QCR HOLDINGS INC

The ACL is established through provision expense to provide an estimated ACL. The following table shows the components of the provision for credit losses for the three and nine months ended September 30, 2024 and 2023:

The Company had a total provision for credit losses on loans and leases of $3.8 million for the third quarter of 2024, which is an increase from $3.3 million for the same period of 2023, primarily driven by loan growth during the quarter. The provision related to OBS was negative $344 thousand for the third quarter of 2024 compared to $546 thousand for the third quarter of 2023. The decrease was due to a decreased balance in unfunded commitments, improved credit quality and updates to the CECL model factors. There was no provision related to HTM securities for the third quarter of 2024 or 2023. There was no provision related to AFS securities for the third quarter of 2024 or 2023.

Provision for loans and leases for the first nine months of 2024 totaled $11.9 million, an increase from $9.0 million for the first nine months of 2023. The increase in provision on loans and leases was primarily driven by loan growth. The provision related to OBS was $487 thousand for the first nine months of 2024 compared to a provision related to OBS of $1.3 million for the first nine months of 2023. The decrease was due to a decreased balance in unfunded commitments, improved credit quality and updates to the CECL model factors. There was no provision related to HTM securities for the first nine months of 2024 or 2023. There was a provision of $989 thousand and negative provision of $445 thousand on AFS securities for the first nine months of 2023 and 2024, respectively, resulting from the write off in 2023 and subsequent change in fair value in 2024, of a debt investment in a failed bank. This was a legacy investment acquired as part of the 2022 GFED acquisition in which an allowance was established for the entire balance of the bond in March 2023 and due to favorable changes in market conditions during 2024, partially recovered in value and was then sold during the first quarter of 2024.

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

Part I

Item 2

The Company had an ACL for loans/leases held for investment of 1.30% of total gross loans/leases held for investment at September 30, 2024, compared to 1.33% at June 30, 2024 and 1.39% at September 30, 2023. Management has evaluated the allowance needed on the loans acquired prior to the adoption of ASU 2016-13 on January 1, 2021, factoring in the remaining discount, which was $2.8 million and $4.6 million at September 30, 2024 and September 30, 2023, respectively.

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