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QCR HOLDINGS, INC.

(QCRH)
  Report
Delayed Nasdaq  -  04:00 2022-09-30 pm EDT
50.94 USD   -0.51%
09/15QCR HOLDINGS, INC. : Ex-dividend day for
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09/01Raymond James Adjusts QCR Holdings' Price Target to $67 from $70, Maintains Outperform Rating
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08/19QCR Holdings Board Maintains Quarterly Dividend at $0.06 Per Common Share, Payable Oct. 5 to Shareholders of Record Sept. 16
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF

08/08/2022 | 02:49pm EDT

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 June 30,
2022. 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 twenty-nine years, the Company has grown to include four banking
subsidiaries and a number of nonbanking subsidiaries.  As of June 30, 2022, the
Company had $7.4 billion in consolidated assets, including $5.7 billion in net
loans/leases, and $5.8 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.  On April 1, 2022, the
Company completed its acquisition of GFED and on April 2, 2022 merged Guaranty
Bank, the banking subsidiary of GFED, into the Company's Springfield-based
charter, Springfield First Community Bank.  The combined bank changed its name
to Guaranty Bank.

IMPACT OF COVID-19

The progression of the COVID-19 pandemic in the United States has had an impact
on the Company's financial condition and results of operations as of and for the
three and six months ended June 30, 2022 and could continue 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 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 continue to gain
control over the virus and emerging variants. The impact that the virus
continues to have on global markets, the economy, the Company's market areas,
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 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.

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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

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, impairment
of goodwill and the fair value of financial instruments.

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:

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. A more detailed discussion of this critical accounting policy
can be found in the Company's Annual Report on Form 10-K for the year ended
December 31, 2021.

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 (Topic326)," which replaces the incurred loss methodology with a
current expected credit loss methodology, known as CECL. Additionally, CECL
required an allowance for OBS exposures to be calculated using a current
expected credit loss methodology. A more detailed discussion of this critical
accounting policy can be found in the Company's Annual Report on Form 10-K for
the year ended December 31, 2021.

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.  A more detailed discussion of this critical
accounting estimate can be found in the Company's Annual Report on Form 10-K for
the year ended December 31, 2021.

FAIR VALUE OF SECURITIES


The fair value of securities is determined monthly and the securities are stated
at fair value.  A more detailed discussion of this critical accounting estimate
can be found in the Company's Annual Report on Form 10-K for the year ended
December 31, 2021.

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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

EXECUTIVE OVERVIEW


The Company reported net income of $15.2 million and diluted EPS of $0.87 for
the quarter ended June 30, 2022. By comparison, for the quarter ended March 31,
2022 the Company reported net income of $23.6 million and diluted EPS of $1.49.
 For the quarter ended June 30, 2021, the Company reported net income of $22.3
million, and diluted EPS of $1.39.  For the six months ended Juned 30, 2022, the
Company reported net income of $38.9 million, and diluted EPS of $2.33.  By
comparison, for the six months ended June 30, 2021, the Company reported net
income of $40.3 million and diluted EPS of $2.52.

The second quarter of 2022 was also highlighted by the following results and events:

? Completed the acquisition of GFED adding approximately $1.2 billion in assets,

$808 million in gross loans and $1.1 billion in deposits;

? Reported net income of $15.2 million, or $0.87 per diluted share;

? Adjusted net income (non-GAAP) of $30.4 million, or $1.73 per diluted share;

? Acquisition/Post-acquisition related expenses and the CECL Day 2 provision

totaled $15.5 million, post-tax, or $0.88 per diluted share;

? NIM of 3.53% and Adjusted NIM (TEY)(non-GAAP) of 3.74% expanded significantly

from the prior quarter by 23 and 24 basis points, respectively;

? Capital markets revenue from swap fees of $13.0 million doubled from the first

quarter of 2022

Annualized loan and lease growth (non-GAAP) of 14.0% for the quarter, excluding

? initial loan balances acquired from the GFED transaction and SBA PPP loans

(non-GAAP); and

? Repurchased 602,500 shares at an average price of $54.80 per share.



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

                                             For the three months ended                     For the six months ended
                                June 30, 2022      March 31, 2022      June 30, 2021    June 30, 2022     June 30, 2021

                                                                (dollars in thousands)

Net income                     $        15,242    $         23,624    $        22,349   $       38,866   $        40,331

Diluted earnings per common
share                          $          0.87    $           1.49    $    

1.39 $ 2.33 $ 2.52


Weighted average common and
common equivalent shares
outstanding                         17,549,107          15,852,256        

16,045,239 16,700,682 16,035,394

The Company reported adjusted net income (non-GAAP) of $30.4 million, with adjusted diluted EPS of $1.73 for the three months ended June 30, 2022. See section titled "GAAP to Non-GAAP Reconciliations" for additional information.

 Adjusted net income for the three months ended excludes a number of
non-recurring items, after-tax, most significantly $1.9 million of acquisition
costs, $3.8 million of post-acquisition compensation, transition and integration
costs and $12.4 million of CECL Day 2 provision.  The Company reported adjusted
net income (non-GAAP) of $54.8 million, with adjusted diluted EPS of $3.28 for
the six months ended June 30, 2022.  Adjusted net income for the six months
ended excludes a number of non-recurring items, after-tax, most significantly
$3.4 million of acquisition costs, $3.8 million of post-acquisition
compensation, transition and integration costs and $12.4 million of CECL Day 2
provision.

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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

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

                                               For the three months ended                       For the six months ended
                                  June 30, 2022      March 31, 2022      June 30, 2021     June 30, 2022       June 30, 2021

                                                                   

(dollars in thousands)

Net interest income              $        59,400    $         45,733    $        43,516    $      105,133     $        85,491
Provision for credit losses               11,200             (2,916)       
          -             8,284               6,713
Noninterest income                        22,782              15,633             19,296            38,415              42,785
Noninterest expense                       54,248              38,325             35,675            92,573              72,903
Federal and state income tax
expense                                    1,492               2,333              4,788             3,825               8,329
Net income                       $        15,242    $         23,624    $        22,349    $       38,866     $        40,331

Following are some noteworthy changes in the Company's financial results:

Net interest income in the second quarter of 2022 increased 30% compared to the

first quarter of 2022. Net interest income increased 37% when comparing to the

? second quarter of 2021 and 23% when comparing the first six months of 2022 to

the same period of the prior year. The increase was due to an increase in

average earning assets, primarily attributable to the GFED transaction, but

also due to increased average loan growth.

Provision expense in the second quarter of 2022 increased $14.1 million

? compared to the first quarter of 2022. Provision expense increased $1.6

million when comparing the first six months of 2022 to the same period in the

prior year. The increase was primarily due to the GFED acquisition.

Noninterest income in the second quarter of 2022 increased $7.1 million or 46%

compared to the first quarter of 2022. Noninterest income increased $3.5

million or 18% compared to the second quarter of 2021. The increase was

primarily due to a $6.6 million increase in capital markets revenue from swap

? fees as well as the GFED acquisition. Noninterest income decreased $4.4

million or 10% when comparing the first six months of 2022 to the same period

of the prior year. The decrease was primarily due to lower capital markets

revenue from swap fee income despite the strong second quarter increases due to

   client project delays caused by ongoing supply chain disruptions and
   inflationary pressures.

Noninterest expense increased $15.9 million or 42% in the second quarter of

2022 compared to the first quarter of 2022. This increase was primarily due to

acquisition costs and post-acquisition compensation, transition and integration

costs of $6.8 million. Noninterest expense increased $18.6 million or 52%

? compared to the second quarter of 2021 and increased $19.7 million or 27% when

comparing the first six months of 2022 to the same period in the prior year.

The increase was primarily due to acquisition costs and post-acquisition

compensation, transition and integration costs of $8.6 million associated with

the acquisition of GFED. See Note 2 of the Consolidated Financial Statements

   for further discussion.


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
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 the Company's Annual

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Item 2

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Report on Form 10-K for the year ended December 31, 2021. The Company's long-term strategic financial metrics are as follows:

? Generate loan and lease growth of 9% per year, funded by core deposits;

? Grow fee-based income by at least 6% per year; and

? Limit our annual operating expense growth to 5% per year.



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

                                                                               Year to Date*
    Strategic
Financial Metric*         Key Metric           Target       June 30, 2022  

March 31, 2022 June 30, 2021

  Loan and lease
growth organically     Loans and leases
        **                  growth          > 9% annually           14.0 %             14.6 %             14.7 %
    Fee income        Fee income growth
    growth***                               > 6% annually         (26.1) %           (41.3) %           (23.3) %
     Improve
   operational
 efficiencies and
 hold noninterest        Noninterest
expense growth***       expense growth      < 5% annually           10.4 %            (4.1) %            (1.0) %

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

** Loan and lease growth excludes the initial loan balances from the GFED acquisition and PPP loans.

***Fee income growth and noninterest expense growth are both impacted by the GFED acquisition.

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

STRATEGIC DEVELOPMENTS

The Company has taken the following actions during the second quarter of 2022 to support its corporate strategy:

The Company grew loans and leases in the second quarter of 2022 by 14.0% on an

? annualized basis, excluding the initial loan balances from the GFED acquisition

and PPP loans (non-GAAP), driven by both our specialty finance group and our

traditional commercial lending and leasing business.

Correspondent banking has continued 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 currently

served - Iowa, Wisconsin, Missouri and Illinois. The Company acted as the

correspondent bank for 189 downstream banks with average total noninterest

bearing deposits of $358.7 million and average total interest-bearing deposits

of $249.9 million during the six months of 2022. By comparison, the Company

? acted as the correspondent bank for 186 downstream banks with average total

noninterest bearing deposits of $348.4 million and average total

interest-bearing deposits of $335.6 million during the six months of 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. The Company also manages off-balance sheet liquidity held at the

Federal Reserve on behalf of the downstream banks of $793.2 million as of June

30, 2022 as compared to the quarter ended March 31, 2022 of $1.4 billion.

The Company is focused on executing interest rate swaps on select commercial

loans, including LIHTC permanent loans. The 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 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

appropriate for the borrowers and the Company. Future levels of capital markets

   revenue from swap fee income


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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

are influenced by upon prevailing interest rates. Capital markets revenue from

swap fee income totaled $13.0 million for the quarter and $19.4 million for the

six months of 2022. Capital markets revenue from swap fees averaged $15.2

million per quarter for the year 2021 and $16.1 million for the last eight

  quarters.


   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 decreased by $858.1

million in the first six months of 2022 due to market value fluctuations.

There were 188 new relationships added in the first six months of 2022

? totaling $250.9 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 department fees to be

negatively impacted during periods of significantly lower market valuations and

positively impacted during periods of significantly higher market valuations.

Noninterest expense for the first six months of 2022 totaled $92.6 million as

compared to $72.9 million in the first six months of 2021. The increase was due

? to $8.6 million of acquisition costs and post-acquisition compensation,

transition and integration costs in 2022 related to the acquisition of GFED as

discussed in the Company's financial statements and the accompanying notes.

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 "loan growth annualized excluding
acquired and 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:

? TCE/TA ratio (non-GAAP) is reconciled to stockholders' equity and total assets;

? Adjusted net income, adjusted EPS and adjusted ROAA (all non-GAAP measures) are

reconciled to net income;

? NIM (TEY) (non-GAAP), adjusted NIM (TEY) (non-GAAP) and adjusted NIM, excluding

PPP income (TEY) (non-GAAP) are reconciled to NIM;

? Efficiency ratio (non-GAAP) is reconciled to noninterest expense, net interest

income and noninterest income; and

? Loan growth annualized excluding acquired and PPP loans is reconciled to total

loans and leases.



The TCE/TA non-GAAP ratio has been a focus for 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 tax-exempt 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 widely, making comparisons difficult.

The efficiency ratio is a ratio that management utilizes to compare the Company
to its peers. It is a standard ratio used to calculate overhead as a percentage
of revenue in the banking industry and is widely utilized by investors.

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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Loan growth annualized, excluding acquired and PPP loans, is a ratio that
management utilizes to compare the Company to its peers. The Company's
management believes this financial measure is important to investors as total
loans and leases for the quarter ended June 30, 2022 were materially higher due
to the addition of acquired loans and for the quarter ended June 30, 2021 were
materially higher due to the addition of PPP loans.  By excluding the acquired
and PPP loans, the investor is provided a better comparison to prior periods 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
limitations as analytical tools and should not be considered in isolation, or as
a substitute for analyses of results as reported under GAAP.

                                                       As of
GAAP TO NON-GAAP                  June 30,           March 31,         June 30,
RECONCILIATIONS                     2022                2022             2021

                                   (dollars in thousands, except per share data)
TCE/TA RATIO
Stockholders' equity (GAAP)    $       743,138     $       667,924    $   630,476
Less: Intangible assets                155,940              82,922         84,431
TCE (non-GAAP)                 $       587,198     $       585,002    $   546,045

Total assets (GAAP)            $     7,392,941     $     6,175,819    $ 5,827,412
Less: Intangible assets                155,940              82,922         84,431
TA (non-GAAP)                  $     7,237,001     $     6,092,897    $ 5,742,981

TCE/TA ratio (non-GAAP)                   8.11 %              9.60 %         9.51 %


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Item 2

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

                                              For the Quarter Ended                  For the Six Months Ended
                                  June 30,        March 31,       June 30,          June 30,        June 30,
                                     2022            2022            2021              2022            2021

                                                 (dollars in thousands, except per share data)
ADJUSTED NET INCOME
Net income (GAAP)                $     15,242    $     23,624    $     22,349      $     38,866    $     40,331
Less non-core items
(post-tax) (*):
Income:
Securities losses, net           $          -    $          -    $       (69)      $          -    $       (69)
Mark to market gains on
unhedged derivatives, net                 342             715            (58)             1,057              71
Total non-core income
(non-GAAP)                       $        342    $        715    $      (127)      $      1,057    $          2
Expense:
Disposition costs                $          -    $          -    $          -      $          -    $          7
Acquisition costs                       1,932           1,462               -             3,394               -
Post-acquisition
compensation, transition and
integration costs                       3,789               -               -             3,789               -
CECL Day 2 credit loss
expense on acquired loans               8,651               -               -             8,651               -
CECL Day 2 credit loss
expense on acquired OBS
exposure                                1,140               -               -             1,140               -
Separation agreement                        -               -               -                 -             734
Total non-core expense
(non-GAAP)                       $     15,512    $      1,462    $          -      $     16,974    $        741

Adjusted net income
(non-GAAP)                       $     30,412    $     24,371    $     22,476      $     54,783    $     41,070

ADJUSTED EPS
Adjusted net income
(non-GAAP) (from above)          $     30,412    $     24,371    $     22,476      $     54,783    $     41,070

Weighted average common
shares outstanding                 17,345,324      15,625,112      15,813,932        16,485,218      15,808,788
Weighted average common and
common equivalent shares
outstanding                        17,549,107      15,852,256      16,045,239        16,700,682      16,035,394

Adjusted EPS (non-GAAP):
Basic                            $       1.75    $       1.56    $       1.42      $       3.32    $       2.60
Diluted                          $       1.73    $       1.54    $       1.40      $       3.28    $       2.56

ADJUSTED ROAA
Adjusted net income
(non-GAAP) (from above)          $     30,412    $     24,371    $     22,476      $     54,783    $     41,070

Average Assets                   $  7,324,470    $  6,115,127    $  5,739,067      $  6,723,137    $  5,704,151

Adjusted ROAA (non-GAAP)                 1.66 %          1.59 %          1.57 %            1.63 %          1.44 %

ADJUSTED NIM (TEY)*
Net interest income (GAAP)       $     59,400    $     45,733    $     43,516      $    105,133    $     85,491
Plus: Tax equivalent
adjustment                              3,396           2,933           2,444             6,327           4,702
Net interest income - tax
equivalent (non-GAAP)            $     62,796    $     48,666    $     45,960      $    111,460    $     90,193
Less: Acquisition accounting
net accretion                           1,695             118             291             1,813             795
Adjusted net interest income           61,101          48,548          45,669           109,647          89,398
Less: PPP income                          125             530           1,658               655           3,921
Adjusted net interest income,
excluding PPP income             $     60,976    $     48,018    $     44,011      $    108,992    $     85,477

Average earning assets           $  6,742,095    $  5,625,813    $  5,320,881      $  6,187,038    $  5,269,820

NIM (GAAP)                               3.53 %          3.30 %          3.28 %            3.43 %          3.27 %
NIM (TEY) (non-GAAP)                     3.74 %          3.50 %          3.46 %            3.63 %          3.45 %
Adjusted NIM (TEY) (non-GAAP)            3.64 %          3.50 %          3.44 %            3.57 %          3.42 %
Adjusted NIM, excluding PPP
income (TEY) (non-GAAP)                  3.63 %          3.46 %          3.32 %            3.55 %          3.27 %

EFFICIENCY RATIO
Noninterest expense (GAAP)       $     54,248    $     38,325    $     35,675      $     92,573    $     72,903

Net interest income (GAAP)       $     59,400    $     45,733    $     43,516      $    105,133    $     85,491
Noninterest income (GAAP)              22,782          15,633          19,296            38,415          42,785
Total income                     $     82,182    $     61,366    $     62,812      $    143,548    $    128,276

Efficiency ratio (noninterest
expense/total income)
(non-GAAP)                              66.01 %         62.45 %         56.80 %           64.49 %         56.83 %

LOAN GROWTH, EXCLUDING
ACQUIRED AND PPP LOANS
Total loans and leases           $  5,797,903    $  4,827,868    $  4,417,705      $  5,797,903    $  4,417,705
Less: Acquired loans                  807,599               -               -           807,599               -
Less: PPP loans                            79           6,340         147,506                79         147,506
Total loans and leases,
excluding acquired and PPP
loans                            $  4,990,225    $  4,821,528    $  4,117,191      $  4,990,225    $  4,270,199

Loan growth, excluding
acquired and PPP loans                  14.00 %         14.58 %         14.87 %           14.54 %         12.90 %


*   Nonrecurring items (after-tax) are calculated using an estimated effective
tax rate of 21% with the exception of acquisition costs which have an estimated
effective tax rate of 11.26%.

NET INTEREST INCOME - (TAX EQUIVALENT BASIS)


Net interest income, on a tax equivalent basis, increased 37% to $62.8 million
for the quarter ended June 30, 2022 compared to the same quarter of the
prior year and increased 24% to $111.5 million for the six months ended June 30,
2022. Net interest income, on a GAAP basis, increased 37% for the quarter ended
June 30, 2022 compared to the same quarter of the prior year, and increased 23%
for the six months ended June 30, 2022 compared to the same period of the

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prior year. Net interest income improved due to the GFED acquisition, but also
due to increased average organic loan growth and NIM expansion with the rapidly
rising interest rate environment.

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

                                           Tax Equivalent Basis                              GAAP
                                          For the Quarter Ended                      For the Quarter Ended
                                  June 30,      March 31,     June 30,     June 30,         March 31,     June 30,
                                     2022          2022          2021         2022             2022          2021
Average Yield on
Interest-Earning Assets             4.26 %        3.88 %        3.87 %       4.05 %           3.63 %          3.68 %
Average Cost of
Interest-Bearing Liabilities        0.74 %        0.56 %        0.60 %       0.74 %           0.55 %          0.60 %
Net Interest Spread                 3.52 %        3.32 %        3.27 %       3.31 %           3.08 %          3.08 %
NIM (TEY) (Non-GAAP)                3.74 %        3.50 %        3.46 %       3.53 %           3.30 %          3.28 %
NIM Excluding Acquisition
Accounting Net Accretion            3.64 %        3.50 %        3.44 %       3.50 %           3.25 %          3.27 %

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:

                                                        For the Quarter Ended                For the Six Months Ended
                                               June 30,       March 31,       June 30,       June 30,         June 30,
                                                 2022            2022           2021           2022             2021
                                                        (dollars in thousands)                (dollars in thousands)

Acquisition Accounting Net Accretion in NIM 1,695 $ 118 $ 291 $ 1,813 $ 795



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 strategies which include better loan pricing,
reducing reliance on very rate-sensitive funding, closely managing deposit rate
changes and finding additional ways to manage cost of funds through derivatives.

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           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

The Company's average balances, interest income/expense, and rates earned/paid
on major balance sheet categories, as well as the components of change in net
interest income, are presented in the following tables:

                                                              For the Three Months Ended June 30,
                                                        2022                                       2021
                                                       Interest      Average                      Interest      Average
                                          Average       Earned      Yield or         Average       Earned      Yield or
                                          Balance       or Paid       Cost           Balance       or Paid       Cost

                                                                     (dollars in thousands)
ASSETS
Interest earning assets:
Federal funds sold                      $     5,896    $      12         0.83 %    $     1,817    $       1         0.06 %
Interest-bearing deposits at
financial institutions                       67,254          169         1.01 %         88,396           35         0.16 %
Investment securities (1)                   920,308        9,002         3.91 %        798,732        7,294         3.66 %
Restricted investment securities             37,166          485         5.16 %         19,614          238         4.79 %
Gross loans/leases receivable (1)
(2) (3)                                   5,711,471       61,932         4.35 %      4,412,322       43,776         3.98 %
Total interest earning assets             6,742,095       71,600         

4.26 % 5,320,881 51,344 3.87 %


Noninterest-earning assets:
Cash and due from banks                      97,927                                     62,876
Premises and equipment                      114,510                                     74,328
Less allowance                             (81,871)                                   (80,603)
Other                                       451,809                                    361,585
Total assets                            $ 7,324,470                                $ 5,739,067

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits               $ 3,791,595        4,478         0.47 %    $ 2,978,382        2,050         0.28 %
Time deposits                               529,675        1,047         0.79 %        440,599        1,184         1.08 %
Short-term borrowings                         1,404            3         0.78 %         10,883            1         0.05 %
FHLB advances                               286,484          780         1.08 %         21,802           15         0.28 %
Subordinated notes                          133,529        1,816         5.44 %        115,339        1,570         5.45 %
Junior subordinated debentures               46,536          680         

5.78 % 38,044 564 5.86 % Total interest-bearing liabilities 4,789,223 8,804 0.74 % 3,605,049 5,384 0.60 %

Noninterest-bearing demand deposits       1,546,174                        
         1,290,751
Other noninterest-bearing
liabilities                                 200,869                                    219,267
Total liabilities                         6,536,266                                  5,115,067

Stockholders' equity                        788,204                                    624,000
Total liabilities and stockholders'
equity                                  $ 7,324,470                                $ 5,739,067
Net interest income                                    $  62,796                                  $  45,960
Net interest spread                                                      3.52 %                                     3.27 %
Net interest margin                                                      3.53 %                                     3.28 %
Net interest margin (TEY)(Non-GAAP)                                      3.74 %                                     3.46 %
Adjusted net interest margin
(TEY)(Non-GAAP)                                                          3.64 %                                     3.44 %
Adjusted net interest margin,
excluding PPP income(TEY)(Non-GAAP)                                      3.63 %                                     3.32 %
Ratio of average interest-earning
assets to average interest-bearing
liabilities                                  140.78 %                                   147.60 %


(1) Interest earned and yields on nontaxable investment securities and nontaxable

loans are determined on a tax equivalent basis using a 21% tax rate.

Loan/lease fees are not material and are included in interest income from (2) loans/leases receivable in accordance with accounting and regulatory

guidance.

Non-accrual loans/leases are included in the average balance for gross (3) loans/leases receivable in accordance with accounting and regulatory

    guidance.


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            Analysis of Changes of Interest Income/Interest Expense

                    For the Three Months Ended June 30, 2022

                                                          Inc./(Dec.)              Components
                                                              from               of Change (1)
                                                        Prior Period (1)       Rate        Volume

                                                                      2022 vs. 2021
                                                                  (dollars in thousands)
INTEREST INCOME
Federal funds sold                                     $               11    $      10    $       1
Interest-bearing deposits at financial institutions                   134          193         (59)
Investment securities (2)                                           1,708          525        1,183
Restricted investment securities                                      247           20          227
Gross loans/leases receivable (2) (3)                              18,156        4,363       13,793
Total change in interest income                                    20,256  
     5,111       15,145

INTEREST EXPENSE
Interest-bearing deposits                                           2,428        1,748          680
Time deposits                                                       (137)      (1,171)        1,034
Short-term borrowings                                                   2           11          (9)
Federal Home Loan Bank advances                                       765          148          617
Subordinated notes                                                    246            -          246
Junior subordinated debentures                                        116         (50)          166
Total change in interest expense                                    3,420  

686 2,734

Total change in net interest income                    $           16,836  

$ 4,425 $ 12,411

The column "Inc./(Dec.) from Prior Period" is segmented into the changes (1) 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.

(2) Interest earned and yields on nontaxable investment securities and nontaxable

loans are determined on a tax equivalent basis using a 21% tax rate.

Loan/lease fees are not material and are included in interest income from (3) loans/leases receivable in accordance with accounting and regulatory

    guidance.


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                                                               For the Six Months Ended June 30,
                                                        2022                                       2021
                                                       Interest      Average                      Interest      Average
                                          Average       Earned      Yield or         Average       Earned      Yield or
                                          Balance       or Paid       Cost           Balance       or Paid       Cost

                                                                     (dollars in thousands)
ASSETS
Interest earning assets:
Federal funds sold                      $     5,234    $      14         0.53 %    $     1,830    $       1         0.05 %
Interest-bearing deposits at
financial institutions                       68,285          204         0.60 %        102,343           71         0.14 %
Investment securities (1)                   861,610       16,683         3.87 %        804,364       14,344         3.57 %
Restricted investment securities             29,716          766         5.13 %         18,843          456         4.81 %
Gross loans/leases receivable (1)
(2) (3)                                   5,222,193      107,927         4.17 %      4,342,440       86,299         4.01 %
Total interest earning assets             6,187,038      125,594         

4.09 % 5,269,820 101,171 3.87 %

Noninterest-earning assets:
Cash and due from banks                      75,928                                     64,741
Premises and equipment, net                  97,103                                     73,752
Less allowance for estimated losses
on loans/leases                            (80,393)                                   (83,494)
Other                                       443,461                                    379,332
Total assets                            $ 6,723,137                                $ 5,704,151

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits        $ 3,511,396        6,816         0.39 %    $ 2,979,835        4,036         0.27 %
Time deposits                               464,647        1,846         0.80 %        444,297        2,625         1.19 %
Short-term borrowings                         1,676            3         0.36 %          9,021            3         0.06 %
Federal Home Loan Bank advances             186,685          863         0.92 %         17,464           25         0.28 %
Subordinated notes                          123,753        3,370         5.45 %        117,014        3,164         5.41 %
Junior subordinated debentures               42,376        1,236         

5.80 % 38,026 1,125 5.87 % Total interest-bearing liabilities 4,330,533 14,134 0.66 % 3,605,657 10,978 0.61 %

Noninterest-bearing demand deposits       1,412,019                        
         1,245,401
Other noninterest-bearing
liabilities                                 244,133                                    239,032
Total liabilities                         5,986,685                                  5,090,090

Stockholders' equity                        736,452                                    614,061
Total liabilities and stockholders'
equity                                  $ 6,723,137                                $ 5,704,151
Net interest income                                    $ 111,460                                  $  90,193
Net interest spread                                                      3.43 %                                     3.26 %
Net interest margin                                                      3.43 %                                     3.27 %
Net interest margin (TEY)(Non-GAAP)                                      3.63 %                                     3.45 %
Adjusted net interest margin
(TEY)(Non-GAAP)                                                          3.57 %                                     3.42 %
Adjusted net interest margin,
excluding PPP income(TEY)(Non-GAAP)                                      3.55 %                                     3.27 %
Ratio of average interest earning
assets to average interest-bearing
liabilities                                  142.87 %                                   146.15 %



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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

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                    Analysis of Changes of Interest Income/Interest Expense
                             For the six months ended June 30, 2022

                                                       Inc./(Dec.)              Components
                                                           from               of Change (1)
                                                     Prior Period (1)       Rate        Volume

                                                                   2022 vs. 2021
                                                               (dollars in thousands)
INTEREST INCOME
Federal funds sold                                  $               13    $      11    $       2
Interest-bearing deposits at other financial
institutions                                                       133          208         (75)
Investment securities (2)                                        2,339        1,266        1,073
Restricted investment securities                                   310           32          278
Gross loans/leases receivable (2) (3)                           21,628        3,559       18,069
Total change in interest income                                 24,423     

5,076 19,347


INTEREST EXPENSE
Interest-bearing demand deposits                                 2,780     
  1,984          796
Time deposits                                                    (779)      (1,108)          329
Short-term borrowings                                                -            7          (7)
Federal Home Loan Bank advances                                    838          160          678
Subordinated notes                                                 206            -          206
Junior subordinated debentures                                     111            -          111
Total change in interest expense                                 3,156     

1,043 2,113

Total change in net interest income                 $           21,267    $

4,033 $ 17,234

The column "Inc./(Dec.) from Prior Period" is segmented into the changes (1) 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.

(2) Interest earned and yields on nontaxable investment securities and nontaxable

loans are determined on a tax equivalent basis using a 21% tax rate.

Loan/lease fees are not material and are included in interest income from (3) loans/leases receivable in accordance with accounting and regulatory

guidance.



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

INTEREST INCOME


Interest income (tax equivalent) increased 39%, comparing the second quarter of
2022 to the same period of 2021 and increased 24% when comparing the first half
of 2022 to the same period of 2021. This was primarily due the GFED acquisition,
but also due to an increase in the yield of average securities and average
loans/leases as well as an increased volume of average organic loans/leases.

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


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INTEREST EXPENSE

Interest expense (tax equivalent) for the second quarter of 2022 increased 64%
from the second quarter of 2021 and increased 29% comparing the first half of
2022 to the same period of 2021.  The increase is primarily due to the GFED
acquisition, however the Company has grown organically at a significant pace
over the past several years and core deposit growth has funded the larger
majority of the growth.  The cost of funds on the Company's average
interest-bearing liabilities increased in conjunction with the rising rate
environment. The Company's cost of funds was 0.74% for the quarter ended June
30, 2022, which was up from 0.60% for the quarter ended June 30, 2021.   The
Company's cost of funds was 0.66% for the six months ended June 30, 2022, which
was up from 0.61% for the six months ended June 30, 2021.

PROVISION FOR CREDIT LOSSES


The ACL is established through provision expense to provide an estimated ACL.
The following table shows the components of the provision for credit losses for
the three months ended June 30, 2022 and 2021.

                                        Three Months Ended             Six Months Ended
                                     June 30,       June 30,       June 30,        June 30,
                                       2022           2021            2022           2021

                                      (dollars in thousands)        (dollars in thousands)

Provision for credit losses -
loans and leases                    $    12,141    $     (141)    $      8,292    $     5,852
Provision for credit losses -
off-balance sheet exposures               (941)            141             (8)            870
Provision for credit losses -
held to maturity securities                   -              -               -            (9)
Total provision for credit
losses                              $    11,200    $         -    $      

8,284 $ 6,713



The Company's total provision for credit losses was $11.2 million for the second
quarter of 2022, compared to no provision for the second quarter of 2021. The
increase was due to the CECL Day 2 provision of $11.0 million as a result of the
GFED acquisition. This decrease in provision related to OBS was due to a
decrease in the balance of those OBS exposures with increase of line of credit
usage.

Provision for the first six months of 2022 totaled $8.3 million, which was up
from $6.7 million in the first six months of 2021. The increase in provision on
loans and leases was driven by the CECL Day 2 credit loss expense of $11.0
million as a result of the GFED acquisition offset by negative provision on
other charters. The provision related to OBS was a negative $8 thousand,
compared to $870 thousand for the six months ended June 30, 2021.  The decrease
was due to the decrease in the balance of those OBS exposures with decrease of
line of credit usage.

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 risk associated with the loans/leases and securities in the portfolio as
described in more detail in the "Critical Accounting Policies" section.

The Company had an ACL on loans/leases of 1.59% of total gross loans/leases at June 30, 2022, compared to 1.55% at March 31, 2022 and 1.79% at June 30, 2021.

 Management evaluates the allowance needed on the acquired loans factoring in
the remaining discount, which was $13.0 million and $2.2 million at June 30,
2022 and June 30, 2021, respectively.

Additional discussion of the Company's allowance can be found in the "Financial Condition" section of this Report.


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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

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NONINTEREST INCOME

The following tables set forth the various categories of noninterest income for the three and six months ended June 30, 2022 and 2021.

                                                    Three Months Ended
                                                 June 30,       June 30,
                                                    2022          2021         $ Change     % Change

                                                                (dollars in thousands)

Trust department fees                            $    2,497    $     2,848    $    (351)      (12.3) %
Investment advisory and management fees                 983          1,039          (56)       (5.4)
Deposit service fees                                  2,223          1,492           731        49.0
Gains on sales of residential real estate
loans, net                                              809          1,184         (375)      (31.7)
Swap fee income/capital markets revenue              13,004          9,568         3,436        35.9
Securities losses, net                                    -           (88)            88     (100.0)
Earnings on bank-owned life insurance                   350            451 
       (101)      (22.4)
Debit card fees                                       1,499          1,084           415        38.3
Correspondent banking fees                              244            269          (25)       (9.3)
Other                                                 1,173          1,449         (276)      (19.0)
Total noninterest income                         $   22,782    $    19,296    $    3,486        18.1 %


                                                      Six Months Ended
                                                  June 30,       June 30,
                                                    2022           2021        $ Change    % Change

                                                                (dollars in thousands)

Trust department fees                            $     5,460    $     5,649    $   (189)      (3.3) %
Investment advisory and management fees                2,019          1,979           40        2.0
Deposit service fees                                   3,778          2,900          878       30.3
Gains on sales of residential real estate
loans, net                                             1,302          2,521      (1,219)     (48.4)
Gains on sales of government guaranteed
portions of loans, net                                    19              -           19      100.0
Swap fee income/capital markets revenue               19,426         23,125      (3,699)     (16.0)
Securities losses, net                                     -           (88)           88    (100.0)
Earnings on bank-owned life insurance                    696            922
       (226)     (24.5)
Debit card fees                                        2,506          2,059          447       21.7
Correspondent banking fees                               521            583         (62)     (10.6)
Other                                                  2,688          3,135        (447)     (14.3)
Total noninterest income                         $    38,415    $    42,785    $ (4,370)     (10.2) %


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 decreased by $468.8
million in the second quarter of 2022 and decreased by $550.4 million since June
30, 2021 due to market volatility.  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 decreased 12%, comparing the second quarter of
2022 to the same period of the prior year and they decreased 3% when comparing
the first half of 2022 to the first half of 2021.  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 valuations.

Investment advisory and management fees decreased 5%, comparing the second
quarter of 2022 to the same period of the prior year and they increased 2% when
comparing the first half of 2022 to the first half of 2021. Similar to trust
department fees, investment advisory and management fees 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.

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Deposit service fees increased 49% comparing the second quarter of 2022 to the
same period of the prior year, and increased 30% when comparing the first half
of 2022 to the first half of 2021. This increase was primarily due the GFED
acquisition. The Company continues to emphasize shifting the mix of deposits
from 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 32% when
comparing the second quarter of 2022 to the same period of the prior year, and
decreased 48% when comparing the first half of 2022 to the same period of the
prior year. The decrease was primarily due to decreased residential real estate
purchase and the refinancing of residential real estate loans with higher
interest rates in 2022.

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 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 $13.0 million for the second quarter of
2022, compared to $9.6 million for the second quarter of 2021. Swap fee
income/capital markets revenue totaled $19.4 for the first half of 2022,
compared to $23.1 million for the first half of 2021. Swap fee income relative
to the increase in notional amount of the non-hedging interest rate swap
contracts was 9.0% for the three months ended June 30, 2022 and 12.0% for the
same period of the prior year.  Swap fee income relative to the increase in
notional amount of the non-hedging interest rate swap contracts was 10.3% for
the first half of 2022 as compared to 10.9% for the first half of 2021.  The
decrease in the ratio was primarily due to the steepening of the yield curve. 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.

There were no securities gains or losses for the three and six months ended June
30, 2022.  Securities losses totaled $88 thousand for the three and six months
ended June 30, 2021.

Earnings on BOLI decreased 22% comparing the second quarter of 2022 to the
second quarter of 2021 and decreased 25% comparing the first half of 2022 to the
first half of 2021. There were no purchases of BOLI within the last 12 months.
Notably, a portion of the Company's BOLI is variable rate whereby returns are
determined by the performance of the equity markets.  Management intends to
continue to review its BOLI investments to be consistent with policy and
regulatory limits in conjunction with the rest of its earning assets in an
effort to maximize returns while minimizing risk.

Debit card fees are the interchange fees paid on certain debit card customer
transactions. Debit card fees increased 38% comparing the second quarter of 2022
to the second quarter of the prior year, and increased 22% comparing the first
half of 2022 to the first half of 2021. The increase was primarily due to the
GFED acquisition.  The fees can vary based on customer debit card usage, so
fluctuations from period to period may occur. As an opportunity to maximize
fees, the Company offers a deposit product with a higher interest rate that
incentivizes debit card activity.

Correspondent banking fees decreased 9% comparing the second quarter of 2022 to
the second quarter of the prior year, and decreased 11% comparing the first half
of 2022 to the first half of 2021. These 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 deposits that can be used to
fund
loan growth as

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           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

well as a steady source of fee income. The Company now serves approximately 189 banks in Iowa, Illinois, Missouri and Wisconsin.

Other noninterest income decreased 19% comparing the second quarter of 2022 to
the first quarter of the prior year, and decreased 14% comparing the first half
of 2022 to the first half of 2021.  The decrease was primarily due to lower
equity investment income and lower gains on disposal of leased assets.

NONINTEREST EXPENSE

The following tables set forth the various categories of noninterest expense for the three and six months ended June 30, 2022 and 2021.

                                                 Three Months Ended
                                              June 30,       June 30,
                                                 2022          2021        $ Change     % Change

                                                              (dollars in thousands)
Salaries and employee benefits                $   29,972    $    23,044    $   6,928        30.1 %
Occupancy and equipment expense                    5,978          3,965        2,013        50.8
Professional and data processing fees              4,365          3,702          663        17.9
Acquisition costs                                  1,973              -        1,973       100.0
Post-acquisition compensation, transition
and integration costs                              4,796              -        4,796       100.0
FDIC insurance, other insurance and
regulatory fees                                    1,394            986          408        41.4
Loan/lease expense                                   761            457          304        66.5
Net cost of (income from) and gains/losses
on operations of other real estate                    59          (113)    
     172     (152.2)
Advertising and marketing                          1,198            853          345        40.4
Bank service charges                                 610            572           38         6.6
Correspondent banking expense                        213            198    
      15         7.6
Intangibles amortization                             787            508          279        54.9
Other                                              2,142          1,503          639        42.5
Total noninterest expense                     $   54,248    $    35,675    $  18,573        52.1 %


                                                   Six Months Ended
                                               June 30,       June 30,
                                                 2022           2021        $ Change     % Change

                                                              (dollars in thousands)
Salaries and employee benefits                $    53,599    $    47,891    $   5,708        11.9 %
Occupancy and equipment expense                     9,915          8,073        1,842        22.8
Professional and data processing fees               8,036          7,145          891        12.5
Acquisition costs                                   3,824              -        3,824       100.0
Post-acquisition compensation, transition
and integration costs                               4,796              -        4,796       100.0
Disposition costs                                       -              8          (8)     (100.0)
FDIC insurance, other insurance and
regulatory fees                                     2,704          2,051          653        31.8
Loan/lease expense                                  1,028            757          271        35.8
Net cost of (income from) and gains/losses
on operations of other real estate                     58           (74)   
      132     (178.4)
Advertising and marketing                           1,959          1,480          479        32.4
Bank service charges                                1,151          1,095           56         5.1
Correspondent banking expense                         412            398           14         3.5
Intangibles amortization                            1,280          1,016          264        26.0
Other                                               3,811          3,063          748        24.4
Total noninterest expense                     $    92,573    $    72,903    $  19,670        27.0 %



Management places a strong emphasis on overall cost containment and is committed
to improving the Company's general efficiency. One-time charges relating to
acquisitions and employment separation expenses impacted expense in 2022 and
2021.

Salaries and employee benefits, which is the largest component of noninterest
expense, increased from the second quarter of 2021 to the second quarter of 2022
by 30%, and increased from the first half of 2021 to the first half of 2022 by
12%.

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The increased expense was primarily related to the GFED acquisition which resulted in an increase of 165 full-time equivalent employees.

Occupancy and equipment expense increased 51% comparing the second quarter of
2022 to the same period of the prior year, and increased 23% comparing the first
half of 2022 to the first half of 2021. The increase was due to higher
depreciation expense and computer hardware expense related to the GFED
acquisition.

Professional and data processing fees increased 18% comparing the second quarter
of 2022 to the same period in 2021, and increased 13% comparing the first half
of 2022 to the first half of 2021.  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 $2.0 million in the second quarter of 2022 and $3.8
million in the first half of 2022.  There were no acquisition costs incurred in
the three and six months of 2021.  The acquisition costs, which were primarily
legal, accounting and other professional fees, relate to the acquisition of GFED
as discussed in Note 2 of the consolidated financial statements.

Post-acquisition compensation, transition and integration costs totaled $4.8
million for the three and six months ended June 30, 2022.  There were no
post-acquisition compensation, transition and integration costs incurred in the
three and six months of 2021.  These costs were comprised primarily of personnel
costs, IT integration and data conversion costs related to the acquisition of
GFED.

There were no disposition costs for the first six months of 2022, compared with
$8 thousand for the first half of 2021.   The disposition costs in 2021 were
comprised primarily of legal, accounting and personnel costs related to the sale
of the Bates Companies in the third quarter of 2020.

FDIC insurance, other insurance and regulatory fee expense increased 41%,
comparing the second quarter of 2022 to the second quarter of 2021, and
increased 32% comparing the first half of 2022 to the first half of 2021.  The
increase in expense was due to the GFED acquisition as well as an increase in
the asset size of the Company in 2022, which increased the Company's rates.

Loan/lease expense increased 67% when comparing the second quarter of 2022 to
the same quarter of 2021, and increased 36% comparing the first half of 2022 to
the same period of the prior year. 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 cost of and gains/losses on operations
of other real estate totaled $59 thousand for the second quarter of 2022,
compared to net income from and gains/losses on operations of other real estate
of $113 thousand for the second quarter of 2021. Net cost of and gains/losses on
operations of other real estate totaled $58 thousand for the first half of 2022,
compared to net income from and gains/losses on operations of other real estate
of $74 thousand for the first half of 2021.

Advertising and marketing expense increased 40% comparing the second quarter of
2022 to the second quarter of 2021, and increased 32% comparing the first half
of 2022 to the first half of 2021. The increase in expense was primarily due to
the return to more normal operations during the second half of 2021 and first
half of 2022 in response to improvements in the general economic environment
tied to COVID-19 as compared to the first half of 2021.

Bank service charges, a large portion of which includes indirect costs incurred
to provide services to QCBT's correspondent banking customer portfolio,
increased 7% when comparing the second quarter of 2022 to the same quarter of
2021, and increased 5% when comparing the first half of 2022 to the same period
of 2021.  As transaction volumes continue to increase and the number of
correspondent banking clients increases, the associated expenses are expected to
also increase.

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Correspondent banking expense increased 8% when comparing the second quarter of
2022 to the second quarter of 2021, and increased 4% when comparing the first
half of 2022 to the same period of the prior year.  These are direct costs
incurred to provide services to QCBT's correspondent banking customer portfolio,
including safekeeping and cash management services.

Intangibles amortization expense increased 55% when comparing the second quarter
of 2022 to the same quarter of 2021 and increased 26% when comparing the first
half of 2022 to the same period of the prior year. The increase is due to the
GFED acquisition.  These expenses will naturally decrease as intangibles become
fully amortized unless there is an addition to intangible assets.

Other noninterest expense increased 43% when comparing the second quarter of
2022 to the second quarter of 2021 and increased 24% when comparing the first
half of 2022 to the same period of the prior year primarily due to increased
travel and debit card processing expenses.  Also included in other noninterest
expense are other items such as subscriptions, sales and use tax and expenses
related to wealth management.

INCOME TAXES


In the second quarter of 2022, the Company incurred income tax expense of $1.5
million. During the first half of the year, the Company incurred income tax
expense of $3.8 million. Following is a reconciliation of the expected income
tax expense to the income tax expense included in the consolidated statements of
income for the three and six months ended June 30, 2022 and 2021.

                                   For the Three Months Ended June 30,               For the Six Months Ended June 30,
                                       2022                    2021                     2022                   2021
                                               % of                   % of                     % of                   % of
                                              Pretax                 Pretax                   Pretax                 Pretax
                                 Amount       Income     Amount      Income       Amount      Income     Amount      Income

                                                                  (dollars in thousands)

Computed "expected" tax
expense                        $     3,514      21.0 %  $   5,699      21.0 %    $   8,965      21.0 %  $  10,219      21.0 %
Tax exempt income, net             (2,476)    (14.8)      (1,802)     (6.6)        (4,698)    (11.0)      (3,521)     (7.2)
Bank-owned life insurance             (73)     (0.4)         (95)     (0.4)          (146)     (0.3)        (194)     (0.4)
State income taxes, net of
federal benefit, current
year                                   982       5.9        1,247       4.6          2,273       5.3        2,271       4.7
Provision adjustment from
accounting method change                 -         -            -         -        (1,181)     (2.8)            -         -
Tax credits                          (289)     (1.7)         (57)     (0.2)          (531)     (1.2)        (114)     (0.2)
Income from tax credit
equity investments                     158       0.9            -         -          (143)     (0.3)            -         -
Acquisition costs                      242       1.4            -         -            372       0.9            -         -
Excess tax benefit on stock
options exercised and
restricted stock awards
vested                                (40)     (0.2)         (40)     (0.1)          (474)     (1.1)        (204)     (0.4)
Other                                (526)     (3.2)        (164)     (0.7)          (612)     (1.5)        (128)     (0.3)
Federal and state income
tax expense                    $     1,492       8.9 %  $   4,788      17.6 %    $   3,825       9.0 %  $   8,329      17.2 %


The effective tax rate for the quarter ended June 30, 2022 was 8.9%, which was a
decrease from the effective tax rate of 17.6% for the quarter ended June 30,
2021. The effective tax rate for the six months ended June 30, 2022 was 9.0%,
which was a decrease from the effective tax rate of 17.2% for the six months
ended June 30, 2021.  The decrease was primarily due to:

? Reduced pre-tax income due to elevated non-recurring costs related to the GFED

acquisition;

? Increased tax-exempt income;

? Provision adjustment of $1.2 million from an accounting method change; and

 ? Excess tax benefit on stock compensation in the first quarter of 2022.


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FINANCIAL CONDITION


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

                                                                                 As of
                                     June 30, 2022           March 31, 2022           December 31, 2021           June 30, 2021
                                                                         (dollars in thousands)

                                     Amount        %         Amount        %            Amount         %          Amount        %
Cash, federal funds sold, and
interest-bearing deposits          $   148,911      2 %    $   116,930     
 2 %    $      125,152      2 %     $   144,378      2 %
Securities                             879,918     12 %        823,311      13 %           810,215     13 %         810,445     14 %
Net loans/leases                     5,705,478     77 %      4,753,082      77 %         4,601,411     75 %       4,338,811     75 %
Derivatives                             97,455      1 %        107,326       2 %           222,220      4 %         193,395      3 %
Other assets                           561,179      8 %        375,170       6 %           337,134      6 %         340,383      6 %
Total assets                       $ 7,392,941    100 %    $ 6,175,819     100 %    $    6,096,132    100 %     $ 5,827,412    100 %

Total deposits                     $ 5,820,657     78 %    $ 4,839,689      78 %    $    4,922,772     80 %     $ 4,688,935     80 %
Total borrowings                       583,166      8 %        443,270       7 %           170,805      3 %         198,908      3 %
Derivatives                            113,305      2 %        116,193       2 %           225,135      4 %         196,092      3 %
Other liabilities                      132,675      2 %        108,743       2 %           100,410      2 %         113,001      2 %
Total stockholders' equity             743,138     10 %        667,924     
11 %           677,010     11 %         630,476     11 %
Total liabilities and
stockholders' equity               $ 7,392,941    100 %    $ 6,175,819     100 %    $    6,096,132    100 %     $ 5,827,412    100 %


During the second quarter of 2022, the Company's total assets increased $1.2
billion, or 20% from March 31, 2022, to a total of $7.4 billion. The Company's
net loans/leases increased $952.4 million in the second quarter of 2022. Total
deposits increased $981.0 million in the second quarter of 2022. Borrowings
increased $139.9 million in the second quarter of 2022.  These increases were
primarily due to the GFED acquisition.  At the acquisition date, GFED had $1.2
billion in assets, $801.7 million in net loans/leases, $1.1 billion in deposits
and $45.9 million in borrowings.

INVESTMENT SECURITIES


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

Following is a breakdown of the Company's securities portfolio by type, the percentage of unrealized gains (losses) to carrying value, net of allowance for credit losses, on the total portfolio, and the portfolio duration:

                                                                            As of
                                   June 30, 2022          March 31, 2022          December 31, 2021          June 30, 2021
                                  Amount       %          Amount       %           Amount         %         Amount       %

                                                                   (dollars in thousands)

U.S. treasuries and govt.
sponsored agency securities      $  20,448       2 %    $   21,380       3 %    $      23,328       3 %    $  14,670       2 %
Municipal securities               710,440      82 %       667,048      81 %          639,601      79 %      641,430      79 %
Residential mortgage-backed
and related securities              81,247       9 %        86,380      10 %           94,323      12 %      106,138      13 %
Asset-backed securities             19,956       2 %        23,232       3 %           27,124       3 %       31,779       4 %
Other securities                    47,827       5 %        25,271       3 %           25,839       3 %       16,428       2 %
                                 $ 879,918     100 %    $  823,311     100 %    $     810,215     100 %    $ 810,445     100 %

Securities as a % of total
assets                               11.90 %                 13.33 %                    13.29 %                13.96 %
Net unrealized gains (losses)
as a % of Amortized Cost            (6.12) %                (1.63) %                     7.17 %                 7.63 %
Duration (in years)                    7.8                     7.9                        8.2                    8.1
Yield on investment
securities (tax equivalent)           3.91 %                  3.83 %                     3.66 %                 3.66 %


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Due to the sharp increase in intermediate and long-term interest rates during
the six months ended June 30, 2022, the valuation of the Company's AFS portfolio
declined significantly. As a result, the Company's net unrealized gain as a
percentage of amortized cost changed from 7.17% as of December 31, 2021 to a net
unrealized loss as a percentage of amortized cost of -6.12% as of June 30, 2022.

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

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

LOANS/LEASES

Total loans/leases, excluding acquired and PPP loans (non-GAAP), grew 14.0% on
an annualized basis during the first half of 2022.  The mix of the loan/lease
types within the Company's loan/lease portfolio is presented in the following
tables.

                                                                          As of
                               June 30, 2022           March 31, 2022           December 31, 2021            June 30, 2021
                              Amount        %          Amount        %            Amount         %          Amount        %

                                                                  (dollars in thousands)

C&I - revolving             $   322,258       5 %    $   263,441       5 %    $      248,483       5 %    $   182,882       4 %
C&I - other *                 1,403,689      24 %      1,374,221      28           1,346,602      29        1,505,384      34
CRE - owner occupied            628,565      11 %        439,257       9             421,701       9          427,734      10
CRE - non-owner occupied        889,530      15 %        679,898      14             646,500      14          618,879      14
Construction and land
development                   1,080,372      19 %        863,116      18             918,571      20          708,289      16
Multi-family                    860,742      15 %        711,682      15             600,412      12          466,804      10
Direct financing leases          40,050       1 %         43,330       1              45,191       1           56,153       1
1-4 family real estate          473,141       8 %        379,613       8             377,361       8          382,142       9
Consumer                         99,556       2 %         73,310       2              75,311       2           69,438       2

Total loans/leases $ 5,797,903 100 % $ 4,827,868 100 %

  $    4,680,132     100 %    $ 4,417,705     100 %
Less allowance                 (92,425)                 (74,786)                    (78,721)                 (78,894)
Net loans/leases            $ 5,705,478              $ 4,753,082              $    4,601,411              $ 4,338,811

*Includes PPP loans totaling $79 thousand, $6.3 million, $28.2 million and $147.5 million as of June 30, 2022, March 31, 2022, December 31, 2021 and June 30, 2021, respectively.


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. As of June 30,
2022 and March 31, 2022, approximately 18% and 22% of the CRE loan portfolio was
owner-occupied, respectively.

Following is a listing of significant industries within the Company's CRE loan
portfolio.  These include loans in the following portfolio segments as of June
30, 2022:  CRE owner occupied, CRE non-owner occupied, certain construction and
land development, multifamily and certain 1-4 family real estate.

                                          As of June 30,         As of March 31,        As of December 31,         As of June 30,
                                                2022                   2022                     2021                     2021
                                           Amount        %        Amount        %          Amount          %        Amount        %

                                                                           (dollars in thousands)

Lessors of Residential Buildings $ 1,618,186 47 % $ 1,383,986

50 % $ 1,316,851 49 % $ 1,002,902 44 % Lessors of Nonresidential Buildings 601,708 17 % 578,399

     20 %           557,859     21 %       557,786     24 %
Hotels                                       124,503      4 %        71,448      3 %            73,639      3 %        75,850      3 %
Lessors of Other Real Estate Property         64,211      2 %        63,759      2 %            60,605      2 %        41,707      2 %
New Housing For-Sale Builders                 60,826      2 %        71,285
     3 %            61,028      2 %        56,143      2 %
Other *                                      972,870     28 %       620,129     22 %           611,291     23 %       593,568     25 %
Total CRE Loans                          $ 3,442,304    100 %   $ 2,789,006    100 %   $     2,681,273    100 %   $ 2,327,956    100 %


*   "Other" consists of all other industries. None of these had concentrations
greater than $49.4 million, or approximately 1.4% of total CRE loans in the most
recent period presented.

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The Company's construction and land development loan portfolio includes the
following:

                                                                                    As of
                                             June 30, 2022         March

31, 2022 December 31, 2021 June 30, 2021

                                             Amount       %         Amount       %         Amount         %        Amount      %

                                                                            (dollars in thousands)

LIHTC                                      $   641,460    59 %   $   

556,717 65 % $ 587,151 64 % $ 410,466 58 % Construction (commercial)

                      256,622    24          245,927    28           274,385     30        243,848    34
Construction (residential)                     107,798    10           17,327     2            15,244      2         12,945     2
Land development                                74,492     7           43,145     5            41,791      5         41,030     6

Total construction and land development $ 1,080,372 100 % $ 863,116 100 % $ 918,571 100 % $ 708,289 100 %

The Company's 1-4 family real estate loan portfolio includes the following:

Certain loans that do not meet the criteria for sale into the secondary market.

? These are often structured as adjustable rate mortgages with maturities ranging

from three to seven years to avoid long-term interest rate risk.

? A limited amount of 15-year, 20-year and 30-year fixed rate residential real

estate loans that meet certain credit guidelines.



The remaining 1-4 family real estate loans originated by the Company were sold
on the secondary market to avoid the interest rate risk associated with longer
term fixed rate loans. Loans originated for this purpose were classified as held
for sale and are included in the residential real estate loans above. The
Company has not originated any subprime, Alt-A, no documentation, or stated
income residential real estate loans throughout its history.

Following is a listing of significant equipment types within the m2 loan and lease portfolio:


                        As of June 30,            As of March 31,            As of December 31,             As of June 30,
                             2022                       2022                         2021                        2021
                        Amount         %           Amount         %            Amount           %           Amount         %

                                                              (dollars in thousands)

Trucks, Vans and
Vocational Vehicles  $     69,383       24 %    $     70,241       25 %    $       69,392        26 %    $     65,063       25 %
Trailers                   19,723        7 %          15,702        6 %            12,832         5 %          10,715        4 %
Manufacturing -
General                    17,524        6 %          17,350        6 %            17,320         6 %          18,474        7 %
Freightliners              17,471        6 %          14,224        5 %            10,386         4 %           3,853        2 %
Tractor                    15,255        5 %          12,858        4 %            10,508         4 %           8,478        3 %

Marine - Travelifts 14,825 5 % 15,513 5 %

       14,498         5 %          13,279        5 %
Construction -
General                    14,279        5 %          13,851        5 %            13,560         5 %          12,918        5 %
Food Processing
Equipment                  13,946        5 %          14,846        5 %            14,907         6 %          14,569        6 %
Computer Hardware           9,682        3 %          10,792        4 %            11,223         4 %          12,745        5 %
Other *                   101,347       34 %         100,493       35 %    

95,648 35 % 98,426 38 % Total m2 loans and leases

               $    293,435      100 %    $    285,870      100 %    

$ 270,274 100 % $ 258,520 100 %

* "Other" consists of all other equipment types. None of these had concentrations greater than 3% of total m2 loan and lease portfolio in the most recent period presented.

See Note 4 to the Consolidated Financial Statements for additional information regarding the Company's loan and 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 contained in the Company's Annual Report 
on

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Form 10-K for the year ended December 31, 2021, 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 three and six months ended June 30, 2022 and 2021 are presented as follows:


                                    Three Months Ended                      Six Months Ended
                             June 30, 2022      June 30, 2021      June 30, 2022      June 30, 2021

                                  (dollars in thousands)                 (dollars in thousands)

Balance, beginning          $        74,786    $        81,831    $        78,721    $        84,376
Impact of adopting ASU
2016-13                                   -                  -                  -            (8,102)
Initial ACL recorded for
acquired PCD loans                    5,902                  -              5,902                  -
Provision                            12,141              (141)              8,292              5,852
Charge-offs                           (620)            (3,674)            (1,076)            (4,387)
Recoveries                              216                878                586              1,155
Balance, ending             $        92,425    $        78,894    $        92,425    $        78,894

Changes in the ACL for OBS exposures for the three and six months ended June 30, 2022 and 2021 are presented as follows:


                                           Three Months Ended               

Six Months Ended

                                  June 30, 2022          June 30, 2021     

June 30, 2022 June 30, 2021

                                         (dollars in thousands)                  (dollars in thousands)

Balance, beginning               $         7,819        $         9,846   $         6,886      $             -
Impact of adopting ASU 2016-13                 -                      -                 -                9,117
Provisions (credited) to expense           (941)                    141    
          (8)                  870
Balance, ending                  $         6,878        $         9,987   $         6,878      $         9,987

The Company recorded a $11.2 million provision for credit losses on loans and OBS exposures in the second quarter of 2022, due solely to the CECL Day 2 provision as a result of the GFED acquisition.

The Company's levels of criticized and classified loans are reported in the following table.


                                                                           As of
Internally Assigned Risk Rating *       June 30, 2022      March 31, 2022      December 31, 2021      June 30, 2021

                                                                  (dollars in thousands)

Special Mention (Rating 6)             $        54,558    $         63,622    $            62,510    $        51,613
Substandard (Rating 7)                          83,048              54,491                 53,296             79,719
Doubtful (Rating 8)                                  -                   -                      -                  -
                                       $       137,606    $        118,113    $           115,806    $       131,332

Criticized Loans **                    $       137,606    $        118,113    $           115,806    $       131,332
Classified Loans ***                   $        83,048    $         54,491    $            53,296    $        79,719

Criticized Loans as a % of Total
Loans/Leases                                      2.37 %              2.45 %                 2.47 %             2.97 %
Classified Loans as a % of Total
Loans/Leases                                      1.43 %              1.13 %                 1.14 %             1.80 %


*   Amounts above include the government guaranteed portion, if any. For the
calculation of ACL, the Company assigns internal risk ratings of Pass (Rating 2)
for the government guaranteed portion.

** Criticized loans are defined as non homogeneous loans with internally assigned risk ratings of 6, 7, or 8, regardless of performance.

*** Classified loans are defined as non homogeneous loans with internally assigned risk ratings of 7 or 8, regardless of performance.


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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Criticized loans increased 17% and classified loans increased 52% from March 31,
2022 to June 30, 2022 which was primarily the result of the GFED acquisition.
The Company continues its strong focus on improving credit quality in an effort
to limit NPLs.

                                                                     As of
                                    June 30, 2022    March 31, 2022    December 31, 2021      June 30, 2021
ACL on loans/leases / Gross
loans/leases                                 1.59 %            1.55 %               1.68 %             1.79 %
ACL on loans/leases / NPLs                 387.66 %        2,721.47 %           2,825.21 %           952.02 %


Although management believes that the ACL at June 30, 2022 was 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 require further
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 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 regarding the Company's ACL.

NONPERFORMING ASSETS

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

                                           As of June 30,       As of March 31,       As of December 31,       As of June 30,
                                                2022                  2022                   2021                   2021

                                                                         (dollars in thousands)

Nonaccrual loans/leases (1)               $          23,574    $            2,744    $               2,759    $           8,230
Accruing loans/leases past due 90 days
or more                                                 268                     4                        1                   57
Total NPLs                                           23,842                 2,748                    2,760                8,287
OREO                                                    205                     -                        -                1,820
Total NPAs                                $          24,047    $            2,748    $               2,760    $          10,107
NPLs to total loans/leases                             0.41 %                0.06 %                   0.06 %               0.19 %
NPAs to total loans/leases plus
repossessed property                                   0.41 %                0.06 %                   0.06 %               0.23 %
NPAs to total assets                                   0.33 %                0.04 %                   0.05 %               0.17 %
Nonaccrual loans/leases to total
loans/leases                                           0.41 %                0.06 %                   0.06 %               0.19 %
ACL to nonaccrual loans                              392.06 %            2,725.44 %               2,853.24 %             994.30 %


(1) Includes government guaranteed portion of loans, as applicable.



NPAs at June 30, 2022 were $24.0 million, up $21.3 million from March 31, 2022
and up $13.9 million from June 30, 2021.  The increase was primarily the result
of the GFED acquisition and two specific legacy relationships from other
charters. The ratio of NPAs to total assets was 0.33% at June 30, 2022, up from
0.04% at March 31, 2022, and up from 0.17% at June 30, 2021.

The majority of the NPAs consist of nonaccrual loans/leases. For nonaccrual loans/leases, management has thoroughly reviewed these loans/leases and has provided specific allowances as appropriate.

OREO is carried at the lower of carrying amount or fair value less costs to sell.

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


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           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

DEPOSITS

Deposits increased $981.0 million during the second quarter of 2022, driven by the GFED acquisition whose deposits at acquisition date totaled $1.1 billion.


The table below presents the composition of the Company's deposit portfolio.

                                                                       As of
                             June 30, 2022           March 31, 2022          December 31, 2021          June 30, 2021
                             Amount        %         Amount        %           Amount         %         Amount        %

                                                              (dollars in thousands)

Noninterest bearing
demand deposits            $ 1,514,005     26 %    $ 1,275,493     26 %    $    1,268,788     26 %    $ 1,258,885     27 %
Interest bearing demand
deposits                     3,758,566     65 %      3,181,685     66 %         3,232,633     65 %      2,976,696     63 %
Time deposits                  540,074      9 %        382,268      8 %           421,348      9 %        452,171     10 %
Brokered deposits                8,012      0 %            243      0 %                 3      0 %          1,183      0 %
                           $ 5,820,657    100 %    $ 4,839,689    100 %    $    4,922,772    100 %    $ 4,688,935    100 %

The Company has been successful in growing its noninterest-bearing deposit portfolio over the past several years, growing average balances 21% in 2021.

 Balances can fluctuate a great deal due to large customer and correspondent
bank activity.  During the past year, the Company had significant core deposit
growth mostly from its correspondent banking clients.    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 deposit portfolio and funds managed consists of the following:

? Noninterest-bearing deposits which represent the correspondent banks' operating

cash used for processing transactions with the Federal Reserve,

? Money market deposits which represent some excess liquidity, and

? The correspondent banks' EBA at the FRB.



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
portfolio ranged from $1.3 billion to $1.5 billion which is approximately $1
billion more than pre-pandemic levels.

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 committees.

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           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

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.

                                                                As of
                             June 30, 2022        March 31, 2022     December 31, 2021      June 30, 2021

                                                        (dollars in thousands)

Federal funds purchased     $         1,070    $          1,190     $             3,800    $         7,070


The Company's federal funds purchased fluctuate based on the short-term funding needs of the Company's subsidiary banks.

As a result of their memberships in the FHLB of Des Moines, the subsidiary banks
have the ability to borrow funds for short 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 changing interest rates and when these
advances provide a less costly or more readily available source of funds than
customer deposits.

The table below presents the Company's overnight FHLB advances. The Company did not have any term FHLB advances for the dates in the table below.

                                                                   As of
                                 June 30, 2022     March 31, 2022     December 31, 2021      June 30, 2021
                                                          (dollars in thousands)

Overnight FHLB advances         $       400,000   $        290,000   $            15,000    $        40,000



FHLB advances (all overnight) increased $110.0 million in the current quarter
compared to the prior quarter due to strong loan growth and a decrease in core
deposits when excluding the GFED acquisition.

The Company renewed its revolving credit note in the second quarter of 2022. At renewal, the line amount was increased from $25.0 million to $50.0 million.

 Interest on the revolving line of credit was calculated at the greater of: (a)
the effective Prime Rate less 0.50%  and (b) 3.00% per annum. The collateral on
the revolving line of credit is 100% of the outstanding stock of the Company's
bank subsidiaries.  There was no outstanding balance on the revolving line of
credit at June 30, 2022.

The Company had subordinated notes totaling $133.6 million as of June 30, 2022
and $113.9 million as of March 31, 2022.  The Company acquired $19.6 million of
subordinated notes with the GFED acquisition. The Company prepaid $5.0 million
in subordinated debt in the second quarter of 2021 with no gain/loss.

The Company acquired $10.3 million of junior subordinated debentures with the GFED acquisition.


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

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The table below presents the maturity schedule including weighted average interest cost for the Company's combined wholesale funding portfolio (defined as FHLB advances and brokered deposits).


                                               June 30, 2022                      December 31, 2021
                                                         Weighted                             Weighted
                                                          Average                              Average
Maturity:                               Amount Due     Interest Rate         Amount Due     Interest Rate

                                                              (dollars in thousands)
Year ending December 31:
2022                                   $    408,012             1.73 %      $     15,003             0.31 %
2023                                              -                -                   -                -
2024                                              -                -                   -                -
2025                                              -                -                   -                -
Total Wholesale Funding                $    408,012             1.73 %      $     15,003             0.31 %



During the first six months of 2022, wholesale funding, primarily overnight FHLB advances, increased $393.0 million due to strong loan growth and decreased deposits.

STOCKHOLDERS' EQUITY


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

                                                                                 As of
                                             June 30, 2022      March 31,

2022 December 31, 2021 June 30, 2021

(dollars in thousands)


Common stock                                $        17,064    $         15,580    $            15,613      $        15,764
Additional paid in capital                          375,358             272,370                273,768              275,485
Retained earnings                                   400,790             405,762                386,077              335,424
AOCI                                               (50,074)            (25,788)                  1,552                3,803
Total stockholders' equity                  $       743,138    $        667,924    $           677,010      $       630,476

TCE / TA ratio (non-GAAP)                              8.11 %              9.60 %                 9.87 %               9.51 %


* TCE is defined as total common stockholders' equity excluding goodwill and other intangibles. This ratio is a non-GAAP financial measure. See GAAP to Non-GAAP Reconciliations.

Due to the sharp increase in intermediate and long-term interest rates, the
valuation of the Company's AFS securities portfolio and certain hedged financial
instruments declined significantly.  The valuation change, net of taxes, that
flows through the Company's AOCI was a net decline of $51.6 million for the
first half of 2022.

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.  As of June 30, 2022, the Company had purchased 794,085
shares under the program and all shares purchased have been retired.

On May 19, 2022, the board of directors of the Company approved a share
repurchase program under which the Company is authorized to repurchase, from
time to time as the Company deems appropriate, up to 1,500,000 shares of its
outstanding common stock, or approximately 10% of the outstanding shares as of
December 31, 2021.  As of June 30, 2022, the Company had purchased 280,000
shares under the program and all shares purchased have been retired.

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           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

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 and federal
funds sold, which averaged $73.2 million during the second quarter of 2022 and
$73.5 million during the first six months of 2022. The Company's on balance
sheet liquidity position can fluctuate based on short-term activity in deposits
and loans.

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 June 30, 2022, the subsidiary banks had 28 lines of credit totaling $485.9
million, of which $15.1 million was secured and $470.8 million was unsecured. At
June 30, 2022, the full $485.9 million was available.

At December 31, 2021, the subsidiary banks had 31 lines of credit totaling $517.7 million, of which $61.7 million was secured and $456.0 million was unsecured. At December 31, 2021, the full $517.7 million was available.

The Company has emphasized growing the number and amount of lines of credit in
an effort to strengthen this contingent source of liquidity. Additionally, the
Company maintains a $50.0 million secured revolving credit note with a variable
interest rate and a maturity of June 30, 2023. At June 30, 2022, the full $50.0
million was available.

As of June 30, 2022, the Company had $608.6 million in average correspondent
banking deposits spread over 189 relationships. While the Company believes that
these funds are relatively stable, there is the potential for large fluctuations
that can impact liquidity. Seasonality and the liquidity needs of these
correspondent banks can impact balances. Management closely monitors these
fluctuations and runs stress scenarios to measure the impact on liquidity and
interest rate risk with various levels of correspondent deposit run-off.

Investing activities used cash of $146.8 million during the first six months of
2022, compared to $143.4 million for the same period of 2021. The net decrease
in interest-bearing deposits at financial institutions was $38.0 million for the
first six months of 2022, compared to a net increase of $844 thousand for the
same period of 2021. Proceeds from calls, maturities, and paydowns of securities
were $42.3 million for the first six months of 2022, compared to $110.9 million
for the same period of 2021. Purchases of securities used cash of $134.7 million
for the first six months of 2022, compared to $108.6 million for the same period
of 2021. Proceeds from sales of securities were $111.4 million for the first six
months of 2022, compared to $23.9 million for the first six months of  2021.

The net increase in loans/leases used cash of $314.7 million for the first six months of 2022 compared to $171.0 million for the same period of 2021.


Financing activities provided cash of $148.1 million for the first six months of
2022, compared to $104.9 million for same period of 2021. Net decreases in
deposits totaled $178.7 million for the first six months of 2022, compared to
net increases in deposits of  $89.8 million for the same period of 2021. During
the first six months of 2022, the Company's short-term borrowings increased $2.7
million, compared to a decrease in short-term borrowings of $1.6 million for the
same period of 2021. There were no long-term FHLB advances during the first six
months of 2022 and 2021.  There were no maturities and principal payments on
FHLB term advances in the first six months of 2022 and 2021. Net increase in
overnight advances totaled $385.0 million for the first six months of 2022.

In

the first six months of 2021, the Company increased overnight FHLB advances by
$25.0 million.  Prepayment of subordinated notes totaled $5.0 million during the
first six months of 2021.  Repurchase and cancellation of shares totaled $37.4
million in the first six months of 2022, as compared to $4.8 million in the
first six months of 2021.

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           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Total cash provided by operating activities was $53.6 million for the first six months of 2022, compared to $32.7 million for the same period of 2021.

Throughout its history, the Company has secured additional capital through various sources, including the issuance of common and preferred stock, as well as trust preferred securities and, most recently, subordinated notes.

The Company (on a consolidated basis) and the subsidiary banks are subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company and subsidiary
banks' financial statements. Refer to Note 10 of the Consolidated Financial
Statements for additional information regarding regulatory capital.

SPECIAL NOTE CONCERNING 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.  Factors that could have a material adverse
effect on the operations and future prospects of the Company and its
subsidiaries include, but are not limited to, the following:

? The strength of the local, state, and national and international economies

(including effects of inflationary pressures and supply chain constraints).

The economic impact of any future terrorist threats and attacks, widespread

disease or pandemics (including the COVID-19 pandemic in the United States),

? acts of war or threats thereof and other adverse external events that could

cause economic deterioration or instability in credit markets, and the response

of the local, state and national governments to any such adverse external

events.

? Changes in accounting policies and practices, as may be adopted by state and

federal regulatory agencies, the FASB, the SEC or the PCAOB.

? Changes in state and federal laws, regulations and governmental policies

concerning the Company's general business.

? Changes in the interest rates and prepayment rates of the Company's assets

(including the impact of LIBOR phase-out).

? Increased competition in the financial services sector and the inability to

attract new customers.

? Changes in technology and the ability to develop and maintain secure and

reliable electronic systems.

Unexpected results of acquisitions which may include failure to realize the

? anticipated benefits of acquisitions and the possibility that transaction costs

may be greater than anticipated.

? The loss of key executives or employees.

? Changes in consumer spending.



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 ? Unexpected outcomes of existing or new litigation involving the Company.

? The economic impact of exceptional weather occurrences such as tornadoes,

floods and blizzards.

? The ability of the Company to manage the risks associated with the foregoing as

well as anticipated.



These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. For a
discussion of the factors that could have a material adverse effect on the
operations and future prospects of the Company and its subsidiaries, see 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, 2021.

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Sales 2022 327 M - -
Net income 2022 101 M - -
Net Debt 2022 - - -
P/E ratio 2022 8,57x
Yield 2022 0,46%
Capitalization 869 M 869 M -
Capi. / Sales 2022 2,66x
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Nbr of Employees 725
Free-Float 97,0%
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Larry J. Helling Chief Executive Officer & Director
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Marie Zelnio Ziegler Chairman
Reba K. Winter Chief Information Officer
Mark C. Kilmer Independent Director