QCRH 10-K & 10-Q changes, risk factors and insider trading

Our profitability is in large part a function of the spread between the interest rates earned on investments and loans/leases and the interest rates paid on deposits and other interest-bearing liabilities. Like most banking institutions, our net interest spread and margin will be affected by general economic conditions and other factors, including fiscal and monetary policies of the federal government that influence market interest rates and our ability to respond to changes in such rates. At any given time, our assets and liabilities will be such that they are affected differently by a given change in interest rates. As a result, an increase or decrease in rates, the length of loan/lease terms, and the mix of adjustable and fixed rate loans/leases in our portfolio, the length of time deposits and borrowings and the rate sensitivity of our deposit customers could have a positive or negative effect on our net income, capital and liquidity. In addition, the size of nonrefundable swap fees earned in connection with our LIHTC permanent loans may fluctuate depending on the interest rate environment. We measure interest rate risk under various rate scenarios using specific criteria and assumptions. A summary of this process, along with the results of our net interest income simulations is presented at “Quantitative and Qualitative Disclosures about Market Risk” included under Item 7A of Part II of this Annual Report on Form 10-K. Although we believe our current level of interest rate sensitivity is reasonable and effectively managed, significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations.

It is currently expected that duringIn 2025, and perhaps beyond, the Federal Open Market Committee of the Federal Reserve, or FOMC, may decrease interest rates. In 2024, the FOMC decreased the target range for the federal funds rate from 5.25%4.25% to 5.50%4.50% to a range of 4.25%3.50% to 4.50%. The decrease was expressly made in response to inflation moderating and the labor market weakening.3.75%. Any future changechanges in monetary policy by the FOMC, in an effort to stimulate the economy or otherwise, resulting in lowerchanges to interest rates would likely result in lower revenue through loweraffect net interest income over time, which could adversely affect our results of operations. 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 including conflicts in the Middle East andEast, the Russian invasion of Ukraine, and theirthe recent military activity in Venezuela, and resulting disruptions in political systems and the global energy market, changes in foreign relations, and tight labor market conditions and supply chain issues, there is a meaningful risk that the Federal Reserve and other central banks may maintain interest rates at elevated levels,levels which may limit economic growth and potentially cause an economic recession. 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.

The market value of investments in our securities portfolio has become increasingly volatile in recent years, and as of December 31, 2024,2025, we had gross unrealized losses of $113.6$164.5 million, or 9.7%12.9% of amortized cost, in our investment portfolio (offset by gross unrealized gains of $28.1$26.5 million). If we are forced to liquidate any of those investments prior to maturity, including because of a lack of liquidity, we would recognize as a charge to earnings the losses attributable to those securities. Our securities portfolio has an average duration of 5.85.4 years, so we expect an increase in realizedunrealized losses if interest rates increase in 2025.2026.

A large percentage of our investment securities has fixed interest rates and are classified as available for sale. As is the case with many financial institutions, our emphasis on increasing the level of core deposits, those with no stated maturity date, has resulted in our interest-bearing liabilities having a shorter duration than our interest-earning assets. This imbalance can create significant earnings volatility because interest rates change over time. As interest rates haveincreased increased,during the most recent Federal Reserve rate increase cycle, our cost of funds has increased more rapidly than the yields on a substantial portion of our interest-earning assets. In addition, theThe market value of our fixed-ratefixed rate assets, for example,including our investment securities, has declined in recent periods. In line with the foregoing, we have experienced and may continue to experiencebe animpacted increaseby changes in the interest rate environment. The cost of interest-bearingour interest bearing liabilities primarilymay duebe tosimilarly increasingaffected by changes in the rates we pay on some of our deposit products to stay competitive within our marketmarket. andIn anaddition, increase inour borrowing costs frommay increasesbe affected by changes in the federal funds rate. Community banks rely more heavily than larger institutions on net interest income as a revenue source. Larger institutions generally have more diversified sources of noninterest income.

The interest rate swap market is dependent upon market conditions. If interestthe ratesshape move,of the yield curve shifts significantly, 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. Additionally, our ability to execute interest rate swaps is also dependent upon counterparties that are willing to enter into the interest rate swap that is equal and offsetting to the interest rate swap we enter into with the commercial customer. The mix of loans with interest rate swaps are heavily weighted towards LIHTC permanent loans. Future levels of swap fee income are dependent upon the needs of our traditional commercial and LIHTC borrowers,borrowers and the size of the related nonrefundable swap fee may fluctuate on the interest rate environment.

Our interest rate contracts expose us toto, among others:

Continued elevatedElevated levels of inflation could adversely impact our business and results of operations.

The U.S. has recently experienced elevated levels of inflation, with the consumer price index having stabilized lower at 2.9%2.7% at the end of 2024.2025. Continued elevatedElevated levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse. For example, elevated inflation harms consumer purchasing power, which could negatively affect our retail customers and the economic environment and, ultimately, many of our business customers, and could also negatively affect our levels of non-interest expense. In addition, if interest rates rise in response to elevated levels of inflation, the value of our securities portfolio could be negatively impacted. Continued elevatedElevated 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. 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. The duration and severity of the current inflationary period cannot be estimated with precision.

A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, decreased labor force size and participation rates. Although we have not experienced any material labor shortage to date, we have recentlycontinued observedto observe an overall tightening and competitive local labor market. A sustained labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased compensation expense to attract and retain employees.

The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased. In recent years, governments across the world have entered into international agreements to attempt to reduce global temperatures, in part by limiting greenhouse gas emissions. In recent years, the U.S. Congress, state legislatures and federal and state banking agencies have proposed and advanced numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. Consumers and businesses may also change their behavior on their own as a result of these concerns. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. 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.

Changes in policy and at banking agencies, including changes in interpretation and prioritization, occur over time through policy and personnel changes following federal- and state-level elections, which lead to changes involving the level of oversight and focus on the financial services industry. The nature, timing and economic and political effects of potential changes to the current legal and regulatory framework affecting financial institutions remain highly uncertain in connection with a change in presidential administration. Given the complex factors affecting the strength of the U.S. economy, including uncertainties regarding the persistence of inflation, changing foreign relations, geopolitical developments such as ongoing conflicts in the Middle East andEast, the Russian invasion of Ukraine,Ukraine and the recent military activity in Venezuela, and resulting disruptions in the global energy market, tight labor market conditions domestically, supply chain issues both domestically and internationally and the potential effects of a new presidential administration, including its response to the foregoing, potential imposition of new tariffs, mass deportations and changes to tariffs, immigration policy and tax or other financial regulations, uncertainty surrounding future changes may adversely affect our operating environment and therefore our business, financial condition, results of operations and growth prospects.

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. In general, these risks have increased as a result of the recent increases in prevailing interest rates and uncertainties associated with inflation, which have potentially increased the risk of a near-term decline in growth or an economic downturn. We attempt to minimize our credit risk through prudent loan application approval procedures, careful monitoring of the concentration of our loans within specific industries and periodic independent reviews of outstanding loans by our credit review department and an external third party. However, default risk may arise from events or circumstances that are difficult to detect, such as fraud, or difficult to predict, such as catastrophic events affectseffects on certain industries. Therefore, we cannot assure you that such approval and monitoring procedures will reduce these credit risks.

Most often, the collateral for C&I loans is accounts receivable, inventory, equipment and real estate. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation value of the pledged collateral and enforcement of a personal guarantee, if any exists. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers, which could decline in the case of an economic recession. The collateral securing these loans may lose value over time, may be difficult to appraise, and may fluctuate in value based on the success of the business. As a result of the recent increase inelevated interest rates and other factors, we have observed a corresponding decline in the value of commercial real estate securing these loans.

CRE lending comprises a significant portion of our lending business. Specifically, CRE loans were $4.3$4.8 billion, or approximately 64%67% of our total loan/lease portfolio, as of December 31, 2024.2025. Of this amount, $606.0$577.4 million, or approximately 14%,12%, was owner-occupied.owner-occupied and $2.2 billion, or approximately 46%, were LIHTC loans. The market value of real estate securing our CRE loans can fluctuate significantly in a short period of time as a result of factors including interest rates and market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in one or more of our markets, or which disproportionately affect a class of borrower, could increase the credit risk associated with our loan portfolio. Additionally, real estate lending typically involves higher loan principal amounts and the repayment of the loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events, including decreases in office occupancy following the COVID-19 pandemic as a result of the shift to remote and hybrid work environments, 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.

The banking and financial services businesses in our markets are highly competitive. Our competitors include large regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, fintech companies, digital asset service providers, money market mutual funds, credit unions, online lenders and other non-bank financial services providers. Many of these competitors are not subject to the same regulatory restrictions as we are. Many of our unregulated competitors compete across geographic boundaries and are able to provide customers with a feasible alternative to traditional banking services.

From time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. In addition, trends in financial and business reporting, including environmental, social and governance (ESG) related disclosures, could require us to incur additional reporting expense. 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.

The Company relies heavily on internal and outsourced technologies, communications, and information systems to conduct its business, particularly with respect to our core processing providerproviders and our mobile banking provider. Additionally, in the normal course of business, the Company collects, processes, and retains sensitive and confidential information regarding our customers. 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), intentional or unintentional acts by those having authorized access to the Company’s systems and confidential information, or the occurrence of a cyber-attack (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). These risks have increased for all financial institutions as new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others have also increased. Industry trends in ransomware, phishing, and other intrusion methods have increased significantly and will continue to pose increased risk while the Company’s operations remain partially remote.

The computer systems and network infrastructure we or our third-party partners use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our and our third-party partners’ computer equipment against damage from physical theft, fire, power loss, telecommunications failures, or similar catastrophic events, as well as from security breaches, denial of service attacks, viruses, worms, and other disruptive problems. 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. Computer break-ins,hacking, 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.

As the Company's operating and market footprint continues to grow, severe weather, natural disasters, pandemics, acts of terrorism or war (including the Russian invasion of Ukraine andUkraine, ongoing conflicts in the Middle East and the recent military action in Venezuela), changes in foreign relations, and other adverse external events, including the response of the U.S. government to such events, could have a significant impact on the Company’s ability to conduct business. The Company’s current footprint poses a wide variety of potential weather, natural disaster, or other adverse events that could impact the Company in various ways. 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. The occurrence of any such event could have a material adverse effect on the Company’s business, which in turn, could have a material adverse effect on its financial condition and results of operation.

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. The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions that are expected to exist through the contractual lives of the financial assets and that are reasonable and supportable to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed.observed (general reserve). If a loan is determined to no longer share similar risk characteristics with other assets in the segmented pool, it is evaluated on an individual basis.basis (specific reserve).

The adjusted efficiency ratio and adjusted efficiency ratio are utilized by management to compare the Company to peers. They are standard ratios used to calculate overhead as a percentage of revenue in the banking industry and widely utilized by investors.

Net interest incomeincome, on a GAAP basis, increased 5%10% for the year ended December 31, 2024,2025, compared to the prior year. Net interest income, on a tax equivalent basis (non-GAAP), increased 8%11% to $268.3$297.0 million for the year ended December 31, 2024,2025, as compared to the prior year. Net interest income changed primarily due to the Company’s loan and investment growth and continued expansion of loan and investment yields, which were partially offset by deposit growth and higher yields onwith deposita accounts.lower cost of funds.

Acquisition accounting net accretion can fluctuate, mostlyfluctuate depending on the payoff or renewal activity of the acquired loans. In evaluating net interest income and NIM, it is 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. A comparison of acquisition accounting net accretion included in NIM is as follows:

The Company's management closely monitors and manages NIM. 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. 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 rates and finding additional ways to manage cost of funds through derivatives.

For 2024,2025, interest income increased $68.4$7.6 million, or 17%,2%, compared to 2023.2024. This was due to higher loan and investment average balances and margin expansion from higher loan and investment average balances and higher investment yields.

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.

Comparing 20242025 to 2023,2024, interest expense increaseddecreased $57.7$15.9 million, or 30%,6%, year-over-year. The increasedecrease was primarily duea toresult of the higher costreduction of fundsFHLB as well as an increase in interest bearingborrowings and time deposits with lower noninterestdeposit bearing deposits.costs. The Company’s cost of funds was 3.83%2.97% for the year ending December 31, 2024,2025, ana increasedecrease from 3.31%3.34% for the year ending December 31, 2023.2024.

The Company’s total provision for credit losses was $17.1$18.1 million for 2024,2025, an increase of $559$983 thousand from 2023.2024. The increase in provision for credit losses on loans and leases was driven by the loan growth,growth and increased net charge-offs, and higher criticized loan balances.charge-offs. For the year ended December 31, 2024,2025, the provision for credit losses related to OBS was a negative provision of $1.3$1.1 million, compared to a $4.0negative provision of $1.3 million provision for the year ended December 31, 2023.2024. The decreaseamount wasof dueprovision toor anegative decreaseprovision fluctuates with changes in the balance of unfunded commitments, improved credit quality and economic conditions.commitments. The provision related to HTM securities for the year ended December 31, 20242025 was $60$19 thousand as compared to a $23provision of $60 thousand provision for the year ended December 31, 2023.2024. There was no provision related to AFS securities for the year ended December 31, 2025 as compared to a negative provision of $445 thousand related to AFS securities for the year ended December 31, 2024 as compared to a $989 thousand provision related to AFS securities for the year ended December 31, 2023, resulting from the write down in 2023 and subsequent change in fair value in 2024, of a debt investment in a failed bank. This was a legacy investment acquired as part of the 2022 GFED acquisition and an allowance was established for the entire balance of the investment.2024.

The Company has been successful in expanding its wealth management customer base. Trust and investment advisory and management fees continue to be a significant contributor to noninterest income. Assets under management increased by $1.1$779.7 million in 2025 totaling $7.1 billion in 2024 with 469 new relationships totaling $1.5 billion in new assets under management.management as of December 31, 2025. 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 11%10% in 20242025 as compared to 20232024 due to growth in assets under management and market performance. The Company expects trust fees to be negatively impacted during periods of significantly lower market valuations and positively impacted during periods of significantly higher market valuation. During 2024 and 2023, the Company expanded its wealth management customer base into the southwest Missouri and central Iowa markets.

Deposit service fees increased 4%2% in 20242025 as compared to 2023. This was the result of core deposit growth offset by a decrease in non-sufficient funds and service charge fee income.2024. The Company continues to be successful in expanding its core deposit base with a targeted focus on growing the number of net new accounts in 2024.accounts.

Gains on sales of residential real estate loans, net, increasedremained 27%stable in 20242025 as compared to 2023. The increase was primarily due to higher volumes of client residential real estate purchase activity generating higher levels of gains.2024.

The Company has grown its capital markets revenue significantly over the past several years. The Company’s interest rate swap program consists of back-to-back interest rate swaps with two types of commercial borrowers: (1) traditional commercial loans of a certain minimum size and sophistication; and (2) LIHTC permanent loans. Most of the growth has been in the latter category as the Company has grown relationships with strong LIHTC developers with many years of experience. The LIHTC industry is strong and growing with an increased need for affordable housing. The back-to-back interest rate swaps allow commercial borrowers to pay a fixed interest rate while the Company receives a variable interest rate as well as an upfront nonrefundable fee dependent upon the pricing from an upstream countercounter- party.

Capital markets revenue totaled $71.1$64.7 million in 20242025 as compared to $92.1$71.1 million in 2023.2024. As discussed in the “Executive Overview” section of this report, capital markets revenue was affected by macroeconomic uncertainty during the first six months of 2025, however, demand for affordable housing remains strong. In the traditional commercial portfolio, the pricing is more competitive and the duration is shorter as compared to the LIHTC permanent loans. Therefore, the mix of loans with interest rate swaps continuedcontinues to be heavily weighted towards LIHTC permanent loans. 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 depending on the interest rate environment.

Earnings on BOLI increaseddecreased 30%38% in 2024.2025, Thedriven increaseby isBOLI primarilyexchanges dueduring tothe incomeyear resulting in surrender charges of $168 thousand and there were $2.2 million onof death benefit proceeds ofon a former executive that wereBOLI received in 2024. There were no purchases of BOLI in 2024either 2025 or 2023.2024. Yields on BOLI (based on a simple average and excluding the impact of the federal income tax exemption) were 2.98% for 2025 and 4.97% for 2024 and 2.82% for 2023.2024. Notably, a portion of the Company’s BOLI is variable rate whereby the returns are determined by the performance of the equity markets. Management intends to continue to review its BOLI investments to be consistent with policy and regulatory limits in conjunction with the rest of its earning assets in an effort to maximize returns while minimizing risk.

Debit card fees are the interchange fees paid on certain debit card customer transactions. Debit card fees remainedincreased stable4% in 20242025 as compared to 2023.2024. These fees can vary based on customer debit card usage, so fluctuations from period to period may occur. As an opportunity to maximize fees, the Company offers deposit products with a higher interest rate that incentivizes debit card activity.

Correspondent banking fees increased 26%28% in 20242025 primarily due to a shift ofin correspondent banking balances from non-interest bearing accounts to interest bearing accounts, in light of increasing rates.accounts. Fees from correspondent banks generally increase when non-interest bearing account balances decrease due to lower associated earnings credits. 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 189190 banks in Iowa, Illinois, Missouri and Wisconsin.

Fair value gain (loss) on derivatives and trading securities increased 120%113% in 2024.2025. During 2024, the Company executed a derivative strategy with a notional value of approximately $409 million. These derivatives are unhedged and are marked to market, with gains or losses recorded in noninterest income which was a contributing factor in the increase inhigher fair value losses.losses in 2024. The Company had fair value gains on trading securities which partially offset the fair value loss on derivatives. The Company also uses unhedged cap instruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates. See Note 7 to the Consolidated Financial Statements for additional information.

Other noninterest income decreasedincreased 28%77% in 20242025 primarily due to declinesgains on sales of LIHTC construction loans and increases in the market value of the Company’s equity investments. Included in other noninterest income is income on equity investments. Income on equity investments is largely determined based on the market value of the investments.investments As a result, income fluctuates with market valuations.managed.

Management places strong emphasis on overall cost containment and is committed to improving the Company’s general efficiency.efficiency while also continuing to invest in the Company’s digital transformation projects.

Salaries and employee benefits, which is the largest component of noninterest expense, decreased 6%1% in 20242025 as compared to 2023.2024. This decrease was primarily related to lowercapital markets revenue and its impact on variable incentivecompensation compensationassociated with performance and fewerthe FTEscapitalization of direct labor costs associated with the announcedCompany’s changesdigital attransformation m2 and more open positions.projects.

Occupancy and equipment expense increased 2%10% in 20242025 as compared to 2023.2024. This increase was due to higher ITdepreciation expense with the opening of a new office in the Cedar Rapids market and an increase in service contractscontract expense and depreciation.costs.

Professional and data processing fees increased 19%31% in 20242025 as compared to 2023.2024. The increase was due primarily to increasedhigher CDARSprofessional andfees ICSrelated expensesto asthe wellCompany’s asdigital increasedtransformation data processing expenses.projects. Generally, professional and data processing fees can fluctuate depending on certain one-time project costs. Management will continue to focus on minimizing such one-time costs and driving recurring costs down through contract negotiation or managed reduction in activity where costs are determined on a usage basis.

There were no restructuring expenses incurred in 2025. Restructuring expenses totaled $2.0 million in 2024 due to the decisiondiscontinuation to discontinue offeringof new loans and leases through m2. The charges consisted primarily of severance and retention compensation as well as vendor contract termination fees. There were no restructuring expenses in 2023.

FDIC insurance, other insurance and regulatory fee expense increased 4%10% in 2025 as compared to 2024. The increase in expense was due to an increase in the asset growth and higher FDIC insurance rates.growth.

Loan/lease expense decreased 43%7% in 20242025 as compared to 2023.2024. The decrease was due primarily to lower legal expense on loan workouts and higher recoveries of legal expenses incurred on loan workouts. Generally, loan/lease expense has a direct relationship with the level of NPLs; however, it may deviate depending upon the individual NPLs. NPLs have increaseddecreased 35%5% since December 31, 2023.2024.

Net cost of (income from) and gains/losses on operations of other real estate includes gains/losses on the sale of OREO, write-downs of OREO and all income/expenses associated with OREO. Net cost of operations totaled $80 thousand for 2025 as compared to net income from operations totaledof $21 thousand for 2024 as compared to $26 thousand for 2023.2024.

Advertising and marketing expense increased 17%7% in 20242025 as compared to 2023.2024. The increase in expense was primarily due to increasedan marketingincrease ofin oursponsorships depositin products.2025.

Bank service charges, a large portion of which includes indirect costs incurred to provide services to QCBT’s correspondent banking customer portfolio, decreasedincreased 6%11% in 20242025 as compared to 2023.2024. TheAs decreasetransaction wasvolumes dueand primarilythe number of correspondent banking clients fluctuate, associated expenses are expected to thealso Company incurring, in the fourth quarter of 2023, a bank service charge related to collateral held at the FHLB.fluctuate.

GoodwillLoss impairmenton expenseliability extinguishment totaled $432$2.0 thousandmillion in 20242025 due to the decisionprepayment toof discontinueFHLB offering new loans and leases through m2.borrowings. There was no goodwillloss impairmenton liability extinguishment recorded in 2023.2024.

Payment card processing expense remaineddecreased stable14% in 20242025 as compared to 2023.2024 due to decreased transaction volume.

Trust expense increased 13%2% in 20242025 as compared to 2023.2024. The increase was due to an increase in assets under management of $1.1$779.7 billionmillion in 2024.2025.

Other noninterest expense increased 18%10% in 20242025 as compared to 2023.2024. The increase was due primarily to excise tax expenses on stock repurchases and increased insurance claim loss reserves at our QCRH Risk Management, Inc. micro captive entity. Also included in other noninterest expense are other items such as meals and entertainment, subscriptions and sales and use tax.

In 2024,2025, total assets increased $487.1$549.4 million, or 6%. The Company’s securities portfolio increased $194.9$111.9 million, or 19%,9%, during 2024.2025. The Company’s net loan/lease portfolio increased $238.3$382.3 million, or 3.7%,6%, during 2024.2025. Deposits grew $547.2$353.0 million, or 8%,5%, during 2024.2025. Borrowings decreasedincreased $148.8$69.0 million, or 21%,12%, during 2024 due primarily to an increase in core deposits which allowed borrowings to mature.2024.

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

During 2024,2025, total loans/leases grew 3.7%,5.6%, or 10.9%,11.7% when excluding the $386.5$285.3 million inconstruction loan securitizationssale duringand the year.$133 million of m2 runoff. The mix of loan/lease types within the Company’s loan/lease portfolio is presented in the following tables.

The Company recorded a$1.1 million of negative $1.3 million provision for credit losses related to OBS exposures in 2024.2025. The decrease innegative provision in 20242025 was driven by a decrease in unfunded commitments in the LIHTC lending business during the year.commitments. At December 31, 2024,2025, the allowance for OBS exposures was $8.3$7.1 million.

For all loans except direct financing leases and equipment financing agreements, the Company’s credit quality indicator consists of internally assigned risk ratings. The following is a table that reports the criticized and classified loan totals as of December 31, 20242025 and 2023.2024.

** Criticized loans are defined as C&I and CRE loans with internally assigned risk ratings of 9, 10, or 11, regardless of performance.

*** Classified loans are defined as C&I and CRE loans with internally assigned risk ratings of 10 or 11, regardless of performance.

Criticized loans decreased 17%12% and classified loans increaseddecreased 26%24% in 20242025 as compared to 2023.2024, primarily due to a single large relationship that paid off. The Company continues its strong focus on improving credit quality in an effort to limit NPLs.

Other than as set forth below, thereThere have been no material changes in the risk factors applicable to the Company from those disclosed in Part I, Item 1A., “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Please refer to that section of the Company’s Form 10-K for disclosures regarding the other risks and uncertainties related to the Company’s business.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have Item 2 limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

Net interest income, on a GAAP basis, increased 12%9% for the quarter ended MarchJune 31,30, 2026, compared to the same quarter of the prior year. Net interest income, on a tax equivalent basis (non-GAAP) increased 10%8% for the quarter ended MarchJune 31,30, 2026, compared to the same quarter of the prior year. Net interest income, on a GAAP basis, increased 11% for the six months ended June 30, 2026, compared to the same period of the prior year. Net interest income, on a tax equivalent basis (non-GAAP) increased 9% for the six months ended June 30, 2026, compared to the same period of the prior year. Net interest income changed primarily due to the Company’s loan and investment growth and continued expansion of loan and investment yields, which were partially offset by deposit growth with a lower cost of funds.yields.

For the Three Months Ended MarchJune 31,30, 2026

Interest income increased $3.4$780 million,thousand, comparing the second quarter of 2026 to the same period of 2025 and increased $4.2 million when comparing the first quartersix months of 2026 to the same period of 2025. Interest income (tax equivalent non-GAAP) increased $2.8$502 million,thousand, comparing the second quarter of 2026 to the same period of 2025 and increased $4.2 million when comparing the first quartersix months of 2026 to the same period of 2025. These increases in interest income were primarily due to higher loan and investment average balances and higher loaninvestment and investmentloan yields.

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

Interest expense decreased $4.0$5.1 million, comparing the second quarter of 2026 to the same period of 2025, and decreased $9.1 million, comparing the first quartersix months of 2026 to the same period of 2025, primarily due to the lower cost of funds. The Company’s cost of funds was 2.64%2.61% for the quarter ended MarchJune 31,30, 2026, a decrease from 3.02%3.01% for the quarter ended MarchJune 31,30, 2025. The Company’s costs of funds was 2.62% for the six months ended June 30, 2026, a decrease from 3.01% for the six months ended June 30, 2025. The decrease was a result of the Federal Reserve lowering interest rates and the corresponding impact on the Company’s liability sensitive balance sheet.

The ACL is established through provision expense to provide an estimated ACL. The following table shows the components of the provision for credit losses for the three and six months ended MarchJune 31,30, 2026 and 2025:

The Company had a total provision for credit losses on loans and leases of $2.7$4.7 million for both the firstsecond quarter of 2026,2026 a decrease from $4.7 million forand the same period of 2025, driven primarily by the transfer of loans held for sale.2025. The provision related to OBS was a negative provision of $234$56 thousand for the firstsecond quarter of 2026 compared to a negative provision of $509$624 thousand for the second quarter of 2025 and was a negative provision of $178 thousand for the first quartersix months of 2026 compared to negative $1.1 million for the first six months of 2025. The balance primarily fluctuates with changes in the balance of unfunded commitments. Provision for credit losses on loans and leases for the first six months of 2026 totaled $7.3 million, a decrease from $9.4 million for the first six months of 2025. The decrease was primarily driven by a decrease in NPAs and net charge-offs, partially offset by loan growth. There was no provision related to HTM securities for the first threesix months of 2026 or 2025.

The Company had an ACL for loans/leases held for investment of 1.26%1.24% of total gross loans/leases held for investment at bothJune 30, 2026, compared to 1.26% at March 31, 2026 and December 31, 2025, compared to 1.32%1.28% at MarchJune 31,30, 2025.

The following table sets forth the various categories of noninterest income for the three and six months ended MarchJune 31,30, 2026 and 2025:

The Company continues to be successful in expanding its wealth management client base. Trust and investment advisory and management fees continue to be a significant contributor to noninterest income. Assets under management have increased $702.6$623.3 million since March 31, 2026 and have increased $978.1 million since June 30, 2025 due primarily to new relationships.relationships and favorable market performance. Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. The majority of trust fees are determined based on the value of the investments within the fully-managed trusts. Trust fees increased 6%26% in the firstsecond quarter of 2026 as compared to the same period of the prior year and increased 15% when comparing the first six months of 2026 to the first six months of 2025 due to growth in assets under management and market performance. The Company expects trust and investment advisory and management fees to be negatively impacted during periods of significantly lower market valuations and positively impacted during periods of significantly higher market valuations.

Investment advisory and management fees increased 23%24% comparing the firstsecond quarter of 2026 to the same period of the prior year.year and increased 23% when comparing the first six months of 2026 to the first six months of 2025. Similar to trust fees, fees from these services are largely determined based on the market value of the investments managed. As a result, fee income from this line of business fluctuates with market valuations.

Earnings on BOLI increased 78%,3%, comparing the firstsecond quarter of 2026 to the same period of the prior year and increased 29% when comparing the first six months of 2026 to the same period of the prior year. The increases were driven by BOLI exchanges in the first threesix months of 2025 resulting in surrender charges of $168 thousand. There were no purchases of BOLI in the first threesix months of 2026 or 2025. Notably, a portion of the Company's BOLI is variable rate whereby returns are determined by the performance of the equity markets. Management intends to continue to review its BOLI investments to be consistent with policy and regulatory limits in conjunction with the rest of its earning assets in an effort to maximize returns while minimizing risk.

Debit card fees are the interchange fees paid on certain debit card customer transactions. Debit card fees increased 12%6% when comparing the firstsecond quarter of 2026 to the same period of the prior yearyear, asand increased 9% when comparing the first six months of 2026 to the first six months of 2025. The Company continues to be successful in adding net new demand deposit accounts. The fees can vary based on customer debit card usage, so fluctuations from period to period may occur. As an opportunity to maximize fees, the Company offers a deposit product with a higher interest rate that incentivizes debit card activity.

Correspondent banking fees increased 13%7% comparing the firstsecond quarter of 2026 to the same period of the prior year.year and increased 10% comparing the first six months of 2026 to the first six months of 2025. The increase was primarily due to an increase in correspondent banking balances. Fees from correspondent banks generally increase when non-interest bearing account balances decrease due to lower associated earnings credits. 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 190188 banks in Iowa, Illinois, Missouri and Wisconsin.

Loan-related fee income increaseddecreased 6%3% comparing the firstsecond quarter of 2026 to the same period of the prior yearyear, primarily due to lower loan participation service fees and increased 1% comparing the first six months of 2026 to the first six months of 2025, primarily due to higher participation service fees.

Fair value gains on derivatives and trading securities were $802 thousand in the second quarter of 2026, as compared to $230 thousand in gains in the same period of the prior year. Fair value losses on derivatives and trading securities were $869$67 thousand in the first quartersix months of 2026, as compared to $1.0$777 millionthousand in losses in the samefirst periodsix months of the prior year.2025. The Company uses swaptions to manage interest rate risk related to the variability of interest payments due to changes in interest rates. These derivatives are unhedged and are marked-to-market, with gains or losses recorded in noninterest income which was a contributing factor in the decrease in fair value losses on derivatives. See Note 5 to the Consolidated Financial Statements for additional information.

Other noninterest income increased $428$6 thousand, or 98%,3%, in the firstsecond quarter of 2026 as compared to the same period of the prior yearyear, and increased $434 thousand, or 70% in the first six months of 2026 as compared to the first six months of 2025, due to fluctuations onin the market value of the Company’s equity investments. Income on equity investments is largely determined based on the market value of the investments managed.

The following tables set forth the various categories of noninterest expense for the three and six months ended MarchJune 31,30, 2026 and 2025:

Salaries and employee benefits, which is the largest component of noninterest expense, increased 15%13% when comparing the second quarter of 2026 to the same period of the prior year, and increased 14% when comparing the first quartersix months of 2026 to the same period of the prior year primarily due to annual merit increases and capital markets revenue and its impact on variable compensation associated with performance.

SuppliesOccupancy and equipment expense increased 13%7% comparing the firstsecond quarter of 2026 to the same period of the prior year.year, Theseand increasesincreased were12% primarilywhen duecomparing the first six months of 2026 to the timingsame period of purchases.the prior year due primarily to higher property tax expense and depreciation expense with the opening of new offices in the Cedar Rapids and Ankeny, Iowa markets.

TrustFDIC insurance, other insurance and regulatory fee expense remained stable when comparing the second quarter of 2026 to the same period of the prior year, and increased 33%3% when comparing the first quartersix months of 2026 to the same period of the prior year due to increased assets under management when comparing March 31, 2026primarily to Marchasset 31, 2025.growth.

Other noninterestTrust expense increased 106%10% when comparing the firstsecond quarter of 2026 to the same period of the prior year.year, Theand increaseincreased was21% primarilywhen comparing the first six months of 2026 to the same period of the prior year due to increased insuranceassets claimunder lossmanagement reserveswhen atcomparing ourJune QCRH30, Risk2026 Managementto entityJune in30, 2025. Included in other noninterest expense are items such as meals and entertainment, subscriptions and sales and use tax.

In the firstsecond quarter of 2026, the Company incurred income tax expense of $2.4$3.2 million, compared to income tax expense of $308$1.6 thousandmillion in the same period of the prior year. During the first six months of 2026, the Company incurred income tax expense of $5.7 million, compared to income tax expense of $1.9 million in the first six months of 2025. The increase was primarily due to higher pre-tax income from higher capital markets revenue.

During the firstsecond quarter of 2026, the Company's total assets increaseddecreased $115.5$93.1 million from DecemberMarch 31, 2025,2026, to a total of $9.6$9.5 billion. The Company’s net loans/leases increaseddecreased $123.2$254.3 million, or 2%,4%, in the firstsecond quarter of 2026. Deposits increaseddecreased $356.7$353.5 million, or 5%, during the firstsecond quarter of 2026. Borrowings decreasedincreased $220.3$242.1 million, or 34%,58%, during the firstsecond quarter of 2026 due primarily to stronga depositdecrease growth.in deposits. The Company actively managed down higher cost deposits off in anticipation of the liquidity generated by the loan securitization and LIHTC offtake transactions.

Trading securities had a fair value of $82.7$116.0 million as of MarchJune 31,30, 2026 and consisted of retained beneficial interests acquired in conjunction with loan securitizations completed by the Company in prior years. See also Note 4 to the Consolidated Financial Statements for details of these securitizations.

Total loans/leases grew 8%10% on an annualized basis, when adding back the impact from the runoff of m2 loans and leases and excluding the LIHTC loan offtake transactions and securitization during the first threesix months of 2026. The mix of the loan/lease classes within the Company's loan/lease portfolio is presented in the following table:

* As of June 30, 2026, there were no LIHTC loans held for sale in preparation for securitization or LIHTC loan sale. As of March 31, 2026, there were LIHTC multi-family loans held for sale in preparation for securitization totaling $315.6 million and C&I – other loans and construction loans Item 2 totaling $129.6 million and $77.7 million, respectively, held for sale in preparation for a LIHTC loan sale. There were no loans held for sale in preparation for securitization or LIHTC loan sales at December 31, 2025 or MarchJune 31,30, 2025. All loans held for sale are performing and pass rated.

CRE loans are predominantly included within the CRE – owner occupied, CRE – non-owner occupied, construction and land development and multi-family loan classes, however, CRE loans can also be included in 1-4 family based on nature of the loan. As CRE loans have historically been the Company's largest portfolio segment, management places a strong emphasis on the underwriting and monitoring of the characteristics and composition of the Company's CRE loan portfolio. For example, management tracks the level of owner-occupied CRE loans relative to non-owner-occupied loans because owner-occupied loans are generally considered to have less risk. Additionally, the Company reviews CRE concentrations by industry in relation to risk-based capital on a quarterly basis. At MarchJune 31,30, 2026, approximately 47%44% of the CRE loan portfolio consisted of LIHTC loans, all of which are performing and all of which are pass rated.