QCR HOLDINGS INC (QCRH)

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This section reviews the financial condition and results of operations of the Company and its subsidiaries as of and for the three months ending March 31, 2026. Some tables may include additional periods to comply with disclosure requirements or to illustrate trends. When reading this discussion, also refer to the Consolidated Financial Statements and related notes in this report. Page locations and specific sections and notes that are referred to in this discussion are listed in the table of contents.

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 33 years, the Company has grown to include four banking subsidiaries and a number of nonbanking subsidiaries.  As of March 31, 2026, the Company had $9.6 billion in consolidated assets, including $7.2 billion in net loans/leases, and $7.8 billion in deposits.  The financial results of acquired entities for the periods since their acquisition are included in this report.  Further information related to acquired entities has been presented in the annual reports previously filed with the SEC corresponding to the year of each acquisition.

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 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, determination of the fair value of loans acquired in business combinations, impairment of goodwill, the fair value of financial instruments, and the fair value of securities.

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

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A more detailed discussion of these critical accounting policies and estimates can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.

EXECUTIVE OVERVIEW

The Company reported net income of $33.4 million and diluted EPS of $1.99 for the quarter ended March 31, 2026. By comparison, for the quarter ended December 31, 2025, the Company reported net income of $35.7 million and diluted EPS of $2.12.  For the quarter ended March 31, 2025, the Company reported net income of $25.8 million, and diluted EPS of $1.52.

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Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

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The first quarter of 2026 was also highlighted by the following results and events (see section titled “GAAP to Non-GAAP Reconciliations” for additional information):

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Following is a table that represents various net income measurements for the Company:

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The Company reported adjusted net income (non-GAAP) of $33.4 million, with adjusted diluted EPS (non-GAAP) of $1.99 for the three months ended March 31, 2026.  See section titled “GAAP to Non-GAAP Reconciliations” for additional information.

Following is a table that represents the major income and expense categories for the Company:

Following are certain noteworthy developments in the Company's financial results for the quarter ended March 31, 2026:

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Part I

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

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STRATEGIC FINANCIAL METRICS

The Company has established certain strategic financial metrics by which it manages its business and measures its performance. The goals are periodically updated to reflect changes in business developments. While the Company is determined to work prudently to achieve these metrics, there is no assurance that they will be met. Moreover, the Company's ability to achieve these metrics may 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2025. The Company's long-term strategic financial metrics are as follows:

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

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[Excerpt truncated for page length; source filing is linked above.]

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

This section generally discusses 2025 and 2024 items and annual comparison between our fiscal 2025 performance compared to our fiscal 2024 performance.  A detailed review of our fiscal 2024 performance compared to our fiscal 2023 performance can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” This discussion should be read together 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 32 years, the Company has grown to include four banking subsidiaries and a number of nonbanking subsidiaries. As of December 31, 2025, the Company had $9.6 billion in consolidated assets, including $7.1 billion in total loans/leases, and $7.4 billion in deposits. The financial results of acquired entities for the periods since their acquisition are included in this Annual Report on Form 10-K and in our Quarterly Reports on Form 10-Q. Further information related to acquired entities has been presented in the Annual Reports on Form 10-K previously filed with the SEC corresponding to the period of each acquisition.

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 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, determination of the fair value of loans acquired in business combinations, impairment of goodwill, the fair value of financial instruments, and the fair value of securities. 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:

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES AND OFF-BALANCE SHEET EXPOSURES

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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 (general reserve).  If a loan is determined to no longer share similar risk characteristics with other assets in the segmented pool, it is evaluated on an individual basis (specific reserve).

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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, 2025 was adequate to absorb losses inherent in the loan/lease portfolio, the HTM portfolio and OBS exposures, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time.

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EXECUTIVE OVERVIEW

The Company reported net income of $127.2 million for the year ended December 31, 2025, and diluted EPS of $7.49. For the same period in 2024 the Company reported net income of $113.9 million and diluted EPS of $6.71.

The year ended December 31, 2025 was highlighted by several significant items:

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Following is a table that represents the various net income measurements for the years ended December 31, 2025 and 2024.

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The Company reported adjusted net income (non-GAAP) of $129.6 million, with adjusted diluted EPS of $7.64. See section titled “GAAP to Non-GAAP Reconciliations” for additional information. Adjusted net income for the year excludes a number of non-core or non-recurring items, after-tax, as set forth in the “GAAP to Non-GAAP Reconciliation” section.

Following is a table that represents the major income and expense categories for the years ended December 31, 2025 and 2024.

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

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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 metrics are periodically updated to reflect business developments. While the Company is determined to work prudently to achieve these metrics, there is no assurance that they will be met. Moreover, the Company’s ability to achieve these metrics may 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:

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

* Ratios and amounts provided for these measurements represent year-to-date actual amounts for the respective period. The calculations provided exclude non-core noninterest income and noninterest expense.

** Excludes LIHTC construction loan sale and m2 run-off.

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

STRATEGIC DEVELOPMENTS

The Company took the following actions in 2025 to support our corporate strategy and further the strategic financial metrics shown above:

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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” and “adjusted efficiency ratio”. In compliance with applicable rules of the SEC, all non-GAAP measures are reconciled to the most directly comparable GAAP measure, as follows:

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

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.

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*    Non-core or non-recurring items (after-tax) are calculated using an estimated effective tax rate of 21% with the exception of goodwill impairment expense which is not deductible for tax.

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NET INTEREST INCOME AND MARGIN (TAX EQUIVALENT BASIS)

Net interest income, on a GAAP basis, increased 10% for the year ended December 31, 2025, compared to the prior year. Net interest income, on a tax equivalent basis (non-GAAP), increased 11% to $297.0 million for the year ended December 31, 2025, as compared to the prior year. Net interest income changed primarily due to the Company’s loan and investment growth and continued expansion of investment yields with a lower cost of funds.

A comparison of yields, spread and margin as reported on the Company’s financial statements and on a tax equivalent basis is as follows:

Acquisition accounting net accretion can fluctuate depending on the payoff activity of acquired loans. In evaluating net interest income and NIM, it is important to understand the impact of acquisition accounting net accretion when comparing periods. The above table reports NIM with and without the acquisition accounting net accretion to allow for additional comparisons.  A comparison of acquisition accounting net accretion included in NIM is as follows:

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The Company's management closely monitors and manages NIM. From a profitability standpoint, an important challenge for the Company's subsidiary banks is focusing on quality growth in conjunction with the improvement of their NIMs. Management continually addresses this issue with pricing and other balance sheet management strategies which included better loan pricing, reducing reliance on rate-sensitive funding, closely managing deposit rates and finding additional ways to manage cost of funds through derivatives.

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The Company’s average balances, interest income/expense, and rates earned/paid on major balance sheet categories are presented in the following table:

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

The Company’s operating results are also impacted by various sources of noninterest income, including trust fees, investment advisory and management fees, deposit service fees, capital markets revenue, including swap fee income and gains on loan securitizations, gains from the sales of residential real estate loans and government guaranteed loans, earnings on BOLI,  and other income. 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, 2025 and 2024

INTEREST INCOME

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

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

INTEREST EXPENSE

Comparing 2025 to 2024, interest expense decreased $15.9 million, or 6%, year-over-year. The decrease was primarily a result of the reduction of FHLB borrowings and lower deposit costs. The Company’s cost of funds was 2.97% for the year ending December 31, 2025, a decrease from 3.34% for the year ending December 31, 2024.

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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, 2025 and 2024.

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The Company’s total provision for credit losses was $18.1 million for 2025, an increase of $983 thousand from 2024. The increase in provision for credit losses on loans and leases was driven by loan growth and increased net charge-offs.  For the year ended December 31, 2025, the provision for credit losses related to OBS was a negative provision of $1.1 million, compared to a negative provision of $1.3 million for the year ended December 31, 2024.  The amount of provision or negative provision fluctuates with changes in the balance of unfunded commitments. The provision related to HTM securities for the year ended December 31, 2025 was $19 thousand as compared to a provision of  $60 thousand for the year ended December 31, 2024.  There was no provision related to AFS securities for the year ended December 31, 2025 as compared to a negative provision of $445 thousand related to AFS securities for the year ended December 31, 2024.

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 of this Annual Report on Form 10-K.

The Company had an ACL on loans/leases of 1.26% of gross loans/leases held for investment at December 31, 2025, compared to 1.32% of gross loans/leases held for investment at December 31, 2024.  Management evaluates the allowance needed on the loans acquired in previous acquisitions factoring in the remaining discount, which was $1.8 million and $2.3 million at December 31, 2025 and 2024, respectively.

Additional discussion of the Company’s allowance can be found in the “Financial Condition” section of this Annual Report on Form 10-K.

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NONINTEREST INCOME

The following tables set forth the various categories of noninterest income for the years ended December 31, 2025 and 2024.

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The Company has been successful in expanding its wealth management customer base. Trust and investment advisory and management fees continue to be a significant contributor to noninterest income. Assets under management increased by $779.7 million in 2025 totaling $7.1 billion in assets under management as of December 31, 2025.  Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. The majority of the trust fees are determined based on the value of the investments within the fully-managed trusts. Trust fees increased 10% in 2025 as compared to 2024 due to growth in assets under management and market performance. The Company expects trust fees to be negatively impacted during periods of significantly lower market valuations and positively impacted during periods of significantly higher market valuation.

Investment advisory and management fees increased 13% in 2025 as compared to 2024. Similar to trust fees, fees from these services are largely determined based on the market value of the investments managed. As a result, fee income from this line of business fluctuates with market valuations.

Deposit service fees increased 2% in 2025 as compared to 2024. The Company continues to be successful in expanding its core deposit base with a targeted focus on growing the number of net new accounts.

Gains on sales of residential real estate loans, net, remained stable in 2025 as compared to 2024.

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

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Capital markets revenue totaled $64.7 million in 2025 as compared to $71.1 million in 2024. As discussed in the “Executive Overview” section of this report, capital markets revenue was affected by macroeconomic uncertainty during the first six months of 2025, however, demand for affordable housing remains strong. In the traditional commercial portfolio, the pricing is more competitive and the duration is shorter as compared to the LIHTC permanent loans. Therefore, the mix of loans with interest rate swaps continues 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.

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Earnings on BOLI decreased 38% in 2025, driven by BOLI exchanges during the year resulting in surrender charges of $168 thousand and there were $2.2 million of death benefit proceeds on BOLI received in 2024.  There were no purchases

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of BOLI in either 2025 or 2024. Yields on BOLI (based on a simple average and excluding the impact of the federal income tax exemption) were 2.98% for 2025 and 4.97% for 2024. Notably, a portion of the Company’s BOLI is variable rate whereby the returns are determined by the performance of the equity markets. Management intends to continue to review its BOLI investments to be consistent with policy and regulatory limits in conjunction with the rest of its earning assets in an effort to maximize returns while minimizing risk.

Debit card fees are the interchange fees paid on certain debit card customer transactions. Debit card fees increased 4% in 2025 as compared to 2024. These fees can vary based on customer debit card usage, so fluctuations from period to period may occur. As an opportunity to maximize fees, the Company offers deposit products with a higher interest rate that incentivizes debit card activity.

Correspondent banking fees increased 28% in 2025 primarily due to a shift in correspondent banking balances from non-interest bearing accounts to interest bearing accounts.  Fees from correspondent banks generally increase when non-interest bearing account balances decrease due to lower associated earnings credits.  Correspondent banking continues to be a core strategy for the Company, as this line of business provides a high level of deposits that can be used to fund loan growth as well as a steady source of fee income.  The Company now serves 190 banks in Iowa, Illinois, Missouri and Wisconsin.

Loan related fee income increased 2% in 2025. The increase was primarily due to loan growth.

Fair value gain (loss) on derivatives and trading securities increased 113% in 2025. During 2024, the Company executed a derivative strategy with a notional value of approximately $409 million.  These derivatives are unhedged and are marked to market, with gains or losses recorded in noninterest income which was a contributing factor in the higher fair value losses in 2024. The Company had fair value gains on trading securities which partially offset the fair value loss on derivatives. The Company also uses unhedged cap instruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates.  See Note 7 to the Consolidated Financial Statements for additional information.

Other noninterest income increased 77% in 2025 primarily due to gains on sales of LIHTC construction loans and increases in the market value of the Company’s equity investments.  Included in other noninterest income is income on equity investments.  Income on equity investments is largely determined based on the market value of the investments managed.

NONINTEREST EXPENSES

The following tables set forth the various categories of noninterest expenses for the years ended December 31, 2025 and 2024.

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

Salaries and employee benefits, which is the largest component of noninterest expense, decreased 1% in 2025 as compared to 2024. This decrease was primarily related to capital markets revenue and its impact on variable compensation associated with performance and the capitalization of direct labor costs associated with the Company’s digital transformation projects.

Occupancy and equipment expense increased 10% in 2025 as compared to 2024. This increase was due to higher depreciation expense with the opening of a new office in the Cedar Rapids market and an increase in service contract costs.

Professional and data processing fees increased 31% in 2025 as compared to 2024. The increase was due primarily to higher professional fees related to the Company’s digital transformation projects.  Generally, professional and data processing fees can fluctuate depending on certain one-time project costs. Management will continue to focus on minimizing such one-time costs and driving recurring costs down through contract negotiation or managed reduction in activity where costs are determined on a usage basis.

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

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

Loan/lease expense decreased 7% in 2025 as compared to 2024. The decrease was due primarily to lower legal expense on loan workouts and higher recoveries of legal expenses incurred on loan workouts. Generally, loan/lease expense has a direct relationship with the level of NPLs; however, it may deviate depending upon the individual NPLs.  NPLs have decreased 5% since December 31, 2024.

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

Advertising and marketing expense increased 7% in 2025 as compared to 2024. The increase in expense was primarily due to an increase in sponsorships in 2025.

Communication and data connectivity expense decreased 44% in 2025 as compared to 2024. The decrease was primarily due to improvements to our data center connectivity channels and a reduction in cell phone and air card expenses as the Company continues to improve operational efficiencies.

Supplies expense decreased 10% in 2025 as compared to 2024. The decrease was primarily due to improved management of supply stock and the timing of purchases.

Bank service charges, a large portion of which includes indirect costs incurred to provide services to QCBT’s correspondent banking customer portfolio, increased 11% in 2025 as compared to 2024.   As transaction volumes and the number of correspondent banking clients fluctuate, associated expenses are expected to also fluctuate.

Loss on liability extinguishment totaled $2.0 million in 2025 due to the prepayment of FHLB borrowings.  There was no loss on liability extinguishment recorded in 2024.

Correspondent banking expense remained stable in 2025 as compared to 2024. These are direct costs incurred to provide services to QCBT’s correspondent banking customer portfolio, including safekeeping and cash management services.

Intangible amortization expense increased 8% in 2025 as compared to 2024. Amortization expense is due to prior acquisition activity. The increase was due to fully amortizing in 2025 an intangible that had less than one year of remaining useful life. These expenses will naturally decrease as intangibles become fully amortized unless there is an addition to intangible assets.

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There was no goodwill impairment in 2025.  Goodwill impairment expense totaled $432 thousand in 2024 due to the discontinuation of new loans and leases through m2.

Payment card processing expense decreased 14% in 2025 as compared to 2024 due to decreased transaction volume.

Trust expense increased 2% in 2025 as compared to 2024. The increase was due to an increase in assets under management of $779.7 million in 2025.

Other noninterest expense increased 10% in 2025 as compared to 2024.  The increase was due primarily to excise tax expenses on stock repurchases and increased insurance claim loss reserves at our QCRH Risk Management, Inc. micro captive entity.  Also included in other noninterest expense are other items such as meals and entertainment, subscriptions and sales and use tax.

INCOME TAX EXPENSE

The provision for income taxes was $8.7 million for 2025, or an effective tax rate of 6.4%, compared to $8.7 million for 2024, or an effective tax rate of 7.1%.  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, 2025 AND 2024

OVERVIEW

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

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In 2025, total assets increased $549.4 million, or 6%. The Company’s securities portfolio increased $111.9 million, or 9%, during 2025.  The Company’s net loan/lease portfolio increased $382.3 million, or 6%, during 2025. Deposits grew $353.0 million, or 5%, during 2025. Borrowings increased $69.0 million, or 12%, during 2024.

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. The Company has continued to grow its portfolio of 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.

Trading securities had a fair value of $83.9 million as of December 31, 2025 and consisted of retained beneficial interests acquired in conjunction with the loan securitizations completed by the Company in 2024 and 2023.

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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, 2025 and 2024.

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Due to increases in intermediate and long-term interest rates during 2025, which directly impact the fair value of the Company’s AFS portfolio, the AFS portfolio declined $1.3 million, or 0.5%, from December 31, 2024 to December 31, 2025.

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 HTM securities:

* Amortized cost above excludes ACL of $282 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 2 to the Consolidated Financial Statements for additional information regarding the Company’s investment securities.

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LOANS/LEASES

During 2025, total loans/leases grew 5.6%, or 11.7% when excluding the $285.3 million construction loan sale and the $133 million of m2 runoff. The mix of loan/lease types within the Company’s loan/lease portfolio is presented in the following tables.

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CRE loans are predominantly included within the CRE – owner occupied, CRE – non-owner occupied, construction and land development and multi-family loan classes, however, CRE loans can also be included in 1-4 family real estate based on the nature of the loan.  As CRE loans have historically been the Company’s largest portfolio segment, management places a strong emphasis on monitoring the composition of the Company’s CRE loan portfolio.  For example, management tracks the level of owner-occupied CRE loans relative to non-owner-occupied loans because owner-occupied loans are generally considered to have less risk. Additionally, the Company reviews CRE concentrations by industry in relation to risk-based capital on a quarterly basis. Approximately 46% of the CRE portfolio are LIHTC loans of which all are performing and all are pass rated.

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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 also holds 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.

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The following tables set forth the remaining maturities by loan/lease type as of December 31, 2025 and 2024. Maturities are based on contractual dates.

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See Note 3 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

The adequacy of the ACL 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.

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Changes in the ACL for loans/leases for the years ended December 31, 2025, 2024 and 2023 are presented as follows.

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