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What changed in QCR HOLDINGS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of QCR HOLDINGS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+364 added−330 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in QCR HOLDINGS INC's 2023 10-K

364 paragraphs added · 330 removed · 284 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

52 edited+6 added−1 removed45 unchanged
Biggest changeResidential real estate loans held for sale are included in residential real estate loans below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ ​ QCBT ​ CRBT ​ CSB ​ GB ​ Total ​ $ % $ % $ % $ % $ ​ % ​ ​ (dollars in thousands) As of December 31, 2022 ​ ​ ​ ​ ​ ​ C&I - revolving ​ $ 63,071 3 % $ 111,319 7 % $ 54,323 5 % $ 68,156 4 % $ 296,869 5 % C&I - other ​ 640,472 35 % 453,829 28 % 168,816 17 % 188,576 11 % 1,451,693 24 % CRE - owner occupied ​ ​ 145,528 ​ 8 % ​ 144,399 ​ 9 % ​ 66,890 ​ 7 % ​ 272,550 ​ 16 % ​ 629,367 10 % CRE - non-owner occupied ​ ​ 166,349 ​ 10 % ​ 216,756 ​ 12 % ​ 163,960 ​ 17 % ​ 416,174 ​ 25 % ​ 963,239 16 % Construction and land development ​ ​ 283,088 ​ 15 % ​ 290,282 ​ 18 % ​ 326,811 ​ 33 % ​ 291,880 ​ 17 % ​ 1,192,061 18 % Multi-family ​ ​ 274,991 ​ 15 % ​ 334,408 ​ 20 % ​ 127,184 ​ 13 % ​ 227,220 ​ 14 % ​ 963,803 16 % Direct financing leases ​ 31,889 2 % — — % — — % — — % 31,889 1 % 1-4 family real estate ​ 191,753 10 % 76,842 5 % 66,145 7 % 164,789 10 % 499,529 8 % Consumer ​ 31,126 2 % 17,154 1 % 14,241 1 % 47,900 3 % 110,421 2 % ​ ​ $ 1,828,267 100 % $ 1,644,989 100 % $ 988,370 100 % $ 1,677,245 % 100 % $ 6,138,871 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2021 ​ ​ ​ ​ ​ ​ C&I - revolving ​ $ 69,179 4 % $ 92,757 7 % $ 56,072 7 % $ 30,475 4 % $ 248,483 5 % C&I - other ​ ​ 602,451 ​ 37 % ​ 437,200 ​ 30 % ​ 194,357 ​ 22 % ​ 112,594 ​ 16 % ​ 1,346,602 ​ 29 % CRE - owner occupied ​ ​ 114,927 ​ 7 % ​ 145,895 ​ 10 % ​ 75,322 ​ 9 % ​ 85,557 ​ 12 % ​ 421,701 ​ 9 % CRE - non-owner occupied ​ 171,444 9 % 202,051 14 % 122,690 14 % 150,315 21 % 646,500 14 % Construction and land development ​ ​ 291,000 ​ 18 % ​ 240,790 ​ 17 % ​ 243,126 ​ 28 % ​ 143,655 ​ 20 % ​ 918,571 ​ 19 % Multi-family ​ ​ 153,977 ​ 9 % ​ 228,083 ​ 16 % ​ 100,186 ​ 12 % ​ 118,166 ​ 16 % ​ 600,412 ​ 13 % Direct financing leases ​ 45,191 3 % — — % — — % — — % 45,191 1 % 1-4 family real estate ​ 177,227 11 % 73,821 5 % 64,767 7 % 61,546 8 % 377,361 8 % Consumer ​ 24,837 2 % 17,211 1 % 10,432 1 % 22,831 3 % 75,311 2 % ​ ​ $ 1,650,233 100 % $ 1,437,808 100 % $ 866,952 100 % $ 725,139 100 % $ 4,680,132 100 % ​ Proper pricing of loans is necessary to provide adequate return to the Company’s stockholders.
Biggest changeResidential real estate loans held for sale are included in residential real estate loans below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ ​ QCBT ​ CRBT ​ CSB ​ GB ​ Total ​ $ % $ % $ % $ % $ ​ % ​ ​ (dollars in thousands) As of December 31, 2023 ​ ​ ​ ​ ​ ​ C&I - revolving ​ $ 87,872 4 % $ 97,521 6 % $ 66,266 6 % $ 73,584 4 % $ 325,243 5 % C&I - other ​ 642,722 32 % 435,543 25 % 173,912 16 % 229,601 13 % 1,481,778 23 % CRE - owner occupied ​ ​ 150,153 ​ 8 % ​ 147,138 ​ 9 % ​ 81,241 ​ 7 % ​ 228,833 ​ 13 % ​ 607,365 9 % CRE - non-owner occupied ​ ​ 180,415 ​ 9 % ​ 221,333 ​ 13 % ​ 179,411 ​ 16 % ​ 427,733 ​ 24 % ​ 1,008,892 16 % Construction and land development ​ ​ 395,851 ​ 20 % ​ 334,479 ​ 20 % ​ 327,720 ​ 31 % ​ 362,475 ​ 21 % ​ 1,420,525 22 % Multi-family ​ ​ 244,910 ​ 12 % ​ 354,259 ​ 21 % ​ 166,978 ​ 15 % ​ 229,996 ​ 13 % ​ 996,143 15 % Direct financing leases ​ 31,164 2 % — — % — — % — — % 31,164 — % 1-4 family real estate ​ 212,408 11 % 89,980 5 % 87,741 8 % 154,842 9 % 544,971 8 % Consumer ​ 38,184 2 % 18,194 1 % 15,993 1 % 54,964 3 % 127,335 2 % ​ ​ $ 1,983,679 100 % $ 1,698,447 100 % $ 1,099,262 100 % $ 1,762,028 % 100 % $ 6,543,416 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2022 ​ ​ ​ ​ ​ ​ C&I - revolving ​ $ 63,071 3 % $ 111,319 7 % $ 54,323 5 % $ 68,156 4 % $ 296,869 5 % C&I - other ​ ​ 640,472 ​ 35 % ​ 453,829 ​ 28 % ​ 168,816 ​ 17 % ​ 188,576 ​ 11 % ​ 1,451,693 ​ 24 % CRE - owner occupied ​ ​ 145,528 ​ 8 % ​ 144,399 ​ 9 % ​ 66,890 ​ 7 % ​ 272,550 ​ 16 % ​ 629,367 ​ 10 % CRE - non-owner occupied ​ 166,349 10 % 216,756 12 % 163,960 17 % 416,174 25 % 963,239 16 % Construction and land development ​ ​ 283,088 ​ 15 % ​ 290,282 ​ 18 % ​ 326,811 ​ 33 % ​ 291,880 ​ 17 % ​ 1,192,061 ​ 18 % Multi-family ​ ​ 274,991 ​ 15 % ​ 334,408 ​ 20 % ​ 127,184 ​ 13 % ​ 227,220 ​ 14 % ​ 963,803 ​ 16 % Direct financing leases ​ 31,889 2 % — — % — — % — — % 31,889 1 % 1-4 family real estate ​ 191,753 10 % 76,842 5 % 66,145 7 % 164,789 10 % 499,529 8 % Consumer ​ 31,126 2 % 17,154 1 % 14,241 1 % 47,900 3 % 110,421 2 % ​ ​ $ 1,828,267 100 % $ 1,644,989 100 % $ 988,370 100 % $ 1,677,245 100 % $ 6,138,871 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proper pricing of loans is necessary to provide adequate return to the Company’s stockholders.
Following is a listing of these limits as well as some of the other guidelines included in the Company’s lending policy for the major categories of CRE loans: ​ ​ ​ ​ ​ ​ ​ Maximum CRE Loan Types ​ Maximum Advance Rate ** ​ Term CRE loans on improved property * 80% 7 years*** Raw land Lesser of 90% of project cost, or 65% of "as is" appraised value 12 months Land development Lesser of 85% of project cost, or 75% of "as-completed" appraised value 24 months Commercial construction loans Lesser of 85% of project cost, or 80% of "as-completed" appraised value 24 months Residential construction loans to builders**** Lesser of 90% of project cost, or 80% of "as-completed" appraised value 15 months LIHTC construction loans ​ 80% ​ 3 years LIHTC permanent loans 80% 20 years * Generally, the debt service coverage ratio must be a minimum of 1.25x for non-owner occupied loans and 1.15x for owner-occupied loans that are subject to a DSCR covenant.
The following is a listing of these limits as well as some of the other guidelines included in the Company’s lending policy for the major categories of CRE loans: ​ ​ ​ ​ ​ ​ ​ Maximum CRE Loan Types ​ Maximum Advance Rate ** ​ Term CRE loans on improved property * 80% 7 years*** Raw land Lesser of 90% of project cost, or 65% of "as is" appraised value 12 months Land development Lesser of 85% of project cost, or 75% of "as-completed" appraised value 24 months Commercial construction loans Lesser of 85% of project cost, or 80% of "as-completed" appraised value 24 months Residential construction loans to builders**** Lesser of 90% of project cost, or 80% of "as-completed" appraised value 15 months LIHTC construction loans ​ 80% ​ 3 years LIHTC permanent loans 80% 20 years * Generally, the debt service coverage ratio must be a minimum of 1.25x for non-owner occupied loans and 1.15x for owner-occupied loans that are subject to a DSCR covenant.
The Company’s operating results are affected by economic and competitive conditions, particularly changes in interest rates, government policies and the actions of regulatory authorities, as described more fully in this Form 10-K, including in Appendix A “Supervision and Regulation.” Its operating results also can be affected by trust fees, investment advisory and management fees, deposit service charge fees, swap fee income/capital markets revenue, gains on the sale of residential real estate and government guaranteed loans, earnings from BOLI and other noninterest income.
The Company’s operating results are affected by economic and competitive conditions, particularly changes in interest rates, government policies and the actions of regulatory authorities, as described more fully in this Form 10-K, including in Appendix A “Supervision and Regulation.” Its operating results also can be affected by trust fees, investment advisory and management fees, deposit service charge fees, capital markets revenue, gains on the sale of residential real estate and government guaranteed loans, earnings from BOLI and other noninterest income.
In addition, the banks have established policy limits around non-owner occupied CRE and total construction, land development and other land loans. ​ ​ ​ ​ ​ ​ ​ ​ 9 Table of Contents ​ ​ Non-owner CRE Loans/TRBC ​ Total Construction, Land Development and Other Land Loans/TRBC QCBT 300% 100% CRBT 400% 100% CSB 400% 200% GB 450% 100% ​ Although CSB’s loan portfolio has historically been real estate dominated and its total construction, land development and other land loans levels exceed these policy limits, it has established a Credit Risk Committee to routinely monitor its real estate loan portfolio.
In addition, the banks have established policy limits around non-owner occupied CRE and total construction, land development and other land loans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-owner CRE Loans/TRBC ​ Total Construction, Land Development and Other Land Loans/TRBC QCBT 300% 100% CRBT 400% 100% CSB 400% 200% GB 450% 100% 10 Table of Contents Although CSB’s loan portfolio has historically been real estate dominated and its total construction, land development and other land loans levels exceed these policy limits, it has established a Credit Risk Committee to routinely monitor its real estate loan portfolio.
The following private and public sector business assets are generally acceptable to consider for lease funding: ● Computer systems; ● Photocopy systems; ● Fire trucks; ● Specialized road maintenance equipment; ● Medical equipment; ● Commercial business furnishings; ● Vehicles classified as heavy equipment; ● Trucks and trailers; ● Equipment classified as plant or office equipment; and ● Marine boat lifts. m2 will generally refrain from funding leases of the following type: ● Leases collateralized by non-marketable items; ● Leases collateralized by consumer items, such as vehicles, household goods, recreational vehicles, boats, etc.; ● Leases collateralized by used equipment, unless its remaining useful life can be readily determined; and ● Leases with a repayment schedule exceeding seven years.
The following private and public sector business assets are generally acceptable to consider for lease funding: ● Computer systems; ● Photocopy systems; ● Fire trucks; ● Specialized road maintenance equipment; ● Medical equipment; ● Commercial business furnishings; ● Vehicles classified as heavy equipment; ● Trucks and trailers; ● Equipment classified as plant or office equipment; and ● Marine boat lifts. m2 will generally refrain from funding leases of the following type: ● Leases collateralized by non-marketable items; ● Leases collateralized by consumer items, such as vehicles, household goods, recreational vehicles, boats, etc.; ● Leases collateralized by used equipment, unless its remaining useful life can be readily determined; and 12 Table of Contents ● Leases with a repayment schedule exceeding seven years.
The Company’s Commercial Banking business is geographically divided by markets into the operating segments corresponding to the four subsidiary banks wholly owned by the Company: QCBT, CRBT, CSB and GB. See the Consolidated Financial Statements incorporated herein generally, and Note 22 to the Consolidated Financial Statements specifically, for additional business segment information.
The Company’s Commercial Banking business is geographically divided by markets into the operating segments corresponding to the four subsidiary banks wholly owned by the Company: QCBT, CRBT, CSB and GB. See the Consolidated Financial Statements incorporated herein generally, and Note 23 to the Consolidated Financial Statements specifically, for additional business segment information.
A few specific actions included rolling out a diversity survey for the third year to gather feedback from all employees, several diversity and inclusion sessions and workshops across our different entities facilitated by our Diversity Officer as well as the formation of Inclusion Committees across our different entities.
A few specific actions included rolling out a diversity survey for the fourth year to gather feedback from all employees, several inclusion sessions and workshops across our different entities facilitated by our Diversity Officer as well as the formation of Inclusion Committees across our different entities.
The Company’s lending policy specifies maximum loan-to-value limits based on the category of CRE (commercial real estate loans on improved property, raw land, land development, and commercial construction). These limits are the same limits as, or in some situations, more conservative than, those established by regulatory authorities.
The 9 Table of Contents Company’s lending policy specifies maximum loan-to-value limits based on the category of CRE (commercial real estate loans on improved property, raw land, land development, and commercial construction). These limits are the same limits as, or in some situations, more conservative than, those established by regulatory authorities.
The banks enter an interest rate swap with the commercial borrower and an equal and offsetting interest rate swap with a larger financial institution counterparty. The Company has increased its focus on this business which has led to significantly increased noninterest income, stronger overall loan growth, and improved management of its interest rate risk.
The banks enter an interest rate swap with the commercial borrower and an equal and offsetting interest rate 7 Table of Contents swap with a larger financial institution counterparty. The Company has increased its focus on this business which has led to significantly increased noninterest income, stronger overall loan growth, and improved management of its interest rate risk.
GB provides full-service commercial and consumer banking to the Springfield and Joplin, Missouri area and adjacent communities through its headquarters located in Springfield, Missouri and its 13 other branch facilities throughout the greater Springfield and Joplin area. GB had total segment assets of $2.15 billion as of December 31, 2022.
GB provides full-service commercial and consumer banking to the Springfield and Joplin, Missouri area and adjacent communities through its headquarters located in Springfield, Missouri and its 13 other branch facilities throughout the greater Springfield and Joplin area. GB had total segment assets of $2.28 billion and $2.15 billion as of December 31, 2023 and 2022, respectively.
Lastly, the Company has policy limits on maximum exposure amounts to single developers. ​ 10 Table of Contents A portion of the Company’s construction portfolio is considered non-residential construction.
Lastly, the Company has policy limits on maximum exposure amounts to single developers. ​ 11 Table of Contents A portion of the Company’s construction portfolio is considered non-residential construction.
In addition to competitive base wages, additional programs include annual bonus opportunities, an employee stock purchase plan, Company matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, sabbaticals, flexible work schedules, an employee assistance program, and various wellness programs. ​ The Company is committed to fostering and preserving a culture of diversity, equity, and inclusion, and believes its differences, of every kind, make the company and its communities better.
In addition to competitive base 13 Table of Contents wages, additional programs include annual bonus opportunities, an employee stock purchase plan, Company matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, sabbaticals, flexible work schedules, an employee assistance program, and various wellness programs. ​ The Company is committed to fostering and preserving a culture of inclusion, and believes its differences, of every kind, make the company and its communities better.
These filings are available at http://www.snl.com/IRW/Docs/1024092. Also available are many of the Company’s corporate governance documents, including its Business Code of Conduct and Ethics Policy (https://qcrh.q4ir.com/governance/documents/default.aspx).
These filings are available at http://www.snl.com/IRW/Docs/1024092. Also available are many of the Company’s corporate governance documents, including its Business Code of Conduct and Ethics Policy (https://qcrh.q4ir.com/governance/documents/default.aspx). 14 Table of Contents
QCBT, on a consolidated basis with m2, had total segment assets of $2.31 billion and $2.14 billion as of December 31, 2022 and 2021, respectively. CRBT is an Iowa-chartered commercial bank that is a member of the Federal Reserve System. The Company commenced operations in Cedar Rapids in June 2001, operating as a branch of QCBT.
QCBT, on a consolidated basis with m2, had total segment assets of $2.45 billion and $2.31 billion as of December 31, 2023 and 2022, respectively. CRBT is an Iowa-chartered commercial bank that is a member of the Federal Reserve System. The Company commenced operations in Cedar Rapids in June 2001, operating as a branch of QCBT.
Operating expenses include employee compensation and benefits, occupancy and equipment expense, professional and data processing fees, advertising and marketing expenses, bank service charges, FDIC and other insurance, loan/lease expenses and other administrative expenses. The Company and its subsidiaries collectively employed 973 and 726 FTEs at December 31, 2022 and 2021, respectively.
Operating expenses include employee compensation and benefits, occupancy and equipment expense, professional and data processing fees, advertising and marketing expenses, bank service charges, FDIC and other insurance, loan/lease expenses and other administrative expenses. The Company and its subsidiaries collectively employed 996 and 973 FTEs at December 31, 2023 and 2022, respectively.
At December 31, 2022, QCBT’s bank stock loans totaled 31% of risk-based capital. *** Policy limits are compared to average loan balances rather than the current balance for monitoring purposes. ​ 6 Table of Contents The following table presents total loans/leases by major loan/lease type and subsidiary as of December 31, 2022 and 2021.
At December 31, 2023, QCBT’s bank stock loans totaled 36% of risk-based capital. *** Policy limits are compared to average loan balances rather than the current balance for monitoring purposes. ​ The following table presents total loans/leases by major loan/lease type and subsidiary as of December 31, 2023 and 2022.
The Company is a relationship driven company and its ability to attract and retain exceptional employees is key to its success. As of December 31, 2022, the Company employed 924 full-time employees and 77 part-time employees across all locations.
The Company is a relationship driven company and its ability to attract and retain exceptional employees is key to its success. As of December 31, 2023, the Company employed 953 full-time employees and 77 part-time employees across all locations.
On April 2, 2022, GFED was merged into the Company and GFED’s wholly-owned bank subsidiary was merged into GB, 4 Table of Contents expanding GB’s footprint in southwest Missouri.
On April 2, 2022, GFED was merged into the Company and GFED’s wholly-owned bank subsidiary was merged into GB, expanding GB’s footprint in southwest Missouri.
Following is a listing of the Company’s non-consolidated subsidiaries formed for the issuance of trust preferred securities, including pertinent information as of December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount Outstanding Amount Outstanding ​ Interest ​ ​ Interest ​ ​ ​ ​ as of ​ as of ​ ​ ​ Rate as of ​ ​ Rate as of Name ​ Date Issued ​ December 31, 2022 ​ December 31, 2021 ​ Interest Rate ​ December 31, 2022 ​ ​ December 31, 2021 ​ ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ QCR Holdings Statutory Trust II February 2004 ​ $ 10,310 ​ $ 10,310 2.85% over 3-month LIBOR 6.52 % ​ ​ 3.07 % QCR Holdings Statutory Trust III February 2004 ​ 8,248 ​ 8,248 2.85% over 3-month LIBOR 6.52 % ​ ​ 3.07 % QCR Holdings Statutory Trust V February 2006 ​ 10,310 ​ 10,310 1.55% over 3-month LIBOR 5.63 % ​ ​ 1.67 % Community National Statutory Trust II September 2004 ​ 3,093 ​ 3,093 2.17% over 3-month LIBOR 6.92 % ​ ​ 2.38 % Community National Statutory Trust III March 2007 ​ 3,609 ​ 3,609 1.75% over 3-month LIBOR 6.52 % ​ ​ 1.95 % Guaranty Bankshares Statutory Trust I ​ May 2005 ​ ​ 4,640 ​ ​ 4,640 ​ 1.75% over 3-month LIBOR ​ 5.04 % ​ ​ 1.95 % Guaranty Statutory Trust II* December 2005 ​ 10,310 ​ N/A 1.45% over 3-month LIBOR 6.14 % ​ ​ N/A % ​ ​ ​ $ 50,520 ​ $ 40,210 Weighted Average Rate 6.29 % ​ ​ 2.43 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ * Assumed in acquisition of GFED. ​ Securities issued by all of the trusts listed above mature 30 years from the date of issuance, but are all currently callable at par at any time.
Following is a listing of the Company’s non-consolidated subsidiaries formed for the issuance of trust preferred securities, including pertinent information as of December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount Outstanding Amount Outstanding ​ Interest ​ ​ Interest ​ ​ ​ ​ as of ​ as of ​ ​ ​ Rate as of ​ ​ Rate as of Name ​ Date Issued ​ December 31, 2023 ​ December 31, 2022 ​ Interest Rate ​ December 31, 2023 ​ ​ December 31, 2022 ​ ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ QCR Holdings Statutory Trust II February 2004 ​ $ 10,310 ​ $ 10,310 2.85% over 3-month SOFR 8.44 % ​ ​ 6.52 % QCR Holdings Statutory Trust III February 2004 ​ 8,248 ​ 8,248 2.85% over 3-month SOFR 8.44 % ​ ​ 6.52 % QCR Holdings Statutory Trust V February 2006 ​ 10,310 ​ 10,310 1.55% over 3-month SOFR 7.21 % ​ ​ 5.63 % Community National Statutory Trust II September 2004 ​ 3,093 ​ 3,093 2.17% over 3-month SOFR 7.80 % ​ ​ 6.92 % Community National Statutory Trust III March 2007 ​ 3,609 ​ 3,609 1.75% over 3-month SOFR 7.40 % ​ ​ 6.52 % Guaranty Bankshares Statutory Trust I ​ May 2005 ​ ​ 4,640 ​ ​ 4,640 ​ 1.75% over 3-month SOFR ​ 7.40 % ​ ​ 6.52 % Guaranty Statutory Trust II* December 2005 ​ 10,310 ​ 10,310 1.45% over 3-month SOFR 7.09 % ​ ​ 6.14 % ​ ​ ​ $ 50,520 ​ $ 50,520 Weighted Average Rate 7.70 % ​ ​ 6.29 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ * Assumed in acquisition of GFED. ​ Securities issued by all of the trusts listed above mature 30 years from the date of issuance, but are all currently callable at par at any time.
Most of these will convert to LIHTC permanent loans upon completion of construction. Additionally, the Company had approximately $119.7 million and $78.0 million of residential construction loans outstanding as of December 31, 2022 and 2021, respectively.
Most of these will convert to LIHTC permanent loans upon completion of construction. Additionally, the Company had approximately $82.7 million and $119.7 million of residential construction loans outstanding as of December 31, 2023 and 2022, respectively.
Approved non-real estate collateral types and corresponding maximum advance percentages for each collateral type are listed below. ​ ​ ​ ​ Approved Collateral Type Maximum Advance % ​ ​ ​ Financial Instruments U.S.
Approved non-real estate collateral types and corresponding maximum advance percentages for each collateral type are listed below. 8 Table of Contents ​ ​ ​ ​ Approved Collateral Type Maximum Advance % ​ ​ ​ Financial Instruments U.S.
Included in originations is activity related to the refinancing of previously held in-house mortgages. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2022 2021 2020 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Originations of residential real estate loans ​ $ 148,845 ​ $ 249,892 ​ $ 281,662 ​ Sales of residential real estate loans ​ $ 103,705 ​ $ 201,638 ​ $ 234,512 ​ Percentage of sales to originations ​ 70 % 81 % 83 % ​ Installment and Other Consumer Lending The consumer lending department of each subsidiary bank provides many types of consumer loans, including home improvement, home equity, motor vehicle, signature loans and small personal credit lines.
Included in originations is activity related to the refinancing of previously held in-house mortgages. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2023 2022 2021 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Originations of residential real estate loans ​ $ 105,785 ​ $ 148,845 ​ $ 249,892 ​ Sales of residential real estate loans ​ $ 68,271 ​ $ 103,705 ​ $ 201,638 ​ Percentage of sales to originations ​ 65 % 70 % 81 % ​ Installment and Other Consumer Lending The consumer lending department of each subsidiary bank provides many types of consumer loans, including home improvement, home equity, motor vehicle, signature loans and small personal credit lines.
During recent years, the Company focused on several initiatives to promote diversity, equity, and inclusion across its organization.
During recent years, the Company focused on several initiatives to promote inclusion across its organization.
In addition, following are established policy limits and the actual allocations for the subsidiary banks as of December 31, 2022 for the loan portfolio organized by loan type, reflected as a percentage of the subsidiary bank’s gross loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ QCBT ​ CRBT ​ CSB ​ GB ​ ​ Maximum ​ Maximum ​ Maximum ​ Maximum ​ ​ ​ Percentage ​ As of ​ Percentage ​ As of ​ Percentage ​ As of ​ Percentage ​ As of ​ ​ per Loan ​ December 31, ​ per Loan ​ December 31, ​ per Loan ​ December 31, ​ per Loan ​ December 31, ​ Type of Loan * Policy*** ​ 2022 ​ Policy*** ​ 2022 ​ Policy*** ​ 2022 ​ Policy*** ​ 2022 ​ One-to-four family residential 30 % 12 % 25 % 5 % 35 % 8 % 30 % 12 % ​ Multi-family 15 % 15 % 15 % 20 % 15 % 13 % 20 % 14 % ​ Farmland 5 % 1 % 5 % — % 15 % 1 % 5 % 5 % ​ Non-farm, nonresidential 50 % 15 % 50 % 22 % 50 % 22 % 50 % 36 % ​ Construction and land development 20 % 15 % 15 % 18 % 35 % 33 % 15 % 18 % ​ C&I 60 % 29 % 60 % 30 % 50 % 17 % 25 % 12 % ​ Loans to individuals 10 % 1 % 10 % — % 10 % — % 5 % 1 % ​ Lease financing 30 % 2 % 5 % — % 5 % — % 5 % — % ​ Bank stock loans ** ​ ** ​ 10 % — % 10 % — % 20 % — % ​ All other loans 15 % 10 % 10 % 5 % 15 % 6 % 15 % 2 % ​ ​ 100 % 100 % 100 % 100 % ​ * The loan types above are as defined and reported in the subsidiary banks’ quarterly Reports of Condition and Income (also known as Call Reports). ** QCBT’s maximum percentage for bank stock loans is 150% of risk-based capital (bank stock loan commitments are limited to 200% of risk-based capital).
In addition, following are established policy limits and the actual allocations for the subsidiary banks as of December 31, 2023 for the loan portfolio organized by loan type, reflected as a percentage of the subsidiary bank’s gross loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ QCBT ​ CRBT ​ CSB ​ GB ​ ​ Maximum ​ Maximum ​ Maximum ​ Maximum ​ ​ ​ Percentage ​ As of ​ Percentage ​ As of ​ Percentage ​ As of ​ Percentage ​ As of ​ ​ per Loan ​ December 31, ​ per Loan ​ December 31, ​ per Loan ​ December 31, ​ per Loan ​ December 31, ​ Type of Loan * Policy*** ​ 2023 ​ Policy*** ​ 2023 ​ Policy*** ​ 2023 ​ Policy*** ​ 2023 ​ One-to-four family residential 30 % 12 % 25 % 6 % 25 % 9 % 30 % 11 % ​ Multi-family 15 % 12 % 15 % 21 % 25 % 15 % 20 % 13 % ​ Farmland 5 % 1 % 5 % — % 10 % 1 % 5 % 4 % ​ Non-farm, nonresidential 50 % 15 % 50 % 22 % 50 % 23 % 50 % 34 % ​ Construction and land development 20 % 20 % 15 % 20 % 35 % 30 % 15 % 21 % ​ C&I 60 % 27 % 60 % 26 % 50 % 16 % 25 % 13 % ​ Loans to individuals 10 % 1 % 10 % — % 10 % — % 5 % 1 % ​ Lease financing 30 % 2 % 5 % — % 5 % — % 5 % — % ​ Bank stock loans ** ​ — ​ 10 % — % 10 % — % 20 % — % ​ All other loans 15 % 10 % 10 % 5 % 15 % 6 % 15 % 3 % ​ ​ 100 % 100 % 100 % 100 % ​ * The loan types above are as defined and reported in the subsidiary banks’ quarterly Reports of Condition and Income (also known as Call Reports). ** QCBT’s maximum percentage for bank stock loans is 150% of risk-based capital (bank stock loan commitments are limited to 200% of risk-based capital).
Of this amount, approximately 61% was considered speculative, while 39% was pre-sold at December 31, 2022, and approximately 52% was considered speculative, while 48% was pre-sold at December 31, 2021. Direct Financing Leasing m2 leases machinery and equipment to C&I customers under direct financing leases.
Of this amount, approximately 60% was considered speculative, while 40% was pre-sold at December 31, 2023, and approximately 61% was considered speculative, while 39% was pre-sold at December 31, 2022. Direct Financing Leasing m2 leases machinery and equipment to C&I customers under direct financing leases.
In accordance with Missouri regulation, the legal lending limit to one borrower for GB, calculated as 15% of aggregate capital, totaled $36.5 million as of December 31, 2022. 5 Table of Contents The Company recognizes the need to prevent excessive concentrations of credit exposure to any one borrower or group of related borrowers.
In accordance with Missouri regulation, the legal lending limit to one borrower for GB, calculated as 15% of aggregate capital, totaled $40.2 million as of December 31, 2023. The Company recognizes the need to prevent excessive concentrations of credit exposure to any one borrower or group of related borrowers.
When appropriate, certain C&I loans may contain covenants requiring maintenance of financial performance ratios such as, but not limited to: ● Minimum debt service coverage ratio; ● Minimum current ratio; ● Maximum debt to tangible net worth ratio; and/or ● Minimum tangible net worth.
As part of the underwriting process, management reviews current borrower financial statements. When appropriate, certain C&I loans may contain covenants requiring maintenance of financial performance ratios such as, but not limited to: ● Minimum debt service coverage ratio; ● Minimum current ratio; ● Maximum debt to tangible net worth ratio; and/or ● Minimum tangible net worth.
The Company serves the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls, Des Moines/Ankeny and Springfield communities through the following four wholly-owned banking subsidiaries (collectively, the “Banks”), which provide full-service commercial and consumer banking and trust and asset management services: ● Quad City Bank & Trust (QCBT), which is based in Bettendorf, Iowa, and commenced operations in 1994; ● Cedar Rapids Bank & Trust (CRBT), which is based in Cedar Rapids, Iowa, and commenced operations in 2001; ● Community State Bank (CSB), which is based in Ankeny, Iowa, and was acquired in 2016; and ● Guaranty Bank (GB), which is based in Springfield, Missouri, and was acquired in 2018. ​ On April 1, 2022, the Company completed its acquisition of GFED and on April 2, 2022 merged Guaranty Bank into SFCB, the Company’s Springfield-based charter.
The Company serves the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls, Des Moines/Ankeny and Springfield communities through the following four wholly-owned banking subsidiaries (collectively, the “Banks”), which provide full-service commercial and consumer banking and trust and asset management services: ● Quad City Bank & Trust (QCBT), which is based in Bettendorf, Iowa, and commenced operations in 1994; ● Cedar Rapids Bank & Trust (CRBT), which is based in Cedar Rapids, Iowa, and commenced operations in 2001; ● Community State Bank (CSB), which is based in Ankeny, Iowa, and was acquired in 2016; and ● Guaranty Bank (GB), which is based in Springfield, Missouri, and was acquired in 2018.
In 2022, 90% of employees participated in the annual employee engagement survey, exceeding the Company goal of 80%, and the Company received a strong employee engagement score of 78%, above the national benchmark of 74%. 12 Table of Contents ​ The primary regions in which the subsidiary banks operate – the Quad Cities, Cedar Rapids, Marion, Waterloo/Cedar Falls, Des Moines, Iowa and Springfield/Joplin, Missouri – generally have strong labor markets, with unemployment rates of 3.1% and 2.8% in Iowa and Missouri, respectively. ​ ESG Commitment.
In 2023, 92% of employees participated in the annual employee engagement survey, exceeding the Company goal of 80%, and the Company received a strong employee engagement score of 78%, above the national benchmark of 75%. ​ The primary regions in which the subsidiary banks operate – the Quad Cities, Cedar Rapids, Marion, Waterloo/Cedar Falls, Des Moines, Iowa and Springfield/Joplin, Missouri – generally have strong labor markets, with unemployment rates of 3.3% and 3.3% in Iowa and Missouri, respectively as of December 2023. ​ ESG Commitment.
None of these had concentrations greater than $58 million, or 1.5%, of total CRE loans as of December 31, 2022.
None of these had concentrations greater than $62.2 million, or 1.5%, of total CRE loans as of December 31, 2023.
The Company recognizes that a diversified loan/lease portfolio contributes to reducing risk in the overall loan/lease portfolio. The specific loan/lease portfolio mix is subject to change based on loan/lease demand, the business environment and various economic factors. The Company actively monitors concentrations within the loan/lease portfolio to ensure appropriate diversification and concentration risk is maintained.
The Company recognizes that a diversified loan/lease portfolio contributes to reducing risk in the overall loan/lease portfolio. The specific loan/lease portfolio mix is subject to change based on loan/lease demand, the business environment and various economic factors.
The subsidiary banks structure most loans that will not conform to those underwriting requirements as adjustable rate mortgages that adjust in one to five years, 11 Table of Contents and then retain these loans in their portfolios. Servicing rights are generally not retained on the loans sold in the secondary market.
The subsidiary banks structure most loans that will not conform to those underwriting requirements as adjustable rate mortgages that adjust in one to five years, and then retain these loans in their portfolios. Servicing rights are generally not retained on the loans sold in the secondary market. The Company’s lending policy establishes minimum appraisal and other credit guidelines.
In accordance with Iowa regulation, the legal lending limit to one borrower for QCBT, CRBT and CSB, calculated as 15% of aggregate capital, was $39.6 million, $46.3 million, and $22.2 million, respectively, as of December 31, 2022.
In accordance with Iowa regulation, the legal lending limit to one borrower for QCBT, CRBT and CSB, calculated as 15% of aggregate capital, was $43.0 million, $55.9 million, and $26.6 million, respectively, as of December 31, 2023.
Following is a summary of industry concentrations within that category as of December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 ​ Amount % Amount % ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Multi-family ​ $ 821,442 82 % $ 627,101 77 % Industrial/warehouse ​ 38,882 4 % 28,191 4 % Office ​ 17,800 2 % 23,714 3 % Hotel/motel ​ 14,802 1 % 6,804 1 % Retail ​ 4,863 1 % 11,798 1 % Other ​ 99,852 10 % 113,786 14 % Total non-residential construction loans ​ $ 997,641 100 % $ 811,394 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Included in Multi-family non-residential construction is $721.6 million of LIHTC construction loans which provide financing for the construction of both new LIHTC real estate projects and the rehabilitation of existing LIHTC real estate projects.
Following is a summary of industry concentrations within that category as of December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ Amount % Amount % ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Multi-family ​ $ 1,013,908 81 % $ 821,442 82 % Industrial/warehouse ​ 36,676 3 % 38,882 4 % Office ​ 26,414 2 % 17,800 2 % Hotel/motel ​ 23,965 2 % 14,802 1 % Retail ​ 8,990 1 % 4,863 1 % Other ​ 139,144 11 % 99,852 10 % Total non-residential construction loans ​ $ 1,249,097 100 % $ 997,641 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Included in Multi-family non-residential construction is $911.4 million of LIHTC construction loans which provide financing for the construction of both new LIHTC real estate projects and the rehabilitation of existing LIHTC real estate projects.
Following is a breakdown of non-owner-occupied income-producing CRE by property type as of December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 ​ Amount % Amount % ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Multi-family ​ $ 1,613,440 58 % $ 1,231,937 58 % Office ​ 166,357 6 % 175,890 8 % Retail ​ 194,122 7 % 147,327 7 % Industrial/warehouse ​ 177,921 6 % 104,035 5 % Hotel/motel ​ 146,172 5 % 77,758 4 % Other ​ 514,639 18 % 373,872 18 % Total income-producing CRE ​ $ 2,812,651 100 % $ 2,110,819 100 % ​ Included in Multi-family non-owner occupied income-producing CRE is $1.3 billion of LIHTC loans which are financing for low-income housing tax credit real estate projects.
Following is a breakdown of non-owner-occupied income-producing CRE by property type as of December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ Amount % Amount % ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Multi-family ​ $ 1,743,020 58 % $ 1,613,440 58 % Industrial/warehouse ​ 205,904 7 % 177,921 6 % Retail ​ 185,394 6 % 194,122 7 % Office ​ 181,541 6 % 166,357 6 % Hotel/motel ​ 131,138 4 % 146,172 5 % Other ​ 574,736 19 % 514,639 18 % Total income-producing CRE ​ $ 3,021,733 100 % $ 2,812,651 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Included in Multi-family non-owner occupied income-producing CRE is $1.4 billion of LIHTC loans which are financing for low-income housing tax credit real estate projects.
Loan approval is generally based on the following factors: ● Ability and stability of current management of the borrower; ● Stable earnings with positive financial trends; ● Sufficient cash flow to support debt repayment; ● Earnings projections based on reasonable assumptions; ● Financial strength of the industry and business; and ● Value and marketability of collateral. 7 Table of Contents For C&I loans, the Company assigns internal risk ratings which are largely dependent upon the aforementioned approval factors.
Loan approval is generally based on the following factors: ● Ability and stability of current management of the borrower; ● Stable earnings with positive financial trends; ● Sufficient cash flow to support debt repayment; ● Earnings projections based on reasonable assumptions; ● Financial strength of the industry and business; and ● Value and marketability of collateral.
CSB had total segment assets of $1.30 billion and $1.17 billion as of December 31, 2022 and 2021, respectively. GB is a Missouri-chartered commercial bank that is a member of the Federal Reserve System. GB, formerly known as Springfield First Community Bank, was acquired by the Company in 2018 through a merger with Springfield Bancshares.
GB is a Missouri-chartered commercial bank that is a member of the Federal Reserve System. GB, formerly known as Springfield First Community Bank, was acquired by the Company in 2018 through a merger with Springfield Bancshares.
Total segment assets as of December 31, 2021 prior to the GFED acquisition were $882.88 million. Other Operating Subsidiaries. m2, which is based in Brookfield, Wisconsin, is engaged in the business of lending and leasing machinery and equipment to C&I businesses under direct financing lease contracts and equipment financing agreements. Trust Preferred Subsidiaries.
Other Operating Subsidiaries. m2, which is based in Waukesha, Wisconsin, is engaged in the business of lending and leasing machinery and equipment to C&I businesses under direct financing lease contracts and equipment financing agreements. Trust Preferred Subsidiaries.
The Company and its subsidiaries provide a broad range of commercial and retail lending/leasing and investment services to corporations, partnerships, individuals, and government agencies. The subsidiary banks actively market their services to qualified lending and deposit clients. Officers actively solicit the business of new clients entering their market areas as well as long-standing members of the local business community.
The subsidiary banks actively market their services to qualified lending and deposit clients. Officers actively solicit the business of new clients entering their market areas as well as long-standing members of the local business community.
Loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower. 8 Table of Contents Following is a summary of the five largest industry concentrations within the C&I portfolio as of December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 ​ ​ Amount ​ Amount ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ Lessors of residential buildings and dwellings ​ $ 309,784 ​ $ 387,818 Administration of urban planning and rural development ​ ​ 102,918 ​ ​ 120,416 Bank holding companies ​ 74,980 ​ 65,080 Solar electric power generation ​ ​ 35,947 ​ ​ 18,983 Industrial machinery and equipment merchant wholesalers ​ 34,808 ​ 28,123 ​ These loan categories are defined by industry-standard NAICS codes – refer to NAICS.com for a description of each category. ​ CRE Lending The subsidiary banks also make CRE loans.
The following is a summary of the five largest industry concentrations within the C&I portfolio as of December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ ​ Amount ​ Amount ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ Lessors of residential buildings and dwellings ​ $ 235,883 ​ $ 309,784 Solar electric power generation ​ ​ 115,862 ​ ​ 35,947 Bank holding companies ​ 109,966 ​ 74,980 Administration of urban planning and rural development ​ ​ 109,696 ​ ​ 102,918 Construction and mining (except oil well) machinery and equipment merchant wholesalers ​ ​ 60,413 ​ ​ 21,931 ​ These loan categories are defined by industry-standard NAICS codes – refer to NAICS.com for a description of each category. ​ CRE Lending The subsidiary banks also make CRE loans.
The Company’s lending policy establishes minimum appraisal and other credit guidelines. The following table presents the originations and sales of residential real estate loans for the Company.
The following table presents the originations and sales of residential real estate loans for the Company.
The risk rating is reviewed annually or on an as needed basis depending on the specific circumstances of the loan. See Note 1 to the Consolidated Financial Statements for additional information, including the internal risk rating scale. As part of the underwriting process, management reviews current borrower financial statements.
For C&I loans, the Company assigns internal risk ratings which are largely dependent upon the aforementioned approval factors. The risk rating is reviewed annually or on an as needed basis depending on the specific circumstances of the loan. See Note 1 to the Consolidated Financial Statements for additional information, including the internal risk rating scale.
The headquarters for CRBT is located in downtown Cedar Rapids with three other branches located in Cedar Rapids, one branch in Marion, two branches located in Waterloo and one branch located in Cedar Falls. CRBT had total segment assets of $2.19 billion and $2.03 billion as of December 31, 2022 and 2021, respectively.
The headquarters for CRBT is located in downtown Cedar Rapids with three other branches located in Cedar Rapids, one branch in Marion, two branches located in Waterloo and one branch located in Cedar Falls.
See Note 2 to the Consolidated Financial Statements for further discussion on mergers, acquisitions and sales. The Company engages in direct financing lease contracts and equipment financing agreements through m2, a wholly owned subsidiary of QCBT based in Brookfield, Wisconsin. Subsidiary Banks.
The Company engages in direct financing lease contracts and equipment financing agreements through m2, a wholly owned subsidiary of QCBT based in Waukesha, Wisconsin. Subsidiary Banks.
We are committed to supporting the communities in which we live and work, to integrity in our business practices, and to strong corporate governance principles. With numerous programs and activities aligned with the ESG framework, we continue to develop and enhance our long-term plan for the future.
We are committed to supporting the communities in which we live and work, to integrity in our business practices, and to strong corporate governance principles.
Following is a listing of the significant industries within the Company’s CRE loan portfolio as of December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ ​ Amount % Amount % ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lessors of Residential Buildings ​ $ 1,861,197 47 % $ 1,316,851 49 % Lessors of Nonresidential Buildings ​ ​ 537,940 13 % ​ 557,859 21 % Hotels ​ 145,662 4 % 73,639 3 % New Multifamily Housing Construction ​ ​ 82,905 ​ 2 % ​ 34,076 ​ 1 % New Housing For-Sale Builders ​ ​ 71,991 ​ 2 % ​ 61,028 ​ 2 % New Single-Family Housing Construction ​ ​ 62,303 ​ 2 % ​ 39,808 ​ 2 % Other Activities Related to Real Estate ​ ​ 61,302 ​ 2 % ​ 42,507 ​ 2 % Other * ​ 1,093,074 28 % 555,505 21 % Total CRE Loans ​ $ 3,916,374 ​ 100 % $ 2,681,273 ​ 100 % ​ * “Other” consists of all other industries.
Following is a listing of the significant industries within the Company’s CRE loan portfolio as of December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ ​ Amount % Amount % ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lessors of residential buildings ​ $ 2,093,253 50 % $ 1,861,197 47 % Lessors of nonresidential buildings ​ ​ 633,098 15 % ​ 537,940 13 % Hotels ​ 135,915 3 % 145,662 4 % New housing for-sale builders ​ ​ 84,451 ​ 2 % ​ 71,991 ​ 2 % New multifamily housing construction ​ ​ 83,310 ​ 2 % ​ 82,905 ​ 2 % Other * ​ 1,202,848 28 % 1,216,679 31 % Total CRE loans ​ $ 4,232,875 ​ 100 % $ 3,916,374 ​ 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ * “Other” consists of all other industries.
The FDIC, as administrator of the DIF, also has regulatory authority over the subsidiary banks. See Appendix A “Supervision and Regulation” for more information on the federal and state statutes and regulations that are applicable to the Company and its subsidiaries. Lending/Leasing.
See Appendix A “Supervision and Regulation” for more information on the federal and state statutes and regulations that are applicable to the Company and its subsidiaries. Lending/Leasing. The Company and its subsidiaries provide a broad range of commercial and retail lending/leasing and investment services to corporations, partnerships, individuals, and government agencies.
We are advancing standard reporting processes and gathering benchmarking data to generate meaningful ESG goals for our company. ​ Competition. The Company currently operates in the highly competitive Quad Cities, Cedar Rapids, Marion, Waterloo/Cedar Falls, Des Moines, Iowa and Springfield/Joplin, Missouri markets.
With numerous programs and activities aligned with the ESG framework, we continue to develop and enhance our efforts to ensure we are doing what is right for our customers, our employees, and our communities. ​ Competition. The Company currently operates in the highly competitive Quad Cities, Cedar Rapids, Marion, Waterloo/Cedar Falls, Des Moines, Iowa and Springfield/Joplin, Missouri markets.
CSB is an Iowa-chartered commercial bank that is a member of the Federal Reserve System. CSB was acquired by the Company in 2016. CSB provides full-service commercial and consumer banking to Des Moines, Iowa and adjacent communities through its headquarters located in Ankeny, Iowa and its eight other branch facilities throughout the greater Des Moines area.
CSB provides full-service commercial and consumer banking to Des Moines, Iowa and adjacent communities through its headquarters located in Ankeny, Iowa and its eight other branch facilities throughout the greater Des Moines area. CSB had total segment assets of $1.43 billion and $1.30 billion as of December 31, 2023 and 2022, respectively.
The increase in FTEs during 2022 was primarily due to the acquisition of GFED. The Federal Reserve is the primary federal regulator of the Company, QCBT, CRBT, CSB and GB. QCBT, CRBT and CSB are also regulated by the Iowa Superintendent of Banking and GB is regulated by the Missouri Division of Finance.
The Federal Reserve is the primary federal regulator of the Company, QCBT, CRBT, CSB and GB. QCBT, CRBT and CSB are also regulated by the Iowa Division of Banking and GB is regulated by the Missouri Division of Finance. 5 Table of Contents The FDIC, as administrator of the DIF, also has regulatory authority over the subsidiary banks.
Specifically, each subsidiary bank’s total loans as a percentage of average assets may not exceed 85%.
The Company actively monitors concentrations within the loan/lease portfolio to ensure appropriate diversification and concentration risk is maintained. 6 Table of Contents Specifically, each subsidiary bank’s total loans as a percentage of average assets may not exceed 85%.
In addition, the subsidiary banks often take personal guarantees to help assure repayment. In addition, management tracks the level of owner-occupied CRE loans versus non-owner occupied CRE loans. Owner-occupied CRE loans are generally considered to have less risk. As of December 31, 2022 and 2021, approximately 16% of the CRE loan portfolio was owner-occupied.
In addition, the subsidiary banks often take personal guarantees to help assure repayment. Approximately 39% of the CRE portfolio is LIHTC loans. The Company has experienced no historical losses on the LIHTC portfolio and as of December 31, 2023, all LIHTC loans were performing and had a pass risk rating.
Removed
The combined bank changed its name to Guaranty Bank. On August 12, 2020, the Company sold the Bates Companies, headquartered in Rockford, Illinois. From October 1, 2018, through the date of the disposition, the Company provided wealth management services to the Rockford community through the Bates Companies.
Added
On April 1, 2022, the Company completed its acquisition of GFED and on April 2, 2022 merged Guaranty Bank into SFCB, the Company’s Springfield-based charter. The combined bank changed its name to Guaranty Bank. See Note 2 to the Consolidated Financial Statements for further discussion on mergers, acquisitions and sales.
Added
CRBT had total segment assets of $2.42 billion and $2.19 billion as of December 31, 2023 and 2022, respectively. 4 Table of Contents CSB is an Iowa-chartered commercial bank that is a member of the Federal Reserve System. CSB was acquired by the Company in 2016.
Added
Loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower.
Added
The Company reviews CRE concentrations by industry in relation to risk-based capital on a quarterly basis.
Added
Additionally, the Company has completed two securitizations of LIHTC loans to manage the Company’s CRE exposure. See Note 5 of the consolidated financial statements for more information on these securitizations. In addition, management tracks the level of owner-occupied CRE loans versus non-owner occupied CRE loans. Owner-occupied CRE loans are generally considered to have less risk.
Added
As of December 31, 2023 and 2022, approximately 14% and 16%, respectively, of the CRE loan portfolio was owner-occupied.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

68 edited+34 added−17 removed110 unchanged
Biggest changeIf the FOMC further increases the targeted federal funds rates, overall interest rates will likely rise, which may negatively impact the entire national economy. In addition, our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and other assets.
Biggest changeIn addition, our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and other assets. Rising interest rates also may reduce the demand for loans and the value of fixed-rate investment securities.
It is also possible that governmental responses to the current inflation environment could adversely affect our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls.
It is also possible that governmental responses to the current inflation environment, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls, could adversely affect our business.
Our ability to raise additional capital, when and if needed or desired, will depend on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry and market conditions, and governmental activities, many of which are outside our control, and on our financial condition and performance.
Our ability to raise additional capital, when and if needed or desired, will depend on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, many of which are outside our control, and on our financial condition and performance.
The size of the loans we can offer to commercial customers is less than the size of the loans that our competitors with larger lending limits can offer. This may limit our ability to establish relationships with the area's largest businesses.
The size of the loans we can offer to commercial customers is less than the size of the loans that our larger competitors with larger lending limits can offer. This may limit our ability to establish relationships with the area's largest businesses.
Additionally, many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, have larger lending limits and offer a broader range of financial services than we can offer. ​ Potential future acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and adversely affect our financial results. ​ As part of our business strategy, we may consider acquisitions of other banks or financial institutions or branches, assets or deposits of such organizations.
Additionally, many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, have larger lending limits and offer a broader range of financial services than we can offer. ​ Potential future acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and adversely affect our financial results. ​ As part of our business strategy, we may consider acquisitions of other banks or financial institutions or the branches, assets or deposits of such organizations.
Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, as well as that of our customers engaging in internet banking activities, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. ​ Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful.
Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through computer systems and network infrastructure, as well as that of our customers engaging in internet banking activities, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. ​ Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful.
In addition, increased competition with the largest banks and Fintechs for retail deposits may impact our ability to raise funds through deposits and could have a negative effect on our liquidity. ​ Any decline in available funding could adversely impact our ability to originate loans/leases, invest in securities, meet our expenses, pay dividends to our stockholders, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, results of operations and financial condition. ​ As a bank holding company, our sources of funds are limited. ​ We are a bank holding company, and our operations are primarily conducted by our subsidiary banks, which are subject to significant federal and state regulation.
In addition, increased competition with the largest banks and Fintechs for retail deposits may impact our ability to raise funds through deposits and could have a negative effect on our liquidity. ​ Any decline in available funding could adversely impact our ability to originate loans/leases, invest in securities, meet our expenses, pay dividends to our stockholders, or fulfill our obligations, including repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, results of operations and financial condition. ​ As a bank holding company, our sources of funds are limited. ​ We are a bank holding company, and our operations are primarily conducted by the subsidiary Banks, which are subject to significant federal and state regulation.
Risk Factors In addition to the other information in this Annual Report on Form 10-K, stockholders or prospective investors should carefully consider the following risk factors: Economic and Market Risks ​ Conditions in the financial market and economic conditions, including conditions in the markets in which we operate, generally may adversely affect our business. ​ We operate primarily in the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls, Des Moines/Ankeny, Iowa and Springfield, Missouri markets.
Risk Factors In addition to the other information in this Annual Report on Form 10-K, stockholders or prospective investors should carefully consider the following risk factors: Economic, Market and Interest Rate Risks ​ Conditions in the financial market and economic conditions, including conditions in the markets in which we operate, generally may adversely affect our business. ​ We operate primarily in the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls, Des Moines/Ankeny, Iowa and Springfield, Missouri markets.
Although management believes that the allowance as of December 31, 2022 was adequate to absorb losses on any existing loans/leases that may become uncollectible, we cannot predict loan/lease losses with certainty, and we cannot assure you that our allowance will prove sufficient to cover actual loan/lease losses in the future, particularly if economic conditions are more difficult than what management currently expects.
Although management believes that the allowance as of December 31, 2023 was adequate to absorb losses on any existing loans/leases that may become uncollectible, we cannot predict loan/lease losses with certainty, and we cannot assure you that our allowance will prove sufficient to cover actual loan/lease losses in the future, particularly if economic conditions are more difficult than what management currently expects.
For example, the cumulative effects of decreased economic activity, changes in the economy and overall business environment, labor availability shortages and supply chain constraints as a result of the COVID-19 pandemic 18 Table of Contents have adversely affected C&I loans, and we expect this trend to continue for certain portions of our loan portfolio, depending on the strength and speed of economic recovery and other factors, particularly if general economic conditions worsen. ​ Most often, the collateral for C&I loans is accounts receivable, inventory, equipment and real estate.
For example, the cumulative effects of decreased economic activity, changes in the economy and overall business environment, labor availability shortages and supply chain constraints as a result of the COVID-19 pandemic have adversely affected C&I loans, and we expect this trend to continue for certain portions of our loan portfolio, depending on the strength and speed of economic recovery and other factors, particularly if general economic conditions worsen. ​ Most often, the collateral for C&I loans is accounts receivable, inventory, equipment and real estate.
Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior. ​ 17 Table of Contents Given the lack of empirical data on the credit and other financial risks posed by climate change, it is difficult to predict how climate change may impact our financial condition and operations; however, as a banking organization, the physical effects of climate change may present certain unique risks.
Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior. ​ Given the lack of empirical data on the credit and other financial risks posed by climate change, it is difficult to predict how climate change may impact our financial condition and operations; however, as a banking organization, the physical effects of climate change may present certain unique risks.
Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible, which could in turn have a material negative effect on our operating results. ​ If securities or industry analysts do not publish or cease publishing research reports about us, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, the price of our stock could decline. ​ The trading market for our common stock can be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors.
Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved 25 Table of Contents and price and profitability targets may not prove feasible, which could in turn have a material negative effect on our operating results. ​ If securities or industry analysts do not publish or cease publishing research reports about us, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, the price of our stock could decline. ​ The trading market for our common stock can be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors.
Any changes to the SBA program, including changes to the level of guaranty provided by the federal government on SBA loans or changes to the level of funds appropriated by the federal government to the various SBA programs, may also have an adverse effect on our business, results of operations and financial condition. 24 Table of Contents ​ Historically we have sold the guaranteed portion of our SBA loans in the secondary market.
Any changes to the SBA program, including changes to the level of guaranty provided by the federal government on SBA loans or changes to the level of funds appropriated 28 Table of Contents by the federal government to the various SBA programs, may also have an adverse effect on our business, results of operations and financial condition. ​ Historically we have sold the guaranteed portion of our SBA loans in the secondary market.
Our failure to meet these capital and other regulatory requirements could affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common and preferred stock and to make distributions on our trust preferred securities, our ability to make acquisitions, and our business, results of operations and financial condition. ​ Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business. ​ The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment.
Our failure to meet these capital and other regulatory requirements could affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on 20 Table of Contents common and preferred stock and to make distributions on our trust preferred securities, our ability to make acquisitions, and our business, results of operations and financial condition. ​ Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business. ​ The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment.
In line with the foregoing, we have experienced and may continue to experience an increase in the cost of interest-bearing liabilities primarily due to raising the rates we pay on some of our deposit products to stay competitive within our market and an increase in borrowing costs from increases in the federal funds rate.
In line with the foregoing, we have experienced and may continue to experience an increase in the cost of interest-bearing liabilities primarily due to increasing the rates we pay on some of our deposit products to stay competitive within our market and an increase in borrowing costs from increases in the federal funds rate.
The widespread adoption of new technologies, including mobile banking services, cryptocurrencies and payment systems, could require us in the future to make substantial expenditures to modify or adapt our existing products and services as we grow and develop new products to satisfy our customers’ expectations and comply with regulatory guidance.
The widespread adoption of new technologies, including mobile banking services, artificial intelligence, cryptocurrencies and payment systems, could require us in the future to make substantial expenditures to modify or adapt our existing products and services as we grow and develop new products to satisfy our customers’ expectations and comply with regulatory guidance.
In addition, if interest rates continue to continue to rise in response to elevated levels of inflation, the value of our securities portfolio could be negatively impacted. Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients ability to repay indebtedness.
In addition, if interest rates continue to rise in response to elevated levels of inflation, the value of our securities portfolio could be negatively impacted. Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness.
However, we cannot assure you that such approval and monitoring procedures will reduce these credit risks. ​ The majority of our subsidiary banks' loan portfolios are invested in C&I and CRE loans, and we focus on lending to small to medium-sized businesses.
Therefore, we cannot assure you that such approval and monitoring procedures will reduce these credit risks. ​ The majority of our subsidiary banks' loan portfolios are invested in C&I and CRE loans, and we focus on lending to small to medium-sized businesses.
Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that the Company does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact the Company through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks 23 Table of Contents relating to them.
Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that the Company does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact the Company through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks relating to them.
Moreover, the degree to which we are leveraged could have important consequences for our stockholders, including: ​ 25 Table of Contents ● limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● making it more difficult for us to satisfy our debt and other obligations; ● limiting our ability to borrow additional funds, or to sell assets to raise funds, if needed, for working capital, capital expenditures, acquisitions or other purposes; ● increasing our vulnerability to general adverse economic and industry conditions, including changes in interest rates; and ● placing us at a competitive disadvantage compared to our competitors that have less debt.
Moreover, the degree to which we are leveraged could have important consequences for our stockholders, including: ​ ● limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● making it more difficult for us to satisfy our debt and other obligations; ● limiting our ability to borrow additional funds, or to sell assets to raise funds, if needed, for working capital, capital expenditures, acquisitions or other purposes; ● increasing our vulnerability to general adverse economic and industry conditions, including changes in interest rates; and ● placing us at a competitive disadvantage compared to our competitors that have less debt.
Such interactions could create additional legal, regulatory, strategic, and reputational risk to the Banks and the Company. ​ Credit and Lending Risks ​ We must effectively manage our credit risk. ​ There are risks inherent in making any loan, including risks inherent in dealing with specific borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions.
Such interactions could create additional legal, regulatory, strategic, and reputational risk to the Banks and the Company. ​ 21 Table of Contents Credit and Lending Risks ​ We must effectively manage our credit risk. ​ There are risks inherent in making any loan, including risks inherent in dealing with specific borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions.
Any interruption in, or breach of security of, our computer systems and network infrastructure, or that of our internet banking customers, could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
Any interruption in, or breach of security of, our computer systems and network infrastructure, or that of our third-party partners or internet banking customers, could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
If interest rates move, interest rate swap transactions may no longer make sense for the Company and/or its customers. Interest rate swaps are generally appropriate for 15 Table of Contents commercial customers with a certain level of expertise and comfort with derivatives, so our success is dependent upon the ability to make loans to these types of commercial customers.
If interest rates move, interest rate swap transactions may no longer make sense for the Company and/or its customers. Interest rate swaps are generally appropriate for commercial customers with a certain level of expertise and comfort with derivatives, so our success is dependent upon the ability to make loans to these types of commercial customers.
As a result of the recent increase in interest rates and other factors, we have observed a corresponding decline in the value of commercial real estate securing these loans. ​ Our loan/lease portfolio has a significant concentration of CRE loans, which involve risks specific to real estate values. ​ CRE lending comprises a significant portion of our lending business.
As a result of the recent increase in interest rates and other factors, we have observed a corresponding decline in the value of commercial real estate securing these loans. ​ 22 Table of Contents Our loan/lease portfolio has a significant concentration of CRE loans, which involve risks specific to real estate values. ​ CRE lending comprises a significant portion of our lending business.
Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.
Our access to funding sources in amounts adequate to finance or capitalize our activities on terms that are acceptable to us could be impaired by factors that either affect us specifically or that affect the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.
Any of these results could have a material adverse effect on our ability to grow and remain profitable. If increased competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted.
Any of these results could have a material adverse effect on our ability to grow and remain profitable. If increased competition causes us 24 Table of Contents to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted.
Our general financial performance is highly dependent upon the business environment in the markets where we operate and in particular, the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services it offers.
Our general financial performance is highly dependent upon the business environment in the markets where we operate and in particular, the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer.
Downturns in the markets where our banking operations occur could result in a decrease in demand for our products and services, an increase in loan delinquencies and defaults, high or increased levels of problem assets and 13 Table of Contents foreclosures and reduced wealth management fees resulting from lower asset values.
Downturns in the markets where our banking operations occur could result in a decrease in demand for our products and services, an increase in loan delinquencies and defaults, high or increased levels of problem assets and foreclosures and reduced wealth management fees resulting from lower asset values.
Because payments on such loans are often dependent on the successful operation of the borrower involved, repayment of such loans is often more sensitive than the other types of loans to adverse condition in the general economy.
Because payments on such loans are often dependent on the successful operation of the borrower involved, repayment of such loans is often more sensitive than the other types of loans to adverse conditions in the general economy.
Some accounting policies, such as those pertaining to our allowance, require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates.
Some accounting policies, such as those pertaining to our allowance for credit losses, require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates.
Accordingly, our ultimate losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies, which could adversely affect our financial condition and results of operations. ​ ​ ​ ​ ​ ​ ​ 26 Table of Contents ​ ​ ​ ​ ​ ​ Item 1B. Unresolved Staff Comments There are no unresolved staff comments.
Accordingly, our ultimate losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies, which could adversely affect our financial condition and results of operations. ​ Item 1B. Unresolved Staff Comments There are no unresolved staff comments.
In addition, such events could affect the stability of the Company's deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Company to incur additional expenses.
In addition, such events could affect the stability of the Company's deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Company to 30 Table of Contents incur additional expenses.
Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations.
Our future success will depend in part upon our ability and the ability of our third-party partners to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations.
Our borrowers may experience financial difficulties, and the level of nonperforming loans, charge-offs and delinquencies could rise, which could negatively impact our business through increased provision, reduced interest income on loans/leases, and increased expenses incurred to carry and resolve problem loans/leases. ​ C&I loans make up a large portion of our loan/lease portfolio. ​ C&I loans were $1.7 billion, or approximately 28% of our total loan/lease portfolio, as of December 31, 2022.
Our borrowers may experience financial difficulties, and the level of nonperforming loans, charge-offs and delinquencies could rise, which could negatively impact our business through increased provision expense, reduced interest income on loans/leases, and increased expenses incurred to carry and resolve problem loans/leases. ​ C&I loans make up a large portion of our loan/lease portfolio. ​ C&I loans were $1.8 billion, or approximately 28% of our total loan/lease portfolio, as of December 31, 2023.
The Company is not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.
The Company may not be able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.
An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments of the discount rate and changes in reserve requirements against bank deposits.
An important function of the Federal Reserve is to regulate the money supply and credit conditions of the nation. Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments of the discount rate and changes in reserve requirements 15 Table of Contents against bank deposits.
Further, as a structural matter, our right to participate in the assets of our subsidiary banks in the event of a liquidation or reorganization of any of the banks would be subject to the claims of the creditors of such bank, including depositors, which would take priority except to the extent we may be a creditor with a recognized claim.
Further, as a structural matter, our right to participate in the assets of the Banks in the event of a liquidation or reorganization of any of the Banks would be subject to the claims of the creditors of such Bank, including depositors, which would take 23 Table of Contents priority except to the extent we may be a creditor with a recognized claim.
In addition, our results of operations also could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies. ​ We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected. ​ The Company and each of its banking subsidiaries are required by federal and state regulatory authorities to maintain adequate levels of capital to support their operations, which have recently increased due to the effectiveness of the Basel III regulatory capital reforms.
In addition, our results of operations also could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies. ​ We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected. ​ The Company and each of its banking subsidiaries are required by federal and state regulatory authorities to maintain adequate levels of capital to support their operations.
Their use also affects interest rates charged on loans or paid on deposits. ​ It is currently expected that during 2023, and perhaps beyond, the Federal Open Market Committee of the Federal Reserve, or FOMC, will continue to increase interest rates to reduce the rate of inflation.
Their use also affects interest rates charged on loans or paid on deposits. ​ It is currently expected that during 2024, and perhaps beyond, the Federal Open Market Committee of the Federal Reserve, or FOMC, may continue to increase interest rates to reduce the rate of inflation.
Based on management's evaluation, it was determined that the gross unrealized losses at December 31, 2022 were primarily a function of the changes in certain market interest rates. ​ A large percentage of our investment securities has fixed interest rates and are classified as available for sale.
Based on management's evaluation, it was determined that 16 Table of Contents the gross unrealized losses at December 31, 2023 were primarily a function of the changes in certain market interest rates. ​ A large percentage of our investment securities has fixed interest rates and are classified as available for sale.
As of December 31, 2022, our subsidiary banks had deposits, borrowings and other liabilities in the aggregate of approximately $11.9 billion. ​ Our allowance may prove to be insufficient to absorb losses in our loan/lease portfolio. ​ We establish our allowance for credit losses in consultation with management of our subsidiaries and maintain it at a level considered adequate by management to absorb loan/lease losses that are inherent in the portfolio.
As of December 31, 2023, the Banks had deposits, borrowings and other liabilities in the aggregate of approximately $7.7 billion. ​ Our allowance for credit losses may prove to be insufficient to absorb losses in our loan/lease portfolio. ​ We establish our allowance for credit losses in consultation with management of our subsidiaries and maintain it at a level considered adequate by management to absorb loan/lease losses that are inherent in the portfolio.
Our securities portfolio has an average duration of 8 years, so we expect an increase in realized losses if interest rates continue to increase in 2023. ​ 14 Table of Contents The market value of investments may be affected by factors other than the underlying performance of the servicer of the securities or the mortgages underlying the securities, such as changes in the interest rate environment, negative trends in the residential and commercial real estate markets, ratings downgrades, adverse changes in the business climate and a lack of liquidity in the secondary market for certain investment securities.
Our securities portfolio has an average duration of 6.2 years, so we expect an increase in realized losses if interest rates continue to increase in 2024. ​ The market value of investments may be affected by factors other than the underlying performance of the servicer of the securities or the mortgages underlying the securities, such as changes in the interest rate environment, negative trends in the residential and commercial real estate markets, ratings downgrades, adverse changes in the business climate and a lack of liquidity in the secondary market for certain investment securities.
Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations.
Any damage or failure that causes an interruption in our or our third-party partners’ operations could have a material adverse effect on our financial condition and results of operations.
If there is limited or no securities or industry analyst 21 Table of Contents coverage of us, the market price for our stock could be negatively impacted.
If there is limited or no securities or industry analyst coverage of us, the market price for our stock could be negatively impacted.
Additional liquidity is provided by federal funds purchased from the FRB or other correspondent banks, FHLB advances, wholesale and customer repurchase agreements, brokered deposits, and the ability to borrow at the FRB's Discount Window.
Additional liquidity is provided by federal funds purchased from the FRB or other correspondent banks, FHLB advances, wholesale and customer repurchase agreements, brokered deposits, a line of credit at a correspondent bank and the ability to borrow at the FRB's Discount Window.
On a quarterly basis, we formally evaluate investments and other assets for impairment indicators. Reduction in the value, or impairment of our investment securities, can impact our earnings and common stockholders' equity. We maintained a balance of $928.1 million, or 12% of our assets, in investment securities at December 31, 2022.
On a quarterly basis, we formally evaluate investments and other assets for impairment indicators. Reduction in the value, or impairment of our investment securities, can impact our earnings and common stockholders' equity. We maintained a balance of $1.0 billion, or 12% of our assets, in investment securities at December 31, 2023.
QCBT, CRBT and CSB, as Iowa-chartered state member banks, are subject to regulation and supervision primarily by both the Iowa Superintendent and the Federal Reserve. GB, as a Missouri-chartered commercial bank, is subject to regulation by both 16 Table of Contents the Missouri Division of Finance and the Federal Reserve.
QCBT, CRBT and CSB, as Iowa-chartered state member banks, are subject to regulation and supervision primarily by both the Iowa Division of Banking and the Federal Reserve. GB, as a Missouri-chartered commercial bank, is subject to regulation by both the Missouri Division of Finance and the Federal Reserve.
This could decrease loan demand, harm the credit characteristics of our existing loan portfolio and decrease the value of collateral securing loans in the portfolio. ​ Declines in asset values may result in impairment charges and adversely affect the value of our investments, financial performance and capital. ​ The market value of investments in our securities portfolio has become increasingly volatile in recent years, and as of December 31, 2022, we had gross unrealized losses of $116.7 million, or 11.8% of amortized cost, in our investment portfolio (offset by gross unrealized gains of $5.5 million).
This could decrease loan demand, harm the credit characteristics of our existing loan portfolio and decrease the value of collateral securing loans in the portfolio. ​ Declines in asset values may result in impairment charges and adversely affect the value of our investments, financial performance and capital. ​ The market value of investments in our securities portfolio has become increasingly volatile in recent years, and as of December 31, 2023, we had gross unrealized losses of $84.8 million, or 8.2% of amortized cost, in our investment portfolio (offset by gross unrealized gains of $33.6 million).
These effects from interest rate changes or from other sustained economic stress or a recession, among other matter, could have a material adverse effect on our business, financial condition, liquidity, and results of operations. ​ Given the complex factors affecting the strength of the U.S. economy, including uncertainties regarding the persistence of inflation, geopolitical developments such as the war in Ukraine and resulting disruptions in the global energy market, the effects of the pandemic in China, and tight labor market conditions and supply chain issues, there is a meaningful risk that the Federal Reserve and other central banks may raise interest rates more than expected, thereby limiting economic growth and potentially causing an economic recession.
These effects from interest rate changes or from other sustained economic stress or a recession, among other matters, could have a material adverse effect on our business, financial condition, liquidity, and results of operations. ​ Given the complex factors affecting the strength of the U.S. economy, including uncertainties regarding the persistence of inflation, geopolitical developments and the wars between Russia and Ukraine and between Israel and Palestine, and resulting disruptions in political systems and the global energy market, and tight labor market conditions and supply chain issues, there is a meaningful risk that the Federal Reserve and other central banks may raise interest rates more than expected, thereby limiting economic growth and potentially causing an economic recession.
These laws, regulations, rules, standards, policies and interpretations are constantly evolving and may change significantly over time. ​ U.S. financial institutions are also subject to numerous monitoring, recordkeeping, and reporting requirements designed to detect and prevent illegal activities such as money laundering and terrorist financing.
These laws, regulations, rules, standards, policies and interpretations are constantly evolving and may change significantly over time. ​ U.S. financial institutions are also subject to numerous monitoring, recordkeeping, and reporting requirements designed to detect and prevent illegal activities such as money laundering and terrorist financing. These requirements are imposed primarily through the Bank Secrecy Act.
Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and market values of the affected properties. ​ Included in our CRE lending portfolio are our LIHTC construction and permanent loans, which have the same inherent risks as our other non-owner occupied CRE loans.
Economic events, including decreases in office occupancy following the COVID-19 pandemic, or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and market values of the affected properties. ​ Included in our CRE lending portfolio are our LIHTC construction and permanent loans, which have the same inherent risks as our other non-owner occupied CRE loans.
If increased competition causes us to modify our underwriting standards, we could be 20 Table of Contents exposed to higher losses from lending and leasing activities.
If increased competition causes us to modify our underwriting standards, we could be exposed to higher losses from lending and leasing activities.
In addition, trends in financial and business reporting, including environmental, social and governance (ESG) related disclosures, could require us to incur additional reporting expense.
In addition, trends in financial and 26 Table of Contents business reporting, including environmental, social and governance (ESG) related disclosures, could require us to incur additional reporting expense.
In 2022, the FOMC increased at various dates throughout the year the target range for the federal funds rate from 0.00% to 0.25% to a range of 4.25% to 4.50%. All of these increases were expressly made in response to inflationary pressures, which are currently expected to continue in 2023.
In 2023, the FOMC increased at various dates throughout the year the target range for the federal funds rate from 4.25% to 4.50% to a range of 5.25% to 5.50%. All of these increases were expressly made in response to inflationary pressures, which may continue in 2024.
When available, cash to pay dividends to our stockholders is derived primarily 19 Table of Contents from dividends received from our subsidiary banks. Our ability to receive dividends or loans from our subsidiary banks is restricted.
When available, cash to pay dividends to our stockholders is derived primarily from dividends received from the Banks. Our ability to receive dividends or loans from the Banks is restricted.
Starting January 1, 2020, however, the Illinois Cannabis Regulation and Tax Act began permitting adults to legally purchase marijuana for recreational use from licensed dispensaries.
Starting January 1, 2020, however, the Illinois Cannabis Regulation and Tax Act began permitting adults to legally purchase marijuana for recreational use from licensed dispensaries in Illinois. Moreover, effective December 8, 2022, Missouri also began permitting adults to possess marijuana for recreational use.
Severe weather, natural disasters, pandemic, acts of terrorism or war or other adverse external events could significantly impact the Company's business. ​ As the Company's operating and market footprint continues to grow, severe weather, natural disasters, pandemic, acts of terrorism or war and other adverse external events could have a significant impact on the Company's ability to conduct business.
Severe weather, natural disasters, pandemics, acts of terrorism or war or other adverse external events could significantly impact the Company's business. ​ As the Company's operating and market footprint continues to grow, severe weather, natural disasters, pandemics (including the COVID-19 pandemic in the U.S.), acts of terrorism or war (including the Russian invasion of Ukraine and the Israeli-Palestinian conflict) and other adverse external events could have a significant impact on the Company's ability to conduct business.
As the Company's reliance on technology has increased, so have the potential risks of a technology-related operation interruption (such as disruptions in the Company's customer relationship management, general ledger, deposit, loan, or other systems) or the occurrence of a cyber-attacks (such as unauthorized access to the Company's systems).
As the Company's reliance on technology has increased, so have the potential risks of a technology-related operation interruption (such as disruptions in the Company's customer relationship management, general ledger, deposit, loan, or other systems) or the occurrence of a cyber-attacks (such as unauthorized access to the Company's systems or those of our third-party partners, including as a result of increasingly sophisticated methods of conducting cyber-attacks, including those employing artificial intelligence).
At December 31, 2022, our allowance as a percentage of total gross loans/leases was 1.43%, and as a percentage of total NPLs was 1,000.07%. ​ In addition, we had net charge-offs as a percentage of gross average loans/leases of 0.06% for the year ended December 31, 2022.
At December 31, 2023, our allowance as a percentage of gross loans/leases held for investment was 1.33%, and as a percentage of total NPLs was 265.54%. ​ In addition, we had net charge-offs as a percentage of gross average loans/leases of 0.13% for the year ended December 31, 2023.
Specifically, CRE loans were $3.9 billion, or approximately 64% of our total loan/lease portfolio, as of December 31, 2022. Of this amount, $629.4 million, or approximately 16%, was owner-occupied.
Specifically, CRE loans were $4.2 billion, or approximately 65% of our total loan/lease portfolio, as of December 31, 2023. Of this amount, $607.4 million, or approximately 14%, was owner-occupied.
These requirements are imposed primarily through the Bank Secrecy Act which was most recently amended by the USA Patriot Act. We have instituted policies and procedures to protect us and our employees, to the extent reasonably possible, from being used to facilitate money laundering, terrorist financing and other financial crimes.
We have instituted policies and procedures to protect us and our employees, to the extent reasonably possible, from being used to facilitate money laundering, terrorist financing and other financial crimes.
Finally, if the Company or other market participants fail to properly plan to implement alternative rates other than LIBOR it could have an adverse effect on the Company and the financial system as a whole. ​ The Company's information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on the Company's business. ​ The Company relies heavily on internal and outsourced technologies, communications, and information systems to conduct its business, particularly with respect to our core processing provider and our mobile banking provider.
These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations. ​ Operational Risks ​ The Company's information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on the Company's business. ​ The Company relies heavily on internal and outsourced technologies, communications, and information systems to conduct its business, particularly with respect to our core processing provider and our mobile banking provider.
To the extent we are involved in any future cyber-attacks or other breaches, the Company's reputation could be affected, which could also have a material adverse effect on the Company's business, financial condition or results of operations. ​ System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities. ​ The computer systems and network infrastructure we use could be vulnerable to unforeseen problems.
To the extent we are involved in any future cyber-attacks or other breaches, the Company's reputation could be affected, which could also have a material adverse effect on the Company's business, financial condition or results of operations. ​ Furthermore, there has been a heightened legislative and regulatory focus on privacy, data protection and information security.
Accordingly, a risk exists that we will not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers. ​ We have a substantial amount of debt outstanding and may incur additional indebtedness in the future, which could restrict our operations. ​ As of December 31, 2022, we had $281.3 million of total indebtedness outstanding at the holding company level.
In addition, we expect that governments will continue to assess and implement new laws and regulations concerning the use of artificial intelligence, which may affect or impair the usability or efficiency of our products and services and those developed by our third-party partners. ​ We have a substantial amount of debt outstanding and may incur additional indebtedness in the future, which could restrict our operations. ​ As of December 31, 2023, we had $281.8 million of total indebtedness outstanding at the holding company level.
Any such developments could have a complex and negative effect on our business, including with respect to the prevailing economic environment, our lending and investment activities, and our business operations . ​ Regulatory and Legal Risks ​ We may be materially and adversely affected by the highly regulated environment in which we operate. ​ The Company and its bank subsidiaries are subject to extensive federal and state regulation, supervision and examination.
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on our operations, results of operations, liquidity or cash flows. 19 Table of Contents Regulatory and Legal Risks ​ We may be materially and adversely affected by the highly regulated environment in which we operate. ​ The Company and its bank subsidiaries are subject to extensive federal and state regulation, supervision and examination.
See Note 1 “Nature of Business and Significant Accounting Policies” of the notes to the consolidated financial statements for additional information on the impact of the adoption of this standard. ​ The preparation of our Consolidated Financial Statements requires us to make estimates and judgments, which are subject to an inherent degree of uncertainty and which may differ from actual results. ​ Our Consolidated Financial Statements are prepared in accordance with U.S.
Additionally, we may be negatively affected by brand or reputational harm to other community banks or to the community banking industry. ​ Accounting and Tax Risks ​ The preparation of our Consolidated Financial Statements requires us to make estimates and judgments, which are subject to an inherent degree of uncertainty and which may differ from actual results. ​ Our Consolidated Financial Statements are prepared in accordance with U.S.
Such events may also cause reductions in regional and local economic activity that may have an adverse effect on our customers, which could limit our ability to raise and invest capital in these areas and communities. ​ Evolving law impacting cannabis-related businesses in Illinois and other states may have an impact on the Company's operations and risk profile. ​ The Controlled Substances Act makes it illegal under federal law to manufacture, distribute, or dispense marijuana.
Uncertainty surrounding future changes may adversely affect our operating environment and therefore our business, financial condition, results of operations and growth prospects. ​ Evolving law impacting cannabis-related businesses in Illinois, Missouri and other states may have an impact on the Company's operations and risk profile. ​ The Controlled Substances Act makes it illegal under federal law to manufacture, distribute, or dispense marijuana.
Future levels of swap fee income are dependent upon the needs of our traditional commercial and LIHTC borrowers, and the size of the related nonrefundable swap fee may fluctuate on the interest rate environment. ​ Continued elevated levels of inflation could adversely impact our business and results of operations. ​ The United States has recently experienced elevated levels of inflation, with the consumer price index climbing 6.5% in 2022.
Future levels of swap fee income are dependent upon the needs of our traditional commercial and LIHTC borrowers, and the size of the related nonrefundable swap fee may fluctuate on the interest rate environment. ​ 17 Table of Contents Our hedging strategies may not be successful in mitigating our exposure to interest rate risk.
Removed
Rising interest rates also may reduce the demand for loans and the value of fixed-rate investment securities.
Added
If the FOMC further increases the targeted federal funds rates in response to inflationary pressures, overall interest rates will likely rise, which may negatively impact the entire national economy.
Removed
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on our operations, results of operations, liquidity or cash flows. The COVID-19 pandemic could continue to have adverse effects on our business.
Added
Any future change in monetary policy by the FOMC, in an effort to stimulate the economy or otherwise, resulting in lower interest rates would likely result in lower revenue through lower net interest income over time, which could adversely affect our results of operations.
Removed
The COVID-19 pandemic has had a significant economic impact on the communities in which we operate, our borrowers and depositors, and the national economy generally.
Added
We use derivative financial instruments, primarily consisting of interest rate swaps, to limit our exposure to interest rate risk within the banking and mortgage origination segments. No hedging strategy can completely protect us, and the derivative financial instruments we elect may not have the effect of reducing our interest rate risk.
Removed
These effects have diminished in the past year, but future developments and uncertainties will be difficult to predict, such as the potential emergence of a new variant, the course of the pandemic in China and other major economies, the persistence of pandemic-related work and lifestyle changes, changes in consumer preferences associated with the emergence of the pandemic, and other market disruptions.
Added
Poorly designed strategies, improperly executed and documented transactions, inaccurate assumptions or the failure of a counterparty to fulfill its obligations could actually increase our risks and losses. In addition, hedging strategies involve transaction and other costs.
Removed
Damage to our reputation could impact our ability to attract new or maintain existing loan and deposit customers, employees and business relationships. ​ Accounting and Tax Risks ​ The FASB has issued an accounting standard update that has resulted in a significant change in how the Company recognizes credit losses and may have a material impact on our financial condition or results of operations. ​ In June 2016, the FASB issued an accounting standard update, "Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaced the "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as the CECL model.
Added
Our hedging strategies and the derivatives that we use may not adequately offset the risks of interest rate volatility and could result in or magnify losses, which could have an adverse effect on our financial condition and results of operations. Unexpected early termination of interest rate swap agreements may affect earnings.
Removed
The new CECL standard became effective for us on January 1, 2021. Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.
Added
We have entered into interest rate swap agreements, primarily as an asset/liability risk management tool, in order to mitigate the interest rate risk that causes fluctuations in the fair value of specified long-term fixed-rate loans or firm commitments to originate long-term fixed rate loans.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party other than ordinary routine litigation incidental to their respective businesses. Item 4. Mine Safety Disclosures Not applicable. ​ Part II ​
Biggest changeItem 3. Legal Proceedings There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party other than ordinary routine litigation incidental to their respective businesses. Item 4. Mine Safety Disclosures Not applicable. 32 Table of Contents Part II ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAll shares that were repurchased under the share repurchase program were retired. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of shares ​ Maximum number ​ ​ ​ ​ ​ ​ purchased as part of ​ of shares that may yet ​ ​ Total number of ​ Average price ​ publicly announced ​ be purchased under Period ​ shares purchased paid per share plans or programs the plans or programs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 1-31, 2022 ​ — ​ — ​ 394,085 ​ 405,915 ​ February 1-28, 2022 ​ — ​ — ​ 394,085 ​ 405,915 ​ March 1-31, 2022 ​ 77,500 ​ $ 56.98 ​ 471,585 ​ 328,415 ​ April 1-30, 2022 ​ 200,000 ​ 56.55 ​ 671,585 ​ 128,415 ​ May 1-31, 2022 ​ 192,500 ​ 53.29 ​ 864,085 ​ 1,435,915 ​ June 1-30, 2022 ​ 210,000 ​ 54.40 ​ 1,074,085 ​ 1,225,915 ​ July 1-31, 2022 ​ 190,000 ​ 55.18 ​ 1,264,085 ​ 1,035,915 ​ August 1-31, 2022 ​ — ​ — ​ — ​ 1,035,915 ​ September 1-30, 2022 ​ — ​ — ​ — ​ 1,035,915 ​ October 1-31, 2022 ​ — ​ — ​ — ​ 1,035,915 ​ November 1-30, 2022 ​ 34,506 ​ 51.63 ​ 1,298,591 ​ 1,001,409 ​ December 1-31, 2022 ​ 65,494 ​ 50.20 ​ 1,364,085 ​ 935,915 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholder Return Performance Graph.
Biggest changeAll shares that were repurchased under the share repurchase program were retired. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of shares ​ Maximum number ​ ​ ​ ​ ​ ​ purchased as part of ​ of shares that may yet ​ ​ Total number of ​ Average price ​ publicly announced ​ be purchased under Period ​ shares purchased paid per share plans or programs the plans or programs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 1-31, 2023 ​ — ​ — ​ 1,364,085 ​ 935,915 ​ February 1-28, 2023 ​ 60,000 ​ $ 53.61 ​ 1,424,085 ​ 875,915 ​ March 1-31, 2023 ​ 92,500 ​ 48.62 ​ 1,516,585 ​ 783,415 ​ April 1-30, 2023 ​ 22,500 ​ 42.97 ​ 1,539,085 ​ 760,915 ​ May 1-31, 2023 ​ — ​ — ​ 1,539,085 ​ 760,915 ​ June 1-30, 2023 ​ — ​ — ​ 1,539,085 ​ 760,915 ​ July 1-31, 2023 ​ — ​ — ​ 1,539,085 ​ 760,915 ​ August 1-31, 2023 ​ — ​ — ​ 1,539,085 ​ 760,915 ​ September 1-30, 2023 ​ — ​ — ​ 1,539,085 ​ 760,915 ​ October 1-31, 2023 ​ — ​ — ​ 1,539,085 ​ 760,915 ​ November 1-30, 2023 ​ — ​ — ​ 1,539,085 ​ 760,915 ​ December 1-31, 2023 ​ — ​ — ​ 1,539,085 ​ 760,915 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 34 Table of Contents Stockholder Return Performance Graph.
Under the terms of the securities, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. None of these circumstances existed through the date of filing of this Annual Report on Form 10-K. See Note 17 to the Consolidated Financial Statements for additional information regarding dividend restrictions.
Under the terms of the securities, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. None of these circumstances existed through the date of filing of this Annual Report on Form 10-K. See Note 18 to the Consolidated Financial Statements for additional information regarding dividend restrictions.
On May 19, 2022, the Board of Directors of the Company approved a share repurchase program under which the Company is authorized to repurchase, from time to time as the Company deems appropriate, up to an additional 1,500,000 shares of its outstanding common stock, or approximately 10% of the outstanding shares as of December 31, 2021.
On May 19, 2022, the Board of Directors of the Company approved a share repurchase program under which the Company is authorized to repurchase, from time to time as the Company deems appropriate, up to an additional 1,500,000 shares 33 Table of Contents of its outstanding common stock, or approximately 10% of the outstanding shares as of December 31, 2021.
The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital 27 Table of Contents adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.
The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.
The following graph indicates, for the period commencing December 31, 2017 and ending December 31, 2022, a comparison of cumulative total returns for the Company, the Nasdaq Composite Index, and the SNL Bank Nasdaq Index prepared by S&P Global, Charlottesville, Virginia. The graph was prepared at the Company’s request by S&P Global.
The following graph indicates, for the period commencing December 31, 2018 and ending December 31, 2023, a comparison of cumulative total returns for the Company, the Nasdaq Composite Index, and the SNL Bank Nasdaq Index prepared by S&P Global, Charlottesville, Virginia. The graph was prepared at the Company’s request by S&P Global.
Purchase of Equity Securities by the Company. There were 970,000, 293,153 and 100,932 shares of common stock purchased by the Company during the years ending December 31, 2022, 2021 and 2020, respectively.
Purchase of Equity Securities by the Company. There were 175,000, 970,000 and 293,153 shares of common stock purchased by the Company during the years ending December 31, 2023, 2022 and 2021, respectively.
As of February 15, 2023, there were 16,825,981 shares of common stock outstanding held by 663 holders of record. Additionally, there are an estimated 3,700 beneficial holders whose stock was held in the street name by brokerage houses and other nominees as of that date. Dividends on Common Stock.
As of February 15, 2024, there were 16,792,880 shares of common stock outstanding held by 644 holders of record. Additionally, there are an estimated 3,700 beneficial holders whose stock was held in the street name by brokerage houses and other nominees as of that date. Dividends on Common Stock.
The information assumes that $100 was invested at the closing price on December 31, 2017 in the common stock of the Company and in each index, and that all dividends were reinvested. 28 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 QCR Holdings, Inc. 100.00 75.33 103.62 94.27 133.99 119.32 Nasdaq Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 SNL Bank Nasdaq Index 100.00 82.29 112.01 100.46 138.97 109.23 ​ ​
The information assumes that $100 was invested at the closing price on December 31, 2018 in the common stock of the Company and in each index, and that all dividends were reinvested. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 QCR Holdings, Inc. 100.00 137.56 125.15 177.87 158.39 187.23 Nasdaq Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 SNL Bank Nasdaq Index 100.00 136.13 122.09 168.88 132.75 131.57 ​
Removed
On February 13, 2020, the board of directors of the Company approved a share repurchase program under which the Company was authorized to repurchase, from time to time as the Company deemed appropriate, up to 800,000 shares of its outstanding common stock, or approximately 5% of the outstanding shares as of December 31, 2019.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

142 edited+40 added−27 removed58 unchanged
Biggest changeAlthough these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of GAAP TO NON-GAAP ​ December 31, December 31, RECONCILIATIONS ​ ​ 2022 ​ 2021 ​ ​ (dollars in thousands, except per share data) TCE/TA RATIO ​ ​ ​ ​ Stockholders' equity (GAAP) ​ ​ $ 772,724 ​ $ 677,010 Less: Intangible assets ​ ​ 154,366 ​ 83,415 TCE (non-GAAP) ​ ​ $ 618,358 ​ $ 593,595 ​ ​ ​ ​ ​ ​ ​ ​ Total assets (GAAP) ​ ​ $ 7,948,837 ​ $ 6,096,132 Less: Intangible assets ​ ​ 154,366 ​ 83,415 TA (non-GAAP) ​ ​ $ 7,794,471 ​ $ 6,012,717 ​ ​ ​ ​ ​ ​ ​ ​ TCE/TA ratio (non-GAAP) ​ ​ 7.93 % 9.87 ​ 35 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ December 31, December 31, ​ 2022 2021 ​ ​ ​ ​ ​ ​ ​ ​ ADJUSTED NET INCOME ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 99,066 ​ $ 98,905 ​ Less non-core items (post-tax) (*): ​ ​ ​ Income: ​ ​ ​ Securities losses, net ​ $ — ​ $ (69) ​ Fair value gain (loss) on derivatives ​ ​ 1,560 ​ ​ 135 ​ Gain on sale of loan ​ ​ — ​ ​ 28 ​ Total non-core income (non-GAAP) ​ $ 1,560 ​ $ 94 ​ Expense: ​ ​ ​ Disposition costs ​ $ — ​ $ 10 ​ Acquisition costs ​ 3,198 ​ 493 ​ Post-acquisition compensation, transition and integration costs ​ 4,366 ​ — ​ CECL Day 2 credit loss expense on acquired non-PCD loans ​ ​ 8,651 ​ ​ — ​ CECL Day 2 credit loss expense on acquired OBS exposure ​ ​ 1,140 ​ ​ — ​ Separation agreement ​ — ​ 734 ​ Total non-core expense (non-GAAP) ​ $ 17,355 ​ $ 1,237 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted net income (non-GAAP) ​ $ 114,861 ​ $ 100,048 ​ ​ ​ ​ ​ ​ ​ ​ ​ ADJUSTED EPS ​ ​ ​ Adjusted net income (non-GAAP) (from above) ​ $ 114,861 ​ $ 100,048 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding ​ 16,681,844 ​ 15,708,744 ​ Weighted average common and common equivalent shares outstanding ​ 16,890,007 ​ 15,944,708 ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted EPS (non-GAAP): ​ ​ ​ Basic ​ $ 6.89 ​ $ 6.37 ​ Diluted ​ $ 6.80 ​ $ 6.27 ​ ​ ​ ​ ​ ​ ​ ​ ​ ADJUSTED ROAA ​ ​ ​ Adjusted net income (non-GAAP) (from above) ​ $ 114,861 ​ $ 100,048 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Assets ​ $ 7,206,180 ​ $ 5,890,042 ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted ROAA (non-GAAP) ​ 1.59 % 1.70 % ​ ​ ​ ​ ​ ​ ​ ​ ADJUSTED NIM (TEY)* ​ ​ ​ ​ ​ ​ Net interest income (GAAP) ​ $ 231,120 ​ $ 178,233 ​ Plus: Tax equivalent adjustment ​ 16,340 ​ 10,211 ​ Net interest income - tax equivalent (non-GAAP) ​ $ 247,460 ​ $ 188,444 ​ Less: Acquisition accounting net accretion ​ ​ 8,581 ​ ​ 1,340 ​ Adjusted net interest income ​ $ 238,879 ​ $ 187,104 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average earning assets ​ $ 6,628,224 ​ $ 5,398,868 ​ ​ ​ ​ ​ ​ ​ ​ ​ NIM (GAAP) ​ 3.49 % 3.30 % NIM (TEY) (non-GAAP) ​ 3.73 % 3.49 % Adjusted NIM (TEY) (non-GAAP) ​ ​ 3.60 % ​ 3.47 % ​ ​ ​ ​ ​ ​ ​ ​ EFFICIENCY RATIO ​ ​ ​ Noninterest expense (GAAP) ​ $ 190,016 ​ $ 153,702 ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income (GAAP) ​ $ 231,120 ​ $ 178,233 ​ Noninterest income (GAAP) ​ 80,729 ​ 100,422 ​ Total income ​ $ 311,849 ​ $ 278,655 ​ ​ ​ ​ ​ ​ ​ ​ ​ Efficiency ratio (noninterest expense/total income) (non-GAAP) ​ 60.93 % 55.16 % ​ ​ ​ ​ ​ ​ ​ ​ LOAN GROWTH, EXCLUDING ACQUIRED AND PPP LOANS ​ ​ ​ Total loans and leases ​ $ 6,138,871 ​ $ 4,680,132 ​ Less: Acquired loans ​ 807,599 ​ — ​ Less: PPP loans ​ 69 ​ 28,181 ​ Total loans and leases, excluding acquired and PPP loans ​ $ 5,331,203 ​ $ 4,651,951 ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan growth, excluding acquired and PPP loans ​ 14.60 % 16.94 % ​ * Non-core or non-recurring items (after-tax) are calculated using an estimated effective tax rate of 21% with the exception of acquisition costs which has an estimated effective tax rate of 13.62%. ​ ​ ​ ​ NET INTEREST INCOME AND MARGIN (TAX EQUIVALENT BASIS) Net interest income, on a GAAP basis, increased 30% for the year ended December 31, 2022, compared to the prior year.
Biggest changeAlthough these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ ​ ​ ​ GAAP TO NON-GAAP December 31, December 31, ​ ​ ​ ​ RECONCILIATIONS ​ 2023 ​ 2022 ​ ​ ​ ​ ​ (dollars in thousands, except per share data) ​ ​ ​ ​ ​ TCE/TA RATIO ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' equity (GAAP) ​ $ 886,596 ​ $ 772,724 ​ ​ ​ ​ ​ Less: Intangible assets ​ 152,848 ​ 154,366 ​ ​ ​ ​ ​ TCE (non-GAAP) ​ $ 733,748 ​ $ 618,358 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets (GAAP) ​ $ 8,538,894 ​ $ 7,948,837 ​ ​ ​ ​ ​ Less: Intangible assets ​ 152,848 ​ 154,366 ​ ​ ​ ​ ​ TA (non-GAAP) ​ $ 8,386,046 ​ $ 7,794,471 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TCE/TA ratio (non-GAAP) ​ 8.75 % 7.93 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ December 31, December 31, ​ 2023 2022 ​ ​ ​ ​ ​ ​ ​ ​ ADJUSTED NET INCOME ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 113,558 ​ $ 99,066 ​ Less non-core items (post-tax) (*): ​ ​ ​ Income: ​ ​ ​ Securities losses, net ​ $ (356) ​ $ — ​ Fair value gain(loss) on derivatives, net ​ ​ (997) ​ ​ 1,560 ​ Total non-core income (non-GAAP) ​ $ (1,353) ​ $ 1,560 ​ Expense: ​ ​ ​ Acquisition costs ​ $ — ​ $ 3,198 ​ Post-acquisition compensation, transition and integration costs ​ ​ 164 ​ ​ 4,366 ​ CECL Day 2 credit loss expense on acquired loans ​ ​ — ​ ​ 8,651 ​ CECL Day 2 credit loss expense on acquired OBS exposure ​ — ​ 1,140 ​ Total non-core expense (non-GAAP) ​ $ 164 ​ $ 17,355 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted net income (non-GAAP) ​ $ 115,075 ​ $ 114,861 ​ ​ ​ ​ ​ ​ ​ ​ ​ ADJUSTED EPS ​ ​ ​ Adjusted net income (non-GAAP) (from above) ​ $ 115,075 ​ $ 114,861 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding ​ 16,732,406 ​ 16,681,844 ​ Weighted average common and common equivalent shares outstanding ​ 16,866,391 ​ 16,890,007 ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted EPS (non-GAAP): ​ ​ ​ Basic ​ $ 6.88 ​ $ 6.89 ​ Diluted ​ $ 6.82 ​ $ 6.80 ​ ​ ​ ​ ​ ​ ​ ​ ​ ADJUSTED ROAA (non-GAAP) ​ ​ ​ Adjusted net income (non-GAAP) (from above) ​ $ 115,075 ​ $ 114,861 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Assets ​ $ 8,165,805 ​ $ 7,206,180 ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted ROAA (non-GAAP) ​ 1.41 % 1.59 % ​ ​ ​ ​ ​ ​ ​ ​ ADJUSTED NIM (TEY)* ​ ​ ​ ​ ​ ​ Net interest income (GAAP) ​ $ 221,006 ​ $ 231,120 ​ Plus: Tax equivalent adjustment ​ 28,237 ​ 16,340 ​ Net interest income - tax equivalent (non-GAAP) ​ $ 249,243 ​ $ 247,460 ​ Less: Acquisition accounting net accretion ​ ​ 2,173 ​ ​ 8,581 ​ Adjusted net interest income ​ $ 247,070 ​ $ 238,879 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average earning assets ​ $ 7,435,361 ​ $ 6,628,224 ​ ​ ​ ​ ​ ​ ​ ​ ​ NIM (GAAP) ​ 2.97 % 3.49 % NIM (TEY) (non-GAAP) ​ 3.35 % 3.73 % Adjusted NIM (TEY) (non-GAAP) ​ ​ 3.32 % ​ 3.60 % ​ ​ ​ ​ ​ ​ ​ ​ EFFICIENCY RATIO ​ ​ ​ Noninterest expense (GAAP) ​ $ 210,531 ​ $ 190,016 ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income (GAAP) ​ $ 221,006 ​ $ 231,120 ​ Noninterest income (GAAP) ​ 132,684 ​ 80,729 ​ Total income ​ $ 353,690 ​ $ 311,849 ​ ​ ​ ​ ​ ​ ​ ​ ​ Efficiency ratio (noninterest expense/total income) (non-GAAP) ​ 59.52 % 60.93 % ​ ​ ​ ​ ​ ​ ​ ​ ​ * Non-core or non-recurring items (after-tax) are calculated using an estimated effective tax rate of 21% with the exception of acquisition costs which has an estimated effective tax rate of 13.62%. 42 Table of Contents NET INTEREST INCOME AND MARGIN (TAX EQUIVALENT BASIS) Net interest income decreased 4% for the year ended December 31, 2023, compared to the prior year.
For loans with no significant evidence of credit deterioration since origination, the difference between the fair value and the unpaid principal balance of the loan at the acquisition date is amortized into interest income using the effective interest method over the remaining period to contractual maturity. ​ Loans acquired with evidence of deterioration in credit quality since origination, or PCD loans, are accounted for in accordance with ASC Topic 326-20 “Financial instruments - credit losses.” Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and 31 Table of Contents discounting those cash flows at an appropriate market rate of interest.
For loans with no significant evidence of credit deterioration since origination, the difference between the fair value and the unpaid principal balance of the loan at the acquisition date is amortized into interest income using the effective interest method over the remaining period to contractual maturity. ​ Loans acquired with evidence of deterioration in credit quality since origination, or PCD loans, are accounted for in accordance with ASC Topic 326-20 “Financial instruments - credit losses.” Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the 37 Table of Contents loans and discounting those cash flows at an appropriate market rate of interest.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance, determination of the fair value of loans acquired in business combinations, impairment of goodwill and the fair value of financial instruments.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance, determination of the fair value of loans acquired in business combinations, impairment of goodwill, the fair value of financial instruments, and the fair value of securities.
Leases represent 1% of to total loans/leases. Although management believes that the ACL for loans/leases at December 31, 2022 is at a level adequate to absorb losses on existing loans/leases, there can be no assurance that such losses will not exceed the estimated amounts or that the Company will not be required to make additional provisions in the future.
Leases represent 1% of to total loans/leases. Although management believes that the ACL for loans/leases at December 31, 2023 is at a level adequate to absorb losses on existing loans/leases, there can be no assurance that such losses will not exceed the estimated amounts or that the Company will not be required to make additional provisions in the future.
The Company had no deposits by foreign depositors in domestic offices as of December 31, 2022 and 2021. Management will continue to focus on growing its core deposit portfolio, including its correspondent banking business at QCBT, as well as shifting the mix from brokered and other higher cost deposits to lower cost core deposits.
The Company had no deposits by foreign depositors in domestic offices as of December 31, 2023 and 2022. Management will continue to focus on growing its core deposit portfolio, including its correspondent banking business at QCBT, as well as shifting the mix from brokered and other higher cost deposits to lower cost core deposits.
The Company has emphasized growing the number and amount of lines of credit in an effort to strengthen this contingent source of liquidity. Additionally, the Company maintains a $50.0 million secured revolving credit note with a variable interest rate and a maturity of June 30, 2023. At December 31, 2022, the full $50.0 million was available.
The Company has emphasized growing the number and amount of lines of credit in an effort to strengthen this contingent source of liquidity. Additionally, the Company maintains a $50.0 million secured revolving credit note with a variable interest rate and a maturity of June 30, 2024. At December 31, 2023, the full $50.0 million was available.
Throughout its history, the Company has secured additional capital through various resources, including common and preferred stock and the issuance of trust preferred securities and subordinated notes. ​ As of December 31, 2022 and 2021, the subsidiary banks remained “well-capitalized” in accordance with regulatory capital requirements administered by the federal banking authorities.
Throughout its history, the Company has secured additional capital through various resources, including common and preferred stock and the issuance of trust preferred securities and subordinated notes. ​ As of December 31, 2023 and 2022, the subsidiary banks remained “well-capitalized” in accordance with regulatory capital requirements administered by the federal banking authorities.
Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “bode,” “predict,” “suggest,” “project,” “appear,” “plan,” “intend,” “estimate,” “annualize,” “may,” “will,” “would,” “could,” “should,” “likely,” “might,” “potential,” “continue,” “annualized,” “target,” “outlook,” as well as the negative forms of those words, or other similar expressions.
Forward-looking statements, which may be based upon 63 Table of Contents beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “bode,” “predict,” “suggest,” “project,” “appear,” “plan,” “intend,” “estimate,” “annualize,” “may,” “will,” “would,” “could,” “should,” “likely,” “might,” “potential,” “continue,” “annualized,” “target,” “outlook,” as well as the negative forms of those words, or other similar expressions.
See Note 17 to the Consolidated Financial Statements for detail of the capital amounts and ratios for the Company and its subsidiary banks. COMMITMENTS, CONTINGENCIES, CONTRACTUAL OBLIGATIONS, AND OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, the subsidiary banks make various commitments and incur certain contingent liabilities that are not presented in the accompanying Consolidated Financial Statements.
See Note 18 to the Consolidated Financial Statements for detail of the capital amounts and ratios for the Company and its subsidiary banks. COMMITMENTS, CONTINGENCIES, CONTRACTUAL OBLIGATIONS, AND OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, the subsidiary banks make various commitments and incur certain contingent liabilities that are not presented in the accompanying Consolidated Financial Statements.
The fair values of these financial instruments, which are classified as Level 2, are determined by pricing models that consider observable market data such as interest rate volatilities, LIBOR yield curve, credit spreads, prices from external market data providers and/or nonbinding broker-dealer quotations.
The fair values of these financial instruments, which are classified as Level 2, are determined by pricing models that consider observable market data such as interest rate volatilities, SOFR yield curve, credit spreads, prices from external market data providers and/or nonbinding broker-dealer quotations.
See Note 9 to the Consolidated Financial Statements for additional information on the Company’s short-term borrowings. FHLB ADVANCES AND OTHER BORROWINGS As a result of their membership in the FHLB of Des Moines, the subsidiary banks have the ability to borrow funds for short-term or long-term purposes under a variety of programs.
See Note 10 to the Consolidated Financial Statements for additional information on the Company’s short-term borrowings. FHLB ADVANCES AND OTHER BORROWINGS As a result of their membership in the FHLB of Des Moines, the subsidiary banks have the ability to borrow funds for short-term or long-term purposes under a variety of programs.
The Company’s strategic financial metrics are as follows: ● Grow loans/leases by 9% per year, funded by core deposits; ● Grow fee-based income by at least 6% per year; and 33 Table of Contents ● Limit our annual operating expense growth to 5% per year.
The Company’s strategic financial metrics are as follows: 39 Table of Contents ● Grow loans/leases by 9% per year, funded by core deposits; ● Grow fee-based income by at least 6% per year; and ● Limit our annual operating expense growth to 5% per year.
Additionally, a comprehensive list of the acronyms and abbreviations used throughout this discussion is included in Note 1 to the Consolidated Financial Statements. GENERAL The Company was formed in February 1993 for the purpose of organizing QCBT. Over the past twenty-nine years, the Company has grown to include four banking subsidiaries and a number of nonbanking subsidiaries.
Additionally, a comprehensive list of the acronyms and abbreviations used throughout this discussion is included in Note 1 to the Consolidated Financial Statements. GENERAL The Company was formed in February 1993 for the purpose of organizing QCBT. Over the past thirty years, the Company has grown to include four banking subsidiaries and a number of nonbanking subsidiaries.
See discussion regarding policy limits on bank stock loans in the Lending/Leasing section under Item 1 – Business in Part I of this Annual Report on Form 10-K. SHORT-TERM BORROWINGS The subsidiary banks purchase federal funds for short-term funding needs from the FRB or from their correspondent banks.
See discussion regarding policy limits on bank stock loans in the Lending/Leasing section under Item 1 – Business in Part I of this Annual Report on Form 10-K. 58 Table of Contents SHORT-TERM BORROWINGS The subsidiary banks purchase federal funds for short-term funding needs from the FRB or from their correspondent banks.
Although management believes the level of the ACL as of December 31, 2022 was adequate to absorb losses inherent in the loan/lease portfolio and OBS exposures, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time.
Although management believes the level of the ACL as of December 31, 2023 was adequate to absorb losses inherent in the loan/lease portfolio, the HTM portfolio and OBS exposures, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time.
From a profitability standpoint, an important challenge for the Company's subsidiary banks and leasing company is focusing on quality growth in conjunction with the improvement of their NIMs.
From a profitability standpoint, an important challenge for the Company's subsidiary banks and equipment financing/leasing company is focusing on quality growth in conjunction with the improvement of their NIMs.
These multiples may be adjusted to consider competitive differences, including size, operating leverage and other factors. The carrying amount of a reporting unit is determined based on the capital required to support the reporting unit’s activities, including its tangible and intangible assets.
These multiples 36 Table of Contents may be adjusted to consider competitive differences, including size, operating leverage and other factors. The carrying amount of a reporting unit is determined based on the capital required to support the reporting unit’s activities, including its tangible and intangible assets.
We may also utilize other information to validate the reasonableness of our valuations, including 30 Table of Contents public market comparables and multiples of recent mergers and acquisitions of similar businesses. Valuation multiples may be based on tangible capital ratios of comparable companies and business segments.
We may also utilize other information to validate the reasonableness of our valuations, including public market comparables and multiples of recent mergers and acquisitions of similar businesses. Valuation multiples may be based on tangible capital ratios of comparable companies and business segments.
A detailed review of our fiscal 2021 performance compared to our fiscal 2020 performance can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” This discussion should be read in conjunction with our Consolidated Financial Statements and the accompanying notes thereto included or incorporated by reference elsewhere in this document.
A detailed review of our fiscal 2022 performance compared to our fiscal 2021 performance can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, under the caption “Management’s Discussion and Analysis of Financial Condition and Results 35 Table of Contents of Operations.” This discussion should be read in conjunction with our Consolidated Financial Statements and the accompanying notes thereto included or incorporated by reference elsewhere in this document.
Refer to the reconciliation of the expected income tax rate to the effective tax rate that is included in Note 14 to the Consolidated Financial Statements for additional details.
Refer to the reconciliation of the expected income tax rate to the effective tax rate that is included in Note 15 to the Consolidated Financial Statements for additional details.
The table below represents the time deposits in FDIC uninsured accounts by maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2022 ​ 2021 ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ U.S.
The table below represents the time deposits in FDIC uninsured accounts by maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2023 ​ 2022 ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ U.S.
Unpredictable future events could adversely affect cash flows for both commercial and individual borrowers, which could cause the Company to experience increases in problem assets, delinquencies and losses on loans/leases, and may require additional increases in the provision for credit losses. Asset quality is a priority for the Company and its subsidiaries.
Unpredictable future events could 56 Table of Contents adversely affect cash flows for both commercial and individual borrowers, which could cause the Company to experience increases in problem assets, delinquencies and losses on loans/leases, and may require additional increases in the provision for credit losses. Asset quality is a priority for the Company and its subsidiaries.
Most of the growth has been in the latter category as the Company has grown relationships with strong LIHTC developers with many years of experience. The LIHTC industry is strong and growing with an increased need for affordable housing.
Most of the growth 47 Table of Contents has been in the latter category as the Company has grown relationships with strong LIHTC developers with many years of experience. The LIHTC industry is strong and growing with an increased need for affordable housing.
For nonaccrual loans/leases, management thoroughly reviewed these loans/leases and provided specific allowances as appropriate. 49 Table of Contents OREO is carried at the lower of carrying amount or fair value less costs to sell.
For nonaccrual loans/leases, management thoroughly reviewed these loans/leases and provided specific allowances as appropriate. OREO is carried at the lower of carrying amount or fair value less costs to sell.
In evaluating net interest income and NIM, it's important to understand the impact of acquisition accounting net accretion when comparing periods. The above table reports NIM with and without the acquisition accounting net accretion to allow for more appropriate comparisons.
In evaluating net interest income and NIM, it's important to understand the impact of acquisition accounting net accretion when comparing periods. The above table reports NIM with and without the acquisition accounting net accretion to allow for additional comparisons.
The subsidiary banks can utilize FHLB advances for loan matching as a hedge against the possibility of changing interest rates or when these advances provide a less costly or more readily available source of funds than customer deposits. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2022 ​ 2021 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ FHLB Advances ​ $ 415,000 ​ ​ $ 15,000 ​ Weighted Average Interest Rate at Year-End ​ 4.58 % ​ 0.31 % ​ It is management’s intention to reduce its reliance on wholesale funding, including FHLB advances and brokered deposits.
The subsidiary banks can utilize FHLB advances for loan matching as a hedge against the possibility of changing interest rates or when these advances provide a less costly or more readily available source of funds than customer deposits. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2023 ​ 2022 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ FHLB Advances ​ $ 435,000 ​ ​ $ 415,000 ​ Weighted Average Interest Rate at Year-End ​ 5.39 % ​ 4.58 % ​ It is management’s intention to reduce its reliance on wholesale funding, including FHLB advances and brokered deposits.
These additional factors include, but are not limited to, the following: ● The strength of the local, state, national and international economies (including effects of inflationary pressures and supply chain constraints). ​ ● The economic impact of any future terrorist threats and attacks, widespread disease or pandemics (including the COVID-19 pandemic in the United States), acts of war or threats thereof (including the Russian invasion of Ukraine), or other adverse events that could cause economic deterioration or instability in credit markets, and the response of the local, state and national governments to any such adverse external events. ​ ● Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the FASB, the SEC or the PCAOB. ​ ● Changes in state and federal laws, regulations and governmental policies concerning the Company’s general business. ​ ● Changes in the interest rates and prepayment rates of the Company’s assets (including the impact of LIBOR phase-out). ​ ● Increased competition in the financial services sector, including from non-bank competitors such as credit unions and “fintech” companies, and the inability to attract new customers. ​ ● Changes in technology and the ability to develop and maintain secure and reliable electronic systems. ​ ● Unexpected results of acquisitions which may include failure to realize the anticipated benefits of the acquisitions and the possibility that transaction costs may be greater than anticipated. ​ ● The loss of key executives and employees. 55 Table of Contents ​ ● Changes in consumer spending. ​ ● Unexpected outcomes of existing or new litigation involving the Company. ​ ● The economic impact of exceptional weather occurrences such as tornadoes, floods and blizzards. ​ ● Fluctuations in the value of securities held in our securities portfolio. ● Concentrations within our loan portfolio, large loans to certain borrowers, and large deposits from certain clients. ● The level of non-performing assets on our balance sheets. ● Interruptions involving our information technology and communications systems or third-party servicers. ● Breaches or failures of our information security controls or cybersecurity-related incidents. ● The ability of the Company to manage the risks associated with the foregoing as well as anticipated. ​ These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. ​
These additional factors include, but are not limited to, the following: ● The strength of the local, state, national and international economies (including effects of inflationary pressures and supply chain constraints). ​ ● The economic impact of any future terrorist threats and attacks, widespread disease or pandemics (including the COVID-19 pandemic in the United States), acts of war or threats thereof (including the Russian invasion of Ukraine and the Israeli-Palestinian conflict), or other adverse events that could cause economic deterioration or instability in credit markets, and the response of the local, state and national governments to any such adverse external events. ​ ● Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the FASB, the SEC or the PCAOB. ​ ● Changes in local, state and federal laws, regulations and governmental policies concerning the Company’s general business and any other changes in response to the recent failures of other banks. ​ ● Changes in the interest rates and prepayment rates of the Company’s assets (including the impact of LIBOR phase-out and the recent potential additional rate increases by the Federal Reserve). ​ ● Increased competition in the financial services sector, including from non-bank competitors such as credit unions and “fintech” companies, and the inability to attract new customers. ​ ● Changes in technology and the ability to develop and maintain secure and reliable electronic systems. ​ ● Unexpected results of acquisitions which may include failure to realize the anticipated benefits of the acquisitions and the possibility that transaction costs may be greater than anticipated. ​ ● The loss of key executives and employees. ​ ● Changes in consumer spending. ​ ● Unexpected outcomes of existing or new litigation involving the Company. ​ ● The economic impact of exceptional weather occurrences such as tornadoes, floods and blizzards. ​ ● Fluctuations in the value of securities held in our securities portfolio. 64 Table of Contents ● Concentrations within our securities portfolio, large loans to certain borrowers, and large deposits from certain clients. ● The concentration of large deposits from certain clients who have balances above current FDIC insurance limits and who may withdraw deposits to diversify their exposure. ● The level of non-performing assets on our balance sheets. ● Interruptions involving our information technology and communications systems or third-party servicers. ● Breaches or failures of our information security controls or cybersecurity-related incidents. ● The ability of the Company to manage the risks associated with the foregoing as well as anticipated. ​ These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
The Company’s operating results are also impacted by various sources of noninterest income, including trust fees, investment advisory and management fees, deposit service fees, swap fee income, gains from the sales of residential real estate loans and government guaranteed loans, earnings on BOLI and other income.
The Company’s operating results are also impacted by various sources of noninterest income, including trust fees, investment advisory and management fees, deposit service fees, capital markets revenue, including swap fee income and gains on loan securitizations, gains from the sales of residential real estate loans and government guaranteed loans, earnings on BOLI, and other income.
The following table shows the evaluation of the Company’s strategic financial metrics: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ending Strategic Financial Metric* Key Metric Target December 31, 2022 December 31, 2021 Loan and lease growth organically ** Loans and leases growth > 9% annually ​ 14.6 % ​ 16.9 % Fee income growth *** Fee income growth > 6% annually ​ (21.5) % ​ (10.1) % Improve operational efficiencies and hold noninterest expense growth ​ Noninterest expense growth ​ 18.8 % ​ 4.0 % * The calculations provided exclude non-core noninterest income and noninterest expense. ** Loan and lease growth excludes the initial loan balances from the GFED acquisition and PPP loans. *** Fee income growth and noninterest expense growth are both impacted by the GFED acquisition.
The following table shows the evaluation of the Company’s strategic financial metrics: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ending Strategic Financial Metric* Key Metric Target December 31, 2023 December 31, 2022 Loan and lease growth organically ** Loans and leases growth > 9% annually ​ 6.6 % ​ 14.6 % Fee income growth *** Fee income growth > 6% annually ​ 75.1 % ​ (21.5) % Improve operational efficiencies and hold noninterest expense growth ​ Noninterest expense growth ​ 16.3 % ​ 18.8 % * The fee income growth and noninterest expense growth calculations provided exclude non-core noninterest income and noninterest expense. ** Loan and lease growth excludes the initial loan balances from the GFED acquisition. *** Fee income growth and noninterest expense growth are both impacted by the GFED acquisition.
As of December 31, 2022 and 2021, standby letters of credit aggregated $25.8 million and $21.7 million, respectively. Management does not expect that all of these commitments will be funded. Additional information regarding commitments, contingencies, and off-balance sheet arrangements is described in Note 19 to the Consolidated Financial Statements.
As of December 31, 2023 and 2022, standby letters of credit aggregated $23.7 million and $25.8 million, respectively. Management does not expect that all of these commitments will be funded. Additional information regarding commitments, contingencies, and off-balance sheet arrangements is described in Note 20 to the Consolidated Financial Statements.
The Company has various financial obligations, including contractual obligations and commitments, which may require future cash payments. The significant fixed and determinable contractual obligations to third parties are deposits without a stated maturity, certificates of deposit, short-term borrowings, subordinated notes, and junior subordinated debentures and totaled $6.8 billion as of December 31, 2022.
The Company has various financial obligations, including contractual obligations and commitments, which may require future cash payments. The significant fixed and determinable contractual obligations to third parties are deposits without a stated maturity, certificates of deposit, short-term borrowings, subordinated notes, and junior subordinated debentures and totaled $7.2 billion as of December 31, 2023.
One source of liquidity is cash and short-term assets, such as interest-bearing deposits in other banks, cash and due from banks and federal funds sold, which averaged $153.9 million and $178.7 million during 2022 and 2021, respectively. The Company’s on balance sheet liquidity position can fluctuate based on short-term activity in deposits and loans.
One source of liquidity is cash and short-term assets, such as interest-bearing deposits in other banks, cash and due from banks and federal funds sold, which averaged $180.4 million and $153.9 million during 2023 and 2022, respectively. The Company’s on balance sheet liquidity position can fluctuate based on short-term activity in deposits and loans.
If the commitment is funded, the banks would be entitled to seek recovery from the customer. At December 31, 2021 and 2020, no amounts had been recorded as liabilities for the banks’ potential obligations under these guarantees. As of December 31, 2022 and 2021, commitments to extend credit aggregated $1.7 billion and $1.2 billion, respectively.
If the commitment is funded, the banks would be entitled to seek recovery from the customer. At December 31, 2023 and 2022, no amounts had been recorded as liabilities for the banks’ potential obligations under these guarantees. 62 Table of Contents As of December 31, 2023 and 2022, commitments to extend credit aggregated $2.0 billion and $1.7 billion, respectively.
In compliance with applicable rules of the SEC, all non-GAAP measures are reconciled to the most directly comparable GAAP measure, as follows: ● TCE/TA ratio (non-GAAP) is reconciled to stockholders’ equity and total assets; ● Adjusted net income, adjusted EPS and adjusted ROAA (all non-GAAP measures) are reconciled to net income; ● NIM (TEY) (non-GAAP) and adjusted NIM (TEY) (non-GAAP) are reconciled to NIM; ● Efficiency ratio (non-GAAP) is reconciled to noninterest expense, net interest income and noninterest income; and ● Loan growth excluding acquired and PPP loans (non-GAAP) is reconciled to total loans and leases.
In compliance with applicable rules of the SEC, all non-GAAP measures are reconciled to the most directly comparable GAAP measure, as follows: ● TCE/TA ratio (non-GAAP) is reconciled to stockholders’ equity and total assets; ● Adjusted net income, adjusted EPS and adjusted ROAA (all non-GAAP measures) are reconciled to net income; ● NIM (TEY) (non-GAAP) and adjusted NIM (TEY) (non-GAAP) are reconciled to NIM; and ● Efficiency ratio (non-GAAP) is reconciled to noninterest expense, net interest income and noninterest income.
Item 6. [Reserved ] ​ ​ ​ ​ ​ ​ ​ ​ 29 Table of Contents I tem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This section generally discusses 2022 and 2021 items and annual comparison between our fiscal 2022 performance compared to our fiscal 2021 performance.
Item 6. [Reserved ] ​ I tem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This section generally discusses 2023 and 2022 items and annual comparison between our fiscal 2023 performance compared to our fiscal 2022 performance.
The Company also manages off-balance sheet liquidity held at the Federal Reserve on behalf of the downstream banks of $339.5 million as of December 31, 2022. ​ ● The Company is focused on executing interest rate swaps on select commercial loans, including LIHTC permanent loans.
The Company also manages off-balance sheet liquidity held at the Federal Reserve on behalf of the downstream banks, which totaled $214.9 million as of December 31, 2023 as compared to $339.5 million as of December 31, 2022. ​ ● The Company is focused on executing interest rate swaps on select commercial loans, including LIHTC permanent loans.
A comparison of acquisition accounting net accretion included in NIM is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ ​ ​ December 31, ​ ​ December 31, ​ ​ 2022 ​ 2021 ​ ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Acquisition Accounting Net Accretion in NIM ​ ​ $ 8,581 ​ $ 1,340 ​ The Company's management closely monitors and manages NIM.
A comparison of acquisition accounting net accretion included in NIM is as follows: ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ December 31, ​ December 31, ​ 2023 ​ 2022 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ Acquisition Accounting Net Accretion in NIM $ 2,173 ​ $ 8,581 ​ The Company's management closely monitors and manages NIM.
Correspondent banking continues to be a core strategy for the Company, as this line of business provides a high level of noninterest bearing deposits that can be used to fund loan growth as well as a steady source of fee income. The Company now serves 185 banks in Iowa, Illinois, Missouri and Wisconsin.
Correspondent banking continues to be a core strategy for the Company, as this line of business provides a high level of deposits that can be used to fund loan growth as well as a steady source of fee income. The Company now serves 182 banks in Iowa, Illinois, Missouri and Wisconsin. Loan related fee income increased 26% in 2023.
The table below presents the composition of the Company’s short-term borrowings. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2022 2021 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Federal funds purchased ​ $ 129,630 ​ $ 3,800 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Company’s federal funds purchased fluctuates based on the short-term funding needs of the Company’s subsidiary banks.
The table below presents the composition of the Company’s short-term borrowings. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2023 2022 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds purchased ​ ​ $ 1,500 ​ $ 129,630 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Company’s federal funds purchased fluctuates based on the short-term funding needs of the Company’s subsidiary banks.
The Company’s operating results are also affected by economic and competitive conditions, particularly changes in interest rates, income tax rates, government policies and actions of regulatory authorities. ​ RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2022 and 2021 INTEREST INCOME For 2022, interest income increased $92.4 million, or 46%, compared to 2021.
The Company’s operating results are also affected by economic and competitive conditions, particularly changes in interest rates, income tax rates, government policies and actions of regulatory authorities. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023 and 2022 INTEREST INCOME For 2023, interest income increased $120.8 million, or 41%, compared to 2022.
Seasonality and the liquidity needs of these correspondent banks can impact balances. Management closely monitors these fluctuations and runs stress scenarios to measure the impact on liquidity and interest rate risk with various levels of correspondent deposit run-off. Investing activities used cash of $634.7 million during 2022 compared to $411.8 million during 2021.
Seasonality and the liquidity needs of these correspondent banks can impact balances. Management closely monitors these fluctuations and runs stress scenarios to measure the impact on liquidity and interest rate risk with various levels of correspondent deposit run-off. 61 Table of Contents Investing activities used cash of $749.3 million during 2023 compared to $634.7 million during 2022.
For available for sale securities, unrealized gains and losses are reported as a component of stockholders’ equity, net of the related tax effect.
Available for sale securities are carried at fair value with unrealized gains and losses reported as a component of stockholders’ equity, net of the related tax effect.
As of December 31, 2022, the Company had $7.9 billion in consolidated assets, including $6.1 billion in total loans/leases, and $6.0 billion in deposits. The financial results of acquired/merged entities for the periods since their acquisition/merger are included in this report.
As of December 31, 2023, the Company had $8.5 billion in consolidated assets, including $6.5 billion in total loans/leases, and $6.5 billion in deposits. The financial results of acquired/merged entities for the periods since their acquisition/merger are included in this report.
The interest rate swaps allow the commercial borrowers to pay a fixed interest rate while the Company receives a variable interest rate as well as an upfront nonrefundable fee dependent on the pricing. Management believes that these swaps help position the Company more favorably for rising rate environments.
The interest rate swaps help the commercial borrowers obtain a fixed interest rate while the Company receives a variable interest rate as well as an upfront nonrefundable fee dependent on the pricing. Management believes that these swaps help position the Company more favorably for rising rate 40 Table of Contents environments.
In addition, the Company calculates NIM without the impact of acquisition accounting net accretion (adjusted NIM), as accretion amounts can fluctuate a great deal, making comparisons difficult. The efficiency ratio is a ratio that management utilizes to compare the Company to peers. It is standard in the banking industry and widely utilized by investors.
In addition, the Company calculates NIM without the impact of acquisition accounting net accretion (adjusted NIM), as accretion amounts can fluctuate a great deal, making comparisons difficult. The efficiency ratio is a ratio that management utilizes to compare the Company to peers.
See Note 11 to the Consolidated Financial Statements for additional information. As of December 31, 2022, the Company had $576.8 million in average correspondent banking deposits spread over 185 relationships. While the Company believes that these funds are relatively stable, there is the potential for large fluctuations that can impact liquidity.
See Note 12 to the Consolidated Financial Statements for additional information. As of December 31, 2023, the Company had $536.1 million in correspondent banking deposits spread over 182 relationships. While the Company believes that these funds are relatively stable, there is the potential for large fluctuations that can impact liquidity.
The Company’s cost of funds was 1.28% for the year ending December 31, 2022, which was up from 0.59% for the year ending December 31, 2021. 39 Table of Contents PROVISION FOR CREDIT LOSSES The ACL is established through provision for credit losses expense to provide an estimated ACL.
The Company’s cost of funds was 3.31% for the year ending December 31, 2023, which was up from 1.28% for the year ending December 31, 2022. PROVISION FOR CREDIT LOSSES The ACL is established through provision for credit losses expense to provide an estimated ACL.
A comparison of yields, spread and margin on a GAAP and tax equivalent basis is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ GAAP ​ Tax Equivalent Basis ​ ​ For the Year Ended ​ For the Year Ended ​ ​ December 31, ​ December 31, ​ December 31, December 31, ​ ​ 2022 ​ 2021 ​ 2022 2021 Average Yield on Interest-Earning Assets ​ 4.41 % ​ 3.71 % ​ 4.66 % ​ 3.90 % Average Cost of Interest-Bearing Liabilities ​ 1.28 % ​ 0.59 % ​ 1.28 % ​ 0.59 % Net Interest Spread ​ 3.13 % ​ 3.12 % ​ 3.38 % ​ 3.31 % NIM (TEY) (Non-GAAP) ​ 3.49 % ​ 3.30 % ​ 3.73 % ​ 3.49 % NIM Excluding Acquisition Accounting Net Accretion ​ 3.36 % ​ 3.28 % ​ 3.60 % ​ 3.47 % Acquisition accounting net accretion can fluctuate, mostly depending on the payoff or renewal activity of the acquired loans.
A comparison of yields, spread and margin on a GAAP and tax equivalent basis is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ GAAP ​ Tax Equivalent Basis ​ ​ For the Year Ended ​ For the Year Ended ​ ​ December 31, ​ December 31, ​ December 31, December 31, ​ ​ 2023 ​ 2022 ​ 2023 2022 Average Yield on Interest-Earning Assets ​ 5.56 % ​ 4.41 % ​ 5.94 % ​ 4.66 % Average Cost of Interest-Bearing Liabilities ​ 3.31 % ​ 1.28 % ​ 3.31 % ​ 1.28 % Net Interest Spread ​ 2.25 % ​ 3.13 % ​ 2.63 % ​ 3.38 % NIM (TEY) (Non-GAAP) ​ 2.97 % ​ 3.49 % ​ 3.35 % ​ 3.73 % NIM Excluding Acquisition Accounting Net Accretion (Non-GAAP) ​ 2.94 % ​ 3.36 % ​ 3.32 % ​ 3.60 % Acquisition accounting net accretion can fluctuate, mostly depending on the payoff or renewal activity of the acquired loans.
Intangible amortization expense increased 41% in 2022 as compared to 2021. The increase is due to the GFED acquisition. These expenses naturally decrease as intangibles become fully amortized unless there is an addition to intangible assets. Payment card processing expense increased 39% in 2022 as compared to 2021. The increase is due to the GFED acquisition.
These expenses will naturally decrease as intangibles become fully amortized unless there is an addition to intangible assets. Payment card processing expense increased 35% in 2023 as compared to 2022. The increase is due to the GFED acquisition. Trust expense increased 80% in 2023 as compared to 2022.
Proceeds from calls, maturities, pay downs, and sales of securities were $186.8 million for 2022 compared to $195.7 million for 2021. Purchases of securities used cash of $230.5 million for 2022 compared to $173.2 million for 2021. The net increase in loans/leases used cash of $654.9 million for 2022 compared to $433.5 million for 2021.
Proceeds from calls, maturities, pay downs, and sales of securities were $141.9 million for 2023 compared to $186.8 million for 2022. Purchases of securities used cash of $187.6 million for 2023 compared to $230.5 million for 2022. The net increase in loans/leases used cash of $676.7 million for 2023 compared to $654.9 million for 2022.
Management will continue to focus on minimizing such one-time costs and driving recurring costs down through contract negotiation or managed reduction in activity where costs are determined on a usage basis. 42 Table of Contents Acquisition costs totaled $3.7 million in 2022 and $624 thousand in 2021.
Management will continue to focus on minimizing such one-time costs and driving recurring costs down through contract negotiation or managed reduction in activity where costs are determined on a usage basis. There were no acquisition costs in 2023. Acquisition costs totaled $3.7 million in 2022.
While the Company is determined to work prudently to achieve these metrics, there is no assurance that they will be met.
The metrics are periodically updated to reflect business developments. While the Company is determined to work prudently to achieve these metrics, there is no assurance that they will be met.
The Company has grown its interest rate swap program significantly over the past several years. The Company’s interest rate swap program consists of back-to-back interest rate swaps with two types of commercial borrowers: (1) traditional commercial loans of a certain minimum size and sophistication, and (2) LIHTC permanent loans.
The Company’s interest rate swap program consists of back-to-back interest rate swaps with two types of commercial borrowers: (1) traditional commercial loans of a certain minimum size and sophistication, and (2) LIHTC permanent loans.
Also included in other noninterest expense are other items such as subscriptions, sales and use tax and expenses related to wealth management. 43 Table of Contents INCOME TAX EXPENSE The provision for income taxes was $14.5 million for 2022, or an effective tax rate of 12.7%, compared to $22.6 million for 2021, or an effective tax rate of 18.6%.
Also included in other noninterest expense are other items such as meals and entertainment, subscriptions, sales and use tax and expenses related to wealth management. 50 Table of Contents INCOME TAX EXPENSE The provision for income taxes was $13.1 million for 2023, or an effective tax rate of 10.3%, compared to $14.5 million for 2022, or an effective tax rate of 12.7%.
NONPERFORMING ASSETS The table below presents the amounts of NPAs and related ratios. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2022 ​ 2021 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual loans/leases (1) ​ $ 8,765 ​ $ 2,759 ​ Accruing loans/leases past due 90 days or more ​ ​ 5 ​ ​ 1 ​ Total NPLs ​ 8,770 ​ ​ 2,760 ​ Other repossessed assets ​ ​ — ​ ​ — ​ OREO ​ ​ 133 ​ ​ — ​ Total NPAs ​ $ 8,903 ​ $ 2,760 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NPLs to total loans/leases ​ ​ 0.14 % ​ 0.06 % NPAs to total loans/leases plus repossessed property ​ ​ 0.15 % ​ 0.06 % NPAs to total assets ​ ​ 0.11 % ​ 0.05 % Nonaccrual loans/leases to total loans/leases ​ ​ 0.14 % ​ 0.06 % ACL to nonaccrual loans ​ ​ 1000.64 % ​ 2853.24 % ​ (1) Includes government guaranteed portions of loans, if applicable.
NONPERFORMING ASSETS The table below presents the amounts of NPAs and related ratios. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2023 ​ 2022 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual loans/leases (1) ​ $ 32,753 ​ $ 8,765 ​ Accruing loans/leases past due 90 days or more ​ ​ 86 ​ ​ 5 ​ Total NPLs ​ 32,839 ​ ​ 8,770 ​ Other repossessed assets ​ ​ — ​ ​ — ​ OREO ​ ​ 1,347 ​ ​ 133 ​ Total NPAs ​ $ 34,186 ​ $ 8,903 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NPLs to total loans/leases ​ ​ 0.50 % ​ 0.14 % NPAs to total loans/leases plus repossessed property ​ ​ 0.52 % ​ 0.15 % NPAs to total assets ​ ​ 0.40 % ​ 0.11 % Nonaccrual loans/leases to total loans/leases ​ ​ 0.50 % ​ 0.14 % ACL to nonaccrual loans ​ ​ 266.24 % ​ 1000.64 % ​ (1) Includes government guaranteed portions of loans, if applicable.
The following table shows the components for the provision for credit losses for the years ended December 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ December 31, ​ ​ 2022 2021 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Provision for credit losses - loans and leases ​ ​ $ 9,636 ​ $ 5,702 Provision for credit losses - off-balance sheet exposures ​ ​ ​ (1,334) ​ ​ (2,231) Provision for credit losses - held to maturity securities ​ ​ (18) ​ 15 Total provision for credit losses ​ ​ $ 8,284 ​ $ 3,486 ​ The Company’s total provision for credit losses was $8.3 million for 2022, an increase of $4.8 million from 2021.
The following table shows the components for the provision for credit losses for the years ended December 31, 2023 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ December 31, ​ ​ 2023 2022 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Provision for credit losses - loans and leases ​ ​ $ 11,550 ​ $ 9,636 Provision for credit losses - off-balance sheet exposures ​ ​ ​ 3,977 ​ ​ (1,334) Provision for credit losses - held to maturity securities ​ ​ ​ 23 ​ ​ (18) Provision for credit losses - available for sale securities ​ ​ 989 ​ — Total provision for credit losses ​ ​ $ 16,539 ​ $ 8,284 ​ ​ ​ ​ ​ ​ ​ ​ ​ The Company’s total provision for credit losses was $16.5 million for 2023, an increase of $8.2 million from 2022.
The Company intends to continue to grow quality loans and leases as well as its private placement tax-exempt securities portfolio to maximize yield while minimizing credit and interest rate risk. INTEREST EXPENSE Comparing 2022 to 2021, interest expense increased $39.5 million, or 180%, year-over-year.
The Company intends to continue to grow quality loans and leases as well as its private placement tax-exempt securities portfolio to maximize yield while minimizing credit and interest rate risk. 45 Table of Contents INTEREST EXPENSE Comparing 2023 to 2022, interest expense increased $131.0 million, or 213%, year-over-year.
The Company also generates liquidity from the regular principal payments and prepayments made on its loan/lease portfolio, and on the regular monthly payments on its securities portfolio. At December 31, 2022, the subsidiary banks had 28 lines of credit totaling $501.8 million, of which $31.0 million was secured and $470.8 million was unsecured.
The Company also generates liquidity from the regular principal payments and prepayments made on its loan/lease portfolio, and on the regular monthly payments on its securities portfolio. At December 31, 2023, the subsidiary banks had 25 lines of credit totaling $699.3 million, of which $248.5 million was secured and $450.8 million was unsecured.
The following is a table that reports the criticized and classified loan totals as of December 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, Internally Assigned Risk Rating * ​ 2022 ​ 2021 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Special Mention (Rating 6) ​ $ 98,333 $ 62,510 Substandard (Rating 7) ​ ​ 66,021 ​ 53,296 Doubtful (Rating 8) ​ ​ — ​ — ​ ​ $ 164,354 $ 115,806 ​ ​ ​ ​ ​ ​ ​ ​ Criticized Loans ** ​ $ 164,354 $ 115,806 Classified Loans *** ​ $ 66,021 $ 53,296 ​ ​ ​ ​ ​ ​ ​ ​ Criticized Loans as a % of Total Loans/Leases ​ ​ 2.68 % ​ 2.47 % Classified Loans as a % of Total Loans/Leases ​ ​ 1.08 % ​ 1.14 % ​ * Amounts above exclude the government guaranteed portion, if any.
The following is a table that reports the criticized and classified loan totals as of December 31, 2023 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, Internally Assigned Risk Rating * ​ 2023 ​ 2022 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Special Mention (Rating 6) ​ $ 124,460 $ 98,333 Substandard (Rating 7)/Classified loans ​ ​ 67,313 ​ 66,021 Doubtful (Rating 8)/Classified loans ​ ​ — ​ — Criticized Loans ​ $ 191,773 $ 164,354 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Criticized Loans as a % of Total Loans/Leases ​ ​ 2.93 % ​ 2.68 % Classified Loans as a % of Total Loans/Leases ​ ​ 1.03 % ​ 1.08 % ​ * Amounts above exclude the government guaranteed portion, if any.
Investment advisory and management fees decreased 5% in 2022 as compared to 2021. Similar to trust fees, fees from these services are largely determined based on the value of the investments managed. As a result, fee income from this line of business fluctuates with market valuations. Deposit service fees increased 33% in 2022 as compared to 2021.
Similar to trust fees, fees from these services are largely determined based on the value of the investments managed. As a result, fee income from this line of business fluctuates with market valuations. Deposit service fees remained stable in 2023 as compared to 2022.
Changes in the ACL for loans/leases for the years ended December 31, 2022, 2021 and 2020 are presented as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, 2022 December 31, 2021 ​ December 31, 2020 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, beginning ​ $ 78,721 ​ $ 84,376 ​ $ 36,001 ​ Impact of adopting ASU 2016-13 ​ ​ — ​ ​ (8,102) ​ ​ — ​ Initial ACL recorded for acquired PCD loans ​ ​ 5,902 ​ ​ — ​ ​ — ​ Provision ​ 9,636 ​ 5,702 ​ 55,704 ​ Charge-offs ​ (7,525) ​ (4,538) ​ (8,383) ​ Recoveries ​ 972 ​ 1,283 ​ 1,054 ​ Balance, ending ​ $ 87,706 ​ $ 78,721 ​ $ 84,376 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Company recorded an $11.0 million (pre-tax) provision for credit losses on loans in 2022, for the CECL Day 2 provision as a result of the GFED acquisition. ​ 47 Table of Contents Net charge-offs by segment and their percentage of average loans and leases are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 ​ 2021 ​ ​ ​ ​ Amount % of Average Loans ​ ​ Amount % of Average Loans ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average amount of loans/leases outstanding, before allowance ​ $ 5,604,074 ​ ​ $ 4,456,461 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net charge-offs: ​ ​ ​ ​ ​ ​ ​ ​ ​ C&I - Revolving ​ ​ — 0.00 ​ ​ — 0.00 ​ C&I - Other ​ ​ (5,600) 0.10 ​ ​ (1,697) 0.04 ​ CRE owner occupied ​ ​ 6 0.00 ​ ​ 3 0.00 ​ CRE non-owner occupied ​ ​ (96) 0.00 ​ ​ (1,791) 0.04 ​ Construction and land development ​ ​ (829) 0.01 ​ ​ — 0.00 ​ Multi-family ​ ​ 43 (0.00) ​ ​ (150) 0.00 ​ 1-4 family real estate ​ ​ (21) 0.00 ​ ​ 102 0.00 ​ Consumer ​ ​ (56) 0.00 ​ ​ 278 (0.01) ​ Total net charge-offs ​ $ (6,553) ​ ​ $ (3,255) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Changes in the ACL for OBS exposures for the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2022 ​ 2021 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, beginning ​ $ 6,886 ​ $ — ​ Impact of adopting ASU 2016-13 ​ ​ — ​ ​ 9,117 ​ Provisions (credited) to expense ​ ​ (1,334) ​ ​ (2,231) ​ Balance, ending ​ $ 5,552 ​ $ 6,886 ​ ​ ​ ​ ​ ​ ​ ​ ​ The ACL for OBS exposures totaled $9.1 million at the adoption of CECL on January 1, 2021.
The adequacy of the allowance is monitored by the credit administration staff and reported to management and the board of directors. 54 Table of Contents Changes in the ACL for loans/leases for the years ended December 31, 2023, 2022 and 2021 are presented as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, 2023 December 31, 2022 ​ December 31, 2021 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, beginning ​ $ 87,706 ​ $ 78,721 ​ $ 84,376 ​ Impact of adopting ASU 2016-13 ​ ​ — ​ ​ — ​ ​ (8,102) ​ Initial ACL recorded for PCD loans ​ ​ — ​ ​ 5,902 ​ ​ — ​ Change in ACL for writedown of LHFS to fair value ​ ​ (3,545) ​ ​ — ​ ​ — ​ Provision ​ 11,550 ​ 9,636 ​ 5,702 ​ Charge-offs ​ (9,392) ​ (7,525) ​ (4,538) ​ Recoveries ​ 881 ​ 972 ​ 1,283 ​ Balance, ending ​ $ 87,200 ​ $ 87,706 ​ $ 78,721 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Company recorded an $11.0 million (pre-tax) provision for credit losses on loans in 2022, for the CECL Day 2 provision as a result of the GFED acquisition. ​ Net charge-offs by segment and their percentage of average loans and leases are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 ​ 2022 ​ ​ ​ ​ Amount % of Average Loans ​ ​ Amount % of Average Loans ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average amount of loans/leases outstanding, before allowance ​ $ 6,337,551 ​ ​ $ 5,604,074 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net charge-offs: ​ ​ ​ ​ ​ ​ ​ ​ ​ C&I - revolving ​ ​ — 0.00 ​ ​ — 0.00 ​ C&I - other ​ ​ (8,137) 0.13 ​ ​ (5,600) 0.10 ​ CRE owner occupied ​ ​ (219) 0.00 ​ ​ 6 0.00 ​ CRE non-owner occupied ​ ​ 31 (0.00) ​ ​ (96) 0.00 ​ Construction and land development ​ ​ (48) 0.00 ​ ​ (829) 0.01 ​ Multi-family ​ ​ — 0.00 ​ ​ 43 (0.00) ​ 1-4 family real estate ​ ​ 5 (0.00) ​ ​ (21) 0.00 ​ Consumer ​ ​ (143) 0.00 ​ ​ (56) 0.00 ​ Total net charge-offs ​ $ (8,511) ​ ​ $ (6,553) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Changes in the ACL for OBS exposures for the years ended December 31, 2023, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 December 31, 2021 ​ ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, beginning ​ ​ $ 5,552 ​ $ 6,886 ​ $ — ​ Impact of adopting ASU 2016-13 ​ ​ ​ — ​ ​ — ​ ​ 9,117 ​ Provisions (credited) to expense ​ ​ 3,977 ​ (1,334) ​ (2,231) ​ Balance, ending ​ ​ $ 9,529 ​ $ 5,552 ​ $ 6,886 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The ACL for OBS exposures totaled $9.1 million at the adoption of CECL on January 1, 2021.
Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. The majority of the trust fees are determined based on the value of the investments within the fully-managed trusts.
Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. The majority of the trust fees are determined based on the value of the investments within the fully-managed trusts. Trust fees increased 10% in 2023 as compared to 2022 due to growth in assets under management.
The interest rate swaps allow the commercial borrowers to pay a fixed interest rate while the Company receives a variable interest rate as well as an upfront nonrefundable fee dependent upon the pricing. Swap fee income/capital markets revenue totaled $41.3 million in 2022 as compared to $61.0 million in 2021.
The interest rate swaps help the commercial borrowers to obtain a fixed interest rate while the Company receives a variable interest rate as well as an upfront nonrefundable fee dependent upon the pricing. ​ Capital markets revenue totaled $92.1 million in 2023 as compared to $41.3 million in 2022.
The Company is competitively positioned with experienced staff, software systems and processes to continue growing in the four states it currently serves – Iowa, Wisconsin, Missouri and Illinois. The Company acts as the correspondent bank for 185 downstream banks with total average noninterest bearing deposits of $246.0 million and total average interest-bearing deposits of $330.7 million for 2022.
The Company is competitively positioned with experienced staff, software systems and processes to continue growing in the four states it currently serves – Iowa, Wisconsin, Missouri and Illinois. The Company acts as the correspondent bank for 182 downstream banks with total noninterest bearing deposits of $88.5 million and total interest-bearing deposits of $242.3 million as of December 31, 2023.
As of December 31, 2022, approximately 16% of the CRE loan portfolio was owner-occupied. ​ Historically, the Company structures most residential real estate loans to conform to the underwriting requirements of Freddie Mac and Fannie Mae to allow the subsidiary banks to resell the loans on the secondary market to avoid the interest rate risk associated with longer term fixed rate loans and recognizing noninterest income from the gain on sale.
Approximately 39% of the CRE portfolio are LIHTC loans of which all are performing and all are pass rated. ​ Historically, the Company structures most residential real estate loans to conform to the underwriting requirements of Freddie Mac and Fannie Mae to allow the subsidiary banks to resell the loans on the secondary market to avoid the interest rate risk associated with longer term fixed rate loans and recognizing noninterest income from the gain on sale.
However, the Company may choose to utilize advances and/or brokered deposits to supplement funding needs, as this is a way for the Company to effectively and efficiently manage interest rate risk. ​ The Company renewed its revolving credit note in the second quarter of 2022. At renewal, the available line amount was increased from $25.0 million to $50.0 million.
However, the Company may choose to utilize advances and/or brokered deposits to supplement funding needs, as this is a way for the Company to effectively and efficiently manage interest rate risk. ​ The Company renewed its revolving credit note in the second quarter of 2023.
See Notes 10 and 11 to the Consolidated Financial Statements for additional information regarding FHLB advances and other borrowings. SUBORDINATED NOTES The Company had subordinated notes totaling $232.7 million and $113.9 million as of December 31, 2022 and 2021, respectively.
The Bank Term Funding Program ends March 11, 2024. See Notes 10 and 11 to the Consolidated Financial Statements for additional information regarding FHLB advances and other borrowings. SUBORDINATED NOTES The Company had subordinated notes totaling $233.1 million and $232.7 million as of December 31, 2023 and 2022, respectively.
Total cash provided by operating activities was $118.7 million for 2022 compared to $88.2 million for 2021.
Total cash provided by operating activities was $376.3 million for 2023 compared to $118.7 million for 2022.
Factors considered important, which could trigger an impairment review, include the following: ​ ● Significant under-performance relative to expected historical or projected future operating results; ● Significant changes in the manner of use of the acquired assets or the strategy for the overall business; ● Significant negative industry or economic trends; ● Significant decline in the market price for our common stock over a sustained period; or ● Market capitalization relative to net book value. ​ As of November 30, 2022, the Company’s management performed an annual assessment at the reporting unit level and determined no goodwill impairment existed. ​ ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES AND OFF-BALANCE SHEET EXPOSURES ​ On January 1, 2021, the Company adopted ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326),” which replaces the incurred loss methodology with a current expected credit loss methodology, known as CECL.
Factors considered important, which could trigger an impairment review, include the following: ​ ● Significant under-performance relative to expected historical or projected future operating results; ● Significant changes in the manner of use of the acquired assets or the strategy for the overall business; ● Significant negative industry or economic trends; ● Significant decline in the market price for our common stock over a sustained period; or ● Market capitalization relative to net book value. ​ The Company’s management performed an annual assessment at the reporting unit level and determined no goodwill impairment existed as of November 30, 2023. ​ ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES AND OFF-BALANCE SHEET EXPOSURES ​ The Company’s allowance methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance that management believes is appropriate at each reporting date.
When observable inputs do not exist, the Company estimates fair value based on available market data, and these values are classified as Level 3. ​ FAIR VALUE OF SECURITIES The fair value of securities is determined monthly and the securities are stated at fair value.
When observable inputs do not exist, the Company estimates fair value based on available market data, and these values are classified as Level 3. ​ FAIR VALUE OF SECURITIES The fair value of available for sale and held to maturity debt securities is determined monthly based upon values provided by third parties.
Management continually addresses this issue with pricing and other balance sheet management strategies which included better loan pricing, reducing reliance on very rate-sensitive funding, closely managing deposit rate increases and finding additional ways to manage cost of funds through derivatives. 37 Table of Contents The Company’s average balances, interest income/expense, and rates earned/paid on major balance sheet categories are presented in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 ​ ​ 2021 ​ ​ 2020 ​ ​ ​ ​ ​ ​ Interest ​ Average ​ ​ ​ ​ ​ Interest ​ Average ​ ​ ​ ​ ​ Interest ​ Average ​ ​ ​ Average ​ Earned ​ Yield or ​ ​ Average ​ Earned ​ Yield or ​ ​ Average ​ Earned ​ Yield or ​ ​ ​ Balance or Paid Cost ​ Balance or Paid Cost ​ Balance or Paid Cost ​ ​ (dollars in thousands) ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds sold ​ $ 14,436 ​ $ 410 ​ 2.84 % ​ $ 1,964 ​ $ 2 0.10 % ​ $ 2,398 ​ $ 19 0.79 % Interest-bearing deposits at financial institutions ​ 63,448 ​ 1,089 ​ 1.72 ​ ​ 116,421 ​ 173 0.15 ​ ​ 315,616 ​ 669 0.21 ​ Investment securities (1) ​ 910,712 ​ 36,359 ​ 3.99 ​ ​ 804,636 ​ 29,504 3.66 ​ ​ 715,808 ​ 26,773 3.74 ​ Restricted investment securities ​ 35,554 ​ 2,068 ​ 5.73 ​ ​ 19,386 ​ 950 4.83 ​ ​ 20,270 ​ 1,031 5.00 ​ Gross loans/leases receivable (1) (2) (3) ​ 5,604,074 ​ 268,985 ​ 4.80 ​ ​ 4,456,461 ​ 179,738 4.03 ​ ​ 4,031,567 ​ 178,097 4.42 ​ Total interest earning assets ​ $ 6,628,224 ​ 308,911 ​ 4.66 ​ ​ $ 5,398,868 ​ 210,367 3.90 ​ ​ $ 5,085,659 ​ 206,589 4.06 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest-earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 75,975 ​ ​ ​ ​ ​ ​ ​ ​ $ 60,298 ​ ​ ​ ​ ​ ​ ​ $ 80,208 ​ ​ ​ ​ ​ ​ Premises and equipment ​ 106,591 ​ ​ ​ ​ ​ ​ ​ ​ 75,015 ​ ​ ​ ​ ​ ​ ​ 73,063 ​ ​ ​ ​ ​ ​ Less allowance ​ (85,745) ​ ​ ​ ​ ​ ​ ​ ​ (81,633) ​ ​ ​ ​ ​ ​ ​ (55,275) ​ ​ ​ ​ ​ ​ Other ​ 481,135 ​ ​ ​ ​ ​ ​ ​ ​ 420,809 ​ ​ ​ ​ ​ ​ ​ 420,419 ​ ​ ​ ​ ​ ​ Total assets ​ $ 7,206,180 ​ ​ ​ ​ ​ ​ ​ ​ $ 5,873,357 ​ ​ ​ ​ ​ ​ ​ $ 5,604,074 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits ​ $ 3,715,017 ​ 35,359 ​ 0.95 % ​ $ 3,058,917 ​ 8,621 ​ 0.28 % ​ $ 2,797,669 ​ 11,980 ​ 0.43 % Time deposits ​ 568,245 ​ 7,003 ​ 1.23 ​ ​ 448,191 ​ 4,679 ​ 1.04 ​ ​ 690,222 ​ 11,289 ​ 1.64 ​ Short-term borrowings ​ 8,637 ​ 299 ​ 3.46 ​ ​ 6,281 ​ 5 ​ 0.08 ​ ​ 22,625 ​ 84 ​ 0.37 ​ FHLB advances ​ 286,474 ​ 6,954 ​ 2.39 ​ ​ 23,389 ​ 70 ​ 0.30 ​ ​ 74,167 ​ 1,087 ​ 1.44 ​ Other borrowings ​ 1,068 ​ 53 ​ 4.96 ​ ​ — ​ — ​ — ​ ​ — ​ — ​ — ​ Subordinated notes ​ ​ 165,685 ​ ​ 9,200 ​ ​ 5.55 ​ ​ ​ 115,398 ​ ​ 6,272 ​ 5.44 ​ ​ ​ 83,404 ​ ​ 4,697 ​ 5.63 ​ Junior subordinated debentures ​ 45,497 ​ 2,583 ​ 5.60 ​ ​ 38,067 ​ 2,276 ​ 5.90 ​ ​ 37,913 ​ 2,286 ​ 5.93 ​ Total interest-bearing liabilities ​ $ 4,790,623 ​ 61,451 ​ 1.28 ​ ​ $ 3,690,243 ​ 21,923 ​ 0.59 ​ ​ $ 3,706,000 ​ 31,423 ​ 0.85 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest-bearing demand deposits ​ $ 1,393,284 ​ ​ ​ ​ ​ ​ ​ ​ $ 1,269,467 ​ ​ ​ ​ ​ ​ ​ $ 1,052,375 ​ ​ ​ ​ ​ ​ Other noninterest-bearing liabilities ​ 274,241 ​ ​ ​ ​ ​ ​ ​ ​ 276,457 ​ ​ ​ ​ ​ ​ ​ 279,459 ​ ​ ​ ​ ​ ​ Total liabilities ​ $ 6,458,148 ​ ​ ​ ​ ​ ​ ​ ​ $ 5,236,167 ​ ​ ​ ​ ​ ​ ​ $ 5,037,834 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' equity ​ 748,032 ​ ​ ​ ​ ​ ​ ​ ​ 637,190 ​ ​ ​ ​ ​ ​ ​ 566,240 ​ ​ ​ ​ ​ ​ Total liabilities and stockholders' equity ​ $ 7,206,180 ​ ​ ​ ​ ​ ​ ​ ​ $ 5,873,357 ​ ​ ​ ​ ​ ​ ​ $ 5,604,074 ​ ​ ​ ​ ​ ​ Net interest income ​ ​ ​ ​ $ 247,460 ​ ​ ​ ​ ​ ​ ​ $ 188,444 ​ ​ ​ ​ ​ ​ $ 175,166 ​ ​ ​ Net interest spread ​ ​ ​ ​ ​ 3.38 % ​ ​ ​ ​ ​ 3.31 % ​ ​ ​ ​ ​ 3.21 % Net interest margin ​ ​ ​ ​ ​ 3.49 % ​ ​ ​ ​ ​ 3.30 % ​ ​ ​ ​ ​ 3.28 % Net interest margin (TEY)(Non-GAAP) ​ ​ ​ ​ ​ 3.73 % ​ ​ ​ ​ ​ 3.49 % ​ ​ ​ ​ ​ 3.44 % Adjusted net interest margin (TEY)(Non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ 3.60 % ​ ​ ​ ​ ​ ​ ​ 3.47 % ​ ​ ​ ​ ​ ​ ​ 3.38 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ratio of average interest-earning assets to average interest-bearing liabilities ​ 138.36 % ​ ​ ​ ​ ​ 146.30 % ​ ​ ​ ​ ​ 137.23 % ​ ​ ​ ​ ​ (1) Interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 21% tax rate.
Management continually addresses this issue with pricing and other balance sheet management strategies which included better loan pricing, reducing reliance on rate-sensitive funding, closely managing deposit rate increases and finding additional ways to manage cost of funds through derivatives. 43 Table of Contents The Company’s average balances, interest income/expense, and rates earned/paid on major balance sheet categories are presented in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 ​ ​ 2022 ​ ​ 2021 ​ ​ ​ ​ ​ ​ Interest ​ Average ​ ​ ​ ​ ​ Interest ​ Average ​ ​ ​ ​ ​ Interest ​ Average ​ ​ ​ Average ​ Earned ​ Yield or ​ ​ Average ​ Earned ​ Yield or ​ ​ Average ​ Earned ​ Yield or ​ ​ ​ Balance or Paid Cost ​ Balance or Paid Cost ​ Balance or Paid Cost ​ ​ (dollars in thousands) ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds sold ​ $ 19,110 ​ $ 998 ​ 5.22 % ​ $ 14,436 ​ $ 410 2.84 % ​ $ 1,964 ​ $ 2 0.10 % Interest-bearing deposits at financial institutions ​ 80,924 ​ 4,137 ​ 5.11 ​ ​ 63,448 ​ 1,089 1.72 ​ ​ 116,421 ​ 173 0.15 ​ Investment securities - taxable ​ 346,579 ​ 14,927 ​ 4.30 ​ ​ 335,255 ​ 12,078 3.59 ​ ​ 304,787 ​ 8,923 2.92 ​ Investment securities - nontaxable (1) ​ ​ 611,924 ​ ​ 28,272 ​ ​ 4.62 ​ ​ ​ 575,457 ​ ​ 24,281 ​ 4.22 ​ ​ ​ 499,849 ​ ​ 20,581 ​ 4.12 ​ Restricted investment securities ​ 39,273 ​ 2,346 ​ 5.89 ​ ​ 35,554 ​ 2,068 5.73 ​ ​ 19,386 ​ 950 4.83 ​ Gross loans/leases receivable (1) (2) (3) ​ 6,337,551 ​ 390,967 ​ 6.17 ​ ​ 5,604,074 ​ 268,985 4.80 ​ ​ 4,456,461 ​ 179,738 4.03 ​ Total interest earning assets ​ $ 7,435,361 ​ 441,647 ​ 5.94 ​ ​ $ 6,628,224 ​ 308,911 4.66 ​ ​ $ 5,398,868 ​ 210,367 3.90 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest-earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 80,386 ​ ​ ​ ​ ​ ​ ​ ​ $ 75,975 ​ ​ ​ ​ ​ ​ ​ $ 60,298 ​ ​ ​ ​ ​ ​ Premises and equipment ​ 119,177 ​ ​ ​ ​ ​ ​ ​ ​ 106,591 ​ ​ ​ ​ ​ ​ ​ 75,015 ​ ​ ​ ​ ​ ​ Less allowance ​ (86,983) ​ ​ ​ ​ ​ ​ ​ ​ (85,745) ​ ​ ​ ​ ​ ​ ​ (81,633) ​ ​ ​ ​ ​ ​ Other ​ 617,684 ​ ​ ​ ​ ​ ​ ​ ​ 481,135 ​ ​ ​ ​ ​ ​ ​ 420,809 ​ ​ ​ ​ ​ ​ Total assets ​ $ 8,165,625 ​ ​ ​ ​ ​ ​ ​ ​ $ 7,206,180 ​ ​ ​ ​ ​ ​ ​ $ 5,873,357 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits ​ $ 4,191,913 ​ 121,662 ​ 2.90 % ​ $ 3,715,017 ​ 35,359 ​ 0.95 % ​ $ 3,058,917 ​ 8,621 ​ 0.28 % Time deposits ​ 1,010,827 ​ 37,784 ​ 3.74 ​ ​ 568,245 ​ 7,003 ​ 1.23 ​ ​ 448,191 ​ 4,679 ​ 1.04 ​ Short-term borrowings ​ 2,781 ​ 152 ​ 6.44 ​ ​ 8,637 ​ 299 ​ 3.46 ​ ​ 6,281 ​ 5 ​ 0.08 ​ FHLB advances ​ 323,904 ​ 16,740 ​ 5.10 ​ ​ 286,474 ​ 6,954 ​ 2.39 ​ ​ 23,389 ​ 70 ​ 0.30 ​ Other borrowings ​ — ​ — ​ — ​ ​ 1,068 ​ 53 ​ 4.96 ​ ​ — ​ — ​ — ​ Subordinated notes ​ ​ 232,837 ​ ​ 13,230 ​ ​ 5.68 ​ ​ ​ 165,685 ​ ​ 9,200 ​ 5.55 ​ ​ ​ 115,398 ​ ​ 6,272 ​ 5.44 ​ Junior subordinated debentures ​ 48,662 ​ 2,836 ​ 5.75 ​ ​ 45,497 ​ 2,583 ​ 5.60 ​ ​ 38,067 ​ 2,276 ​ 5.90 ​ Total interest-bearing liabilities ​ $ 5,810,924 ​ 192,404 ​ 3.31 ​ ​ $ 4,790,623 ​ 61,451 ​ 1.28 ​ ​ $ 3,690,243 ​ 21,923 ​ 0.59 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest-bearing demand deposits ​ $ 1,123,050 ​ ​ ​ ​ ​ ​ ​ ​ $ 1,393,284 ​ ​ ​ ​ ​ ​ ​ $ 1,269,467 ​ ​ ​ ​ ​ ​ Other noninterest-bearing liabilities ​ 406,274 ​ ​ ​ ​ ​ ​ ​ ​ 274,241 ​ ​ ​ ​ ​ ​ ​ 276,457 ​ ​ ​ ​ ​ ​ Total liabilities ​ $ 7,340,248 ​ ​ ​ ​ ​ ​ ​ ​ $ 6,458,148 ​ ​ ​ ​ ​ ​ ​ $ 5,236,167 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' equity ​ 825,557 ​ ​ ​ ​ ​ ​ ​ ​ 748,032 ​ ​ ​ ​ ​ ​ ​ 637,190 ​ ​ ​ ​ ​ ​ Total liabilities and stockholders' equity ​ $ 8,165,805 ​ ​ ​ ​ ​ ​ ​ ​ $ 7,206,180 ​ ​ ​ ​ ​ ​ ​ $ 5,873,357 ​ ​ ​ ​ ​ ​ Net interest income ​ ​ ​ ​ $ 249,243 ​ ​ ​ ​ ​ ​ ​ $ 247,460 ​ ​ ​ ​ ​ ​ $ 188,444 ​ ​ ​ Net interest spread ​ ​ ​ ​ ​ 2.63 % ​ ​ ​ ​ ​ 3.38 % ​ ​ ​ ​ ​ 3.31 % Net interest margin ​ ​ ​ ​ ​ 2.97 % ​ ​ ​ ​ ​ 3.49 % ​ ​ ​ ​ ​ 3.30 % Net interest margin (TEY)(Non-GAAP) ​ ​ ​ ​ ​ 3.35 % ​ ​ ​ ​ ​ 3.73 % ​ ​ ​ ​ ​ 3.49 % Adjusted net interest margin (TEY)(Non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ 3.32 % ​ ​ ​ ​ ​ ​ ​ 3.60 % ​ ​ ​ ​ ​ ​ ​ 3.47 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ratio of average interest-earning assets to average interest-bearing liabilities ​ 127.95 % ​ ​ ​ ​ ​ 138.36 % ​ ​ ​ ​ ​ 146.30 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (1) Interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 21% tax rate.
STOCKHOLDERS’ EQUITY The table below presents the composition of the Company’s stockholders’ equity. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2022 2021 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Common stock ​ $ 16,796 ​ $ 15,613 ​ Additional paid in capital ​ 370,712 ​ 273,768 ​ Retained earnings ​ 450,114 ​ 386,077 ​ AOCI ​ (64,898) ​ 1,552 ​ Total stockholders' equity ​ $ 772,724 ​ $ 677,010 ​ ​ ​ ​ ​ ​ ​ ​ ​ TCE / TA ratio (non-GAAP)* ​ 7.93 % 9.87 % ​ * TCE/TA ratio is defined as total common stockholders’ equity excluding goodwill and other intangibles divided by total assets.
STOCKHOLDERS’ EQUITY The table below presents the composition of the Company’s stockholders’ equity. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2023 2022 ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Common stock ​ $ 16,749 ​ $ 16,796 ​ Additional paid in capital ​ 370,814 ​ 370,712 ​ Retained earnings ​ 554,992 ​ 450,114 ​ AOCI ​ (55,959) ​ (64,898) ​ Total stockholders' equity ​ $ 886,596 ​ $ 772,724 ​ ​ ​ ​ ​ ​ ​ ​ ​ TCE / TA ratio (non-GAAP) ​ 8.75 % 7.93 % ​ * TCE/TA ratio is defined as total common stockholders’ equity excluding goodwill and other intangibles divided by total assets.
The following table summarizes the trend in allowance as a percentage of gross loans/leases and as a percentage of NPLs as of December 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2022 2021 ACL on loans/leases / Gross loans/leases ​ 1.43 % 1.68 % ACL on loans/leases / NPLs ​ 1,000.07 % 2,825.21 % ​ 48 Table of Contents The following table presents the allowance by type and the percentage of loan/lease type to total loans/leases. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2022 ​ ​ 2021 ​ ​ Amount % ​ Amount % ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ C&I - revolving $ 4,457 5 % ​ $ 3,907 5 % C&I – other* ​ 27,753 24 % ​ ​ 25,982 30 % CRE - owner occupied ​ ​ 9,965 ​ 10 % ​ ​ 8,501 ​ 9 % CRE - non-owner occupied ​ ​ 11,749 ​ 16 % ​ ​ 8,549 ​ 14 % Construction and land development ​ ​ 14,262 ​ 19 % ​ ​ 16,972 ​ 20 % Multi-family ​ ​ 13,186 ​ 16 % ​ ​ 9,339 ​ 12 % 1-4 family real estate ​ 4,963 8 % ​ ​ 4,541 8 % Consumer ​ 1,371 2 % ​ ​ 930 2 % ​ ​ $ 87,706 100 % ​ $ 78,721 100 % * Included within the C&I – Other segment is an ACL on leases of $970 thousand and $1.5 million as of December 31, 2022 and 2021, respectively.
The following table summarizes the trend in allowance as a percentage of gross loans/leases and as a percentage of NPLs as of December 31, 2023 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2023 2022 ACL for loans/leases / Total loans/leases held for investment ​ 1.33 % 1.43 % ACL for loans/leases / NPLs ​ 265.54 % 1,000.07 % ​ The following table presents the allowance by type and the percentage of loan/lease type to total loans/leases. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2023 ​ ​ 2022 ​ ​ Amount % ​ Amount % ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ C&I - revolving $ 4,224 5 % ​ $ 4,457 5 % C&I - other* ​ 27,460 23 % ​ ​ 27,753 24 % CRE - owner occupied ​ ​ 8,223 ​ 9 % ​ ​ 9,965 ​ 10 % CRE - non-owner occupied ​ ​ 11,581 ​ 16 % ​ ​ 11,749 ​ 16 % Construction and land development ​ ​ 16,856 ​ 22 % ​ ​ 14,262 ​ 19 % Multi-family ​ ​ 12,463 ​ 15 % ​ ​ 13,186 ​ 16 % 1-4 family real estate ​ 4,917 8 % ​ ​ 4,963 8 % Consumer ​ 1,476 2 % ​ ​ 1,371 2 % ​ ​ $ 87,200 100 % ​ $ 87,706 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ * Included within the C&I – Other segment is an ACL on leases of $992 thousand and $970 thousand as of December 31, 2023 and 2022, respectively.
For both available for sale and held to maturity debt securities, any portion of a decline in value associated with credit loss is recognized in income with the remaining noncredit related component being recognized in other comprehensive income. ​ EXECUTIVE OVERVIEW The Company reported net income of $99.1 million for the year ended December 31, 2022, and diluted EPS of $5.87.
For both available for sale and held to maturity debt securities, any portion of a decline in value associated with credit loss is recognized in income and with the remaining noncredit related component for available for sale securities being recognized in other comprehensive income.
At December 31, 2022, $372.8 million was available. At December 31, 2021, the subsidiary banks had 31 lines of credit totaling $517.7 million, of which $61.7 million was secured and $456.0 million was unsecured. At December 31, 2021, all of the $517.7 million was available.
At December 31, 2023, $699.3 million was available. At December 31, 2022, the subsidiary banks had 28 lines of credit totaling $501.8 million, of which $31.0 million was secured and $470.8 million was unsecured. At December 31, 2022, $372.8 million was available.
The increase in expense was due to the GFED acquisition as well as an increase in the asset size of the Company in 2022 which increased the Company’s insurance rates and expenses. Loan/lease expense increased 10% in 2022 as compared to 2021.
FDIC insurance, other insurance and regulatory fee expense increased 23% in 2023. The increase in expense was due to an increase in the asset size of the Company and an increase in announced FDIC rates for 2023, which increased the Company’s insurance rates and expenses. Loan/lease expense increased 57% in 2023 as compared to 2022.
The mix of loan/lease types within the Company’s loan/lease portfolio is presented in the following tables. 45 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ ​ ​ ​ ​ December 31, 2022 ​ ​ December 31, 2021 ​ ​ ​ ​ Amount % ​ Amount % ​ ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ C&I - revolving ​ ​ $ 296,869 5 % ​ $ 248,483 5 % ​ C&I - other * ​ ​ ​ 1,451,693 ​ 23 % ​ ​ 1,346,602 ​ 29 ​ ​ CRE - owner occupied ​ ​ ​ 629,367 ​ 10 % ​ ​ 421,701 ​ 9 ​ ​ CRE - non-owner occupied ​ ​ ​ 963,239 ​ 16 % ​ ​ 646,500 ​ 14 ​ ​ Construction and land development ​ ​ ​ 1,192,061 ​ 19 % ​ ​ 918,571 ​ 20 ​ ​ Multi-family ​ ​ 963,803 16 % ​ 600,412 12 ​ ​ Direct financing leases ​ ​ 31,889 1 % ​ 45,191 1 ​ ​ 1-4 family real estate ​ ​ 499,529 8 % ​ 377,361 8 ​ ​ Consumer ​ ​ 110,421 2 % ​ 75,311 2 ​ ​ Total loans/leases ​ ​ $ 6,138,871 100 % ​ $ 4,680,132 100 % ​ Less allowance ​ ​ (87,706) ​ ​ ​ (78,721) ​ ​ Net loans/leases ​ ​ $ 6,051,165 ​ ​ ​ ​ $ 4,601,411 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As CRE loans have historically been the Company’s largest portfolio segment, management places a strong emphasis on monitoring the composition of the Company’s CRE loan portfolio.
The mix of loan/lease types within the Company’s loan/lease portfolio is presented in the following tables. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ ​ ​ ​ December 31, 2023 ​ ​ December 31, 2022 ​ ​ ​ Amount % ​ Amount % ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ C&I - revolving ​ $ 325,243 5 % ​ $ 296,869 5 % ​ C&I - other ​ ​ 1,481,778 ​ 23 % ​ ​ 1,451,693 ​ 23 ​ ​ CRE - owner occupied ​ ​ 607,365 ​ 9 % ​ ​ 629,367 ​ 10 ​ ​ CRE - non-owner occupied ​ ​ 1,008,892 ​ 15 % ​ ​ 963,239 ​ 16 ​ ​ Construction and land development ​ ​ 1,420,525 ​ 22 % ​ ​ 1,192,061 ​ 19 ​ ​ Multi-family ​ 996,143 15 % ​ 963,803 16 ​ ​ Direct financing leases ​ 31,164 1 % ​ 31,889 1 ​ ​ 1-4 family real estate ​ 544,971 8 % ​ 499,529 8 ​ ​ Consumer ​ 127,335 2 % ​ 110,421 2 ​ ​ Total loans/leases ​ $ 6,543,416 100 % ​ $ 6,138,871 100 % ​ Less allowance ​ (87,200) ​ ​ ​ (87,706) ​ ​ Net loans/leases ​ $ 6,456,216 ​ ​ ​ ​ $ 6,051,165 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As CRE loans have historically been the Company’s largest portfolio segment, management places a strong emphasis on monitoring the composition of the Company’s CRE loan portfolio.
Criticized loans increased 42% and classified loans increased 24% in 2022 as compared to 2021. Increases are due to the acquisition of GFED. The Company continues its strong focus on improving credit quality in an effort to limit NPLs.
Criticized loans increased 17% and classified loans increased 2% in 2023 as compared to 2022 due to the downgrade of five large relationships that are still performing. The Company continues its strong focus on improving credit quality in an effort to limit NPLs.
FINANCIAL CONDITION AS OF DECEMBER 31, 2022 AND 2021 OVERVIEW Following is a table that represents the major categories of the Company’s balance sheet. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ ​ 2022 ​ ​ ​ 2021 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount % ​ Amount % Cash, federal funds sold, and interest-bearing deposits ​ $ 183,993 2 % ​ $ 125,152 2 % Securities ​ ​ 928,102 12 % ​ ​ 810,215 13 % Net loans/leases ​ ​ 6,051,165 76 % ​ ​ 4,601,411 75 % Derivatives ​ ​ 177,631 ​ 2 % ​ ​ 222,220 ​ 4 % Other assets ​ ​ 607,946 ​ 8 % ​ ​ 337,134 ​ 6 % Total assets ​ $ 7,948,837 100 % ​ $ 6,096,132 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total deposits ​ $ 5,984,217 75 % ​ $ 4,922,772 80 % Total borrowings ​ ​ 825,894 10 % ​ ​ 170,805 3 % Derivatives ​ ​ 200,701 ​ 3 % ​ ​ 225,135 ​ 4 % Other liabilities ​ ​ 165,301 2 % ​ ​ 100,410 2 % Total stockholders' equity ​ ​ 772,724 10 % ​ ​ 677,010 11 % Total liabilities and stockholders' equity ​ $ 7,948,837 100 % ​ $ 6,096,132 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ In 2022, total assets increased $1.9 billion, or 30%.
FINANCIAL CONDITION AS OF DECEMBER 31, 2023 AND 2022 OVERVIEW Following is a table that represents the major categories of the Company’s balance sheet. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ ​ 2023 ​ ​ ​ 2022 ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount % ​ Amount % Cash, federal funds sold, and interest-bearing deposits ​ $ 237,492 3 % ​ $ 183,993 2 % Securities ​ ​ 1,005,528 12 % ​ ​ 928,102 12 % Net loans/leases ​ ​ 6,456,216 75 % ​ ​ 6,051,165 76 % Derivatives ​ ​ 187,341 ​ 2 % ​ ​ 177,631 ​ 2 % Other assets ​ ​ 652,317 ​ 8 % ​ ​ 607,946 ​ 8 % Total assets ​ $ 8,538,894 100 % ​ $ 7,948,837 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total deposits ​ $ 6,514,005 77 % ​ $ 5,984,217 75 % Total borrowings ​ ​ 718,295 8 % ​ ​ 825,894 10 % Derivatives ​ ​ 215,735 ​ 3 % ​ ​ 200,701 ​ 3 % Other liabilities ​ ​ 204,263 2 % ​ ​ 165,301 2 % Total stockholders' equity ​ ​ 886,596 10 % ​ ​ 772,724 10 % Total liabilities and stockholders' equity ​ $ 8,538,894 100 % ​ $ 7,948,837 100 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ In 2023, total assets increased $590.1 million, or 7%.
Financing activities provided cash of $538.2 million for 2022 compared to $299.7 million for 2021. Net decreases in deposits totaled $15.1 million for 2022 as compared to net increases of $323.6 million for 2021. Net short-term borrowings 53 Table of Contents increased $125.8 million for 2022 and decreased $1.6 million for 2021.
Financing activities provided cash of $410.3 million for 2023 compared to $538.2 million for 2022. Net increases in deposits totaled $529.8 million for 2023 as compared to net decreases in deposits of $15.1 million for 2022. Net short-term borrowings decreased $128.1 million for 2023 as compared to an increase of $125.8 million for 2022.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeConsolidated Financial Statements 58 ​ ​ Consolidated Balance Sheets as of December 31, 2022 and 2021 62 ​ ​ Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 63 2 Table of Contents ​ ​ Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020 64 ​ ​ Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020 65 ​ ​ Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 66 ​ ​ Notes to Consolidated Financial Statements 68 ​ ​ Note 1 : Nature of Business and Significant Accounting Policies 68 ​ ​ Note 2 : Mergers/Acquisitions/Sales 84 ​ ​ Note 3 : Investment Securities 88 ​ ​ Note 4 : Loans/Leases Receivable 92 ​ ​ Note 5 : Premises and Equipment 105 ​ ​ Note 6 : Goodwill and Intangibles 106 ​ ​ Note 7 : Derivatives and Hedging Activities 107 ​ ​ Note 8 : Deposits 111 ​ ​ Note 9 : Short-Term Borrowings 112 ​ ​ Note 10 : FHLB Advances 112 ​ ​ Note 11 : Other Borrowings and Unused Lines of Credit 113 ​ ​ Note 12 : Subordinated Notes 113 ​ ​ Note 13 : Junior Subordinated Debentures 114 ​ ​ Note 14 : Federal and State Income Taxes 116 ​ ​ Note 15 : Employee Benefit Plans 118 ​ ​ Note 16 : Stock-Based Compensation 119 ​ ​ Note 17 : Regulatory Requirements and Restrictions on Dividends 122 ​ ​ Note 18 : Earnings Per Share 124 ​ ​ Note 19 : Commitments and Contingencies 124 ​ ​ Note 20 : Parent Company Only Financial Statements 126 ​ ​ Note 21 : Fair Value 129 ​ ​ Note 22 : Business Segment Information 132 ​ ​ ​ ​ ​
Biggest changeConsolidated Financial Statements 67 ​ ​ Consolidated Balance Sheets as of December 31, 2023 and 2022 70 ​ ​ Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021 71 2 Table of Contents ​ ​ Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 72 ​ ​ Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021 73 ​ ​ Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 74 ​ ​ Notes to Consolidated Financial Statements 76 ​ ​ Note 1 : Nature of Business and Significant Accounting Policies 76 ​ ​ Note 2 : Mergers/Acquisitions/Sales 92 ​ ​ Note 3 : Investment Securities 95 ​ ​ Note 4 : Loans/Leases Receivable 99 ​ ​ Note 5: Securitizations and Variable Interest Entities 109 ​ ​ Note 6: Premises and Equipment 111 ​ ​ Note 7 : Goodwill and Intangibles 112 ​ ​ Note 8 : Derivatives and Hedging Activities 114 ​ ​ Note 9 : Deposits 118 ​ ​ Note 10 : Short-Term Borrowings 119 ​ ​ Note 11 : FHLB Advances 119 ​ ​ Note 12 : Other Borrowings and Unused Lines of Credit 120 ​ ​ Note 13 : Subordinated Notes 120 ​ ​ Note 14 : Junior Subordinated Debentures 122 ​ ​ Note 15 : Federal and State Income Taxes 123 ​ ​ Note 16 : Employee Benefit Plans 125 ​ ​ Note 17 : Stock-Based Compensation 126 ​ ​ Note 18 : Regulatory Requirements and Restrictions on Dividends 129 ​ ​ Note 19 : Earnings Per Share 131 ​ ​ Note 20 : Commitments and Contingencies 131 ​ ​ Note 21: Parent Company Only Financial Statements 133 ​ ​ Note 22 : Fair Value 136 ​ ​ Note 23 : Business Segment Information 139 ​
Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 ​ ​ General 30 ​ ​ Critical Accounting Policies and Critical Accounting Estimates 30 ​ ​ Executive Overview 32 ​ ​ Strategic Financial Metrics 33 ​ ​ Strategic Developments 34 ​ ​ GAAP to Non-GAAP Reconciliations 35 ​ ​ Net Interest Income and Margin (Tax Equivalent Basis)(Non-GAAP) 36 ​ ​ Results of Operations 39 ​ ​ Interest Income 39 ​ ​ Interest Expense 39 ​ ​ Provision for Credit Losses 40 ​ ​ Noninterest Income 40 ​ ​ Noninterest Expenses 42 ​ ​ Income Tax Expense 44 ​ ​ Financial Condition 44 ​ ​ Overview 44 ​ ​ Investment Securities 44 ​ ​ Loans/Leases 45 ​ ​ Allowance for Credit Losses on Loans/Leases and OBS Exposures 47 ​ ​ Nonperforming Assets 49 ​ ​ Deposits 50 ​ ​ Short-Term Borrowings 51 ​ ​ FHLB Advances and Other Borrowings 51 ​ ​ Subordinated Notes 51 ​ ​ Junior Subordinated Debentures 52 ​ ​ Stockholders’ Equity 52 ​ ​ Liquidity and Capital Resources 53 ​ ​ Commitments, Contingencies, Contractual Obligations, and Off-Balance Sheet Arrangements 54 ​ ​ Impact of Inflation and Changing Prices 55 ​ ​ Forward-Looking Statements 55 ​ Item 7A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 ​ ​ General 36 ​ ​ Critical Accounting Policies and Critical Accounting Estimates 36 ​ ​ Executive Overview 38 ​ ​ Strategic Financial Metrics 39 ​ ​ Strategic Developments 40 ​ ​ GAAP to Non-GAAP Reconciliations 41 ​ ​ Net Interest Income and Margin (Tax Equivalent Basis)(Non-GAAP) 43 ​ ​ Results of Operations 45 ​ ​ Interest Income 45 ​ ​ Interest Expense 46 ​ ​ Provision for Credit Losses 46 ​ ​ Noninterest Income 47 ​ ​ Noninterest Expenses 49 ​ ​ Income Tax Expense 51 ​ ​ Financial Condition 51 ​ ​ Overview 51 ​ ​ Investment Securities 51 ​ ​ Loans/Leases 53 ​ ​ Allowance for Credit Losses on Loans/Leases and OBS Exposures 54 ​ ​ Nonperforming Assets 57 ​ ​ Deposits 58 ​ ​ Short-Term Borrowings 59 ​ ​ FHLB Advances and Other Borrowings 59 ​ ​ Subordinated Notes 59 ​ ​ Junior Subordinated Debentures 60 ​ ​ Stockholders’ Equity 60 ​ ​ Liquidity and Capital Resources 61 ​ ​ Commitments, Contingencies, Contractual Obligations, and Off-Balance Sheet Arrangements 62 ​ ​ Impact of Inflation and Changing Prices 63 ​ ​ Forward-Looking Statements 63 ​ Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 56 ​ Item 8.
Quantitative and Qualitative Disclosures About Market Risk 65 ​ Item 8.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeApplication of the simulation model analysis for select interest rate scenarios at December 31, 2022 and 2021 demonstrated the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INTEREST INCOME EXPOSURE in YEAR 1 ​ ​ As of December 31, As of December 31, INTEREST RATE SCENARIO ​ POLICY LIMIT 2022 2021 ​ ​ ​ ​ ​ ​ ​ ​ 300 basis point downward shock ​ (30.0) % (6.1) % n/a % 200 basis point downward shift ​ (10.0) % (0.2) % n/a % 100 basis point downward shift (10.0) % 0.2 % (0.1) % 200 basis point upward shift (10.0) % (1.3) % 3.1 % 300 basis point upward shock (30.0) % (2.3) % 11.6 % ​ Despite the shift in model results to a more neutral position, the Company remains moderately asset sensitive.
Biggest changeApplication of the simulation model analysis for select interest rate scenarios at December 31, 2023 and 2022 demonstrated the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INTEREST INCOME EXPOSURE in YEAR 1 ​ ​ As of December 31, As of December 31, INTEREST RATE SCENARIO ​ POLICY LIMIT 2023 2022 ​ ​ ​ ​ ​ ​ ​ ​ 300 basis point downward parallel shock ​ (30.0) % 2.1 % (6.1) % 200 basis point downward parallel shift ​ (10.0) % 1.4 % (0.2) % 200 basis point upward parallel shift (10.0) % (2.3) % (1.3) % 300 basis point upward parallel shock (30.0) % (8.0) % (2.3) % ​ With the shift in funding from non-interest bearing and lower beta deposits to higher beta deposits, the Company’s balance sheet is now moderately liability sensitive.
The model assumes parallel and pro rata shifts in interest rates over a twelve-month period for the 200 basis point upward shift and 100 and 200 basis point downward shifts. For the 400 basis point upward shift, the model assumes a parallel and pro rata shift in interest rates over a twenty-four month period.
The model assumes parallel and pro rata shifts in interest rates over a twelve-month period for the 100, 200 and 300 basis point upward and downward shifts. For the 400 basis point upward shift, the model assumes a parallel and pro rata shift in interest rates over a twenty-four month period.
Further, in recent years, the Company added additional interest rate scenarios where interest rates experience a parallel and instantaneous shift (“shock”) upward of 100, 200, 300, and 400 basis points and a parallel and instantaneous shock downward of 100, 200, 300 and 400 basis points. The Company will run additional interest rate scenarios on an as-needed basis.
Further, in recent years, the Company added additional interest rate scenarios where interest rates experience a parallel and instantaneous shift (“shock”) upward of 100, 200, 300, and 400 basis points. The Company will run additional interest rate scenarios on an as-needed basis.
This simulation model captures the impact of changing interest rates on the interest income received and interest expense paid 56 Table of Contents on all interest sensitive assets and liabilities reflected on the Company’s consolidated balance sheet.
This simulation model captures the impact of changing interest rates on the interest income received and interest 65 Table of Contents expense paid on all interest sensitive assets and liabilities reflected on the Company’s consolidated balance sheet.
Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company’s business activities. ​ 57 Table of Contents
Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company’s business activities. ​ 66 Table of Contents
Additionally, for all of the various interest rate scenarios modeled and measured by management (as described above), the results at December 31, 2022 were well within established risk tolerances as established by policy or by best practice (if the interest rate scenario didn’t have a specific policy limit).
The simulation is within the board-established policy limits for all three scenarios. Additionally, for all of the various interest rate scenarios modeled and measured by management (as described above), the results at December 31, 2023 were well within established risk tolerances as established by policy or by best practice (if the interest rate scenario didn’t have a specific policy limit).
The asset/liability management committees of the subsidiary bank boards of directors have established policy limits of a 10% decline in net interest income for the 200 basis point upward parallel shift, the 100 basis point downward parallel shift and the 200 basis point downward parallel shift.
The asset/liability management committees of the subsidiary bank boards of directors have established policy limits of a 10% decline in net interest income for the 200 basis point upward and downward parallel shift. For the 300 basis point upward and downward shock, the established policy limit is a 30% decline in net interest income.
Management is conservative with the repricing assumptions on loans and deposits. For example, management does not model any delay in deposit betas despite historical experience and practice of delays in deposit betas.
Notably, management is conservative with the repricing assumptions on loans and deposits. For example, management does not model any delay in loan and deposit betas despite historical experience and practice of delays in deposit betas. Additionally, management does not model mix shift or growth in its standard scenarios which can be impactful.
For the 300 basis point upward shock and 300 basis point downward shock, the established policy limit is a 30% decline in net interest income. The increased policy limit is appropriate as the shock scenario is extreme and unlikely and warrants a higher limit than the more realistic and traditional parallel/pro-rata shift scenarios.
The increased policy limit is appropriate as the shock scenario is extreme and unlikely and warrants a higher limit than the more realistic and traditional parallel/pro-rata shift scenarios.
Finally, management models a variety of scenarios including some that stress key assumptions to help capture and isolate the impact of the management’s more conservative approach to the assumptions in the base model. The simulation is within the board-established policy limits for all three scenarios.
As an alternative, management runs separate scenarios to capture the impact on delayed beta performance and various shifts in mix of loans and deposits. Finally, management models a variety of scenarios including some that stress key assumptions to help capture and isolate the impact of the management’s more conservative approach to the assumptions in the base model.

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