QCR HOLDINGS INC

The following table sets forth the various categories of noninterest income for the three months ended March 31, 2024 and 2023.

The Company continues to be successful in expanding its wealth management client base and new assets under management. Trust fees continue to be a significant contributor to noninterest income. Assets under management increased $566.8 million since December 31, 2023 and have increased by $976.4 million since March 31, 2023 due to market fluctuation. Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. Trust fees are primarily determined based on the market value of the investments within the fully-managed trusts. Trust fees increased 10% in the first quarter of 2024 as compared to the same period of the prior year due to market performance and new 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 valuations.

Investment advisory and management fees increased 25% comparing the first quarter of 2024 to the same period of the prior year. Similar to trust fees, investment advisory and management fees are largely determined based on the market 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 the first quarter of 2024 as compared to the same period of the prior year. The Company continues to be successful in expanding its core deposit base.

Gains on sales of residential real estate loans, net, increased 22% when comparing the first quarter of 2023 to the same period of the prior year. The increases were due to increased volume of residential real estate purchases and the refinancing of residential real estate loans.

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 allow commercial borrowers to pay 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 $16.5 million for the first quarter of 2024, compared to $17.0 million for the first quarter of 2023. In the traditional commercial portfolio, the pricing is more competitive and the duration is shorter as compared

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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 fees 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. LIHTC securitizations will continue on an ongoing basis, as a tool to provide capacity for continued LIHTC loan production.

There were no securities gains or losses for the three months ended March 31, 2024. Securities losses totaled $463 thousand for the three months ended March 31, 2023. The Company sold $29 million of securities during the first quarter of 2023. The securities sold were part of a strategy to partially deleverage the balance sheet with an anticipated rapid earn back of the modest loss before the end of the calendar year.

Earnings on BOLI increased 23% comparing the first quarter of 2024 to the first quarter of 2023. There were no purchases of BOLI in the first quarter of 2024 or 2023. Notably, a portion of the Company's BOLI is variable rate whereby 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 remained stable in the first quarter of 2024 as compared to the same period of the prior year. The 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 a deposit product with a higher interest rate that incentivizes debit card activity.

Correspondent banking fees increased 31% comparing the first quarter of 2024 to the same period of the prior year. The increase was 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 approximately 183 banks in Iowa, Illinois, Missouri and Wisconsin.

Loan-related fee income increased 28% comparing the first quarter of 2024 to the same period of the prior year. The increase was primarily due to the substantial growth in our commercial credit card portfolio.

Fair value loss on derivatives was $163 thousand in the first quarter of 2024, as compared to $427 thousand in losses in the same period of the prior year. The Company uses unhedged cap instruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates. Fair value gains or losses will fluctuate depending on the interest rate environment. See Note 5 to the Consolidated Financial Statements for additional information.

Other noninterest income decreased 55% in the first quarter of 2024 as compared to the same period of the prior year. 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 managed. As a result, income fluctuates with market valuations.

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