10-Q: QCR Holdings Reports Record Q3 Net Income, Loan Growth

QCR Holdings achieved record net income and diluted EPS in Q3 2025, driven by strong loan growth and capital markets revenue, alongside a new share repurchase program.

Summary

• Net income for the three months ended September 30, 2025, was $36.7 million, up from $27.8 million in Q3 2024.
• Diluted earnings per common share for Q3 2025 was $2.16, compared to $1.64 in Q3 2024.
• For the nine months ended September 30, 2025, net income was $91.5 million, up from $83.6 million in 9M 2024.
• Diluted earnings per common share for 9M 2025 was $5.38, compared to $4.94 in 9M 2024.
• Adjusted net income (non-GAAP) for Q3 2025 was $36.9 million, with adjusted diluted EPS of $2.17.
• Net interest income increased 9% to $64.8 million in Q3 2025 compared to Q3 2024, and 10% to $186.9 million for 9M 2025 compared to 9M 2024.
• Net interest margin (tax equivalent basis, non-GAAP) expanded by five basis points to 3.51% in Q3 2025.
• Loan growth was 15% annualized in Q3 2025, driven by traditional and Low-Income Housing Tax Credit (LIHTC) lending.
• Capital markets revenue totaled $23.8 million for Q3 2025, a 46.3% increase from Q3 2024, but decreased 20.4% to $40.2 million for 9M 2025 compared to 9M 2024.
• Total assets increased to $9.6 billion as of September 30, 2025, from $9.0 billion at December 31, 2024.
• Total deposits reached $7.4 billion as of September 30, 2025, up from $7.1 billion at December 31, 2024.
• The Company repurchased 115,735 shares of common stock at an average price of $77.49 per share during Q3 2025.
• A new share repurchase program was authorized on October 20, 2025, for up to 1,700,000 shares, approximately 10% of outstanding shares.
• The effective tax rate for the first nine months of 2025 was 6%, down from 7% in the same period of 2024, primarily due to new state tax credit investments and lower pre-tax income from capital markets revenue.

Sentiment

Score: 8

Explanation: The company reported record net income and EPS, demonstrating strong operational performance and growth across key segments like loans and capital markets (Q3 rebound). The improved net interest margin, effective cost management, and proactive capital management (share repurchase) indicate a healthy financial position and positive outlook.

Positives

• Achieved record net income of $36.7 million and diluted EPS of $2.16 for Q3 2025.
• Reported strong net interest income growth of 9% in Q3 2025 and 10% for 9M 2025 year-over-year.
• Net interest margin (tax equivalent basis, non-GAAP) expanded to 3.51% in Q3 2025.
• Experienced robust loan growth of 15% annualized in Q3 2025.
• Capital markets revenue significantly increased by 46.3% in Q3 2025 compared to the prior year.
• Wealth management client base expanded, with assets under management increasing by $316.1 million in Q3 2025 and $772.7 million for 9M 2025.
• Correspondent banking fees increased 31% in Q3 2025 and 29% for 9M 2025.
• Cost of funds decreased to 3.01% for Q3 2025, down from 3.44% in Q3 2024.
• Tangible common equity to tangible assets (TCE/TA) ratio improved to 9.97% as of September 30, 2025, from 9.24% a year prior.
• All subsidiary banks met capital adequacy requirements and are categorized as well-capitalized.
• Criticized loans as a percentage of total loans/leases decreased to 2.01% at September 30, 2025, from 2.16% at June 30, 2025.
• Classified loans as a percentage of total loans/leases decreased to 0.94% at September 30, 2025, from 1.17% at June 30, 2025.
• A new share repurchase program was authorized for up to 1,700,000 shares, demonstrating confidence in future performance and commitment to shareholder returns.

Negatives

• Capital markets revenue decreased by $10.3 million, or 20.4%, for the nine months ended September 30, 2025, compared to the same period in 2024, affected by macroeconomic and governmental uncertainty.
• Earnings on bank-owned life insurance decreased 47% for the nine months ended September 30, 2025, due to $168 thousand in surrender charges and no death benefit proceeds received (compared to $2.2 million in 2024).
• Provision for credit losses increased to $4.3 million in Q3 2025 and $12.6 million for 9M 2025, primarily due to higher loan growth and increased net charge-offs.
• Total uninsured and uncollateralized deposits were $1.6 billion as of September 30, 2025, representing a potential liquidity risk if large fluctuations occur.
• Net unrealized losses as a percentage of amortized cost for the securities portfolio increased to (11.61)% at September 30, 2025, from (7.32)% at December 31, 2024.

Risks

• The strength of local, state, national, and international economies and financial markets, including effects of inflationary pressures, tariffs, trade wars, and changes to immigration policy.
• Changes in, and the interpretation and prioritization of, local, state, and federal laws, regulations, and governmental policies.
• The economic impact of any future terrorist threats and attacks, widespread disease or pandemics, acts of war or threats thereof (including the Russian invasion of Ukraine and ongoing conflicts in the Middle East).
• New or revised accounting policies and practices, as may be adopted by state and federal regulatory agencies, the FASB, the SEC, or the PCAOB.
• The imposition of tariffs or other governmental policies impacting the value of products produced by commercial borrowers.
• Increased competition in the financial services sector, including from non-bank competitors such as credit unions, fintech companies, and digital asset service providers.
• Rapid technological changes implemented by the Company and its third-party vendors, including the development and implementation of tools incorporating artificial intelligence.
• Unexpected results of acquisitions, including failure to realize anticipated benefits and higher than anticipated transaction and integration costs.
• The loss of key executives and employees, talent shortages, and employee turnover.
• Changes in consumer spending.
• Unexpected outcomes and costs of existing or new litigation or other legal proceedings and regulatory actions.
• The economic impact on the Company and its customers of climate change, natural disasters, and exceptional weather occurrences.
• Fluctuations in the value of securities held in the securities portfolio, including as a result of changes in interest rates.
• Credit risk and risks from concentrations (by type of borrower, geographic area, collateral, and industry) within the loan portfolio and large loans to certain borrowers (including CRE loans).
• The overall health of the local and national real estate market.
• The ability to maintain an adequate level of allowance for credit losses on loans.
• The concentration of large deposits from certain clients who have balances above current FDIC insurance limits and who may withdraw deposits to diversify their exposure.
• The ability to successfully manage liquidity risk, which may increase dependence on non-core funding sources such as brokered deposits, and may negatively impact the Company's cost of funds.
• The level of non-performing assets on the balance sheet.
• Interruptions involving information technology and communications systems or third-party servicers.
• The occurrence of fraudulent activity, breaches or failures of third-party vendors' information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools or as a result of insider fraud.
• Changes in the interest rates and repayment rates of the Company's assets.
• The effectiveness of the risk management framework.
• The effects of any current U.S. government shutdown, including the impact of prolonged closures or staffing reductions at government agencies affecting the business (e.g., LIHTC lending).

Future Outlook

The Company expects its capital markets revenue to normalize to historical levels over the next four quarters and continue to be a solid source of fee income. Management intends to continue to grow quality loans and its private placement tax-exempt securities portfolio to maximize yield while minimizing credit and interest rate risk. The Company also aims to reduce its reliance on wholesale funding and grow its core deposit portfolio. Construction on the new CSB facility is anticipated to be completed in 2026, and the new Company/QCBT facility in 2027.

Management Comments

• "The third quarter of 2025 was also highlighted by the following results and events..."
• "The Company expects its capital markets revenue will normalize to historical levels over the next four quarters and continue to be a solid source of fee income."
• "Management believes that these swaps help position the Company more favorably for various interest rate environments."
• "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."
• "Management places a strong emphasis on overall cost containment and is committed to improving the Company's general efficiency."
• "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."
• "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."
• "It is management's intention to reduce its reliance on wholesale funding, including FHLB advances and brokered deposits."

Industry Context

The filing highlights the strong and growing Low-Income Housing Tax Credit (LIHTC) industry due to an increased need for affordable housing, which significantly drives the Company's capital markets revenue and loan growth. The broader banking sector faced macroeconomic and governmental uncertainty during the first six months of 2025, impacting capital markets revenue. The Federal Reserve's actions in lowering interest rates in the second half of 2024 contributed to a decrease in the Company's cost of funds. The Company is also strategically expanding its wealth management business into new markets in southwest Missouri and central Iowa.

Comparison to Industry Standards

• The Company utilizes net interest margin (tax equivalent yield) as a standard industry practice for financial analysis.
• The efficiency ratio and adjusted efficiency ratio are used by management to compare the Company to its peers, indicating a focus on operational efficiency within the banking industry.

Legal Proceedings

• There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party other than ordinary routine litigation incidental to their respective businesses.

Stakeholder Impact

• Shareholders: Positive impact due to record earnings, EPS growth, improved TCE/TA ratio, and a new share repurchase program, indicating strong financial health and commitment to shareholder returns.
• Employees: Salaries and employee benefits increased in Q3 but decreased year-to-date due to lower variable compensation, suggesting a mixed impact depending on individual performance and compensation structure.
• Customers (Borrowers): Continued access to commercial loans, including LIHTC permanent loans, with interest rate swap options, providing flexible financing solutions.
• Customers (Depositors): Ongoing focus on expanding the core deposit base and offering FDIC-insured programs (ICS/CDARS) to provide secure and competitive deposit services.
• Correspondent Banks: Continued strong relationships, providing a high level of deposits and a steady source of fee income for the Company.

Next Steps

• Continue to grow quality loans and private placement tax-exempt securities portfolio to maximize yield and minimize risk.
• Review opportunities to execute interest rate swaps at all subsidiary banks as appropriate for applicable borrowers and the Company.
• Focus on growing the core deposit portfolio and shifting the mix from brokered and other higher cost deposits to lower cost core deposits.
• Reduce reliance on wholesale funding, including FHLB advances and brokered deposits.
• Construction on the new CSB facility in Ankeny, Iowa, is anticipated to be completed in 2026.
• Construction on the new Company/QCBT facility in Bettendorf, Iowa, is anticipated to be completed in 2027.
• Repurchase shares under the newly authorized share repurchase program of up to 1,700,000 shares.

Key Dates

Recommendation

The company delivered record net income and EPS, demonstrating strong operational performance and growth across key segments like loans and capital markets (Q3 rebound). The improved net interest margin, effective cost management, and proactive capital management (share repurchase) indicate a healthy financial position and positive outlook. The strategic focus on LIHTC lending and correspondent banking provides stable growth drivers, making it an attractive investment.

Keywords

QCR Holdings, QCRH, Banking, Financial Services, Commercial Banking, Wealth Management, Capital Markets, LIHTC, Loans, Deposits, Net Interest Income, EPS, Share Repurchase, Regulatory Capital, Credit Quality, SEC Filing, 10-Q