QCR HOLDINGS INC

The following table sets forth the various categories of noninterest income for the three and six months ended June 30, 2025 and 2024:

The Company continues to be successful in expanding its wealth management client base. Trust and investment advisory and management fees continue to be a significant contributor to noninterest income. Assets under management have increased $347.7 million since March 31, 2025 and have increased by $800.5 million since June 30, 2024 due primarily to new relationships. Income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services. The majority of trust fees are determined based on the value of the investments within the fully-managed trusts. Trust fees increased 9% in the second quarter of 2025 as compared to the same period of the prior year, and increased 12% when comparing the first six months of 2025 to the first six months of 2024 due to growth in assets under management and market performance. The Company expects trust and investment advisory and management fees to be negatively impacted during periods of significantly lower market valuations and positively impacted during periods of significantly higher market valuations. During 2024, the Company expanded its wealth management business into the southwest Missouri and central Iowa markets.

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Investment advisory and management fees increased 3% comparing the second quarter of 2025 to the same period of the prior year, and increased 8% when comparing the first six months of 2025 to the first six months of 2024. 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 10% in the second quarter of 2025 as compared to the same period of the prior year, and increased 9% when comparing the first six months of 2025 to the first six months of 2024. The Company’s total deposits increased by $553.7 million, or 8%, when comparing June 30, 2025 to June 30, 2024. 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 2025.

Gains on sales of residential real estate loans, net, increased 3% when comparing the first quarter of 2025 to the same period of the prior year, and decreased 8% when comparing the first six months of 2025 to the first six months of 2024. The decrease was due to lower volume of client residential real estate purchase activity generating lower 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 $9.9 million for the second quarter of 2025, compared to $17.8 million for the second quarter of 2024. Capital markets revenue totaled $16.4 million for the first six months of 2025, compared to $34.2 million for the first six months of 2024. As discussed in the “Executive Overview” section of this report, capital markets revenue was affected by macroeconomic and governmental uncertainty. Demand for affordable housing remains strong. 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.

Earnings on BOLI decreased 66%, comparing the second quarter of 2025 to the same period of the prior year, and decreased 60% when comparing the first six months of 2025 to the first six months of 2024. There were BOLI exchanges in the first six months of 2025 resulting in surrender charges of $168 thousand. In addition, there were $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 2025 or 2024. 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 increased 5% when comparing the second quarter of 2025 to the second quarter of 2024, and increased 3% when comparing the first six months of 2025 to the first six months of 2024. 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.

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Correspondent banking fees increased 37% comparing the second quarter of 2025 to the same period of the prior year and increased 29% when comparing the first six months of 2025 to the first six months of 2024. The increase was primarily due to a shift of correspondent banking balances from non-interest bearing accounts to interest bearing accounts. 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 14% comparing the second quarter of 2025 to the same period of the prior year and increased 11% when comparing the first six months of 2025 to the first six months of 2024. The increase was primarily due to loan growth.

Fair value losses on derivatives were $502 thousand and fair value gains on trading securities were $732 thousand in the second quarter of 2025, as compared to $183 thousand in losses and $234 thousand in gains, respectively, in the same period of the prior year. Fair value losses on derivatives and trading securities were $700 thousand and $77 thousand, respectively, in the first six months of 2025, as compared to losses of $365 thousand and gains of $253 thousand, respectively in the same period of the prior year. During the first quarter of 2024, the Company executed a derivative strategy utilizing swaptions with a notional value of approximately $409.0 million. The Company uses swaptions to manage interest rate risk related to the variability of interest payments due to changes in interest rates. 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 on derivatives. See Note 5 to the Consolidated Financial Statements for additional information.

Other noninterest income decreased $75 thousand, or 341%, in the second quarter of 2025 as compared to the same period of the prior year, and increased 40% when comparing the first six months of 2025 to the first six months of 2024 due to fluctuations on the market value of the Company’s equity investments. Income on equity investments is largely determined based on the market value of the investments managed.

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