U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ x ] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required) For the fiscal year ended June 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) For the transition period
from _______________________ to _______________________
Commission file number 0-22208
Quad City Holdings, Inc.
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(Name of Small Business Issuer in Its Charter)
Delaware 42-1397595
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2118 Middle Road, Bettendorf, Iowa 52722
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(319) 344-0600
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $1 Par Value
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the Issuer was required to file such reports), and
(2) has been subject to such filing requirements for past 90 days. Yes [ x ]
No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ x ]
The Issuer's revenues for its most recent fiscal year were $12,513,398.
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of August 21, 1997 was approximately $29,950,000. As of said date, the
Issuer had 1,462,824 shares of Common Stock issued and outstanding.
Documents incorporated by reference:
Part III of Form 10-KSB - Proxy statement for annual meeting of
stockholders to be held in 1997.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ x ]
<PAGE>
Part I
Item 1. Description of the Business
Quad City Holdings, Inc. (the "Company") was formed in February of 1993
under the laws of the state of Delaware for the purpose of becoming the
bank holding company of Quad City Bank and Trust Company (the "Bank").
The Bank was capitalized on October 13, 1993 and commenced operations
on January 7, 1994. The Bank is organized as an Iowa-chartered
commercial bank that is a member of the Federal Reserve System with
depository accounts insured by the Federal Deposit Insurance
Corporation. The Bank provides full-service commercial and consumer
banking services in the Quad City area through its offices located in
Bettendorf and Davenport, Iowa and in Moline, Illinois.
Quad City Bancard, Inc. ("Bancard") was capitalized on April 3, 1995,
as a Delaware corporation which provides merchant credit card
processing services. This operation had previously been a division of
the Bank since July 1994. Bancard has contracted with an independent
sales organization which markets credit card services to merchants
throughout the country. Currently, approximately 10,000 merchants
process transactions with Bancard.
The Company owns 100% of the Bank and Bancard, and in addition to such
ownership invests its capital in stocks of financial institutions and
mutual funds, as well as participates in loans with the Bank.
The Bank competes with other commercial banks, investment and brokerage
firms, savings banks, savings and loan institutions, credit unions and
other financial service organizations in the Quad Cities market. Being
established in 1994, the Bank is one of the smaller financial
institutions in its market. The Bank, the Company and Bancard are
regulated by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). In addition, the Bank is regulated by the
Iowa Superintendent of Banking (the "Iowa Superintendent") and the
Federal Deposit Insurance Corporation (the "FDIC").
The Company's principal business consists of attracting deposits from
the public and investing those deposits in loans and securities. The
Bank's deposits are insured to the maximum amount allowable by the
FDIC. The Company's results of operations are dependent primarily on
net interest income, which is the difference between the interest
earned on its loans and securities and the interest paid on deposits.
The Company's operating results are affected by merchant credit card
fees, trust fees, deposit service charges, and other income. Operating
expenses of the Company include employee compensation and benefits,
occupancy and equipment expense, professional and data processing fees,
advertising and marketing expenses and other administrative expenses.
The Company's operating results are also affected by economic and
competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities.
The commercial banking business is a highly regulated business. See
Appendix A for a brief summary regarding federal and state statutes and
regulations, which are applicable to the Company and its subsidiaries.
Supervision, regulation and examination of banks and bank holding
companies by bank regulatory agencies are intended primarily for the
protection of depositors rather than stockholders of bank holding
companies and banks.
The Company, the Bank and Bancard have a June 30th fiscal year end and
employ 85 individuals. No one customer accounts for more than 10% of
revenues, loans or deposits.
See Appendix B for the tables and schedules which show selected
comparative statistical information required pursuant to the industry
guides promulgated under the Securities Act of 1933 and 1934, relating
to the business of the Company.
Item 2. Description of Property
The main offices of the Company and the Bank are in a 6,700 square foot
facility which was completed in January of 1994. In March of 1994, the
Bank acquired that facility, which is located at 2118 Middle Road in
Bettendorf.
<PAGE>
Construction of a second full service banking facility was completed in
July of 1996 to provide for the convenience of customers and to expand
its market territory. The Bank also owns its portion of that facility
which is located at 4500 Brady Street in Davenport. The two story
building is in two segments that are separated by an atrium. The Bank
owns the south half of the building, while the northern portion is
owned by the developer. Each floor is 6,000 square feet. The Bank
occupies its first floor and utilizes the basement for storage and item
processing. The basement is in the process of being finished to provide
additional space for the Bank's operational functions. Approximately
3,500 square feet of its second floor has been leased to a professional
services firm. A lease on the remaining 2,500 square feet is currently
being negotiated. In addition, the residential real estate department
of the Bank will be leasing approximately 2,500 square feet on the
first floor in the north half of the building.
Renovation of a third full service banking facility is underway at the
historic Velie Plantation Mansion located near the intersection of 7th
Street and John Deere Road in Moline near the Rock Island/Moline
border. The building is owned by the developer and the Bank and Bancard
will be major tenants. The Company has no plans to purchase the
building. Bancard plans to relocate its operations to the lower level
of the 30,000 square foot building in late 1997. The Bank will begin
its operations on the first floor of the building in early 1998. The
Company obtained an Illinois banking charter that was subsequently
merged into the Iowa charter.
The Bank currently leases approximately 1,500 square feet of office
space in a building adjacent to the Velie Plantation Mansion property
and has been operating a temporary branch facility since June 16, 1997.
Bancard currently leases approximately 1,700 square feet of office
space in Bettendorf from an unrelated third party.
Management is of the opinion that the facilities are of sound
construction, in good operating condition, are appropriately insured
and are adequately equipped for carrying on the business of the
Company.
The Bank intends to limit its investment in premises to no more than
50% of Bank capital. The Bank frequently invests in commercial real
estate mortgages. The Bank also invests in residential mortgages. The
Bank has established lending policies which include a number of
underwriting factors to be considered in making a loan including,
location, loan to value ratio, cash flow, interest rate and credit
worthiness of the borrower.
No individual real estate property or mortgage amounts to 10% or more
of consolidated assets.
Item 3. Legal Proceedings
The Company is not aware of any legal proceedings against it, the Bank
or Bancard.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the stockholders of the Company for
a vote during the fourth quarter of the fiscal year ended June 30,
1997.
<PAGE>
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's common stock has been traded on The Nasdaq SmallCap
Market since October 6, 1993. High and low sales prices, as reported on
Nasdaq for each quarterly period during the two fiscal years ended June
30, 1997 and 1996 were as follows:
<TABLE>
Fiscal 1997 Fiscal 1996
------------------ -----------------
Sale Price Sale Price
------------------ -----------------
High Low High Low
--------------------------------------
<S> <C> <C> <C> <C>
First quarter ....................... $13 3/4 $12 3/4 $12 $ 9 3/4
Second quarter ...................... 15 1/4 13 12 10 1/2
Third quarter ....................... 17 14 12 3/4 10 3/4
Fourth quarter ...................... 21 16 13 3/4 12
</TABLE>
No cash dividends were declared during the past fiscal year. At June
30, 1997, there were estimated to be approximately 2,000 holders of
record of the Company's common stock.
The Company expects that all earnings will be retained to finance the
growth of the Company, the Bank and Bancard, and that no cash dividends
will be paid for the foreseeable future. If and when dividends are
declared, the Company will probably be largely dependent upon dividends
from the Bank and Bancard for funds to pay dividends on the common
stock.
Under Iowa law, the Bank will be restricted as to the maximum amount of
dividends it may pay on its common stock. The Iowa Banking Act provides
that an Iowa bank may not pay dividends in an amount greater than its
undivided profits. The Bank is a member of the Federal Reserve System.
The total of all dividends declared by the Bank in a calendar year may
not exceed the total of its net profits of that year combined with its
retained net profits of the preceding two years. In addition, the
Federal Reserve Board, the Iowa Superintendent and the FDIC are
authorized under certain circumstances to prohibit the payment of
dividends by the Bank. In the case of the Company, further restrictions
on dividends may be imposed by the Federal Reserve Board.
Item 6. Management's Discussion and Analysis
Results of Operations
Net income for the year ended June 30, 1997 was $1,219,336, compared to
$682,588 for the year ended June 30, 1996. Results improved primarily
because of a $1,315,136 increase in net interest income after provision
for loan losses, and a $1,101,026 increase in other income. These
increases were offset by a $1,714,414 increase in other expenses due
primarily to the increased number of employees and higher operating
costs related to the increased volume of business, as well as income
taxes of $165,000 . Losses were reported for the periods ended June 30,
1995 and 1994 of $373,782 and $1,122,402, respectively. Because the
Company was a start-up venture, there were expected losses during the
pre-opening period and for the first several years of operations.
Interest income increased to $9,750,085 in fiscal 1997 from $6,583,467
in fiscal 1996, a rise of $3,166,618. The rise was primarily due to
greater average outstanding balances in interest bearing assets.
Interest income is comprised primarily of interest income on loans
(including loan fees), securities, federal funds sold and the Company's
own deposits maintained at other financial institutions. Interest
income should continue to grow as the loan portfolio and other assets
increase, and would also increase as a result of a rise in interest
rates.
Interest expense increased to $4,993,868 in fiscal 1997 from $3,486,380
in fiscal 1996, an increase of $1,507,488, and represented interest
paid primarily to depositors, as well as interest paid on Federal Home
Loan Bank advances and federal funds purchased. The increase in
interest expense was again primarily due to greater average outstanding
balances in interest bearing liabilities. Interest expense will
continue to increase as deposits and Federal Home Loan Bank advances
and other borrowings grow and would also increase as a result of a rise
in interest rates.
Net interest income for the years ended June 30, 1997 and June 30, 1996
amounted to $4,756,217 and $3,097,087, respectively, and represented
the difference between interest income earned on earning assets and
interest expense paid on interest bearing liabilities.
<PAGE>
The provision for loan losses is established based on factors such as
the local and national economy and the risk associated with the loans
in the portfolio. The Company's provision for loan losses was $844,391
for the year ended June 30, 1997, compared to $500,397 for the year
ended June 30, 1996. The $343,994 increase in the provision for loan
losses was primarily in response to the growth in the loan portfolio
during fiscal 1997. The increase maintained the Company's allowance for
estimated losses on loans at 1.5% of total loans at both June 30, 1997
and June 30, 1996.
Other income increased by $1,101,026 to $2,763,313 in fiscal 1997 from
$1,662,287 in fiscal year 1996. Management plans to place increased
importance on enhancing noninterest income by establishing a
profitability steering committee during fiscal 1998.
One of the most significant components of other income is net merchant
credit card income which totaled $1,531,728 and $1,007,830 in fiscal
1997 and 1996, respectively. The $523,898 growth experienced in fiscal
1997 reflects the increase of over $167 million of transactions
processed, as well as the addition of approximately 1,500 new
merchants.
Trust income increased to $736,461 in fiscal 1997 from $355,360 in
fiscal 1996. The $381,101 increase reflects the development of new
trust relationships, as well as a strong stock market.
Other income increased $142,876 in fiscal 1997 to $272,023 from
$129,147 in fiscal 1997. The increase was primarily due to the fees
generated by the item processing department, receipt of lease income on
the second floor of the Davenport building and the growth in the
commission income generated by the investment center.
Other expenses consisted primarily of salaries and benefits; other
expense, including bank service charges and trust related expenses;
professional fees, including data processing fees; and occupancy and
equipment expenses. Concurrent with the Company's growth, other
expenses increased to $5,290,803 in fiscal 1997 from $3,576,389 in
fiscal 1996. The $1,714,414 increase was primarily due to higher
overhead expenses on the increased volume of business attained during
fiscal 1997. Management will continue to attempt to contain overhead
costs while maintaining optimal service levels and productivity.
In fiscal 1997, salaries and benefits experienced the most significant
dollar increase of any noninterest expense component. For the twelve
months ended June 30, 1997, total salaries and benefits increased to
$2,934,758, or $961,076 over the June 30, 1996 total of $1,973,682. The
change was primarily attributable to the increase in the Company's
number of employees, as well as merit and cost of living raises.
In fiscal 1997, occupancy and equipment expense experienced the largest
single percentage increase within the noninterest expense category. For
the twelve months ended June 30, 1997, total occupancy and equipment
expense increased to $654,010, or $364,780 over the June 30, 1996 total
of $289,230. The change was primarily attributable to the Company's
expansion to a second banking facility, located in Davenport.
The Company's income taxes expense was $165,000 for the year ended June
30, 1997. During fiscal 1997 the pre-opening and initial losses had
been fully utilized, therefore during the fiscal fourth quarter, income
tax expense was recorded.
Financial Condition and Liquidity
Total assets of the Company grew by $56,903,774, or 51.05%, to
$168,378,751 at June 30, 1997 from $111,474,977 at June 30, 1996. The
most dramatic increase in the Bank's financial condition was in the
loan portfolio. The loan portfolio was funded primarily from an
increase in deposits received from customers.
Cash and due from banks increased by $338,056, or 5.11%, to $6,953,463
at June 30, 1997 from $6,615,407 at June 30, 1996 and represented cash
maintained at the Bank and funds that the Bank and the Company had
deposited in other banks in the form of demand deposits.
Federal funds sold are inter-bank funds with daily liquidity. At June
30, 1997, the Bank had invested $9,190,000 in such funds. Such amount
increased by $6,462,000 from $2,728,000 at June 30, 1996.
<PAGE>
A portion of the Bank's investment securities are purchased with the
intent to hold the securities until they mature. These held to maturity
securities were recorded at amortized cost at both June 30, 1997 and
June 30, 1996. At June 30, 1997, mortgage-backed securities and
municipal securities made up the $2,914,129 balance. This was a
decrease of $242,472, or 7.68%, from June 30, 1996, when
mortgage-backed securities and municipal securities made up the
$3,156,601 balance. Market values at June 30, 1997 and June 30, 1996
were $2,888,062 and $3,097,115, respectively.
All of the Company's and a portion of the Bank s securities are placed
in the available for sale category as the securities may be liquidated
to provide cash for operating or financing purposes. These securities
were reported at fair value and decreased by $2,135,023, or 6.88% to
$28,897,629 at June 30, 1997 from $31,032,652 at June 30,1996. The
decrease was attributable to the significant loan growth during the
fiscal year. The amortized cost of such securities at June 30, 1997 and
June 30, 1996 was $28,986,270 and $31,518,121, respectively.
The amortized cost and the weighted average yields for the categories
of securities are summarized below.
1997 1996
---------------------- ---------------------
Amortized Average Amortized Average
Cost Yield Cost Yield
----------------------------------------------
Securities held to maturity:
Mortgage-backed securities $ 2,317,513 6.21% $ 2,560,793 5.98%
Municipal securities ..... 596,616 6.82 595,808 6.66
----------- -----------
Totals .............. $ 2,914,129 $ 3,156,601
=========== ===========
Securities available for sale:
U.S. treasury securities . $14,496,366 5.74% $14,504,449 5.92%
U.S. agency securities ... 9,742,495 6.50 12,612,166 6.22
Mortgage-backed securities 2,357,376 6.31 2,851,340 6.74
Other securities ......... 2,390,033 Variable 1,550,166 Variable
----------- -----------
Totals .............. $28,986,270 $31,518,121
=========== ===========
Loans receivable increased by $51,555,709, or 90.75%, to $108,365,429
at June 30, 1997 from $56,809,720 at June 30, 1996. The totals
represented loans made by the Bank and also loan participations the
Company had purchased from the Bank, on loans that exceeded the Bank's
legal lending limit. As of June 30, 1997, the Bank's legal lending
limit was $2,138,400. The Company has received approval from the
Federal Reserve Board to grant loans and to participate in loans with
the Bank. The majority of residential real estate loans originated by
the Bank were sold on the secondary market to avoid the interest rate
risk associated with long term fixed rate loans. During the fiscal year
ended 1997, the Bank originated $91,953,486 of loans and received
repayments of $40,397,777.
The Company's allowance for estimated losses on loans was $1,632,500 at
June 30, 1997 or 1.5% of total loans, compared to $852,500 or 1.5% at
June 30, 1996. Although management believes that the allowance for
estimated losses on loans at June 30, 1997 was at a level adequate to
absorb losses on existing loans, there can be no assurance that such
losses will not exceed the estimated amounts or that the Company will
not be required to make additional provisions for loan losses in the
future. Asset quality is a priority for the Company and its
subsidiaries. The ability to grow profitably is in part dependent upon
the ability to maintain that quality.
At June 30, 1997, past due loans 30 days or more amounted to $928,937.
At June 30, 1996, past due loans 30 days or more amounted to $864,368.
The Company anticipated an increase in the dollar amount of this
category in fiscal 1997 from the prior years. At June 30, 1996, much of
the loan portfolio had been on the books for a relatively short time
period, thus an increase in past due loans was likely as the portfolio
matured. However, past due loans as a percentage of gross loans
receivable at June 30, 1997 decreased to 0.86% from 1.52% at June 30,
1996. The Company intends to continue to closely monitor these loans
and does not anticipate any material losses.
The Company experienced loan charge-offs of $64,913 during fiscal 1997
compared to $120,372 during fiscal 1996.
<PAGE>
Premises and equipment increased by $717,651 or 15.84% to $5,248,689 at
June 30, 1997 from $4,531,038 at June 30, 1996. The increase resulted
primarily from the Bank paying the developer its final construction
costs of the new Davenport banking location, as well as furniture and
equipment for that location. Additional information regarding the
composition of this account and related accumulated depreciation is
described in footnote 4 to the consolidated financial statements.
Management expects that additional expenditures of approximately $1.5
million will occur in fiscal 1998 due to the fit out and furniture and
equipment costs related to the expansion to the Moline, Illinois
location.
Accrued interest receivable on loans, securities and interest-bearing
cash accounts increased to $1,374,307 or 22.57% at June 30, 1997 from
$1,121,268 at June 30, 1996. The increase was primarily due to greater
average outstanding balances in interest bearing assets.
Other assets at June 30, 1997 and June 30, 1996 consisted primarily of
miscellaneous receivables, prepaid expenses and accrued trust
department income, and totaled $1,708,481 and $860,779, respectively.
The $847,702 or 98.48% increase was attributable to the increased
volume of business and the related prepaid expenses associated with the
growth at the Bank and Bancard.
Deposits grew to $135,960,195 at June 30, 1997 from $92,918,118 at June
30,1996, for an increase of $43,042,077, or 46.32%. The increase
consisted of a $6,372,771 increase in noninterest bearing accounts and
a $36,669,306 increase in interest bearing accounts.
Federal Home Loan Bank ("FHLB") advances increased to $10,777,712 at
June 30, 1997 from $3,411,470 at June 30, 1996, for an increase of
$7,366,242. The Bank is a member of the FHLB of Des Moines. As of June
30, 1997, the Bank held $2,114,500 of FHLB stock. As a result of its
membership in the FHLB, the Bank has the ability to borrow funds for
short- or long-term purposes under a variety of programs. The increase
was primarily attributable to the fact that deposit growth was not as
great as the loan demand during the fiscal year. Additionally, the use
of the advances enabled the bank to hedge against potential rising
interest rates.
Other borrowings increased to $1,500,000 at June 30, 1997 from
$1,000,000 at June 30, 1996. Other borrowings consist of the amount
outstanding on a $1,500,000 revolving credit note with a third party
lender, which is secured by all the outstanding stock of the Bank. The
borrowed funds were utilized to provide additional capital to the Bank
to maintain the required 8% leverage ratio.
Other liabilities grew to $5,527,618 at June 30, 1997 from $1,286,783
at June 30, 1996 for an increase of $4,240,835. Other liabilities
consisted primarily of accrued interest payable on deposit accounts,
accrued expenses and accounts payable. The increase was primarily
attributable to the merchant accounts payable on Bancard's books at the
end of the year, as well the greater average outstanding balances in
interest bearing liabilities.
Stockholders' equity increased by $2,944,620 to $14,613,226 at June 30,
1997 from $11,668,606 at June 30, 1996. The increase resulted from the
combination of the net income for the 1997 fiscal year, the issuance of
perpetual, nonvoting preferred stock, the exercise of all the warrants
held by the underwriter of the Company's initial public offering, and
the decrease in the unrealized losses on securities available for sale.
In anticipation of continued asset growth, the Company has privately
placed shares of its preferred stock with a limited number of
institutional investors. On December 27, 1996, 10 shares of preferred
stock were issued for a consideration of $1,000,000. Additional
commitments evidenced by signed subscriptions totaled $5.5 million at
June 30, 1997
Retained earnings increased by $1,219,336 to $171,171 at June 30, 1997
from a deficit of $1,048,165 at June 30, 1996. Retained earnings was
comprised of pre-opening expenses, start-up expenses for the Bank, and
prior net losses incurred, offset by fiscal year 1997 and 1996 net
income. The Company expected to experience start-up losses for the
first several years of operation.
<PAGE>
Liquidity
For banks, liquidity represents the ability to meet both withdrawals
from deposits and the funding of loans. The assets that provide for
liquidity are cash, federal funds sold, and short term loans and
securities. Liquidity needs are influenced by economic conditions,
interest rates and competition. Securities that are available for sale
in the Company's portfolio can be readily converted to cash if
necessary. Management believes that current liquidity levels are
sufficient to meet foreseeable future demands. Net cash inflows from
operating activities provided cash of $4,662,006 for the year ended
June 30, 1997 compared to $836,093 for the year ended June 30, 1996.
The improvement in cash flow during the year resulted primarily from an
increase in other liabilities at Bancard. Net cash outflows from
investing activities totaled $55,342,269 for the year ended June 30,
1997, compared to cash outflows of $28,261,786 for the year ended June
30, 1996. The net outflows of cash were largely associated with the
growth in the loan portfolio. Net cash inflows from financing
activities totaled $51,018,319 for the year ended June 30, 1997,
compared to cash inflows of $30,210,830 for the year ended June 30,
1996. The components of the net cash inflows were primarily from the
growth of deposit accounts as well as the increase in FHLB advances and
other borrowings.
Impact of Inflation and Changing Prices
Unlike most industries, essentially all of the assets and liabilities
of a bank are monetary in nature. As such, the level of prices has less
of an effect than do interest rates. Prices and interest rates do not
always move in the same direction. The Company's financial statements
and notes are generally prepared in terms of historical dollars without
considering the changes in the relative purchasing power of money over
time due to inflation.
Impact of New Accounting Standards
The Financial Accounting Standards Board has issued the following
statements: SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities"; SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of Statement No.
125"; SFAS No. 128, "Earnings per Share"; SFAS No. 130 "Reporting
Comprehensive Income"; and SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information". All of these statements are
discussed in footnote 1 to the consolidated financial statements.
<PAGE>
Item 7. Financial statements
QUAD CITY HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditor's Report ...........................
Consolidated Balance Sheets at June 30, 1997 and 1996...
Consolidated Statements of Income for the years ended
June 30, 1997, 1996 and 1995 ...........................
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1997, 1996 and 1995 ...........
Consolidated Statements of Cash Flows for the years
ended June 30, 1997, 1996 and 1995 .....................
Notes to Consolidated Financial Statements..............
<PAGE>
Independent Auditor s Report
To the Board of Directors
and Stockholders
Quad City Holdings, Inc.
Bettendorf, Iowa
We have audited the accompanying consolidated balance sheets of Quad City
Holdings, Inc. and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended June 30, 1997, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quad City Holdings,
Inc. and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for the years ended June 30, 1997, 1996 and
1995, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
August 1, 1997
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
<TABLE>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks .......................................................... $ 6,953,463 $ 6,615,407
Federal funds sold ............................................................... 9,190,000 2,728,000
Certificates of deposit at financial institutions ................................ 5,359,124 5,472,012
Securities held to maturity, at amortized cost (Note 2) .......................... 2,914,129 3,156,601
Securities available for sale, at fair value (Note 2) ............................ 28,897,629 31,032,652
------------- -------------
Total securities ............................................................ 31,811,758 34,189,253
------------- -------------
Loans receivable (Note 3) ........................................................ 108,365,429 56,809,720
Less: Allowance for estimated losses on loans (Note 3) ........................... (1,632,500) (852,500)
------------- -------------
Net loans receivable ........................................................ 106,732,929 55,957,220
------------- -------------
Premises and equipment, net (Note 4) ............................................. 5,248,689 4,531,038
Accrued interest receivable ...................................................... 1,374,307 1,121,268
Other assets ..................................................................... 1,708,481 860,779
------------- -------------
Total assets ............................................................. $ 168,378,751 $ 111,474,977
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing ........................................................... $ 22,103,036 $ 15,730,265
Interest-bearing .............................................................. 113,857,159 77,187,853
------------- -------------
Total deposits (Note 5) ..................................................... 135,960,195 92,918,118
------------- -------------
Short-term borrowings (Note 6) ................................................... 0 1,190,000
Federal Home Loan Bank advances (Note 7) ......................................... 10,777,712 3,411,470
Other borrowings (Note 8) ........................................................ 1,500,000 1,000,000
Other liabilities ................................................................ 5,527,618 1,286,783
------------- -------------
Total liabilities ........................................................ 153,765,525 99,806,371
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY (Note 13)
Preferred stock, $1 par value; shares authorized 250,000; shares issued and ...... 10 0
outstanding 1997, 10; 1996, none (Note 12)
Common stock, $1 par value; shares authorized 2,500,000; shares issued and
outstanding 1997, 1,462,824; 1996, 1,437,824 ................................... 1,462,824 1,437,824
Additional paid-in capital ....................................................... 13,039,406 11,764,416
Retained earnings (deficit) ...................................................... 171,171 (1,048,165)
------------- -------------
14,673,411 12,154,075
Unrealized (losses) on securities available for sale, net ........................ (60,185) (485,469)
------------- -------------
Total stockholders' equity ............................................... 14,613,226 11,668,606
------------- -------------
Total liabilities and stockholders' equity ............................... $ 168,378,751 $ 111,474,977
============= =============
</TABLE>
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans .......................................... $ 6,950,031 $ 3,972,856 $ 1,974,150
Interest and dividends on securities ................................ 2,139,263 1,868,976 1,052,557
Interest on federal funds sold ...................................... 286,264 382,226 423,292
Other interest ...................................................... 374,527 359,409 100,123
----------- ----------- -----------
Total interest income .......................................... 9,750,085 6,583,467 3,550,122
----------- ----------- -----------
Interest expense:
Interest on deposits ............................................... 4,358,476 3,349,548 1,792,850
Interest on borrowings ............................................. 635,392 136,832 102,725
----------- ----------- -----------
Total interest expense ......................................... 4,993,868 3,486,380 1,895,575
----------- ----------- -----------
Net interest income ............................................ 4,756,217 3,097,087 1,654,547
Provision for loan losses (Note 3) ...................................... 844,391 500,397 282,600
----------- ----------- -----------
Net interest income after provision for loan losses ............ 3,911,826 2,596,690 1,371,947
----------- ----------- -----------
Other income:
Merchant credit card fees, net of processing costs .................. 1,531,728 1,007,830 306,051
Trust department fees ............................................... 736,461 355,360 149,218
Deposit service fees ................................................ 201,163 147,678 73,016
Investment securities gains (losses), net ........................... 21,938 22,272 (16,656)
Other ............................................................... 272,023 129,147 36,068
----------- ----------- -----------
Total other income ............................................. 2,763,313 1,662,287 547,697
----------- ----------- -----------
Other expenses:
Salaries and benefits ............................................... 2,934,758 1,973,682 1,174,874
Professional and data processing fees ............................... 437,259 282,640 192,556
Advertising and marketing ........................................... 126,061 189,761 98,584
Occupancy and equipment expense ..................................... 654,010 289,230 209,468
Stationery and supplies ............................................. 191,682 100,672 58,585
Provision for merchant credit card losses ........................... 176,476 126,805 126,831
Insurance ........................................................... 109,527 86,291 136,015
Postage and telephone ............................................... 168,890 117,741 55,630
Other ............................................................... 492,140 409,567 240,883
----------- ----------- -----------
Total other expenses ........................................... 5,290,803 3,576,389 2,293,426
----------- ----------- -----------
Income (loss) before income taxes ........................................ 1,384,336 682,588 (373,782)
Income taxes (Note 9) .................................................... 165,000 0 0
----------- ----------- -----------
Net income (loss) .............................................. $ 1,219,336 $ 682,588 $ (373,782)
=========== =========== ===========
Earnings (loss) per common share:
Primary ........................................................ 0.81 0.47* (0.26)*
Fully diluted .................................................. 0.80 0.47* (0.26)*
Weighted average common shares outstanding ..................... 1,441,660 1,437,824 1,437,824
Weighted average common and common equivalent
shares outstanding ....................................... 1,635,998 1,437,824* 1,437,824*
<FN>
* Excludes the effects of common stock equivalents as resulting dilution
was less than 3%.
</FN>
</TABLE>
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
Unrealized
Gains
(Losses) on
Securities
Additional Retained Available
Preferred Common Paid-In Earnings For Sale,
Stock Stock Capital (Deficit) Net Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 ................ $ 0 $ 1,437,824 $ 11,764,416 $ (1,356,971) $ (150,693) $ 11,694,576
Change in unrealized gains on
securities available for sale, net . 0 0 0 0 268,946 268,946
Net (loss) ............................ 0 0 0 (373,782) 0 (373,782)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1995 ................ $ 0 $ 1,437,824 $ 11,764,416 $ (1,730,753) $ 118,253 $ 11,589,740
Change in unrealized (losses) on
securities available for sale, net . 0 0 0 0 (603,722) (603,722)
Net income ............................ 0 0 0 682,588 0 682,588
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1996 ................ $ 0 $ 1,437,824 $ 11,764,416 $ (1,048,165) $ (485,469) $ 11,668,606
Proceeds from sale of 10
shares of preferred stock .......... 10 0 999,990 0 0 1,000,000
Proceeds from sale of 25,000
shares of common stock as
a result of warrants exercised ..... 0 25,000 275,000 0 0 300,000
Change in unrealized (losses) on
securities available for sale, net . 0 0 0 0 425,284 425,284
Net income ............................ 0 0 0 1,219,336 0 1,219,336
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 ................ $ 10 $ 1,462,824 $ 13,039,406 $ 171,171 $ (60,185) $ 14,613,226
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ......................................................... $ 1,219,336 $ 682,588 $ (373,782)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation ............................................................ 334,409 143,173 107,313
Provision for loan losses ............................................... 844,391 500,397 282,600
Provision for merchant credit card losses ............................... 176,476 126,805 126,831
Amortization of premiums (accretion of discounts) on securities, net .... 899 (16,920) 8,108
Federal Home Loan Bank stock dividends .................................. 0 (3,000) 0
Net (gains) losses on securities available for sale ..................... (21,938) (22,272) 16,656
Loans originated for sale ............................................... (6,851,715) (6,371,085) (847,737)
Proceeds on sales of loans .............................................. 6,040,971 6,425,124 852,412
Net (gains) on sales of loans ........................................... (44,441) (54,039) (4,675)
(Increase) in accrued interest receivable ............................... (253,039) (435,388) (450,468)
(Increase) in other assets .............................................. (847,702) (397,684) (437,544)
Increase in other liabilities ........................................... 4,064,359 258,394 534,384
------------ ------------ ------------
Net cash provided by (used in) operating activities .................. $ 4,662,006 $ 836,093 $ (185,902)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold ............................. (6,462,000) 10,222,000 (8,250,000)
Net (increase) decrease in certificates of deposits at financial
institutions ............................................................ 112,888 (1,489,154) (2,128,005)
Net loans originated ...................................................... (50,764,915) (25,422,515) (18,741,741)
Purchase of securities held to maturity ................................... 0 (2,873,782) (500,000)
Purchase of securities available for sale ................................. (5,926,816) (18,947,247) (10,297,885)
Proceeds from maturity of securities ...................................... 2,250,000 4,000,000 0
Proceeds from calls/paydowns on securities ................................ 1,250,667 4,483,584 387,271
Proceeds from sale of securities available for sale ....................... 5,249,967 4,637,700 338,600
(Purchase) and disposal of premises and equipment, net .................... (1,052,060) (2,872,372) (187,259)
------------ ------------ ------------
Net cash (used in) investing activities .............................. $(55,342,269) $(28,261,786) $(39,379,019)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts .......................................... 43,042,077 31,820,432 34,070,131
Proceeds from issuance of preferred stock ................................. 1,000,000 0 0
Proceeds from issuance of common stock .................................... 300,000 0 0
Net increase (decrease) in short-term borrowings .......................... (1,190,000) (6,021,072) 7,211,072
Net increase in other borrowings .......................................... 500,000 1,000,000 0
Proceeds from Federal Home Loan Bank advances ............................. 11,961,000 7,270,000 0
Payments on Federal Home Loan Bank advances ............................... (4,594,758) (3,858,530) 0
------------ ------------ ------------
Net cash provided by financing activities ............................ $ 51,018,319 $ 30,210,830 $ 41,281,203
------------ ------------ ------------
Net increase in cash and due from banks .............................. 338,056 2,785,137 1,716,282
Cash and due from banks, beginning ................................... 6,615,407 3,830,270 2,113,988
------------ ------------ ------------
Cash and due from banks, ending ...................................... $ 6,953,463 $ 6,615,407 $ 3,830,270
============ ============ ============
Supplemental disclosure of cash flow information, cash payments for:
Interest .................................................................. $ 4,861,558 $ 3,384,353 $ 1,513,310
============ ============ ============
Income/franchise taxes .................................................... $ 249,000 $ 18,500 $ 0
============ ============ ============
Supplemental schedule of noncash investing activities:
Change in unrealized gains/losses on securities available for sale, net ... $ 425,284 $ (603,722) $ 268,946
============ ============ ============
Investment securities transferred from held to maturity portfolio to
available for sale portfoilio, at fair value .......................... $ 0 $ 8,004,543 $ 0
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
Quad City Holdings, Inc. (the "Company") is a bank holding company
providing bank and bank related services through its subsidiaries,
Quad City Bank and Trust Company (the "Bank") and Quad City Bancard,
Inc. ("Bancard"). The Bank is a commercial bank that serves the Quad
Cities area, is chartered and regulated by the state of Iowa, is
insured and subject to regulation by the Federal Deposit Insurance
Corporation and is a member of and regulated by the Federal Reserve
System. Bancard is an entity formed in April 1995 to conduct the
Company s merchant credit card operation and is also regulated by the
Federal Reserve System. This activity was previously conducted by the
Bank.
Significant accounting policies:
Accounting estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Principals of consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, the Bank
and Bancard. All material intercompany accounts and transactions
have been eliminated in consolidation.
Presentation of cash flows:
For purposes of reporting cash flows, cash and due from banks
includes cash on hand, amounts due from banks and interest-bearing
balances with other banks. Cash flows from loans originated by the
Bank, deposits, and federal funds purchased and sold are reported
net.
Investment securities:
Investment securities held to maturity are those debt securities
that the Company has the ability and intent to hold until maturity
regardless of changes in market conditions, liquidity needs or
changes in general economic conditions. Such securities are carried
at cost adjusted for amortization of premiums and accretion of
discounts. If the ability or intent to hold to maturity is not
present for certain specified securities, such securities are
considered available for sale as the Company intends to hold them
for an indefinite period of time but not necessarily to maturity.
Any decision to sell a security classified as available for sale
would be based on various factors, including significant movements
in interest rates, changes in the maturity mix of the Company's
assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for
sale are carried at fair value. Unrealized gains or losses are
reported as increases or decreases in stockholders' equity, net of
the related deferred tax effect. Realized gains or losses,
determined on the basis of the cost of specific securities sold,
are included in earnings.
Pursuant to a FASB Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities," the Company transferred at fair value
$8,004,543 of investment securities from held to maturity to
available for sale in December 1995.
Loans held for sale:
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value
in the aggregate.
<PAGE>
Loans and allowance for loan losses:
Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses. The allowance for loan losses is
maintained at the level considered adequate by management of the
Company and the Bank to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to
expense and reduced by net charge-offs. In determining the adequacy
of the allowance, the Company and the Bank make continuous
evaluations of the loan portfolio and related off-balance sheet
commitments, and consider current economic conditions and other
factors that may effect a borrower's ability to repay.
In accordance with FASB Statement No. 114 "Accounting by Creditors
for Impairment of a Loan," loans are considered impaired when,
based on current information and events, it is probable the Company
and the Bank will not be able to collect all amounts due. The
portion of the allowance for loan losses applicable to an impaired
loan is computed based on the present value of the estimated future
cash flows of interest and principal discounted at the loan s
effective interest rate or on the fair value of the collateral for
collateral dependent loans. The entire change in present value of
expected cash flows of impaired loans is reported as bad debt
expense in the same manner in which impairment initially was
recognized or as a reduction in the amount of bad debt expense that
otherwise would be reported. The Company and the Bank recognize
interest income on impaired loans on an accrual basis.
Premises and equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily by the
straight-line method over the estimated useful lives.
Income taxes:
The Company files its tax return on a consolidated basis with its
subsidiaries. The entities follow the direct reimbursement method
of accounting for income taxes under which income taxes or credits
which result from the inclusion of the subsidiaries in the
consolidated tax return are paid to or received from the parent
company.
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Trust assets:
Trust assets held by the Bank in fiduciary, agency or custody
capacities for its customers, other than cash on deposit at the
Bank, are not included in the accompanying consolidated balance
sheets since such items are not assets of the Bank.
Per share data:
Earnings per share is arrived at by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding for the respective period. The computations
prior to June 30, 1996 were based on weighted average common shares
outstanding only, as the dilutive effect of the common stock
equivalents was not material.
<PAGE>
Current accounting developments:
The Financial Accounting Standards Board has issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" and SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of Statement No. 125." SFAS
No. 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of
liabilities based on control of the underlying financial assets.
The provisions of SFAS No. 125 applicable to the servicing of
financial assets were effective as of January 1, 1997. The impact
of these provisions on the consolidated financial statements was
not material. Other provisions of SFAS No. 125, including those
applicable to transfers of financial assets and extinguishment of
liabilities are effective as of January 1, 1998. The impact of
these provisions on the consolidated financial statements is not
expected to be material.
The Financial Accounting Standards Board has issued SFAS No. 128,
"Earnings per Share" which becomes effective for financial
statements issued for periods ending after December 15, 1997. This
Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly
held stock or potential common stock. This Statement simplifies the
standards for computing earnings per share previously found in APB
Opinion No. 15, "Earnings per Share," and makes them comparable to
international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement of all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the
diluted EPS computation. Management believes that adoption of this
Statement will not have a material effect on the consolidated
financial statements.
The Financial Accounting Standards Board has issued SFAS No. 130
"Reporting Comprehensive Income" which is effective for fiscal
years beginning after December 15, 1997. This Statement establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements.
Management believes that adoption of this Statement will not have a
material effect on the consolidated financial statements.
The Financial Accounting Standards Board has issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related
Information" which is effective for fiscal years beginning after
December 15, 1997. This Statement establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. Management
believes that adoption of this Statement will not have a material
effect on the consolidated financial statements.
<PAGE>
Note 2. Investment Securities
The amortized cost and fair value of investment securities at June 30,
1997 and 1996 are summarized as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1997:
Securities held to maturity:
Mortgage-backed securities ................ $ 2,317,513 $ 673 $ (15,871) $ 2,302,315
Municipal securities ...................... 596,616 1,581 (12,450) 585,747
---------------------------------------------------------------------------
Totals ............................... $ 2,914,129 $ 2,254 $ (28,321) $ 2,888,062
===========================================================================
Securities available for sale:
U.S. treasury securities .................. $ 14,496,366 $ 45,514 $ (20,226) $ 14,521,654
U.S. agency securities .................... 9,742,495 8,462 (120,306) 9,630,651
Mortgage-backed securities ................ 2,357,376 9,388 (6,526) 2,360,238
Other securities .......................... 2,390,033 8,971 (13,918) 2,385,086
---------------------------------------------------------------------------
Totals ............................... $ 28,986,270 $ 72,335 $ (160,976) $ 28,897,629
===========================================================================
June 30, 1996:
Securities held to maturity:
Mortgage-backed securities ................ $ 2,560,793 $ 2,513 $ (48,911) $ 2,514,395
Municipal securities ...................... 595,808 1,355 (14,443) 582,720
---------------------------------------------------------------------------
Totals ............................... $ 3,156,601 $ 3,868 $ (63,354) $ 3,097,115
===========================================================================
Securities available for sale:
U.S. treasury securities .................. $ 14,504,449 $ 42,191 $ (156,912) $ 14,389,728
U.S. agency securities .................... 12,612,166 8,759 (355,026) 12,265,899
Mortgage-backed securities ................ 2,851,340 12,930 (20,365) 2,843,905
Other securities .......................... 1,550,166 9,079 (26,125) 1,533,120
---------------------------------------------------------------------------
Totals ............................... $ 31,518,121 $ 72,959 $ (558,428) $ 31,032,652
===========================================================================
</TABLE>
All sales of securities during the years ended June 30, 1997, 1996 and
1995 were from securities identified as available for sale. Information
on proceeds received, as well as the gains and losses from the sales of
those securities is as follows:
1997 1996 1995
---------- ---------- ----------
Proceeds from sales of securities ....... $5,249,967 $4,637,700 $ 338,600
Gross losses from sales of securities ... 8,486 18,848 18,793
Gross gains from sales of securities .... 30,424 41,120 2,137
<PAGE>
The amortized cost and fair value of securities at June 30, 1997 by
contractual maturity are shown below. Expected maturities of
mortgage-backed securities may differ from contractual maturities
because the mortgages underlying the mortgage-backed securities may be
called or prepaid without any penalties. Therefore, these securities
are not included in the maturity categories in the following summary.
Other securities are excluded from the maturity categories as there is
no fixed maturity date.
Amortized
Cost Fair Value
----------- ------------
Securities held to maturity:
Due after one year through five years ........ 596,616 585,747
Mortgage-backed securities ................... 2,317,513 2,302,315
----------------------------
Totals .................................. $ 2,914,129 $ 2,888,062
============================
Securities available for sale:
Due in one year or less ...................... $ 4,501,668 $ 4,520,755
Due after one year through five years ........ 19,737,193 19,631,550
Mortgage-backed securities ................... 2,357,376 2,360,238
Other securities ............................. 2,390,033 2,385,086
----------------------------
Totals .................................. $28,986,270 $28,897,629
============================
At June 30, 1997 and 1996, investment securities with a carrying value
of $21,928,921 and $16,503,665 were pledged on public deposits and for
other purposes as required or permitted by law.
The Company transferred securities with an amortized cost of $7,992,513
and an unrealized gain of $12,030 from the held to maturity portfolio
to the available for sale portfolio in December, 1995, based on
management's reassessment of their previous designations of securities
giving consideration to liquidity needs, management of interest rate
risk and other factors.
Note 3. Loans Receivable
The composition of the loan portfolio at June 30, 1997 and 1996 is
presented as follows:
1997 1996
-----------------------------
Commercial ................................... $ 68,634,556 $ 40,338,645
Real estate .................................. 20,293,440 9,011,608
Installment and other consumer ............... 19,437,433 7,459,467
------------------------------
Total loans ............................. 108,365,429 56,809,720
Less allowance for estimated losses on loans . (1,632,500) (852,500)
------------------------------
Net loans ............................... $ 106,732,929 $ 55,957,220
==============================
Real estate loans include loans held for sale with a carrying value
of $855,185 and $0 at June 30, 1997 and 1996, respectively. The
market value of these loans exceeded its carrying value at those
dates.
Loans on nonaccrual status amounted to $230,591 and $0 at June 30,
1997 and 1996, respectively.
<PAGE>
Changes in the allowance for estimated losses on loans for the years
ended June 30, 1997, 1996 and 1995 are presented as follows:
<TABLE>
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Balance, beginning .......................... $ 852,500 $ 472,475 $ 191,500
Provisions charged to expense ............ 844,391 500,397 282,600
Loans charged off ........................ (64,913) (120,372) (1,725)
Recoveries on loans previously charged off 522 0 100
-------------------------------------
Balance, ending ............................. $1,632,500 $ 852,500 $ 472,475
=====================================
</TABLE>
Note 3. Continued
Impaired loans were not material at June 30, 1997 and 1996.
Loans are made in the normal course of business to directors, officers
and their related interests. The terms of these loans, including
interest rates and collateral, are similar to those prevailing for
comparable transactions with other persons. An analysis of the changes
in the aggregate amount of these loans during the years ended June 30,
1997 and 1996 is as follows:
1997 1996
--------------------------------
Balance, beginning ................... $ 1,013,874 $ 859,020
Advances .......................... 1,858,974 390,104
Repayments ........................ (845,698) (235,250)
--------------------------------
Balance, ending ..................... $ 2,027,150 $ 1,013,874
================================
Note 4. Premises and Equipment
The following summarizes the components of premises and equipment at
June 30, 1997 and 1996:
1997 1996
---------------------------
Land ......................................... $ 554,379 $ 200,000
Building ..................................... 3,503,851 3,456,818
Furniture & equipment ........................ 1,808,207 1,165,137
---------------------------
Total premises and equipment ............ 5,866,437 4,821,955
Less accumulated depreciation ................ (617,748) (290,917)
---------------------------
Total premises and equipment, net ....... $5,248,689 $ 4,531,038
===========================
Note 5. Deposits
The aggregate amount of certificates of deposit, each with a minimum
denomination of $100,000, was $22,978,123 and $13,720,210 at June 30,
1997 and 1996, respectively.
At June 30, 1997, the scheduled maturities of certificates of deposit
are as follows:
1998 $ 48,818,504
1999 7,928,686
2000 3,189,298
2001 1,950,663
2002 and thereafter 1,346,508
------------
Total certificates of deposit $ 63,233,659
============
<PAGE>
Note 6. Short-term Borrowings
Short-term borrowings at June 30, 1996 of $1,190,000 consisted of
federal funds purchased.
Information concerning repurchase agreements is summarized as follows:
1997 1996
---------------------
Average balance during the year ............ $52,100 $30,700
Average interest rate during the year ...... 5.42% 5.45%
Maximum month end balance during the year .. $ 0 $ 0
The average balances and rates above are based upon average daily
balances and rates.
Note 7. Federal Home Loan Bank Advances
The Bank is a member of the Federal Home Loan Bank of Des Moines (the
"FHLB"). At June 30, 1997, the Bank held $2,114,500 of FHLB stock.
Advances from the FHLB at June 30, 1997 bore interest and were due as
follows:
Amount Due Interest Rate
----------- --------------
1998...................... $ 26,138 6.51% to 6.74%
1999...................... 27,941 6.51% to 6.74%
2000 ..................... 2,529,868 5.61% to 6.74%
2001 ..................... 31,928 6.51% to 6.74%
2002 and thereafter ...... 8,161,837 5.95% to 7.11%
-----------
Total FHLB advances .... $10,777,712
===========
Securities of approximately $13,434,707 at June 30, 1997 were pledged as
collateral on these advances.
At of June 30, 1997, the Bank has an open line of credit commitment with
the FHLB for $5,000,000, which is collateralized with residential real
estate mortgages. The line of credit expires on June 26, 1998. No
amounts were outstanding on the line of credit at June 30, 1997.
Note 8. Other Borrowings
The Company has a revolving credit note for $1,500,000, which is secured
by all the outstanding stock of the Bank. Interest is payable quarterly
at the prime rate. Prime was 8.50% at June 30, 1997. The outstanding
balance on this note at June 30, 1997 and 1996 was $1,500,000 and
$1,000,000, respectively. The revolving credit note expires July 1,
1998.
The revolving credit note agreement contains certain covenants which
place restrictions on additional debt and stipulate minimum capital and
various operating ratios. The Company was in compliance with all of the
covenants as of June 30, 1997 and 1996.
Note 9. Income Taxes
The components of income tax expense were as follows for the years ended
June 30, 1997, 1996 and 1995:
1997 1996 1995
--------------------------------------
Current .................. $ 472,385 $ -- $ --
Deferred ................. (307,385) -- --
--------------------------------------
Total income tax expense $ 165,000 $ -- $ --
======================================
<PAGE>
A reconciliation of the expected federal income tax expense to the
income tax expense included in the statements of income is as follows
for the years ended June 30, 1997, 1996 and 1995:
<TABLE>
1997 1996 1995
--------------------- ------------------- -------------------
% Of % Of % Of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected"
tax expense ........ $ 484,517 35.0% $ 238,906 35.0% $(130,824) (35.0%)
Effect of graduated tax
rates .............. (13,843) (1.0) (6,826) (1.0) 3,738 1.0
Tax exempt income, net (3,853) (.3) (2,115) (.3) (170) 0.0
State income taxes, net
of federal benefit . 44,320 3.2 26,489 3.9 0 0.0
Change in valuation
allowance .......... (358,934) (25.9) (262,849) (38.5) 125,076 33.5
Other ................. 12,793 .9 6,395 .9 2,180 .5
--------------------------------------------------------------------
$ 165,000 11.9% $ 0 0% $ 0 0%
====================================================================
</TABLE>
The net deferred tax assets included with other assets on the balance
sheet consisted of the following at June 30, 1997 and 1996:
1997 1996
--------------------
Deferred tax assets:
Organization and start-up costs ........................ $ 80,618 $134,051
Net unrealized loss on securities available for sale ... 28,456 0
Capital loss carryforwards ............................. 12,686 23,773
Net operating loss carryforwards ....................... 0 335,825
Loan and credit card losses ............................ 467,755 213,360
Other .................................................. 11,087 0
--------------------
$600,602 $707,009
--------------------
Deferred tax liabilities:
Accrual to cash conversion ............................. $173,747 $266,843
Premises and equipment ................................. 86,167 71,367
Other .................................................. 4,847 9,865
--------------------
$264,761 $348,075
--------------------
Net deferred tax assets before valuation allowance ..... $335,841 $358,934
Valuation allowance for deferred tax assets ............ 0 358,934
--------------------
Net deferred tax asset .............................. $335,841 $ 0
====================
The change in deferred income taxes was reflected in the financial
statements as follows for the years ended June 30, 1997, 1996 and 1995:
<TABLE>
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Provision for income taxes .................. $(307,385) $ -- $ --
Statement of stockholders equity-unrealized
gain (loss) on securities available for
sale ..................................... (28,456) -- --
--------------------------------------
$(335,841) $ -- $ --
======================================
</TABLE>
<PAGE>
Note 10. Employee Benefit Plan
On February 1, 1994, the Company implemented a profit sharing plan,
which includes a provision designed to qualify under Section 401(k)
of the Internal Revenue Code of 1986, as amended, to allow for
participant contributions. All employees are eligible to participate
in the plan. The Company matches 100% of the first 2% of employee
contributions, 50% of the next 2% of employee contributions, and 25%
of the next 2% of employee contributions, up to a maximum amount of
3.5% of an employee's compensation. Additionally, the Company may, at
its discretion, make additional contributions to the plan which are
allocated to the accounts of participants in the plan on the basis of
relative compensation. Company contributions for the years ended June
30, 1997, 1996 and 1995 were as follows:
1997 1996 1995
-----------------------------------
Matching contribution ....... $64,535 $47,233 $18,954
Discretionary contribution .. 30,000 20,000 10,000
-----------------------------------
Total contributions ..... $94,535 $67,233 $28,954
===================================
Note 11. Warrants and Options
Warrants
As part of the underwriting agreement for its initial public offering,
the Company issued warrants to the underwriters for the purchase of
25,000 shares of common stock at $12.00 per share. The underwriters
exercised all of the warrants on May 6, 1997. The warrants became
exercisable on October 13, 1994 (the date commencing one year from the
date of the public offering) and would have remained exercisable for a
period of four years after such date.
Common stock of $75,000 at June 30, 1993 represented 75,000 shares of
the Company's common stock issued in a private placement in 1993. Each
stockholder who purchased stock in the private placement received a
unit (at a price of $10.00 per unit) which consisted of one share of
the Company s common stock and one warrant to purchase an additional
share of Company common stock for $11.00, exercisable during a five
year period commencing October 13, 1994 (one year after completion of
the public offering). As of June 30, 1997, none of the private
placement warrants had been exercised.
Stock Option and Incentive Plans
The Company's Board of Directors and its stockholders adopted in June,
1993 the Quad City Holdings, Inc. Stock Option Plan (the "Stock Option
Plan"). Up to 100,000 shares of common stock may be issued to employees
and directors of the Company and its subsidiaries pursuant to the
exercise of incentive stock options or non-qualified stock options
granted under the Stock Option Plan. The Company's Board of Directors
adopted in November, 1996 the Quad City Holdings, Inc. 1997 Stock
Incentive Plan (the "Stock Incentive Plan"). Up to 40,000 shares of
common stock may be issued to employees and directors of the Company
and its subsidiaries pursuant to the exercise of non-qualified stock
options, stock appreciation rights and restricted stock granted under
the Stock Incentive Plan. The Stock Option Plan and the Stock Incentive
Plan are administered by the compensation committee appointed by the
Board of Directors (the "Committee").
The number and exercise price of options granted under the Stock Option
Plan and the Stock Incentive Plan is determined by the Committee at the
time the option is granted. In no event can the exercise price be less
than the value of the common stock at the date of the grant for
incentive stock options. The stock options will generally vest 20% per
year. The term of an incentive stock option may not exceed 10 years
from the date of the grant.
In the case of non-qualified stock options, the Stock Option Plan and
the Stock Incentive Plan provide for the granting of "Tax Benefit
Rights" to certain participants at the same time as these participants
are awarded non-qualified options. Each Tax Benefit Right entitles a
participant to a cash payment equal to the excess of the fair market
value of a share of common stock on the exercise date over the exercise
price of the related option multiplied by the difference between the
rate of tax on ordinary income over the rate of tax on capital gains
(federal and state).
<PAGE>
As permitted under generally accepted accounting principles, grants
under the plan are accounted for following the provisions of APB
Opinion No. 25 and its related interpretations. Accordingly, no
compensation cost has been recognized for grants made to date. Had
compensation cost been determined based on the fair value method
prescribed in FASB Statement No. 123, reported net income and earnings
per share would not have changed by a material amount for the years
ended June 30, 1997 and 1996.
In determining compensation cost using the fair value method prescribed
in Statement No. 123, the value of each grant is estimated at the grant
date with the following weighted-average assumptions for grants in 1997
and 1996: dividend rate of 0%: risk-free interest rates based upon
current rates at the date of grant (6.3 to 7.9%): expected lives of 10
years, and expected price volatility of 14% to 16%.
A summary of the stock option plans at June 30, 1997, 1996 and 1995 and
changes during the years ended on those dates is presented as follows:
<TABLE>
1997 1996 1995
------------------------ ----------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year ................ 98,020 $10.19 93,300 $ 9.96 83,000 $ 9.98
Granted ............................. 19,100 20.26 6,900 13.12 10,300 9.78
Exercised ........................... 0 0 0 0 0 0
Forfeited ........................... (350) 10.28 (2,180) 9.32 0 0
------- ------ ------
Outstanding at
end of year ...................... 116,770 $11.84 98,020 $10.19 93,300 $ 9.96
======= ====== ======
Exercisable at end of year .......... 64,230 44,780 26,600
Weighted average fair
value per option of
options granted
during the year .................. $ 10.03 $ 6.40 N/A
</TABLE>
A further summary of options outstanding at June 30, 1997 is presented
as follows:
<TABLE>
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$9.00 to $10.25 90,920 6.45 years $ 9.98 62,880 $ 9.98
$11.75 to $13.25 6,750 8.95 years 13.14 1,350 13.14
$15.00 to 17.50 1,000 9.63 years 16.25 0 0
$20.00 to $20.50 18,100 10.00 years 20.48 0 0
------- -------
116,770 64,230
======= =======
</TABLE>
Note 12. Preferred Stock
In December 1996, the Company issued 10 shares of Perpetual,
Nonvoting Preferred Stock, Series A (the "Preferred Stock") at
$100,000 per share for net proceeds of $1,000,000. The Preferred
Stock will accrue no dividends, nor will it carry any stated dividend
rate. After the first anniversary of the issuance of these shares of
Preferred Stock, subject to all required regulatory approvals and
upon a thirty day notice, the Company can redeem all outstanding
Preferred Stock. The Preferred Stock shall be redeemed for an amount
per share in cash which is equal to the sum of: (i) $100,000; plus
(ii) a premium in the amount of $9,750 multiplied by a fraction, the
numerator of which is the total number of calendar days the Preferred
Stock being redeemed has been outstanding and the denominator of
which is 365.
All shares of Preferred Stock which have been issued are senior to
common stock as to dividends, liquidation and redemption rights, but
they do not confer general voting rights.
<PAGE>
Note 13. Regulatory Capital Requirements and Restrictions on Dividends
Federal regulatory agencies have adopted various capital standards
for financial institutions, including risk-based capital standards.
The primary objectives of the risk-based capital framework are to
provide a more consistent system for comparing capital positions of
financial institutions and to take into account the different risks
among financial institutions' assets and off-balance sheet items.
Risk-based capital standards have been supplemented with requirements
for a minimum Tier 1 capital to average total assets ratio (leverage
ratio). In addition, regulatory agencies consider the published
capital levels as minimum levels and may require a financial
institution to maintain capital at higher levels.
The actual amounts and capital ratios at June 30, 1997 and 1996 with
the minimum requirements for the Bank are presented below:
<TABLE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
-------------------------- ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At June 30, 1997:
Total Capital (to Risk Weighted .. $15,248,139 11.2% $10,881,812 8.0% $13,602,265 10.0%
Assets) Tier 1 Capital
(to Risk Weighted .............. 13,623,139 10.0% 5,438,379 4.0% 8,157,568 6.0%
Assets) Tier 1 Capital
(to Average Assets) .............. 13,623,139 8.8% 6,164,316 4.0% 7,705,395 5.0%
At June 30, 1996:
Total Capital (to Risk Weighted .. $11,455,003 18.2% $ 5,046,257 8.0% $ 6,307,821 10.0%
Assets) Tier 1 Capital
(to Risk Weighted ............. 10,666,032 16.9% 2,523,012 4.0% 3,784,518 6.0%
Assets) Tier 1 Capital
(to Average Assets) ............. 10,666,032 9.8% 4,357,929 4.0% 5,447,412 5.0%
</TABLE>
Federal Reserve Board policy provides that a bank holding company
should not pay dividends unless (i) the dividends can be fully funded
out of net income from the company's net earnings over the prior year
and (ii) the prospective rate of earnings retention appears consistent
with the company's (and its subsidiaries') capital needs, asset quality
and overall financial condition.
In addition, the Delaware General Corporation Law restricts the Company
from paying dividends except out of its surplus, or in the case there
shall be no such surplus, out of its net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
The Iowa Banking Act provides that an Iowa bank may not pay dividends
in an amount greater than its undivided profits. In addition, the Bank,
as a member of the Federal Reserve System, will be prohibited from
paying dividends to the extent such dividends declared in any calendar
year exceed the total of its net profits of that year combined with its
retained net profits of the preceding two years, or are otherwise
determined to be an "unsafe and unsound practice" by the Federal
Reserve Board.
Note 14. Commitments and Contingencies
In the normal course of business, the Bank makes various commitments
and incurs certain contingent liabilities that are not presented in the
accompanying consolidated financial statements. The commitments and
contingent liabilities include various guarantees, commitments to
extend credit and standby letters of credit.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based upon
management s credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant
and equipment, and income-producing commercial properties.
<PAGE>
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the performance
of a customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending
loan facilities to customers.
At June 30, 1997, commitments to extend credit aggregated $26,318,470
and standby letters of credit aggregated $993,000. At June 30, 1996,
commitments to extend credit aggregated $16,860,159 and standby letters
of credit aggregated $1,428,301.
Bancard is subject to the risk of chargebacks from cardholders and the
merchant being incapable of refunding the amount charged back.
Management attempts to mitigate such risk by regular monitoring of
merchant activity and in appropriate cases, holding cash reserves
deposited by the merchant.
The Company also has a guaranty to MasterCard International
Incorporated, which is backed up by a performance bond in the amount of
$1,000,000. At June 30, 1997, there were no pending liabilities.
Aside from cash on-hand and in-vault, the majority of the Company s
cash is maintained at upstream correspondent banks. The total amount of
cash on deposit and certificates of deposit exceeded federal insured
limits by $1,092,000 and $126,000 at June 30, 1997 and 1996,
respectively.
In the opinion of management, no material risk of loss exists due to
the financial condition of the upstream correspondent banks.
Note 15. Quarterly Results of Operations (Unaudited)
<TABLE>
Fiscal year ended June 30, 1997
--------------------------------------------------------
Sept. 1996 Dec. 1996 Mar. 1997 June 1997
--------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income .... $ 2,014,237 $ 2,309,640 $ 2,538,309 $ 2,887,899
Total interest expense ... 1,008,269 1,202,258 1,325,463 1,457,878
--------------------------------------------------------
Net interest income ...... 1,005,968 1,107,382 1,212,846 1,430,021
Provision for loan losses (157,400) (146,325) (222,775) (317,891)
Other income ............. 519,208 598,215 751,761 894,129
Other expense ............ (1,108,592) (1,257,025) (1,392,010) (1,533,176)
--------------------------------------------------------
Net income before
income taxes ......... 259,184 302,247 349,822 473,083
--------------------------------------------------------
Income taxes ............ 0 0 0 165,000
--------------------------------------------------------
Net income ............... $ 259,184 $ 302,247 $ 349,822 $ 308,083
========================================================
Earnings per common share:
Primary ............... $ 0.18 $ 0.20 $ 0.23 $ 0.20
========================================================
Fully diluted ......... $ 0.18 $ 0.20 $ 0.23 $ 0.20
========================================================
</TABLE>
<TABLE>
Fiscal year ended June 30, 1996
--------------------------------------------------------
Sept. 1995 Dec. 1995 Mar. 1996 June 1996
--------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income ... $ 1,442,418 $ 1,534,274 $ 1,690,993 $ 1,915,782
Total interest expense .. 809,854 800,009 897,467 979,050
--------------------------------------------------------
Net interest income...... 632,564 734,265 793,526 936,732
Provision for loan losses (100,800) (153,300) (113,835) (132,462)
Other income ............ 369,435 373,641 403,425 515,786
Other expense ........... (807,357) (789,828) (887,637) (1,091,567)
--------------------------------------------------------
Net income .............. $ 93,842 $ 164,778 $ 195,479 $ 228,489
========================================================
Earnings per common
share:*
Primary .............. $ 0.06 $ 0.11 $ 0.14 $ 0.16
Fully diluted ........ $ 0.06 $ 0.11 0.14 0.16
<FN>
* Excludes the effect of common stock equivalents as resulting dilution
was less than 3%.
</FN>
</TABLE>
<PAGE>
Note 16. Parent Company Only Financial Statements
The following is condensed financial information of Quad City Holdings,
Inc. (parent company only):
CONDENSED BALANCE SHEETS
June 30,
------------------------------
1997 1996
------------------------------
Assets
Cash and due from banks $ 627,808 $ 343,188
Securities available for sale .............. 151,838 174,671
Investment in Quad City Bank and Trust
Company ................................. 13,567,901 10,197,609
Investment in Quad City Bancard, Inc. ..... 941,923 785,605
Loans receivable, net ..................... 332,994 1,132,696
Other assets .............................. 626,517 135,477
-------------------------------
Total assets ............................ $16,248,981 $12,769,246
===============================
Liabilities and Stockholders' Equity
Other liabilities ......................... $ 135,755 $ 100,640
Other borrowings .......................... 1,500,000 1,000,000
Stockholders' equity:
Preferred stock ......................... 10 0
Common stock ............................ 1,462,824 1,437,824
Additional paid-in capital .............. 13,039,406 11,764,416
Retained earnings (deficit) ............. 171,171 (1,048,165)
Unrealized (losses) on securities
available for sale, net ............... (60,185) (485,469)
-------------------------------
Total stockholders' equity .......... $14,613,226 $11,668,606
-------------------------------
Total liabilities and stockholders'
equity ............................ $16,248,981 $12,769,246
===============================
CONDENSED STATEMENTS OF INCOME
<TABLE>
Years Ended June 30,
----------------------------------------
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Net interest income ........................................... $ 84,431 $ 178,783 $ 339,260
Investment securities gain, net ............................... 23,437 26,345 2,137
Other ......................................................... 63,516 24,000 24,002
----------------------------------------
Total income ............................................. 171,384 229,128 365,399
----------------------------------------
Interest expense .............................................. 122,885 1,604 0
Other expenses ................................................ 342,396 241,702 285,724
----------------------------------------
Total expenses ........................................... 465,281 243,306 285,724
Income (loss) before income tax benefit and equity in
undistributed income (loss) of subsidiaries ................. (293,897) (14,178) 79,675
Income tax benefit ............................................ 312,000 0 0
-----------------------------------------
Income (loss) before equity in undistributed income
(loss) of subsidiaries ...................................... 18,103 (14,178) 79,675
Equity in undistributed income (loss) of Quad city Bank
and Trust Company ........................................... 844,915 300,672 (392,968)
Equity in undistributed income (loss) of Quad City
Bancard, Inc. ............................................... 356,318 396,094 (60,489)
----------------------------------------
Net income (loss) ........................................ $1,219,336 $ 682,588 $ (373,782)
========================================
</TABLE>
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
Years Ended June 30,
-----------------------------------------
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ............................................ $ 1,219,336 $ 682,588 $ (373,782)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in undistributed (income) loss of:
Quad City Bank and Trust Company ......................... (844,915) (300,672) 392,968
Quad City Bancard, Inc. .................................. (356,318) (396,094) 60,489
Depreciation and amortization .............................. 2,647 2,524 758
Provision for loan losses .................................. (10,000) (8,300) 4,900
Amortization of premiums and accretion of discounts
on securities, net ....................................... (5,495) 3,079 33,853
Realized (gains) on securities available for sale .......... (23,437) (26,345) (2,137)
Decrease in accrued interest receivable .................... 2,676 20,746 6,763
(Increase) in other assets ................................. (560,689) (30,731) (1,077)
Increase in other liabilities .............................. 35,115 32,429 59,325
-----------------------------------------
Net cash provided by (used in) operating activities .. $ (541,080) $ (20,776) $ 182,060
-----------------------------------------
Cash Flows from Investing Activities:
Net loans (originated) or repaid ............................. $ 809,702 $ 572,837 $ (330,572)
Purchase of securities available for sale .................... (49,515) (117,167) (25,209)
Capital infusion, Quad City Bank and Trust Company ........... (2,100,000) (2,099,000) (800,000)
Purchase of stock in Quad City Bancard, Inc. ................. 0 0 (450,000)
Net decrease in certificate of deposits with financial
institutions ............................................... 0 420,035 486,818
Proceeds from sales of securities available for sale ......... 95,691 145,512 489,789
Proceeds from paydowns on securities ......................... 5,496 28,419 207,225
(Purchase) and disposal of premises and equipment, net ....... 64,326 (69,221) (21,853)
------------------------------------------
Net cash (used in) investing activities .............. $(1,174,300) $(1,118,585) $ (443,757)
------------------------------------------
Cash Flows from Financing Activities:
Net increase in other borrowings ............................. $ 500,000 $ 1,000,000 $ 0
Proceeds from issuance of preferred stock .................... 1,000,000 0 0
Proceeds from issuance of common stock ....................... 300,000 0 0
Cash dividends received, Quad City Bancard, Inc. ............. 200,000 0 0
------------------------------------------
Net cash provided by financing activities $ 2,000,000 $ 1,000,000 $ 0
------------------------------------------
Net increase (decrease) in cash and due from banks ... $ 284,620 $ (139,361) $ (261,697)
Cash and due from banks, beginning ............................. 343,188 482,549 744,246
------------------------------------------
Cash and due from banks, ending ................................ $ 627,808 $ 343,188 $ 482,549
==========================================
</TABLE>
<PAGE>
Note 17. Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that
value. When quoted market prices are not available, fair values are
based on estimates using present value or other techniques. Those
techniques are significantly affected by the assumptions used,
including the discounted rates and estimates of future cash flows. In
this regard, fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in an
immediate settlement. Some financial instruments and all nonfinancial
instruments are excluded from the disclosures. The aggregate fair value
amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating the fair value of their financial instruments:
Cash and due from banks, federal funds sold, and certificates of
deposit: The carrying amounts reported in the balance sheets for cash
and due from banks, federal funds sold, and certificates of deposit
approximate their fair values.
Investment securities: Fair values for investment securities are based
on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of
comparable instruments.
Loans receivable: The fair values for all types of loans are estimated
using discounted cash flow analysis, using interest rates currently
being offered for loans with similar terms to borrowers with similar
credit quality.
Accrued interest receivable: The fair value of accrued interest
receivable is considered to approximate its carrying value.
Deposits: The fair values disclosed for demand deposits equal their
carrying amounts which represents the amount payable on demand. Fair
values for time deposits are estimated using a discount cash flow
calculation that applies interest rates currently being offered on time
deposits to a schedule of aggregated expected monthly maturities on
time deposits.
Short-term borrowings: The carrying amount reported in the balance
sheets for short-term borrowings approximates its fair value.
Federal Home Loan Bank advances: The fair value of the Company's
Federal Home Loan Bank advances is estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements.
Other borrowings: For variable rate debt, the carrying amount is a
reasonable estimate of fair value.
Accrued interest payable: The fair value of accrued interest payable is
considered to approximate its carrying value.
Commitments to extend credit: The fair value of these unfunded
commitments is not material.
<PAGE>
The carrying values and estimated fair values of the Company's
financial instruments at June 30, 1997 and 1996 are presented as
follows:
<TABLE>
1997 1996
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks ....... $ 6,953,463 $ 6,953,463 $ 6,615,407 $ 6,615,407
Federal funds sold ............ 9,190,000 9,190,000 2,728,000 2,728,000
Certificates of deposit at
financial institutions ........ 5,359,124 5,359,124 5,472,012 5,472,012
Investment securities:
Held to maturity ......... 2,914,129 2,888,062 3,156,601 3,097,115
Available for sale ....... 28,897,629 28,897,629 31,032,652 31,032,652
Loans receivable, net ......... 106,732,929 108,833,000 55,957,220 56,155,633
Accrued interest receivable ... 1,374,307 1,374,307 1,121,268 1,121,268
Deposits ...................... 135,960,195 135,904,000 92,918,118 93,403,739
Short-term borrowings ......... 0 0 1,190,000 1,190,000
Federal Home Loan Bank advances
10,777,712 10,848,000 3,411,470 3,254,299
Other borrowings .............. 1,500,000 1,500,000 1,000,000 1,000,000
</TABLE>
Note 18. Line of Business Information
Selected financial information on the Company, the Bank and Bancard
is presented as follows for the years ended June 30, 1997, 1996 and
1995:
1997 1996 1995
----------------------------------------
Quad City Holdings, Inc.
Revenue ............................ $ 171,384 $ 219,110 $ 283,685
Operating profit (loss) ............ 18,103 (14,178) 79,675
Identifiable assets ................ 20,818 87,791 21,094
Depreciation ....................... 2,647 2,524 758
Capital expenditures ............... 0 69,221 21,853
Quad City Bank and Trust Company ... 1997 1996 1995
----------- ----------- -----------
Revenue ............................ $10,793,617 $ 6,993,653 $ 3,668,256
Operating profit (loss) ............ 844,915 300,672 (392,968)
Identifiable assets ................ 5,108,723 4,396,962 1,748,717
Depreciation ....................... 315,312 131,913 106,555
Capital expenditures ............... 1,027,073 2,780,158 133,378
Quad City Bancard, Inc. ............ 1997 1996 1995
----------- ----------- -----------
Revenue ............................ $ 1,548,397 $ 1,032,991 $ 145,878
Operating profit (loss) ............ 356,318 396,094 (60,489)
Identifiable assets ................ 119,148 46,285 32,028
Depreciation ....................... 16,450 8,736 0
Capital expenditures ............... 89,313 22,993 32,028
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Company will file with the securities and exchange commission a
definitive proxy statement no later than 120 days after the close of
its fiscal year ended June 30, 1997 (the "Proxy Statement"). The
information required by this item is incorporated by reference from the
Proxy Statement.
Item 10. Executive Compensation
The information required by this item is incorporated by reference from
the Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from
the Proxy Statement.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from
the Proxy Statement.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
The Index to Exhibits appears at page 34 of this Report.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, as amended, the
Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
QUAD CITY HOLDINGS, INC.
Date: September 17, 1997 By: /s/ Douglas M. Hultquist
--------------------------------------
Douglas M. Hultquist
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Issuer and in the capacities and on the dates
indicated.
<TABLE>
Signature Title Date
<S> <C> <C>
/s/ Michael A. Bauer Chairman of the Board of Directors September 17, 1997
Michael A. Bauer
/s/ Douglas M. Hultquist President, Chief Executive September 17, 1997
Douglas M. Hultquist and Financial Officer and Director
/s/ Richard R. Horst Director and Secretary September 17, 1997
Richard R. Horst
/s/ Ronald G. Peterson Director September 17, 1997
Ronald G. Peterson
/s/ John W. Schricker Director September 17, 1997
John W. Schricker
/s/ Robert A. Van Vooren Director September 17, 1997
Robert A. Van Vooren
/s/ James J. Brownson Director September 17, 1997
James J. Brownson
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
Incorporated
Herein by in Filed Sequential
Exhibit No. Description Reference To Herewith Page No.
<S> <C> <C> <C> <C>
3.1 Certificate of Exhibit 3.1 to the
Incorporation of Quad Registration
City Holdings, Inc., as Statement of Quad
amended City Holdings, Inc.
on Form SB-2, File
No. 33-67028
3.2 Bylaws of Quad City Exhibit 3.2 to the
Holdings, Inc. Registration
Statement of Quad
City Holdings, Inc.
on Form SB-2, File
No. 33-67028
4.1 Specimen Stock Exhibit 4.1 to the
Certificate of Quad Registration
City Holdings, Inc.(See Statement of Quad
also Articles VIII, XII City Holdings, Inc.
and XIII of Exhibit 3.1 on Form SB-2, File
and Articles II, VI, IX No. 33-67028
and XII of Exhibit 3.2)
10.1 Quad City Holdings, Exhibit 10.1 to the
Inc. Stock Option Plan Registration
Statement of Quad
City Holdings, Inc.
on Form SB-2, File
No. 33-67028
10.2 Form of Stock Option Exhibit 10.2 to the
Agreement between Registration
Quad City Holdings, Inc. Statement of Quad
and each of Michael A. City Holdings, Inc.
Bauer, Douglas M. on Form SB-2, File
Hultquist and Victor J. No. 33-67028
Quinn
10.3 Employment Agreement Exhibit 10.3 to the
between Quad City Registration
Holdings, Inc. and Statement of Quad
Michael A. Bauer dated City Holdings, Inc.
May 4, 1993 on Form SB-2, File
No. 33-67028
<PAGE>
Incorporated
Herein by in Filed Sequential
Exhibit No. Description Reference To Herewith Page No.
10.4 Employment Agreement Exhibit 10.4 to the
between Quad City Registration
Holdings, Inc. and Statement of Quad
Michael A. Bauer dated City Holdings, Inc.
July 1, 1993 on Form SB-2, File
No. 33-67028
10.5 Employment Agreement Exhibit 10.5 to the
between Quad City Registration
Holdings, Inc. and Statement of Quad
Douglas M. Hultquist City Holdings, Inc.
dated April 30, 1993 on Form SB-2, File
No. 33-67028
10.6 Employment Agreement Exhibit 10.6 to the
between Quad City Registration
Holdings, Inc. and Statement of Quad
Douglas M. Hultquist City Holdings, Inc.
dated July 1, 1993 on Form SB-2, File
No. 33-67028
10.7 Development Agreement Exhibit 10.7 to the
between Quad City Registration
Holdings, Inc. and Statement of Quad
Kaizen, Inc. City Holdings, Inc.
on Form SB-2, File
No. 33-67028
10.8 Lease/Option Exhibit 10.8 to the
Agreement between Registration
Quad City Holdings, Inc. Statement of Quad
and Kaizen, Inc. City Holdings, Inc.
on Form SB-2, File
No. 33-67028
22.1 Subsidiaries of Quad Exhibit 22.1 to the
City Holdings, Inc. Registration
Statement of Quad
City Holdings, Inc.
on Form SB-2, File
No. 33-67028
23.1 Consent of McGladrey
and Pullen X __
27.1 Financial Data Schedule X
</TABLE>
<PAGE>
APPENDIX A
SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance of
the Company can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities including, but not limited to, the Iowa Superintendent of
Banking (the "Superintendent"), the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), the Federal Deposit Insurance Corporation
(the "FDIC"), the Internal Revenue Service and state taxing authorities and the
Securities and Exchange Commission (the "SEC"). The effect of such statutes,
regulations and policies can be significant, and cannot be predicted with a high
degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. The system
of supervision and regulation applicable to the Company and its subsidiaries
establishes a comprehensive framework for their respective operations and is
intended primarily for the protection of the FDIC's deposit insurance funds and
the depositors, rather than the shareholders, of financial institutions.
The following references to material statutes and regulations affecting the
Company and its subsidiaries are brief summaries thereof and do not purport to
be complete, and are qualified in their entirety by reference to such statutes
and regulations. Any change in applicable law or regulations may have a material
effect on the business of the Company and its subsidiaries.
Recent Regulatory Developments
Economic Growth and Regulatory Paperwork Reduction Act of 1996. On September 30,
1996, President Clinton signed into law the "Economic Growth and Regulatory
Paperwork Reduction Act of 1996" (the "Regulatory Reduction Act"). Subtitle G of
the Regulatory Reduction Act consists of the "Deposit Insurance Funds Act of
1996" (the "DIFA"). The DIFA provides for a one-time special assessment on each
depository institution holding deposits subject to assessment by the FDIC for
the Savings Association Insurance Fund (the "SAIF") in an amount which, in the
aggregate, will increase the designated reserve ratio of the SAIF (i.e., the
ratio of the insurance reserves of the SAIF to total SAIF-insured deposits) to
1.25% on October 1, 1996. Subject to certain exceptions, the special assessment
was payable in full on November 27, 1996. The Bank holds no SAIF-assessable
deposits and, therefore, was not subject to the special assessment.
Prior to the enactment of the DIFA, a substantial amount of the SAIF assessment
revenue was used to pay the interest due on bonds issued by the Financing
Corporation (the "FICO"), the entity created in 1987 to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation (the
"FSLIC"), the SAIF's predecessor insurance fund. Pursuant to the DIFA, the
interest due on outstanding FICO bonds will be covered by assessments against
both SAIF and BIF member institutions beginning January 1, 1997. Between January
1, 1997 and December 31, 1999, FICO assessments against BIF-member institutions
cannot exceed 20% of the FICO assessments charged SAIF-member institutions. From
January 1, 2000 until the FICO bonds mature in 2019, FICO assessments will be
shared by all FDIC-insured institutions on a pro rata basis. It is expected that
the FICO assessments for the period January 1, 1997 through December 31, 1999
will be approximately 0.013% of deposits for BIF members versus approximately
0.064% of deposits for SAIF members, and will be less than 0.025% of deposits
thereafter.
<PAGE>
The DIFA also provides for a merger of the BIF and the SAIF on January 1, 1999,
provided there are no state or federally chartered, FDIC-insured savings
associations existing on that date.
In addition to the DIFA, the Regulatory Reduction Act includes a number of
statutory changes designed to eliminate duplicative, redundant or unnecessary
regulatory requirements. Among other things, the Regulatory Reduction Act
establishes streamlined notice procedures for the commencement of new nonbanking
activities by bank holding companies, establishes time frames within which the
FDIC must act on applications by state banks to engage in activities which,
although permitted for state banks under applicable state law, are not
permissible activities for national banks, and excludes ATM closures and certain
branch office relocations from the requirements applicable to branch closings.
The Regulatory Reduction Act also clarifies the liability of a financial
institution, when acting as a lender or in a fiduciary capacity, under the
federal environmental laws. Although the full impact of the Regulatory Reduction
Act on the operations of the Company and the Bank cannot be determined at this
time, management believes that the legislation may reduce compliance costs to
some extent and allow the Company and the Bank somewhat greater operating
flexibility.
Pending Legislation. The Committee on Banking and Financial Services of the U.
S. House of Representatives has approved legislation that would allow bank
holding companies to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities. The expanded
powers generally would be available to a bank holding company only if the bank
holding company and its bank subsidiaries remain well-capitalized and
well-managed, and if each of the depository institution subsidiaries of the bank
holding company had received at least a "satisfactory" rating under the
Community Reinvestment Act. The proposed legislation would also impose various
restrictions on transactions between the depository institution subsidiaries of
bank holding companies and their nonbank affiliates. These restrictions are
intended to protect the depository institutions from the risks of the new
nonbanking activities permitted to such affiliates. At this time, the Company is
unable to predict whether the proposed legislation will be enacted and,
therefore, is unable to predict the impact such legislation may have on the
operations of the Company and its subsidiaries.
The Company
General. The Company, as the sole shareholder of the Bank, is a bank holding
company. As a bank holding company, the Company is registered with, and is
subject to regulation by, the Federal Reserve Board under the Bank Holding
Company Act, as amended (the "BHCA"). In accordance with Federal Reserve Board
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances where the
Company might not do so absent such policy. Under the BHCA, the Company is
subject to periodic examination by the Federal Reserve Board and is required to
file with the Federal Reserve Board periodic reports of its operations and such
additional information as the Federal Reserve Board may require.
Investments and Activities. Under the BHCA, a bank holding company must obtain
Federal Reserve Board approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after such acquisition, it would own or control more than 5% of such
shares (unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank; or (iii)
merging or consolidating with another bank holding company. Subject to certain
conditions (including certain deposit concentration limits established by the
BHCA), the Federal Reserve Board may allow a bank holding company to acquire
banks located in any state of the United States without regard to whether the
acquisition is prohibited by the law of the state in which the target bank is
located. In approving interstate acquisitions, however, the Federal Reserve
Board is required to give effect to applicable state law limitations on the
aggregate amount of deposits that may be held by the acquiring bank holding
company and its insured depository institution affiliates in the state in which
the target bank is located or which require that the target bank have been in
existence for a minimum period of time (not to exceed five years) before being
acquired by an out-of-state bank holding company.
The BHCA also prohibits, with certain exceptions, the Company from acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any company which is not a bank and from engaging in any business other than
that of banking, managing and controlling banks or furnishing services to banks
and their subsidiaries. The principal exception to this prohibition allows bank
holding companies to engage in, and to own shares of companies engaged in,
certain businesses found by the Federal Reserve Board to be "so closely related
to banking ... as to be a proper incident thereto." Under current regulations of
the Federal Reserve Board, the Company and its non-bank subsidiaries are
permitted to engage in, among other activities, such banking-related businesses
as the operation of a thrift, sales and consumer finance, equipment leasing, the
operation of a computer service bureau, including software development, and
mortgage banking and brokerage. The BHCA generally does not place territorial
restrictions on the activities of non-bank subsidiaries of bank holding
companies.
<PAGE>
Federal legislation also prohibits acquisition of "control" of a bank or bank
holding company, such as the Company, without prior notice to certain federal
bank regulators. "Control" is defined in certain cases as acquisition of 10% of
the outstanding shares of a bank or bank holding company.
Capital Requirements. Bank holding companies are required to maintain minimum
levels of capital in accordance with Federal Reserve Board capital adequacy
guidelines. If capital falls below minimum guideline levels, a bank holding
company, among other things, may be denied approval to acquire or establish
additional banks or non-bank businesses.
The Federal Reserve Board's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: a risk-based
requirement expressed as a percentage of total risk-weighted assets, and a
leverage requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, of which at least one-half must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with minimum requirements of 4% to 5% for
all others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships) and
total capital means Tier 1 capital plus certain other debt and equity
instruments which do not qualify as Tier 1 capital and a portion of the
company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum requirements,
and higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual banking organizations. Further, any
banking organization experiencing or anticipating significant growth would be
expected to maintain capital ratios, including tangible capital positions (i.e.,
Tier 1 capital less all intangible assets), well above the minimum levels.
Under the Federal Reserve Board's guidelines, the capital standards described
above generally apply on a consolidated basis to bank holding companies that
have more than $150 million in total consolidated assets and on a bank-only
basis to bank holding companies that, have less than $150 million in total
consolidated assets.
Dividends. The Federal Reserve Board has issued a policy statement with regard
to the payment of cash dividends by bank holding companies. In the policy
statement, the Federal Reserve Board expressed its view that a bank holding
company should not pay cash dividends exceeding its net income or which can only
be funded in ways that weaken the bank holding company's financial health, such
as by borrowing. Additionally, the Federal Reserve Board possesses enforcement
powers over bank holding companies and their non-bank subsidiaries to prevent or
remedy actions that represent unsafe or unsound practices or violations of
applicable statutes and regulations. Among these powers is the ability to
proscribe the payment of dividends by banks and bank holding companies.
In addition to the restrictions on dividends that may be imposed by the Federal
Reserve Board, the Delaware General Corporation Law would allow the Company to
pay dividends only out of its surplus, or if the Company has no such surplus,
out of its net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year.
Federal Securities Regulation. The Company's common stock is registered with the
SEC under the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Consequently, the Company is
subject to the information, proxy solicitation, insider trading and other
restrictions and requirements of the SEC under the Exchange Act.
The Bank
General. The Bank is an Iowa-chartered bank, the deposit accounts of which are
insured by the BIF of the FDIC. The Bank is also a member of the Federal Reserve
System ("member bank"). As an Iowa-chartered, FDIC-insured member bank, the Bank
is subject to the examination, supervision, reporting and enforcement
requirements of the Superintendent, as the chartering authority for Iowa banks,
the Federal Reserve Board, as the primary federal regulator of member banks, and
the FDIC, as administrator of the BIF.
Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay
deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums based upon
their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
<PAGE>
During the year ended June 30, 1997, BIF assessments ranged from 0% of deposits
to 0.27% of deposits. The FDIC has announced that for the semi-annual assessment
period beginning July 1, 1997, BIF assessment rates will continue to range from
0% of deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Company is not aware of any activity
or condition that could result in termination of the deposit insurance of the
Bank.
FICO Assessments. Since 1987, a portion of the deposit insurance assessments
paid by SAIF members has been used to cover interest payments due on the
outstanding obligations of the FICO, the entity created to finance the
recapitalization of the FSLIC, the SAIF's predecessor insurance fund. Pursuant
to federal legislation enacted September 30, 1996, commencing January 1, 1997,
both SAIF members and BIF members will be subject to assessments to cover the
interest payment on outstanding FICO obligations. Such FICO assessments will be
in addition to amounts assessed by the FDIC for deposit insurance. Until January
1, 2000, the FICO assessments made against BIF members may not exceed 20% of the
amount of the FICO assessments made against SAIF members. It is expected that
SAIF members will pay FICO assessments equal to 0.064% of deposits while BIF
members will pay FICO assessments equal to 0.013% of deposits. Between January
1, 2000 and the maturity of the outstanding FICO obligations in 2019, BIF
members and SAIF members will share the cost of the interest on the FICO bonds
on a pro rata basis. It is expected that FICO assessments during this period
will be less than 0.025% of deposits.
Capital Requirements. The Federal Reserve Board has established the following
minimum capital standards for state-chartered Federal Reserve System member
banks, such as the Bank: a leverage requirement consisting of a minimum ratio of
Tier 1 capital to total assets of 3% for the most highly-rated banks with
minimum requirements of 4% to 5% for all others, and a risk-based capital
requirement consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital.
For purposes of these capital standards, Tier 1 capital and total capital
consist of substantially the same components as Tier 1 capital and total capital
under the Federal Reserve Board's capital guidelines for bank holding companies
(see "--The Company--Capital Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
Federal Reserve Board provide that additional capital may be required to take
adequate account of interest rate risk or the risks posed by concentrations of
credit, nontraditional activities or securities trading activities.
During the year ended June 30, 1997, the Bank met all applicable regulatory
capital requirements.
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the submission
of a capital restoration plan; placing limits on asset growth and restrictions
on activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal
or interest on subordinated debt; and ultimately, appointing a receiver for the
institution.
Dividends. The Iowa Banking Act provides that an Iowa bank may not pay dividends
in an amount greater than its undivided profits. In addition, the Federal
Reserve Act imposes limitations on the amount of dividends that may be paid by a
state member bank, such as the Bank. Generally, a member bank may pay dividends
out of its undivided profits, in such amounts and at such times as the bank's
board of directors deems prudent. Without prior Federal Reserve Board approval,
however, a state member bank may not pay dividends in any calendar year which
exceed the bank's calendar year-to-date net income plus the bank's adjusted
retained net income for the two preceding calendar years.
<PAGE>
Insider Transactions. The Bank is subject to certain restrictions imposed by the
Federal Reserve Act on extensions of credit to the Company and its subsidiaries,
on investments in the stock or other securities of the Company and its
subsidiaries and the acceptance of the stock or other securities of the Company
or its subsidiaries as collateral for loans. Certain limitations and reporting
requirements are also placed on extensions of credit by the Bank to its
directors and officers, to directors and officers of the Company and its
subsidiaries, to principal stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. In addition,
such legislation and regulations may affect the terms upon which any person
becoming a director or officer of the Company or one of its subsidiaries or a
principal stockholder of the Company may obtain credit from banks with which the
Bank maintains a correspondent relationship.
<PAGE>
Safety and Soundness Standards. The Federal Reserve Board has adopted guidelines
which establish operational and managerial standards to promote the safety and
soundness of state member banks. The guidelines set forth standards for internal
controls, information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, fees
and benefits, asset quality and earnings. In general, the guidelines prescribe
the goals to be achieved in each area, and each institution is responsible for
establishing its own procedures to achieve those goals. If an institution fails
to comply with any of the standards set forth in the guidelines, the Federal
Reserve Board may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the guidelines states that the Federal
Reserve Board expects to require a compliance plan from an institution whose
failure to meet one or more of the guidelines is of such severity that it could
threaten the safety and soundness of the institution. Failure to submit an
acceptable plan, or failure to comply with a plan that has been accepted by the
Federal Reserve Board, would constitute grounds for further enforcement action.
Branching Authority. Iowa law strictly regulates the establishment of bank
offices. Under Iowa law, a state bank may not establish a bank office outside
the boundaries of the counties contiguous to or cornering upon the county in
which the principal place of business of the state bank is located. The number
of offices a state bank may establish in a particular municipality is also
limited depending upon the municipality's population.
Effective June 1, 1997 (or earlier if expressly authorized by applicable state
law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act") allows banks to establish interstate branch networks
through acquisitions of other banks, subject to certain conditions, including
certain limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of de novo interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if
specifically authorized by state law. The legislation allows individual states
to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. Iowa has enacted legislation
permitting interstate mergers beginning on June 1, 1997, subject to the
condition that any Iowa bank to be acquired by an out-of-state institution have
been in existence for at least five years prior to the merger.
State Bank Activities. Under federal law and FDIC regulations, FDIC insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations also prohibit
FDIC insured state banks and their subsidiaries, subject to certain exceptions,
from engaging as principal in any activity that is not permitted for a national
bank or its subsidiary, respectively, unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member. Impermissible investments and activities must be
divested or discontinued within certain time frames set by the FDIC. These
restrictions have not had, and are not currently expected to have, a material
impact on the operations of the Bank.
<PAGE>
Federal Reserve System. Federal Reserve Board regulations, as presently in
effect, require depository institutions to maintain non-interest earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts), as follows: for transaction accounts aggregating $49.3 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $49.3 million, the reserve
requirement is $1.479 million plus 10% of the aggregate amount of total
transaction accounts in excess of $49.3 million. The first $4.4 million of
otherwise reservable balances are exempted from the reserve requirements. These
reserve requirements are subject to annual adjustment by the Federal Reserve
Board. The Bank is in compliance with the foregoing requirements.
Monetary Policy and Economic Conditions
The earnings of bank holding companies and their subsidiary banks are affected
by general economic conditions and also by the fiscal and monetary policies of
federal regulatory agencies, including the Federal Reserve Board. Through open
market transactions, variations in the discount rate and the establishment of
reserve requirements, the Federal Reserve Board exerts considerable influence
over short and long term interest rates and thus the cost and availability of
funds obtainable for lending or investing. While the Bank could be severely
impacted by a significant increase in interest rates over a relatively short
period of time, the Bank intends to manage carefully its interest rate risk.
The above monetary and fiscal policies have affected the operating results of
all commercial banks in the past and are expected to do so in the future. The
Company cannot fully predict the nature or the extent of any effects which
fiscal or monetary policies may have on the its or the Bank's business and
earnings.
<PAGE>
APPENDIX B
GUIDE 3 INFORMATION
The following tables and schedules show selected comparative financial
information required by the Securities and Exchange Commission Securities Act
Guide 3, regarding the business of the Company for the periods shown. All
average amounts in these tables and schedules were determined by using month end
data, which management believes provides a fair representation of the daily
operations of the Company.
<PAGE>
I. Distribution of Assets, Liabilities and Stockholders' Equity
A. Consolidated Average Balance Sheets
June 30, 1997 and 1996
<TABLE>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks ....................................... $ 7,682,287 $ 4,910,046
Federal funds sold ............................................ 5,692,500 6,867,750
Certificates of deposit at financial institutions ............. 5,649,217 5,453,878
Total securities .............................................. 34,574,285 31,201,706
Loans receivable .............................................. 81,251,090 44,749,454
Less: Allowance for estimated losses on loans ................. (1,218,288) (685,151)
------------- -------------
Net loans receivable ..................................... 80,032,802 44,064,303
------------- -------------
Premises and equipment, net ................................... 5,113,472 2,634,978
Other assets .................................................. 3,053,322 1,839,122
------------- -------------
Total assets .......................................... $ 141,797,885 $ 96,971,783
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing demand ................................. $ 19,263,095 $ 12,338,863
Interest bearing demand .................................... 41,184,379 27,172,011
Savings .................................................... 2,322,197 1,515,687
Time ....................................................... 52,510,409 40,511,816
------------- -------------
Total deposits ........................................... 115,280,080 81,538,377
------------- -------------
Federal funds purchased ....................................... 517,083 1,236,896
Federal Home Loan Bank advances ............................... 7,718,076 1,248,101
Other borrowings .............................................. 1,416,667 83,333
Other liabilities ............................................. 3,886,997 1,134,660
------------- -------------
Total liabilities ..................................... 128,818,903 85,241,367
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock ............................................... 6 0
Common stock .................................................. 1,441,991 1,437,824
Additional paid-in capital .................................... 12,393,577 11,764,416
Retained earnings (deficit) ................................... (704,979) (1,534,097)
------------- -------------
13,130,595 11,668,143
Unrealized gains (losses) on securities available for sale, net (151,613) 62,273
------------- -------------
Total stockholders' equity ............................ 12,978,982 11,730,416
------------- -------------
Total liabilities and stockholders' equity ............ $ 141,797,885 $ 96,971,783
============= =============
</TABLE>
<PAGE>
I. Interest Rates and Interest Differential
B. Analysis of Net Interest Earnings
June 30, 1997 and 1996
<TABLE>
1997
------------------------------------------
Average Interest Average
Amount Income/ Yield/
Outstanding Expense Cost of Funds
-------------------------------------------
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Federal funds sold .............................. $ 5,692,500 $ 286,264 5.03%
Certificates of deposit at financial institutions 5,649,217 374,527 6.63%
Total securities (1) ............................ 34,574,285 2,139,263 6.19%
Net loans receivable (2) ........................ 80,032,802 6,950,031 8.68%
------------ ------------ --------
Total interest earning assets ........... $125,948,804 $ 9,750,085 7.74%
============ ============ ========
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits ................ $ 41,184,379 $ 1,381,170 3.35%
Savings deposits ................................ 2,322,197 52,886 2.28%
Time deposits ................................... 52,510,409 2,924,420 5.57%
Federal funds purchased ......................... 517,083 28,281 5.47%
Federal Home Loan Bank advances ................. 7,718,076 484,226 6.27%
Other borrowings ................................ 1,416,667 122,885 8.67%
------------ ------------ --------
Total interest bearing liabilities ...... $105,668,811 $ 4,993,868 4.73%
============ ============ ========
Net interest margin ............................. $ 4,756,217 3.78%
============ ========
1996
--------------------------------------------
INTEREST EARNING ASSETS
Federal funds sold .............................. $ 6,867,750 $ 382,226 5.57%
Certificates of deposit at financial institutions 5,453,878 359,409 6.59%
Total securities (1) ............................ 31,201,706 1,868,976 5.99%
Net loans receivable (2) ........................ 44,064,303 3,972,856 9.02%
------------ ------------ --------
Total interest earning assets ........... $ 87,587,637 $ 6,583,467 7.52%
============ ============ ========
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits ................ $ 27,172,011 $ 946,870 3.48%
Savings deposits ................................ 1,515,687 39,365 2.60%
Time deposits ................................... 40,511,816 2,363,313 5.83%
Federal funds purchased ......................... 1,236,896 64,909 5.25%
Federal Home Loan Bank advances ................. 1,248,101 70,319 5.63%
Other borrowings ................................ 83,333 1,604 1.92%
------------ ------------ --------
Total interest bearing liabilities ...... $ 71,767,844 $ 3,486,380 4.86%
============ ============ ========
Net interest margin ............................. $ 3,097,087 3.54%
============ ========
<FN>
(1) Interest earned and yields on nontaxable investment securities are stated
at face rate.
(2) Loan fees are not material and are included in interest income from loans
receivable.
</FN>
</TABLE>
<PAGE>
C. Analysis of Changes of Interest Income/Expense Items
June 30, 1997 and 1996
<TABLE>
1997
----------------------------------------
Inc./(Dec.) Components)
From of Change (1)
Prior Year Rate Volume
-----------------------------------------
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Federal funds sold .............................. $ (95,962) $ (34,587) $ (61,375)
Certificates of deposit at financial institutions 15,118 2,179 12,939
Total securities (2) ............................ 270,287 63,167 207,120
Net loans receivable (3) ........................ 2,977,175 (151,478) 3,128,653
----------- ----------- -----------
Total interest earning assets ........... $ 3,166,618 $ (120,719) $ 3,287,337
=========== =========== ===========
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits ................ $ 434,300 $ (36,871) $ 471,171
Savings deposits ................................ 13,521 (5,331) 18,852
Time deposits ................................... 561,107 (111,332) 672,439
Federal funds purchased ......................... (36,628) 2,633 (39,261)
Federal Home Loan Bank advances ................. 413,907 8,873 405,034
Other borrowings ................................ 121,281 21,800 99,481
----------- ----------- -----------
Total interest bearing liabilities ...... $ 1,507,488 $ (120,228) $ 1,627,716
=========== =========== ===========
1996
-----------------------------------------
INTEREST EARNING ASSETS
Federal funds sold .............................. $ (41,066) $ 10,284 $ (51,350)
Certificates of deposit at financial institutions 259,286 39,381 219,905
Total securities (2) ............................ 816,419 130,811 685,608
Net loans receivable (3) ........................ 1,998,706 113,859 1,884,847
----------- ----------- -----------
Total interest earning assets ........... $ 3,033,345 $ 294,335 $ 2,739,010
=========== =========== ===========
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits ................ $ 511,377 $ 14,207 $ 497,170
Savings deposits ................................ 15,328 (3,736) 19,064
Time deposits ................................... 1,029,993 94,645 935,348
Federal funds purchased ......................... (37,816) 9,242 (47,058)
Federal Home Loan Bank advances ................. 70,319 0 70,319
Other borrowings ................................ 1,604 0 1,604
----------- ----------- -----------
Total interest bearing liabilities ...... $ 1,590,805 $ 114,358 $ 1,476,447
=========== =========== ===========
<FN>
(1) The column "increase/decrease from prior year" 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 stated
at face rate.
(3) Loan fees are not material and are included in interest income from loans
receivable.
</FN>
</TABLE>
<PAGE>
II. A. Investment Securities.
The amortized cost and fair value of investment securities at June
30, 1997 and 1996 are summarized as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
June 30, 1997:
- -------------
Securities held to maturity:
Mortgage-backed securities ................................ $ 2,317,513 $ 673 $ (15,871) $ 2,302,315
Municipal securities ...................................... 596,616 1,581 (12,450) 585,747
------------ --------- ------------ ------------
Totals ............................................... $ 2,914,129 $ 2,254 $ (28,321) $ 2,888,062
============ ========= ============ ============
Securities available for sale:
U.S. treasury securities .................................. $ 14,496,366 $ 45,514 $ (20,226) $ 14,521,654
U.S. agency securities .................................... 9,742,495 8,462 (120,306) 9,630,651
Mortgage-backed securities ................................ 2,357,376 9,388 (6,526) 2,360,238
Other securities .......................................... 2,390,033 8,971 (13,918) 2,385,086
------------ --------- ------------ ------------
Totals ............................................... $ 28,986,270 $ 72,335 $ (160,976) $ 28,897,629
============ ========= ============ ============
June 30, 1996:
- -------------
Securities held to maturity:
Mortgage-backed securities ................................ $ 2,560,793 $ 2,513 $ (48,911) $ 2,514,395
Municipal securities ...................................... 595,808 1,355 (14,443) 582,720
------------ --------- ------------ ------------
Totals ............................................... $ 3,156,601 $ 3,868 $ (63,354) $ 3,097,115
============ ========= ============ ============
Securities available for sale:
U.S. treasury securities .................................. $ 14,504,449 $ 42,191 $ (156,912) $ 14,389,728
U.S. agency securities .................................... 12,612,166 8,759 (355,026) 12,265,899
Mortgage-backed securities ................................ 2,851,340 12,930 (20,365) 2,843,905
Other securities .......................................... 1,550,166 9,079 (26,125) 1,533,120
------------ --------- ------------ ------------
Totals ............................................... $ 31,518,121 $ 72,959 $ (558,428) $ 31,032,652
============ ========= ============ ============
</TABLE>
<PAGE>
B. Investment Securities Maturities and Yields.
The following table presents the maturity of securities held on June
30, 1997, and the weighted average rates by range of maturity:
Average
Amount Yield
----------- -------
U.S. treasury securities:
Within 1 year .................................. $ 3,502,568 5.34%
After 1 but within 5 years ..................... 10,993,798 5.87%
----------- ------
Total ..................................... $14,496,366 5.74%
=========== ======
U.S. agency securities:
Within 1 year .................................. $ 999,100 5.06%
After 1 but within 5 years ..................... 8,743,395 6.57%
----------- ------
Total ..................................... $ 9,742,495 6.50%
=========== ======
Municipal securities:
After 1 but within 5 years ..................... $ 596,616 6.82%
=========== ======
Mortgage-backed securities:
After 1 but within 5 years ..................... $ 1,802,311 6.28%
After 5 but within 10 years .................... 2,029,661 6.07%
After 10 years ................................. 842,917 5.74%
----------- ------
Total ..................................... $ 4,674,889 6.21%
=========== ======
Other securities with no maturity or stated face rate $ 2,390,033
===========
The Company does not utilize any financial instruments referred to as
derivatives to manage interest rate risk.
C. Investment Concentrations.
As of June 30, 1997, there existed no security in the investment
portfolio above (other than U.S. Government and U.S. Government
agencies) that exceeded 10% of stockholders equity at that date.
III. A. Types of Loans.
The composition of the loan portfolio at June 30, 1997 and 1996 is
presented as follows:
1997 1996
------------ ------------
Commercial ..................................... $ 68,634,556 $ 40,338,645
Real estate .................................... 20,293,440 9,011,608
Installment and other consumer ................. 19,437,433 7,459,467
------------ ------------
Total loans ............................... 108,365,429 56,809,720
Less allowance for estimated losses on loans ... (1,632,500) (852,500)
------------ ------------
Net loans ................................. $106,732,929 $ 55,957,220
============ ============
B. Loan Maturities and Sensitivities of Loans to Changes in Interest Rates.
The following table presents consolidated loan maturities by yearly
ranges. Also included for loans after one year are the amounts which
have predetermined interest rates and floating or adjustable rates.
<TABLE>
After Maturities After One Year
Due One But -----------------------------
Within Within After Pre-determined Adjustable
As of June 30, 1997 One Year 5 Years 5 Years Interest Rates Interest Rates
----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Commercial ................... $18,307,158 $37,584,943 $12,742,455 $35,074,702 $15,252,696
Real estate .................. 2,470,448 787,958 17,035,034 5,307,608 12,515,384
Installment and other
consumer ................... 3,248,984 15,054,383 1,134,066 15,061,230 1,127,219
----------- ----------- ----------- ----------- -----------
Totals .................. $24,026,590 $53,427,284 $30,911,555 $55,443,540 $28,895,299
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
C. Risk Elements.
1. Nonaccrual, past due and renegotiated loans.
1997 1996
-------- --------
Loans accounted for on nonaccrual basis .......... $230,591 $ 0
Accruing loans past due 90 days or more .......... 223,966 306,774
Troubled debt restructurings ..................... 0 0
-------- --------
Total ....................................... $454,557 $306,774
======== ========
The policy of the Company is to place a loan on nonaccrual status
if: (a) payment in full of interest or principal is not expected,
or (b) principal or interest has been in default for a period of 90
days or more unless the obligation is both in the process of
collection and well secured. Well secured is defined as collateral
with sufficient market value to repay principal and all accrued
interest. A debt is in the process of collection if collection of
the debt is proceeding in due course either through legal action,
including judgment enforcement procedures, or in appropriate
circumstances, through collection efforts not involving legal
action which are reasonably expected to result in repayment of the
debt or in its restoration to current status.
2. Potential Problem Loans. To management s best knowledge, there are
no such significant loans that have not been disclosed in the above
table.
3. Foreign Outstandings. None
4. Loan Concentrations. No individual real estate property or mortgage
amounts to 10% or more of consolidated assets.
D. Other Interest Earning Assets.
There are no interest bearing assets required to be disclosed here.
IV. Summary of Loan Loss Experience.
The following table summarizes activity in the allowance for estimated
losses on loans of the Company for the fiscal years ending June 30, 1997
and June 30, 1996:
1997 1996
----------- -----------
Average amount of loans outstanding, before
allowance for estimated losses on loans ..... $81,251,090 $44,749,454
Allowance for estimated losses on loans:
Balance, beginning of fiscal year ........... $ 852,500 $ 472,475
Loans charged off:
Commercial ............................. (26,141) (117,555)
Real estate ............................ 0 0
Installment and other consumer ......... (38,772) (2,817)
----------- -----------
Subtotal loans charged off .................. (64,913) (120,372)
Loan recoveries:
Commercial ............................. 266 0
Real estate ............................. 0 0
Installment and other consumer ......... 256 0
------------ ------------
Subtotal loan recoveries .................... 522 0
------------ ------------
Net charge-offs ............................. (64,391) (120,372)
Provision charged to expense ................ 844,391 500,397
------------ ------------
Balance, end of fiscal year ................. $ 1,632,500 $ 852,500
============ ============
Ratio of net charge-offs to average loans
outstanding .................................... 0.08% 0.27%
<PAGE>
The following table presents the allowance for estimated losses on loans
by type of loans and the percentage of loans in each category to total
loans:
1997 1996
---------------------- -----------------------
% of % of
Loans to Loans to
Amount Total Loans Amount Total Loans
---------- ----------- ---------- ------------
Commercial and industrial ..... $ 799,566 63.34% $ 0 71.01%
Real estate ................... 66,742 18.73% 0 15.86%
Consumer ...................... 387,096 17.93% 0 13.13%
Unallocated ................... 379,096 N/A 825,500 N/A
---------- ------- ---------- -------
Total .................... $1,632,500 100.00% $ 852,500 100.00%
========== ======= ========== =======
V. Deposits.
The average amount of and average rate paid for the categories of deposits
for the fiscal years 1997 and 1996 are disclosed in the consolidated
average balance sheets and can be found on page 3 of Appendix B.
Included in interest bearing deposits at June 30, 1997 and 1996 were
certificates of deposit totaling $22,978,123 and $13,720,210,
respectively, that were $100,000 or greater. Maturities of these
certificates were as follows:
1997 1996
----------- -----------
One to three months ................................ $10,745,903 $ 5,984,277
Three to six months ................................ 4,324,058 1,931,085
Six to twelve months ............................... 4,131,882 3,494,877
Over twelve months ................................. 3,776,280 2,309,971
----------- -----------
Total certificates of deposit greater than
$100,000 .................................... $22,978,123 $13,720,210
=========== ===========
VI. Return on Equity and Assets.
The following table presents the return on assets and equity and the
equity to assets ratio of the Company for the years ended June 30, 1997
and 1996.
1997 1996
--------------- --------------
Average total assets .................. $ 141,797,885 $ 96,971,783
Average equity ........................ $ 12,978,982 $ 11,730,416
Net income (loss) ..................... $ 1,219,336 $ 682,588
Return on average assets .............. 0.86% 0.70%
Return on average equity .............. 9.39% 5.82%
Average equity to assets ratio ........ 9.15% 12.10%
Exhibit 23.1
CONSENT
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 pertaining to the Quad City Holdings, Inc. 401(k)/Profit
Sharing Plan (File No. 33-77420) and Stock Option Plan (File No. 33-78024) of
our report dated August 1, 1997 relating to the June 30, 1997 financial
statements of Quad City Holdings, Inc. and to the reference to our Firm under
the caption "Experts" contained therein.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE, 30
1997 FORM 10-KSB OF QUAD CITY HOLDINGS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,953
<INT-BEARING-DEPOSITS> 5,359
<FED-FUNDS-SOLD> 9,190
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,898
<INVESTMENTS-CARRYING> 2,914
<INVESTMENTS-MARKET> 2,888
<LOANS> 108,365
<ALLOWANCE> 1,633
<TOTAL-ASSETS> 168,379
<DEPOSITS> 135,960
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,528
<LONG-TERM> 12,278
0
0
<COMMON> 1,463
<OTHER-SE> 13,150
<TOTAL-LIABILITIES-AND-EQUITY> 168,379
<INTEREST-LOAN> 6,950
<INTEREST-INVEST> 2,139
<INTEREST-OTHER> 661
<INTEREST-TOTAL> 9,750
<INTEREST-DEPOSIT> 4,358
<INTEREST-EXPENSE> 4,994
<INTEREST-INCOME-NET> 4,756
<LOAN-LOSSES> 844
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 5,291
<INCOME-PRETAX> 1,384
<INCOME-PRE-EXTRAORDINARY> 1,219
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219
<EPS-PRIMARY> .81
<EPS-DILUTED> .80
<YIELD-ACTUAL> 3.78
<LOANS-NON> 231
<LOANS-PAST> 224
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 853
<CHARGE-OFFS> 65
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,633
<ALLOWANCE-DOMESTIC> 1,633
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 379
</TABLE>
