Executive Summary / Key Takeaways

• QCR Holdings delivered record net income and strong EPS growth in Q3 2025, driven by a rebound in its specialized Low-Income Housing Tax Credit (LIHTC) lending platform and sustained net interest margin (NIM) expansion.
• The company is strategically leveraging LIHTC loan securitizations and planned construction loan sales to enhance capital flexibility, optimize its balance sheet, and unlock further capital markets revenue opportunities.
• A multi-year digital transformation, including core operating system conversions, is underway to significantly improve operational efficiency, reduce costs, and enhance client and employee experiences, with full efficiencies expected by late 2027.
• QCR Holdings maintains a strong capital position, a liability-sensitive balance sheet poised to benefit from potential rate cuts, and an opportunistic approach to share repurchases, underscoring its commitment to shareholder value.
• Management provides a positive outlook, guiding for continued NIM expansion, robust loan growth, and increased capital markets revenue, supported by a strong pipeline and favorable industry trends in affordable housing.

The Foundation: Niche Banking and Strategic Evolution

QCR Holdings, Inc. has evolved from its founding in 1993 with Quad City Bank & Trust (QCBT) into a multi-bank holding company with four state-chartered commercial banks: QCBT, Cedar Rapids Bank & Trust (CRBT), Community State Bank (CSB), and Guaranty Bank (GB). This multi-charter community banking model is a foundational strength, enabling the company to attract top-tier talent and clients, consistently capturing market share in its Midwest operating regions, including significant presences in the Quad Cities, Cedar Rapids, and Southwest Missouri. The company's overarching strategy centers on relationship-driven banking, niche specialization, and a proactive digital transformation.

The industry landscape for regional banks like QCR Holdings is dynamic, marked by competition from larger national banks, other regional players such as Wintrust Financial Corporation (WTFC), Heartland Financial USA, Inc. (HTLF), and MidWestOne Financial Group, Inc. (MOFG), as well as emerging fintech companies. QCR Holdings differentiates itself through deep local ties, personalized service, and a specialized LIHTC lending platform, which fosters greater customer loyalty and operational agility. While larger competitors may benefit from broader geographic reach and scale, QCR Holdings' targeted approach allows for effective competition in shared segments. The company's strategic responses include significant investments in technology and a focus on correspondent banking to enhance its competitive standing.

Technological Advancement: Building the Bank of the Future

A critical pillar of QCR Holdings' strategy is its multi-year digital transformation initiative, branded as the "Bank of the Future." This program aims to create a unified, more efficient operating system across its banking subsidiaries. The initiative began in 2023 with evaluation and selection, and 2025 has seen significant milestones. All consumer clients successfully transitioned to an improved online banking platform in Q1 2025, receiving positive feedback and an increase in Net Promoter Scores.

The most significant technological advancement occurred in October 2025 with the successful core operating system conversion for the first of the company's four charters, Guaranty Bank. This conversion to Jack Henry SilverLake from an antiquated Fischer core is expected to yield substantial benefits. For instance, one staff member reported reducing the time to onboard a new business client from approximately 40 minutes to just 16 minutes using the new system. These upgrades are designed to drive measurable improvements in productivity, service delivery, and cost structure, ultimately enhancing efficiency and reducing long-term operating costs. The remaining core conversions are scheduled for April and October 2026, with the final one in April 2027. Management anticipates these efficiencies will unlock significant operating leverage, particularly in the back half of 2027 and beyond.

Beyond internal efficiencies, this technological roadmap also addresses external competitive pressures and regulatory changes. QCR Holdings has proactively secured higher interchange revenues and reduced debit card processing costs. This strategic move is designed to partially offset the anticipated impact of the Durbin Amendment, which is expected to affect the company as it approaches the $10 billion asset threshold, likely around 2027-2028. By layering the associated costs of this digital transformation into its current run rate, QCR Holdings aims to cross this regulatory milestone with a modest financial impact, maintaining its competitive edge against rivals who may face similar, but less mitigated, operational challenges.

The LIHTC Advantage: A Differentiated Growth Engine

QCR Holdings' LIHTC lending platform is a highly differentiated and profitable line of business. This specialized segment focuses on providing financing for affordable housing projects, a sector characterized by strong, persistent demand and favorable legislative support. The company's business model involves executing back-to-back interest rate swaps with commercial borrowers, generating upfront nonrefundable fees from an upstream counterparty, which are recorded as "Capital markets revenue." This approach has proven remarkably durable, successfully navigating macroeconomic challenges, interest rate volatility, and political uncertainties.

The LIHTC platform's strength is anchored by deep relationships with industry-leading developers, with QCR Holdings adding 10 new experienced LIHTC developers in 2025. Recent legislation, such as the "One Big Beautiful Bill Act" (H.R. 1), has further expanded access to affordable housing tax credits, increasing 9% credits by 12% and reducing qualification thresholds for 4% credits. Industry studies suggest this could lead to a long-term (late 2026 into 2027) increase in LIHTC allocations from $29 billion to as much as $37 billion, representing a potential 20% growth. This legislative tailwind, combined with unified bipartisan support for affordable housing, reinforces the long-term sustainability and growth potential of this business.

To enhance balance sheet efficiency and expand lending capacity, QCR Holdings employs a strategic approach involving LIHTC permanent loan securitizations and is contemplating construction loan sales. The company plans a large permanent loan securitization of approximately $350 million in the first half of 2026, aiming for improved economic execution by selling both the A and B pieces. This strategy frees up regulatory capital, with a $350 million securitization potentially freeing up roughly 40 basis points of Common Equity Tier 1 (CET1) capital. These initiatives allow QCR Holdings to accelerate new loan production and generate capital markets revenue that significantly exceeds the impact of loan sales on net interest income, effectively growing revenue by leveraging partners' balance sheets.

Financial Performance: A Story of Strategic Execution

QCR Holdings delivered exceptional financial results for the third quarter ended September 30, 2025, reporting record net income of $36.7 million and diluted earnings per share (EPS) of $2.16. This performance marked a "return-to-form quarter," driven by strategic execution across its core businesses.

Net interest income (NII) saw robust growth, increasing 4% on a linked-quarter basis and 9% year-over-year in Q3 2025. For the first nine months of 2025, NII grew 10% compared to the prior year, primarily due to higher average earning assets and increased investment securities yields, coupled with a decrease in the cost of interest-bearing deposits. The company's net interest margin (NIM) on a tax-equivalent yield (TEY) basis expanded by 5 basis points in Q3 2025 to 3.51%, exceeding guidance. This expansion was supported by a liability-sensitive balance sheet, which benefited from Federal Reserve rate reductions in the latter half of 2024, driving the cost of funds down to 3.01% in Q3 2025 from 3.44% in Q3 2024.

Noninterest income rebounded strongly in Q3 2025, increasing $14.5 million (66%) linked-quarter and $9.5 million (35%) year-over-year, largely due to a surge in capital markets revenue from swap fees, which totaled $23.8 million. While capital markets revenue for the first nine months of 2025 decreased 11% year-over-year due to earlier macroeconomic uncertainty, the Q3 rebound signals a return to normalized levels. Wealth management also contributed significantly, with revenue increasing 8% linked-quarter in Q3 2025 and 15% year-over-year, driven by 384 new client relationships and $738 million in new assets under management year-to-date.

Noninterest expense increased 14% linked-quarter and 6% year-over-year in Q3 2025, primarily due to higher variable compensation tied to capital markets revenue and loan growth, as well as increased professional and data processing fees related to the digital transformation. Despite these investments, the efficiency ratio improved to 55.8% in Q3 2025, its lowest in four years. For the first nine months of 2025, noninterest expense decreased 1% year-over-year, benefiting from lower variable compensation and the absence of restructuring expenses from the 2024 exit of the m2 Equipment Finance business.

Loan growth accelerated significantly in Q3 2025, with gross annualized growth of 17% ($286 million), or 15% net of the planned runoff from m2. Core deposits grew 6% annualized in Q3 2025 and 8% year-to-date, providing a solid funding base. The tangible book value per share (non-GAAP) grew by $2.50, or 19% annualized, in Q3 2025, approaching $56 per share. Capital ratios remained strong, with a tangible common equity to tangible assets ratio (non-GAAP) of 9.97%. While the Common Equity Tier 1 (CET1) ratio decreased 9 basis points to 10.34% and the total risk-based capital ratio decreased 23 basis points to 14.03% due to exceptional loan growth and opportunistic share repurchases, management remains committed to maintaining strong regulatory capital.

Asset Quality: Prudent Management Amidst Normalization

QCR Holdings maintains excellent asset quality, with improving trends in key indicators. Total criticized loans decreased during Q3 2025 and are down 9% year-to-date. Net charge-offs also declined compared to Q2 2025. The runoff of the m2 Equipment Finance portfolio is progressing as planned, with the portfolio declining nearly 40% and expected to fall below $200 million by year-end. This has led to a 45% ($4 million) year-over-year reduction in credit loss expenses for the m2 business and a 29% year-over-year decrease in its nonperforming assets (NPAs), supporting expectations for continued softening in future charge-offs.

The NPA ratio stood at 0.45% of total assets in Q3 2025. The allowance for credit losses (ACL) on loans and leases was 1.24% of total gross loans and leases held for investment. Management's proactive credit culture includes thorough underwriting of its municipal securities portfolio, where the majority of unrated private issuances carry an average loan risk rating of 2, indicating very high quality. While the company has identified limited high-risk tariff exposure to two commercial borrowers totaling approximately $6 million, this is actively being managed.

Outlook and Guidance: Sustaining Momentum

QCR Holdings is poised for continued growth and profitability, underpinned by clear guidance and strategic initiatives. Management anticipates gross annualized loan growth in the range of 10% to 15% for Q4 2025, with expectations for double-digit gross loan growth to continue into 2026. This growth will be fueled by both traditional banking and the robust LIHTC pipeline.

Net interest margin (NIM) is projected to expand further, with Q4 2025 NIM TEY expected to increase by 3 to 7 basis points, assuming no further Federal Reserve rate cuts. The company's liability-sensitive balance sheet positions it to benefit from future rate reductions, with an anticipated 2 to 3 basis points of NIM accretion for every 25 basis point Fed cut. Capital markets revenue is guided to be in the range of $55 million to $65 million over the next four quarters, reflecting strong momentum in the LIHTC business. Noninterest expenses are projected to be between $52 million and $55 million for Q4 2025, incorporating digital transformation costs and variable compensation tied to revenue and loan growth. The effective tax rate is expected to normalize to 7% to 8% for Q4 2025.

The company's strategic planning extends to crossing the $10 billion asset threshold, with associated costs already layered into the current run rate and Durbin Amendment impacts partially mitigated by enhanced debit card revenues. Capital deployment will remain opportunistic, with a new share repurchase program authorizing the repurchase of up to 1.7 million shares, signaling management's confidence in the company's valuation.

Conclusion

QCR Holdings stands as a compelling investment opportunity, strategically transforming its operations to capitalize on niche market leadership and enhanced operational efficiency. The company's core investment thesis is rooted in its highly profitable and durable LIHTC lending platform, which, through innovative securitization and loan sale strategies, provides capital flexibility and drives significant fee income. Concurrently, its multi-year digital transformation is set to unlock substantial operating leverage and cost efficiencies, fortifying its competitive position against both traditional and emerging rivals.

With a strong financial performance in Q3 2025, characterized by record earnings, NIM expansion, and robust loan and deposit growth, QCR Holdings demonstrates effective execution of its strategy. The positive outlook for loan growth, capital markets revenue, and NIM, coupled with disciplined asset quality management and opportunistic capital allocation, positions the company for sustained shareholder value creation. QCR Holdings' blend of specialized lending expertise, technological foresight, and prudent financial management provides a clear path for continued top-tier performance in the evolving financial services landscape.