KBRA assigns a rating of BBB- with a Stable Outlook to the subordinated notes issued by QCR Holdings, Inc. (NASDAQ:QCRH) ("the company"). The notes consist of two subordinated debt offerings: Subordinated Notes, Due September 15, 2035 ($50 million) and Subordinated Notes, Due September 15, 2037 ($20 million). The $50 million note is callable on the fifth anniversary date of issuance and the $20 million note is callable on the seventh anniversary. The proceeds will be used to retire existing debt totaling $70 million.

QCR Holdings, Inc. is a $9.2 billion-asset multi-bank holding company headquartered in Moline, IL, with a 36-branch network across six Midwestern regions, including the Quad Cities, Cedar Rapids, Central-Iowa, and in southwest Missouri (Springfield and Joplin). The four subsidiary banks maintain leading deposit market shares in their respective operating areas and offer an array of products and services, including trust and investment management ($6.7 billion AUM), with specialized activities in correspondent banking and low-income housing tax credit (LIHTC) financing.

Key Credit Considerations

The ratings are underpinned by robust consolidated earnings results over the past several years, buoyed by strong noninterest income levels, largely connected to capital markets revenue, and supported by solid NIM performance and good expense management.

Capital markets revenue consists predominantly of fees generated by LIHTC borrower interest rate swap activity. These customers desire long-term fixed-rate financing due to the underlying structure of the LIHTC financing market; to provide this service, the banks enter into offsetting pay-fixed, receive-floating interest rate swaps, generating a fee for the arrangement. While this activity has led to steady fee income in the past several years, LIHTC loans currently comprise a substantial percentage of total loans, potentially limiting the earnings contribution in future periods; management has begun to securitize these loans, which reduces absolute exposure and supports liquidity; however, since the retained interests are held, there is a limit to this activity from a balance sheet exposure perspective. Additionally, management has several other strategic initiatives that can create additional ongoing capacity within its LIHTC business.

Consolidated regulatory capital ratios remain on an improving trend due primarily to balance sheet management and retained earnings, although levels continue to trail rated peers by a noticeable margin, especially the CET1 ratio. Capital protection at the subsidiary banks is generally commensurate with rated peers. Dividends at the company constitute a small percentage of quarterly net income, and the company has not repurchased common shares in the past year or so.

Loan quality problems remain isolated, consistent with broader community banking trends.

Balance sheet liquidity is somewhat limited in the context of the consolidated funding profile, which, in aggregate, encompasses meaningful amounts of non-core funding, as defined by the bank regulators, in addition to uninsured deposits. Cash and short-term investments, plus the AFS investment book, total a relatively low 7% of total deposits at 2Q25. Contingent sources of funding, including in the form of Fed and FHLB available borrowing capacity, are considered average.

Rating Sensitivities

Positive rating momentum is not anticipated in the intermediate term; the ratings are well positioned based on the current asset compositions, funding profiles, and earnings mixes. Rating pressure would most likely emanate from a material deterioration in loan or investment credit quality, such that earnings performance became highly variable or trended below rated peer comparisons. Double leverage at the parent company remains elevated and its ratings could be subject to re-evaluation from a further increase in leverage, especially if KBRA believed its ability to support subsidiary banks (if needed) were to become questionable. KBRA notes that this debt transaction will not impact parent company leverage because net debt will be unchanged.

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Methodologies

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan's Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

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Analytical Contacts

Shannon Servaes, Managing Director (Lead Analyst)

+1 301-969-3247

shannon.servaes@kbra.com

Jacob Crouse, Associate Director

+1 301-969-3248

jacob.crouse@kbra.com

Business Development Contact

Justin Fuller, Managing Director

+1 312-680-4163

justin.fuller@kbra.com

KBRA Assigns Ratings to Notes Issued by QCR Holdings, Inc.