QCR Holdings Earnings Call Showcases Record Growth Momentum

QCR Holdings ((QCRH)) has held its Q4 earnings call. Read on for the main highlights of the call.

QCR Holdings Signals Confidence With Record Earnings and Growth Momentum

QCR Holdings’ latest earnings call painted a decidedly upbeat picture, underscored by record quarterly and full‑year earnings, expanding margins, strong loan and deposit growth, and outperformance across fee-generating businesses such as capital markets, wealth management, and LIHTC. While management acknowledged near-term headwinds—from seasonal weakness in capital markets to rising operating expenses and a slow recovery in noninterest-bearing deposits—the overarching tone was one of controlled investment, disciplined risk management, and confidence in the bank’s long-term growth trajectory.

Record Earnings Mark a Breakout Year

QCR reported adjusted net income of $37.0 million for the fourth quarter, or $2.21 per diluted share, capping a year of record performance with full-year adjusted net income of $130.0 million, or $7.64 per diluted share. These figures reflect both core banking strength and the added contribution from fee-based businesses. For equity investors, the key takeaway is that this was not a one-off quarter but a record year built on multiple diversified revenue streams, signaling earnings power that appears more durable than purely rate-driven spikes.

Net Interest Income and Margin Push Higher

Net interest income (NII) rose by $4 million in the fourth quarter, equating to a robust 22% annualized increase, and climbed $23 million, or 10%, for the full year. The bank’s net interest margin (NIM) continued to expand, up 6 basis points linked quarter and 32 basis points over the last seven quarters. Management further guided to an additional 3–7 basis points of core margin expansion in the first quarter, pointing to a balance sheet that is still positively levered to rate cuts and active balance sheet management. For investors, the steady, multi-quarter NIM expansion, rather than volatile swings, is a key sign of disciplined pricing and funding strategy.

Earning Asset Growth Fuels Revenue

Average earning assets grew by roughly 14%, providing the base for both NII and margin gains. This expansion reflects healthy loan demand and successful deployment of liquidity into higher-yielding assets. The combination of asset growth and margin expansion is particularly important: QCR is not simply earning more on a static balance sheet; it is scaling its franchise while preserving pricing discipline, a dynamic that supports continued earnings growth if credit quality remains solid.

Capital Markets Outperforms Expectations

QCR’s capital markets business significantly outpaced prior expectations, delivering $25 million in revenue in the fourth quarter and $65 million for the full year—well above earlier guidance of $50–$60 million. Management raised its outlook, now targeting $55–$70 million in capital markets revenue over the next four quarters. This performance positions capital markets as a meaningful earnings contributor rather than a niche side business. However, management emphasized Q4’s strength should not be annualized, especially given known seasonality.

Wealth Management Delivers Consistent Growth

Wealth management continued to build scale, adding nearly 500 new client relationships and more than $1.0 billion in new assets under management during the year. Both AUM and revenue have posted a 10% compound annual growth rate over the past five years, underscoring the franchise’s steady growth profile. Fourth-quarter wealth management revenue reached $5 million, up 4% sequentially and 11% year-over-year. For shareholders, this recurring, fee-based revenue stream adds diversification and helps smooth earnings across rate cycles.

LIHTC Platform Drives Capital Efficiency

The LIHTC (Low-Income Housing Tax Credit) platform emerged as a strategic growth and capital optimization engine. In the fourth quarter, QCR sold $285 million of LIHTC construction loans at par, freeing regulatory capital and allowing the bank to retire higher-cost Federal Home Loan Bank term advances. The bank also added 18 new developer partners, expanding its origination pipeline. Management is targeting a permanent loan securitization of roughly $300–$350 million before midyear, designed to scale the platform while improving balance sheet efficiency. This strategy supports fee income and capital usage, even if it moderates visible NII growth in the near term.

Deposits and Funding Show Improved Mix

Core deposits increased by $64 million in the fourth quarter, a 4% annualized pace, and by $474 million, or 7%, for the full year. Average deposits rose $237 million in Q4, a 13% annualized increase versus the prior quarter. Importantly, QCR reduced higher-cost brokered deposits by 34%, demonstrating progress on lowering funding costs. While the overall deposit mix still has room to improve, particularly on the noninterest-bearing side, the direction of travel is favorable and supports the margin and growth outlook.

Asset Quality and Capital Remain Strong

Credit metrics remained notably clean. Total criticized loans fell by $5 million in the quarter and $20 million, or 12%, for the year, bringing criticized loans down to 1.94% of total loans, a 7-basis point improvement. Nonperforming assets stayed stable at 0.45%. Capital remains solid, with tangible common equity to tangible assets at 10.24%, a CET1 ratio of 10.52%, and total risk-based capital at 14.19%. For investors concerned about late-cycle credit risk, these numbers suggest QCR is entering its next growth phase from a position of strength rather than stretch.

Shareholder Returns and Tangible Book Value Acceleration

QCR continued to return capital to shareholders while still growing its franchise. The company repurchased roughly 163,000 shares in the fourth quarter for $13 million and about 279,000 shares for the full year totaling approximately $22 million. Tangible book value per share increased by $2.08 to around $58 in Q4 alone, a 15% annualized growth rate, with a five‑year tangible book value CAGR of 13%. Over the past decade, total shareholder return has exceeded 250%, outperforming peers. These trends suggest management is effectively balancing growth investment with disciplined capital return.

Seasonal Drag in Q1 Capital Markets

Management made a point of tempering expectations for capital markets results in the first quarter. Historically, Q1 is the slowest quarter for this business, with a five‑year average revenue of about $11 million, and last year’s first quarter producing just $6 million. Investors are being cautioned not to extrapolate the strong Q4 run-rate into Q1, which should help set a more realistic bar and reduce the risk of disappointment around seasonal volatility in this line.

Rising Noninterest Expense and Investment Cycle

Noninterest expense moved higher, with core expense up roughly $4 million in the fourth quarter, excluding a $2 million prepayment fee. For the first quarter, management guided noninterest expense to $55–$58 million, implying about a 5% year-over-year increase at the midpoint. The drivers are largely strategic: around $4 million is tied to digital transformation, another $4 million to salaries and benefits, and roughly $2 million to occupancy costs. These outlays reflect an investment cycle aimed at enhancing technology and scale rather than simple cost creep, but they will pressure near-term efficiency metrics.

Deposit Mix Still a Work in Progress

Despite the positive deposit and funding trends, QCR’s noninterest-bearing deposits stand at roughly 13% of total deposits, below historical levels in the 20% range. Management expects this mix to improve only gradually over several years, meaning investors should not expect a rapid margin lift from a shift back into noninterest-bearing funds. The message is that mix improvement is coming, but it will be measured and won’t serve as a near-term earnings crutch.

Conservative LIHTC Guidance and NII Trade-Offs

While LIHTC is a central growth engine, management highlighted that its revenue guidance for this business is conservative. Moreover, the strategy of selling or securitizing LIHTC construction loans, although beneficial for regulatory capital and long-term platform scalability, can dampen reported NII growth in the short run. This trade-off underscores QCR’s prioritization of capital efficiency and fee income over maximizing near-term spread income—a strategic choice that long-term investors may view favorably even if it masks some underlying growth.

Efficiency Gains Pushed Out by Tech Spend

QCR is in the midst of a broad digital transformation and core system upgrade program, involving four major conversions, one of which has been completed. These projects are raising current-period expenses and delaying visible improvements in the efficiency ratio and operating leverage until roughly 2027–2028. Investors should view the current period as a build-out phase: near-term profitability metrics face pressure, but management expects a step-change in efficiency and scalability once the technology and systems work is largely behind them.

Competitive Landscape and Pricing Pressure

Management acknowledged ongoing competitive pressures across its markets. In LIHTC, competition can intensify when equity providers bundle permanent financing, squeezing pricing. In traditional banking, standard competitive loan and deposit pricing pressure persists, and M&A activity among rivals could create localized disruption or talent dislocation. QCR appears to be positioning itself to benefit from such dislocation by attracting talent and clients, but the commentary underscores that it operates in a highly competitive environment where disciplined underwriting and pricing remain critical.

Guidance Highlights: Growth, Margin Tailwinds, and Investment Pace

Management’s guidance outlined a clear roadmap for the next several quarters. Capital markets revenue is forecast at $55–$70 million over the next four quarters, versus the $65 million delivered in the latest year, with Q1 expected to be seasonally soft. A permanent loan securitization of approximately $300–$350 million is expected before midyear to support the LIHTC platform. Tax‑equivalent NIM is projected to expand another 3–7 basis points in the first quarter, aided by rate-sensitive liabilities that exceed assets by about $700 million, a roughly 2-basis point NIM benefit from retiring FHLB term debt, and favorable repricing: about $140 million of fixed‑rate loans at 5.55% resetting up roughly 50 basis points, and $390 million of CDs at 3.94% repricing down about 50 basis points, while new municipal inventory is yielding in the high‑6% tax-equivalent range. Loan growth is guided to 8–10% annualized in Q1, accelerating to 10–15% for the rest of 2026, implying roughly 12% growth for the full year, largely funded by core deposits. Noninterest expense is expected at $55–$58 million in Q1, with an 8–10% effective tax rate. Management also plans to remain under $10 billion in assets at year-end 2026, crossing that threshold in 2027, and intends to keep share repurchases opportunistic rather than formulaic.

In closing, QCR Holdings’ earnings call delivered a clear message of solid execution and strategic investment. Record earnings, expanding margins, strong asset quality, and capital markets and wealth management momentum form a compelling growth story, even as management openly acknowledges seasonal revenue swings and a front-loaded expense cycle. For investors, the narrative is one of a bank in expansion mode—deliberately investing in technology and specialized platforms like LIHTC to drive long-term returns—while maintaining strong credit and capital profiles that help mitigate the risks inherent in a more competitive banking landscape.