U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)

(Address of principal executive offices)

(309) 736-3580

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 þ No o

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 o No o

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 o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: As of May 1, 2009, the Registrant had outstanding 4,541,895 shares of common stock, $1.00 par value per share.

 

 

QCR HOLDINGS, INC. AND SUBSIDIARIES

INDEX

		Page
		Number
Part I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets, March 31, 2009 and December 31, 2008			2
Consolidated Statements of Income, For the Three Months Ended March 31, 2009 and 2008			3-4
Consolidated Statement of Changes in Stockholders’ Equity, For the Three Months Ended March 31, 2009			5
Consolidated Statements of Cash Flows, For the Three Months Ended March 31, 2009 and 2008			6
Notes to Consolidated Financial Statements			7-15
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			16-32
Item 3 Quantitative and Qualitative Disclosures About Market Risk			33-34
Item 4 Controls and Procedures			35
Part II OTHER INFORMATION
Item 1 Legal Proceedings			36
Item 1.A. Risk Factors			36
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3 Defaults upon Senior Securities			36
Item 4 Submission of Matters to a Vote of Security Holders			36-37
Item 5 Other Information			37
Item 6 Exhibits			37-38
Signatures			39
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of March 31, 2009 and December 31, 2008

		March 31,				December 31,
		2009				2008
ASSETS
Cash and due from banks		$	24,651,875			$	33,464,074
Federal funds sold			57,224,648				20,695,898
Interest-bearing deposits at financial institutions			36,663,190				2,113,904
Securities held to maturity, at amortized cost			350,000				350,000
Securities available for sale, at fair value			279,943,556				255,726,415
			280,293,556				256,076,415
Loans receivable held for sale			4,616,395				7,377,648
Loans/leases receivable held for investment			1,201,362,713				1,207,311,984
			1,205,979,108				1,214,689,632
Less: Allowance for estimated losses on loans/leases			(21,172,529	)			(17,809,170	)
			1,184,806,579				1,196,880,462
Premises and equipment, net			30,864,949				31,389,267
Goodwill			3,222,688				3,222,688
Accrued interest receivable			7,566,887				7,835,835
Bank-owned life insurance			27,741,791				27,450,751
Other assets			27,873,483				26,499,720
Total assets		$	1,680,909,646			$	1,605,629,014
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Noninterest-bearing		$	144,832,325			$	161,126,120
Interest-bearing			941,755,268				897,832,478
Total deposits			1,086,587,593				1,058,958,598
Short-term borrowings			122,177,416				101,456,950
Federal Home Loan Bank advances			210,995,000				218,695,000
Other borrowings			75,547,506				75,582,634
Junior subordinated debentures			36,085,000				36,085,000
Other liabilities			19,723,588				22,355,661
Total liabilities			1,551,116,103				1,513,133,843
STOCKHOLDERS’ EQUITY
Preferred stock, $1 par value; shares authorized 250,000; March 2009 - 38,805 shares issued and outstanding, December 2008 - 568 shares issued and outstanding,			38,805				568
Common stock, $1 par value; shares authorized 10,000,000 March 2009 - 4,652,612 shares issued and 4,531,366 outstanding, December 2008 - 4,630,883 shares issued and 4,509,637 outstanding,			4,652,612				4,630,883
Additional paid-in capital			81,381,715				43,090,268
Retained earnings			40,531,523				40,893,304
Accumulated other comprehensive income			2,882,625				3,628,360
Noncontrolling interests			1,912,773				1,858,298
			131,400,053				94,101,681
Treasury Stock;			1,606,510				1,606,510
March 2009 - 121,246 common shares, at cost,
December 2008 - 121,246 common shares, at cost,
Total stockholders’ equity			129,793,543				92,495,171
Total liabilities and stockholders’ equity		$	1,680,909,646			$	1,605,629,014

See Notes to Consolidated Financial Statements

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31,

		2009				2008
Interest and dividend income:
Loans/leases, including fees		$	18,076,055			$	18,263,442
Securities:
Taxable			2,620,037				2,634,422
Nontaxable			252,413				243,877
Interest-bearing deposits at financial institutions			18,795				94,265
Federal funds sold			18,837				25,193
Total interest and dividend income			20,986,137				21,261,199
Interest expense:
Deposits			5,326,973				6,822,417
Short-term borrowings			165,721				1,159,317
Federal Home Loan Bank advances			2,260,646				1,941,800
Other borrowings			754,310				570,170
Junior subordinated debentures			518,436				630,978
Total interest expense			9,026,086				11,124,682
Net interest income			11,960,051				10,136,517
Provision for loan/lease losses			4,358,543				984,240
Net interest income after provision for loan/lease losses			7,601,508				9,152,277
Non-interest income:
Credit card issuing fees, net of processing costs			245,865				263,734
Trust department fees			718,115				921,261
Deposit service fees			826,974				716,492
Gains on sales of loans, net			411,911				339,854
Securities gains (losses), net			(14,355	)			—
Earnings on bank-owned life insurance			291,040				267,004
Investment advisory and management fees, gross			351,045				414,644
Other			608,149				491,145
Total non-interest income			3,438,744				3,414,134
Non-interest expenses:
Salaries and employee benefits			6,764,610				6,252,862
Professional and data processing fees			1,153,489				1,131,009
Advertising and marketing			245,529				254,731
Occupancy and equipment expense			1,321,092				1,259,795
Stationery and supplies			131,110				120,423
Postage and telephone			227,765				249,151
Bank service charges			122,292				130,842
FDIC and other insurance			619,195				318,112
Other			513,062				351,714
Total non-interest expenses			11,098,144				10,068,639
Income (loss) from continuing operations before income taxes			(57,892	)			2,497,772
Federal and state income tax expense (benefit) from continuing operations			(293,682	)			668,022
Income from continuing operations			235,790				1,829,750

(continued)

See Notes to Consolidated Financial Statements

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (continued)
Three Months Ended March 31,

		2009				2008
Discontinued operations (Note 2):
Operating income from merchant credit card acquiring business			—				92,553
Operating loss from First Wisconsin Bank & Trust			—				(1,671,055	)
Loss from discontinued operations before income taxes			—				(1,578,502	)
Federal and state income tax benefit from discontinued operations			—				(575,588	)
Loss from discontinued operations			—				(1,002,914	)
Net income		$	235,790			$	826,836
Less: Net income attributable to noncontrolling interests			151,446				140,392
Net income attributable to QCR Holdings, Inc.		$	84,344			$	686,444
Amounts attributable to QCR Holdings, Inc.:
Income from continuing operations		$	84,344			$	1,689,358
Loss from discontinued operations			—				(1,002,914	)
Net income		$	84,344			$	686,444
Less: Preferred stock dividends			695,728				446,125
Net income (loss) attributable to QCR Holdings, Inc. common stockholders		$	(611,384	)		$	240,319
Basic earnings (loss) per common share (Note 3):
Income (loss) from continuing operations attributable to QCR Holdings, Inc.			(0.14	)			0.27
Loss from discontinued operations attributable to QCR Holdings, Inc.			—				(0.22	)
Net income (loss) attributable to QCR Holdings, Inc.		$	(0.14	)		$	0.05
Diluted earnings (loss) per common share (Note 3):
Income (loss) from continuing operations attributable to QCR Holdings, Inc.			(0.13	)			0.27
Loss from discontinued operations attributable to QCR Holdings, Inc.			—				(0.22	)
Net income (loss) attributable to QCR Holdings, Inc.		$	(0.13	)		$	0.05
Weighted average common shares outstanding			4,523,851				4,602,166
Weighted average common and common equivalent shares outstanding			4,532,605				4,609,843
Cash dividends declared per common share		$	0.00			$	0.00

See Notes to Consolidated Financial Statements

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
Quarter Ended March 31, 2009

																		Accumulated
										Additional								Other
		Preferred				Common				Paid-In				Retained				Comprehensive				Noncontrolling				Treasury
		Stock				Stock				Capital				Earnings				Income				Interests				Stock				Total
Balance December 31, 2008		$	568			$	4,630,883			$	43,090,268			$	40,893,304			$	3,628,360			$	1,858,298			$	(1,606,510	)		$	92,495,171
Comprehensive income:
Net income			—				—				—				84,344				—				151,446				—				235,790
Other comprehensive income, net of tax			—				—				—				—				(745,735	)			—				—				(745,735	)
Comprehensive income																															(509,945	)
Preferred cash dividends declared			—				—				—				(446,125	)			—				—				—				(446,125	)
Proceeds from issuance of 38,237 shares of preferred stock and common stock warrant			38,237				—				38,014,586				—				—				—				—				38,052,823
Proceeds from issuance of 5,821 shares of common stock as a result of stock purchased under the Employee Stock Purchase Plan			—				5,821				46,568				—				—				—				—				52,389
Stock compensation expense			—				—				246,201				—				—				—				—				246,201
Restricted stock awards			—				15,908				(15,908	)			—				—				—				—				—
Distributions to noncontrolling interest partners			—				—				—				—				—				(96,971	)			—				(96,971	)
Balance March 31, 2009		$	38,805			$	4,652,612			$	81,381,715			$	40,531,523			$	2,882,625			$	1,912,773			$	(1,606,510	)		$	129,793,543

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,

		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	84,344			$	686,444
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			714,453				613,903
Provision for loan/lease losses related to continuing operations			4,358,543				984,240
Provision for loan/lease losses related to discontinued operations			—				1,288,000
Amortization of offering costs on subordinated debentures			3,579				3,579
Stock-based compensation expense			134,375				120,111
Net income attributable to noncontrolling interests			151,446				140,392
Amortization of premiums (accretion of discount) on securities, net			226,845				(52,268	)
Investment securities losses, net			14,355				—
Loans originated for sale			(38,574,682	)			(28,442,005	)
Proceeds on sales of loans			41,747,846				30,016,369
Net gains on sales of loans			(411,911	)			(339,854	)
Increase (decrease) in accrued interest receivable			268,948				(528,718	)
(Increase) decrease in other assets			(1,065,629	)			978,260
Decrease in other liabilities			(2,335,212	)			(8,318,402	)
Net cash provided by (used in) operating activities		$	5,317,300			$	(2,849,949	)
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold			(36,528,750	)			4,010,000
Net (increase) decrease in interest-bearing deposits at financial institutions			(34,549,286	)			2,442,574
Activity in securities portfolio:
Purchases			(67,364,998	)			(51,832,984	)
Calls, maturities and redemptions			41,786,705				40,074,000
Paydowns			76,485				149,991
Increase in cash value of bank-owned life insurance			(291,040	)			(295,060	)
(Increase) decrease in loans/leases originated and held for investment			4,843,135				(46,597,566	)
Purchase of premises and equipment			(190,135	)			(465,887	)
Net increase in cash related to discontinued operations, held for sale			—				(1,067,831	)
Net cash used in investing activities		$	(92,217,884	)		$	(53,582,763	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts			27,628,995				59,149,335
Net increase (decrease) in short-term borrowings			20,720,466				(13,698,330	)
Activity in Federal Home Loan Bank advances:
Advances			—				12,000,000
Payments			(7,700,000	)			(5,712,822	)
Net increase (decrease) in other borrowings			(35,128	)			4,949,407
Tax benefit of nonqualified stock options exercised			—				717
Payment of cash dividends			(631,160	)			(451,910	)
Proceeds from issuance of preferred stock and common stock warrant, net			38,052,823				—
Proceeds from issuance of common stock, net			52,389				67,630
Net cash provided by financing activities		$	78,088,385			$	56,304,027
Net decrease in cash and due from banks			(8,812,199	)			(128,685	)
Cash and due from banks, beginning			33,464,074				40,490,000
Cash and due from banks, ending		$	24,651,875			$	40,361,315
Supplemental disclosure of cash flow information, cash payments for:
Interest		$	10,024,462			$	12,261,326
Income/franchise taxes		$	1,355,663			$	991,238
Supplemental schedule of noncash investing activities:
Change in accumulated other comprehensive income, unrealized gains (losses) on securities available for sale, net		$	(745,735	)		$	1,808,101
Transfers of loans to other real estate owned		$	110,952			$	219,994

See Notes to Consolidated Financial Statements

Part I

Item 1

QCR HOLDINGS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2009

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, 2008, including QCR Holdings, Inc.’s (the “Company”) Form 10-K filed with the Securities and Exchange Commission on March 6, 2009. Accordingly, footnote disclosures, which would substantially duplicate the disclosure 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 periods ended March 31, 2009, are not necessarily indicative of the results expected for the year ending December 31, 2009.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries which includes three state-chartered commercial banks: Quad City Bank & Trust Company (“QCBT”), Cedar Rapids Bank & Trust Company (“CRBT”), and Rockford Bank & Trust Company (“RB&T”); and Quad City Bancard, Inc. (“Bancard”) which provides cardholder credit card processing services. The Company also engages in direct financing lease contracts through its 80% equity investment in m2 Lease Funds, LLC (“m2 Lease Funds”), and in real estate holdings through its 57% equity investment in Velie Plantation Holding Company, LLC (“Velie Plantation Holding Company”). All material intercompany transactions and balances have been eliminated in consolidation.

Activities related to discontinued operations have been recorded separately with current and prior period amounts reclassified as assets and liabilities related to discontinued operations on the consolidated balance sheets and as discontinued operations on the consolidated statements of income and consolidated statement of cash flows. The notes to the consolidated financial statements have also been adjusted to eliminate the effect of discontinued operations.

Stock-based compensation plans: Please refer to Note 14 of our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008, for information related to the Company’s stock option and incentive plans, stock purchase plan, and stock appreciation rights (“SARs”).

Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

The Company accounts for stock-based compensation in accordance with the Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) requires measurement of compensation cost for all stock-based awards at fair value on the grant date and recognition of compensation expense over the requisite service period for awards expected to vest. Stock-based compensation expense totaled $134 thousand and $120 thousand for the three months ended March 31, 2009 and 2008, respectively. A key component in the calculation of stock-based compensation expense is the market price of the Company’s stock.

Preferred stock and common stock warrant: As more fully described in Note 8, during the quarter the Company issued preferred stock and a common stock warrant, which are classified in stockholders’ equity on the consolidated balance sheet. The outstanding preferred stock has similar characteristics of an “Increasing Rate Security” as described by the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 68, Increasing Rate Preferred Stock (“SAB No. 68”). The proceeds received in conjunction with the issuance of preferred stock and common stock warrant were allocated to preferred stock and additional paid-in-capital based on their relative fair values. Discounts on the increasing rate preferred stock are amortized over the expected life of the preferred stock (5 years), by charging imputed dividend cost against retained earnings and increasing the carrying amount of the preferred stock by a corresponding amount. The discount at the time of issuance is computed as the present value of the difference between dividends that will be payable in future periods and the dividend amount for a corresponding number of periods, discounted at a market rate for dividend yield on comparable securities. The amortization in each period is the amount which, together with the stated dividend in the period results in a constant rate of effective cost with regard to the carrying amount of the preferred stock.

Common stock warrants are evaluated for liability and equity treatment. The common stock warrant outstanding is carried as additonal paid-in-capital in stockholders’ equity until exercised or expired. This is consistent with the view of both the SEC and Financial Accounting Standards Board (“FASB”) as each withheld objection to classification of such warrants as permanent equity. This view is also consistent with the objective of the Treasury Capital Purchase Program (“TCPP”) that equity in these securities should be considered part of equity for regulatory reporting purposes. The fair value of the common stock warrant used in allocating total proceeds received was determined using the Black-Scholes option pricing model.

NOTE 2 — DISCONTINUED OPERATIONS

During 2008, Bancard sold its merchant credit card acquiring business resulting in gain on sale, net of taxes and related expenses, of approximately $3.0 million. The 2008 financial results associated with the merchant credit card acquiring business have been reflected as discontinued operations. There is no 2009 activity.

On December 31, 2008, the Company sold its Milwaukee subsidiary, First Wisconsin Bank & Trust Company (“FWBT”), for $13.7 million which resulted in a gain on sale, net of taxes and related expenses, of approximately $356 thousand. The 2008 financial results associated with FWBT have been reflected as discontinued operations. There is no 2009 activity.

Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Please refer to Note 2 of our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008, for information related to the Company’s discontinued operations.

NOTE 3 — EARNINGS PER SHARE

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

		Three months ended
		March 31,
		2009				2008
Net income		$	235,790			$	826,836
Less: Net income attributable to noncontrolling interests			151,446				140,392
Net income attributable to QCR Holdings, Inc.		$	84,344			$	686,444
Amounts attributable to QCR Holdings, Inc.:
Income from continuing operations		$	84,344			$	1,689,358
Loss from discontinued operations			—				(1,002,914	)
Net income		$	84,344			$	686,444
Less: Preferred stock dividends			695,728				446,125
Net income (loss) attributable to QCR Holdings, Inc. common stockholders		$	(611,384	)		$	240,319
Basic earnings (loss) per common share:
Income (loss) from continuing operations attributable to QCR Holdings, Inc.			(0.14	)			0.27
Loss from discontinued operations attributable to QCR Holdings, Inc.			—				(0.22	)
Net income (loss) attributable to QCR Holdings, Inc.		$	(0.14	)		$	0.05
Diluted earnings (loss) per common share:
Income (loss) from continuing operations attributable to QCR Holdings, Inc.			(0.13	)			0.27
Loss from discontinued operations attributable to QCR Holdings, Inc.			—				(0.22	)
Net income (loss) attributable to QCR Holdings, Inc.		$	(0.13	)		$	0.05
Weighted average common shares outstanding			4,523,851				4,602,166
Weighted average common shares issuable upon exercise of stock options and under the employee stock purchase plan			8,754				7,677
Weighted average common and common equivalent shares outstanding			4,532,605				4,609,843

Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

NOTE 4 — 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 QCR Holdings, Inc. 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.

First Wisconsin Bank & Trust is accounted for as discontinued bank operations and the related 2008 financial information has been properly excluded where appropriate. FWBT’s assets held for sale at March 31, 2008 are reported in the All Other segment.

The Company’s Credit Card Processing segment represents the continuing operations of Bancard. As previously noted, Bancard sold its merchant credit card acquiring business in 2008 and the Company has accounted for it as discontinued operations. The 2008 financial information has been properly excluded.

The Company’s Trust Management segment represents the trust and asset management 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 and for custodial services. No assets of the subsidiary banks have been allocated to the Trust Management segment.

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 and the 57% owned real estate holding operations of Velie Plantation Holding Company.

Selected financial information on the Company’s business segments is presented as follows for the three months ended March 31, 2009 and 2008.

QCR HOLDINGS, INC. AND SUBSIDIARIES

SELECTED FINANCIAL DATA — BUSINESS SEGMENTS
Three Months Ended March 31, 2009 and 2008

		Commercial Banking
		Quad City				Cedar Rapids				Rockford				Credit Card				Trust								Intercompany				Consolidated
		Bank & Trust				Bank & Trust				Bank & Trust				Processing				Management				All other				Eliminations				Total
Three Months Ended March 31, 2009
Total Revenue		$	13,096,483			$	6,902,443			$	3,393,011			$	245,865			$	718,115			$	1,324,575			$	(1,255,611	)		$	24,424,881
Net Interest Income		$	7,381,936			$	3,753,999			$	1,495,971			$	99,283			$	—			$	(671,855	)		$	(99,283	)		$	11,960,051
Net Income Attributable to QCR Holdings, Inc.		$	1,336,030			$	430,370			$	(563,433	)		$	(197,622	)		$	162,421			$	161,868			$	(1,245,289	)		$	84,344
Total Assets		$	954,296,726			$	492,279,302			$	234,509,356			$	589,241			$	—			$	179,964,995			$	(180,729,974	)		$	1,680,909,646
Provision for Loan/Lease Losses		$	1,734,190			$	1,150,000			$	1,061,000			$	413,353			$	—			$	—			$	—			$	4,358,543
Goodwill		$	3,222,688			$	—			$	—			$	—			$	—			$	—			$	—			$	3,222,688
Three Months Ended March 31, 2008
Total Revenue		$	14,209,540			$	6,540,062			$	2,833,857			$	263,734			$	921,261			$	1,969,842			$	(2,062,963	)		$	24,675,333
Net Interest Income		$	6,908,953			$	2,872,260			$	1,092,376			$	121,333			$	—			$	(725,462	)		$	(132,943	)		$	10,136,517
Net Income Attributable to QCR Holdings, Inc.		$	2,008,701			$	624,605			$	(45,889	)		$	46,156			$	244,461			$	743,417			$	(2,935,007	)		$	686,444
Total Assets		$	869,047,705			$	411,212,136			$	171,683,778			$	1,142,046			$	—			$	137,355,571			$	(63,235,884	)		$	1,527,205,352
Provision for Loan/Lease Losses		$	583,599			$	192,710			$	180,000			$	27,931			$	—			$	—			$	—			$	984,240
Goodwill		$	3,222,688			$	—			$	—			$	—			$	—			$	—			$	—			$	3,222,688

Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

NOTE 5 — COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company’s subsidiary banks make various commitments and incur certain contingent liabilities that are not presented in the accompanying consolidated financial statements. The commitments and contingent liabilities include various guarantees, commitments to extend credit, and standby letters of credit.

As of March 31, 2009 and December 31, 2008, commitments to extend credit aggregated were $506.1 million and $494.8 million, respectively. As of March 31, 2009 and December 31, 2008, standby, commercial and similar letters of credit aggregated were $12.1 million and $15.2 million, respectively. Management does not expect that all of these commitments will be funded.

Contractual obligations and other commitments were presented in the Company’s 2008 Annual Report on Form 10-K. There have been no material changes in the Company’s contractual obligations and other commitments since that report was filed.

NOTE 6 — RECENT ACCOUNTING DEVELOPMENTS

On April 9, 2009, FASB issued three final Staff Positions intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. FASB Staff Position No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides guidelines for making fair value measurements more consistent with the principles presented in FASB Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements , when the volume and level of activity for the asset or liability have decreased significantly. FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, enhances consistency in financial reporting by increasing the frequency of fair value disclosures. FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities.

All three Staff Positions are effective for interim and annual periods ending after June 15, 2009. Entities were permitted to early adopt these Staff Positions for interim and annual periods ending after March 15, 2009, but had to adopt all three Staff Positions concurrently. The Company intends to adopt these Staff Positions for the quarterly period ending June 30, 2009, as required. Management has not determined the impact adoption will have on the Company’s consolidated financial statements.

In February 2008, FASB issued Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS No. 157 for most nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. The implemenation of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities did not impact the Company’s consolidated financial statements. See Note 7 for additional information regarding fair value measurements of financial assets and liabilities.

Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

In December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS No. 141R”). SFAS No. 141R fundamentally changes the manner in which the entity accounts for a business combination. On April 1, 2009, FASB issued FASB Staff Position No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (“FSP 141(R)-1”). FSP 141(R)-1 provides additional guidance regarding the recognition, measurement and disclosure of assets and liabilities arising from contingencies in a business combination. This Statement and related Staff Position are effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company adopted both statements on January 1, 2009 and will change its accounting treatment for business combinations on a prospective basis.

In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 160 changes the measurement, recognition and presentation of minority interests in consolidated subsidiaries (now referred to as noncontrolling interests). This Statement is effective for fiscal years beginning on or after December 15, 2008 and is prospective for the change related to measurement and recognition and retrospective for the changes related to presentation.

The Company now presents noncontrolling interests (previously shown as minority interest) as a component of equity on the consolidated balance sheets. Minority interest expense is no longer separately reported as a reduction to net income on the consolidated income statement, but is instead now shown below net income under the heading “net income attributable to noncontrolling interests.” The adoption of SFAS No. 160 did not have any other material impact on the Company’s consolidated financial statements.

NOTE 7 — FAIR VALUE MEASURMENTS

SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value. It also establishes a hierarchy for determining fair value measurement. The hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:

	1.		Level 1 — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in markets;
	2.		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
	3.		Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

Assets measured at fair value on a recurring basis comprise the following at March 31, 2009:

Fair Value Measurements at Reporting Date Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Inputs

(dollars in thousands)

Fair Value

(Level 1)

(Level 2)

(Level 3)

Securities available for sale

$

279,944

$

478

$

279,466

$

—

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

The large majority of the securities available for sale portfolio consist of U.S. government sponsored agency securities whereby 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 instruments 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). Financial assets measured at fair value on a non-recurring basis were not significant at March 31, 2009.

NOTE 8 — ISSUANCE OF SERIES D PREFERRED STOCK AND COMMON STOCK WARRANT

On February 13, 2009, the Company issued 38,237 shares of Series D Preferred Stock to the U.S. Department of the Treasury (“Treasury”) for an aggregate purchase price of $38,237,000. The sale of Series D Preferred Stock was a result of the Company’s participation in the TCPP. This sale also included the issuance of a warrant (“Warrant”) that allows Treasury to purchase up to 521,888 shares of common stock at an exercise price of $10.99 per share.

The Warrant has a ten-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $10.99 per share of the Common Stock. As of March 31, 2009, there had been no changes to the number of common shares covered by the Warrant nor had the Treasury exercised any portion of the Warrant.

Part I
Item 1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-continued

The Series D Preferred Stock qualifies as Tier 1 capital and will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. Prior to the third anniversary of Treasury’s purchase of the Series D Preferred Stock, unless the Series D Preferred Stock has been redeemed or Treasury has transferred all of the Series D Preferred Stock to one or more third parties, the consent of Treasury will be required for the Company to: (i) increase the dividend paid on its Common Stock; or (ii) repurchase its Common Stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice. The Series D Preferred Stock will be non-voting except for class voting rights on matters that would adversely affect the rights of the holders of the Series D Preferred Stock.

Treasury has the ability to unilaterally amend the TCPP documents at any time to comply with changes in the law, and as a result, the terms of the TCPP could change.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”) was signed into law, which contains provisions that significantly impact TCPP recipients both retroactively and prospectively. Restrictions on repayment, including the Tier 1 qualified capital raise requirement, have been removed allowing institutions to repay the TCPP funds upon consultation and approval from the Company’s primary federal banking regulator. If the Treasury is repaid, it will liquidate the warrant it holds at the fair market value. The Stimulus Bill has also imposed more strict compensation limitations and expands the number of executives covered based upon the amount of TCPP funds received. These provisions will apply to existing and future TCPP recipients for periods the TCPP capital is outstanding.

The Series D Preferred Stock and the Warrant were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). Upon the request of Treasury at any time, the Company has agreed to promptly enter into a deposit arrangement pursuant to which the Series D Preferred Stock may be deposited and depositary shares representing fractional shares of Series D Preferred Stock, may be issued. The Company registered the Warrant and the shares of Common Stock underlying the Warrant with the Securities and Exchange Commission under the Securities Act. Additionally, the Company has also agreed to register the shares of Series D Preferred Stock upon the written request of Treasury.

The proceeds received from the Treasury were allocated to the Series D Preferred Stock and the Warrant based on relative fair value. The fair value of the Series D Preferred Stock was determined through a discounted future cash flows model using a discount rate of 12%. The fair value of the Warrant was calculated using the Black-Scholes option pricing model, which includes assumptions regarding the Company’s dividend yield, stock price volatility, and the risk-free interest rate. The relative fair value of the Series D Preferred Stock and the Warrant on February 13, 2009, was $35.8 million and $2.4 million, respectively.

The Company calculated the discount on the Series D Preferred Stock in the amount of $2.4 million, which will be amortized over a 5 year period. The effective yield on the Series D Preferred Stock including the amortization of the discount is approximately 6.23%. In determining net income (loss) attributable to QCR Holdings, Inc. common stockholders, the periodic amortization and the cash dividend on the preferred stock are subtracted from net income attributable to QCR Holdings, Inc.

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

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

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. On January 1, 2008, Quad City Bank & Trust acquired 100% of the membership units of 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 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 and adjacent communities through its main office located on Guilford Road at Alpine Road in Rockford, and its branch facility located in downtown Rockford.

On December 31, 2008, the Company sold its Milwaukee subsidiary, First Wisconsin Bank & Trust for $13.7 million which resulted in a gain on sale, net of taxes and related expenses, of approximately $356 thousand. The 2008 financial results associated with First Wisconsin Bank & Trust have been reflected as discontinued operations.

Bancard currently provides credit card processing for its agent banks and for cardholders of the Company’s subsidiary banks and agent banks. As discussed in the footnotes to the financial statements, the Company sold the merchant credit card acquiring business segment of Bancard during the third quarter of 2008. The 2008 activity related to the merchant credit card acquiring business is accounted for as discontinued operations.

Part I
Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — continued

OVERVIEW

The Company reported net income attributable to QCR Holdings, Inc. for the first quarter ended March 31, 2009 of $84 thousand, which resulted in diluted earnings per share for common shareholders of ($0.13). Earnings for the first quarter of 2009 were significantly impacted by additional loan/lease loss provisions as the Company increased its qualitative reserves due to the continued uncertainty in the national and local economy and made increased provisions regarding several specific commercial credits. By comparison, for the quarter ended December 31, 2008, the Company reported a slight net loss attributable to QCR Holdings, Inc. of $55 thousand, or diluted earnings per share of ($0.11). For the first quarter of 2008, the Company reported net income attributable to QCR Holdings, Inc. of $686 thousand, or diluted earnings per share of $0.05.

The Company’s earnings from continuing operations attributable to QCR Holdings, Inc. were $84 thousand and $1.7 million for the quarters ended March 31, 2009 and 2008, respectively. Diluted earnings per share from continuing operations attributable to QCR Holdings, Inc. decreased from $0.27 to ($0.13). This reduction was due to the significant increase in provision for loan/lease losses of $3.4 million. Partially offsetting this increased provision expense was an increase in net interest income of $1.9 million, or 18%, from $10.1 million for the quarter ending March 31, 2008 to $12.0 million for the quarter ending March 31, 2009.

The Company’s operating results are derived largely from net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, and interest expense, principally on borrowings and customer deposits. Net interest income, on a tax equivalent basis, increased $1.9 million, or by 13%, to $12.1 million for the quarter ended March 31, 2009, from $10.2 million for the first quarter of 2008. For the first quarter of 2009, average earning assets increased by $214.6 million, or by 16%, and average interest-bearing liabilities increased by $161.9 million, or by 14%, when compared with average balances for the first quarter of 2008. A comparison of yields, spread and margin from the first quarter of 2009 to the first quarter of 2008 is as follows (on a tax equivalent basis):

•

The average yield on interest-earning assets decreased 100 basis points.

•

The average cost of interest-bearing liabilities decreased 106 basis points.

•

The net interest spread improved 6 basis points from 2.83% to 2.89%.

•

The net interest margin improved 4 basis points from 3.15% to 3.19%.

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 March 31,
		2009												2008
						Interest				Average								Interest				Average
		Average				Earned				Yield or				Average				Earned				Yield or
		Balance				or Paid				Cost				Balance				or Paid				Cost
		(dollars in thousands)
ASSETS
Interest earning assets:
Federal funds sold		$	34,314			$	19				0.22	%		$	3,979			$	25				2.51	%
Interest-bearing deposits at financial institutions			15,529				19				0.49	%			10,394				94				3.62	%
Investment securities (1)			255,284				2,993				4.69	%			218,900				2,997				5.48	%
Gross loans/leases receivable (2) (3)			1,212,058				18,076				5.97	%			1,069,348				18,262				6.83	%
Total interest earning assets		$	1,517,185				21,107				5.56	%		$	1,302,621				21,378				6.56	%
Noninterest-earning assets:
Cash and due from banks		$	30,013											$	34,370
Premises and equipment			30,954												31,535
Less allowance for estimated losses on loans/leases			(19,092	)											(11,871	)
Other			76,906												138,610
Total assets		$	1,635,966											$	1,495,265
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits		$	330,558				932				1.13	%		$	318,134				2,051				2.58	%
Savings deposits			66,825				203				1.22	%			39,622				161				1.63	%
Time deposits			533,963				4,192				3.14	%			403,079				4,611				4.58	%
Short-term borrowings			98,745				166				0.67	%			173,564				1,159				2.67	%
Federal Home Loan Bank advances			212,210				2,261				4.26	%			172,162				1,942				4.51	%
Junior subordinated debentures			36,085				518				5.74	%			36,085				631				6.99	%
Other borrowings			75,482				754				4.00	%			49,288				570				4.63	%
Total interest-bearing Liabilities		$	1,353,868				9,026				2.67	%		$	1,191,934				11,125				3.73	%
Noninterest-bearing demand deposits		$	147,719											$	132,462
Other noninterest-bearing liabilities			22,633												82,017
Total liabilities		$	1,524,220											$	1,406,413
Stockholders’ equity			111,746												88,852
Total liabilities and stockholders’ equity		$	1,635,966											$	1,495,265
Net interest income						$	12,081											$	10,253
Net interest spread											2.89	%											2.83	%
Net interest margin											3.19	%											3.15	%
Ratio of average interest earning assets to average interest-bearing liabilities			112.06	%											109.29	%

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 March 31, 2009

		Inc./(Dec.)				Components
		from				of Change (1)
		Prior Period				Rate				Volume
		2009 vs. 2008
		(dollars in thousands)
INTEREST INCOME
Federal funds sold		$	(6	)		$	(163	)		$	157
Interest-bearing deposits at financial institutions			(75	)			(284	)			209
Investment securities (2)			(4	)			(1,849	)			1,845
Gross loans/leases receivable (3) (4)			(186	)			(9,587	)			9,401
Total change in interest income		$	(271	)		$	(11,883	)		$	11,612
INTEREST EXPENSE
Interest-bearing demand deposits		$	(1,119	)		$	(1,645	)		$	526
Savings deposits			42				(227	)			269
Time deposits			(419	)			(6,092	)			5,673
Short-term borrowings			(993	)			(630	)			(363	)
Federal Home Loan Bank advances			319				(635	)			954
Junior subordinated debentures			(113	)			(113	)			—
Other borrowings			184				(457	)			641
Total change in interest expense		$	(2,099	)		$	(9,799	)		$	7,700
Total change in net interest income		$	1,828			$	(2,084	)		$	3,912

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 loan/lease loss 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 March 31, 2009 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 (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for anticipated recovery in fair value. As of March 31, 2009, management’s evaluation determined that any declines in fair value of available for sale securities were temporary.

Part I
Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — continued

RESULTS OF OPERATIONS

INTEREST INCOME

Interest income experienced a slight decrease of $275 thousand, or 1%, from $21.3 million for the quarter ended March 31, 2008 to $21.0 million for the quarter ended March 31, 2009. The Company grew its loan/lease portfolio as the average balance of loans/leases increased $142.7 million, or 13%, from $1.1 billion for the first quarter of 2008 to $1.2 billion for the same quarter of 2009. The impact of this growth on interest income was effectively offset as a result of the sharp decline in national and local market interest rates over the past year. The Company’s average yield on interest earning assets decreased 100 basis points from 6.56% for the three months ended March 31, 2008 to 5.56% for the same period in 2009.

INTEREST EXPENSE

Interest expense decreased $2.1 million, or nearly 19%, from $11.1 million for the first quarter of 2008 to $9.0 million for the first quarter of 2009. Although the Company saw an increase in interest-bearing liabilities of $161.9 million, or 14%, from the first quarter in 2008 to the first quarter in 2009, this was more than offset by the decline in the average cost of interest bearing liabilities. Specifically, the Company’s average cost of interest bearing liabilities was 2.67% for the first quarter of 2009, which was a decrease of 106 basis points when compared to the 3.73% for the first quarter of 2008.

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 provision for loan/lease losses increased $3.4 million from $984 thousand for the first quarter of 2008 to $4.4 million for the first quarter of 2009. The increase is attributable to the significant growth in loans/leases, some degradation of several commercial credits requiring specific reserves, and the Company’s decision to increase the qualitative reserve factors applied to all loans within the reserve adequacy calculations for all of the subsidiary banks and the leasing company due to the continued uncertainty regarding the national economy and the impact on the Company’s local markets.

The provision for loan/lease losses for the first quarter of 2009 of $4.4 million was a decrease of $369 thousand, or 8%, from $4.7 million for the fourth quarter of 2008.

As a result, the Company’s allowance for loan/lease losses to gross loans/leases increased to 1.76% at March 31, 2009 from 1.47% at December 31, 2008, and from 1.15% at March 31, 2008.

Part I
Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — continued

NON-INTEREST INCOME

The following tables set forth the various categories of non-interest income for the three months ended March 31, 2009 and 2008.

		Three Months Ended
		March 31,				March 31,
		2009				2008				$ Change				% Change
Credit card fees, net of processing costs		$	245,865			$	263,734			$	(17,869	)			(6.8	)%
Trust department fees			718,115				921,261				(203,146	)			(22.1	)
Deposit service fees			826,974				716,492				110,482				15.4
Gains on sales of loans, net			411,911				339,854				72,057				21.2
Securities gains (losses), net			(14,355	)			—				(14,355	)			100.0
Earnings on bank-owned life insurance			291,040				267,004				24,036				9.0
Investment advisory and management fees, gross			351,045				414,644				(63,599	)			(15.3	)
Other			608,149				491,145				117,004				23.8
Total Non-Interest Income		$	3,438,744			$	3,414,134			$	24,610				0.7	%

Trust department fees decreased $203 thousand from the first quarter of 2008 to the first quarter of 2009. The majority of trust department fees are determined based on the value of the investments within the managed trusts. With the national economic difficulties experienced over the past year, many of these investments experienced declines in market value.

Deposit service fees increased $110 thousand, or 15%, for the first quarter of 2009 compared to the first quarter of 2008. This increase was primarily the result of an increase in NSF (non-sufficient funds or overdraft) charges related to demand deposit accounts at the Company’s subsidiary banks. During the past 12 months, the Company experienced an increase in the number and amount of demand deposits. Service charges and NSF charges related to the Company’s demand deposit accounts were the main components of deposit service fees.

Gains on sales of loans, net, increased $72 thousand for the first quarter of 2009 compared to the same quarter of 2008. This consists primarily of sales of residential mortgages. Loan origination and sales activity for these loan types has increased as a result of the reduction in interest rates and the resulting increase in residential mortgage refinancing transactions.

Investment advisory and management fees decreased $64 thousand, or 15%, for the first quarter of 2009 compared to the first quarter of 2008. Similar to trust department fees, these fees are determined based on the value of the investments managed. With the economic recession, many of these investments have experienced declines in market value.

Part I
Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — continued

NON-INTEREST EXPENSE

The following tables set forth the various categories of non-interest expenses for the three months ended March 31, 2009 and 2008.

		Three Months Ended
		March 31,				March 31,
		2009				2008				$ Change				% Change
Salaries and employee benefits		$	6,764,610			$	6,252,862			$	511,748				8.2	%
Professional and data processing fees			1,153,489				1,131,009				22,480				2.0
Advertising and marketing			245,529				254,731				(9,202	)			(3.6	)
Occupancy and equipment expense			1,321,092				1,259,795				61,297				4.9
Stationery and supplies			131,110				120,423				10,687				8.9
Postage and telephone			227,765				249,151				(21,386	)			(8.6	)
Bank service charges			122,292				130,842				(8,550	)			(6.5	)
FDIC and other insurance			619,195				318,112				301,083				94.6
Other			513,062				351,714				161,348				45.9
Total Non-Interest Expense		$	11,098,144			$	10,068,639			$	1,029,505				10.2	%