QCR HOLDINGS INC - Quarter Report: 2012 June (Form 10-Q)

qcr_10q-063012.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 June 30, 2012

[ ] 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 August 1, 2012, the Registrant had outstanding 4,856,828 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 June 30, 2012 and December 31, 2011	2

		Consolidated Statements of Income For the Three Months Ended June 30, 2012 and 2011	3

		Consolidated Statements of Income For the Six Months Ended June 30, 2012 and 2011	4

		Consolidated Statements of Comprehensive Income For the Three and Six Months Ended June 30, 2012 and 2011	5

		Consolidated Statement of Changes in Stockholders' Equity For the Six Months Ended June 30, 2012 and 2011	7

		Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2012 and 2011	8

		Notes to the Consolidated Financial Statements	8-27

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28-54

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55-56

	Item 4.	Controls and Procedures	57


Part II	OTHER INFORMATION

	Item 1.	Legal Proceedings	58

	Item 1.A.	Risk Factors	58

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

	Item 3.	Defaults upon Senior Securities	58

	Item 4.	Mine Safety Disclosures	58

	Item 5.	Other Information	58

	Item 6.	Exhibits	59

Signatures			60

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of June 30, 2012 and December 31, 2011

	June 30, 2012			December 31, 2011
ASSETS
Cash and due from banks	$	51,639,674		$	53,136,710
Federal funds sold		3,625,000			20,785,000
Interest-bearing deposits at financial institutions		28,452,429			26,750,602

Securities held to maturity, at amortized cost		700,000			200,000
Securities available for sale, at fair value		638,137,836			565,029,291
Total securities		638,837,836			565,229,291

Loans receivable held for sale		4,349,967			3,832,760
Loans/leases receivable held for investment		1,208,953,834			1,196,912,737
Gross loans/leases receivable		1,213,303,801			1,200,745,497
Less allowance for estimated losses on loans/leases		(18,724,535	)		(18,789,262	)
Net loans/leases receivable		1,194,579,266			1,181,956,235

Premises and equipment, net		31,440,406			31,740,751
Goodwill		3,222,688			3,222,688
Accrued interest receivable		6,735,326			6,510,021
Bank-owned life insurance		42,808,343			42,011,281
Restricted investment securities		15,224,350			15,253,600
Other real estate owned, net		9,136,035			8,385,758
Other assets		17,724,393			11,628,117

Total assets	$	2,043,425,746		$	1,966,610,054

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing	$	390,761,816		$	357,183,481
Interest-bearing		924,708,683			848,274,307
Total deposits		1,315,470,499			1,205,457,788

Short-term borrowings		185,399,038			213,536,450
Federal Home Loan Bank advances		203,750,000			204,750,000
Other borrowings		138,235,713			136,231,663
Junior subordinated debentures		36,085,000			36,085,000
Other liabilities		25,163,404			26,116,451
Total liabilities		1,904,103,654			1,822,177,352

STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; shares authorized 250,000 June 2012 - 54,867 shares issued and outstanding December 2011 - 65,090 shares issued and outstanding		54,867			65,090
Common stock, $1 par value; shares authorized 20,000,000 June 2012 - 4,968,307 shares issued and 4,847,061 outstanding December 2011 - 4,879,435 shares issued and 4,758,189 outstanding		4,968,307			4,879,435
Additional paid-in capital		80,180,869			89,702,533
Retained earnings		48,831,374			44,585,902
Accumulated other comprehensive income		4,478,524			4,754,714
Noncontrolling interests		2,414,661			2,051,538
Less treasury stock, June 2012 and December 2011 - 121,246 common shares, at cost		(1,606,510	)		(1,606,510	)
Total stockholders' equity		139,322,092			144,432,702
Total liabilities and stockholders' equity	$	2,043,425,746		$	1,966,610,054

See Notes to Consolidated Financial Statements

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended June 30,

	2012			2011
Interest and dividend income:
Loans/leases, including fees	$	15,973,109		$	16,515,966
Securities:
Taxable		2,765,779			2,821,682
Nontaxable		538,285			259,813
Interest-bearing deposits at financial institutions		92,577			102,944
Restricted investment securities		164,778			137,965
Federal funds sold		-			23,706
Total interest and dividend income		19,534,528			19,862,076

Interest expense:
Deposits		1,629,517			2,321,641
Short-term borrowings		77,287			68,911
Federal Home Loan Bank advances		1,829,120			1,978,499
Other borrowings		1,224,083			1,289,739
Junior subordinated debentures		259,028			252,231
Total interest expense		5,019,035			5,911,021

Net interest income		14,515,493			13,951,055

Provision for loan/lease losses		1,048,469			1,672,221
Net interest income after provision for loan/lease losses		13,467,024			12,278,834

Noninterest income:
Trust department fees		852,234			894,733
Investment advisory and management fees, gross		679,326			550,243
Deposit service fees		875,073			856,661
Gains on sales of loans, net		882,321			755,128
Securities gains		104,600			148,602
Losses on sales of other real estate owned, net		(389,465	)		(107,656	)
Earnings on bank-owned life insurance		358,660			356,642
Credit card issuing fees, net of processing costs		142,173			77,336
Other		562,587			641,692
Total noninterest income		4,067,509			4,173,381

Noninterest expense:
Salaries and employee benefits		8,255,639			7,355,533
Occupancy and equipment expense		1,364,912			1,368,293
Professional and data processing fees		1,126,877			1,136,978
FDIC and other insurance		576,215			687,587
Loan/lease expense		263,166			656,069
Advertising and marketing		344,100			334,354
Postage and telephone		236,942			231,515
Stationery and supplies		135,211			123,529
Bank service charges		198,492			177,478
Other-than-temporary impairment losses on securities		62,400			118,847
Other		545,129			365,364
Total noninterest expense		13,109,083			12,555,547

Net income before income taxes		4,425,450			3,896,668
Federal and state income tax expense		1,152,071			1,123,454
Net income	$	3,273,379		$	2,773,214
Less: Net income attributable to noncontrolling interests		201,223			98,245
Net income attributable to QCR Holdings, Inc.	$	3,072,156		$	2,674,969

Less: Preferred stock dividends		935,786			1,035,742
Net income attributable to QCR Holdings, Inc. common stockholders	$	2,136,370		$	1,639,227

Earnings per common share attributable to QCR Holdings, Inc. common shareholders
Basic	$	0.44		$	0.34
Diluted	$	0.44		$	0.34

Weighted average common shares outstanding		4,835,773			4,847,740
Weighted average common and common equivalent shares outstanding		4,901,853			4,873,978

Cash dividends declared per common share	$	0.04		$	0.04

See Notes to Consolidated Financial Statements

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Six Months Ended June 30,

	2012			2011
Interest and dividend income:
Loans/leases, including fees	$	31,943,946		$	32,250,606
Securities:
Taxable		5,571,593			5,157,921
Nontaxable		934,111			499,159
Interest-bearing deposits at financial institutions		212,582			214,093
Restricted investment securities		246,100			301,485
Federal funds sold		-			90,044
Total interest and dividend income		38,908,332			38,513,308

Interest expense:
Deposits		3,345,257			4,747,195
Short-term borrowings		142,231			182,577
Federal Home Loan Bank advances		3,693,441			4,121,875
Other borrowings		2,481,476			2,568,918
Junior subordinated debentures		526,981			732,886
Total interest expense		10,189,386			12,353,451

Net interest income		28,718,946			26,159,857

Provision for loan/lease losses		1,828,915			2,739,885
Net interest income after provision for loan/lease losses		26,890,031			23,419,972

Noninterest income:
Trust department fees		1,735,966			1,845,535
Investment advisory and management fees, gross		1,200,788			1,081,461
Deposit service fees		1,779,479			1,729,333
Gains on sales of loans, net		1,281,411			1,514,821
Securities gains		104,600			1,028,914
Losses on sales of other real estate owned, net		(578,669	)		(132,754	)
Earnings on bank-owned life insurance		797,062			701,053
Credit card issuing fees, net of processing costs		269,188			218,496
Other		1,434,562			1,243,646
Total noninterest income		8,024,387			9,230,505

Noninterest expense:
Salaries and employee benefits		16,380,319			14,829,036
Occupancy and equipment expense		2,717,175			2,657,748
Professional and data processing fees		2,277,067			2,261,500
FDIC and other insurance		1,157,071			1,570,317
Loan/lease expense		481,900			932,297
Advertising and marketing		620,116			559,083
Postage and telephone		525,182			461,700
Stationery and supplies		278,177			258,172
Bank service charges		398,221			338,656
Prepayment fees on Federal Home Loan Bank advances		-			832,099
Other-than-temporary impairment losses on securities		62,400			118,847
Other		949,535			748,363
Total noninterest expense		25,847,163			25,567,818

Net income before income taxes		9,067,255			7,082,659
Federal and state income tax expense		2,391,027			2,077,961
Net income	$	6,676,228		$	5,004,698
Less: Net income attributable to noncontrolling interests		367,254			204,769
Net income attributable to QCR Holdings, Inc.	$	6,308,974		$	4,799,929


Less: Preferred stock dividends		1,874,411			2,068,113
Net income attributable to QCR Holdings, Inc. common stockholders		4,434,563		$	2,731,816

Earnings per common share attributable to QCR Holdings, Inc. common shareholders
Basic	$	0.92		$	0.57
Diluted	$	0.91		$	0.57

Weighted average common shares outstanding		4,818,090			4,759,728
Weighted average common and common equivalent shares outstanding		4,867,628			4,778,848

Cash dividends declared per common share	$	0.04		$	0.04

See Notes to Consolidated Financial Statements

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three and Six Months Ended June 30,

	Three Months Ended June 30,
	2012		2011
Net income	$	3,273,379	$	2,773,214

Other comprehensive income:
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period before tax		2,114,026		4,052,129
Less reclassification adjustment for gains included in net income before tax		104,600		148,602
		2,009,426		3,903,527
Tax expense		768,381		1,493,799
Other comprehensive income, net of tax		1,241,045		2,409,728

Comprehensive income attributable to QCR Holdings, Inc.	$	4,514,424	$	5,182,942

	Six Months Ended June 30,
	2012			2011
Net income	$	6,676,228		$	5,004,698

Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period before tax		(346,545	)		2,751,902
Less reclassification adjustment for gains included in net income before tax		104,600			1,028,914
		(451,145	)		1,722,988
Tax expense (benefit)		(174,955	)		658,814
Other comprehensive income (loss), net of tax		(276,190	)		1,064,174

Comprehensive income attributable to QCR Holdings, Inc.	$	6,400,038		$	6,068,872

See Notes to Consolidated Financial Statements

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

Six Months Ended June 30, 2012 and 2011

	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
Comprehensive income:
Net income		-			-			-			3,236,818			-			166,031			-			3,402,849
Other comprehensive loss, net of tax		-			-			-			-			(1,517,235	)		-			-			(1,517,235	)
Comprehensive income																							1,885,614
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	)		-			-			-			-			-
Distributions 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
Comprehensive income:
Net income		-			-			-			3,072,156			-			201,223			-			3,273,379
Other comprehensive income, net of tax		-			-			-			-			1,241,045			-			-			1,241,045
Comprehensive income																							4,514,424
Common cash dividends declared, $0.04 per share		-			-			-			(189,091	)		-			-			-			(189,091	)
Preferred cash dividends declared		-			-			-			(935,786	)		-			-			-			(935,786	)
Redemption of 10,223 shares of Series F Noncumulative Perpetual Preferred Stock		(10,223	)		-			(10,212,777	)		-			-			-			-			(10,223,000	)
Proceeds from issuance of 10,856 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan		-			10,856			78,055			-			-			-			-			88,911
Proceeds from issuance of 9,090 shares of common stock as a result of stock options exercised		-			9,090			79,902			-			-			-			-			88,992
Exchange of 611 shares of common stock in connection with stock options exercised		-			(611	)		(7,125	)		-			-			-			-			(7,736	)
Proceeds from exercise of warrants to purchase 4,300 shares of common stock issued in conjunction with the Series A Subordinated Notes		-			4,300			38,700			-			-			-			-			43,000
Stock compensation expense		-			-			177,269															177,269
Distributions to noncontrolling interests		-			-			-			-			-			(2,065	)		-			(2,065	)
Balance June 30, 2012	$	54,867		$	4,968,307		$	80,180,869		$	48,831,374		$	4,478,524		$	2,414,661		$	(1,606,510	)	$	139,322,092

	Preferred Stock		Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests			Treasury Stock			Total
Balance December 31, 2010	$	63,237	$	4,732,428		$	86,478,269		$	40,550,900		$	704,165		$	1,648,219		$	(1,606,510	)	$	132,570,708
Comprehensive income:
Net income		-		-			-			2,124,960			-			106,524			-			2,231,484
Other comprehensive loss, net of tax		-		-			-			-			(1,345,554	)		-			-			(1,345,554	)
Comprehensive income																						885,930
Preferred cash dividends declared		-		-			-			(915,462	)		-			-			-			(915,462	)
Discount accretion on cumulative preferred stock		-		-			116,909			(116,909	)		-			-			-			-
Proceeds from issuance of 9,081 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan		-		9,081			49,249			-			-			-			-			58,330
Proceeds from issuance of 24,300 shares of common stock as a result of stock options exercised		-		24,300			146,067			-			-			-			-			170,367
Exchange of 2,171 shares of common stock in connection with stock options exercised		-		(2,171	)		(14,070	)		-			-			-			-			(16,241	)
Stock compensation expense		-		-			206,569															206,569
Restricted stock awards		-		69,924			(69,924	)		-			-			-			-			-
Distributions to noncontrolling interests		-		-			-			-			-			(2,065	)		-			(2,065	)
Balance March 31, 2011	$	63,237	$	4,833,562		$	86,913,069		$	41,643,489		$	(641,389	)	$	1,752,678		$	(1,606,510	)	$	132,958,136
Comprehensive income:
Net income		-		-			-			2,674,969			-			98,245			-			2,773,214
Other comprehensive income, net of tax		-		-			-			-			2,409,728			-			-			2,409,728
Comprehensive income																						5,182,942
Common cash dividends declared, $0.04 per share		-		-			-			(185,863	)		-			-			-			(185,863	)
Preferred cash dividends declared and accrued		-		-			-			(915,462	)		-			-			-			(915,462	)
Discount accretion on cumulative preferred stock		-		-			120,280			(120,280	)		-			-			-			-
Proceeds from issuance of 11,355 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan		-		11,355			61,582			-			-			-			-			72,937
Proceeds from issuance of 10,967 shares of common stock as a result of stock options exercised		-		10,967			65,205			-			-			-			-			76,172
Exchange of 379 shares of common stock in connection with stock options exercised		-		(379	)		(3,033	)		-			-			-			-			(3,412	)
Stock compensation expense		-		-			141,370															141,370
Distributions to noncontrolling interests		-		-			-			-			-			(2,066	)		-			(2,066	)
Balance June 30, 2011	$	63,237	$	4,855,505		$	87,298,473		$	43,096,853		$	1,768,339		$	1,848,857		$	(1,606,510	)	$	137,324,754

See Notes to Consolidated Financial Statements

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30,

	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,676,228		$	5,004,698
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,198,809			1,285,282
Provision for loan/lease losses		1,828,915			2,739,885
Amortization of offering costs on subordinated debentures		7,158			7,158
Stock-based compensation expense		503,514			397,927
Losses on sales of other real estate owned, net		578,669			132,754
Amortization of premiums on securities, net		2,050,358			1,704,629
Securities gains		(104,600	)		(1,028,914	)
Other-than-temporary impairment losses on securities		62,400			118,847
Loans originated for sale		(51,881,417	)		(43,161,215	)
Proceeds on sales of loans		52,645,621			56,509,458
Gains on sales of loans, net		(1,281,411	)		(1,514,821	)
Prepayment fees on Federal Home Loan Bank advances		-			832,099
Increase in accrued interest receivable		(225,305	)		(119,254	)
Increase in cash value of bank-owned life insurance		(797,062	)		(701,053	)
Increase (decrease) in other assets		(5,932,610	)		3,010,526
Decrease in other liabilities		(738,366	)		(537,175	)
Net cash provided by operating activities	$	4,590,901		$	24,680,831

CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold		17,160,000			53,960,000
Net (increase) decrease in interest-bearing deposits at financial institutions		(1,701,827	)		12,452,616
Proceeds from sales of other real estate owned		814,071			2,618,237
Activity in securities portfolio:
Purchases		(311,369,517	)		(299,119,217	)
Calls, maturities and redemptions		201,683,047			162,834,446
Paydowns		14,403,547			2,430,154
Sales		19,215,075			45,725,084
Activity in restricted investment securities:
Purchases		(1,003,850	)		(57,300	)
Redemptions		1,033,100			1,266,800
Purchases of bank-owned life insurance		-			(7,000,000	)
Net increase in loans/leases originated and held for investment		(16,077,756	)		(31,137,089	)
Purchase of premises and equipment		(898,464	)		(700,230	)
Net cash used in investing activities	$	(76,742,574	)	$	(56,726,499	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts		110,012,711			99,498,515
Net decrease in short-term borrowings		(28,137,412	)		(18,759,955	)
Activity in Federal Home Loan Bank advances:
Advances		14,000,000			-
Calls and maturities		(15,000,000	)		(19,000,000	)
Prepayments		-			(15,832,099	)
Net increase (decrease) in other borrowings		2,004,050			(9,154,734	)
Payment of cash dividends on common and preferred stock		(2,278,183	)		(2,014,345	)
Redemption of 10,223 shares of Series F Noncumulative Perpetual Preferred Stock		(10,223,000	)		-
Proceeds from issuance of common stock, net		276,471			358,153
Net cash provided by financing activities	$	70,654,637		$	35,095,535

Net increase (decrease) in cash and due from banks		(1,497,036	)		3,049,867
Cash and due from banks, beginning		53,136,710			42,030,806
Cash and due from banks, ending	$	51,639,674		$	45,080,673

Supplemental disclosure of cash flow information, cash payments for:
Interest	$	10,343,656		$	12,824,212

Income/franchise taxes	$	881,000		$	1,162,609

Supplemental schedule of noncash investing activities:
Change in accumulated other comprehensive income, unrealized gains (losses) on securities available for sale, net	$	(276,190	)	$	1,064,174

Transfers of loans to other real estate owned	$	2,143,017		$	4,646,402

See Notes to Consolidated Financial Statements

Part I

Item 1

QCR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2012

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, 2011, including QCR Holdings, Inc.’s (the “Company”) Form 10-K filed with the Securities and Exchange Commission on March 8, 2012. 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 June 30, 2012, are not necessarily indicative of the results expected for the year ending December 31, 2012.

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 the 80% equity investment by QCBT in m2 Lease Funds, LLC (“m2 Lease Funds”), and in real estate holdings through its 91% equity investment in Velie Plantation Holding Company, LLC (“VPHC”). All material intercompany transactions and balances have been eliminated in consolidation.

Recent accounting developments: In December 2011, the Financial Accounting Standards Board issued ASU 2011-11, 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. ASU 2011-11 is effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods. Adoption is not expected to 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.

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, 2012 and December 31, 2011 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
June 30, 2012:
Securities held to maturity:
Other bonds	$	700,000	$	-	$	-		$	700,000

Securities available for sale:
U.S. govt. sponsored agency securities	$	387,413,822	$	2,377,067	$	(191,137	)	$	389,599,752
Residential mortgage-backed and related securities		162,415,855		3,523,570		(112,224	)		165,827,201
Municipal securities		79,658,038		1,834,640		(420,770	)		81,071,908
Trust preferred securities		86,200		15,800		-			102,000
Other securities		1,319,560		257,847		(40,432	)		1,536,975
	$	630,893,475	$	8,008,924	$	(764,563	)	$	638,137,836

December 31, 2011:
Securities held to maturity:
Other bonds	$	200,000	$	-	$	-		$	200,000

Securities available for sale:
U.S. govt. sponsored agency securities	$	426,581,913	$	2,428,994	$	(55,687	)	$	428,955,220
Residential mortgage-backed and related securities		105,373,614		3,488,350		(8,215	)		108,853,749
Municipal securities		23,937,118		1,752,246		-			25,689,364
Trust preferred securities		86,200		-		(5,400	)		80,800
Other securities		1,354,940		140,022		(44,804	)		1,450,158
	$	557,333,785	$	7,809,612	$	(114,106	)	$	565,029,291

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.

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 June 30, 2012 and December 31, 2011, 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
June 30, 2012:
Securities available for sale:
U.S. govt. sponsored agency securities	$	46,609,893	$	(191,137	)	$	-	$	-		$	46,609,893	$	(191,137	)
Residential mortgage-backed and related securities		26,844,026		(112,224	)		-		-			26,844,026		(112,224	)
Municipal securities		21,831,460		(420,770	)		-		-			21,831,460		(420,770	)
Other securities		200,000		(40,432	)		-		-			200,000		(40,432	)
	$	95,485,379	$	(764,563	)	$	-	$	-		$	95,485,379	$	(764,563	)

December 31, 2011:
Securities available for sale:
U.S. govt. sponsored agency securities	$	59,979,620	$	(55,687	)	$	-	$	-		$	59,979,620	$	(55,687	)
Residential mortgage-backed and related securities		4,906,398		(8,215	)		-		-			4,906,398		(8,215	)
Trust preferred securities		-		-			80,800		(5,400	)		80,800		(5,400	)
Other securities		251,957		(44,332	)		2,778		(472	)		254,735		(44,804	)
	$	65,137,975	$	(108,234	)	$	83,578	$	(5,872	)	$	65,221,553	$	(114,106	)

At June 30, 2012, the investment portfolio included 354 securities. Of this number, 47 securities had current unrealized losses with aggregate depreciation of less than 1% from the amortized cost basis. Of these 47, none had unrealized losses for twelve months or more. All of the debt securities in unrealized loss positions are considered acceptable credit risks. Based upon an evaluation of the available evidence, including the recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary. In addition, the Company does not intend to sell these securities and it is not more-likely-than-not that the Company will be required to sell these debt securities before their anticipated recovery. At June 30, 2012 and December 31, 2011, equity securities represented less than 1% of the total portfolio.

The Company did not recognize other-than-temporary impairment on any debt securities for the three and six months ended June 30, 2012 and 2011.

During the second quarter of 2012, the Company’s evaluation determined that one privately held equity security experienced a decline in fair value that was other-than-temporary. As a result, the Company wrote down the value of this security and recognized a loss in the amount of $62,400. The Company did not recognize other-than-temporary impairment on any of its equity securities during the first quarter of 2012.

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

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

All sales of securities, as applicable, for the three and six months ended June 30, 2012 and 2011, respectively, were from securities identified as available for sale. Information on proceeds received, as well as pre-tax gross gains from sales of those securities is as follows:

	Three Months Ended				Six Months Ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011

Proceeds from sales of securities	$	19,215,075	$	8,331,005	$	19,215,075	$	45,725,084
Pre-tax gross gains from sales of securities		104,600		148,602		104,600		1,028,914

The amortized cost and fair value of securities as of June 30, 2012 by contractual maturity are shown below. A portion of the Company’s U.S. government sponsored agency securities contain call options which allow the issuer, at its discretion, to call the security at predetermined dates prior to the contractual maturity date. Expected maturities of residential mortgage-backed 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.

	Amortized Cost		Fair Value
Securities held to maturity:
Due in one year or less	$	50,000	$	50,000
Due after one year through five years		100,000		100,000
Due after five years		550,000		550,000
	$	700,000	$	700,000

Securities available for sale:
Due in one year or less	$	2,554,433	$	2,569,961
Due after one year through five years		57,416,808		57,848,858
Due after five years		407,186,819		410,354,841
	$	467,158,060	$	470,773,660
Residential mortgage-backed and related securities		162,415,855		165,827,201
Other securities		1,319,560		1,536,975
	$	630,893,475	$	638,137,836

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, 2012 and December 31, 2011 is presented as follows:

	As of June 30, 2012			As of December 31, 2011

Commercial and industrial loans	$	350,780,417		$	350,794,278
Commercial real estate loans
Owner-occupied commercial real estate		188,948,747			167,790,621
Commercial construction, land development, and other land		46,663,733			60,384,738
Other non owner-occupied commercial real estate		340,674,818			349,628,491
		576,287,298			577,803,850

Direct financing leases *		98,567,582			93,212,362
Residential real estate loans **		107,450,497			98,107,051
Installment and other consumer loans		77,416,813			78,223,080
		1,210,502,607			1,198,140,621
Plus deferred loan/lease origination costs, net of fees		2,801,194			2,604,876
		1,213,303,801			1,200,745,497
Less allowance for estimated losses on loans/leases		(18,724,535	)		(18,789,262	)
	$	1,194,579,266		$	1,181,956,235


* Direct financing leases:
Net minimum lease payments to be received	$	112,122,885		$	106,389,988
Estimated unguaranteed residual values of leased assets		1,144,745			1,043,326
Unearned lease/residual income		(14,700,048	)		(14,220,952	)
		98,567,582			93,212,362
Plus deferred lease origination costs, net of fees		3,519,830			3,217,011
		102,087,412			96,429,373
Less allowance for estimated losses on leases		(1,610,999	)		(1,339,496	)
	$	100,476,413		$	95,089,877

**Includes residential real estate loans held for sale totaling $4,349,967 and $3,832,760 as of June 30, 2012, and December 31, 2011, respectively.

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.

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

For the three and six months ended June 30, 2012 and 2011, there were no losses on residual values. At June 30, 2012, the Company had 38 leases remaining with residual values totaling $1,144,745 that were not protected with a lease end options rider. At December 31, 2011, the Company had 39 leases remaining with residual values totaling $1,043,326 that were not protected with a lease end options rider. Management has performed specific evaluations of these residual values and determined that the valuations are appropriate.

The aging of the loan/lease portfolio by classes of loans/leases as of June 30, 2012 is presented as follows:

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	$	347,348,642		$	834,831		$	17,821		$	965,673		$	1,613,450		$	350,780,417
Commercial Real Estate
Owner-Occupied Commercial Real Estate		187,712,914			548,615			-			-			687,218			188,948,747
Commercial Construction, Land Development, and Other Land		42,799,962			-			1,076,387			-			2,787,384			46,663,733
Other Non Owner-Occupied Commercial Real Estate		326,648,116			2,178,037			3,258,985			137,611			8,452,069			340,674,818
Direct Financing Leases		96,813,835			796,205			270,034			-			687,508			98,567,582
Residential Real Estate		106,016,069			-			411,031			-			1,023,397			107,450,497
Installment and Other Consumer		75,469,221			231,520			671,731			48,607			995,734			77,416,813
	$	1,182,808,759		$	4,589,208		$	5,705,989		$	1,151,891		$	16,246,760		$	1,210,502,607

As a percentage of total loan/lease portfolio		97.71	%		0.38	%		0.47	%		0.10	%		1.34	%		100.00	%

The aging of the loan/lease portfolio by classes of loans/leases as of December 31, 2011 is presented as follows:

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	$	347,417,683		$	226,394		$	239,991		$	120,000		$	2,790,210		$	350,794,278
Commercial Real Estate
Owner-Occupied Commercial Real Estate		166,632,318			146,847			-			-			1,011,456			167,790,621
Commercial Construction, Land Development, and Other Land		55,741,827			211,878			486,802			968,919			2,975,312			60,384,738
Other Non Owner-Occupied Commercial Real Estate		336,080,128			522,323			3,732,935			-			9,293,105			349,628,491
Direct Financing Leases		91,273,406			826,187			396,344			-			716,425			93,212,362
Residential Real Estate		95,456,433			1,127,465			389,678			-			1,133,475			98,107,051
Installment and Other Consumer		76,376,399			737,543			12,122			22,160			1,074,856			78,223,080
	$	1,168,978,194		$	3,798,637		$	5,257,872		$	1,111,079		$	18,994,839		$	1,198,140,621

As a percentage of total loan/lease portfolio		97.57	%		0.32	%		0.44	%		0.09	%		1.59	%		100.00	%

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Nonperforming loans/leases by classes of loans/leases as of June 30, 2012 is presented as follows:

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	$	965,673	$	1,613,450	$	185,591	$	2,764,714		10.13	%
Commercial Real Estate
Owner-Occupied Commercial Real Estate		-		687,218		-		687,218		2.52	%
Commercial Construction, Land Development, and Other Land		-		2,787,384		337,500		3,124,884		11.45	%
Other Non Owner-Occupied Commercial Real Estate		137,611		8,452,069		9,167,020		17,756,700		65.05	%
Direct Financing Leases		-		687,508		-		687,508		2.52	%
Residential Real Estate		-		1,023,397		167,739		1,191,136		4.36	%
Installment and Other Consumer		48,607		995,734		39,553		1,083,894		3.97	%
	$	1,151,891	$	16,246,760	$	9,897,403	$	27,296,054		100.00	%

*Nonaccrual loans/leases includes $6,122,952 of troubled debt restructurings, including $156,595 in commercial and industrial loans, $5,628,957 in commercial real estate loans, $64,726 in direct financing leases, and $272,674 in installment loans.

Nonperforming loans/leases by classes of loans/leases as of December 31, 2011 is presented as follows:

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	$	2,790,210	$	187,407	$	3,097,617		9.68	%
Commercial Real Estate
Owner-Occupied Commercial Real Estate		-		1,011,456		-		1,011,456		3.16	%
Commercial Construction, Land Development, and Other Land		968,919		2,975,312		6,076,143		10,020,374		31.30	%
Other Non Owner-Occupied Commercial Real Estate		-		9,293,105		5,049,795		14,342,900		44.81	%
Direct Financing Leases		-		716,425		590,238		1,306,663		4.08	%
Residential Real Estate		-		1,133,475		-		1,133,475		3.54	%
Installment and Other Consumer		22,160		1,074,856		-		1,097,016		3.43	%
	$	1,111,079	$	18,994,839	$	11,903,583	$	32,009,501		100.00	%

**Nonaccrual loans/leases includes $8,622,874 of troubled debt restructurings, including $198,697 in commercial and industrial loans, $8,074,777 in commercial real estate loans, $64,726 in direct financing leases, and $284,674 in installment loans.

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 and six months ended June 30, 2012 and 2011, respectively, are presented as follows:

	Three Months Ended June 30, 2012

	Commercial and Industrial			Commercial Real Estate			Direct Financing Leases			Residential Real Estate		Installment and Other Consumer			Total

Balance, beginning	$	4,585,467		$	10,855,442		$	1,366,528		$	963,157	$	1,236,050		$	19,006,644
Provisions charged to expense		(683,718	)		1,275,510			258,469			23,557		174,651			1,048,469
Loans/leases charged off		(79,334	)		(1,427,987	)		(27,543	)		-		(199,935	)		(1,734,799	)
Recoveries on loans/leases previously charged off		358,377			7,026			13,545			-		25,273			404,221
Balance, ending	$	4,180,792		$	10,709,991		$	1,610,999		$	986,714	$	1,236,039		$	18,724,535

	Three Months Ended June 30, 2011

	Commercial and Industrial			Commercial Real Estate			Direct Financing Leases		Residential Real Estate		Installment and Other Consumer			Total

Balance, beginning	$	8,454,099		$	8,631,699		$	1,467,934	$	706,305	$	1,469,979		$	20,730,016
Provisions charged to expense		224,974			865,054			123,221		50,770		408,202			1,672,221
Loans/leases charged off		(1,593,901	)		(921,407	)		-		-		(176,397	)		(2,691,705	)
Recoveries on loans/leases previously charged off		39,272			27,293			154		-		25,381			92,100
Balance, ending	$	7,124,444		$	8,602,639		$	1,591,309	$	757,075	$	1,727,165		$	19,802,632

	Six Months Ended June 30, 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		(774,618	)		1,533,374			573,915			286,525			209,719			1,828,915
Loans/leases charged off		(455,742	)		(1,427,987	)		(343,264	)		(4,757	)		(327,801	)		(2,559,551	)
Recoveries on loans/leases previously charged off		533,146			7,646			40,852			-			84,265			665,909
Balance, ending	$	4,180,792		$	10,709,991		$	1,610,999		$	986,714		$	1,236,039		$	18,724,535

	Six Months Ended June 30, 2011

	Commercial and Industrial			Commercial Real Estate			Direct Financing Leases			Residential Real Estate		Installment and Other Consumer			Total

Balance, beginning	$	7,548,922		$	9,087,315		$	1,530,572		$	748,028	$	1,449,819		$	20,364,656
Provisions charged to expense		1,216,493			392,902			303,885			9,047		817,558			2,739,885
Loans/leases charged off		(1,790,617	)		(921,537	)		(243,446	)		-		(617,032	)		(3,572,632	)
Recoveries on loans/leases previously charged off		149,646			43,959			298			-		76,820			270,723
Balance, ending	$	7,124,444		$	8,602,639		$	1,591,309		$	757,075	$	1,727,165		$	19,802,632

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

The allowance for estimated losses on loans/leases by impairment evaluation and by portfolio segment as of June 30, 2012 and December 31, 2011 is presented as follows:

	As of June 30, 2012
	Commercial and Industrial			Commercial Real Estate			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total

Allowance for loans/leases individually evaluated for impairment	$	265,046		$	3,175,726		$	90,000		$	117,877		$	2,313		$	3,650,962
Allowance for loans/leases collectively evaluated for impairment		3,915,746			7,534,265			1,520,999			868,837			1,233,726			15,073,573
	$	4,180,792		$	10,709,991		$	1,610,999		$	986,714		$	1,236,039		$	18,724,535


Loans/leases individually evaluated for impairment	$	1,011,904		$	21,305,295		$	687,508		$	1,191,136		$	965,678		$	25,161,521
Loans/leases collectively evaluated for impairment		349,768,513			554,982,003			97,880,074			106,259,361			76,451,135			1,185,341,086
	$	350,780,417		$	576,287,298		$	98,567,582		$	107,450,497		$	77,416,813		$	1,210,502,607


Allowance as a percentage of loans/leases individually evaluated for impairment		26.19	%		14.91	%		13.09	%		9.90	%		0.24	%		14.51	%
Allowance as a percentage of loans/leases collectively evaluated for impairment		1.12	%		1.36	%		1.55	%		0.82	%		1.61	%		1.27	%
		1.19	%		1.86	%		1.63	%		0.92	%		1.60	%		1.54	%

	As of December 31, 2011
	Commercial and Industrial			Commercial Real Estate			Direct Financing Leases			Residential Real Estate			Installment and Other Consumer			Total

Allowance for loans/leases individually evaluated for impairment	$	903,187		$	4,297,738		$	66,675		$	55,884		$	22,819		$	5,346,303
Allowance for loans/leases collectively evaluated for impairment		3,974,819			6,299,220			1,272,821			649,062			1,247,037			13,442,959
	$	4,878,006		$	10,596,958		$	1,339,496		$	704,946		$	1,269,856		$	18,789,262

Loans/leases individually evaluated for impairment	$	2,152,855		$	24,281,365		$	1,306,663		$	1,133,474		$	984,806		$	29,859,163
Loans/leases collectively evaluated for impairment		348,641,423			553,522,485			91,905,699			96,973,577			77,238,274			1,168,281,458
	$	350,794,278		$	577,803,850		$	93,212,362		$	98,107,051		$	78,223,080		$	1,198,140,621

Allowance as a percentage of loans/leases individually evaluated for impairment		41.95	%		17.70	%		5.10	%		4.93	%		2.32	%		17.91	%
Allowance as a percentage of loans/leases collectively evaluated for impairment		1.14	%		1.14	%		1.38	%		0.67	%		1.61	%		1.15	%
		1.39	%		1.83	%		1.44	%		0.72	%		1.62	%		1.56	%

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Information for impaired loans/leases is presented in the tables below. The recorded investment represents customer balances net of any partial charge-offs recognized on the loan/lease. The unpaid principal balance represents the recorded balance outstanding on the loan/lease prior to any partial charge-offs.

Information for impaired loans/leases by classes of financing receivable as of and for the six months ended June 30, 2012 is as follows:

Classes of Loans/Leases	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized for Cash Payments Received

Impaired Loans/Leases with No Specific Allowance Recorded:
Commercial and Industrial	$	679,015	$	1,410,800	$	-	$	1,230,600	$	-	$	-
Commercial Real Estate
Owner-Occupied Commercial Real Estate		555,729		555,729		-		711,463		-		-
Commercial Construction, Land Development, and Other Land		1,427,018		2,009,619		-		5,041,106		3,851		3,851
Other Non Owner-Occupied Commercial Real Estate		4,700,668		5,500,668		-		6,864,499		894		894
Direct Financing Leases		569,233		569,233		-		804,542		-		-
Residential Real Estate		733,354		733,354		-		784,598		3,346		3,346
Installment and Other Consumer		963,365		982,097		-		972,903		124		124
	$	9,628,382	$	11,761,500	$	-	$	16,409,711	$	8,215	$	8,215

Impaired Loans/Leases with Specific Allowance Recorded:
Commercial and Industrial	$	332,889	$	332,889	$	265,046	$	281,764	$	3,951	$	3,951
Commercial Real Estate
Owner-Occupied Commercial Real Estate		66,660		66,660		1,276		66,660		-		-
Commercial Construction, Land Development, and Other Land		2,352,865		2,376,100		1,018,457		2,328,678		-		-
Other Non Owner-Occupied Commercial Real Estate		12,202,355		12,202,355		2,155,993		8,771,552		150,664		150,664
Direct Financing Leases		118,275		118,275		90,000		100,425		-		-
Residential Real Estate		457,782		457,782		117,877		421,985		-		-
Installment and Other Consumer		2,313		2,313		2,313		1,332		-		-
	$	15,533,139	$	15,556,374	$	3,650,962	$	11,972,396	$	154,615	$	154,615

Total Impaired Loans/Leases:
Commercial and Industrial	$	1,011,904	$	1,743,689	$	265,046	$	1,512,364	$	3,951	$	3,951
Commercial Real Estate
Owner-Occupied Commercial Real Estate		622,389		622,389		1,276		778,123		-		-
Commercial Construction, Land Development, and Other Land		3,779,883		4,385,719		1,018,457		7,369,784		3,851		3,851
Other Non Owner-Occupied Commercial Real Estate		16,903,023		17,703,023		2,155,993		15,636,051		151,558		151,558
Direct Financing Leases		687,508		687,508		90,000		904,967		-		-
Residential Real Estate		1,191,136		1,191,136		117,877		1,206,583		3,346		3,346
Installment and Other Consumer		965,678		984,410		2,313		974,235		124		124
	$	25,161,521	$	27,317,874	$	3,650,962	$	28,382,107	$	162,830	$	162,830

Impaired loans/leases for which no allowance has been provided have adequate collateral, based on management’s current estimates.

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Information for impaired loans/leases by classes of financing receivable for the three months ended June 30, 2012 and 2011 is as follows:

	Three Months Ended June 30, 2012						Three Months Ended June 30, 2011
Classes of Loans/Leases	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized for Cash Payments Received		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized for Cash Payments Received

Impaired Loans/Leases with No Specific Allowance Recorded:
Commercial and Industrial	$	870,085	$	-	$	-	$	1,455,378	$	-	$	-
Commercial Real Estate
Owner-Occupied Commercial Real Estate		668,313		-		-		1,737,998		-		-
Commercial Construction, Land Development, and Other Land		4,773,032		1,683		1,683		184,693		-		-
Other Non Owner-Occupied Commercial Real Estate		6,997,797		-		-		3,840,268		-		-
Direct Financing Leases		585,845		-		-		1,052,176		-		-
Residential Real Estate		734,485		1,673		1,673		958,303		-		-
Installment and Other Consumer		974,591		101		101		668,265		-		-
	$	15,604,148	$	3,457	$	3,457	$	9,897,081	$	-	$	-

Impaired Loans/Leases with Specific Allowance Recorded:
Commercial and Industrial	$	314,872	$	1,971	$	1,971	$	3,666,049	$	1,705	$	1,705
Commercial Real Estate
Owner-Occupied Commercial Real Estate		66,660		-		-		370,843		18,145		18,145
Commercial Construction, Land Development, and Other Land		2,348,194		-		-		4,688,045		-		-
Other Non Owner-Occupied Commercial Real Estate		8,354,604		83,113		83,113		7,130,672		-		-
Direct Financing Leases		118,275		-		-		746,288		-		-
Residential Real Estate		462,406		-		-		140,332		-		-
Installment and Other Consumer		1,998		-		-		233,087		-		-
	$	11,667,009	$	85,084	$	85,084	$	16,975,316	$	19,850	$	19,850

Total Impaired Loans/Leases:
Commercial and Industrial	$	1,184,957	$	1,971	$	1,971	$	5,121,427	$	1,705	$	1,705
Commercial Real Estate
Owner-Occupied Commercial Real Estate		734,973		-		-		2,108,841		18,145		18,145
Commercial Construction, Land Development, and Other Land		7,121,226		1,683		1,683		4,872,738		-		-
Other Non Owner-Occupied Commercial Real Estate		15,352,401		83,113		83,113		10,970,940		-		-
Direct Financing Leases		704,120		-		-		1,798,464		-		-
Residential Real Estate		1,196,891		1,673		1,673		1,098,635		-		-
Installment and Other Consumer		976,589		101		101		901,352		-		-
	$	27,271,157	$	88,541	$	88,541	$	26,872,397	$	19,850	$	19,850

Impaired loans/leases for which no allowance has been provided have adequate collateral, based on management’s current estimates.

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Information for impaired loans/leases by classes of financing receivable as of December 31, 2011 is as follows:

Classes of Loans/Leases	Recorded Investment		Unpaid Principal Balance		Related Allowance

Impaired Loans/Leases with No Specific Allowance Recorded:
Commercial and Industrial	$	360,947	$	979,901	$	-
Commercial Real Estate
Owner-Occupied Commercial Real Estate		736,610		736,610		-
Commercial Construction, Land Development, and Other Land		-		-		-
Other Non Owner-Occupied Commercial Real Estate		3,936,826		3,986,820		-
Direct Financing Leases		1,094,178		1,094,178		-
Residential Real Estate		788,685		862,298		-
Installment and Other Consumer		593,987		593,987		-
	$	7,511,233	$	8,253,794	$	-

Impaired Loans/Leases with Specific Allowance Recorded:
Commercial and Industrial	$	1,791,908	$	1,791,908	$	903,187
Commercial Real Estate
Owner-Occupied Commercial Real Estate		217,059		217,059		47,911
Commercial Construction, Land Development, and Other Land		9,051,455		9,051,455		3,002,450
Other Non Owner-Occupied Commercial Real Estate		10,339,415		10,839,415		1,247,377
Direct Financing Leases		212,485		212,485		66,675
Residential Real Estate		344,789		344,789		55,884
Installment and Other Consumer		390,819		390,819		22,819
	$	22,347,930	$	22,847,930	$	5,346,303

Total Impaired Loans/Leases:
Commercial and Industrial	$	2,152,855	$	2,771,809	$	903,187
Commercial Real Estate
Owner-Occupied Commercial Real Estate		953,669		953,669		47,911
Commercial Construction, Land Development, and Other Land		9,051,455		9,051,455		3,002,450
Other Non Owner-Occupied Commercial Real Estate		14,276,241		14,826,235		1,247,377
Direct Financing Leases		1,306,663		1,306,663		66,675
Residential Real Estate		1,133,474		1,207,087		55,884
Installment and Other Consumer		984,806		984,806		22,819
	$	29,859,163	$	31,101,724	$	5,346,303

Impaired loans/leases for which no allowance has been provided have adequate collateral, based on management’s current estimates.

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

For each class of financing receivable, the following presents the recorded investment by credit quality indicator as of June 30, 2012 and December 31, 2011:

	As of June 30, 2012
			Commercial Real Estate
					Non Owner-Occupied
Internally Assigned Risk Rating	Commercial and Industrial		Owner-Occupied Commercial Real Estate		Commercial Construction, Land Development, and Other Land		Other Commercial Real Estate		Total

Pass (Ratings 1 through 5)	$	326,648,303	$	183,382,668	$	40,298,069	$	303,371,664	$	853,700,704
Special Mention (Rating 6)		8,239,440		3,609,328		442,149		9,046,514		21,337,431
Substandard (Rating 7)		15,892,674		1,956,751		5,923,515		28,256,640		52,029,580
Doubtful (Rating 8)		-		-		-		-		-
	$	350,780,417	$	188,948,747	$	46,663,733	$	340,674,818	$	927,067,715

	As of June 30, 2012
Delinquency Status *	Direct Financing Leases		Residential Real Estate		Installment and Other Consumer		Total

Performing	$	97,880,074	$	106,259,361	$	76,332,919	$	280,472,354
Nonperforming		687,508		1,191,136		1,083,894		2,962,538
	$	98,567,582	$	107,450,497	$	77,416,813	$	283,434,892

*Performing = loans/leases accruing and less than 90 days past due. Nonperforming = loans/leases on nonaccrual, accruing loans/leases that are greater than or equal to 90 days past due, and accruing troubled debt restructurings.

	As of December 31, 2011
			Commercial Real Estate
					Non Owner-Occupied
Internally Assigned Risk Rating	Commercial and Industrial		Owner-Occupied Commercial Real Estate		Commercial Construction, Land Development, and Other Land		Other Commercial Real Estate		Total

Pass (Ratings 1 through 5)	$	324,225,905	$	158,955,618	$	46,268,554	$	310,401,972	$	839,852,049
Special Mention (Rating 6)		8,814,497		2,700,496		764,586		13,754,798		26,034,377
Substandard (Rating 7)		17,753,876		6,134,507		13,351,598		25,471,721		62,711,702
Doubtful (Rating 8)		-		-		-		-		-
	$	350,794,278	$	167,790,621	$	60,384,738	$	349,628,491	$	928,598,128

	As of December 31, 2011
Delinquency Status *	Direct Financing Leases		Residential Real Estate		Installment and Other Consumer		Total

Performing	$	91,905,699	$	96,973,576	$	77,126,064	$	266,005,339
Nonperforming		1,306,663		1,133,475		1,097,016		3,537,154
	$	93,212,362	$	98,107,051	$	78,223,080	$	269,542,493

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

For commercial and industrial and commercial real estate loans, the Company’s credit quality indicator is internally assigned risk ratings. Each commercial loan is assigned a risk rating upon origination. The risk rating is reviewed every 15 months, at a minimum, and on an as needed basis depending on the specific circumstances of the loan.

For direct financing leases, residential real estate loans, and installment and other consumer loans, the Company’s credit quality indicator is performance determined by delinquency status. Delinquency status is updated daily by the Company’s loan system.

As of June 30, 2012 and December 31, 2011, troubled debt restructurings totaled $16,020,355 and $20,526,457, respectively.

For each class of financing receivable, the following presents the number and recorded investment of troubled debt restructurings, by type of concession, that were restructured during the three and six months ended June 30, 2012 and 2011.

	For the three months ended June 30, 2012								For the three months ended June 30, 2011
Classes of Loans/Leases	Number of Loans / Leases		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Specific Allowance		Number of Loans / Leases		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Specific Allowance

CONCESSION - Extension of maturity
Other Non Owner-Occupied Commercial Real Estate		-	$	-	$	-	$	-		1	$	2,851,134	$	2,851,134	$	-
TOTAL		-	$	-	$	-	$	-		1	$	2,851,134	$	2,851,134	$	-

	For the six months ended June 30, 2012								For the six months ended June 30, 2011
Classes of Loans/Leases	Number of Loans / Leases		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Specific Allowance		Number of Loans / Leases		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Specific Allowance

CONCESSION - Extension of maturity
Other Non Owner-Occupied Commercial Real Estate		-	$	-	$	-	$	-		1	$	2,851,134	$	2,851,134	$	-
		-	$	-	$	-	$	-		1	$	2,851,134	$	2,851,134	$	-

CONCESSION - Significant payment delay
Commercial and Industrial		-	$	-	$	-	$	-		4	$	1,175,819	$	1,175,819	$	-
Commercial Construction, Land Development, and Other Land		2		200,000		200,000		144,000		-		-		-		-
		2	$	200,000	$	200,000	$	144,000		4	$	1,175,819	$	1,175,819	$	-

CONCESSION - Interest rate adjusted below market
Commercial Construction, Land Development, and Other Land		1	$	337,500	$	337,500	$	-		-	$	-	$	-	$	-
Residential Real Estate		1		167,739		167,739		-		-		-		-		-
Installment and Other Consumer		1		16,043		16,043		-		-		-		-		-
		3	$	521,282	$	521,282	$	-		-	$	-	$	-	$	-

TOTAL		5	$	721,282	$	721,282	$	144,000		5	$	4,026,953	$	4,026,953	$	-

Of the troubled debt restructurings reported above, three with post-modification recorded investments totaling $3,051,134 were on nonaccrual as of June 30, 2012. None of the troubled debt restructurings reported above had partial charge-offs.

For the three and six months ended June 30, 2012, none of the Company’s troubled debt restructurings has redefaulted within 12 months subsequent to restructure where default is defined as delinquency of 90 days or more and/or placement on nonaccrual status.

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

NOTE 4 - EARNINGS PER SHARE

The following information was used in the computation of earnings per share on a basic and diluted basis:

	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011

Net income	$	3,273,379	$	2,773,214	$	6,676,228	$	5,004,698
Less: Net income attributable to noncontrolling interests		201,223		98,245		367,254		204,769
Net income attributable to QCR Holdings, Inc.	$	3,072,156	$	2,674,969	$	6,308,974	$	4,799,929

Less: Preferred stock dividends and discount accretion		935,786		1,035,742		1,874,411		2,068,113
Net income attributable to QCR Holdings, Inc. common stockholders	$	2,136,370	$	1,639,227	$	4,434,563	$	2,731,816

Earnings per common share attributable to QCR Holdings, Inc. common stockholders
Basic	$	0.44	$	0.34	$	0.92	$	0.57
Diluted	$	0.44	$	0.34	$	0.91	$	0.57

Weighted average common shares outstanding		4,835,773		4,847,740		4,818,090		4,759,728
Weighted average common shares issuable upon exercise of stock options and under the employee stock purchase plan		66,080		26,238		49,538		19,120
Weighted average common and common equivalent shares outstanding		4,901,853		4,873,978		4,867,628		4,778,848

NOTE 5 – BUSINESS SEGMENT INFORMATION

Selected financial and descriptive information is required to be disclosed for reportable operating segments, applying a “management perspective” as the basis for identifying reportable segments. The management perspective is determined by the view that management takes of the segments within the Company when making operating decisions, allocating resources, and measuring performance. The segments of the Company have been defined by the structure of the Company’s internal organization, focusing on the financial information that the Company’s operating decision-makers routinely use to make decisions about operating matters.

The Company’s primary segment, Commercial Banking, is geographically divided by markets into the secondary segments which are the three subsidiary banks wholly-owned by the Company: QCBT, CRBT, and RB&T. Each of these secondary segments offer similar products and services, but are managed separately due to different pricing, product demand, and consumer markets. Each offers commercial, consumer, and mortgage loans and deposit services.

The Company’s Wealth Management segment represents the trust and asset management and investment management and advisory services offered at the Company’s three subsidiary banks in aggregate. This segment generates income primarily from fees charged based on assets under administration for corporate and personal trusts, custodial services, and investments managed. No assets of the subsidiary banks have been allocated to the Wealth Management segment.

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

The Company’s All Other segment includes the operations of all other consolidated subsidiaries and/or defined operating segments that fall below the segment reporting thresholds. This segment includes the corporate operations of the parent company and the 91% owned real estate holding operations of VPHC.

Selected financial information on the Company’s business segments is presented as follows for the three and six months ended June 30, 2012 and 2011.

	Commercial Banking
	Quad City Bank & Trust		Cedar Rapids Bank & Trust		Rockford Bank & Trust		Wealth Management		All Other			Intercompany Eliminations			Consolidated Total
Three Months Ended June 30, 2012
Total revenue	$	11,936,569	$	6,536,887	$	3,648,057	$	1,531,560	$	4,379,005		$	(4,430,041	)	$	23,602,037
Net interest income	$	8,532,585	$	3,896,184	$	2,458,333	$	-	$	(371,609	)	$	-		$	14,515,493
Net income attributable to QCR Holdings, Inc.	$	2,327,046	$	1,413,869	$	402,494	$	156,523	$	3,110,821		$	(4,338,597	)	$	3,072,156
Total assets	$	1,157,927,167	$	581,059,340	$	301,189,716	$	-	$	194,399,498		$	(191,149,975	)	$	2,043,425,746
Provision for loan/lease losses	$	392,469	$	225,000	$	431,000	$	-	$	-		$	-		$	1,048,469
Goodwill	$	3,222,688	$	-	$	-	$	-	$	-		$	-		$	3,222,688

Three Months Ended June 30, 2011
Total revenue	$	11,887,135	$	7,308,909	$	3,386,900	$	1,444,978	$	3,938,351		$	(3,930,816	)	$	24,035,457
Net interest income	$	7,831,907	$	4,223,541	$	2,207,957	$	-	$	(312,350	)	$	-		$	13,951,055
Net income attributable to QCR Holdings, Inc.	$	2,259,488	$	1,355,089	$	66,276	$	192,264	$	2,677,173		$	(3,875,321	)	$	2,674,969
Total assets	$	1,030,910,790	$	573,534,805	$	280,132,269	$	-	$	189,364,559		$	(195,454,080	)	$	1,878,488,343
Provision for loan/lease losses	$	638,221	$	410,000	$	624,000	$	-	$	-		$	-		$	1,672,221
Goodwill	$	3,222,688	$	-	$	-	$	-	$	-		$	-		$	3,222,688

Six Months Ended June 30, 2012
Total revenue	$	24,201,602	$	13,123,036	$	6,768,852	$	2,936,754	$	8,990,997		$	(9,088,522	)	$	46,932,719
Net interest income	$	16,921,627	$	7,664,183	$	4,891,039	$	-	$	(757,903	)	$	-		$	28,718,946
Net income attributable to QCR Holdings, Inc.	$	5,016,730	$	2,681,135	$	795,969	$	316,406	$	6,407,185		$	(8,908,451	)	$	6,308,974
Total assets	$	1,157,927,167	$	581,059,340	$	301,189,716	$	-	$	194,399,498		$	(191,149,975	)	$	2,043,425,746
Provision for loan/lease losses	$	787,915	$	575,000	$	466,000	$	-	$	-		$	-		$	1,828,915
Goodwill	$	3,222,688	$	-	$	-	$	-	$	-		$	-		$	3,222,688

Six Months Ended June 30, 2011
Total revenue	$	23,842,944	$	14,371,515	$	6,668,880	$	2,926,997	$	7,456,594		$	(7,523,117	)	$	47,743,813
Net interest income	$	14,828,267	$	7,985,664	$	4,286,062	$	-	$	(940,136	)	$	-		$	26,159,857
Net income attributable to QCR Holdings, Inc.	$	3,922,793	$	2,589,513	$	289,407	$	483,652	$	4,861,431		$	(7,346,867	)	$	4,799,929
Total assets	$	1,030,910,790	$	573,534,805	$	280,132,269	$	-	$	189,364,559		$	(195,454,080	)	$	1,878,488,343
Provision for loan/lease losses	$	1,077,885	$	785,000	$	877,000	$	-	$	-		$	-		$	2,739,885
Goodwill	$	3,222,688	$	-	$	-	$	-	$	-		$	-		$	3,222,688

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

NOTE 6 – FAIR VALUE

The measurement of fair value under U.S. GAAP uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in markets;

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

There were no transfers of assets or liabilities between Levels 1, 2, and 3 of the fair value hierarchy for the three and six months ended June 30, 2012 or 2011.

Assets measured at fair value on a recurring basis comprise the following at June 30, 2012 and December 31, 2011:

			Fair Value Measurements at Reporting Date Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

June 30, 2012:
Securities available for sale:
U.S. govt. sponsored agency securities	$	389,599,752	$	-	$	389,599,752	$	-
Residential mortgage-backed and related securities		165,827,201		-		165,827,201		-
Municipal securities		81,071,908		-		81,071,908		-
Trust preferred securities		102,000		-		102,000		-
Other securities		1,536,975		215,189		1,321,786		-
	$	638,137,836	$	215,189	$	637,922,647	$	-

December 31, 2011:
Securities available for sale:
U.S. govt. sponsored agency securities	$	428,955,220	$	-	$	428,955,220	$	-
Residential mortgage-backed and related securities		108,853,749		-		108,853,749		-
Municipal securities		25,689,364		-		25,689,364		-
Trust preferred securities		80,800		-		80,800		-
Other securities		1,450,158		191,506		1,258,652		-
	$	565,029,291	$	191,506	$	564,837,785	$	-

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

A small portion of the securities available for sale portfolio consists of common stock issued by various unrelated bank holding companies. The fair values used by the Company are obtained from an independent pricing service and represent quoted market prices for the identical securities (Level 1 inputs).

The large majority of the securities available for sale portfolio consists of U.S. government sponsored agency securities for which the Company obtains fair values from an independent pricing service. The fair values are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2 inputs).

Certain financial assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Assets measured at fair value on a non-recurring basis comprise the following at June 30, 2012 and December 31, 2011:

			Fair Value Measurements at Reporting Date Using
	Fair Value		Level 1		Level 2		Level 3
June 30, 2012:
Impaired loans/leases	$	12,832,751	$	-	$	-	$	12,832,751
Other real estate owned		9,866,918		-		-		9,866,918
	$	22,699,669	$	-	$	-	$	22,699,669

December 31, 2011:
Impaired loans/leases	$	18,361,757	$	-	$	-	$	18,361,757
Other real estate owned		9,056,619		-		-		9,056,619
	$	27,418,376	$	-	$	-	$	27,418,376

Impaired loans/leases are evaluated and valued at the time the loan/lease is identified as impaired, at the lower of cost or fair value, and are classified as Level 3 in the fair value hierarchy. Fair value is measured based on the value of the collateral securing these loans/leases. Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable, and is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business.

Other real estate owned in the table above consists of property acquired through foreclosures and settlements of loans. Property acquired is carried at the lower of the principal amount of loans outstanding, or the estimated fair value of the property, less disposal costs, and is classified as Level 3 in the fair value hierarchy.

For the impaired loans/leases and other real estate owned, the Company records carrying value at fair value less disposal or selling costs. The amounts reported in the tables above are fair values before the adjustment for disposal or selling costs.

There have been no changes in valuation techniques used for any assets measured at fair value during the three and six months ended June 30, 2012 or 2011.

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

The following table presents the carrying values and estimated fair values of financial assets and liabilities carried on the Company’s consolidated balance sheets, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis:

	As of June 30, 2012				As of December 31, 2011
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value

Cash and due from banks	$	51,639,674	$	51,639,674	$	53,136,710	$	53,136,710
Federal funds sold		3,625,000		3,625,000		20,785,000		20,785,000
Interest-bearing deposits at financial institutions		28,452,429		28,452,429		26,750,602		26,750,602
Investment securities:
Held to maturity		700,000		700,000		200,000		200,000
Available for sale		638,137,836		638,137,836		565,029,291		565,029,291
Loans/leases receivable, net		1,194,579,266		1,214,239,000		1,181,956,235		1,202,817,000
Accrued interest receivable		6,735,326		6,735,326		6,510,021		6,510,021
Deposits		1,315,470,499		1,318,758,000		1,205,457,788		1,209,197,000
Short-term borrowings		185,399,038		185,399,038		213,536,450		213,536,450
Federal Home Loan Bank advances		203,750,000		222,454,000		204,750,000		223,678,000
Other borrowings		138,235,713		153,872,000		136,231,663		151,813,000
Junior subordinated debentures		36,085,000		18,670,000		36,085,000		18,444,000
Accrued interest payable		1,397,572		1,397,572		1,551,842		1,551,842

The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include: cash and due from banks, federal funds sold, interest-bearing deposits at financial institutions, accrued interest receivable and payable, demand and other non-maturity deposits, and short-term borrowings. The Company used the following methods and assumptions in estimating the fair value of the following instruments:

Loans/leases receivable: The fair values for variable rate loans equal their carrying values. The fair values for all other types of loans/leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans/leases with similar terms to borrowers with similar credit quality. The fair value of loans held for sale is based on quoted market prices of similar loans sold on the secondary market. All of the above are classified as Level 2 in the fair value hierarchy as presented in the table below.

Deposits: The fair values disclosed for demand and other non-maturity deposits equal their carrying amounts, which represent the amount payable on demand. Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregate expected monthly maturities on time deposits, and are classified as Level 2 in the fair value hierarchy as presented in the table below.

Part I

Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Federal Home Loan Bank advances and junior subordinated debentures: The fair value of these instruments is estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, and are classified as Level 2 in the fair value hierarchy as presented in the table below.

Other borrowings: The fair value for the wholesale repurchase agreements and fixed rate other borrowings is estimated using rates currently available for debt with similar terms and remaining maturities. The fair value for variable rate other borrowings is equal to its carrying value. All of the above are classified as Level 2 in the fair value hierarchy as presented in the table below.

Commitments to extend credit: The fair value of these instruments is not material.

The following table presents the level in the fair value hierarchy for the estimated fair values of the Company’s financial instruments that are not already on the Consolidated Balance Sheet at fair value at June 30, 2012.

	Fair Value		Level 1		Level 2		Level 3

Loans/leases receivable, net *	$	1,201,406,249	$	-	$	1,201,406,249	$	-
Time deposits		371,942,000		-		371,942,000		-
Federal Home Loan Bank advances		222,454,000		-		222,454,000		-
Other borrowings		153,872,000		-		153,872,000		-
Junior subordinated debentures		18,670,000		-		18,670,000		-

*Excludes impaired loans/leases totaling $12,832,751 measured at fair value on a non-recurring basis and reported separately.

NOTE 7 – PARTIAL REDEMPTION OF SERIES F PREFERRED STOCK

On June 29, 2012, the Company redeemed 10,223 shares of Series F Preferred Stock from the United States Department of the Treasury (“Treasury”) for an aggregate redemption amount of $10,223,000 plus unpaid dividends to the date of redemption of $124,948. Previously, on September 15, 2011, the Company issued 40,090 shares of Series F Preferred Stock to the Treasury for an aggregate purchase price of $40,090,000. The sale of Series F Preferred Stock was the result of an investment by Treasury from the Small Business Lending Fund (“SBLF”), a $30 billion fund established under the Small Business Jobs Act of 2010 that encourages lending to small business by providing capital to qualified community banks with assets of less than $10 billion.

The Series F Preferred Stock may be redeemed at any time at the option of the Company, subject to the approval of the Company’s primary federal banking regulator. All redemptions must be in amounts equal to at least 25% of the number of originally issued shares, or 100% of the then-outstanding shares (if less than 25% of the originally issued shares).

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

GENERAL

QCR Holdings, Inc. is the parent company of Quad City Bank & Trust, Cedar Rapids Bank & Trust, and Rockford Bank & Trust.

Quad City Bank & Trust and Cedar Rapids Bank & Trust are Iowa-chartered commercial banks, and Rockford Bank & Trust is an Illinois-chartered commercial bank. All are members of the Federal Reserve System with depository accounts insured to the maximum amount permitted by law by the Federal Deposit Insurance Corporation (“FDIC”).

Quad City Bank & Trust commenced operations in 1994 and provides full-service commercial and consumer banking, and trust and asset management services, to the Quad City area and adjacent communities through its five offices that are located in Bettendorf and Davenport, Iowa and Moline, Illinois. Quad City Bank & Trust also provides leasing services through its 80%-owned subsidiary, m2 Lease Funds, located in Brookfield, Wisconsin. In addition, Quad City Bank & Trust owns 100% of Quad City Investment Advisors, LLC (formerly known as CMG Investment Advisors, LLC), which is an investment management and advisory company.

Cedar Rapids Bank & Trust commenced operations in 2001 and provides full-service commercial and consumer banking, and trust and asset management services, to Cedar Rapids, Iowa and adjacent communities through its main office located on First Avenue in downtown Cedar Rapids, Iowa and its branch facility located on Council Street in northern Cedar Rapids. Cedar Rapids Bank & Trust also provides residential real estate mortgage lending services through its 50%-owned joint venture, Cedar Rapids Mortgage Company.

Rockford Bank & Trust commenced operations in January 2005 and provides full-service commercial and consumer banking, and trust and asset management services, to Rockford, Illinois and adjacent communities through its main office located in downtown Rockford and its branch facility on Guilford Road at Alpine Road in Rockford.

The Company engages in real estate holdings through its 91% equity investment in Velie Plantation Holding Company, LLC, based in Moline, Illinois.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

OVERVIEW

The Company recognized net income of $3.3 million for the quarter ended June 30, 2012, and net income attributable to QCR Holdings, Inc. of $3.1 million, which excludes the net income attributable to noncontrolling interests of $201 thousand. After preferred stock dividends of $936 thousand, the Company reported net income attributable to common stockholders of $2.1 million, or diluted earnings per common share of $0.44. By comparison, for the second quarter of 2011, the Company recognized net income of $2.8 million and net income attributable to QCR holdings, Inc. of $2.7 million, which excludes the net income attributable to noncontrolling interests of $98 thousand. After preferred stock dividends and discount accretion of $1.0 million, the Company reported net income attributable to common stockholders of $1.6 million, or diluted earnings per common share of $0.34.

For the six months ended June 30, 2012, the Company reported net income of $6.7 million, and net income attributable to QCR Holdings, Inc. of $6.3 million, which excludes the net income attributable to noncontrolling interests of $367 thousand. After preferred stock dividends of $1.9 million, the Company reported net income attributable to common stockholders of $4.4 million, or diluted earnings per common share of $0.91. For the same period in 2011, the Company recognized net income of $5.0 million and net income attributable to QCR Holdings, Inc. of $4.8 million, which excludes the net income attributable to noncontrolling interests of $204 thousand. After preferred stock dividends and discount accretion of $2.1 million, the Company reported net income attributable to common stockholders of $2.7 million, or diluted earnings per common share of $0.57.

Following is a table that represents the various net income measurements for the three and six months ended June 30, 2012 and 2011, respectively.

	For the three months ended				For the six months ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011

Net income	$	3,273,379	$	2,773,214	$	6,676,228	$	5,004,698
Less: Net income attributable to noncontrolling interests		201,223		98,245		367,254		204,769
Net income attributable to QCR Holdings, Inc.	$	3,072,156	$	2,674,969	$	6,308,974	$	4,799,929

Less: Preferred stock dividends and discount accretion		935,786		1,035,742		1,874,411		2,068,113
Net income attributable to QCR Holdings, Inc. common stockholders	$	2,136,370	$	1,639,227	$	4,434,563	$	2,731,816

Diluted earnings per common share	$	0.44	$	0.34	$	0.91	$	0.57

Weighted average common and common equivalent shares outstanding		4,901,853		4,873,978		4,867,628		4,778,848

Following is a table that represents the major income and expense categories.

	For the three months ended									For the six months ended
	June 30, 2012			March 31, 2012			June 30, 2011			June 30, 2012			June 30, 2011

Net interest income	$	14,515,493		$	14,203,453		$	13,951,055		$	28,718,946		$	26,159,857
Provision for loan/lease losses		(1,048,469	)		(780,446	)		(1,672,221	)		(1,828,915	)		(2,739,885	)
Noninterest income		4,067,509			3,956,878			4,173,381			8,024,387			9,230,505
Noninterest expense		(13,109,083	)		(12,738,080	)		(12,555,547	)		(25,847,163	)		(25,567,818	)
Federal and state income tax		(1,152,071	)		(1,238,956	)		(1,123,454	)		(2,391,027	)		(2,077,961	)
Net income	$	3,273,379		$	3,402,849		$	2,773,214		$	6,676,228		$	5,004,698

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

NET INTEREST INCOME

Net interest income, on a tax equivalent basis, increased $701 thousand, or 5%, to $14.8 million for the quarter ended June 30, 2012, from $14.1 million for the same period of 2011. The increase in net interest income was driven primarily by reduced interest expense. This was the result of continued reductions in the cost of deposits as well as growth in noninterest bearing deposits, which funded the earning asset growth and allowed the level of interest-bearing funding to remain relatively flat. Interest income was relatively flat as growth in loans and securities was effectively offset by continued decline in yields.

A comparison of yields, spread and margin from the second quarter of 2012 to the second quarter of 2011 is as follows (on a tax equivalent basis):

The average yield on interest-earning assets decreased 32 basis points.

The average cost of interest-bearing liabilities decreased 26 basis points.

The net interest spread declined 6 basis points from 2.90% to 2.84%.

The net interest margin declined 5 basis points from 3.21% to 3.16%.

Net interest income, on a tax equivalent basis, increased $2.8 million, or 10%, to $29.2 million for the first six months of 2012, from $26.4 million for the same period of 2011. The growth was primarily a function of reductions in the rates paid on all interest-bearing liabilities with most of the impact from declining cost of deposits. Secondarily, interest income grew as growth in loans and securities more than offset the decline in yields.

A comparison of yields, spread and margin from the first half of 2012 to the first half of 2011 is as follows (on a tax equivalent basis):

The average yield on interest-earning assets decreased 17 basis points.

The average cost of interest-bearing liabilities decreased 31 basis points.

The net interest spread improved 14 basis points from 2.66% to 2.80%.

The net interest margin improved 14 basis points from 2.99% to 3.13%.

The Company’s management closely monitors and manages net interest margin. From a profitability standpoint, an important challenge for the Company’s subsidiary banks and majority-owned leasing company is the improvement of their net interest margins. Management continually addresses this issue with pricing and other balance sheet management strategies. Over the past two years, the Company’s management has emphasized improving its funding mix by reducing its reliance on wholesale funding which tends to be at a higher cost than deposits. In addition, with loan growth continuing to be modest, the Company’s management has focused on growing and diversifying its securities portfolio.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

The Company’s average balances, interest income/expense, and rates earned/paid on major balance sheet categories, as well as the components of change in net interest income, are presented in the following tables:

	For the three months ended June 30,
	2012								2011
	Average Balance			Interest Earned or Paid		Average Yield or Cost			Average Balance			Interest Earned or Paid		Average Yield or Cost

	(dollars in thousands)
ASSETS
Interest earning assets:
Federal funds sold	$	-		$	-		0.00	%	$	37,408		$	24		0.26	%
Interest-bearing deposits at financial institutions		36,478			92		1.01	%		27,510			103		1.50	%
Investment securities (1)		615,089			3,569		2.33	%		503,583			3,209		2.55	%
Restricted investment securities		15,282			165		4.34	%		15,465			138		3.57	%
Gross loans/leases receivable (2) (3) (4)		1,211,595			15,973		5.30	%		1,170,682			16,516		5.64	%

Total interest earning assets	$	1,878,444			19,799		4.24	%	$	1,754,648			19,990		4.56	%

Noninterest-earning assets:
Cash and due from banks	$	39,896							$	43,598
Premises and equipment		31,529								30,684
Less allowance for estimated losses on loans/leases		(19,183	)							(19,736	)
Other		74,938								73,058

Total assets	$	2,005,624							$	1,882,252

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	490,270			716		0.59	%	$	503,030			1,006		0.80	%
Savings deposits		42,448			6		0.06	%		38,426			16		0.17	%
Time deposits		354,285			908		1.03	%		362,254			1,300		1.44	%
Short-term borrowings		179,979			77		0.17	%		131,253			69		0.21	%
Federal Home Loan Bank advances		205,162			1,829		3.59	%		209,889			1,978		3.77	%
Junior subordinated debentures		36,085			259		2.89	%		36,085			252		2.79	%
Other borrowings (4)		136,648			1,224		3.60	%		141,486			1,290		3.65	%

Total interest-bearing liabilities	$	1,444,877			5,019		1.40	%	$	1,422,423			5,911		1.66	%

Noninterest-bearing demand deposits	$	391,475							$	301,155
Other noninterest-bearing liabilities		25,331								24,131
Total liabilities	$	1,861,683							$	1,747,709

Stockholders' equity		143,941								134,543

Total liabilities and stockholders' equity	$	2,005,624							$	1,882,252

Net interest income				$	14,780							$	14,079

Net interest spread							2.84	%							2.90	%

Net interest margin							3.16	%							3.21	%

Ratio of average interest-earning assets to average interest-bearing liabilities		130.01	%							123.36	%

(1)	Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate for each period presented.

(2)	Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance.

(3)	Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance.

(4)

In accordance with ASC 860, effective January 1, 2010, the Company accounts for some participations sold, including sales of SBA-guaranteed portionsof loans during the recourse period, as secured borrowings. As such, these amounts are included in the average balance for gross loans/leases receivable and other borrowings. For the three months ended June 30, 2012 and 2011, this totaled $0.0 million and $1.3 million, respectively. During the second quarter of 2011, SBA removed the recourse provision for sales which allowed for sale accounting treatment at the time of sale; thus, the decline in average balance.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Analysis of Changes of Interest Income/Interest Expense

For the three months ended June 30, 2012

	Inc./(Dec.) from			Components of Change (1)
	Prior Period			Rate			Volume
	2012 vs. 2011
	(dollars in thousands)
INTEREST INCOME
Federal funds sold	$	(24	)	$	(12	)	$	(12	)
Interest-bearing deposits at financial institutions		(11	)		(139	)		128
Investment securities (2)		360			(1,470	)		1,830
Restricted investment securities		27			39			(12	)
Gross loans/leases receivable (3) (4) (5)		(543	)		(3,269	)		2,726

Total change in interest income	$	(191	)	$	(4,851	)	$	4,660

INTEREST EXPENSE
Interest-bearing demand deposits	$	(290	)	$	(265	)	$	(25	)
Savings deposits		(10	)		(21	)		11
Time deposits		(392	)		(364	)		(28	)
Short-term borrowings		8			(64	)		72
Federal Home Loan Bank advances		(149	)		(102	)		(47	)
Junior subordinated debentures		7			7			-
Other borrowings (5)		(66	)		(17	)		(49	)

Total change in interest expense	$	(892	)	$	(826	)	$	(66	)

Total change in net interest income	$	701		$	(4,025	)	$	4,726

(1)	The column "Inc./(Dec.) from Prior Period" is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates. The variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume

(2)	Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate foreach period presented.

(3)	Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting andregulatory guidance.

(4)	Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting andregulatory guidance.

(5)

In accordance with ASC 860, effective January 1, 2010, the Company accounts for some participations sold, including sales ofSBA-guaranteed portions of loans during the recourse period, as secured borrowings. As such, these amounts are included in the average balance for gross loans/leases receivable and other borrowings. For the three months ended June 30, 2012 and 2011, this totaled $0.0 million and $1.3 million, respectively. During the second quarter of 2011, SBA removed the recourse provision for sales which allowed sale accounting treatment at the time of sale; thus, the decline in average balance.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

	For the six months ended June 30,
	2012								2011
	Average Balance			Interest Earned or Paid		Average Yield or Cost			Average Balance			Interest Earned or Paid		Average Yield or Cost

	(dollars in thousands)
ASSETS
Interest earning assets:
Federal funds sold	$	-		$	-		0.00	%	$	78,941		$	90		0.23	%
Interest-bearing deposits at financial institutions		60,423			213		0.71	%		33,424			214		1.28	%
Investment securities (1)		595,810			6,959		2.35	%		475,467			5,903		2.48	%
Restricted investment securities		15,281			246		3.24	%		15,862			301		3.80	%
Gross loans/leases receivable (2) (3) (4)		1,204,821			31,944		5.33	%		1,161,839			32,251		5.55	%

Total interest earning assets		1,876,334			39,362		4.22	%	$	1,765,533			38,759		4.39	%

Noninterest-earning assets:
Cash and due from banks	$	40,459							$	41,141
Premises and equipment		31,600								30,821
Less allowance for estimated losses on loans/leases		(19,047	)							(20,122	)
Other		75,838								69,680

Total assets	$	2,005,183							$	1,887,053

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	495,252			1,452		0.59	%	$	489,192			1,976		0.81	%
Savings deposits		41,725			13		0.06	%		37,501			31		0.17	%
Time deposits		350,043			1,880		1.08	%		365,477			2,740		1.50	%
Short-term borrowings		179,480			142		0.16	%		137,895			182		0.26	%
Federal Home Loan Bank advances		205,650			3,693		3.61	%		217,891			4,122		3.78	%
Junior subordinated debentures		36,085			527		2.94	%		36,085			733		4.06	%
Other borrowings (4)		136,273			2,482		3.66	%		145,039			2,569		3.54	%

Total interest-bearing liabilities		1,444,507			10,189		1.42	%	$	1,429,080			12,353		1.73	%

Noninterest-bearing demand deposits		390,021							$	297,220
Other noninterest-bearing liabilities		26,046								27,833
Total liabilities		1,860,574							$	1,754,133

Stockholders' equity		143,882								132,920

Total liabilities and stockholders' equity		2,004,456							$	1,887,053

Net interest income				$	29,173							$	26,406

Net interest spread							2.80	%							2.66	%

Net interest margin							3.13	%							2.99	%

Ratio of average interest-earning assets to average interest-bearing liabilities		129.89	%							123.54	%

(1)	Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate for each period presented.

(2)	Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance.

(3)	Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance.

(4)

In accordance with ASC 860, effective January 1, 2010, the Company accounts for some participations sold, including sales of SBA-guaranteed portionsof loans during the recourse period, as secured borrowings. As such, these amounts are included in the average balance for gross loans/leases receivable and other borrowings. For the six months ended June 30, 2012 and 2011, this totaled $0.0 million and $4.9 million, respectively. During the second quarter of 2011, SBA removed the recourse provision for sales which allowed for sale accounting treatment at the time of sale; thus, the decline in average balance.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Analysis of Changes of Interest Income/Interest Expense

For the six months ended June 30, 2012

	Inc./(Dec.) from			Components of Change (1)
	Prior Period			Rate			Volume
	2012 vs. 2011
	(dollars in thousands)
INTEREST INCOME
Federal funds sold	$	(90	)	$	(45	)	$	(45	)
Interest-bearing deposits at financial institutions		(1	)		(246	)		245
Investment securities (2)		1,056			(866	)		1,922
Restricted investment securities		(55	)		(44	)		(11	)
Gross loans/leases receivable (3) (4) (5)		(307	)		(2,626	)		2,319

Total change in interest income	$	603		$	(3,827	)	$	4,430

INTEREST EXPENSE
Interest-bearing demand deposits	$	(524	)	$	(595	)	$	71
Savings deposits		(18	)		(27	)		9
Time deposits		(860	)		(747	)		(113	)
Short-term borrowings		(40	)		(148	)		108
Federal Home Loan Bank advances		(429	)		(192	)		(237	)
Junior subordinated debentures		(206	)		(206	)		-
Other borrowings (5)		(87	)		192			(279	)

Total change in interest expense	$	(2,164	)	$	(1,723	)	$	(441	)

Total change in net interest income	$	2,767		$	(2,104	)	$	4,871

(1)	The column "Inc./(Dec.) from Prior Period" is segmented into the changes attributable to variations in volume and thechanges attributable to changes in interest rates. The variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume.

(2)	Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate foreach period presented.

(3)	Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting andregulatory guidance.

(4)	Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting andregulatory guidance.

(5)

In accordance with ASC 860, effective January 1, 2010, the Company accounts for some participations sold, including sales ofSBA-guaranteed portions of loans during the recourse period, as secured borrowings. As such, these amounts are included in the average balance for gross loans/leases receivable and other borrowings. For the three months ended June 30, 2012 and 2011, this totaled $0.0 million and $4.9 million, respectively. During the second quarter of 2011, SBA removed the recourse provision for sales which allowed sale accounting treatment at the time of sale; thus, the decline in average balance.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

CRITICAL ACCOUNTING POLICIES

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred.

Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified its most critical accounting policy to be that related to the allowance for estimated losses on loans/leases. The Company’s allowance for estimated losses on loans/leases methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for estimated losses on loans/leases that management believes is appropriate at each reporting date. Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values, changes in nonperforming loans/leases, and other factors. Quantitative factors also incorporate known information about individual loans/leases, including borrowers’ sensitivity to interest rate movements. Qualitative factors include the general economic environment in the Company’s markets, including economic conditions throughout the Midwest, and in particular, the state of certain industries. Size and complexity of individual credits in relation to loan/lease structure, existing loan/lease policies and pace of portfolio growth are other qualitative factors that are considered in the methodology. Management may report a materially different amount for the provision for loan/lease losses in the statement of operations to change the allowance for estimated losses on loans/leases if its assessment of the above factors were different. This discussion and analysis should be read in conjunction with the Company’s financial statements and the accompanying notes presented elsewhere herein, as well as the portion in the section entitled “Financial Condition” of this Management’s Discussion and Analysis that discusses the allowance for estimated losses on loans/leases. Although management believes the level of the allowance as of June 30, 2012 is adequate to absorb losses inherent in the loan/lease portfolio, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time.

The Company’s assessment of other-than-temporary impairment of its available-for-sale securities portfolio is another critical accounting policy as a result of the level of judgment required by management. Available-for-sale securities are evaluated to determine whether declines in fair value below their cost are other-than-temporary. In estimating other-than-temporary impairment losses, management considers a number of factors including, but not limited to, (1) the length of time and extent to which the fair value has been less than amortized cost, (2) the financial condition and near-term prospects of the issuer, (3) the current market conditions, and (4) the intent of the Company to not sell the security prior to recovery and whether it is not more-likely-than-not that the Company will be required to sell the security prior to recovery. The discussion regarding the Company’s assessment of other-than-temporary impairment should be read in conjunction with the Company’s financial statements and the accompanying notes presented elsewhere herein.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

RESULTS OF OPERATIONS

INTEREST INCOME

Interest income fell 2% comparing the second quarter of 2012 to the second quarter of 2011. The effect of declines in yield more than offset the growth in loans/leases and securities. Specifically, over the year, the average balance for loans/leases grew $40.9 million, or 3%, while yields declined 34 basis points. As deposit growth continues to outpace loan growth, the Company has focused on growing and diversifying its securities portfolio, including increasing its portfolio of agency-sponsored mortgage-backed securities as well as municipal securities. Of the latter, the large majority are located in or near our existing markets with strong underwriting conducted before investment. Over the year, the average balance for securities grew $111.5 million, or 22%, while yields declined 22 basis points. With the extended historical low interest rate environment, management’s execution on diversification of the securities portfolio has helped limit the yield decline with only modest duration extension.

For the first half of 2012, interest income grew 1% compared to the first half of 2011. Growth and diversification of the securities portfolio (average balances grew $120.3 million, or 25%) more than offset the effect of declining yields (decline of 13 basis points year over year). The impact of loan growth (average balances grew $43.0 million, or 4%) fell short of the effect of declining yields (decline of 22 basis points year over year) leading to a net decline in interest income on loans.

Management understands the importance of quality, well-priced loan/lease growth and has worked hard to grow assets in a prudent and sustainable manner.

INTEREST EXPENSE

Interest expense for the second quarter of 2012 declined $892 thousand, or 15%, from the second quarter of 2011, and declined $2.2 million, or 18%, comparing the first half of 2012 to the same period of 2011. As the Company continues to grow noninterest bearing deposits, this has provided management increased flexibility to decrease pricing on its interest-bearing deposits. Also contributing to the decline in interest expense, the Company has been successful in decreasing the cost of borrowings. Management has placed a strong focus on reducing the reliance on wholesale funding as it tends to be higher cost than deposits. In recent years, the majority of maturing wholesale funds have not been replaced, or, to a lesser extent, have been replaced at significantly reduced cost. In addition, management executed on three separate strategies during 2011 and 2012 which strongly contributed to the declining borrowing costs:

During the first quarter of 2011, QCBT utilized excess liquidity and prepaid $15.0 million of FHLB advances with a weighted average interest rate of 4.87% and a weighted average maturity of May 2012.

The Company modified $33.4 million ($20.4 million in first quarter of 2011 and $13.0 million in the fourth quarter of 2011) of fixed rate FHLB advances into new fixed rate FHLB advances at significantly reduced interest rates and extended maturities.

During the second quarter of 2012, the Company modified $25.0 million of fixed rate wholesale structured repurchase agreements (“structured repos”) into new fixed rate structured repos at significantly reduced interest rates and extended maturities.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

PROVISION FOR LOAN/LEASE LOSSES

The provision for loan/lease losses is established based on a number of factors, including the Company’s historical loss experience, delinquencies and charge-off trends, the local and national economy and risk associated with the loans/leases in the portfolio as described in more detail in the “Critical Accounting Policies” section.

The Company’s provision for loan/lease losses totaled $1.0 million for the second quarter of 2012, a decline of $624 thousand over the second quarter of 2011. For the first half of 2012, the Company’s provision totaled $1.8 million, which is a decline of $911 thousand over the first half of 2011. The declines were the result of the following:

The Company continued to experience improving loan quality as evidenced by the declining trend in the level of classified and criticized loans (see table and further discussion in the “Financial Condition” section).

The Company’s nonperforming loans/leases continued to decline and the mix of these loans/leases continued to improve. Nonaccrual loans/leases declined from $23.3 million at June 30, 2011 to $16.3 million at June 30, 2012; while accruing TDRs grew $6.3 million over that same time period. Generally, nonaccrual loans/leases have a greater risk of loss and require more reserves than accruing TDRs.

The Company experienced modest growth and a slight shift in mix in its loan/lease portfolio. Specifically, loans/leases grew $28.7 million, or 2%, since June 30, 2011. With commercial loans relatively flat, most of the growth was in residential real estate loans and direct financing leases, which have smaller average balances and are historically less risky than the Company’s commercial loan portfolio.

With net charge-offs for the second quarter totaling $1.3 million more than offsetting the provision for loan/lease losses of $1.0 million, the Company’s allowance for estimated losses on loan/lease losses to total loans/leases declined slightly to 1.54% at June 30, 2012 from 1.56% at December 31, 2011. A more detailed discussion of the Company’s allowance for estimated losses on loans/leases can be found in the “Financial Condition” section of this report.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

NONINTEREST INCOME

The following tables set forth the various categories of noninterest income for the three and six months ended June 30, 2012 and 2011.

	Three Months Ended
		June 30, 2012			June 30, 2011			$ Change			% Change

Trust department fees		$	852,234		$	894,733		$	(42,499	)		(4.7	) %
Investment advisory and management fees, gross			679,326			550,243			129,083			23.5
Deposit service fees			875,073			856,661			18,412			2.1
Gains on sales of loans, net			882,321			755,128			127,193			16.8
Securities gains			104,600			148,602			(44,002	)		(29.6	)
Losses on sales of other real estate owned, net			(389,465	)		(107,656	)		(281,809	)		261.8
Earnings on bank-owned life insurance			358,660			356,642			2,018			0.6
Credit card fees, net of processing costs			142,173			77,336			64,837			83.8
Other			562,587			641,692			(79,105	)		(12.3	)
		$	4,067,509		$	4,173,381		$	(105,872	)		(2.5	) %

	Six Months Ended
		June 30, 2012			June 30, 2011			$ Change			% Change

Trust department fees		$	1,735,966		$	1,845,535		$	(109,569	)		(5.9	) %
Investment advisory and management fees, gross			1,200,788			1,081,461			119,327			11.0
Deposit service fees			1,779,479			1,729,333			50,146			2.9
Gains on sales of loans, net			1,281,411			1,514,821			(233,410	)		(15.4	)
Securities gains			104,600			1,028,914			(924,314	)		(89.8	)
Losses on sales of other real estate owned, net			(578,669	)		(132,754	)		(445,915	)		335.9
Earnings on bank-owned life insurance			797,062			701,053			96,009			13.7
Credit card fees, net of processing costs			269,188			218,496			50,692			23.2
Other			1,434,562			1,243,646			190,916			15.4
		$	8,024,387		$	9,230,505		$	(1,206,118	)		(13.1	) %

Trust department fees continue to be a significant contributor to noninterest income. Trust department fees declined 5% from the second quarter of 2011 to the second quarter of 2012, and declined 6% for the first half of 2012 compared to the same period of 2011. The majority of the trust department fees are determined based on the value of the investments within the managed trusts. As markets have experienced volatility with the national economy’s recovery from recession, the Company’s fee income has experienced similar volatility and fluctuation. In recent years, the Company has been successful in expanding its customer base which has helped to offset some of the volatility and limit the recent declines.

In recent years, the Company has placed a stronger emphasis on growing its investment advisory and management services. Fee income for investment advisory and management services grew 24% comparing second quarter of 2012 to the same period of 2011, and grew 11% year over year. Similar to trust department fees, these fees are largely determined based on the value of the investments managed. Continued expansion of the customer base coupled with several larger customer transactions in the second quarter more than offset the impact of market volatility.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

As management understands the importance of growing fee income, expanding market share in trust and investment advisory services will continue to be a primary strategic focus.

Deposit service fees have increased over the past several years. The Company has placed an emphasis on shifting the mix of deposits from brokered and retail time deposits to non-maturity demand deposits. With this shift in mix, the Company has increased the number of demand deposit accounts which tend to be lower in interest cost and higher in service fees. The Company plans to continue this shift in mix and to focus on growing deposit service fees.

Gains on sales of loans, net, consists of sales of residential mortgages and the government guaranteed portions of small business loans. Following is the breakdown of the gains recognized for these types of sales for the three and six months ended June 30, 2012 and 2011.

	For the three months ended				For the six months ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Gains on sales of residential mortgages	$	271,333	$	164,305	$	562,765	$	296,534
Gains on sales of government guaranteed portions of loans		610,988		590,823		718,646		1,218,287
	$	882,321	$	755,128	$	1,281,411	$	1,514,821

Regarding sales of residential mortgages, growth is the result of a slow and steady recovery with increased buying and selling activity as well as an increase in refinancing activity. The latter is the result of continued flattening of the yield curve driving mortgage rates downward and allowing opportunities for additional refinancing. Sales activity for government guaranteed portions of loans tends to fluctuate depending on the demand for small business loans that fit the criteria for the government guarantee. Further, some of the transactions can be large and, as the gain is determined as a percentage of the guaranteed amount, the resulting gain on sale can be large. Lastly, a strategy for improved pricing is packaging loans together for sale. From time to time, the Company may execute on this strategy, which may delay the gains on sales of some loans to achieve better pricing. Despite the fluctuation, the Company will continue to focus on growing small business lending and selling the government guaranteed portion as it continues to be beneficial.

During the first quarter of 2011, in an effort to offset the $832 thousand of fees for prepaying $15.0 million of FHLB advances, QCBT sold $37.4 million of government agency securities for a pre-tax gain totaling $880 thousand.

The Company incurred increased writedowns of existing other real estate owned as the result of further declines in appraised values. Two properties contributed to the majority of the writedowns in the second quarter of 2012. Management continues to proactively manage its other real estate owned portfolio in an effort to sell timely at minimum loss.

Included in ‘other’ noninterest income, CRBT recognized $207 thousand of fee income for the execution of interest rate swaps related to two commercial loans during the first quarter of 2012. The interest rate swaps allow the commercial borrowers to pay a fixed interest rate while CRBT receives a variable interest rate. Management believes that these swaps help position CRBT more favorably for rising rate environments.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

NONINTEREST EXPENSE

The following table sets forth the various categories of noninterest expense for the three and six months ended June 30, 2012 and 2011.

	Three Months Ended
		June 30, 2012		June 30, 2011		$ Change			% Change

Salaries and employee benefits		$	8,255,639	$	7,355,533	$	900,106			12.2	%
Occupancy and equipment expense			1,364,912		1,368,293		(3,381	)		(0.2	)
Professional and data processing fees			1,126,877		1,136,978		(10,101	)		(0.9	)
FDIC and other insurance			576,215		687,587		(111,372	)		(16.2	)
Loan/lease expense			263,166		656,069		(392,903	)		(59.9	)
Advertising and marketing			344,100		334,354		9,746			2.9
Postage and telephone			236,942		231,515		5,427			2.3
Stationery and supplies			135,211		123,529		11,682			9.5
Bank service charges			198,492		177,478		21,014			11.8
Other-than-temporary impairment losses on securities			62,400		118,847		(56,447	)		(47.5	)
Other			545,129		365,364		179,765			49.2
		$	13,109,083	$	12,555,547	$	553,536			4.4	%

	Six Months Ended
		June 30, 2012		June 30, 2011		$ Change			% Change

Salaries and employee benefits		$	16,380,319	$	14,829,036	$	1,551,283			10.5	%
Occupancy and equipment expense			2,717,175		2,657,748		59,427			2.2
Professional and data processing fees			2,277,067		2,261,500		15,567			0.7
FDIC and other insurance			1,157,071		1,570,317		(413,246	)		(26.3	)
Loan/lease expense			481,900		932,297		(450,397	)		(48.3	)
Advertising and marketing			620,116		559,083		61,033			10.9
Postage and telephone			525,182		461,700		63,482			13.7
Stationery and supplies			278,177		258,172		20,005			7.7
Bank service charges			398,221		338,656		59,565			17.6
Prepayment fees on Federal Home Loan Bank advances			-		832,099		(832,099	)		(100.0	)
Other-than-temporary impairment losses on securities			62,400		118,847		(56,447	)		(47.5	)
Other			949,535		748,363		201,172			26.9
		$	25,847,163	$	25,567,818	$	279,345			1.1	%

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Salaries and employee benefits, which is the largest component of noninterest expense, increased from prior year. This increase is largely the result of:

Customary annual salary and benefits increases for the majority of the Company’s employee base in 2012.

Continued increases in health insurance-related employee benefits for the majority of the Company’s employee base.

Higher accrued incentive compensation based on improved performance for the first half of 2012.

An increase in the Company’s employee base as full-time equivalents increased from 352 at June 30, 2011 to 359 at June 30, 2012. Specifically, the Company added four business development officers (three in the Wealth Management division and one in the Correspondent Banking division) in an effort to continue to grow market share.

FDIC and other insurance expense continued to decline. FDIC insurance premiums are calculated using a variety of factors, including, but not limited to, balance sheet levels, funding mix, and regulatory compliance. The subsidiary banks have been successful in managing these factors and driving down FDIC insurance cost. In addition, the FDIC modified the calculation for premiums effective during the second quarter of 2011. The modification was favorable for the Company’s subsidiary banks.

Loan/lease expense declined significantly in the first half of 2012. Generally, loan/lease expense has a direct relationship with the level of nonperforming loans/leases. Over the past several quarters, the Company has been successful in resolving several nonperforming loans that incurred significant recurring costs.

Bank service charges, which include costs incurred to provide services to QCBT’s correspondent banking customer portfolio, have increased over the year. The increase is due, in large part, to the success QCBT has had in growing its correspondent banking customer portfolio over the past year.

In an effort to utilize some of its excess liquidity and improve net interest margin by eliminating some of its higher cost wholesale funding, QCBT prepaid $15.0 million of FHLB advances during the first quarter of 2011. As a result, QCBT incurred a prepayment fee totaling $832 thousand. To offset these fees, QCBT sold $37.4 million of government sponsored agency securities for a pre-tax gain totaling $880 thousand.

INCOME TAXES

The provision for income taxes totaled $1.2 million, or an effective tax rate of 26%, for the second quarter of 2012 compared to $1.1 million, or an effective tax rate of 29%, for the same quarter in 2011. For the first half of 2012, the provision for income taxes totaled $2.4 million, or an effective tax rate of 26%, compared to $2.1 million, or an effective tax rate of 29%, for the first half of 2011. The increases in provision for income taxes are the result of growth in income before taxes which is discussed previously throughout this Management’s Discussion and Analysis. Regarding the declines in the effective tax rates, this is primarily the result of the following:

The continued application of tax credits that were acquired in the third quarter of 2011.

The increase in tax-exempt municipal securities during the first half of 2012, which, in turn, resulted in an increase in nontaxable income. Specifically, the Company grew its municipal securities portfolio from $25.7 million at December 31, 2011 to $81.1 million at June 30, 2012.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

FINANCIAL CONDITION

Following is a table that represents the major categories of the Company’s balance sheet.

	As of
	June 30, 2012					December 31, 2011					June 30, 2011

	(dollars in thousands)

	Amount		%			Amount		%			Amount		%
Cash, federal funds sold, and interest-bearing deposits	$	83,717		4	%	$	100,673		5	%	$	80,374		4	%
Securities		638,838		31	%		565,229		29	%		513,905		27	%
Net loans/leases		1,194,579		58	%		1,181,956		60	%		1,164,091		62	%
Other assets		126,292		7	%		118,752		6	%		120,118		7	%
Total assets	$	2,043,426		100	%	$	1,966,610		100	%	$	1,878,488		100	%

Total deposits	$	1,315,470		64	%	$	1,205,458		61	%	$	1,214,314		65	%
Total borrowings		563,470		28	%		590,603		30	%		504,146		27	%
Other liabilities		25,164		1	%		26,116		1	%		22,703		1	%
Total stockholders' equity		139,322		7	%		144,433		8	%		137,325		7	%
Total liabilities and stockholders' equity	$	2,043,426		100	%	$	1,966,610		100	%	$	1,878,488		100	%

During the first half of 2012, the Company’s total assets increased $76.8 million, or 4%, to a total of $2.04 billion. This marks the first quarter end the Company has exceeded $2.0 billion in total assets. The Company continued to grow its securities portfolio with an increase of $73.6 million, or 13%, during the first six months of 2012. Additionally, the Company experienced net growth of loan/leases in the amount of $12.6 million, or 1%, over the first half of 2012. The growth was partially offset by a decline in federal funds sold and interest-bearing deposits at financial institutions as the Company invested some of its excess liquidity. The net increase in assets during the first half of 2012 was funded by strong and continued growth of the Company’s deposit portfolio as balances grew $110.0 million, or 9%.

The composition of the Company’s securities portfolio is managed to meet liquidity needs while prioritizing the impact on asset-liability position and maximizing return. With the strong growth in deposits and the continued weak loan demand, the Company has grown and diversified its securities portfolio, including increasing the portfolio of agency-sponsored mortgage-backed securities as well as more than tripling the portfolio of municipal securities. Of the latter, the large majority are located in or near the Company’s existing markets and require a thorough underwriting process before investment. Thus far, this diversification has led to only modest extension of duration on the portfolio. As the portfolio has grown over the recent years, management has elevated its focus on maximizing return while minimizing credit and interest rate risk.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Following is a breakdown of the Company’s securities portfolio by type:

	As of
	June 30, 2012					December 31, 2011					June 30, 2011
	Amount		%			Amount		%			Amount		%
						(dollars in thousands)
U.S. govt. sponsored agency securities	$	389,600		61	%	$	428,955		76	%	$	403,766		79	%
Residential mortgage-backed and related securities		165,827		26	%		108,854		19	%		82,038		16	%
Municipal securities		81,072		13	%		25,689		5	%		26,200		5	%
Other securities, including held-to-maturity		2,339		0	%		1,731		0	%		1,901		0	%
	$	638,838		100	%	$	565,229		100	%	$	513,905		100	%

The Company has not invested in commercial mortgage-backed securities or pooled trust preferred securities.

See Note 2 for additional information regarding the Company’s investment securities.

Total loans/leases grew slightly in the second quarter of 2012, and grew $12.6 million, or 1%, during the first half of 2012. Although the growth continues to be modest, this marked the fifth consecutive quarter of net loan/lease growth. The mix of the loan/lease types within the Company’s loan/lease portfolio is presented in the following table.

	As of
	June 30, 2012						December 31, 2011						June 30, 2011
	Amount			%			Amount			%			Amount			%

	(dollars in thousands)

Commercial and industrial loans	$	350,780			29	%	$	350,794			29	%	$	368,565			31	%
Commercial real estate loans		576,287			48	%		577,804			48	%		559,777			47	%
Direct financing leases		98,568			8	%		93,212			8	%		85,564			7	%
Residential real estate loans		107,450			9	%		98,107			8	%		86,059			8	%
Installment and other consumer loans		77,417			6	%		78,223			7	%		81,858			7	%

Total loans/leases	$	1,210,502			100	%	$	1,198,140			100	%	$	1,181,823			100	%

Plus deferred loan/lease origination costs, net of fees		2,802						2,605						2,071
Less allowance for estimated losses on loans/leases		(18,725	)					(18,789	)					(19,803	)

Net loans/leases	$	1,194,579					$	1,181,956					$	1,164,091

Regarding the Company’s levels of qualified small business lending as defined by the U.S. Treasury as part of the Company’s participation in the Small Business Lending Fund (“SBLF”), see the discussion later in this section of the Management’s Discussion and Analysis.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

As commercial real estate loans are the largest portfolio segment, management places a strong emphasis on monitoring the composition of the Company’s commercial real estate loan portfolio. Management tracks the level of owner-occupied commercial real estate loans versus non owner-occupied loans. Owner-occupied loans are generally considered to have less risk. As of June 30, 2012 and December 31, 2011, approximately 33% and 29%, respectively, of the commercial real estate loan portfolio was owner-occupied. The Company’s commercial real estate portfolio declined slightly over the first half of 2012. Further, there was a favorable shift in mix as owner-occupied loans grew $21.2 million, or 13%, while non owner-occupied loans (including commercial construction and land development) declined $22.7 million, or 6%.

Following is a listing of significant industries within the Company’s commercial real estate loan portfolio as of June 30, 2012 and December 31, 2011:

	As of June 30, 2012					As of December 31, 2011
	Amount		%			Amount		%

	(dollars in thousands)

Lessors of Nonresidential Buildings	$	176,705		31	%	$	179,511		31	%
Lessors of Residential Buildings		47,615		8	%		50,029		9	%
Land Subdivision		29,203		5	%		33,252		6	%
Hotels		26,748		5	%		19,061		3	%
New Car Dealers		23,961		4	%		25,223		4	%
Lessors of Other Real Estate Property		14,764		3	%		15,830		3	%
Other *		257,291		44	%		254,898		44	%

Total Commercial Real Estate Loans	$	576,287		100	%	$	577,804		100	%

* “Other” consists of all other industries. None of these had concentrations greater than $15 million, or 2.6% of total commercial real estate loans.

The Company’s residential real estate loan portfolio consists of the following:

Certain loans that do not meet the criteria for sale into the secondary market. These are often structured as adjustable rate mortgages with maturities ranging from three to seven years to avoid the long-term interest rate risk.

A limited amount of 15-year fixed rate residential real estate loans that met certain credit guidelines.

The remaining residential real estate loans originated by the Company were sold on the secondary market to avoid the interest rate risk associated with longer term fixed rate loans. Loans originated for this purpose were classified as held for sale and are included in the residential real estate loans above. In addition, the Company has not originated any subprime, Alt-A, no documentation, or stated income residential real estate loans throughout its history.

See Note 3 for additional information regarding the Company’s loan/lease portfolio.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Changes in the allowance for estimated losses on loans/leases for the three and six months ended June 30, 2012 and 2011 are presented as follows:

	Three Months Ended						Six Months Ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011

Balance, beginning	$	19,006,644		$	20,730,016		$	18,789,262		$	20,364,656
Provisions charged to expense		1,048,469			1,672,221			1,828,915			2,739,885
Loans/leases charged off		(1,734,799	)		(2,691,705	)		(2,559,551	)		(3,572,632	)
Recoveries on loans/leases previously charged off		404,221			92,100			665,909			270,723
Balance, ending	$	18,724,535		$	19,802,632		$	18,724,535		$	19,802,632

The allowance for estimated losses on loans/leases was $18.7 million at June 30, 2012 compared to $18.8 million at December 31, 2011 and $19.8 million at June 30, 2011. The allowance for estimated losses on loans/leases was determined based on factors that included the overall composition of the loan/lease portfolio, types of loans/leases, past loss experience, loan/lease delinquencies, potential substandard and doubtful credits, economic conditions, collateral positions, governmental guarantees and other factors that, in management’s judgment, deserved evaluation. To ensure that an adequate allowance was maintained, provisions were made based on a number of factors, including the increase/decrease in loans/leases and a detailed analysis of the loan/lease portfolio. The loan/lease portfolio was reviewed and analyzed monthly with specific detailed reviews completed on all loans risk-rated worse than “fair quality” and carrying aggregate exposure in excess of $100 thousand. The adequacy of the allowance for estimated losses on loans/leases is monitored by the loan review staff and reported to management and the board of directors.

The Company continued to strengthen its core loan portfolio as the levels of criticized and classified loans declined further in the second quarter of 2012, as reported in the following table.

	As of
Internally Assigned Risk Rating *	June 30, 2012		December 31, 2011		June 30, 2011

	(dollars in thousands)

Special Mention (Rating 6)	$	21,337	$	26,034	$	41,393
Substandard (Rating 7)		52,030		62,712		70,169
Doubtful (Rating 8)		-		-		1,410
	$	73,367	$	88,746	$	112,972

Criticized Loans **	$	73,367	$	88,746	$	112,972
Classified Loans ***	$	52,030	$	62,712	$	71,579

* Amounts above include the government guaranteed portion, if any. For the calculation of allowance for estimated losses on loans/leases, the Company assigns internal risk ratings of Pass (Rating 2) for the government guaranteed portion.

** Criticized loans are defined as commercial and industrial and commercial real estate loans with internally assigned risk ratings of 6, 7, or 8, regardless of performance.

*** Classified loans are defined as commercial and industrial and commercial real estate loans with internally assigned risk ratings of 7 or 8, regardless of performance.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

The declining trend in criticized and classified loans over the past several quarters translated to a reduction in nonperforming loans/leases and that trend continued during the second quarter of 2012 as nonperforming loans/leases fell $3.3 million, or 11%. Furthermore, nonperforming loans/leases have declined $20.0 million, or 42%, from their peak at September 30, 2010. As a direct result, the level of allowance has declined. Notably, the decline in nonperforming loans/leases has outpaced the decline in allowance for estimated losses on loans/leases and strengthened the Company’s ratio of allowance to nonperforming loans/leases. The following table summarizes the trend in allowance as a percentage of gross loans/leases and as a percentage of nonperforming loans/leases as of June 30, 2012, December 31, 2011, and December 31, 2010.

	As of
	June 30, 2012			December 31, 2011			December 31, 2010

Allowance / Gross Loans/Leases		1.54	%		1.56	%		1.74	%
Allowance / Nonperforming Loans/Leases *		68.60	%		58.70	%		49.49	%

*Nonperforming loan/leases consist of nonaccrual loans/leases, accruing loans/leases past due 90 days or more, and accruing troubled debt restructurings.

Although management believes that the allowance for estimated losses on loans/leases at June 30, 2012 was at a level adequate to absorb losses on existing loans/leases, there can be no assurance that such losses will not exceed the estimated amounts or that the Company will not be required to make additional provisions for loan/lease losses in the future. Unpredictable future events could adversely affect cash flows for both commercial and individual borrowers, which could cause the Company to experience increases in problem assets, delinquencies and losses on loans/leases, and require further increases in the provision. Asset quality is a priority for the Company and its subsidiaries. The ability to grow profitably is in part dependent upon the ability to maintain that quality. The Company continually focuses efforts at its subsidiary banks and leasing company with the intention to improve the overall quality of the Company’s loan/lease portfolio.

See Note 3 for additional information regarding the Company’s allowance for estimated losses on loans/leases.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

The table below presents the amounts of nonperforming assets.

	As of June 30, 2012			As of December 31, 2011			As of June 30, 2011			As of December 31, 2010

	(dollars in thousands)

Nonaccrual loans/leases (1) (2)	$	16,247		$	18,995		$	23,295		$	37,427
Accruing loans/leases past due 90 days or more		1,152			1,111			358			320
Troubled debt restructures - accruing		9,897			11,904			3,592			3,405
Other real estate owned		9,136			8,386			10,430			8,535
Other repossessed assets		25			109			194			366
	$	36,457		$	40,505		$	37,869		$	50,053

Nonperforming loans/leases to total loans/leases		2.25	%		2.67	%		2.30	%		3.51	%
Nonperforming assets to total loans/leases plus reposessed property		2.98	%		3.35	%		3.17	%		4.24	%
Nonperforming assets to total assets		1.78	%		2.06	%		2.02	%		2.73	%
Texas ratio (3)		23.91	%		25.58	%		24.77	%		33.57	%

(1)

Includes government guaranteed portion of loan.

(2)

Includes troubled debt restructurings of $6.1 million at June 30, 2012, $8.6 million at December 31, 2011, $11.0 million at June 30, 2011, and $12.6 million at December 31, 2010.

(3)

Texas Ratio = Nonperforming Assets (excluding Other Repossessed Assets) / Tangible Equity plus Allowance for Estimated Losses on Loans/Leases. Texas Ratio is a non-GAAP financial measure. Management included this ratio as this is considered to be a critical metric with which to analyze and evaluate asset quality. Other companies may calculate this ratio differently.

The large majority of the nonperforming assets consist of nonaccrual loans/leases, accruing troubled debt restructurings, and other real estate owned. For nonaccrual loans/leases and accruing troubled debt restructurings, management has thoroughly reviewed these loans/leases and has provided specific allowances as appropriate. Other real estate owned is carried at the fair value less costs to sell.

Nonperforming assets at June 30, 2012 were $36.5 million which is a decline of $4.0 million, or 10%, from December 31, 2011. Further, nonperforming assets have declined $22.9 million, or 39%, from their peak position of $59.4 million at September 30, 2010. Most of the decline from December 31, 2011 was the result of charge-offs ($2.5 million) and write-downs of other real estate owned ($579 thousand), while the rest of the decline was due to improved performance.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Deposits grew $110.0 million, or 9%, during the first half of 2012. The table below presents the composition of the Company’s deposit portfolio.

	As of
	June 30, 2012					December 31, 2011					June 30, 2011

	(dollars in thousands)

	Amount		%			Amount		%			Amount		%
Noninterest bearing demand deposits	$	390,762		30	%	$	357,184		30	%	$	297,197		24	%
Interest bearing demand deposits		555,804		42	%		510,788		42	%		538,869		44	%
Time deposits		316,445		24	%		292,575		24	%		322,466		27	%
Brokered time deposits		52,459		4	%		44,911		4	%		55,782		5	%
	$	1,315,470		100	%	$	1,205,458		100	%	$	1,214,314		100	%

The Company has been successful in growing its noninterest bearing deposit portfolio over the past few years and this continued into the first half of 2012 with an increase of $33.6 million, or 9%. Most of this growth continues to derive from QCBT’s correspondent banking business. The continued strength of the noninterest bearing deposit portfolio has provided flexibility to manage down deposit pricing and reduce reliance on higher cost wholesale funds which has helped drive down the Company’s interest expense.

The subsidiary banks offer short-term repurchase agreements to some of their significant customers. Also, the subsidiary banks purchase federal funds for short-term funding needs from the Federal Reserve Bank or from their correspondent banks. The table below presents the composition of the Company’s short-term borrowings.

	As of
	June 30, 2012		December 31, 2011		June 30, 2011

	(dollars in thousands)

Overnight repurchase agreements with customers	$	105,249	$	110,236	$	93,065
Federal funds purchased		80,150		103,300		29,330
	$	185,399	$	213,536	$	122,395

The Company’s federal funds purchased position was temporarily elevated at December 31, 2011, as a result of short-term fluctuations in noninterest bearing correspondent deposit balances for several customers over the end of the year.

As a result of their memberships in either the FHLB of Des Moines or Chicago, the subsidiary banks have the ability to borrow funds for short or long-term purposes under a variety of programs. FHLB advances are utilized for loan matching as a hedge against the possibility of rising interest rates, and when these advances provide a less costly or more readily available source of funds than customer deposits. FHLB advances decreased slightly by $1.0 million during the first half of 2012.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Other borrowings consist largely of structured wholesale repurchase agreements which are utilized as an alternative funding source to FHLB advances and customer deposits. The table below presents the composition of the Company’s other borrowings.

	As of
	June 30, 2012		December 31, 2011		June 30, 2011

	(dollars in thousands)

Wholesale repurchase agreements	$	130,000	$	130,000	$	135,000
364-day revolving note		5,600		3,600		2,500
Series A subordinated notes		2,636		2,632		2,628
Other		-		-		788
	$	138,236	$	136,232	$	140,916

The increase in borrowing on the 364-day revolving note of $2.0 million was the result of funding needed to execute on the partial redemption of the Series F Preferred Stock previously issued to the Treasury under the Small Business Lending Fund program. For detailed discussion of this partial redemption, see below.

It is management’s intention to continue to reduce the reliance on wholesale funding, including FHLB advances, wholesale structured repurchase agreements, and brokered time deposits. Replacement of this funding with core deposits helps to reduce interest expense as the wholesale funding tends to be higher funding cost.

The table below presents the composition of the Company’s stockholders’ equity, including the common and preferred equity components.

	As of
	June 30, 2012						December 31, 2011						June 30, 2011
	Amount			%			Amount			%			Amount			%

	(dollars in thousands)

Common stock	$	4,968					$	4,879					$	4,856
Additional paid in capital - common		27,071						26,381						24,910
Retained earnings		48,831						44,586						43,097
Accumulated other comprehensive income		4,479						4,755						1,768
Noncontrolling interests		2,415						2,052						1,849
Less: Treasury stock		(1,606	)					(1,606	)					(1,606	)
Total common stockholders' equity		86,158			62	%		81,047			56	%		74,874			55	%

Preferred stock		55						65						63
Additional paid in capital - preferred		53,109						63,321						62,388
Total preferred stockholders' equity		53,164			38	%		63,386			44	%		62,451			45	%

Total stockholders' equity	$	139,322			100	%	$	144,433			100	%	$	137,325			100	%

Tangible common equity* / total tangible assets		3.94	%					3.85	%					3.62	%

*Tangible common equity is defined as total common stockholders’ equity excluding equity of noncontrolling interests and excluding goodwill and other intangibles. This ratio is a non-GAAP financial measure. Management included this ratio as it is considered by many investors and analysts to be a metric with which to analyze and evaluate the equity composition. Other companies may calculate this ratio differently.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Stockholders’ equity declined $5.1 million, or 4%, during the first half of 2012 as a result of the partial redemption of Series F Preferred Stock. On June 29, 2012, the Company redeemed $10.2 million of the $40.1 million of Series F Preferred Stock. The Company originally issued this preferred capital in September of 2011. Net income of $6.7 million grew retained earnings; however, this was partially offset by declaration of preferred stock dividends totaling $1.9 million ($876 thousand for Series E Preferred Stock, and $1.0 million for Series F Preferred Stock). Lastly, the available for sale portion of the securities portfolio experienced a slight decline in fair value for the first half of 2012 as a result of increases in certain market interest rates.

The following table presents the details of the preferred stock issued and outstanding as of June 30, 2012.

	Date Issued	Aggregate Purchase Price		Stated Dividend Rate			Annual Dividend

Series E Non-Cumulative Convertible Perpetual Preferred Stock	June 2010	$	25,000,000		7.00	%	$	1,750,000
Series F Non-Cumulative Perpetual Preferred Stock	September 2011		29,867,000		5.00	%		1,493,350
		$	54,867,000				$	3,243,350

The Series E Preferred Stock is perpetually convertible by the holder into shares of common stock at a per share conversion price of $12.15, subject to anti-dilution adjustments upon the occurrence of certain events. In addition, the Company can exercise a conversion option on or after the third anniversary of the issue date (June 30, 2013) at the same $12.15 conversion price if the Company’s common stock price equals or exceeds $17.22 for at least 20 trading days in a period of 30 consecutive trading days.

Regarding the Series F Preferred Stock, non-cumulative dividends are payable quarterly, and the dividend rate is based on changes in the level of “Qualified Small Business Lending” or “QSBL” by the Company’s wholly owned bank subsidiaries, QCBT, CRBT and RB&T. Based upon the change in the banks’ level of QSBL over the baseline level (defined below), the dividend rate remained at 5% through the second quarter of 2012. With the partial redemption, assuming a 5% dividend rate, the Company’s preferred dividends will be reduced by $511 thousand annually.

As of June 30, 2012, the Company reported its QSBL in accordance with SBLF guidelines and calculated a net decline from the baseline of $93.0 million, or 21%. SBLF defines the baseline as the average of the Company’s QSBL for the last two quarters of 2009 and the first two quarters of 2010. As a result of the decline, the dividend rate on the Series F Preferred Stock remains at 5%. Although the Company continues to experience a net decline in QSBL since the baseline, it continues to support small businesses in its communities. One example of this support is through its significant participation in the SBA and USDA lending programs. Notably, for 2011, all three of the subsidiary banks were ranked in the top 10 in their respective states for SBA lending volume. CRBT was ranked first in the state of Iowa for both SBA and USDA lending volume. The government guaranteed portions of these loans (typically 70% to 85% of the total principal balance) do not qualify as QSBL, as defined by SBLF guidelines. Through continued participation in these programs and the efforts of the Company’s experienced small business bankers, the Company is well positioned to continue to support the lending needs of small businesses in the communities it serves.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

LIQUIDITY AND CAPITAL RESOURCES

Liquidity measures the ability of the Company to meet maturing obligations and its existing commitments, to withstand fluctuations in deposit levels, to fund its operations, and to provide for customers’ credit needs. The Company monitors liquidity risk through contingency planning stress testing on a regular basis. The Company seeks to avoid over concentration of funding sources and to establish and maintain contingent funding facilities that can be drawn upon if normal funding sources become unavailable. One source of liquidity is cash and short-term assets, such as interest-bearing deposits in other banks and federal funds sold, which averaged $76.4 million for the second quarter of 2012 and $125.4 million for the first quarter of 2012. The decline was the result of investing some of the excess liquidity during the second quarter.

The Company has a variety of sources of short-term liquidity available, including federal funds purchased from correspondent banks, FHLB advances, structured wholesale repurchase agreements, brokered certificates of deposit, lines of credit, borrowing at the Federal Reserve Discount Window, sales of securities available for sale, and loan/lease participations or sales. The Company also generates liquidity from the regular principal payments and prepayments made on its loan/lease portfolio, and on the regular monthly payments on its residential mortgage-backed securities portfolio. At June 30, 2012, the subsidiary banks had 31 lines of credit totaling $314.7 million, of which $65.7 million was secured and $249.0 million was unsecured. At June 30, 2012, the Company borrowed $56.5 million for short-term funding needs, therefore, $258.2 million was available. Additionally, the Company has a single $20.0 million secured revolving line of credit with a maturity date of April 1, 2013. As of June 30 2012, the Company had $14.4 million available as the line of credit carried an outstanding balance of $5.6 million.

Throughout its history, the Company has secured additional capital through various resources, including the issuance of preferred stock (discussed above) and the issuance of trust preferred securities. Trust preferred securities are reported on the Company’s balance sheet as liabilities, but do qualify for treatment as regulatory capital.

The following table presents the details of the trust preferred securities issued and outstanding as of June 30, 2012.

Name	Date Issued	Amount Issued		Interest Rate	Interest Rate as of 6/30/12			Interest Rate as of 12/31/11

QCR Holdings Statutory Trust II	February 2004	$	12,372,000	2.85% over 3-month LIBOR		3.32	%		3.22	%
QCR Holdings Statutory Trust III	February 2004		8,248,000	2.85% over 3-month LIBOR		3.32	%		3.22	%
QCR Holdings Statutory Trust IV	May 2005		5,155,000	1.80% over 3-month LIBOR		2.27	%		2.20	%
QCR Holdings Statutory Trust V	February 2006		10,310,000	1.55% over 3-month LIBOR		2.02	%		1.95	%
		$	36,085,000	Weighted Average Rate		2.80	%		2.71	%

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

The Company (on a consolidated basis) and the subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and subsidiary banks’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the subsidiary banks must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the subsidiary banks to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets, each as defined by regulation. Management believes, as of June 30, 2012 and December 31, 2011, that the Company and the subsidiary banks met all capital adequacy requirements to which they were subject.

Under the regulatory framework for prompt corrective action, to be categorized as “well capitalized,” an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. The Company and the subsidiary banks’ actual capital amounts and ratios as of June 30, 2012 and December 31, 2011 are also presented in the following table (dollars in thousands). As of June 30, 2012 and December 31, 2011, the subsidiary banks met the requirements to be “well capitalized”.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2012:
Company:
Total risk-based capital	$	187,155		13.14	%	$	113,963	≥	8.0	%		N/A		N/A
Tier 1 risk-based capital		164,170		11.52	%	$	56,982	≥	4.0			N/A		N/A
Tier 1 leverage		164,170		8.20	%		80,095	≥	4.0			N/A		N/A
Quad City Bank & Trust:
Total risk-based capital	$	99,594		12.62	%	$	63,124	≥	8.0	%	$	78,904	≥	10.00	%
Tier 1 risk-based capital		91,619		11.61	%		31,562	≥	4.0			47,343	≥	6.00	%
Tier 1 leverage		91,619		8.05	%		45,498	≥	4.0			56,873	≥	5.00	%
Cedar Rapids Bank & Trust:
Total risk-based capital	$	53,166		13.27	%	$	32,044	≥	8.0	%	$	40,055	≥	10.00	%
Tier 1 risk-based capital		48,142		12.02	%		16,022	≥	4.0			24,033	≥	6.00	%
Tier 1 leverage		48,142		8.45	%		22,789	≥	4.0			28,486	≥	5.00	%
Rockford Bank & Trust:
Total risk-based capital	$	36,867		15.83	%	$	18,627	≥	8.0	%	$	23,284	≥	10.00	%
Tier 1 risk-based capital		33,939		14.58	%		9,314	≥	4.0			13,970	≥	6.00	%
Tier 1 leverage		33,939		11.05	%		12,283	≥	4.0			15,353	≥	5.00	%

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2011:
Company:
Total risk-based capital	$	191,419		13.84	%	$	110,686	≥	8.0	%		N/A		N/A
Tier 1 risk-based capital		169,360		12.24	%		55,343	≥	4.0	%		N/A		N/A
Tier 1 leverage		169,360		8.70	%		77,857	≥	4.0	%		N/A		N/A
Quad City Bank & Trust:
Total risk-based capital	$	98,382		13.03	%	$	60,391	≥	8.0	%	$	75,488	≥	10.00	%
Tier 1 risk-based capital		90,336		11.97	%		30,195	≥	4.0			45,293	≥	6.00	%
Tier 1 leverage		90,336		8.21	%		44,009	≥	4.0			55,012	≥	5.00	%
Cedar Rapids Bank & Trust:
Total risk-based capital	$	56,312		14.44	%	$	31,198	≥	8.0	%	$	38,998	≥	10.00	%
Tier 1 risk-based capital		51,415		13.18	%		15,599	≥	4.0			23,399	≥	6.00	%
Tier 1 leverage		51,415		9.02	%		22,807	≥	4.0			28,509	≥	5.00	%
Rockford Bank & Trust:
Total risk-based capital	$	36,259		15.27	%	$	19,001	≥	8.0	%	$	23,752	≥	10.00	%
Tier 1 risk-based capital		33,277		14.01	%		9,501	≥	4.0			14,251	≥	6.00	%
Tier 1 leverage		33,277		11.31	%		11,770	≥	4.0			14,713	≥	5.00	%

The federal bank regulatory agencies recently issued joint proposed rules that would implement an international capital accord called “Basel III,” developed by the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors. The proposed rules would apply to all depository organizations in the United States and most of their parent companies and would increase minimum capital ratios, add a new minimum common equity ratio, add a new capital conservation buffer, and would change the risk-weightings of certain assets for the purposes of calculating certain capital ratios. The proposed changes, if implemented, would be phased in from 2013 through 2019. Management is currently assessing the effect of the proposed rules on the Company and the subsidiary banks’ capital position. Various banking associations and industry groups are providing comments on the proposed rules to the regulators, and it is unclear when the final rules will be adopted and what changes, if any, may be made to the proposed rules.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995. This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “bode,” “predict,” “suggest,” “project,” “appear,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should,” “likely,” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors which could have a material adverse effect on the Company’s operations and future prospects are detailed in the “Risk Factors” section included under Item 1.A. of Part I of the Company’s Form 10-K. In addition to the risk factors described in that section, there are other factors that may impact any public company, including the Company, which could have a material adverse effect on the Company’s operations and future prospects of the Company and its subsidiaries.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Part I

Item 3

QUANTITATIVE AND QUALITATVE DISCUSSION ABOUT MARKET RISK

The Company, like other financial institutions, is subject to direct and indirect market risk. Direct market risk exists from changes in interest rates. The Company’s net income is dependent on its net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income.

In an attempt to manage the Company’s exposure to changes in interest rates, management monitors the Company’s interest rate risk. Each subsidiary bank has an asset/liability management committee of the board of directors that meets quarterly to review the bank’s interest rate risk position and profitability, and to make or recommend adjustments for consideration by the full board of each bank. Internal asset/liability management teams consisting of members of the subsidiary banks’ management meet weekly to manage the mix of assets and liabilities to maximize earnings and liquidity and minimize interest rate and other risks. Management also reviews the subsidiary banks’ securities portfolios, formulates investment strategies, and oversees the timing and implementation of transactions to assure attainment of the board's objectives in the most effective manner. Notwithstanding the Company’s interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income.

In adjusting the Company’s asset/liability position, the board of directors and management attempt to manage the Company’s interest rate risk while maintaining or enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long-term and short-term interest rates, market conditions and competitive factors, the board of directors and management may decide to increase the Company’s interest rate risk position somewhat in order to increase its net interest margin. The Company’s results of operations and net portfolio values remain vulnerable to increases in interest rates and to fluctuations in the difference between long-term and short-term interest rates.

One method used to quantify interest rate risk is a short-term earnings at risk summary, which is a detailed and dynamic simulation model used to quantify the estimated exposure of net interest income to sustained interest rate changes. This simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest sensitive assets and liabilities reflected on the Company’s consolidated balance sheet. This sensitivity analysis demonstrates net interest income exposure annually over a five-year horizon, assuming no balance sheet growth and various interest rate scenarios including no change in rates; 200, 300, 400, and 500 basis point upward shifts; and a 100 basis point downward shift in interest rates, where interest-bearing assets and liabilities reprice at their earliest possible repricing date. The model assumes parallel and pro rata shifts in interest rates over a twelve-month period for the 200 basis point upward shift and 100 basis point downward shift. For the 300 basis point upward shift, the model assumes an instantaneous and parallel shift upward in rates. For the 400 basis point upward shift, the model assumes a parallel and pro rata shift in interest rates over a twenty-four month period. For the 500 basis point upward shift, the model assumes a flattening and pro rata shift in interest rates over a twelve-month period where the short-end of the yield curve shifts upward greater than the long-end of the yield curve. The asset/liability management committee of the board of directors has established policy limits of a 10% decline in net interest income for the 200 and the newly added 300 basis point upward shifts and the 100 basis point downward shift.

Part I

Item 3

QUANTITATIVE AND QUALITATVE DISCUSSION ABOUT MARKET RISK

Application of the simulation model analysis at the most recent quarter-end available is presented in the following table. Please note the simulation model analysis as of June 30, 2012 is not yet available.

	NET INTEREST INCOME EXPOSURE in YEAR 1
INTEREST RATE SCENARIO	As of March 31, 2012			As of December 31, 2011			As of December 31, 2010

100 basis point downward shift		-1.6	%		-1.5	%		-1.9	%
200 basis point upward shift		-4.1	%		-3.1	%		-3.0	%
300 basis point upward shock		-6.8	%		-4.2	%		-1.6	%

The simulation is within the board-established policy limit of a 10% decline in net interest income for all three scenarios.

Interest rate risk is considered to be one of the most significant market risks affecting the Company. For that reason, the Company engages the assistance of a national consulting firm and its risk management system to monitor and control the Company’s interest rate risk exposure. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company’s business activities.

Part I

Item 4

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of June 30, 2012. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports filed and submitted under the Exchange Act was recorded, processed, summarized and reported as and when required.

Changes in Internal Control over Financial Reporting. There have been no significant changes to the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.

Part II

QCR HOLDINGS, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1 Legal Proceedings

There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party other than ordinary routine litigation incidental to their respective businesses.

Item 1.A. Risk Factors

There have been no material changes in the risk factors applicable to the Company from those disclosed in Part I, Item 1.A. “Risk Factors,” in the Company’s 2011 Annual Report on Form 10-K. Please refer to that section of the Company’s Form 10-K for disclosures regarding the risks and uncertainties related to the Company’s business.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3 Defaults Upon Senior Securities

None

Item 4 Mine Safety Disclosures

Not applicable

Item 5 Other Information

None

Part II

QCR HOLDINGS, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION - continued

Item 6 Exhibits

31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).

31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).

32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*

Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011; (ii) Consolidated Statements of Income for the three and six months ended June 30, 2012 and June 30, 2011; (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and June 30, 2011; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2012 and June 30, 2011; (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and June 30, 2011; and (vi) Notes to Consolidated Financial Statements.

* As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, or otherwise subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

QCR HOLDINGS, INC.

(Registrant)

Date	August 7, 2012	/s/ Douglas M. Hultquist
		Douglas M. Hultquist, President
		Chief Executive Officer

Date	August 7, 2012	/s/ Todd A. Gipple
		Todd A. Gipple, Executive Vice President
		Chief Operating Officer
		Chief Financial Officer