QCR HOLDINGS INC (QCRH)

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This section reviews the financial condition and results of operations of the Company and its subsidiaries as of and for the three and six months ending June 30, 2026. Some tables may include additional periods to comply with disclosure requirements or to illustrate trends. When reading this discussion, also refer to the Consolidated Financial Statements and related notes in this report. Page locations and specific sections and notes that are referred to in this discussion are listed in the table of contents.

Additionally, a comprehensive list of the acronyms and abbreviations used throughout this discussion is included in Note 1 to the Consolidated Financial Statements.

GENERAL

The Company was formed in February 1993 for the purpose of organizing QCBT.  Over the past 33 years, the Company has grown to include four banking subsidiaries and a number of nonbanking subsidiaries.  As of June 30, 2026, the Company had $9.5 billion in consolidated assets, including $6.9 billion in net loans/leases, and $7.4 billion in deposits.  The financial results of acquired entities for the periods since their acquisition are included in this report.  Further information related to acquired entities has been presented in the annual reports previously filed with the SEC corresponding to the year of each acquisition.

CRITICAL ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

The Company's financial statements are prepared in accordance with GAAP. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance, determination of the fair value of loans acquired in business combinations, impairment of goodwill, the fair value of financial instruments, and the fair value of securities.

Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified the following as critical accounting policies and estimates:

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A more detailed discussion of these critical accounting policies and estimates can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.

EXECUTIVE OVERVIEW

The Company reported net income of $36.3 million and diluted EPS of $2.19 for the quarter ended June 30, 2026. By comparison, for the quarter ended March 31, 2026, the Company reported net income of $33.4 million and diluted EPS of $1.99.  For the quarter ended June 30, 2025, the Company reported net income of $29.0 million, and diluted EPS of $1.71. For the six months ended June 30, 2026, the Company reported net income of $69.6 million and diluted EPS of $4.18.  By comparison, for the six months ended June 30, 2025, the Company reported net income of $54.8 million and diluted EPS of $3.22.

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Part I

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

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The second quarter of 2026 was also highlighted by the following results and events (see section titled “GAAP to Non-GAAP Reconciliations” for additional information):

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Following is a table that represents various net income measurements for the Company:

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The Company reported adjusted net income (non-GAAP) of $36.3 million, with adjusted diluted EPS (non-GAAP) of $2.19 for the three months ended June 30, 2026.  See section titled “GAAP to Non-GAAP Reconciliations” for additional information.  The Company reported adjusted net income (non-GAAP) of $69.7 million, with adjusted diluted EPS (non-GAAP) of $4.18 for the six months ended June 30, 2026.

Following is a table that represents the major income and expense categories for the Company:

Following are certain noteworthy developments in the Company's financial results for the quarter ended June 30, 2026:

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Part I

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section generally discusses 2025 and 2024 items and annual comparison between our fiscal 2025 performance compared to our fiscal 2024 performance.  A detailed review of our fiscal 2024 performance compared to our fiscal 2023 performance can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” This discussion should be read together with our Consolidated Financial Statements and the accompanying notes thereto included or incorporated by reference elsewhere in this document.

Additionally, a comprehensive list of the acronyms and abbreviations used throughout this discussion is included in Note 1 to the Consolidated Financial Statements.

GENERAL

The Company was formed in February 1993 for the purpose of organizing QCBT. Over the past 32 years, the Company has grown to include four banking subsidiaries and a number of nonbanking subsidiaries. As of December 31, 2025, the Company had $9.6 billion in consolidated assets, including $7.1 billion in total loans/leases, and $7.4 billion in deposits. The financial results of acquired entities for the periods since their acquisition are included in this Annual Report on Form 10-K and in our Quarterly Reports on Form 10-Q. Further information related to acquired entities has been presented in the Annual Reports on Form 10-K previously filed with the SEC corresponding to the period of each acquisition.

CRITICAL ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

The Company’s financial statements are prepared in accordance with GAAP. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred.  The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance, determination of the fair value of loans acquired in business combinations, impairment of goodwill, the fair value of financial instruments, and the fair value of securities. A more detailed discussion of these critical accounting policies and estimates can be found in Note 1 to the Consolidated Financial Statements.

Based on its consideration of accounting policies and estimates that involve the most complex and subjective decisions and assessments, management has identified the following as critical accounting policies and estimates:

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES AND OFF-BALANCE SHEET EXPOSURES

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The Company’s allowance methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance that management believes is appropriate at each reporting date. The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts.  The methodologies apply historical loss information adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions that are expected to exist through the contractual lives of the financial assets and that are reasonable and supportable to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed (general reserve).  If a loan is determined to no longer share similar risk characteristics with other assets in the segmented pool, it is evaluated on an individual basis (specific reserve).

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The Company also estimates expected credit losses over the contractual term of the loan for the unfunded portion of the loan commitment that is not unconditionally cancellable by the Company.  Management uses an estimated average utilization rate to determine the exposure of default.  The allowance for OBS exposures is calculated using probability of default and loss given default using the same segmentation and qualitative factors used for loans and leases.

Although management believes the level of the ACL as of December 31, 2025 was adequate to absorb losses inherent in the loan/lease portfolio, the HTM portfolio and OBS exposures, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time.

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EXECUTIVE OVERVIEW

The Company reported net income of $127.2 million for the year ended December 31, 2025, and diluted EPS of $7.49. For the same period in 2024 the Company reported net income of $113.9 million and diluted EPS of $6.71.

The year ended December 31, 2025 was highlighted by several significant items:

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Following is a table that represents the various net income measurements for the years ended December 31, 2025 and 2024.

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The Company reported adjusted net income (non-GAAP) of $129.6 million, with adjusted diluted EPS of $7.64. See section titled “GAAP to Non-GAAP Reconciliations” for additional information. Adjusted net income for the year excludes a number of non-core or non-recurring items, after-tax, as set forth in the “GAAP to Non-GAAP Reconciliation” section.

Following is a table that represents the major income and expense categories for the years ended December 31, 2025 and 2024.

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The following are some noteworthy developments in the Company’s financial results:

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STRATEGIC FINANCIAL METRICS

The Company has established strategic financial metrics by which it manages its business and measures its performance. The metrics are periodically updated to reflect business developments. While the Company is determined to work prudently to achieve these metrics, there is no assurance that they will be met. Moreover, the Company’s ability to achieve these metrics may be affected by the factors discussed under “Forward-Looking Statements” as well as the factors detailed in the “Risk Factors” section included under Item 1A. of Part I of this Annual Report on Form 10-K. The Company’s strategic financial metrics are as follows:

The following table shows the evaluation of the Company’s strategic financial metrics:

* Ratios and amounts provided for these measurements represent year-to-date actual amounts for the respective period. The calculations provi

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