NOTE

– 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, 2016,

included in the Company’s Annual Report on Form

-K filed with the SEC on

March 10, 2017.

Accordingly, footnote disclosures, which would substantially duplicate the disclosures contained in the audited consolidated financial statements, have been omitted.

The financial information of the Company included herein has been prepared in accordance with U.S.

GAAP for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form

-Q and Rule

of Regulation S-

Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Any differences appearing between the numbers presented in financial statements and management’s discussion and analysis are due to rounding. The results of the interim period ended

June 30, 2017,

are

not

necessarily indicative of the results expected for the year ending

December 31, 2017,

or for any other period.

The acronyms and abbreviations identified below are used

throughout this Quarterly Report on Form

-Q. It

may

be helpful to refer back to this page as you read this report.

Allowance: Allowance for estimated losses on loans/leases	Guaranty Bank: Guaranty Bank and Trust Company
AOCI: Accumulated other comprehensive income (loss)	HTM: Held to maturity
AFS: Available for sale	m2: m2 Lease Funds, LLC
ASC: Acocunting Standards Codification	NIM: Net interest margin
ASU: Accounting Standards Update	NPA: Nonperforming asset
BOLI: Bank-owned life insurance	NPL: Nonperforming loan
Caps: Interest rate cap derivatives	OREO: Other real estate owned
Community National: Community National Bancorporation	OTTI: Other-than-temporary impairment
CRBT: Cedar Rapids Bank & Trust Company	PCI: Purchased credit impaired
CRE: Commercial real estate	Provision: Provision for loan/lease losses
CSB: Community State Bank	QCBT: Quad City Bank & Trust Company
C&I: Commercial and industrial	RB&T: Rockford Bank & Trust Company
Dodd-Frank Act: Dodd-Frank Wall Street Reform and	ROAA: Return on Average Assets
Consumer Protection Act	SBA: U.S. Small Business Administration
EPS: Earnings per share	SEC: Securities and Exchange Commission
Exchange Act: Securities Exchange Act of 1934, as amended	TA: Tangible assets
FASB: Financial Accounting Standards Board	TCE: Tangible common equity
FDIC: Federal Deposit Insurance Corporation	TDRs: Troubled debt restructurings
FHLB: Federal Home Loan Bank	TEY: Tax equivalent yield
FRB: Federal Reserve Bank of Chicago	The Company: QCR Holdings, Inc.
GAAP: Generally Accepted Accounting Principles	USDA: U.S. Department of Agriculture
Guaranty: Guaranty Bankshares, Ltd.

The consolidated financial statements include the accounts of the Company and its

wholly-owned subsidiaries which include

four

commercial banks: QCBT, CRBT, CSB and RB&T. All are state-chartered commercial banks. The Company also engages in direct financing lease contracts through

m2,

a wholly-owned subsidiary of QCBT. All material intercompany transactions and balances have been eliminated in consolidation.

he acquisition of CSB occurred on

August 31, 2016;

therefore, the Consolidated Balance Sheets included herein for both

June 30, 2017

and

December 31, 2016

include CSB. The Consolidated Statements of Income included herein include CSB for the quarter and

six

months ended

June 30, 2017,

however, do

not

include CSB for the comparative periods ending

June 30, 2016.

June 8, 2017,

the Company announced the signing of a definitive agreement to acquire Guaranty Bank, headquartered in Cedar Rapids, Iowa, from Guaranty. The transaction is expected to be completed late in the

third

quarter or early in the

fourth

quarter of

2017,

subject to certain customary closing conditions. The financial results of Guaranty are

not

recognized in this Report. See Note

to the Consolidated Financial Statements for additional information about the planned acquisition.

Recent accounting developments

: In

May 2014,

FASB issued ASU

2014

09,

Revenue from Contracts with Customers

. ASU

2014

implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU

2014

is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU

2014

was originally effective for the Company on

January 1, 2017,

however, FASB issued ASU

2015

which defers the effective date in order to provide additional time for both public and private entities to evaluate the impact. ASU

2014

will now be effective for the Company on

January 1, 2018

and it is

not

expected to have a significant impact on the Company’s consolidated financial statements.

January 2016,

FASB issued ASU

2016

01,

Financial Instruments – Overall

. ASU

2016

makes targeted adjustments to GAAP by eliminating the AFS classification for equity securities and requiring equity investments to be measured at fair value with changes in fair value recognized in net income. The standard also requires public business entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes. The standard clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to AFS securities in combination with the entity’s other deferred tax assets. It also requires an entity to present separately (within other comprehensive income) the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the standard eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. ASU

2016

is effective for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years and it is

not

expected to have a significant impact on the Company’s consolidated financial statements.

February 2016,

the FASB issued ASU

2016

02,

Leases

. Under ASU

2016

02,

lessees will be required to recognize a lease liability measured on a discounted basis and a right-of-use asset for all leases (with the exception of short-term leases). Lessor accounting is largely unchanged under ASU

2016

02.

However, the definition of initial direct costs was updated to include only initial direct costs that are considered incremental. This change in definition will change the manner in which the Company recognizes the costs associated with originating leases. ASU

2016

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Early adoption is permitted for all entities. The Company is in the process of analyzing the impact of adoption on the Company’s consolidated financial statements.

June 2016,

the

FASB issued ASU

2016

13,

Financial Instruments – Credit Losses

. Under the standard, assets measured at amortized costs (including loans, leases and AFS securities) will be presented at the net amount expected to be collected. Rather than the “incurred” model that is currently being utilized, the standard will require the use of a forward-looking approach to recognizing all expected credit losses at the beginning of an asset’s life. For public companies, ASU

2016

is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Companies

may

choose to early adopt for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. The Company is in the process of analyzing the impact of adoption on the Company’s consolidated financial statements.

Effective

January 1, 2017,

the Company adopted ASU

2016

09,

Compensation – Stock Compensation

. Under the standard, the excess tax benefit (deficiency) related to stock options exercised and restricted stock awards vested is recorded as an adjustment to income tax expense. In the past, this tax benefit (deficiency) was recorded directly to equity. This change in accounting resulted in

$90

thousand of reduced income tax in the

second

quarter of

2017

and

$623

thousand of reduced income tax expense in the

first

six

months of

2017.