QCR (NASDAQ:QCRH) reported record third-quarter earnings per share as margin expansion, loan growth, capital markets revenue and improving asset quality supported results. Management also reaffirmed several fourth-quarter targets, including loan growth and capital markets revenue guidance, while outlining plans for additional low-income housing tax credit, or LIHTC, loan sales in early 2027.
Adjusted net income totaled $36 million, or $2.21 per diluted share, for the third quarter, producing an adjusted return on average assets of 1.52%, Chief Financial Officer Nick Anderson said. President and CEO Todd Gipple said the quarter reflected the durability and scalability of the company’s diversified operating model, which includes traditional banking, LIHTC lending and wealth management.
Margin Expansion and Lending Activity
Net interest income was $69 million, up $800,000 from the second quarter, or 5% on an annualized basis. Net interest margin on a taxable-equivalent basis expanded by 3 basis points sequentially to 3.58%, exceeding the company’s guidance.
Anderson attributed the increase to margin expansion, disciplined funding costs and higher average non-interest-bearing deposits. Average earning assets declined by $44 million, largely due to LIHTC loan offtake transactions completed during the second quarter, though third-quarter loan and investment growth partially offset that decline.
Total loans grew $190 million during the quarter, or 11% annualized excluding runoff in the M2 portfolio. QCR said it generated approximately 7% annualized loan growth in each of the second and third quarters in its traditional banking operations. The company reaffirmed its expectation for gross loan growth of 10% to 15% annualized in the fourth quarter.
Gipple said QCR’s loan pipeline is roughly 70% LIHTC lending and 30% traditional banking. He added that the company has seen its strongest traditional banking loan production over the past two quarters, supported by market-share gains and deeper relationships with existing customers.
For the fourth quarter, QCR expects net interest margin to remain relatively stable if there are no further Federal Reserve rate changes. Anderson said the September rate increase should provide a modest near-term benefit because variable-rate assets, new loans and investments reprice faster than deposits. However, he said the benefit of further rate hikes would likely become more muted as deposit pricing catches up.
The company expects to reprice about $165 million of fixed-rate loans from the low-6% range to the mid-6% range. It also expects continued expansion in non-taxable investment yields, supported by new municipal bond investments expected to yield 7.5% to 8% on a tax-equivalent basis.
Fee Income and LIHTC Strategy
Non-interest income totaled $30 million, compared with $29 million in the second quarter. Capital markets revenue rose to $17 million from $15 million in the prior quarter, which had included a $1.3 million loss related to a Freddie Mac LIHTC securitization. Wealth management revenue was $6 million, unchanged sequentially and up 12% from the third quarter of 2025.
Gipple said several capital markets transactions shifted from the third quarter into the fourth quarter. QCR now expects fourth-quarter capital markets production of $18 million to $20 million and reaffirmed guidance for $60 million to $70 million in capital markets revenue over the next four quarters.
The company has used loan sales and securitizations over the past year to recycle capital for additional LIHTC originations. Gipple said that approach generated more than $67 million of capital markets revenue while net interest income increased $24 million, or 10%, over the preceding 12 months, despite a smaller balance sheet.
Management expects to complete its first transaction under a revised LIHTC permanent-loan sale structure in the first quarter of 2027. The company is seeking alternatives to Freddie Mac’s M-series securitization program, which Gipple said has become more complex, costly and time-consuming. The proposed alternative structure is expected to fully sell underlying loans without retaining a first-loss B tranche, removing the assets from risk-weighted assets and more effectively releasing regulatory capital.
QCR currently holds more than $100 million of B-piece interests, according to Gipple. Selling those positions would free approximately 100 basis points of regulatory capital, he said.
Expenses, Deposits and Asset Quality
Third-quarter non-interest expense was $54.7 million, compared with $53.2 million in the second quarter, and was near the low end of management’s guidance range. The increase reflected occupancy and equipment costs associated with the company’s third core system conversion, higher incentive compensation and the timing of marketing expenses.
QCR’s efficiency ratio was 55% for the quarter, while its year-to-date adjusted efficiency ratio improved to 56% from 58% in 2025. Revenue increased 9.3% year to date, compared with expense growth of 4.8%.
The company completed its third of four planned core conversions in October, with the final conversion in Cedar Rapids scheduled for April. Management reaffirmed fourth-quarter non-interest expense guidance of $54 million to $57 million and said it expects operating leverage to build in the latter half of 2027 and beyond.
Core deposits, excluding brokered deposits, totaled $7 billion at quarter-end, down from $7.3 billion at June 30. However, Anderson said correspondent deposits that left near quarter-end had returned, along with additional deposit growth. As of mid-October, total deposits had increased by more than $500 million from quarter-end, including $40 million of non-interest-bearing balances.
Asset quality improved further. Nonperforming assets declined $1.5 million sequentially to $38 million, and the nonperforming asset-to-total asset ratio fell to 0.39%, its lowest level since 2024. Criticized loans declined $14 million to 1.67% of loans and leases, the lowest percentage since 2019. Net charge-offs were $3 million, down $200,000 from the prior quarter.
Capital Deployment and $10 Billion Threshold
During the quarter, QCR repurchased approximately 95,000 shares for $9.5 million. Tangible book value per share rose to $61.79, up 11% year over year. The company’s common equity tier 1 ratio increased 33 basis points to 11.01%, while its total risk-based capital ratio rose 37 basis points to 14.5%.
Gipple said QCR expects to remain below $10 billion in assets through the fourth quarter but expects to exceed that level sometime in 2027, likely in the first half. He said the company has been preparing for the threshold since 2023 and expects the associated Durbin Amendment revenue impact beginning in mid-2028 to be approximately $3 million annually.
Management said it is more open to potential acquisitions after completing its digital transformation, but emphasized that the hurdle for a deal remains high. Gipple said QCR is particularly interested in opportunities that could expand its central Iowa presence or establish a presence in a fifth market with characteristics similar to its existing markets.
About QCR (NASDAQ:QCRH)
QCR Holdings, Inc (NASDAQ: QCRH) is a bank holding company that provides commercial and consumer banking services through a group of community banking subsidiaries. Its offerings include business and consumer loans, deposit accounts, treasury management, mortgage lending, cash management, and related financial services.
The company serves businesses, individuals, families, and institutions in selected Midwestern markets. Its banking operations have a presence in eastern Iowa, the Quad Cities region of Iowa and Illinois, and communities in Missouri, with a focus on relationship-based commercial banking and local decision-making.
QCR Holdings traces its origins to the early 1990s and has expanded through the development and acquisition of community banks.
