealized
Losses
   
Fair
Value
   
Gross
Unrealized
Losses
   
Fair
Value
   
Gross
Unrealized
Losses
 
March 31, 2013:
                                   
Securities held to maturity:
                                   
Municipal securities
  $ 25,634,890     $ (407,348 )   $ -     $ -     $ 25,634,890     $ (407,348 )
                                                 
Securities available for sale:
                                               
U.S. govt. sponsored agency securities
  $ 129,197,592     $ (418,236 )   $ -     $ -     $ 129,197,592     $ (418,236 )
Residential mortgage-backed and related securities
    46,924,954       (441,951 )     -       -       46,924,954       (441,951 )
Municipal securities
    2,223,597       (38,738 )     -       -       2,223,597       (38,738 )
Other securities
    -       -       235,625       (5,664 )     235,625       (5,664 )
    $ 178,346,143     $ (898,925 )   $ 235,625     $ (5,664 )   $ 178,581,768     $ (904,589 )
                                                 
December 31, 2012:
                                               
Securities held to maturity:
                                               
Municipal securities
  $ 4,282,352     $ (71,648 )   $ -     $ -     $ 4,282,352     $ (71,648 )
                                                 
Securities available for sale:
                                               
U.S. govt. sponsored agency securities
  $ 55,621,718     $ (160,279 )   $ -     $ -     $ 55,621,718     $ (160,279 )
Residential mortgage-backed and related securities
    29,324,928       (170,914 )     -       -       29,324,928       (170,914 )
Municipal securities
    1,039,625       (18,834 )     -       -       1,039,625       (18,834 )
Other securities
    -       -       217,500       (23,469 )     217,500       (23,469 )
    $ 85,986,271     $ (350,027 )   $ 217,500     $ (23,469 )   $ 86,203,771     $ (373,496 )
 
 
At March 31, 2013, the investment portfolio included 444 securities.  Of this number, 114 securities had current unrealized losses with aggregate depreciation of less than 1% from the total amortized cost basis.  Of these 114, only one had unrealized losses for twelve months or more and the amount of the unrealized loss was only $5,664.  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 March 31, 2013 and December 31, 2012, equity securities represented less than 1% of the total portfolio.

The Company did not recognize other-than-temporary impairment on any debt or equity securities for the three months ended March 31, 2013 and 2012.

The Company did not sell any securities during the three months ended March 31, 2013 and 2012.

 
9

 

Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

The amortized cost and fair value of securities as of March 31, 2013 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 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 for those securities.
 
   
Amortized Cost
   
Fair Value
 
Securities held to maturity:
           
Due in one year or less
  $ 1,465,502     $ 1,465,266  
Due after one year through five years
    13,406,654       13,426,853  
Due after one year through five years
    72,134,053       72,452,915  
    $ 87,006,209     $ 87,345,034  
                 
Securities available for sale:
               
Due in one year or less
  $ 695,000     $ 700,650  
Due after one year through five years
    29,282,063       29,712,248  
Due after five years
    396,083,537       398,603,395  
    $ 426,060,600     $ 429,016,293  
Residential mortgage-backed and related securities
    171,863,065       174,802,232  
Other securities
    1,365,794       1,726,849  
    $ 599,289,459     $ 605,545,374  
 
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 predetermined dates prior to the stated maturity, summarized as follows:
 
   
Amortized Cost
   
Fair Value
 
Securities held to maturity:
           
Municipal securities
  $ 57,540,331     $ 57,327,912  
                 
Securities available for sale:
               
U.S. govt. sponsored agency securities
    370,595,745       371,574,015  
Municipal securities
    13,494,268       14,270,490  
    $ 384,090,013     $ 385,844,505  
 
 
10

 
 
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 March 31, 2013 and December 31, 2012 is presented as follows:
 
   
As of March 31,
2013
   
As of December 31,
2012
 
             
Commercial and industrial loans
  $ 398,122,240     $ 394,244,252  
Commercial real estate loans
               
Owner-occupied commercial real estate
    212,301,539       204,911,308  
Commercial construction, land development, and other land
    46,449,160       44,962,381  
Other non owner-occupied commercial real estate
    339,882,919       344,105,550  
      598,633,618       593,979,239  
                 
Direct financing leases *
    109,654,314       103,685,656  
Residential real estate loans **
    115,548,209       115,581,573  
Installment and other consumer loans
    66,293,903       76,720,514  
      1,288,252,284       1,284,211,234  
Plus deferred loan/lease origination costs, net of fees
    3,543,227       3,176,405  
      1,291,795,511       1,287,387,639  
Less allowance for estimated losses on loans/leases
    (20,769,462 )     (19,925,204 )
    $ 1,271,026,049     $ 1,267,462,435  
                 
                 
* Direct financing leases:
               
Net minimum lease payments to be received
  $ 124,469,580     $ 117,719,380  
Estimated unguaranteed residual values of leased assets
    1,060,990       1,095,848  
Unearned lease/residual income
    (15,876,256 )     (15,129,572 )
      109,654,314       103,685,656  
Plus deferred lease origination costs, net of fees
    4,198,286       3,907,140  
      113,852,600       107,592,796  
Less allowance for estimated losses on leases
    (2,296,523 )     (1,990,395 )
    $ 111,556,077     $ 105,602,401  
 
Management performs an evaluation of the estimated unguaranteed residual values of leased assets on an annual basis, at a minimum.  The evaluation consists of discussions with reputable and current vendors and management’s expertise and understanding of the current states of particular industries to determine informal valuations of the equipment.  As necessary and where available, management will utilize valuations by independent appraisers.  The large majority of leases with residual values contain a lease options rider which requires the lessee to pay the residual value directly, finance the payment of the residual value, or extend the lease term to pay the residual value.  In these cases, the residual value is protected and the risk of loss is minimal.  There were no losses related to residual values for the three months ended March 31, 2013 and 2012.

**Includes residential real estate loans held for sale totaling $2,260,506 and $4,577,233 as of March 31, 2013, and December 31, 2012, respectively.

 
11

 
 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

The aging of the loan/lease portfolio by classes of loans/leases as of March 31, 2013 and December 31, 2012 is presented as follows:

   
As of March 31, 2013
 
Classes of Loans/Leases
 
Current
   
30-59 Days
Past Due
   
60-89 Days
Past Due
   
Accruing Past
Due 90 Days or
More
   
Nonaccrual Loans/Leases
   
Total
 
                                     
Commercial and Industrial
  $ 396,879,932     $ 182,414     $ 89,771     $ -     $ 970,123     $ 398,122,240  
Commercial Real Estate
                                               
Owner-Occupied Commercial Real Estate
    210,645,611       1,037,596       -       -       618,332       212,301,539  
Commercial Construction, Land Development, and Other Land
    43,557,385       -       337,500       -       2,554,275       46,449,160  
Other Non Owner-Occupied Commercial Real Estate
    326,644,315       1,097,226       1,403,803       -       10,737,575       339,882,919  
Direct Financing Leases
    107,181,954       1,204,354       57,070       -       1,210,936       109,654,314  
Residential Real Estate
    113,860,680       751,593       -       -       935,936       115,548,209  
Installment and Other Consumer
    64,326,002       574,357       379,924       519       1,013,101       66,293,903  
    $ 1,263,095,879     $ 4,847,540     $ 2,268,068     $ 519     $ 18,040,278     $ 1,288,252,284  
                                                 
As a percentage of total loan/lease portfolio
    98.05 %     0.38 %     0.18 %     0.00 %     1.40 %     100.00 %
 
   
As of December 31, 2012
 
Classes of Loans/Leases
 
Current
   
30-59 Days
Past Due
   
60-89 Days
Past Due
   
Accruing Past
Due 90 Days or
More
   
Nonaccrual Loans/Leases
   
Total
 
                                     
Commercial and Industrial
  $ 388,825,307     $ 3,724,506     $ 9,940     $ 120,000     $ 1,564,499     $ 394,244,252  
Commercial Real Estate
                                               
Owner-Occupied Commercial Real Estate
    204,141,070       142,993       -       -       627,245       204,911,308  
Commercial Construction, Land Development, and Other Land
    42,180,819       -       -       -       2,781,562       44,962,381  
Other Non Owner-Occupied Commercial Real Estate
    332,644,532       86,986       1,111,856       -       10,262,176       344,105,550  
Direct Financing Leases
    101,635,084       877,210       174,560       -       998,802       103,685,656  
Residential Real Estate
    111,993,859       2,254,730       283,466       -       1,049,518       115,581,573  
Installment and Other Consumer
    75,711,203       301,025       20,112       39,481       648,693       76,720,514  
    $ 1,257,131,874     $ 7,387,450     $ 1,599,934     $ 159,481     $ 17,932,495     $ 1,284,211,234  
                                                 
As a percentage of total loan/lease portfolio
    97.89 %     0.58 %     0.12 %     0.01 %     1.40 %     100.00 %
 
 
12

 
 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Nonperforming loans/leases by classes of loans/leases as of March 31, 2013 and December 31, 2012 is presented as follows:

   
As of March 31, 2013
 
Classes of Loans/Leases
 
Accruing Past
Due 90 Days or
More
   
Nonaccrual
Loans/Leases *
   
Troubled Debt
Restructurings -
Accruing
   
Total
Nonperforming
Loans/Leases
   
 
Percentage of
Total
Nonperforming
Loans/Leases
 
 
                               
Commercial and Industrial
  $ -     $ 970,123     $ 900,924     $ 1,871,047       9.49 %
Commercial Real Estate
                                       
Owner-Occupied Commercial Real Estate
    -       618,332       47,958       666,290       3.38 %
Commercial Construction, Land Development, and Other Land
    -       2,554,275       337,500       2,891,775       14.66 %
Other Non Owner-Occupied Commercial Real Estate
    -       10,737,575       284,433       11,022,008       55.89 %
Direct Financing Leases
    -       1,210,936       -       1,210,936       6.14 %
Residential Real Estate
    -       935,936       -       935,936       4.75 %
Installment and Other Consumer
    519       1,013,101       110,982       1,124,602       5.70 %
    $ 519     $ 18,040,278     $ 1,681,797     $ 19,722,594       100.00 %
 
*Nonaccrual loans/leases includes $6,425,305 of troubled debt restructurings, including $170,027 in commercial and industrial loans,  $5,782,572 in commercial real estate loans, $228,178 in residential real estate loans, and $244,528 in installment loans.

 
   
As of December 31, 2012
 
Classes of Loans/Leases
 
Accruing Past
Due 90 Days or
More
   
Nonaccrual Loans/Leases **
   
Troubled Debt Restructurings - Accruing
   
Total
Nonperforming Loans/Leases
   
 
Percentage of
Total
Nonperforming Loans/Leases
 
 
                               
Commercial and Industrial
  $ 120,000     $ 1,564,499     $ 184,084     $ 1,868,583       7.36 %
Commercial Real Estate
                                       
Owner-Occupied Commercial Real Estate
    -       627,245       -       627,245       2.47 %
Commercial Construction, Land Development, and Other Land
    -       2,781,562       1,016,023       3,797,585       14.96 %
Other Non Owner-Occupied Commercial Real Estate
    -       10,262,176       5,820,765       16,082,941       63.34 %
Direct Financing Leases
    -       998,802       -       998,802       3.93 %
Residential Real Estate
    -       1,049,518       167,739       1,217,257       4.79 %
Installment and Other Consumer
    39,481       648,693       110,982       799,156       3.15 %
    $ 159,481     $ 17,932,495     $ 7,299,593     $ 25,391,569       100.00 %
 
**Nonaccrual loans/leases includes $5,658,781 of troubled debt restructurings, including $99,804 in commercial and industrial loans, $5,173,589 in commercial real estate loans, $64,722 in residential real estate loans, and $320,666 in installment loans.

 
13

 
 
Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Changes in the allowance for estimated losses on loans/leases by portfolio segment for the three months ended March 31, 2013 and 2012, respectively, are presented as follows:

   
Three Months Ended March 31, 2013
 
                                     
   
Commercial and Industrial
   
Commercial Real
Estate
   
Direct Financing Leases
   
Residential Real
Estate
   
Installment and
Other Consumer
   
Total
 
                                     
Balance, beginning
  $ 4,531,545     $ 11,069,502     $ 1,990,395     $ 1,070,328     $ 1,263,434     $ 19,925,204  
Provisions charged to expense
    (87,807 )     1,114,294       378,623       8,899       (356,227 )     1,057,782  
Loans/leases charged off
    (215 )     -       (73,049 )     (112,891 )     (116,612 )     (302,767 )
Recoveries on loans/leases previously charged off
    22,741       5,157       554       -       60,791       89,243  
Balance, ending
  $ 4,466,264     $ 12,188,953     $ 2,296,523     $ 966,336     $ 851,386     $ 20,769,462  
 
   
Three Months Ended March 31, 2012
 
                                     
   
Commercial and Industrial
   
Commercial Real
Estate
   
Direct Financing Leases
   
Residential Real
Estate
   
Installment and
Other Consumer
   
Total
 
                                     
Balance, beginning
  $ 4,878,006     $ 10,596,958     $ 1,339,496     $ 704,946     $ 1,269,856     $ 18,789,262  
Provisions charged to expense
    (90,900 )     257,864       315,446       262,968       35,068       780,446  
Loans/leases charged off
    (376,408 )     -       (315,721 )     (4,757 )     (127,866 )     (824,752 )
Recoveries on loans/leases previously charged off
    174,769       620       27,307       -       58,992       261,688  
Balance, ending
  $ 4,585,467     $ 10,855,442     $ 1,366,528