QCR HOLDINGS INC

The following tables set forth the various categories of noninterest income for the years ended December 31, 2023 and 2022.

Certain increases in these categories were due to the GFED acquisition, as there was a full year of GFED income reflected in the Company’s 2023 results, compared to nine months of such income reflected in the Company’s 2022 results. The GFED acquisition is further described in Note 2 to the Consolidated Financial Statements.

The Company has been successful in expanding its wealth management customer base. Trust fees continue to be a significant contributor to noninterest income. Assets under management increased by $700.7 million in 2023 with 340 new relationships totaling $762.9 million in new assets under management. Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. The majority of the trust fees are determined based on the value of the investments within the fully-managed trusts. Trust fees increased 10% in 2023 as compared to 2022 due to growth in assets under management. The Company expects trust fees to be negatively impacted during periods of significantly lower market valuations and positively impacted during periods of significantly higher market valuation. During 2023, the Company expanded its wealth management customer base into the Springfield, Missouri market.

Investment advisory and management fees remained stable in 2023 as compared to 2022. Similar to trust fees, fees from these services are largely determined based on the value of the investments managed. As a result, fee income from this line of business fluctuates with market valuations.

Deposit service fees remained stable in 2023 as compared to 2022. This was the result of core deposit growth offset by a decrease in NSF and service charge fee income. The Company continues to be successful in expanding its core deposit base.

Gains on sales of residential real estate loans, net, decreased 33% in 2023 as compared to 2022. The decrease was primarily due to decreased residential real estate purchases and the refinancing of residential real estate loans with the sharp increase in mortgage rates.

The Company has grown its capital markets revenue significantly over the past several years. The Company’s interest rate swap program consists of back-to-back interest rate swaps with two types of commercial borrowers: (1) traditional commercial loans of a certain minimum size and sophistication, and (2) LIHTC permanent loans. Most of the growth

has been in the latter category as the Company has grown relationships with strong LIHTC developers with many years of experience. The LIHTC industry is strong and growing with an increased need for affordable housing. The interest rate swaps help the commercial borrowers to obtain a fixed interest rate while the Company receives a variable interest rate as well as an upfront nonrefundable fee dependent upon the pricing.

Capital markets revenue totaled $92.1 million in 2023 as compared to $41.3 million in 2022. The increase was due to higher revenue from swap fees due to improvements in the supply chain and resetting of the debt and equity needs for the current interest rate environment. In the traditional commercial portfolio, the pricing is more competitive and the duration is shorter as compared to the LIHTC permanent loans. Therefore, the mix of loans with interest rate swaps continued to be heavily weighted towards LIHTC permanent loans. Future levels of swap fee income are dependent upon the needs of our traditional commercial and LIHTC borrowers, and the size of the related nonrefundable swap fee may fluctuate depending on the interest rate environment.

Also included in capital markets revenue are gains on loan securitizations. The Company had two LIHTC securitizations that closed in the fourth quarter of 2023 which resulted in a net gain of $644 thousand. The Company expects LIHTC securitizations to continue on as a tool to manage liquidity and to provide capacity for continued LIHTC loan production.

Securities losses, net of gains totaled $451 thousand in 2023. There were no securities gains or losses in 2022. The Company sold $30 million of securities during the first quarter of 2023. The securities sold were part of a strategy to partially deleverage the balance sheet and reduce higher cost borrowings and the related negative arbitrage. The losses were successfully earned back within the calendar year.

Earnings on BOLI increased 104% in 2023. The increase is primarily due to income of $1.1 million on death benefit proceeds of a former executive that were received in 2023. There were no purchases of BOLI in 2023. There were $10.0 million of purchases of BOLI in 2022. Yields on BOLI (based on a simple average and excluding the impact of the federal income tax exemption) were 2.82% for 2023 and 1.92% for 2022. Notably, a portion of the Company’s BOLI is variable rate whereby the returns are determined by the performance of the equity markets. Management intends to continue to review its BOLI investments to be consistent with policy and regulatory limits in conjunction with the rest of its earning assets in an effort to maximize returns while minimizing risk.

Debit card fees are the interchange fees paid on certain debit card customer transactions. Debit card fees increased 14% in 2023. The increase was primarily due to the GFED acquisition. These fees can vary based on customer debit card usage, so fluctuations from period to period may occur. As an opportunity to maximize fees, the Company offers deposit products with a higher interest rate that incentivizes debit card activity.

Correspondent banking fees increased 72% in 2023 primarily due to a shift of correspondent banking balances from non-interest bearing accounts to interest bearing accounts, in light of increasing rates. Fees from correspondent banks generally increase when non-interest bearing account balances decrease due to lower associated earnings credits. Correspondent banking continues to be a core strategy for the Company, as this line of business provides a high level of deposits that can be used to fund loan growth as well as a steady source of fee income. The Company now serves 182 banks in Iowa, Illinois, Missouri and Wisconsin.

Loan related fee income increased 26% in 2023. The increase was primarily due to loan growth.

Fair value gain (loss) on derivatives decreased 164% in 2023. The decrease was due to the rapidly rising interest rate environment and the derivatives winding down closer to maturity. The Company uses unhedged cap instruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates. See Note 8 to the Consolidated Financial Statements for additional information.

Other noninterest income increased 32% in 2023. Included in other noninterest income is income on equity investments. Income on equity investments is largely determined based on the market value of the investments. As a result, income fluctuates with market valuations.