QCR HOLDINGS INC

The following tables set forth the various categories of noninterest expense for the three months ended March 31, 2024 and 2023.

Management places a strong emphasis on overall cost containment and is committed to improving the Company's general efficiency.

Salaries and employee benefits, which is the largest component of noninterest expense, remained stable from the first quarter of 2023 to the first quarter of 2024. This was primarily related to lower variable incentive compensation partially offset by higher salaries expense.

Occupancy and equipment expense increased 10% comparing the first quarter of 2024 to the same period of the prior year. The increase was due to higher IT service contracts expense and depreciation.

Professional and data processing fees increased 31% comparing the first quarter of 2024 to the same period of the prior year. The increase was due primarily to increased CDARS and ICS expenses as well as increased data processing expenses. 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 post-acquisition compensation, transition and integration costs in the first quarter of 2024, whereas such costs totaled $207 thousand in the first three months of 2023. These costs were comprised primarily of IT integration and data conversion costs related to the acquisition of GFED.

FDIC insurance, other insurance and regulatory fee expense increased 42%, comparing the first quarter of 2024 to the same period of the prior year. The increase in expense was due to asset growth and higher FDIC insurance rates.

Loan/lease expense decreased 32% when comparing the first quarter of 2024 to the same quarter of the prior year. The decrease was due primarily to lower legal expense on loan workouts. Generally, loan/lease expense has a direct relationship with the level of NPLs; however, it may deviate depending upon the individual NPLs as NPLs have increased 29% since March 31, 2023.

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Net 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 and gains/losses on operations of other real estate for the first quarter of 2024 totaled $30 thousand, compared to net income from and gains/losses on operations of other real estate of $67 thousand for the first quarter of 2023.

Advertising and marketing expense increased 20% comparing the first quarter of 2024 to the same period of the prior year. The increase in expense was primarily due to the increased marketing of our deposit products.

Communication and data connectivity expense decreased 40% comparing the first quarter of 2024 to the same period of the prior year. The decrease was 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 decreased 10% comparing the first quarter of 2024 to the same period of the prior year. This decrease is primarily due to timing of purchases.

Bank service charges, a large portion of which includes indirect costs incurred to provide services to QCBT's correspondent banking customer portfolio, decreased 6% when comparing the first quarter of 2024 to the same period of the prior year. As transaction volumes fluctuate and the number of correspondent banking clients fluctuates, the associated expenses are expected to also fluctuate.

Correspondent banking expense increased 45% when comparing the first quarter of 2024 to the same period of the prior year. The increase in correspondent expenses includes expected monthly costs for a new safekeeping platform. These are direct costs incurred to provide services to QCBT's correspondent banking customer portfolio, including safekeeping and cash management services.

Intangibles amortization expense decreased 10% when comparing the first quarter of 2024 to the same period of the prior year. The amortization expense is due to the prior acquisitions. These expenses will naturally decrease as intangibles become fully amortized unless there is an addition to intangible assets.

Payment card processing expense increased 19% when comparing the first quarter of 2024 to the same period of the prior year due to an increased volume of transactions.

Trust expense increased 99% when comparing the first quarter of 2024 to the same period of the prior year. The increase was due to conversions of the trust and tax accounting platform upgrades that occurred during the second quarter of 2023.

Other noninterest expense decreased 16% when comparing the first quarter of 2024 to the same period of the prior year. The decrease was primarily due to lower subscription expenses and reduced insurance claim loss reserve. Included in other noninterest expense are items such as meals and entertainment, subscriptions and sales and use tax.

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