QCR HOLDINGS INC

The ACL is established through provision for credit losses expense to provide an estimated ACL. The following table shows the components for the provision for credit losses for the years ended December 31, 2024 and 2023.

The Company’s total provision for credit losses was $17.1 million for 2024, an increase of $559 thousand from 2023. The increase in provision for credit losses on loans and leases was driven by the loan growth, increased net charge-offs, and higher criticized loan balances. For the year ended December 31, 2024, the provision for credit losses related to OBS was a negative provision of $1.3 million, compared to a $4.0 million provision for the year ended December 31, 2023. The decrease was due to a decrease in the balance of unfunded commitments, improved credit quality and economic conditions. The provision related to HTM securities for the year ended December 31, 2024 was $60 thousand as compared to a $23 thousand provision for the year ended December 31, 2023. There was a negative provision of $445 thousand related to AFS securities for the year ended December 31, 2024 as compared to a $989 thousand provision related to AFS securities for the year ended December 31, 2023, resulting from the write down in 2023 and subsequent change in fair value in 2024, of a debt investment in a failed bank. This was a legacy investment acquired as part of the 2022 GFED acquisition and an allowance was established for the entire balance of the investment.

The ACL for loans and leases is established based on a number of factors, including the Company’s historical loss experience, delinquencies and charge-off trends, economic and other forecasts, the local, state and national economies and the risk associated with the loans/leases and securities in the portfolio as described in more detail in the “Critical Accounting Policies and Critical Accounting Estimates” section of this Annual Report on Form 10-K.

The Company had an ACL on loans/leases of 1.32% of gross loans/leases held for investment at December 31, 2024, compared to 1.33% of gross loans/leases held for investment at December 31, 2023. Management evaluates the allowance needed on the loans acquired in previous acquisitions factoring in the remaining discount, which was $2.3 million and $3.9 million at December 31, 2024 and 2023, respectively.

Additional discussion of the Company’s allowance can be found in the “Financial Condition” section of this Annual Report on Form 10-K.