Summary of QCR HOLDINGS INC

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
QCR Holdings, Inc. is the parent company of Quad City Bank & Trust, Cedar Rapids Bank & Trust, Rockford Bank & Trust, First Wisconsin Bank & Trust, and Quad City Bancard, Inc.
Quad City Bank & Trust and Cedar Rapids Bank & Trust are Iowa-chartered commercial banks, Rockford Bank & Trust is an Illinois-chartered commercial bank, and First Wisconsin Bank & Trust is a Wisconsin-chartered bank. All are members of the Federal Reserve System with depository accounts insured to the maximum amount permitted by law by the FDIC.
• Quad City Bank & Trust commenced operations in 1994 and provides full-service commercial and consumer banking, and trust and asset management services to the Quad City area and adjacent communities through its five offices that are located in Bettendorf and Davenport, Iowa and Moline, Illinois. Quad City Bank & Trust also provides leasing services through its 80%-owned subsidiary, M2 Lease Funds, located in Brookfield, Wisconsin. During the first quarter of 2008, Quad City Bank & Trust acquired CMG Investment Advisors, LLC, which is an investment management and advisory company.

• Cedar Rapids Bank & Trust commenced operations in 2001 and provides full-service commercial and consumer banking services to Cedar Rapids and adjacent communities through its main office located on First Avenue in downtown Cedar Rapids, Iowa and its branch facility located on Council Street in northern Cedar Rapids. Cedar Rapids Bank & Trust also provides residential real estate mortgage lending services through its 50%-owned joint venture, Cedar Rapids Mortgage Company.

• Rockford Bank & Trust commenced operations in January 2005 and provides full-service commercial and consumer banking services to Rockford and adjacent communities through its main office located on Guilford Road at Alpine Road in Rockford, and its branch facility located in downtown Rockford.

• First Wisconsin Bank & Trust is a wholly owned subsidiary of the Company providing full-service commercial and consumer banking services in the Milwaukee area through its main office located in Brookfield, Wisconsin. The Company has operated this charter since February, 2007. As discussed in the footnotes to the financial statements, in October, 2008 the Company entered into a definitive agreement to sell FWBT. The activity related to FWBT is accounted for as discontinued operations.

Bancard provides cardholder credit card processing services. Bancard currently provides credit card processing for its agent banks and for cardholders of the Company's subsidiary banks and agent banks. As discussed in the footnotes to the financial statements, the Company sold the merchant credit card acquiring business segment of Bancard during the third quarter of 2008. The activity related to the merchant credit card acquiring business is accounted for as discontinued operations.

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Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued OVERVIEW
The Company reported earnings for the third quarter ended September 30, 2008 of $4.3 million, which resulted in diluted earnings per share for common shareholders of $0.83. During the third quarter of 2008, the Company's wholly owned subsidiary, Bancard, sold its merchant credit card acquiring business resulting in a gain on sale, net of taxes and related expenses, of approximately $3.0 million or $0.66 per share. Earnings from continuing operations for the third quarter ended September 30, 2008 were $1.6 million, which resulted in diluted earnings per share of $0.25. Earnings from continuing operations and diluted earnings per share for the third quarter of 2007 were $1.7 million and $0.32, respectively.
For the nine months ended September 30, 2008, earnings totaled $6.8 million leading to diluted earnings per share of $1.17. As mentioned above, the gain on sale of the merchant credit card acquiring business was the major contributor to the increase in earnings. Earnings from continuing operations and diluted earnings per share for the nine months ended September 30, 2008 were $5.3 million and $0.85, respectively. By comparison, for the nine months ended September 30, 2007, earnings from continuing operations totaled $4.7 million which resulted in diluted earnings per share of $0.85. The Company has experienced strong growth in net interest income over the first nine months. This growth has been partially offset by significant increases in the provision for loan/lease losses. Earnings from continuing operations before the provision for loan/lease losses and taxes for the nine months ended September 30, 2008 were $11.9 million which represents an increase of $3.1 million, or nearly 36%, from $8.8 million for the nine months ended September 30, 2007.
When compared to the second quarter of 2008, earnings from continuing operations decreased from $2.0 million to $1.6 million, or 20%, for the third quarter of 2008. The primary reason for this decrease in earnings was a significant increase in the provision for loan/lease losses.

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Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued NET INTEREST INCOME
The Company's operating results are derived largely from net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, and interest expense, principally on borrowings and customer deposits. Changes in net interest income result from changes in volume, net interest spread and net interest margin. Volume refers to the average dollar levels of interest-earning assets and interest-bearing liabilities. Net interest spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Net interest margin refers to net interest income divided by average interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities.
Net interest income increased $2.7 million, or 30%, to $11.9 million for the quarter ended September 30, 2008, from $9.1 million for the third quarter of 2007. For the third quarter of 2008, average earning assets increased by $159.2 million, or 13%, and average interest-bearing liabilities increased by $127.2 million, or 11%, when compared with average balances for the third quarter of 2007. A comparison of yields, spread and margin from the third quarter of 2008 to the third quarter of 2007 is as follows:
• The average yield on interest-earning assets decreased 78 basis points.

• The average cost of interest-bearing liabilities decreased 129 basis points.

• The net interest spread improved 51 basis points from 2.63% to 3.14%.

• The net interest margin improved 45 basis points from 2.99% to 3.44%.

Net interest income increased $7.4 million, or 28%, to $33.4 million for the nine months ended September 30, 2008, from $26.0 million for the first nine months of 2007. For the first nine months of 2008, average earning assets increased by $151.9 million, or 13%, and average interest-bearing liabilities increased by $136.5 million, or 13%, when compared with average balances for the first three quarters of 2007. A comparison of yields, spread and margin from the first nine months of 2008 to the first nine months of 2007 is as follows:
• The average yield on interest-earning assets decreased 57 basis points.

• The average cost of interest-bearing liabilities decreased 105 basis points.

• The net interest spread improved 48 basis points from 2.55% to 3.03%.

• The net interest margin improved 40 basis points from 2.92% to 3.32%.

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Part I
Item 2
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
The Company's average balances, interest income/expense, and rates earned/paid
on major balance sheet categories, as well as the components of change in net
interest income, are presented in the following tables:

                                                   For the Three Months Ended September 30,
                                             2008                                           2007
                                            Interest        Average                        Interest        Average
                             Average         Earned        Yield or         Average         Earned        Yield or
                             Balance         or Paid         Cost           Balance         or Paid         Cost
                                                            (dollars in thousands)
ASSETS
Interest earning
assets:
Federal funds sold         $     4,395      $      28           2.55 %    $     3,837      $      41           4.27 %
Interest-bearing
deposits at financial
institutions                     1,041             10           3.84 %          4,783             71           5.94 %
Investment securities
(1)                            230,880          3,083           5.34 %        209,802          2,759           5.26 %
Gross loans/leases
receivable (2)               1,143,273         18,531           6.48 %      1,001,950         18,674           7.46 %


Total interest earning
assets                     $ 1,379,589         21,652           6.28 %    $ 1,220,372         21,545           7.06 %

Noninterest-earning
assets:
Cash and due from banks    $    32,116                                    $    38,440
Premises and equipment          31,506                                         31,695
Less allowance for
estimated losses on
loans/leases                   (13,987 )                                      (11,410 )
Other                          170,994                                         93,356


Total assets               $ 1,600,218                                    $ 1,372,453

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits                   $   279,829          1,211           1.73 %    $   310,877          2,806           3.61 %
Savings deposits                67,193            231           1.38 %         31,685            170           2.15 %
Time deposits                  442,058          4,128           3.74 %        387,946          4,871           5.02 %
Short-term borrowings          147,487            656           1.78 %        160,429          1,472           3.67 %
Federal Home Loan Bank
advances                       204,947          2,249           4.39 %        161,344          1,859           4.61 %
Junior subordinated
debentures                      36,085            573           6.35 %         36,085            661           7.33 %
Other borrowings                71,933            752           4.18 %         33,931            591           6.97 %


Total interest-bearing
liabilities                $ 1,249,532          9,800           3.14 %    $ 1,122,297         12,430           4.43 %

Noninterest-bearing
demand                         137,340                                    $   124,564
Other
noninterest-bearing
liabilities                    122,514                                         48,794
Total liabilities          $ 1,509,386                                    $ 1,295,655

Minority interest in
consolidated
subsidiaries                     1,928                                          1,619

Stockholders' equity            88,904                                         75,180


Total liabilities and
stockholders' equity       $ 1,600,218                                    $ 1,372,453


Net interest income                         $  11,852                                      $   9,115


Net interest spread                                             3.14 %                                         2.63 %


Net interest margin                                             3.44 %                                         2.99 %


Ratio of average
interest earning assets
to average interest-
bearing liabilities             110.41 %                                       108.74 %

(1) Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate for each period presented.

(2) Loan fees are not material and are included in interest income from loans receivable.

Table of Contents

Part I
Item 2
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
            Analysis of Changes of Interest Income/Interest Expense
                 For the Three Months Ended September 30, 2008

                                                        Inc./(Dec.)              Components
                                                           from                of Change (1)
                                                       Prior Period         Rate          Volume
                                                                      2008 vs. 2007
                                                                 (Dollars in Thousands)
INTEREST INCOME
Federal funds sold                                     $         (13 )    $     (45 )    $      32
Interest-bearing deposits at financial institutions              (61 )          (19 )          (42 )
Investment securities (2)                                        324             43            281
Gross loans/leases receivable (3)                               (143 )      (10,188 )       10,045


Total change in interest income                        $         107      $ (10,209 )    $  10,316

INTEREST EXPENSE
Interest-bearing demand deposits                       $      (1,595 )    $  (1,338 )    $    (257 )
Savings deposits                                                  61           (355 )          416
Time deposits                                                   (743 )       (4,001 )        3,258
Short-term borrowings                                           (816 )         (706 )         (110 )
Federal Home Loan Bank advances                                  390           (544 )          934
Junior subordinated debentures                                   (88 )          (88 )            -
Other borrowings                                                 161         (1,351 )        1,512


Total change in interest expense                       $      (2,630 )    $  (8,383 )    $   5,753


Total change in net interest income                    $       2,737      $  (1,826 )    $   4,563

(1) The column "increase/decrease from prior period" is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates. The variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume.

(2) Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate for each period presented.

(3) Loan fees are not material and are included in interest income from loans/leases receivable.

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Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

For the Nine Months Ended September 30, 2008 2007 Interest Average Interest Average Average Earned Yield or Average Earned Yield or Balance or Paid Cost Balance or Paid Cost (dollars in thousands)
ASSETS
Interest earnings
assets:
Federal funds sold $ 3,410 70 2.74 % $ 6,163 214 4.63 % Interest-bearing
deposits at financial
institutions 6,572 158 3.21 % 6,975 295 5.64 % Investment securities
(1) 226,186 9,077 5.35 % 197,461 7,620 5.15 % Gross loans receivable
(2) 1,105,698 54,844 6.61 % 979,414 53,784 7.32 %

Total interest earning
assets $ 1,341,866 64,149 6.37 % $ 1,190,013 61,913 6.94 %

Noninterest-earning
assets:
Cash and due from banks $ 33,399 $ 36,600 Premises and equipment 31,605 31,879 Less allowance for
estimated losses on
loans (12,966 ) (11,010 ) Other 152,570 79,135

Total assets $ 1,546,473 $ 1,326,617

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits                   $   302,509          4,643           2.05 %    $   303,238          8,222           3.62 %
Savings deposits           $    56,735            638           1.50 %         31,253            496           2.12 %
Time deposits              $   417,598         12,849           4.10 %        397,496         14,775           4.96 %
Short-term borrowings      $   168,224          2,723           2.16 %        136,868          3,865           3.77 %
Federal Home Loan Bank
advances                   $   186,086          6,188           4.43 %        160,054          5,370           4.47 %
Junior subordinated
debentures                 $    36,085          1,771           6.54 %         36,085          1,966           7.26 %
Other borrowings           $    59,115          1,922           4.34 %         24,836          1,171           6.29 %


Total interest-bearing
liabilities                $ 1,226,352         30,734           3.34 %    $ 1,089,830         35,865           4.39 %

Noninterest-bearing
demand                     $   133,006                                    $   121,054
Other
noninterest-bearing
liabilities                     98,358                                         40,785
Total liabilities          $ 1,457,716                                    $ 1,251,669

Minority interest in
consolidated
subsidiaries                     1,829                                          1,519

Stockholders' equity            86,928                                         73,429


Total liabilities and
stockholders' equity       $ 1,546,473                                    $ 1,326,617


Net interest income                         $  33,415                                      $  26,048


Net interest spread                                             3.03 %                                         2.55 %


Net interest margin                                             3.32 %                                         2.92 %


Ratio of average
interest earning assets
to average interest-
bearing liabilities             109.42 %                                       109.19 %

(1) Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate in each year presented.

(2) Loan fees are not material and are included in interest income from loans receivable.

Table of Contents

Part I
Item 2
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
            Analysis of Changes of Interest Income/Interest Expense
                  For the nine months ended September 30, 2008

                                                        Inc./(Dec.)              Components
                                                           from                of Change (1)
                                                       Prior Period         Rate          Volume
                                                                      2008 vs. 2007
                                                                 (Dollars in Thousands)
INTEREST INCOME
Federal funds sold                                     $        (144 )    $     (69 )    $     (75 )
Interest-bearing deposits at financial institutions             (137 )         (121 )          (16 )
Investment securities (2)                                      1,457            314          1,143
Gross loans/leases receivable (3)                              1,060         (7,473 )        8,533


Total change in interest income                        $       2,236      $  (7,349 )    $   9,585

INTEREST EXPENSE
Interest-bearing demand deposits                       $      (3,579 )    $  (3,560 )    $     (19 )
Savings deposits                                                 142           (247 )          389
Time deposits                                                 (1,926 )       (3,029 )        1,103
Short-term borrowings                                         (1,142 )       (2,280 )        1,138
Federal Home Loan Bank advances                                  818            (79 )          897
Junior subordinated debentures                                  (195 )         (195 )            -
Other borrowings                                                 751           (654 )        1,405


Total change in interest expense                       $      (5,131 )    $ (10,044 )    $   4,913


Total change in net interest income                    $       7,367      $   2,695      $   4,672

(2) Interest earned and yields on nontaxable investment securities are determined on a tax equivalent basis using a 34% tax rate for each period presented.

(3) Loan fees are not material and are included in interest income from loans/leases receivable.

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Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued CRITICAL ACCOUNTING POLICY
The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified its most critical accounting policy to be that related to the allowance for loan/lease losses. The Company's allowance for loan/lease loss methodology incorporates a variety of risk considerations, both quantitative and qualitative in establishing an allowance for loan/lease loss that management believes is appropriate at each reporting date. Quantitative factors include the Company's historical loss experience, delinquency and charge-off trends, collateral values, changes in nonperforming loans/leases, and other factors. Quantitative factors also incorporate known information about individual loans/leases, including borrowers' sensitivity to interest rate movements. Qualitative factors include the general economic environment in the Company's markets, including economic conditions throughout the Midwest, and in particular, the state of certain industries. Size and complexity of individual credits in relation to loan/lease structure, existing loan/lease policies and pace of portfolio growth are other qualitative factors that are considered in the methodology. Management may report a materially different amount for the provision for loan/lease losses in the statement of operations to change the allowance for loan/lease losses if its assessment of the above factors were different. This discussion and analysis should be read in conjunction with the Company's financial statements and the accompanying notes presented elsewhere herein, as well as the portion in the section entitled "Financial Condition" of this Management's Discussion and Analysis that discusses the allowance for loan/lease losses. Although management believes the levels of the allowance as of both September 30, 2008 and December 31, 2007 were adequate to absorb losses inherent in the loan/lease portfolio, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income increased slightly from $21.4 million for the quarter ended September 30, 2007 to $21.5 million for the quarter ended September 30, 2008. The Company experienced significant growth in loans/leases as the average balance of loans/leases increased $141.3 million, or 14%, from $1.0 billion for the third quarter of 2007 to nearly $1.2 billion for the same quarter of 2008. The impact of this growth on interest income was effectively offset as a result of the sharp decline in national and local market interest rates over the past year. The Company's average yield on interest earning assets decreased 78 basis points from 7.06% for the three months ended September 30, 2007 to 6.28% for the same period in 2008.

Table of Contents

Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Interest income increased by $2.2 million from $61.9 million for the nine months ended September 30, 2007 to $64.1 million for the same period of 2008. The nearly 4% increase in interest income was attributable to significant growth in loans/leases; specifically, the average balance of loans/leases increased $126.3 million, or 13%, from $979.4 million for the nine months ended September 30, 2007 to $1.1 billion for the same time period of 2008. The impact of this growth on interest income was partially reduced as a result of the sharp . . .