QCR HOLDINGS INC

QCR Holdings, Inc. is a multi-bank holding company headquartered in Moline, Illinois, formed in February 1993 under the laws of the state of Delaware, and in 2016 it elected to operate as a financial holding company under the BHCA. The company serves the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls, Des Moines/Ankeny and Springfield communities through four wholly-owned banking subsidiaries: Quad City Bank & Trust (QCBT), Cedar Rapids Bank & Trust (CRBT), Community State Bank (CSB), and Guaranty Bank (GB), which provide full-service commercial and consumer banking and trust and asset management services. The company also engages in direct financing lease contracts and equipment financing agreements through m2, a wholly-owned subsidiary of QCBT based in Waukesha, Wisconsin. The company operates in the highly competitive Quad Cities, Cedar Rapids, Marion, Waterloo/Cedar Falls, Des Moines, Iowa and Springfield/Joplin, Missouri markets, competing with other commercial banks, credit unions, thrift institutions, mutual funds, insurance companies, financial technology companies, digital asset service providers, finance companies, brokerage firms, investment banking companies, and a variety of other financial services and advisory companies, many of which are not subject to the same regulatory restrictions and have substantially greater resources and larger lending limits.

The company's competitive positioning is shaped by its community-based operating strategy, which relies heavily on the independent management teams of its subsidiary banks and their familiarity with local markets. Competitors include large regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, fintech companies, digital asset service providers, money market mutual funds, credit unions, online lenders and other non-bank financial services providers, many of which are not subject to the same regulatory restrictions and compete across geographic boundaries. The company's ability to compete is constrained by its smaller lending limits compared to larger competitors, and its success depends on attracting and retaining senior management experienced in banking and financial services and familiar with the communities in its market areas.

The company's principal business consists of attracting deposits and investing those deposits in loans/leases and securities, with results of operations dependent primarily on net interest income, which is the difference between the interest earned on its loans/leases and securities and the interest paid on deposits and borrowings. Operating results are also affected by trust fees, investment advisory and management fees, deposit service charge fees, capital markets revenue, gains on the sale of residential real estate and government guaranteed loans, earnings from BOLI and other noninterest income, while operating expenses include employee compensation and benefits, occupancy and equipment expense, professional and data processing fees, advertising and marketing expenses, bank service charges, FDIC and other insurance, loan/lease expenses and other administrative expenses. The company and its subsidiaries collectively employed 1,004 ¹ and 980 ² FTEs at December 31, 2025 and 2024, respectively.

The company provides a broad range of commercial and retail lending and investment services to corporations, partnerships, individuals, and government agencies. The loan portfolio is diversified across major loan types, with total loans/leases of $7,166,955 thousand ³ as of December 31, 2025, compared to $6,784,404 thousand ⁴ as of December 31, 2024. The portfolio includes commercial and industrial (C&I) loans of $1,703,522 thousand ⁵ (24% of total), commercial real estate (CRE) loans of $4,800,356 thousand ⁶ (67% of total), construction and land development loans of $1,308,422 thousand ⁷ (18% of total), multi-family loans of $1,769,331 thousand ⁸ (25% of total), direct financing leases of $9,533 thousand ⁹, 1-4 family real estate loans of $603,683 thousand ¹⁰ (9% of total), and consumer loans of $158,457 thousand ¹¹ (2% of total). Within the CRE portfolio, approximately 46% ¹² is comprised of low-income housing tax credit (LIHTC) loans, and approximately 12% ¹³ was owner-occupied as of December 31, 2025. The company also generates noninterest income through trust and asset management services, deposit service charges, capital markets revenue, and gains on loan sales, and it executes interest rate swaps with select commercial borrowers, generating upfront nonrefundable fees.

The company's lending activities are governed by an established lending policy with underwriting factors including location, loan-to-value ratio, cash flow, collateral and credit history. The legal lending limit to one borrower for QCBT, CRBT and CSB, calculated as 15% of aggregate capital, was $49.2 million ¹⁴, $72.8 million ¹⁵, and $32.2 million ¹⁶, respectively, as of December 31, 2025, while for GB it totaled $46.3 million ¹⁷. The company has established in-house lending limits that are lower than legal limits, with a tiered approach based on risk rating, and the QCRH Consolidated maximum credit exposure to a single borrowing entity is $35,000 ¹⁸ for high quality, $26,000 ¹⁹ for medium quality, and $16,000 ²⁰ for low quality risk ratings. Each subsidiary bank's total loans as a percentage of total assets may not exceed 85% ²¹, and as of December 31, 2025, the actual allocations were 68% ²² for QCBT, 70% ²³ for CRBT, 76% ²⁴ for CSB, and 77% ²⁵ for GB. The company also has policy limits on non-owner occupied CRE loans as a percentage of total risk-based capital, with limits of 300% ²⁶ for QCBT, 400% ²⁷ for CRBT, 400% ²⁸ for CSB, and 450% ²⁹ for GB.

In September 2024, the company announced the decision to discontinue offering new loans and leases through m2. On October 20, 2025 ³⁰, the company's board of directors authorized a new share repurchase program under which the company is authorized to repurchase up to 1,700,000 ³¹ shares of its common stock, or approximately 10% of the outstanding shares as of September 30, 2025, replacing the prior repurchase program approved in 2022. There were 149,456 ³² shares of common stock repurchased by the company under the new repurchase program during the year ending December 31, 2025, and 1,550,544 ³³ shares remained for repurchase under the new program as of December 31, 2025. The company completed a core processing provider consolidation at GB in the fourth quarter of 2025 and intends to undertake core processing provider consolidations at its other subsidiary banks in 2026 and 2027. The company also has seven trust preferred subsidiaries with total outstanding amounts of $50,520 thousand ³⁴ as of both December 31, 2025 and 2024, with a weighted average interest rate of 6.11% ³⁵ as of December 31, 2025, compared to 6.88% ³⁶ as of December 31, 2024.

For the fiscal year ended December 31, 2025, the company reported net income of $76,497 thousand ³⁷, compared to $72,499 thousand ³⁸ for 2024 and $72,316 thousand ³⁹ for 2023. Diluted earnings per share were $4.51 ⁴⁰ for 2025, compared to $4.27 ⁴¹ for 2024 and $4.27 ⁴² for 2023. Total interest income was $478,654 thousand ⁴³ for 2025, compared to $478,044 thousand ⁴⁴ for 2024 and $421,606 thousand ⁴⁵ for 2023. Net interest income was $262,108 thousand ⁴⁶ for 2025, compared to $253,677 thousand ⁴⁷ for 2024 and $247,088 thousand ⁴⁸ for 2023. The provision for credit losses was $10,000 thousand ⁴⁹ for 2025, compared to $8,000 thousand ⁵⁰ for 2024 and $7,500 thousand ⁵¹ for 2023. Noninterest income was $62,679 thousand ⁵² for 2025, compared to $56,675 thousand ⁵³ for 2024 and $49,315 thousand ⁵⁴ for 2023. Noninterest expenses were $218,641 thousand ⁵⁵ for 2025, compared to $210,755 thousand ⁵⁶ for 2024 and $198,519 thousand ⁵⁷ for 2023.

The company's growth strategy is centered on organic expansion within its existing markets and exploring acquisition opportunities. The company intends to grow its business organically and to explore opportunities to grow its business by taking advantage of attractive acquisition opportunities, though such growth plans may require raising additional capital. The company has an increased focus on the interest rate swap business, which has led to significantly increased noninterest income, stronger overall loan growth, and improved management of its interest rate risk, and it executes these swaps at all of its subsidiary banks as circumstances are appropriate. The company also continues to originate and sell residential real estate loans and government guaranteed loans, with originations of residential real estate loans of $124,679 thousand ⁵⁸ in 2025, compared to $113,223 thousand ⁵⁹ in 2024 and $105,785 thousand ⁶⁰ in 2023, and sales of residential real estate loans of $86,365 thousand ⁶¹ in 2025, compared to $86,133 thousand ⁶² in 2024 and $68,271 thousand ⁶³ in 2023.

The company's LIHTC lending program represents a significant growth vector, with LIHTC loans comprising approximately 46% ⁶⁴ of the CRE portfolio and $2,196,023 thousand ⁶⁵ in lessors of residential buildings - LIHTC loans as of December 31, 2025, compared to $1,778,488 thousand ⁶⁶ as of December 31, 2024. The company has completed four securitizations of LIHTC loans to manage CRE exposure, and the LIHTC construction and permanent loans rely on federal LIHTCs to help finance the overall real estate projects. The company also has an increased focus on the interest rate swap business, which is heavily weighted towards LIHTC permanent loans, and future levels of swap fee income are dependent upon the needs of traditional commercial and LIHTC borrowers and the size of the related nonrefundable swap fee may fluctuate on the interest rate environment.

The company's margin trajectory is influenced by the spread between interest rates earned on investments and loans/leases and interest rates paid on deposits and other interest-bearing liabilities. The company's cost of funds increased more rapidly than yields on a substantial portion of its interest-earning assets during the most recent Federal Reserve rate increase cycle, and the company's interest-bearing liabilities have a shorter duration than its interest-earning assets due to the emphasis on increasing core deposits. The company measures interest rate risk under various rate scenarios and believes its current level of interest rate sensitivity is reasonable and effectively managed, but significant fluctuations in interest rates may have an adverse effect on its business, financial condition and results of operations.

The company completed a core processing provider consolidation at GB in the fourth quarter of 2025 and intends to undertake core processing provider consolidations at its other subsidiary banks in 2026 and 2027. The company and its core processing systems may be more vulnerable to threat actors during these transitions, and may not be able to anticipate matters that could cause delays or interruptions during the consolidations. The company employed 967 ⁶⁷ full-time employees and 72 ⁶⁸ part-time employees as of December 31, 2025, and in 2025, 91% ⁶⁹ of employees participated in the annual engagement survey, with the company achieving an 82% ⁷⁰ engagement score, outperforming the national benchmark of 73% ⁷¹.

The company's capital allocation strategy includes share repurchases, with a new repurchase program authorized on October 20, 2025 ⁷² for up to 1,700,000 ⁷³ shares, and 149,456 ⁷⁴ shares repurchased under the new program during 2025. The company also has $283.1 million ⁷⁵ of total indebtedness outstanding at the holding company level as of December 31, 2025. The company's ability to pay dividends to stockholders is derived primarily from dividends received from the Banks, which are subject to significant federal and state regulation and restrictions, and as of December 31, 2025, the Banks had deposits, borrowings and other liabilities in the aggregate of approximately $8.3 billion ⁷⁶.

The company faces structural headwinds from the highly competitive environment in its markets, with many competitors having substantially greater resources, larger lending limits, and not being subject to the same regulatory restrictions. The company also faces risks from the potential for disintermediation as digital asset service providers and other non-bank financial services providers offer alternatives to traditional banking services. Additionally, the company's LIHTC lending program is dependent on the continued availability of federal LIHTC programs, and changes to these programs, including changes to the level of tax credits provided by the federal government on low-income housing, may have an adverse effect on its business.

The company identified several macro and regulatory constraints, including the impact of monetary policies of the Federal Reserve, with the FOMC having decreased the target range for the federal funds rate from 4.25% to 4.50% to a range of 3.50% to 3.75% in 2025. The company also faces risks from elevated levels of inflation, with the consumer price index having stabilized lower at 2.7% ⁷⁷ at the end of 2025, and from geopolitical developments including conflicts in the Middle East, the Russian invasion of Ukraine, and the recent military activity in Venezuela. The company also noted that changes in policy at banking agencies following federal- and state-level elections remain highly uncertain, and evolving laws impacting cannabis-related businesses in Illinois and Missouri have increased the likelihood that the Banks could interact with such businesses, creating additional legal, regulatory, strategic, and reputational risk.

The company faces significant credit risk from its concentration in commercial real estate loans, which were $4.8 billion ⁷⁸, or approximately 67% ⁷⁹ of the total loan/lease portfolio as of December 31, 2025, with LIHTC loans comprising approximately 46% ⁸⁰ of CRE loans. The allowance for credit losses as a percentage of gross loans/leases held for investment was 1.26% ⁸¹, and net charge-offs were 0.27% ⁸² of gross average loans/leases for 2025, but the company cannot predict loan/lease losses with certainty and additional provisions may be needed. Interest rate risk is a material factor, as the company's securities portfolio had gross unrealized losses of $164.5 million ⁸³, or 12.9% ⁸⁴ of amortized cost, with an average duration of 5.4 years ⁸⁵, and the cost of funds increased more rapidly than asset yields during the recent rate increase cycle. The company also faces liquidity risk as a bank holding company, with its ability to pay dividends dependent on dividends from the Banks, which are subject to regulatory restrictions, and the Banks had deposits, borrowings and other liabilities of approximately $8.3 billion ⁸⁶ as of December 31, 2025. Additionally, the company has $283.1 million ⁸⁷ of total indebtedness at the holding company level, which could restrict its operations and limit its ability to borrow additional funds.

Management's message emphasizes the company's community banking strategy and its focus on building relationships, with the company being built on relationships and integrity. The company introduced its Happy, Healthy, Engaged Employees initiative in 2025 to align and elevate all efforts that support the employee experience to support the recruitment, development and retention of employees. Management's strategic priorities include continuing to grow the business organically and exploring attractive acquisition opportunities, managing interest rate risk through the use of interest rate swaps and other hedging strategies, and maintaining a strong capital and liquidity position. The company also emphasizes its commitment to environmental, social and governance programs, believing that meaningful ESG programs will drive shareholder value and make the company better.