QCR HOLDINGS INC

The following tables set forth the various categories of noninterest expenses for the years ended December 31, 2023 and 2022.

Management places strong emphasis on overall cost containment and is committed to improving the Company’s general efficiency. Certain increases in these categories were due to the GFED acquisition, as there were a full year of GFED expenses reflected in the Company’s 2023 results, compared to nine months of such expenses reflected in the Company’s 2022 results. The GFED acquisition is further described in Note 2 to the Consolidated Financial Statements.

Salaries and employee benefits, which is the largest component of noninterest expense, increased 18% in 2023 as compared to 2022. This increase was primarily related to higher variable incentive compensation for record capital markets revenue in 2023, and to the GFED acquisition.

Occupancy and equipment expense increased 14% in 2023 as compared to 2022. This increase was due to higher depreciation expense and computer hardware expense, including with respect to the GFED acquisition.

Professional and data processing fees remained stable as compared to 2022. Generally, professional and data processing fees can fluctuate depending on certain one-time project costs. Management will continue to focus on minimizing such one-time costs and driving recurring costs down through contract negotiation or managed reduction in activity where costs are determined on a usage basis.

There were no acquisition costs in 2023. Acquisition costs totaled $3.7 million in 2022. These costs were comprised of primarily legal, accounting and other professional fees related to the GFED acquisition.

Post-acquisition compensation, transition and integration costs totaled $207 thousand in 2023 and $5.5 million in 2022. These costs were comprised primarily of personnel costs, IT integration, and conversion costs related to the acquisition of GFED in 2022.

FDIC insurance, other insurance and regulatory fee expense increased 23% in 2023. The increase in expense was due to an increase in the asset size of the Company and an increase in announced FDIC rates for 2023, which increased the Company’s insurance rates and expenses.

Loan/lease expense increased 57% in 2023 as compared to 2022. Generally, loan/lease expense has a direct relationship with the level of NPLs; however, it may deviate depending upon the individual NPLs. NPLs have increased 274% since December 31, 2022 driven by three client relationships from unrelated industries.

Net cost of (income from) and gains/losses on operations of other real estate includes gains/losses on the sale of OREO, write-downs of OREO and all income/expenses associated with OREO. Net income from operations totaled $26 thousand for 2023 as compared to $40 thousand for 2022.

Advertising and marketing expense increased 22% in 2023 as compared to 2022. The increase in expense was primarily due to increased marketing of our deposit products as well as the GFED acquisition, in which 2023 had twelve months of expenses compared to nine months of expenses in 2022.

Communication and data connectivity expense decreased 7% in 2023 as compared to 2022. The decrease is primarily due to improvements to our data center connectivity channels and a reduction in cell phone and air card expenses as the Company continues to improve operational efficiencies.

Supplies expense increased 13% in 2023 as compared to 2022. The increase is primarily due to inflationary factors and the GFED acquisition.

Bank service charges, a large portion of which includes indirect costs incurred to provide services to QCBT’s correspondent banking customer portfolio, increased 14% in 2023 as compared to 2022. As transaction volumes continue to increase and the number of correspondent banking clients increases, the associated expenses is expected to also increase.

Correspondent banking expense increased 15% in 2023 as compared to 2022. These are direct costs incurred to provide services to QCBT’s correspondent banking customer portfolio, including safekeeping and cash management services.

Intangible amortization expense increased 3% in 2023 as compared to 2022. The increase is due to the GFED acquisition. These expenses will naturally decrease as intangibles become fully amortized unless there is an addition to intangible assets.

Payment card processing expense increased 35% in 2023 as compared to 2022. The increase is due to the GFED acquisition.

Trust expense increased 80% in 2023 as compared to 2022. The increase was due to new relationships added in 2023 with the addition of $762.9 million of new assets under management as well as costs for a conversion to a new core operating system and start-up expenses in Springfield market.

Other noninterest expense decreased 2% in 2023 as compared to 2022. The decrease was due primarily to lower excise tax on lower stock repurchases in 2023. Also included in other noninterest expense are other items such as meals and entertainment, subscriptions, sales and use tax and expenses related to wealth management.