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    QCR HOLDINGS (QCRH)

    QCRH Q2 2025: Projects 8-10% Loan Growth, Flat to +4bps NIM

    Reported on Jul 26, 2025 (After Market Close)
    Pre-Earnings Price$74.34Last close (Jul 24, 2025)
    Post-Earnings Price$75.04Open (Jul 25, 2025)
    Price Change
    $0.70(+0.94%)
    • Margin Expansion Potential: The company is targeting further basis point gains by replacing maturing fixed-rate loans and refinancing CDs, which should boost its net interest margin in Q3 despite flat market rates.
    • Robust Wealth Management Growth: With wealth management revenue growing at a 10% CAGR and increasing AUM through new client relationships, the business builds a scalable and high-return revenue stream.
    • Strategic Securitization and Capital Enhancement: The planned sizeable $350,000,000 securitization in early 2026 is expected to support capital ratios by freeing up CET1 and enable continued asset growth and efficient capital management.
    • Margin Vulnerability: The company’s margin expansion is reliant on executing rate-sensitive strategies—particularly replacing maturing fixed-rate loans and CDs at lower rates and benefiting from potential Fed rate cuts. If rate cuts do not materialize or execution falls short, margins could remain subdued.
    • Reliance on Securitizations & Subordinated Debt Replacement: Future capital management depends on successfully executing larger securitizations and selling off the accompanying B pieces. Any delays or unfavorable economic outcomes in these transactions may impair capital ratios and hinder financial flexibility.
    • Soft Loan Growth Due to Early Payoffs: The Q&A revealed that many strong-balance-sheet clients are prepaying loans when rates reset, potentially limiting new loan production and overall asset growth, which could adversely affect future earnings.
    MetricYoY ChangeReason

    Total Revenue (Q1 2024 vs Q1 2023)

    Increased by approximately $21.8 million (from $120.1M to $141.9M)

    Q1 2024’s total revenue grew due to robust loan growth and higher interest rates, which boosted interest income by $20.8M, while strong core deposit expansion (up by $316.2M or 20.3% annualized) helped increase lending activity. Despite a slight decline in capital markets revenue (a drop from $17.0M to $16.5M), the positive effects of deposit growth, noninterest income increases (up $1.0M or 4%), and effective cost management outweighed the negatives.

    Total Revenue (Q1 2025 vs Q1 2024)

    Decline primarily driven by a reduction in capital markets revenue (from $16.5M to $6.5M) and a $10.0M drop in noninterest income (a 37% decline)

    In Q1 2025, total revenue was adversely impacted by a significant fall in capital markets revenue due to macroeconomic and governmental uncertainties delaying LIHTC projects, which in turn reduced noninterest income. Although interest income rose by $1.6M (from improved loan yields and average balances) and interest expense fell by $3.7M due to lower funding costs , these gains did not offset the sharp decline in fee-based revenue streams.

    Net Income (Q1 2024 vs Q1 2023)

    Decreased slightly from $27.2M in Q1 2023 to $26.7M in Q1 2024

    Net income in Q1 2024 was pressured by lower net interest income stemming from the maturity of $125M of interest rate caps and the conversion of $65M of subordinated debt, which increased interest expense by $1.3M. This was partly offset by a reduction in provision for credit losses (down $959K vs Q1 2023) and lower tax expense, along with a modest $1.0M uptick in noninterest income; however, the overall mix produced a slight decline.

    Net Income (Q1 2025 vs Q4 2024)

    Dropped from $30.2M in Q4 2024 to $25.8M in Q1 2025

    In Q1 2025, net income decreased due to a combination of a $1.2M drop in net interest income and a substantial 45% reduction in noninterest income (down $13.7M), primarily driven by lower capital markets revenue from swap fees. In addition, an increase in the provision for credit losses (rising from $1.0M to $4.7M) further weighed on earnings, even though noninterest expenses fell by $7M owing to lower variable compensation.

    Major Segments (Q1 2024 vs previous)

    Mixed performance: Net interest income dropped 2% versus Q4 2023 and 4% versus Q1 2023; noninterest income fell $20.9M (44% drop from Q4 2023) yet was 4% higher than Q1 2023; noninterest expense decreased by $10.2M vs Q4 2023 but increased by $1.9M vs Q1 2023

    For Q1 2024, changes in major segments were driven by a decline in net interest income as interest rate caps matured and subordinated debt rates increased (adding $1.3M in expense), while noninterest income dynamics were mixed—with a significant drop from Q4 2023 (due to lower capital markets activity) partially offset by improved fee income from trust, correspondent banking, and loan-related fees compared to Q1 2023. Cost management efforts led to reduced noninterest expenses versus Q4 2023, despite slight year-over-year increases in certain operating costs.

    Major Segments (Q1 2025 vs Q1 2024)

    Capital markets revenue dropped from $16.5M to $6.5M; noninterest income fell from $26.9M to $16.9M; noninterest expenses reduced from $50.7M to $46.5M; provision for credit losses rose from $3.0M to $4.2M

    In Q1 2025, major segment shifts were largely due to macroeconomic uncertainty affecting LIHTC lending, which led to delayed projects and a sharp reduction in capital markets revenue, resulting in a significant decline in noninterest income. Simultaneously, the reduction in variable compensation helped cut noninterest expenses, while increased loan growth and net charge-offs drove up credit loss provisions, underscoring the challenging operating environment.

    YoY Changes (Q1 2024)

    Net interest income declined 4% YoY; noninterest income increased by 4% YoY; noninterest expense rose by 4% YoY; provision for credit losses fell by 24% YoY; overall, tax expense dropped dramatically to $1.2M in Q1 2024

    The YoY changes in Q1 2024 reflected a balance of conflicting dynamics: lower net interest income (due to the maturity of rate caps and adjustments in debt structure) was partially offset by modest increases in fee-based revenues (e.g., trust fees up 10%, correspondent fees up 31%, and loan-related fees up 28%). In parallel, cost pressures increased certain expenses by 4% YoY while a significant reduction in credit loss provisions (down 24%) and a lower tax burden improved bottom-line performance.

    YoY Changes (Q1 2025)

    Compared to Q1 2024, interest income increased by $1.6M while interest expense decreased by $3.7M; noninterest income fell $10.0M (a 37% decline); noninterest expense dropped by $4.2M (8% decrease); tax expense sharply reduced from $1.2M to $308K; credit loss provisions increased significantly (from $1.0M or lower levels to $4.7M); net income declined modestly

    For Q1 2025, the YoY shifts were driven by a slightly improved interest income profile from higher loan balances and expanded margins, alongside a lower funding cost that reduced interest expense. However, these gains were overwhelmed by a 37% drop in noninterest income—mainly from declining capital markets revenue—and an increased credit loss provision due to loan portfolio growth and higher charge-offs. Additionally, a significant drop in tax expense (attributable to tax benefits and new state tax credit investments) partially softened the decline, though overall profitability was under pressure.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Net Interest Margin (NIM)

    Q3 2025

    static to an increase of 4 basis points

    static or increase by 4 basis points

    no change

    Non-Interest Expense

    Q3 2025

    $50 million to $53 million

    $52 million to $55 million

    raised

    Capital Markets Revenue

    Next 4 Quarters

    $50 million to $60 million

    $50,000,000 to $60,000,000

    no change

    EPS Improvement

    Q3 2025

    no prior guidance

    13% improvement over Q1

    no prior guidance

    Effective Tax Rate

    Q3 2025

    no prior guidance

    6% to 8%

    no prior guidance

    Loan Growth

    Second half of 2025

    no prior guidance

    8% to 10%

    no prior guidance

    TopicPrevious MentionsCurrent PeriodTrend

    Margin Expansion and Vulnerability

    Addressed consistently in Q1 2025 ( ), Q4 2024 ( ), and Q3 2024 ( ) with discussion of modest NIM expansion and vulnerability from rate sensitivity.

    Q2 2025 highlights strong margin expansion (4 bps growth guidance, 21 bps expansion over five quarters) alongside continued vulnerability due to rate sensitivity ( ).

    Consistent focus: Positive margin moves persist while vulnerability remains a risk if Fed cuts stop.

    Securitization Strategy and Capital Management

    Explored in Q1 2025 ( ), Q4 2024 ( ) and Q3 2024 ( ) with emphasis on planned securitizations, capital flexibility, and debt management.

    Q2 2025 discusses a planned $350 million securitization, refined execution risk management, and planned subordinated debt replacement ( ).

    Refined and proactive: Consistent strategic use of securitizations with ongoing process improvements and digital transformation efforts.

    Deposit Growth and Liquidity

    Featured across previous periods: strong deposit growth and cost reductions in Q1 2025 ( ), steady increases in Q4 2024 ( ), and consistent core deposit focus in Q3 2024 ( ).

    Q2 2025 reports a slight overall deposit decline (–$19M) but robust year‐to‐date core deposit growth and continued cost management ( ).

    Steady but nuanced: Core deposit strength remains a priority; minor short‐term volatility is observed against a backdrop of long‐term growth.

    Loan Growth Dynamics

    Discussed in Q1 2025 ( ), Q4 2024 ( ) and Q3 2024 ( ) with emphasis on robust growth potential alongside risks like early payoffs and weak demand.

    Q2 2025 shows 8% annualized loan growth driven by CRE and LITEQ, though C&I segments face early payoff challenges ( ).

    Mixed outlook: Persistent growth drivers remain, yet emerging challenges in selective segments temper the overall optimism.

    Fed Rate Environment Impact

    Consistently detailed in Q1 2025 ( ), Q4 2024 ( ) and Q3 2024 ( ) with a recurring focus on the benefits of rate cuts and deposit beta improvements on margins.

    Q2 2025 reiterates benefits from a 25 bps Fed cut (2–3 bps NIM gain) and ongoing deposit cost management (30 bps cost reduction on CDs), underpinning its static to 4 bps guidance for Q3 2025 ( ).

    Steady reliance: The dependency on rate cuts and strong deposit beta management remains a core catalyst for margin performance across periods.

    Emerging Wealth Management Growth

    Addressed in Q1 2025 ( ), Q4 2024 ( ) and Q3 2024 ( ) with consistent revenue and asset growth, positioning it as a scalable business line.

    Q2 2025 reports substantial progress with 234 new relationships, $500 million new AUM, and total AUM reaching $6.7 billion ( ).

    Accelerating momentum: A consistently growing revenue stream now showing stronger metrics and market expansion.

    New Credit Risk Factors

    Only mentioned in Q1 2025 ( )—focusing on tariff-related exposures for two high‐risk companies with a modest total exposure ($6M). Q3 and Q4 2024 did not address these concerns.

    Q2 2025 does not discuss any new credit risk factors.

    Transient focus: Tariff-related exposures were noted briefly in Q1 2025 but have since receded from the narrative.

    Regulatory and Durbin-Related Expense Pressures

    Touched on in Q3 2024 ( ) with discussions on future Durbin impacts (approx. $5–6M annually) as the $10 billion threshold is approached; not mentioned in Q1 or Q4 2024.

    Q2 2025 addresses future regulatory impacts expected upon crossing $10B (approx. $3M interchange impact) and highlights digital initiatives (debit card renegotiation) to mitigate these costs ( ).

    Long-term consideration: Though not a current operational focus, these pressures remain a strategic long-term challenge that is being proactively managed.

    1. Margin Outlook
      Q: What is Q3 margin guidance?
      A: Management projects flat to +4bps margins driven by maturing fixed portfolios and lower CD rates, supporting steady earnings growth.

    2. Loan Growth
      Q: What net loan growth is expected?
      A: They forecast 8–10% gross loan growth with a modest net adjustment from $32M (Q3) and $28M (Q4) M2 runoff, fueled by traditional and LITEQ segments.

    3. Capital Deployment
      Q: Will there be stock buybacks soon?
      A: With strong capital build in TCE and rising CET1, management will evaluate buybacks and dividends in the second half of the year.

    4. Sub Debt & Securitization
      Q: What are the sub-debt and securitization plans?
      A: They plan to call $70M of subordinated debt in mid-September and target a securitization floor of $350M to optimize capital ratios with minimal margin impact.

    5. Wealth Management
      Q: Is wealth management growing at double digits?
      A: The business has grown at a 10% CAGR and added $500M in new AUM, supporting expectations for continued near–double digit growth.

    6. Affordable Housing
      Q: How will new affordable housing tax credits impact revenue?
      A: Long-term, legislative changes could boost LITEQ allocations by around 20%, though benefits may materialize in 2026–2027.

    7. Credit Quality
      Q: What is behind rising charge offs?
      A: Increased charge offs are mainly from M2 equipment finance loans—fully reserved items—helping reduce NPAs while keeping provisions steady.

    8. M&A Outlook
      Q: Any near-term M&A plans?
      A: Management remains open to M&A in strategic markets but prefers organic EPS growth, with no active deals currently underway.

    9. B Tranche Sales
      Q: Will retained B tranches be sold?
      A: They may sell existing $80M B pieces in future securitizations if favorable economics appear, aligning GAAP and regulatory CET1.

    10. HUD Budget Cuts
      Q: Could HUD cuts delay deal closures?
      A: Although delays in HUD sign-offs are possible, overall risk to deal flow remains minimal and manageable.

    Research analysts covering QCR HOLDINGS.