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Note 2 - Acquisitions | 12 Months Ended
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Dec. 31, 2017
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] | Note 2 . Acquisitions Guaranty Bank and Trust On October 1, 2017 the Company acquired Guaranty Bank, headquartered in Cedar Rapids, Iowa, from Guaranty.Guaranty Bank is an Iowa-chartered bank that operates five banking locations throughout the Cedar Rapids metropolitan area. The acquisition of Guaranty Bank allowed the Company to grow its market share in the Cedar Rapids market. Guaranty Bank has a strong core deposit base and retail franchise. Although Guaranty already has strong earnings, the Company has identified several opportunities for enhanced future earnings performance. Lastly, financial metrics related to the transaction were favorable, as measured by EPS accretion, ROAA accretion and earn back of tangible book value dilution. In the acquisition, the Company acquired 100% of Guaranty Bank ’s outstanding common stock and purchased certain assets and assumed certain liabilities of Guaranty for aggregate consideration consisting of 79% QCR Holdings common stock ( 678,670 shares) and 21% cash ( $7.8 million). On September 29, 2017, the last trading date before the closing, the Company’s common stock closed at $45.50, resulting in stock consideration valued at $30.9 million and total consideration paid by the Company of $38.7 million. To help fund the cash portion of the purchase price, on September 27, 2017, the Company executed a $7.0 million four -year term note with principal and interest due quarterly. See further information in Note 11. This note is included within other borrowings on the December 31, 2017 Consolidated Balance Sheets. The remaining cash consideration paid to Guaranty came from operating cash. The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the acquisition date, net of applicable income tax effects. The Company considers all purchase accounting adjustments as provisional and fair values are subject to refinement for up to one year after the closing date. The excess of the consideration paid over the fair value of the net assets acquired is recorded as goodwill. This goodwill is deductible over 15 years for tax purposes. The Company has several areas of specialization, including government guaranteed lending, C&I lending, interest rate swaps, leasing, wealth management, private banking and municipal bond offerings that will be offered in this expanded market, increasing future earnings potential. Guaranty Bank has a strong core deposit base. There is also value added to the Company through having an expanded footprint in a market that has strong growth potential. The experience and value of the personnel at Guaranty Bank and their knowledge of the expanded market is also beneficial. On December 2, 2017 , the Company merged Guaranty Bank with and into CRBT, with CRBT as the surviving bank. As part of the merger, the Guaranty Bank branches located at 302 3 rd Avenue SE, Cedar Rapids, Iowa and 1819 42 nd Street NE, Cedar Rapids, Iowa, permanently closed. These locations (with a cost basis (based upon acquisition date fair value) totaling $3.6 million) are now held for sale and are included in Other Assets in the December 31, 2017 consolidated balance sheet. The three remaining Guaranty Bank branches have become banking offices of CRBT. The fair values of the assets acquired and liabilities assumed including the consideration paid and resulting goodwill is as follows:
|  | As of |
|  | October 1, 2017 |
ASSETS |  |  |  |
Cash and due from banks |  | $ | 4,434,511 |
Interest-bearing deposits at financial institutions |  |  | 3,953,907 |
Securities |  |  | 49,703,419 |
Loans/leases receivable, net |  |  | 192,517,677 |
Premises and equipment |  |  | 4,808,343 |
Restricted investment securities |  |  | 476,500 |
Core deposit intangible |  |  | 2,698,301 |
Other assets |  |  | 997,810 |
Total assets acquired |  | $ | 259,590,468 |
LIABILITIES |  |  |  |
Deposits |  | $ | 212,467,514 |
Short-term borrowings |  |  | 13,102,043 |
FHLB advances |  |  | 4,108,027 |
Junior subordinated debentures |  |  | 3,857,275 |
Other liabilities |  |  | 2,595,883 |
Total liabilities assumed |  |  | 236,130,742 |
Net assets acquired |  | $ | 23,459,726 |
CONSIDERATION PAID: |  |  |  |
Cash |  | $ | 7,803,420 |
Common stock |  |  | 30,879,485 |
Total consideration paid |  |  | 38,682,905 |
Goodwill |  | $ | 15,223,179 |
Loans acquired in a business combination are recorded and initially measured at their estimated fair value as of the acquisition date. Credit discounts are included in the determination of fair value. A third party valuation consultant assisted with the determination of fair value. Purchased loans are segregated into two categories: PCI loans and non-PCI (performing) loans. PCI loans are accounted for in accordance with ASC 310 - 30, as they display significant credit deterioration since origination and it is probable, as of the acquisition date, that the Company will be unable to collect all contractually required payments from the borrower. Performing loans are accounted for in accordance with ASC 310 - 20, as these loans do not have evidence of significant credit deterioration since origination and it is probable that the contractually required payments will be received from the borrower. For PCI loans, the difference between the contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable discount. Further, any excess cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the expected remaining life of the loan. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized by recording an allowance for loan and lease losses and provision for loan losses. For performing loans, the difference between the estimated fair value of the loans and the principal balance outstanding is accreted over the remaining life of the loans The following table presents the purchased loans as of the acquisition date:
|  | PCI |  |  | Performing |  |  |  |  |
|  | Loans |  |  | Loans |  |  | Total |
Contractually required principal payments |  | $ | 3,126,327 |  |  | $ | 192,982,439 |  |  | $ | 196,108,766 |
Nonaccretable discount |  |  | (1,147,198 | ) |  |  | - |  |  |  | (1,147,198 | )
Principal cash flows expected to be collected |  |  | 1,979,129 |  |  |  | 192,982,439 |  |  |  | 194,961,568 |
Accretable discount |  |  | (219,902 | ) |  |  | (2,223,989 | ) |  |  | (2,443,891 | )
Fair Value of acquired loans |  | $ | 1,759,227 |  |  | $ | 190,758,450 |  |  | $ | 192,517,677 |
Changes in accretable yield for the loans acquired are as follows:
|  | For the year ended December 31, 2017 |
|  | PCI |  |  | Performing |  |  |  |  |
|  | Loans |  |  | Loans |  |  | Total |
Balance at the beginning of the period |  | $ | - |  |  | $ | - |  |  | $ | - |
Discount added at acquisition |  |  | (219,902 | ) |  |  | (2,223,989 | ) |  |  | (2,443,891 | )
Accretion recognized |  |  | 54,070 |  |  |  | 26,836 |  |  |  | 80,906 |
Balance at the end of the period |  | $ | (165,832 | ) |  | $ | (2,197,153 | ) |  | $ | (2,362,985 | )
During 2017, there was also $158 thousand of nonaccretable discount that was recognized due to the repayment of PCI loans. Premises and equipment acquired with a fair value of $ 4,808,343 includes five branch locations with a fair value of $4,614,604, including a write-down of $998,343. The fair value was determined with the assistance of a third party appraiser. The buildings and related fair value adjustments will be recognized in depreciation expense over 39 years. The Company recorded a core deposit intangible totaling $ 2,698,301 which is the portion of the acquisition purchase price which represents the value assigned to the existing deposit base. The core deposit intangible has a finite life and is amortized using an accelerated method over the estimated useful life of the deposits (estimated to be ten years). See Note 6 to the Consolidated Financial Statements for additional information. During the current year, the Company incurred $1.1 million of expenses related to the acquisition, comprised primarily of legal, accounting and investment banking costs. These acquisition costs are presented on their own line within the consolidated statements of income. Also during 2017, the Company incurred $3.1 million of post-acquisition expenses, comprised primarily of personnel costs, IT integration, and conversion costs. Guaranty Bank results are included in the consolidated statements of income effective on the acquisition date. Unaudited pro forma combined operating results for the years ended December 31, 2017 and 2016, giving effect to the Guaranty Bank acquisition as if it had occurred as of January 1, 2016, are as follows:
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |
|  | (dollars in thousands, except per share data) |
Net interest income |  | $ | 122,923 |  |  | $ | 102,902 |
Noninterest income |  | $ | 32,703 |  |  | $ | 34,238 |
Net income |  | $ | 38,728 |  |  | $ | 27,103 |
Earnings per common share: |  |  |  |  |  |  |  |
Basic |  | $ | 2.80 |  |  | $ | 2.05 |
Diluted |  | $ | 2.73 |  |  | $ | 2.02 |
The pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2016 or of future results of operations of the consolidated entities. C ommunity State Bank On August 31, 2016, the Company acquired Community State Bank from Van Diest Investment Company. CSB is headquartered in Ankeny, Iowa and is an Iowa-chartered bank that operates ten banking locations throughout the Des Moines metropolitan area. The Company purchased 100% of the outstanding common stock of CSB for cash consideration of $80.0 million. The acquisition of CSB allowed the Company to expand its footprint into the Des Moines market. CSB has an experienced and capable leadership team that is committed to leading the Company ’s efforts in the Des Moines area. CSB has demonstrated significant improvement in earnings and asset quality during the last three years. Additionally, CSB has a strong core deposit base and retail franchise. Although CSB already has strong earnings, the Company has identified several opportunities for enhanced future earnings performance. With $581 million of assets acquired, the Company believes this acquisition is large enough to provide meaningful impact on the financial results, but is not too large to overstrain existing infrastructure. Lastly, financial metrics related to the transaction were favorable, as measured by EPS accretion and earn-back of tangible book value dilution. In connection with the acquisition, during the second quarter of 2016, the Company sold 1,215,000 shares of its common stock at a price of $24.75 per share, for net proceeds of $29.8 million, after deducting expenses. The shares were offered to institutional investors in a registered direct offering conducted without an underwriter or placement agent. The offering was a partial take-down of a previously filed shelf registration and closed on May 23, 2016. Cash received from the common stock offering was used to help finance the purchase price of the acquisition. Additionally, the Company drew $5.0 million on its $10.0 million revolving line of credit and fully funded its $30.0 million term facility. Both of these facilities are described further in Note 11 to the Consolidated Financial Statements. Cash dividends of $15.2 million from QCBT and CRBT were used to fund the remainder of the purchase price. The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the acquisition date, net of applicable income tax effects. The excess of the consideration paid over the fair value of the net assets acquired is recorded as goodwill. This goodwill is not deductible for tax purposes. The Company has several areas of specialization, including government guaranteed lending, C&I lending, interest rate swaps, leasing, wealth management, private banking and municipal bond offerings that will be offered in this new market, increasing future earnings potential. There is also value added to the Company through having a footprint in a market that has strong growth potential. Additionally, there are qualitative benefits gained through the addition of a new charter including better leverage of centralized operations and increased lending limits. The experience and value of the personnel at CSB and their knowledge of the Des Moines MSA is also beneficial. The fair values of the assets acquired and liabilities assumed including the consideration paid and resulting goodwill is as follows:
|  | As of |
|  | August 31, 2016 |
ASSETS |  |  |  |
Cash and due from banks |  | $ | 10,094,645 |
Federal funds sold |  |  | 698,000 |
Interest-bearing deposits at financial institutions |  |  | 14,730,157 |
Securities |  |  | 102,640,029 |
Loans/leases receivable, net |  |  | 419,029,277 |
Premises and equipment |  |  | 20,684,880 |
Core deposit intangible |  |  | 6,352,653 |
Restricted investment securities |  |  | 1,512,900 |
Other real estate owned |  |  | 650,000 |
Other assets |  |  | 5,283,937 |
Total assets acquired |  | $ | 581,676,478 |
LIABILITIES |  |  |  |
Deposits |  | $ | 486,298,262 |
FHLB advances |  |  | 20,368,877 |
Other liabilities |  |  | 4,897,564 |
Total liabilities assumed |  | $ | 511,564,703 |
Net assets acquired |  | $ | 70,111,775 |
CONSIDERATION PAID: |  |  |  |
Cash |  | $ | 80,000,000 |
Total consideration paid |  | $ | 80,000,000 |
Goodwill |  | $ | 9,888,225 |
Loans acquired in a business combination are recorded and initially measured at their estimated fair value as of the acquisition date. Credit discounts are included in the determination of fair value. A third party valuation consultant assisted with the determination of fair value. Purchased loans are segregated into two categories: PCI loans and non-PCI (performing) loans. PCI loans are accounted for in accordance with ASC 310 - 30, as they display significant credit deterioration since origination and it is probable, as of the acquisition date, that the Company will be unable to collect all contractually required payments from the borrower. Performing loans are accounted for in accordance with ASC 310 - 20, as these loans do not have evidence of significant credit deterioration since origination and it is probable that the contractually required payments will be received from the borrower. For PCI loans, the difference between the contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable discount. Further, any excess cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the expected remaining life of the loan. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized by recording an allowance for loan and lease losses and provision for loan losses. For performing loans, the difference between the estimated fair value of the loans and the principal balance outstanding is accreted over the remaining life of the loans. The following table presents the purchased loans as of the acquisition date:
|  | PCI |  |  | Performing |  |  |  |  |
|  | Loans |  |  | Loans |  |  | Total |
Contractually required principal payments |  | $ | 8,349,688 |  |  | $ | 427,398,400 |  |  | $ | 435,748,088 |
Nonaccretable discount |  |  | (4,525,223 | ) |  |  | - |  |  |  | (4,525,223 | )
Principal cash flows expected to be collected |  | $ | 3,824,465 |  |  | $ | 427,398,400 |  |  | $ | 431,222,865 |
Accretable discount |  |  | (277,579 | ) |  |  | (11,916,009 | ) |  |  | (12,193,588 | )
Fair Value of acquired loans |  | $ | 3,546,886 |  |  | $ | 415,482,391 |  |  | $ | 419,029,277 |
Changes in accretable yield for the loans acquired are as follows:
|  | For the year ended December 31, 2017 |
|  | PCI |  |  | Performing |  |  |  |  |
|  | Loans |  |  | Loans |  |  | Total |
Balance at the beginning of the period |  | $ | (194,306 | ) |  | $ | (9,115,614 | ) |  | $ | (9,309,920 | )
Accretion recognized |  |  | 169,006 |  |  |  | 5,032,692 |  |  |  | 5,201,698 |
Balance at the end of the period |  | $ | (25,300 | ) |  | $ | (4,082,922 | ) |  | $ | (4,108,222 | )
|  | For the year ended December 31, 2016 |
|  | PCI |  |  | Performing |  |  |  |  |
|  | Loans |  |  | Loans |  |  | Total |
Balance at the beginning of the period |  | $ | - |  |  | $ | - |  |  | $ | - |
Discount added at acquisition |  |  | (277,579 | ) |  |  | (11,916,009 | ) |  |  | (12,193,588 | )
Accretion recognized |  |  | 83,273 |  |  |  | 2,800,395 |  |  |  | 2,883,668 |
Balance at the end of the period |  | $ | (194,306 | ) |  | $ | (9,115,614 | ) |  | $ | (9,309,920 | )
During 2017 and 2016, there was also $198 thousand and $186 thousand, respectively, of nonaccretable discount that was recognized due to the repayment of PCI loans. Premises and equipment acquired with a fair value of $20,684,880 includes ten branch locations with a fair value of $19,735,000, including a write-up of $8,334,437. The fair value was determined with the assistance of a third party appraiser. The buildings and building write-ups will be recognized in depreciation expense over 39 years. The Company recorded a core deposit intangible totaling $6,352,653 which is the portion of the acquisition purchase price which represents the value assigned to the existing deposit base. The core deposit intangible has a finite life and is amortized using an accelerated method over the estimated useful life of the deposits (estimated to be ten years). See Note 6 to the Consolidated Financial Statements for additional information. During 2016, the Company incurred $1.4 million of expenses related to the acquisition, comprised primarily of legal, accounting, and investment banking costs. These acquisition costs are presented on their own line within the consolidated statements of income. Also during 2016, the Company incurred $1.0 million of post-acquisition expenses, comprised primarily of personnel costs, IT integration, and conversion costs. CSB results are included in the consolidated statements of income effective on the acquisition date. For the period August 31, 2016 to December 31, 2016, CSB reported revenues of $11.4 million and net income of $2.1 million, which included $473 thousand of after tax acquisition costs. During the current year, the Company incurred $1.2 million of post-acquisition compensation, transition and integration costs, comprised entirely of a fee that was paid for a core processor conversion of CSB. Unaudited pro forma combined operating results for the years ended December 31, 2016 and 2015, giving effect to the CSB acquisition as if it had occurred as of January 1, 2015, are as follows:
|  | Year Ended December 31, |
|  | 2016 |  |  | 2015 |
|  |  | (dollars in thousands, except per share data) |
Net interest income |  | $ | 110,035 |  |  | $ | 98,483 |
Noninterest income |  | $ | 34,773 |  |  | $ | 31,051 |
Net income |  | $ | 34,137 |  |  | $ | 22,118 |
Earnings per common share: |  |  |  |  |  |  |  |
Basic |  | $ | 2.62 |  |  | $ | 1.91 |
Diluted |  | $ | 2.58 |  |  | $ | 1.89 |
The pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2015 or of future results of operations of the consolidated entities.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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