Note

16.

Regulatory Capital Requirements and Restrictions on Dividends

The Company (on a consolidated basis) and the subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and subsidiary banks’ financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the subsidiary banks must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the subsidiary banks to maintain minimum amounts and ratios (set forth in the following table) of total common equity Tier

and Tier

capital to risk-weighted assets and of Tier

capital to average assets, each as defined by regulation. Management believes, as of

December

31,

2016

and

2015,

that the Company and the subsidiary banks met all capital adequacy requirements to which they are subject.

Under the regulatory framework for prompt corrective action, to be categorized as “well capitalized,” an institution must maintain minimum total risk-based, Tier

risk-based, Tier

leverage and common equity Tier

ratios as set forth in the following tables. The Company and the subsidiary banks’ actual capital amounts and ratios as of

December

31,

2016

and

2015

are also presented in the following table (dollars in thousands). As of

December

31,

2016

and

2015,

the subsidiary banks met the requirements to be “well capitalized”.

	Actual					For Capital Adequacy Purposes With Capital Conservation Buffer*						To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount			Ratio			Amount			Ratio
As of December 31, 2016:
Company:
Total risk-based capital	$	327,440		11.56	%	$	244,289	>		8.625	%	$	283,233	>		10.0	%
Tier 1 risk-based capital		296,366		10.46	%		187,642	>		6.625			226,587	>		8.0
Tier 1 leverage		296,366		9.10	%		130,229	>		4.000			162,787	>		5.0
Common equity Tier 1		266,419		9.41	%		145,157	>		5.125			184,102	>		6.5
Quad City Bank & Trust:
Total risk-based capital	$	142,990		12.27	%	$	100,494	>		8.625	%	$	116,515	>		10.0	%
Tier 1 risk-based capital		129,524		11.12	%		77,191	>		6.625			93,212	>		8.0
Tier 1 leverage		129,524		9.18	%		56,445	>		4.000			70,556	>		5.0
Common equity Tier 1		129,524		11.12	%		59,714	>		5.125			75,735	>		6.5
Cedar Rapids Bank & Trust:
Total risk-based capital	$	106,791		12.82	%	$	71,828	>		8.625	%	$	83,279	>		10.0	%
Tier 1 risk-based capital		96,369		11.57	%		55,173	>		6.625			66,623	>		8.0
Tier 1 leverage		96,369		10.69	%		36,061	>		4.000			45,076	>		5.0
Common equity Tier 1		96,369		11.57	%		42,681	>		5.125			54,132	>		6.5
Community State Bank:
Total risk-based capital	$	68,216		13.81	%	$	42,609	>		8.625	%	$	49,402	>		10.0	%
Tier 1 risk-based capital		66,746		13.51	%		32,729	>		6.625			39,522	>		8.0
Tier 1 leverage		66,746		11.75	%		22,726	>		4.000			28,408	>		5.0
Common equity Tier 1		66,746		13.51	%		25,319	>		5.125			32,111	>		6.5
Rockford Bank & Trust:
Total risk-based capital	$	42,007		12.26	%	$	29,551	>		8.625	%	$	34,262	>		10.0	%
Tier 1 risk-based capital		37,716		11.01	%		22,699	>		6.625			27,410	>		8.0
Tier 1 leverage		37,716		9.57	%		15,772	>		4.000			19,716	>		5.0
Common equity Tier 1		37,716		11.01	%		17,559	>		5.125			22,270	>		6.5

	Actual					For Capital Adequacy Purposes*						To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount			Ratio			Amount			Ratio
As of December 31, 2015:
Company:
Total risk-based capital	$	280,273		13.11	%	$	170,969	>		8.0	%	$	213,711	>		10.0	%
Tier 1 risk-based capital		253,891		11.88	%		128,227	>		6.0			170,969	>		8.0
Tier 1 leverage		253,891		9.75	%		104,163	>		4.0			130,203	>		5.0
Common equity Tier 1		220,800		10.33	%		96,170	>		4.5			138,912	>		6.5
Quad City Bank & Trust:
Total risk-based capital	$	135,477		12.50	%	$	86,726	>		8.0	%	$	108,407	>		10.0	%
Tier 1 risk-based capital		123,498		11.39	%		65,044	>		6.0			86,726	>		8.0
Tier 1 leverage		123,498		8.87	%		55,718	>		4.0			69,648	>		5.0
Common equity Tier 1		123,498		11.39	%		48,783	>		4.5			70,465	>		6.5
Cedar Rapids Bank & Trust:
Total risk-based capital	$	105,285		14.39	%	$	58,537	>		8.0	%	$	73,172	>		10.0	%
Tier 1 risk-based capital		96,118		13.14	%		43,903	>		6.0			58,537	>		8.0
Tier 1 leverage		96,118		10.96	%		35,079	>		4.0			43,848	>		5.0
Common equity Tier 1		96,118		13.14	%		32,927	>		4.5			47,562	>		6.5
Rockford Bank & Trust:
Total risk-based capital	$	38,544		11.96	%	$	25,772	>		8.0	%	$	32,216	>		10.0	%
Tier 1 risk-based capital		34,514		10.71	%		19,329	>		6.0			25,772	>		8.0
Tier 1 leverage		34,514		9.59	%		14,401	>		4.0			18,001	>		5.0
Common equity Tier 1		34,514		10.71	%		14,497	>		4.5			20,940	>		6.5

*The minimums under Basel III phase in higher by

.625%

(the capital conservation buffer) for all ratios other than Tier

leverage annually until

2019.

The fully phased-in minimums are

10.5%

(Total risk-based capital),

8.5%

(Tier

risk-based capital), and

7.0%

(Common equity Tier

1).

December

31,

2015,

the New Basel III minimums mirrored the minimums required for capital adequacy purposes. The

first

phase-in of the Basel III

capital conservation buffer occurred in

2016.

The Company’s ability to pay dividends to its stockholders

may

be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.

The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. Notwithstanding the availability of funds for dividends, however, the Federal Reserve

may

prohibit the payment of any dividends by the subsidiary banks if the Federal Reserve determines such payment would constitute an unsafe or unsound practice.

The Company also has certain contractual restrictions on its ability to pay dividends. The Company has issued junior subordinated debentures in

four

private placements and assumed

two

issues of junior subordinated debentures in connection with the Community National acquisition. Under the terms of the debentures, the Company

may

be prohibited, under certain circumstances, from paying dividends on shares of its common stock. These circumstances did not exist at

December

31,

2016

2015.

May

13,

2015,

the Company announced the closing of an underwritten public offering of

3,680,000

shares of its common stock at a price of

$18.25

per share. The net proceeds to the Company, after deducting the underwriting discount and offering expenses, totaled

$63.5

million. As a result of the capital raise, the Company’s regulatory capital ratios increased significantly.

The Company filed a universal shelf registration statement on Form S-

with the SEC on

October

27,

2016,

as amended on

January

11,

2017.

Declared effective by the SEC on

January

31,

2017,

the registration statement allows the Company to offer and sell various types of securities, including common stock, preferred stock, debt securities and/or warrants, from time to time up to an aggregate amount of

$100

million. The Company utilized

$30.1

million of its previous

$100

million shelf registration filing through the offer and sale of its common stock in the

second

quarter of

2016

to help fund the acquisition of CSB (see Note

to the Consolidated Financial Statements). This Form S-

filing replenishes the amount available to the previous level of

$100

million. The specific terms and prices of any securities offered pursuant to the registration statement will be determined at the time of any future offering and described in a separate prospectus supplement, which would be filed with the SEC at the time of the particular offering, if any.