QCR (NASDAQ:QCRH) reported what management described as a strong second quarter of 2026, with net income of $36 million, or $2.19 per diluted share, as the bank holding company cited loan production, capital markets activity, wealth management growth and expense discipline as key contributors.
President and CEO Todd Gipple said the quarter produced “record quarterly GAAP earnings per share,” while adjusted earnings per share was near record levels. He said return on average assets was 1.51%, and earnings per share rose 28% from the prior-year quarter.
Loan Growth and Net Interest Income
CFO Nick Anderson said net interest income totaled $68 million in the second quarter, up $500,000, or 3% annualized, from the first quarter. He said robust earning asset growth more than offset the impact of Low-Income Housing Tax Credit, or LIHTC, loan offtake transactions.
Anderson said the company’s net interest margin on a tax-equivalent yield basis declined three basis points from the first quarter and came in below guidance. He attributed the decline to a shift toward higher-cost non-core funding and lower loan yields, including reduced loan discount accretion and non-accrual activity. However, he said deposit pricing discipline helped reduce deposit costs during the quarter.
Anderson said the company expects a “relatively static” third-quarter net interest margin on a tax-equivalent basis, assuming no Federal Reserve rate changes. He added that each 25-basis-point decrease in the federal funds rate would be expected to increase net interest margin by one basis point and net interest income by about $1 million, based on the company’s current modestly liability-sensitive balance sheet position.
Total loans grew $217 million in the quarter, or 12% annualized, excluding the impact of LIHTC offtake transactions and planned runoff of the M2 Equipment Finance portfolio. Traditional loan growth was 7% annualized, excluding the M2 runoff.
Capital Markets and LIHTC Lending Remain Central to Strategy
QCR reaffirmed its guidance for gross annualized loan growth of 10% to 15% over the final two quarters of 2026 and capital markets revenue of $60 million to $70 million over the next four quarters.
Gipple said the company’s LIHTC lending business continues to perform well, supported by demand for affordable housing and relationships with major developers. Anderson said capital markets revenue totaled $15 million in the quarter, while WAC fee capital markets revenue increased $6 million, or 56%, from the prior quarter to $17 million. That was partially offset by a $1.3 million loss tied to a Freddie Mac LIHTC securitization.
During the quarter, QCR executed $444 million of LIHTC loan offtake transactions, consisting of a Freddie Mac permanent loan securitization and a construction loan portfolio sale. Gipple said Freddie Mac had significantly increased the complexity of its M-Deal securitization program, including expanding the offering document to more than 400 pages from a little more than 100 pages in earlier transactions. He said the added legal and transaction costs contributed to the loss on the securitization, even though pricing of the underlying securities was stronger than expected.
Gipple said QCR is working with third parties on alternative loan sale structures for permanent LIHTC loans that management believes will be less complex, faster to complete and more economically attractive. He said those structures are expected to result in complete loan sales without retaining a first-loss B tranche, which would more fully remove the loans from risk-based assets and free regulatory capital. The company expects its first transaction under the revised structure in early 2027.
In response to a question from Piper Sandler analyst Nathan Race, Gipple said the company does not expect to conduct much additional LIHTC offtake activity for the remainder of 2026, except potentially a modest construction loan sale to remain comfortably below $10 billion in assets at year-end.
Wealth Management, Deposits and Asset Quality
Wealth management revenue was $6 million in the second quarter, up 7% from the prior quarter. Gipple said assets under management increased 9% on a linked-quarter basis. Anderson said the business added 170 new client relationships and $483 million in new assets under management year to date.
Core deposits declined $324 million in the second quarter after what Anderson called exceptional first-quarter performance. He said the decrease reflected an intentional reduction in higher-cost correspondent and public fund balances, supported by liquidity from LIHTC offtake transactions and growth in non-interest-bearing deposits. Year to date, core deposits increased $85 million, or 2% annualized, and the company recorded its third consecutive quarter of non-interest-bearing deposit growth.
Asset quality improved during the quarter. Anderson said non-performing assets totaled $40 million, down $3.4 million from the prior quarter, reducing the non-performing assets-to-total-assets ratio to 0.41%. Criticized loans fell to 1.91% of total loans and leases, the lowest level since the fourth quarter of 2019. The company recorded a $4.7 million provision for credit losses, compared with $2.5 million in the first quarter, and net charge-offs declined by $600,000 to $3.3 million.
Expense Guidance, Capital Returns and Outlook
Non-interest expense totaled $53 million, up from $52 million in the first quarter. Anderson said the increase was primarily tied to higher salary and benefits expense related to capital markets activity, as well as higher professional and data processing costs tied to digital transformation investments. The company’s efficiency ratio improved 310 basis points to 54.6%.
QCR lowered its third-quarter non-interest expense guidance to a range of $54 million to $57 million. Anderson said the outlook includes continued investment in digital transformation initiatives and reflects the company’s effort to keep annual non-interest expense growth below 5% under its “9-6-5” strategic model.
During the quarter, QCR repurchased approximately 150,000 common shares and returned nearly $13.5 million of capital to shareholders. Since launching its repurchase effort last year, the company has bought back 675,000 shares, or about 4% of shares outstanding, for nearly $56 million. Anderson said tangible book value per share increased $2.17, or 15% annualized, during the quarter.
Gipple also said QCR expects to grow beyond the $10 billion asset threshold sometime in 2027 and is preparing for the related organizational impacts expected in mid-2028. On merger and acquisition activity, he said the company has become more intentional about discussions as its digital transformation project approaches completion, but emphasized that the “strike zone is very tight” because of QCR’s organic growth momentum.
About QCR (NASDAQ:QCRH)
QCR Holdings, Inc, headquartered in Moline, Illinois, is a bank holding company that delivers community banking services through its wholly owned subsidiary, QCR Bank. The company focuses on serving individuals, small to medium-sized businesses and municipal clients in select Midwestern markets.
QCR Bank offers a broad array of deposit and lending products, including personal and business checking and savings accounts, commercial real estate loans, equipment financing, mortgage lending and treasury management solutions.
