QCR HOLDINGS INC

The following table sets forth the various categories of noninterest income for the three and six months ended June 30, 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 have increased $61.2 million since March 31, 2024 and have increased by $628.0 million since June 30, 2023 due to market fluctuation and new client additions. 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 9% in the second quarter of 2024 as compared to the same period of the prior year and increased 10% when comparing the first six months of 2024 to the first six months of 2023 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 23% comparing the first quarter of 2024 to the same period of the prior year, and increased 24% when comparing the first six months of 2024 to the first six months of 2023. Similar to trust

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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 decreased 2% in the second quarter of 2024 as compared to the same period of the prior year, and decreased 1% when comparing the first six months of 2024 to the first six months of 2023. During the second quarter of 2024, the Company’s total deposits decreased modestly by $42.1 million, or less than 1%. When comparing annualized YTD growth of total deposits, the Company continues to be successful in expanding its core deposit base with a targeted focus on growing the number of net new accounts in 2024.

Gains on sales of residential real estate loans, net, increased 8% when comparing the second quarter of 2024 to the same period of the prior year, and increased 14% when comparing the first six months of 2024 to the first six months of 2023. The increases across both periods were due to increased volume of client residential real estate purchase activity generating higher levels of gains.

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 back-to-back 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 from an upstream counter party.

Capital markets revenue totaled $17.8 million for the second quarter of 2024, compared to $22.5 million for the second quarter of 2023. Capital markets revenue totaled $34.2 million for the first six months of 2024 compared to $39.5 million for the first six months of 2023. 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 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 has identified $243.2 million of LIHTC loans for securitization that are planned to close in the third quarter of 2024. LIHTC securitizations will continue in the future as a tool to provide capacity for continued LIHTC loan production.

There were no securities gains or losses for the three and six months ended June 30, 2024. Securities gains totaled $12 thousand for the three months ended June 30, 2023 and securities losses totaled $451 thousand for the six months ended June 30, 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 Company’s balance sheet with an anticipated rapid earn back of the modest loss before the end of the calendar year.

Earnings on BOLI increased 254% comparing the second quarter of 2024 to the second quarter of 2023 and increased 148% comparing the first six months of 2024 to the first six months of 2023. The increase was due primarily to $2.2 million of death benefit proceeds on BOLI received in the second quarter of 2024. There were no purchases of BOLI in the first six months 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 comparing the second quarter of 2024 as compared to the same period of the prior year, and also comparing the first six months of 2024 to the first six months of 2023. The fees can vary based on customer debit card usage, so fluctuations from

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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 43% comparing the second quarter of 2024 to the same period of the prior year, and increased 37% comparing the first six months of 2024 to the first six months of 2023. 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 188 banks in Iowa, Illinois, Missouri and Wisconsin.

Loan-related fee income increased 25% comparing the second quarter of 2024 to the same period of the prior year, and increased 27% comparing the first six months of 2024 to the first six months of 2023. The increase across both periods was primarily due to the growth in our commercial credit card portfolio.

Fair value gain on derivatives and trading securities was $51 thousand in the second quarter of 2024, as compared to $83 thousand in gains in the same period of the prior year. Fair value loss on derivatives and trading securities was $112 thousand in the first six months of 2024 as compared to $344 thousand in the first six months of 2023. 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 increased $200 thousand, or 1,111%, in the second quarter of 2024 as compared to the same period of the prior year. Other noninterest income increased 4% comparing the first six months of 2024 to the first six months of 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 managed. As a result, income fluctuates with market valuations.

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