QCR Q2 2026 Earnings Report

QCR EPS Results

• Actual EPS: $2.19
• Consensus EPS: $1.91
• Beat/Miss: Beat by +$0.28
• One Year Ago EPS: N/A

QCR Revenue Results

• Actual Revenue: $97.34 million
• Expected Revenue: $104.10 million
• Beat/Miss: Missed by -$6.76 million
• YoY Revenue Growth: N/A

QCR Announcement Details

• Quarter: Q2 2026
• Date: 7/22/2026
• Time: After Market Closes
• Conference Call Date: Thursday, July 23, 2026
• Conference Call Time: 11:00AM ET

QCR (NASDAQ:QCRH), 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. The bank also provides digital banking platforms for online account access, mobile deposits and cash-management tools designed to streamline day-to-day financial operations.

Through a network of branch offices located primarily in the Quad Cities region of Illinois and Iowa, with additional locations in Missouri and Tennessee, QCR Holdings emphasizes locally driven decision-making and relationship banking. The company’s regional focus underscores its commitment to supporting community development and economic growth in the markets it serves.

QCR Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: QCR Holdings reported record quarterly GAAP EPS and strong net income, with EPS up 28% year over year and ROAA at 1.51%, citing broad-based strength across lending, capital markets, wealth management, and expense discipline.
• Positive Sentiment: The company reaffirmed gross annualized loan growth guidance of 10%–15% for the back half of 2026, supported by robust pipelines in both traditional banking and LIHTC lending.
• Neutral Sentiment: Management said the second-quarter LIHTC offtake transactions were more costly than prior deals because Freddie Mac’s securitization process became significantly more complex, but the company is pursuing alternative structures expected to be simpler and more capital efficient in early 2027.
• Positive Sentiment: Asset quality improved further, with non-performing assets down and criticized loans at their lowest level since 2019, while charge-offs also declined versus the prior quarter.
• Positive Sentiment: QCR continued to return capital aggressively, repurchasing shares opportunistically and saying the LIHTC strategy should free up additional capital for buybacks as it works to stay below the $10 billion asset threshold into 2026.

Presentation

[Operator]

Good morning, and thank you for joining us today for QCR Holdings Inc.'s second quarter 2026 earnings conference call. Following the close of the market yesterday, the company issued its earnings press release for the second quarter. If anyone joining us today has not yet received a copy, it is available on the company's website at www.qcrh.com.

[Operator]

With us today for management are Todd Gipple, President and CEO, and Nick Anderson, CFO. Management will provide a summary of the financial results, and then we will open the call to questions from analysts. Before we begin, I would like to remind everyone that some of the information management will be providing today falls under the guidelines of forward-looking statements as defined by the Securities and Exchange Commission.

[Operator]

As part of these guidelines, any statements made during this call concerning the company's hopes, beliefs, expectations, and predictions of the future are forward-looking statements, and actual results could differ materially from those projected. Additional information on these factors is included in the company's SEC filings, which are available on the company's website.

[Operator]

Additionally, management may refer to Non-GAAP measures, which are intended to supplement, but not substitute for, the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to Non-GAAP measures.

[Operator]

As a reminder, this conference call is being recorded and will be available for replay through July 30th, 2026, starting this afternoon, approximately one hour after the completion of this call. It will also be accessible on the company's website. I'd like to turn the floor over to Mr. Todd Gipple at QCR Holdings.

[Todd Gipple, President and CEO at QCR Holdings]

Good morning, everyone. Thank you for joining our call today. I'd like to start with the highlights of our second quarter performance and some thoughts about our business, and then Nick will walk us through the financial results in more detail.

[Todd Gipple, President and CEO at QCR Holdings]

We are pleased to report strong second quarter net income and record quarterly GAAP earnings per share, reflecting the continued strength of our diversified business model and the consistent execution of our strategy. Adjusted earnings per share was also near record levels, exceeded only by the fourth quarter of 2025.

[Todd Gipple, President and CEO at QCR Holdings]

Performance in the quarter was supported by robust loan production, a rebound in capital markets revenue, higher net interest income, continued strong momentum in wealth management, and disciplined expense management. We also continued to strengthen our excellent asset quality, generated meaningful growth in tangible book value per share, and returned capital to shareholders through opportunistic share repurchases.

[Todd Gipple, President and CEO at QCR Holdings]

Return on average assets was a strong 1.51%, and earnings per share increased 28% from the prior year quarter, reinforcing the earnings power, durability, and scalability of our diversified platform. Over the past four quarters, our strong financial performance has increased tangible book value per share by $8, or 15%, since June 30 of last year.

[Todd Gipple, President and CEO at QCR Holdings]

While we returned approximately $56 million of capital to shareholders through share repurchases. These results demonstrate our ability to generate attractive returns, meaningfully compound tangible book value, and deploy capital in a disciplined manner to support long-term shareholder value creation.

[Todd Gipple, President and CEO at QCR Holdings]

Our traditional banking business continues to deliver healthy organic loan and deposit growth, reflecting strong commercial and industrial activity across our markets. Our multi-charter structure that results in very high levels of responsiveness and creates strong client relationships enables us to consistently take market share from our competitors.

[Todd Gipple, President and CEO at QCR Holdings]

Our banking model that creates local decision-making autonomy where it matters and consistency in operating process everywhere else continues to be a significant competitive advantage, allowing us to make decisions close to the client while still benefiting from the scale and resources of the broader company.

[Todd Gipple, President and CEO at QCR Holdings]

This model also helps us attract and retain talented bankers who value local decision-making, strong client relationships, and the opportunity to grow within a larger, high-performing organization. Our digital transformation remains a key strategic priority, and the successful completion of our second core conversion in April marks another important milestone in that journey.

[Todd Gipple, President and CEO at QCR Holdings]

Modernizing our technology stack will deliver meaningful benefits for both our clients and employees, expanding our service capabilities, enhancing the client experience, and driving further operating leverage. Our wealth management business also delivered excellent results, with AUM growth of 9% and revenue increasing 7% on a linked quarter basis.

[Todd Gipple, President and CEO at QCR Holdings]

Our success in this business reflects the long-tenured expertise of our team and the power of our local relationship-driven model, which connects high-value clients in each of our communities with our dedicated wealth advisors.

[Todd Gipple, President and CEO at QCR Holdings]

As we continue to expand advisory relationships, wealth management provides a growing source of recurring fee income, deepens client engagement, and further diversifies our revenue mix. Our LIHTC lending business continues to perform exceptionally well as the demand for affordable housing remains robust, driven by a lack of supply and ongoing affordability challenges nationwide.

[Todd Gipple, President and CEO at QCR Holdings]

This business is a key differentiator for our company, delivering highly profitable and annually consistent results across a variety of interest rate environments and market conditions. Our strong relationships with industry-leading LIHTC developers, combined with market demand, position us well to grow this business and further strengthen our financial performance.

[Todd Gipple, President and CEO at QCR Holdings]

Given the robust pipelines in our traditional and LIHTC lending platforms, we are reaffirming our guidance for gross annualized loan growth of 10%-15% over the final two quarters of 2026. We are also reaffirming our capital markets revenue guidance of $60 million-$70 million for the next four quarters.

[Todd Gipple, President and CEO at QCR Holdings]

During the quarter, we executed $444 million of LIHTC loan offtake transactions consisting of a Freddie Mac permanent loan securitization and a construction loan portfolio sale. As we have discussed in prior quarters, Freddie Mac significantly increased the complexity of their M-Deal securitization program since our previous M-Deal transactions.

[Todd Gipple, President and CEO at QCR Holdings]

For example, the length of the offering document increased from a bit more than 100 pages to more than 400. In addition to the added legal costs this complexity created, there were other costs that were not part of our prior M-Deal transactions.

[Todd Gipple, President and CEO at QCR Holdings]

While the pricing of the underlying securities was quite strong and actually outperformed our expectations on this securitization, the transaction costs under the revised program increased significantly over prior securitizations, creating the loss on this transaction.

[Todd Gipple, President and CEO at QCR Holdings]

As a result, we are working with other third parties on alternative loan sale structures for our permanent LIHTC loans that we believe will be significantly less complex, take far less time to accomplish, and result in better economics.

[Todd Gipple, President and CEO at QCR Holdings]

It is also anticipated that these alternative structures will result in a complete sale of the underlying loans without the retention of the first-loss B tranche, fully removing the loans from risk-based assets, and more effectively freeing up regulatory capital. We are actively working on these alternatives and are expecting an execution in early 2027 for our first transaction under this revised structure.

[Todd Gipple, President and CEO at QCR Holdings]

The construction loan portfolio transaction this quarter marked our second successful sale to a private investor, further demonstrating the strong demand for these assets. The ability to sell LIHTC construction loans allows us to support our developer clients throughout the entire project life cycle by providing both construction and permanent financing solutions.

[Todd Gipple, President and CEO at QCR Holdings]

This capability strengthens our value proposition to our clients, driving market share gains and incremental capital markets revenue. While these LIHTC offtake transactions temper balance sheet growth in the near term, they enhance long-term profitability by creating more capacity.

[Todd Gipple, President and CEO at QCR Holdings]

That capacity is then rapidly redeployed into new originations, allowing us to replace the earning assets quickly and expand our capital markets revenue, creating greater ROAA and ROAE. The second quarter demonstrates our LIHTC flywheel in action, building an asset-light, capital-efficient, and revenue-heavy business in affordable housing.

[Todd Gipple, President and CEO at QCR Holdings]

These LIHTC offtake transactions are also allowing us to strategically manage our total assets under the $10 billion asset threshold this year. We anticipate growing beyond $10 billion sometime in 2027, and we will be fully prepared for the associated organizational impacts that would occur in mid-2028 as we continue to build on the planning efforts we began back in 2023.

[Todd Gipple, President and CEO at QCR Holdings]

The strength of our franchise is reflected in our performance across all three of our core lines of business. Over the past five years, we have driven a five-year earnings-per-share CAGR of 14%, a five-year tangible book value per share CAGR of 12.5%, and a five-year total shareholder return of 268%, the highest in our peer group. We have a proven high-performance operating model, and we hold ourselves accountable for consistently driving shareholder value.

[Todd Gipple, President and CEO at QCR Holdings]

Through continued investments in our people and our technology, combined with disciplined expense management, we are well-positioned to sustain our top-tier financial performance. I want to thank our more than 1,000 teammates for their hard work and their strong commitment to our high-performance culture. They take exceptional care of our clients, our communities, and each other as they deliver long-term value for our shareholders. I will now turn the call over to Nick to provide further details regarding our second quarter results.

[Nick Anderson, CFO at QCR Holdings]

Thank you, Todd. Good morning, everyone. We delivered strong second quarter results with net income of $36 million or $2.19 per diluted share. Net interest income remained solid at $68 million, increasing $500,000, or 3% annualized from the first quarter. Robust earning asset growth more than offset the impact of the LIHTC offtake transactions, driving higher interest income as average earning assets increased $46 million.

[Nick Anderson, CFO at QCR Holdings]

Our NIM TEY declined three basis points from the first quarter of 2026 and came in below our guidance range. However, the underlying drivers reflect the strength and momentum of our franchise. We continued to maintain deposit pricing discipline in a competitive environment, driving a further decline in our cost of deposits during the quarter.

[Nick Anderson, CFO at QCR Holdings]

This progress, along with the accretive impact of the LIHTC offtake transactions, was more than offset by a shift towards higher cost non-core funding and lower loan yields, primarily due to reduced loan discount accretion and non-accrual activity.

[Nick Anderson, CFO at QCR Holdings]

Looking ahead, we continue to benefit from repricing lower yielding loans into higher market rates, with new loan origination yields exceeding loan payoff yields by 19 basis points when excluding the LIHTC offtake transactions. While we have already captured a meaningful portion of deposit cost relief since the Fed began cutting rates in 2024, we continue to focus on improving our funding costs through mix optimization and disciplined pricing.

[Nick Anderson, CFO at QCR Holdings]

Since 2024, our cost of funds has declined 83 basis points compared to a 61 basis point decline in earning asset yields. Our quarterly NIM TEY declined modestly from the first quarter. However, the monthly trend was more positive.

[Nick Anderson, CFO at QCR Holdings]

After early quarter pressure, NIM improved and stabilized in May and June, with June exceeding the quarterly average by one basis point. As a result, we view the second quarter NIM as more of an improving intra-quarter story than a continuation of downward NIM pressure.

[Nick Anderson, CFO at QCR Holdings]

We are encouraged by the strength of our lending pipeline and ongoing customer demand, which continue to support profitable growth opportunities across our footprint. Combined with our disciplined approach to deposit costs, this positive momentum supports our guidance for a relatively static third quarter NIM TEY, assuming no Federal Reserve rate changes.

[Nick Anderson, CFO at QCR Holdings]

We recognize investors value clear guidance around NIM, and we want to be as transparent as possible. Given the active management of our balance sheet, including robust earning asset growth, funding mix changes, deposit pricing, and LIHTC offtake transactions, NIM can fluctuate in either direction from quarter to quarter.

[Nick Anderson, CFO at QCR Holdings]

Our focus remains on managing those dynamics in a disciplined way and ensuring that balance sheet growth translates into stronger net interest income and improved profitability. Our current balance sheet position remains modestly liability sensitive. Based on that positioning, we would expect each 25 basis point decrease in the Fed funds rate to increase NIM TEY by one basis point and NII by approximately $1 million.

[Nick Anderson, CFO at QCR Holdings]

Conversely, a 25 basis point increase in rates would be expected to have a similar but more muted impact in the opposite direction, as our historical lag in deposit repricing would likely keep the near term effect closer to neutral. Upside to our third quarter NIM is supported by our strong loan pipeline and repricing opportunities on approximately $127 million in fixed rate loans.

[Nick Anderson, CFO at QCR Holdings]

Those fixed rate loans scheduled to reprice currently yield 5.81%, which we would project to reset nearly 40 to 50 basis points higher. We also project our non-taxable investment yields to continue expanding, supported by a solid pipeline of new municipal bonds yielding between 7% and 7.5% on a tax equivalent basis.

[Nick Anderson, CFO at QCR Holdings]

Non-interest income totaled $29 million in the second quarter, including $15 million from capital markets revenue and $6 million from wealth management. WAC fee capital markets revenue of $17 million increased $6 million or 56% from the prior quarter, partially offset by a $1.3 million loss from the Freddie Mac LIHTC securitization. Our LIHTC lending team closed 22 projects during the quarter, including four new developers, as we continue to expand our LIHTC platform.

[Nick Anderson, CFO at QCR Holdings]

Our wealth management team delivered strong results with revenue up 7% from the prior quarter, with strong market performance combined with the addition of 170 new client relationships and $483 million in new assets under management year to date. Non-interest income performance this quarter highlights the strength of our diversified revenue model.

[Nick Anderson, CFO at QCR Holdings]

Over the past five years, about 33% of our total revenue has been generated from non-interest income, compared to 23% for our proxy peer group. The breadth of our capital markets and wealth management platforms provide a meaningful source of earnings diversification, reduces reliance on spread income, and supports more consistent profitability across changing interest rate and economic environments. Now, turning to our expenses. Non-interest expense for the second quarter was $53 million, compared to $52 million for the first quarter.

[Nick Anderson, CFO at QCR Holdings]

The $1 million linked quarter increase primarily reflected higher salary and benefits expense associated with increased capital markets activity, as well as higher professional and data processing expense related to investments in our digital transformation.

[Nick Anderson, CFO at QCR Holdings]

The increase in salary and benefits expense was partially offset by an $825,000 linked quarter decline in stock-based compensation expense, as most of this expense is recognized in the first quarter, as well as higher deferred loan origination costs associated with strong loan growth.

[Nick Anderson, CFO at QCR Holdings]

Even with the modest increase in non-interest expense this quarter, our expenses were below our guided range as other expense categories came in better than anticipated, including the timing of digital transformation investments. Our results this quarter drove a 310 basis point improvement in our efficiency ratio to 54.6%.

[Nick Anderson, CFO at QCR Holdings]

For the third quarter, we are lowering our non-interest expense guidance to be in the range of $54 million to $57 million, assuming capital markets revenue and loan growth are within our guided ranges and includes our continued investments in our digital transformation initiatives.

[Nick Anderson, CFO at QCR Holdings]

This outlook reflects our disciplined approach to expense management under our 9-6-5 strategic model, which is designed to keep annual non-interest expense growth below 5%, driving operating leverage, improving efficiency, and enhancing profitability.

[Nick Anderson, CFO at QCR Holdings]

Moving to our balance sheet. Total loans grew $217 million for the quarter, or 12% annualized, excluding the impact of the LIHTC offtake transactions and the planned runoff of the M2 portfolio. The robust loan growth was fueled by strong production across both our LIHTC and traditional lending businesses and was in line with our guidance.

[Nick Anderson, CFO at QCR Holdings]

Our 7% annualized traditional loan growth, excluding the m2 portfolio runoff, indicates healthy client demand and continued strength across our markets. We also increased our high-performing securities portfolio by $77 million linked quarter, including $45 million of privately placed municipal investments at tax-equivalent yields near 7%.

[Nick Anderson, CFO at QCR Holdings]

In connection with the LIHTC securitization, we retained the B-piece tranche of $33 million at a tax-equivalent yield of 8.5%. Total core deposit activity in the second quarter normalized from the exceptional first quarter performance, decreasing $324 million.

[Nick Anderson, CFO at QCR Holdings]

The decline primarily reflected the company's intentional reduction of higher cost correspondent and public fund balances supported by liquidity generated from the LIHTC offtake transactions and a steady increase in non-interest-bearing deposits. On a year-to-date basis, core deposits have increased by $85 million or 2% annualized.

[Nick Anderson, CFO at QCR Holdings]

We also delivered our third consecutive quarter of non-interest-bearing deposit growth, reflecting continued progress on a key strategic priority for our team. We remain focused on growing core deposits, optimizing our funding mix, and maintaining disciplined deposit pricing in a competitive environment.

[Nick Anderson, CFO at QCR Holdings]

Our strong asset quality further improved during the quarter. Non-performing assets totaled $40 million, a decrease of $3.4 million from the prior quarter, which resulted in the NPA to total asset ratio improving by four basis points to 0.41%. The ratio of criticized loans to total loans and leases also improved to 1.91%, the lowest level since the fourth quarter of 2019.

[Nick Anderson, CFO at QCR Holdings]

The company recorded total provision for credit losses of $4.7 million during the quarter, compared to $2.5 million in the first quarter, which reflected a benefit from the reversal of credit loss expense related to loans transferred to held for sale.

[Nick Anderson, CFO at QCR Holdings]

Net charge-offs were $3.3 million during the second quarter, a decline of $600,000 from the prior quarter as we continue to benefit from the positive trends in charge-off activity from the wind down of the m2 Equipment Finance portfolio.

[Nick Anderson, CFO at QCR Holdings]

During the second quarter, we returned almost $13.5 million of capital to shareholders, with approximately 150,000 common shares repurchased. We continued to deploy capital through opportunistic share repurchases during the quarter at an attractive multiple relative to tangible book value.

[Nick Anderson, CFO at QCR Holdings]

Since we began repurchasing shares last year, we have repurchased 675,000 common shares, approximately 4% of total shares outstanding, returning a total of nearly $56 million to our shareholders. The share repurchase program authorized in October 2025 enhances our capital allocation flexibility and allows us to balance organic growth, shareholder returns, and capital strength while reinforcing confidence in our long-term outlook.

[Nick Anderson, CFO at QCR Holdings]

Our performance resulted in another quarter of strong growth in tangible book value per share, which rose $2.17 or 15% annualized. This growth was driven by strong earnings during the quarter, partially offset by share repurchases. Our tangible common equity to tangible assets ratio increased 40 basis points to 10.71%.

[Nick Anderson, CFO at QCR Holdings]

The common equity Tier 1 ratio increased 14 basis points to 10.68%, and our total risk-based capital ratio increased 13 basis points to 14.13%. These quarterly changes reflect the combined impact of strong earnings, loan sales, and share repurchases during the quarter.

[Nick Anderson, CFO at QCR Holdings]

Finally, our effective tax rate for the quarter was 8%, up from 7% in the prior quarter, reflecting stronger capital markets activity, which impacted the mix of our tax-exempt income relative to our taxable income. Our tax-exempt loan and bond portfolios have continued to support a low effective tax rate.

[Nick Anderson, CFO at QCR Holdings]

Assuming a revenue mix in line with our guidance ranges, we estimate our effective tax rate to continue to trend in the range of 8%-10% for the third quarter of 2026. With that added context on our second quarter results, let's open the call for your questions. Operator, we are ready for our first question.

[Operator]

We will now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypads. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, you may press star and two. Again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Nathan Race from Piper Sandler. Please go ahead with your question.

[Nathan Race, Analyst at Piper Sandler]

Hey, guys. Good morning. Thanks for taking the questions.

[Todd Gipple, President and CEO at QCR Holdings]

Morning, Nate.

[Nick Anderson, CFO at QCR Holdings]

Morning.

[Nathan Race, Analyst at Piper Sandler]

Todd, I was hoping you could just elaborate a little bit more on some of the nuances to the offtake transactions on the LIHTC side of things that you're planning for next year, and how that's going to free up some balance sheet and capital capacity, and also how that translates into kind of the buyback appetite going forward in light of where the stock trades today.

[Todd Gipple, President and CEO at QCR Holdings]

Sure. Thanks, Nate. Yeah, we talked about over the last couple of calls that Freddie Mac significantly increased the complexity of its M series program since the few transactions we had done earlier. For example, the length of that offering document went from a little over 100 pages to more than 400.

[Todd Gipple, President and CEO at QCR Holdings]

Several quarters, I would say, ago, when we knew that these expenses were really growing in the M series, we started exploring other alternatives. We're very pleased that we're working with some other third parties on an alternative loan sale structure that would really take those loans completely off our balance sheet. We would not be securitizing them. We expect that those alternatives will result in a complete sale of the loan, which gets us out of the business of retaining the B tranche.

[Todd Gipple, President and CEO at QCR Holdings]

To your point, it really will help us more effectively free up regulatory capital. We expect to be able to do that sometime in early 2027. I don't really anticipate that we're going to be doing much in the way of offtake the remainder of this year, other than we may do another modest construction loan sale if we need to, just to be comfortably under $10 billion at year-end.

[Todd Gipple, President and CEO at QCR Holdings]

We don't want to cut that too close. The perm early in 2027 will in fact free up recap. That's going to allow us to continue to be opportunistic with respect to share repurchases. We're very pleased to have done 4% of outstanding shares. We're very happy about that.

[Todd Gipple, President and CEO at QCR Holdings]

That was at a blended average, weighted average cost of around $83 per share. Very effective repurchase. We do have about 1.2 million shares yet available. We will continue to be opportunistic as we run a little more capital light in the LIHTC business. Nate, I hope that gives you the answers you're looking for.

[Nathan Race, Analyst at Piper Sandler]

Yeah. That's really helpful. Thanks, Todd. It sounds like the LIHTC pipeline kind of remains consistently strong. I was wondering if you could just speak to kind of the trajectory for capital markets revenue in the back half of the year. I think just given the guidance, that would imply a decent ramp-up in that revenue over the next few quarters. Just want to confirm that. Of course, I appreciate that you'll have some seasonality in 1Q of 2027 as well.

[Todd Gipple, President and CEO at QCR Holdings]

No, Nate, really appreciate the question. Excited to talk about the LIHTC business a bit more. We had a very strong second quarter with that $16.7 million of capital markets revenue. Really proud of the team. They closed 22 projects during the quarter.

[Todd Gipple, President and CEO at QCR Holdings]

That's really in the normal wheelhouse for us. Somewhere in the 22, 25, 27 range is typical. Really happy that four of those projects were with new developers as we continue to expand our reach. Over the last few quarters, we've created relationships with and financed projects for three of the most successful LIHTC developers in the country. We're already working on additional projects with these developers, some that'll happen even yet this year. We now have relationships with 18 of the top 20 affordable housing developers in the country.

[Todd Gipple, President and CEO at QCR Holdings]

We've added seven new developers to the client list thus far in 2026. We expect those to create additional projects in the future. We have a tremendous team. The developers love working with us. Once they have that experience from our team, they tend to come back to us on future deals. Pretty exciting to share this data point.

[Todd Gipple, President and CEO at QCR Holdings]

We actually have one developer that has now completed 60 projects with us since we've been in this business. Incredibly pleased with the team's performance. They are working really hard to grow the business, and very proud of what they are creating. In terms of the future, our future pipeline at the midpoint of the year here is really strong. Actually, it's similar to this time last year, which created some great results in the back half of the year.

[Todd Gipple, President and CEO at QCR Holdings]

I think, Nate, that's probably the basis of your question. Are we expecting that again? I do want to be clear, this isn't guidance. This is really just a data point in terms of how we feel about the business. I would say we feel very good about the growth in the business and the growth in new developers.

[Nathan Race, Analyst at Piper Sandler]

Okay. That's great to hear. Very helpful. I appreciate all the color. I will step back. Thanks again.

[Todd Gipple, President and CEO at QCR Holdings]

Thanks, Nate.

[Operator]

Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. Ladies and gentlemen, at this time and showing no additional questions, that will conclude today's question and answer session. Actually, we do have a follow-up question from Nathan Race from Piper Sandler. Please go ahead with your follow-up.

[Nathan Race, Analyst at Piper Sandler]

Yeah. Hi, guys. Just figured I'd follow up if there's no other questions in the queue. Maybe Todd, you can just touch on the near term or Nick, the expense run rate. I appreciate that. Just assuming you guys kind of hit the guidance for the next 12 months on capital markets revenue, it sounds like we're squarely within that kind of sub 5% expense growth range for next year. I know it's a little early to be thinking about 2027, but is that still a reasonable estimate along those lines?

[Todd Gipple, President and CEO at QCR Holdings]

Nate, really appreciate the follow-up. We have heard from several analysts that today is the biggest day in releases, and a lot of folks are distracted on other calls. Nate, we really appreciate the questions. We certainly anticipate staying in our guardrail of 5% in terms of expense growth next year.

[Todd Gipple, President and CEO at QCR Holdings]

We talked a little bit about the fact, Nick talked on the call, our early opening comments that we really expect to stay in the guardrails both in 2027 and even into 2028 when we expect to have Durbin and some of the rigor of the regulators really rolling into our structure.

[Todd Gipple, President and CEO at QCR Holdings]

We're very committed to that. It's been a challenge, I would say, to do that while we're building the bank of the future and still paying for the bank of the past. Our people are doing a tremendous job with that project. All of our folks are very mindful about efficiency and effectiveness in terms of cost. Long answer to your short question, we intend to stay in there. Nick, I think you might have an add.

[Nick Anderson, CFO at QCR Holdings]

Nate, I would just maybe highlight a little bit some of the work we're doing in the digital transformation area. We do expect some significant cost savings from lower licensing costs from the new core. Efficiency in staffing and processing costs from the operating of our banks on a single core.

[Nick Anderson, CFO at QCR Holdings]

We also have negotiated some payment and interchange economics on our debit card and interchange fees that should pay off here. All of this will create some operating leverage as a result of the investments that we're making today.

[Nick Anderson, CFO at QCR Holdings]

The way to think about this is not necessarily a single step down immediately after we get through these conversions in April of 2027, but more of a gradual improvement in the expense run rate. That improvement again, is going to come from the duplicate systems that get decommissioned.

[Nick Anderson, CFO at QCR Holdings]

Our legacy contract costs start rolling off. Processes get standardized and our staffing efficiency improves. We expect those benefits to build through 2027 with more of a visible impact here in 2028. Appreciate the question and the opportunity to elaborate a little bit.

[Nathan Race, Analyst at Piper Sandler]

Nick, do you think some of those cost synergies around the course, around those conversions, is that going to be largely absorbed by maybe some incremental investments to get prepared to be over 10 billion at some point?

[Nick Anderson, CFO at QCR Holdings]

I'm sorry, Nate. Our line cut out a little bit. Would you mind repeating that?

[Nathan Race, Analyst at Piper Sandler]

I was just curious if some of the cost synergies from converting the remaining charters systems, if that's going to be mitigated to some degree by maybe just some additional investments as you guys prepare to cross over 10 billion down the road.

[Nick Anderson, CFO at QCR Holdings]

Fair question. Actually should be timely in that regard. I would highlight that we've been building in some costs for 10 billion, approaching 10 billion over the last two to three years. We've been adding some incremental staff to support that initiative or that hurdle.

[Nick Anderson, CFO at QCR Holdings]

It's, again, I would point back to my earlier comment that not necessarily an immediate change in overall expense run rate, but should be a nice offset, if you will, when it comes to thinking about some of the additional staffing that we've been absorbing through the process here. Fair comment, fair way to think about it. I think our approach has been we're optimistic. We've built in under our 5%, 9-6-5 model in terms of keeping our non-interest expenses under that 5% over the last several years. We intend to continue doing that.

[Nick Anderson, CFO at QCR Holdings]

as you start modeling some of this out, 5% would be the high end. Now, as we get some chance post-conversion to start optimizing some of additional processes, I would expect us to likely have an opportunity to be below 5% in our annual run rate there.

[Nathan Race, Analyst at Piper Sandler]

Okay, great. Just given that the LIHTC offtake transaction seemingly occurred late in the second quarter. Nick, can you help us with just maybe a better starting point for earning assets in 3Q?

[Nick Anderson, CFO at QCR Holdings]

Yeah. Overall, when I think about the moving pieces, I think when we're modeling out for the Q3 here, we do expect average earning assets to be approximately about $100 million lower Just given the lower starting point here for Q1. We do expect to add about $200 million of earning assets period over period by the time we get to the end of Q3.

[Nick Anderson, CFO at QCR Holdings]

That really is reflecting the strong loan growth that we put out in the guidance range and reaffirmed. Also continuing to have some success in growing our municipal bond portfolio. Hopefully that helps you kind of model that out here in Q3.

[Nathan Race, Analyst at Piper Sandler]

Mm-hmm. Just with some of those moving pieces on the left side of the balance sheet, can you kind of just speak to kind of the trajectory for borrowings? It looked like they were up a bit in the quarter and just what you're seeing in terms of the deposit gathering pipeline and what kind of the prevailing cause to add core deposits are these days.

[Nick Anderson, CFO at QCR Holdings]

Yeah. Certainly, deposits normalized after a very strong Q1. A lot of that decline was largely intentional as we let some of the higher cost correspondent public and broker balances roll off. We were anticipating, as you clearly are aware, the liquidity that would come in from the LIHTC off-takes. We also wanted to stay disciplined on our pricing.

[Nick Anderson, CFO at QCR Holdings]

Year to date, core deposits are still up. Broker balances actually are down 50% since last June. We also marked our third consecutive quarterly increase in non-interest bearing deposits, which is a key strategic priority for us. Here, as we've already entered Q3, we have already seen some deposit growth here through July and continue to feel good about our overall funding position.

[Nick Anderson, CFO at QCR Holdings]

While our level of borrowings at the end of Q2 was up from Q1, a lot of that really just related back to the exceptional $400 million growth in deposits that we had in Q1, and again, a lot of that being driven from correspondent.

[Nathan Race, Analyst at Piper Sandler]

Okay. Understood. Maybe just one last one if there's no other questions. Todd, I think, last quarter you were a little bit more upbeat on kind of the M&A environment and what that could portend for QCRH going forward.

[Nathan Race, Analyst at Piper Sandler]

Just curious how you're thinking about acquisition opportunities these days. I know you guys got a lot on your plate in terms of the core systems conversions and getting everything on one platform, but just curious on how you're kind of thinking about the M&A environment and what opportunities may or may not be more actionable for you going forward.

[Todd Gipple, President and CEO at QCR Holdings]

Sure. Sure. No, Nate, thanks for the great question on that. Yeah, as we've said over the past couple years, M&A hadn't been a big priority because of this digital transformation project. Candidly, by next April, we'll be done with our last conversion, and as you know, M&A conversations take time to come together. We have been a little more intentional about visiting with folks about opportunities.

[Todd Gipple, President and CEO at QCR Holdings]

I just want to reiterate, though, our strike zone is very tight for M&A. We have incredible organic momentum growing EPS and TBV per share. The hurdle, the bar for M&A is pretty high because of our organic performance. As you well know, banks in this size range of what we would be looking at, $1.5 billion-$5 billion, fair amount of opportunities there. Some of those banks, for one reason or another, are looking for great partners.

[Todd Gipple, President and CEO at QCR Holdings]

We feel that we are a great partner. For those on the call, I would just refer to page 27 in the investor deck we released alongside our 8-K. On page 27, we show what we were able to do in central Iowa with the CSB acquisition, buying a $500 million bank and turning it into a $1.3 billion bank organically 10 years later, and improving profitability from the 1% ROA to a 1.3%.

[Todd Gipple, President and CEO at QCR Holdings]

That's why we think we are a good landing spot for some folks that may want to join forces. We are hearing from some people that are thinking about that. Nothing imminent, nothing on the front burner, maybe not even anything technically on the back burner, but as you know, those talks are heating up a little bit. We will be through with this huge project next April.

[Todd Gipple, President and CEO at QCR Holdings]

Our capacity for it is opening back up. Our interest in it is opening up a bit more as a result, but just want to end where I started. The strike zone's really tight. It's going to have to be a really great fit for us because we have so much going on organically that's rewarding shareholders. Thanks for the great question, Nate.

[Nathan Race, Analyst at Piper Sandler]

Sure thing. I appreciate all the color, guys. Thanks again.

[Todd Gipple, President and CEO at QCR Holdings]

Yeah. Thanks for hanging with us, Nate.

[Nathan Race, Analyst at Piper Sandler]

Thank you.

[Operator]

Once again, at this time and showing no additional questions, I'd like to turn the floor back over to Todd Gipple for any closing comments.

[Todd Gipple, President and CEO at QCR Holdings]

Yeah. Thanks for joining us on the call today. We really appreciate your interest in our company, and we look forward to seeing you in person sometime soon. Have a great rest of your day. Thank you.

[Operator]

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

Participants

Executives

• Todd Gipple, President and CEO
• Nick Anderson, CFO

Analysts

• Nathan Race, Analyst at Piper Sandler