QCR HOLDINGS INC

For the period ended Sep 30, 2024. Filed Nov 8, 2024.

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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.

Sep 30, 2024 · Filed Nov 8, 2024

QCRH$100.85-0.3%Stored close · as of Nov 6, 2026

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Contents

Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2024

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, 2023, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 29, 2024. 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, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024, 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	GAAP: Generally Accepted Accounting Principles
AFS: Available for sale	GB: Guaranty Bank
Allowance: Allowance for credit losses	GDP: U.S. gross domestic product
AOCI: Accumulated other comprehensive income (loss)	GFED: Guaranty Federal Bancshares, Inc.
ASC: Accounting Standards Codification	HTM: Held to maturity
ASU: Accounting Standards Update	ICS: Insured Cash Sweep
BOLI: Bank-owned life insurance	LIBOR: London Inter-Bank Offered Rate
Caps: Interest rate cap derivatives	LIHTC: Low-income housing tax credit
CDARS: Certificate of Deposit Account Registry Service	m2: m2 Equipment Finance, LLC
CECL: Current Expected Credit Losses	NIM: Net interest margin
Community National: Community National Bancorporation	NPA: Nonperforming asset
Company: QCR Holdings, Inc.	NPL: Nonperforming loan
CRBT: Cedar Rapids Bank & Trust Company	OBS: Off-balance sheet
CRE: Commercial real estate	OREO: Other real estate owned
CSB: Community State Bank	PCAOB: Public Company Accounting Oversight Board
C&I: Commercial and industrial	Provision: Provision for credit losses
EBA: Excess balance account	QCBT: Quad City Bank & Trust Company
EPS: Earnings per share	ROAA: Return on average assets
Exchange Act: Securities Exchange Act of 1934, as	ROAE: Return on average equity
amended	SEC: Securities and Exchange Commission
FASB: Financial Accounting Standards Board	SOFR: Secured Overnight Financing Rate
FDIC: Federal Deposit Insurance Corporation	Swaption: Swap option
Federal Reserve: Board of Governors of the Federal	TA: Tangible assets
Reserve System	TCE: Tangible common equity
FHLB: Federal Home Loan Bank	TEY: Tax equivalent yield
FRB: Federal Reserve Bank of Chicago	VIE: Variable interest entities

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries which include the accounts offour commercial banks: QCBT, CRBT, CSB and GB. Allfour 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. Additionally, the Company also engages in wealth management services through its banking subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Credit quality indicators: During the first quarter of 2024, the Company revised the risk rating scale used for credit quality monitoring. The previous risk rating scale and associated definitions are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024. With the exception of leases and equipment financing agreements, all loans are now risk rated utilizing the following internal risk rating scale:

1.	Highest Quality (pass) – loans of the highest quality with no credit risk, including those fully secured by bank certificates of deposit and U.S. government securities.

Superior Quality (pass) – loans with very strong credit quality. Borrowers have exceptionally strong earnings, liquidity, capital, cash flow coverage, and management ability. Includes loans secured by high quality, marketable securities, certificates of deposit from other institutions, and cash value of life insurance. Also includes loans supported by U.S. government, state, or municipal guarantees.

Good Quality (pass) – loans with good credit quality. Established borrowers with good financial condition, including earnings, liquidity, capital and cash flow coverage. Financial performance is above industry average. Management is capable and is very experienced. Collateral coverage, if applicable, is good. Includes loans secured by personal assets and business assets including equipment, accounts receivable, inventory, and real estate.

Moderate Quality (pass) – loans with moderate credit quality. Established borrowers with good financial condition, including earnings, liquidity, capital and cash flow coverage. Financial performance should be above industry averages. Management is capable and has more than adequate experience. Collateral coverage, if applicable, is more than adequate. Includes loans secured by personal assets and business assets including equipment, accounts receivable, inventory, and real estate.

Satisfactory Quality (pass) – loans with satisfactory credit quality. Established borrowers with satisfactory financial condition, including earnings, liquidity, capital, and cash flow coverage. Performance should at or above industry averages. Management is capable with adequate experience. Collateral coverage, if applicable, is adequate. Includes loans secured by personal assets and business assets including equipment, accounts receivable, inventory, and real estate.

Fair Quality (pass) – loans with acceptable credit quality. The primary repayment source is adequate; however, management’s ability to maintain consistent profitability is unproven or uncertain. Borrowers exhibit acceptable leverage and liquidity. May include new businesses with inexperienced management, performance at industry averages, or borrowers operating in highly cyclical or deteriorating industries.

Low Quality (pass) – loans with low credit quality. The primary repayment source remains adequate; however, management’s ability to maintain consistent profitability remains unproven or uncertain. Borrowers exhibit moderate leverage and limited liquidity. May include new businesses with inexperienced management, performance below industry averages, or borrowers operating in highly cyclical or deteriorating industries.

Early Warning (pass) – loans where the borrowers have generally performed as agreed, however unfavorable financial trends exist or are anticipated. Earnings may be erratic, with marginal cash flow or declining sales. Borrowers reflect leveraged financial condition and/or marginal liquidity. Management may be new, and a track record of performance has yet to be developed. Financial information may be incomplete, and reliance on secondary repayment sources may be increasing.

Special Mention – loans where the borrowers exhibit credit weaknesses or unfavorable financial trends requiring close monitoring. Weaknesses and adverse trends are more pronounced than Early Warning loans, and if left uncorrected, may jeopardize repayment according to the contractual terms. Currently, no loss of principal or interest is expected. Borrowers in this category have deteriorated to the point that it would be difficult to refinance with another lender. Special Mention should be assigned to borrowers in turnaround situations. This rating is intended as a transitional rating; therefore, it is generally not assigned to a borrower for a period of more than one year.

10.

Substandard – loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if applicable. These loans have a well-defined weakness or weaknesses which jeopardize repayment according to the contractual terms. There is distinct loss potential if the weaknesses are not corrected. Includes loans with insufficient cash flow coverage which are collateral dependent, other real estate owned, and repossessed assets.

11.

Doubtful – loans which have all the weaknesses inherent in a Substandard loan, with the added characteristic that existing weaknesses make full principal collection, based on current facts, conditions, and values, highly doubtful. The possibility of loss is extremely high, but because of pending factors, recognition of a loss is deferred until a more exact status can be determined. All doubtful loans will be placed on non-accrual, with all payments, including interest, applied to principal reduction.

The credit quality indicator for leases and equipment financing agreements remains unchanged at performing and nonperforming status.

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 identified all of the financial instruments with LIBOR exposure, which include certain commercial loans, interest rate swaps, interest rate caps, and certain securities and in all cases, determined a plan of transition from LIBOR to a different index. This transition occurred prior to the expiration of published LIBOR rates on June 30, 2023 and did not have a significant impact on the Company’s financial statements.

In March 2023, the FASB issued ASU 2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a Consensus of the Emerging Issues Task Force).” Under the standard, the accounting guidance expands use of the proportional amortization method of accounting to equity investments in tax credit programs beyond those in LIHTC programs. The ASU also prescribes specific information reporting entities must disclose about tax credit investments each period. The ASU is effective for reporting periods beginning after December 31, 2023, for public business entities, with all other entities having an extra year to adopt. Entities will have the option of applying the ASU using either a modified retrospective or retrospective adoption approach. For some changes related to existing LIHTC investments, prospective application is permitted. The standard was adopted on January 1, 2024 and did not have a significant impact on the Company’s financial statements.

In November 2023, the FASB issued ASU 2023-07,“Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” Under the standard, the accounting guidance expands the disclosures for reportable segments made by public entities to disclose significant expenses for reportable segments in both interim and annual reporting periods to enable investors to develop more decision-useful financial analyses. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The standard is not expected to have a significant impact on the Company’s financial statements.

In December 2023, the FASB issued ASU 2023-09,“Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” Under the standard, the accounting guidance enhances the transparency and decision usefulness of income tax disclosures. Investors, lenders, creditors and other allocators of capital information will be able to use the expanded disclosures to better assess how an entity’s operations and related tax risks and tax planning and operation opportunities affect its tax rate and prospects for future cash flows. The ASU is effective for public business entities for annual periods beginning after December 15, 2024. The standard is not expected to have a significant impact on the Company’s financial statements.

In March 2024, the FASB issued ASU 2024-01,“Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards.” Under the standard, the accounting guidance improves GAAP by adding an illustrative example to demonstrate how an entity should apply the scope guidance of “Topic 718, Compensation - Stock Compensation” for profits interest and similar awards. The illustrative examples will benefit investors and other allocators of capital by providing them with more consistent information. The ASU is effective for public business entities for annual periods beginning after December 15, 2024, and interim periods within those annual periods. The standard is not expected to have an impact on the Company’s financial statements.

NOTE 2– INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of September 30, 2024 and December 31, 2023 are summarized as follows:


· · · · · Allowance · Gross · · Gross · · · ·
· · Amortized · · for Credit · Unrealized · · Unrealized · · Fair ·
· Cost · (Losses) · Gains · (Losses) · Value
· · (dollars in thousands) ·
September 30, 2024: · · · · · ·
Securities HTM: · · · · · ·
Municipal securities	$794,649	$(202)	$34,994	$(38,831)	$790,610
Other securities	1,050	(1)	—	—	1,049
	$795,699	$(203)	$34,994	$(38,831)	$791,659

Securities AFS:
U.S. govt. sponsored agency securities	$20,622	$—	$13	$(2,014)	$18,621
Residential mortgage-backed and related securities	57,924	—	5	(4,442)	53,487
Municipal securities	204,879	—	5	(33,722)	171,162
Asset-backed securities	10,326	—	129	—	10,455
Other securities	40,715	—	5	(2,580)	38,140
	$334,466	$—	$157	$(42,758)	$291,865


· · · · · Allowance · · Gross · · Gross · · ·
· · Amortized · · for Credit · · Unrealized · · Unrealized · · Fair ·
· Cost · · (Losses) · · Gains · (Losses) · · Value ·
· · (dollars in thousands) ·
December 31, 2023: · · · · · · · ·
Securities HTM: · · · · · · · ·
Municipal securities	$682,657	$(202)	$33,385	$(36,639)	$679,201
Other securities	1,050	(1)	44	(15)	1,078
	$683,707	$(203)	$33,429	$(36,654)	$680,279

Securities AFS:
U.S. govt. sponsored agency securities	$17,399	$—	$12	$(2,438)	$14,973
Residential mortgage-backed and related securities	65,168	—	—	(5,972)	59,196
Municipal securities	206,566	—	11	(35,590)	170,987
Asset-backed securities	15,261	—	167	(5)	15,423
Other securities	44,239	(989)	—	(4,174)	39,076
	$348,633	$(989)	$190	$(48,179)	$299,655

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.

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 September 30, 2024 and December 31, 2023, are summarized in the tables below. Securities AFS, for which an allowance for credit losses has been provided, are not included in these disclosures as there are no unrealized losses remaining after consideration of the ACL.


· · 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)
September 30, 2024: · · · · · ·
Securities HTM: · · · · · ·
Municipal securities	$59,350	$(2,530)	$274,330	$(36,301)	$333,680	$(38,831)

Securities AFS:
U.S. govt. sponsored agency securities	$—	$—	$13,943	$(2,014)	$13,943	$(2,014)
Residential mortgage-backed and related securities	74	(1)	51,840	(4,441)	51,914	(4,442)
Municipal securities	—	—	170,349	(33,722)	170,349	(33,722)
Asset-backed securities	—	—	—	—	—	—
Other securities	—	—	37,175	(2,580)	37,175	(2,580)
	$74	$(1)	$273,307	$(42,757)	$273,381	$(42,758)


· · 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, 2023: · · · · · ·
Securities HTM: · · · · · ·
Municipal securities	$1,320	$(11)	$289,891	$(36,628)	$291,211	$(36,639)
Other securities	535	(15)	—	—	535	(15)
	$1,855	$(26)	$289,891	$(36,628)	$291,746	$(36,654)

Securities AFS:
U.S. govt. sponsored agency securities	$—	$—	$14,018	$(2,438)	$14,018	$(2,438)
Residential mortgage-backed and related securities	—	—	59,118	(5,972)	59,118	(5,972)
Municipal securities	283	(2)	169,876	(35,588)	170,159	(35,590)
Asset-backed securities	—	—	3,804	(5)	3,804	(5)
Other securities	3,805	(393)	35,271	(3,781)	39,076	(4,174)
	$4,088	$(395)	$282,087	$(47,784)	$286,175	$(48,179)

At September 30, 2024, the investment portfolio included 662 securities. Of this number,498 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 7.2% of the total amortized cost of the portfolio. Of these 498 securities, there were 459 securities that had an unrealized loss for twelve months or more due to the current rate environment.

For the nine months ended September 30, 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 in the first quarter of 2023 and established an ACL on the related AFS security. For the nine months ended September 30, 2024, the remaining ACL on the related AFS security was removed as the security had been sold.

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 and nine months ended September 30, 2024 and 2023:


· · Three Months Ended · · Nine Months Ended · ·
· · September 30, 2024 · · September 30, 2023 · · September 30, 2024 · · September 30, 2023 · ·
· · Securities HTM · · Securities AFS · · Securities HTM · · Securities AFS · · Securities HTM · · · Securities AFS · · Securities HTM · · Securities AFS · ·
· · Municipal · · Other · · · · Corporate · · Municipal · · Corporate · · Municipal · · Other · · · · · Corporate · · Municipal · · Other · ·
· securities · securities · Total · · securities · · securities · · securities · · securities · · Securities · · Total · · · securities · · securities · securities ·
· (dollars in thousands) · · · · · · · · · · · · · · · · · · · ·
Allowance for credit losses:
Beginning balance	$202	$1	$203	$—	$180	$989	$202	$1	$203	$989	$180	$—
Reduction due to sales	—	—	—	—	—	—	—	—	—	(544)	—	—
Provision for credit loss expense	—	—	—	—	—	—	—	—	—	(445)	—	989
Balance, ending	$202	$1	$203	$—	$180	$989	$202	$1	$203	$—	$180	$989

Trading securities had a fair value of $58.7 million as of September 30, 2024 and $22.4 million as of December 31, 2023, and consist of retained beneficial interests acquired in conjunction with Freddie Mac securitizations completed by the Company in 2023 and 2024. The change in fair value on trading securities for the three months ended September 30, 2024 was a net loss of $200 thousand. The change in market value on trading securities for the nine months ended September 30, 2024 was a net gain of $53 thousand. See also Note 4 to the Consolidated Financial Statements for details of these securitizations.

There were no transfers of securities between classifications for the three and nine months ended September 30, 2024 or 2023.

All sales of securities for the three and nine months ended September 30, 2024 and 2023 were securities identified as AFS.

· · · · · · · · · · · · · · · ·
· · · · · Three Months Ended · Nine Months Ended
	September 30, 2024	September 30, 2023	September 30, 2024	September 30, 2023
· · · · · · (dollars in thousands) ·
· · · · · · · · · · · · · · · ·
Proceeds from sales of securities	$—	$—	$—	$30,568
Gross gains from sales of securities	—	—	—	56
Gross losses from sales of securities	—	—	—	(507)

The amortized cost and fair value of securities as of September 30, 2024 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	$1,857	$1,850
Due after one year through five years	34,099	35,817
Due after five years	759,743	753,992
	$795,699	$791,659
Securities AFS:
Due in one year or less	$4,148	$4,150
Due after one year through five years	19,034	18,099
Due after five years	243,034	205,674
	266,216	227,923
Residential mortgage-backed and related securities	57,924	53,487
Asset-backed securities	10,326	10,455
	$334,466	$291,865

Portions of the U.S. government sponsored agency securities and municipal securities as of September 30, 2024, 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	$298,861	$301,521

Securities AFS:
Municipal securities	204,450	170,745
Other securities	39,755	37,175
	$244,205	$207,920

As of September 30, 2024, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 79 issuers with fair values totaling $106.8 million and revenue bonds, issued by 162 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $855.0 million. The Company also held investments in general obligation bonds in 17 states, including nine states in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 31 states, including 13 states in which the aggregate fair value exceeded $5.0 million.

As of December 31, 2023, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 82 issuers with fair values totaling $99.4 million and revenue bonds, issued by 169 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $750.8 million. The Company also held investments in general obligation bonds in 18 states, including eight* *states in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 31 states, including 15 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, 2024 and as of December 31, 2023, the Company held revenue bonds oftwo 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 Superior 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 thefour 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, 2024, 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, 2024, 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 September 30, 2024 and December 31, 2023 is presented as follows:


· September 30, 2024 · · December 31, 2023
		(dollars in thousands)
C&I:
C&I - revolving	$387,409		$325,243
C&I - other /*	1,410,081		1,481,778
	1,797,490		1,807,021

CRE - owner occupied	622,072		607,365
CRE - non-owner occupied	1,103,694		1,008,892
Construction and land development**	1,256,176		1,420,525
Multi-family**	1,297,772		996,143
Direct financing leases***	19,241		31,164
1-4 family real estate****	587,512		544,971
Consumer	144,845		127,335
	6,828,802		6,543,416
Allowance for credit losses	(86,321)		(87,200)
	$6,742,481		$6,456,216
*** Direct financing leases:
Net minimum lease payments to be received	$20,987		$34,966
Estimated unguaranteed residual values of leased assets	165		165
Unearned lease/residual income	(1,911)		(3,967)
	19,241		31,164
Plus deferred lease origination costs, net of fees	27		75
	19,268		31,239
Less allowance for credit losses	(692)		(992)
	$18,576		$30,247

Includes equipment financing agreements outstanding through m2, totaling $334.0 million and $319.5 million as of September 30, 2024 and December 31, 2023, respectively.

** As of September 30, 2024, there were multi-family loans held for sale in preparation for securitization totaling $165.9 million. There wereno loans held for sale in preparation for securitization at December 31, 2023.

*** 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 $1.1 million and $2.6 million as of September 30, 2024 and December 31, 2023, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans, totaled $36.5 million and $31.8 million at September 30, 2024 and December 31, 2023, respectively, and was included in other assets on the consolidated balance sheets.

Changes in net accretable discounts on acquired loans for the three and nine months ended September 30, 2024 and 2023, respectively, are presented as follows:


· For the Three Months Ended · · For the Nine Months Ended · ·
· September 30, 2024 · · September 30, 2023 · · September 30, 2024 · · September 30, 2023 · ·
· Performing · · Performing · · · Performing · · Performing · ·
· Loans · Loans · · Loans · Loans · ·
· (dollars in thousands) · ·

Balance at the beginning of the period	$(3,271)	$(5,104)	$(3,891)	$(6,088)
Accretion recognized	474	540	1,094	1,524
Balance at the end of the period	$(2,797)	$(4,564)	$(2,797)	$(4,564)

The aging of the loan/lease portfolio by classes of loans/leases as of September 30, 2024 and December 31, 2023 is presented as follows:


· · As of September 30, 2024
· · · · · · · · 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	$387,072	$—	$—	$142	$195	$	387,409
C&I - other	1,383,851	7,072	2,990	970	15,198		1,410,081
CRE - owner occupied	619,860	1,086	—	—	1,126		622,072
CRE - non-owner occupied	1,099,395	410	—	—	3,889		1,103,694
Construction and land development	1,251,949	1,868	—	—	2,359		1,256,176
Multi-family	1,289,201	1,199	—	—	7,372		1,297,772
Direct financing leases	18,713	106	—	—	422		19,241
1-4 family real estate	584,478	2	385	186	2,461		587,512
Consumer	144,067	237	83	—	458		144,845
	$6,778,586	$11,980	$3,458	$1,298	$33,480		$6,828,802

As a percentage of total loan/lease portfolio	99.26%	0.18%	0.05%	0.02%	0.49%		100.00%


· · As of December 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	$325,243	$—	$—	$—	$—	$325,243
C&I - other	1,459,818	4,848	5,603	1	11,508	1,481,778
CRE - owner occupied	604,602	—	83	—	2,680	607,365
CRE - non-owner occupied	1,003,267	631	—	—	4,994	1,008,892
Construction and land development	1,418,016	—	—	—	2,509	1,420,525
Multi-family	987,971	—	—	—	8,172	996,143
Direct financing leases	30,501	186	188	—	289	31,164
1-4 family real estate	538,229	3,883	534	85	2,240	544,971
Consumer	126,868	103	3	—	361	127,335
	$6,494,515	$9,651	$6,411	$86	$32,753	$6,543,416

As a percentage of total loan/lease portfolio	99.25%	0.15%	0.10%	0.00%	0.50%	100.00%

NPLs by classes of loans/leases as of September 30, 2024 and December 31, 2023 are presented as follows:


· · As of September 30, 2024 ·
· · 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	$142	$195	$—	$337	1%
C&I - other	970	12,563	2,635	16,168	47
CRE - owner occupied	—	841	285	1,126	3
CRE - non-owner occupied	—	1,213	2,676	3,889	11
Construction and land development	—	2,359	—	2,359	7
Multi-family	—	—	7,372	7,372	21
Direct financing leases	—	422	—	422	1
1-4 family real estate	186	2,093	368	2,647	8
Consumer	—	458	—	458	1
	$1,298	$20,144	$13,336	$34,778	100%


· · As of December 31, 2023
· · 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	8,865	2,643	11,509	35
CRE - owner occupied	—	530	2,150	2,680	8
CRE - non-owner occupied	—	1,213	3,781	4,994	15
Construction and land development	—	2,509	—	2,509	8
Multi-family	—	—	8,172	8,172	25
Direct financing leases	—	206	83	289	1
1-4 family real estate	85	1,866	374	2,325	7
Consumer	—	361	—	361	1
	$86	$15,550	$17,203	$32,839	100%

The Company did not recognize any interest income on nonaccrual loans during the three and nine months ended September 30, 2024 and 2023.

Changes in the ACL on loans/leases by portfolio segment for the three and nine months ended September 30, 2024 and 2023, respectively, are presented as follows:


· · Three Months Ended September 30, 2024
				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		$3,699		$30,544		$8,053		$12,376		$12,054		$14,257		$5,203	$1,520	$87,706
Change in ACL for writedown of LHFS to fair value		—		—		—		—		—		(1,812)		—	—	(1,812)
Provision		235		2,159		(472)		(330)		2,371		649		(773)	(11)	3,828
Charge-offs		—		(3,040)		(10)		—		—		(800)		—	(21)	(3,871)
Recoveries		—		443		—		—		—		—		22	5	470
Balance, ending		$3,934		$30,106		$7,571		$12,046		$14,425		$12,294		$4,452	$1,493	$86,321


· · Nine Months Ended September 30, 2024
				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		$4,224		$27,460		$8,223		$11,581		$16,856		$12,463		$4,917	$1,476	$87,200
Change in ACL for writedown of LHFS to fair value		—		—		—		—		—		(4,691)		—	—	(4,691)
Provision		(290)		9,855		(642)		465		(2,431)		5,322		(464)	92	11,907
Charge-offs		—		(8,259)		(10)		—		—		(800)		(24)	(89)	(9,182)
Recoveries		—		1,050		—		—		—		—		23	14	1,087
Balance, ending		$3,934		$30,106		$7,571		$12,046		$14,425		$12,294		$4,452	$1,493	$86,321

Included within the C&I – Other column are ACL on leases with a beginning balance of $800 thousand, negative provision of $21 thousand, charge-offs of $104 thousand and recoveries of $17 thousand. ACL on leases was $692 thousand as of September 30, 2024.

** Included within the C&I – Other column are ACL on leases with a beginning balance of $992 thousand, negative provision of $195 thousand, charge-offs of $193 thousand and recoveries of $88 thousand. ACL on leases was $692 thousand as of September 30, 2024.


· · Three Months Ended September 30, 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		$4,101		$27,162		$8,731		$11,968		$15,888		$11,229		$5,213	$1,505	$85,797
Change in ACL for writedown of LHFS to fair value		—		—		—		—		—		175		—	—	175
Provision		368		1,111		192		(313)		992		875		(45)	80	3,260
Charge-offs		—		(1,734)		(14)		—		(38)		—		—	(30)	(1,816)
Recoveries		—		215		3		26		—		—		—	9	253
Balance, ending		$4,469		$26,754		$8,912		$11,681		$16,842		$12,279		$5,168	$1,564	$87,669


· · Nine Months Ended September 30, 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
Change in ACL for writedown of LHFS to fair value		—		(5)		—		—		(147)			(3,659)		—	—	(3,811)
Provision		12		3,986		(834)		(99)		2,777			2,752		200	237	9,031
Charge-offs		—		(5,709)		(222)		—		(50)			—		—	(57)	(6,038)
Recoveries		—		729		3		31		—			—		5	13	781
Balance, ending		$4,469		$26,754		$8,912		$11,681		$16,842			$12,279		$5,168	$1,564	$87,669

Included within the C&I – Other column are ACL on leases with a beginning balance of $1.0 million, provision of $165 thousand, charge-offs of $133 thousand and recoveries of $43 thousand. ACL on leases was $1.1 million as of September 30, 2023.

** Included within the C& I – Other column are ACL on leases with a beginning balance of $970 thousand, provision of $224 thousand, charge-offs of $186 thousand and recoveries of $73 thousand. ACL on leases was $1.1 million as of September 30, 2023.

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


· · As of September 30, 2024 ·
· · 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	$1,361	$386,048	$387,409	$100	$3,834	$3,934
C&I - other*	23,442	1,405,880	1,429,322	6,377	23,729	30,106
	24,803	1,791,928	1,816,731	6,477	27,563	34,040
CRE - owner occupied	26,214	595,858	622,072	2,232	5,339	7,571
CRE - non-owner occupied	19,188	1,084,506	1,103,694	667	11,379	12,046
Construction and land development	6,755	1,249,421	1,256,176	789	13,636	14,425
Multi-family	7,398	1,290,374	1,297,772	3	12,291	12,294
1-4 family real estate	3,328	584,184	587,512	318	4,134	4,452
Consumer	581	144,264	144,845	67	1,426	1,493
	$88,267	$6,740,535	$6,828,802	$10,553	$75,768	$86,321

Included within the C&I – Other category are leases individually evaluated of $422 thousand with a related allowance for credit losses of $14 thousand and leases collectively evaluated of $18.9 million with a related allowance for credit losses of $547 thousand as of September 30, 2024.


· · As of December 31, 2023 ·
· · 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	$4,680	$320,563	$325,243	$632	$3,592	$4,224
C&I - other*	20,133	1,492,809	1,512,942	3,642	23,818	27,460
	24,813	1,813,372	1,838,185	4,274	27,410	31,684
CRE - owner occupied	22,709	584,656	607,365	2,426	5,797	8,223
CRE - non-owner occupied	21,886	987,006	1,008,892	661	10,920	11,581
Construction and land development	2,726	1,417,799	1,420,525	809	16,047	16,856
Multi-family	8,206	987,937	996,143	3	12,460	12,463
1-4 family real estate	3,128	541,843	544,971	289	4,628	4,917
Consumer	508	126,827	127,335	56	1,420	1,476
	$83,976	$6,459,440	$6,543,416	$8,518	$78,682	$87,200

Included within the C&I – Other category are leases individually evaluated of $289 thousand with a related allowance for credit losses of $68 thousand and leases collectively evaluated of $30.9 million with a related allowance for credit losses of $924 thousand as of December 31, 2023.

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, 2024 and December 31, 2023:



· · As of September 30, 2024 ·
· · · · · · · · Non · · · · · · · · · · · · · · · ·
· · Commercial · · Owner-occupied · · Owner-Occupied · · Owner Occupied · · · · · · · · · ·
· Assets · CRE · Real Estate · · Real Estate · · Securities · · Equipment · · Other · · Total ·
· · (dollars in thousands)
C & I:
C&I - revolving	$1,361	$—	$—	$—	$—	$—	$—	$1,361
C&I - other*	2,174	—	—	—	5,172	13,197	2,899	23,442
	3,535	—	—	—	5,172	13,197	2,899	24,803
CRE - owner occupied	—	26,152	—	62	—	—	—	26,214
CRE - non-owner occupied	—	—	19,188	—	—	—	—	19,188
Construction and land development	—	—	6,755	—	—	—	—	6,755
Multi-family	—	—	7,398	—	—	—	—	7,398
1-4 family real estate	—	—	177	3,151	—	—	—	3,328
Consumer	—	—	118	441	—	—	22	581
	$3,535	$26,152	$33,636	$3,654	$5,172	$13,197	$2,921	$88,267

Included within the C&I – Other category are leases individually evaluated of $422 thousand with primary collateral of equipment as of September 30, 2024.


· · As of December 31, 2023 ·
· · · · · · · · Non · · · · · · · · · · · · · · · ·
· · Commercial · · Owner-occupied · · Owner-Occupied · · Owner Occupied · · · · · · · · · ·
· Assets · CRE · Real Estate · · Real Estate · · Securities · · Equipment · · Other · · Total ·
· · (dollars in thousands)
C & I:
C&I - revolving	$4,680	$—	$—	$—	$—	$—	$—	$4,680
C&I - other*	871	—	—	—	5,191	13,249	822	20,133
	5,551	—	—	—	5,191	13,249	822	24,813
CRE - owner occupied	—	22,644	—	65	—	—	—	22,709
CRE - non-owner occupied	—	—	21,886	—	—	—	—	21,886
Construction and land development	—	150	2,576	—	—	—	—	2,726
Multi-family	—	—	8,206	—	—	—	—	8,206
1-4 family real estate	—	—	189	2,939	—	—	—	3,128
Consumer	—	—	119	365	—	—	24	508
	$5,551	$22,794	$32,976	$3,369	$5,191	$13,249	$846	$83,976

Included within the C&I – Other category are leases individually evaluated of $289 thousand with primary collateral of equipment as of December 31, 2023.

For all loans except direct financing leases and equipment financing agreements, 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), the Company’s credit quality indicator is performance determined by delinquency status. Delinquency status is updated daily by the Company’s loan system. For years prior to 2024, 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 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.

The following tables show the credit quality indicator of loans by class of receivable and year of origination as of September 30, 2024:


· · As of September 30, 2024
· · Term Loans · · · · ·
· · Amortized Cost Basis by Origination Year · · ·
· · · · · · · · · · · · · · · · · · · · Revolving · ·
· · · · · · · · · · · · · · · · · · · · Loans · · ·
Internally Assigned · · · · · · · · · · · · · · · · Amortized · ·
Risk Rating · 2024 · 2023 · 2022 · 2021 · 2020 · · Prior · · Cost Basis · · Total
					(dollars in thousands)
C&I - revolving
Pass	$—	$—	$—	$—		$—	$—	$365,674	$365,674
Special Mention	—	—	—	—		—	—	20,710	20,710
Substandard	—	—	—	—		—	—	1,025	1,025
Doubtful	—	—	—	—		—	—	—	—
Total C&I - revolving	$—	$—	$—	$—		$—	$—	$387,409	$387,409

C&I - other
Pass	$233,837	$304,461	$217,377	$81,387		$44,840	$157,640	$—	$1,039,542
Special Mention	8,789	6,443	3,182	4,664		2,744	1,135	—	26,957
Substandard	2,544	134	504	792		138	5,451	—	9,563
Doubtful	—	—	—	—		—	—	—	—
Total C&I - other	$245,170	$311,038	$221,063	$86,843		$47,722	$164,226	$—	$1,076,062

CRE - owner occupied
Pass	$54,674	$107,037	$123,285	$105,592		$99,115	$77,953	$13,834	$581,490
Special Mention	3,757	73	1,227	9,996		1,045	2,112	—	18,210
Substandard	2,859	287	519	448		16,677	1,582	—	22,372
Doubtful	—	—	—	—		—	—	—	—
Total CRE - owner occupied	$61,290	$107,397	$125,031	$116,036		$116,837	$81,647	$13,834	$622,072

CRE - non-owner occupied
Pass	$124,581	$215,307	$307,864	$163,489		$115,603	$136,261	$9,869	$1,072,974
Special Mention	4,341	118	56	—		—	6,868	150	11,533
Substandard	—	3,754	1,200	—		1,934	12,299	—	19,187
Doubtful	—	—	—	—		—	—	—	—
Total CRE - non-owner occupied	$128,922	$219,179	$309,120	$163,489		$117,537	$155,428	$10,019	$1,103,694

Construction and land development
Pass	$350,905	$530,578	$247,624	$86,243		$11,037	$—	$20,668	$1,247,055
Special Mention	2,367	—	—	—		—	—	—	2,367
Substandard	4,188	—	1,367	1,199		—	—	—	6,754
Doubtful	—	—	—	—		—	—	—	—
Total Construction and land development	$357,460	$530,578	$248,991	$87,442		$11,037	$—	$20,668	$1,256,176

Multi-family
Pass	$144,968	$175,876	$311,668	$238,267		$235,691	$175,679	$8,225	$1,290,374
Special Mention	—	—	—	—		—	—	—	—
Substandard	—	—	—	7,398		—	—	—	7,398
Doubtful	—	—	—	—		—	—	—	—
Total Multi-family	$144,968	$175,876	$311,668	$245,665		$235,691	$175,679	$8,225	$1,297,772

1-4 family real estate
Pass	$95,411	$120,427	$94,051	$117,112		$80,953	$69,116	$7,036	$584,106
Special Mention	53	146	—	56		—	9	—	264
Substandard	91	331	832	639		257	964	28	3,142
Doubtful	—	—	—	—		—	—	—	—
Total 1-4 family real estate	$95,555	$120,904	$94,883	$117,807		$81,210	$70,089	$7,064	$587,512

Consumer
Pass	$10,315	$14,901	$6,780	$1,447		$2,553	$1,725	$106,463	$144,184
Special Mention	—	—	—	—		—	—	80	80
Substandard	—	173	158	33		—	105	112	581
Doubtful	—	—	—	—		—	—	—	—
Total Consumer	$10,315	$15,074	$6,938	$1,480		$2,553	$1,830	$106,655	$144,845

Total	$1,043,680	$1,480,046	$1,317,694	$818,762		$612,587	$648,899	$553,874	$6,475,542


· · As of September 30, 2024
· · Term Loans · · · · ·
· · Amortized Cost Basis by Origination Year · · Revolving · · ·
· · · · · · · · · · · · · · · · · · · · Loans · · ·
· · · · · · · · · · · · · · · · · · · · Amortized · · ·
Delinquency Status * · 2024 · 2023 · 2022 · 2021 · 2020 · Prior · · Cost Basis · · Total
· (dollars in thousands)
C&I - other
Performing	$113,568	$109,363	$68,794	$23,476	$5,991	$476	$—	$321,668
Nonperforming	43	4,229	5,476	2,292	297	14	—	12,351
Total C&I - other	$113,611	$113,592	$74,270	$25,768	$6,288	$490	$—	$334,019

Direct financing leases
Performing	$1,682	$6,212	$7,732	$1,653	$889	$651	$—	$18,819
Nonperforming	—	67	211	48	91	5	—	422
Total Direct financing leases	$1,682	$6,279	$7,943	$1,701	$980	$656	$—	$19,241

Total	$115,293	$119,871	$82,213	$27,469	$7,268	$1,146	$—	$353,260

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 and nine months ended September 30, 2024:


· · Three Months Ended September 30, 2024 · · Nine Months Ended September 30, 2024
· · Gross Charge-off by Origination Year · · Gross Charge-off by Origination Year
Classes of Loans/Leases · 2024 · 2023 · 2022 · 2021 · 2020 · · Prior · · Total · · 2024 · 2023 · 2022 · 2021 · 2020 · · Prior · · Total
· · (dollars in thousands) · · (dollars in thousands)
C&I:
C&I - revolving	$—	$—	$—	$—	$—	$—	$—	$—	$—	$—	$—	$—	$—	$—
C&I - other	—	879	1,375	632	35	15	2,936	7	1,763	4,234	1,724	147	191	8,066
CRE - owner occupied	—	—	—	—	—	10	10	—	—	—	—	—	10	10
CRE - non-owner occupied	—	—	—	—	—	—	—	—	—	—	—	—	—	—
Construction and land development	—	—	—	—	—	—	—	—	—	—	—	—	—	—
Multi-family	—	—	—	800	—	—	800	—	—	—	800	—	—	800
Direct financing leases	—	—	67	—	27	10	104	—	—	77	24	69	23	193
1-4 family real estate	—	—	—	—	—	—	—	—	21	—	—	—	3	24
Consumer	10	6	1	—	—	4	21	10	7	42	11	15	4	89
	$10	$885	$1,443	$1,432	$62	$39	$3,871	$17	$1,791	$4,353	$2,559	$231	$231	$9,182

The following tables show the credit quality indicator of loans by class of receivable and year of origination as of December 31, 2023:


· · As of December 31, 2023
· · Term Loans
· · Amortized Cost Basis by Origination Year
· · · · · · · · · · · · · · · · · · · · Revolving · · ·
· · · · · · · · · · · · · · · · · · · · Loans · · ·
Internally Assigned · · · · · · · · · · · · · · · · Amortized · ·
Risk Rating · 2023 · 2022 · 2021 · 2020 · 2019 · · Prior · · Cost Basis · · Total
					(dollars in thousands)
C&I - revolving
Pass	$—	$—	$—	$—		$—	$—	$294,449	$294,449
Special Mention	—	—	—	—		—	—	26,289	26,289
Substandard	—	—	—	—		—	—	4,505	4,505
Doubtful	—	—	—	—		—	—	—	—
Total C&I - revolving	$—	$—	$—	$—		$—	$—	$325,243	$325,243

C&I - other
Pass	$430,764	$301,225	$128,057	$68,882		$62,149	$132,171	$—	$1,123,248
Special Mention	11,617	8,777	5,572	3,088		1,024	386	—	30,464
Substandard	14	81	625	443		2,108	5,320	—	8,591
Doubtful	—	—	—	—		—	—	—	—
Total C&I - other	$442,395	$310,083	$134,254	$72,413		$65,281	$137,877	$—	$1,162,303

CRE - owner occupied
Pass	$90,708	$124,388	$139,598	$109,483		$28,702	$58,214	$12,959	$564,052
Special Mention	5,091	711	8,689	5,567		466	1,828	—	22,352
Substandard	1,955	564	24	15,978		1,312	1,128	—	20,961
Doubtful	—	—	—	—		—	—	—	—
Total CRE - owner occupied	$97,754	$125,663	$148,311	$131,028		$30,480	$61,170	$12,959	$607,365

CRE - non-owner occupied
Pass	$200,214	$276,055	$195,013	$119,428		$72,136	$78,346	$7,406	$948,598
Special Mention	16,842	58	223	12,057		2,359	6,719	150	38,408
Substandard	3,805	1,200	—	1,989		14,892	—	—	21,886
Doubtful	—	—	—	—		—	—	—	—
Total CRE - non-owner occupied	$220,861	$277,313	$195,236	$133,474		$89,387	$85,065	$7,556	$1,008,892

Construction and land development
Pass	$467,045	$485,376	$271,881	$151,091		$1,911	$4,137	$30,304	$1,411,745
Special Mention	6,054	—	—	—		—	—	—	6,054
Substandard	—	1,517	1,209	—		—	—	—	2,726
Doubtful	—	—	—	—		—	—	—	—
Total Construction and land development	$473,099	$486,893	$273,090	$151,091		$1,911	$4,137	$30,304	$1,420,525

Multi-family
Pass	$180,971	$195,939	$170,893	$239,410		$102,070	$96,897	$162	$986,342
Special Mention	1,595	—	—	—		—	—	—	1,595
Substandard	—	—	8,206	—		—	—	—	8,206
Doubtful	—	—	—	—		—	—	—	—
Total Multi-family	$182,566	$195,939	$179,099	$239,410		$102,070	$96,897	$162	$996,143

1-4 family real estate
Pass	$133,923	$103,460	$130,724	$89,642		$25,914	$54,850	$3,329	$541,842
Special Mention	28	—	59	—		—	—	—	87
Substandard	144	215	815	637		519	712	—	3,042
Doubtful	—	—	—	—		—	—	—	—
Total 1-4 family real estate	$134,095	$103,675	$131,598	$90,279		$26,433	$55,562	$3,329	$544,971

Consumer
Pass	$17,722	$9,405	$2,573	$3,024		$622	$1,842	$91,580	$126,768
Special Mention	—	—	—	—		—	—	59	59
Substandard	175	119	12	12		—	133	57	508
Doubtful	—	—	—	—		—	—	—	—
Total Consumer	$17,897	$9,524	$2,585	$3,036		$622	$1,975	$91,696	$127,335

Total	$1,568,667	$1,509,090	$1,064,173	$820,731		$316,184	$442,683	$471,249	$6,192,777


· · As of December 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	$149,216	$103,804	$40,003	$12,590	$2,539	$132	$—	$308,284
Nonperforming	1,533	6,138	3,049	373	92	6	—	11,191
Total C&I - other	$150,749	$109,942	$43,052	$12,963	$2,631	$138	$—	$319,475

Direct financing leases
Performing	$12,217	$11,170	$3,005	$2,631	$1,561	$291	$—	$30,875
Nonperforming	—	50	43	176	20	—	—	289
Total Direct financing leases	$12,217	$11,220	$3,048	$2,807	$1,581	$291	$—	$31,164

Total	$162,966	$121,162	$46,100	$15,770	$4,212	$429	$—	$350,639

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.

There were no loan and lease modifications to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024. Any loan and lease modifications to borrowers experiencing financial difficulty during 2023 were immaterial.

Changes in the ACL for OBS exposures for the three and nine months ended September 30, 2024 and 2023 are presented as follows:


· Three Months Ended · · Nine Months Ended
· September 30, 2024 · September 30, 2023 · September 30, 2024 · September 30, 2023
· (dollars in thousands)

Balance, beginning	$10,360	$6,326	$9,529	$5,552
Provisions to expense	(344)	546	487	1,320
Balance, ending	$10,016	$6,872	$10,016	$6,872

NOTE 4. SECURITIZATIONS AND VARIABLE INTEREST ENTITIES

Freddie Mac Securitizations

In 2023, the Company completedtwo Freddie Mac sponsored securitizations. The Company retained beneficial interests which are classified as trading securities on the consolidated balance sheets. Details related to the 2023 securitizations and related VIEs can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

On August 15, 2024, the Company entered into an arrangement with Freddie Mac to securitize and sell $230.7 million of nontaxable LIHTC loans was securitized through Freddie Mac and sold to investors. The Company retained beneficial interests totaling $36.7 million, which are classified as trading securities on the Company’s consolidated balance sheets. The transfer of these loans was accounted for as a sale for financial reporting purposes, in accordance with ASC 860, and a $473 thousand net loss on sale was recognized, which included the impact of the fair value of retained beneficial interests and transaction costs.

Two classes of M-Series certificates were issued in conjunction with the 2024 securitization. Freddie Mac guarantees timely payment of interest and scheduled principal on M-Series Class A Certificates, which were sold to third-party investors through a Freddie Mac Securitization special purpose entity. M-Series Class B Certificates are subordinated to M-Series Class A Certificates and were issued to the Company. Class B Certificates provide 15% first loss support to Freddie Mac on the Class A Certificates, or approximately $34.9 million. In addition, the Company pledged $10.1 million of related taxable loans. The Company’s ongoing involvement in this transaction is limited to customary obligations of loan sales, including any indemnification for material breach in the Company’s representations.

As part of the 2024 securitization transaction, the Company released all servicing obligations and rights to a third party, which include obligations to collect and remit payments of principal and interest, manage payments of taxes

and insurance, and otherwise administer the underlying loans.

At September 30, 2024 and December 31, 2023, the Company determined it was not the primary beneficiary of the VIEs related to all securitizations to date, primarily because the Company did not have the power to direct the activities that most significantly impact the VIEs. Evaluation and assessment of VIEs for consolidation is performed on an ongoing basis by management. Any changes in facts and circumstances occurring since the previous primary beneficiary determination will be considered as part of this ongoing assessment.

As of September 30, 2024, and December 31, 2023, the Company’s total assets associated with the VIEs related to all securitizations to date, were $58.7 million and $22.4 million, respectively, and there wereno liabilities recorded. The Company’s maximum exposure to loss associated with these VIEs consists of the capital invested plus any unfunded equity commitments that are binding. As of September 30, 2024, the maximum exposure to loss was $66.6 million.

NOTE 5 – DERIVATIVES AND HEDGING ACTIVITIES

Derivatives are summarized as follows as of September 30, 2024 and December 31, 2023:


· September 30, 2024 · December 31, 2023
		(dollars in thousands)
Assets:
Hedged Derivatives
Cash Flow Hedges
Interest rate caps	$753		$2,847
Interest rate collars	62		—
Interest rate swaps	958		1,689

Unhedged Derivatives
Cash Flow Hedges
Swaptions	4,086		—
Fair Value Hedges
Interest rate caps	314		951
Interest rate swaps	255,740		181,854
	$261,913		$187,341

Liabilities:
Hedged Derivatives
Cash Flow Hedges
Interest rate swaps	$(25,060)		$(30,407)
Interest rate collars	—		(166)
Fair Value Hedges
Interest rate swaps	(4,969)		(3,308)
Unhedged Derivatives
Interest rate swaps	(255,740)		(181,854)
	$(285,769)		$(215,735)

The Company uses interest rate swap, cap and collar instruments as well as swaptions to manage interest rate risk and the impact of changing interest rates on our net interest income and capital.

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 SOFR, 3-month SOFR 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 · ·
Hedged Item · · Effective Date · · Maturity Date · · Location · · Notional Amount · · Strike Rate · · September 30, 2024 · · · December 31, 2023 · ·
(dollars in thousands)

Deposits	1/1/2020	1/1/2024	Derivatives - Assets	$25,000	1.75%	$	-	$(79)
Deposits	1/1/2020	1/1/2024	Derivatives - Assets	50,000	1.57%		-	-
Deposits	1/1/2020	1/1/2024	Derivatives - Assets	25,000	1.80%		-	-
Deposits	1/1/2020	1/1/2025	Derivatives - Assets	25,000	1.75%		188	672
Deposits	1/1/2020	1/1/2025	Derivatives - Assets	50,000	1.57%		376	1,503
Deposits	1/1/2020	1/1/2025	Derivatives - Assets	25,000	1.80%		189	751
				$200,000			$753	$2,847

The Company has entered into interest rate swaps to hedge against the risk of rising rates on one of its variable rate subordinated notes and 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, 2024 · · December 31, 2023
· · · (dollars in thousands) · · · · · · · · ·

QCR Holdings Statutory Trust V	7/7/2018	7/7/2028	Derivatives - Assets	$10,000	5.37%	4.54%	$190	$335
Community National Statutory Trust III	9/15/2018	9/15/2028	Derivatives - Assets	3,500	6.96%	4.75%	87	118
Guaranty Bankshares Statutory Trust I	9/15/2018	9/15/2028	Derivatives - Assets	4,500	6.96%	4.75%	68	152
Community National Statutory Trust II	9/20/2018	9/20/2028	Derivatives - Assets	3,000	7.25%	5.17%	58	101
QCR Holdings Statutory Trust II	9/30/2018	9/30/2028	Derivatives - Assets	10,000	7.72%	5.85%	194	341
QCR Holdings Statutory Trust III	9/30/2018	9/30/2028	Derivatives - Assets	8,000	7.72%	5.85%	155	272
Guaranty Statutory Trust II*	5/23/2019	2/23/2026	Derivatives - Assets	10,310	6.81%	4.09%	206	370
QCR Holdings Subordinated Note	3/1/2024	2/15/2028	Derivatives - Liabilities	65,000	5.34%	4.02%	(1,582)	-
				$114,310			$(624)	$1,689

* Acquired on April 1, 2022 with GFED acquisition.

The Company has entered into interest rate swaps to hedge against the risk of declining interest rates on floating rate loans. 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, 2024 · December 31, 2023
(dollars in thousands)

Loans	7/1/2021	7/1/2031	Derivatives - Liabilities	$35,000	1.40%	5.33%	$(4,167)	$(5,004)
Loans	7/1/2021	7/1/2031	Derivatives - Liabilities	50,000	1.40%	5.33%	(5,952)	(7,149)
Loans	7/1/2021	7/1/2031	Derivatives - Liabilities	40,000	1.40%	5.33%	(4,772)	(5,730)
Loans	10/1/2022	7/1/2031	Derivatives - Liabilities	25,000	1.30%	5.33%	(3,005)	(3,696)
Loans	4/1/2022	4/1/2027	Derivatives - Liabilities	15,000	1.91%	5.33%	(558)	(868)
Loans	4/1/2022	4/1/2027	Derivatives - Liabilities	50,000	1.91%	5.33%	(1,861)	(2,892)
Loans	4/1/2022	4/1/2027	Derivatives - Liabilities	35,000	1.91%	5.33%	(1,303)	(2,024)
Loans	4/1/2022	4/1/2027	Derivatives - Liabilities	50,000	1.91%	5.33%	(1,860)	(3,044)
				$300,000			$(23,478)	$(30,407)

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 collar is as follows:


· · · · · · · · · · · · · · · · · Fair Value as of
Hedged Item · · Effective Date · · Maturity Date · · Location · · Notional Amount · · Cap Strike Rate · · · Floor Strike Rate · · September 30, 2024 · · December 31, 2023
Loans	10/1/2022	10/1/2026	Derivatives - Liabilities	$50,000	4.40%	2.44%	$62	$(166)

The Company has entered into interest rate swaps to hedge against the risk of rising rates on loans. The interest rate swaps are designated as fair value 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, 2024 · · December 31, 2023
(dollars in thousands)

Loans	7/12/2023	8/1/2025	Derivatives - Assets	$15,000	5.15%	4.60%	$(83)	$(69)
Loans	7/12/2023	2/1/2026	Derivatives - Assets	25,000	5.15%	4.38%	(252)	(195)
Loans	7/12/2023	2/1/2026	Derivatives - Assets	15,000	5.15%	4.38%	(151)	(117)
Loans	7/12/2023	2/1/2026	Derivatives - Assets	20,000	5.15%	4.38%	(202)	(140)
Loans	7/12/2023	8/1/2026	Derivatives - Assets	30,000	5.15%	4.21%	(413)	(293)
Loans	7/12/2023	8/1/2026	Derivatives - Assets	15,000	5.15%	4.21%	(207)	(146)
Loans	7/12/2023	8/1/2026	Derivatives - Assets	20,000	5.15%	4.21%	(276)	(176)
Loans	7/12/2023	2/1/2027	Derivatives - Assets	32,500	5.15%	4.08%	(539)	(364)
Loans	7/12/2023	2/1/2027	Derivatives - Assets	15,000	5.15%	4.08%	(249)	(168)
Loans	7/12/2023	2/1/2027	Derivatives - Assets	20,000	5.15%	4.08%	(332)	(202)
Loans	7/12/2023	8/1/2027	Derivatives - Assets	32,500	5.15%	3.98%	(606)	(397)
Loans	7/12/2023	8/1/2027	Derivatives - Assets	15,000	5.15%	3.98%	(280)	(183)
Loans	7/12/2023	8/1/2027	Derivatives - Assets	25,000	5.15%	3.98%	(466)	(276)
Loans	7/12/2023	2/1/2028	Derivatives - Assets	30,000	5.15%	3.90%	(609)	(388)
Loans	7/12/2023	2/1/2028	Derivatives - Assets	15,000	5.15%	3.90%	(304)	(194)
				$325,000			$(4,969)	$(3,308)

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. Changes in fair values of derivative financial instruments accounted for as fair value hedges, to the extent that they are included in the assessment of effectiveness, are recorded as a component of other assets or other liabilities.

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 · · · September 30, 2024 · · · December 31, 2023 · ·
(dollars in thousands) · ·

2/1/2020	2/1/2024	Derivatives - Assets	$25,000	1.90%	$	-	$79
3/1/2020	3/3/2025	Derivatives - Assets	25,000	1.90%		314	872
			$50,000			$314	$951

During the third quarter of 2024, the Company executed a derivative strategy more commonly known as a swaption. The swaptions are designed to hedge the Company’s regulatory capital ratios against the adverse effects of a significant decline in long-term interest rates. The swaptions are designated as unhedged in accordance with ASC 815, therefore the change in fair value of the derivative instrument is recognized into current earnings. The details of the swaptions are as follows:


· · · · · · · · · · · · Fair Value as of
Effective Date · · Maturity Date · · Location · · Notional Amount · · Strike Rate · · September 30, 2024 · · December 31, 2023
(dollars in thousands)

7/30/2024	7/30/2025	Derivatives - Assets	$77,600	2.13%	$317	N/A
7/30/2024	7/30/2025	Derivatives - Assets	33,100	2.63%	390	N/A
7/30/2024	7/30/2025	Derivatives - Assets	28,254	2.64%	342	N/A
7/30/2024	7/30/2025	Derivatives - Assets	66,247	2.14%	278	N/A
7/30/2024	1/29/2026	Derivatives - Assets	20,750	2.62%	384	N/A
7/30/2024	1/29/2026	Derivatives - Assets	41,700	2.12%	335	N/A
7/30/2024	1/30/2026	Derivatives - Assets	36,546	2.14%	301	N/A
7/30/2024	1/30/2026	Derivatives - Assets	18,453	2.64%	350	N/A
7/30/2024	7/30/2026	Derivatives - Assets	16,100	2.63%	385	N/A
7/30/2024	7/30/2026	Derivatives - Assets	29,800	2.13%	348	N/A
7/30/2024	7/30/2026	Derivatives - Assets	25,971	2.14%	309	N/A
7/30/2024	7/30/2026	Derivatives - Assets	14,280	2.64%	347	N/A
			$408,801		$4,086	N/A

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 an upstream counterparty. Additionally, the Company receives an upfront, non-refundable fee from the upstream 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:


· · · · September 30, 2024 · · December 31, 2023
· · · Notional Amount · · Estimated Fair Value · · Notional Amount · · Estimated Fair Value
· · · (dollars in thousands)
Non-Hedging Interest Rate Derivatives Assets:
Interest rate swap contracts	$3,898,579	$255,740	$3,308,024	$181,854
Non-Hedging Interest Rate Derivatives Liabilities:
Interest rate swap contracts	$3,898,579	$255,740	$3,308,024	$181,854

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, 2024 and 2023 are as follows:


· · Three Months Ended September 30, 2024 · · Three Months Ended September 30, 2023
· · 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	$125,420	$65,698	$108,568	$53,313

The effects of cash flow hedging:
Gain on interest rate caps on deposits	-	(1,029)	-	(2,066)
Gain on interest rate swaps on junior subordinated debentures	-	(339)	-	(328)
Loss on interest rate swaps and collars on loans	(3,000)	-	(2,495)	-

The effects of fair value hedging:
Gain on interest rate swaps on loans	968	-	828	-


· · Nine Months Ended September 30, 2024 · · · Nine Months Ended September 30, 2023 ·
· · 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	$360,215	$189,631		$301,162	$135,892

The effects of cash flow hedging:
Gain on interest rate caps on deposits	-	(3,184)		-	(5,522)
Gain on interest rate swaps on junior subordinated debentures	-	(1,012)		-	(830)
Loss on interest rate swaps and collars on loans	(8,961)	-		(6,757)	-

The effects of fair value hedging:
Gain on interest rate swaps on loans	2,930	-		828	-

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, 2024 · · December 31, 2023
		(dollars in thousands)

Cash	$94,100		$51,680
U.S. govt. sponsored agency securities	6,571		6,413
Municipal securities	156,358		68,651
Residential mortgage-backed and related securities	19,855		23,358
	$276,884		$150,102

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 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. 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, below 65%. The Company does not currently anticipate any losses from failure of interest rate derivative counterparties to honor their obligations.

NOTE 6 – 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, 2024 and 2023:


· · For the Three Months Ended September 30, · · · For the Nine Months Ended September 30, · ·
· · 2024 · · 2023 · · · 2024 · · 2023 · ·
		% of		% of		% of		% of
		Pretax		Pretax		Pretax		Pretax
· Amount · Income · Amount · Income · · Amount · Income · Amount · Income ·
· · (dollars in thousands) · · · (dollars in thousands) · ·

Computed "expected" tax expense	$6,264	21.0%	$5,661	21.0%	$18,773	21.0%	$18,751	21.0%
Tax exempt income, net	(4,204)	(14.1)	(3,705)	(13.7)	(11,965)	(13.4)	(10,103)	(11.3)
Bank-owned life insurance	(171)	(0.6)	(376)	(1.4)	(975)	(1.1)	(700)	(0.8)
State income taxes, net of federal benefit, current year	1,084	3.6	955	3.5	3,186	3.6	3,383	3.8
Tax credits	(26)	(0.1)	(202)	(0.7)	(77)	(0.1)	(411)	(0.5)
Income from tax credit equity investments	(546)	(1.8)	(449)	(1.7)	(1,639)	(1.8)	(1,340)	(1.5)
Excess tax benefit on stock options exercised and restricted stock awards vested	(310)	(1.0)	(7)	—	(834)	(0.9)	(451)	(0.5)
Other	(46)	(0.1)	(37)	(0.2)	(698)	(0.8)	(540)	(0.6)
Federal and state income tax expense	$2,045	6.9%	$1,840	6.8%	$5,771	6.5%	$8,589	9.6%

Effective January 1, 2024, the Company made an election under ASU 2023-02 to account for its LIHTC investments using the proportional amortization method under newly adopted accounting guidance. Under the proportional amortization method, the Company applies a practical expedient for its LIHTC investments and amortizes the initial cost of the qualifying investments in proportion to the income tax credits received in the current period as compared to the total income tax credits expected to be received over the life of the investment. For LIHTC investments, the Company amortized the initial cost of qualifying investments in proportion to the income tax credits and other income tax benefits received in the current period.

The following table summarizes the impact to the Consolidated Statements of Operations relative to the Company’s tax credit programs for which it has elected to apply the proportional amortization method of accounting:


· · For the Three Months Ended · · For the Nine Months Ended ·
· · September 30, 2024 · · June 30, 2024 · · September 30, 2023 · · September 30, 2024 · · September 30, 2023 ·
		(dollars in thousands)				(dollars in thousands)

Tax credits recognized	$2,159		$2,115	$1,462	$6,478		$4,366
Other tax benefits recognized	671		613	515	2,013		1,537
Amortization	(2,076)		(2,092)	(1,203)	(6,229)		(3,783)
Net benefit included in income tax	754		636	774	2,262		2,120

Other income	—		—	—	—		—
Allocated income on investments	—		—	—	—		—
Net benefit included in noninterest income	—		—	—	—		—

Net benefit included in the Consolidated Statements of Operations	$754		$636	$774	$2,262		$2,120

The Company did not recognize impairment losses resulting from the forfeiture or ineligibility of income tax credits or other circumstances during the three and nine months ending September 30, 2024 and 2023.

NOTE 7 - 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, · ·
· · · 2024 · · 2023 · · 2024 · · 2023 · ·
· · (dollars in thousands, except share data) · ·

Net income	$27,785	$25,121	$83,625	$80,703


Basic EPS	$1.65	$1.50	$4.97	$4.82
Diluted EPS	$1.64	$1.49	$4.94	$4.79

Weighted average common shares outstanding	16,846,200	16,717,303	16,814,787	16,731,847
Weighted average common shares issuable upon exercise of stock options
and under the employee stock purchase plan	136,200	130,648	123,522	131,356
Weighted average common and common equivalent shares outstanding	16,982,400	16,847,951	16,938,309	16,863,203

NOTE 8 – 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, 2024 and December 31, 2023:


· · · · · Fair Value Measurements at Reporting Date Using
· · · · · Quoted Prices · · Significant · · ·
· · · · · in Active · · Other · · Significant
· · · · · Markets for · · Observable · · Unobservable
· · · · · Identical Assets · · Inputs · · Inputs
· Fair Value · (Level 1) · (Level 2) · (Level 3)
· · (dollars in thousands)
September 30, 2024: · · · ·
Securities AFS: · · · ·
U.S. treasuries and govt. sponsored agency securities	$18,621	$—	$18,621	$—
Residential mortgage-backed and related securities	53,487	—	53,487	—
Municipal securities	171,162	—	171,162	—
Asset-backed securities	10,455	—	10,455	—
Other securities	38,140	—	38,140	—
Securities trading	58,685	—	—	58,685
Derivatives	261,913	—	261,913	—
Total assets measured at fair value	$612,463	$—	$553,778	$58,685

Derivatives	$285,769	$—	$285,769	$—
Total liabilities measured at fair value	$285,769	$—	$285,769	$—


December 31, 2023:
Securities AFS:
U.S. govt. sponsored agency securities	$14,973	$—	$14,973	$—
Residential mortgage-backed and related securities	59,196	—	59,196	—
Municipal securities	170,987	—	170,987	—
Asset-backed securities	15,423	—	15,423	—
Other securities	39,076	—	39,076	—
Securities trading	22,369	—	—	22,369
Derivatives	187,341	—	187,341	—
Total assets measured at fair value	$509,365	$—	$486,996	$22,369

Derivatives	$215,735	$—	$215,735	$—
Total liabilities measured at fair value	$215,735	$—	$215,735	$—

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, SOFR yield curve, credit spreads and prices from market makers and live trading systems (Level 2 inputs).

Trading securities consist of retained beneficial interests from securitizations and are classified as a Level 3 in the fair value hierarchy. Fair values are estimated using the discounted cash flow method, including discount rates which are deemed to be significant unobservable inputs. As of September 30, 2024, the discount rates ranged from 5.86% to 7.12%.

There were no trading securities as of September 30, 2024. Changes in fair value of trading securities for the three and nine months ended September 30, 2024, respectively, are presented as follows:


· For the · · · · For the ·
· Three Months Ended · · · · Nine Months Ended ·
· September 30, 2024 · · · · September 30, 2024 ·
· (dollars in thousands)

Balance at the beginning of the period	$22,362	$22,369
Trading securities purchased	36,670	36,670
Fair value gain (loss)	(347)	(354)
Balance at the end of the period	$58,685	$58,685

Interest rate caps, swaps, swaptions and collars are used for the purpose of hedging interest rate risk on various financial assets and liabilities, further described in Note 4 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).

Assets measured at fair value on a non-recurring basis comprised the following at September 30, 2024 and December 31, 2023:


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

September 30, 2024: · · · ·
Loans/leases evaluated individually	$36,118	$—		$—	$36,118
Loans receivable held for sale in preparation for securitization	165,941	—		—	165,941
OREO	399	—		—	399
Other repossessed assets	610	—		—	610
	$203,068	$—		$—	$203,068

December 31, 2023:
Loans/leases evaluated individually	$33,656	$—		$—	$33,656
OREO	1,455	—		—	1,455
	$35,111	$—		$—	$35,111

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 comprised of 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 in preparation for securitization 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 settlement 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 acquired is generally 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 property.

Other repossessed assets in the table above consists of equipment acquired through repossession and settlement 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 acquired is generally determined based on current average auction prices database used by a national auction company hired by the Company.

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
· · Fair Value · · Fair Value · · · · · · · · · ·
· · September 30, · · December 31, · · · · · · · · · ·
· 2024 · 2023 · Valuation Technique · Unobservable Input · Range ·
· · (dollars in thousands) ·

Loans/leases evaluated individually	$36,118	$33,656	Appraisal of collateral	Appraisal adjustments	-10.00%	to	-30.00%
Loans receivable held for sale in preparation for securitization	165,941	—	Market prices for similar loans	Market price adjustments		n/a
OREO	399	1,455	Appraisal of collateral	Appraisal adjustments	0.00%	to	-35.00%
Other repossessed assets	610	—	Average auction prices	Market price adjustments		n/a

For the loans/leases evaluated individually and OREO, 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 loans receivable held for sale in preparation for securitization, 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 and nine months ended September 30, 2024 and 2023.

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, 2024 · · As of December 31, 2023
· · Hierarchy · · Carrying · · Estimated · · Carrying · · Estimated
· Level · Value · Fair Value · Value · Fair Value
· · · · (dollars in thousands)

Cash and due from banks	Level 1	$103,840	$103,840	$97,123	$97,123
Federal funds sold	Level 2	13,200	13,200	35,450	35,450
Interest-bearing deposits at financial institutions	Level 2	145,959	145,959	104,919	104,919
Investment securities:
HTM	Level 2	795,496	791,659	683,504	680,279
AFS	Level 2	291,865	291,865	299,655	299,655
Trading	Level 3	58,685	58,685	22,369	22,369
Loans/leases receivable, net	Level 3	33,443	36,118	31,163	33,656
Loans/leases receivable, net	Level 2	6,709,038	6,483,278	6,425,053	6,125,433
Derivatives	Level 2	261,913	261,913	187,341	187,341

Deposits:
Nonmaturity deposits	Level 2	5,749,506	5,749,506	5,504,323	5,504,323
Time deposits	Level 2	1,235,127	1,235,442	1,009,682	996,746
Short-term borrowings	Level 2	2,750	2,750	1,500	1,500
FHLB advances	Level 2	375,383	377,501	435,000	437,178
Subordinated notes	Level 2	233,383	238,978	233,064	240,235
Junior subordinated debentures	Level 2	48,828	41,114	48,731	40,397
Derivatives	Level 2	285,769	285,769	215,735	215,735

NOTE 9 – 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 thefour 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.

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, 2024 and 2023:


· · Commercial Banking · · · · Intercompany · · Consolidated
· QCBT · CRBT · CSB · GB · All other · Eliminations · Total
· · (dollars in thousands)
Three Months Ended September 30, 2024 · · · · · · · · · · · · · · · · · · ·
Total revenue	$43,685	$48,327	$22,470	$38,120	$35,493	$(35,518)	$152,577
Net interest income	18,775	18,456	11,745	14,589	(4,232)	389	59,722
Provision for credit losses	2,537	1,696	(186)	(563)	—	—	3,484
Net income (loss) from continuing operations	4,911	15,946	5,527	7,531	28,339	(34,469)	27,785
Goodwill	2,791	14,980	9,888	110,936	—	—	138,595
Intangibles	—	692	1,006	10,053	—	—	11,751
Total assets	2,552,962	2,625,943	1,519,585	2,360,301	1,304,717	(1,274,943)	9,088,565

Three Months Ended September 30, 2023
Total revenue	$38,165	$43,592	$19,225	$34,498	$31,878	$(32,197)	$135,161
Net interest income	17,198	16,852	11,136	13,743	(3,958)	284	55,255
Provision for credit losses	2,686	503	275	342	—	—	3,806
Net income (loss) from continuing operations	5,856	13,175	4,740	6,801	25,641	(31,092)	25,121
Goodwill	3,223	14,980	9,888	110,936	—	—	139,027
Intangibles	—	950	1,579	12,008	—	—	14,537
Total assets	2,433,084	2,442,263	1,417,249	2,242,638	1,146,137	(1,141,314)	8,540,057

Nine Months Ended September 30, 2024
Total revenue	$125,933	$146,469	$64,459	$109,669	$106,457	$(107,868)	$445,119
Net interest income	53,463	52,464	34,104	41,965	(12,515)	1,103	170,584
Provision for credit losses	8,990	3,490	47	(578)	—	—	11,949
Net income (loss) from continuing operations	15,371	51,725	14,603	20,803	85,329	(104,206)	83,625
Goodwill	2,791	14,980	9,888	110,936	—	—	138,595
Intangibles	—	692	1,006	10,053	—	—	11,751
Total assets	2,552,962	2,625,943	1,519,585	2,360,301	1,304,717	(1,274,943)	9,088,565

Nine Months Ended September 30, 2023
Total revenue	$106,664	$138,018	$53,126	$90,443	$101,472	$(103,606)	$386,117
Net interest income	50,590	50,254	32,683	42,716	(11,911)	938	165,270
Provision for credit losses	7,879	2,499	965	(3)	—	—	11,340
Net income (loss) from continuing operations	17,710	48,928	14,113	17,344	82,266	(99,658)	80,703
Goodwill	3,223	14,980	9,888	110,936	—	—	139,027
Intangibles	—	950	1,579	12,008	—	—	14,537
Total assets	2,433,084	2,442,263	1,417,249	2,242,638	1,146,137	(1,141,314)	8,540,057

NOTE 10 – 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, Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets, each as defined by regulation. Management believes, as of September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023 are presented in the following tables (dollars in thousands). As of September 30, 2024 and December 31, 2023, each of the subsidiary banks met such capital requirements to be “well capitalized.”

· · · · · · · · · · · · · · · · · · · · ·
· · · · · · · · · · · · For Capital Adequacy · · To Be Well Capitalized
· · · · · · · For Capital · · Purposes With Capital · · Under Prompt Corrective
· · Actual · · Adequacy Purposes · · Conservation Buffer · · Action Provisions
· Amount · Ratio · Amount · · Ratio · Amount · · Ratio · Amount · · Ratio ·
· · ( dollars in thousands) ·
As of September 30, 2024: · · · · · · · · · · · · · · · · · · · · ·
Company: · · · · · · · · · · · · · · · · · · · · ·
Total risk-based capital	$1,243,438	13.87%	$717,351	>	8.00%	$941,523	>	10.50%	$896,689	>	10.00%
Tier 1 risk-based capital	926,516	10.33	538,013	>	6.00	762,185	>	8.50	717,351	>	8.00
Tier 1 leverage	926,516	10.50	352,823	>	4.00	352,823	>	4.00	441,029	>	5.00
Common equity Tier 1	877,688	9.79	403,510	>	4.50	627,682	>	7.00	582,848	>	6.50
Quad City Bank & Trust:
Total risk-based capital	$316,500	13.23%	$191,451	>	8.00%	$251,280	>	10.50%	$239,314	>	10.00%
Tier 1 risk-based capital	286,547	11.97	143,588	>	6.00	203,417	>	8.50	191,451	>	8.00
Tier 1 leverage	286,547	11.19	102,468	>	4.00	102,468	>	4.00	128,085	>	5.00
Common equity Tier 1	286,547	11.97	107,691	>	4.50	167,520	>	7.00	155,554	>	6.50
Cedar Rapids Bank & Trust:
Total risk-based capital	$434,183	14.64%	$237,243	>	8.00%	$311,381	>	10.50%	$296,554	>	10.00%
Tier 1 risk-based capital	406,490	13.71	177,932	>	6.00	252,071	>	8.50	237,243	>	8.00
Tier 1 leverage	406,490	16.17	100,568	>	4.00	100,568	>	4.00	125,710	>	5.00
Common equity Tier 1	406,490	13.71	133,449	>	4.50	207,588	>	7.00	192,760	>	6.50
Community State Bank:
Total risk-based capital	$184,706	12.91%	$114,468	>	8.00%	$150,239	>	10.50%	$143,085	>	10.00%
Tier 1 risk-based capital	171,356	11.98	85,851	>	6.00	121,622	>	8.50	114,468	>	8.00
Tier 1 leverage	171,356	11.47	59,760	>	4.00	59,760	>	4.00	74,700	>	5.00
Common equity Tier 1	171,356	11.98	64,388	>	4.50	100,159	>	7.00	93,005	>	6.50
Guaranty Bank:
Total risk-based capital	$289,189	13.78%	$167,886	>	8.00%	$220,350	>	10.50%	$209,857	>	10.00%
Tier 1 risk-based capital	266,765	12.71	125,914	>	6.00	178,379	>	8.50	167,886	>	8.00
Tier 1 leverage	266,765	11.89	89,727	>	4.00	89,727	>	4.00	112,159	>	5.00
Common equity Tier 1	266,765	12.71	94,436	>	4.50	146,900	>	7.00	136,407	>	6.50

· · · · · · · · · · · · · · · · · · · · ·
· · · · · · · · · · · · For Capital Adequacy · · To Be Well Capitalized
· · · · · · · For Capital · · Purposes With Capital · · Under Prompt Corrective
· · Actual · · Adequacy Purposes · · Conservation Buffer · · Action Provisions
· Amount · Ratio · Amount · · Ratio · Amount · · Ratio · Amount · · Ratio
· · ( dollars in thousands) ·
As of December 31, 2023: · · · · · · · · · · · · · · · · · · · · ·
Company: · · · · · · · · · · · · · · · · · · · · ·
Total risk-based capital	$1,171,047	14.29%	$655,461	>	8.00%	$860,293	>	10.50%	$819,327	>	10.00%
Tier 1 risk-based capital	841,052	10.27	491,596	>	6.00	696,428	>	8.50	655,461	>	8.00
Tier 1 leverage	841,052	10.03	335,420	>	4.00	335,420	>	4.00	419,275	>	5.00
Common equity Tier 1	792,321	9.67	368,697	>	4.50	573,529	>	7.00	532,562	>	6.50
Quad City Bank & Trust:
Total risk-based capital	$300,413	12.67%	$189,707	>	8.00%	$248,990	>	10.50%	$237,133	>	10.00%
Tier 1 risk-based capital	270,744	11.42	142,280	>	6.00	201,563	>	8.50	189,707	>	8.00
Tier 1 leverage	270,744	11.23	96,425	>	4.00	96,425	>	4.00	120,531	>	5.00
Common equity Tier 1	270,744	11.42	106,710	>	4.50	165,993	>	7.00	154,137	>	6.50
Cedar Rapids Bank & Trust:
Total risk-based capital	$381,514	15.60%	$195,687	>	8.00%	$256,840	>	10.50%	$244,609	>	10.00%
Tier 1 risk-based capital	354,940	14.51	146,766	>	6.00	207,918	>	8.50	195,687	>	8.00
Tier 1 leverage	354,940	14.77	96,093	>	4.00	96,093	>	4.00	120,116	>	5.00
Common equity Tier 1	354,940	14.51	110,074	>	4.50	171,227	>	7.00	158,996	>	6.50
Community State Bank:
Total risk-based capital	$171,747	13.22%	$103,903	>	8.00%	$136,372	>	10.50%	$129,878	>	10.00%
Tier 1 risk-based capital	156,629	12.06	77,927	>	6.00	110,397	>	8.50	103,903	>	8.00
Tier 1 leverage	156,629	11.19	56,005	>	4.00	56,005	>	4.00	70,007	>	5.00
Common equity Tier 1	156,629	12.06	58,445	>	4.50	90,915	>	7.00	84,421	>	6.50
Guaranty Bank:
Total risk-based capital	$267,822	12.68%	$168,967	>	8.00%	$221,770	>	10.50%	$211,209	>	10.00%
Tier 1 risk-based capital	244,506	11.58	126,726	>	6.00	179,528	>	8.50	168,967	>	8.00
Tier 1 leverage	244,506	11.41	85,688	>	4.00	85,688	>	4.00	107,110	>	5.00
Common equity Tier 1	244,506	11.58	95,044	>	4.50	147,847	>	7.00	137,286	>	6.50

NOTE 11 - COMMITMENTS

The Company entered into a construction contract in 2023 for the construction of a new CRBT facility in Cedar Rapids, Iowa. The Company will pay the contractor a contract price of approximately $17.0 million, subject to additions and deductions as provided in the contract documents. As of September 30, 2024, the Company has paid $12.6 million of the contract price, resulting in a remaining future commitment of $4.4 million. Construction is anticipated to be completed in the fourth quarter of 2024.

The Company entered into a construction contract in 2024 for the construction of a new CSB facility in Ankeny, Iowa. The Company will pay the contractor a contract price of approximately $41.3 million, subject to certain agreed upon additions and deductions. As of September 30, 2024, the Company has paid $2.1 million of the contract price, resulting in a remaining future commitment of $39.2 million. Construction is anticipated to be completed in 2026.

Part I

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