Midwest regional bank QCR Holdings (NASDAQGM:QCRH) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 10.2% year on year to $84.2 million. Its non-GAAP profit of $1.73 per share was 8.8% above analysts’ consensus estimates.

Is now the time to buy QCRH? Find out in our full research report (it’s free).

StockStory’s Take

QCR Holdings’ second quarter results were marked by a decline in revenue, as the company missed Wall Street’s top-line expectations amid ongoing challenges in the broader banking sector. Management attributed the quarter’s performance to net interest margin expansion, disciplined cost control, and robust loan growth—particularly when excluding planned run-off in its equipment finance segment. CEO Todd Gipple highlighted, “We delivered strong second quarter earnings, driving an EPS improvement of 13% over the first quarter,” crediting improved net interest income and capital markets revenue as key drivers.

Looking ahead, QCR Holdings’ management is focused on sustaining loan growth, optimizing its deposit base, and completing a digital transformation aimed at long-term efficiency gains. The company is guiding to gross loan growth of 8% to 10% for the remainder of the year and expects capital markets revenue to normalize, supported by a strong pipeline in its affordable housing lending business. CFO Nick Anderson noted, “We are making progress on our comprehensive multiyear digital transformation initiative that encompasses several strategic projects,” emphasizing continued investment in technology and efforts to further reduce funding costs.

Key Insights from Management’s Remarks

Management pointed to several company-specific factors behind the quarter’s results, with margin expansion, capital markets momentum, and cost discipline offsetting headwinds from lower revenue.

• Margin Expansion Amid Rate Cuts: Net interest margin (NIM) expanded due to lower deposit costs and stable loan yields, despite an inverted yield curve. Management credited proactive efforts to reduce funding costs, including repricing maturing certificates of deposit (CDs), which contributed to improved profitability.

• Loan Growth Recovery: Loan balances grew at an annualized 8% rate after adjusting for planned runoff in the equipment finance portfolio. The rebound was driven by increased production in both the Low-Income Housing Tax Credit (LIHTC) lending and traditional commercial real estate segments, with management expecting continued momentum for the rest of the year.

• Capital Markets Revenue Normalization: The LIHTC-driven capital markets business saw a significant sequential revenue increase and is expected to return to historical levels in coming quarters. While two anticipated transactions slipped into early July, management reaffirmed its outlook for $50–$60 million in capital markets revenue over the next four quarters.

• Disciplined Expense Management: Noninterest expenses remained controlled, coming in below guidance despite higher variable compensation tied to improved results. Investment in digital transformation and automation was cited as essential for maintaining operating leverage and supporting the community banking model.

• Asset Quality and Credit Discipline: Asset quality remained solid, with increases in net charge-offs tied to previously reserved equipment finance loans. The company’s provision for credit losses was stable, and management reported that criticized loans stemmed largely from a single well-collateralized agricultural credit, minimizing broader credit concerns.

Drivers of Future Performance

QCR Holdings’ outlook is shaped by its focus on core deposit growth, digital transformation progress, and the ramp-up in its LIHTC lending platform.

• Deposit Base Optimization: Management’s top strategic priority is to grow and strengthen the core deposit base, aiming for a better funding mix to enhance profitability. Leadership noted that all employees are aligned behind this initiative, which is expected to further support net interest margin in a lower-rate environment.

• Digital Transformation and Efficiency: The ongoing transition to a unified core banking platform is projected to improve operational efficiency and reduce long-term costs. Management anticipates completing this digital overhaul by 2027, with benefits to operating leverage expected in subsequent years.

• LIHTC Lending and Securitization: The affordable housing lending business is poised for expansion, with legislative changes expected to increase LIHTC allocations over the next several years. Management plans a large loan securitization in early 2026, which should provide capital relief and enable further loan growth.

Catalysts in Upcoming Quarters

In the coming quarters, our team will be closely watching (1) the pace of core deposit growth and the related impact on funding costs, (2) progress on the digital transformation initiative, especially the integration of banking systems, and (3) continued normalization and growth in capital markets revenue driven by the LIHTC pipeline. Additional milestones include the anticipated large-scale loan securitization in early 2026 and trends in asset quality as the equipment finance portfolio runs off.

QCR Holdings currently trades at $74.34, down from $75.45 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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