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Note 2 - Community National Bancorporation and Community National Bank | 12 Months Ended
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Dec. 31, 2014
Note 2 - Community National Bancorporation and Community National Bank [Line Items] |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] | Note 23. Acquisition of Noncontrolling Interest in m2 Lease Funds On August 27, 2012, the Company’s largest subsidiary bank, QCBT, entered into an amendment to the operating agreement of m2 and purchased the remaining 20% noncontrolling interest in m2 for $4,501,442. The purchase price and related acquisition costs exceeded the book value by $2,133,417. This excess is reflected as a reduction in additional paid in capital on the Company’s consolidated financial statements. The acquisition was structured in two payments with the initial payment of $1,653,755 made on September 11, 2012 and the final payment of $3,307,509 due in September 2015. QCBT calculated the present value of this future payment using a discount rate of 5% and recorded a resulting liability of $2,847,687. QCBT is accreting the discount of $459,822 using the effective yield method over the three year period to the final payment date. Accretion totaled $155,716, $148,137 and $47,759 for the years ended December 31, 2014, 2013 and 2012, respectively. The liability related to the final payment due totals $3,199,298, $3,043,582 and $2,895,445 at December 31, 2014, 2013 and 2012, respectively. In conjunction with the purchase agreement, the Company also entered into an agreement with the Chief Executive Officer and former 20% owner of m2, whereby he will be provided additional consideration equal to 20% of the earnings of m2 for the period from September 2012 through the earlier of August 2015 or his separation from service. The payment under this arrangement will also be due in September 2015. Because the payment is contingent upon future service, QCBT is accruing the liability and related compensation expense over the service period. Expense totaled $701,634, $725,483 and $195,715 for the years ended December 31, 2014, 2013 and 2012, respectively. The liability related to this future payment totaled $1,622,832, $921,198 and $195,715 at December 31, 2014, 2013 and 2012, respectively.
Community National Bancorporation and Community National Bank [Member] |
Note 2 - Community National Bancorporation and Community National Bank [Line Items] |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] | Note 2. Community National Bancorporation and Community National Bank On May 13, 2013, the Company acquired 100% of Community National’s outstanding common stock for aggregate consideration totaling $19,441,834, which consisted of 834,715 shares of the Company’s common stock valued at $13,180,150 and cash of $6,261,684. Community National was a bank holding company providing bank and bank related services through its wholly-owned bank subsidiary, CNB. CNB was a commercial bank headquartered in Waterloo, Iowa serving Waterloo and Cedar Falls, Iowa. As a de novo bank, CNB commenced its operations in 1997. Previously, CNB also served Mason City, Iowa and Austin, Minnesota. On October 4, 2013, the Company sold certain assets and liabilities of the two Mason City branches of CNB. And, on October 11, 2013, the Company sold certain assets and liabilities of the two Austin branches of CNB. The Company operated CNB as a separate banking charter from the date of acquisition until October 26, 2013, when CNB’s charter was merged with and into CRBT. CNB’s merged branch offices now operate as a division of CRBT under the name “Community Bank & Trust.” The Company accounted for the business combination under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”). The Company recognized the full fair value of the assets acquired and liabilities assumed at the acquisition date, net of applicable income tax effects. The excess of fair value of net assets over the carrying value is recorded as bargain purchase gain which is included in noninterest income on the statement of income. The market value adjustments are accreted or amortized on a level yield basis over the expected term. Additionally, the Company recorded a core deposit intangible totaling $3,440,076, which was the portion of the acquisition purchase price that represented the value assigned to the existing deposit base at acquisition. The core deposit intangible has a finite life and is amortized by the straight-line method over the estimated useful life of the deposits (10 years). Following is a rollforward of the core deposit intangible for the years ended December 31, 2014 and 2013:
|  | 2014 |  |  | 2013 |
Balance, beginning |  | $ | 1,870,433 |  |  | $ | - |
Core deposit intangible from Community National Acquistion |  |  | - |  |  |  | 3,440,076 |
Amortization expense |  |  | (199,512 | ) |  |  | (178,881 | )
Core deposit intangible sold in branch sales |  |  | - |  |  |  | (1,390,762 | )
Balance, ending |  | $ | 1,670,921 |  |  | $ | 1,870,433 |
The Company expects annual amortization expense of $199,512 for each of the five succeeding years and $673,361 combined in years thereafter. The following table presents the gross carrying amount, accumulated amortization, and net carrying amount of the core deposit intangible as of December 31, 2014 and 2013.
|  | 2014 |  |  | 2013 |
Gross carrying amount |  | $ | 1,995,127 |  |  | $ | 1,995,127 |
Accumulated amortization |  |  | (324,206 | ) |  |  | (124,694 | )
Net carrying amount |  | $ | 1,670,921 |  |  | $ | 1,870,433 |
The Company’s acquired loans were recorded at fair value at the acquisition date and no separate valuation allowance was established. The initial fair value was determined with the assistance of a valuation specialist that discounted expected cash flows at appropriate rates. The discount rates were based on market rates for new originations of comparable loans and did not include a factor for credit losses, as that was included in the estimated cash flows. ASC Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality”, applies to loans acquired in a transfer with evidence of deterioration of credit quality for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. If both conditions exist, the Company determines whether to account for each loan individually or whether such loans will be assembled into pools based on common risk characteristics such as credit score, loan type, and origination date. Based on this evaluation, the Company determined that the loans acquired from the Community National acquisition subject to ASC Topic 310-30 would be accounted for individually. At the acquisition date, the historical cost and fair value of these loans totaled $3,033,022 and $2,207,891, respectively. The Company considered expected prepayments and estimated the total expected cash flows, which includes undiscounted expected principal and interest. The excess of that amount over the fair value of the loan is referred to as accretable yield. Accretable yield is recognized as interest income on a constant yield basis over the expected life of the loan. The excess of the contractual cash flows over expected cash flows is referred to as nonaccretable difference and is not accreted into income. Over the life of the loan, the Company continues to estimate expected cash flows. Subsequent decreases in expected cash flows are recognized as impairments in the current period through a provision for loan losses. Subsequent increases in cash flows to be collected are first used to reverse any existing valuation allowance and any remaining increase is recognized prospectively through an adjustment of the loan’s yield over its remaining life. At the acquisition date, accretable yield totaled $4,128,315 and nonaccretable yield totaled $397,894. At December 31, 2014 and 2013, accretable yield totaled $1,215,398 and $2,068,332 and nonaccretable yield totaled $98,615 and $233,933, respectively. The decline in accretable yield was primarily the result of accelerated accretion of accretable yield for the acquired performing loans sold in the branch sales, early payoffs of acquired performing loans and the predetermined schedule of accretable yield. The Company assumed junior subordinated debentures with principal outstanding of $6,702,000 and fair value of $4,125,175 after a discount of $2,576,825. The initial fair value was determined with the assistance of a valuation specialist that discounted expected cash flows at appropriate rates. The discount is accreted as interest expense on a level yield basis over the expected remaining term of the junior subordinated debentures. Results of the operations of the acquired business are included in the income statement from the effective date of the acquisition. The fair values of the assets acquired and liabilities assumed, including the consideration paid and resulting bargain purchase gain, is as follows:
|  |  | As of |  |
|  |  | May 13, 2013 |  |
| ASSETS |  |  |  |  |
| Cash and due from banks |  | $ | 9,286,757 |  |
| Federal funds sold |  |  | 12,335,000 |  |
| Interest-bearing deposits at financial institutions |  |  | 2,024,539 |  |
| Securities available for sale |  |  | 45,853,826 |  |
| Loans/leases receivable, net |  |  | 195,658,486 |  |
| Premises and equipment |  |  | 8,132,021 |  |
| Core deposit intangible |  |  | 3,440,076 |  |
| Bank-owned life insurance |  |  | 4,595,529 |  |
| Restricted investment securities |  |  | 1,259,375 |  |
| Other real estate owned |  |  | 550,326 |  |
| Other assets |  |  | 5,178,583 |  |
| Total assets acquired |  | $ | 288,314,518 |  |
| LIABILITIES |  |  |  |  |
| Deposits |  | $ | 255,045,071 |  |
| Other borrowings |  |  | 3,950,000 |  |
| Junior subordinated debentures |  |  | 4,125,175 |  |
| Other liabilities |  |  | 3,911,053 |  |
| Total liabilties assumed |  | $ | 267,031,299 |  |
| Net assets acquired |  | $ | 21,283,219 |  |
| CONSIDERATION PAID: |  |  |  |  |
| Cash |  | $ | 6,261,684 |  |
| Issuance of 834,715 shares of common stock |  |  | 13,180,150 |  |
| Total consideration paid |  | $ | 19,441,834 |  |
| Bargain purchase gain |  | $ | 1,841,385 |  |
In order to fund the cash portion of the consideration and pay off the $3,950,000 of Community National borrowings at acquisition, the Company borrowed $4,400,000 on its 364-day revolving credit note. The outstanding balance on the 364-day revolving credit note totaled $10,000,000 until maturity at June 26, 2013. Upon maturity, the credit facility was restructured whereby the $10,000,000 of outstanding debt was restructured into a secured 3-year term note with principal due quarterly and interest due monthly where the interest is calculated at the effective LIBOR rate plus 3.00% per annum (3.17% at December 31, 2013). Additionally, as part of the restructuring, the Company maintained a secured 364-day revolving credit note with availability of $10,000,000 where the interest is calculated at the effective LIBOR rate plus 2.50% per annum. At December 31, 2013, the Company had not borrowed on this revolving credit note and had the full amount available. See Note 10 regarding 2014 activity in this debt. The current note agreement contains certain covenants that place restrictions on additional debt and stipulate minimum capital and various asset quality and operating ratios. The Company recorded a bargain purchase gain on the acquisition totaling $1,841,385 as the market value of the net assets acquired from Community National exceeded the total consideration paid. The consideration paid approximated a slight premium to the book value of Community National’s net assets at acquisition. The net impact of the market value adjustments resulted in a net increase to Community National’s net assets. The more significant market value adjustments were the core deposit intangible ($3,440,076) and the discount on the trust preferred securities ($2,576,825), as previously discussed. The Company incurred costs related to the acquisition of Community National totaling $2,353,162. These costs consisted of professional fees (legal, investment banking, and accounting) for the acquisition of Community National and the subsequent branch sales, as well as data conversion costs (including both the de-conversion of the sold branches and the conversion of the remaining branches), and compensation costs for severed and retained employees. Unaudited pro forma combined operating results for the years ended December 31, 2013 and 2012, giving effect to the Community National acquisition as if it had occurred as of January 1, 2012, are as follows:
|  | Years ended |
|  | December 31, |
|  | 2013 |  |  | 2012 |
Interest income |  | $ | 83,008,255 |  |  | $ | 87,514,410 |
Noninterest income |  | $ | 22,042,194 |  |  | $ | 19,792,383 |
Net income |  | $ | 11,320,890 |  |  | $ | 14,077,018 |
Net income attributable to QCR Holdings, Inc. common stockholders |  | $ | 8,152,588 |  |  | $ | 10,092,460 |
Earnings per common share attributable to QCR Holdings, Inc. common stockholders |  |  |  |  |  |  |  |
Basic |  | $ | 1.47 |  |  | $ | 1.82 |
Diluted |  | $ | 1.44 |  |  | $ | 1.79 |
The pro forma results exclude the impact of the bargain purchase gain of $1,841,385 and the impact of the gains on sales of certain CNB branches of $2,334,216. Additionally, the pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2012 or of future results of operations of the consolidated entities. On October 4, 2013, the Company finalized the sale of certain assets and liabilities of the two Mason City, Iowa branches of CNB. The detail of the assets and liabilities sold, and resulting gain on sale, is as follows:
|  |  | As of |  |
| ASSETS |  | October 4, 2013 |  |
| Cash |  | $ | 29,905,991 |  |
| Loans receivable |  |  | 22,709,735 |  |
| Premises and equipment |  |  | 776,782 |  |
| Core deposit intangible |  |  | 910,415 |  |
| Other assets |  |  | 68,456 |  |
| Total assets sold |  | $ | 54,371,379 |  |
| LIABILITIES |  |  |  |  |
| Deposits |  | $ | 55,191,930 |  |
| Other liabilities |  |  | 53,421 |  |
| Total liabilties sold |  | $ | 55,245,351 |  |
| Gain on sale, pre-tax |  | $ | 873,972 |  |
On October 11, 2013, the Company finalized the sale of certain assets and liabilities of the two Austin, Minnesota branches of CNB. The detail of the assets and liabilities sold, and resulting gain on sale, is as follows:
|  |  | As of |  |
| ASSETS |  | October 11, 2013 |  |
| Cash |  | $ | 519,627 |  |
| Loans receivable |  |  | 31,749,135 |  |
| Premises and equipment |  |  | 1,597,040 |  |
| Core deposit intangible |  |  | 480,347 |  |
| Other assets |  |  | 70,443 |  |
| Total assets sold |  | $ | 34,416,592 |  |
| LIABILITIES |  |  |  |  |
| Deposits |  | $ | 35,830,168 |  |
| Other liabilities |  |  | 46,668 |  |
| Total liabilties sold |  | $ | 35,876,836 |  |
| Gain on sale, pre-tax |  | $ | 1,460,244 |  |

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