QCR
Annual Report 2016

Plain-text annual report

m2 Lease Funds 1 2016 ANNUAL REPORT2016...A YEAR OF EXCEPTIONAL PERFORMANCE In March of 2016, our Strategic Leadership Team (SALT) visited each of our markets to meet with our employees to reinforce our Company’s mission, vision and values. During those meetings we also reviewed our strategic achieve them, we become exceptional. This culture of plan and demonstrated how each of us could participate high performance creates a strong “Community Bank” in the achievement of our two strategic objectives: brand in the Communities that we serve which results in • • Creating a Culture of High Performance Creating financial performance in the upper- quartile of our peer group our member banks becoming the bank of choice for those clients that value a strong relationship with their bank. In turn, our relationship-based banking model and this focus on creating a culture of high performance has We reinforced our message and our strategic plan with resulted in significant improvement in our operating a Company-wide call to action. The “rally cry” that has performance and exceptional financial returns for our aligned our entire organization with these objectives and shareholders. with each other is - Be Exceptional. In the following pages we will discuss further the We are creating a culture where every member of our QCR specific strategic initiatives that we are implementing to Holdings team, regardless of their title, their location, or continue our strong progress in creating top-tier financial their individual role, strives to be exceptional in all that performance in our industry. As we execute on these they do. Serving the needs of our Clients and the Communities in which we live and work in this exceptional fashion is what we do each day. By staying true to our business model of building strong relationships with our Clients, understanding their unique hopes, challenges and dreams, and bringing them the financial solutions to initiatives, each member of our QCR Holdings team will continue to “Be Exceptional” as we create meaningful and lasting relationships with our clients and continue to drive significant long-term value for our shareholders. 2 QCR HOLDINGS, INC.Strategic Leadership Team (SALT) pictured left to right: Tom Budd, Cathie Whiteside, Todd Gipple, Doug Hultquist, John Anderson, Larry Helling (Tour Bus image created using Adobe Photoshop) The 2016 Road Show Ended With a Pay It Forward Challenge - FOR IMMEDIATE RELEASE - March 9, 2016 Moline, IL - QCR Holdings, Inc. and it's wholly owned subsidiaries, Quad City Bank & Trust, Cedar Rapids Bank & Trust, Rockford Bank & Trust, Community Bank & Trust, and m2 Lease Funds, today announced a company-wide Pay It Forward Day. This initiative was designed to inspire employees to perform unexpected acts of kindness and positively impact the communities where over a combined 435 employees live, work, and play. Each employee was provided with the resources to perform acts of kindness and help someone in their community during the coming months. "Giving back to our communities is a big part of the QCR Holdings philosophy, and it's humbling to see how our employees are embracing the spirit of Pay It Forward Day," said, Doug Hultquist, President and Chief Executive Officer of QCR Holdings. "It's our hope that by creating a small chain of human kindness we might inspire other businesses and individuals to join us and do the same." Just a Few of the Many Exceptional Results of Pay It Forward Day "Today, I went down to Kings Harvest Homeless Shelter "I decided to match the company resources (and my kids and passed out $5 bills to individuals that were either did as well, tripling the original amount) then we bought homeless or misplaced." groceries to donate to our local food shelter." "I went to a charitable thrift store, bought two coffee tables and two end tables. They had seen better days. I refinished them and then re-donated them back to a different thrift store. So...Goodwill got the benefit of the original purchase, and the St. Vincent dePaul Society got the prettied up pieces to resell." 3 2016 ANNUAL REPORTSummary of Financial Results 2012 - 2016 (IN THOUSANDS) Net interest income Non-interest income Non-interest expense 2012 2013 2014 2015 2016 $57,649 $64,105 $69,071 $76,296 $94,517 18,953 26,846 21,282 24,364 31,037 (54,591) (65,465) (65,554) (73,192) (81,486) Pre-tax pre-provision net income 22,011 25,486 24,799 27,468 44,068 Provision for loan/lease losses (4,371) (5,930) (6,807) (6,871) (7,478) Net income before taxes 17,640 19,556 17,992 20,597 36,590 Income taxes Net income (4,534) (4,618) (3,039) (3,669) (8,903) 13,106 14,938 14,953 16,928 27,687 Less: net income attributable to non controlling interests 488 - - - - Net income attributable to QCR Holdings, Inc. $12,618 $14,938 $14,953 $16,928 $27,687 Asset Growth (IN THOUSANDS) Book Value vs. Fair Market Value COMMON STOCK (IN MILLIONS) Total Metropolitan Statistical Area Deposits (JUNE 30, 2016) (IN THOUSANDS) $20,000,000 $10,000,000 $5,000,000 FAIR MARKET VALUE BOOK VALUE $600 $300 $0 . 3 9 C E D . 3 0 C E D . 3 1 C E D . 5 1 C E D . 6 1 C E D Population (July 1, 2015) $800,000 $600,000 $400,000 $200,000 , 0 2 1 7 2 1 $ 2 1 0 2 , 3 2 2 1 0 3 $ * 3 1 0 2 , 5 0 0 0 3 1 $ 4 1 0 2 0 4 2 8 6 $ , 5 1 0 2 , 6 4 7 8 0 7 $ * * 6 1 0 2 * Includes acquisition of Community National Bank ** Includes acquisition of Community State Bank 4 , 8 2 2 5 8 9 7 $ , , 1 3 8 4 3 5 5 $ , , 4 3 4 7 4 8 5 $ , , 7 8 9 6 9 2 3 $ , s e i t i C d a u Q 0 0 0 4 8 3 , i s d p a R r a d e C 0 0 0 9 6 2 , y e l l a V r a d e C 0 0 0 1 7 1 , d r o f k c o R 0 0 0 8 3 3 , , 5 6 8 2 9 6 6 1 $ , i s e n o M s e D / y n e k n A 0 0 0 9 3 6 , QCR HOLDINGS, INC. TO OUR SHAREHOLDERS 2016 was an exciting and transformational year for QCR Holdings, Inc. We challenged each of our employees to "Be Exceptional” and they grasped that challenge, as is evident in our record breaking results this year. We look much differently today than we did a year ago and we believe it is a direct result of the culture of high performance that our employees have embraced and are focused on each and every day. Exceptional, local, customer service and giving back, remain the bedrocks of our community banking model. We continue to believe that the model we are proud to call “The Local Community Bank Advantage” still differentiates us in our market places and that this model is what is fueling our success. Without question, the highlight of 2016 was welcoming the talented staff and treasured clients of Community State Bank (“CSB”) (Ankeny/Des Moines, Iowa) to the QCR Holdings, Inc. family on September 1st. The opportunity to team up with such a solid organization as CSB allowed us to expand our footprint into the third fastest growing city in the U.S. We believe CSB’s strong financial performance will significantly contribute to our strategies to enhance shareholder value. The Company continued to successfully execute on our seven stated initiatives that we have targeted to improve profitability. Even though the financial industry continues to increase in complexity, our commitment to keeping it simple for the customer remains unchanged. As will be outlined in the following pages of our Annual Report, our 2016 financial results reflect record earnings across all of our entities and we believe our commitment to the customer experience is at the core of those results. We now have grown to nearly 600 employees whose commitment to “Be Exceptional” is proudly producing milestone earnings and loyal customers. We recognize that we will only be as strong as the communities we work and live in. Therefore, it is truly gratifying to watch our team unselfishly fan out into their local non-profit organizations and lend their time and talents. Our entire work force donated over 18,800 hours towards the betterment of their communities in 2016 – this in addition to their full-time jobs and busy family lives. Individually and cumulatively our employees are making a difference, and we thank each of them for all they do. 2016 HIGHLIGHTS AND RESULTS Successful Capital Raise in Conjunction with the Acquisition of Community State Bank On May 20, 2016, QCR Holdings entered into Securities Purchase Agreements with certain existing shareholders and institutional investors to sell 1,215,000 shares of its common stock at a price of $24.75 per share for approximate net proceeds of $29.8 million. The net proceeds of the offering were used to help finance the purchase of Community State Bank. The offering closed on May 23, 2016. The shares were offered to institutional investors in a registered direct offering without an underwriter or placement agent, thereby saving the Company an estimated $2 million in investment banking fees. As a result of our offering in 2015 and this offering, QCR Holdings has grown from 19% institutional ownership at the end of 2014, to 49% at the end of 2015, to 58% at the end of 2016. Average trading volume in QCRH stock has improved significantly (7,600 average daily trading volume in 2014 to 30,320 in 2016) along with an exceptional increase in trading price over the last several years. Closing stock price at December 31, 2014 was $17.86, at December 31, 2015 was $24.29, and closed at $43.30 on December 31, 2016. On September 1, 2016 the Company completed its acquisition of Community State Bank (CSB) from Van Diest Investment Company. CSB operates ten banking locations throughout the Des Moines metropolitan area. In the transaction, QCR Holdings acquired 100% of the outstanding common stock of CSB for cash consideration of $80 million. As of December 31, 2016, CSB had $600 million in assets, $430 million in loans and $514 million in deposits. The Des Moines Metropolitan Statistical Area (“MSA”) is ranked 4th in the Top 25 MSAs in Iowa and Illinois by deposits. CSB has retained its separate bank charter and will continue on with its rich history of premier customer service and local decision making. 5 2016 ANNUAL REPORTCONSOLIDATED EARNINGS (in thousands) 2012 2013 2014 2015 2016 Quad City Bank & Trust * $ 10,732 $ 10,273 $ 10,451 $ 11,762 $ 15,411 Cedar Rapids Bank & Trust Rockford Bank & Trust Community State Bank 5,881 593 - 6,736 1,579 - 8,006 1,877 - 8,108 2,189 - Parent Co. & Eliminations ** (4,588) (3,650) (5,381) (5,131) 12,729 3,201 2,127 (5,781) Consolidated Earnings $ 12,618 $ 14,938 $ 14,953 $ 16,928 $ 27,687 * Includes m2 Lease Funds. ** Includes acquisition costs for the acquisition of CSB in 2016, and all acquisition costs net of the bargain purchase gain for the acquisition of CB&T in 2013. Gains Recognized on Debt Extinguishment in January 2016 In January 2016, the Company was provided an opportunity to retire all of its $5.1 million QCR Holdings Capital Trust IV junior subordinated debentures and recorded a $1.2 million gain on extinguishment (pre-tax), as the Company was able to acquire the related security at a discount, through auction. Balance Sheet Restructuring in January 2016 As a result of the one-time gain described above and further contributing to the financial results of 2016, management continued execution of our strategy to repay high-cost borrowings. In January 2016, the Company executed balance sheet restructuring at Quad City Bank & Trust and Cedar Rapids Bank & Trust, which included the repayment of $20.0 million of wholesale borrowings with a weighted average interest rate of 3.92%. The Company incurred a $1.3 million (pre-tax) loss that was recognized in the first quarter of 2016 and the restructuring reduced interest expense by approximately $683 thousand annually. Significant One-time Gain Used to Restructure Balance Sheet in Third Quarter 2016 The Company also had the opportunity to sell an investment and recognize a gain of approximately $4.0 million in the third quarter of the year. This gain was utilized to further reduce wholesale borrowings by $60 million at a blended rate of 3.24% and further de-lever the balance sheet with the sale of $28 million in securities yielding 1.48%. The remaining funding was replaced by a mix of core deposits and overnight borrowings. The positive impact on future earnings will be an increase in net interest income of approximately $1.3 million annually, increasing net interest margin by approximately 10 basis points. 2016 OVERALL FINANCIAL RESULTS 2016 Was an Exceptional and Record Setting Year for QCR Holdings The banking and financial industry continues to be complex and ever-changing, but we recognize that now more than ever, we need to remain focused on our mission, vision and values. We intentionally set the bar high for the vision we have set to achieve, but we believe we have the right team and strategies in place to reach that bar. For the year ended December 31, 2016, the Company reported net income of $27.7 million, resulting in diluted earnings per share ("EPS") of $2.17. Excluding acquisition costs and other non-core items, the Company reported core net income (non-GAAP) of $29.4 million and diluted EPS of $2.31. For the same period in 2015, we reported net income of $16.9 million, or diluted EPS of $1.61, which included several nonrecurring items, including $4.7 million of losses on extinguishments (after-tax) related to the balance sheet restructuring that took place in the second quarter of 2015. Excluding these nonrecurring items, the Company reported core net income (non-GAAP) of $20.9 million and diluted EPS of $1.99. 6 QCR HOLDINGS, INC.Our core return on average assets (“ROAA”) has improved significantly from a year ago. Core ROAA (non-GAAP) has expanded to 1.03% from 0.82%, when comparing the full year of 2016 to the prior year. We have achieved our initial target ROAA of 1.00% and will now continue to focus on enhancing performance to allow us to rank in the upper quartile of our peers. For three consecutive years, we have achieved our targeted 10-12% organic growth in total loans and leases. Organic loan and lease growth totaled $188.4 million for 2016, or an annual growth rate of 10.5%. This solid growth has continued to help us move our loan and lease to total asset ratio to 73%, up from 69% in 2015 and 65% in 2014. We believe our ability to customize solutions, grow existing relationships and take advantage of market disruption are key components to these successful results. Our significant strength and expertise in generating swap fee income and gains on the sale of government guaranteed loans led to another banner year of related fee income. Deploying this strength across our entity resulted in revenue totaling $4.9 million compared to $3.0 in 2015. We intend to continue our emphasis as these products provide unique solutions for our clients. We also look forward to offering these products in the Des Moines metro through Community State Bank. Net interest income totaled $94.5 million for the year ended December 31, 2016, which represented an increase of 23.9% over the prior year. Net interest income attributable to CSB totaled $10.0 million for the partial year and included $3.2 million of net accretion related to purchase accounting adjustments. Net interest margin increased to 4.02% in the fourth quarter of 2016 due to the balance sheet restructuring, as well as the addition of CSB. One-time accretion acceleration for the fourth quarter was approximately $1.3 million and was the result of payoffs/ refinances of acquired performing loans, the prepayment of purchased credit impaired loans and the prepayment of FHLB advances that were acquired at a premium. Excluding the effects of this acceleration, net interest margin would have been 3.84%. By comparison, third quarter net interest margin was 3.70% excluding the effects of acceleration due to the prepayment of purchased credit impaired loans. The ratio of NPAs to total assets finished at 0.82% at December 31, 2016, which was up from 0.74% one year ago. The Company’s allowance to total loans and leases was 1.28% at year end, down from 1.45% at the end of 2015. As a result of solid earnings performance, capital ratios continue to be strong. The Company’s total risk-based capital ratio was 11.55% at December 31, 2016, the common equity tier 1 ratio was 9.40% and the tangible common equity to tangible assets ratio increased to 8.04%. A Look Back at Our Market Capitalization Provides an Exceptional View 1993 $14 million capital raise (QCR Holdings is formed) 2010 $33 million market cap (double 1994) 2012 $65 million market cap (double 2010) 2014 $142 million market cap (double 2012) 2016 $568 million market cap (quadrupled 2014) 7 2016 ANNUAL REPORTQCR Holdings, Inc. Strategic Advantages During 2016, we continued to build on the identified niches below that have been enhancing our growth over the last several years. We believe these niches offer variety and diversity to our business model and valuable expertise to our clients. We will continue to invest wisely in our people, products and technology as we look for opportunities of further growth not only in these lines of business but in our core business as well. We will also continue to collaborate and leverage opportunities across our entire Company to maximize shareholder value at every opportunity. Correspondent Banking Division - The Correspondent Banking Division at Quad City Bank & Trust continues to seize opportunities to deliver exceptional customer service to downstream banks in Illinois, Iowa and Wisconsin. During 2016, we were able to increase the total number of banks we serve to 181 with a weighted-average balance of total noninterest bearing deposits of $354 million for 2016. Our veteran team of bankers provide many layers of expertise in such areas as trust and investment services, loans, and leases. Wealth Management Division - The expertise found across our company in our Wealth Management Division is a distinguishable competitive advantage. Being able to provide our clients with a continuum of services is crucial to deepening relationships. With offerings in trust, investments, financial planning, and family office, we add non-interest income to our banks and provide great opportunities for other services as well. In 2016, assets under management totaled $2.8 billion and our veteran staff added 306 new relationships. We are excited about the prospects of growing this niche in the Ankeny/Des Moines market via Community State Bank. m2 Lease Funds - m2 Lease Funds is a wholly owned subsidiary of Quad City Bank & Trust. Leasing is an attractive option for many small and medium sized businesses and m2 prides itself on being easy to do business with (a one page lease agreement written in plain English). m2 Lease Funds works with all of our banks and nationwide as well with leasing specialists located in Iowa, Wisconsin, Minnesota, South Carolina, North Carolina, Florida, California, Colorado, Texas, Massachusetts, and Pennsylvania. m2 has a high yielding portfolio that averaged 5% in 2016. Income has grown at a 16% CAGR since 2006. Living the Brand - We continue to believe our people are the key differentiator in each of our markets. As such, one measure of employee performance is utilizing a metric we call “Living the Brand”. “Living the Brand” means living our Brand Promise – making sure that each employee’s performance is so good that our clients (internal and external) will always experience great relationships, service and advice. It is our hope that by placing daily emphasis on our Brand Promise every client will truly see “People you can bank on®” in everything we do. RESULTS BY ENTITY Quad City Bank & Trust – Under the leadership of President and CEO, John Anderson, the Company’s first subsidiary bank (1994), recorded total consolidated assets of $1.4 billion at December 31, 2016. The bank continues to have success in adding new clients to its Correspondent Banking and Wealth Management businesses as outlined above. Quad City Bank & Trust realized record net income of $15.4 million for the year ended December 31, 2016, which compares to $11.8 million in 2015. Cedar Rapids Bank & Trust – President and CEO Larry Helling, one of the founders of Cedar Rapids Bank & Trust (2001), led his team to record net income of $12.7 million for the year ended December 31, 2016, which compares to $8.1 million in 2015. Total assets at December 31, 2016 finished at $913 million. Included in the growth of revenue and assets for Cedar Rapids Bank & Trust is Community Bank & Trust, located in Waterloo and Cedar Falls. Community Bank & Trust’s three banking locations were merged with Cedar Rapids Bank & Trust in the fourth quarter of 2013. Rockford Bank & Trust – Led by President and CEO, Tom Budd, Rockford Bank & Trust (2005) reported record net income for 2016 of $3.2 million. By comparison, the bank reported net income of $2.2 million in 2015. Total assets finished the year at $391 million. 8 QCR HOLDINGS, INC.Community State Bank – QCR Holdings was fortunate to maintain the successful leadership of President and CEO, Ron Nagel as it acquired CSB on September 1, 2016. Total assets at December 31, 2016 were $600 million and net income for the partial year of ownership was $2.1 million. QCR HOLDINGS, INC. STRATEGIES TO CONTINUE TO DRIVE SHAREHOLDER VALUE The Company continues to focus on the following seven stated initiatives in an effort to further improve profitability and drive increased shareholder value: • Continue strong organic loan and lease growth to maintain loans and leases to total assets ratio in the range of 70-75% (73% as of 12/31/16) • Continued focus on growing core deposits to maintain reliance on wholesale funding to less than 15% of assets (11% as of 12/31/16) • Continue to focus on generating gains on the sale of USDA and SBA loans, and fee income on SWAPS, as a significant and consistent component of core revenue • Grow wealth management fee income by 10% annually • Carefully manage noninterest expense growth • Maintain asset quality metrics at better than peer levels • Participate as an acquirer in the consolidation taking place in our markets to further boost ROAA, improve efficiency ratio, and increase EPS During 2016 we focused on the strategies listed above that we believe will position us for 2017 and beyond. The Strategic Leadership Team (SALT) - Doug Hultquist, Todd Gipple, John Anderson, Larry Helling, Tom Budd and Cathie Whiteside, held in person meetings with all employees (at each location) in early March 2016. We have scheduled to do so again in March of 2017 – including Ron Nagel of CSB as our newest member of the SALT team. Our results in 2016 certainly indicate that our team is focused on doing whatever it takes to “Be Exceptional” – no matter their role and no matter the location of the entity where they happen to reside. The now 23 year legacy and history of our company is proving to be an interesting and rewarding story that had humble beginnings founded in the strength of the very best people. Our thanks go to each and every member of our Company for their passion and commitment that has led to our exceptional 2016. Our work is further enhanced and strengthened by talented and passionate local Board members in each of our communities. These community leaders are often times our biggest advocates and we recognize that we would not have achieved the successes of 2016 without their significant commitment to our Company and to each of our employees. We are a relationship driven organization® and we thank you for being a shareholder that values relationships as much as we do. Douglas M. Hultquist President and Chief Executive Officer, Co-Founder, QCR Holdings, Inc. Todd A. Gipple Executive Vice President, Chief Operating Officer and Chief Financial Officer, QCR Holdings, Inc. 9 2016 ANNUAL REPORTQCR HOLDINGS, INC. Board of Directors (Left to Right) Ronald G. Peterson Retired Executive, First State Bank of Illinois Larry J. Helling President and Chief Executive Officer, Cedar Rapids Bank and Trust John-Paul E. Besong Retired Executive, Rockwell Collins Patrick S. Baird Chair of the Board, QCR Holdings, Inc. Retired President and Chief Executive Officer, AEGON USA, LLC Linda K. Neuman Founder and Principal, Iowa Arbitrators Associate Justice, Iowa Supreme Court (Retired) James J. Brownson President, W.E. Brownson Co. Donna J. Sorensen, J.D. President, Sorensen Consulting Douglas M. Hultquist President and Chief Executive Officer, Co-Founder, QCR Holdings, Inc. Marie Z. Ziegler Vice Chair of the Board, QCR Holdings, Inc. Retired Executive, Deere & Company Michael L. Peterson President and Owner, Peterson Genetics, Inc. Mark C. Kilmer President, The Republic Companies George T. Ralph III Owner, GTR Realty Advisors, LLC Todd A. Gipple Executive Vice President Chief Operating Officer and Chief Financial Officer, QCR Holdings, Inc. 10 QCR HOLDINGS, INC.QCR HOLDINGS, INC. Executive Management Team Cynthia M. Carlson Executive Vice President, Wealth Management Group, Quad City Bank and Trust Company John A. Rodriguez Executive Vice President, Deposit Operations and Information Services Dana L. Nichols Executive Vice President, Chief Credit Officer John R. Oakes 1st Vice President, Treasurer Michael J. Wyffels Senior Vice President, Chief Information Officer Thomas D. Budd President and Chief Executive Officer, Rockford Bank and Trust Company Stacey J. Bentley President and Chief Executive Officer, Community Bank and Trust Company (Left to Right) John R. McEvoy Executive Vice President, Chief Operations Officer and Cashier, Quad City Bank and Trust Company Douglas M. Hultquist President and Chief Executive Officer, Co-Founder, QCR Holdings, Inc. Larry J. Helling President and Chief Executive Officer, Cedar Rapids Bank and Trust Company Executive Vice President, Chief Lending Officer, QCR Holdings, Inc. Todd A. Gipple Executive Vice President, Chief Operating Officer and Chief Financial Officer, QCR Holdings, Inc. Ronald M. Nagel President and Chief Executive Officer, Community State Bank Jill A. DeKeyser Senior Vice President, Director of Human Resources Peter J. Benson Executive Vice President, Chief Legal Counsel and Trust Officer Quad City Bank and Trust Company John R. Engelbrecht Chief Executive Officer, m2 Lease Funds, LLC M. Randolph Westlund Executive Vice President, Chief Investment Officer Shawna M. Graham Senior Vice President, Director of Risk Management Richard W. Couch President and Chief Operating Officer, m2 Lease Funds, LLC John H. Anderson President and Chief Executive Officer, Quad City Bank and Trust Company Chief Deposit Officer, QCR Holdings, Inc. Cathie S. Whiteside Executive Vice President, Corporate Strategy, Human Resources and Branding 11 2016 ANNUAL REPORT2016 Company Highlights 306 WEALTH MANAGEMENT RELATIONSHIPS ADDED HELPING DRIVE MORE THAN $2.8 BILLION IN TOTAL ASSETS UNDER MANAGEMENT 18,834 TOTAL COMPANY WIDE VOLUNTEER HOURS 10% INCREASE IN LOANS AND LEASES OVER 2015 $3,301,943,748 In Total Assets at December 31, 2016 $27.7 million 2016 ANNUAL EARNINGS 30% OF TOTAL DEPOSITS ARE NON-INTEREST BEARING $18.2 million INCREASE (24%) IN NET INTEREST INCOME OVER 2015 12 QCR HOLDINGS, INC.TOTAL DEPOSITS (in millions) 12.31.14 12.31.15 12.31.16 Non-interest bearing demand deposits $ 512 $ 616 $ 797 Interest bearing demand deposits Time deposits Brokered deposits 779 306 83 886 310 69 1,369 439 64 TOTAL DEPOSITS $ 1,680 $ 1,881 $ 2,669 TOTAL ASSETS (in millions) 12.31.16 12.31.15 12.31.14 $3,302 $2,593 $2,525 $0 $2,500 $5,000 GROSS LOANS/LEASES (in millions) 12.31.16 12.31.15 12.31.14 $2,405 $1,798 $1,630 $1,000 $2,000 $3,000 DEPOSIT MARKET SHARE (JUNE 30, 2016) Quad Cities 13.14% Rank #2 of 36 Cedar Rapids 10.23% Rank #4 of 40 Rockford 5.08% Rank #8 of 26 Waterloo/Cedar Falls 3.84% Rank #10 of 25 Ankeny / Des Moines 2.88% Rank #8 of 49 QCR Holdings, Inc. Group Operations Management Team Todd A. Gipple Executive Vice President, Chief Operating Officer and Chief Financial Officer Peggy M. Bishop Senior Vice President, Director of Compliance Jill A. DeKeyser Senior Vice President, Director of Human Resources Beth L. Easterla Vice President, Deposit Operations and Electronic Banking Manager Kathleen M. Francque Senior Vice President, Correspondent Banking Erin J. German Senior Vice President, Chief Operations Officer, Community State Bank Pamela J. Goodwin 1st Vice President, Loan Operations Manager Elizabeth A. Grabin 1st Vice President, Controller and Director of Financial Reporting Shawna M. Graham Senior Vice President, Director of Risk Management R. Timothy Harding Senior Vice President, Director of Internal Audit Anne E. Howard Vice President, Human Resources Manager John R. McEvoy Executive Vice President, Chief Operations Officer and Cashier, Quad City Bank and Trust Company John R. Oakes 1st Vice President, Treasurer John A. Rodriguez Executive Vice President, Deposit Operations and Information Services Shellee R. Showalter Senior Vice President, Director of Investor Services and Compensation Michael J. Wyffels Senior Vice President, Chief Information Officer 13 2016 ANNUAL REPORT Michael Segner President & Chief Executive Officer, People Trust & Savings Bank - Clive, Iowa "Thank you for your sincere approach to our relationship. The effort that you have put forth to maintain and strengthen our relationship is very noticeable and strengthens my resolve to maintain and enhance the relationship, just the same. Community banks working with community banks is something that I, and our bank, appreciates. I am truly impressed at the passion and quality in which you provide service to us. Thank you for taking the time to meet with me and for the relationship we have." 14 QCR HOLDINGS, INC.10,387 EMPLOYEE HOURS VOLUNTEERED IN 2016 David J. Steil Owner, Fidlar Technologies James D. von Maur President, Von Maur Inc. Marie Z. Ziegler Anne E. Howard Vice President, Human Resources Manager David C. Howell 1st Vice President, Wealth Management Group Rick J. Jennings Retired Executive, Deere & Company Senior Vice President, Senior Trust Officer DIRECTORS John H. Anderson President and Chief Executive Officer, Quad City Bank and Trust Company Mark C. Kilmer Chair of the Board, Quad City Bank and Trust Company President, The Republic Companies Michael A. Bauer Consultant, Co-Founder of QCR Holdings, Inc. Douglas M. Hultquist President and Chief Executive Officer, Co-Founder, QCR Holdings, Inc. Steven R. Geifman SENIOR MANAGERS John H. Anderson President and Chief Executive Officer Nick W. Anderson Vice President, Chief Financial Officer President and Managing Partner, Geifman | First Equity Cynthia M. Carlson Todd A. Gipple Executive Vice President, Chief Operating Officer and Chief Financial Officer, QCR Holdings, Inc. John H. Harris, II Retired Former President, Star Forms, Inc. and Isabel Bloom, LLC Linda K. Neuman Vice Chair of the Board, Quad City Bank and Trust Company Founder and Principal, Iowa Arbitrators Associate Justice, Iowa Supreme Court (Retired) Executive Vice President, Wealth Management Group Jill L. Dubin Vice President, CRA Officer Robert M. Eby Senior Vice President, Chief Credit Officer Laura L. Ekizian Executive Vice President, Chief Relationship Officer Kathleen M. Francque Senior Vice President, Correspondent Banking Ronald G. Peterson Therese K. Gerwe Retired Executive, First State Bank of Illinois Vice President, Treasury Management Victor J. Quinn Deborah C. Gillum Retired Executive, Quad City Bank and Trust Company 1st Vice President, Retail Banking Jeffrey M. Lockwood Executive Vice President, Chief Lending Officer Peter J. McAndrews 1st Vice President, Retail, Real Estate and Consumer Loans John R. McEvoy Executive Vice President, Chief Operations Officer and Cashier Cathie S. Whiteside Executive Vice President, Corporate Strategy, Human Resources and Branding Michael J. Wyffels Senior Vice President, Chief Information Officer 15 2016 ANNUAL REPORTINVESTING IN THE QUAD CITIES AREA John Anderson President and Chief Executive Officer, Quad City Bank & Trust Exceptional is defined as unusually good, outstanding. Over the past year, our Team’s rally cry has been to "Be Exceptional." Our rally cry, coupled with our Mission, which focuses squarely on our clients - "We make financial dreams a reality," creates a solid foundation to achieve our stated corporate-wide Vision: QCRH will be ranked in the top quartile on Return on Assets (ROA) of peer firms by 2020. As we have now wrapped up 2016, we focus on the results of the aforementioned by assessing how well we did with our Strategic Initiatives, all of which drove our ROAA to a record 1.12%, putting us well on our way to achieving our corporate vision. Strategic Initiatives (Quad City Bank & Trust) 2016 Results Target loans and leases to total assets of 70 – 75% Reduce wholesale funding to less than 15% Increase gains on sale of USDA and SBA loans, along with SWAP income, in 2016 to a more significant, and constant, component of core revenue Grow Wealth Management net income by 15% annually Eliminate identified noninterest expenses and manage annual expense growth (1 excludes debt extinguishment charges) Improve nonperforming assets to better than peer levels (2 Total NPAs / Assets) 72.39 % 9.13 % + 4 % - 10.54 % + 4 % 1 .84 % 2 16 QCR HOLDINGS, INC.With one exception, the Team has met or exceeded our goals on these initiatives and they continue to What Community Banking is All About collaborate on ways to gain momentum on each In late 2016 we received a call from one of our one. Over the past 23 years, QCBT has grown from a de novo institution into a $1.4 billion bank headquartered in Bettendorf, Iowa, a feat unimaginable to many when we opened our doors on a cold snowy morning in January of 1994. Outside of all of these achievements, and at our core, is the outstanding Team of individuals who place client satisfaction, shareholder return, and growing our community, as their main objectives. I am proud to be part of this Team of incredibly focused and talented professionals. valued clients informing us that she, along with five of her dear friends, were in downtown Chicago on their annual shopping adventure. The trip is something this group of friends has done for many years. Unfortunately, during the course of their first day of shopping she was notified that her QCBT debit card had to be closed down due to potential fraudulent activity. To help ensure the shopping trip could go on, our Deposit Operations Team came into the bank after hours (on a Friday night) to work through the details. The end result was our client’s annual weekend was left uninterrupted as our team worked to get the card working. This is a perfect example of People You Can Bank On.® “I would like to express my sincere gratitude for your generous gift toward the Figge Art Museum’s Annual Fund. We have experienced wonderful success in our 2016 campaign and look forward to even more success in the future because of the support from strong organizations, like Quad City Bank & Trust, whose leadership sets the pace for growth and prosperity in our community. With Quad City Bank & Trust as our partner, the Figge Art Museum can provide a rich culture of art appreciation and education which benefits the people in our community, schools, businesses, and organizations serving our mission of bringing art and people together." Raelene Pullen Development Director, Figge Art Museum 17 2016 ANNUAL REPORT Peter Watson, President // Mark Watson, Treasurer Climate Engineers - Hiawatha, Iowa "Climate Engineers has critical partners that are carefully selected based on reputation. Quality and service are more important in our business model than price or fees. Cedar Rapids Bank & Trust has been our business banking partner since they started in Cedar Rapids because they are a perfect fit. Last year, they were instrumental in helping us with a complicated real estate transaction. They took care of all the details, which allowed us to focus on our core business. We are raving fans of Cedar Rapids Bank & Trust." 18 QCR HOLDINGS, INC.4,150 EMPLOYEE HOURS VOLUNTEERED IN 2016 DIRECTORS David R. Mason, Sr. Larry J. Helling President and Chief Executive Officer, Cedar Rapids Bank and Trust Company Donna J. Sorensen, J.D. Chair of the Board, Cedar Rapids Bank and Trust Company President, Sorensen Consulting Patrick S. Baird Retired President and Chief Executive Officer, AEGON USA, LLC Robert T. Buckley Owner and Chief Executive Officer, Kirk Gross Company Patrice M. Carroll President and Chief Executive Officer, ImOn Communications Loren L. Coppock Chairman of the Board, TrueNorth Companies, LLC Todd A. Gipple Executive Vice President, Chief Operating Officer and Chief Financial Officer, QCR Holdings, Inc. Hillary L. Hughes, CFA Director, Prairie Capital Advisors, Inc. Attorney and Partner, Redfern, Mason, Larsen and Moore, PLC James A. Mudd, II President and Chief Executive Officer, Mudd Advertising Fred G. Timko Vice Chair of the Board, Cedar Rapids Bank and Trust Company President, Down to Earth Development, LLC SENIOR MANAGERS Larry J. Helling President and Chief Executive Officer John A. Rodriguez Executive Vice President, Operations and Cashier J. Mitchell McElree Executive Vice President, Managing Director, Specialty Finance Group Patricia L. Ellison Executive Vice President, Chief Credit Officer Gary M. Becker Senior Vice President, Commercial Banking Kevin D. Bruns Senior Vice President, Wealth Management James D. Klein Executive Vice President, Chief Lending Officer Deborah J. Gertsen Senior Vice President, Trust and Investments Shelly A. Strellner Senior Vice President, Private Banking Timothy J. White Senior Vice President, Business Development, Specialty Finance Group 19 2016 ANNUAL REPORTINVESTING IN CEDAR RAPIDS, IOWALarry Helling President and Chief Executive Officer, Cedar Rapids Bank & Trust 2016 will go down in the books as Cedar Rapids Bank & Trust’s most profitable year in our 15-year history. In spite of continued uncertainty on many fronts (economy, elections, international events, etc.), Cedar Rapids Bank & Trust was able to finish the year with strong operating performance. At the end of each year, I personally call a long list of In addition, our commitment to serving and enhancing clients to thank them for their business and solicit our community continues to position CRBT as a market feedback. It’s an invigorating experience as I talk with leader. We are very proud of the communities we old friends, new clients and long-time supporters. The serve and that pride shows in the volunteer spirit that consistent message that I hear is that our people are permeates the company. We contribute volunteer outstanding and have built long-lasting relationships. leadership and participation in over 100 local nonprofit When I’m asked about the secret to building CRBT over and economic development organizations. In 2016, the past 15 years, it’s a simple answer. It’s all about our annual total time given by CRBT employees was the people. Our clients recognize and value our local 4,150 hours. in-house decision making, our staff’s expertise, our philosophy to do the “right thing” every day, and our team approach that supports our client’s journey from growing their business to managing their wealth. As we celebrate the many successes of the past year, we continue to challenge ourselves to reach new heights and explore innovative strategies to grow our franchise and become the number one bank in our market. This vigilant pursuit of non-complacency will allow us to “Be Exceptional” and reward our employees, our clients, our community, and ultimately, our shareholders. 20 QCR HOLDINGS, INC."CRBT has been our friend and partner for nearly a decade. No matter what the challenge, they have been willing to “think outside the box” to help meet our needs. When we were looking to buy a piece of property for our future home, CRBT structured a deal that others weren’t willing to entertain. Their customer service is a model for all businesses. Each and every customer is treated with friendliness and respect. Their staff is empowered to do the simple things that make common interactions special. I often share the story with friends and family about the CRBT teller who, without knowing who we were, offered her personal cash box for use at our charity fundraiser. I have no hesitation recommending CRBT to my friends and family for all their personal banking needs." Tony and Marcia Bedard // Palo, Iowa "CRBT exudes values that are important to our firm. Like us, CRBT is committed to helping people thrive by giving back to the community, thinking creatively and finding solutions where all parties benefit. When we conduct business with organizations that exemplify these values, our relationship naturally evolves into a strong partnership. Moreover, CRBT has devoted time to thoroughly understand the structure of our company and the direction in which we are headed. As we continue to build and grow our company by investing in our clients, colleagues, business partners and communities, we have every confidence that CRBT is ready, willing and able to support our efforts." Duane Smith, Chief Executive Officer // Jason Smith, President TrueNorth Insurance & Financial Strategies "When we decided to follow Deb Gertsen to CRBT in 2001, we had no idea it would play such a large role in our lives. Deb introduced us to Shelly Strellner, and since then, they have both played a key role in helping us invest, plan for our children's college education, and secure our financial future. Now our children, both adults, are CRBT clients! From a professional standpoint, Melissa Torner and the international team are always ready and willing to help with Pete's business needs. And as a realtor, I know I can count on the expertise of Debby Roth and the mortgage team to flawlessly execute transactions for my clients. I’ve come to look forward to my New Years Eve call from Larry Helling to see how the year was with CRBT. Truly, at CRBT, everybody does know your name." Karen & Pete Mathison // Cedar Rapids, Iowa 21 2016 ANNUAL REPORT Rick Roth, Managing Member Roth Jewelers, L.L.C. - Waterloo, Iowa "Community Bank & Trust is a great business partner. Their scope of services and systems well handle all our banking needs. Banking with Community is very cost effective and avoids much of the red tape inherent in big banks. The people of Community Bank & Trust are proactive and always deliver an excellent customer experience with a personal touch." 22 QCR HOLDINGS, INC.1,001 EMPLOYEE HOURS VOLUNTEERED IN 2016 SENIOR MANAGERS Stacey J. Bentley President and Chief Executive Officer Kyle M. Baker Vice President, Retail Banking Richard L. Jaacks Senior Vice President, Business Development Officer 23 2016 ANNUAL REPORTINVESTING IN THE CEDAR VALLEYStacey Bentley President and Chief Executive Officer, Community Bank & Trust Today. We have an abundance of resources to assist you since we successfully joined forces with Cedar Rapids Bank & Trust, further helping you achieve financial success while remaining your local bank with local decisions. This year marked a series of educational round tables also allowed us to acknowledge the importance of in additional to social gatherings. We are dedicated nonprofit organizations and the services they provide to being a partner to your business and work; finding throughout our community. We had the opportunity to solutions together to ensure we support you and your donate office furniture and supplies to 20+ nonprofit operations. organizations through our “Pay it Forward” campaign. 2016 led us to further demonstrate our commitment Along with the physical renovation, we decided to to the Cedar Valley and to you. We launched a $3.7 refresh our overall branding in the Cedar Valley with an million renovation to our downtown Waterloo office as updated logo and color. We have a message to tell and part of our pledge to you to ensure we are your bank an exciting message it is. of choice. With the renovation, many new innovations and enhanced technology will be accessible to you and your business which will position both of us well into the future. This extensive renovation 24 QCR HOLDINGS, INC.Our Message. We are able to provide the technology of larger banks while continuing to provide the level of customer service you are accustomed to. Put simply, we are large enough to accommodate but small enough to appreciate. Our focus in 2017 is to continue our growth – growing loans and deposits and most of all, growing relationship banking. By joining forces with Cedar Rapids Bank & Trust, our lending capacity has substantially increased. We are able to accommodate large loan requests, yet still uniquely structure the loan to best suit your needs. We have various products and services that can strengthen your growth individually and professionally. When our clients prosper, so do we. This reflects our commitment to the success of individuals and clients in the communities we serve. By providing resources, education, guidance, and products and services that save you time and money, we are able to help you grow. We are happy to report our Wealth Management & Trust Department has been recognized as one of the strongest and well known Wealth Management & Trust Departments in the Cedar Valley. With their 130+ combined years of experience, the Wealth Management Team delivers a comprehensive and fully-integrated suite of wealth-building expertise. 2017 will mark the 20 year anniversary of our presence in the Cedar Valley. We knew we needed to update our look and freshen our brand to mirror our progress and help convey our message. As we strive to "Be Exceptional" in everything we do, we are excited to share with you the launch of our new logo representing our vision and outlook for the future. 25 2016 ANNUAL REPORT Stephen Hogan, Owner Rock Valley Subway, L.L.C. - Central Illinois “Rockford Bank & Trust is my 'coffee shop'. It's a great place to start my day. The moment I walk in I'm greeted warmly by name. They know my daily business needs and I'm treated in a friendly, courteous, respectful and prompt manner. The culture of this bank is always happy and helpful. When in social situations I'm pleased to share that Rockford Bank & Trust is my bank and handles my business and personal financial needs with caring knowledge and professionalism. I highly recommend Rockford Bank & Trust to others as I'm proud to be associated with a bank that cares for me and my community. Rockford Bank & Trust has earned my trust by meeting my banking needs with a personal touch, which is very important to me as a small business owner. They work with me, always having my best interest at heart, to help my business and personal finances reach their greatest potential. " 26 QCR HOLDINGS, INC.1,822 EMPLOYEE HOURS VOLUNTEERED IN 2016 DIRECTORS SENIOR MANAGERS Thomas D. Budd President and Chief Executive Officer, Rockford Bank and Trust Company George T. Ralph III Chair of the Board, Rockford Bank and Trust Company Owner, GTR Realty Advisors, LLC Michael A. Bauer Consultant, Co-Founder of QCR Holdings, Inc. Charles E. Box Vice Chair of the Board Former Chairman, Illinois Commerce Commission Former Mayor, Rockford, Illinois Rebecca Epperson President, Chartwell Agency Todd A. Gipple Executive Vice President, Chief Operating Officer and Chief Financial Officer, QCR Holdings, Inc. Monica B. Glenny, CPA, CMA Independent Star Team Builder, Mary Kay Cosmetics James P. Hamilton President, MRV Foundation Inc. Douglas M. Hultquist President and Chief Executive Officer, Co-Founder, QCR Holdings, Inc. Dana S. Kiley, Jr. President, CoyleKiley Insurance Agency, Inc. Robert J. Stenstrom President, Stenstrom Petroleum Services Group M. Shawn Way President and Chief Executive Officer, Milestone, Inc. Thomas D. Budd President and Chief Executive Officer Brian J. DeBenedetto Senior Vice President and Trust Manager Lori L. Diaz Senior Vice President, Treasury Management James M. Hansberry Executive Vice President, Wealth Management Anthony A. Moczynski Senior Vice President, Chief Credit Officer Brenda S. Nayonis Executive Vice President, Operations and Cashier Karl R. Swanson Executive Vice President, Chief Lending Officer 27 2016 ANNUAL REPORTINVESTING IN ROCKFORD, ILLINOISThomas Budd President and Chief Executive Officer, Rockford Bank & Trust 2016 was an excellent year as the bank achieved significant growth in client relationships and profitability. We furthered our mission of making Financial results for 2016 were highlighted financial dreams a reality by striving by a 46% increase over the prior year in net to adhere to our values and create a income. Our improvement in profitability performance culture that seeks to “Be was driven by strong revenue growth Exceptional.” Our Rockford community combined with close management of continued its transformation with growth expenses. We will continue efforts in 2017 in new projects at historic levels of capital to manage our expenses and leverage our existing capacity while studying ways to create additional capacity through improved processes and collaboration. spending. 28 QCR HOLDINGS, INC.We also benefitted from improved asset quality and minimal loan losses reflecting the improved local economy and disciplined underwriting. Our performance in 2016 placed us well within local peer averages and our goal for 2017 will be to reach the top quartile of our peers in profitability, asset quality and capitalization. The Rockford region continued its trend of unprecedented levels of capital projects by existing as well as new major employers. It is estimated that approximately $2 billion in new projects were completed, started, or announced during 2016. These projects are diverse in terms of industries, public and private, and, in some cases, public/private partnerships. Industries include aerospace, healthcare, logistics, transportation and hospitality. The diversity of these projects will contribute to balanced economic growth and workforce development well into the future. Our mission to make financial dreams a reality is at the heart of the role RB&T plays as a community bank. Financial dreams come in many forms. They may range from helping one of our “senior” clients buy a home in Florida, to an entrepreneur starting a business, to helping a struggling company work through a challenging time. Regardless of the simplicity or complexity, the importance is the same to the person we’re helping. We strive to treat them all with the same level of respect and attention. For 2017 we’re excited to continue our growth, participate and support Rockford’s transformation, and further establish Rockford Bank & Trust as Rockford’s premier community bank. 29 2016 ANNUAL REPORT Frank Levy, President Newbury Living - Des Moines, Iowa "Newbury has active banking relationships with about a dozen lending institutions. Community State Bank stands out for the lengths it will go to try to create win-win opportunities. CSB has funded several projects for Newbury, each of which required creativity, comfort with complexity, patience and flexibility." 30 QCR HOLDINGS, INC.1,102 EMPLOYEE HOURS VOLUNTEERED IN 2016 DIRECTORS Larry J. Helling Chair of the Board, Community State Bank President and Chief Executive Officer Cedar Rapids Bank and Trust Company Todd A. Gipple Director, Community State Bank Executive Vice President, Chief Operating Officer and Chief Financial Officer, QCR Holdings, Inc. Douglas M. Hultquist Vice Chair of the Board, Community State Bank President and Chief Executive Officer, Co-Founder, QCR Holdings, Inc. Ronald M. Nagel President and Chief Executive Officer, Community State Bank Dana L. Nichols Director, Community State Bank Executive Vice President, Chief Credit Officer QCR Holdings, Inc. SENIOR MANAGERS Ronald M. Nagel President and Chief Executive Officer Al H. Brazelton President, CSB Insurance Group Jennifer L. Canelos Senior Vice President of Marketing Jodi Corcoran Senior Vice President, Treasury Management Officer Erin J. German Senior Vice President, Chief Operations Officer Cade L. Lindaman Vice President, Mortgage Lending Kathy A. Nichols Senior Vice President, Retail Banking Ken R. Wilson Vice President, Financial Advisor 31 2016 ANNUAL REPORTINVESTING IN OUR COMMUNITIES Ron Nagel President and Chief Executive Officer, Community State Bank We became part of the QCR Holdings, Inc. family in the 3rd quarter of 2016. When it came time to find a new owner, we looked for an organization that identifies with and shares similar values. We call them our "Redefining Simple" principles. Thus, the joining of our organizations made for a great combination of customer-centric companies. CSB is a solid community bank with 10 branches throughout the Des Moines Metro. We have a large retail deposit and commercial lending base. We lead all of our business with the following principles: Make it Easy for Customers to do Business with Us. Make Exceptional Service the Rule – not the Exception. Be Accountable. Be Innovative and Embrace Change. Be a Team Player. Be Professional. We strive to deliver on these every day for every customer regardless of financial status. 32 QCR HOLDINGS, INC.Our joining with the QCR Holdings Team will also enhance our ability to deliver superior service. We especially look forward to the improved scale this partnership gives us to assist with so many of our customers who are experiencing financial expansion. This combination will also support the continued technology changes that occur in the industry at a rapid pace. CSB continues to be the #1 bank in the Ankeny market. While we are by far not the largest institution in the Metro we strongly believe we are the best at meeting customer needs. As of January 1, 2017 we merged CSB Insurance with TrueNorth and created a new joint venture. Our CSB Insurance staff members were doing an amazing job, however we felt we needed to raise the visibility of the agency and its management talent. Joining with TrueNorth was the appropriate move at this time. We look forward to even better customer support and growth with this new partnership. Not only do we thank our employees for all their hard work, we thank our customers for their loyalty over all of these years. We have been in business for over 115 years and by joining the QCRH Team we are positioning the organization well for another 100 years. 33 2016 ANNUAL REPORT Ali Baydoun // Chad Kime // Jim Bauters The Enterprise Group of UHY Advisors, Inc. - Farmington Hills, Michigan "We appreciate our long and very professional relationship with m2 and its personnel. The best testimonial is the amount of repeat business our clients want to do with m2 as they have banks and others pounding on them; and many times at some significant rate advantages." 34 QCR HOLDINGS, INC.372 EMPLOYEE HOURS VOLUNTEERED IN 2016 DIRECTORS AND SENIOR MANAGERS John R. Engelbrecht Chair of the Board, Founder and Chief Executive Officer, m2 Lease Funds, LLC John H. Anderson Director, m2 Lease Funds, LLC President and Chief Executive Officer, Quad City Bank and Trust Company Patrick S. Baird Director, m2 Lease Funds, LLC Retired President and Chief Executive Officer, AEGON USA, LLC Brian L. Besler Senior Vice President, Administration Richard W. Couch President and Chief Operating Officer, m2 Lease Funds, LLC Michael A. Hatfield Vice Chair of the Board, m2 Lease Funds, LLC Retired Senior Vice President and Secretary, M & I - Marshall & Illsley Corporation Larry J. Helling Director, m2 Lease Funds, LLC President and Chief Executive Officer, Cedar Rapids Bank and Trust Company Mark R. Hogan Director, m2 Lease Funds, LLC Secretary and Chief Executive Officer, Wisconsin Economic Development Corporation Douglas M. Hultquist Director, m2 Lease Funds, LLC President and Chief Executive Officer Co-Founder, QCR Holdings, Inc. Christine D. Kennedy Chief Financial Officer, m2 Lease Funds, LLC Dana L. Nichols Director, m2 Lease Funds, LLC Executive Vice President, Chief Credit Officer QCR Holdings, Inc. 35 2016 ANNUAL REPORTINVESTING IN OUR COMMUNITIESJohn Engelbrecht Chief Executive Officer, m2 Lease Funds, LLC m2 was started in 1998 and became a part of the QCR Holdings family in 2005. 2016 was a challenging year for m2 and for our industry in general. While the national economy improved in 2016, it has been primarily driven by growth in the consumer segment, a segment in which m2 does not participate. Commercial and industrial lending and leasing in our niche was stagnant or actually shrank in 2016. This resulted in increased competition from larger institutions, coming down market with lower rates and a loosening of credit underwriting that we do not believe is suitable given the risk/reward scenario. m2 provides higher returns and spreads and consequently provides an increased return on assets and equity than our sister banks. To best utilize QCR Holdings' capital resources, we believe that m2 should grow to be a more significant portion of the Company’s assets. This initiative began in mid- 2013 and with our recent performance, we are on our way to reaching that goal. m2 ended the year with assets of $213 million, a 5% increase over the preceding year. Today m2 has thousands of leases in virtually every state. As an equipment leasing generalist, m2 leases all varieties of equipment. Currently the largest equipment concentrations include manufacturing, technology, marine, food processing, packaging, transportation, bakery and construction. 36 QCR HOLDINGS, INC.We continue to believe that the m2 business model of providing quick and responsive turnarounds in a simple and straight forward manner remains sound and for us to grow we only need to add more “talent” to our Team. Unlike our sister banks' goals of increasing market share in their local communities, m2 does business nationwide. m2 doesn’t have a local community to call home, so we expanded by adding new employees nationally. We recently increased our footprint by expanding to Texas, California, Massachusetts and Colorado. These employees join our staff members located in Pennsylvania, Florida, Iowa, Wisconsin, Minnesota and South Carolina. We are optimistic on the economic outlook for 2017 and we believe that we will benefit from increasing capital equipment acquisitions. We believe that we have the Team in place to continue our steady growth and to continue adding substantial returns for the Company for 2017 and beyond. 37 2016 ANNUAL REPORT Year-End 2005-2016 Stock Price ( ) Tangible Book Value Per Common Share ( ) $50 $40 $30 $20 $10 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Deposits 2006 / 2016 DECEMBER 31, 2006 Total $875.5 MM DECEMBER 31, 2016 Total $2,669.3 MM Non Interest Bearing Demand $124.2 MM or 14% Interest Bearing Demand $334.0 MM or 38% CDs $345.8 MM or 40% Brokered Deposits $71.5 MM or 8% Non Interest Bearing Demand $797.4 MM or 30% Interest Bearing Demand $1,369.2 MM or 51% CDs $439.2 MM or 16% Brokered Deposits $63.5MM or 3% 38 QCR HOLDINGS, INC. Facility Map and Locations FACILITY STREET ADDRESS CITY STATE Quad City Bank & Trust 2118 Middle Road Quad City Bank & Trust 4500 N Brady Street Quad City Bank & Trust/QCRH 3551 7th Street Quad City Bank & Trust 5405 Utica Ridge Road Bettendorf Davenport Moline Davenport Cedar Rapids Bank & Trust 500 First Avenue NE Cedar Rapids Rockford Bank & Trust 308 W State Street Quad City Bank & Trust 1700 Division Street Rockford Davenport Cedar Rapids Bank & Trust 5400 Council Street NE Cedar Rapids m2 Lease Funds, LLC 175 N Patrick Boulevard, Suite 140 Brookfield Rockford Bank & Trust 4571 Guilford Road Community Bank & Trust 422 Commercial Street Community Bank & Trust 312 W 1st Street Community Bank & Trust 11 Tower Park Drive Community State Bank 817 N Ankeny Boulevard Community State Bank 200 8th Street SE Community State Bank 1401 E Euclid Avenue Community State Bank 6175 Merle Hay Road Community State Bank 4811 SE 14th Street Community State Bank 902 SE Oralabor Road Community State Bank 3540 E 33rd Street Rockford Waterloo Cedar Falls Waterloo Ankeny Altoona Des Moines Johnston Des Moines Ankeny Des Moines Community State Bank 1025 N Hickory Boulevard Pleasant Hill Community State Bank 460 SE University Avenue Community State Bank 1640 SW White Birch Circle Waukee Ankeny * Former location Iowa Iowa Illinois Iowa Iowa Illinois Iowa Iowa Wisconsin Illinois Iowa Iowa Iowa Iowa Iowa Iowa Iowa Iowa Iowa Iowa Iowa Iowa Iowa ZIP 52722 52806 61265 52807 52401 61101 52804 52402 53045 61107 50701 50613 50701 50023 50009 50316 50131 50320 50021 50317 50327 50263 50023 DATE OPENED / ACQUIRED ** Jan 1994 July 1996 Feb 1998 Oct 2000 July 2005 (Sept 2001*) Feb 2014 (Jan 2005*) Mar 2005 June 2005 August 2005 Nov 2006 Aug 1997 / May 2013 ** Aug 1997 / May 2013 ** Aug 1998 / May 2013 ** 1984 / 2016 ** 1992 / 2016 ** 1997 / 2016 ** (July 1996 *) 1998 / 2016 ** 1999 / 2016 ** (July 1996 *) 2000 / 2016 ** 2001 / 2016 ** (July 1996 *) 2005 / 2016 ** (July 1996 *) 2006 / 2016 ** 2006 / 2016 ** 1. Quad City Bank & Trust (5 Locations) 2. Cedar Rapids Bank & Trust (2 Locations) 3. Community Bank & Trust (3 Locations) 4. Rockford Bank & Trust (2 Locations) 5. m2 Lease Funds, LLC (1 Location) 6. Community State Bank (10 Locations) 39 2016 ANNUAL REPORTQCR Holdings, Inc. Consolidated Financial Highlights As of December 31, 2016 December 31, 2015 (dollars in thousands) CONDENSED BALANCE SHEET Cash and due from banks Federal funds sold and interest-bearing deposits Securities Net loans/leases Core deposit intangible Goodwill Other assets Total assets Total deposits Total borrowings Other liabilities Total stockholders' equity Total liabilities and stockholders' equity ANALYSIS OF LOAN DATA Loan/lease mix: Commercial and industrial loans Commercial real estate loans Direct financing leases Residential real estate loans Installment and other consumer loans Deferred loan/lease origination costs, net of fees Total loans/leases Less allowance for estimated losses on loans/leases Net loans/leases ANALYSIS OF SECURITIES DATA Securities mix: U.S. government sponsored agency securities Municipal securities Residential mortgage-backed and related securities Other securities Total securities ANALYSIS OF DEPOSIT DATA Deposit mix: Noninterest-bearing demand deposits Interest-bearing demand deposits Time deposits Brokered deposits Total deposits ANALYSIS OF BORROWINGS DATA Borrowings mix: Term FHLB advances Overnight FHLB advances Wholesale structured repurchase agreements Customer repurchase agreements Federal funds purchased Junior subordinated debentures Other Total borrowings 40 Amount $ Amount $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 70,570 86,206 574,022 2,374,730 7,381 13,111 175,924 3,301,944 2,669,261 290,952 55,690 286,041 3,301,944 827,637 1,093,459 165,419 229,233 81,666 8,073 2,405,487 30,757 2,374,730 46,084 374,463 147,702 5,773 574,022 797,415 1,369,226 439,169 63,451 2,669,261 63,000 74,500 45,000 8,132 31,840 33,480 35,000 290,952 41,742 56,164 577,109 1,771,882 1,471 3,223 141,607 2,593,198 1,880,666 444,162 42,484 225,886 2,593,198 648,160 724,369 173,656 170,433 73,669 7,736 1,798,023 26,141 1,771,882 213,537 280,203 80,670 2,699 577,109 615,292 886,294 309,974 69,106 1,880,666 97,000 54,000 110,000 73,873 70,790 38,499 - 444,162 $ $ QCR HOLDINGS, INC. QCR Holdings, Inc. Consolidated Financial Highlights For the Year Ended December 31, 2016 December 31, 2015 (dollars in thousands, except per share data) INCOME STATEMENT Interest income Interest expense Net interest income Provision for loan/lease losses Net interest income after provision for loan/lease losses Trust department fees Investment advisory and management fees Deposit service fees Gain on sales of residential real estate loans Gain on sales of government guaranteed portions of loans Swap fee income Securities gains, net Earnings on bank-owned life insurance Debit card fees Correspondent banking fees Other Total noninterest income Salaries and employee benefits Occupancy and equipment expense Professional and data processing fees Acquisition costs FDIC insurance, other insurance and regulatory fees Loan/lease expense Net cost of operation of other real estate Advertising and marketing Bank service charges Losses on debt extinguishment, net Correspondent banking expense Other Total noninterest expense Net income before taxes Income tax expense Net income Basic EPS Diluted EPS $ $ $ $ $ $ $ $ $ $ 106,468 11,951 94,517 7,478 87,039 6,164 2,993 4,440 431 3,159 1,708 4,592 1,771 1,815 1,050 2,914 31,037 46,317 8,405 7,113 2,441 2,549 662 591 2,128 1,693 4,578 751 4,258 81,486 36,590 8,903 27,687 90,003 13,707 76,296 6,871 69,425 6,131 2,972 3,785 323 1,305 1,718 799 1,762 1,245 1,190 3,134 24,364 42,968 7,043 5,523 - 2,725 882 (1,092) 1,901 1,486 7,186 703 3,867 73,192 20,597 3,669 16,928 $ $ $ $ $ $ $ $ 2.20 2.17 $ $ 1.64 1.61 Weighted average common shares outstanding Weighted average common and common equivalent shares outstanding 12,570,767 12,766,003 10,345,286 10,499,841 41 2016 ANNUAL REPORT QCR Holdings, Inc. Consolidated Financial Highlights COMMON SHARE DATA Common shares outstanding Book value per common share (1) Tangible book value per common share (2) Closing stock price Market capitalization Market price / book value Market price / tangible book value Earnings per common share (basic) LTM (3) Price earnings ratio LTM (3) TCE / TA (4) CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Beginning balance Net income Other comprehensive loss, net of tax Common stock cash dividends declared Proceeds from issuance of 1,215,000 shares of common stock, net of costs Proceeds from issuance of 3,680,000 shares of common stock, net of costs Other (5) Ending balance $ $ REGULATORY CAPITAL RATIOS: Total risk-based capital ratio Tier 1 risk-based capital ratio Tier 1 leverage capital ratio Common equity tier 1 ratio KEY PERFORMANCE RATIOS AND OTHER METRICS Return on average assets (annualized) Return on average total equity (annualized) Net interest margin Net interest margin (TEY) (Non-GAAP)(6) (8) Efficiency ratio (Non-GAAP) (8) Gross loans and leases / total assets Full-time equivalent employees (7) AVERAGE BALANCES Assets Loans/leases Deposits Total stockholders' equity For the Year Ended December 31, 2016 December 31, 2015 (dollars in thousands, except per share data) 13,106,845 $21.82 $20.11 $43.30 $567,526 198.41% 215.36% $2.20 19.68 x 8.04% 225,886 27,687 (336) (2,036) 29,829 - 5,011 286,041 11.55% 10.45% 9.10% 9.40% 0.97% 10.56% 3.53% 3.75% 64.90% 72.85% 572 11,761,083 $19.21 $18.81 $24.29 $285,677 126.47% 129.15% $1.64 14.81 x 8.55% $ 144,079 16,928 (189) (935) - 63,484 2,519 225,886 $ 13.11% 11.88% 9.75% 10.33% 0.66% 8.79% 3.17% 3.37% 72.71% 69.34% 406 $ 2,846,699 2,042,555 2,243,624 262,075 $ 2,549,921 1,707,523 1,851,582 192,489 (1) Includes accumulated other comprehensive income (loss). (2) Includes accumulated other comprehensive income (loss) and excludes intangible assets. (3) LTM : Last twelve months. (4) TCE / TCA : tangible common equity / total tangible assets. (5) Includes mostly common stock issued for options exercised and the employee stock purchase plan, as well as stock-based compensation. (6) TEY : Tax equivalent yield. (7) Full-time equivalent employees increased by 162 in the 3rd quarter of 2016 due to the acquisition of Community State Bank. (8) See GAAP to Non-GAAP reconciliations in the Company's 10-K. 1 42 QCR HOLDINGS, INC. QCR Holdings, Inc. Consolidated Financial Highlights ANALYSIS OF NET INTEREST INCOME AND MARGIN December 31, 2016 December 31, 2015 For the Year Ended Average Balance Interest Earned or Paid Average Yield or Cost Average Balance Interest Earned or Paid Average Yield or Cost (dollars in thousands) $ $ $ $ Fed funds sold Interest-bearing deposits at financial institutions Securities (1) Restricted investment securities Loans (1) Total earning assets (1) Interest-bearing deposits Time deposits Short-term borrowings Federal Home Loan Bank advances (3) Junior subordinated debentures Other borrowings Total interest-bearing liabilities 15,142 70,757 535,912 13,993 2,042,555 2,678,359 1,092,687 436,070 50,899 114,797 33,735 98,105 1,826,293 45 393 19,054 522 92,475 112,489 3,843 2,175 94 1,284 1,237 3,318 11,951 Net interest income / spread (1) Net interest margin Net interest margin (TEY) (Non-GAAP) (1) (2) $ 100,538 0.30% 0.56% 3.56% 3.73% 4.53% 4.20% 0.35% 0.50% 0.18% 1.12% 3.67% 3.38% 0.65% 3.55% 3.53% 3.75% 17,418 66,897 599,648 14,727 1,707,523 2,406,213 821,045 388,691 151,141 154,268 40,364 126,902 1,682,411 25 304 18,380 504 75,671 94,884 1,836 2,660 210 3,511 1,256 4,234 13,707 $ 81,177 0.14% 0.45% 3.07% 3.42% 4.43% 3.94% 0.22% 0.68% 0.14% 2.28% 3.11% 3.34% 0.81% 3.13% 3.17% 3.37% $ $ $ $ $ $ $ $ $ $ $ $ (1) Includes nontaxable securities and loans. Interest earned and yields on nontaxable securities and loans are determined on a tax equivalent basis using a 35% tax rate for each period presented. (2) TEY : Tax equivalent yield. See GAAP to Non-GAAP reconciliations in the Company's 10-K. (3) Average cost of Federal Home Loan Bank advances for the quarter and year ending December 31, 2016 was affected by the acceleration of the premium on advances recognized at the acquisition of CSB. $342 thousand was accelerated due to the prepayment of $15.0 million of advances in the fourth quarter of 2016. December 31, 2016 December 31, 2015 (dollars in thousands) ROLLFORWARD OF ALLOWANCE FOR LOAN/LEASE LOSSES Beginning balance Provision charged to expense Loans/leases charged off Recoveries on loans/leases previously charged off Ending balance NONPERFORMING ASSETS (2) Nonaccrual loans/leases Accruing loans/leases past due 90 days or more Troubled debt restructures - accruing Total nonperforming loans/leases Other real estate owned Other repossessed assets Total nonperforming assets ASSET QUALITY RATIOS Nonperforming assets / total assets Allowance / total loans/leases (1) Allowance / nonperforming loans/leases (1) $ $ $ $ $ $ 26,141 7,478 (3,244) 382 30,757 13,919 967 6,347 21,233 5,523 202 26,958 $ $ 23,074 6,871 (5,225) 1,421 26,141 10,648 3 1,054 11,705 7,151 246 19,102 0.82% 1.28% 144.85% 0.74% 1.45% 223.33% (1) Upon acquisition and per GAAP, acquired loans are recorded at market value which eliminated the allowance and impacts these ratios. 1 43 1 2016 ANNUAL REPORT stock listing information The common stock of QCR Holdings, Inc. is traded on the NASDAQ Global Market under the symbol QCRH. Independent Registered Public Accounting Firm RSM US LLP, Davenport, IA Corporate Counsel Lane & Waterman, Davenport, IA Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL Internet Information Information on our subsidiaries’ history, locations, products and services can be accessed on the internet at: www.qcbt.com www.crbt.com www.communitybt.com www.rkfdbank.com www.bankcsb.com www.m2lease.com Annual Meeting of Stockholders The Annual Meeting of the Stockholders of QCR Holdings, Inc. will be held: May 12, 2017 at 8:00 am Quad City Bank & Trust 3551 7th Street Moline, IL 61265 Annual Report on Form 10-K Copies of the QCR Holdings, Inc. annual report on Form 10-K and exhibits filed with the Securities and Exchange Commission (SEC), are available to stockholders without charge by accessing our internet site at www.qcrh.com or by writing or calling: Elizabeth A. Grabin 1st Vice President, Controller and Director of Financial Reporting QCR Holdings, Inc. 3551 Seventh Street Moline, IL 61265 309.743.7724 The SEC maintains an internet site that contains reports, proxy, and information statements and other information about issuers that file electronically with the SEC. The address of that site is: www.sec.gov. Stock Transfer Agent Inquiries regarding stock transfer, registration, lost certificates, or changes in name and address should be directed to the stock transfer agent and registrar by writing: American Stock Transfer & Trust Company, LLC Operations Center 6201 15th Avenue Brooklyn, NY 11219 Investor Information Stockholders, investors, and analysts interested in additional information may contact: Todd A. Gipple Executive Vice President, Chief Operating Officer and Chief Financial Officer QCR Holdings, Inc. 3551 Seventh Street Moline, IL 61265 309.743.7745 COMMON STOCK Calendar 2016 High Low 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Calendar 2015 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Calendar 2014 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter $ 44.80 $ 30.31 32.19 28.74 24.15 High 26.41 22.96 18.05 Low $ 24.90 $ 21.00 23.22 22.74 18.19 High 19.58 17.51 16.91 Low $ 18.20 $ 17.50 18.10 17.96 17.48 16.96 16.99 16.99 DIVIDEND INFORMATION Record Date Payment Date Amount Per Share $ .04 $ .04 $ .04 $ .04 $ .04 $ .04 $ .04 $ .04 12.23.16 01.06.17 09.16.16 10.05.16 06.17.16 07.06.16 03.18.16 04.06.16 12.18.15 01.06.16 06.19.15 07.08.15 12.19.14 01.07.15 06.20.14 07.08.14 44 QCR HOLDINGS, INC.

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