QCRH Q2 2025: Projects 8-10% Loan Growth, Flat to +4bps NIM
- 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.
Metric | YoY Change | Reason |
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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. |
Metric | Period | Previous Guidance | Current Guidance | Change |
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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 |
Topic | Previous Mentions | Current Period | Trend |
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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. |
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.