~~0000906465us-gaap:OperatingSegmentsMemberqcrh:CommercialBankingSegmentMemberqcrh:QuadCityBankAndTrustCompanyMember2021-09-30~~0000906465qcrh:CedarRapidsBankAndTrustMember2023-03-31

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

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

For the transition period from ______to________

Commission file number 0-22208

QCR HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	42-1397595
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3551 7^th Street, Moline, Illinois 61265

(Address of principal executive offices, including zip code)

(309) 736-3580

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 Par Value	QCRH	The Nasdaq Global Market

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 the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒	Accelerated filer ☐		Non-accelerated filer ☐
Smaller reporting company ☐		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: As of ~~November~~May 1, ~~2022,~~2023, the Registrant had outstanding ~~16,884,419~~16,718,077 shares of common stock, $1.00 par value per share.

Table of Contents

QCR HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


			Page Number(s)
Part I	FINANCIAL INFORMATION

	Item 1	Consolidated Financial Statements (Unaudited)

		Consolidated Balance Sheets As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	4

		Consolidated Statements of Income For the Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	5

		~~Consolidated Statements of Income~~ ~~For the Nine Months Ended September 30, 2022 and 2021~~	6

		Consolidated Statements of Comprehensive Income For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	76

		Consolidated Statements of Changes in Stockholders' Equity For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	87

		Consolidated Statements of Cash Flows For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	98

		Notes to Consolidated Financial Statements	119

		Note 1. Summary of Significant Accounting Policies	119
		Note 2. ~~Acquisition~~Investment Securities	1211
		Note 3. ~~Investment Securities~~Loans/Leases Receivable	1514
		Note 4. ~~Loans/Leases Receivable~~Derivatives and Hedging Activities	1823
		Note 5. ~~Derivatives and Hedging Activities~~Income Taxes	2825
		Note 6. ~~Subordinated Notes~~Earnings Per Share	3126
		Note 7. ~~Income Taxes~~Fair Value	3227
		Note 8. ~~Earnings Per Share~~Business Segment Information	3229
		Note 9. ~~Fair Value~~	33
		~~Note 10. Business Segment Information~~	35
		~~Note 11.~~ Regulatory Capital Requirements	3630

	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations

		Introduction	3832
		General	3832
		Critical Accounting Policies and Critical Accounting Estimates	3832
		Executive Overview	3933
		Strategic Financial Metrics	4134
		Strategic Developments	4235
		GAAP to Non-GAAP Reconciliations	4236
		Net Interest Income - (Tax Equivalent Basis)	4538
		Results of Operations		4940
		Interest Income		4940
		Interest Expense		5041
		Provision for Credit Losses		5041
		Noninterest Income		42
		Noninterest Expense		44
		Income Taxes		46
		Financial Condition		46
		Investment Securities		46

Table of Contents

		~~Noninterest Income~~	51
		~~Noninterest Expense~~	54
		~~Income Taxes~~	57
		~~Financial Condition~~	58
		~~Investment Securities~~	58
		Loans/Leases	5947
		Allowance for Credit Losses on Loans/Leases and OBS Exposures	6049
		Nonperforming Assets	6251
		Deposits	6352
		Borrowings	6453
		Stockholders' Equity	6554
		Liquidity and Capital Resources	6655
		Special Note Concerning Forward-Looking Statements	6757

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	6959

	Item 4	Controls and Procedures	7161

Part II	OTHER INFORMATION

	Item 1	Legal Proceedings	7262

	Item 1A	Risk Factors	7262

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	7262

	Item 3	Defaults Upon Senior Securities	7262

	Item 4	Mine Safety Disclosures	7262

	Item 5	Other Information	7262

	Item 6	Exhibits	7363

Signatures

Throughout this Quarterly Report on Form 10-Q, we use certain acronyms and abbreviations, as defined in Note 1 to the Consolidated Financial Statements.

Table of Contents

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022


	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022

	(dollars in thousands)				(dollars in thousands)
Assets
Cash and due from banks	$	86,282	$	37,490	$	64,295	$	59,723
Federal funds sold		28,210		12,370		16,365		56,910
Interest-bearing deposits at financial institutions		42,833		75,292		237,632		67,360

Securities held to maturity, at amortized cost, net of allowance for credit losses		539,713		472,385		561,969		587,142
Securities available for sale, at fair value		339,737		337,830		315,477		340,960
Total securities		879,450		810,215		877,446		928,102

Loans receivable held for sale		3,054		3,828		140,633		1,480
Loans/leases receivable held for investment		6,005,556		4,676,304		6,049,389		6,137,391
Gross loans/leases receivable		6,008,610		4,680,132		6,190,022		6,138,871
Less allowance for credit losses		(90,489)		(78,721)		(86,573)		(87,706)
Net loans/leases receivable		5,918,121		4,601,411		6,103,449		6,051,165

Bank-owned life insurance		105,825		62,424		107,287		106,580
Premises and equipment, net		115,274		78,530		117,641		117,948
Restricted investment securities		39,299		19,353		31,914		42,501
Other real estate owned, net		177		—		61		133
Goodwill		137,607		74,066		138,474		137,607
Intangibles		17,546		9,349		15,993		16,759
Derivatives		185,037		222,220		130,350		177,631
Other assets		174,388		93,412		195,997		186,418
Total assets	$	7,730,049	$	6,096,132	$	8,036,904	$	7,948,837

Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	1,315,555	$	1,268,788	$	1,189,858	$	1,262,981
Interest-bearing		4,625,480		3,653,984		5,311,805		4,721,236
Total deposits		5,941,035		4,922,772		6,501,663		5,984,217

Short-term borrowings		85,180		3,800		1,100		129,630
Federal Home Loan Bank advances		335,000		15,000		135,000		415,000
Subordinated notes		232,743		113,850		232,746		232,662
Junior subordinated debentures		48,568		38,155		48,634		48,602
Derivatives		209,479		225,135		150,401		200,701
Other liabilities		140,972		100,410		165,866		165,301
Total liabilities		6,992,977		5,419,122		7,235,410		7,176,113


Stockholders' Equity:
Preferred stock, $1 par value; shares authorized 250,000 September 2022 and December 2021 - no shares issued or outstanding		—		—
Common stock, $1 par value; shares authorized 20,000,000 September 2022 - 16,885,485 shares issued and outstanding December 2021 - 15,613,460 shares issued and outstanding		16,885		15,613
Preferred stock, $1 par value; shares authorized 250,000 March 2023 and December 2022 - no shares issued or outstanding						—		—
Common stock, $1 par value; shares authorized 20,000,000 March 2023 - 16,713,775 shares issued and outstanding December 2022 - 16,795,942 shares issued and outstanding						16,714		16,796
Additional paid-in capital		372,086		273,768		368,302		370,712
Retained earnings		422,958		386,077		472,051		450,114
Accumulated other comprehensive income (loss):
Accumulated other comprehensive (loss):
Securities available for sale		(52,262)		5,925		(38,378)		(44,677)
Derivatives		(22,595)		(4,373)		(17,195)		(20,221)
Total stockholders' equity		737,072		677,010		801,494		772,724
Total liabilities and stockholders' equity	$	7,730,049	$	6,096,132	$	8,036,904	$	7,948,837

See Notes to Consolidated Financial Statements (Unaudited)

Table of Contents

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~


	2022		2021		2023		2022

	(dollars in thousands, except share data)				(dollars in thousands, except share data)
Interest and dividend income:
Loans/leases, including fees	$	69,855	$	44,858
Loans/leases, including fees:
Taxable					$	66,634	$	37,428
Nontaxable						17,312		6,768
Securities:
Taxable		3,304		2,347		3,366		2,398
Nontaxable		4,955		4,160		5,337		4,150
Interest-bearing deposits at financial institutions		380		39		821		35
Restricted investment securities		673		262		513		281
Federal funds sold		100		1		234		2
Total interest and dividend income		79,267		51,667		94,217		51,062

Interest expense:
Deposits		12,570		3,273		29,780		3,137
Short-term borrowings		84		1		99		—
Federal Home Loan Bank advances		2,584		41		3,521		82
Other borrowings		53		—
Subordinated notes		2,518		1,554		3,311		1,554
Junior subordinated debentures		689		569		696		556
Total interest expense		18,498		5,438		37,407		5,329
Net interest income		60,769		46,229		56,810		45,733
Provision for credit losses		—		—		3,928		(2,916)
Net interest income after provision for credit losses		60,769		46,229		52,882		48,649

Noninterest income:
Trust department fees		2,537		2,714
Trust fees						2,906		2,963
Investment advisory and management fees		921		1,054		879		1,036
Deposit service fees		2,214		1,588		2,028		1,555
Gains on sales of residential real estate loans, net		641		954		312		493
Gains on sales of government guaranteed portions of loans, net		50		—		30		19
Swap fee income/capital markets revenue		10,545		24,885
Capital markets revenue						17,023		6,422
Securities losses, net						(463)		—
Earnings on bank-owned life insurance		605		446		707		346
Debit card fees		1,453		1,085		1,466		1,007
Correspondent banking fees		189		265		391		277
Loan related fee income		652		550		651		480
Fair value gain (loss) on derivatives		904		(17)		(427)		906
Other		384		1,128		339		129
Total noninterest income		21,095		34,652		25,842		15,633

Noninterest expense:
Salaries and employee benefits		29,175		28,207		32,003		23,627
Occupancy and equipment expense		6,033		4,122		5,914		3,937
Professional and data processing fees		4,477		3,568		3,514		3,671
Acquisition costs		315		—		—		1,851
Post-acquisition compensation, transition and integration costs		62		—		207		—
FDIC insurance, other insurance and regulatory fees		1,497		1,108		1,374		1,310
Loan/lease expense		390		308		556		267
Net cost of (income from) and gains/losses on operations of other real estate		19		(1,346)
Net income from and gains/losses on operations of other real estate						(67)		(1)
Advertising and marketing		1,437		1,095		1,237		761
Communication		639		457
Communication and data connectivity						665		403
Supplies		289		298		305		246
Bank service charges		568		525		605		541
Correspondent banking expense		218		201		210		199
Intangibles amortization		787		508		766		493
Payment card processing		477		346		545		262
Trust expense		227		188		214		187
Other		1,136		1,802		737		571
Total noninterest expense		47,746		41,387		48,785		38,325
Net income before income taxes		34,118		39,494		29,939		25,957
Federal and state income tax expense		4,824		7,929		2,782		2,333
Net income	$	29,294	$	31,565	$	27,157	$	23,624

Basic earnings per common share	$	1.73	$	2.02	$	1.62	$	1.51
Diluted earnings per common share	$	1.71	$	1.99	$	1.60	$	1.49

Weighted average common shares outstanding		16,900,968		15,635,123		16,776,289		15,625,112
Weighted average common and common equivalent shares outstanding		17,110,691		15,869,798		16,942,132		15,852,256

Cash dividends declared per common share	$	0.06	$	0.06	$	0.06	$	0.06

See Notes to Consolidated Financial Statements (Unaudited)

Table of Contents

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended March 31, 2023 and 2022


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)

Net income	$	27,157	$	23,624

Other comprehensive income (loss):

Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period before tax		7,392		(29,170)
Less: reclassification adjusted for impairment losses included in net income before tax		(989)		—
Less reclassification adjustment for sales losses included in net income before tax		(463)		—
		8,844		(29,170)

Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) arising during the period before tax		3,446		(6,858)
Less reclassification adjustment for caplet amortization before tax		(201)		(221)
		3,647		(6,637)

Other comprehensive income (loss), before tax		12,491		(35,807)
Tax expense (benefit)		3,166		(8,467)
Other comprehensive income (loss), net of tax		9,325		(27,340)

Comprehensive income (loss)	$	36,482	$	(3,716)

See Notes to Consolidated Financial Statements (Unaudited)

Table of Contents

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~INCOME (UNAUDITED)~~CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

2022

2021


(dollars in thousands, except share data)

Interest and dividend income:

Loans/leases, including fees

$
173,855

$
128,639

Securities:

Taxable

8,792

6,521

Nontaxable

13,750

12,146

Interest-bearing deposits at financial institutions

584

110

Restricted investment securities

1,439

718

Federal funds sold

114

1

Total interest and dividend income

198,534

148,135

Interest expense:

Deposits

21,231

9,935

Short-term borrowings

87

4

Federal Home Loan Bank advances

3,447

66

Other borrowings

53

—

Subordinated notes

5,888

4,718

Junior subordinated debentures

1,926

1,692

Total interest expense

32,632

16,415

Net interest income

165,902

131,720

Provision for credit losses

8,284

6,713

Net interest income after provision for loan/lease losses

157,618

125,007

Noninterest income:

Trust department fees

7,997

8,363

Investment advisory and management fees

2,940

3,033

Deposit service fees

5,992

4,488

Gains on sales of residential real estate loans, net

1,943

3,475

Gains on sales of government guaranteed portions of loans, net

69

—

Swap fee income/capitals markets revenue

29,971

48,010

Securities losses, net

—

(88)

Earnings on bank-owned life insurance

1,301

1,368

Debit card fees

3,959

3,144

Correspondent banking fees

710

848

Loan related fee income

1,814

1,732

Fair value gain (loss) on derivatives

2,242

73

Other

572

2,991

Total noninterest income

59,510

77,437

Noninterest expenses:

Salaries and employee benefits

82,774

76,098

Occupancy and equipment expense

15,948

12,195

Professional and data processing fees

12,513

10,713

Acquisition costs

4,139

—

Post-acquisition compensation, transition and integration costs

4,858

—

Disposition costs

—

8

FDIC insurance, other insurance and regulatory fees

4,201

3,159

Loan/lease expense

1,418

1,065

Net cost of (income from) and gains/losses on operations of other real estate

77

(1,420)

Advertising and marketing

3,396

2,575

Communication

1,626

1,317

Supplies

772

779

Bank service charges

1,719

1,620

Correspondent banking expense

630

599

Intangibles amortization

2,067

1,524

Payment card processing

1,365

1,114

Trust expense

609

550

Other

2,207

2,394

Total noninterest expenses

140,319

114,290

Net income before income taxes

76,809

88,154

Federal and state income tax expense

8,649

16,258

Net income

$
68,160

$
71,896

Basic earnings per common share

$
4.25

$
4.54

Diluted earnings per common share

$
4.20

$
4.48

Weighted average common shares outstanding

16,030,371

15,829,124

Weighted average common and common equivalent shares outstanding

16,243,921

16,058,420

Cash dividends declared per common share

$
0.18

$
0.18

~~See Notes to Consolidated Financial Statements (Unaudited)~~

~~Table of Contents~~

~~QCR HOLDINGS, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)~~

~~Three and Nine Months Ended September 30, 2022 and 2021~~

Three Months Ended September 30,



2022

2021

(dollars in thousands)

Net income

$
29,294

$
31,565

Other comprehensive loss:

Unrealized losses on securities available for sale:

Unrealized holding losses arising during the period before tax

(23,069)

(3,194)

(23,069)

(3,194)

Unrealized losses on derivatives:

Unrealized holding losses arising during the period before tax

(8,955)

(342)

Less reclassification adjustment for caplet amortization before tax

(261)

(181)

(8,694)

(161)

Other comprehensive loss, before tax

(31,763)

(3,355)

Tax benefit

(6,980)

(809)

Other comprehensive loss, net of tax

(24,783)

(2,546)

Comprehensive income

$
4,511

$
29,019

Nine Months Ended September 30,

2022

2021

(dollars in thousands)

Net income

$
68,160

$
71,896

Other comprehensive income (loss):

Unrealized losses on securities available for sale:

Unrealized holding losses arising during the period before tax

(76,814)

(4,290)

Less reclassification adjustment for losses included in net income before tax

—

(88)

(76,814)

(4,202)

Unrealized gains (losses) on derivatives:

Unrealized holding gains (losses) arising during the period before tax

(23,769)

3,383

Less reclassification adjustment for caplet amortization before tax

(723)

(495)

(23,046)

3,878

Other comprehensive loss, before tax

(99,860)

(324)

Tax benefit

(23,451)

(205)

Other comprehensive loss, net of tax

(76,409)

(119)

Comprehensive income (loss)

$
(8,249)

$
71,778

~~See Notes to Consolidated Financial Statements (Unaudited)~~

~~Table of Contents~~

~~QCR HOLDINGS, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED~~)

~~Three and Nine Months Ended September 30, 2022 and 2021~~


							Accumulated										Accumulated
			Additional				Other						Additional				Other
	Common		Paid-In		Retained		Comprehensive				Common		Paid-In		Retained		Comprehensive
	Stock		Capital		Earnings		(Loss) Income		Total		Stock		Capital		Earnings		(Loss)		Total

	(dollars in thousands)										(dollars in thousands)

Balance December 31, 2021	$	15,613	$	273,768	$	386,077	$	1,552	$	677,010
Balance December 31, 2022											$	16,796	$	370,712	$	450,114	$	(64,898)	$	772,724
Net income		—		—		23,624		—		23,624		—		—		27,157		—		27,157
Other comprehensive (loss), net of tax		—		—		—		(27,340)		(27,340)
Other comprehensive income, net of tax												—		—		—		9,325		9,325
Common cash dividends declared, $0.06 per share		—		—		(939)		—		(939)		—		—		(1,010)		—		(1,010)
Repurchase and cancellation of 77,500 shares of common stock
Repurchase and cancellation of 152,500 shares of common stock												(153)		(3,356)		(4,210)				(7,719)
as a result of a share repurchase program		(77)		(1,338)		(3,000)		—		(4,415)		—		—		—		—		—
Stock-based compensation expense		—		751		—		—		751		—		953		—		—		953
Issuance of common stock under employee benefit plans		44		(811)		—		—		(767)		71		(7)		—		—		64
Balance, March 31, 2022	$	15,580	$	272,370	$	405,762	$	(25,788)	$	667,924
Net income		—		—		15,242		—		15,242
Other comprehensive (loss), net of tax		—		—		—		(24,286)		(24,286)
Common cash dividends declared, $0.06 per share		—		—		(1,059)		—		(1,059)
Issuance of 2,071,291 shares of common stock
as a result of acquisition of Guaranty Federal Bancshares		2,071		115,143		—		—		117,214
Repurchase and cancellation of 602,500 shares of common stock
as a result of a share repurchase program		(603)		(13,258)		(19,155)		—		(33,016)
Stock-based compensation expense		—		545		—		—		545
Issuance of common stock under employee benefit plans		16		558		—		—		574
Balance, June 30, 2022	$	17,064	$	375,358	$	400,790	$	(50,074)	$	743,138
Net income		—		—		29,294		—		29,294
Other comprehensive (loss), net of tax		—		—		—		(24,783)		(24,783)
Repurchase and cancellation of 190,000 shares of common stock
as a result of a share repurchase program		(190)		(4,181)		(6,114)		—		(10,485)
Common cash dividends declared, $0.06 per share		—		—		(1,012)		—		(1,012)
Stock-based compensation expense		—		382		—		—		382
Issuance of common stock under employee benefit plans		11		527		—		—		538
Balance, September 30, 2022	$	16,885	$	372,086	$	422,958	$	(74,857)	$	737,072

Balance, March 31, 2023											$	16,714	$	368,302	$	472,051	$	(55,573)	$	801,494


							Accumulated										Accumulated
			Additional				Other						Additional				Other
	Common		Paid-In		Retained		Comprehensive				Common		Paid-In		Retained		Comprehensive
	Stock		Capital		Earnings		(Loss)		Total		Stock		Capital		Earnings		Income (Loss)		Total

	(dollars in thousands)										(dollars in thousands)

Balance December 31, 2020	$	15,806	$	275,807	$	300,804	$	1,376	$	593,793
Balance December 31, 2021											$	15,613	$	273,768	$	386,077	$	1,552	$	677,010
Impact of adoption of ASU 2016-13		—		—		(937)		—		(937)		—		—		—		—		—
Net income		—		—		17,982		—		17,982		—		—		23,624		—		23,624
Other comprehensive (loss), net of tax		—		—		—		(1,751)		(1,751)		—		—		—		(27,340)		(27,340)
Common cash dividends declared, $0.06 per share		—		—		(949)		—		(949)		—		—		(939)		—		(939)
Stock-based compensation expense		—		841		—		—		841
Issuance of common stock under employee benefit plans		38		(298)		—		—		(260)
Balance, March 31, 2021	$	15,844	$	276,350	$	316,900	$	(375)	$	608,719
Net income		—		—		22,349		—		22,349
Other comprehensive income, net of tax		—		—		—		4,179		4,179
Common cash dividends declared, $0.06 per share		—		—		(951)		—		(951)
Repurchase and cancellation of 100,000 shares of common stock
Repurchase and cancellation of 77,500 shares of common stock
as a result of a share repurchase program		(100)		(1,826)		(2,874)		—		(4,800)		(77)		(1,338)		(3,000)		—		(4,415)
Stock-based compensation expense		—		520		—		—		520		—		751		—		—		751
Issuance of common stock under employee benefit plans		20		440		—		—		460		44		(811)		—		—		(767)
Balance, June 30, 2021	$	15,764	$	275,485	$	335,424	$	3,803	$	630,476
Net income		—		—		31,565		—		31,565
Other comprehensive (loss), net of tax		—		—		—		(2,546)		(2,546)
Repurchase and cancellation of 193,153 shares of common stock
as a result of a share repurchase program		(193)		(3,134)		(6,040)		—		(9,367)
Common cash dividends declared, $0.06 per share		—		—		(946)		—		(946)
Stock-based compensation expense		—		504		—		—		504
Issuance of common stock under employee benefit plans		19		109		—		—		128
Balance, September 30, 2021	$	15,590	$	272,964	$	360,003	$	1,257	$	649,814

Balance, March 31, 2022											$	15,580	$	272,370	$	405,762	$	(25,788)	$	667,924

See Notes to Consolidated Financial Statements (Unaudited)

Table of Contents

QCR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~


	2022		2021		2023		2022

	(dollars in thousands)				(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	68,160	$	71,896	$	27,157	$	23,624
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		5,699		4,087		2,006		1,297
Provision for credit losses		8,284		6,713		3,928		(2,916)
Stock-based compensation expense		1,678		1,865		953		751
Deferred compensation expense accrued		3,027		3,288		1,272		1,026
Gains on other real estate owned, net		(19)		(1,754)		(85)		—
Amortization of premiums on securities, net		939		1,506		389		336
Caplet amortization		723		495		201		221
Fair value gain on derivatives		(2,242)		(73)
Fair value (gain) loss on derivatives						427		(906)
Securities losses, net		—		88		463		—
Loans originated for sale		(82,009)		(157,392)		(13,353)		(25,749)
Proceeds on sales of loans		88,010		161,173		13,766		27,121
Gains on sales of residential real estate loans		(1,943)		(3,475)		(312)		(493)
Gains on sales of government guaranteed portions of loans		(69)		—		(30)		(19)
Losses on sales and disposals of premises and equipment		520		1,457
Gains on sales and disposals of premises and equipment						—		(10)
Amortization of intangibles		2,067		1,524		766		493
Accretion of acquisition fair value adjustments, net		(2,893)		(1,251)		(828)		(118)
Increase in cash value of bank-owned life insurance		(1,301)		(1,368)		(707)		(346)
Increase in other assets		(33,840)		(37,632)		(13,148)		(16,243)
Increase in other liabilities		21,843		13,161
Decrease in other liabilities						(1,101)		(1,123)
Net cash provided by operating activities	$	76,634	$	64,308	$	21,764	$	6,946

CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold		(15,840)		2,095
Net decrease in interest-bearing deposits at financial institutions		49,593		22,755
Net decrease in federal funds sold						40,545		2,735
Net (increase) decrease in interest-bearing deposits at financial institutions						(170,272)		18,537
Proceeds from sales of other real estate owned		223		4,592		218		—
Activity in securities portfolio:
Purchases		(173,331)		(151,702)		(23,022)		(52,403)
Calls, maturities and redemptions		30,597		81,000		45,685		7,213
Paydowns		27,311		50,177		5,915		10,113
Sales		111,375		23,874		28,628		—
Activity in restricted investment securities:
Purchases		(19,885)		(4,280)		(3,177)		(11,389)
Redemptions		2,159		2,447		13,764		20
Net increase in loans/leases originated and held for investment		(524,877)		(353,616)		(54,025)		(148,521)
Purchase of premises and equipment		(27,119)		(7,866)		(1,699)		(3,428)
Proceeds from sales of premises and equipment		413		22		—		37
Purchase of bank-owned life insurance		(10,000)		—
Net cash acquired from acquisition		144,973		—
Net cash used in investing activities	$	(404,408)	$	(330,502)	$	(117,440)	$	(177,086)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts		(58,310)		272,691		517,446		(83,083)
Net increase (decrease) in short-term borrowings		81,380		(3,830)
Net decrease in short-term borrowings						(128,530)		(2,610)
Activity in Federal Home Loan Bank advances:
Term advances						135,000		—
Net change in short-term and overnight advances		320,000		15,000		(415,000)		275,000
Prepayments		(16,000)		—
Activity in other borrowings:
Proceeds from other borrowings		10,000		—
Paydown of revolving line of credit		(10,000)		—
Prepayments on brokered and public time deposits		—		—
Prepayments of subordinated notes		—		(5,000)
Proceeds from subordinated notes		100,000		—
Payment of cash dividends on common stock		(2,933)		(2,847)		(1,013)		(935)
Proceeds from issuance of common stock, net		345		328		64		(767)
Repurchase and cancellation of shares		(47,916)		(14,167)		(7,719)		(4,415)
Net cash provided by financing activities	$	376,566	$	262,175	$	100,248	$	183,190

Net increase (decrease) in cash and due from banks		48,792		(4,019)
Net increase in cash and due from banks						4,572		13,050

Cash and due from banks, beginning		37,490		61,329		59,723		37,490
Cash and due from banks, ending	$	86,282	$	57,310	$	64,295	$	50,540

~~Table of Contents~~

~~QCR HOLDINGS, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)~~

~~Nine Months Ended September 30, 2022 and 2021~~

2022

2021

(dollars in thousands)

Supplemental disclosure of cash flow information, cash payments (receipts) for:





Interest

$
32,046

$
18,617

Income/franchise taxes

107

36,987



Supplemental schedule of noncash investing activities:



Change in accumulated other comprehensive income, unrealized losses on securities available for sale and derivative instruments, net

(76,409)

(118)

Transfers of loans to other real estate owned

326

2,812

Decrease in the fair value of back-to-back interest rate swap assets and liabilities

(48,195)

(25,503)

Dividends payable

1,012

946

Supplemental disclosure of cash flow information for acquisitions:





Fair value of assets acquired:





Cash and due from banks

$
171,844

$
—

Interest-bearing deposits at financial institutions

17,134

—

Securities

143,017

—

Loans receivable, net

801,697

—

Bank-owned life insurance

32,100

—

Premises and equipment, net

16,257

—

Restricted investment securities

2,220

—

Other real estate owned

55

—

Intangibles

10,264

—

Other assets

23,685

—

Total assets acquired

$
1,218,273

$
—





Fair value of liabilities assumed:





Deposits

$
1,076,573

$
—

FHLB advances

16,000

—

Subordinated debentures

19,621

Junior subordinated debentures

10,310

—

Other liabilities

15,225

—

Total liabilities assumed

1,137,729

—

Net assets acquired

$
80,544

$
—

Consideration paid:





Cash paid *

$
26,871

$
—

Common stock

117,214

—

Total consideration paid

144,085

—

Goodwill

$
63,541

$
—

*Net cash acquired at closing totaled $145.0 million for acquisition of Guaranty Bank in 2022.

See Notes to Consolidated Financial Statements (Unaudited)


	2023		2022

	(dollars in thousands)
Supplemental disclosure of cash flow information, cash payments (receipts) for:
Interest	$	38,053	$	6,271
Income/franchise taxes		(299)		38

Supplemental schedule of noncash investing activities:
Change in accumulated other comprehensive income (loss), unrealized gains (losses) on securities available for sale and derivative instruments, net		9,325		(27,340)
Transfers of loans to other real estate owned		61		—
Due to broker for purchases of securities		—		7,533
Decrease in the fair value of back-to-back interest rate swap assets and liabilities		(46,248)		(119,357)
Dividends payable		1,010		939
Transfer of loans to loans held for sale		139,224		—
Measurement period adjustment to goodwill		867		—

See Notes to Consolidated Financial Statements (Unaudited)

108

Table of Contents

Part I

Item 1

QCR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September 30, 2022~~March 31, 2023

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, ~~2021,~~2022, included in the Company's Annual Report on Form 10-K filed with the SEC on March ~~11, 2022.~~1, 2023. 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 GAAP for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Any differences appearing between the numbers presented in financial statements and management's discussion and analysis are due to rounding. The results of the interim period ended ~~September 30, 2022~~March 31, 2023 are not necessarily indicative of the results expected for the year ending December 31, ~~2022,~~2023, or for any other period.

The acronyms and abbreviations identified below are used throughout this Quarterly Report on Form 10-Q. It may be helpful to refer back to this page as you read this report.



ACL: Allowance for credit losses	GFED: Guaranty Federal Bancshares, Inc.
Allowance: Allowance for credit losses	~~GFED: Guaranty Federal Bancshares, Inc.~~HTM: Held to maturity
AOCI: Accumulated other comprehensive income (loss)	~~HTM: Held to maturity~~LIBOR: London Inter-Bank Offered Rate
ASC: Accounting Standards Codification	~~LIBOR: London Inter-Bank Offered Rate~~LIHTC: Low-income housing tax credit
ASU: Accounting Standards Update	~~LIHTC: Low-income housing tax credit~~
~~Bates Companies: Bates Financial Advisors, Inc., Bates~~	m2: m2 Equipment Finance, LLC
~~Financial Services, Inc., Bates Securities, Inc. and~~BOLI: Bank-owned life insurance	NIM: Net interest margin
~~Bates Financial Group, Inc.~~Caps: Interest rate cap derivatives	NPA: Nonperforming asset
~~BOLI: Bank-owned life insurance~~CECL: Current Expected Credit Losses	NPL: Nonperforming loan
~~Caps: Interest rate cap derivatives~~Community National: Community National Bancorporation	OBS: Off-balance sheet
~~CECL: Current Expected Credit Losses~~Company: QCR Holdings, Inc.	OREO: Other real estate owned
~~Community National: Community National Bancorporation~~	~~OTTI: Other-than-temporary impairment~~
COVID-19: Coronavirus Disease 2019	~~PCAOB: Public Company Accounting Oversight Board~~OTTI: Other-than-temporary impairment
CRBT: Cedar Rapids Bank & Trust Company	~~PCD: Purchased credit deteriorated loan~~PCAOB: Public Company Accounting Oversight Board
CRE: Commercial real estate	~~PCI: Purchased~~PCD: Purchase credit ~~impaired~~deteriorated loan
CSB: Community State Bank	~~PPP: Paycheck Protection Program~~PCI: Purchased credit impaired
C&I: Commercial and industrial	PPP: Paycheck Protection Program
EBA: Excess balance account	Provision: Provision for credit losses
~~EBA: Excess balance account~~EPS: Earnings per share	QCBT: Quad City Bank & Trust Company
~~EPS: Earnings per share~~	~~ROAA: Return on average assets~~
Exchange Act: Securities Exchange Act of 1934, as	~~ROAE:~~ROAA: Return on average ~~equity~~assets
amended	~~SBA: U.S. Small Business Administration~~ROAE: Return on average equity
FASB: Financial Accounting Standards Board	SEC: Securities and Exchange Commission
FDIC: Federal Deposit Insurance Corporation	SFCB: Springfield First Community Bank
Federal Reserve: Board of Governors of the Federal	SFG: Specialty Finance Group
Reserve System	TA: Tangible ~~assets~~Assets
FHLB: Federal Home Loan Bank	~~TCE:~~TBV: Tangible ~~common equity~~book value
FRB: Federal Reserve Bank of Chicago	~~TDRs: Troubled debt restructurings~~TCE: Tangible common equity
Guaranty: Guaranty Bank, formerly known as Springfield First	~~TEY: Tax equivalent yield~~TDRs: Troubled debt restructurings
Community Bank	~~The Company: QCR Holdings, Inc.~~TEY: Tax equivalent yield

119

Table of Contents

The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries which include the accounts of four commercial banks: QCBT, CRBT, CSB and GB. All four banks are state-chartered commercial banks and all are members of the Federal Reserve system. The Company also engages in direct financing lease contracts through m2, a wholly-owned subsidiary of QCBT. The company also engages in wealth management services through its banking subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

The acquisition of GFED, the holding company of GB, headquartered in Springfield, Missouri, occurred on April 1, 2022 and on April 2, 2022, GB was merged into SFCB, the Company’s Springfield-based charter. The combined bank changed its name to Guaranty Bank. The financial results for the periods since the acquisition/merger are included in this report. See Note 2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information about the acquisition and merger.

~~Pending~~Recent accounting developments: In March 2020, the FASB issued ASU 2020-4, “Reference Rate Reform,” which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.

In December 2022, in response to the postponement of the cessation date of LIBOR, the FASB issued ASU 2022-06 which defers the sunset date of the ASU 2020-4 guidance to December 31, 2024, after which entities will no longer be permitted to apply the relief.

Management has assessed the impacts of ASU 2020-04 and the related opportunities and risks involved in the LIBOR transition. Specifically, management has identified all of the financial instruments with LIBOR exposure which includes certain commercial loans, interest rate swaps, interest rate caps, and certain securities. In all cases, management has determined a plan of transition from LIBOR to a different index. The transition will happen prior to the expiration of published LIBOR rates on June 30, 2023. Management expects the transition to have a minimal impact to the Company’s financial statements.

In April 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. Under the standard, the accounting guidance on troubled debt restructurings for creditors in ASC 310-40 is eliminated and guidance on “vintage disclosures” is amended to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. For public companies that have adopted ASC 326, the changes take effect in reporting periods beginning after December 15, 2022. ~~Management is currently analyzing the anticipated~~This standard was adopted on January 1, 2023 and did not have a significant impact ~~of the statement~~ on the Company’s financial statements.

Reclassifications: Certain amounts in the prior year’s Consolidated Financial Statements have been reclassified, with no effect on net income or stockholders’ equity, to conform with the current period presentation.

~~NOTE 2 – ACQUISITION~~

On April 1, 2022, the Company completed its previously announced acquisition of GFED and on April 2, 2022 merged GFED’s bank subsidiary into SFCB, the Company’s Springfield-based charter. The combined bank changed its name to Guaranty Bank.

Stockholders of GFED received for each share of GFED common stock owned, at the election of each stockholder, subject to proration and adjustment, (1) $30.50 in cash, (2) 0.58775 shares of the Company’s common stock, or (3) mixed consideration of $6.10 in cash and 0.4702 shares of the Company’s common stock. On March 31, 2022, the last trading date before the closing date, the Company’s common stock closed at $56.59, resulting in stock consideration valued at $117.2 million and total cash consideration paid by the Company of $26.9 million. The Company funded the cash portion of the purchase price through operating cash.

The acquisition of GFED supports the strategic goals of the Company. It allows for increased product and service capabilities of the combined bank and it will result in strong growth in Springfield, MO and its surrounding communities.

The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the acquisition date, net of applicable income tax effects. The Company considers all purchase accounting adjustments as provisional and fair values are subject to refinement for up to one year after the closing date due to timing of third party reports and management’s reviews of reports.

~~The excess of the consideration paid over the fair value of the net assets acquired is recorded as goodwill. This goodwill is not deductible for tax purpose.~~

1210

Table of Contents

~~The fair values of the assets acquired and liabilities assumed including the consideration paid and resulting goodwill is as follows:~~

As of

April 1, 2022

(dollars in thousands)
ASSETS


Cash and due from banks

$
171,844
Interest-bearing deposits at financial institutions

17,134
Securities

143,017
Loans/leases receivable, net

801,697
Bank-owned life insurance

32,100
Premises and equipment

16,257
Restricted investment securities

2,220
Other real estate owned

55
Intangibles

10,264
Other assets

23,685
Total assets acquired

$
1,218,273


LIABILITIES


Deposits

$
1,076,573
FHLB advances

16,000
Subordinated notes

19,621
Junior subordinated debentures

10,310
Other liabilities

15,225
Total liabilities assumed

$
1,137,729
Net assets acquired

$
80,544


CONSIDERATION PAID:


Cash

$
26,871
Common stock

117,214
Total consideration paid

$
144,085
Goodwill

$
63,541

The Company acquired loans both with and without evidence of credit quality deterioration since origination. Acquired loans are recorded at their fair value at the time of acquisition with no carryover from the acquired institution’s previously recorded allowance for loan and lease losses. Acquired loans are accounted for under ASC 326, ~~Financial Instruments – Credit Losses~~.

The fair value of acquired loans recorded at the time of acquisition is based upon several factors, including the timing and payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting these cash flows using comparable market rates. The resulting fair value adjustment is recorded in the form of a premium or discount to the unpaid principal balance of the respective loans. As it relates to acquired loans that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination (“PCD”), the net premium or net discount is adjusted to reflect the Company’s allowance for credit losses recorded for PCD loans at the time of acquisition, and the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of the respective loans. As it relates to loans not classified as PCD (“non-PCD”) loans, the credit loss and yield components of their fair value adjustment are aggregated, and the resulting net premium or net discount is accreted or amortized into interest income over the remaining life of the respective loans. The Company recorded an accretable discount of $12.0 million on the non-PCD loans. The Company also recorded an ACL for non-PCD loans at the time of acquisition through provision expense of $11.0 million.

~~The carrying amount of loans acquired and classified as PCD is as follows:~~

Guaranty Bank

April 1, 2022

(dollars in thousands)

Principal balance of PCD loans at acquisition

$
38,711
Allowance for credit losses at acquisition

(5,902)
Non-credit discount at acquisition

(1,366)
Fair value of PCD loans at acquisition

$
31,443

~~Table of Contents~~

Premises and equipment acquired with a fair value of $16.3 million includes sixteen branch locations. The fair value was determined with the assistance of a third party appraiser. The assets and related fair value adjustments will be recognized as an increase in depreciation expense over 39 years.

The Company recorded a core deposit intangible totaling $10.3 million, which is the portion of the acquisition purchase price that represents the value assigned to the existing deposit base. The core deposit intangible has a finite life and is amortized using an accelerated method over the estimated useful life of the deposits (estimated to be ten years).

~~The following table presents the changes in the carrying amount of core deposit intangibles, gross carrying amount, accumulated amortization, and net book value:~~

September 30, 2022

(dollars in thousands)
Balance at acquisition

$
10,264
Amortization expense

(588)
Balance at the end of the period

$
9,676

Gross carrying amount

$
10,264
Accumulated amortization

(588)
Net book value

$
9,676

~~The following presents the remaining estimated amortization of the core deposit intangible:~~

Year ending, December 31,

Amount

(dollars in thousands)
2022

$
295
2023

1,162
2024

1,138
2025

1,109
2026

1,076
Thereafter

4,896

$
9,676

~~The following table presents the assumed borrowings as of the acquisition date:~~

Amount
Rate
Terms
Maturity Date
Collateral

(dollars in thousands)
FHLB advance

6,500
0.59%
monthly interest payments; principal due at maturity
5/15/2023
commercial and residential real estate loans
FHLB advance

6,500
0.82%
monthly interest payments; principal due at maturity
5/15/2025
commercial and residential real estate loans
FHLB advance

3,000
1.12%
monthly interest payments; principal due at maturity
5/17/2027
commercial and residential real estate loans
Subordinated notes

19,621
5.25%
monthly interest payments; principal due at maturity
9/30/2030
unsecured
Junior subordinated debentures

10,310
4.09%
monthly interest payments; principal due at maturity
2/23/2036
unsecured
Fair value of borrowings assumed

$ 45,931

~~The Company prepaid the $16.0 million of FHLB advances in full shortly after closing.~~

During the first nine months of 2022, the Company incurred $4.1 million of expenses related to the acquisition, comprised primarily of legal, accounting, investment banking costs and personnel costs, and $4.9 million of post-acquisition, compensation, transition and integration costs, comprised primarily of personnel costs, IT integration and data conversion costs related to the acquisition. GB results are included in the consolidated statements of income effective on the acquisition date.

~~Table of Contents~~

Unaudited pro forma combined operating results for the three and nine months ended September 30, 2022 and 2021, giving effect to the GFED acquisition as if it had occurred as of January 1, 2021, are as follow:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,


2022

2021

2022
2021

(dollars in thousands, except per share data)

Net interest income

$
60,769

$
56,684

$
175,743

$
161,229
Noninterest income

$
21,095

$
40,170

$
61,747

$
88,386
Net income

$
29,294

$
35,567

$
70,691

$
82,354





Earnings per common share:






Basic

$
1.73

$
2.01

$
4.23

$
4.60
Diluted

$
1.71

$
1.98

$
4.18

$
4.54

NOTE 3–2– INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are summarized as follows:


			Gross		Gross						Allowance		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		for Credit		Unrealized		Unrealized		Fair
	Cost*		Gains		(Losses)		Value		Cost		(Losses)		Gains		(Losses)		Value

	(dollars in thousands)								(dollars in thousands)
September 30, 2022:
March 31, 2023:
Securities HTM:
Municipal securities	$	538,861	$	1,564	$	(30,022)	$	510,403	$	561,099	$	(180)	$	10,578	$	(43,563)	$	527,934
Other securities		1,050		—		(6)		1,044		1,050		—		—		(18)		1,032
	$	539,911	$	1,564	$	(30,028)	$	511,447	$	562,149	$	(180)	$	10,578	$	(43,581)	$	528,966

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	23,389	$	22	$	(2,884)	$	20,527	$	21,697	$	—	$	16	$	(2,393)	$	19,320
Residential mortgage-backed and related securities		76,680		—		(7,836)		68,844		69,415		—		—		(6,311)		63,104
Municipal securities		241,292		23		(55,972)		185,343		209,875		—		9		(39,294)		170,590
Asset-backed securities		19,654		170		(194)		19,630		18,087		—		47		(167)		17,967
Other securities		47,700		—		(2,307)		45,393		48,562		(989)		7		(3,084)		44,496
	$	408,715	$	215	$	(69,193)	$	339,737	$	367,636	$	(989)	$	79	$	(51,249)	$	315,477

* HTM securities shown on the balance sheet of $539.7 million represent amortized cost of $539.9 million, net of allowance for credit losses of $198 thousand as of September 30, 2022.


			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
	Cost		(Losses)		Gains		(Losses)		Value

	(dollars in thousands)
December 31, 2022:
Securities HTM:
Municipal securities	$	586,272	$	(180)	$	5,292	$	(56,798)	$	534,586
Other securities		1,050		—		—		—		1,050
	$	587,322	$	(180)	$	5,292	$	(56,798)	$	535,636

Securities AFS:
U.S. govt. sponsored agency securities	$	19,745	$	—	$	19	$	(2,783)	$	16,981
Residential mortgage-backed and related securities		73,438		—		—		(7,223)		66,215
Municipal securities		239,812		—		66		(46,700)		193,178
Asset-backed securities		18,885		—		48		(205)		18,728
Other securities		48,631		—		27		(2,800)		45,858
	$	400,511	$	—	$	160	$	(59,711)	$	340,960

Gross

Gross

Amortized

Unrealized

Unrealized

Fair


Cost

Gains

(Losses)

Value

(dollars in thousands)
December 31, 2021:







Securities HTM:







Municipal securities

$
471,533

$
49,715

$
—

$
521,248
Other securities

1,050

—

(1)

1,049

$
472,583

$
49,715

$
(1)

$
522,297








Securities AFS:








U.S. govt. sponsored agency securities

$
23,370

$
254

$
(296)

$
23,328
Residential mortgage-backed and related securities

92,431

2,672

(780)

94,323
Municipal securities

163,253

5,228

(215)

168,266
Asset-backed securities

26,372

752

—

27,124
Other securities

24,568

251

(30)

24,789

$
329,994

$
9,157

$
(1,321)

$
337,830

* HTM securities shown on the balance sheet of $472.4 million represent amortized cost of $472.6 million, net of allowance for credit losses of $198 thousand as of December 31, 2021.

The Company's HTM municipal securities consist largely of private issues of municipal debt. The large majority of the municipalities are located within the Midwest. The municipal debt investments are underwritten using specific guidelines with ongoing monitoring.

The Company's residential mortgage-backed and related securities portfolio consists entirely of government sponsored or government guaranteed securities. The Company has not invested in private mortgage-backed securities or pooled trust preferred securities.

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Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2023 and December 31, 2022, are summarized as follows. Securities available-for-sale, for which an allowance for credit losses has been provided, are not included in these disclosures.


	Less than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

	(dollars in thousands)
March 31, 2023:
Securities HTM:
Municipal securities	$	275,950	$	(33,259)	$	70,015	$	(10,304)	$	345,965	$	(43,563)
Other securities		1,032		(18)		—		—		1,032		(18)
	$	276,982	$	(33,277)	$	70,015	$	(10,304)	$	346,997	$	(43,581)

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	2,212	$	(4)	$	14,401	$	(2,389)	$	16,613	$	(2,393)
Residential mortgage-backed and related securities		17,277		(814)		45,807		(5,497)		63,084		(6,311)
Municipal securities		43,572		(3,340)		124,603		(35,954)		168,175		(39,294)
Asset-backed securities		3,303		(5)		10,781		(162)		14,084		(167)
Other securities		26,142		(1,612)		12,113		(1,472)		38,255		(3,084)
	$	92,506	$	(5,775)	$	207,705	$	(45,474)	$	300,211	$	(51,249)


	Less than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

	(dollars in thousands)
December 31, 2022:
Securities HTM:
Municipal securities	$	347,651	$	(56,798)	$	—	$	—	$	347,651	$	(56,798)

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	5,138	$	(326)	$	10,591	$	(2,457)	$	15,729	$	(2,783)
Residential mortgage-backed and related securities		48,469		(3,327)		17,690		(3,896)		66,159		(7,223)
Municipal securities		178,172		(42,661)		9,809		(4,039)		187,981		(46,700)
Asset-backed securities		13,684		(205)		—		—		13,684		(205)
Other securities		35,206		(2,404)		4,122		(396)		39,328		(2,800)
	$	280,669	$	(48,923)	$	42,212	$	(10,788)	$	322,881	$	(59,711)

At March 31, 2023, the investment portfolio included 646 securities. Of this number, 524 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 10.2% of the total amortized cost of the portfolio. Of these 524 securities, there were 276securities that had an unrealized loss for twelve months or more due to the current rate environment.

For the quarter ended March 31, 2023, the Company’s impairment evaluation determined that one publicly traded debt security experienced a decline in fair value due to credit quality, rather than market factors. As a result, the Company recognized a credit loss expense of $989 thousand and established an ACL on the related AFS security.

The following table presents the activity in the allowance for credit losses for held to maturity and available for sale securities by major security type for the three ended March 31, 2023 and 2022.


	Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
	Securities HTM		Securities AFS		Securities HTM
	Municipal		Corporate		Municipal
	securities		securities		securities

	(dollars in thousands)
Allowance for credit losses:
Beginning balance	$	180	$	—	$	198
Provision for credit loss expense		—		989		—
Balance, ending	$	180	$	989	$	198

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All sales of securities for the three months ended March 31, 2023 were securities identified as AFS. There were no sales of securities for the three months ended March 31, 2022.


	Three Months Ended
	March 31, 2023

Proceeds from sales of securities	$	28,628
Gross gains from sales of securities		44
Gross losses from sales of securities		(507)

The amortized cost and fair value of securities as of March 31, 2023 by contractual maturity are shown below. Expected maturities of residential mortgage-backed and related securities and asset-backed securities may differ from contractual maturities because the residential mortgages underlying the securities may be prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following table.


	Amortized Cost		Fair Value

	(dollars in thousands)
Securities HTM:
Due in one year or less	$	9,064	$	9,149
Due after one year through five years		32,996		35,709
Due after five years		520,089		484,108
	$	562,149	$	528,966
Securities AFS:
Due in one year or less	$	6,561	$	6,556
Due after one year through five years		2,500		2,468
Due after five years		271,073		225,382
		280,134		234,406
Residential mortgage-backed and related securities		69,415		63,104
Asset-backed securities		18,087		17,967
	$	367,636	$	315,477

Portions of the U.S. government sponsored agency securities and municipal securities contain call options, which, at the discretion of the issuer, terminate the security at par and at predetermined dates prior to the stated maturity, summarized as follows:


	Amortized Cost		Fair Value

	(dollars in thousands)
Securities HTM:
Municipal securities	$	268,957	$	242,766

Securities AFS:
Municipal securities		206,954		167,686
Other securities		47,610		43,559
	$	254,564	$	211,245

As of March 31, 2023, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 85 issuers with fair values totaling $91.8 million and revenue bonds issued by 169 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $606.7 million. The Company also held investments in general obligation bonds in 18 states, including seven states in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 29 states, including 12 states in which the aggregate fair value exceeded $5.0 million.

As of December 31, 2022, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 118 issuers with fair values totaling $110.6 million and revenue bonds issued by 181 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $617.2 million. The Company also held

Table of Contents

investments in general obligation bonds in 22 states, including sevenstates in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 29 states, including 12 states in which the aggregate fair value exceeded $5.0 million.

Both general obligation and revenue bonds are diversified across many issuers. As of March 31, 2023 and as of December 31, 2022, the Company held revenue bonds of two issuers, both located in Ohio, of which the aggregate book or market value exceeded 5% of the Company’s stockholders’ equity. The issuers’ financial conditions are strong and the sources of repayment are diversified. The Company monitors the investments and concentration closely. Of the general obligation and revenue bonds in the Company's portfolio, the majority are unrated bonds that represent small, private issuances. All unrated bonds were underwritten according to the Company’s loan underwriting standards and have an average loan risk rating of 2, indicating very high quality. Additionally, many of these bonds are funding essential municipal services such as water, sewer, education, and medical facilities.

The Company's municipal securities are owned by the four charters, whose investment policies set forth limits for various subcategories within the municipal securities portfolio. The investments of each charter are monitored individually, and as of March 31, 2023, all were within policy limitations approved by the Company’s board of directors. Policy limits are calculated as a percentage of each charter's total risk-based capital.

As of March 31, 2023, the Company's standard monitoring of its municipal securities portfolio had not uncovered any facts or circumstances resulting in significantly different credit ratings than those assigned by a nationally recognized statistical rating organization, or in the case of unrated bonds, the rating assigned using the credit underwriting standards.

NOTE 3 – LOANS/LEASES RECEIVABLE

The composition of the loan/lease portfolio as of March 31, 2023 and December 31, 2022 is presented as follows:


	March 31, 2023		December 31, 2022

	(dollars in thousands)
C&I:
C&I - revolving	$	307,612	$	296,869
C&I - other *		1,420,331		1,451,693
		1,727,943		1,748,562

CRE - owner occupied		616,922		629,367
CRE - non-owner occupied		982,716		963,239
Construction and land development**		1,208,185		1,192,061
Multi-family**		969,870		963,803
Direct financing leases***		35,373		31,889
1-4 family real estate****		532,491		499,529
Consumer		116,522		110,421
		6,190,022		6,138,871
Allowance for credit losses		(86,573)		(87,706)
	$	6,103,449	$	6,051,165
*** Direct financing leases:
Net minimum lease payments to be received	$	39,075	$	34,754
Estimated unguaranteed residual values of leased assets		165		165
Unearned lease/residual income		(3,867)		(3,030)
		35,373		31,889
Plus deferred lease origination costs, net of fees		174		226
		35,547		32,115
Less allowance for credit losses		(1,053)		(970)
	$	34,494	$	31,145

* Includes equipment financing agreements outstanding at m2, totaling $286.1 million and $278.0 million as of March 31, 2023 and December 31, 2022, respectively.

** As of March 31, 2023, there were construction and land development and multi-family loans held for sale in preparation for securitization. The balances in these loan classes as of March 31, 2023 were $30.3 million and $108.9 million, respectively.

*** Management performs an evaluation of the estimated unguaranteed residual values of leased assets on an annual basis, at a minimum. The evaluation consists of discussions with reputable and current vendors, which is combined with management's expertise and understanding of the current states of particular industries to determine informal valuations of the equipment. As necessary and where available, management will utilize valuations by independent appraisers. The majority of leases with residual values contain a lease options rider, which requires the lessee to pay the residual value directly, finance the payment of the residual value, or extend the lease term to pay the residual value. In these cases, the residual value is protected and the risk of loss is minimal.

**** Includes residential real estate held for sale totaling $1.4 million and $1.5 million as of March 31, 2023 and December 31, 2022, respectively.

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Accrued interest on loans, which is excluded from the amortized cost of loans, totaled $27.2 million and $24.3 million at March 31, 2023 and December 31, 2022, respectively, and was included in other assets on the consolidated balance sheets.

Changes in discounts on acquired loans for the three months ended March 31, 2023 and 2022, respectively, are presented as follows:


	For the Three Months Ended
	March 31, 2023		March 31, 2022
	Performing		Performing
	Loans		Loans

	(dollars in thousands)

Balance at the beginning of the period	$	(6,088)	$	(1,533)
Accretion recognized		849		161
Balance at the end of the period	$	(5,239)	$	(1,372)

The aging of the loan/lease portfolio by classes of loans/leases as of March 31, 2023 and December 31, 2022 is presented as follows:


	As of March 31, 2023
										Accruing Past
				30-59 Days			60-89 Days			Due 90 Days or			Nonaccrual
Classes of Loans/Leases	Current			Past Due			Past Due			More			Loans/Leases			Total

	(dollars in thousands)
C&I:
C&I - revolving	$	307,612		$	—		$	—		$	—		$	—	$		307,612
C&I - other		1,406,944			4,718			3,899			15			4,755			1,420,331
CRE - owner occupied		612,379			1,899			—			—			2,644			616,922
CRE - non-owner occupied		980,498			—			—			—			2,218			982,716
Construction and land development		1,197,526			—			—			—			10,659			1,208,185
Multi-family		969,870			—			—			—			—			969,870
Direct financing leases		34,951			220			84			—			118			35,373
1-4 family real estate		529,263			865			76			—			2,287			532,491
Consumer		116,030			67			159			—			266			116,522
	$	6,155,073		$	7,769		$	4,218		$	15		$	22,947		$	6,190,022

As a percentage of total loan/lease portfolio		99.43	%		0.13	%		0.07	%		0.00	%		0.37	%		100.00	%


	As of December 31, 2022
										Accruing Past
				30-59 Days			60-89 Days			Due 90 Days or			Nonaccrual
Classes of Loans/Leases	Current			Past Due			Past Due			More			Loans/Leases			Total

	(dollars in thousands)

C&I
C&I - revolving	$	296,869		$	—		$	—		$	—		$	—		$	296,869
C&I - other		1,442,629			4,800			1,124			5			3,135			1,451,693
CRE - owner occupied		625,611			1,166			—			—			2,590			629,367
CRE - non-owner occupied		962,444			421			—			—			374			963,239
Construction and land development		1,191,929			—			—			—			132			1,192,061
Multi-family		963,803			—			—			—			—			963,803
Direct financing leases		31,557			141			56			—			135			31,889
1-4 family real estate		495,936			1,030			517			—			2,046			499,529
Consumer		110,041			27			—			—			353			110,421
	$	6,120,819		$	7,585		$	1,697		$	5		$	8,765		$	6,138,871

As a percentage of total loan/lease portfolio		98.88	%		0.12	%		0.03	%		0.00	%		0.14	%		100.00	%

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~~The Company's residential mortgage-backed and related securities portfolio consists entirely~~NPLs by classes of ~~government sponsored or government guaranteed securities. The Company has not invested in private mortgage-backed securities or pooled trust preferred securities.~~

~~Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position~~loans/leases as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022 are ~~summarized~~presented as follows:


	Less than 12 Months				12 Months or More				Total				As of March 31, 2023
			Gross				Gross				Gross		Accruing Past		Nonaccrual		Nonaccrual
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Due 90 Days or		Loans/Leases		Loans/Leases				Percentage of
	Value		Losses		Value		Losses		Value		Losses
Classes of Loans/Leases													More		with an ACL		without an ACL		Total NPLs		Total NPLs

	(dollars in thousands)												(dollars in thousands)
September 30, 2022:
Securities HTM:
Municipal securities	$	385,027	$	(30,022)	$	—	$	—	$	385,027	$	(30,022)
Other securities		544		(6)		—		—		544		(6)
C&I:
C&I - revolving													$	—	$	—	$	—	$	—	-	%
C&I - other														15		3,891		864		4,770	20.77
CRE - owner occupied														—		2,197		447		2,644	11.52
CRE - non-owner occupied														—		1,267		951		2,218	9.66
Construction and land development														—		9,292		1,367		10,659	46.42
Multi-family														—		—		—		—	-
Direct financing leases														—		118		—		118	0.51
1-4 family real estate														—		1,893		394		2,287	9.96
Consumer														—		266		—		266	1.16
	$	385,571	$	(30,028)	$	—	$	—	$	385,571	$	(30,028)	$	15	$	18,924	$	4,023	$	22,962	100.00	%

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	8,705	$	(349)	$	10,530	$	(2,535)	$	19,235	$	(2,884)
Residential mortgage-backed and related securities		51,073		(3,671)		17,669		(4,165)		68,742		(7,836)
Municipal securities		175,686		(53,159)		6,536		(2,813)		182,222		(55,972)
Asset-backed securities		10,742		(194)		—		—		10,742		(194)
Other securities		39,900		(2,203)		896		(104)		40,796		(2,307)
	$	286,106	$	(59,576)	$	35,631	$	(9,617)	$	321,737	$	(69,193)

Less than 12 Months

12 Months or More

Total

Gross

Gross

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized


Value

Losses

Value

Losses

Value

Losses

(dollars in thousands)
December 31, 2021:












Securities HTM:












Other securities

$
1,049

$
(1)

$
—

$
—

$
1,049

$
(1)

Securities AFS:












U.S. treasuries and govt. sponsored agency securities

$
9,802

$
(156)

$
3,035

$
(140)

$
12,837

$
(296)
Residential mortgage-backed and related securities

5,363

(67)

19,406

(713)

24,769

(780)
Municipal securities

13,287

(211)

1,001

(4)

14,288

(215)
Other securities

4,528

(30)

—

—

4,528

(30)

$
32,980

$
(464)

$
23,442

$
(857)

$
56,422

$
(1,321)

At September 30, 2022, the investment portfolio included 701 securities. Of this number, 639 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 10.46% of the total amortized cost of the portfolio. Of these 639 securities, there were 30~~securities that had an unrealized loss for twelve months or more.~~


	As of December 31, 2022
	Accruing Past		Nonaccrual		Nonaccrual
	Due 90 Days or		Loans/Leases		Loans/Leases				Percentage of
Classes of Loans/Leases	More		with an ACL		without an ACL		Total NPLs		Total NPLs

		(dollars in thousands)

C&I:
C&I - revolving	$	—	$	—	$	—	$	—	-	%
C&I - other		5		2,775		360		3,140	35.80
CRE - owner occupied		—		1,738		852		2,590	29.53
CRE - non-owner occupied		—		68		306		374	4.26
Construction and land development		—		132		—		132	1.51
Multi-family		—		—		—		—	-
Direct financing leases		—		80		55		135	1.54
1-4 family real estate		—		1,641		405		2,046	23.33
Consumer		—		353		—		353	4.03
	$	5	$	6,787	$	1,978	$	8,770	100.00	%

The ~~following table presents~~Company did not recognize any interest income on nonaccrual loans during the ~~activity~~three months ended March 31, 2023 and 2022.

Changes in the ~~allowance for credit losses for held to maturity securities~~ACL loans/leases by ~~major security type for the three and nine months ended September 30, 2022 and 2021.~~

Three Months Ended September 30, 2022

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2022

Nine Months Ended September 30, 2021

Municipal

Other

Municipal

Other

Municipal

Other

Municipal

Other


securities

securities

Total

securities

securities

Total

securities

securities

Total

securities

securities

Total

Allowance for credit losses:

Beginning balance

$
198

$
—

$
198

$
173

$
1

$
174

$
198

$
—

$
198

$
—

$
—

$
—

Impact of adopting ASU 2016-13

—

—

—

—

—

—

—

—

—

182

1

183

Provision for credit loss expense

—

—

—

—

—

—

—

—

—

(9)

—

(9)

Balance, ending

$
198

$
—

$
198

$
173

$
1

$
174

$
198

$
—

$
198

$
173

$
1

$
174

~~Table of Contents~~

~~There were no sales of securities~~portfolio segment for the three months ended ~~September 30,~~March 31, 2023 and 2022, respectively, are presented as follows:


	Three Months Ended March 31, 2023
					CRE		CRE		Construction				1-4
	C&I -		C&I -		Owner		Non-Owner		and Land		Multi-		Family
	Revolving		Other*		Occupied		Occupied		Development		Family		Real Estate		Consumer		Total

	(dollars in thousands)

Balance, beginning	$	4,457	$	27,753	$	9,965	$	11,749	$	14,262	$	13,186	$	4,963	$	1,371	$	87,706
Reduction of ACL for writedown of LHFS to fair value		—		—		—		—		(354)		(1,355)		—		—		(1,709)
Provision		180		557		(668)		878		1,349		(210)		302		70		2,458
Charge-offs		—		(2,055)		(208)		—		(12)		—		—		—		(2,275)
Recoveries		—		382		—		5		—		—		5		1		393
Balance, ending	$	4,637	$	26,637	$	9,089	$	12,632	$	15,245	$	11,621	$	5,270	$	1,442	$	86,573

* Included within the C&I – Other column are ACL on leases with a beginning balance of $970 thousand, provision of $69 thousand, charge-offs of $4 thousand and ~~September 30, 2021. All sales~~recoveries of ~~securities for the nine months ended September 30, 2022 and September 30, 2021 were securities identified as AFS.~~

Nine Months Ended

September 30, 2022

September 30, 2021

Proceeds from sales of securities

$
111,375

$
23,874

Gross gains from sales of securities

—

—

Gross losses from sales of securities

—

(88)

~~Upon the closing of the GFED acquisition, the Company sold a large portion of the acquired securities portfolio to improve the efficiency of the combined balance sheets.~~

~~The amortized cost and fair value of securities~~$18 thousand. ACL on leases was $1.1 million as of September 30, 2022 by contractual maturity are shown below. Expected maturities of residential mortgage-backed and related securities and asset-backed securities may differ from contractual maturities because the residential mortgages underlying the securities may be prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following table.

Amortized Cost

Fair Value

(dollars in thousands)
Securities HTM:




Due in one year or less

$
3,061

$
3,046
Due after one year through five years

15,199

14,862
Due after five years

521,651

493,539

$
539,911

$
511,447
Securities AFS:




Due in one year or less

$
8,558

$
8,535
Due after one year through five years

3,760

3,705
Due after five years

300,063

239,023

312,381

251,263
Residential mortgage-backed and related securities

76,680

68,844
Asset-backed securities

19,654

19,630

$
408,715

$
339,737

Amortized Cost

Fair Value

(dollars in thousands)
Securities HTM:




Municipal securities

$
305,743

$
295,096




Securities AFS:




Municipal securities

237,105

181,201
Other securities

46,277

44,017

$
283,382

$
225,218

As of September 30, 2022, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 119 issuers with fair values totaling $107.1 million and revenue bonds issued by 182 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $588.6 million. The Company also held investments in general obligation bonds in 22 states, including eight states in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 29 states, including 12 states in which the aggregate fair value exceeded $5.0 million.

~~As of December~~March 31, 2021, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 113 issuers with fair values totaling $114.5 million and revenue bonds issued by 165 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $575.0 million. The Company also held

~~Table of Contents~~

~~investments in general obligation bonds in 20 states, including sevenstates in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 28 states, including 13 states in which the aggregate fair value exceeded $5.0 million.~~

Both general obligation and revenue bonds are diversified across many issuers. As of September 30, 2022 and as of December 31, 2021, the Company held revenue bonds of two issuers, both located in Ohio, of which the aggregate book or market value exceeded 5% of the Company’s stockholders’ equity. The issuers’ financial condition is strong and the source of repayment is diversified. The Company monitors the investments and concentration closely. Of the general obligation and revenue bonds in the Company's portfolio, the majority are unrated bonds that represent small, private issuances. All unrated bonds were underwritten according to the Company’s loan underwriting standards and have an average loan risk rating of 2, indicating very high quality. Additionally, many of these bonds are funding essential municipal services such as water, sewer, education, and medical facilities.

The Company's municipal securities are owned by the four charters, whose investment policies set forth limits for various subcategories within the municipal securities portfolio. The investments of each charter are monitored individually, and as of September 30, 2022, all were within policy limitations approved by the Company’s board of directors. Policy limits are calculated as a percentage of each charter's total risk-based capital.

As of September 30, 2022, the Company's standard monitoring of its municipal securities portfolio had not uncovered any facts or circumstances resulting in significantly different credit ratings than those assigned by a nationally recognized statistical rating organization, or in the case of unrated bonds, the rating assigned using the credit underwriting standards.2023.

~~NOTE 4 – LOANS/LEASES RECEIVABLE~~

~~The composition of the loan/lease portfolio as of September 30, 2022 and December 31, 2021 is presented as follows:~~

September 30, 2022

December 31, 2021

(dollars in thousands)

C&I:

C&I - revolving

$
332,996

$
248,483
C&I - other *

1,415,996

1,346,602

1,748,992

1,595,085




CRE - owner occupied

627,558

421,701
CRE - non-owner occupied

920,876

646,500
Construction and land development

1,149,503

918,571
Multi-family

933,118

600,412
Direct financing leases**

33,503

45,191
1-4 family real estate***

487,508

377,361
Consumer

107,552

75,311

6,008,610

4,680,132
Allowance for credit losses

(90,489)

(78,721)

$
5,918,121

$
4,601,411
** Direct financing leases:




Net minimum lease payments to be received

$
36,541

$
49,362
Estimated unguaranteed residual values of leased assets

165

165
Unearned lease/residual income

(3,203)

(4,336)

33,503

45,191
Plus deferred lease origination costs, net of fees

288

568

33,791

45,759
Less allowance for credit losses

(1,037)

(1,546)

$
32,754

$
44,213

* Includes equipment financing agreements outstanding at m2, totaling $267.2 million and $225.1 million as of September 30, 2022 and December 31, 2021, respectively and PPP loans totaling $79 thousand and $28.2 million as of September 30, 2022 and December 31, 2021, respectively.

** Management performs an evaluation of the estimated unguaranteed residual values of leased assets on an annual basis, at a minimum. The evaluation consists of discussions with reputable and current vendors, which is combined with management's expertise and understanding of the current states of particular industries to determine informal valuations of the equipment. As necessary and where available, management will utilize valuations by independent appraisers. The majority of leases with residual values contain a lease options rider, which requires the lessee to pay the residual value directly, finance the payment of the residual value, or extend the lease term to pay the residual value. In these cases, the residual value is protected and the risk of loss is minimal.

1816

Table of Contents


	Three Months Ended March 31, 2022
					CRE		CRE		Construction				1-4
	C&I -		C&I -		Owner		Non-Owner		and Land		Multi-		Family
	Revolving		Other*		Occupied		Occupied		Development		Family		Real Estate		Consumer		Total

	(dollars in thousands)

Balance, beginning	$	3,907	$	25,982	$	8,501	$	8,549	$	16,972	$	9,339	$	4,541	$	930	$	78,721
Provision		(288)		(331)		(609)		(820)		(2,301)		997		(387)		(110)		(3,849)
Charge-offs		—		(449)		—		—		—		—		—		(7)		(456)
Recoveries		—		235		5		128		—		—		—		2		370
Balance, ending	$	3,619	$	25,437	$	7,897	$	7,857	$	14,671	$	10,336	$	4,154	$	815	$	74,786

*** Includes residential real estate loans held for sale totaling $3.1 Included within the C&I – Other column are ACL on leases with adoption impact of $1.5 million, negative provision of $27 thousand, charge-offs of $114 thousand and ~~$3.8~~recoveries of $60 thousand. ACL on leases was $1.5 million as of ~~September 30, 2022 and December~~March 31, ~~2021, respectively.~~

Accrued interest on loans, which is excluded from the amortized cost of loans, totaled $23.4 million and $15.0 million at September 30, 2022 and December 31, 2021, respectively, and was included in other assets on the consolidated balance sheets.2022.

~~Changes in remaining discounts~~The composition of the ACL loans/leases by portfolio segment based on ~~acquired loans for the three and nine months ended September 30, 2022 and 2021, respectively,~~evaluation method are ~~presented~~ as follows:

Three months ended
Nine months ended

September 30, 2022

September 30, 2022

(dollars in thousands)

Balance at the beginning of the period
$
(12,989)

$
(1,533)

Discount added at acquisition

—

(13,381)

Accretion recognized

1,148

3,073

Balance at the end of the period
$
(11,841)

$
(11,841)


					As of March 31, 2023
					Amortized Cost of Loans Receivable						Allowance for Credit Losses
					Individually		Collectively				Individually		Collectively
	Three months ended		Nine months ended		Evaluated for		Evaluated for				Evaluated for		Evaluated for
	September 30, 2021		September 30, 2021		Credit Losses		Credit Losses		Total		Credit Losses		Credit Losses		Total

	(dollars in thousands)				(dollars in thousands)
C&I :
C&I - revolving					$	3,657	$	303,955	$	307,612	$	998	$	3,639	$	4,637
C&I - other*						14,446		1,441,258		1,455,704		1,231		25,406		26,637
						18,103		1,745,213		1,763,316		2,229		29,045		31,274
Balance at the beginning of the period	$	(2,189)	$	(3,139)
Accretion recognized		505		1,455
Balance at the end of the period	$	(1,684)	$	(1,684)
CRE - owner occupied						23,751		593,171		616,922		2,746		6,343		9,089
CRE - non-owner occupied						23,217		959,499		982,716		1,025		11,607		12,632
Construction and land development						10,756		1,197,429		1,208,185		826		14,419		15,245
Multi-family						1,351		968,519		969,870		406		11,215		11,621
1-4 family real estate						3,223		529,268		532,491		326		4,944		5,270
Consumer						693		115,829		116,522		72		1,370		1,442
					$	81,094	$	6,108,928	$	6,190,022	$	7,630	$	78,943	$	86,573

~~The aging~~* Included within the C&I – Other category are leases individually evaluated of $118 thousand with a related allowance for credit losses of $36 thousand and leases collectively evaluated of $35.3 million with a related allowance for credit losses of $1.0 million.


	As of December 31, 2022
	Amortized Cost of Loans Receivable						Allowance for Credit Losses
	Individually		Collectively				Individually		Collectively
	Evaluated for		Evaluated for				Evaluated for		Evaluated for
	Credit Losses		Credit Losses		Total		Credit Losses		Credit Losses		Total

	(dollars in thousands)
C&I :
C&I - revolving	$	3,386	$	293,483	$	296,869	$	961	$	3,496	$	4,457
C&I - other*		9,358		1,474,224		1,483,582		1,445		26,308		27,753
		12,744		1,767,707		1,780,451		2,406		29,804		32,210
CRE - owner occupied		24,880		604,487		629,367		2,853		7,112		9,965
CRE - non-owner occupied		21,588		941,651		963,239		869		10,880		11,749
Construction and land development		10,394		1,181,667		1,192,061		13		14,249		14,262
Multi-family		1,302		962,501		963,803		395		12,791		13,186
1-4 family real estate		3,177		496,352		499,529		317		4,646		4,963
Consumer		741		109,680		110,421		75		1,296		1,371
	$	74,826	$	6,064,045	$	6,138,871	$	6,928	$	80,778	$	87,706

* Included within the ~~loan/lease portfolio by classes~~C&I – Other category are leases individually evaluated of ~~loans/~~$135 thousand with a related allowance for credit losses of $24 thousand and leases ascollectively evaluated of ~~September 30, 2022 and December 31, 2021 is presented as follows:~~$31.8 million with a related allowance for credit losses of $946 thousand.

As of September 30, 2022

Accruing Past

30-59 Days

60-89 Days

Due 90 Days or

Nonaccrual

Classes of Loans/Leases

Current

Past Due

Past Due

More

Loans/Leases

Total

(dollars in thousands)

C&I:

C&I - revolving

$
332,996

$
—

$
—

$
—

$
—
$

332,996

C&I - other

1,408,004

3,721

674

3

3,594

1,415,996

CRE - owner occupied

624,534

—

—

—

3,024

627,558

CRE - non-owner occupied

913,366

565

—

—

6,945

920,876

Construction and land development

1,148,080

255

—

—

1,168

1,149,503

Multi-family

933,118

—

—

—

—

933,118

Direct financing leases

33,288

59

27

—

129

33,503

1-4 family real estate

484,322

—

809

—

2,377

487,508

Consumer

107,163

115

—

—

274

107,552

$
5,984,871

$
4,715

$
1,510

$
3

$
17,511

$
6,008,610













As a percentage of total loan/lease portfolio

99.60
%

0.08
%

0.03
%

0.00
%

0.29
%

100.00
%

As of December 31, 2021

Accruing Past

30-59 Days

60-89 Days

Due 90 Days or

Nonaccrual

Classes of Loans/Leases

Current

Past Due

Past Due

More

Loans/Leases

Total

(dollars in thousands)

C&I

C&I - revolving

$
248,483

$
—

$
—

$
—

$
—

$
248,483

C&I - other

1,337,034

859

7,308

1

1,400

1,346,602

CRE - owner occupied

421,701

—

—

—

—

421,701

CRE - non-owner occupied

646,500

—

—

—

—

646,500

Construction and land development

918,498

—

—

—

73

918,571

Multi-family

600,412

—

—

—

—

600,412

Direct financing leases

44,174

10

160

—

847

45,191

1-4 family real estate

374,912

1,325

716

—

408

377,361

Consumer

75,272

8

—

—

31

75,311

$
4,666,986

$
2,202

$
8,184

$
1

$
2,759

$
4,680,132

As a percentage of total loan/lease portfolio

99.57
%

0.05
%

0.17
%

0.00
%

0.06
%

100.00
%

1917

Table of Contents

~~NPLs by classes of loans/leases as of September 30, 2022 and December 31, 2021 are presented as follows:~~

As of September 30, 2022

Accruing Past

Nonaccrual

Nonaccrual

Due 90 Days or

Loans/Leases

Loans/Leases

Percentage of

Classes of Loans/Leases

More

with an ACL

without an ACL

Total NPLs

Total NPLs

(dollars in thousands)

C&I:

C&I - revolving

$
—

$
—

$
—

$
—

-
%
C&I - other

3

3,292

302

3,597

20.54

CRE - owner occupied

—

1,669

1,355

3,024

17.27

CRE - non-owner occupied

—

68

6,877

6,945

39.65

Construction and land development

—

889

279

1,168

6.67

Multi-family

—

—

—

—

-

Direct financing leases

—

54

75

129

0.74

1-4 family real estate

—

1,076

1,301

2,377

13.57

Consumer

—

274

—

274

1.56

$
3

$
7,322

$
10,189

$
17,514

100.00
%

As of December 31, 2021

Accruing Past

Nonaccrual

Nonaccrual

Due 90 Days or

Loans/Leases

Loans/Leases

Percentage of

Classes of Loans/Leases

More

with an ACL

without an ACL

Total NPLs

Total NPLs

(dollars in thousands)

C&I:

C&I - revolving

$
—

$
—

$
—

$
—

-
%
C&I - other

1

1,130

270

1,401

50.77

CRE - owner occupied

—

—

—

—

-

CRE - non-owner occupied

—

—

—

—

-

Construction and land development

—

73

—

73

2.64

Multi-family

—

—

—

—

-

Direct financing leases

—

115

732

847

30.69

1-4 family real estate

—

408

—

408

14.78

Consumer

—

31

—

31

1.12

$
1

$
1,757

$
1,002

$
2,760

100.00
%

~~The Company did not recognize any interest income on nonaccrual loans during the three and nine months ended September 30, 2022 and 2021.~~

~~Changes in the ACL loans/leases by portfolio segment for the three and nine months ended September 30, 2022 and 2021, respectively, are presented as follows:~~

Three Months Ended September 30, 2022

CRE

CRE

Construction

1-4

C&I -

C&I -

Owner

Non-Owner

and Land

Multi-

Family


Revolving

Other*

Occupied

Occupied

Development

Family

Real Estate

Consumer

Total

(dollars in thousands)

Balance, beginning

$
5,179

$
28,093

$
11,065

$
12,049

$
16,388

$
12,783

$
5,513

$
1,355

$
92,425
Provision

1

1,652

(606)

(161)

(693)

437

(276)

(23)

331
Charge-offs

—

(1,915)

—

—

(562)

—

(5)

(7)

(2,489)
Recoveries

—

176

—

—

—

43

—

3

222
Balance, ending

$
5,180

$
28,006

$
10,459

$
11,888

$
15,133

$
13,263

$
5,232

$
1,328

$
90,489

* Included within the C&I – Other column are ACL on leases with a beginning balance of $1.6 million, provision of $91 thousand, charge-offs of $708 thousand and recoveries of $65 thousand. ACL on leases was $1.0 million as of September 30, 2022.

~~Table of Contents~~

Nine Months Ended September 30, 2022

CRE

CRE

Construction

1-4


C&I -

C&I -

Owner

Non-Owner

and Land

Multi-

Family

Revolving

Other***

Occupied

Occupied

Development

Family

Real Estate

Consumer

Total

(dollars in thousands)

Balance, beginning

$
3,907

$
25,982

$
8,501

$
8,549

$
16,972

$
9,339

$
4,541

$
930

$
78,721
Initial ACL recorded for PCD loans

600

7

2,481

1,076

1,100

481

137

20

5,902
Provision**

673

4,185

(529)

2,328

(2,377)

3,400

559

384

8,623
Charge-offs

—

(2,790)

—

(193)

(562)

—

(5)

(15)

(3,565)
Recoveries

—

622

6

128

—

43

—

9

808
Balance, ending

$
5,180

$
28,006

$
10,459

$
11,888

$
15,133

$
13,263

$
5,232

$
1,328

$
90,489

** Provision for the nine months ended September 30, 2022, included $11.0 million related to the acquired Guaranty Bank non-PCD loans.

*** Included within the C&I - Other column are ACL on leases with a beginning balance of $1.5 million, provision of $249 thousand, charge-offs of $931 thousand and recoveries of $173 thousand. ACL on leases was $1.0 million as of September 30, 2022.

Three Months Ended September 30, 2021

CRE

CRE

Construction

Direct

Residential

1-4



C&I -

C&I -

Owner

Non-Owner

and Land

Multi-

Financing

Real

Family

C&I

Revolving

Other*

CRE

Occupied

Occupied

Development

Family

Leases

Estate

Real Estate

Consumer

Total

(dollars in thousands)

Balance, beginning

$
—

$
3,177

$
32,325

$
—

$
8,020

$
8,911

$
13,640

$
6,977

$
—

$
—

$
4,925

$
919

$
78,894
Provision

—

(262)

(276)

—

(62)

25

2,141

923

—

—

(558)

(36)

1,895
Charge-offs

—

—

(283)

—

—

—

—

—

—

—

—

(4)

(287)
Recoveries

—

—

109

—

4

50

—

—

—

—

—

5

168
Balance, ending

$
—

$
2,915

$
31,875

$
—

$
7,962

$
8,986

$
15,781

$
7,900

$
—

$
—

$
4,367

$
884

$
80,670

* Included within the C&I – Other column are ACL on leases with adoption impact of $2.0 million, negative provision of $212 thousand, charge-offs of $72 thousand and recoveries of $52 thousand. ACL on leases was $1.7 million as of September 30, 2021.

Nine Months Ended September 30, 2021

CRE

CRE

Construction

Direct

Residential

1-4



C&I -

C&I -

Owner

Non-Owner

and Land

Multi-

Financing

Real

Family

C&I

Revolving

Other**

CRE

Occupied

Occupied

Development

Family

Leases

Estate

Real Estate

Consumer

Total

(dollars in thousands)

Balance, beginning

$
35,421

$
—

$
—

$
42,161

$
—

$
—

$
—

$
—

$
1,764

$
3,732

$
—

$
1,298

$
84,376
Adoption of ASU 2016-13

(35,421)

2,982

29,130

(42,161)

8,696

11,428

11,999

5,836

(1,764)

(3,732)

5,042

(137)

(8,102)
Provision

—

(67)

4,271

—

(732)

(637)

3,782

2,214

—

—

(502)

(582)

7,747
Charge-offs

—

—

(1,949)

—

—

(1,876)

—

(150)

—

—

(690)

(9)

(4,674)
Recoveries

—

—

423

—

(2)

71

—

—

—

—

517

314

1,323
Balance, ending

$
—

$
2,915

$
31,875

$
—

$
7,962

$
8,986

$
15,781

$
7,900

$
—

$
—

$
4,367

$
884

$
80,670

** Included within the C&I – Other column are ACL on leases with a beginning balance of $1.8 million, adoption impact of $685 thousand, negative provision of $491 thousand, charge-offs of $400 thousand and recoveries of $186 thousand. ACL on leases was $1.7 million as of September 30, 2021.

~~Table of Contents~~

~~The composition of the ACL loans/leases by portfolio segment based on evaluation method are as follows:~~

As of September 30, 2022

Amortized Cost of Loans Receivable

Allowance for Credit Losses

Individually

Collectively

Individually

Collectively

Evaluated for

Evaluated for

Evaluated for

Evaluated for


Credit Losses

Credit Losses

Total

Credit Losses

Credit Losses

Total

(dollars in thousands)
C&I :

C&I - revolving

$
3,475

$
329,521

$
332,996

$
1,123

$
4,057

$
5,180

C&I - other*

10,704

1,438,795

1,449,499

2,679

25,327

28,006

14,179

1,768,316

1,782,495

3,802

29,384

33,186

CRE - owner occupied

25,531

602,027

627,558

2,925

7,534

10,459

CRE - non-owner occupied

28,537

892,339

920,876

814

11,074

11,888

Construction and land development

11,480

1,138,023

1,149,503

472

14,661

15,133

Multi-family

1,305

931,813

933,118

397

12,866

13,263

1-4 family real estate

4,139

483,369

487,508

355

4,877

5,232

Consumer

601

106,951

107,552

57

1,271

1,328

$
85,772

$
5,922,838

$
6,008,610

$
8,822

$
81,667

$
90,489

* Included within the C&I – Other category are leases individually evaluated of $129 thousand with a related allowance for credit losses of $17 thousand and leases collectively evaluated of $33.4 million with a related allowance for credit losses of $1.0 million.

As of December 31, 2021

Amortized Cost of Loans Receivable

Allowance for Credit Losses

Individually

Collectively

Individually

Collectively

Evaluated for

Evaluated for

Evaluated for

Evaluated for


Credit Losses

Credit Losses

Total

Credit Losses

Credit Losses

Total

(dollars in thousands)
C&I :

C&I - revolving

$
2,638

$
245,845

$
248,483

$
168

$
3,739

$
3,907

C&I - other*

13,456

1,378,337

1,391,793

743

25,239

25,982

16,094

1,624,182

1,640,276

911

28,978

29,889

CRE - owner occupied

3,841

417,860

421,701

1,264

7,237

8,501

CRE - non-owner occupied

25,006

621,494

646,500

—

8,549

8,549

Construction and land development

10,436

908,135

918,571

11

16,961

16,972

Multi-family

—

600,412

600,412

��
—

9,339

9,339

1-4 family real estate

2,950

374,411

377,361

329

4,212

4,541

Consumer

350

74,961

75,311

39

891

930

$
58,677

$
4,621,455

$
4,680,132

$
2,554

$
76,167

$
78,721

* Included within the C&I – Other category are leases individually evaluated of $847 thousand with a related allowance for credit losses of $35 thousand and leases collectively evaluated of $44.4 million with a related allowance for credit losses of $1.5 million.

The following table presents the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:



	As of September 30, 2022																As of March 31, 2023
					Non																Non
	Commercial		Owner-occupied		Owner-Occupied		Owner Occupied										Commercial		Owner-occupied		Owner-Occupied		Owner Occupied
	Assets		CRE		Real Estate		Real Estate		Securities		Equipment		Other		Total		Assets		CRE		Real Estate		Real Estate		Securities		Equipment		Other		Total

	(dollars in thousands)																(dollars in thousands)
C & I:
C&I - revolving	$	3,370	$	—	$	—	$	—	$	—	$	105	$	—	$	3,475	$	3,552	$	—	$	—	$	—	$	—	$	105	$	—	$	3,657
C&I - other*		2,192		213		—		—		115		6,457		1,727		10,704		5,738		209		—		—		102		7,983		414		14,446
		5,562		213		—		—		115		6,562		1,727		14,179		9,290		209		—		—		102		8,088		414		18,103
CRE - owner occupied		—		25,465		—		66		—		—		—		25,531		—		23,685		—		66		—		—		—		23,751
CRE - non-owner occupied		—		—		28,537		—		—		—		—		28,537		—		—		23,217		—		—		—		—		23,217
Construction and land development		—		—		11,480		—		—		—		—		11,480		—		—		10,756		—		—		—		—		10,756
Multi-family		—		—		1,305		—		—		—		—		1,305		—		—		1,351		—		—		—		—		1,351
1-4 family real estate		—		—		1,087		3,052		—		—		—		4,139		—		—		31		3,192		—		—		—		3,223
Consumer		—		—		—		586		—		—		15		601		—		—		121		562		—		—		10		693
	$	5,562	$	25,891	$	42,409	$	3,704	$	115	$	6,562	$	1,742	$	85,772	$	9,290	$	23,894	$	35,476	$	3,820	$	102	$	8,088	$	424	$	81,094

* Included within the C&I – Other category are leases individually evaluated of ~~$129~~$118 thousand with primary collateral of equipment.

~~Table of Contents~~


	As of December 31, 2021																As of December 31, 2022
					Non																Non
	Commercial		Owner-occupied		Owner-Occupied		Owner Occupied										Commercial		Owner-occupied		Owner-Occupied		Owner Occupied
	Assets		CRE		Real Estate		Real Estate		Securities		Equipment		Other		Total		Assets		CRE		Real Estate		Real Estate		Securities		Equipment		Other		Total

	(dollars in thousands)																(dollars in thousands)
C & I:
C&I - revolving	$	2,518	$	—	$	—	$	—	$	—	$	120	$	—	$	2,638	$	3,281	$	—	$	—	$	—	$	—	$	105	$	—	$	3,386
C&I - other*		683		—		—		2,471		134		9,877		291		13,456		1,589		210		—		—		108		7,289		162		9,358
		3,201		—		—		2,471		134		9,997		291		16,094		4,870		210		—		—		108		7,394		162		12,744
CRE - owner occupied		—		—		—		3,841		—		—		—		3,841		—		24,814		—		66		—		—		—		24,880
CRE - non-owner occupied		—		—		25,006		—		—		—		—		25,006		—		—		21,588		—		—		—		—		21,588
Construction and land development		—		—		10,362		74		—		—		—		10,436		—		—		10,394		—		—		—		—		10,394
Multi-family		—		—		—		—		—		—		—		—		—		—		1,302		—		—		—		—		1,302
1-4 family real estate		—		—		817		2,133		—		—		—		2,950		—		—		33		3,144		—		—		—		3,177
Consumer		—		—		—		340		—		1		9		350		—		—		120		608		—		—		13		741
	$	3,201	$	—	$	36,185	$	8,859	$	134	$	9,998	$	300	$	58,677	$	4,870	$	25,024	$	33,437	$	3,818	$	108	$	7,394	$	175	$	74,826

* Included within the C&I – Other category are leases individually evaluated of ~~$847~~$135 thousand with primary collateral of equipment.

For certain C&I loans, all CRE loans, certain construction and land development loans, all multifamily loans, ~~and~~ certain 1-4 family residential loans and certain consumer loans, the Company’s credit quality indicator consists of internally assigned risk ratings. Each such loan is assigned a risk rating upon origination. The risk rating is reviewed every 15 months, at a minimum, and on an as-needed basis depending on the specific circumstances of the loan.

For certain C&I loans (including equipment financing agreements and direct financing leases), certain construction and land development, certain 1-4 family real estate loans, and ~~all~~certain consumer loans, the Company’s credit quality indicator is performance determined by delinquency status. Delinquency status is updated daily by the Company’s loan system.

2318

Table of Contents

The following tables show the credit quality indicator of loans by class of receivable and year of origination as of ~~September 30, 2022:~~March 31, 2023:


	As of September 30, 2022																As of March 31, 2023
	Term Loans																Term Loans
	Amortized Cost Basis by Origination Year																Amortized Cost Basis by Origination Year
													Revolving																Revolving
													Loans																Loans
Internally Assigned													Amortized																Amortized
Risk Rating	2022		2021		2020		2019		2018		Prior		Cost Basis		Total		2023		2022		2021		2020		2019		Prior		Cost Basis		Total

	(dollars in thousands)																(dollars in thousands)
C&I - revolving
Pass (Ratings 1 through 5)	$	—	$	—	$	—	$	—	$	—	$	—	$	321,834	$	321,834	$	—	$	—	$	—	$	—	$	—	$	—	$	277,135	$	277,135
Special Mention (Rating 6)		—		—		—		—		—		—		7,687		7,687		—		—		—		—		—		—		26,820		26,820
Substandard (Rating 7)		—		—		—		—		—		—		3,475		3,475		—		—		—		—		—		—		3,657		3,657
Doubtful (Rating 8)		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total C&I - revolving	$	—	$	—	$	—	$	—	$	—	$	—	$	332,996	$	332,996	$	—	$	—	$	—	$	—	$	—	$	—	$	307,612	$	307,612

C&I - other
Pass (Ratings 1 through 5)	$	370,548	$	285,959	$	199,399	$	91,020	$	76,707	$	114,363	$	—	$	1,137,996	$	112,239	$	399,604	$	236,117	$	108,134	$	83,522	$	158,843	$	—	$	1,098,459
Special Mention (Rating 6)		411		446		303		808		—		315		—		2,283		11,886		3,603		5,557		3,724		1,033		299		—		26,102
Substandard (Rating 7)		2,065		70		743		5,142		329		117		—		8,466		—		5,207		252		37		3,776		377		—		9,649
Doubtful (Rating 8)		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total C&I - other	$	373,024	$	286,475	$	200,445	$	96,970	$	77,036	$	114,795	$	—	$	1,148,745	$	124,125	$	408,414	$	241,926	$	111,895	$	88,331	$	159,519	$	—	$	1,134,210

CRE - owner occupied
Pass (Ratings 1 through 5)	$	118,943	$	182,373	$	160,151	$	34,834	$	30,025	$	50,994	$	11,166	$	588,486	$	18,359	$	143,926	$	177,112	$	128,136	$	32,639	$	71,449	$	7,552	$	579,173
Special Mention (Rating 6)		4,647		—		2,884		—		998		1,747		4,852		15,128		4,268		791		2,735		6,383		479		1,310		24		15,990
Substandard (Rating 7)		2,625		1,452		16,502		1,662		1,208		495		—		23,944		513		2,684		—		16,187		1,215		1,160		—		21,759
Doubtful (Rating 8)		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total CRE - owner occupied	$	126,215	$	183,825	$	179,537	$	36,496	$	32,231	$	53,236	$	16,018	$	627,558	$	23,140	$	147,401	$	179,847	$	150,706	$	34,333	$	73,919	$	7,576	$	616,922

CRE - non-owner occupied
Pass (Ratings 1 through 5)	$	233,256	$	220,873	$	189,327	$	90,524	$	64,557	$	50,156	$	7,082	$	855,775	$	49,906	$	297,573	$	221,657	$	162,545	$	82,633	$	93,906	$	7,969	$	916,189
Special Mention (Rating 6)		1,168		912		15,692		—		12,873		6,262		—		36,907		596		5,402		833		17,544		—		18,934		—		43,309
Substandard (Rating 7)		1,089		694		10,833		15,306		—		—		272		28,194		4,065		3,623		—		156		15,216		—		158		23,218
Doubtful (Rating 8)		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total CRE - non-owner occupied	$	235,513	$	222,479	$	215,852	$	105,830	$	77,430	$	56,418	$	7,354	$	920,876	$	54,567	$	306,598	$	222,490	$	180,245	$	97,849	$	112,840	$	8,127	$	982,716

Construction and land development
Pass (Ratings 1 through 5)	$	327,140	$	337,617	$	250,387	$	31,708	$	30,447	$	—	$	22,788	$	1,000,087	$	48,281	$	492,375	$	313,670	$	232,318	$	31,275	$	28,640	$	25,117	$	1,171,676
Special Mention (Rating 6)		324		160		—		—		—		—		—		484		1,100		—		10,210		—		—		—		—		11,310
Substandard (Rating 7)		486		10,471		—		—		—		—		—		10,957		98		1,487		9,172		—		—		—		—		10,757
Doubtful (Rating 8)		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total Construction and land development	$	327,950	$	348,248	$	250,387	$	31,708	$	30,447	$	—	$	22,788	$	1,011,528	$	49,479	$	493,862	$	333,052	$	232,318	$	31,275	$	28,640	$	25,117	$	1,193,743

Multi-family
Pass (Ratings 1 through 5)	$	188,557	$	264,565	$	225,525	$	134,853	$	104,267	$	9,735	$	2,861	$	930,363	$	15,948	$	237,962	$	250,949	$	222,923	$	135,619	$	103,474	$	127	$	967,002
Special Mention (Rating 6)		—		46		—		1,404		—		—		—		1,450		—		—		—		—		1,517		—		—		1,517
Substandard (Rating 7)		—		—		1,305		—		—		—		—		1,305		—		—		41		1,310		—		—		—		1,351
Doubtful (Rating 8)		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total Multi-family	$	188,557	$	264,611	$	226,830	$	136,257	$	104,267	$	9,735	$	2,861	$	933,118	$	15,948	$	237,962	$	250,990	$	224,233	$	137,136	$	103,474	$	127	$	969,870

1-4 family real estate
Pass (Ratings 1 through 5)	$	33,264	$	37,161	$	17,381	$	11,533	$	5,119	$	5,128	$	3,093	$	112,679	$	37,624	$	55,100	$	56,644	$	31,349	$	12,218	$	9,792	$	5,380	$	208,107
Special Mention (Rating 6)		—		34		—		—		—		—		—		34		—		—		—		—		—		—		—		—
Substandard (Rating 7)		198		—		177		—		430		52		—		857		—		27		—		—		4		—		—		31
Doubtful (Rating 8)		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total 1-4 family real estate	$	33,462	$	37,195	$	17,558	$	11,533	$	5,549	$	5,180	$	3,093	$	113,570	$	37,624	$	55,127	$	56,644	$	31,349	$	12,222	$	9,792	$	5,380	$	208,138

Consumer
Pass (Ratings 1 through 5)	$	168	$	824	$	457	$	42	$	200	$	671	$	1,985	$	4,347	$	97	$	499	$	743	$	711	$	33	$	831	$	9,406	$	12,320
Special Mention (Rating 6)		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard (Rating 7)		—		—		—		—		119		—		—		119		45		282		—		11		—		106		—		444
Doubtful (Rating 8)		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total Consumer	$	168	$	824	$	457	$	42	$	319	$	671	$	1,985	$	4,466	$	142	$	781	$	743	$	722	$	33	$	937	$	9,406	$	12,764

Total	$	1,284,889	$	1,343,657	$	1,091,066	$	418,836	$	327,279	$	240,035	$	387,095	$	5,092,857	$	305,025	$	1,650,145	$	1,285,692	$	931,468	$	401,179	$	489,121	$	363,345	$	5,425,975

2419

Table of Contents

As of September 30, 2022

Term Loans

Amortized Cost Basis by Origination Year

Revolving

Loans

Amortized

Delinquency Status *

2022

2021

2020

2019

2018

Prior

Cost Basis

Total

(dollars in thousands)
C&I - other

Performing

$
144,806

$
78,379

$
29,596

$
10,530

$
2,580

$
172

$
—

$
266,063
Nonperforming

288

747

56

97

—

—

—

1,188
Total C&I - other

$
145,094

$
79,126

$
29,652

$
10,627

$
2,580

$
172

$
—

$
267,251

Construction and land development

Performing

$
80,160

$
48,094

$
4,391

$
3,379

$
211

$
458

$
758

$
137,451
Nonperforming

524

—

—

—

—

—

—

524
Total Construction and land development

$
80,684

$
48,094

$
4,391

$
3,379

$
211

$
458

$
758

$
137,975

Direct financing leases

Performing

$
13,169

$
5,636

$
6,640

$
5,135

$
2,237

$
557

$
—

$
33,374
Nonperforming

—

35

75

9

10

—

—

129
Total Direct financing leases

$
13,169

$
5,671

$
6,715

$
5,144

$
2,247

$
557

$
—

$
33,503

1-4 family real estate

Performing

$
75,114

$
116,168

$
94,924

$
19,598

$
12,461

$
53,145

$
1,008

$
372,418
Nonperforming

29

174

955

6

—

356

—

1,520
Total 1-4 family real estate

$
75,143

$
116,342

$
95,879

$
19,604

$
12,461

$
53,501

$
1,008

$
373,938

Consumer

Performing

$
10,533

$
4,427

$
3,988

$
1,332

$
1,394

$
1,408

$
79,730

$
102,812
Nonperforming

159

12

12

13

32

46

—

274
Total Consumer

$
10,692

$
4,439

$
4,000

$
1,345

$
1,426

$
1,454

$
79,730

$
103,086

Total

$
324,782

$
253,672

$
140,637

$
40,099

$
18,925

$
56,142

$
81,496

$
915,753


	As of March 31, 2023
	Term Loans
	Amortized Cost Basis by Origination Year												Revolving
													Loans
													Amortized
Delinquency Status *	2023		2022		2021		2020		2019		Prior		Cost Basis		Total

	(dollars in thousands)
C&I - other
Performing	$	43,765	$	145,880	$	62,307	$	22,270	$	6,566	$	1,176	$	—	$	281,964
Nonperforming		—		2,666		1,390		64		37		—		—		4,157
Total C&I - other	$	43,765	$	148,546	$	63,697	$	22,334	$	6,603	$	1,176	$	—	$	286,121

Construction and land development
Performing	$	3,059	$	10,978	$	331	$	10	$	3	$	61	$	—	$	14,442
Nonperforming		—		—		—		—		—		—		—		—
Total Construction and land development	$	3,059	$	10,978	$	331	$	10	$	3	$	61	$	—	$	14,442

Direct financing leases
Performing	$	5,256	$	15,409	$	4,710	$	4,926	$	3,753	$	1,201	$	—	$	35,255
Nonperforming		—		—		28		22		14		54		—		118
Total Direct financing leases	$	5,256	$	15,409	$	4,738	$	4,948	$	3,767	$	1,255	$	—	$	35,373

1-4 family real estate
Performing	$	23,843	$	61,010	$	90,018	$	74,002	$	16,392	$	56,749	$	83	$	322,097
Nonperforming		—		133		512		479		460		672		—		2,256
Total 1-4 family real estate	$	23,843	$	61,143	$	90,530	$	74,481	$	16,852	$	57,421	$	83	$	324,353

Consumer
Performing	$	6,041	$	12,171	$	3,329	$	3,340	$	945	$	2,379	$	75,460	$	103,665
Nonperforming		—		7		—		—		—		41		45		93
Total Consumer	$	6,041	$	12,178	$	3,329	$	3,340	$	945	$	2,420	$	75,505	$	103,758

Total	$	81,964	$	248,254	$	162,625	$	105,113	$	28,170	$	62,333	$	75,588	$	764,047

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

The following table shows the gross charge-offs of loans and leases by class of receivable and year of origination for the three months ended March 31, 2023:


	As of March 31, 2023
	Gross Charge-off by Origination Year
Classes of Loans/Leases	2023		2022		2021		2020		2019		Prior		Total

	(dollars in thousands)
C&I:
C&I - revolving	$	—	$	—	$	—	$	—	$	—	$	—	$	—
C&I - other		—		740		281		794		201		35		2,051
CRE - owner occupied		—		—		208		—		—		—		208
CRE - non-owner occupied		—		—		—		—		—		—		—
Construction and land development		—		12		—		—		—		—		12
Multi-family		—		—		—		—		—		—		—
Direct financing leases		—		—		—		—		3		1		4
1-4 family real estate		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—
	$	—	$	752	$	489	$	794	$	204	$	36	$	2,275

2520

Table of Contents

The following tables show the credit quality indicator of loans by class of receivable and year of origination as of December 31, ~~2021:~~2022:



		As of December 31, 2021																As of December 31, 2022
		Term Loans																Term Loans
		Amortized Cost Basis by Origination Year																Amortized Cost Basis by Origination Year
														Revolving																Revolving
														Loans																Loans
Internally Assigned														Amortized																Amortized
Risk Rating		2021		2020		2019		2018		2017		Prior		Cost Basis		Total		2022		2021		2020		2019		2018		Prior		Cost Basis		Total

		(dollars in thousands)																(dollars in thousands)
C&I - revolving
Pass (Ratings 1 through 5)		$	—	$	—	$	—	$	—	$	—	$	—	$	245,212	$	245,212	$	—	$	—	$	—	$	—	$	—	$	—	$	275,888	$	275,888
Special Mention (Rating 6)			—		—		—		—		—		—		633		633		—		—		—		—		—		—		17,595		17,595
Substandard (Rating 7)			—		—		—		—		—		—		2,638		2,638		—		—		—		—		—		—		3,386		3,386
Doubtful (Rating 8)			—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total C&I - revolving		$	—	$	—	$	—	$	—	$	—	$	—	$	248,483	$	248,483	$	—	$	—	$	—	$	—	$	—	$	—	$	296,869	$	296,869

C&I - other
Pass (Ratings 1 through 5)		$	391,532	$	362,256	$	133,678	$	82,177	$	83,419	$	53,310	$	—	$	1,106,372	$	496,445	$	279,412	$	127,803	$	87,054	$	59,675	$	105,184	$	—	$	1,155,573
Special Mention (Rating 6)			3,580		373		349		—		336		2		—		4,640		9,542		679		901		723		—		308		—		12,153
Substandard (Rating 7)			506		2,366		7,138		396		55		46		—		10,507		187		125		661		4,535		310		106		—		5,924
Doubtful (Rating 8)			—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total C&I - other	��	$	395,618	$	364,995	$	141,165	$	82,573	$	83,810	$	53,358	$	—	$	1,121,519	$	506,174	$	280,216	$	129,365	$	92,312	$	59,985	$	105,598	$	—	$	1,173,650

CRE - owner occupied
Pass (Ratings 1 through 5)		$	118,014	$	143,045	$	47,660	$	30,523	$	17,038	$	46,185	$	11,477	$	413,942	$	146,211	$	182,440	$	142,596	$	33,571	$	27,088	$	45,993	$	13,460	$	591,359
Special Mention (Rating 6)			637		—		—		233		1,846		1,202		—		3,918		6,190		—		6,379		484		—		1,346		269		14,668
Substandard (Rating 7)			—		—		2,080		1,239		522		—		—		3,841		3,750		171		16,336		1,396		1,197		490		—		23,340
Doubtful (Rating 8)			—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total CRE - owner occupied		$	118,651	$	143,045	$	49,740	$	31,995	$	19,406	$	47,387	$	11,477	$	421,701	$	156,151	$	182,611	$	165,311	$	35,451	$	28,285	$	47,829	$	13,729	$	629,367

CRE - non-owner occupied
Pass (Ratings 1 through 5)		$	176,813	$	145,712	$	88,697	$	63,849	$	55,752	$	28,808	$	8,592	$	568,223	$	310,163	$	221,953	$	173,478	$	89,337	$	56,898	$	40,923	$	7,510	$	900,262
Special Mention (Rating 6)			7,295		20,881		1,802		12,230		5,494		5,580		—		53,282		2,824		882		18,920		—		12,917		6,198		—		41,741
Substandard (Rating 7)			1,105		6,297		15,563		1,087		943		—		—		24,995		5,651		—		157		15,217		—		—		211		21,236
Doubtful (Rating 8)			—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total CRE - non-owner occupied		$	185,213	$	172,890	$	106,062	$	77,166	$	62,189	$	34,388	$	8,592	$	646,500	$	318,638	$	222,835	$	192,555	$	104,554	$	69,815	$	47,121	$	7,721	$	963,239

Construction and land development
Pass (Ratings 1 through 5)		$	394,045	$	248,360	$	126,941	$	106,790	$	3,012	$	—	$	13,277	$	892,425	$	479,016	$	330,434	$	240,778	$	31,607	$	30,300	$	—	$	29,647	$	1,141,782
Special Mention (Rating 6)			—		—		—		—		—		—		—		—		1,465		9,200		—		—		—		—		—		10,665
Substandard (Rating 7)			10,362		—		—		—		—		—		—		10,362		132		10,262		—		—		—		—		—		10,394
Doubtful (Rating 8)			—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total Construction and land development		$	404,407	$	248,360	$	126,941	$	106,790	$	3,012	$	—	$	13,277	$	902,787	$	480,613	$	349,896	$	240,778	$	31,607	$	30,300	$	—	$	29,647	$	1,162,841

Multi-family
Pass (Ratings 1 through 5)		$	266,120	$	197,224	$	74,033	$	47,486	$	5,609	$	7,376	$	2,564	$	600,412	$	237,839	$	254,056	$	224,920	$	134,378	$	99,695	$	7,875	$	2,227	$	960,990
Special Mention (Rating 6)			—		—		—		—		—		—		—		—		—		44		—		1,467		—		—		—		1,511
Substandard (Rating 7)			—		—		—		—		—		—		—		—		—		—		1,302		—		—		—		—		1,302
Doubtful (Rating 8)			—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total Multi-family		$	266,120	$	197,224	$	74,033	$	47,486	$	5,609	$	7,376	$	2,564	$	600,412	$	237,839	$	254,100	$	226,222	$	135,845	$	99,695	$	7,875	$	2,227	$	963,803

1-4 family real estate
Pass (Ratings 1 through 5)		$	47,097	$	24,029	$	16,188	$	7,569	$	5,845	$	5,213	$	3,079	$	109,020	$	61,953	$	57,731	$	33,737	$	12,687	$	5,813	$	6,002	$	5,855	$	183,778
Special Mention (Rating 6)			37		—		—		—		—		—		—		37		—		—		—		—		—		—		—		—
Substandard (Rating 7)			—		178		—		437		201		—		—		816		28		—		—		5		—		—		—		33
Doubtful (Rating 8)			—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total 1-4 family real estate		$	47,134	$	24,207	$	16,188	$	8,006	$	6,046	$	5,213	$	3,079	$	109,873	$	61,981	$	57,731	$	33,737	$	12,692	$	5,813	$	6,002	$	5,855	$	183,811

Consumer
Pass (Ratings 1 through 5)		$	1,558	$	487	$	108	$	216	$	—	$	824	$	2,031	$	5,224	$	511	$	801	$	493	$	122	$	254	$	621	$	10,226	$	13,028
Special Mention (Rating 6)			—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard (Rating 7)			—		—		—		137		—		—		—		137		282		—		12		—		112		—		—		406
Doubtful (Rating 8)			—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total Consumer		$	1,558	$	487	$	108	$	353	$	—	$	824	$	2,031	$	5,361	$	793	$	801	$	505	$	122	$	366	$	621	$	10,226	$	13,434

Total		$	1,418,701	$	1,151,208	$	514,237	$	354,369	$	180,072	$	148,546	$	289,503	$	4,056,636	$	1,762,189	$	1,348,190	$	988,473	$	412,583	$	294,259	$	215,046	$	366,274	$	5,387,014

2621

Table of Contents




	As of December 31, 2022
	Term Loans
	Amortized Cost Basis by Origination Year												Revolving
													Loans
													Amortized
Delinquency Status *	2022		2021		2020		2019		2018		Prior		Cost Basis		Total

	(dollars in thousands)
C&I - other
Performing	$	170,180	$	69,694	$	25,540	$	8,066	$	1,804	$	79	$	—	$	275,363
Nonperforming		1,110		1,320		155		95		—		—		—		2,680
Total C&I - other	$	171,290	$	71,014	$	25,695	$	8,161	$	1,804	$	79	$	—	$	278,043

Direct financing leases
Performing	$	28,785	$	360	$	10	$	3	$	62	$	—	$	—	$	29,220
Nonperforming		—		—		—		—		—		—		—		—
Total Direct financing leases	$	28,785	$	360	$	10	$	3	$	62	$	—	$	—	$	29,220

Construction and land development
Performing	$	14,578	$	5,172	$	5,700	$	4,398	$	1,536	$	370	$	—	$	31,754
Nonperforming		—		32		88		7		8		—		—		135
Total Construction and land development	$	14,578	$	5,204	$	5,788	$	4,405	$	1,544	$	370	$	—	$	31,889

1-4 family real estate
Performing	$	69,094	$	92,762	$	75,153	$	17,089	$	11,381	$	48,136	$	90	$	313,705
Nonperforming		267		524		487		279		8		448		—		2,013
Total 1-4 family real estate	$	69,361	$	93,286	$	75,640	$	17,368	$	11,389	$	48,584	$	90	$	315,718

Consumer
Performing	$	14,685	$	3,844	$	3,717	$	1,123	$	1,140	$	1,325	$	70,974	$	96,808
Nonperforming		7		—		—		—		3		59		110		179
Total Consumer	$	14,692	$	3,844	$	3,717	$	1,123	$	1,143	$	1,384	$	71,084	$	96,987

Total	$	298,706	$	173,708	$	110,850	$	31,060	$	15,942	$	50,417	$	71,174	$	751,857

During the quarter ended March 31, 2023, there were no modifications of loans and leases made to borrowers experiencing financial difficulty.

Changes in the ACL for OBS exposures for the three months ended March 31, 2023 and 2022 are presented as follows:


	Three Months Ended
	March 31, 2023		March 31, 2022

	(dollars in thousands)

Balance, beginning	$	5,552	$	6,886
Provisions (credited) to expense		481		933
Balance, ending	$	6,033	$	7,819

Table of Contents

As of December 31, 2021

Term Loans

Amortized Cost Basis by Origination Year

Revolving

Loans

Amortized

Delinquency Status *

2021

2020

2019

2018

2017

Prior

Cost Basis

Total

(dollars in thousands)

C&I - other

Performing

$
117,163

$
54,261

$
33,390

$
14,274

$
4,200

$
455

$
—

$
223,743

Nonperforming

95

177

644

368

42

14

—

1,340

Total C&I - other

$
117,258

$
54,438

$
34,034

$
14,642

$
4,242

$
469

$
—

$
225,083

Direct financing leases

Performing

$
6,690

$
12,130

$
11,638

$
9,235

$
3,695

$
956

$
—

$
44,344

Nonperforming

—

732

—

52

18

45

—

847

Total Direct financing leases

$
6,690

$
12,862

$
11,638

$
9,287

$
3,713

$
1,001

$
—

$
45,191

Construction and land development

Performing

$
12,857

$
2,080

$
—

$
494

$
—

$
—

$
280

$
15,711

Nonperforming

—

—

—

—

73

—

—

73

Total Construction and land development

$
12,857

$
2,080

$
—

$
494

$
73

$
—

$
280

$
15,784

1-4 family real estate

Performing

$
104,005

$
78,713

$
19,001

$
10,784

$
10,533

$
43,976

$
68

$
267,080

Nonperforming

—

—

—

106

—

302

—

408

Total 1-4 family real estate

$
104,005

$
78,713

$
19,001

$
10,890

$
10,533

$
44,278

$
68

$
267,488

Consumer

Performing

$
4,891

$
4,020

$
2,114

$
1,660

$
593

$
1,230

$
55,411

$
69,919

Nonperforming

—

—

15

—

15

1

—

31

Total Consumer

$
4,891

$
4,020

$
2,129

$
1,660

$
608

$
1,231

$
55,411

$
69,950

Total

$
245,701

$
152,113

$
66,802

$
36,973

$
19,169

$
46,979

$
55,759

$
623,496

~~As of September 30, 2022 and December 31, 2021, TDRs totaled $227 thousand and $494 thousand, respectively.~~

For each class of financing receivable, the following presents the number and recorded investment of TDRs, by type of concession, that were restructured during the three and nine months ended September 30, 2022 and September 30, 2021. The difference between the pre-modification recorded investment and the post-modification recorded investment would be any partial charge-offs at the time of restructuring.

For the three months ended September 30, 2022

For the nine months ended September 30, 2022




Pre-

Post-





Pre-

Post-


Number of

Modification

Modification

Number of

Modification

Modification

Loans/

Recorded

Recorded

Specific

Loans/

Recorded

Recorded

Specific

Classes of Loans/Leases

Leases

Investment

Investment

Allowance

Leases

Investment

Investment

Allowance

(dollars in thousands)

Direct Financing Leases

1

$
71

$
71

$
—

2

$
122

$
122

$
—

For the three months ended September 30, 2021

For the nine months ended September 30, 2021




Pre-

Post-





Pre-

Post-


Number of

Modification

Modification

Number of

Modification

Modification

Loans/

Recorded

Recorded

Specific

Loans/

Recorded

Recorded

Specific

Classes of Loans/Leases

Leases

Investment

Investment

Allowance

Leases

Investment

Investment

Allowance

(dollars in thousands)

CONCESSION - Extension of Maturity

















1-4 family real estate

—

—

—

—

1

2,532

2,532

—

















CONCESSION - Interest Rate Adjusted Below Market

1-4 family real estate

—

$
—

$
—

$
—

1

$
54

$
54

$
6

Consumer

—

—

—

—

1

13

13

6

—

$
—

$
—

$
—

2

$
67

$
67

$
12

TOTAL

—

$
—

$
—

$
—

3

$
2,599

$
2,599

$
12

For the three and nine months ended September 30, 2022 and September 30, 2021, none of the Company's TDRs redefaulted within 12 months subsequent to restructure, where default is defined as delinquency of 90 days or more and/or placement on nonaccrual status. There were no TDRs that were restructured and charged off for the three and nine months ended September 30, 2022.

~~Table of Contents~~

~~Changes in the ACL for OBS exposures for the three and nine months ended September 30, 2022 and 2021 are presented as follows:~~

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

(dollars in thousands)

Balance, beginning
$
6,878

$
9,987

$
6,886

$
—

Impact of adopting ASU 2016-13

—

—

—

9,117

Provisions (credited) to expense

(331)

(1,895)

(339)

(1,025)

Balance, ending
$
6,547

$
8,092

$
6,547

$
8,092

* Provision for the nine months ended September 30, 2022 included $1.4 million related to the acquired Guaranty Bank OBS exposures

NOTE 54 – DERIVATIVES AND HEDGING ACTIVITIES

Derivatives are summarized as follows as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022

	(dollars in thousands)				(dollars in thousands)
Assets:
Interest rate caps - hedged	$	9,191	$	927	$	6,714	$	8,327
Interest rate caps		2,480		238		1,786		2,213
Interest rate swaps - hedged		506		—		1,484		477
Interest rate swaps		172,860		221,055		120,366		166,614
	$	185,037	$	222,220	$	130,350	$	177,631

Liabilities:
Interest rate collars - hedged	$	(541)	$	—	$	(57)	$	(263)
Interest rate swaps - hedged		(36,078)		(4,080)		(29,978)		(33,824)
Interest rate swaps		(172,860)		(221,055)		(120,366)		(166,614)
	$	(209,479)	$	(225,135)	$	(150,401)	$	(200,701)

The Company uses interest rate swap, cap and collar instruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates.

The Company has entered into interest rate caps to hedge against the risk of rising interest rates on liabilities. The liabilities consist of $300.0 million of deposits and the benchmark rates hedged vary at 1-month LIBOR, 3-month LIBOR and the Prime Rate. The interest rate caps are designated as cash flow hedges in accordance with ASC 815. An initial premium of $3.5 million was paid upfront for the caps executed. The details of the interest rate caps are as follows:


				Balance Sheet					Fair Value as of							Balance Sheet					Fair Value as of
Hedged Item		Effective Date	Maturity Date	Location	Notional Amount		Strike Rate		September 30, 2022		December 31, 2021			Effective Date	Maturity Date	Location	Notional Amount		Strike Rate		March 31, 2023		December 31, 2022
(dollars in thousands)	(dollars in thousands)												(dollars in thousands)

Deposits		1/1/2020	1/1/2023	Derivatives - Assets	$	25,000	1.75	%	$	120	$	5		1/1/2020	1/1/2023	Derivatives - Assets	$	25,000	1.75	%	$	-	$	(50)
Deposits		1/1/2020	1/1/2023	Derivatives - Assets		50,000	1.57	%		221		11		1/1/2020	1/1/2024	Derivatives - Assets		25,000	1.75	%		515		714
Deposits		1/1/2020	1/1/2023	Derivatives - Assets		25,000	1.80	%		111		5		1/1/2020	1/1/2024	Derivatives - Assets		50,000	1.57	%		1,191		1,566
Deposits		1/1/2020	1/1/2024	Derivatives - Assets		25,000	1.75	%		797		60		1/1/2020	1/1/2024	Derivatives - Assets		25,000	1.80	%		596		783
Deposits		1/1/2020	1/1/2024	Derivatives - Assets		50,000	1.57	%		1,593		125		1/1/2020	1/1/2025	Derivatives - Assets		25,000	1.75	%		1,032		1,264
Deposits		1/1/2020	1/1/2024	Derivatives - Assets		25,000	1.80	%		796		62		1/1/2020	1/1/2025	Derivatives - Assets		50,000	1.57	%		2,253		2,700
Deposits		1/1/2020	1/1/2025	Derivatives - Assets		25,000	1.75	%		1,379		161		1/1/2020	1/1/2025	Derivatives - Assets		25,000	1.80	%		1,127		1,350
Deposits		1/1/2020	1/1/2025	Derivatives - Assets		50,000	1.57	%		2,783		332
Deposits		1/1/2020	1/1/2025	Derivatives - Assets		25,000	1.80	%		1,391		166
					$	300,000			$	9,191	$	927					$	225,000			$	6,714	$	8,327

For derivative instruments that are designated as unhedged, the change in fair value of the derivative instrument is recognized into current earnings. The details of the unhedged interest rate caps are as follows:


		Balance Sheet					Fair Value as of
Effective Date	Maturity Date	Location	Notional Amount		Strike Rate		March 31, 2023		December 31, 2022

(dollars in thousands)

1/1/2020	1/3/2023	Derivatives - Assets	$	25,000	1.90	%	$	-	$	3
2/1/2020	2/1/2024	Derivatives - Assets		25,000	1.90	%		635		822
3/1/2020	3/3/2025	Derivatives - Assets		25,000	1.90	%		1,151		1,388
			$	75,000			$	1,786	$	2,213

The Company uses interest rate collars in an effort to manage future interest rate exposure on variable rate loans. The collar hedging strategy stabilizes interest rate fluctuations by setting both a floor and a cap. The collar is designated as a cash flow hedge in accordance with ASC 815. The details of the interest rate collars are as follows:


										Fair Value as of
Hedged Item	Effective Date	Maturity Date	Location	Notional Amount		Cap Strike Rate		Floor Strike Rate		March 31, 2023		December 31, 2022
Loans	10/1/2022	10/1/2026	Derivatives - Liabilities	$	50,000	4.40	%	2.44	%	$	(57)	$	(263)

2823

Table of Contents

Balance Sheet

Fair Value as of

Effective Date

Maturity Date

Location

Notional Amount

Strike Rate

September 30, 2022

December 31, 2021

(dollars in thousands)

1/1/2020

1/1/2023

Derivatives - Assets

$
25,000

1.90
%

$
128

$
3

2/1/2020

2/1/2024

Derivatives - Assets

25,000

1.90
%

867

62

3/1/2020

3/1/2025

Derivatives - Assets

25,000

1.90
%

1,485

173

$
75,000

$
2,480

$
238

The Company uses interest rate collars in an effort to manage future interest rate exposure on variable rate loans. The collar hedging strategy stabilizes interest rate fluctuations by setting both a floor and a cap. The details of the interest rate collars are as follows:

Fair Value as of
Hedged Item

Effective Date

Maturity Date

Location

Notional Amount

Cap Strike Rate

Floor Strike Rate

September 30, 2022

December 31, 2021
Loans

10/1/2022

10/1/2026

Derivatives - Liabilities

$
50,000

4.40
%

2.44
%

$
(541)

$
N/A

The Company has entered into interest rate swaps to hedge against the risk of declining interest rates on floating rate loans. All of the interest rate swaps are designated as cash flow hedges in accordance with ASC 815. The details of the interest rate swaps are as follows:


				Balance Sheet							Fair Value as of							Balance Sheet							Fair Value as of
Hedged Item		Effective Date	Maturity Date	Location	Notional Amount		Receive Rate		Pay Rate		September 30, 2022		December 31, 2021			Effective Date	Maturity Date	Location	Notional Amount		Receive Rate		Pay Rate		March 31, 2023		December 31, 2022
(dollars in thousands)	(dollars in thousands)														(dollars in thousands)

Loans		7/1/2021	7/1/2031	Derivatives - Liabilities	$	35,000	1.40	%	1.79	%	$	(5,968)	$	(17)		7/1/2021	7/1/2031	Derivatives - Liabilities	$	35,000	1.40	%	4.86	%	$	(4,809)	$	(5,646)
Loans		7/1/2021	7/1/2031	Derivatives - Liabilities		50,000	1.40	%	1.79	%		(8,527)		(25)		7/1/2021	7/1/2031	Derivatives - Liabilities		50,000	1.40	%	4.86	%		(6,871)		(8,066)
Loans		7/1/2021	7/1/2031	Derivatives - Liabilities		40,000	1.40	%	1.79	%		(6,833)		(34)		7/1/2021	7/1/2031	Derivatives - Liabilities		40,000	1.40	%	4.86	%		(5,508)		(6,464)
Loans		7/1/2021	7/1/2031	Derivatives - Liabilities		25,000	1.40	%	1.79	%		(4,263)		(13)		10/1/2022	7/1/2031	Derivatives - Liabilities		25,000	1.30	%	4.87	%		(3,403)		(4,018)
Loans		4/1/2022	4/1/2027	Derivatives - Liabilities		15,000	1.91	%	1.79	%		(1,248)		N/A		4/1/2022	4/1/2027	Derivatives - Liabilities		15,000	1.91	%	4.86	%		(939)		(1,144)
Loans		4/1/2022	4/1/2027	Derivatives - Liabilities		50,000	1.91	%	1.79	%		(4,159)		N/A		4/1/2022	4/1/2027	Derivatives - Liabilities		50,000	1.91	%	4.86	%		(3,129)		(3,812)
Loans		4/1/2022	4/1/2027	Derivatives - Liabilities		35,000	1.91	%	1.79	%		(2,911)		N/A		4/1/2022	4/1/2027	Derivatives - Liabilities		35,000	1.91	%	4.86	%		(2,190)		(2,669)
Loans		4/1/2022	4/1/2027	Derivatives - Liabilities		50,000	1.91	%	1.79	%		(4,159)		N/A		4/1/2022	4/1/2027	Derivatives - Liabilities		50,000	1.91	%	4.86	%		(3,129)		(3,812)
					$	300,000					$	(38,068)	$	(89)					$	300,000					$	(29,978)	$	(35,631)

The Company has entered into interest rate swaps to hedge against the risk of rising rates on its variable rate trust preferred securities. All of the interest rate swaps are designated as cash flow hedges in accordance with ASC 815. The details of the interest rate swaps are as follows:

Balance Sheet

Fair Value as of
Hedged Item

Effective Date

Maturity Date

Location

Notional Amount

Receive Rate

Pay Rate

September 30, 2022

December 31, 2021

(dollars in thousands)

QCR Holdings Statutory Trust II

9/30/2018

9/30/2028

Derivatives - Liabilities

$
10,000

6.52
%

5.85
%

$
513

$
(1,035)
QCR Holdings Statutory Trust III

9/30/2018

9/30/2028

Derivatives - Liabilities

8,000

6.52
%

5.85
%

410

(828)
QCR Holdings Statutory Trust V

7/7/2018

7/7/2028

Derivatives - Liabilities

10,000

4.06
%

4.54
%

510

(996)
Community National Statutory Trust II

9/20/2018

9/20/2028

Derivatives - Liabilities

3,000

5.70
%

5.17
%

153

(309)
Community National Statutory Trust III

9/15//2018

9/15/2028

Derivatives - Liabilities

3,500

5.04
%

4.75
%

177

(360)
Guaranty Bankshares Statutory Trust I

9/15/2018

9/15/2028

Derivatives - Liabilities

4,500

5.04
%

4.75
%

227

(463)
Guaranty Statutory Trust II*

12/15/2005

2/23/2036

Derivatives - Assets

10,310

4.41
%

4.09
%

506

N/A



$
49,310

$
2,496

$
(3,991)


				Balance Sheet							Fair Value as of
Hedged Item	Effective Date		Maturity Date	Location	Notional Amount		Receive Rate		Pay Rate		March 31, 2023		December 31, 2022

		(dollars in thousands)

QCR Holdings Statutory Trust II	9/30/2018		9/30/2028	Derivatives - Assets	$	10,000	7.60	%	5.85	%	$	279	$	464
QCR Holdings Statutory Trust III	9/30/2018		9/30/2028	Derivatives - Assets		8,000	7.60	%	5.85	%		223		372
QCR Holdings Statutory Trust V	7/7/2018		7/7/2028	Derivatives - Assets		10,000	6.38	%	4.54	%		279		459
Community National Statutory Trust II	9/20/2018		9/20/2028	Derivatives - Assets		3,000	7.13	%	5.17	%		83		140
Community National Statutory Trust III	9/15//2018		9/15/2028	Derivatives - Assets		3,500	6.62	%	4.75	%		96		163
Guaranty Bankshares Statutory Trust I	9/15/2018		9/15/2028	Derivatives - Assets		4,500	6.62	%	4.75	%		124		209
Guaranty Statutory Trust II*	5/23/2019		2/23/2026	Derivatives - Assets		10,310	6.37	%	4.09	%		400		477
					$	49,310					$	1,484	$	2,284

*Acquired on 4/1/2022 with GFED acquisition.

Changes in fair values of derivative financial instruments accounted for as cash flow hedges, to the extent that they are included in the assessment of effectiveness, are recorded as a component of AOCI.

The Company has also entered into interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer while at the same time entering into an equal and offsetting interest rate swap with a third-party financial institution. Additionally, the Company receives an upfront, non-refundable fee from the counterparty, dependent upon the pricing that is recognized upon receipt from the counterparty. Because the Company acts as an intermediary for the customer, changes in the fair value of the underlying derivative contracts, for the most part, offset each other and do not significantly impact the Company’s results of operations.

Interest rate swaps that are not designated as hedging instruments are summarized as follows:


		March 31, 2023			December 31, 2022
	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value

	(dollars in thousands)
Non-Hedging Interest Rate Derivatives Assets:
Interest rate swap contracts	$	2,855,239	$	120,366	$	2,528,949	$	166,614
Non-Hedging Interest Rate Derivatives Liabilities:
Interest rate swap contracts	$	2,855,239	$	120,366	$	2,528,949	$	166,614

2924

Table of Contents

~~value of the underlying derivative contracts, for the most part, offset each other and do not significantly impact the Company’s results of operations.~~

~~Interest rate swaps that are not designated as hedging instruments are summarized as follows:~~

September 30, 2022

December 31, 2021

Notional Amount

Estimated Fair Value

Notional Amount

Estimated Fair Value

(dollars in thousands)
Non-Hedging Interest Rate Derivatives Assets:

Interest rate swap contracts

$
2,331,961

$
172,860

$
2,024,599

$
221,055
Non-Hedging Interest Rate Derivatives Liabilities:

Interest rate swap contracts

$
2,331,961

$
172,860

$
2,024,599

$
221,055

The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and September 30, 2021~~ are as follows:

Three Months Ended September 30, 2022

Three Months Ended September 30, 2021

Interest and

Interest

Interest and

Interest

Dividend Income

Expense

Dividend Income

Expense

(dollars in thousands)
Income and expense line items presented in the consolidated statements of income

$
79,267

$
18,498

$
51,667

$
5,438

The effects of cash flow hedging:

Gain (loss) on cash flow hedges:

Interest rate caps on deposits

-

(259)

-

181

Interest rate swaps on variable rate loans

(426)

-

-

-

Interest rate swaps on junior subordinated debentures

-

73

-

285


	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021				Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
	Interest and		Interest		Interest and		Interest		Interest and		Interest		Interest and		Interest
	Dividend Income		Expense		Dividend Income		Expense		Dividend Income		Expense		Dividend Income		Expense

	(dollars in thousands)
									(dollars in thousands)
Income and expense line items presented in the consolidated statements of income	$	198,534	$	32,632	$	148,135	$	16,415	$	94,217	$	37,407	$	51,062	$	5,329

The effects of cash flow hedging:

Gain (loss) on cash flow hedges:
Interest rate caps on deposits		-		202		-		495		-		(1,581)		-		221
Interest rate swaps on variable rate loans		715		-		502		-
Interest rate swaps and collars on variable rate loans										(2,055)		-		471		-
Interest rate swaps on junior subordinated debentures		-		536		-		830		-		(227)		-		267

The Company’s hedged interest rate swaps and non-hedged interest rate swaps are collateralized with cash and investment securities with carrying values as follows:


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022

	(dollars in thousands)				(dollars in thousands)

Cash	$	2,001	$	21,100	$	1,661	$	1,272
U.S treasuries and govt. sponsored agency securities		3,492		3,555
Municipal securities		101,588		139,166		3,954		8,227
Residential mortgage-backed and related securities		45,650		65,104		5,987		29,257
	$	152,731	$	228,925	$	11,602	$	38,756

The Company may be exposed to credit risk in the event of non-performance by the counterparties to its interest rate derivative agreements. The Company assesses the credit risk of its financial institution counterparties by monitoring publicly available credit ~~rating~~ratings and financial information. Additionally, the Company manages financial institution counterparty credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, and uses ISDA master agreements, central clearing mechanisms and counterparty limits. The agreements contain bilateral collateral agreements with the amount of collateral to be posted generally governed by the settlement value of outstanding swaps.

~~Table of Contents~~

The Company manages the risk of default by its borrower/customer counterparties through its normal loan underwriting and credit monitoring policies and procedures. The Company underwrites the combination of the base loan amount and potential swap exposure and focuses on high quality borrowers with strong collateral values. The majority of the Company’s swapped loan portfolio consists of loans on projects, with loan-to-values including the potential swap exposure that is below 65%. The Company does not currently anticipate any losses from failure of interest rate derivative counterparties to honor their obligations.

NOTE ~~6 – SUBORDINATED NOTES~~

~~The details of the Company’s subordinated notes are as follows:~~

Amount Outstanding

Interest Rate

Amount Outstanding

Interest Rate

as of September 30, 2022

as of September 30, 2022

as of December 31, 2021

as of December 31, 2021

Maturity Date

(dollars in thousands)

Subordinated debenture dated 9/14/20
$
50,000

5.125
%

$
50,000

5.125
%
9/15/2030
Subordinated debenture dated 2/1/19

65,000

5.375
%

65,000

5.375
%
2/15/2029
Subordinated debenture dated 7/29/20*

20,000

5.250
%

N/A

N/A

9/30/2030
Subordinated debenture dated 8/18/22

55,000

5.950
%

N/A

N/A

9/1/2037
Subordinated debenture dated 8/18/22

45,000

5.500
%

N/A

N/A

9/1/2032
Debt issuance costs

(2,257)

(1,150)

Total Subordinated Debentures
$
232,743

$
113,850

*Assumed in acquisition of GFED

~~On April 1, 2022, the Company acquired, through the GFED acquisition $20.0~~ million in aggregate principal amount of fixed-to-floating subordinated notes that mature on September 30, 2030. The subordinated notes, which qualify as Tier 2 capital for the Company, will bear interest at a fixed rate of ~~5.25%~~ per year, from and including July 29, 2020 to, but excluding September 30, 2025 or earlier redemption. From and including September 30, 2025 to, but excluding the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate, which is expected to be the then three-month Term ~~SOFR, plus 519~~ basis points. Interest on the subordinated notes is payable semi-annually, commencing on September 30, 2020 through September 30, 2025. The subordinated notes may be redeemed at the Company’s option, in whole or in part, on any interest payment date on or after September 30, 2025, at a redemption price equal to ~~100%~~ of the principal amount of the notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. The subordinated notes are subordinate in the right of payment to the Company’s senior indebtedness and the indebtedness and other liabilities of the subsidiary banks.

~~On August 18, 2022, the Company completed a private offering of $55.0~~ million in aggregate principal amount of fixed-to-floating subordinated notes that mature on September 1, 2037. The subordinated notes, which qualify as Tier 2 capital for the Company, will bear interest at a fixed rate of ~~5.95%~~ per year, from and including September 1, 2022 to, but excluding September 1, 2032 or earlier redemption. From and including September 1, 2032 to, but excluding the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate, which is expected to be the then three-month Term ~~SOFR, plus 300~~ basis points. Interest on the subordinated notes is payable quarterly, commencing on December 1, 2022. The notes are redeemable, in whole or in part, at any time upon the occurrence of certain events. The subordinated notes may be redeemed at the Company’s option, in whole or in part, on any interest payment date on or after September 1, 2032, at a redemption price equal to ~~100%~~ of the principal amount of the notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. The subordinated notes are subordinate in the right of payment to the Company’s senior indebtedness and the indebtedness and other liabilities of the subsidiary banks.

~~On August 18, 2022, the Company also completed a private offering of $45.0~~ million in aggregate principal amount of fixed-to-floating subordinated notes that mature on September 1, 2032. The subordinated notes, which qualify as Tier 2 capital for the Company, will bear interest at a fixed rate of ~~5.50%~~ per year, from and including September 1, 2022 to, but excluding September 1, 2027 or earlier redemption. From and including September 1, 2027 to, but excluding the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate, which is expected to be the then three-month Term ~~SOFR, plus 279~~ basis points. Interest on the subordinated notes is payable semi-annually, commencing on March 1, 2023 through September 1, 2027 and quarterly thereafter. The notes are redeemable, in whole or in part, at any time upon the occurrence of certain events. The subordinated notes may be redeemed at the Company’s option, in whole or in part, on any interest payment date on or after September 1, 2027, at a redemption price equal to

~~Table of Contents~~

~~100%~~ of the principal amount of the notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. The subordinated notes are subordinate in the right of payment to the Company’s senior indebtedness and the indebtedness and other liabilities of the subsidiary banks.

~~NOTE 7~~5 – INCOME TAXES

A reconciliation of the expected federal income tax expense to the income tax expense included in the consolidated statements of income is as follows for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021:~~March 31, 2022:


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,								For the Three Months Ended March 31,
	2022				2021				2022				2021				2023				2022
			% of				% of				% of				% of				% of				% of
			Pretax				Pretax				Pretax				Pretax				Pretax				Pretax
	Amount		Income		Amount		Income		Amount		Income		Amount		Income		Amount		Income		Amount		Income

	(dollars in thousands)																(dollars in thousands)

Computed "expected" tax expense	$	7,165	21.0	%	$	8,293	21.0	%	$	16,130	21.0	%	$	18,512	21.0	%	$	6,287	21.0	%	$	5,451	21.0	%
Tax exempt income, net		(3,003)	(8.8)			(2,032)	(5.1)			(7,701)	(10.0)			(5,553)	(6.3)			(3,216)	(10.7)			(2,222)	(8.6)
Bank-owned life insurance		(127)	(0.4)			(93)	(0.2)			(273)	(0.4)			(287)	(0.3)			(148)	(0.5)			(73)	(0.3)
State income taxes, net of federal benefit, current year		1,616	4.7			1,799	4.6			3,889	5.1			4,070	4.6			1,189	4.0			1,291	5.0
Provision adjustment from accounting method change		—	—			—	—			(1,181)	(1.5)			—	—			—	—			(1,181)	(4.5)
Tax credits		(359)	(1.1)			(57)	(0.1)			(890)	(1.2)			(171)	(0.2)			(177)	(0.6)			(242)	(0.9)
Income from tax credit equity investments		(337)	(1.0)			(3)	—			(939)	(1.2)			(8)	—			(413)	(1.4)			(301)	(1.2)
Acquisition costs		78	0.2			—	—			450	0.6			—	—			—	—			130	0.5
Excess tax benefit on stock options exercised and restricted stock awards vested		(46)	(0.1)			(107)	(0.3)			(520)	(0.7)			(311)	(0.4)			(398)	(1.3)			(434)	(1.7)
Other		(163)	(0.5)			129	0.2			(316)	(0.4)			6	—			(342)	(1.2)			(86)	(0.3)
Federal and state income tax expense	$	4,824	14.1	%	$	7,929	20.1	%	$	8,649	11.3	%	$	16,258	18.4	%	$	2,782	9.3	%	$	2,333	9.0	%

Table of Contents

NOTE 86 - EARNINGS PER SHARE

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

Three months ended

Nine months ended

September 30,

September 30,

2022


2021


2022


2021

(dollars in thousands, except share data)

Net income

$
29,294

$
31,565

$
68,160

$
71,896

Basic EPS

$
1.73

$
2.02

$
4.25

$
4.54
Diluted EPS

$
1.71

$
1.99

$
4.20

$
4.48

Weighted average common shares outstanding

16,900,968

15,635,123

16,030,371

15,829,124
Weighted average common shares issuable upon exercise of stock options

and under the employee stock purchase plan

209,723

234,675

213,550

229,296
Weighted average common and common equivalent shares outstanding

17,110,691

15,869,798

16,243,921

16,058,420


		Three months ended
		March 31,
		2023		2022

	(dollars in thousands, except share data)

Net income	$	27,157	$	23,624


Basic EPS	$	1.62	$	1.51
Diluted EPS	$	1.60	$	1.49

Weighted average common shares outstanding		16,776,289		15,625,112
Weighted average common shares issuable upon exercise of stock options
and under the employee stock purchase plan*		165,843		227,144
Weighted average common and common equivalent shares outstanding		16,942,132		15,852,256

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NOTE 97 – FAIR VALUE

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

●

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

●

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

●

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

Assets and liabilities measured at fair value on a recurring basis comprise the following at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


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

	(dollars in thousands)								(dollars in thousands)
September 30, 2022:
March 31, 2023:
Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	20,527	$	—	$	20,527	$	—	$	19,320	$	—	$	19,320	$	—
Residential mortgage-backed and related securities		68,844		—		68,844		—		63,104		—		63,104		—
Municipal securities		185,343		—		185,343		—		170,590		—		170,590		—
Asset-backed securities		19,630		—		19,630		—		17,967		—		17,967		—
Other securities		45,393		—		45,393		—		44,496		—		44,496		—
Derivatives		185,037		—		185,037		—		130,350		—		130,350		—
Total assets measured at fair value	$	524,774	$	—	$	524,774	$	—	$	445,827	$	—	$	445,827	$	—

Derivatives	$	209,479	$	—	$	209,479	$	—	$	150,401	$	—	$	150,401	$	—
Total liabilities measured at fair value	$	209,479	$	—	$	209,479	$	—	$	150,401	$	—	$	150,401	$	—


December 31, 2021:
December 31, 2022:
Securities AFS:
U.S. govt. sponsored agency securities	$	23,328	$	—	$	23,328	$	—	$	16,981	$	—	$	16,981	$	—
Residential mortgage-backed and related securities		94,323		—		94,323		—		66,215		—		66,215		—
Municipal securities		168,266		—		168,266		—		193,178		—		193,178		—
Asset-backed securities		27,124		—		27,124		—		18,728		—		18,728		—
Other securities		24,789		—		24,789		—		45,858		—		45,858		—
Derivatives		222,220		—		222,220		—		177,631		—		177,631		—
Total assets measured at fair value	$	560,050	$	—	$	560,050	$	—	$	518,591	$	—	$	518,591	$	—

Derivatives	$	225,135	$	—	$	225,135	$	—	$	200,701	$	—	$	200,701	$	—
Total liabilities measured at fair value	$	225,135	$	—	$	225,135	$	—	$	200,701	$	—	$	200,701	$	—

The securities AFS portfolio consists of 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).

Interest rate caps, swaps and collars are used for the purpose of hedging interest rate risk on various financial assets and liabilities, further described in Note 54 to the Consolidated Financial Statements. Interest rate swaps are also executed for select commercial customers. The fair values are determined by pricing models that consider observable market data for derivative instruments with similar structures (Level 2 inputs).

Certain financial assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when a loan/lease is collaterally dependent).

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Assets measured at fair value on a non-recurring basis comprised the following at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


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

	(dollars in thousands)								(dollars in thousands)

September 30, 2022:
March 31, 2023:
Loans/leases evaluated individually									$	42,354	$	—	$	—	$	42,354
Loans receivable held for sale										139,224		—		—		139,224
OREO										66		—		—		66
									$	181,644	$	—	$	—	$	181,644

December 31, 2022:
Loans/leases evaluated individually	$	29,665	$	—	$	—	$	29,665	$	30,765	$	—	$	—	$	30,765
OREO		191		—		—		191		144		—		—		144
	$	29,856	$	—	$	—	$	29,856	$	30,909	$	—	$	—	$	30,909

December 31, 2021:
Loans/leases evaluated individually	$	6,618	$	—	$	—	$	6,618

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

Loans receivable held for sale are valued at the lower of cost or fair value in the aggregate by type and are classified as Level 3 in the fair value hierarchy. Fair value is estimated considering the loans have a floating interest rate with a spread that is commensurate with current market pricing, in addition to factoring in a discount for credit risk.

OREO in the table above consists of property acquired through foreclosures and settlements of loans. Property acquired is carried at the estimated fair value of the property, less disposal costs, and is classified as a Level 3 in the fair value hierarchy. The estimated fair value of the property is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraise and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the property.

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value:


	Quantitative Information about Level Fair Value Measurements											Quantitative Information about Level Fair Value Measurements
	Fair Value		Fair Value									Fair Value		Fair Value
	September 30,		December 31,									March 31,		December 31,
	2022		2021		Valuation Technique	Unobservable Input	Range					2023		2022		Valuation Technique	Unobservable Input	Range

	(dollars in thousands)											(dollars in thousands)

Loans/leases evaluated individually	$	29,665	$	6,618	Appraisal of collateral	Appraisal adjustments	-10.00	%	to	-30.00	%	$	42,354	$	30,765	Appraisal of collateral	Appraisal adjustments	-10.00	%	to	-30.00	%
Loans receivable held for sale													139,224		—	Market prices for similar loans	Market price adjustments			n/a
OREO		191		—	Appraisal of collateral	Appraisal adjustments	0.00	%	to	-35.00	%		66		144	Appraisal of collateral	Appraisal adjustments	0.00	%	to	-35.00	%

For the loans/leases evaluated individually, the Company records carrying value at fair value less disposal or selling costs. The amounts reported in the tables above are fair values before the adjustment for disposal or selling costs.

For the loans receivable held for sale, the Company records carrying value at fair value factoring in a discount for credit risk.

There have been no changes in valuation techniques used for any assets or liabilities measured at fair value during the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

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


	Fair Value	As of September 30, 2022				As of December 31, 2021				Fair Value	As of March 31, 2023				As of December 31, 2022
	Hierarchy	Carrying		Estimated		Carrying		Estimated		Hierarchy	Carrying		Estimated		Carrying		Estimated
	Level	Value		Fair Value		Value		Fair Value		Level	Value		Fair Value		Value		Fair Value

		(dollars in thousands)									(dollars in thousands)

Cash and due from banks	Level 1	$	86,282	$	86,282	$	37,490	$	37,490	Level 1	$	64,295	$	64,295	$	59,723	$	59,723
Federal funds sold	Level 2		28,210		28,210		12,370		12,370	Level 2		16,365		16,365		56,910		56,910
Interest-bearing deposits at financial institutions	Level 2		42,833		42,833		75,292		75,292	Level 2		237,632		237,632		67,360		67,360
Investment securities:
HTM	Level 2		539,713		511,447		472,385		522,297	Level 2		561,969		528,966		587,142		535,636
AFS	Level 2		339,737		339,737		337,830		337,830	Level 2		315,477		315,477		340,960		340,960
Loans/leases receivable, net	Level 3		27,468		29,665		6,128		6,618	Level 3		178,441		181,578		28,486		30,765
Loans/leases receivable, net	Level 2		5,890,653		5,838,442		4,595,283		4,478,899	Level 2		5,925,008		5,749,501		6,022,679		5,896,443
Derivatives	Level 2		185,037		185,037		222,220		222,220	Level 2		130,350		130,350		177,631		177,631

Deposits:
Nonmaturity deposits	Level 2		5,247,595		5,247,595		4,501,424		4,501,424	Level 2		5,288,242		5,288,242		5,199,633		5,199,633
Time deposits	Level 2		693,440		674,507		421,348		419,453	Level 2		1,213,421		1,201,496		784,584		766,294
Short-term borrowings	Level 2		85,180		85,180		3,800		3,800	Level 2		1,100		1,100		129,630		129,630
FHLB advances	Level 2		335,000		334,732		15,000		15,000	Level 2		135,000		138,588		415,000		415,000
Subordinated notes	Level 2		232,743		251,677		113,850		116,203	Level 2		232,746		249,647		232,662		250,613
Junior subordinated debentures	Level 2		48,568		42,094		38,155		31,072	Level 2		48,634		40,368		48,602		41,545
Derivatives	Level 2		209,479		209,479		225,135		225,135	Level 2		150,401		150,401		200,701		200,701

NOTE 108 – BUSINESS SEGMENT INFORMATION

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

The Company’s Commercial Banking business is geographically divided by markets into the operating segments which are the four subsidiary banks wholly owned by the Company: QCBT, CRBT, CSB, and GB. Each of these operating segments offers similar products and services, but is managed separately due to different pricing, product demand, and consumer markets. Each offers commercial, consumer, and mortgage loans and deposit services.

The Company's All Other segment includes the corporate operations of the parent and operations of all other consolidated subsidiaries and/or defined operating segments that fall below the segment reporting thresholds.

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Selected financial information on the Company's business segments is presented as follows as of and for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Commercial Banking										Intercompany		Consolidated			Commercial Banking										Intercompany		Consolidated
		QCBT		CRBT		CSB		GB*		All other		Eliminations		Total			QCBT		CRBT		CSB		GB*		All other		Eliminations		Total

		(dollars in thousands)															(dollars in thousands)
Three Months Ended September 30, 2022
Total revenue		$	26,583	$	34,157	$	14,127	$	25,523	$	36,283	$	(36,311)	$	100,362
Net interest income			18,117		17,160		10,183		18,196		(3,242)		355		60,769
Provision for credit losses			554		(35)		(269)		(250)		—		—		—
Net income (loss) from continuing operations			7,758		14,475		4,106		9,196		29,542		(35,783)		29,294
Goodwill			3,223		14,980		9,888		109,516		—		—		137,607
Intangibles			—		1,344		2,184		14,018		—		—		17,546
Total assets			2,218,166		2,108,614		1,270,426		2,107,407		1,045,774		(1,020,338)		7,730,049

Three Months Ended September 30, 2021
Three Months Ended March 31, 2023
Total revenue		$	22,630	$	41,415	$	11,445	$	10,886	$	36,749	$	(36,806)	$	86,319		$	33,124	$	43,123	$	16,568	$	27,621	$	34,669	$	(35,046)	$	120,059
Net interest income			16,862		14,784		9,303		7,058		(2,121)		343		46,229			16,988		17,179		10,890		15,372		(3,963)		344		56,810
Provision for loan/lease losses			247		(733)		596		(110)		—		—		—			1,573		1,516		492		347		—		—		3,928
Net income (loss) from continuing operations			8,704		19,730		3,243		4,590		31,740		(36,442)		31,565			7,038		16,400		4,760		5,387		27,680		(34,108)		27,157
Goodwill			3,223		14,980		9,888		45,975		—		—		74,066			3,223		14,980		9,888		110,383		—		—		138,474
Intangibles			—		1,824		2,816		5,217		—		—		9,857			—		1,108		1,878		13,007		—		—		15,993
Total assets			2,106,631		2,019,018		1,140,933		880,143		828,808		(961,025)		6,014,508			2,548,473		2,196,560		1,286,227		2,147,776		1,116,694		(1,258,826)		8,036,904

Nine Months Ended September 30, 2022
Three Months Ended March 31, 2022
Total revenue		$	72,785	$	91,083	$	37,534	$	57,036	$	91,989	$	(92,383)	$	258,044		$	22,480	$	25,211	$	11,316	$	7,844	$	28,912	$	(29,068)	$	66,695
Net interest income			53,971		46,576		29,365		42,789		(7,845)		1,046		165,902			17,314		14,323		9,331		6,528		(2,109)		346		45,733
Provision for loan/lease losses			(88)		(971)		(554)		9,897		—		—		8,284			(1,259)		(770)		(385)		(502)		—		—		(2,916)
Net income (loss) from continuing operations			26,153		38,860		11,606		13,327		68,982		(90,768)		68,160			9,970		11,129		4,126		3,104		23,827		(28,532)		23,624
Goodwill			3,223		14,980		9,888		109,516		—		—		137,607			3,223		14,980		9,888		45,975		—		—		74,066
Intangibles			—		1,344		2,184		14,018		—		—		17,546			—		1,583		2,497		4,776		—		—		8,856
Total assets			2,218,166		2,108,614		1,270,426		2,107,407		1,045,774		(1,020,338)		7,730,049			2,195,894		1,947,737		1,184,708		956,345		839,362		(948,227)		6,175,819

Nine Months Ended September 30, 2021
Total revenue		$	65,590	$	98,270	$	32,677	$	28,813	$	86,699	$	(86,477)	$	225,572
Net interest income			48,800		42,395		26,343		19,606		(6,342)		918		131,720
Provision for loan/lease losses			2,495		759		2,718		741		—		—		6,713
Net income (loss) from continuing operations			24,547		42,271		8,414		10,544		72,008		(85,888)		71,896
Goodwill			3,223		14,980		9,888		45,975		—		—		74,066
Intangibles			—		1,824		2,816		5,217		—		—		9,857
Total assets			2,106,631		2,019,018		1,140,933		880,143		828,808		(961,025)		6,014,508

* On April 1, 2022, the Company acquired GFED and merged its subsidiary bank, Guaranty Bank, into Springfield First Community Bank with the combined bank operating under the Guaranty Bank name.	* On April 1, 2022, the Company acquired GFED and merged its subsidiary bank, Guaranty Bank, into Springfield First Community Bank with the combined bank operating under the Guaranty Bank name.															* On April 1, 2022, the Company acquired GFED and merged its subsidiary bank, Guaranty Bank, into Springfield First Community Bank with the combined bank operating under the Guaranty Bank name.

NOTE 119 – REGULATORY CAPITAL REQUIREMENTS

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 the 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 OBS 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 1 and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets, each as defined by regulation. Management believes, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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 1 risk-based, Tier 1 leverage and common equity Tier 1 ratios as set forth in the following tables. The Company and the subsidiary banks’ actual capital amounts and ratios as of ~~September 30, 2022~~March 31, 2023 and

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December 31, ~~2021~~2022 are presented in the following tables (dollars in thousands). As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, each of the subsidiary banks met such capital requirements to be “well capitalized”.


										For Capital					To Be Well														For Capital					To Be Well
										Adequacy Purposes					Capitalized Under														Adequacy Purposes					Capitalized Under
					For Capital					With Capital					Prompt Corrective									For Capital					With Capital					Prompt Corrective
	Actual				Adequacy Purposes					Conservation Buffer					Action Provisions					Actual				Adequacy Purposes					Conservation Buffer					Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio		Amount			Ratio		Amount		Ratio		Amount			Ratio		Amount			Ratio		Amount			Ratio

	( dollars in thousands)																			( dollars in thousands)
As of September 30, 2022:
As of March 31, 2023:
Company:
Total risk-based capital	$	1,031,057	14.38	%	$	573,558	>	8.00	%	$	752,795	>	10.50	%	$	716,948	>	10.00	%	$	1,078,343	14.68	%	$	587,728	>	8.00	%	$	771,392	>	10.50	%	$	734,659	>	10.00	%
Tier 1 risk-based capital		708,601	9.88			430,169	>	6.00			609,406	>	8.50			573,558	>	8.00			754,221	10.27			440,796	>	6.00			624,460	>	8.50			587,728	>	8.00
Tier 1 leverage		708,601	9.56			296,423	>	4.00			296,423	>	4.00			370,528	>	5.00			754,221	9.73			310,214	>	4.00			310,214	>	4.00			387,768	>	5.00
Common equity Tier 1		660,033	9.21			322,627	>	4.50			501,864	>	7.00			466,016	>	6.50			705,587	9.60			330,597	>	4.50			514,262	>	7.00			477,529	>	6.50
Quad City Bank & Trust:
Total risk-based capital	$	267,060	12.98	%	$	164,649	>	8.00	%	$	216,101	>	10.50	%	$	205,811	>	10.00	%	$	282,911	13.15	%	$	172,050	>	8.00	%	$	225,816	>	10.50	%	$	215,063	>	10.00	%
Tier 1 risk-based capital		241,281	11.72			123,486	>	6.00			174,939	>	8.50			164,649	>	8.00			256,016	11.90			129,038	>	6.00			182,804	>	8.50			172,050	>	8.00
Tier 1 leverage		241,281	10.96			88,058	>	4.00			88,058	>	4.00			110,072	>	5.00			256,016	11.06			92,599	>	4.00			92,599	>	4.00			115,748	>	5.00
Common equity Tier 1		241,281	11.72			92,615	>	4.50			144,068	>	7.00			133,777	>	6.50			256,016	11.90			96,778	>	4.50			150,544	>	7.00			139,791	>	6.50
Cedar Rapids Bank & Trust:
Total risk-based capital	$	292,124	14.80	%	$	157,855	>	8.00	%	$	207,185	>	10.50	%	$	197,319	>	10.00	%	$	323,605	16.24	%	$	159,422	>	8.00	%	$	209,241	>	10.50	%	$	199,277	>	10.00	%
Tier 1 risk-based capital		267,441	13.55			118,391	>	6.00			167,721	>	8.50			157,855	>	8.00			298,757	14.99			119,566	>	6.00			169,386	>	8.50			159,422	>	8.00
Tier 1 leverage		267,441	13.20			81,049	>	4.00			81,049	>	4.00			101,312	>	5.00			298,757	13.95			85,658	>	4.00			85,658	>	4.00			107,073	>	5.00
Common equity Tier 1		267,441	13.55			88,794	>	4.50			138,123	>	7.00			128,257	>	6.50			298,757	14.99			89,675	>	4.50			139,494	>	7.00			129,530	>	6.50
Community State Bank:
Total risk-based capital	$	137,056	11.69	%	$	93,787	>	8.00	%	$	123,096	>	10.50	%	$	117,234	>	10.00	%	$	147,754	12.53	%	$	94,349	>	8.00	%	$	123,833	>	10.50	%	$	117,936	>	10.00	%
Tier 1 risk-based capital		122,387	10.44			70,341	>	6.00			99,649	>	8.50			93,787	>	8.00			133,007	11.28			70,762	>	6.00			100,246	>	8.50			94,349	>	8.00
Tier 1 leverage		122,387	9.90			49,457	>	4.00			49,457	>	4.00			61,821	>	5.00			133,007	10.45			50,899	>	4.00			50,899	>	4.00			63,624	>	5.00
Common equity Tier 1		122,387	10.44			52,755	>	4.50			82,064	>	7.00			76,202	>	6.50			133,007	11.28			53,071	>	4.50			82,555	>	7.00			76,659	>	6.50
Guaranty Bank:
Total risk-based capital	$	231,638	11.84	%	$	156,513	>	8.00	%	$	205,423	>	10.50	%	$	195,641	>	10.00	%	$	246,979	12.41	%	$	159,267	>	8.00	%	$	209,038	>	10.50	%	$	199,084	>	10.00	%
Tier 1 risk-based capital		207,174	10.59			117,385	>	6.00			166,295	>	8.50			156,513	>	8.00			223,668	11.23			119,450	>	6.00			169,221	>	8.50			159,267	>	8.00
Tier 1 leverage		207,174	10.56			78,491	>	4.00			78,491	>	4.00			98,113	>	5.00			223,668	11.02			81,171	>	4.00			81,171	>	4.00			101,464	>	5.00
Common equity Tier 1		207,174	10.59			88,039	>	4.50			136,949	>	7.00			127,167	>	6.50			223,668	11.23			89,588	>	4.50			139,359	>	7.00			129,404	>	6.50


										For Capital					To Be Well														For Capital					To Be Well
										Adequacy Purposes					Capitalized Under														Adequacy Purposes					Capitalized Under
					For Capital					With Capital					Prompt Corrective									For Capital					With Capital					Prompt Corrective
	Actual				Adequacy Purposes					Conservation Buffer					Action Provisions					Actual				Adequacy Purposes					Conservation Buffer					Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio		Amount			Ratio		Amount		Ratio		Amount			Ratio		Amount			Ratio		Amount			Ratio

	( dollars in thousands)																			( dollars in thousands)
As of December 31, 2021:
As of December 31, 2022:
Company:
Total risk-based capital	$	814,629	14.77	%	$	441,100	>	8.00	%	$	578,944	>	10.50	%	$	551,375	>	10.00	%	$	1,055,177	14.28	%	$	591,132	>	8.00	%	$	775,861	>	10.50	%	$	738,915	>	10.00	%
Tier 1 risk-based capital		631,649	11.46			330,825	>	6.00			468,669	>	8.50			441,100	>	8.00			734,977	9.95			443,349	>	6.00			628,078	>	8.50			591,132	>	8.00
Tier 1 leverage		631,649	10.46			241,579	>	4.00			241,579	>	4.00			301,974	>	5.00			734,977	9.61			305,959	>	4.00			305,959	>	4.00			382,449	>	5.00
Common equity Tier 1		593,494	10.76			248,119	>	4.50			385,962	>	7.00			358,394	>	6.50			686,375	9.29			332,512	>	4.50			517,241	>	7.00			480,295	>	6.50
Quad City Bank & Trust:
Total risk-based capital	$	247,658	13.29	%	$	149,126	>	8.00	%	$	195,727	>	10.50	%	$	186,407	>	10.00	%	$	275,337	13.07	%	$	168,588	>	8.00	%	$	221,272	>	10.50	%	$	210,735	>	10.00	%
Tier 1 risk-based capital		224,253	12.03			111,844	>	6.00			158,446	>	8.50			149,126	>	8.00			248,978	11.81			126,441	>	6.00			179,125	>	8.50			168,588	>	8.00
Tier 1 leverage		224,253	10.45			85,873	>	4.00			85,873	>	4.00			107,341	>	5.00			248,978	11.01			90,419	>	4.00			90,419	>	4.00			133,023	>	5.00
Common equity Tier 1		224,253	12.03			83,883	>	4.50			130,485	>	7.00			121,164	>	6.50			248,978	11.81			94,831	>	4.50			147,514	>	7.00			136,978	>	6.50
Cedar Rapids Bank & Trust:
Total risk-based capital	$	277,673	14.85	%	$	149,595	>	8.00	%	$	196,343	>	10.50	%	$	186,993	>	10.00	%	$	308,153	14.84	%	$	166,168	>	8.00	%	$	218,096	>	10.50	%	$	207,711	>	10.00	%
Tier 1 risk-based capital		254,279	13.60			112,196	>	6.00			158,944	>	8.50			149,595	>	8.00			282,258	13.59			124,626	>	6.00			176,554	>	8.50			166,168	>	8.00
Tier 1 leverage		254,279	12.59			80,777	>	4.00			80,777	>	4.00			100,971	>	5.00			282,258	13.17			85,707	>	4.00			85,707	>	4.00			107,134	>	5.00
Common equity Tier 1		254,279	13.60			84,147	>	4.50			130,895	>	7.00			121,546	>	6.50			282,258	13.59			93,470	>	4.50			145,397	>	7.00			135,012	>	6.50
Community State Bank:
Total risk-based capital	$	123,365	11.95	%	$	82,601	>	8.00	%	$	108,413	>	10.50	%	$	103,251	>	10.00	%	$	142,974	12.04	%	$	94,981	>	8.00	%	$	124,662	>	10.50	%	$	118,726	>	10.00	%
Tier 1 risk-based capital		110,410	10.69			61,951	>	6.00			87,763	>	8.50			82,601	>	8.00			128,130	10.79			71,236	>	6.00			100,917	>	8.50			94,981	>	8.00
Tier 1 leverage		110,410	9.67			45,676	>	4.00			45,676	>	4.00			57,095	>	5.00			128,130	10.09			50,799	>	4.00			50,799	>	4.00			63,499	>	5.00
Common equity Tier 1		110,410	10.69			46,463	>	4.50			72,276	>	7.00			67,113	>	6.50			128,130	10.79			53,427	>	4.50			83,108	>	7.00			77,172	>	6.50
Guaranty Bank:
Total risk-based capital	$	101,067	13.39	%	$	60,369	>	8.00	%	$	79,235	>	10.50	%	$	75,462	>	10.00	%	$	243,106	12.24	%	$	158,903	>	8.00	%	$	208,560	>	10.50	%	$	198,629	>	10.00	%
Tier 1 risk-based capital		91,625	12.14			45,277	>	6.00			64,142	>	8.50			60,369	>	8.00			218,647	11.01			119,177	>	6.00			168,834	>	8.50			158,903	>	8.00
Tier 1 leverage		91,625	11.08			33,088	>	4.00			33,088	>	4.00			41,360	>	5.00			218,647	10.90			80,229	>	4.00			80,229	>	4.00			100,286	>	5.00
Common equity Tier 1		91,625	12.14			33,958	>	4.50			52,823	>	7.00			49,050	>	6.50			218,647	11.01			89,383	>	4.50			139,040	>	7.00			129,109	>	6.50

3731

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Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This section reviews the financial condition and results of operations of the Company and its subsidiaries as of and for the three months ending ~~September 30, 2022.~~March 31, 2023. Some tables may include additional periods to comply with disclosure requirements or to illustrate trends. When reading this discussion, also refer to the Consolidated Financial Statements and related notes in this report. Page locations and specific sections and notes that are referred to in this discussion are listed in the table of contents.

Additionally, a comprehensive list of the acronyms and abbreviations used throughout this discussion is included in Note 1 to the Consolidated Financial Statements.

GENERAL

The Company was formed in February 1993 for the purpose of organizing QCBT. Over the past ~~twenty-nine~~thirty years, the Company has grown to include four banking subsidiaries and a number of nonbanking subsidiaries. As of ~~September 30, 2022,~~March 31, 2023, the Company had ~~$7.7~~$8.0 billion in consolidated assets, including ~~$5.9~~$6.1 billion in net loans/leases, and ~~$5.9~~$6.5 billion in deposits. The financial results of acquired/merged entities for the periods since their acquisition/merger are included in this report. Further information related to acquired/merged entities has been presented in the annual reports previously filed with the SEC corresponding to the year of each acquisition/merger. On April 1, 2022, the Company completed its acquisition of GFED and on April 2, 2022 merged Guaranty Bank, the banking subsidiary of GFED, into the Company’s Springfield-based charter, Springfield First Community Bank. The combined bank changed its name to Guaranty Bank.

CRITICAL ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

The Company's financial statements are prepared in accordance with GAAP. 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. The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance, impairment of goodwill and the fair value of financial instruments.

Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified the following as critical accounting policies and estimates:

●

Goodwill

●

Allowance for Credit Losses on Loans and Leases and Off-Balance Sheet Exposures

●

Fair Value of Loans Acquired in Business Combinations

●

Fair Value of Financial Instruments

●

Fair Value of Securities

~~GOODWILL~~

The Company records all assets and liabilities purchased in an acquisition, including intangibles, at fair value. Goodwill is not amortized but is subject, at a minimum, to annual tests for impairment. In certain situations, interim impairment tests may be required if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A more detailed discussion of ~~this~~these critical accounting ~~policy~~policies and estimates can be found in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

~~As of November 30, 2021 the Company’s management performed an annual assessment at the reporting unit level and determined no goodwill impairment existed.~~

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Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

~~ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES AND OFF-BALANCE SHEET EXPOSURES~~

~~On January 1, 2021, the Company adopted ASU 2016-13, “~~~~Financial Instruments – Credit Losses (Topic326)~~,” which replaces the incurred loss methodology with a current expected credit loss methodology, known as CECL. Additionally, CECL required an allowance for OBS exposures to be calculated using a current expected credit loss methodology. A more detailed discussion of this critical accounting policy can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. A framework has been established for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities. A more detailed discussion of this critical accounting estimate can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

~~FAIR VALUE OF SECURITIES~~

The fair value of securities is determined monthly and the securities are stated at fair value. A more detailed discussion of this critical accounting estimate can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

EXECUTIVE OVERVIEW

The Company reported net income of ~~$29.3~~$27.2 million and diluted EPS of ~~$1.71~~$1.60 for the quarter ended ~~September 30, 2022.~~March 31, 2023. By comparison, for the quarter ended ~~June 30,~~December 31, 2022 the Company reported net income of ~~$15.2~~$30.9 million and diluted EPS of ~~$0.87.~~$1.81. For the quarter ended ~~September 30, 2021, the Company reported net income of $31.6 million, and diluted EPS of $1.99. For the nine months ended September 30,~~March 31, 2022, the Company reported net income of ~~$68.2~~$23.6 million, and diluted EPS of ~~$4.20. By comparison, for the nine months ended September 30, 2021, the Company reported net income of $71.9 million and diluted EPS of $4.48.~~$1.49.

The ~~third~~first quarter of ~~2022~~2023 was also highlighted by the following results and events:

●

Reported net income of ~~$29.3~~$27.2 million, or ~~$1.71~~$1.60 per diluted share;

●

Adjusted net income (non-GAAP) of ~~$28.9~~$28.0 million, or ~~$1.69~~$1.65 per diluted share;

●

~~NIM of 3.46% and Adjusted NIM (TEY)(non-GAAP) of 3.65%;~~Capital markets revenue from swap fees grew $5.7 million, or 50%, to $17.0 million;

●

Annualized ~~loan and lease~~deposit growth, excluding brokered deposits, of ~~14.5%~~1.4% for the quarter;

●

~~Annualized deposit growth~~Uninsured and uncollateralized deposits were 23.8% of ~~8.3% for the quarter;~~total deposits;

●

~~Nonperforming assets improved for the quarter and represented 0.23% of total assets;~~

●

~~ACL to total loans/leases of 1.51%;~~Tangible book value (non-GAAP) per share increased 5.1% or 20.5% annualized; and

●

~~Increased total risk-based capital~~TCE ratio grew 28 bps, or 4% to ~~14.55% through the issuance of subordinated notes and strong earnings.~~8.21%.

Following is a table that represents various net income measurements for the Company.


	For the three months ended
	March 31, 2023		December 31, 2022		March 31, 2022

	(dollars in thousands)

Net income	$	27,157	$	30,906	$	23,624

Diluted earnings per common share	$	1.60	$	1.81	$	1.49

Weighted average common and common equivalent shares outstanding		16,942,132		17,047,976		15,852,256

The Company reported adjusted net income (non-GAAP) of $28.0 million, with adjusted diluted EPS of $1.65 for the three months ended March 31, 2023. See section titled “GAAP to Non-GAAP Reconciliations” for additional information. Adjusted net income for the three months ended March 31, 2023 excludes a number of non-recurring items, after-tax, as set forth in the GAAP to Non-GAAP Reconciliation section, most significantly $366 thousand of securities losses, fair value loss on derivatives of $337 thousand and post-acquisition compensation, transition and integration costs of $164 thousand.

The increase in weighted average common shares outstanding when comparing the three months ended March 31, 2023 to March 31, 2022 was primarily due to the common stock issuance in connection with the acquisition of GFED on April 1, 2022.

Following is a table that represents the major income and expense categories for the Company:


	For the three months ended
	March 31, 2023		December 31, 2022		March 31, 2022

	(dollars in thousands)

Net interest income	$	56,810	$	65,218	$	45,733
Provision for credit losses		3,928		—		(2,916)
Noninterest income		25,842		21,219		15,633
Noninterest expense		48,785		49,697		38,325
Federal and state income tax expense		2,782		5,834		2,333
Net income	$	27,157	$	30,906	$	23,624

3933

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Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

~~Following is a table that represents various net income measurements for the Company.~~

For the three months ended

For the nine months ended

September 30, 2022

June 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

(dollars in thousands)

Net income

$
29,294

$
15,242

$
31,565

$
68,160

$
71,896

Diluted earnings per common share

$
1.71

$
0.87

$
1.99

$
4.20

$
4.48

Weighted average common and common equivalent shares outstanding

17,110,691

17,549,107

15,869,798

16,243,921

16,058,420

The Company reported adjusted net income (non-GAAP) of $28.9 million, with adjusted diluted EPS of $1.69 for the three months ended September 30, 2022. See section titled “GAAP to Non-GAAP Reconciliations” for additional information. Adjusted net income for the three months ended September 30, 2022 excludes a number of non-recurring items, after-tax, as set forth in the GAAP to Non-GAAP Reconciliation section, most significantly $321 thousand of acquisition cost. In addition, adjusted net income excludes fair value gain on derivatives of $714 thousand. The Company reported adjusted net income (non-GAAP) of $83.7 million, with adjusted diluted EPS of $5.15 for the nine months ended September 30, 2022. Adjusted net income for the nine months ended September 30, 2022 excludes a number of non-recurring items, after-tax, most significantly $3.7 million of acquisition costs, $3.8 million of post-acquisition compensation, transition and integration costs and $9.8 million of CECL Day 2 provision.

The increase in weighted average common shares outstanding when comparing the nine months ended September 30, 2022 to September 30, 2021 was primarily due to the common stock issuance in connection with the acquisition of GFED and discussed in Note 2 to the Consolidated Financial Statements.

~~Following is a table that represents the major income and expense categories for the Company:~~

For the three months ended

For the nine months ended


September 30, 2022

June 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

(dollars in thousands)

Net interest income

$
60,769

$
59,400

$
46,229

$
165,902

$
131,720

Provision for credit losses

—

11,200

—

8,284

6,713

Noninterest income

21,095

22,782

34,652

59,510

77,437

Noninterest expense

47,746

54,248

41,387

140,319

114,290

Federal and state income tax expense

4,824

1,492

7,929

8,649

16,258

Net income

$
29,294

$
15,242

$
31,565

$
68,160

$
71,896

Following are some noteworthy changes in the Company's financial results:

●

Net interest income in the ~~third~~first quarter of ~~2022 increased 2%~~2023 decreased 13% compared to the ~~second~~fourth quarter of 2022. The decrease was primarily due to lower acquisition-related net accretion and a shift in the deposit mix of noninterest bearing deposits to interest bearing deposits. Net interest income increased ~~31%~~24% when ~~comparing~~compared to the ~~third~~first quarter of ~~2021 and 26% when comparing the first nine months of 2022 to the same period of the prior year.~~2022. The increase was primarily due to an increase in average earning assets, primarily attributable to the GFED transaction, but also due to ~~increased NIM expansion.~~strong organic loan growth and margin expansion with rising interest rates.

●

Provision expense in the ~~third~~first quarter of ~~2022 decreased $11.2~~2023 increased $3.9 million compared to the ~~second~~fourth quarter of 2022. Of this $3.9 million increase, $1.4 million increase related to loans and leases, $1.5 million increase related to OBS exposures, $18 thousand decrease related to HTM securities and $989 thousand increase related to AFS securities. The ~~decrease~~increases in loans and leases and OBS was a combination of loan growth during the quarter, increase in commitments, provision to replace loans charged off and an increase in NPAs. The provision related to AFS securities was due to ~~a CECL Day 2 provision for credit losses~~the establishment of an ACL on acquired loans with the GFED transaction recorded in the second quarter. Provision expense increased $1.6 million when comparing the first nine months of 2022 to the same period in the prior year. The increase was primarily due to the GFED acquisition.an impaired debt security.

~~Table of Contents~~

~~Part I~~

~~Item 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~

●

Noninterest income in the ~~third~~first quarter of ~~2022 decreased $1.7~~2023 increased $4.6 million, or 7%22%, compared to the ~~second~~fourth quarter of 2022. Noninterest income ~~decreased $13.6~~increased $10.2 million, or ~~39%~~65%, compared to the ~~third~~first quarter of ~~2021. Noninterest income decreased $17.9 million, or 23%, when comparing the first nine months of 2022 to the same period of the prior year.~~2022. The ~~decrease~~increase was primarily due to ~~lower~~higher capital markets revenue from swap ~~fee income~~fees as the project delays our clients have been experiencing in recent quarters due to ~~client project delays caused by~~ ongoing supply chain disruptions, inflationary pressures and ~~inflationary pressures.~~higher interest rates have begun to subside, with several previously delayed projects now moving forward. The demand for low-income housing remains healthy and the economics associated with these tax credit projects continue to be favorable. The Company has a strong pipeline for this business and expects it to be a solid source of fee income in 2023.

●

Noninterest expense decreased ~~$6.5 million,~~$912 thousand, or ~~12%~~2%, in the ~~third~~first quarter of ~~2022~~2023 compared to the ~~second~~fourth quarter of 2022. This decrease was primarily due to ~~acquisition costs~~lower incentive-based compensation expense, professional and ~~post-acquisition compensation, transition~~data processing fees, insurance and ~~integration costs of $6.8 million in the second quarter related to the acquisition of GFED.~~regulatory fees and advertising and marketing expenses. Noninterest expense increased ~~$6.4~~$10.5 million, or ~~15%~~27%, compared to the ~~third~~first quarter of ~~2021 and increased $26.0 million, or 23%, when comparing the first nine months of 2022 to the same period in the prior year.~~2022. The increase was primarily due to ~~acquisition costs and post-acquisition compensation, transition and integration costs of $9.0 million associated with the acquisition of GFED as well as six~~three months of operating expenses in ~~2022~~2023 for the combined ~~Guaranty Bank~~GB entity as compared to ~~2021. See Note 2 of the Consolidated Financial Statements for further discussion.~~2022.

STRATEGIC FINANCIAL METRICS

The Company has established certain strategic financial metrics by which it manages its business and measures its performance. The goals are periodically updated to reflect changes in business developments. While the Company is determined to work prudently to achieve these metrics, there is no assurance that they will be met. Moreover, the Company's ability to achieve these metrics may be affected by the factors discussed under “Forward Looking Statements” as well as the factors detailed in the “Risk Factors” section included under Item 1A. of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. The Company's long-term strategic financial metrics are as follows:

●

Generate loan and lease growth of 9% per year, funded by core deposits;

●

Grow fee-based income by at least 6% per year; and

●

Limit our annual operating expense growth to 5% per year.

Table of Contents

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

The following table shows the evaluation of the Company’s strategic financial metrics:


			Year to Date*											Year to Date*
Strategic Financial Metric*	Key Metric	Target	September 30, 2022			June 30, 2022			September 30, 2021			Key Metric	Target	March 31, 2023			December 31, 2022			March 31, 2022
Loan and lease growth organically **	Loans and leases growth	> 9% annually		15.7	%		14.0	%		18.0	%	Loans and leases growth	> 9% annually		3.3	%		14.6	%		14.6	%
Fee income growth***	Fee income growth	> 6% annually		(23.9)	%		(26.1)	%		(7.5)	%
Improve operational efficiencies and hold noninterest expense growth***	Noninterest expense growth	< 5% annually		15.1	%		10.4	%		3.3	%
Fee income growth ***												Fee income growth	> 6% annually		30.0	%		(21.5)	%		(41.3)	%
Improve operational efficiencies and hold noninterest expense growth												Noninterest expense growth	< 5% annually		7.5	%		18.8	%		(4.1)	%

* Ratios and amounts provided for these measurements represent year-to-date actual amounts for the respective period that are then annualized for comparison. The calculations provided exclude non-core noninterest income and noninterest expense.

** Loan and lease growth excludes the initial loan balances from the GFED ~~acquisition and PPP loans.~~acquisition.

***Fee income growth and noninterest expense growth are both impacted by the GFED acquisition.

It should be noted that these initiatives are long-term targets.

~~Table of Contents~~

~~Part I~~

~~Item 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~

STRATEGIC DEVELOPMENTS

The Company has taken the following actions during the ~~third~~first quarter of ~~2022~~2023 to support its corporate strategy:

●

The Company grew loans and leases in the ~~third~~first quarter of ~~2022~~2023 by ~~14.5%~~3.3% on an annualized basis, driven by both our ~~specialty finance group~~traditional and ~~our traditional commercial~~tax credit lending ~~and leasing businesses.~~business.

●

Correspondent banking has continued to be a core line of business for the Company. The Company is competitively positioned with experienced staff, software systems and processes to continue growing in the four states currently served – Iowa, Wisconsin, Missouri and Illinois. The Company acted as the correspondent bank for ~~187~~182 downstream banks with ~~average~~ total noninterest bearing deposits of ~~$302.9~~$119.2 million and ~~average~~ total interest-bearing deposits of ~~$313.8~~$492.8 million during the first ~~nine~~three months of ~~2022.~~2023. By comparison, the Company acted as the correspondent bank for ~~186~~188 downstream banks with average total noninterest bearing deposits of ~~$350.0~~$356.3 million and average total interest-bearing deposits of ~~$317.5~~$264.5 million during the first ~~nine~~three months of ~~2021.~~2022. This line of business provides a strong source of ~~noninterest bearing and interest bearing~~ deposits, fee income, high-quality loan participations and bank stock loans. The Company also manages off-balance sheet liquidity held at the Federal Reserve on behalf of the downstream banks of ~~$426.7~~$574.2 million as of ~~September 30, 2022~~March 31, 2023, as compared to ~~$793.2~~$339.5 million for the quarter ended ~~June 30,~~December 31, 2022.

●

The Company is focused on executing interest rate swaps on select commercial loans, including LIHTC permanent loans. The interest rate swaps allow commercial borrowers to pay a fixed interest rate while the Company receives a variable interest rate as well as an upfront nonrefundable fee dependent on the pricing. Management believes that these swaps help position the Company more favorably for rising rate environments. The Company will continue to review opportunities to execute these swaps at all of its subsidiary banks as appropriate for the borrowers and the Company. Levels of capital markets revenue from swap ~~fee income~~fees are influenced by prevailing interest rates. Capital markets revenue from swap ~~fee income~~fees totaled ~~$10.5 million for the quarter and $30.0~~$17.0 million for the first ~~nine~~three months of ~~2022.~~2023. Capital markets revenue from swap fees averaged ~~$15.2~~$10.3 million per quarter for the year ~~2021 and $10.7 million for the last four quarters.~~2022.

●

In recent years, the Company has been successful in expanding its wealth management client base. Trust department fees continue to be a significant contributor to noninterest income. Assets under management ~~decreased~~increased by ~~$1.1 billion~~$291.1 million in the first ~~nine~~three months of ~~2022 due to market value fluctuations.~~2023. There were ~~268~~97 new relationships added in the first ~~nine~~three months of ~~2022~~2023 totaling ~~$341.4~~$185.1 million of new assets under management. Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. The majority of the trust department fees are determined based on the value of the investments within the fully-managed trusts. The Company expects trust department fees to be negatively impacted during periods ~~of significantly lower market valuations and positively impacted during periods of significantly higher market valuations.~~

●

Noninterest expense for the first nine months of 2022 totaled $140.3 million as compared to $114.3 million in the first nine months of 2021. The increase was primarily due to $9.0 million of acquisition costs and post-acquisition compensation, transition and integration costs in 2022 related to the acquisition of GFED as discussed in the Company’s financial statements and the accompanying notes. In addition, the increase is due to six months of operating expenses in 2022 for the combined Guaranty Bank entity as compared to 2021.

~~GAAP TO NON-GAAP RECONCILIATIONS~~

The following table presents certain non-GAAP financial measures related to the “TCE/TA ratio”, “adjusted net income”, “adjusted EPS”, “adjusted ROAA”, “NIM (TEY)”, “adjusted NIM”, “efficiency ratio” and “loan growth annualized

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

of significantly lower market valuations and positively impacted during periods of significantly higher market valuations.

●

Noninterest expense for the first three months of 2023 totaled $48.8 million as compared to $38.3 million in the first three months of 2022. The increase is due to three months of operating expenses in 2023 for the combined GB entity as compared to 2022.

~~excluding acquired~~GAAP TO NON-GAAP RECONCILIATIONS

The following table presents certain non-GAAP financial measures related to the “TCE/TA ratio”, “adjusted net income”, “adjusted EPS”, “adjusted ROAA and ~~PPP loans”~~adjusted ROAE”, “NIM (TEY)”, “adjusted NIM (TEY)” and “efficiency ratio”. In compliance with applicable rules of the SEC, all non-GAAP measures are reconciled to the most directly comparable GAAP measure, as follows:

●

TCE/TA ratio (non-GAAP) is reconciled to stockholders' equity and total assets;

●

Adjusted net income, adjusted EPS, adjusted ROAA and adjusted ~~ROAA~~ROAE (all non-GAAP measures) are reconciled to net income;

●

NIM (TEY) (non-GAAP)~~, adjusted NIM (TEY) (non-GAAP)~~ and adjusted NIM ~~excluding PPP income~~ (TEY) (non-GAAP) are reconciled to NIM; and

●

Efficiency ratio (non-GAAP) is reconciled to noninterest expense, net interest income and noninterest ~~income; and~~

●

~~Loan growth annualized excluding acquired and PPP loans is reconciled to total loans and leases.~~income.

The TCE/TA non-GAAP ratio has been a focus for investors and management believes that this ratio may assist investors in analyzing the Company's capital position without regard to the effects of intangible assets.

The following tables also include several “adjusted” non-GAAP measurements of financial performance. The Company's management believes that these measures are important to investors as they exclude non-recurring income and expense items; therefore, they provide a better comparison for analysis and may provide a better indicator of future performance.

NIM (TEY) is a financial measure that the Company's management utilizes to take into account the tax benefit associated with certain tax-exempt loans and securities. It is standard industry practice to measure net interest margin using tax-equivalent measures. In addition, the Company calculates NIM without the impact of acquisition accounting net accretion (adjusted NIM), as accretion amounts can fluctuate widely, making comparisons difficult.

The efficiency ratio is a ratio that management utilizes to compare the Company to its peers. It is a standard ratio used to calculate overhead as a percentage of revenue in the banking industry and is widely utilized by investors.

Loan growth annualized, excluding acquired and PPP loans, is a ratio that management utilizes to compare the Company to its peers. The Company’s management believes this financial measure is important to investors as total loans and leases for the quarter ended September 30, 2022 were materially higher due to the addition of acquired loans and for the quarter ended September 30, 2021 were materially higher due to the addition of PPP loans. By excluding the acquired loans and PPP loans, the investor is provided a better comparison to prior periods for analysis.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have ~~limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.~~

As of
GAAP TO NON-GAAP

September 30,

June 30,

September 30,

RECONCILIATIONS

2022

2022

2021

(dollars in thousands, except per share data)
TCE/TA RATIO



Stockholders' equity (GAAP)

$
737,072

$
743,138

$
649,814

Less: Intangible assets

155,153

155,940

83,923

TCE (non-GAAP)

$
581,919

$
587,198

$
565,891

Total assets (GAAP)

$
7,730,049

$
7,392,941

$
6,014,508

Less: Intangible assets

155,153

155,940

83,923

TA (non-GAAP)

$
7,574,896

$
7,237,001

$
5,930,585

TCE/TA ratio (non-GAAP)

7.68
%

8.11
%

9.54
%

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Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

For the Quarter Ended

For the Nine Months Ended

September 30,

June 30,

September 30,


September 30,

September 30,


2022

2022

2021

2022

2021

(dollars in thousands, except per share data)

ADJUSTED NET INCOME

Net income (GAAP)

$
29,294

$
15,242

$
31,565

$
68,160

$
71,896

Less non-core items (post-tax) (*):









Income:











Securities losses, net

$
—

$
—

$
—

$
—

$
(69)

Fair value gain (loss) on derivatives

714

342

(13)

1,771

58

Gain on sale of loan

—

—

28

—

28

Total non-core income (non-GAAP)

$
714

$
342

$
15

$
1,771

$
17

Expense:











Disposition costs

$
—

$
—

$
—

$
—

$
7

Acquisition costs

321

1,932

—

3,715

—

Post-acquisition compensation, transition and integration costs

48

3,789

—

3,837

—

CECL Day 2 credit loss expense on acquired loans

—

8,651

—

8,651

—

CECL Day 2 credit loss expense on acquired OBS exposure

—

1,140

—

1,140

—

Separation agreement

—

—

—

—

734

Total non-core expense (non-GAAP)

$
369

$
15,512

$
—

$
17,343

$
741

Adjusted net income (non-GAAP)

$
28,949

$
30,412

$
31,550

$
83,732

$
72,620

ADJUSTED EPS











Adjusted net income (non-GAAP) (from above)

$
28,949

$
30,412

$
31,550

$
83,732

$
72,620

Weighted average common shares outstanding

16,900,968

17,345,324

15,635,123

16,030,371

15,829,124

Weighted average common and common equivalent shares outstanding

17,110,691

17,549,107

15,869,798

16,243,921

16,058,420

Adjusted EPS (non-GAAP):











Basic

$
1.71

$
1.75

$
2.02

$
5.22

$
4.59

Diluted

$
1.69

$
1.73

$
1.99

$
5.15

$
4.52

ADJUSTED ROAA











Adjusted net income (non-GAAP) (from above)

$
28,949

$
30,412

$
31,550

$
83,732

$
72,620

Average Assets

$
7,652,463

$
7,324,470

$
5,960,336

$
7,005,988

$
5,789,753

��

Adjusted ROAA (non-GAAP)

1.51
%

1.66
%

2.12
%

1.59
%

1.67
%

ADJUSTED NIM (TEY)*

Net interest income (GAAP)

$
60,769

$
59,400

$
46,229

$
165,902

$
131,720

Plus: Tax equivalent adjustment

4,459

3,396

2,708

10,785

7,411

Net interest income - tax equivalent (non-GAAP)

$
65,228

$
62,796

$
48,937

$
176,687

$
139,131

Less: Acquisition accounting net accretion

1,080

1,695

456

2,893

1,251

Adjusted net interest income

64,148

61,101

48,481

173,794

137,880

Less: PPP income

—

125

1,910

125

5,831

Adjusted net interest income, excluding PPP income

$
64,148

$
60,976

$
46,571

$
173,669

$
132,049

Average earning assets

$
6,975,857

$
6,742,095

$
5,451,571

$
6,452,867

$
5,330,338

NIM (GAAP)

3.46
%

3.53
%

3.36
%

3.44
%

3.30
%
NIM (TEY) (non-GAAP)

3.71
%

3.74
%

3.56
%

3.66
%

3.49
%
Adjusted NIM (TEY) (non-GAAP)

3.65
%

3.64
%

3.53
%

3.60
%

3.46
%
Adjusted NIM, excluding PPP income (TEY) (non-GAAP)

3.65
%

3.63
%

3.39
%

3.60
%

3.31
%

EFFICIENCY RATIO











Noninterest expense (GAAP)

$
47,746

$
54,248

$
41,387

$
140,319

$
114,290

Net interest income (GAAP)

$
60,769

$
59,400

$
46,229

$
165,902

$
131,720

Noninterest income (GAAP)

21,095

22,782

34,652

59,510

77,437

Total income

$
81,864

$
82,182

$
80,881

$
225,412

$
209,157

Efficiency ratio (noninterest expense/total income) (non-GAAP)

58.32
%

66.01
%

51.17
%

62.25
%

54.64
%

LOAN GROWTH, EXCLUDING ACQUIRED AND PPP LOANS











Total loans and leases

$
6,008,610

$
5,797,903

$
4,599,730

$
6,008,610

$
4,599,730

Less: Acquired loans

—

807,599

—

—

—

Less: PPP loans

79

79

83,575

79

83,575

Total loans and leases, excluding acquired and PPP loans

$
6,008,531

$
4,821,528

$
4,516,155

$
6,008,531

$
4,516,155

Loan growth, excluding acquired and PPP loans

14.54
%

14.00
%

23.04
%

15.73
%

16.08
%

limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.


	As of
GAAP TO NON-GAAP	March 31,			December 31,			March 31,
RECONCILIATIONS	2023			2022			2022

	(dollars in thousands, except per share data)
TCE/TA RATIO
Stockholders' equity (GAAP)	$	801,494		$	772,724		$	667,924
Less: Intangible assets		154,467			154,366			82,922
TCE (non-GAAP)	$	647,027		$	618,358		$	585,002

Total assets (GAAP)	$	8,036,904		$	7,948,837		$	6,175,819
Less: Intangible assets		154,467			154,366			82,922
TA (non-GAAP)	$	7,882,437		$	7,794,471		$	6,092,897

TCE/TA ratio (non-GAAP)		8.21	%		7.93	%		9.60	%


	For the Quarter Ended
	March 31,			December 31,			March 31,
	2023			2022			2022

	(dollars in thousands, except per share data)
ADJUSTED NET INCOME
Net income (GAAP)	$	27,157		$	30,906		$	23,624
Less non-core items (post-tax) (*):
Income:
Securities losses, net	$	(366)		$	—		$	—
Fair value gain(loss) on derivatives		(337)			(211)			715
Total non-core income (non-GAAP)	$	(703)		$	(211)		$	715
Expense:
Acquisition costs		—			(517)			1,462
Post-acquisition compensation, transition and integration costs		164			529			—
Total non-core expense (non-GAAP)	$	164		$	12		$	1,462


Adjusted net income (non-GAAP)	$	28,024		$	31,129		$	24,371

ADJUSTED EPS
Adjusted net income (non-GAAP) (from above)	$	28,024		$	31,129		$	24,371

Weighted average common shares outstanding		16,776,289			16,855,973			15,625,112
Weighted average common and common equivalent shares outstanding		16,942,132			17,047,976			15,852,256

Adjusted EPS (non-GAAP):
Basic	$	1.67		$	1.85		$	1.56
Diluted	$	1.65		$	1.83		$	1.54

ADJUSTED ROAA and ADJUSTED ROAE (non-GAAP)
Adjusted net income (non-GAAP) (from above)	$	28,024		$	31,129		$	24,371

Average Assets	$	7,906,830		$	7,800,229		$	6,115,127

Adjusted ROAA (non-GAAP)		1.42	%		1.60	%		1.59	%
Adjusted ROAE (non-GAAP)		14.11	%		16.44	%		14.25	%

ADJUSTED NIM (TEY)*
Net interest income (GAAP)	$	56,810		$	65,218		$	45,733
Plus: Tax equivalent adjustment		6,057			5,554			2,933
Net interest income - tax equivalent (non-GAAP)	$	62,867		$	70,772		$	48,666
Less: Acquisition accounting net accretion		828			5,688			118
Adjusted net interest income		62,039			65,084			48,548

Average earning assets	$	7,247,605		$	7,148,578		$	5,625,813

NIM (GAAP)		3.18	%		3.62	%		3.30	%
NIM (TEY) (non-GAAP)		3.52	%		3.93	%		3.50	%
Adjusted NIM (TEY) (non-GAAP)		3.47	%		3.61	%		3.50	%

EFFICIENCY RATIO
Noninterest expense (GAAP)	$	48,785		$	49,697		$	38,325

Net interest income (GAAP)	$	56,810		$	65,218		$	45,733
Noninterest income (GAAP)		25,842			21,219			15,633
Total income	$	82,652		$	86,437		$	61,366

Efficiency ratio (noninterest expense/total income) (non-GAAP)		59.02	%		57.50	%		62.45	%

* Nonrecurring items (after-tax) are calculated using an estimated effective federal tax rate of 21% with the exception of acquisition costs which have an estimated effective federal tax rate of ~~10.25%~~13.62%.

4437

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

NET INTEREST INCOME - (TAX EQUIVALENT BASIS)

Net interest income, on a ~~tax equivalent~~GAAP basis, increased ~~33% to $65.2 million~~24% for the quarter ended ~~September 30, 2022~~March 31, 2023 compared to the same quarter of the prior ~~year, and increased 27% to $176.7 million for the nine months ended September 30, 2022.~~year. Net interest income, on a ~~GAAP~~tax equivalent basis (non-GAAP), increased ~~31%~~29% to $62.9 million for the quarter ended ~~September 30, 2022~~March 31, 2023 compared to the same quarter of the prior ~~year, and increased 26% for the nine months ended September 30, 2022 compared to the same period of the prior~~ year. Net interest income improved ~~due to~~with the GFED acquisition ~~but also due to increased average~~and strong organic loan ~~growth and NIM expansion with the rapidly rising interest rate environment.~~growth.

A comparison of yields, spread and margin on a tax equivalent and GAAP basis is as follows:


	Tax Equivalent Basis						GAAP						GAAP						Tax Equivalent Basis
	For the Quarter Ended						For the Quarter Ended						For the Quarter Ended						For the Quarter Ended
	September 30,		June 30,		September 30,		September 30,		June 30,		September 30,		March 31,		December 31,		March 31,		March 31,		December 31,		March 31,
	2022		2022		2021		2022		2022		2021		2023		2022		2022		2023		2022		2022
Average Yield on Interest-Earning Assets	4.76	%	4.26	%	3.96	%	4.55	%	4.05	%	3.79	%	5.20	%	4.41	%	3.63	%	5.60	%	5.53	%	3.88	%
Average Cost of Interest-Bearing Liabilities	1.43	%	0.74	%	0.58	%	1.45	%	0.74	%	0.59	%	2.71	%	1.28	%	0.55	%	2.74	%	2.13	%	0.56	%
Net Interest Spread	3.33	%	3.52	%	3.38	%	3.10	%	3.31	%	3.21	%	2.49	%	3.13	%	3.08	%	2.86	%	3.40	%	3.32	%
NIM (TEY) (Non-GAAP)	3.71	%	3.74	%	3.56	%	3.46	%	3.53	%	3.36	%	3.52	%	3.49	%	3.30	%	3.52	%	3.93	%	3.50	%
NIM Excluding Acquisition Accounting Net Accretion	3.65	%	3.64	%	3.53	%	3.47	%	3.50	%	3.38	%	3.09	%	3.36	%	3.25	%	3.47	%	3.61	%	3.50	%

Tax Equivalent Basis

GAAP

For the Nine Months Ended

For the Nine Months Endded

September 30,

September 30,

September 30,
September 30,

2022

2021

2022
2021
Average Yield on Interest-Earning Assets

4.33
%

3.90
%

4.10
%

2.78
%
Average Cost of Interest-Bearing Liabilities

0.95
%

0.60
%

0.95
%

0.31
%
Net Interest Spread

3.38
%

3.30
%

3.16
%

2.47
%
NIM (TEY) (Non-GAAP)

3.66
%

3.49
%

3.44
%

3.30
%
NIM Excluding Acquisition Accounting Net Accretion

3.60
%

3.46
%

3.37
%

2.45
%

Acquisition accounting net accretion can fluctuate mostly depending on the payoff activity of the acquired loans. In evaluating net interest income and NIM, it’s important to understand the impact of acquisition accounting net accretion when comparing periods. The above table reports NIM with and without the acquisition accounting net accretion to allow for more appropriate comparisons. A comparison of acquisition accounting net accretion included in NIM is as follows:

For the Quarter Ended

For the Nine Months Ended

For the Quarter Ended

For the Year Ended

September 30,

June 30,

September 30,

March 31,

December 31,

March 31,

December 31,

2022

2021

2022

2021

2023

2022

2023

2022

(dollars in thousands)

Acquisition Accounting Net Accretion in NIM

1,080

1,695

456

2,893

1,251

828

5,688

118

8,581

1,340

The Company’s management closely monitors and manages NIM. From a profitability standpoint, an important challenge for the Company’s subsidiary banks and leasing company is focusing on quality growth in conjunction with the improvement of their NIMs. Management continually addresses this issue with pricing and other balance sheet strategies which include better loan pricing, reducing reliance on very rate-sensitive funding, closely managing deposit rate changes and finding additional ways to manage cost of funds through derivatives.

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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 September 30,																For the Three Months Ended March 31,
	2022								2021								2023								2022
				Interest		Average						Interest		Average						Interest		Average						Interest		Average
	Average			Earned		Yield or			Average			Earned		Yield or			Average			Earned		Yield or			Average			Earned		Yield or
	Balance			or Paid		Cost			Balance			or Paid		Cost			Balance			or Paid		Cost			Balance			or Paid		Cost

	(dollars in thousands)																(dollars in thousands)
ASSETS
Interest earning assets:
Federal funds sold	$	16,224		$	100		2.45	%	$	3,030		$	1		0.10	%	$	19,275		$	234		4.93	%	$	4,564		$	2		0.15	%
Interest-bearing deposits at financial institutions		54,799			380		2.76	%		99,024			39		0.16	%		73,584			821		4.53	%		69,328			35		0.20	%
Investment securities (1)		946,096			9,602		4.05	%		799,471			7,646		3.82	%		951,865			10,157		4.27	%		802,260			7,682		3.83	%
Restricted investment securities		42,638			673		6.18	%		20,910			262		4.97	%		37,766			513		5.43	%		22,183			281		5.06	%
Gross loans/leases receivable (1) (2) (3)		5,916,100			72,969		4.89	%		4,529,136			46,427		4.07	%		6,165,115			88,548		5.82	%		4,727,478			45,995		3.95	%
Total interest earning assets		6,975,857			83,724		4.76	%		5,451,571			54,375		3.96	%		7,247,605			100,273		5.60	%		5,625,813			53,995		3.88	%

Noninterest-earning assets:
Cash and due from banks		88,477								55,359								71,315								53,684
Premises and equipment		115,816								75,712								118,097								79,501
Less allowance		(92,164)								(78,884)								(87,924)								(78,899)
Other		474,477								456,578								557,737								435,028
Total assets	$	7,562,463							$	5,960,336							$	7,906,830							$	6,115,127

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits	$	3,862,556			10,889		1.12	%	$	3,041,941			2,183		0.28	%	$	4,067,405			23,776		2.37	%	$	3,228,083			2,338		0.29	%
Time deposits		593,490			1,681		1.12	%		461,210			1,090		0.94	%		869,912			6,003		2.80	%		398,897			799		0.81	%
Short-term borrowings		11,376			84		2.94	%		6,858			1		0.10	%		7,573			99		5.28	%		1,951			—		0.05	%
FHLB advances		418,239			2,584		2.42	%		54,293			41		0.30	%		296,333			3,521		4.75	%		85,778			82		0.38	%
Other borrowings		4,239			53		4.93	%		—			—		—	%
Subordinated notes		181,177			2,518		5.56	%		113,789			1,554		5.46	%		232,679			3,311		5.69	%		113,868			1,554		5.46	%
Junior subordinated debentures		48,551			689		5.56	%		38,084			569		5.84	%		48,613			696		5.72	%		38,171			556		5.83	%
Total interest-bearing liabilities		5,119,628			18,498		1.43	%		3,716,175			5,438		0.58	%		5,522,515			37,406		2.74	%		3,866,748			5,329		0.56	%

Noninterest-bearing demand deposits		1,435,152								1,276,725								1,242,327								1,276,374
Other noninterest-bearing liabilities		246,255								313,250								347,303								287,879
Total liabilities		6,801,035								5,306,150								7,112,145								5,431,001

Stockholders' equity		761,428								654,186								794,685								684,126
Total liabilities and stockholders' equity	$	7,562,463							$	5,960,336							$	7,906,830							$	6,115,127
Net interest income				$	65,226							$	48,937							$	62,867							$	48,666
Net interest spread							3.33	%							3.38	%							2.86	%							3.32	%
Net interest margin							3.46	%							3.36	%							3.18	%							3.30	%
Net interest margin (TEY)(Non-GAAP)							3.71	%							3.56	%							3.52	%							3.50	%
Adjusted net interest margin (TEY)(Non-GAAP)							3.65	%							3.53	%							3.47	%							3.50	%
Adjusted net interest margin, excluding PPP income(TEY)(Non-GAAP)							3.65	%							3.39	%

Ratio of average interest-earning assets to average interest-bearing liabilities		136.26	%							146.70	%							131.24	%							145.49	%

(1)	Interest earned and yields on nontaxable investment securities and nontaxable loans are determined on a tax equivalent basis using a 21% federal tax rate.

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

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

4639

Table of Contents

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 ~~September 30, 2022~~March 31, 2023



	Inc./(Dec.)		Components				Inc./(Dec.)		Components
	from		of Change (1)				from		of Change (1)
	Prior Period (1)		Rate		Volume		Prior Period (1)		Rate		Volume

	2022 vs. 2021						2023 vs. 2022
	(dollars in thousands)						(dollars in thousands)
INTEREST INCOME
Federal funds sold	$	99	$	84	$	15	$	232	$	232	$	—
Interest-bearing deposits at financial institutions		342		471		(129)		786		784		2
Investment securities (2)		1,956		483		1,473		2,475		2,475		—
Restricted investment securities		412		78		334		232		22		210
Gross loans/leases receivable (2) (3)		26,542		10,533		16,009		42,553		25,910		16,643
Total change in interest income		29,351		11,649		17,702		46,278		29,423		16,855

INTEREST EXPENSE
Interest-bearing deposits		8,706		7,988		718		21,438		20,688		750
Time deposits		591		237		354		5,204		3,515		1,689
Short-term borrowings		83		81		2		99		96		3
Federal Home Loan Bank advances		2,543		1,305		1,238		3,439		2,834		605
Other borrowings		53		—		53
Subordinated notes		964		29		935		1,757		68		1,689
Junior subordinated debentures		120		(164)		284		140		(70)		210
Total change in interest expense		13,060		9,476		3,584		32,077		27,131		4,946

Total change in net interest income	$	16,291	$	2,173	$	14,118	$	14,201	$	2,292	$	11,909

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

(2)	Interest earned and yields on nontaxable investment securities and nontaxable loans are determined on a tax equivalent basis using a 21% ~~tax rate.~~

~~(3)~~

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

~~Table of Contents~~

~~Part I~~

~~Item 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~

For the Nine Months Ended September 30,

2022

2021

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

$
8,937

$
114

1.70
%

$
1,503

$
1

0.13
%
Interest-bearing deposits at financial institutions

63,740

584

1.23
%

101,225

110

0.15
%
Investment securities (1)

890,082

26,286

3.93
%

802,715

21,989

3.65
%
Restricted investment securities

34,071

1,439

5.57
%

19,540

718

4.85
%
Gross loans/leases receivable (1) (2) (3)

5,456,037

180,896

4.43
%

4,405,355

132,728

4.03
%
Total interest earning assets

6,452,867

209,319

4.33
%

5,330,338

155,546

3.90
%

Noninterest-earning assets:













Cash and due from banks

80,157

61,579

Premises and equipment, net

103,409

74,413

Less allowance for estimated losses on loans/leases

(84,360)

(81,941)

Other

453,915

405,364

Total assets

$
7,005,988

$
5,789,753

LIABILITIES AND STOCKHOLDERS' EQUITY













Interest-bearing liabilities:













Interest-bearing demand deposits

$
3,629,735

17,704

0.65
%

$
3,000,766

6,219

0.28
%
Time deposits

508,067

3,527

0.93
%

449,996

3,716

1.10
%
Short-term borrowings

4,945

87

2.37
%

7,560

4

0.08
%
Federal Home Loan Bank advances

264,718

3,447

1.72
%

29,875

66

0.29
%
Other borrowings

1,429

53

4.90
%

—

—

—
%
Subordinated notes

143,104

5,888

5.49
%

115,927

4,718

5.43
%
Junior subordinated debentures

44,457

1,926

5.71
%

38,045

1,692

5.86
%
Total interest-bearing liabilities

4,596,455

32,632

0.95
%

3,642,169

16,415

0.60
%

Noninterest-bearing demand deposits

1,419,815

1,255,957

Other noninterest-bearing liabilities

244,849

264,044

Total liabilities

6,261,119

5,162,170

Stockholders' equity

744,869

627,583

Total liabilities and stockholders' equity

$
7,005,988

$
5,789,753

Net interest income

$
176,687

$
139,131

Net interest spread

3.38
%

3.30
%
Net interest margin

3.44
%

3.30
%
Net interest margin (TEY)(Non-GAAP)

3.66
%

3.49
%
Adjusted net interest margin (TEY)(Non-GAAP)

3.60
%

3.46
%
Adjusted net interest margin, excluding PPP income(TEY)(Non-GAAP)

3.60
%

3.31
%
Ratio of average interest earning assets to average interest-bearing liabilities

140.39
%

146.35
%

~~Table of Contents~~

~~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 nine months ended September 30, 2022

Inc./(Dec.)

Components

from

of Change (1)


Prior Period (1)

Rate

Volume

2022 vs. 2021

(dollars in thousands)
INTEREST INCOME






Federal funds sold

$
113

$
80

$
33
Interest-bearing deposits at other financial institutions

474

557

(83)
Investment securities (2)

4,297

1,777

2,520
Restricted investment securities

721

120

601
Gross loans/leases receivable (2) (3)

48,168

14,155

34,013
Total change in interest income

53,773

16,689

37,084

INTEREST EXPENSE






Interest-bearing demand deposits

11,485

9,913

1,572
Time deposits

(189)

(799)

610
Short-term borrowings

83

86

(3)
Federal Home Loan Bank advances

3,381

1,303

2,078
Other borrowings

53

—

53
Subordinated notes

1,170

53

1,117
Junior subordinated debentures

234

(68)

302
Total change in interest expense

16,217

10,488

5,729

Total change in net interest income

$
37,556

$
6,201

$
31,355

~~(1)~~

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

~~(2)~~

~~Interest earned and yields on nontaxable investment securities and nontaxable loans are determined on a tax equivalent basis using a 21%~~federal tax rate.

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

The Company’s operating results are also impacted by various sources of noninterest income, including trust department fees, investment advisory and management fees, deposit service fees, ~~swap fee income,~~capital markets revenue, gains from the sales of residential real estate loans and government guaranteed loans, earnings on BOLI and other income. Offsetting these items, the Company incurs noninterest expenses, which include salaries and employee benefits, occupancy and equipment expense, professional and data processing fees, FDIC and other insurance expense, loan/lease expense and other administrative expenses.

The Company’s operating results are also affected by economic and competitive conditions, particularly changes in interest rates, income tax rates, government policies and actions of regulatory authorities.

RESULTS OF OPERATIONS

INTEREST INCOME

Interest income ~~(tax equivalent)~~ increased ~~54%,~~$43.2 million, comparing the ~~third~~first quarter of ~~2022~~2023 to the same period of ~~2021, and~~2022. Interest income (tax equivalent) increased ~~35% when~~$46.3 million, comparing the first ~~nine months~~quarter of ~~2022~~2023 to the same period of ~~2021.~~2022. This was primarily due to the GFED acquisition, but also due to ~~an increase in~~continued organic loan growth and repricing of the ~~yield of average securities and average loans/leases as well as an increased volume of average loans/leases.~~Company’s floating rate loan portfolio with the rapidly rising interest rates.

The Company intends to continue to grow quality loans and leases as well as its private placement tax-exempt securities portfolio to maximize yield while minimizing credit and interest rate risk.

4940

Table of Contents

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

INTEREST EXPENSE

Interest expense ~~(tax equivalent) for the third quarter of 2022~~ increased ~~240% from the third quarter of 2021, and increased 99%~~$32.1 million, comparing the first ~~nine months~~quarter of ~~2022~~2023 to the same period of ~~2021.~~2022. The increase is primarily due to the GFED acquisition ~~however the Company has also grown organically at~~in conjunction with a significant ~~pace over the past several years and core deposit growth has contributed to the majority of the growth. The~~increase in cost of funds ongiven the ~~Company’s average interest-bearing liabilities increased in conjunction with the~~sharp rising rate environment. The Company’s cost of funds was ~~1.43%~~2.74% for the quarter ended ~~September 30, 2022,~~March 31, 2023, which was up from ~~0.58%~~0.56% for the quarter ended ~~September 30, 2021.~~March 31, 2022. The ~~Company’s~~Company has experienced a shift in mix from noninterest and low interest bearing deposits to higher cost ~~of funds was 0.95% for the nine months ended September 30, 2022, which was up from 0.60% for the nine months ended September 30, 2021.~~funding.

PROVISION FOR CREDIT LOSSES

The ACL is established through provision expense to provide an estimated ACL. The following table shows the components of the provision for credit losses for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,		September 30,		September 30,		September 30,		March 31,		March 31,
	2022		2021		2022		2021		2023		2022

	(dollars in thousands)				(dollars in thousands)				(dollars in thousands)

Provision for credit losses - loans and leases	$	331	$	1,895	$	8,623	$	7,747	$	2,458	$	(3,849)
Provision for credit losses - off-balance sheet exposures		(331)		(1,895)		(339)		(1,025)		481		933
Provision for credit losses - held to maturity securities		—		—		—		(9)		—		—
Provision for credit losses - available for sale securities										989		—
Total provision for credit losses	$	—	$	—	$	8,284	$	6,713	$	3,928	$	(2,916)

~~The Company’s had no provision for credit losses for the third quarter of 2022 or for the third quarter of 2021.~~

The Company had total provision for credit losses on loans and leases of ~~$8.3~~$2.5 million for the first ~~nine~~three months of ~~2022,~~2023, which was up from ~~$6.7~~a negative $3.8 million in the first ~~nine~~three months of ~~2021.~~2022. The negative provision for the three months ended March 31, 2022 was related to the elimination of the qualitative factor associated with the COVID pandemic. The increase in provision ~~on loans and leases~~from that period last year was ~~driven by~~substantially due to the ~~CECL Day 2 credit loss expense~~removal of ~~$11.0 million as a result of the GFED acquisition, offset by negative provision on the other charters.~~that factor. The provision related to OBS was ~~a negative $339~~$481 thousand ~~which included a $1.4 million provision related to~~for the ~~acquisition~~first three months of ~~GFED,~~2023 compared to ~~a negative $1.0 million~~$933 thousand for the ~~nine~~for the first three months ~~ended September 30, 2021.~~of 2022. The decrease was due to the decrease in the balance of those OBS exposures. There was no provision related to HTM securities for the first three months of 2023 or 2022. The provision related to AFS securities was $989 thousand for the first three months of 2023 as compared to no provision for the first three months of 2022. The increase was entirely due to an impairment of a subordinated debt investment in a recently failed bank. This was a legacy investment acquired as part of the 2022 GFED acquisition and an allowance was established for the entire balance of the bond.

The ACL for loans and leases is established based on a number of factors, including the Company's historical loss experience, delinquencies and charge-off trends, economic and other forecasts, the local, state and national economies and risk associated with the loans/leases and securities in the portfolio as described in more detail in the “Critical Accounting ~~Policies”~~Policies and Critical Accounting Estimates” section.

The Company had an ACL on loans/leases held for investment of ~~1.51%~~1.43% of total gross loans/leases held for investment at ~~September 30, 2022,~~March 31, 2023, compared to ~~1.59%~~1.43% at ~~June 30,~~December 31, 2022 and ~~1.75%~~1.55% at ~~September 30, 2021.~~March 31, 2022. Management evaluates the allowance needed on the loans acquired ~~loans~~prior to the adoption of ASU 2016-13 on January 1, 2021, factoring in the remaining discount, which was ~~$11.8~~$5.2 million and ~~$1.7~~$2.5 million at ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021,~~ respectively.

Additional discussion of the Company's allowance can be found in the “Financial Condition” section of this Report.

5041

Table of Contents

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

NONINTEREST INCOME

The following ~~tables set~~table sets forth the various categories of noninterest income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


	Three Months Ended								Three Months Ended
	September 30,		September 30,						March 31,		March 31,
	2022		2021		$ Change		% Change		2023		2022		$ Change		% Change

	(dollars in thousands)								(dollars in thousands)

Trust department fees	$	2,537	$	2,714	$	(177)	(6.5)	%
Trust fees									$	2,906	$	2,963	$	(57)	(1.9)	%
Investment advisory and management fees		921		1,054		(133)	(12.6)			879		1,036		(157)	(15.2)
Deposit service fees		2,214		1,588		626	39.4			2,028		1,555		473	30.4
Gains on sales of residential real estate loans, net		641		954		(313)	(32.8)			312		493		(181)	(36.7)
Gains on sales of government guaranteed portions of loans, net		50		—		50	100.0			30		19		11	57.9
Swap fee income/capital markets revenue		10,545		24,885		(14,340)	(57.6)
Capital markets revenue										17,023		6,422		10,601	165.1
Securities gains (losses), net										(463)		—		(463)	(100.0)
Earnings on bank-owned life insurance		605		446		159	35.7			707		346		361	104.3
Debit card fees		1,453		1,085		368	33.9			1,466		1,007		459	45.6
Correspondent banking fees		189		265		(76)	(28.7)			391		277		114	41.2
Loan related fee income		652		550		102	18.5			651		480		171	35.6
Fair value gain (loss) on derivatives		904		(17)		921	5,417.6			(427)		906		(1,333)	147.1
Other		384		1,128		(744)	(66.0)			339		129		210	162.8
Total noninterest income	$	21,095	$	34,652	$	(13,557)	(39.1)	%	$	25,842	$	15,633	$	10,209	65.3	%

Nine Months Ended

September 30,

September 30,


2022

2021

$ Change

% Change

(dollars in thousands)

Trust department fees

$
7,997

$
8,363

$
(366)

(4.4)
%

Investment advisory and management fees

2,940

3,033

(93)

(3.1)

Deposit service fees

5,992

4,488

1,504

33.5

Gains on sales of residential real estate loans, net

1,943

3,475

(1,532)

(44.1)

Gains on sales of government guaranteed portions of loans, net

69

—

69

100.0

Swap fee income/capital markets revenue

29,971

48,010

(18,039)

(37.6)

Securities gains (losses), net

—

(88)

88

(100.0)

Earnings on bank-owned life insurance

1,301

1,368

(67)

(4.9)

Debit card fees

3,959

3,144

815

25.9

Correspondent banking fees

710

848

(138)

(16.3)

Loan related fee income

1,814

1,732

82

4.7

Fair value gain (loss) on derivatives

2,242

73

2,169

2,971.2

Other

572

2,991

(2,419)

(80.9)

Total noninterest income

$
59,510

$
77,437

$
(17,927)

(23.2)
%

~~In recent years, the~~The Company ~~has been~~continues to be successful in expanding its wealth management client base. Trust ~~department~~ fees continue to be a significant contributor to noninterest income. Assets under management ~~decreased~~increased by ~~$208.8~~$291.1 million in the ~~third~~first quarter of ~~2022~~2023 and ~~decreased~~increased by ~~$716.4~~$585.5 million since ~~September 30, 2021, due to market volatility.~~March 31, 2022. Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. The majority of the trust ~~department~~ fees are determined based on the market value of the investments within the fully-managed trusts. Trust ~~department~~ fees decreased 7%2%, comparing the ~~third~~first quarter of ~~2022~~2023 to the same period of the prior year ~~and they decreased 4% when comparing the first nine months of 2022~~due to ~~the first nine months of 2021.~~market volatility. The Company expects trust ~~department~~ fees to be negatively impacted during periods of significantly lower market valuations and positively impacted during periods of significantly higher market valuations.

Investment advisory and management fees decreased ~~13%~~15%, comparing the ~~third~~first quarter of ~~2022~~2023 to the same period of the prior ~~year, and they decreased 3% when comparing the first nine months of 2022~~year. Similar to ~~the first nine months of 2021. Similar~~

~~Table of Contents~~

~~Part I~~

~~Item 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~

to trust ~~department~~ fees, investment advisory and management fees are largely determined based on the market value of the investments managed. As a result, fee income from this line of business fluctuates with market valuations.

Deposit service fees increased ~~39% comparing the third quarter of 2022 to the same period of the prior year, and increased 34% when~~30% comparing the first ~~nine months~~quarter of ~~2022~~2023 to the same period of the prior year. This increase was primarily due to the GFED acquisition. The Company continues to ~~emphasize shifting the mix of deposits from retail time deposits to non-maturity demand deposits across all~~focus on expanding its ~~markets. With this continuing shift in mix, the~~core deposit base. The Company has increased the number of demand deposit accounts, which tend to be lower in interest cost and higher in-service fees. ~~The Company plans to continue this shift in mix and to further focus on growing deposit service fees.~~

Gains on sales of residential real estate loans, net, decreased ~~33% when comparing the third quarter of 2022 to the same period of the prior year, and decreased 44%~~37% when comparing the first ~~nine months~~quarter of ~~2022~~2023 to the same period of the prior year. The decrease was primarily due to decreased volume of residential real estate ~~purchase~~purchases and the refinancing of residential real estate loans with ~~higher interest rates~~a sharp increase in ~~2022.~~mortgage rates.

Gains on sales of government-guaranteed portions of loans for the first quarter of 2023 increased 58% as compared to the same period of the prior year. The increase was primarily due to the GFED acquisition with GB having a larger focus on this business.

The Company has grown its interest rate swap program significantly over the past several years. The Company’s interest rate swap program consists of back-to-back interest rate swaps with two types of commercial borrowers: (1) traditional commercial loans of a certain minimum size and sophistication, and (2) LIHTC permanent loans. Most of the growth has

Table of Contents

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

been in the latter category as the Company has grown relationships with strong LIHTC developers with many years of experience. The LIHTC industry is strong and growing with an increased need for affordable housing. The interest rate swaps allow commercial borrowers to pay a fixed interest rate while the Company receives a variable interest rate as well as an upfront nonrefundable fee dependent upon the pricing. ~~Swap fee income/capital~~

Capital markets revenue totaled ~~$10.5 million for the third quarter of 2022, compared to $24.9 million for the third quarter of 2021. Swap fee income/capital markets revenue totaled $30.0~~$17.0 million for the first ~~nine months~~quarter of ~~2022,~~2023, compared to ~~$48.0~~$6.4 million for the first ~~nine months~~quarter of ~~2021.~~2022. The increase was primarily due to higher capital markets revenue from swap fees as the project delays our clients have been experiencing in recent quarters due to ongoing supply chain disruptions, inflationary pressures and higher interest rates have begun to subside and several previously delayed projects funded during the first quarter. Swap ~~fee income~~fees relative to the increase in notional amount of the non-hedging interest rate swap contracts was ~~8.9%~~5.2% for the three months ended ~~September 30, 2022,~~March 31, 2023, and ~~10.7%~~14.2% for the same period of the prior year. Swap fee income relative to the increase in notional amount of the non-hedging interest rate swap contracts was 9.8% for the first nine months of 2022 as compared to 10.8% for the first nine months of 2021. The decrease in the ratio was primarily due to the steepening of the yield curve. In the traditional commercial portfolio, the pricing is more competitive and the duration is shorter as compared to the LIHTC permanent loans. The mix of loans with interest rate swaps continued to be heavily weighted towards LIHTC permanent loans. Future levels of swap ~~fee income~~fees are dependent upon the needs of our traditional commercial and LIHTC borrowers, and the size of the related nonrefundable swap fee may fluctuate depending on the interest rate environment.

~~There were no securities gains or~~Securities losses totaled $463 thousand for the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023. There were no securities gains or losses for the three months ended ~~September 30, 2021. Securities losses totaled $88 thousand for~~March 31, 2022. The Company sold $29 million of securities during the ~~nine~~three months ended ~~September 30, 2021.~~ March 31, 2023. The securities sold were part of a strategy to partially deleverage the balance sheet with a rapid earn back of the modest loss before the end of the calendar year.

Earnings on BOLI increased ~~36% comparing the third quarter of 2022 to the third quarter of 2021, and decreased 5%~~104% comparing the first ~~nine months~~quarter of ~~2022~~2023 to the first ~~nine months~~quarter of ~~2021. BOLI purchases totaled $10 million for the three and nine months ended September 30,~~ 2022. There were no purchases of BOLI in ~~2021.~~the first quarter of 2023. BOLI purchases totaled $10.0 million in 2022 and also increased due to the GFED acquisition. Notably, a portion of the Company's BOLI is variable rate whereby returns are determined by the performance of the equity markets. Management intends to continue to review its BOLI investments to be consistent with policy and regulatory limits in conjunction with the rest of its earning assets in an effort to maximize returns while minimizing risk.

Debit card fees are the interchange fees paid on certain debit card customer transactions. Debit card fees increased ~~34% comparing the third quarter of 2022 to the same period of the prior year, and increased 26%~~46% comparing the first ~~nine months~~quarter of ~~2022~~2023 to the same period of the prior year. The increase was primarily due to the GFED acquisition. The fees can vary based on customer debit card usage, so fluctuations from period to period may occur. As an opportunity to maximize fees, the Company offers a deposit product with a higher interest rate that incentivizes debit card activity.

~~Table of Contents~~

~~Part I~~

~~Item 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~

Correspondent banking fees ~~decreased 29%~~increased 41% comparing the ~~third~~first quarter of ~~2022~~2023 to the same period of the prior ~~year, and decreased 16% comparing the first nine months~~year. The increase was primarily due to a shift of 2022 to the first nine months of 2021. These fees are generally included in the earnings credit rates which incent the correspondent bank to maintain higher levels of noninterest bearing deposits to offset the correspondent banking ~~fees. Management will continue~~balances from non-interest bearing accounts to ~~evaluate earnings credit rates and the resulting impact on deposit~~interest bearing accounts. Fees from correspondent banks generally increase when non-interest bearing account balances ~~and fees while balancing the ability to grow market share.~~decrease. Correspondent banking continues to be a core strategy for the Company, as this line of business provides a high level of deposits that can be used to fund loan growth as well as a steady source of fee income. The Company now serves approximately ~~187~~182 banks in Iowa, Illinois, Missouri and Wisconsin.

Loan related fee income increased ~~19%~~36% comparing the ~~third~~first quarter of ~~2022~~2023 to the same period of the prior ~~year, and increased 5% comparing the first nine months of 2022 to the first nine months of 2021.~~year. The increase was primarily due to the increase in loan volume with the GFED acquisition.

Fair value gain (loss) on derivatives was ~~$904~~$427 thousand in ~~gains~~losses in the ~~third~~first quarter of ~~2022,~~2023, as compared to ~~$17~~$906 thousand in ~~losses~~gains in the same period of the prior ~~year. Fair value gain on derivatives was $2.2 million for the nine months ended September 30, 2022 as compared to $73 thousand in the first nine months of 2021~~year due to the rapidly rising interest rate environment. The Company uses ~~interest rate swap,~~ cap ~~and collar~~ instruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates. See Note 54 to the Consolidated Financial Statements for additional information.

Other noninterest income ~~decreased 66%~~increased 163% comparing the ~~third~~first quarter of ~~2022~~2023 to the ~~third~~first quarter of the prior ~~year, and decreased 81% comparing the first nine months of 2022 to the first nine months of 2021.~~year. The ~~decrease~~increase was primarily due to ~~lower~~higher equity investment ~~income and lower gains on disposal of leased assets.~~

income.

~~Table of Contents~~

~~Part I~~

~~Item 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~

~~NONINTEREST EXPENSE~~

~~The following tables set forth the various categories of noninterest expense for the three and nine months ended September 30, 2022 and 2021.~~

Three Months Ended

September 30,

September 30,


2022

2021

$ Change

% Change

(dollars in thousands)

Salaries and employee benefits

$
29,175

$
28,207

$
968

3.4
%

Occupancy and equipment expense

6,033

4,122

1,911

46.4

Professional and data processing fees

4,477

3,568

909

25.5

Acquisition costs

315

—

315

100.0

Post-acquisition compensation, transition and integration costs

62

—

62

100.0

FDIC insurance, other insurance and regulatory fees

1,497

1,108

389

35.1

Loan/lease expense

390

308

82

26.6

Net cost of (income from) and gains/losses on operations of other real estate

19

(1,346)

1,365

(101.4)

Advertising and marketing

1,437

1,095

342

31.2

Communication

639

457

182

39.8

Supplies

289

298

(9)

(3.0)

Bank service charges

568

525

43

8.2

Correspondent banking expense

218

201

17

8.5

Intangibles amortization

787

508

279

54.9

Payment card processing

477

346

131

37.9

Trust expense

227

188

39

20.7

Other

1,136

1,802

(666)

(37.0)

Total noninterest expense

$
47,746

$
41,387

$
6,359

15.4
%

Nine Months Ended

September 30,

September 30,


2022

2021

$ Change

% Change

(dollars in thousands)

Salaries and employee benefits

$
82,774

$
76,098

$
6,676

8.8
%

Occupancy and equipment expense

15,948

12,195

3,753

30.8

Professional and data processing fees

12,513

10,713

1,800

16.8

Acquisition costs

4,139

—

4,139

100.0

Post-acquisition compensation, transition and integration costs

4,858

—

4,858

100.0

Disposition costs

—

8

(8)

(100.0)

FDIC insurance, other insurance and regulatory fees

4,201

3,159

1,042

33.0

Loan/lease expense

1,418

1,065

353

33.1

Net cost of (income from) and gains/losses on operations of other real estate

77

(1,420)

1,497

(105.4)

Advertising and marketing

3,396

2,575

821

31.9

Communication

1,626

1,317

309

23.5

Supplies

772

779

(7)

(0.9)

Bank service charges

1,719

1,620

99

6.1

Correspondent banking expense

630

599

31

5.2

Intangibles amortization

2,067

1,524

543

35.6

Payment card processing

1,365

1,114

251

22.5

Trust expense

609

550

59

10.7

Other

2,207

2,394

(187)

(7.8)

Total noninterest expense

$
140,319

$
114,290

$
26,029

22.8
%

Management places a strong emphasis on overall cost containment and is committed to improving the Company's general efficiency. One-time charges relating to acquisitions and employment separation expenses impacted expense in 2022 and 2021.

Salaries and employee benefits, which is the largest component of noninterest expense, increased from the third quarter of 2021 to the third quarter of 2022 by 3%, and increased from the first nine months of 2021 to the first nine months of 2022

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

NONINTEREST EXPENSE

The following tables set forth the various categories of noninterest expense for the three months ended March 31, 2023 and 2022.


	Three Months Ended
	March 31,		March 31,
	2023		2022		$ Change		% Change

	(dollars in thousands)

Salaries and employee benefits	$	32,003	$	23,627	$	8,376	35.5	%
Occupancy and equipment expense		5,914		3,937		1,977	50.2
Professional and data processing fees		3,514		3,671		(157)	(4.3)
Acquisition costs		—		1,851		(1,851)	(100.0)
Post-acquisition compensation, transition and integration costs		207		—		207	100.0
FDIC insurance, other insurance and regulatory fees		1,374		1,310		64	4.9
Loan/lease expense		556		267		289	108.2
Net income from and gains/losses on operations of real estate		(67)		(1)		(66)	6,600.0
Advertising and marketing		1,237		761		476	62.5
Communication and data connectivity		665		403		262	65.0
Supplies		305		246		59	24.0
Bank service charges		605		541		64	11.8
Correspondent banking expense		210		199		11	5.5
Intangibles amortization		766		493		273	55.4
Payment card processing		545		262		283	108.0
Trust expense		214		187		27	14.4
Other		737		571		166	29.1
Total noninterest expense	$	48,785	$	38,325	$	10,460	27.3	%

Management places a strong emphasis on overall cost containment and is committed to improving the Company's general efficiency. One-time charges relating to acquisitions and post-acquisition compensation, transition, and integration cost impacted expense in 2023 and 2022.

Salaries and employee benefits, which is the largest component of noninterest expense, increased from the first quarter of 2022 to the first quarter of 2023 by 9%36%. The increased expense was primarily related to the GFED acquisition, which resulted in an increase of 165 full-time equivalent employees.

Occupancy and equipment expense increased ~~46%~~50% comparing the ~~third~~first quarter of ~~2022~~2023 to the same period of the prior ~~year, and increased 31% comparing the first nine months of 2022 to the first nine months of 2021.~~year. The increase was due to higher depreciation expense and computer hardware expense related to the GFED acquisition.

Professional and data processing fees ~~increased 26%~~decreased 4% comparing the ~~third~~first quarter of ~~2022~~2023 to the same period in ~~2021, and increased 17% comparing the first nine months of 2022 to the first nine months of 2021. The increase was primarily due to the GFED acquisition.~~2022. Generally, professional and data processing fees can fluctuate depending on certain one-time project costs. Management will continue to focus on minimizing such one-time costs and driving recurring costs down through contract negotiation or managed reduction in activity where costs are determined on a usage basis.

~~Acquisition costs totaled $315 thousand in the third quarter of 2022 and $4.1 million in the first nine months of 2022.~~ There were no acquisition costs incurred in the three ~~and nine~~ months ending ~~September 30, 2021.~~March 31, 2023. Acquisition costs totaled $1.9 million the first quarter of 2022. The acquisition costs, which were primarily legal, accounting and other professional fees, relate to the acquisition of ~~GFED as discussed in Note 2 of the consolidated financial statements.~~GFED.

Post-acquisition compensation, transition and integration costs totaled ~~$62~~$207 thousand in the ~~third~~first quarter of ~~2022 and $4.9 million in the first nine months of 2022. There were no post-acquisition compensation, transition and integration costs incurred in the three and nine months ending September 30, 2021.~~2023. These costs were comprised primarily of ~~personnel costs,~~ IT integration and data conversion costs related to the acquisition of GFED.

There were no ~~disposition~~post-acquisition compensation, transition and integration costs ~~for~~in the first nine months of 2022, compared with $8 thousand for the first nine months of 2021. The disposition costs in 2021 were comprised primarily of legal, accounting and personnel costs related to the sale of the Bates Companies in the third quarter of ~~2020.~~

FDIC insurance, other insurance and regulatory fee expense increased 35%, comparing the third quarter of 2022 to the third quarter of 2021, and increased 33% comparing the first nine months of 2022 to the first nine months of 2021. The increase in expense was due to the GFED acquisition as well as an increase in the asset size of the Company in 2022, which increased the Company’s insurance rates and expenses.

Loan/lease expense increased 27% when comparing the third quarter of 2022 to the same quarter of 2021, and increased 33% comparing the first nine months of 2022 to the same period of the prior year. Generally, loan/lease expense has a direct relationship with the level of NPLs; however, it may deviate depending upon the individual NPLs.

Net cost of (income from) and gains/losses on operations of other real estate includes gains/losses on the sale of OREO, write-downs of OREO and all income/expenses associated with OREO. Net cost of and gains/losses on operations of other real estate totaled $19 thousand for the third quarter of 2022, compared to net income from and gains/losses on operations of other real estate of $1.3 million for the third quarter of 2021. Net cost of and gains/losses on operations of other real estate totaled $77 thousand for the first nine of 2022, compared to net income from and gains/losses on operations of other real estate of $1.4 million for the first nine months of 2021. The large gain on sale of OREO for the three and nine months ended September 30, 2021, was related to the sale of a large property.

Advertising and marketing expense increased 31% comparing the third quarter of 2022 to the third quarter of 2021, and increased 32% comparing the first nine months of 2022 to the first nine months of 2021. The increase in expense was primarily due to the return to more normal operations during the second half of 2021 and first nine months of 2022 in response to improvements in the general economic environment tied to COVID-19 as compared to the first nine months of 2021 as well as the GFED acquisition.2022.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

~~Communication~~FDIC insurance, other insurance and regulatory fee expense increased ~~40% comparing the third quarter of 2022 to the third quarter of 2021, and increased 24%~~5%, comparing the first ~~nine months~~quarter of ~~2022~~2023 to the first ~~nine~~quarter of 2022. The increase in expense was due to a 30% increase in the asset size of the Company in 2022, which increased the Company’s insurance rates and expenses.

Loan/lease expense increased 108% when comparing the first quarter of 2023 to the same quarter of 2022. Generally, loan/lease expense has a direct relationship with the level of NPLs; however, it may deviate depending upon the individual NPLs.

Net income from and gains/losses on operations of other real estate includes gains/losses on the sale of OREO, write-downs of OREO and all income/expenses associated with OREO. Net income from and gains/losses on operations of other real estate totaled $67 thousand for the first quarter of 2023, compared to net income from and gains/losses on operations of other real estate of $1 thousand for the first quarter of 2022. The gain on sale of OREO for the three months ended March 31, 2023, was related to the sale of ~~2021.~~three properties.

Advertising and marketing expense increased 63% comparing the first quarter of 2023 to the first quarter of 2022. The increase in expense was primarily due to the GFED acquisition.

Communication and data connectivity expense increased 65% comparing the first quarter of 2023 to the first quarter of 2022. The increase is primarily due to the GFED acquisition.

Supplies expense ~~decreased 3% comparing the third quarter of 2022 to the third quarter of 2021, and decreased 1%~~increased 24% comparing the first ~~nine months~~quarter of ~~2022~~2023 to the first ~~nine months~~quarter of ~~2021.~~2022. This increase is primarily due to the GFED acquisition.

Bank service charges, a large portion of which includes indirect costs incurred to provide services to QCBT's correspondent banking customer portfolio, increased 8%12% when comparing the ~~third~~first quarter of ~~2022~~2023 to the same quarter of ~~2021, and increased 6% when comparing the first nine months of 2022 to the same period of 2021.~~2022. As transaction volumes continue to increase and the number of correspondent banking clients increases, the associated expenses are expected to also increase.

Correspondent banking expense increased ~~9% when comparing the third quarter of 2022 to the third quarter of 2021, and increased 5%~~6% when comparing the first ~~nine months~~quarter of ~~2022~~2023 to the ~~same period~~first quarter of ~~the prior year.~~2022. These are direct costs incurred to provide services to QCBT's correspondent banking customer portfolio, including safekeeping and cash management services.

Intangibles amortization expense increased 55% when comparing the ~~third~~first quarter of ~~2022~~2023 to the same quarter of ~~2021, and increased 36% when comparing the first nine months of 2022 to the same period of the prior year.~~2022. The increase is due to the GFED acquisition. These expenses will naturally decrease as intangibles become fully amortized unless there is an addition to intangible assets.

Payment card processing expense increased ~~38%~~108% when comparing the ~~third~~first quarter of ~~2022~~2023 to the same quarter of ~~2021 and increased 23% when comparing the first nine months of 2022 to the same period of the prior year.~~2022. The increase is due to the GFED acquisition.

Trust expense increased ~~21%~~14% when comparing the ~~third~~first quarter of ~~2022~~2023 to the same quarter of ~~2021, and increased 11% when comparing the first nine months of 2022 to the same period of the prior year.~~2022. The increase was due to new relationships added in ~~the first nine months of 2022~~2023 totaling ~~$341.4~~$185.1 million of new assets under management.

Other noninterest expense ~~decreased 37% when comparing the third quarter of 2022 to the third quarter of 2021, and decreased 8%~~increased 29% when comparing the first ~~nine months~~quarter of ~~2022~~2023 to the ~~same period~~first quarter of ~~the prior year,~~2022, primarily due to ~~losses on disposal of fixed assets no longer in service. Also included~~the GFED acquisition. Included in other noninterest expense are ~~other~~ items such as meals and entertainment, subscriptions, sales and use tax and expenses related to wealth management.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

INCOME TAXES

In the ~~third~~first quarter of ~~2022,~~2023, the Company incurred income tax expense of ~~$4.8~~$2.8 million. ~~During~~Refer to the ~~first nine months of the year, the Company incurred income tax expense of $8.6 million. Following is a~~ reconciliation of the expected income tax ~~expense~~rate to ~~the income tax expense included in the consolidated statements of income for the three and nine months ended September 30, 2022 and 2021.~~

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2022

2021

2022

2021

% of

% of

% of

% of

Pretax

Pretax

Pretax

Pretax


Amount

Income

Amount

Income


Amount

Income

Amount

Income

(dollars in thousands)

Computed "expected" tax expense

$
7,165

21.0
%
$
8,293

21.0
%

$
16,130

21.0
%
$
18,512

21.0
%

Tax exempt income, net

(3,003)

(8.8)

(2,032)

(5.1)

(7,701)

(10.0)

(5,553)

(6.3)

Bank-owned life insurance

(127)

(0.4)

(93)

(0.2)

(273)

(0.4)

(287)

(0.3)

State income taxes, net of federal benefit, current year

1,616

4.7

1,799

4.6

3,889

5.1

4,070

4.6

Provision adjustment from accounting method change

—

—

—

—

(1,181)

(1.5)

—

—

Tax credits

(359)

(1.1)

(57)

(0.1)

(890)

(1.2)

(171)

(0.2)

Income from tax credit equity investments

(337)

(1.0)

(3)

—

(939)

(1.2)

(8)

—

Acquisition costs

78

0.2

—

—

450

0.6

—

—

Excess tax benefit on stock options exercised and restricted stock awards vested

(46)

(0.1)

(107)

(0.3)

(520)

(0.7)

(311)

(0.4)

Other

(163)

(0.5)

129

0.2

(316)

(0.4)

6

—

Federal and state income tax expense

$
4,824

14.1
%
$
7,929

20.1
%

$
8,649

11.3
%
$
16,258

18.4
%

~~The effective tax rate for the quarter ended September 30, 2022 was 14.1%, which was a decrease from~~ the effective tax rate ~~of 20.1%~~that is included in Note 5 to the Consolidated Financial Statements for the quarter ended September 30, 2021. The effective tax rate for the nine months ended September 30, 2022 was 11.3%, which was a decrease from the effective tax rate of 18.4% for the nine months ended September 30, 2021. The decrease was primarily due to:

●

~~Increased tax-exempt income from loans and investments;~~

●

~~Provision adjustment of $1.5 million from an accounting method change; and~~

●

~~Increased tax credits and income from LIHTC equity investments.~~

~~Table of Contents~~

~~Part I~~

~~Item 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~additional detail.

FINANCIAL CONDITION

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


	As of																As of
	September 30, 2022				June 30, 2022				December 31, 2021				September 30, 2021				March 31, 2023				December 31, 2022				March 31, 2022
	(dollars in thousands)																(dollars in thousands)

	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
Cash, federal funds sold, and interest-bearing deposits	$	157,325	2	%	$	148,911	2	%	$	125,152	2	%	$	128,136	2	%	$	318,292	4	%	$	183,993	2	%	$	116,930	2	%
Securities		879,450	11	%		879,918	12	%		810,215	13	%		828,719	14	%		877,446	11	%		928,102	12	%		823,311	13	%
Net loans/leases		5,918,121	77	%		5,705,478	77	%		4,601,411	75	%		4,519,060	75	%		6,103,449	76	%		6,051,165	76	%		4,753,082	77	%
Derivatives		185,037	2	%		97,455	1	%		222,220	4	%		198,393	3	%		130,350	2	%		177,631	2	%		107,326	2	%
Other assets		590,116	8	%		561,179	8	%		337,134	6	%		340,200	6	%		607,367	7	%		607,946	8	%		375,170	6	%
Total assets	$	7,730,049	100	%	$	7,392,941	100	%	$	6,096,132	100	%	$	6,014,508	100	%	$	8,036,904	100	%	$	7,948,837	100	%	$	6,175,819	100	%

Total deposits	$	5,941,035	76	%	$	5,820,657	78	%	$	4,922,772	80	%	$	4,871,828	81	%	$	6,501,663	80	%	$	5,984,217	75	%	$	4,839,689	78	%
Total borrowings		701,491	9	%		583,166	8	%		170,805	3	%		183,514	3	%		417,480	5	%		825,894	10	%		443,270	7	%
Derivatives		209,479	3	%		113,305	2	%		225,135	4	%		201,450	3	%		150,401	2	%		200,701	3	%		116,193	2	%
Other liabilities		140,972	2	%		132,675	2	%		100,410	2	%		107,902	2	%		165,866	3	%		165,301	2	%		108,743	2	%
Total stockholders' equity		737,072	10	%		743,138	10	%		677,010	11	%		649,814	11	%		801,494	10	%		772,724	10	%		667,924	11	%
Total liabilities and stockholders' equity	$	7,730,049	100	%	$	7,392,941	100	%	$	6,096,132	100	%	$	6,014,508	100	%	$	8,036,904	100	%	$	7,948,837	100	%	$	6,175,819	100	%

During the ~~third~~first quarter of ~~2022,~~2023, the Company's total assets increased ~~$337.1~~$88.1 million, or 5%1%, from ~~June 30,~~December 31, 2022, to a total of ~~$7.7~~$8.0 billion. The Company’s net loans/leases increased ~~$212.6~~$52.3 million in the ~~third~~first quarter of ~~2022.~~2023. Total deposits increased ~~$120.4~~$517.4 million in the ~~third~~first quarter of ~~2022.~~2023. Borrowings ~~increased $118.3~~decreased $408.4 million in the ~~third~~first quarter of ~~2022.~~ 2023. The increases in total assets, net loans/leases and total deposits were primarily due to the GFED acquisition and increased on-balance sheet liquidity. The growth in deposits allowed for the paydown of borrowings.

INVESTMENT SECURITIES

The composition of the Company’s securities portfolio is managed to meet liquidity needs while prioritizing the impact on interest rate risk, maximizing return and minimizing credit risk. Over the years, the Company has further diversified the portfolio by decreasing U.S government sponsored agency securities and increasing residential mortgage-backed and related securities and tax-exempt municipal securities. Of the latter, the majority are privately placed tax-exempt debt issuances by municipalities located in the Midwest (with some in or near the Company's existing markets) and require a thorough underwriting process before investment and are generated by our specialty finance group.

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Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Following is a breakdown of the Company's securities portfolio by type, the percentage of unrealized gains (losses) to carrying value, net of allowance for credit losses, on the total portfolio, and the portfolio duration:


	As of																				As of
	September 30, 2022					June 30, 2022					December 31, 2021					September 30, 2021					March 31, 2023					December 31, 2022					March 31, 2022
	Amount			%		Amount			%		Amount			%		Amount			%		Amount			%		Amount			%		Amount			%

	(dollars in thousands)																				(dollars in thousands)

U.S. treasuries and govt. sponsored agency securities	$	20,527		2	%	$	20,448		2	%	$	23,328		3	%	$	23,689		3	%	$	19,320		2	%	$	16,981		2	%	$	21,380		3	%
Municipal securities		724,006		83	%		710,440		82	%		639,601		79	%		649,312		78	%		731,509		84	%		779,270		84	%		667,048		81	%
Residential mortgage-backed and related securities		68,844		8	%		81,247		9	%		94,323		12	%		100,744		12	%		63,104		7	%		66,215		7	%		86,380		10	%
Asset-backed securities		19,630		2	%		19,956		2	%		27,124		3	%		30,607		4	%		17,967		2	%		18,728		2	%		23,232		3	%
Other securities		46,443		5	%		47,827		5	%		25,839		3	%		24,367		3	%		45,546		5	%		46,908		5	%		25,271		3	%
	$	879,450		100	%	$	879,918		100	%	$	810,215		100	%	$	828,719		100	%	$	877,446		100	%	$	928,102		100	%	$	823,311		100	%

Securities as a % of total assets		11.38	%				11.90	%				13.29	%				13.78	%				10.92	%				11.68	%				13.33	%
Net unrealized gains (losses) as a % of Amortized Cost		(10.27)	%				(6.12)	%				7.17	%				6.67	%
Net unrealized losses as a % of Amortized Cost																						(9.07)	%				(11.26)	%				(1.63)	%
Duration (in years)		9.0					7.8					8.2					8.2					5.6					7.7					7.9
Quarterly yield on investment securities (tax equivalent)		4.05	%				3.91	%				3.66	%				3.82	%				4.27	%				3.99	%				3.83	%

Due to the sharp increase in intermediate and long-term interest rates during ~~the nine months ended September 30,~~ 2022, the valuation of the Company’s AFS portfolio declined ~~significantly. As a result, the Company’s net~~significantly when comparing March 31, 2023 to March 31, 2022. Net unrealized ~~gain~~losses improved March 31, 2023 as

~~Table of Contents~~

~~Part I~~

~~Item 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~

~~a percentage of amortized cost changed from 7.17% as of~~ compared to December 31, ~~2021 to a net unrealized loss~~2022 as ~~a percentage of amortized cost of -10.27% as of September 30, 2022.~~intermediate and long-term interest rates declined.

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

See Note 32 to the Consolidated Financial Statements for additional information regarding the Company's investment securities.

LOANS/LEASES

Total loans/leases ~~excluding acquired and PPP loans (non-GAAP),~~ grew ~~14.5%~~3.3% on an annualized basis during the first ~~nine~~three months of ~~2022.~~2023. The mix of the loan/lease types within the Company's loan/lease portfolio is presented in the following tables.


	As of																As of
	September 30, 2022				June 30, 2022				December 31, 2021				September 30, 2021				March 31, 2023				December 31, 2022				March 31, 2022
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%

	(dollars in thousands)																(dollars in thousands)

C&I - revolving	$	332,996	5	%	$	322,258	5	%	$	248,483	5	%	$	175,155	4	%	$	307,612	5	%	$	296,869	5	%	$	263,441	5	%
C&I - other *		1,415,996	24	%		1,403,689	24			1,346,602	29			1,465,580	32			1,420,331	23	%		1,451,693	23			1,374,221	28
CRE - owner occupied		627,558	10	%		628,565	11			421,701	9			434,014	9			616,922	10	%		629,367	10			439,257	9
CRE - non-owner occupied		920,876	15	%		889,530	15			646,500	14			644,850	14			982,716	16	%		963,239	16			679,898	14
Construction and land development		1,149,503	19	%		1,080,372	19			918,571	20			852,418	19			1,208,185	19	%		1,192,061	19			863,116	18
Multi-family		933,118	16	%		860,742	15			600,412	12			529,727	11			969,870	15	%		963,803	16			711,682	15
Direct financing leases		33,503	1	%		40,050	1			45,191	1			50,237	1			35,373	1	%		31,889	1			43,330	1
1-4 family real estate		487,508	8	%		473,141	8			377,361	8			376,067	8			532,491	9	%		499,529	8			379,613	8
Consumer		107,552	2	%		99,556	2			75,311	2			71,682	2			116,522	2	%		110,421	2			73,310	2
Total loans/leases	$	6,008,610	100	%	$	5,797,903	100	%	$	4,680,132	100	%	$	4,599,730	100	%	$	6,190,022	100	%	$	6,138,871	100	%	$	4,827,868	100	%
Less allowance		(90,489)				(92,425)				(78,721)				(80,670)				(86,573)				(87,706)				(74,786)
Net loans/leases	$	5,918,121			$	5,705,478			$	4,601,411			$	4,519,060			$	6,103,449			$	6,051,165			$	4,753,082

As CRE loans have historically been the Company's largest portfolio segment, management places a strong emphasis on monitoring the composition of the Company's CRE loan portfolio. For example, management tracks the level of owner-occupied CRE loans relative to non-owner-occupied loans because owner-occupied loans are generally considered to have less risk. As of ~~September 30, 2022~~March 31, 2023 and ~~June 30,~~December 31, 2022, approximately ~~17%~~15% and ~~18%~~16% of the CRE loan portfolio (as defined below) was owner-occupied, respectively.

Following is a listing of significant industries within the Company's CRE loan portfolio. These include loans in the following portfolio segments as of September 30, 2022: CRE owner occupied, CRE non-owner occupied, certain construction and land development, multifamily and certain 1-4 family real estate.

As of September 30,

As of June 30,

As of December 31,

As of September 30,

2022

2022

2021

2021


Amount

%


Amount

%


Amount

%


Amount

%

(dollars in thousands)

Lessors of Residential Buildings

$
1,745,720

48
%

$
1,618,186

47
%

$
1,316,851

49
%

$
1,194,234

46
%

Lessors of Nonresidential Buildings

618,190

17
%

601,708

17
%

557,859

21
%

569,477

22
%

Hotels

121,310

3
%

124,503

4
%

73,639

3
%

75,212

3
%

Lessors of Other Real Estate Property

66,157

2
%

64,211

2
%

60,605

2
%

50,576

2
%

New Housing For-Sale Builders

64,895

2
%

60,826

2
%

61,028

2
%

56,936

2
%

Other *

994,844

28
%

972,870

28
%

611,291

23
%

611,863

25
%

Total CRE Loans

$
3,611,116

100
%

$
3,442,304

100
%

$
2,681,273

100
%

$
2,558,298

100
%

* “Other” consists of all other industries. None of these had concentrations greater than $55.0 million, or approximately 1.5% of total CRE loans in the most recent period presented.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Following is a listing of significant industries within the Company's CRE loan portfolio. These include loans in the following portfolio segments as of March 31, 2023: CRE owner occupied, CRE non-owner occupied, certain construction and land development, multifamily and certain 1-4 family real estate. Within the CRE Loan portfolio, there is minimal office exposure, totaling $187.5 million or 3.0% of total loans at March 31, 2023.


	As of March 31,				As of December 31,				As of March 31,
	2023				2022				2022
	Amount		%		Amount		%		Amount		%

	(dollars in thousands)

Lessors of Residential Buildings	$	1,902,965	48	%	$	1,861,197	48	%	$	1,383,986	50	%
Lessors of Nonresidential Buildings		581,615	14	%		537,940	13	%		578,399	20	%
Hotels		132,705	3	%		145,662	4	%		71,448	3	%
New Multifamily Housing Construction		86,228	2	%		82,905	2	%		27,635	1	%
New Housing For-Sale Builders		72,007	2	%		71,991	2	%		71,825	3	%
New Single-Family Housing Construction		63,370	2	%		62,303	2	%		38,475	1	%
Other *		1,145,062	29	%		1,154,376	29	%		617,778	22	%
Total CRE Loans	$	3,983,952	100	%	$	3,916,374	100	%	$	2,789,546	100	%

* “Other” consists of all other industries. None of these had concentrations greater than $59.0 million, or approximately 1.5% of total CRE loans in the most recent period presented.

The Company’s construction and land development loan portfolio includes the following:


	As of																As of
	September 30, 2022				June 30, 2022				December 31, 2021				September 30, 2021				March 31, 2023				December 31, 2022				March 31, 2022
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%

	(dollars in thousands)																(dollars in thousands)

LIHTC	$	705,487	61	%	$	641,460	59	%	$	587,151	64	%	$	530,391	62	%	$	759,924	63	%	$	705,487	61	%	$	556,717	65	%
Construction (commercial)		264,280	24			256,622	24			274,385	30			266,385	31			372,819	31			353,007	31			245,926	28
Construction (residential)		108,906	9			107,798	10			15,244	2			14,354	2			14,441	1			20,179	2			17,328	2
Land development		70,830	6			74,492	7			41,791	5			41,288	5			61,001	5			70,830	6			43,145	5
Total construction and land development	$	1,149,503	100	%	$	1,080,372	100	%	$	918,571	100	%	$	852,418	100	%	$	1,208,185	100	%	$	1,149,503	100	%	$	863,116	100	%

The Company's 1-4 family real estate loan portfolio includes the following:

●

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

●

A limited amount of 15-year, 20-year and 30-year fixed rate residential real estate loans that meet certain credit guidelines.

The remaining 1-4 family real estate loans originated by the Company were sold on the secondary market to avoid the interest rate risk associated with longer term fixed rate loans. Loans originated for this purpose were classified as held for sale and are included in the residential real estate loans above. The Company has not originated any subprime, Alt-A, no documentation, or stated income residential real estate loans throughout its history.

Table of Contents

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Following is a listing of significant equipment types within the m2 loan and lease portfolio:


	As of September 30,				As of June 30,				As of December 31,				As of September 30,				As of March 31,				As of December 31,				As of March 31,
	2022				2022				2021				2021				2023				2022				2022
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%

	(dollars in thousands)																(dollars in thousands)

Trucks, Vans and Vocational Vehicles	$	69,328	23	%	$	69,383	24	%	$	69,392	26	%	$	68,387	26	%	$	73,221	23	%	$	70,821	23	%	$	70,241	25	%
Freightliners		22,256	7	%		17,471	6	%		10,386	4	%		6,000	2	%		27,401	9	%		26,433	9	%		14,224	5	%
Trailers		22,074	7	%		19,723	7	%		12,832	5	%		11,308	4	%		24,061	7	%		23,186	7	%		15,702	6	%
Tractor		17,297	6	%		15,255	5	%		10,508	4	%		9,188	3	%		18,620	6	%		17,740	6	%		12,858	4	%
Manufacturing - General		17,079	6	%		17,524	6	%		17,320	6	%		18,274	7	%		17,105	5	%		17,493	6	%		17,350	6	%
Construction - General		15,845	5	%		14,279	5	%		13,560	5	%		12,482	5	%		17,040	5	%		16,256	5	%		13,851	5	%
Marine - Travelifts																		14,484	5	%		14,653	5	%		15,513	5	%
Food Processing Equipment		14,566	5	%		13,946	5	%		14,907	6	%		14,717	6	%		13,853	4	%		14,304	5	%		14,846	5	%
Marine - Travelifts		13,930	5	%		14,825	5	%		14,498	5	%		14,629	6	%
Computer Hardware		8,945	3	%		9,682	3	%		11,223	4	%		11,781	4	%		12,823	4	%		9,617	3	%		10,792	4	%
Computer Equipment		7,874	3	%		8,179	3	%		2,062	1	%		2,330	1	%		10,032	3	%		7,736	2	%		5,770	2	%
Other *		91,560	30	%		93,168	31	%		93,586	34	%		93,866	36	%		92,854	29	%		91,693	29	%		94,723	33	%
Total m2 loans and leases	$	300,754	100	%	$	293,435	100	%	$	270,274	100	%	$	262,962	100	%	$	321,494	100	%	$	309,932	100	%	$	285,870	100	%

* “Other” consists of all other equipment types. None of these had concentrations greater than 3% of total m2 loan and lease portfolio in the most recent period presented.

See Note 43 to the Consolidated Financial Statements for additional information regarding the Company's loan and lease portfolio.

ALLOWANCE FOR CREDIT LOSSES ON LOANS/LEASES AND OFF-BALANCE SHEET EXPOSURES

The adequacy of the ACL was determined by management based on factors that included the overall composition of the loan/lease portfolio, types of loans/leases, historical loss experience, loan/lease delinquencies, potential substandard and doubtful credits, economic conditions, collateral positions, government guarantees and other factors that, in management's judgment, deserved evaluation. To ensure that an adequate ACL was maintained, provisions were made based on a number of factors, including the increase in loans/leases and a detailed analysis of the loan/lease portfolio. The loan/lease portfolio is reviewed and analyzed quarterly with specific detailed reviews completed on all credits risk-rated less than “fair quality”, as described in Note 1 to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, and carrying aggregate exposure in excess of $250 thousand. The adequacy of the allowance is monitored by the credit administration staff and reported to management and the board of directors.

Changes in the ACL for loans/leases for the three months ended March 31, 2023 and 2022 are presented as follows:


	Three Months Ended
	March 31, 2023		March 31, 2022

	(dollars in thousands)

Balance, beginning	$	87,706	$	78,721
Reduction in ACL for writedown of LHFS to fair value		(1,709)		—
Provision		2,458		(3,849)
Charge-offs		(2,275)		(456)
Recoveries		393		370
Balance, ending	$	86,573	$	74,786

Changes in the ACL for OBS exposures for the three months ended March 31, 2023 and 2022 are presented as follows:


	Three Months Ended
	March 31, 2023		March 31, 2022

	(dollars in thousands)

Balance, beginning	$	5,552	$	6,886
Provisions (credited) to expense		481		933
Balance, ending	$	6,033	$	7,819

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~~adequacy of the allowance is monitored by the credit administration staff and reported to management and the board of directors.~~

~~Changes in the ACL for loans/leases for the three and nine months ended September 30, 2022 and 2021 are presented as follows:~~

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021


(dollars in thousands)

(dollars in thousands)

Balance, beginning
$
92,425

$
78,894

$
78,721

$
84,376

Impact of adopting ASU 2016-13

—

—

—

(8,102)

Initial ACL recorded for acquired PCD loans

—

—

5,902

—

Provision

331

1,895

8,623

7,747

Charge-offs

(2,489)

(287)

(3,565)

(4,674)

Recoveries

222

168

808

1,323

Balance, ending
$
90,489

$
80,670

$
90,489

$
80,670

~~Changes in the ACL for OBS exposures for the three and nine months ended September 30, 2022 and 2021 are presented as follows:~~

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

(dollars in thousands)

(dollars in thousands)

Balance, beginning
$
6,878

$
9,987

$
6,886

$
—

Impact of adopting ASU 2016-13

—

—

—

9,117

Provisions (credited) to expense

(331)

(1,895)

(339)

(1,025)

Balance, ending
$
6,547

$
8,092

$
6,547

$
8,092

~~The Company recorded a $12.4 million provision for credit losses on loans and OBS exposures in the second quarter of 2022, for the CECL Day 2 provision as a result of the GFED acquisition.~~

The Company's levels of criticized and classified loans are reported in the following table.


	As of												As of
Internally Assigned Risk Rating *	September 30, 2022			June 30, 2022			December 31, 2021			September 30, 2021			March 31, 2023			December 31, 2022			March 31, 2022

	(dollars in thousands)												(dollars in thousands)

Special Mention (Rating 6)	$	63,973		$	54,558		$	62,510		$	58,634		$	125,048		$	98,333		$	63,622
Substandard (Rating 7)		77,317			83,048			53,296			59,402			70,866			66,021			54,491
Doubtful (Rating 8)		—			—			—			—			—			—			—
	$	141,290		$	137,606		$	115,806		$	118,036		$	195,914		$	164,354		$	118,113

Criticized Loans **	$	141,290		$	137,606		$	115,806		$	118,036		$	195,914		$	164,354		$	118,113
Classified Loans ***	$	77,317		$	83,048		$	53,296		$	59,402		$	70,866		$	66,021		$	54,491

Criticized Loans as a % of Total Loans/Leases		2.35	%		2.37	%		2.47	%		2.57	%		3.16	%		2.68	%		2.45	%
Classified Loans as a % of Total Loans/Leases		1.29	%		1.43	%		1.14	%		1.29	%		1.14	%		1.08	%		1.13	%

* Amounts above include the government guaranteed portion, if any. For the calculation of ACL, the Company assigns internal risk ratings of Pass (Rating 2) for the government guaranteed portion.

** Criticized loans are defined as non-homogeneous loans with internally assigned risk ratings of 6, 7, or 8, regardless of performance.

*** Classified loans are defined as non-homogeneous loans with internally assigned risk ratings of 7 or 8, regardless of performance.

Criticized loans increased 3%19% and classified loans ~~decreased~~increased 7% from ~~June 30,~~December 31, 2022 to ~~September 30, 2022.~~March 31, 2023 primarily due to the downgrading of three credits. The Company continues its strong focus on improving credit quality in an effort to limit NPLs.


	As of								As of
	September 30, 2022		June 30, 2022		December 31, 2021		September 30, 2021		March 31, 2023		December 31, 2022		March 31, 2022
ACL on loans/leases / Gross loans/leases	1.51	%	1.59	%	1.68	%	1.75	%
ACL on loans/leases / Total loans/leases held for investment									1.43	%	1.43	%	1.55	%
ACL on loans/leases / NPLs	516.67	%	387.66	%	2,825.21	%	1,180.77	%	377.03	%	1,000.07	%	2,721.47	%

Although management believes that the ACL at ~~September 30, 2022~~March 31, 2023 was at a level adequate to absorb losses on existing loans/leases, there can be no assurance that such losses will not exceed the estimated amounts or that the Company will

~~Table of Contents~~

~~Part I~~

~~Item 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~

not be required to make additional provisions in the future. Unpredictable future events could adversely affect cash flows for both commercial and individual borrowers, which could cause the Company to experience increases in problem assets, delinquencies and losses on loans/leases, and require further increases in the provision for credit losses. Asset quality is a priority for the Company and its subsidiaries. The ability to grow profitably is in part dependent upon the ability to maintain that quality. The Company continually focuses efforts at its subsidiary banks and leasing company with the intention to improve the overall quality of the Company's loan/lease portfolio.

See Note 43 to the Consolidated Financial Statements for additional information regarding the Company's ACL.

Table of Contents

Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

NONPERFORMING ASSETS

The table below presents the amount of NPAs and related ratios.




	As of September 30,			As of June 30,			As of December 31,			As of September 30,			As of March 31,			As of December 31,			As of March 31,
	2022			2022			2021			2021			2023			2022			2022

	(dollars in thousands)												(dollars in thousands)

Nonaccrual loans/leases (1)	$	17,511		$	23,574		$	2,759		$	6,818		$	22,947		$	8,765		$	2,744
Accruing loans/leases past due 90 days or more		3			268			1			14			15			5			4
Total NPLs		17,514			23,842			2,760			6,832			22,962			8,770			2,748
Other repossessed assets		340			—			—			—
OREO		177			205			—			—			61			133			—
Total NPAs	$	18,031		$	24,047		$	2,760		$	6,832		$	23,023		$	8,903		$	2,748


NPLs to total loans/leases		0.29	%		0.41	%		0.06	%		0.15	%		0.37	%		0.14	%		0.06	%
NPAs to total loans/leases plus repossessed property		0.30	%		0.41	%		0.06	%		0.15	%		0.37	%		0.15	%		0.06	%
NPAs to total assets		0.23	%		0.33	%		0.05	%		0.11	%		0.29	%		0.11	%		0.04	%
Nonaccrual loans/leases to total loans/leases		0.29	%		0.41	%		0.06	%		0.15	%		0.37	%		0.14	%		0.06	%
ACL to nonaccrual loans		516.76	%		392.06	%		2,853.24	%		1,183.19	%		377.27	%		1,000.64	%		2,725.44	%

(1)

Includes government guaranteed portion of loans, as applicable.

NPAs at ~~September 30, 2022~~March 31, 2023 were ~~$18.0~~$23.0 million, ~~down $6.0 million~~up $14.1million from ~~June 30,~~December 31, 2022, and up ~~$11.2~~$20.3 million from ~~September 30, 2021.~~March 31, 2022. The ~~decrease~~increase in the ~~third~~first quarter ~~2022~~2023 was primarily the result of ~~paydowns on several NPAs~~a single credit relationship which was moved to nonaccrual status. The specific loan involves a newly constructed mixed-use property that ~~were added during the second quarter of 2022.~~is fully leased and we anticipate resolving this loan without further impairment. The increase from the prior year was primarily the result of the GFED acquisition and two specific legacy relationships from the Company’s other charters. The ratio of NPAs to total assets was ~~0.23%~~0.29% at ~~September 30, 2022, down~~March 31, 2023, up from ~~0.33%~~0.11% at ~~June 30,~~December 31, 2022, and up from ~~0.11%~~0.06% at ~~September 30, 2021.~~March 31, 2022.

The majority of the NPAs consist of nonaccrual loans/leases. For nonaccrual loans/leases, management has thoroughly reviewed these loans/leases and has provided specific allowances as appropriate.

OREO is carried at the lower of carrying amount or fair value less costs to sell.

The Company's lending/leasing practices remain unchanged and asset quality remains a priority for management.

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DEPOSITS

Deposits increased ~~$120.4~~$517.4 million during the ~~third~~first quarter of ~~2022.~~2023. During the first quarter of 2023, the Company’s deposits, excluding brokered deposits, grew $19.9 million to a total of $5.9 billion, or 1.4% on an annualized basis. The Company also added short-term brokered deposits of $497.5 million during the quarter to intentionally bolster on-balance sheet liquidity and fully eliminate overnight borrowings from the FHLB.

The table below presents the composition of the Company's deposit portfolio.


	As of																As of
	September 30, 2022				June 30, 2022				December 31, 2021				September 30, 2021				March 31, 2023				December 31, 2022				March 31, 2022
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%

	(dollars in thousands)																(dollars in thousands)

Noninterest bearing demand deposits	$	1,315,555	22	%	$	1,514,005	26	%	$	1,268,788	26	%	$	1,342,273	28	%	$	1,189,858	18	%	$	1,262,981	21	%	$	1,275,493	26	%
Interest bearing demand deposits		3,904,303	66	%		3,758,566	66	%		3,232,633	65	%		3,086,711	63	%		4,033,193	63	%		3,875,497	65	%		3,181,685	66	%
Time deposits		672,133	11	%		540,074	8	%		421,348	9	%		441,743	9	%		679,946	10	%		744,593	12	%		382,268	8	%
Brokered deposits		49,044	1	%		8,012	0	%		3	0	%		1,101	0	%		598,666	9	%		101,146	2	%		243	0	%
	$	5,941,035	100	%	$	5,820,657	100	%	$	4,922,772	100	%	$	4,871,828	100	%	$	6,501,663	100	%	$	5,984,217	100	%	$	4,839,689	100	%

Total uninsured and uncollateralized deposits represented 23.8% of total consolidated deposits at March 31, 2023. The Company maintained approximately $1.7 billion of immediately available liquidity at quarter-end with excess cash and borrowing capacity at FHLB and FRB as well as a $50.0 million revolving line of credit. Immediately available liquidity more than covers the Company’s uninsured and uncollateralized deposits.

The Company ~~has been successful~~actively participates in ~~growing its noninterest-bearing~~the ICS/CDARS program which is a trusted resource that provides FDIC insurance coverage for clients that maintain larger deposit ~~portfolio over~~balances. Deposits in the past few years and growing average balances 12% in 2022. Deposit balances can fluctuate due to large customer and correspondent bank activity. During recent years, the Company had significant core deposit growth mostly from its correspondent banking clients. As a resultICS/CDARS program totaled $1.5 billion, or 22.4% of ~~strong core deposit growth, the Company reduced its reliance on higher cost CDs and brokered deposits.~~all deposits, as of March 31, 2023.

The Company’s correspondent bank deposit portfolio and funds managed consists of the following:

●

Noninterest-bearing deposits which represent correspondent banks’ operating cash used for processing transactions with the Federal Reserve,

●

Money market deposits which ~~represents~~represent excess liquidity, and

●

EBA balances of the correspondent banks at the FRB.

Generally, the Company can modify the structure and interest rates paid for those correspondent bank deposits on the balance sheet for both the noninterest-bearing deposits and the money market deposits. During the pandemic, this led to more of the correspondent bank portfolio excess liquidity to shift to their EBAs at the FRB which is managed by the Company, but is not on the Company’s balance sheet. During the third quarter, the total liquidity of the correspondent bank portfolio returned to more normalized levels leading to the Company adding some of the EBA deposits onto our balance sheet. On average, over the past two years, the correspondent banks’ EBA portfolio ranged from $1.3 billion to $2.0 billion. At the end of the third quarter, the total deposit portfolio was approximately $900 million which aligns more closely with pre-pandemic levels.

Management will continue to focus on growing its core deposit portfolio, including its correspondent banking business at QCBT, as well as shifting the mix from brokered and other higher cost deposits to lower cost core deposits. With the significant success achieved by QCBT in growing its correspondent banking business, QCBT has developed procedures to proactively monitor this industry concentration of deposits and loans. Other deposit-related industry concentrations and large accounts are monitored by the internal asset liability management committees.

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BORROWINGS

The subsidiary banks purchase federal funds for short-term funding needs from the FRB or from their correspondent banks. The table below presents the composition of the Company's short-term borrowings.


	As of								As of
	September 30, 2022		June 30 2022		December 31, 2021		September 30, 2021		March 31, 2023		December 31, 2022		March 31, 2022

	(dollars in thousands)								(dollars in thousands)

Federal funds purchased	$	85,180	$	1,070	$	3,800	$	1,600	$	1,100	$	129,630	$	1,190

The Company's federal funds purchased fluctuate based on the short-term funding needs of the Company's subsidiary banks.

As a result of their memberships in the FHLB of Des Moines, the subsidiary banks have the ability to borrow funds for short or long-term purposes under a variety of programs. The subsidiary banks can utilize FHLB advances for loan matching as a hedge against the possibility of changing interest rates and when these advances provide a less costly or more readily available source of funds than customer deposits.

The table below presents the Company's ~~overnight~~ FHLB advances. ~~The Company did not have any term FHLB advances for the dates in the table below.~~


	As of								As of
	September 30, 2022		June 30, 2022		December 31, 2021		September 30, 2021		March 31, 2023		December 31, 2022		March 31, 2022
	(dollars in thousands)								(dollars in thousands)

Term FHLB advances									$	135,000	$	—	$	—
Overnight FHLB advances	$	335,000	$	400,000	$	15,000	$	30,000	$	—	$	415,000	$	290,000

FHLB overnight advances ~~(all overnight)~~ decreased ~~$65.0~~$415.0 million in the current quarter compared to the prior ~~quarter due to an increase in core deposits and borrowings from other upstream correspondents.~~

quarter. The Company ~~renewed its revolving credit note in the second quarter~~added short-term brokered deposits of ~~2022. At renewal, the line amount was increased from $25.0~~$497.5 million to $50.0 million. Interest on the revolving line of credit was calculated at the greater of: (a) the effective Prime Rate less 0.50% and (b) 3.00% per annum. The collateral on the revolving line of credit is 100% of the outstanding stock of the Company’s bank subsidiaries. There was no outstanding balance on the revolving line of credit at September 30, 2022.

The Company had subordinated notes totaling $232.7 million as of September 30, 2022 and $133.6 million as of June 30, 2022. The Company completed private placements of $100.0 million in aggregate principal amount of fixed-to-floating subordinated notes in the third quarter of 2022. The Company acquired $19.6 million of subordinated notes during the ~~second~~current quarter ~~of 2022 with~~to intentionally bolster on-balance sheet liquidity and fully eliminate overnight borrowing from the ~~GFED acquisition. See Note 6 of the Consolidated Financial Statements for additional information regarding the Company’s subordinated notes.~~

~~The Company acquired $10.3 million of junior subordinated debentures during the second quarter of 2022 with the GFED acquisition.~~FHLB.

It is management's intention to reduce its reliance on wholesale funding, including FHLB advances and brokered deposits. Replacement of this funding with core deposits helps to reduce interest expense as wholesale funding tends to be higher cost. However, the Company may choose to utilize advances and/or brokered deposits to supplement funding needs, as this is a way for the Company to effectively and efficiently manage interest rate risk.

The table below presents the maturity schedule including weighted average interest cost for the Company's combined wholesale funding portfolio (defined as FHLB advances and brokered deposits).

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~~The table below presents the maturity schedule including weighted average interest cost for the Company's combined wholesale funding portfolio (defined as FHLB advances and brokered deposits).~~


	September 30, 2022				December 31, 2021				March 31, 2023				December 31, 2022
			Weighted				Weighted				Weighted				Weighted
			Average				Average				Average				Average
Maturity:	Amount Due		Interest Rate		Amount Due		Interest Rate		Amount Due		Interest Rate		Amount Due		Interest Rate

	(dollars in thousands)								(dollars in thousands)
Year ending December 31:
2022	$	384,044	3.28	%	$	15,003	0.31	%
2023		—	—			—	—		$	573,685	4.93	%	$	516,146	4.69	%
2024		—	—			—	—			24,981	4.65			—	—
2025		—	—			—	—			—	—			—	—
2026										45,000	5.01			—	—
2027										45,000	4.82			—	—
Thereafter										45,000	4.64			—	—
Total Wholesale Funding	$	384,044	3.28	%	$	15,003	0.31	%	$	733,666	4.90	%	$	516,146	4.69	%

During the first ~~nine~~three months of ~~2022,~~2023, wholesale funding, primarily ~~overnight FHLB advances,~~brokered deposits, increased ~~$369.0~~$217.5 million due to ~~strong loan growth.~~intentionally bolstering on-balance sheet liquidity and fully eliminating overnight borrowings from the FHLB.

STOCKHOLDERS' EQUITY

The table below presents the composition of the Company's stockholders' equity.


	As of												As of
	September 30, 2022			June 30, 2022			December 31, 2021			September 30, 2021			March 31, 2023			December 31, 2022			March 31, 2022

	(dollars in thousands)												(dollars in thousands)

Common stock	$	16,885		$	17,064		$	15,613		$	15,590		$	16,714		$	16,796		$	15,580
Additional paid in capital		372,086			375,358			273,768			272,964			368,302			370,712			272,370
Retained earnings		422,958			400,790			386,077			360,003			472,051			450,114			405,762
AOCI		(74,857)			(50,074)			1,552			1,257			(55,573)			(64,898)			(25,788)
Total stockholders' equity	$	737,072		$	743,138		$	677,010		$	649,814		$	801,494		$	772,724		$	667,924

TCE / TA ratio (non-GAAP)		7.68	%		8.11	%		9.87	%		9.54	%		8.21	%		7.93	%		9.60	%

* TCE/TA ratio is defined as total common stockholders' equity excluding goodwill and other intangibles divided by total assets. This ratio is a non-GAAP financial measure. See GAAP to Non-GAAP Reconciliations.

~~Due~~AOCI improved $9.3 million during the first quarter of 2023 due to ~~the sharp~~an increase in ~~intermediate and long-term interest rates, the valuation~~value of the Company’s AFS securities portfolio and certain ~~hedged financial instruments declined significantly. The valuation~~derivatives resulting from the change ~~net of taxes, that flows through the Company’s AOCI was a net decline of $76.4 million for~~in interest rates during the first ~~nine months of 2022.~~

On February 13, 2020, the board of directors of the Company approved a share repurchase program under which the Company is authorized to repurchase, from time to time as the Company deems appropriate, up to 800,000 shares of its outstanding common stock, or approximately 5% of the outstanding shares as of December 31, 2019. As of September 30, 2022, the Company had purchased 794,085 shares under the program and all shares purchased have been retired.quarter.

On May 19, 2022, the board of directors of the Company approved a share repurchase program under which the Company is authorized to repurchase, from time to time as the Company deems appropriate, up to 1,500,000 shares of its outstanding common stock, or approximately 10% of the outstanding shares as of December 31, 2021. As of ~~September 30, 2022,~~March 31, 2023, the Company had purchased ~~470,000~~722,500 shares under the program and all shares purchased have been retired.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity measures the ability of the Company to meet maturing obligations and its existing commitments, to withstand fluctuations in deposit levels, to fund its operations, and to provide for ~~customers'~~customer credit needs. The Company monitors liquidity risk through contingency planning stress testing on a regular basis. The Company seeks to avoid an over-concentration of funding sources and to establish and maintain contingent funding facilities that can be drawn upon if normal funding sources become unavailable. One source of liquidity is cash and short-term assets, such as interest-bearing deposits in other banks and federal funds sold, which ~~averaged $71.0.~~totaled $318.3 million ~~during~~at March 31, 2023. The Company’s liquidity sources as of March 31, 2023 are summarized as follows:


	As of
	March 31, 2023
	(dollars in billions)

Excess cash	$	0.3
Borrowing capacity at FHLB		1.0
Borrowing capacity at FRB		0.3
Secured line of credit with upstream counterparty		0.1
Immediately available liquidity	$	1.7
Fed funds lines of credit		0.5
Brokered deposit capacity limited by Company policy		1.0
Total available liquidity excluding unpledged AFS/HTM securities	$	3.2

Including unpledged AFS and HTM securities of approximately $800 million, the ~~third quarter~~Company’s total liquidity is strong at nearly 50% of ~~2022 and $72.7. million during the first nine months of 2022. The Company's on balance sheet liquidity position can fluctuate based on short-term activity in deposits and loans.~~total assets.

The subsidiary banks have a variety of sources of short-term liquidity available to them, including federal funds purchased from correspondent banks, FHLB advances, wholesale structured repurchase agreements, brokered deposits, lines of credit, borrowing at the Federal Reserve Discount Window, sales of securities AFS, and loan/lease participations or sales. The Company also generates liquidity from the regular principal payments and prepayments made on its loan/lease portfolio, and on the regular monthly payments on its securities portfolio.

~~At September 30, 2022,~~During the ~~subsidiary banks had 28 lines~~first quarter of ~~credit totaling $498.6~~2023, the Company’s deposits, excluding brokered deposits, grew $19.9 million to a total of $5.9 billion, or 1.4% on an annualized basis. The Company also added short-term brokered deposits of $497.5 million during the quarter to intentionally bolster on-balance sheet liquidity and fully eliminate overnight borrowings from the FHLB. Total uninsured and uncollateralized deposits represented 23.8% of total consolidated deposits. The Company maintained approximately $1.7 billion of immediately available liquidity at quarter-end which ~~$27.8 million was secured~~more than covers the Company’s uninsured and ~~$470.8 million was uninsured. At September 30, 2022, the Company had $413.6 million of the $498.6 million available.~~

At December 31, 2021, the subsidiary banks had 31 lines of credit totaling $517.7 million, of which $61.7 million was secured and $456.0 million was unsecured. At December 31, 2021, the full $517.7 million was available.uncollateralized deposits.

The Company has emphasized growing the number and amount of lines of credit in an effort to strengthen this contingent source of liquidity. ~~Additionally,~~

At March 31, 2023, the subsidiary banks had 27 unsecured lines of credit totaling $470.8 million with upstream correspondent banks. The subsidiary banks also had availability of $210.2 million with the FRB which was secured. At March 31, 2023, the Company ~~maintains a $50.0~~had the full $681.0 million ~~secured revolving credit note with a variable interest rate and a maturity of June 30, 2023.~~ available.

At ~~September 30,~~December 31, 2022, the ~~full $50.0~~subsidiary banks had 27 unsecured lines of credit totaling $470.8 million with upstream correspondent banks. The subsidiary banks also had availability of $31.0 million with the FRB which was secured. At December 31, 2022, $372.8 million of the $501.8 million was available.

As of ~~September 30, 2022,~~March 31, 2023, the Company had ~~$616.7~~$612.0 million in ~~average~~actual correspondent banking deposits spread over ~~187~~182 relationships. While the Company believes that these funds are relatively stable, there is the potential for large fluctuations that can impact liquidity. Seasonality and the liquidity needs of these correspondent banks can impact balances. ~~Management closely monitors these fluctuations and runs stress scenarios to measure the impact on liquidity and interest rate risk with various levels of correspondent deposit run-off.~~

Investing activities used cash of $404.4. million during the first nine months of 2022, compared to $330.5 million for the same period of 2021. The net decrease in interest-bearing deposits at financial institutions was $49.6 million for the first nine months of 2022, compared to a net decrease of $22.8 million for the same period of 2021. Proceeds from calls, maturities, and paydowns of securities were $57.9 million for the first nine months of 2022, compared to $131.1 million for the same period of 2021. Purchases of securities used cash of $173.3 million for the first nine months of 2022, compared to $151.7 million for the same period of 2021. Proceeds from sales of securities were $111.4 million for the first nine months of 2022, compared to $23.8 million for the first nine months of 2021. The net increase in loans/leases used cash of $524.9 million for the first nine months of 2022 compared to $353.6 million for the same period of 2021.

Financing activities provided cash of $376.6 million for the first nine months of 2022, compared to $262.2 million for same period of 2021. Net decreases in deposits totaled $58.3 million for the first nine months of 2022, compared to net increases in deposits of $272.7 million for the same period of 2021. During the first nine months of 2022, the Company's short-term borrowings increased $81.4 million, compared to a decrease in short-term borrowings of $3.8 million for the same period of 2021. There were no long-term FHLB advances during the first nine months of 2022 and 2021. There were no maturities and principal payments on FHLB term advances in the first nine months of 2022 and 2021. Net increase in overnight advances totaled $320.0 million for the first nine months of 2022. Prepayment of FHLB advances totaled $16.0 million in the first nine months of 2022. In the first nine months of 2021, the Company increased overnight FHLB advances by $15.0 million. Proceeds from subordinated notes totaled $100.0 million in the first nine months of 2022. Prepayment

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Management closely monitors these fluctuations and runs stress scenarios to measure the impact on liquidity and interest rate risk with various levels of ~~subordinated notes totaled $5.0~~correspondent deposit run-off.

Investing activities used cash of $117.4 million during the first ~~nine~~three months of ~~2021.~~2023, compared to $177.1 million for the same period of 2022. The net decrease in federal funds sold was $40.5 for the first three months of 2023, compared to a net decrease of $2.7 million for the same period of 2022. The net increase in interest-bearing deposits at financial institutions was $170.3 million for the first three months of 2023, compared to a net decrease of $18.5 million for the same period of 2022. Proceeds from calls, maturities, and paydowns of securities were $51.6 million for the first three months of 2023, compared to $17.3 million for the same period of 2022. Purchases of securities used cash of $23.0 million for the first three months of 2023, compared to $52.4 million for the same period of 2022. Proceeds from sales of securities were $28.6 million for the first three months of 2023. There were no proceeds from the sales of securities in the first three months of 2022. The net decrease in loans/leases used cash of $54.0 million for the first three months of 2023 compared to $148.5 million for the same period of 2022.

Financing activities provided cash of $100.2 million for the first three months of 2023, compared to $183.2 million for same period of 2022. Net increases in deposits totaled $517.4 million for the first three months of 2023, compared to net increases in deposits of $83.1 million for the same period of 2022. During the first three months of 2023, the Company's short-term borrowings decreased $128.5 million, compared to a decrease in short-term borrowings of $2.6 million for the same period of 2022. There were long-term FHLB advances of $135.0 million during the first three months of 2023 compared to no long-term FHLB advances during the same period of 2022. There were no maturities and principal payments on FHLB term advances in the first three months of 2023 and 2022. Net decrease in overnight advances totaled $415.0 million for the first three months of 2023 as compared to net increase of $275.0 million for the first three months of 2022. Repurchase and cancellation of shares totaled ~~$47.9~~$7.7 million in the first ~~nine~~three months of ~~2022,~~2023, as compared to ~~$14.2~~$4.4 million in the first ~~nine~~three months of ~~2021.~~2022.

Total cash provided by operating activities was ~~$76.6~~$21.8 million for the first ~~nine~~three months of ~~2022,~~2023, compared to ~~$64.3~~$6.9 million for the same period of ~~2021.~~2022.

Throughout its history, the Company has secured additional capital through various sources, including the issuance of common and preferred stock, as well as trust preferred securities and, most recently, subordinated notes.

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SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

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

The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, the following:

●

The strength of the local, state, and national and international economies (including effects of inflationary pressures and supply chain constraints).

●

The economic impact of any future terrorist threats and attacks, widespread disease or pandemics (including the COVID-19 pandemic in the United States), acts of war or threats thereof (including the Russian invasion of Ukraine) and other adverse external events that could cause economic deterioration or instability in credit markets, and the response of the local, state and national governments to any such adverse external events.

●

Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the FASB, the SEC or the PCAOB.

●

Changes in state and federal laws, regulations and governmental policies concerning the Company’s general ~~business.~~business and any other changes in response to the recent failures of other banks.

●

Changes in the interest rates and prepayment rates of the Company’s assets (including the impact of LIBOR phase-out).

●

Increased competition in the financial services sector, including from non-bank competitors such as credit unions and “fintech” companies, and the inability to attract new customers.

●

Changes in technology and the ability to develop and maintain secure and reliable electronic systems.

●

Unexpected results of acquisitions which may include failure to realize the anticipated benefits of acquisitions and the possibility that transaction costs may be greater than anticipated.

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~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued~~

●

The loss of key executives or employees.

●

Changes in consumer spending.

●

Unexpected outcomes of existing or new litigation involving the Company.

●

The economic impact of exceptional weather occurrences such as tornadoes, floods and blizzards.

●

Fluctuations in the value of securities held in our securities portfolio.

●

Concentrations within our securities portfolio, large loans to certain borrowers, and large deposits from certain clients.

●

The concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure.

●

The level of non-performing assets on our balance sheet.

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●

Interruptions involving our information technology and communications systems or third-party servicers.

●

Breaches or failures of our information security controls or cybersecurity-related incidents.

●

The ability of the Company to manage the risks associated with the foregoing as well as anticipated.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. For a discussion of the factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries, see the “Risk Factors” section included under Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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Part I

Item 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

In an attempt to manage the Company's exposure to changes in interest rates, management monitors the Company's interest rate risk. Each subsidiary bank has an asset/liability management committee of the board of directors that meets quarterly to review the bank's interest rate risk position and profitability, and to make or recommend adjustments for consideration by the full board of each bank.

Internal asset/liability management teams consisting of members of the subsidiary banks' management meet ~~weekly~~bi-weekly to manage the mix of assets and liabilities to maximize earnings and liquidity and minimize interest rate and other risks. Management also reviews the subsidiary banks' securities portfolios, formulates investment strategies, and oversees the timing and implementation of transactions to assure attainment of the board's objectives in an effective manner. Notwithstanding the Company's interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income.

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

One method used to quantify interest rate risk is a short-term earnings at risk summary, which is a detailed and dynamic simulation model used to quantify the estimated exposure of net interest income to sustained interest rate changes. This simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest sensitive assets and liabilities reflected on the Company's consolidated balance sheet. This sensitivity analysis demonstrates net interest income exposure annually over a five-year horizon, assuming no balance sheet growth, no balance sheet mix change, and various interest rate scenarios including no change in rates; 100, 200, 300, and 400 basis point upward ~~shifts;~~ and ~~a 100 and 200 basis point~~ downward ~~shifts in interest rates,~~shifts; where interest-bearing assets and liabilities reprice at their earliest possible repricing date.

The model assumes parallel and pro rata shifts in interest rates over a twelve-month period for the 100, 200 and 300 basis point upward ~~shift~~ and ~~100 and 200 basis point~~ downward shifts. For the 400 basis point upward shift, the model assumes a parallel and pro rata shift in interest rates over a twenty-four month period.

Further, in recent years, the Company added additional interest rate scenarios where interest rates experience a parallel and instantaneous shift (“shock”) upward and downward of 100, 200, 300, and 400 ~~basis points and a parallel and instantaneous shock downward of 100 and 200~~ basis points. The Company will run additional interest rate scenarios on an as-needed basis.

The asset/liability management committees of the subsidiary bank boards of directors have established policy limits of a 10% decline in net interest income for the 200 basis point upward ~~parallel shift~~ and ~~the 100 basis point~~ downward parallel shift. For the 300 basis point upward and downward shock, the established policy limit is a ~~25%~~30% decline in net interest income. The increased policy limit is appropriate as the shock scenario is extreme and unlikely and warrants a higher limit than the more realistic and traditional parallel/pro-rata shift scenarios.

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Part I

Item 3

Application of the simulation model analysis for select interest rate scenarios at the most recent quarter-end available is presented in the following table:


	NET INTEREST INCOME EXPOSURE in YEAR 1								NET INTEREST INCOME EXPOSURE in YEAR 1
			As of September 30,		As of December 31,		As of December 31,				As of March 31,		As of December 31,		As of December 31,
INTEREST RATE SCENARIO	POLICY LIMIT		2022		2021		2020		POLICY LIMIT		2023		2022		2021

100 basis point downward shift	(10.0)	%	(0.5)	%	(0.1)	%	—	%
300 basis point downward shock									(30.0)	%	(5.1)	%	(6.1)	%	n/a
200 basis point downward shift									(10.0)	%	0.3	%	(0.2)	%	n/a
200 basis point upward shift	(10.0)	%	(0.5)	%	3.1	%	2.5	%	(10.0)	%	(1.3)	%	(1.3)	%	(3.1)	%
300 basis point upward shock	(30.0)	%	(0.1)	%	11.6	%	10.3	%	(30.0)	%	(2.4)	%	(2.3)	%	11.6	%

~~Despite~~With the shift in ~~model results~~funding from non-interest bearing and lower beta deposits to ~~a more neutral position,~~higher beta deposits, the ~~Company remains moderately asset~~Company’s balance sheet is now modestly liability sensitive. ~~Management~~Notably, management is conservative with the repricing assumptions on loans and deposits. For example, management does not model any delay in deposit betas despite historical experience and practice of delays in deposit betas. Finally, management models a variety of scenarios including some that stress key assumptions to help capture and isolate the impact of the management’s more conservative approach to the assumptions in the base model.

The simulation is within the board-established policy limits for all three scenarios. Additionally, for all of the various interest rate scenarios modeled and measured by management (as described above), the results at ~~September 30, 2022~~March 31, 2023 were within established risk tolerances as established by policy or by best practice (if the interest rate scenario didn't have a specific policy limit).

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

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Part I

Item 4

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act of 1934) as of ~~September 30, 2022.~~March 31, 2023. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective, as of the end of the period covered by this report, to ensure that information required to be disclosed in the reports filed and submitted under the Exchange Act was recorded, processed, summarized and reported as and when required.

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

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Part II

QCR HOLDINGS, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1 Legal Proceedings

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

Item 1A Risk Factors

There have been no material changes in the risk factors applicable to the Company from those disclosed in Part I, Item 1.A, “Risk Factors”, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Please refer to that section of the Company’s Form 10-K for disclosures regarding the risks and uncertainties related to the Company’s business.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

On May 19, 2022, the board of directors of the Company approved a share repurchase program under which the Company is authorized to repurchase, from time to time as the Company deems appropriate, up to 1,500,000 shares of its outstanding common stock, or approximately 10% of the outstanding shares as of December 31, 2021. All shares repurchased under the share repurchase program during the ~~third~~first quarter were retired.


			Total number of shares	Maximum number			Total number of shares	Maximum number
			purchased as part of	of shares that may yet			purchased as part of	of shares that may yet
	Total number of	Average price	publicly announced	be purchased under	Total number of	Average price	publicly announced	be purchased under
Period	shares purchased	paid per share	plans or programs	the plans or programs	shares purchased	paid per share	plans or programs	the plans or programs

July 1-31, 2022	190,000	55.18	190,000	1,035,915
August 1-31, 2022	—	—	—	1,035,915
September 1-30, 2022	—	—	—	1,035,915
January 1-31, 2023					—	—	1,424,085	930,000
February 1-28, 2023					60,000	53.61	1,424,085	870,000
March 1-31, 2023					92,500	48.62	1,516,585	777,500
Total					152,500	$ 50.61	1,516,585	777,500

Item 3 Defaults Upon Senior Securities

None

Item 4 Mine Safety Disclosures

Not applicable

Item 5 Other Information

None

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Part II

QCR HOLDINGS, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 6 Exhibits


~~4.1~~	Certain instruments defining the rights of holders of long-term debt of the Company, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the Company and its subsidiaries on a consolidated basis, have not been filed as exhibits. The Company hereby agrees to furnish a copy of any of these agreements to the SEC upon request.

~~10.1~~	Form of Subordinated Note Purchase Agreement, dated August 18, 2022, by and among the Company and the purchasers identified therein (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on August 18, 2022.
~~10.2~~	Form of Registration Rights Agreement, dated August 18, 2022, by and among the Company and the purchasers identified therein (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on August 18, 2022.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).

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

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

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

101	Inline XBRL Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021;~~2022; (ii) Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021;~~March 31, 2022; (iii) Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021;~~March 31, 2022; (iv) Consolidated Statements of Changes in Stockholders' Equity for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021;~~March 31, 2022; (v) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021;~~March 31, 2022; and (vi) Notes to the Consolidated Financial Statements.
104	Inline XBRL cover page interactive data file pursuant to Rule 406 of Regulation S-T for the interactive data files referenced in Exhibit 101.

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SIGNATURES

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

QCR HOLDINGS, INC.

(Registrant)



Date	~~November 8, 2022~~May 9, 2023	/s/ Larry J. Helling
		Larry J. Helling
		Chief Executive Officer


Date	~~November 8, 2022~~May 9, 2023	/s/ Todd A. Gipple
		Todd A. Gipple, President
		Chief Operating Officer
		Chief Financial Officer


Date	~~November 8, 2022~~May 9, 2023	/s/ Nick W. Anderson
		Nick W. Anderson
		Chief Accounting Officer
		(Principal Accounting Officer)

7464


	Three Months Ended September 30,
	2022		2021

	(dollars in thousands)

Net income	$	29,294	$	31,565

Other comprehensive loss:

Unrealized losses on securities available for sale:
Unrealized holding losses arising during the period before tax		(23,069)		(3,194)
		(23,069)		(3,194)

Unrealized losses on derivatives:
Unrealized holding losses arising during the period before tax		(8,955)		(342)
Less reclassification adjustment for caplet amortization before tax		(261)		(181)
		(8,694)		(161)

Other comprehensive loss, before tax		(31,763)		(3,355)
Tax benefit		(6,980)		(809)
Other comprehensive loss, net of tax		(24,783)		(2,546)

Comprehensive income	$	4,511	$	29,019


	Nine Months Ended September 30,
	2022		2021

	(dollars in thousands)

Net income	$	68,160	$	71,896

Other comprehensive income (loss):

Unrealized losses on securities available for sale:
Unrealized holding losses arising during the period before tax		(76,814)		(4,290)
Less reclassification adjustment for losses included in net income before tax		—		(88)
		(76,814)		(4,202)
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) arising during the period before tax		(23,769)		3,383
Less reclassification adjustment for caplet amortization before tax		(723)		(495)
		(23,046)		3,878

Other comprehensive loss, before tax		(99,860)		(324)
Tax benefit		(23,451)		(205)
Other comprehensive loss, net of tax		(76,409)		(119)

Comprehensive income (loss)	$	(8,249)	$	71,778


	As of
	April 1, 2022
	(dollars in thousands)
ASSETS
Cash and due from banks	$	171,844
Interest-bearing deposits at financial institutions		17,134
Securities		143,017
Loans/leases receivable, net		801,697
Bank-owned life insurance		32,100
Premises and equipment		16,257
Restricted investment securities		2,220
Other real estate owned		55
Intangibles		10,264
Other assets		23,685
Total assets acquired	$	1,218,273

LIABILITIES
Deposits	$	1,076,573
FHLB advances		16,000
Subordinated notes		19,621
Junior subordinated debentures		10,310
Other liabilities		15,225
Total liabilities assumed	$	1,137,729
Net assets acquired	$	80,544

CONSIDERATION PAID:
Cash	$	26,871
Common stock		117,214
Total consideration paid	$	144,085
Goodwill	$	63,541


	Guaranty Bank
	April 1, 2022
	(dollars in thousands)

Principal balance of PCD loans at acquisition	$	38,711
Allowance for credit losses at acquisition		(5,902)
Non-credit discount at acquisition		(1,366)
Fair value of PCD loans at acquisition	$	31,443


	September 30, 2022
	(dollars in thousands)
Balance at acquisition	$	10,264
Amortization expense		(588)
Balance at the end of the period	$	9,676


Gross carrying amount	$	10,264
Accumulated amortization		(588)
Net book value	$	9,676


Year ending, December 31,	Amount
	(dollars in thousands)
2022	$	295
2023		1,162
2024		1,138
2025		1,109
2026		1,076
Thereafter		4,896
	$	9,676



	Amount	Rate	Terms	Maturity Date	Collateral
	(dollars in thousands)
FHLB advance	6,500	0.59%	monthly interest payments; principal due at maturity	5/15/2023	commercial and residential real estate loans
FHLB advance	6,500	0.82%	monthly interest payments; principal due at maturity	5/15/2025	commercial and residential real estate loans
FHLB advance	3,000	1.12%	monthly interest payments; principal due at maturity	5/17/2027	commercial and residential real estate loans
Subordinated notes	19,621	5.25%	monthly interest payments; principal due at maturity	9/30/2030	unsecured
Junior subordinated debentures	10,310	4.09%	monthly interest payments; principal due at maturity	2/23/2036	unsecured
Fair value of borrowings assumed	$ 45,931


	For the three months ended September 30, 2021							For the nine months ended September 30, 2021
		Pre-		Post-					Pre-		Post-
	Number of	Modification		Modification				Number of	Modification		Modification
	Loans/	Recorded		Recorded		Specific		Loans/	Recorded		Recorded		Specific
Classes of Loans/Leases	Leases	Investment		Investment		Allowance		Leases	Investment		Investment		Allowance

	(dollars in thousands)
CONCESSION - Extension of Maturity
1-4 family real estate	—		—		—		—	1		2,532		2,532		—

CONCESSION - Interest Rate Adjusted Below Market
1-4 family real estate	—	$	—	$	—	$	—	1	$	54	$	54	$	6
Consumer	—		—		—		—	1		13		13		6
	—	$	—	$	—	$	—	2	$	67	$	67	$	12

TOTAL	—	$	—	$	—	$	—	3	$	2,599	$	2,599	$	12


		Amount Outstanding	Interest Rate			Amount Outstanding	Interest Rate
		as of September 30, 2022	as of September 30, 2022			as of December 31, 2021	as of December 31, 2021		Maturity Date
		(dollars in thousands)

Subordinated debenture dated 9/14/20	$	50,000	5.125	%	$	50,000	5.125	%	9/15/2030
Subordinated debenture dated 2/1/19		65,000	5.375	%		65,000	5.375	%	2/15/2029
Subordinated debenture dated 7/29/20*		20,000	5.250	%		N/A	N/A		9/30/2030
Subordinated debenture dated 8/18/22		55,000	5.950	%		N/A	N/A		9/1/2037
Subordinated debenture dated 8/18/22		45,000	5.500	%		N/A	N/A		9/1/2032
Debt issuance costs		(2,257)				(1,150)
Total Subordinated Debentures	$	232,743			$	113,850

*Assumed in acquisition of GFED