# QCR HOLDINGS INC (QCRH) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from QCR HOLDINGS INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/906465/000155837022003441/qcrh-20211231x10k.htm
Accession: 0001558370-22-003441
Filing date: 2022-03-11
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/QCRH/
All MD&A years: /company/QCRH/mda/
Next year: /company/QCRH/mda/fy2022/ (FY 2022)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section generally discusses 2021 and 2020 items and annual comparison between our fiscal 2021 performance compared to our fiscal 2020 performance.  A detailed review of our fiscal 2020 performance compared to our fiscal 2019 performance can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, 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.

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-eight years, the Company has grown to include four banking subsidiaries and a number of nonbanking subsidiaries. As of December 31, 2021, the Company had $6.1 billion in consolidated assets, including $4.7 billion in total loans/leases, and $4.9 billion in deposits. The financial results of acquired/merged entities for the periods since their acquisition/merger are included in this report. Further information related to acquired/merged entities has been presented in the Annual Reports previously filed with the SEC corresponding to the year of each acquisition/merger.

IMPACT OF COVID-19

The progression of the COVID-19 pandemic in the United States has not had a materially adverse impact on the Company’s financial condition and results of operations as of and for the year ended December 31, 2021, but continues to have a complex and significant adverse impact on the economy, the banking industry and the Company in future fiscal periods, all subject to a high degree of uncertainty.

Effects on the Company’s Market Areas

The Company offers commercial and consumer banking products and services primarily in Iowa, Missouri and Illinois.  Each of these three states has recently taken different steps to reopen since COVID-19 thrust the country into lockdown starting in March 2020. The continuation and scope of re-openings in each jurisdiction are subject to change, delay and setbacks based on ongoing regional monitoring of the pandemic.

Effects on the Company’s Business

The extent to which COVID-19 will continue to affect business operations, financial condition, credit quality, and results of operations will depend on future developments that cannot be predicted, including the duration and scope of the pandemic.  The direct or indirect impact on employees, customers, counterparties, and service providers, as well as other market participants, is likely to continue through 2022 as the world attempts to gain control over the virus and emerging variants. The impact that the virus continues to have on global markets, the economy, business restrictions, and employment is ongoing as a projected return to pre-pandemic operating conditions is unknown.

​

The Company currently expects that the economic impact from COVID-19 will continue for some time and could have a material and adverse impact on our business and result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the global economic impact of the COVID-19 pandemic, including the availability of credit, adverse impacts on liquidity, and any recession that has occurred or may occur in the future.  There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, nor are there historical indicators to rely on in terms of how markets will react, and as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.

​

CRITICAL ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

The Company’s financial statements are prepared in accordance with GAAP. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial

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effects of transactions and events that have already occurred.  The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance, impairment of goodwill and the fair value of financial instruments. A more detailed discussion of these critical accounting policies and estimates can be found in Note 1 to the Consolidated Financial Statements.

Based on its consideration of accounting policies and estimates that involve the most complex and subjective decisions and assessments, management has identified the following as critical accounting policies and estimates:

GOODWILL

The Company records all assets and liabilities purchased in an acquisition, including intangibles, at fair value. Goodwill is not amortized but is subject, at a minimum, to annual tests for impairment. In certain situations, interim impairment tests may be required if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

​

The initial recognition of goodwill and subsequent impairment analysis requires us to make subjective judgments concerning estimates of how the acquired assets will perform in the future using valuation methods, which may include using the current market price of stock or discounted cash flow analyses. Additionally, estimated cash flows may extend beyond five years and, by their nature, are difficult to determine over an extended timeframe. Events and factors that may significantly affect the estimates include, among others, competitive forces, customer behaviors, changes in revenue growth trends, cost structures, technology, changes in discount rates and market conditions. In determining the reasonableness of cash flow estimates, the Company reviews historical performance of the underlying assets or similar assets in an effort to assess and validate assumptions utilized in its estimates.

​

In assessing the fair value of reporting units, we may consider the stage of the current business cycle and potential changes in market conditions. 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. 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. The determination of a reporting unit’s capital allocation requires judgment and considers many factors, including the regulatory capital regulations and capital characteristics of comparably situated companies in relevant industry sectors. In certain circumstances, the Company will engage a third-party to independently validate our assessment of the fair value of our reporting units.

​

The Company assesses the impairment of goodwill whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following:

​

[[GREPCENT_TABLE]]
[["","\u25cf","Significant under-performance relative to expected historical or projected future operating results;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Significant changes in the manner of use of the acquired assets or the strategy for the overall business;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Significant negative industry or economic trends;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Significant decline in the market price for our common stock over a sustained period; or"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Market capitalization relative to net book value."]]
[[/GREPCENT_TABLE]]

As of November 30, 2021 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.  Additionally, CECL required an allowance for OBS exposures and HTM securities to be calculated using a current expected credit loss methodology.

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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.  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.

​

The Company believes that as a result of the COVID-19 pandemic, losses have been incurred that are not yet known and this could have an adverse effect in the future on the Company’s ACL in the future.  Disruption to the Company’s customers could result in increased loan delinquencies and defaults resulting in an increase in quantitative allocations.  Management believes individually analyzed loans may increase in the future as a result of the COVID-19 pandemic, having a direct impact on the specific component of the ACL.

The Company also estimates expected credit losses over the contractual term of the loan for the unfunded portion of the loan commitment that is not unconditionally cancellable by the Company.  Management uses an estimated average utilization rate to determine the exposure of default.  The allowance for OBS exposures is calculated using probability of default and loss given default using the same segmentation and qualitative factors used for loans and leases.

Although management believes the level of the ACL as of December 31, 2021 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. A framework has been established for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and includes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the measurement date. The Company estimates the fair value of financial instruments using a variety of valuation methods. When financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value and are classified as Level 1. When financial instruments, such as investment securities and derivatives, are not actively traded the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar instruments where a price for the identical instrument is not observable. 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. 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. For available for sale securities, unrealized gains and losses are reported as a component of stockholders’ equity, net of the related tax effect. 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 $98.9 million for the year ended December 31, 2021, and diluted EPS of $6.20. For the same period in 2020 the Company reported net income of $60.6 million and diluted EPS of $3.80.

The year ended December 31, 2021 was highlighted by several significant items:

[[GREPCENT_TABLE]]
[["","\u25cf","Record annual net income of $98.9 million, or $6.20 per diluted share;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Reported NIM at 3.30%;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Noninterest income of $100.4 million for the year;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Core deposit growth of 7.2% for the year*;"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","Loan and lease growth of 16.9% for the year, excluding PPP loans (non-GAAP);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","ACL to total loans/leases of 1.69%, excluding PPP loans (non-GAAP); and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Nonperforming assets to total assets improved by 80% for the full year and now represent only 0.05% of total assets at December 31, 2021."]]
[[/GREPCENT_TABLE]]

​

* Core deposits are total deposits less brokered deposits

​

Following is a table that represents the various net income measurements for the years ended December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended December 31,"],["\u200b","\u200b","2021","\u200b","2020","\u200b"],["\u200b","(dollars in thousands, except per share data)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net income","$","98,905","\u200b","$","60,582","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Diluted earnings per common share","$","6.20","\u200b","$","3.80","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Weighted average common and common equivalent shares outstanding","","15,944,708","\u200b","","15,952,637","\u200b"]]
[[/GREPCENT_TABLE]]

​

The Company reported adjusted net income (non-GAAP) of $100.0 million, with adjusted diluted EPS of $6.27. See section titled “GAAP to Non-GAAP Reconciliations” for additional information. Adjusted net income for the year excludes a number of non-recurring items, after-tax, most significantly:

[[GREPCENT_TABLE]]
[["","\u25cf","$135 thousand of mark to market gains on unhedged derivatives;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$493 thousand of acquisition costs; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$734 thousand of separation agreement expense."]]
[[/GREPCENT_TABLE]]

​

Following is a table that represents the major income and expense categories.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["\u200b","","2021","","2020"],["\u200b","\u200b","(dollars are in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net interest income","\u200b","$","178,233","\u200b","$","166,950","\u200b"],["Provision for credit losses","\u200b","","3,486","\u200b","","55,704","\u200b"],["Noninterest income","\u200b","","100,422","\u200b","","113,798","\u200b"],["Noninterest expense","\u200b","","153,702","\u200b","","151,755","\u200b"],["Federal and state income tax expense","\u200b","","22,562","\u200b","","12,707","\u200b"],["Net income","\u200b","$","98,905","\u200b","$","60,582","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

The following are some noteworthy developments in the Company’s financial results:

[[GREPCENT_TABLE]]
[["","\u25cf","Net interest income grew $11.3 million, or 6.8%, in 2021 compared to the prior year. The increase in 2021 was primarily due to strong loan/lease growth funded by core deposit growth while maintaining modest excess liquidity. The Company had success moving cost of funds lower which helped to drive NIM expansion of 4% compared to the fourth quarter of 2020."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Provision expense decreased $52.2 million when comparing 2021 to 2020. The decrease in 2021 was primarily due to continued strong credit quality, a reduction in NPLs and improving economic conditions. Additionally, the provision amounts for prior years were calculated under different accounting standards due to the adoption of CECL on January 1, 2021. See the \u201cProvision for Credit Losses\u201d section of this report for additional details."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Noninterest income decreased $13.4 million, or 11.8%, when compared to the prior year. The decrease in 2021 was primarily attributable to lower swap fee income/capital market revenue."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Noninterest expense increased $1.9 million, or 1.3%, in 2021 compared to the prior year, primarily due to an increase in salaries and benefits expense, a write-off of certain fixed assets which resulted in a $1.4 million loss on disposal of fixed assets and increase in advertising and marketing expense. In addition, there was a $1.1 million increase in net income from and gain/losses on operations of other real estate due to the sale of one large OREO property at a gain."]]
[[/GREPCENT_TABLE]]

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STRATEGIC FINANCIAL METRICS

The Company has established strategic financial metrics by which it manages its business and measures its performance. The goals are periodically updated to reflect business developments. While the Company is determined to work prudently to achieve these goals, there is no assurance that they will be met. Moreover, the Company’s ability to achieve these goals will be affected by the factors discussed under “Forward Looking Statements” as well as the factors detailed in the “Risk Factors” section included under Item 1A. of Part I of this Annual Report on Form 10-K. The Company’s strategic financial metrics are as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","Generate organic loan and lease growth of 9% per year, funded by core deposits;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Grow fee-based income by at least 6% per year; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Limit our annual operating expense growth to 5% per year."]]
[[/GREPCENT_TABLE]]

The following table shows the evaluation of the Company’s strategic financial metrics:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","For the Year Ending"],["Strategic Financial Metric*","","Key Metric","","Target","\u200b","December 31, 2021","December 31, 2020"],["Loan and lease growth organically **","","Loans and leases growth",""," 9% annually","\u200b","\u200b","16.9","%","\u200b","7.8","%"],["Fee income growth","","Fee income growth",""," 6% annually","\u200b","\u200b","(10.1)","%","\u200b","67.8","%"],["Improve operational efficiencies and hold noninterest expense growth","\u200b","Noninterest expense growth",""," 5% annually","\u200b","\u200b","4.0","%","\u200b","1.5","%"]]
[[/GREPCENT_TABLE]]

* The calculations provided exclude non-core noninterest income and noninterest expense.

** Loans and leases growth excludes PPP loans.

It should be noted that these initiatives are long-term targets.

STRATEGIC DEVELOPMENTS

The Company took the following actions in 2021 to support our corporate strategy and further the strategic financial metrics shown above:

[[GREPCENT_TABLE]]
[["","\u25cf","The Company grew loans and leases organically in 2021 by 16.9%, excluding PPP loans (non-GAAP), driven by both our specialty finance group and our traditional lending and leasing business."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Correspondent banking continues to be a core line of business for the Company. The Company is competitively positioned with experienced staff, software systems and processes to continue growing in the four states it currently serves \u2013 Iowa, Wisconsin, Missouri and Illinois. The Company acts as the correspondent bank for 187 downstream banks with total average noninterest bearing deposits of $349.0 million and total average interest bearing deposits of $305.3 million for 2021. This line of business provides a strong source of noninterest bearing and interest bearing deposits, fee income, high-quality loan participations and bank stock loans."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","The Company is focused on executing interest rate swaps on select commercial loans, including LIHTC permanent loans. 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 Company will continue to review opportunities to execute these swaps at all of its subsidiary banks, as the circumstances are appropriate for the borrower and the Company. Future levels of swap fees are somewhat dependent upon prevailing interest rates. Swap fee income/capital markets revenue totaled $61.0 million in 2021 as compared to $74.8 million in 2020. Swap fee income relative to the increase in notional amount of the non-hedging interest rate swap contracts was 11.5% in 2021 and 10.6% in 2020."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","In recent years, the Company has been successful in expanding its wealth management client base. Trust department fees continue to be a significant contributor to noninterest income. Assets under management increased by $1.0 billion in 2021. There were 321 new relationships added in 2021 totaling $450.2 million of new assets under management. 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 department fees are determined based on the value of the investments within the fully-managed trusts. The Company expects trust"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","department fees to be negatively impacted during periods of significantly lower market valuations and positively impacted during periods of significantly higher market valuations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Noninterest expense in 2021 totaled $153.7 million as compared to $151.8 million in 2020. Salaries and employee benefits expense increased 5% in 2021. This increase was primarily related to increased performance-based incentive compensation driven by strong financial results. Advertising and marketing expenses increased 31% primarily due to the return to more normal operations during 2021 after improvements in the general environment due to COVID-19 as compared to 2020. In addition, there were $624 thousand of acquisition costs in 2021 related to the pending acquisition of GFED as discussed in the Company\u2019s financial statements and the accompanying notes presented elsewhere in this Annual Report on Form 10-K. Net cost of (income from) and gains/losses on operations of other real estate totaled $1.4 million for 2021 due primarily to the sale of one commercial OREO property at a gain. There were no losses on liability extinguishment in 2021 as compared to $3.9 million in 2020 from the prepayment of certain FHLB advances. Other noninterest expense increased 44% in 2021 due primarily to the write-off of certain fixed assets which resulted in a $1.4 million loss on disposal of fixed assets."]]
[[/GREPCENT_TABLE]]

GAAP TO NON-GAAP RECONCILIATIONS

The following table presents certain non-GAAP financial measures related to the “TCE/TA ratio”, “adjusted net income”, “adjusted EPS”, “adjusted ROAA”, “NIM (TEY)”, “adjusted NIM”, “efficiency ratio”, “ACL to total loans and leases excluding PPP loans” and “loan growth excluding PPP loans”. In compliance with applicable rules of the SEC, all non-GAAP measures are reconciled to the most directly comparable GAAP measure, as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","TCE/TA ratio (non-GAAP) is reconciled to stockholders\u2019 equity and total assets;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Adjusted net income, adjusted EPS and adjusted ROAA (all non-GAAP measures) are reconciled to net income;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","NIM (TEY) (non-GAAP) and adjusted NIM (non-GAAP) are reconciled to NIM;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Efficiency ratio (non-GAAP) is reconciled to noninterest expense, net interest income and noninterest income; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","ACL to total loans and leases excluding PPP loans and loan growth excluding PPP loans (all non-GAAP measures) are reconciled to ACL and total loans and leases."]]
[[/GREPCENT_TABLE]]

The TCE/TA non-GAAP ratio has been a focus for our investors and management believes that this ratio may assist investors in analyzing the Company’s capital position without regard to the effects of intangible assets.  

The following tables also include several “adjusted” non-GAAP measurements of financial performance.  The Company’s management believes that these measures are important to investors as they exclude non-recurring income and expense items; therefore, they provide a better comparison for analysis and may provide a better indicator of future performance.

NIM (TEY) is a financial measure that the Company’s management utilizes to take into account the tax benefit associated with certain loans and securities. It is standard industry practice to measure net interest margin using tax-equivalent measures.  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.

ACL to total loans and leases, excluding PPP loans, and loan growth, excluding PPP loans, are ratios that management utilizes to compare the Company to its peers.  The Company’s management believes these financial measures are important to investors as total loans and leases for the years ended December 31, 2021 and 2020 were materially higher due to the addition of PPP loans which are guaranteed by the government and therefore do not necessitate an increase in ACL.  By excluding the PPP loans, the investor is provided a better comparison to prior years for analysis.

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

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limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","As of"],["GAAP TO NON-GAAP","","","December 31,","","December 31,"],["RECONCILIATIONS","\u200b","\u200b","2021","\u200b","2020"],["\u200b","","\u200b","(dollars in thousands, except per share data)","\u200b"],["TCE/TA RATIO","","\u200b","\u200b","","","\u200b","","\u200b"],["Stockholders' equity (GAAP)","\u200b","\u200b","$","677,010","\u200b","$","593,793","\u200b"],["Less: Intangible assets","\u200b","\u200b","","83,415","\u200b","","85,447","\u200b"],["TCE (non-GAAP)","\u200b","\u200b","$","593,595","\u200b","$","508,346","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total assets (GAAP)","\u200b","\u200b","$","6,096,132","\u200b","$","5,705,043","\u200b"],["Less: Intangible assets","\u200b","\u200b","","83,415","\u200b","","85,447","\u200b"],["TA (non-GAAP)","\u200b","\u200b","$","6,012,717","\u200b","$","5,619,596","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["TCE/TA ratio (non-GAAP)","\u200b","\u200b","","9.87","%","","9.05","%"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended"],["\u200b","\u200b","December 31,","","December 31,"],["\u200b","","2021","","2020"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["ADJUSTED NET INCOME","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net income (GAAP)","\u200b","$","98,905","\u200b","$","60,582","\u200b"],["Less non-core items (post-tax) (*):","\u200b","","","\u200b","","","\u200b"],["Income:","\u200b","","","\u200b","","","\u200b"],["Securities gains (losses), net","\u200b","$","(69)","\u200b","$","1,962","\u200b"],["Mark to market gains on unhedged derivatives, net","\u200b","\u200b","135","\u200b","\u200b","\u2014","\u200b"],["Gain on sale of loan","\u200b","\u200b","28","\u200b","\u200b","\u2014","\u200b"],["Loss on syndicated loan","\u200b","\u200b","\u2014","\u200b","\u200b","(210)","\u200b"],["Total non-core income (non-GAAP)","\u200b","$","94","\u200b","$","1,752","\u200b"],["Expense:","\u200b","","","\u200b","","","\u200b"],["Losses on liability extinguishment","\u200b","$","\u2014","\u200b","$","3,087","\u200b"],["Goodwill impairment","\u200b","\u200b","\u2014","\u200b","\u200b","500","\u200b"],["Disposition costs","\u200b","\u200b","10","\u200b","\u200b","545","\u200b"],["Acquisition costs","\u200b","","493","\u200b","","\u2014","\u200b"],["Post-acquisition compensation, transition and integration costs","\u200b","","\u2014","\u200b","","169","\u200b"],["Separation agreement","\u200b","","734","\u200b","","\u2014","\u200b"],["Loss on sale of subsidiary","\u200b","","\u2014","\u200b","","110","\u200b"],["Total non-core expense (non-GAAP)","\u200b","$","1,237","\u200b","$","4,411","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted net income (non-GAAP)","\u200b","$","100,048","\u200b","$","63,241","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["ADJUSTED EPS","\u200b","","","\u200b","","","\u200b"],["Adjusted net income (non-GAAP) (from above)","\u200b","$","100,048","\u200b","$","63,241","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Weighted average common shares outstanding","\u200b","","15,708,744","\u200b","","15,771,650","\u200b"],["Weighted average common and common equivalent shares outstanding","\u200b","","15,944,708","\u200b","","15,952,637","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted EPS (non-GAAP):","\u200b","","","\u200b","","","\u200b"],["Basic","\u200b","$","6.37","\u200b","$","4.01","\u200b"],["Diluted","\u200b","$","6.27","\u200b","$","3.96","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["ADJUSTED ROAA","\u200b","","","\u200b","","","\u200b"],["Adjusted net income (non-GAAP) (from above)","\u200b","$","100,048","\u200b","$","63,241","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average Assets","\u200b","$","5,890,042","\u200b","$","5,604,074","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted ROAA (non-GAAP)","\u200b","","1.70","%","","1.13","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["ADJUSTED NIM (TEY)*","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b"],["Net interest income (GAAP)","\u200b","$","178,233","\u200b","$","166,950","\u200b"],["Plus: Tax equivalent adjustment","\u200b","","10,211","\u200b","","8,216","\u200b"],["Net interest income - 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[[/GREPCENT_TABLE]]

​

*    Nonrecurring items (after-tax) are calculated using an estimated effective tax rate of 21% with the exception of goodwill impairment which is not deductible for tax and gain on sale of subsidiary which has an estimated effective tax rate of 30.5%.

36

Table of Contents

NET INTEREST INCOME AND MARGIN (TAX EQUIVALENT BASIS)

Net interest income, on a tax equivalent basis (non-GAAP), increased 8% to $188.4 million for the year ended December 31, 2021, as compared to the prior year. Excluding the tax equivalent adjustments, net interest income increased 7% for the year ended December 31, 2021 compared to the prior year. Net interest income improved due to several factors:

[[GREPCENT_TABLE]]
[["","\u25cf","Strong organic loan and deposit growth;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Significant growth and forgiveness of PPP loans in 2021 and 2020;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Reduction in higher cost wholesale funds with strong core deposit growth including noninterest bearing deposits; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Reduction in cost of funds."]]
[[/GREPCENT_TABLE]]

A comparison of yields, spread and margin on a tax equivalent and GAAP basis is as follows:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b"],["\u200b","GAAP"],["\u200b","For the Year Ended"],["\u200b","December 31,"],["\u200b","2020"],["Average Yield on Interest-Earning Assets","\u200b","3.97","%"],["Average Cost of Interest-Bearing Liabilities","\u200b","0.63","%"],["Net Interest Spread","\u200b","3.34","%"],["NIM (TEY) (Non-GAAP)","\u200b","3.28","%"],["NIM Excluding Acquisition Accounting Net Accretion","\u200b","3.27","%"]]
[[/GREPCENT_TABLE]]

Acquisition accounting net accretion can fluctuate mostly depending on the payoff activity of the acquired loans. 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.  A comparison of acquisition accounting net accretion included in NIM is as follows:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","For the Year Ended"],["\u200b","\u200b","\u200b","\u200b","December 31,","\u200b","\u200b","December 31,"],["\u200b","","\u200b","","2021","","\u200b","2020"],["\u200b","\u200b","\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Acquisition Accounting Net Accretion in NIM","\u200b","\u200b","$","1,340","\u200b","$","3,271"]]
[[/GREPCENT_TABLE]]

​

The Company's management closely monitors and manages NIM. 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. 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:

[[GREPCENT_TABLE]]
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liabilities","$","3,690,243","\u200b","","21,923","\u200b","","0.59","\u200b","\u200b","$","3,706,000","\u200b","","31,423","\u200b","0.85","\u200b","\u200b","$","3,648,304","\u200b","","60,517","\u200b","1.66","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Noninterest-bearing demand deposits","$","1,269,467","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","1,052,375","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","817,473","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other noninterest-bearing liabilities","","276,457","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","279,459","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","129,794","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total liabilities","$","5,236,167","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","5,037,834","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","4,595,571","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Stockholders' equity","","637,190","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","566,240","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","507,409","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total liabilities and stockholders' equity","$","5,873,357","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","5,604,074","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","5,102,980","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net interest income","\u200b","\u200b","\u200b","$","188,444","\u200b","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b","$","175,166","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b","$","162,286","\u200b","\u200b","\u200b"],["Net interest spread","","\u200b","\u200b","","\u200b","\u200b","","3.31","%","\u200b","","\u200b","\u200b","","\u200b","\u200b","3.21","%","\u200b","","\u200b","\u200b","","\u200b","\u200b","3.08","%"],["Net interest margin","","\u200b","\u200b","","\u200b","\u200b","","3.30","%","\u200b","","\u200b","\u200b","","\u200b","\u200b","3.28","%","\u200b","","\u200b","\u200b","","\u200b","\u200b","3.31","%"],["Net interest margin (TEY)(Non-GAAP)","","\u200b","\u200b","","\u200b","\u200b","","3.49","%","\u200b","","\u200b","\u200b","","\u200b","\u200b","3.44","%","\u200b","","\u200b","\u200b","","\u200b","\u200b","3.45","%"],["Adjusted net interest margin (TEY)(Non-GAAP)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","3.47","%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","3.38","%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","3.36","%"],["Ratio of average interest-earning assets to average interest-bearing liabilities","","146.30","%","","\u200b","\u200b","","\u200b","\u200b","\u200b","","137.23","%","","\u200b","\u200b","\u200b","\u200b","\u200b","","128.92","%","","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["(1)","Interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 21% tax rate."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance."]]
[[/GREPCENT_TABLE]]

​

38

Table of Contents

The Company’s components of change in net interest income are presented in the following table:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the years ended December 31, 2021 and 2020"],["\u200b","\u200b","Inc./(Dec.)","\u200b","Components","\u200b","Inc./(Dec.)","\u200b","Components"],["\u200b","\u200b","from","\u200b","of Change (1)","\u200b","from","\u200b","of Change (1)"],["\u200b","","Prior Year","","Rate","","Volume","","Prior Year","","Rate","","Volume"],["\u200b","\u200b","2021 vs. 2020","\u200b","2020 vs. 2019"],["\u200b","\u200b","(dollars in thousands)","\u200b","(dollars in thousands)"],["INTEREST INCOME","\u200b","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Federal funds sold","\u200b","$","(17)","\u200b","$","(14)","\u200b","$","(3)","\u200b","$","(184)","\u200b","$","(88)","\u200b","$","(96)"],["Interest-bearing deposits at financial institutions","\u200b","","(496)","\u200b","","(154)","\u200b","","(342)","\u200b","","(3,241)","\u200b","","(4,985)","\u200b","","1,744"],["Investment securities (2)","\u200b","","2,731","\u200b","","(576)","\u200b","","3,307","\u200b","","2,622","\u200b","","(382)","\u200b","","3,004"],["Restricted investment securities","\u200b","","(81)","\u200b","","(35)","\u200b","","(46)","\u200b","","(143)","\u200b","","(83)","\u200b","","(60)"],["Gross loans/leases receivable (2) (3)","\u200b","","1,641","\u200b","","(16,368)","\u200b","","18,009","\u200b","","(15,268)","\u200b","","(23,679)","\u200b","","8,411"],["Total change in interest income","\u200b","$","3,778","\u200b","$","(17,147)","\u200b","$","20,925","\u200b","$","(16,214)","\u200b","$","(29,217)","\u200b","$","13,003"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["INTEREST EXPENSE","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Interest-bearing deposits","\u200b","$","(3,359)","\u200b","$","(4,422)","\u200b","$","1,063","\u200b","$","(17,918)","\u200b","$","(21,725)","\u200b","$","3,807"],["Time deposits","\u200b","","(6,610)","\u200b","","(3,375)","\u200b","","(3,235)","\u200b","","(9,688)","\u200b","","(4,462)","\u200b","","(5,226)"],["Short-term borrowings","\u200b","","(79)","\u200b","","(41)","\u200b","","(38)","\u200b","","(279)","\u200b","","(372)","\u200b","","93"],["Federal Home Loan Bank advances","\u200b","","(1,017)","\u200b","","(546)","\u200b","","(471)","\u200b","","(1,808)","\u200b","","(1,071)","\u200b","","(737)"],["Other borrowings","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","(512)","\u200b","","(256)","\u200b","","(256)"],["Subordinated notes","\u200b","\u200b","1,575","\u200b","\u200b","\u2014","\u200b","\u200b","1,575","\u200b","\u200b","1,133","\u200b","\u200b","\u2014","\u200b","\u200b","1,133"],["Junior subordinated debentures","\u200b","","(10)","\u200b","","\u2014","\u200b","","(10)","\u200b","","(22)","\u200b","","\u2014","\u200b","","(22)"],["Total change in interest expense","\u200b","$","(9,500)","\u200b","$","(8,384)","\u200b","$","(1,116)","\u200b","$","(29,094)","\u200b","$","(27,886)","\u200b","$","(1,208)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total change in net interest income","\u200b","$","13,278","\u200b","$","(8,763)","\u200b","$","22,041","\u200b","$","12,880","\u200b","$","(1,331)","\u200b","$","14,211"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The column \"Inc/(Dec) from Prior Year\" is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates. The variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 21% tax rate."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance."]]
[[/GREPCENT_TABLE]]

The Company’s operating results are also impacted by various sources of noninterest income, including trust department 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. Offsetting these items, the Company incurs noninterest expenses, which include salaries and employee benefits, occupancy and equipment expense, professional and data processing fees, FDIC and other insurance expense, loan/lease expense and other administrative expenses.

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, 2021 and 2020

INTEREST INCOME

For 2021, interest income increased $1.8 million, or 1%, primarily due to an increase in the volume of average securities and average loans/leases partially offset by a decline in yields on average loans/leases and average securities. In total, the Company’s average interest-earning assets increased $313.2 million, or 6%, year-over-year. Average loans/leases grew 11%, while average securities increased 12%.

The Company intends to continue to grow quality loans and leases as well as diversify the securities portfolio to maximize yield while minimizing credit and interest rate risk.

INTEREST EXPENSE

Comparing 2021 to 2020, interest expense decreased $9.5 million, or 30%, year-over-year. The Company has grown organically at a significant pace over the past several years. Loan growth has been funded by core deposits and has also allowed the Company to prepay higher cost brokered deposits and FHLB advances.  In the second half of 2020 and the full year of 2021, the Company’s cost of funds declined in conjunction with the declining rate environment.  The

39

Table of Contents

Company’s cost of funds was 0.59% for the year ending December 31, 2021, which was down from 0.85% for the year ending December 31, 2020.

The Company’s management intends to continue to shift the mix of funding from wholesale funds to core deposits, including noninterest-bearing deposits. Continuing this trend is expected to strengthen the Company’s franchise value, reduce funding costs and increase fee income opportunities through deposit service charges.

PROVISION FOR CREDIT LOSSES

The ACL is established through provision for credit losses expense to provide an estimated ACL.  The following table shows the components for the provision for credit losses for the years ended December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended"],["\u200b","\u200b","December 31,","\u200b","December 31,"],["\u200b","\u200b","2021","","2020"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Provision for credit losses - loans and leases (1)","\u200b","$","5,702","\u200b","$","55,704"],["Provision for credit losses - off-balance sheet exposures (2)","\u200b","\u200b","(2,231)","\u200b","\u200b","N/A"],["Provision for credit losses - held to maturity securities (3)","\u200b","","15","\u200b","","N/A"],["Total provision for credit losses","\u200b","$","3,486","\u200b","$","55,704"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","(1)","2021 and years forward are evaluated using ASU 2016-13 and years prior to 2021 were calculated under an incurred loss model."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Prior to adoption of ASU 2016-13 on January 1, 2021, there were no requirements to record provision for off-balance sheet exposures."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(3)","Prior to the adoption of ASU 2016-13 on January 1, 2021, there was no requirement to record provision for credit losses for held to maturity securities."]]
[[/GREPCENT_TABLE]]

The Company’s total provision for credit losses was $3.5 million for 2021, a decrease of $52.2 million from 2020. The adoption of ASU 2016-13 now requires an allowance on HTM debt securities and OBS exposures, specifically unfunded commitments.  For the year ended December 31, 2021, the provision related to OBS was negative due to the decrease in the balance of those OBS exposures with an increase in line of credit usage. The decrease in provision on loans and leases was substantially driven by decreased qualitative allocations in response to improving economic conditions related to the effects of COVID-19.

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

The Company had an ACL on loans/leases of 1.68% of total gross loans/leases at December 31, 2021, compared to 1.98% of total gross loans/leases at December 31, 2020.  Management evaluates the allowance needed on the acquired loans factoring in the remaining discount, which was $1.5 million and $3.1 million at December 31, 2021 and 2020, respectively.

The following table represents the current balance of loans to customers with concentrations in industries that management has deemed to have a higher risk of being impacted by COVID-19:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","As of December 31,"],["\u200b","2021","\u200b"],["\u200b","\u200b","","% of Total Gross"],["\u200b","Amount","","Loans and Leases","\u200b"],["\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Hotels","$","76,628","\u200b","1.64","%"],["Arts, Entertainment and Recreation","\u200b","21,918","\u200b","0.47","\u200b"],["Restaurants (full service and limited service only)","\u200b","21,162","\u200b","0.45","\u200b"],["\u200b","$","119,708","\u200b","2.56","%"]]
[[/GREPCENT_TABLE]]

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

40

Table of Contents

NONINTEREST INCOME

The following tables set forth the various categories of noninterest income for the years ended December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","December 31,","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2021","","2020","","$ Change","","% Change"],["\u200b","\u200b","(dollars in thousands)","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Trust department fees","\u200b","$","11,206","\u200b","$","9,207","\u200b","$","1,999","","21.7","%"],["Investment advisory and management fees","\u200b","","4,080","\u200b","","5,318","\u200b","","(1,238)","","(23.3)","\u200b"],["Deposit service fees","\u200b","","6,132","\u200b","","6,041","\u200b","","91","","1.5","\u200b"],["Gains on sales of residential real estate loans, net","\u200b","","4,397","\u200b","","4,680","\u200b","","(283)","","(6.0)","\u200b"],["Gains on sales of government guaranteed portions of loans, net","\u200b","","227","\u200b","","224","\u200b","","3","","1.3","\u200b"],["Swap fee income/capital markets revenue","\u200b","","60,992","\u200b","","74,821","\u200b","","(13,829)","","(18.5)","\u200b"],["Securities gains (losses), net","\u200b","","(88)","\u200b","","2,484","\u200b","","(2,572)","","(103.5)","\u200b"],["Earnings on bank-owned life insurance","\u200b","","1,838","\u200b","","1,904","\u200b","","(66)","","(3.5)","\u200b"],["Debit card fees","\u200b","","4,216","\u200b","","3,402","\u200b","","814","","23.9","\u200b"],["Correspondent banking fees","\u200b","","1,114","\u200b","","903","\u200b","","211","","23.4","\u200b"],["Other","\u200b","","6,308","\u200b","","4,814","\u200b","","1,494","","31.0","\u200b"],["Total noninterest income","\u200b","$","100,422","\u200b","$","113,798","\u200b","$","(13,376)","","(11.8)","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

In recent years, the Company has been successful in expanding its wealth management customer base. Trust department fees continue to be a significant contributor to noninterest income. Assets under management increased by $1.0 billion in 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 department fees are determined based on the value of the investments within the fully managed trusts. Trust department fees increased 22% in 2021 as compared to 2020.  The Company expects trust department fees to be negatively impacted during periods of significantly lower market valuations and positively impacted during periods of significantly higher market valuation.  

Investment advisory and management fees decreased 23% in 2021 as compared to 2020. Similar to trust department 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.  The sale of the Bates Companies in August 2020 negatively impacted the fee income from this line of business compared to 2020.  Excluding the impact of the Bates Companies sale, investment advisory and management fees increased 22% when comparing 2021 to 2020.

Deposit service fees increased 2% in 2021 as compared to 2020. The increase was primarily due to higher transactional volume with improving current economic conditions and new accounts. The Company continues to emphasize shifting the mix of deposits from brokered and retail time deposits to non-maturity demand deposits across all its markets. With this continuing shift in mix, the Company has increased the number of demand deposit accounts, which tend to be lower in interest cost and higher in service fees. The Company plans to continue this shift in mix and to further focus on growing deposit service fees.

Gains on sales of residential real estate loans, net, decreased 6% in 2021 as compared to 2020. The decrease was primarily due to decreased residential real estate purchases impacted by availability and the refinancing of residential real estate loans as volumes peaked in 2020 when rates declined.

The Company’s gains on the sale of government-guaranteed portions of loans for 2021 increased 1% as compared to 2020. Over the past few years, competitors have been offering SBA and USDA loan candidates traditional financing without such a guarantee and the Company is not willing to relax its structure for those lending opportunities.

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.  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 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 $61.0 million in 2021 as compared to $74.8 million in 2020. Swap fee income relative to the increase in notional amount of the

41

Table of Contents

non-hedging interest rate swap contracts was 11.5% in 2021 and 10.6% in 2020.  In the traditional commercial portfolio, the pricing is more competitive and the duration is shorter as compared to the LIHTC permanent loans.  The mix of loans with interest rate swaps continued 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. 

​

Securities losses, net of gains totaled $88 thousand in 2021 as compared to $2.5 million in securities gains, net of losses in 2020. In 2020, management sold select overvalued securities and utilized the gains to offset the cost of prepaying certain high-cost wholesale funds.

Earnings on BOLI decreased 4% in 2021. There were no purchases of BOLI in 2021 or 2020. Yields on BOLI (based on a simple average and excluding the impact of the federal income tax exemption) were 2.94% for 2021 and 2.87% for 2020. Notably, a small portion of the Company’s BOLI is variable rate whereby the returns are determined by the performance of the equity market. 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 24% in 2021. These fees improved alongside improving economic conditions and more normalized spending patterns. 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 a deposit product with a higher interest rate that incentivizes debit card activity.

Correspondent banking fees increased 23% in 2021. The fees are generally included in the earnings credit rates which incent the correspondent bank to maintain higher levels of noninterest bearing deposits to offset the correspondent banking fees.  Management will continue to evaluate earnings credit rates and the resulting impact on deposit balances and fees while balancing the ability to grow market share. 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 187 banks in Iowa, Illinois, Missouri and Wisconsin.

Other noninterest income increased 31% in 2021 primarily due to equity investment income and gains on disposal of leased assets.

NONINTEREST EXPENSES

The following tables set forth the various categories of noninterest expenses for the years ended December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","December 31,","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2021","","2020","","$ Change","","% Change"],["\u200b","\u200b","(dollars in thousands)","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Salaries and employee benefits","\u200b","$","100,907","\u200b","$","96,268","\u200b","$","4,639","","4.8","%"],["Occupancy and equipment expense","\u200b","","15,918","\u200b","","16,504","\u200b","","(586)","","(3.6)","\u200b"],["Professional and data processing fees","\u200b","","14,579","\u200b","","14,644","\u200b","","(65)","","(0.4)","\u200b"],["Acquisition costs","\u200b","","624","\u200b","","\u2014","\u200b","","624","","100.0","\u200b"],["Post-acquisition compensation, transition and integration costs","\u200b","","\u2014","\u200b","","214","\u200b","","(214)","","(100.0)","\u200b"],["Disposition costs","\u200b","\u200b","13","\u200b","\u200b","690","\u200b","\u200b","(677)","\u200b","(98.1)","\u200b"],["FDIC insurance, other insurance and regulatory fees","\u200b","","4,475","\u200b","","4,164","\u200b","","311","","7.5","\u200b"],["Loan/lease expense","\u200b","","1,671","\u200b","","1,435","\u200b","","236","","16.4","\u200b"],["Net (income from) and gains/losses on operations of other real estate","\u200b","","(1,420)","\u200b","","(307)","\u200b","","(1,113)","","362.5","\u200b"],["Advertising and marketing","\u200b","","4,254","\u200b","","3,260","\u200b","","994","","30.5","\u200b"],["Bank service charges","\u200b","","2,173","\u200b","","2,016","\u200b","","157","","7.8","\u200b"],["Loss on liability extinguishment","\u200b","\u200b","\u2014","\u200b","\u200b","3,907","\u200b","\u200b","(3,907)","\u200b","(100.0)","\u200b"],["Correspondent banking expense","\u200b","","799","\u200b","","838","\u200b","","(39)","","(4.7)","\u200b"],["Intangibles amortization","\u200b","","2,032","\u200b","","2,149","\u200b","","(117)","","(5.4)","\u200b"],["Goodwill impairment","\u200b","\u200b","\u2014","\u200b","\u200b","500","\u200b","\u200b","(500)","\u200b","(100.0)","\u200b"],["Loss on sale of subsidiary","\u200b","\u200b","\u2014","\u200b","\u200b","158","\u200b","\u200b","(158)","\u200b","(100.0)","\u200b"],["Other","\u200b","","7,677","\u200b","","5,315","\u200b","","2,362","","44.4","\u200b"],["Total noninterest expense","\u200b","$","153,702","\u200b","$","151,755","\u200b","$","1,947","","1.3","%"]]
[[/GREPCENT_TABLE]]

​

​

Management places strong emphasis on overall cost containment and is committed to improving the Company’s general efficiency. One-time charges relating to acquisitions and separation agreement expenses impacted expense in 2021. In

42

Table of Contents

2020, one-time charges relating to losses on liability extinguishment, dispositions and goodwill impairments impacted expenses.

Salaries and employee benefits, which is the largest component of noninterest expense, increased 5% in 2021 as compared to 2020. This increase was primarily related to increased incentive compensation driven by record financial results, and higher salary costs due to a higher number of FTEs.

Occupancy and equipment expense decreased 4% in 2021 as compared to 2020. This decrease was due to reduced service contract costs.

Professional and data processing fees remained flat in 2021 as compared to 2020. 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.

Acquisition costs totaled $624 thousand in 2021.  These costs were comprised of primarily legal, accounting and investment banking costs related to the pending acquisition described in Note 24 to the Consolidated Financial Statements.

There were no post-acquisition compensation, transition and integration costs in 2021.  Post-acquisition compensation, transition and integration costs totaled $214 thousand for 2020. These costs were comprised primarily of personnel costs, IT integration, and conversion costs related to the previous mergers/acquisitions as described in Note 2 to the Consolidated Financial Statements.  

Disposition costs totaled $13 thousand for 2021 as compared to $690 thousand for 2020. The costs were comprised primarily of legal, accounting, disposal of fixed assets and prepaids, personnel costs and IT deconversion costs related to the sale of the Bates Companies.    See Note 2 to the Consolidated Financial Statements for further discussion.

FDIC insurance, other insurance and regulatory fee expense increased 8% in 2021.  The increase in expense was due to an increase in the asset size of the Company in 2021 as well as FDIC insurance assessment credits applied in 2020.

Loan/lease expense increased 16% in 2021 as compared to 2020. Generally, loan/lease expense has a direct relationship with the level of NPLs; however, it may deviate depending upon the individual NPLs.  

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 income from operations totaled $1.4 million for 2021 as compared to net income of operations of $307 thousand for 2020. The higher amount in 2021 is due primarily to the gain on sale of one commercial OREO property.

Advertising and marketing expense increased 31% in 2021 as compared to 2020. The increase in expense was primarily due to the return to more normal operations during 2021 after improvements in the general environment due to COVID-19 as compared to 2020.

Bank service charges, a large portion of which includes indirect costs incurred to provide services to QCBT’s correspondent banking customer portfolio, increased 8% in 2021 as compared to 2020.   As transaction volumes continue to increase and the number of correspondent banking clients increases, the associated expenses is expected to also increase.

There were no losses on liability extinguishment in 2021.  Losses on liability extinguishment were $3.9 million in 2020. These losses relate to the prepayment of certain FHLB advances.

Correspondent banking expense decreased 5% in 2021 as compared to 2020. These are direct costs incurred to provide services to QCBT’s correspondent banking customer portfolio, including safekeeping and cash management services. In 2021, the Company made a strategic decision to discontinue maintenance of a cash vault to supply correspondents and correspondents were successfully moved to ordering cash directly through the Federal Reserve Bank.  This resulted in a cost savings for the Company.

Intangible amortization expense decreased 5% in 2021 as compared to 2020. These expenses naturally decrease unless there is an addition to intangible assets.

43

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There was no goodwill impairment expense in 2021. Goodwill impairment expense totaled $500 thousand in 2020 related to the Bates Companies.  See Note 6 to the Consolidated Financial Statements for further discussion.

There was no loss on sale of a subsidiary in 2021.  Loss on sale of a subsidiary totaled $158 thousand in 2020 due to the sale of the Bates Companies.  See Note 2 to the Consolidated Financial Statements for further discussion. There was no loss on sale of a subsidiary in 2021.

Other noninterest expense increased 44% in 2021 as compared to 2020.  The increase was due primarily to the write-off of certain fixed assets which resulted in a $1.4 million loss on disposal of fixed assets and $993 of credit card processing expenses.

INCOME TAX EXPENSE

The provision for income taxes was $22.6 million for 2021, or an effective tax rate of 18.6%, compared to $12.7 million for 2020, or an effective tax rate of 17.3%.  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.

FINANCIAL CONDITION AS OF DECEMBER 31, 2021 AND 2020

OVERVIEW

Following is a table that represents the major categories of the Company’s balance sheet.  

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","As of December 31,"],["\u200b","\u200b","\u200b","2021","\u200b","\u200b","\u200b","2020"],["\u200b","\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Amount","","%","","\u200b","Amount","","%"],["Cash, federal funds sold, and interest-bearing deposits","\u200b","$","125,152","","2","%","\u200b","$","157,005","","3","%"],["Securities","\u200b","\u200b","810,215","","13","%","\u200b","\u200b","838,131","","15","%"],["Net loans/leases","\u200b","\u200b","4,601,411","","75","%","\u200b","\u200b","4,166,753","","73","%"],["Derivatives","\u200b","\u200b","222,220","\u200b","4","%","\u200b","\u200b","222,757","\u200b","4","%"],["Other assets","\u200b","\u200b","337,134","\u200b","6","%","\u200b","\u200b","320,397","\u200b","6","%"],["Total assets","\u200b","$","6,096,132","","100","%","\u200b","$","5,705,043","","100","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total deposits","\u200b","$","4,922,772","","80","%","\u200b","$","4,599,137","","81","%"],["Total borrowings","\u200b","\u200b","170,805","","3","%","\u200b","\u200b","177,114","","3","%"],["Derivatives","\u200b","\u200b","225,135","\u200b","4","%","\u200b","\u200b","229,270","\u200b","4","%"],["Other liabilities","\u200b","\u200b","100,410","","2","%","\u200b","\u200b","105,729","","2","%"],["Total stockholders' equity","\u200b","\u200b","677,010","","11","%","\u200b","\u200b","593,793","","10","%"],["Total liabilities and stockholders' equity","\u200b","$","6,096,132","","100","%","\u200b","$","5,705,043","","100","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

In 2021, total assets increased $391.1 million, or 7%. The Company’s securities portfolio decreased $27.9 million, or 3%, during 2021.  The Company’s loan/lease portfolio increased $434.7 million, or 10%, during 2021. The increase in the loan/lease portfolio was due to traditional commercial lending and SFG. Excluding PPP loans (non-GAAP), the Company’s loan/lease portfolio grew organically $674.0 million, or 16.9%, during 2021, which was funded by deposit growth and excess cash. Deposits grew $323.6 million, or 7%,  during 2021. Borrowings decreased $6.3 million, or 4%, during 2021.

INVESTMENT SECURITIES

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, the Company has continued to change the mix of the portfolio by decreasing U.S government sponsored agency securities, while increasing residential mortgage-backed and related securities and 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.

44

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Following is a breakdown of the Company’s securities portfolio by type, the percentage of net unrealized gains (losses) to carrying value on the total portfolio, and the portfolio duration as of December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2021","\u200b","\u200b","2020","","\u200b"],["\u200b","\u200b","Amount","","%","","\u200b","Amount","","%","","\u200b"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. treasuries and govt. sponsored agency securities","\u200b","$","23,328","","3","%","\u200b","$","15,336","","2","%","\u200b"],["Municipal securities","\u200b","","639,601","","79","%","\u200b","","627,523","","75","%","\u200b"],["Residential mortgage-backed and related securities","\u200b","","94,323","","12","%","\u200b","","132,842","","16","%","\u200b"],["Asset-backed securities","\u200b","\u200b","27,124","\u200b","3","%","\u200b","\u200b","40,683","\u200b","4","%","\u200b"],["Other securities","\u200b","","25,839","","3","%","\u200b","","21,747","","3","%","\u200b"],["\u200b","\u200b","$","810,215","","100","%","\u200b","$","838,131","","100","%","\u200b"],["\u200b","\u200b","","","","","\u200b","\u200b","","","","","\u200b","\u200b"],["Securities as a % of Total Assets","\u200b","","13.29","%","","\u200b","\u200b","","14.69","%","","\u200b","\u200b"],["Net Unrealized Gains as a % of Amortized Cost","\u200b","","7.17","%","","\u200b","\u200b","","6.90","%","","\u200b","\u200b"],["Duration (in years)","\u200b","","8.2","","","\u200b","\u200b","","7.0","","","\u200b","\u200b"],["Yield on investment securities (tax equivalent)","\u200b","\u200b","3.66","%","\u200b","\u200b","\u200b","\u200b","3.74","%","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

At January 1, 2021, the Company adopted ASU 2016-13, which requires an ACL related to HTM securities.  Additionally, ASU 2016-13 replaced the legacy GAAP OTTI model with a credit loss model.  The credit loss model under ASU 2016-13, applicable to AFS debt securities, requires the recognition of credit losses through an allowance account, but retains the concept from the OTTI model that credit losses are recognized once securities become impaired.  See Note 1, “Summary of Significant Accounting Policies” to the consolidated financial statement for a discussion of the impact of the adoption of ASU 2016-13.

The Company has not invested in non-agency commercial or residential mortgage-backed securities or pooled trust preferred securities.

The following is a breakdown of the weighted-average yield for each range of maturities by category of debt securities that are not held at fair value:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","Weighted"],["\u200b","\u200b","Amortized","\u200b","Average"],["\u200b","","Cost*","","Yield"],["\u200b","\u200b","(dollars in thousands)"],["Municipal securities:","\u200b","","","","","\u200b"],["Within 1 year","\u200b","$","2,622","","2.08","%"],["After 1 but within 5 years","\u200b","","22,746","","3.34","%"],["After 5 but within 10 years","\u200b","","48,402","","3.43","%"],["After 10 years","\u200b","","397,763","","3.87","%"],["Total","\u200b","$","471,533","","3.79","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other securities:","\u200b","","","","","\u200b"],["Within 1 year","\u200b","$","550","\u200b","2.92","%"],["After 1 but within 5 years","\u200b","\u200b","500","","4.39","%"],["Total","\u200b","$","1,050","","3.62","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total HTM Securities","\u200b","$","472,583","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

* Amortized cost above excludes ACL of $198 thousand.

The weighted-average yield is calculated by dividing the total interest for each security per maturity range by the total amortized cost within that maturity range. Yields are not computed on a tax equivalent basis.

There have been no major changes within the tax exempt portfolio.

See Note 3 to the Consolidated Financial Statements for additional information regarding the Company’s investment securities.

45

Table of Contents

LOANS/LEASES

Total loans/leases, excluding PPP loans (non-GAAP), grew 16.9% in 2021 over 2020. The mix of loan/lease types within the Company’s loan/lease portfolio is presented in the following tables. Adoption of ASU 2016-13 resulted in a change in loans and lease segments and those segments for prior to 2021 are shown in a separate table.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of"],["\u200b","\u200b","December 31, 2021","\u200b"],["\u200b","","Amount","","%"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["C&I - revolving","\u200b","$","248,483","","5","%"],["C&I - other *","\u200b","\u200b","1,346,602","\u200b","29","%"],["CRE - owner occupied","\u200b","\u200b","421,701","\u200b","9","%"],["CRE - non-owner occupied","\u200b","\u200b","646,500","\u200b","14","%"],["Construction and land development","\u200b","\u200b","918,571","\u200b","20","%"],["Multi-family","\u200b","","600,412","","12","%"],["Direct financing leases","\u200b","","45,191","","1","%"],["1-4 family real estate","\u200b","","377,361","","8","%"],["Consumer","\u200b","","75,311","","2","%"],["Total loans/leases","\u200b","$","4,680,132","","100","%"],["Less allowance","\u200b","","(78,721)","","\u200b","\u200b"],["Net loans/leases","\u200b","$","4,601,411","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","2020","\u200b"],["\u200b","\u200b","\u200b","Amount","","%"],["\u200b","\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["C&I loans*","\u200b","\u200b","$","1,726,723","","41","%"],["CRE loans","\u200b","\u200b","","2,107,629","","50","%"],["Direct financing leases","\u200b","\u200b","","66,016","","1","%"],["Residential real estate loans","\u200b","\u200b","","252,121","","6","%"],["Installment and other consumer loans","\u200b","\u200b","","91,302","","2","%"],["Total loans/leases","\u200b","\u200b","$","4,243,791","","100","%"],["Plus deferred loan/lease origination costs, net of fees","\u200b","\u200b","\u200b","7,338","","\u200b","\u200b"],["Less allowance","\u200b","\u200b","\u200b","(84,376)","","\u200b","\u200b"],["Net loans/leases","\u200b","\u200b","$","4,166,753","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

*Includes PPP loans totaling $28.2 million and $273.1 million at December 31, 2021 and 2020, respectively.

​

The Company experienced strong loan growth in 2021.  The growth was broad-based with some stronger growth in multi-family and construction related to our increased focus on LIHTC lending. 

​

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. Loans originated for this purpose were classified as held for sale and are included in the residential real estate loans in the table above. Historically, the subsidiary banks structure most loans that will not conform to those underwriting requirements as adjustable rate mortgages that mature or adjust in one to five years, and then retain these loans in their portfolios. The Company holds a limited amount of 15-year fixed rate residential real estate loans originated in prior years that met certain credit guidelines. In addition, the Company has not originated any subprime, Alt-A, no documentation, or stated income residential real estate loans throughout its history.

46

Table of Contents

The following tables set forth the remaining maturities by loan/lease type as of December 31, 2021 and 2020. Maturities are based on contractual dates.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31, 2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Maturities After One Year"],["\u200b","\u200b","Due in one","\u200b","Due after one","\u200b","Due after 5","\u200b","Due after","\u200b","Predetermined","\u200b","Adjustable"],["\u200b","","year or less","","through 5 years","","through 15 years","\u200b","15 years","","interest rates","","interest rates"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["C&I - revolving","\u200b","$","198,861","\u200b","$","44,927","\u200b","$","4,695","\u200b","$","\u2014","\u200b","$","10,852","\u200b","$","38,770","\u200b"],["C&I - other","\u200b","","320,932","\u200b","","591,103","\u200b","","222,408","\u200b","","212,159","\u200b","","725,568","\u200b","","300,102","\u200b"],["CRE - owner occupied","\u200b","\u200b","39,959","\u200b","\u200b","188,408","\u200b","\u200b","163,862","\u200b","\u200b","29,472","\u200b","\u200b","228,247","\u200b","\u200b","153,495","\u200b"],["CRE - non-owner occupied","\u200b","\u200b","97,300","\u200b","\u200b","347,215","\u200b","\u200b","156,558","\u200b","\u200b","45,427","\u200b","\u200b","342,349","\u200b","\u200b","206,851","\u200b"],["Construction and land development","\u200b","\u200b","144,624","\u200b","\u200b","159,408","\u200b","\u200b","45,608","\u200b","\u200b","568,931","\u200b","\u200b","161,195","\u200b","\u200b","612,752","\u200b"],["Multi-family","\u200b","\u200b","27,483","\u200b","\u200b","67,407","\u200b","\u200b","134,919","\u200b","\u200b","370,603","\u200b","\u200b","67,055","\u200b","\u200b","505,874","\u200b"],["Direct financing leases","\u200b","","2,514","\u200b","","42,253","\u200b","","424","\u200b","","\u2014","\u200b","","42,677","\u200b","","\u2014","\u200b"],["1-4 family real estate","\u200b","","21,190","\u200b","","92,443","\u200b","","113,049","\u200b","","150,679","\u200b","","316,356","\u200b","","39,815","\u200b"],["Consumer","\u200b","","8,968","\u200b","","32,787","\u200b","","32,654","\u200b","","902","\u200b","","17,860","\u200b","","48,483","\u200b"],["\u200b","\u200b","$","861,831","\u200b","$","1,565,951","\u200b","$","874,177","\u200b","$","1,378,173","\u200b","$","1,912,159","\u200b","$","1,906,142","\u200b"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31, 2020"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Maturities After One Year"],["\u200b","\u200b","Due in one","\u200b","Due after one","\u200b","Due after","\u200b","\u200b","\u200b","\u200b","Predetermined","\u200b","Adjustable"],["\u200b","","year or less","","through 5 years","","5 years","\u200b","\u200b","\u200b","","interest rates","","interest rates"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["C&I loans","\u200b","$","362,104","\u200b","$","942,702","\u200b","$","421,917","\u200b","\u200b","\u200b","\u200b","$","995,910","\u200b","$","368,709","\u200b"],["CRE loans","\u200b","","277,248","\u200b","","866,614","\u200b","","963,767","\u200b","\u200b","\u200b","\u200b","","788,442","\u200b","","1,041,939","\u200b"],["Direct financing leases","\u200b","","3,617","\u200b","","61,504","\u200b","","895","\u200b","\u200b","\u200b","\u200b","","62,399","\u200b","","\u2014","\u200b"],["Residential real estate loans","\u200b","","19,717","\u200b","","12,335","\u200b","","220,069","\u200b","\u200b","\u200b","\u200b","","200,028","\u200b","","32,376","\u200b"],["Installment and other consumer loans","\u200b","","17,671","\u200b","","41,634","\u200b","","31,997","\u200b","\u200b","\u200b","\u200b","","30,975","\u200b","","42,656","\u200b"],["\u200b","\u200b","$","680,357","\u200b","$","1,924,789","\u200b","$","1,638,645","\u200b","\u200b","\u200b","\u200b","$","2,077,754","\u200b","$","1,485,680","\u200b"]]
[[/GREPCENT_TABLE]]

​

See Note 4 to the Consolidated Financial Statements for additional information on the Company’s loan/lease portfolio.

​

ALLOWANCE FOR CREDIT LOSSES ON LOANS/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 the CECL methodology.  Additionally, CECL required an ACL for OBS exposures to be calculated using a current expected credit loss methodology.

The adequacy of the allowance was determined by management based on factors that included the overall composition of the loan/lease portfolio, types of loans/leases, historical loss experience, loan/lease delinquencies, potential substandard and doubtful credits, economic conditions, collateral positions, government guarantees and other factors that, in management’s judgment, deserved evaluation. To ensure that an adequate ACL was maintained, provisions were made based on a number of factors, including the increase in loans/leases and a detailed analysis of the loan/lease portfolio. The loan/lease portfolio is reviewed and analyzed quarterly with specific detailed reviews completed on all credits risk-rated less than “fair quality” as described in Note 1 to the Consolidated Financial Statements and carrying aggregate exposure in excess of $250 thousand. The adequacy of the allowance is monitored by the credit administration staff and reported to management and the Board of Directors.

Changes in the ACL for loans/leases for the years ended December 31, 2021, 2020 and 2019 are presented as follows:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended"],["\u200b","","December 31, 2021","","December 31, 2020","","December 31, 2019"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Balance, beginning","\u200b","$","84,376","\u200b","$","36,001","\u200b","$","39,847"],["Impact of adopting ASU 2016-13","\u200b","\u200b","(8,102)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Reclassification of allowance related to held for sale loans","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(6,122)"],["Provision","\u200b","","5,702","\u200b","","55,704","\u200b","","6,638"],["Charge-offs","\u200b","","(4,538)","\u200b","","(8,383)","\u200b","","(5,134)"],["Recoveries","\u200b","","1,283","\u200b","","1,054","\u200b","","772"],["Balance, ending","\u200b","$","78,721","\u200b","$","84,376","\u200b","$","36,001"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

47

Table of Contents

Net charge-offs by segment and their percentage of average loans and leases are as follows:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year ended December 31,"],["\u200b","\u200b","2021","\u200b","2020","\u200b"],["\u200b","\u200b","\u200b","Amount","% of Average Loans","\u200b","\u200b","Amount","% of Average Loans","\u200b"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average amount of loans/leases outstanding, before allowance","\u200b","$","4,456,461","\u200b","\u200b","$","4,031,567","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net charge-offs:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["C&I","\u200b","$","\u2014","0.00","%","$","(3,550)","0.09","%"],["C&I - Revolving","\u200b","\u200b","\u2014","0.00","\u200b","\u200b","\u2014","0.00","\u200b"],["C&I - Other","\u200b","\u200b","(1,697)","0.04","\u200b","\u200b","\u2014","0.00","\u200b"],["CRE","\u200b","\u200b","\u2014","0.00","\u200b","\u200b","(1,889)","0.05","\u200b"],["CRE owner occupied","\u200b","\u200b","3","0.00","\u200b","\u200b","\u2014","0.00","\u200b"],["CRE non-owner occupied","\u200b","\u200b","(1,791)","0.04","\u200b","\u200b","\u2014","0.00","\u200b"],["Construction and land development","\u200b","\u200b","\u2014","0.00","\u200b","\u200b","\u2014","0.00","\u200b"],["Multi-family","\u200b","\u200b","(150)","0.00","\u200b","\u200b","\u2014","0.00","\u200b"],["Direct financing leases","\u200b","\u200b","\u2014","0.00","\u200b","\u200b","(1,848)","0.05","\u200b"],["Residential real estate","\u200b","\u200b","\u2014","0.00","\u200b","\u200b","29","0.00","\u200b"],["1-4 family real estate","\u200b","\u200b","102","0.00","\u200b","\u200b","\u2014","0.00","\u200b"],["Consumer","\u200b","\u200b","278","(0.01)","\u200b","\u200b","(71)","0.00","\u200b"],["Total net charge-offs","\u200b","$","(3,255)","\u200b","\u200b","$","(7,329)","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

​

Changes in the ACL for OBS exposures for the year ended December 31, 2021:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended"],["\u200b","\u200b","December 31, 2021"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b"],["Balance, beginning (1)","\u200b","$","\u2014"],["Impact of adopting ASU 2016-13","\u200b","\u200b","9,117"],["Provisions credited to expense","\u200b","","(2,231)"],["Balance, ending","\u200b","$","6,886"],["\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Prior to the adoption of ASU 2016-13, the Company did not calculate an ACL for OBS exposures, and therefore prior periods have not been shown in this table."]]
[[/GREPCENT_TABLE]]

The ACL for OBS exposures totaled $9.1 million at the adoption of CECL on January 1, 2021.  Prior to January 1, 2021, the allowance for OBS exposures was not required.  The Company recorded negative $2.2 million of provision for credit losses related to OBS exposures, specifically unfunded commitments, in 2021 primarily due to increased line of credit usage resulting in lower exposure.  At December 31, 2021, the allowance for OBS exposures was $6.9 million.

The following is a table that reports the criticized and classified loan totals as of December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","As of December 31,"],["Internally Assigned Risk Rating *","","\u200b","2021","","\u200b","2020"],["\u200b","\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Special Mention (Rating 6)","\u200b","$","62,510","","$","71,481"],["Substandard (Rating 7)","\u200b","\u200b","53,296","","\u200b","66,081"],["Doubtful (Rating 8)","\u200b","\u200b","\u2014","","\u200b","\u2014"],["\u200b","\u200b","$","115,806","","$","137,562"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Criticized Loans **","\u200b","$","115,806","","$","137,562"],["Classified Loans ***","\u200b","$","53,296","","$","66,081"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Criticized Loans as a % of Total Loans/Leases","\u200b","\u200b","2.47","%","\u200b","3.24","%"],["Classified Loans as a % of Total Loans/Leases","\u200b","\u200b","1.14","%","\u200b","1.55","%"]]
[[/GREPCENT_TABLE]]

​

*    Amounts above exclude the government guaranteed portion, if any. The Company assigns internal risk ratings of Pass (Rating 2) for the government

guaranteed portion.

**   Criticized loans are defined as C&I and CRE loans with internally assigned risk ratings of 6, 7, or 8, regardless of performance.

*** Classified loans are defined as C&I and CRE loans with internally assigned risk ratings of 7 or 8, regardless of performance.

Criticized loans decreased 16% and classified loans decreased 20% in 2021 as compared to 2020.  The Company continues its strong focus on improving credit quality in an effort to limit NPLs.

​

48

Table of Contents

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, 2021 and 2020.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,"],["\u200b","\u200b","2021","","2020"],["ACL on loans/leases / Gross loans/leases","\u200b","1.68","%","1.98","%"],["ACL on loans/leases / NPLs","\u200b","2,825.21","%","574.61","%"]]
[[/GREPCENT_TABLE]]

​

​

The following table presents the allowance by type and the percentage of loan/lease type to total loans/leases.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,"],["\u200b","\u200b","2021","\u200b"],["\u200b","","Amount","","%"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["C&I - revolving","","\u200b","3,907","","5","%"],["C&I - other","","\u200b","25,982","","30","%"],["CRE - owner occupied","\u200b","\u200b","8,501","\u200b","9","%"],["CRE - non-owner occupied","\u200b","\u200b","8,549","\u200b","14","%"],["Construction and land development","\u200b","\u200b","16,972","\u200b","20","%"],["Multi-family","\u200b","\u200b","9,339","\u200b","12","%"],["1-4 family real estate","","\u200b","4,541","","8","%"],["Consumer","","\u200b","930","","2","%"],["\u200b","\u200b","$","78,721","","100","%"]]
[[/GREPCENT_TABLE]]

* Included within the C&I – Other segment is an ACL on leases of $1.5 million. Leases represent 1% of to total loans/leases.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,"],["\u200b","\u200b","2020","\u200b"],["\u200b","","Amount","","%"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["C&I loans","\u200b","\u200b","35,421","","41","%"],["CRE loans","\u200b","\u200b","42,161","","50","%"],["Direct financing leases","\u200b","\u200b","1,764","","1","%"],["Residential real estate loans","\u200b","\u200b","3,732","","6","%"],["Installment and other consumer loans","\u200b","\u200b","1,298","","2","%"],["\u200b","\u200b","$","84,376","","100","%"]]
[[/GREPCENT_TABLE]]

% Represents the percentage of the certain type of loan/lease to total loans/leases

Although management believes that the ACL for loans/leases at December 31, 2021 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. 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. The ability to grow profitably is in part dependent upon the ability to maintain that quality. The Company continually focuses efforts at its subsidiary banks and its leasing company with the intention to improve the overall quality of the Company’s loan/lease portfolio.

See Note 4 to the Consolidated Financial Statements for additional information on the Company’s ACL.

49

Table of Contents

NONPERFORMING ASSETS

The table below presents the amounts of NPAs and related ratios.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,"],["\u200b","\u200b","2021","\u200b","2020","\u200b"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Nonaccrual loans/leases (1) (2)","\u200b","$","2,759","\u200b","$","13,940","\u200b"],["Accruing loans/leases past due 90 days or more","\u200b","\u200b","1","\u200b","\u200b","3","\u200b"],["Total NPLs","\u200b","","2,760","\u200b","\u200b","13,943","\u200b"],["OREO","\u200b","\u200b","\u2014","\u200b","\u200b","20","\u200b"],["Other repossessed assets","\u200b","\u200b","\u2014","\u200b","\u200b","135","\u200b"],["Total NPAs","\u200b","$","2,760","\u200b","$","14,098","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["NPLs to total loans/leases","\u200b","\u200b","0.06","%","\u200b","0.33","%"],["NPAs to total loans/leases plus repossessed property","\u200b","\u200b","0.06","%","\u200b","0.33","%"],["NPAs to total assets","\u200b","\u200b","0.05","%","\u200b","0.25","%"],["Nonccrual loans/leases to total loans/leases","\u200b","\u200b","0.06","%","\u200b","0.33","%"],["ACL to nonaccrual loans","\u200b","\u200b","2853.24","%","\u200b","605.28","%"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["(1)","Includes government guaranteed portions of loans, if applicable."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Includes TDRs of $65 thousand, $984 thousand and $747 thousand at December 31, 2021, December 31, 2020 and December 31, 2019, respectively."]]
[[/GREPCENT_TABLE]]

The majority of the Company’s NPAs consists of nonaccrual loans/leases. 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.

The policy of the Company is to place a loan/lease on nonaccrual status if:  (a) payment in full of interest or principal is not expected; or (b) principal or interest has been in default for a period of 90 days or more unless the obligation is both in the process of collection and well secured.  A loan/lease is well secured if it is secured by collateral with sufficient market value to repay principal and all accrued interest. A debt is in the process of collection if collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to current status.

In 2021, the Company’s NPAs decreased $11.3 million, or 80% as compared to $14.1 million in 2020.   The decrease in NPAs in 2021 was primarily due to several isolated relationships that paid off in 2021 as well as one loan that was charged off to OREO and subsequently sold.  

The Company’s lending/leasing practices remain unchanged and asset quality remains a top priority for management.

Due to the economic impacts of COVID-19, the Company established its LRP for its clients.  The LRP allows borrowers to request the deferral of principal and interest payments for an agreed upon term.  Those deferred payments will be added to the end of the original term of the loan through a three-month extension of the maturity date.  The CARES Act includes provisions that allow financial institutions to elect to not apply GAAP requirements to loan modifications related to COVID-19 that would otherwise be categorized as a TDR, including arrangements that defer or delay payments of principal or interest for up to 90 days.  The relief from TDR guidance applies to modifications of loans that were not more than 30 days past due as of December 31, 2019, and that occur beginning on March 1, 2020 until the earlier of sixty days after the date on which the national emergency related to COVID-19 is terminated or December 31, 2020. On December 27, 2020, the Consolidated Appropriations Act was established, which extended this relief to the earlier of the first day of the Company’s fiscal year after the date of the national emergency terminates or January 1, 2022. The Company believes that the majority of LRP participants will not be categorized as a TDR by meeting the CARES Act provisions. The Company implemented its LRP offerings to extend qualifying customers’ payments for 90 days.  As of December 31, 2021 there were no Bank modifications of loans to commercial and consumer clients and six m2 modifications of loans and leases totaling $2.4 million representing 0.05% of the total loan and lease portfolio currently on deferral. The Company intends to allow qualifying commercial and consumer clients to defer payments under the new guidance.

50

Table of Contents

On March 22, 2020, federal banking regulators issued an interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented. The agencies confirmed in working with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. The regulators clarified that this guidance could continue to be applied through December 31, 2021.

DEPOSITS

Deposits grew $323.6 million, or 7.0%, during 2021, primarily due to an increase in both non-interest bearing and interest bearing deposits.  The table below presents the composition of the Company’s deposit portfolio.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,"],["\u200b","\u200b","2021","","2020"],["\u200b","\u200b","Amount","","%","","Amount","","%"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Noninterest bearing demand deposits","\u200b","$","1,268,788","","26","%","$","1,145,378","","25","%"],["Interest bearing demand deposits","\u200b","","3,232,633","","65","%","","2,987,469","","65","%"],["Time deposits","\u200b","","421,348","","9","%","","460,659","","10","%"],["Brokered deposits","\u200b","","3","","\u2014","%","","5,631","","\u2014","%"],["\u200b","\u200b","$","4,922,772","","100","%","$","4,599,137","","100","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

The Company has been successful in growing its noninterest-bearing deposit portfolio over the past several years, growing average balances 21% in 2021. Year-end balances can fluctuate a great deal due to large customer and correspondent bank activity. During the year, the Company had significant core deposit growth mostly from its correspondent banking clients.  The outsized deposit growth exceeded the strong loan growth and led to the Company carrying excess liquidity during the year. As a result of strong core deposit growth, the Company reduced its reliance on higher cost CDs and brokered deposits.

​

The Company’s correspondent bank deposits have grown significantly over the past two years.  The correspondent bank deposit portfolio consists of the following:

​

[[GREPCENT_TABLE]]
[["","\u25cf","Noninterest-bearing deposits which represent the correspondent banks\u2019 operating cash used for processing transactions with the Federal Reserve,"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Money market deposits which represent some excess liquidity, and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The correspondent banks\u2019 EBA at the FRB."]]
[[/GREPCENT_TABLE]]

​

The Company has modified the structure and interest rates paid for those correspondent bank deposits on the balance sheet which are the noninterest bearing deposits and the money market deposits.  This has led to more of the correspondent bank portfolio’s excess liquidity to shift to the EBAs at the FRB which is managed by the Company, but is off the Company’s balance sheet.  On average, over the past two years, the correspondent banks’ EBA ranges from $1.3 billion to $1.5 billion which is approximately $1 billion more than pre-pandemic levels. 

The Company had total uninsured deposits of $1.9 billion and $1.8 billion as of December 31, 2021 and 2020 respectively. The table below represents the time deposits in FDIC uninsured accounts by maturity:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,","\u200b","As of December 31,"],["\u200b","\u200b","2021","\u200b","2020"],["\u200b","","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. Time Deposits in Amounts in Excess of FDIC insurance limit:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["One to three months","","$","61,278","","$","88,295"],["Three to six months","","\u200b","45,451","","\u200b","35,977"],["Six to twelve months","","\u200b","81,290","","\u200b","76,478"],["Over twelve months","","\u200b","37,038","","\u200b","46,939"],["\u200b","\u200b","$","225,058","\u200b","$","247,690"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

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There were no other time deposits otherwise uninsured. The Company had no deposits by foreign depositors in domestic offices as of December 31, 2021 and 2020.

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. With the significant success achieved by QCBT in growing its correspondent banking business, QCBT has developed procedures to proactively monitor this industry concentration of deposits and loans. Other deposit-related industry concentrations and large accounts are monitored by the internal asset liability management committee. 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. The table below presents the composition of the Company’s short-term borrowings.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of, December 31,"],["\u200b","","2021","","2020"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Federal funds purchased","\u200b","\u200b","3,800","\u200b","\u200b","5,430","\u200b"],["\u200b","\u200b","$","3,800","\u200b","$","5,430","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

The Company’s federal funds purchased fluctuates based on the short-term funding needs of the Company’s subsidiary banks. 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. The subsidiary banks can utilize FHLB advances for loan matching as a hedge against the possibility of rising interest rates or when these advances provide a less costly source of funds than customer deposits. There was no change in FHLB advances from 2020 to 2021.  

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,"],["\u200b","","2021","\u200b","2020"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["FHLB Advances","\u200b","$","15,000","\u200b","\u200b","$","15,000","\u200b"],["Weighted Average Interest Rate at Year-End","\u200b","","0.31","%","\u200b","","0.29","%"]]
[[/GREPCENT_TABLE]]

​

​

See Notes 10 and 11 to the Consolidated Financial Statements for additional information regarding FHLB advances and other borrowings.

It is management’s intention to continue to reduce its reliance on wholesale funding, including FHLB advances, wholesale structured repurchase agreements, and brokered deposits. Replacement of this funding with core deposits helps to reduce interest expense as the wholesale funding tends to be higher cost. However, the Company may choose to utilize wholesale funding sources to supplement funding needs, as this is a way for the Company to effectively and efficiently manage interest rate risk.

SUBORDINATED NOTES

The Company had subordinated notes totaling $113.9 million and $118.7 million as of December 31, 2021 and 2020, respectively. The Company prepaid $5.0 million in subordinated debt in 2021 with no gain/loss.

See Note 12 to the Consolidated Financial Statements for additional information regarding the subordinated notes.

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STOCKHOLDERS’ EQUITY

The table below presents the composition of the Company’s stockholders’ equity.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","As of December 31,"],["\u200b","\u200b","2021","","2020"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Common stock","\u200b","$","15,613","\u200b","$","15,806","\u200b"],["Additional paid in capital","\u200b","","273,768","\u200b","","275,807","\u200b"],["Retained earnings","\u200b","","386,077","\u200b","","300,804","\u200b"],["AOCI","\u200b","","1,552","\u200b","","1,376","\u200b"],["Total stockholders' equity","\u200b","$","677,010","\u200b","$","593,793","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["TCE / TA ratio (non-GAAP)","\u200b","","9.87","%","","9.05","%"]]
[[/GREPCENT_TABLE]]

​

*   TCE/TA ratio is a non-GAAP measure. Refer to the GAAP to Non-GAAP Reconciliations section of this report for more information.

As of December 31, 2021 and 2020, no preferred stock was outstanding.

The following table presents the rollforward of stockholders’ equity for the years ended December 31, 2021 and 2020, respectively.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended December 31,"],["\u200b","","2021","","2020"],["\u200b","\u200b","(dollars in thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Beginning balance","\u200b","$","593,793","\u200b","$","535,351"],["Impact of adoption of ASU 2016-13","\u200b","\u200b","(937)","\u200b","\u200b","\u2014"],["Net income","\u200b","","98,905","\u200b","","60,582"],["Other comprehensive income, net of tax","\u200b","","176","\u200b","","2,474"],["Repurchase and cancellation of shares of common stock as a result of a share repurchase program","\u200b","\u200b","(14,168)","\u200b","\u200b","(3,779)"],["Common cash dividends declared","\u200b","","(3,781)","\u200b","","(3,779)"],["Other *","\u200b","","3,022","\u200b","","2,944"],["Ending balance","\u200b","$","677,010","\u200b","$","593,793"]]
[[/GREPCENT_TABLE]]

​

*   Includes primarily common stock issued for options exercised and the employee stock purchase plans, as well as stock-based compensation.

On February 13, 2020, 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 800,000 shares of its outstanding common stock, or approximately 5% of the outstanding shares as of December 31, 2019. To date, the Company has purchased 394,085 shares under the program and all shares purchased have been retired.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity measures the ability of the Company to meet maturing obligations and its existing commitments, to withstand fluctuations in deposit levels, to fund its operations, and to provide for customers’ credit needs. The Company monitors liquidity risk through contingency planning stress testing on a regular basis. The Company seeks to avoid over concentration of funding sources and to establish and maintain contingent funding facilities that can be drawn upon if normal funding sources become unavailable. 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 $178.7 million and $398.2 million during 2021 and 2020, respectively. The Company’s on balance sheet liquidity position can fluctuate based on short-term activity in deposits and loans.

The Federal Reserve Bank has provided a lending facility that will allow the Company, if desired, to obtain funding specifically for loans that the Company makes under the PPP, which will allow the Company to retain existing sources of liquidity for traditional operations. The Company has been able to access other available funding sources to address liquidity needs during the COVID-19 pandemic.

​

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The subsidiary banks have a variety of sources of short-term liquidity available to them, including federal funds purchased from correspondent banks, FHLB advances, wholesale structured repurchase agreements, brokered deposits, lines of credit, borrowing at the Federal Reserve Discount Window, sales of securities AFS, and loan/lease participations or sales. 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, 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, 2020, the subsidiary banks had 28 lines of credit totaling $743.1 million, of which $287.1 million was secured and $456.0 million was unsecured. At December 31, 2020, all of the $743.1 million was available.

The Company maintains a $25.0 million secured revolving credit note with a variable interest rate and a maturity of June 30, 2022. At December 31, 2021, the full $25.0 million was available. See Note 11 to the Consolidated Financial Statements for additional information.

Investing activities used cash of $411.8 million during 2021 compared to $704.5 million during 2020. Proceeds from calls, maturities, pay downs, and sales of securities were $195.7 million for 2021 compared to $138.9 million for 2020. Purchases of securities used cash of $173.2 million for 2021 compared to $356.1 million for 2020. The net increase in loans/leases used cash of $433.5 million for 2021 compared to $564.7 million for 2020.

Financing activities provided cash of $299.7 million for 2021 compared to $577.4 million for 2020. Net increases in deposits totaled $323.6 million for 2021 as compared to $716.9 million for 2020. Net short-term borrowings decreased $1.6 million for 2021 and decreased $8.0 million for 2020. In 2021 the Company used $5.0 million to prepay select subordinated notes. In 2020 the Company used $55.3 million to prepay select FHLB advances and $29.2 million to prepay brokered and public time deposits.  Short-term FHLB advances decreased $94.3 million in 2020.

Total cash provided by operating activities was $88.2 million for 2021 compared to $112.2 million for 2020.

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, 2021 and 2020, the subsidiary banks remained “well-capitalized” in accordance with regulatory capital requirements administered by the federal banking authorities. 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. The commitments and contingent liabilities include various guarantees, commitments to extend credit, and standby letters of credit.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary banks evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the banks upon extension of credit, is based upon management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, marketable securities, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the subsidiary banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The banks hold collateral, as described above, supporting those commitments if deemed necessary. In the event the customer does not perform in accordance with the terms of the

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agreement with the third party, the banks would be required to fund the commitments. The maximum potential amount of future payments the banks could be required to make is represented by the contractual amount. 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, 2021 and 2020, commitments to extend credit aggregated $1.2 billion and $1.4 billion, respectively. As of December 31, 2021 and 2020, standby letters of credit aggregated $21.7 million and $24.8 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 19 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 $5.1 billion as of December 31, 2021.

The Company’s operating contract obligations represent short and long-term contractual payments for data processing equipment and services, software, and other equipment and professional services and totaled $49.8 million as of December 31, 2021.

IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements of the Company and the accompanying notes have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollar amounts without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.

FORWARD LOOKING STATEMENTS

This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. 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,” “may,” “will,” “would,” “could,” “should,” “likely,” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries are detailed in the “Risk Factors” section included under Item 1A. of Part I of this Annual Report on Form 10-K. In addition to the risk factors described in that section, there are other factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries. These additional factors include, but are not limited to, the following:

[[GREPCENT_TABLE]]
[["","\u25cf","The strength of the local, state, national and international economies."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","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 and 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 events."]]
[[/GREPCENT_TABLE]]

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​

[[GREPCENT_TABLE]]
[["","\u25cf","Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the FASB, the SEC or the PCAOB, including FASB\u2019s CECL impairment standards."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Changes in state and federal laws, regulations and governmental policies concerning the Company\u2019s general business."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Changes in the interest rates and prepayment rates of the Company\u2019s assets (including the impact of LIBOR phase-out)."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Increased competition in the financial services sector and the inability to attract new customers."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Changes in technology and the ability to develop and maintain secure and reliable electronic systems."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","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."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","The loss of key executives and employees."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Changes in consumer spending."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","The costs, effects and outcomes of existing or future litigation."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","Unexpected outcomes of existing or new litigation involving the Company."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","The economic impact of exceptional weather occurrences such as tornadoes, floods and blizzards."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","The ability of the Company to manage the risks associated with the foregoing as well as anticipated."]]
[[/GREPCENT_TABLE]]

​

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.