QCR HOLDINGS INC

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’ credit needs. The Company monitors liquidity risk through contingency planning stress testing on a regular basis. The Company seeks to avoid 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, cash and due from banks and federal funds sold, which averaged $180.4 million and $153.9 million during 2023 and 2022, respectively. The Company’s on balance sheet liquidity position can fluctuate based on short-term activity in deposits and loans.

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 December 31, 2023, the subsidiary banks had 25 lines of credit totaling $699.3 million, of which $248.5 million was secured and $450.8 million was unsecured. At December 31, 2023, $699.3 million was available.

At December 31, 2022, the subsidiary banks had 28 lines of credit totaling $501.8 million, of which $31.0 million was secured and $470.8 million was unsecured. At December 31, 2022, $372.8 million was available.

The Company has emphasized growing the number and amount of lines of credit in an effort to strengthen this contingent source of liquidity. Additionally, the Company maintains a $50.0 million secured revolving credit note with a variable interest rate and a maturity of June 30, 2024. At December 31, 2023, the full $50.0 million was available. See Note 12 to the Consolidated Financial Statements for additional information.

As of December 31, 2023, the Company had $536.1 million in correspondent banking deposits spread over 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 $749.3 million during 2023 compared to $634.7 million during 2022. Proceeds from calls, maturities, pay downs, and sales of securities were $141.9 million for 2023 compared to $186.8 million for 2022. Purchases of securities used cash of $187.6 million for 2023 compared to $230.5 million for 2022. The net increase in loans/leases used cash of $676.7 million for 2023 compared to $654.9 million for 2022.

Financing activities provided cash of $410.3 million for 2023 compared to $538.2 million for 2022. Net increases in deposits totaled $529.8 million for 2023 as compared to net decreases in deposits of $15.1 million for 2022. Net short-term borrowings decreased $128.1 million for 2023 as compared to an increase of $125.8 million for 2022. Net increases in long-term FHLB advances totaled $135.0 million in 2023. Short-term FHLB advances decreased $115.0 million in 2023 as compared to an increase of $400.0 million in 2022. Proceeds from subordinated notes totaled $100.0 million in 2022. Repurchase and cancellation of shares totaled $8.7 million in 2023 as compared to $53.0 million in 2022.

Total cash provided by operating activities was $376.3 million for 2023 compared to $118.7 million for 2022.

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

As of December 31, 2023 and 2022, the subsidiary banks remained “well-capitalized” in accordance with regulatory capital requirements administered by the federal banking authorities. See Note 18 to the Consolidated Financial Statements for detail of the capital amounts and ratios for the Company and its subsidiary banks.