U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------------- -------------------
Commission file number 0-22208
Quad City Holdings, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 42-1397595
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2118 Middle Road, Bettendorf, IA 52722
----------------------------------------
(Address of principal executive offices)
(319) 344-0600
---------------------------
(Issuer's telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days Yes [ x ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,462,824 as of February 10, 1997
Transitional Small Business Disclosure Format (check one): Yes [ x ] No [ ]
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I FINANCIAL INFORMATION
Item 1 Consolidated Condensed Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets,
December 31, 1997 & June 30, 1997
Consolidated Condensed Statements of Income,
For the Three Months Ended December 31, 1997 and 1996
Consolidated Condensed Statements of Income,
For the Six Months Ended December 31, 1997 and 1996
Consolidated Condensed Statements of Cash Flows,
For the Six Months Ended December 31, 1997 and 1996
Notes to Consolidated Condensed Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Part I, Item 1
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
December 31, June 30,
1997 1997
------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................................... $ 8,884,149 $ 6,953,463
Federal funds sold ........................................................ 11,325,000 9,190,000
Certificates of deposit at financial institutions ......................... 6,160,371 5,359,124
Securities held to maturity, at amortized cost ............................ 2,802,153 2,914,129
Securities available for sale, at fair value .............................. 29,702,253 28,897,629
------------------------------
Total securities ..................................................... 32,504,406 31,811,758
------------------------------
Loans receivable .......................................................... 140,390,172 108,365,429
Less: Allowance for estimated losses on loans ............................. (2,105,240) (1,632,500)
------------------------------
Net loans receivable ................................................. 138,284,932 106,732,929
------------------------------
Premises and equipment, net ............................................... 6,482,572 5,248,689
Accrued interest receivable ............................................... 1,587,586 1,374,307
Other assets .............................................................. 2,149,281 1,708,481
------------------------------
Total assets ...................................................... $ 207,378,297 $168,378,751
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing .................................................... $ 23,962,031 22,103,036
Interest-bearing ....................................................... 139,411,252 113,857,159
------------------------------
Total deposits ....................................................... 163,373,283 135,960,195
------------------------------
Federal Home Loan Bank advances ........................................... 20,813,462 10,777,712
Other borrowings .......................................................... 1,500,000 1,500,000
Other liabilities ......................................................... 4,783,753 5,527,618
------------------------------
Total liabilities ................................................. 190,470,498 153,765,525
------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; shares authorized 250,000; shares issued and 25 10
outstanding Dec. 1997, 25; June 1997, 10
Common stock, $1 par value; shares authorized 2,500,000; shares issued and
outstanding Dec. 1997 and June 1997, 1,462,824 .......................... 1,462,824 1,462,824
Additional paid-in capital ................................................ 14,539,391 13,039,406
Retained earnings ......................................................... 879,768 171,171
------------------------------
16,882,008 14,673,411
Unrealized gains (losses) on securities available for sale, net ........... 25,791 (60,185)
------------------------------
Total stockholders' equity ........................................ 16,907,799 14,613,226
------------------------------
Earnings per common share:
Total liabilities and stockholders' equity ........................ $ 207,378,297 $168,378,751
==============================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
Three Months Ended December 31,
1997 1996
-------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans ............................. $2,955,441 $1,558,952
Interest and dividends on securities ................... 485,988 542,456
Interest on federal funds sold ......................... 78,473 103,194
Other interest ......................................... 97,930 104,158
-----------------------
Total interest income ............................. 3,617,832 2,308,760
-----------------------
Interest expense:
Interest on deposits .................................. 1,646,371 1,059,273
Interest on borrowings ................................ 317,106 142,985
-----------------------
Total interest expense ............................ 1,963,477 1,202,258
-----------------------
Net interest income ............................... 1,654,355 1,106,502
Provision for loan losses .................................. 215,643 146,325
-----------------------
Net interest income after provision for loan losses 1,438,712 960,177
-----------------------
Other income:
Merchant credit card fees, net of processing costs ..... 316,694 362,864
Trust department fees .................................. 278,458 134,630
Deposit service fees ................................... 66,946 46,845
Gains on sales of loans, net ........................... 128,300 880
Other .................................................. 81,719 53,876
-----------------------
Total other income ................................ 872,117 599,095
-----------------------
Other expenses:
Salaries and benefits .................................. 968,988 648,922
Professional and data processing fees .................. 127,132 96,625
Advertising and marketing .............................. 80,681 20,940
Occupancy and equipment expense ........................ 205,781 163,662
Stationery and supplies ................................ 47,717 49,578
Provision for merchant credit card losses .............. 35,075 67,241
Postage and telephone .................................. 41,989 36,950
Other .................................................. 198,736 173,107
-----------------------
Total other expenses .............................. 1,706,099 1,257,025
-----------------------
Income before income taxes .................................. 604,730 302,247
Income taxes ................................................ 237,075 0
-----------------------
Net income ........................................ $ 367,655 $ 302,247
=======================
Earnings per common share:
Basic ............................................. 0.25 0.21
Diluted ........................................... 0.23 0.20
Weighted average common shares outstanding ........ 1,462,824 1,437,824
Weighted average common and common equivalent
shares outstanding .......................... 1,570,224 1,487,543
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
Six Months Ended December 31,
1997 1996
-----------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans ............................. $5,572,602 $2,888,573
Interest and dividends on securities ................... 985,424 1,063,437
Interest on federal funds sold ......................... 167,589 152,294
Other interest ......................................... 197,324 202,199
-----------------------
Total interest income ............................. 6,922,939 4,306,503
-----------------------
Interest expense:
Interest on deposits .................................. 3,139,329 1,978,414
Interest on borrowings ................................ 581,420 232,113
-----------------------
Total interest expense ............................ 3,720,749 2,210,527
-----------------------
Net interest income ............................... 3,202,190 2,095,976
Provision for loan losses .................................. 519,998 303,725
-----------------------
Net interest income after provision for loan losses 2,682,192 1,792,251
-----------------------
Other income:
Merchant credit card fees, net of processing costs ..... 735,428 690,057
Trust department fees .................................. 525,787 251,133
Deposit service fees ................................... 129,368 89,114
Gains on sales of loans, net ........................... 228,304 17,374
Other .................................................. 175,725 87,119
-----------------------
Total other income ................................ 1,794,612 1,134,797
-----------------------
Other expenses:
Salaries and benefits .................................. 1,936,281 1,212,093
Professional and data processing fees .................. 248,807 204,890
Advertising and marketing .............................. 132,603 51,830
Occupancy and equipment expense ........................ 407,679 302,548
Stationery and supplies ................................ 84,409 93,490
Provision for merchant credit card losses .............. 60,200 111,195
Postage and telephone .................................. 87,389 82,617
Other .................................................. 355,564 306,954
-----------------------
Total other expenses .............................. 3,312,932 2,365,617
-----------------------
Income before income taxes .................................. 1,163,872 561,431
Income taxes ................................................ 455,275 0
-----------------------
Net income ........................................ $ 708,597 $ 561,431
=======================
Earnings per common share:
Basic ............................................. 0.48 0.39
Diluted ........................................... 0.45 0.38
Weighted average common shares outstanding ........ 1,462,824 1,437,824
Weighted average common and common equivalent
shares outstanding .......................... 1,570,224 1,487,543
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
Six Months Ended December 31,
1997 1996
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................... $ 708,597 $ 561,431
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation ....................................................... 201,161 154,864
Provision for loan losses .......................................... 519,998 303,725
Provision for merchant credit card losses .......................... 60,200 111,195
Amortization of premiums (accretion of discounts) on securities, net (9,425) (19,224)
Net (gains) losses on securities available for sale ................ 0 0
Loans originated for sale .......................................... (17,838,625) (1,990,400)
Proceeds on sales of loans ......................................... 15,987,429 2,007,774
Net (gains) on sales of loans ...................................... (228,304) (17,374)
(Increase) in accrued interest receivable .......................... (213,279) (70,282)
(Increase) in other assets ......................................... (440,800) (100,434)
Increase (decrease) in other liabilities ........................... (844,557) 475,580
----------------------------
Net cash provided by (used in) operating activities ............. $ (2,097,605) $ 1,416,855
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) in federal funds sold ................................. (2,135,000) (9,692,000)
Net (increase) in certificates of deposits at financial institutions . (801,247) (185,621)
Net loans originated ................................................. (29,992,501) (19,806,219)
Purchase of securities held to maturity .............................. 0 0
Purchase of securities available for sale ............................ (3,738,088) (603,532)
Purchase of securities held to maturity .............................. (251,413) 0
Proceeds from maturity of securities ................................. 3,000,000 1,000,000
Proceeds from calls/paydowns on securities ........................... 432,746 238,862
Proceeds from sale of securities available for sale .................. 0 0
(Purchase) of premises and equipment, net ............................ (1,435,044) (742,505)
----------------------------
Net cash (used in) investing activities ......................... $(34,920,547) $(29,791,015)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts ..................................... 27,413,088 23,815,349
Net (decrease) in federal funds purchased ............................ 0 (1,190,000)
Proceeds from issuance of preferred stock ............................ 1,500,000 1,000,000
Proceeds from issuance of common stock ............................... 0 0
Dividends paid ....................................................... 0 0
Net increase (decrease) in short-term borrowings ..................... 0 0
Net increase in other borrowings ..................................... 0 500,000
Proceeds from Federal Home Loan Bank advances ........................ 17,900,000 9,286,000
Payments on Federal Home Loan Bank advances .......................... (7,864,250) (4,531,806)
----------------------------
Net cash provided by financing activities ....................... $ 38,948,838 $ 28,879,543
----------------------------
Net increase in cash and due from banks ......................... 1,930,686 505,383
Cash and due from banks, beginning .............................. 6,953,463 6,615,407
----------------------------
Cash and due from banks, ending ................................. $ 8,884,149 $ 7,120,790
============================
Supplemental disclosure of cash flow information, cash payments for:
Interest ............................................................. $ 3,459,770 $ 2,171,586
============================
Income/franchise taxes ............................................... $ 446,500 $ 0
============================
Supplemental schedule of noncash investing activities:
Change in unrealized gains on securities available for sale, net ..... $ 85,976 $ 443,372
============================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
Part I
Item 1
QUAD CITY HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include information or footnotes necessary for a fair presentation
of financial position, results of operations and changes in financial condition
in conformity with generally accepted accounting principles. However, all
adjustments that are, in the opinion of management, necessary for a fair
presentation have been included. Results for the quarter ended December 31, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 1998.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated condensed financial statements include the
accounts of Quad City Holdings, Inc. (the "Company"), a Delaware corporation,
and its wholly owned subsidiaries, Quad City Bank and Trust Company (the "Bank")
and Quad City Bancard, Inc. ("Bancard"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
NOTE 3 - EARNINGS PER SHARE
The following information was used in the computation of earnings per share on a
basic and diluted basis.
<TABLE>
Three months ended Six months ended
December 31, December 31,
----------------------- -----------------------
1997 1996 1997 1996
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net income, basic and diluted
earnings ...................... $ 367,655 $ 302,247 $ 708,597 $ 561,431
======================= =======================
Weighted average common shares
outstanding ................... 1,462,824 1,437,824 1,462,824 1,437,824
Weighted average common shares
issuable upon exercise of stock
options and warrants .......... 107,400 49,719 107,400 49,719
----------------------- -----------------------
Weighted average common and
common equivalent shares
outstanding ................... 1,570,224 1,487,543 1,570,224 1,487,543
======================= =======================
</TABLE>
<PAGE>
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Quad City Holdings. Inc. (the "Company") is the parent company of Quad City Bank
and Trust Company (the "Bank"), which commenced operations in January, 1994. The
Bank is 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 Bettendorf and Davenport, Iowa and Moline, Illinois and in adjacent
communities.
Quad City Bancard, Inc. ("Bancard") provides merchant credit card processing
services. Bancard has contracted with an independent sales organization that
markets credit card services to merchants throughout the country. Currently,
approximately 12,000 merchants process transactions with Bancard.
The Company has a fiscal year end of June 30.
FINANCIAL CONDITION
Total assets of the Company increased by $38,999,546 or 23.16% to $207,378,297
at December 31, 1997 from $168,378,751 at June 30, 1997. The growth primarily
resulted from an increase in deposits received from customers and from advances
received from the Federal Home Loan Bank.
Cash and due from banks increased by $1,930,686 or 27.77% to $8,884,149 at
December 31, 1997 from $6,953,463 at June 30, 1997 and represented both cash
maintained at the Bank, as well as 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 December 31,
1997, the Bank had $11,325,000 invested in such funds. This amount increased by
$2,135,000, or 23.23%, from $9,190,000 at June 30, 1997.
Certificates of deposit at financial institutions increased by $801,247 or
14.95% to $6,160,371 at December 31, 1997 from $5,359,124 at June 30, 1997. The
increase was due to new deposits in other banks in the form of certificates of
deposit.
Securities increased by $692,648 or 2.18% to $32,504,406 at December 31, 1997
from $31,811,758 at June 30, 1997. The increase was the result of a number of
transactions in the securities portfolio. Additional securities, classified as
available for sale, were purchased in the amount of $3,738,088; additional
securities, classified as held to maturity, were purchased in the amount of
$251,413; the net of the amortization of premiums and accretion of discounts was
$9,425; and the increase in unrealized gains on securities available for sale,
before applicable income tax, was $126,468. The increase was offset by paydowns
received on mortgage-backed securities of $432,746 and the maturity of four
securities in the amount of $3,000,000.
Loans receivable increased by $32,024,743 or 29.55% to $140,390,172 at December
31, 1997 from $108,365,429 at June 30, 1997. The increase was the result of the
origination of $74,745,177 of commercial business, consumer and real estate
loans, less loan repayments of $42,720,434.
The allowance for estimated losses on loans at December 31, 1997 was $2,105,240,
representing approximately 1.5% of gross loans outstanding. Similarly, the
allowance for estimated losses on loans at June 30, 1997 was approximately 1.5%
of gross loans outstanding, or $1,632,500. Although management believes that the
allowance for estimated losses on loans at December 31, 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.
Premises and equipment increased by $1,233,883 or 23.51% to $6,482,572 at
December 31, 1997 from $5,248,689 at June 30, 1997. The increase resulted from
the purchase of additional furniture, fixtures and equipment for the Bank and
Bancard, and certain site construction costs for the new Moline banking
location, offset by depreciation expense.
Accrued interest receivable on loans, securities and interest-bearing cash
accounts increased by $213,279 or 15.52% to $1,587,586 at December 31, 1997 from
$1,374,307 at June 30, 1997.
<PAGE>
Other assets increased by $440,800 or 25.80% to $2,149,281 at December 31, 1997
from $1,708,481 at June 30, 1997. Other assets consisted mainly of miscellaneous
receivables, prepaid expenses and accrued trust department income.
Deposits increased by $27,413,088 or 20.16% to $163,373,283 at December 31, 1997
from $135,960,195 at June 30, 1997. The increase resulted from a $14,210,013
increase in non-interest bearing, NOW, money market and other savings accounts
and a $13,203,075 increase in certificates of deposit.
Federal Home Loan Bank ("FHLB") advances increased by $10,035,750 or 93.12% to
$20,813,462 at December 31, 1997 from $10,777,712 at June 30, 1997. As a result
of its membership in the FHLB of Des Moines, the Bank has the ability to borrow
funds for short- or long-term purposes under a variety of programs. The increase
occurred primarily because deposit growth was not as great as the loan demand
during the period. Additionally, the use of the advances enabled the Bank to
hedge against the possibility of rising interest rates.
Other borrowings totaled $1,500,000 at both December 31, 1997 and June 30, 1997.
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 an 8% leverage ratio.
Other liabilities decreased by $743,865 or 13.46% to $4,783,753 at December 31,
1997 from $5,527,618 at June 30, 1997. Other liabilities was comprised of unpaid
amounts for various products and services, and accrued but unpaid interest on
deposits.
Preferred stock increased by $15 to $25 at December 31, 1997 from $10 at June
30, 1997. The increase was due to the issuance of 15 shares at $1.00 par value
of perpetual, nonvoting preferred stock for consideration of $1,500,000.
Common stock of $1,462,824 at both December 31, 1997 and June 30, 1997
represented 1,462,824 shares at $1.00 par value of the Company's common stock.
Additional paid-in capital increased by $1,499,985 to $14,539,391 at December
31, 1997 from $13,039,406 at June 30, 1997. The increase resulted from cash
received in excess of the par value for the 15 shares of preferred stock.
Retained earnings increased by $708,597 to $879,768 at December 31, 1997 from
$171,171 at June 30, 1997 to reflect net income for the six months.
Unrealized gains and losses on securities available for sale, net of related
income taxes, was a $25,791 gain at December 31, 1997 as compared to a $60,185
loss at June 30, 1997. The increase was attributable to the increase in fair
value of the securities, identified as available for sale, for the two prior
quarters.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Net income for the three month period ended December 31, 1997 increased to
$367,655 as compared to a net income of $302,247 for the same period in 1996.
Interest income increased by $1,309,072 from $2,308,760 for the three month
period ended December 31, 1996 to $3,617,832 for the three month period ended
December 31, 1997. The 56.70% rise in interest income was primarily attributable
to greater average outstanding balances in interest earning assets.
Interest expense increased by $761,219 from $1,202,258 for the three month
period ended December 31, 1996 to $1,963,477 for the three month period ended
December 31, 1997. The 63.32% increase in interest expense was again primarily
attributable to greater average outstanding balances in interest bearing
liabilities.
The Company had an allowance for estimated losses on loans of approximately 1.5%
of total loans at December 31, 1997 and 1996. The provision for loan losses
increased by $69,318 from $146,325 for the three month period ended December 31,
1996 to $215,643 for the three month period ended December 31, 1997. The 47.37%
increase in the provision was made as a result of the increase in the total loan
portfolio during this quarter. 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. The Company intends to continue to closely
monitor the loan portfolio and currently does not anticipate any material
losses.
<PAGE>
Other income increased by $273,022 from $599,095 for the three month period
ended December 31, 1996 to $872,117 for the three month period ended December
31, 1997. Other income at December 31, 1997 and 1996 consisted of income from
the merchant credit card operation, the trust department, depository service
fees, gains on the sale of residential real estate mortgage loans and other
miscellaneous fees. The increase was primarily due to the addition of new
clients in the trust department of the Bank and the expansion of the residential
real estate department of the Bank.
The main components of other expenses were primarily salaries and benefits,
occupancy and equipment expenses, and professional and data processing fees, for
both periods. Other expenses for the three months ended December 31, 1997 were
$1,706,099 as compared to $1,257,025 for the same period in 1996.
From December 31, 1996 to December 31, 1997, salaries and benefits experienced
the most significant increase of any noninterest expense component. For the
three months ended December 31, 1997, total salaries and benefits increased to
$968,988 or $320,066 over the December 31, 1996 total of $648,922. The change
was primarily attributable to the addition of new employees. Some of the new
positions added during that twelve month period were the following: a trust
officer, a technology manager, a consumer loan officer, three real estate loan
originators, a real estate underwriter, a loan quality manager, a credit
analyst, a financial accountant, a correspondent banking officer, a marketing
manager and a business development officer.
The provision for income taxes was $237,075 for the three month period ended
December 31, 1997 compared to no provision for the three month period ended
December 31, 1996. There was no provision for the quarter ended December 31,
1996, as the Company had net operating losses for income tax purposes.
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
Net income for the six month period ended December 31, 1997 increased to
$708,597 as compared to a net income of $561,431 for the same period in 1996.
Interest income increased by $2,616,436 from $4,306,503 for the six month period
ended December 31, 1996 to $6,922,939 for the six month period ended December
31, 1997. The 60.76% rise in interest income was primarily attributable to
greater average outstanding balances in interest earning assets.
Interest expense increased by $1,510,222 from $2,210,527 for the six month
period ended December 31, 1996 to $3,720,749 for the six month period ended
December 31, 1997. The 68.32% increase in interest expense was again primarily
attributable to greater average outstanding balances in interest bearing
liabilities.
The Company had an allowance for estimated losses on loans of approximately 1.5%
of total loans at December 31, 1997 and 1996. The provision for loan losses
increased by $216,273 from $303,725 for the six month period ended December 31,
1996 to $519,998 for the six month period ended December 31, 1997. The 71.21%
increase in the provision was made as a result of the increase in the total loan
portfolio during this quarter. 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. The Company intends to continue to closely
monitor the loan portfolio and currently does not anticipate any material
losses.
Other income increased by $659,815 from $1,134,797 for the six month period
ended December 31, 1996 to $1,794,612 for the six month period ended December
31, 1997. Other income at December 31, 1997 and 1996 consisted of income from
the merchant credit card operation, the trust department, depository service
fees, gains on the sale of residential real estate mortgage loans and other
miscellaneous fees. The increase was primarily due to the addition of new
clients in the trust department of the Bank and the expansion of the residential
real estate department of the Bank.
The main components of other expenses were primarily salaries and benefits,
occupancy and equipment expenses, professional and data processing fees, and
advertising and marketing expenses, for both periods. Other expenses for the six
months ended December 31, 1997 were $3,312,932 as compared to $2,365,617 for the
same period in 1996.
From December 31, 1996 to December 31, 1997, salaries and benefits experienced
the most significant increase of any noninterest expense component. For the six
months ended December 31, 1997, total salaries and benefits increased to
$1,936,281 or $724,188 over the December 31, 1996 total of $1,212,093. The
change was primarily attributable to the addition of new employees.
<PAGE>
The provision for income taxes was $455,275 for the six month period ended
December 31, 1997 compared to no provision for the six month period ended
December 31, 1996. There was no provision for the six month period ended
December 31, 1996, as the Company had net operating losses for income tax
purposes.
OTHER DEVELOPMENTS
Construction of the Davenport full service banking facility was completed in
July, 1996 to provide for the convenience of customers and to expand the Bank's
market territory. 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 developer
owns the northern portion. The Bank occupies its first floor and utilizes the
basement for the operations and item processing department, as well as storage.
The second floor is leased to two law firms. In addition, the residential real
estate department of the Bank began leasing approximately 2,500 square feet in
the attached building across the first floor atrium in January, 1998.
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 developer owns the
building and both the Bank and Bancard will be major tenants. Bancard relocated
its operations to the lower level of the 30,000 square foot building in
December, 1997. The Bank will begin its operations on the first floor of the
building in February, 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, 1997.
YEAR 2000 COMPLIANCE
The Company utilizes and is dependent upon data processing systems and software
to conduct its business. The data processing systems and software include those
developed and maintained by the Company's third-party data processing vendor and
purchased software which is run on in-house computer networks. In 1997, the
Company initiated a review and assessment of all hardware and software to
confirm that it will function properly in the year 2000. In the first quarter of
1998, the Company will be contacting each vendor, and requiring those vendors to
represent that their products provided are or will be year 2000 compliant.
Additionally, the Company has contracted with a public accounting/consulting
firm to review its Year 2000 Plan, and assist in the compliance testing. It is
recognized that any year 2000 compliance failures could result in additional
expense to the Company.
NEW ACCOUNTING PRONOUNCEMENTS
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. The purpose of reporting comprehensive
income is to disclose a measure of all changes in equity of an enterprise that
result from recognized transactions and other economic events of the period
other than transactions with owners in their capacity as owners. The Company
will be required to disclose comprehensive income. Currently, the Company's
comprehensive income would include net income and the change in unrealized gain
on securities available for sale, net.
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>
Part II
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 Legal Proceedings - None
Item 2 Changes in Securities - None
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders was held at the Jumer's Castle Lodge located
at 900 Spruce Hills Drive, Bettendorf, Iowa on October 22, 1997 at 10:00 a.m. At
the meeting, Michael A. Bauer, James J. Brownson and Robert A. Van Vooren were
elected to serve as Class I directors with terms expiring in 2000. Continuing as
Class II directors, with terms expiring in 1998, are Douglas M. Hultquist and
John W. Schricker. Continuing as Class III directors, with terms expiring in
1999, are Richard R. Horst and Ronald G. Peterson.
There were 1,462,824 issued and outstanding shares of common stock at the time
of the annual meeting. There were 1,319,234 common shares represented at the
meeting, either in person or by proxy, which constituted approximately 90% of
the outstanding shares. The voting for directors at the annual meeting was as
follows:
Michael A. Bauer - 1,316,934 votes for and 2,300 votes withheld James J.
Brownson - 1,316,834 votes for and 2,400 votes withheld Robert A. Van Vooren -
1,314,384 votes for and 4,850 votes withheld
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QUAD CITY HOLDINGS, INC.
(Registrant)
By: /s/ Douglas M. Hultquist
-------------------------------
Douglas M. Hultquist, President
Date February 10, 1997 /s/ Michael A. Bauer
----------------------------------
Michael A. Bauer, Chairman
Date February 11, 1997 /s/ Douglas M. Hultquist
----------------------------------
Douglas M. Hultquist, President
Principal Executive, Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOR THE DECEMBER
31, 1997 FORM 10-Q OF QUAD CITY HOLDINGS, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
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