QCR HOLDINGS INC

The following tables set forth the various categories of noninterest income for the years ended December 31, 2024 and 2023.

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 $1.1 billion in 2024 with 469 new relationships totaling $1.5 billion 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 11% in 2024 as compared to 2023 due to growth in assets under management and market performance. 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 2024 and 2023, the Company expanded its wealth management customer base into the southwest Missouri and central Iowa markets.

Investment advisory and management fees increased 26% in 2024 as compared to 2023. Similar to trust fees, fees from these services 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 increased 4% in 2024 as compared to 2023. This was the result of core deposit growth offset by a decrease in non-sufficient funds and service charge fee income. 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 27% in 2024 as compared to 2023. The increase was primarily due to higher volumes 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 $71.1 million in 2024 as compared to $92.1 million in 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 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/losses on loan securitizations. Net gains on loan securitizations totaled $955 thousand in 2024 as compared to $644 thousand in 2023. LIHTC securitizations will likely be used in the future as a tool to provide capacity for continued LIHTC loan production.

There were no securities gains or losses in 2024 as compared to securities losses, net of gains, totaling $451 thousand in 2023. 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 30% in 2024. The increase is primarily due to income of $2.2 million on death benefit proceeds of a former executive that were received in 2024. There were no purchases of BOLI in 2024 or 2023. Yields on BOLI (based on a simple average and excluding the impact of the federal income tax exemption) were 4.97% for 2024 and 2.82% for 2023. 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 remained stable in 2024 as compared to 2023. 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 26% in 2024 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 189 banks in Iowa, Illinois, Missouri and Wisconsin.

Loan related fee income increased 21% in 2024. The increase was primarily due to loan growth.

Fair value loss on derivatives and trading securities increased 120% in 2024. During 2024, the Company executed a derivative strategy with a notional value of approximately $409 million. These derivatives are unhedged and are marked to market, with gains or losses recorded in noninterest income which was a contributing factor in the increase in fair value losses. The Company had fair value gains on trading securities which partially offset the fair value loss on derivatives. The Company also uses unhedged cap instruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates. See Note 7 to the Consolidated Financial Statements for additional information.

Other noninterest income decreased 28% in 2024 primarily due to declines in the market value of the Company’s equity investments. 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.