QCR (QCRH) - 2025 Q2 - Quarterly Report

Part I Financial Information Item 1 Consolidated Financial Statements (Unaudited) Presents unaudited consolidated financial statements for QCR Holdings, Inc., covering balance sheets, income, equity, cash flows, and notes Consolidated Balance Sheets | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Assets | | | | Total assets | $9,242,331 | $9,026,030 | | Net loans/leases receivable | $6,836,192 | $6,694,563 | | Total securities | $1,263,452 | $1,200,435 | | Liabilities & Equity | | | | Total deposits | $7,318,353 | $7,061,187 | | Total liabilities | $8,191,777 | $8,028,643 | | Total stockholders' equity | $1,050,554 | $997,387 | - Total assets increased by $216.3 million from December 31, 2024, to June 30, 2025, reflecting growth in net loans/leases and securities[12] Consolidated Statements of Income | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Total interest and dividend income | $120,247 | $119,746 | | Total interest expense | $58,165 | $63,583 | | Net interest income | $62,082 | $56,163 | | Provision for credit losses | $4,043 | $5,496 | | Total noninterest income | $22,115 | $30,889 | | Total noninterest expense | $49,583 | $49,888 | | Net income | $29,019 | $29,114 | | Diluted earnings per common share | $1.71 | $1.72 | | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Total interest and dividend income | $236,920 | $234,795 | | Total interest expense | $114,852 | $123,933 | | Net interest income | $122,068 | $110,862 | | Provision for credit losses | $8,277 | $8,465 | | Total noninterest income | $39,007 | $57,747 | | Total noninterest expense | $96,122 | $100,578 | | Net income | $54,816 | $55,840 | | Diluted earnings per common share | $3.22 | $3.30 | - Net interest income increased by $5.9 million (10.5%) for the three months ended June 30, 2025, compared to the same period in 2024, primarily due to lower interest expense[14] - Net income for the three months ended June 30, 2025, was $29.0 million, a slight decrease from $29.1 million in the prior year, while diluted EPS decreased from $1.72 to $1.71[14] Consolidated Statements of Comprehensive Income | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net income | $29,019 | $29,114 | | Other comprehensive loss, net of tax | $(1,671) | $(368) | | Comprehensive income | $27,348 | $28,746 | | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net income | $54,816 | $55,840 | | Other comprehensive loss, net of tax | $(1,267) | $(5,741) | | Comprehensive income | $53,549 | $50,099 | - Comprehensive income for the six months ended June 30, 2025, increased to $53.5 million from $50.1 million in the prior year, primarily due to a smaller other comprehensive loss[17] Consolidated Statements of Changes in Stockholders' Equity | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Common stock | $16,935 | $16,882 | | Additional paid-in capital | $376,571 | $374,975 | | Retained earnings | $717,956 | $665,171 | | Accumulated other comprehensive loss | $(60,908) | $(59,641) | | Total stockholders' equity | $1,050,554 | $997,387 | - Total stockholders' equity increased by $53.2 million from December 31, 2024, to June 30, 2025, driven by net income and stock-based compensation, partially offset by dividends and other comprehensive loss[18] Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $38,676 | $29,087 | | Net cash used in investing activities | $(220,055) | $(332,791) | | Net cash provided by financing activities | $194,416 | $298,754 | | Net increase (decrease) in cash | $13,037 | $(4,950) | | Cash and due from banks, ending | $104,769 | $92,173 | - Net cash provided by operating activities increased to $38.7 million for the first six months of 2025, up from $29.1 million in the prior year[19] - Net cash used in investing activities decreased significantly from $(332.8) million in 2024 to $(220.1) million in 2025, primarily due to lower net increase in loans/leases originated and held for investment[19] Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies - The interim unaudited Consolidated Financial Statements are prepared in accordance with GAAP for interim financial reporting and reflect all necessary recurring adjustments[23] - The Company adopted ASU 2024-01 on January 1, 2025, which did not have a significant impact on financial statements. ASU 2023-09 and ASU 2024-03 are effective for future periods and are not expected to have a significant impact[27][28][29] Note 2. Investment Securities | Security Type | June 30, 2025 Fair Value (in thousands) | December 31, 2024 Fair Value (in thousands) | | :------------------------------------------ | :-------------------------------------- | :---------------------------------------- | | Securities HTM | $803,565 | $800,583 | | Securities AFS | $271,517 | $281,109 | | Securities trading | $82,900 | $83,529 | | Total securities | $1,157,982 | $1,165,221 | - As of June 30, 2025, the investment portfolio included 677 securities, with 574 in an unrealized loss position, totaling approximately 15.01% of the total amortized cost. Management concluded these losses were temporary due to the changing interest rate environment[34] - Trading securities, consisting of retained beneficial interests from Freddie Mac securitizations, had a fair value of $82.9 million as of June 30, 2025, a slight decrease from $83.5 million at December 31, 2024[37] Note 3. Loans/Leases Receivable | Loan/Lease Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | C&I - revolving | $380,029 | $387,991 | | C&I - other | $1,375,689 | $1,514,932 | | CRE - owner occupied | $593,675 | $605,993 | | CRE - non-owner occupied | $1,036,049 | $1,077,852 | | Construction and land development | $1,529,022 | $1,313,543 | | Multi-family | $1,251,763 | $1,132,110 | | Direct financing leases | $12,880 | $17,076 | | 1-4 family real estate | $592,253 | $588,179 | | Consumer | $153,564 | $146,728 | | Gross loans/leases receivable | $6,924,924 | $6,784,404 | | Less allowance for credit losses | $(88,732) | $(89,841) | | Net loans/leases receivable | $6,836,192 | $6,694,563 | - Gross loans/leases receivable increased by $140.5 million from December 31, 2024, to June 30, 2025, primarily driven by growth in construction and land development and multi-family loans[44] | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Total NPLs | $42,489 | $44,350 | | NPLs as % of total loan/lease portfolio | 0.61% | 0.65% | Note 4. Securitizations and Variable Interest Entities - The Company retained beneficial interests from Freddie Mac securitizations, classified as trading securities. Total assets related to these VIEs were $82.9 million at June 30, 2025, with a maximum exposure to loss of $85.5 million[65][67] - The Company determined it was not the primary beneficiary of the VIEs as of June 30, 2025, as it lacked the power to direct the most significant activities[66] Note 5. Derivatives and Hedging Activities | Derivative Type | June 30, 2025 Fair Value (in thousands) | December 31, 2024 Fair Value (in thousands) | | :------------------------------------ | :-------------------------------------- | :---------------------------------------- | | Hedged Derivatives Assets | $866 | $2,023 | | Unhedged Derivatives Assets | $184,116 | $184,878 | | Hedged Derivatives Liabilities | $(25,805) | $(31,063) | | Unhedged Derivatives Liabilities | $(183,700) | $(183,760) | | Net Derivatives | $(24,523) | $(27,922) | - The Company uses interest rate swaps, caps, collars, and swaptions to manage interest rate risk. Changes in fair value for cash flow hedges are recorded in AOCI, while fair value hedges impact interest income/expense[68][69] - Unhedged derivatives, primarily back-to-back interest rate swaps, are marked-to-market with changes recognized in current earnings. The fair value of swaptions, used to hedge regulatory capital ratios, was $416 thousand at June 30, 2025[70] Note 6. Income Taxes | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Federal and state income tax expense | $1,552 | $2,554 | | Effective tax rate | 5.1% | 8.1% | | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Federal and state income tax expense | $1,860 | $3,726 | | Effective tax rate | 3.3% | 6.3% | - The effective tax rate for the first six months of 2025 was 3.3%, down from 6.3% in the prior year, primarily due to tax benefits from equity compensation, new state tax credit investments, and lower pre-tax income from capital markets revenue[75] - The Company adopted ASU 2023-02 on January 1, 2024, for tax credit investments, applying the proportional amortization method[76] Note 7. Earnings Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net income (in thousands) | $29,019 | $29,114 | | Basic EPS | $1.71 | $1.73 | | Diluted EPS | $1.71 | $1.72 | | Weighted average common shares outstanding | 16,928,542 | 16,814,814 | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net income (in thousands) | $54,816 | $55,840 | | Basic EPS | $3.24 | $3.32 | | Diluted EPS | $3.22 | $3.30 | | Weighted average common shares outstanding | 16,914,663 | 16,799,081 | Note 8. Fair Value | Asset Type (June 30, 2025) | Fair Value (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :------------------------------------ | :------------------------ | :--------------------- | :--------------------- | :--------------------- | | Securities AFS | $271,517 | $0 | $271,517 | $0 | | Securities trading | $82,900 | $0 | $0 | $82,900 | | Derivatives (assets) | $184,982 | $0 | $184,982 | $0 | | Derivatives (liabilities) | $209,505 | $0 | $209,505 | $0 | | Loans/leases evaluated individually | $55,773 | $0 | $0 | $55,773 | | OREO | $67 | $0 | $0 | $67 | - Trading securities and individually evaluated loans/leases are classified as Level 3 in the fair value hierarchy, with fair values estimated using discounted cash flow methods or collateral appraisals[82][83] - For Level 3 assets, appraisal adjustments for loans/leases ranged from -10.00% to -30.00%, and for OREO from 0.00% to -35.00%[85] Note 9. Business Segment Information - The Company's Commercial Banking business is divided into four subsidiary banks (QCBT, CRBT, CSB, and GB), each managed separately due to different market dynamics[88] - For the three months ended June 30, 2025, QCBT reported net income of $8.2 million, CRBT $15.4 million, CSB $5.2 million, and GB $5.0 million[89] - For the six months ended June 30, 2025, QCBT reported net income of $16.8 million, CRBT $29.0 million, CSB $9.3 million, and GB $9.1 million[90] Note 10. Regulatory Capital Requirements - As of June 30, 2025, the Company and its subsidiary banks met all capital adequacy requirements and were categorized as 'well capitalized' under regulatory frameworks[92][93] | Capital Ratio (Company) | June 30, 2025 Actual Ratio | Minimum for Capital Adequacy | Minimum for Well Capitalized | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | | Total risk-based capital | 14.26% | > 8.00% | > 10.00% | | Tier 1 risk-based capital | 10.96% | > 6.00% | > 8.00% | | Tier 1 leverage | 11.22% | > 4.00% | > 5.00% | | Common equity Tier 1 | 10.43% | > 4.50% | > 6.50% | Note 11. Commitments - The Company has a remaining commitment of approximately $17.9 million for the construction of a new CSB facility in Ankeny, Iowa, anticipated to be completed in 2026[95] Note 12. Subsequent Events - On July 25, 2025, the Company issued notices to redeem all $20.0 million of its 5.25% Fixed-to-Floating Rate Subordinated Notes due 2030 on September 30, 2025, and all $50.0 million of its 5.125% Fixed-to-Floating Subordinated Note due 2030 on September 15, 2025[96][97][98][99] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on Q2 and H1 2025 financial condition and results, covering executive overview, strategic metrics, reconciliations, and financial components Introduction - This section reviews the financial condition and results of operations for QCR Holdings, Inc. and its subsidiaries as of and for the three and six months ending June 30, 2025[100] General - As of June 30, 2025, the Company had $9.3 billion in consolidated assets, including $6.8 billion in net loans/leases, and $7.3 billion in deposits[102] Critical Accounting Policies and Critical Accounting Estimates - Critical accounting policies and estimates include the Allowance for Credit Losses on Loans and Leases and Off-Balance Sheet Exposures, and Goodwill[104][106] Executive Overview | Metric | Q2 2025 (in thousands) | Q1 2025 (in thousands) | Q2 2024 (in thousands) | | :------------------------------------ | :--------------------- | :--------------------- | :--------------------- | | Net income | $29,019 | $25,797 | $29,114 | | Diluted EPS | $1.71 | $1.52 | $1.72 | | Metric | H1 2025 (in thousands) | H1 2024 (in thousands) | | :------------------------------------ | :--------------------- | :--------------------- | | Net income | $54,816 | $55,840 | | Diluted EPS | $3.22 | $3.30 | - Adjusted net income (non-GAAP) for Q2 2025 was $29.4 million, with adjusted diluted EPS of $1.73[107][109] - Net interest income in Q2 2025 increased 3% QoQ and 11% YoY, driven by higher average earning assets and investment yields, and a decrease in the cost of interest-bearing deposits[110] - Provision for credit losses in Q2 2025 decreased $191 thousand QoQ and $1.5 million YoY, primarily due to lower loan growth and a decrease in criticized loans[110][111] - Noninterest income in Q2 2025 increased 31% QoQ due to higher capital markets revenue from swap fees, but decreased 28% YoY due to overall lower capital markets revenue[114] - Noninterest expense in Q2 2025 increased 7% QoQ due to higher capital markets revenue's impact on variable compensation and professional fees for digital transformation, but decreased 1% YoY due to lower capital markets revenue's impact on variable compensation[114] Strategic Financial Metrics - The Company's long-term strategic financial metrics include generating loan and lease growth of >9% annually, growing fee-based income by at least 6% per year, and limiting annual operating expense growth to <5% per year[115] | Strategic Financial Metric | Target | Year to Date June 30, 2025 | Year to Date June 30, 2024 | | :------------------------------------ | :------- | :------------------------- | :------------------------- | | Loan and lease growth organically | > 9% annually | 6.0% | 12.4% | | Fee income growth | > 6% annually | (36.1)% | (13.5)% | | Noninterest expense growth | < 5% annually | (6.3)% | (4.4)% | Strategic Developments - Loans and leases grew 8.0% annualized in Q2 2025, driven by traditional and LIHTC lending, even with the runoff of m2 loans and leases[116] - Correspondent banking remains a core business, serving 189 downstream banks with $97.3 million in noninterest-bearing deposits and $933.5 million in interest-bearing deposits as of June 30, 2025[116] - Capital markets revenue from swap fees totaled $9.9 million for Q2 2025 and $16.4 million for H1 2025, influenced by macroeconomic and governmental uncertainty, but demand for affordable housing remains strong[116] - Assets under wealth management increased by $347.7 million QoQ and $372.3 million H1 2025 YoY, contributing significantly to noninterest income[116] GAAP to Non-GAAP Reconciliations - Non-GAAP measures like TCE/TA ratio, adjusted net income, adjusted EPS, adjusted ROAA, NIM (TEY), and efficiency ratios are used to provide a clearer comparison by excluding non-core or non-recurring items[119][120][121] | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :------------ | | TCE (non-GAAP, in thousands) | $902,221 | $873,752 | $784,851 | | TA (non-GAAP, in thousands) | $9,093,998 | $9,003,784 | $8,720,523 | | TCE/TA ratio (non-GAAP) | 9.92% | 9.70% | 9.00% | | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :------------------------------------ | :------ | :------ | :------ | | Adjusted net income (non-GAAP, in thousands) | $29,416 | $25,953 | $29,259 | | Adjusted diluted EPS (non-GAAP) | $1.73 | $1.53 | $1.73 | | Adjusted ROAA (non-GAAP) | 1.29% | 1.15% | 1.33% | | NIM (TEY) (non-GAAP) | 3.46% | 3.42% | 3.27% | | Adjusted NIM (TEY) (non-GAAP) | 3.45% | 3.41% | 3.26% | | Adjusted efficiency ratio (non-GAAP) | 58.54% | 60.38% | 57.19% | Net Interest Income - (Tax Equivalent Basis) - Net interest income (GAAP) increased 3% YoY for Q2 2025 and 10% YoY for H1 2025. On a tax-equivalent basis (non-GAAP), it increased 11% for both periods[127] - The increase in net interest income was primarily due to higher loan and investment growth, expanded loan and investment yields, partially offset by deposit growth with a lower cost of funds[127] | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :------------------------------------ | :------ | :------ | :------ | | Average Yield on Interest-Earning Assets | 5.74% | 5.66% | 5.99% | | Average Cost of Interest-Bearing Liabilities | 3.42% | 3.44% | 3.93% | | Net Interest Spread | 2.32% | 2.22% | 2.06% | | NIM (TEY) (Non-GAAP) | 3.46% | 3.42% | 3.27% | - The Company's cost of funds was 3.01% for Q2 2025, a decrease from 3.43% for Q2 2024, attributed to the Federal Reserve lowering interest rates in the second half of 2024[142] Results of Operations Interest Income - Interest income increased $501 thousand YoY for Q2 2025 and $2.1 million YoY for H1 2025. On a tax-equivalent basis, these increases were $1.7 million and $4.4 million, respectively[140] - These increases were primarily due to higher loan and investment average balances and margin expansion from higher loan yields[140] Interest Expense - Interest expense decreased $5.4 million YoY for Q2 2025 and $9.1 million YoY for H1 2025, primarily due to a lower cost of funds[142] - The Company's cost of funds decreased from 3.43% in Q2 2024 to 3.01% in Q2 2025, and from 3.39% in H1 2024 to 3.01% in H1 2025, following Federal Reserve interest rate reductions[142] Provision for Credit Losses | Provision Type | Q2 2025 (in thousands) | Q2 2024 (in thousands) | | :------------------------------------ | :--------------------- | :--------------------- | | Loans and leases | $4,667 | $4,343 | | Off-balance sheet exposures | $(624) | $1,153 | | Available for sale securities | $0 | $0 | | Total provision for credit losses | $4,043 | $5,496 | | Provision Type | H1 2025 (in thousands) | H1 2024 (in thousands) | | :------------------------------------ | :--------------------- | :--------------------- | | Loans and leases | $9,410 | $8,079 | | Off-balance sheet exposures | $(1,133) | $831 | | Available for sale securities | $0 | $(445) | | Total provision for credit losses | $8,277 | $8,465 | - The ACL for loans/leases held for investment was 1.28% of total gross loans/leases at June 30, 2025, down from 1.33% at June 30, 2024[146] Noninterest Income | Noninterest Income Category | Q2 2025 (in thousands) | Q2 2024 (in thousands) | % Change | | :------------------------------------ | :--------------------- | :--------------------- | :------- | | Trust fees | $3,395 | $3,103 | 9.4% | | Investment advisory and management fees | $1,254 | $1,214 | 3.3% | | Deposit service fees | $2,187 | $1,986 | 10.1% | | Capital markets revenue | $9,869 | $17,758 | (44.4)% | | Earnings on bank-owned life insurance | $998 | $2,964 | (66.3)% | | Correspondent banking fees | $699 | $510 | 37.1% | | Loan related fee income | $1,096 | $962 | 13.9% | | Fair value gain on derivatives and trading securities | $230 | $51 | 351.0% | | Total noninterest income | $22,115 | $30,889 | (28.4)% | - Total noninterest income decreased by 28.4% YoY for Q2 2025 and 32.5% YoY for H1 2025, primarily due to a significant decline in capital markets revenue[148] - Trust and investment advisory fees increased due to growth in assets under management and market performance. Correspondent banking fees increased due to a shift from non-interest bearing to interest-bearing accounts[148][149][156] Noninterest Expense | Noninterest Expense Category | Q2 2025 (in thousands) | Q2 2024 (in thousands) | % Change | | :------------------------------------ | :--------------------- | :--------------------- | :------- | | Salaries and employee benefits | $28,474 | $31,079 | (8.4)% | | Occupancy and equipment expense | $6,837 | $6,377 | 7.2% | | Professional and data processing fees | $6,089 | $4,823 | 26.2% | | FDIC insurance, other insurance and regulatory fees | $1,960 | $1,854 | 5.7% | | Loan/lease expense | $407 | $151 | 169.5% | | Total noninterest expense | $49,583 | $49,888 | (0.6)% | - Total noninterest expense decreased slightly by 0.6% YoY for Q2 2025 and 4.4% YoY for H1 2025, primarily due to lower salaries and employee benefits from reduced variable compensation[160][161] - Professional and data processing fees increased significantly (26.2% YoY for Q2 2025) due to higher CDARS/ICS expenses and costs related to the Company's digital transformation[163] Income Taxes - Income tax expense for Q2 2025 was $1.6 million, down from $2.6 million in Q2 2024. For H1 2025, it was $1.9 million, down from $3.7 million in H1 2024[176] - The effective tax rate for H1 2025 was 3%, down from 6% in H1 2024, due to tax benefits from equity compensation, new state tax credit investments, and lower pre-tax income from capital markets revenue[176] Financial Condition Investment Securities - The Company's securities portfolio is managed to meet liquidity needs, prioritize interest rate risk, maximize return, and minimize credit risk, with a recent shift towards increasing tax-exempt municipal securities[180] | Security Type | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Municipal securities | $1,033,642 | $885,046 | | Residential mortgage-backed and related securities | $58,864 | $54,708 | | Trading securities | $82,900 | $22,362 | | Total securities | $1,263,715 | $1,033,402 | | Securities as a % of total assets | 13.67% | 11.65% | | Net unrealized losses as a % of Amortized Cost | (13.20)% | (7.17)% | | Duration (in years) | 5.6 | 6.2 | | Annual yield on investment securities (tax equivalent) | 5.46% | 5.08% | Loans/Leases - Total loans/leases grew 6.2% on an annualized basis during H1 2025, even with the planned runoff of m2 Equipment Finance loans and leases[182] | Loan/Lease Type | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Construction and land development | $1,529,022 | $1,082,348 | | Multi-family | $1,251,763 | $1,477,483 | | C&I - other | $1,375,689 | $1,463,198 | | Total loans/leases | $6,924,924 | $6,854,386 | - Approximately 45% of the CRE loan portfolio consists of LIHTC loans, all of which are performing and pass rated. Office exposure within the CRE portfolio is low at 3.2% of total loans[183][185] Allowance for Credit Losses on Loans/Leases and Off-Balance Sheet Exposures | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | ACL for loans/leases, beginning balance | $89,841 | $87,200 | | Provision for loans/leases | $9,410 | $8,079 | | Charge-offs | $(11,434) | $(5,311) | | Recoveries | $915 | $617 | | ACL for loans/leases, ending balance | $88,732 | $87,706 | - The ACL for OBS exposures was $7.1 million at June 30, 2025, with a negative provision of $624 thousand in Q2 2025 due to a decrease in unfunded commitments[193] | Metric | June 30, 2025 | June 30, 2024 | | :------------------------------------ | :------------ | :------------ | | ACL for loans/leases / Total loans/leases held for investment | 1.28% | 1.33% | | ACL for loans/leases / NPLs | 208.84% | 260.77% | | Criticized Loans as a % of Total Loans/Leases | 2.16% | 2.41% | | Classified Loans as a % of Total Loans/Leases | 1.17% | 1.17% | Nonperforming Assets | Metric | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :---------------------------- | :----------------------------- | | Nonaccrual loans/leases | $42,482 | $47,259 | $33,546 | | Total NPLs | $42,489 | $47,615 | $33,633 | | Total NPAs | $42,664 | $48,139 | $34,514 | | NPAs to total assets | 0.46% | 0.53% | 0.39% | - NPAs decreased by $5.5 million from March 31, 2025, to June 30, 2025, driven by payoffs and charge-offs, but increased by $8.2 million from June 30, 2024[200] - The majority of NPAs consist of nonaccrual loans/leases, for which specific allowances have been provided[201] Deposits - Total deposits decreased by $19.0 million in Q2 2025, following robust growth in Q1 2025[204] | Deposit Type | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Noninterest bearing demand deposits | $952,032 | $956,445 | | Interest bearing demand deposits | $5,087,783 | $4,644,918 | | Time deposits | $974,341 | $859,593 | | Brokered deposits | $304,197 | $303,711 | | Total deposits | $7,318,353 | $6,764,667 | - Deposits in the ICS/CDARS program totaled $2.4 billion, representing 32.8% of all deposits, as of June 30, 2025[205] Borrowings - Borrowings increased by $79.4 million (18%) in Q2 2025, primarily due to increased funding needs from strong loan and investment growth[179] | Borrowing Type | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Federal funds purchased | $1,350 | $1,600 | | Term FHLB advances | $145,383 | $135,000 | | Overnight FHLB advances | $80,000 | $350,000 | | Subordinated notes | $233,701 | $233,300 | | Junior subordinated debentures | $48,925 | $48,800 | | Total borrowings | $509,359 | $768,700 | - Wholesale funding decreased by $114.1 million during H1 2025. The Company aims to reduce reliance on wholesale funding by replacing it with core deposits[212][214] Stockholders' Equity | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Common stock | $16,935 | $16,825 | | Additional paid in capital | $376,571 | $372,378 | | Retained earnings | $717,956 | $608,816 | | AOCI | $(60,908) | $(61,700) | | Total stockholders' equity | $1,050,554 | $936,319 | | TCE / TA ratio (non-GAAP) | 9.92% | 9.00% | - Total stockholders' equity increased to $1.05 billion at June 30, 2025, from $936.3 million at June 30, 2024. The TCE/TA ratio improved to 9.92% from 9.00% over the same period[217] - No shares were repurchased under the Company's stock repurchase program during H1 2025, with 760,915 shares remaining for repurchase[219] Liquidity and Capital Resources - The Company's cash and short-term assets for liquidity totaled $250.5 million at June 30, 2025, up from $194.4 million at June 30, 2024[220] - Subsidiary banks had $1.2 billion in available lines of credit with correspondent banks at June 30, 2025, and the Company maintained a $60.0 million secured revolving credit note, fully available[222][224] - Investing activities used $220.1 million in H1 2025, a decrease from $332.8 million in H1 2024, primarily due to a lower net increase in loans/leases[226] - Financing activities provided $194.4 million in H1 2025, with net deposit increases of $257.2 million, partially offset by a $60.0 million net decrease in overnight FHLB advances[227] Special Note Concerning Forward-Looking Statements - The document contains forward-looking statements regarding financial condition, results of operations, plans, and future performance, which are subject to inherent uncertainties[231] - Factors that could materially affect operations include economic conditions, regulatory changes, competition, technological changes (including AI), acquisitions, loss of key personnel, and market fluctuations[232][236] Item 3 Quantitative and Qualitative Disclosures About Market Risk Details the Company's market risk exposure, primarily interest rate risk, and management strategies, using a dynamic simulation model to quantify exposure and ensure policy compliance - The Company is subject to direct market risk from changes in interest rates, which can affect net interest income if interest-bearing liabilities and assets reprice at different rates[237] - Management uses a dynamic simulation model to quantify net interest income exposure to sustained interest rate changes, with policy limits of a 10% decline for 200-basis point shifts and a 30% decline for 300-basis point shocks[241][244] | Interest Rate Scenario | Policy Limit | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :----------- | :------------ | :---------------- | | 300 basis point downward parallel shock | (30.0)% | 2.5% | 4.8% | | 200 basis point downward parallel shift | (10.0)% | 1.5% | 2.3% | | 200 basis point upward parallel shift | (10.0)% | (1.6)% | (3.2)% | | 300 basis point upward parallel shock | (30.0)% | (4.8)% | (9.2)% | - As of June 30, 2025, the simulation results were within board-established policy limits for all scenarios, indicating the Company's balance sheet is moderately liability sensitive[246][247] Item 4 Controls and Procedures Confirms the effectiveness of disclosure controls and procedures as of June 30, 2025, with no significant changes to internal control - The Company's disclosure controls and procedures were deemed effective as of June 30, 2025, ensuring timely and accurate reporting of required information[251] - There have been no significant changes to the Company's internal control over financial reporting during the period covered by this report[252] Part II Other Information Item 1 Legal Proceedings No material pending legal proceedings against the Company or its subsidiaries, beyond ordinary routine litigation - There are no material pending legal proceedings to which the Company or its subsidiaries are a party, beyond ordinary routine litigation[255] Item 1A Risk Factors No material changes to risk factors since those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have occurred in the risk factors applicable to the Company since those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[256] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the Company's share repurchase program during the first six months of 2025 - No shares were repurchased under the Company's share repurchase program during the first six months of 2025[257] - The program, approved on May 19, 2022, authorizes the repurchase of up to 1,500,000 shares of outstanding common stock and does not have an expiration date[257] Item 3 Defaults Upon Senior Securities No defaults upon senior securities occurred during the reported period - There were no defaults upon senior securities[257] Item 4 Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[257] Item 5 Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025 - No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025[257] Item 6 Exhibits Lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL interactive data files - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2) and Inline XBRL interactive data files for the consolidated financial statements (101, 104)[259]