KBRA Affirms Ratings for QCR Holdings, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Moline, Illinois based QCR Holdings, Inc. (NASDAQ: QCRH) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+ and the short-term deposit and debt ratings of K2 for its subsidiary banks: Quad City Bank and Trust Company, Cedar Rapids Bank and Trust Company, Community State Bank, and Guaranty Bank ("the banks"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

Consolidated operating performance continues to exhibit robust multi-year results, underpinned by solid NIM and noninterest income performance, together with disciplined operating expense management. The NIM and bottom line earnings continue to benefit from the combination of the relatively high RWA density and low asset liquidity (KBRA defined); as of 3Q25, according to KBRA calculations, about 6% of assets were risk weighted at 0% or 20%. A preponderance of the total investment book consists of small municipal issues that carry high tax-adjusted yields.

Noninterest income continues to benefit from capital markets activity tied to fees associated with LIHTC borrower interest rate swap activity. LIHTC customers desire long-term fixed rate financing due to the underlying tax-advantaged structure of the LIHTC financing market; to manage interest rate risk, pay-fixed, receive-floating interest rate swaps are used, which generate fees. In recent periods, swap fee income has accounted for roughly 60% of total noninterest income. Trust and asset management fees also represent a meaningful portion of noninterest income.

Consolidated regulatory capital remains on an improving trend due to substantial earnings retention in recent years (low common share dividends and repurchases). Bank capital ratio levels vary due to business activities yet are generally stronger than rated peers. Somewhat high double leverage exists at the BHC, though it has declined YTD 2025.

Balance sheet asset sheet liquidity is limited, both in terms of level (relative to total assets) and in terms of marketability in KBRA’s view; about 60% of the AFS portfolio consists of registered municipal securities while nearly all of the HTM portfolio is comprised of private placement municipal instruments. Total net asset liquidity and contingent sources of funding, in the form of unused FRB, FHLB, Fed Funds lines, and revolving credit facility, cover about 130% of estimated uninsured deposits.

Rating Sensitivities

The ratings for the banks remain well positioned, based on the current asset compositions, funding profiles, and earnings performance. Ratings pressure would most likely emanate from a material adverse change in LIHTC business conditions, given the overall reliance on related activities, or a deterioration in loan or municipal investment credit quality that was likely to cause earnings performance to be variable and below rated peer averages. Double leverage at the BHC, while on a declining trend, remains elevated; the company’s ratings could be reassessed if leverage were to reverse the current trend and rise to a level that KBRA believed could limit its ability to support the banks, if needed.

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Methodologies