QCR HOLDINGS INC

The following tables set forth the various categories of noninterest expense for the three and six months ended June 30, 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, declined 1% when comparing the second quarter of 2024 to the same period of the prior year. Salary and employee benefits decreased 1% when comparing the first six months of 2024 to the first six months of 2023.

Occupancy and equipment expense increased 5% comparing the second quarter of 2024 to the same period of the prior year, and increased 7% comparing the first six months of 2024 to the first six months of 2023. The increase was due to higher IT service contracts expense and depreciation.

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Professional and data processing fees increased 18% comparing the second quarter of 2024 to the same period of the prior year, and increased 24% comparing the first six months of 2024 to the first six months of 2023. 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 2024, whereas such costs totaled $207 thousand in the first six 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 decreased 4%, when comparing the second quarter of 2024 to the same period of the prior year, and increased 15% when comparing the first six months of 2024 to the first six months of 2023. The increase in expense for the first six months of 2024 was due to asset growth and higher FDIC insurance rates.

Loan/lease expense decreased 77% when comparing the second quarter of 2024 to the same quarter of the prior year, and decreased 56% comparing the first six months of 2024 to the first six months of 2023. The decrease was due primarily to lower legal expense on loan workouts and higher recoveries of legal expenses incurred 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 June 30, 2023.

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 cost of and gains/losses on operations of other real estate for the second quarter of 2024 totaled $28 thousand. There was no net income from and gains/losses on operations of other real estate for the second quarter of 2023. Net income from and gain/losses on operations of other real estate totaled $2 thousand for the first six months of 2024, compared to net income from and gains/losses on operations of other real estate of $67 thousand for the first six months of 2023.

Advertising and marketing expense decreased 10% comparing the second quarter of 2024 to the same period of the prior year, and increased 3% comparing the first six months of 2024 to the first six months of 2023. The decrease in expense compared to the linked quarter was primarily due to a reduction in brochure marketing as well as sponsorships. The increase in expense for the first six months of 2024 was primarily due to the increased marketing of our deposit products.

Communication and data connectivity expense decreased 33% comparing the second quarter of 2024 to the same period of the prior year, and decreased 37% comparing the first six months of 2024 to the first six months of 2023. 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 8% comparing the second quarter of 2024 to the same period of the prior year, and decreased 9% comparing the first six months of 2024 to the first six months of 2023. This decrease is primarily due to the 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, remained stable when comparing the second quarter of 2024 to the same period of the prior year, and decreased 3% comparing the first six months of 2024 to the first six months of 2023. As transaction volumes and the number of correspondent banking clients fluctuate, the associated expenses are expected to also fluctuate.

Correspondent banking expense increased 64% when comparing the second quarter of 2024 to the same period of the prior year, and increased 55% comparing the first six months of 2024 to the first six months of 2023. The increase in correspondent expenses includes planned monthly costs for an upgraded safekeeping platform. These are direct costs

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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 second quarter of 2024 to the same period of the prior year, and decreased 10% comparing the first six months of 2024 to the first six months of 2023. 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 30% when comparing the second quarter of 2024 to the same period of the prior year, and increased 24% comparing the first six months of 2024 to the first six months of 2023 due to an increased volume of transactions.

Trust expense increased 13% when comparing the second quarter of 2024 to the same period of the prior year, and increased 46% comparing the first six months of 2024 to the first six months of 2023. The increase was due to the planned system conversions of the trust and tax accounting platforms that occurred during the third quarter of 2023.

Other noninterest expense increased 25% when comparing the second quarter of 2024 to the same period of the prior year, and remained stable comparing the first six months of 2024 to the first six months of 2023. The increase was primarily due to increased insurance claim loss reserves at our QCRH Risk Management entity. Included in other noninterest expense are items such as meals and entertainment, subscriptions and sales and use tax.