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 March 31, 1998
[ ] 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 May 13, 1998
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,
March 31, 1998 & June 30, 1997
Consolidated Condensed Statements of Income,
For the Three Months Ended March 31, 1998 and 1997
Consolidated Condensed Statements of Income,
For the Nine Months Ended March 31, 1998 and 1997
Consolidated Condensed Statements of Cash Flows,
For the Nine Months Ended March 31, 1998 and 1997
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>
March 31, June 30,
ASSETS 1998 1997
-----------------------------
<S> <C> <C>
Cash and due from banks ................................................... $ 17,368,379 $ 6,953,463
Federal funds sold ........................................................ 12,785,000 9,190,000
Certificates of deposit at financial institutions ......................... 7,782,903 5,359,124
Securities held to maturity, at amortized cost ............................ 2,547,087 2,914,129
Securities available for sale, at fair value .............................. 26,933,576 28,897,629
-----------------------------
Total securities ..................................................... 29,480,663 31,811,758
-----------------------------
Loans receivable .......................................................... 153,464,613 108,365,429
Less: Allowance for estimated losses on loans ............................. (2,309,023) (1,632,500)
-----------------------------
Net loans receivable ................................................. 151,155,590 106,732,929
-----------------------------
Premises and equipment, net ............................................... 7,536,493 5,248,689
Accrued interest receivable ............................................... 1,750,583 1,374,307
Other assets .............................................................. 2,149,952 1,708,481
-----------------------------
Total assets ...................................................... $230,009,563 $168,378,751
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing .................................................... $ 24,453,094 $ 22,103,036
Interest-bearing ....................................................... 160,826,169 113,857,159
-----------------------------
Total deposits ....................................................... 185,279,263 135,960,195
-----------------------------
Federal Home Loan Bank advances ........................................... 23,240,932 10,777,712
Other borrowings .......................................................... 1,500,000 1,500,000
Other liabilities ......................................................... 2,778,522 5,527,618
-----------------------------
Total liabilities ................................................. 212,798,717 153,765,525
-----------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; shares authorized 250,000; shares issued and 25 10
outstanding March 1998, 25; June 1997, 10
Common stock, $1 par value; shares authorized 2,500,000; shares issued and
outstanding March 1998 and June 1997, 1,462,824 ......................... 1,462,824 1,462,824
Additional paid-in capital ................................................ 14,539,391 13,039,406
Retained earnings ......................................................... 1,180,135 171,171
-----------------------------
17,182,375 14,673,411
Unrealized gains (losses) on securities available for sale, net ........... 28,471 (60,185)
-----------------------------
Total stockholders' equity ........................................ 17,210,846 14,613,226
-----------------------------
Total liabilities and stockholders' equity ........................ $230,009,563 $168,378,751
=============================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
Part I, Item 1
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
Three Months Ended March 31,
----------------------------
1998 1997
-----------------------
<S> <C> <C>
Interest income:
Interest and fees on loans ............................. $3,069,419 $1,755,823
Interest and dividends on securities ................... 468,600 556,770
Interest on federal funds sold ......................... 137,878 80,248
Other interest ......................................... 121,486 106,884
-----------------------
Total interest income ............................. 3,797,383 2,499,725
-----------------------
Interest expense:
Interest on deposits .................................. 1,770,112 1,142,614
Interest on borrowings ................................ 387,805 182,849
-----------------------
Total interest expense ............................ 2,157,917 1,325,463
-----------------------
Net interest income ............................... 1,639,466 1,174,262
Provision for loan losses .................................. 233,260 222,775
-----------------------
Net interest income after provision for loan losses 1,406,206 951,487
-----------------------
Other income:
Merchant credit card fees, net of processing costs ..... 326,122 406,718
Trust department fees .................................. 299,602 194,480
Deposit service fees ................................... 73,775 50,385
Gains on sales of loans, net ........................... 284,083 38,584
Investment securities gains, net ....................... 8,734 14,248
Other .................................................. 141,787 85,930
-----------------------
Total other income ................................ 1,134,103 790,345
-----------------------
Other expenses:
Salaries and benefits .................................. 1,173,299 792,267
Professional and data processing fees .................. 126,530 102,837
Advertising and marketing .............................. 103,430 24,151
Occupancy and equipment expense ........................ 282,105 173,534
Stationery and supplies ................................ 71,754 40,504
Provision for merchant credit card losses .............. 23,226 26,122
Postage and telephone .................................. 74,307 42,024
Other .................................................. 193,866 190,571
-----------------------
Total other expenses .............................. 2,048,517 1,392,010
-----------------------
Income before income taxes .................................. 491,792 349,822
Income taxes ................................................ 191,425 0
-----------------------
Net income ........................................ $ 300,367 $ 349,822
=======================
Earnings per common share:
Basic ............................................. 0.21 0.24
Diluted ........................................... 0.19 0.23
Weighted average common shares outstanding ........ 1,462,824 1,437,824
Weighted average common and common equivalent
shares outstanding .......................... 1,585,514 1,500,516
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
Part I, Item 1
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
Nine Months Ended March 31,
---------------------------
1998 1997
-------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans ............................. $ 8,642,021 $ 4,661,770
Interest and dividends on securities ................... 1,454,024 1,620,207
Interest on federal funds sold ......................... 305,467 232,542
Other interest ......................................... 318,810 309,083
-------------------------
Total interest income ............................. 10,720,322 6,823,602
-------------------------
Interest expense:
Interest on deposits .................................. 4,909,441 3,121,028
Interest on borrowings ................................ 969,225 414,962
-------------------------
Total interest expense ............................ 5,878,666 3,535,990
-------------------------
Net interest income ............................... 4,841,656 3,287,612
Provision for loan losses .................................. 753,258 526,500
-------------------------
Net interest income after provision for loan losses 4,088,398 2,761,112
-------------------------
Other income:
Merchant credit card fees, net of processing costs ..... 1,061,550 1,096,775
Trust department fees .................................. 825,389 445,613
Deposit service fees ................................... 203,143 139,499
Gains on sales of loans, net ........................... 512,387 38,584
Investment securities gains, net ....................... 8,734 14,248
Other .................................................. 317,512 173,049
-------------------------
Total other income ................................ 2,928,715 1,907,768
-------------------------
Other expenses:
Salaries and benefits .................................. 3,109,580 2,004,360
Professional and data processing fees .................. 375,337 307,727
Advertising and marketing .............................. 236,033 75,981
Occupancy and equipment expense ........................ 689,784 476,082
Stationery and supplies ................................ 156,163 133,994
Provision for merchant credit card losses .............. 83,426 137,317
Postage and telephone .................................. 161,696 124,641
Other .................................................. 549,430 497,525
-------------------------
Total other expenses .............................. 5,361,449 3,757,627
-------------------------
Income before income taxes .................................. 1,655,664 911,253
Income taxes ................................................ 646,700 0
-------------------------
Net income ........................................ $ 1,008,964 $ 911,253
=========================
Earnings per common share:
Basic ............................................. 0.69 0.63
Diluted ........................................... 0.64 0.61
Weighted average common shares outstanding ........ 1,462,824 1,437,824
Weighted average common and common equivalent
shares outstanding .......................... 1,585,514 1,500,516
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
Part I, Item 1
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
Nine Months Ended March 31,
----------------------------
1998 1997
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................................. $ 1,008,964 $ 911,253
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation .......................................................... 330,521 246,243
Provision for loan losses ............................................. 753,258 526,500
Provision for merchant credit card losses ............................. 83,426 137,317
Amortization of premiums (accretion of discounts) on securities, net .. (14,329) (24,044)
Loans originated for sale ............................................. (38,142,945) (1,568,205)
Proceeds on sales of loans ............................................ 32,137,607 1,606,789
Net (gains) on sales of loans ......................................... (512,387) (38,584)
Realized (gains) on securities available for sale, net ................ (8,734) (14,248)
(Increase) in accrued interest receivable ............................. (376,276) (71,690)
(Increase) in other assets ............................................ (469,927) (43,985)
Increase (decrease) in other liabilities .............................. (2,846,105) 2,994,205
----------------------------
Net cash provided by (used in) operating activities ................ $ (8,056,927) $ 4,661,551
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) in federal funds sold .................................... (3,595,000) (2,977,000)
Net (increase) in certificates of deposits at financial institutions .... (2,423,779) (383,905)
Net loans originated .................................................... (38,658,194) (34,426,464)
Purchase of securities available for sale ............................... (5,751,974) (4,884,260)
Purchase of securities held to maturity ................................. (251,413) 0
Proceeds from calls and maturity of securities .......................... 7,500,000 2,000,000
Proceeds from paydowns on securities .................................... 974,227 862,603
Proceeds from sale of securities available for sale ..................... 14,013 32,700
Purchase of premises and equipment, net ................................. (2,618,325) (937,286)
----------------------------
Net cash (used in) investing activities ............................ $(44,810,445) $(40,713,612)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts ........................................ 49,319,068 28,481,572
Net (decrease) in federal funds purchased ............................... 0 (1,190,000)
Proceeds from issuance of preferred stock ............................... 1,500,000 1,000,000
Net increase in other borrowings ........................................ 0 500,000
Proceeds from Federal Home Loan Bank advances ........................... 20,400,000 10,461,000
Payments on Federal Home Loan Bank advances ............................. (7,936,780) (4,560,918)
----------------------------
Net cash provided by financing activities .......................... $ 63,282,288 $ 34,691,654
----------------------------
Net increase (decrease) in cash and due from banks ................. 10,414,916 (1,360,407)
Cash and due from banks, beginning ................................. 6,953,463 6,615,407
----------------------------
Cash and due from banks, ending .................................... $ 17,368,379 $ 5,255,000
============================
Supplemental disclosure of cash flow information, cash payments for:
Interest ................................................................ $ 5,495,988 $ 3,386,596
============================
Income/franchise taxes .................................................. $ 1,324,000 $ 0
============================
Change in unrealized gains (losses) on securities available for sale, net $ 88,656 $ (253,257)
============================
</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)
MARCH 31, 1998
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 periods ended March 31, 1998
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 Nine months ended
March 31, March 31,
-------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------
<S> <C> <C> <C> <C>
Net income, basic and diluted
Earnings ...................... $ 300,367 $ 349,822 $1,008,964 $ 911,253
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 .......... 122,690 62,692 122,690 62,692
Weighted average common and
common equivalent shares
outstanding ................... 1,585,514 1,500,516 1,585,514 1,500,516
</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 $61,630,812 or 36.60% to
$230,009,563 at March 31, 1998 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 $10,414,916 or 149.78% to $17,368,379
at March 31, 1998 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 March 31,
1998, the Bank had $12,785,000 invested in such funds. This amount increased by
$3,595,000, or 39.12%, from $9,190,000 at June 30, 1997.
Certificates of deposit at financial institutions increased by $2,423,779
or 45.23% to $7,782,903 at March 31, 1998 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 decreased by $2,331,095 or 7.33% to $29,480,663 at March 31,
1998 from $31,811,758 at June 30, 1997. The decrease 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 $5,751,974. 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
$14,329, and the increase in unrealized gains on securities available for sale,
before applicable income tax, was $130,695. The increase was offset by paydowns
received on mortgage-backed securities of $974,227 and the maturity and calls of
securities in the amount of $7,500,000. Additionally, one security classified as
available for sale was sold for $14,013, resulting in a gain of $8,734.
Loans receivable increased by $45,099,184 or 41.62% to $153,464,613 at
March 31, 1998 from $108,365,429 at June 30, 1997. The increase was the result
of the origination of $110,044,815 of commercial business, consumer and real
estate loans, less loan repayments and payments on sales of loans of
$64,945,631.
The allowance for estimated losses on loans at March 31, 1998 was
$2,309,023, 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 March
31, 1998 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 $2,287,804 or 43.59% to $7,536,493 at
March 31, 1998 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 $376,276 or 27.38% to $1,750,583 at March 31, 1998 from
$1,374,307 at June 30, 1997.
<PAGE>
Other assets increased by $441,471 or 25.84% to $2,149,952 at March 31,
1998 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 $49,319,068 or 36.27% to $185,279,263 at March 31,
1998 from $135,960,195 at June 30, 1997. The increase resulted from an
$18,429,948 net increase in non-interest bearing, NOW, money market and other
savings accounts and a $30,889,120 net increase in certificates of deposit.
Federal Home Loan Bank ("FHLB") advances increased by $12,463,220 or
115.64% to $23,240,932 at March 31, 1998 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 was primarily attributable to the fact that deposit growth was less
than 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 March 31, 1998 and June 30,
1997. Other borrowings consist of the amount outstanding on a revolving credit
note with a third party lender, which is secured by all the outstanding stock of
the Bank. At June 30, 1997, the total credit note was in the amount of
$1,500,000, however on March 10, 1998 the Company increased the credit note by
$2,000,000 to a total amount of $3,500,000. The borrowed funds were utilized to
provide additional capital to the Bank to maintain an 8% leverage ratio.
Other liabilities decreased by $2,749,096 or 49.73% to $2,778,522 at March
31, 1998 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 March 31, 1998 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 March 31, 1998 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 March
31, 1998 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 $1,008,964 to $1,180,135 at March 31, 1998
from $171,171 at June 30, 1997 to reflect net income for the nine months.
Unrealized gains and losses on securities available for sale, net of
related income taxes, was a $28,471 gain at March 31, 1998 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 three
prior quarters.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Income before income taxes increased by $141,970 from $349,822 for the
three month period ended March 31, 1997 to $491,792 in the same period in 1998.
There was no provision for income taxes for the quarter ended March 31, 1997, as
the Company still had net operating losses from its start-up period for income
tax purposes. As a result, net income for the three-month period ended March 31,
1998 was $300,367 as compared to net income of $349,822 for the same period in
1997.
Interest income increased by $1,297,658 from $2,499,725 for the three
month period ended March 31, 1997 to $3,797,383 for the three month period ended
March 31, 1998. The 51.91% rise in interest income was primarily attributable to
greater average outstanding balances in interest earning assets.
Interest expense increased by $832,454 from $1,325,463 for the three month
period ended March 31, 1997 to $2,157,917 for the three month period ended March
31, 1998. The 62.80% 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 March 31, 1998 and 1997. The provision for
loan losses increased by $10,485 from $222,775 for the three month period ended
March 31, 1997 to $233,260 for the three month period ended March 31, 1998. The
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 $334,758 from $790,345 for the three month
period ended March 31, 1997 to $1,134,103 for the three month period ended March
31, 1998. Other income at March 31, 1998 and 1997 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, the gain on a sale
of an investment security and other miscellaneous fees. The increase was
primarily due to an increase in assets being managed by the trust department of
the Bank, much of which resulted from the addition of new clients, and the
expansion of the residential real estate department of the Bank.
Merchant credit card fees, net of processing costs decreased by $80,596
from $406,718 for the three month period ended March 31, 1997 to $326,122 for
the three month period ended March 31, 1998. Bancard is currently in the process
of restructuring its merchant portfolio to focus on smaller merchants with less
risk and as a result experienced reduced earnings.
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 March 31, 1998
were $2,048,517 as compared to $1,392,010 for the same period in 1997.
From March 31, 1997 to March 31, 1998, salaries and benefits experienced
the most significant increase of any noninterest expense component. For the
three months ended March 31, 1998, total salaries and benefits increased to
$1,173,299 or $381,032 over the March 31, 1997 total of $792,267. The change was
primarily attributable to the addition of new employees. Some of the new
positions added during that twelve month period were: a trust officer, a
technology manager, a consumer loan officer, four real estate loan originators,
a real estate underwriter, a loan quality manager, a credit analyst, a
correspondent banking officer, a marketing manager and a business development
officer.
The provision for income taxes was $191,425 for the three-month period
ended March 31, 1998 compared to no provision for the three-month period ended
March 31, 1997. There was no provision for the quarter ended March 31, 1997, as
the Company had net operating losses for income tax purposes.
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
Income before income taxes increased by $744,411 from $911,253 for the
nine month period ended March 31, 1997 to $1,655,664 in the same period in 1998.
There was no provision for income taxes for the nine months ended March 31,
1997, as the Company still had net operating losses from its start-up period for
income tax purposes. As a result, net income for the nine-month period ended
March 31, 1998 increased slightly to $1,008,964 as compared to a net income of
$911,253 for the same period in 1997.
Interest income increased by $3,896,720 from $6,823,602 for the nine month
period ended March 31, 1997 to $10,720,322 for the nine month period ended March
31, 1998. The 57.11% rise in interest income was primarily attributable to
greater average outstanding balances in interest earning assets.
Interest expense increased by $2,342,676 from $3,535,990 for the nine
month period ended March 31, 1997 to $5,878,666 for the nine month period ended
March 31, 1998. The 66.25% 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 March 31, 1998 and 1997. The provision for
loan losses increased by $226,758 from $526,500 for the nine month period ended
March 31, 1997 to $753,258 for the nine month period ended March 31, 1998. The
43.07% 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 $1,020,947 from $1,907,768 for the nine month
period ended March 31, 1997 to $2,928,715 for the nine month period ended March
31, 1998. Other income at March 31, 1998 and 1997 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, the gain on a sale
of an investment security and other miscellaneous fees. The increase was
primarily due to an increase in assets being managed by the trust department of
the Bank, much of which resulted from the addition of new clients, and the
expansion of the residential real estate department of the Bank.
<PAGE>
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 nine months ended March 31, 1998 were $5,361,449 as compared to
$3,757,627 for the same period in 1997.
From March 31, 1997 to March 31, 1998, salaries and benefits experienced
the most significant increase of any noninterest expense component. For the nine
months ended March 31, 1998, total salaries and benefits increased to $3,109,580
or $1,105,220 over the March 31, 1997 total of $2,004,360. The change was
primarily attributable to the addition of new employees, as well as to normal
salary increases for existing employees.
The provision for income taxes was $646,700 for the nine-month period
ended March 31, 1998 compared to no provision for the nine-month period ended
March 31, 1997. There was no provision for the nine-month period ended March 31,
1997, 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 was completed 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 are major tenants. Bancard
relocated its operations to the lower level of the 30,000 square foot building
in December, 1997. The Bank began its operations on the first floor of the
building on February 17, 1998. The Bank is leasing the entire first floor of the
building, and is subleasing approximately 3,500 square feet to a nonrelated
entity for the first twenty-four months of the lease contract.
YEAR 2000 COMPLIANCE
The federal banking regulators have issued several statements providing
guidance to financial institutions on the steps the regulators expect financial
institutions to take to become Year 2000 compliant. Each of the federal banking
regulators is also examining the financial institutions under its jurisdiction
to assess each institution's compliance with the outstanding guidance. If an
institution's progress in addressing the Year 2000 problem is deemed by its
primary federal regulator to be less than satisfactory, the institution will be
required to enter into a memorandum of understanding with the regulator which
will, among other things, require the institution to promptly develop and submit
an acceptable plan for becoming Year 2000 compliant and to provide periodic
reports describing the institution's progress in implementing the plan. Failure
to satisfactorily address the Year 2000 problem may also expose a financial
institution to other forms of enforcement action that its primary federal
regulator deems appropriate to address the deficiencies in the institution's
Year 2000 remediation program.
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. During 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 has contacted each vendor, and
required those vendors to represent that their products provided are or will be
year 2000 compliant. It is recognized that any Year 2000 compliance failures
could result in additional expense to the Company, however the Company has not
identified any situations at this time that will require material cost
expenditures to become fully compliant. An unknown element at this time is the
impact of the Year 2000 on the Company's borrowing customers and their ability
to repay. The Company has initiated a program to communicate with key bank
commercial customers to ensure they are properly prepared for the Year 2000 and
will not suffer serious adverse consequences.
<PAGE>
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 gains
(losses) 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.
The Financial Accounting Standards Board has issued SFAS No. 132
"Employers' Disclosures about Pensions and Other Postretirement Benefits" which
is effective for fiscal years beginning after December 15, 1997. This Statement
standardizes employers' disclosures about pensions and other postretirement
benefit plans, requires certain additional information, and eliminates other
existing disclosures. It does not change the measurement or recognition of these
benefit plans. 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
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
(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 May 13, 1998 /s/ Michael A. Bauer
-------------------------------------
Michael A. Bauer, Chairman
Date May 13, 1998 /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 INFORMATIN EXTRACTED FROM THE MARCH 31,
1998 FORM 10-QSB 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
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<TOTAL-ASSETS> 230,010
<DEPOSITS> 185,279
<SHORT-TERM> 1,500
<LIABILITIES-OTHER> 2,779
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0
0
<COMMON> 1,463
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