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, and Quad City Bancard, Inc. Quad City Bank & Trust and Cedar Rapids Bank & Trust are Iowa-chartered commercial banks, and Rockford Bank & Trust is an Illinois-chartered commercial bank. All are members of the Federal Reserve System with depository accounts insured to the maximum amount permitted by law by the Federal Deposit Insurance Corporation ("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. On January 1, 2008, Quad City Bank & Trust acquired 100% of the membership units of 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, and trust and asset management 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, and trust and asset management 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.

On December 31, 2008, the Company sold its Milwaukee subsidiary, First Wisconsin Bank & Trust, for $13.7 million which resulted in a gain on sale, net of taxes and related expenses, of approximately $356 thousand. The 2008 financial results associated with First Wisconsin Bank & Trust have been reflected as discontinued operations.
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 2008 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 a net loss attributable to QCR Holdings, Inc. for the quarter ended June 30, 2009 of $820 thousand, which resulted in diluted earnings per share for common stockholders of ($0.42). Earnings for the second quarter of 2009 were significantly impacted by additional loan/lease loss provisions and increased FDIC assessments. By comparison, for the quarter ended March 31, 2009, the Company reported net income attributable to QCR Holdings, Inc. of $84 thousand, and diluted earnings per share of ($0.13). For the second quarter of 2008, the Company reported net income attributable to QCR Holdings, Inc. of $1.8 million, and diluted earnings per share of $0.29. For the six months ended June 30, 2009, the Company reported a net loss attributable to QCR Holdings, Inc. of $736 thousand compared to net income attributable to QCR Holdings, Inc. of $2.5 million for the same period in 2008.
For the quarter ended June 30, 2009, the Company recognized a net loss from continuing operations attributable to QCR Holdings, Inc. of $820 thousand as compared to net income from continuing operations attributable to QCR Holdings, Inc. of $2.0 million for the quarter ended June 30, 2008. For this same period, diluted earnings per share from continuing operations attributable to QCR Holdings, Inc. decreased from $0.34 to ($0.42). This reduction was due to significant increases in provision for loan/lease losses of $3.5 million and FDIC assessments of $1.2 million. Partially offsetting these increased expenses was an increase in net interest income of $1.0 million, or 9%, from $11.2 million for the quarter ending June 30, 2008 to $12.2 million for the quarter ending June 30, 2009.
The performance and factors driving the results for the first six months of 2009 are consistent with the second quarter of 2009 mentioned above. For the six months ended June 30, 2009, the Company reported a net loss from continuing operations attributable to QCR Holdings, Inc. of $736 thousand, and diluted earnings per share of ($0.56), as compared to net income from continuing operations attributable to QCR Holdings, Inc. of $3.7 million, and diluted earnings per share of $0.60 for the same period of 2008. This decline resulted primarily from substantial increases in the provision for loan/lease losses of $6.9 million and FDIC Assessments of $1.5 million. Partially offsetting these increased expenses, net interest income grew $2.9 million, or 13%, from $21.3 million for the six months ended June 30, 2008 to $24.2 million for the same period in 2009.
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-earnings assets and interest-bearing liabilities. Net interest spread refers to the difference between the average yield on interest-earnings 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-earnings assets and interest-bearing liabilities.

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Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Net interest income, on a tax equivalent basis, increased $1.0 million, or 9%, to $12.3 million for the quarter ended June 30, 2009, from $11.3 million for the second quarter of 2008. For the second quarter of 2009, average earning assets increased by $278.3 million, or 21%, and average interest-bearing liabilities increased by $190.7 million, or 15%, when compared with average balances for the second quarter of 2008. A comparison of yields, spread and margin from the second quarter of 2009 to the second quarter of 2008 is as follows (on a tax equivalent basis):
• The average yield on interest-earning assets decreased 103 basis points.

• The average cost of interest-bearing liabilities decreased 64 basis points.

• The net interest spread declined 39 basis points from 3.12% to 2.73%.

• The net interest margin declined 33 basis points from 3.37% to 3.04%.

Net interest income, on a tax equivalent basis, increased $2.8 million, or 13%, to $24.4 million for the six months ended June 30, 2009, from $21.6 million for the first six months of 2008. For the six months ended June 30, 2009, average earning assets increased by $211.9 million, or 16%, and average interest-bearing liabilities increased by $148.9 million, or 12%, when compared with average balances for the six months ended June 30, 2008. A comparison of yields, spread and margin for the first six months of 2009 to the first six months of 2008 is as follows (on a tax equivalent basis):
• The average yield on interest-earning assets decreased 85 basis points.

• The average cost of interest-bearing liabilities decreased 78 basis points.

• The net interest spread declined 7 basis points from 2.89% to 2.82%.

• The net interest margin declined 7 basis points from 3.18% to 3.11%.

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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 June 30,
                                           2009                                        2008
                                          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        $    61,811     $      37          0.24 %   $     1,855     $      17          3.67 %
Interest-bearing
deposits at financial
institutions                   36,269            92          1.01 %         8,282            53          2.56 %
Investment securities
(1)                           303,420         3,117          4.11 %       228,778         2,997          5.24 %
Gross loans/leases
receivable (2) (3)          1,220,175        18,096          5.93 %     1,104,472        18,050          6.54 %


Total interest earning
assets                    $ 1,621,675        21,342          5.26 %   $ 1,343,387        21,117          6.29 %

Noninterest-earning
assets:
Cash and due from banks   $    28,436                                 $    33,710
Premises and equipment         30,555                                      31,775
Less allowance for
estimated losses on
loans/leases                  (21,862 )                                   (13,041 )
Other                          73,396                                     148,105


Total assets              $ 1,732,200                                 $ 1,543,936

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits                  $   371,723         1,003          1.08 %   $   309,563         1,382          1.79 %
Savings deposits               44,003            48          0.44 %        63,390           245          1.55 %
Time deposits                 536,269         3,852          2.87 %       407,655         4,110          4.03 %
Short-term borrowings         113,696           193          0.68 %       183,622           908          1.98 %
Federal Home Loan Bank
advances                      210,610         2,269          4.31 %       181,150         1,998          4.41 %
Junior subordinated
debentures                     36,085           514          5.70 %        36,085           567          6.29 %
Other borrowings              115,870         1,138          3.93 %        56,125           599          4.27 %


Total interest-bearing
liabilities               $ 1,428,256         9,017          2.53 %   $ 1,237,590         9,809          3.17 %

Noninterest-bearing
demand deposits           $   152,210                                 $   129,215
Other
noninterest-bearing
liabilities                    22,499                                      90,544

Total liabilities         $ 1,602,965                                 $ 1,457,349

Stockholders' equity          129,235                                      86,587


Total liabilities and
stockholders' equity      $ 1,732,200                                 $ 1,543,936


Net interest income                       $  12,325                                   $  11,308


Net interest spread                                          2.73 %                                      3.12 %


Net interest margin                                          3.04 %                                      3.37 %


Ratio of average
interest earning assets
to average interest-
bearing liabilities            113.54 %                                    108.55 %

(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/lease fees are not material and are included in interest income from loans receivable.

(3) Non-accrual loans/leases are included in the average balance for gross loans/leases receivable.

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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 June 30, 2009

                                                        Inc./(Dec.)              Components
                                                           from                of Change (1)
                                                       Prior Period         Rate          Volume
                                                                      2009 vs. 2008
                                                                 (dollars in thousands)
INTEREST INCOME
Federal funds sold                                     $          20      $    (124 )    $     144
Interest-bearing deposits at financial institutions               39           (211 )          250
Investment securities (2)                                        120         (3,066 )        3,186
Gross loans/leases receivable (3) (4)                             46         (7,073 )        7,119


Total change in interest income                        $         225      $ (10,474 )    $  10,699

INTEREST EXPENSE
Interest-bearing demand deposits                       $        (379 )    $  (1,724 )    $   1,345
Savings deposits                                                (197 )         (138 )          (59 )
Time deposits                                                   (258 )       (5,069 )        4,811
Short-term borrowings                                           (715 )         (453 )         (262 )
Federal Home Loan Bank advances                                  271           (292 )          563
Junior subordinated debentures                                   (53 )          (53 )            -
Other borrowings                                                 539           (318 )          857


Total change in interest expense                       $        (792 )    $  (8,047 )    $   7,255


Total change in net interest income                    $       1,017      $  (2,427 )    $   3,444

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

(4) Non-accrual loans/leases are included in the average balance for gross 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 six months ended June 30, 2009 2008 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 $ 48,062 56 0.23 % $ 2,918 42 2.88 % Interest-bearing deposits at
financial institutions 25,899 111 0.86 % 9,338 147 3.15 % Investment securities (1) 279,352 6,110 4.37 % 231,361 5,994 5.18 % Gross loans/leases receivable (2) (3) 1,216,117 36,172 5.95 % 1,113,900 36,313 6.52 %

Total interest earning assets $ 1,569,430 42,449 5.41 % $ 1,357,517 42,496 6.26 %

Noninterest-earning assets:
Cash and due from banks $ 29,225 $ 34,691 Premises and equipment 30,755 31,835 Less allowance for estimated losses
on loans/leases (20,477 ) (12,881 ) Other 75,151 108,438

Total assets $ 1,684,083 $ 1,519,600