QCR Holdings, Inc.

Good morning and thank you for joining us today for QCR Holdings Inc's fourth quarter and full year 2025 earnings conference call. Following the close of the market yesterday, the company issued its earnings press release. If anyone joining us today has not yet received a copy, it is available on the company's website, www.qcrh.com. With us today for management are Todd Gippel, 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. As part of these guidelines, any statements made during this call concerning the company's hopes, beliefs, expectations, and predictions of the future or 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. 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 and non-GAAP measures. As a reminder, this conference call is being recorded and will be available for replay through February 4th, 2026. starting this afternoon approximately one hour after the completion of this call. It will be accessible on the company's website. At this time, I will turn the call over to Mr. Todd Gippel at QCR Holdings. You may begin.

Good morning, everyone. Thank you for joining us today. I'd like to start with an overview of our fourth quarter and full year 2025 performance followed by some additional color on our business. Nick will then walk us through the financial results in more detail. We delivered our strongest quarter of the year in the fourth quarter and produced record full year results. Performance was strong across all key operating metrics, approaching or exceeding the upper end of our guidance ranges for net interest margin expansion, gross loan growth, and capital markets revenue. I am very proud of our 1000 teammates for their hard work, providing exceptional service to our clients, growing all parts of our business by creating new client relationships, taking exceptional care of the communities in which we live and work, and generating superior returns for our shareholders. Their work not only produced record earnings in 2025, but also sets the foundation for continued momentum in 2026. Our exceptional earnings were driven by significant contributions from net interest margin expansion and robust loan and deposit growth, which drove a substantial increase in net interest income along with continued strong capital markets revenue. In addition, our wealth management business remains a key strategic growth engine, providing a meaningful contribution to our record results. As I have mentioned previously, I view our company as operating through three primary lines of business, traditional banking, wealth management, and our LIHTC lending platform. Each of these businesses produced outstanding results for the quarter and the year. We continue to deliver strong organic growth and drive enhanced profitability in our traditional banking operations. Our unique multi-charter model anchored by autonomous community banks that attract outstanding talent and high-value clients, enables us to consistently outperform competitors and take market share. We continued to grow market share last year as we added significant new clients in all parts of our traditional banking business. Our markets remain very healthy, supported by solid growth, stable economic conditions, and very strong commercial and industrial activity. Our digital transformation is also progressing as planned, with the successful completion of the first of four core system conversions in October. These upgrades are already delivering meaningful benefits for both our clients and our employees. Looking ahead, two additional conversions are planned for April and October of this year, further improving and modernizing our technology stack. These investments will expand our service capabilities enhance the overall client experience, drive productivity gains, and improve our operating leverage. Our wealth management business continues to be a significant component of our earnings growth. In 2025, we added nearly 500 new client relationships, bringing in over $1 billion in new assets under management. Our strong capabilities in this business have created five-year compound annual growth rates of 10% for both assets under management and revenue. This success reflects the expertise of our team and the strength of our relationship-based model, which connects our traditional banking clients with dedicated wealth advisors across our markets. As we expand our wealth management business in Central Iowa and Southwest Missouri, we are building momentum, deepening client engagement, and taking market share from our larger competitors. Our LIHTC lending business also delivered exceptional performance in the second half of the year, reflecting the sustained demand for affordable housing and the expertise of our talented team. Developers continued to successfully advance their projects despite earlier headwinds, underscoring the resilience of the affordable housing industry. In addition to robust demand for affordable housing, Recent legislative actions have expanded available tax credits and further strengthened the outlook for the federal LIHTC program. These enhancements, which continue to receive bipartisan support, represent a significant milestone in the program's 39-year history. Our deepening relationships with leading LIHTC developers across the country, combined with healthy market appetite, position us to further grow this business and deliver meaningful and consistent contributions to our overall financial performance. Having operated in the LIHTC business for nearly a decade, we continue to view this platform as a highly durable, profitable, and differentiated growth engine for the company. Our success is anchored in deep relationships with developers nationwide, and in 2025, we added 18 new developer partners to our network. Our relationships with some of the top affordable housing developers in the country position us for continued strong and sustained production. While we continue to punch above our weight class in this business, industry data suggests that our current level of production represents only a small fraction of the total LIHTC market. This highlights the substantial growth opportunity ahead and potential to further scale our platform. Building on our momentum and the depth of our pipeline, we are raising the upper end of our capital markets revenue guidance, resulting in a range of 55 to 70 million over the next four quarters. We also made significant progress on our strategic objective of improving balance sheet efficiency within our LIHTC lending business, particularly during the two- to three-year construction phase, which is typical for many LIHTC projects. In the fourth quarter, we successfully sold 285 million of LIHTC construction loans at par to a third-party investor. This strategy expands our capacity for additional permanent LIHTC lending and further enhances our opportunities for additional capital markets revenue. It also strengthens our regulatory capital position by reducing risk-weighted assets, providing greater flexibility to allocate capital more effectively. Having the capability to sell these LIHTC construction loans will allow us to generate capital markets revenue more efficiently with less capital, improving our operating leverage and our financial results. In addition, we use the proceeds from this transaction to retire our highest cost of HLB term advances, further lowering our overall funding costs. Because we are originating new LIHTC loans at such a strong pace, Our new loans added during the quarter essentially offset the impact of the construction loan sale, minimizing the impact to NII. In the future, we plan to strategically execute additional LIHTC construction loan sales and securitizations. While the timing will depend on market conditions and other factors, the strong growth in our LIHTC platform is expected to mute the impact of these transactions on net interest income and support opportunities to further grow our capital markets revenue. In addition, LIHTC securitizations and construction loan sales will allow us to cross the 10 billion asset threshold more efficiently and effectively. We began proactively incorporating the costs associated with operating at the 10 billion level into our non-interest expense run rate several years ago. We also recently secured increases in our future interchange revenue and lower debit card processing costs through our digital transformation initiatives and new third party contracts. As a result, we are well positioned to control the timing of surpassing the 10 billion asset mark with limited financial impact. 2025 was a record setting year for our company, marked by exceptional growth across all core businesses. We are focused on continuing to deliver top quartile financial results and we hold ourselves accountable for creating long-term, sustainable growth in earnings per share and tangible book value per share. Our team has built a foundation for sustained momentum, supported by investments in talent and technology that enhance our competitive advantage. In our investor presentation released yesterday alongside our Q4 earnings, we showcased several slides that underscore our exceptional long-term performance. One highlight is on page five of the investor presentation, which evaluates the performance of all publicly traded banks with assets between $1 billion and $20 billion. Out of 216 banks, QCRH is one of only seven that achieved a five-year average ROAA above 130 basis points, a 10-year TBV CAGR exceeding 10%, and a 10-year EPS CAGR greater than 15%. Our exceptional performance in all three metrics resulted in a 10-year total shareholder return of more than 250%, far exceeding the TSR for our high-performing peer group. Our ability to generate top quartile EPS and TBV per share growth is a result of our unique business model and the strength of our team. We truly have the best bankers in each of our markets, backed up by a shared services team that allows them to focus on providing raving fan service to our clients. As we begin this year, we are focused on advancing our digital transformation to deliver optimized technology to our clients and our team, further expanding our wealth management business, and continuing to grow our LIHTC lending platform. Combined with a positive NIM outlook expanding operating leverage, solid loan and deposit pipelines, and a stable credit outlook, these initiatives position us to deliver superior financial performance and create continued strong returns for our shareholders. I will now turn the call over to Nick to provide further details regarding our fourth quarter and full year 2025 results.

Thank you, Todd. And good morning, everyone. We delivered record adjusted net income of 37 million or $2.21 per diluted share for the quarter and record full year adjusted net income of 130 million or $7.64 per diluted share. These exceptional results were driven by significant growth in net interest income from increased average earning assets and net interest margin expansion. In addition, We had solid wealth management revenue growth, strong capital markets revenue, and improved asset quality. Net interest income increased $4 million, or 22% annualized in Q4, and $23 million, or 10% for the year, driven by continued margin expansion. The LIHTC construction loan sale late in Q4 did not materially impact net interest income. On a tax equivalent yield basis, NIM increased six basis points from the third quarter near the upper end of our guidance range. This expansion was supported by a 14% increase in average earning assets, a significant improvement in our cost of funds, and a favorable mix shift to non-interest-bearing deposits. Our disciplined approach to deposit pricing combined with a liability-sensitive balance sheet has driven cost of funds betas that are more than double those of our earning assets in the current rate cutting cycle. Since the Fed began cutting rates in 2024, our deposit costs have declined by 56 basis points compared to a 32 basis point decline in loan yields. We continue to experience the repricing of lower yielding loans into higher market rates as new loan yields added during the quarter exceeded loan payoff yields by nearly 30 basis points. As we move further into the rate-cutting cycle, however, we expect that positive arbitrage to moderate. We still remain positioned to benefit from future rate reductions with rate-sensitive liabilities exceeding rate-sensitive assets by approximately 700 million, providing meaningful upside to margin in a declining rate environment. For future cuts in the Fed Fund's rate, we expect one to two basis points of NIM accretion for every 25 basis point cut in rates. If the yield curve steepens, we'd expect NIM expansion at the top end of that range. And if the yield curve remains relatively flat, we would expect NIM expansion at the lower end of the range. Our NIM TEY has expanded 32 basis points over the past seven quarters. reflecting disciplined execution and favorable balance sheet positioning. We expect this momentum to continue and are guiding to additional core margin expansion in the first quarter between three to seven basis points, assuming no further federal rate cuts. Further upside in our first quarter NIN is supported by repricing opportunities on approximately $140 million in fixed rate loans currently yielding 5.55%. which are expected to reset nearly 50 basis points higher. We also anticipate continued CD repricing during the first quarter with approximately 390 million of maturities currently costing 3.94%, which we expect to retain and reprice nearly 50 basis points lower. We also expect investment yields to continue to expand. supported by a solid pipeline of new municipal bonds priced in the high 6% range on a tax equivalent basis. In addition, the retirement of the FHLB term debt is expected to contribute nearly two basis points of incremental margin improvement. Non-interest income totaled 39 million for the fourth quarter, driven primarily by 25 million in capital markets revenue. Despite the slower first half of the year, capital markets revenue reached $65 million in 2025, surpassing the upper end of the $50 to $60 million annual guidance range we established to start the year. Our wealth management business delivered $5 million in revenue for the fourth quarter, a 4% increase compared to the prior quarter. For the full year, wealth management revenue grew $2 million, or 11%, underscoring the strength of this business. Continued growth in assets under management across our markets not only enhances our platform, but also provides stability and diversification in our revenue mix. Now turning to our expenses. Core non-interest expenses increased $4 million in the fourth quarter when excluding the $2 million non-recurring repayment fee associated with retiring higher cost FHLB term funding. The late quarter increase was primarily due to elevated variable compensation resulting from strong capital markets performance and record earnings. Higher professional and data processing expenses related to our first core system conversion as part of our digital transformation also contributed to this increase. Our variable compensation structure is designed to maximize operating leverage and provide expense flexibility across changing revenue cycles. aligning employee incentives with shareholder returns. Despite the increase in non-interest expenses, our adjusted core efficiency ratio came in at 56.8%. We continue to prudently manage expenses while investing in talent and technology to support our operations team with initiatives that enhance future operating leverage to strengthen the scalability of our multi-charter community banking model. Even with continued investments in our business during 2025, we maintain strong discipline over core non-interest expenses, which were up only 4% for the year, in line with our strategic goal to hold non-interest expense growth below 5%. Looking ahead, we expect non-interest expenses to be in the range of $55 to $58 million for the first quarter of 2026. assuming capital markets revenue and loan growth are within our guided ranges. This outlook reflects our continued commitment to disciplined expense management aligned with our 965 strategic model, which targets non-interest expense growth below 5% while driving operating leverage and strong profitability. Looking ahead, our continued investments in technology combined with the flexibility of our variable compensation structure will enhance scalability and efficiency, positioning us to deliver sustained operating leverage as we grow. Moving to our balance sheet. During the quarter, total loans grew by 304 million, or 17% annualized, before the impact of the construction loan sale and the planned runoff of the M2 portfolio. Our traditional loan portfolio demonstrated strong growth, increasing 92 million, or 8% annualized, in the fourth quarter and 185 million or 4% for the year when excluding the runoff of the M2 portfolio. Looking forward to 2026, we have a solid pipeline and expect to sustain this momentum as we are guiding to gross annualized growth in a range of 8 to 10% for the first quarter, with growth ramping up to a range of 10 to 15% for the remainder of the year. Complementing our loan growth, Total core deposits grew 64 million, or 4% annualized, in the fourth quarter. Average deposit balances rose by 237 million, or 13% annualized, when compared to the third quarter. For the full year, core deposits increased by 474 million, or 7%. Our deposit mix improved for the full year with an increase in non-interest-bearing balances and a 34% reduction in higher-cost broker deposits. further strengthening our funding profile. Strong deposit growth across our markets highlights the success of our relationship-driven approach and validates our efforts to expand our deposit market share while providing a stable core funding base for future growth. Asset quality remains excellent. Net charge-offs were static compared to the third quarter, while provision for credit losses increased by 1 million. Total criticized loans continue to improve, decreasing $5 million in the quarter and $20 million for the full year, reflecting a 12% reduction. Total criticized loans, a key leading indicator of loan quality, are at their lowest level since June of 2022. As a percentage to total loans and leases, total criticized loans declined seven basis points to 1.94% during the quarter, the lowest level in more than five years. and remains well below the company's long-term historical average. Our total NPAs to total assets ratio remained constant at 0.45%, which is approximately half of our 20-year historical average. Our allowance for credit losses to total loans held for investment increased two basis points to 1.26%. While our asset quality remains very strong, and our criticized loans continue to decline to record low levels. We increased our provision at year end to bolster our already strong level of ACL. This is consistent with our longstanding credit culture of maintaining robust reserves, even during times when credit quality is favorable. We executed additional share repurchases in the fourth quarter. We're purchasing approximately 163,000 shares, returning 13 million of capital to shareholders. For the full year, we returned nearly $22 million to shareholders, repurchasing approximately 279,000 shares at roughly 1.3 times our current tangible book value. Through last week, we repurchased approximately 32,000 additional shares, increasing total repurchases under the program to more than 310,000 shares since commencing in the third quarter of last year. Our tangible common equity to tangible assets ratio rose by 27 basis points to 10.24% at quarter end, driven by strong earnings and improved AOCI, partially offset by share repurchases. Our common equity tier one ratio increased 18 basis points to 10.52%, and our total risk-based capital ratio increased 16 basis points to 14.19%. due to our strong earnings growth and the construction loan sale partially offset by share repurchases. We delivered another quarter of exceptional growth in tangible book value per share, which rose $2.08 to approximately $58, reflecting 15% annualized growth for the quarter. Over the past five years, tangible book value has grown at a compound annual rate of 13%, highlighting our continued strong financial performance and long-term focus on creating shareholder value. Finally, our effective tax rate for the quarter was 8%, down from 10% in the prior quarter, reflecting lower pre-tax income and an increase in 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. Assuming a revenue mix in line with our guidance ranges, we expect our effective tax rate to be in the range of 8% to 10% for the first quarter of 2026. With that added context on our fourth quarter and full year results, let's open the call for your questions. Operator, we are ready for our first question.