U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-22208
QUAD CITY HOLDINGS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 42-1397595
- ------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer ID Number)
incorporation or organization)
3551 7th Street, Suite 100, Moline, Illinois 61265
--------------------------------------------------
(Address of principal executive offices)
(309) 736-3580
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the Registrant (1) has 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 the past 90 days.
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: As of May 1, 2000,
the Registrant had outstanding 2,318,291 shares of common stock, $1.00 par value
per share.
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
Part I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets, March 31, 2000 and
June 30, 1999
Consolidated Statements of Income, For the Three
Months Ended March 31, 2000 and 1999
Consolidated Statements of Income, For the Nine
Months Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows, For the
Nine Months Ended March 31, 2000 and 1999
Notes to Consolidated 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 and Use of Proceeds
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>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 2000 and June 30, 1999
<TABLE>
March 31, June 30,
2000 1999
------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks ........................................ $ 9,823,549 $ 8,528,195
Federal funds sold ............................................. 34,345,000 39,125,000
Certificates of deposit at financial institutions .............. 12,702,003 12,535,193
Securities held to maturity, at amortized cost ................. 574,845 724,415
Securities available for sale, at fair value ................... 61,018,593 50,941,759
------------------------------
61,593,438 51,666,174
------------------------------
Loans receivable ............................................... 218,183,277 197,976,692
Less: Allowance for estimated losses on loans .................. (3,302,835) (2,895,457)
------------------------------
214,880,442 195,081,235
------------------------------
Premises and equipment, net .................................... 7,608,481 7,553,616
Accrued interest receivable .................................... 2,587,977 2,006,503
Other assets ................................................... 5,811,072 4,850,299
------------------------------
Total assets ........................................... $ 349,351,962 $ 321,346,215
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing deposits ................................ $ 46,060,113 $ 35,833,094
Interest-bearing deposits ................................... 231,370,653 212,132,785
------------------------------
Total deposits ............................................ 277,430,766 247,965,879
------------------------------
Short-term borrowings .......................................... 15,798,159 9,685,877
Federal Home Loan Bank advances ................................ 20,014,166 24,605,890
Company obligated manditorily redeemable preferred securities of
subsidiary trust holding solely subordinated debentures ... 12,000,000 12,000,000
Other liabilities .............................................. 3,972,701 8,615,098
------------------------------
329,215,792 302,872,744
------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; shares authorized 5,000,000; ....... 2,325,416 2,296,251
shares issued and outstanding March 2000, 2,325,416;
June 1999, 2,296,251
Additional paid-in capital ..................................... 12,135,971 11,959,080
Retained earnings .............................................. 6,685,732 4,550,490
Accumulated other comprehensive (loss), unrealized (losses) on
securities available for sale, net ........................... (1,010,949) (332,350)
------------------------------
20,136,170 18,473,471
------------------------------
Total liabilities and stockholders' equity ............. $ 349,351,962 $ 321,346,215
==============================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31
<TABLE>
Three Months Ended March 31,
2000 1999
----------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans ................................. $4,451,546 $3,877,779
Interest and dividends on securities ....................... 891,411 605,262
Interest on federal funds sold ............................. 423,266 286,399
Other interest ............................................. 186,296 179,315
-----------------------
Total interest income ................................. 5,952,519 4,948,755
-----------------------
Interest expense:
Interest on deposits ...................................... 2,563,733 2,182,040
Interest on company obligated manditorily
redeemable preferred securities ...................... 276,000 0
Interest on short-term and other borrowings ............... 459,970 491,891
-----------------------
Total interest expense ................................ 3,299,703 2,673,931
-----------------------
Net interest income ................................... 2,652,816 2,274,824
Provision for loan losses ...................................... 85,600 218,200
-----------------------
Net interest income after provision for loan losses ... 2,567,216 2,056,624
-----------------------
Noninterest income:
Merchant credit card fees, net of processing costs ......... 652,510 369,582
Trust department fees ...................................... 525,235 427,848
Deposit service fees ....................................... 137,169 104,385
Gains on sales of loans, net ............................... 71,253 222,190
Investment securities gains, net ........................... 14,970 1,614
Amortization of deferred income resulting from restructuring
of merchant broker agreement .......................... 0 183,000
Other ...................................................... 223,272 128,570
-----------------------
Total noninterest income .............................. 1,624,409 1,437,189
-----------------------
Noninterest expenses:
Salaries and employee benefits ............................. 1,806,069 1,508,891
Professional and data processing fees ...................... 230,558 147,581
Advertising and marketing .................................. 116,991 84,321
Occupancy and equipment expense ............................ 376,142 351,045
Stationery and supplies .................................... 82,649 60,084
Provision for merchant credit card losses .................. 5,743 4,200
Postage and telephone ...................................... 83,811 82,572
Other ...................................................... 258,098 234,283
-----------------------
Total noninterest expenses ............................ 2,960,061 2,472,977
-----------------------
Income before income taxes ............................ 1,231,564 1,020,836
Federal and state income taxes .................................. 471,890 406,889
-----------------------
Net income ............................................ $ 759,674 $ 613,947
=======================
Earnings per common share:
Basic ................................................. $ 0.33 $ 0.27
Diluted ............................................... $ 0.32 $ 0.25
Weighted average common shares outstanding ............ 2,324,004 2,286,863
Weighted average common and common equivalent
shares outstanding .............................. 2,383,478 2,406,896
Comprehensive income ............................................ $ 480,095 $ 460,421
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended March 31
<TABLE>
Nine Months Ended March 31,
2000 1999
---------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans ................................. $13,353,768 $11,508,963
Interest and dividends on securities ....................... 2,512,028 1,617,493
Interest on federal funds sold ............................. 1,257,820 1,044,093
Other interest ............................................. 564,791 513,181
-------------------------
Total interest income ................................. 17,688,407 14,683,730
-------------------------
Interest expense:
Interest on deposits ...................................... 7,420,361 6,674,433
Interest on company obligated manditorily
redeemable preferred securities ...................... 831,949 0
Interest on short-term and other borrowings ............... 1,479,760 1,410,911
-------------------------
Total interest expense ................................ 9,732,070 8,085,344
-------------------------
Net interest income ................................... 7,956,337 6,598,386
Provision for loan losses ...................................... 657,100 644,400
-------------------------
Net interest income after provision for loan losses ... 7,299,237 5,953,986
-------------------------
Noninterest income:
Merchant credit card fees, net of processing costs ......... 1,836,006 780,668
Trust department fees ...................................... 1,387,965 1,114,540
Deposit service fees ....................................... 444,018 305,551
Gains on sales of loans, net ............................... 299,967 830,113
Investment securities gains, net ........................... 14,970 1,614
Amortization of deferred income resulting from restructuring
of merchant broker agreement .......................... 0 549,000
Other ...................................................... 637,355 376,588
-------------------------
Total noninterest income .............................. 4,620,281 3,958,074
-------------------------
Noninterest expenses:
Salaries and employee benefits ............................. 5,019,151 4,325,693
Professional and data processing fees ...................... 655,487 427,061
Advertising and marketing .................................. 304,013 266,677
Occupancy and equipment expense ............................ 1,177,320 1,064,869
Stationery and supplies .................................... 243,895 198,884
Provision for merchant credit card losses .................. 35,243 5,625
Postage and telephone ...................................... 265,589 224,145
Other ...................................................... 760,793 638,228
-------------------------
Total noninterest expenses ............................ 8,461,491 7,151,182
-------------------------
Income before income taxes ............................ 3,458,027 2,760,878
Federal and state income taxes .................................. 1,322,785 1,088,654
-------------------------
Net income ............................................ $ 2,135,242 $ 1,672,224
=========================
Earnings per common share:
Basic ................................................. $ 0.92 $ 0.73
Diluted ............................................... $ 0.90 $ 0.69
Weighted average common shares outstanding ............ 2,311,313 2,286,863
Weighted average common and common equivalent
shares outstanding .............................. 2,377,011 2,406,896
Comprehensive income ............................................ $ 1,456,643 $ 1,778,221
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended March 31
<TABLE>
Nine Months Ended March 31,
2000 1999
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................... $ 2,135,242 $ 1,672,224
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation ..................................................... 466,799 463,521
Provision for loan losses ........................................ 657,100 644,400
Provision for merchant credit card losses ........................ 35,243 5,625
Amortization of premiums on securities, net ...................... 48,781 19,354
Investment securities gains, net ................................. (14,970) (1,614)
Loans originated for sale ........................................ (27,046,565) (68,986,640)
Proceeds on sales of loans ....................................... 28,104,418 71,954,396
Net gains on sales of loans ...................................... (299,967) (830,113)
Amortization of deferred income resulting from restructuring
of merchant broker agreement ................................ 0 (549,000)
Increase in accrued interest receivable .......................... (581,474) (283,852)
Increase in other assets ......................................... (543,417) (637,327)
Decrease in other liabilities ..................................... (4,677,640) (1,285,318)
---------------------------
Net cash provided by (used in) operating activities ........... $ (1,716,450) $ 2,185,656
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold ...................... 4,780,000 (6,420,000)
Net increase in certificates of deposits at financial institutions . (166,810) (4,103,631)
Purchase of securities available for sale .......................... (17,314,898) (27,114,462)
Purchase of securities held to maturity ............................ (50,000) 0
Proceeds from calls and maturities of securities ................... 5,200,000 12,350,000
Proceeds from paydowns on securities ............................... 1,133,620 1,340,345
Proceeds from sales of securities available for sale ............... 43,413 276,032
Net loans originated ............................................... (21,214,193) (31,131,407)
Purchase of premises and equipment, net ............................ (521,664) (215,306)
---------------------------
Net cash used in investing activities ......................... $ (28,110,532) $(55,018,429)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts ................................... 29,464,887 41,740,535
Net increase in short-term borrowings .............................. 6,112,282 5,467,668
Proceeds from Federal Home Loan Bank advances ...................... 2,500,000 1,480,000
Payments on Federal Home Loan Bank advances ........................ (7,091,724) (263,460)
Net increase in other borrowings ................................... 0 1,000,000
Proceeds from issuance of common stock, net ........................ 136,891 221,915
---------------------------
Net cash provided by financing activities ..................... $ 31,122,336 $ 49,646,658
---------------------------
Net increase (decrease) in cash and due from banks ............ 1,295,354 (3,186,115)
Cash and due from banks, beginning ........................................... 8,528,195 11,640,813
---------------------------
Cash and due from banks, ending .............................................. $ 9,823,549 $ 8,454,698
===========================
Supplemental disclosure of cash flow information, cash payments for:
Interest ........................................................... $ 9,636,007 $ 8,031,509
Income/franchise taxes ............................................. $ 1,551,321 $ 1,234,378
Supplemental schedule of noncash investing activities:
Change in accumulated other comprehensive income (loss),
unrealized gain (loss) on securities available for sale, net .. $ (678,599) $ 105,997
Investment securities transferred from held to maturity portfolio to
available for sale portfolio, at fair value ...................... $ 0 $ 1,030,743
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Part I
Item 1
QUAD CITY HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. 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. Any differences appearing between numbers
presented in financial statements and management's discussion and analysis are
due to rounding. Results for the periods ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2000.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated 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"), Quad City
Bancard, Inc. ("Bancard"), Allied Merchant Services, Inc. ("Allied"), and Quad
City Holdings Capital Trust I ("Capital Trust"). 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.
Three months ended Nine months ended
March 31, March 31,
-------------------- -----------------------
2000 1999 2000 1999
-------------------- -----------------------
Net income, basic and diluted
earnings ................... $759,674 $613,947 $2,135,242 $1,672,224
==============================================
Weighted average common shares
outstanding ................ 2,324,004 2,286,863 2,311,313 2,286,863
Weighted average common shares
issuable upon exercise of
stock options and warrants . 59,474 120,033 65,698 120,033
----------------------------------------------
Weighted average common and
common equivalent shares
outstanding ................ 2,383,478 2,406,896 2,377,011 2,406,896
==============================================
<PAGE>
NOTE 4 - BUSINESS SEGMENT INFORMATION
Selected financial information on the Company's business segments is presented
as follows for the three and nine months ended March 31, 2000 and 1999,
respectively.
<TABLE>
Three months ended Nine months ended
March 31, March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenue:
Quad City Holdings, Inc. ................. $ 70,171 $ 11,166 $ 158,385 $ 39,482
Quad City Bank and Trust Company ......... 6,293,625 5,395,547 18,813,070 16,149,114
Quad City Bancard, Inc. .................. 687,897 551,383 1,949,268 1,338,668
Trust Department, Quad City Bank
and Trust Company ...................... 525,235 427,848 1,387,965 1,114,540
---------------------------- ----------------------------
Total revenue ....................... $ 7,576,928 $ 6,385,944 $ 22,308,688 $ 18,641,804
============================ ============================
Net income:
Quad City Holdings, Inc. ................. $ (210,583) $ (98,667) $ (631,459) $ (195,866)
Quad City Bank and Trust Company ......... 634,013 446,700 1,902,374 1,286,360
Quad City Bancard, Inc. .................. 198,203 171,192 530,010 343,542
Trust Department, Quad City Bank
and Trust Company ...................... 138,041 94,722 334,317 238,188
---------------------------- ----------------------------
Total net income .................... $ 759,674 $ 613,947 $ 2,135,242 $ 1,672,224
============================ ============================
</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, and trust and asset management services to the Quad City area and
adjacent communities through its three offices that are located in Bettendorf
and Davenport, Iowa and Moline, Illinois.
Quad City Bancard, Inc. ("Bancard") provides merchant credit card
processing services. Bancard has contracted with independent sales organizations
("ISOs") that market credit card services to merchants throughout the country.
The Company's primary ISO contract expires in May 2000. On March 29, 1999,
Bancard formed its own subsidiary ISO, Allied Merchant Services, Inc., which
will seek to generate additional credit card processing business. At March 31,
2000, approximately 18,500 merchants were processing transactions with Bancard.
The Company has a fiscal year end of June 30.
FINANCIAL CONDITION
Total assets of the Company increased by $28.0 million or 9% to $349.3
million at March 31, 2000 from $321.3 million at June 30, 1999. The growth
primarily resulted from an increase in the loan portfolio funded by deposits
received from customers and from short-term borrowings. It should be noted that
the percentage growth rates declined over the past few quarters as the Company's
total asset base increased.
Cash and due from banks increased by $1.3 million or 15% to $9.8
million at March 31, 2000 from $8.5 million at June 30, 1999. Cash and due from
banks 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, 2000, the Bank had $34.3 million invested in such funds. This amount
decreased by $4.8 million or 12% from $39.1 million at June 30, 1999.
Certificates of deposit at financial institutions increased by $167
thousand or 1% to $12.7 million at March 31, 2000 from $12.5 million at June 30,
1999. During the first nine months of fiscal 2000, the Bank's certificate of
deposit portfolio had seventeen maturities totaling $1.5 million and sixteen
purchases which totaled $1.7 million.
Securities increased by $9.9 million or 19% to $61.6 million at March 31,
2000 from $51.7 million at June 30, 1999. The increase was the result of a
number of transactions in the securities portfolio. Paydowns of $1.1 million
were received on mortgage-backed securities, and the amortization of premiums,
net of the accretion of discounts, was $49 thousand. Maturities, calls and sales
of securities occurred in the amount of $5.3 million. Unrealized losses on
securities available for sale, before applicable income tax, increased by the
amount of $1.0 million. These portfolio decreases were offset by the purchase of
additional securities in the amount of $17.3 million, classified as available
for sale and $50 thousand, classified as held to maturity.
Loans receivable increased by $20.2 million or 10% to $218.2 million at
March 31, 2000 from $198.0 million at June 30, 1999. The increase was the result
of the origination or purchase of $145.6 million of commercial business,
consumer and real estate loans, less loan charge-offs, net of recoveries, of
$250 thousand, and loan repayments or sales of loans of $125.1 million. 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.
<PAGE>
The allowance for estimated losses on loans was $3.3 million at March
31, 2000 compared to $2.9 million at June 30, 1999, an increase of $407 thousand
or 14%. The adequacy of the allowance for estimated losses on loans was
determined by management based on factors that included the overall composition
of the loan portfolio, types of loans, past loss experience, loan delinquencies,
potential substandard and doubtful credits, and other factors that, in
management's judgement, deserved evaluation in estimating loan losses. The
adequacy of the allowance for estimated losses on loans was monitored by the
loan review staff, and reported to management and the Board of Directors.
Provisions were made monthly to ensure that an adequate level was maintained.
Although management believes that the allowance for estimated losses on loans at
March 31, 2000 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.
Net charge-offs for the nine months ended March 31, were $250 thousand in
2000 and $290 thousand in 1999. One measure of the adequacy of the allowance for
estimated losses on loans is the ratio of the allowance to the total loan
portfolio. The allowance for estimated losses on loans as a percentage of total
loans was 1.51% at March 31, 2000 and 1.46% at June 30, 1999.
Nonaccrual loans were $1.2 million at March 31, 2000 compared to $1.3
million at June 30, 1999, a decrease of $72 thousand or 6%. The decrease in
nonaccrual loans was comprised of an increase in real estate loans of $65
thousand offset by decreases in commercial loans of $17 thousand and in consumer
loans of $120 thousand. Nonaccrual loans consisted primarily of loans that were
well collateralized and were not expected to result in material losses.
Premises and equipment showed a slight increase of $55 thousand or less
than 1% to remain at $7.6 million at March 31, 2000. The increase resulted from
the purchase of additional furniture, fixtures and equipment of $522 thousand
during the period offset by depreciation expense of $467 thousand.
Accrued interest receivable on loans, securities and interest-bearing
cash accounts increased by $581 thousand or 29% to $2.6 million at March 31,
2000 from $2.0 million at June 30, 1999. The increase was primarily due to
greater average outstanding balances in interest-bearing assets.
Other assets increased by $961 thousand or 20% to $5.8 million at March
31, 2000 from $4.8 million at June 30, 1999. The largest component of the
increase was a rise in accrued trust department fees of $394 thousand. Other
assets also included miscellaneous receivables and prepaid expenses.
Deposits increased by $29.4 million or 12% to $277.4 million at March 31,
2000 from $248.0 million at June 30, 1999. The increase resulted from a $10.2
million net increase in non-interest bearing, NOW, money market and other
savings accounts and a $19.2 million net increase in interest-bearing
certificates of deposit. The increase in certificates of deposit was the product
of a more aggressive pricing program. Also, management believes the increases
were, in part, a continuation of the reaction by customers to the large number
of acquisitions and mergers of local banks by transferring their financial
business to community banks that can offer more personalized service.
Short-term borrowings increased $6.1 million or 63% from $9.7 million at
June 30, 1999 to $15.8 million at March 31, 2000. The Bank offers short-term
repurchase agreements to some of its major customers. Also, on occasion, the
Bank purchases Federal funds for the short-term from some of its correspondent
banks. As of March 31, 2000, short-term borrowings were comprised entirely of
customer repurchase agreements. As of June 30, 1999, short-term borrowings
represented $9.5 million in customer repurchase agreements and Federal funds
purchased from correspondent banks of $140 thousand.
Federal Home Loan Bank advances decreased by $4.6 million or 19% to $20.0
million at March 31, 2000 from $24.6 million at June 30, 1999. 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 Bank
primarily utilizes FHLB advances for loan matching and for hedging against the
possibility of rising interest rates.
In June 1999, the Company issued 1,200,000 shares of trust preferred
securities through a newly formed subsidiary, Quad City Holdings Capital Trust
I. On the Company's balance sheet these securities are included with liabilities
and are presented as "company obligated manditorily redeemable preferred
securities of subsidiary trust holding solely subordinated debentures", and were
$12.0 million at both March 31, 2000 and June 30, 1999. Part I Item 2
Other liabilities decreased by $4.6 million or 54% to $4.0 million at
March 31, 2000 from $8.6 million at June 30, 1999. Other liabilities was
comprised of unpaid amounts for various products and services, and accrued but
unpaid interest on deposits. At June 30, 1999, other liabilities included $3.8
million of security purchase commitments, all of which settled in July 1999.
<PAGE>
Common stock at March 31, 2000 increased by $29 thousand or 1% to remain
unchanged at $2.3 million from June 30, 1999. The increase was the result of
several exercises of stock options and warrants resulting in the issuance of
29,165 additional shares of common stock.
Additional paid-in capital totaled $12.1 million at March 31, 2000 and
$12.0 million at June 30, 1999. An increase of $177 thousand, or 1%, resulted
from $108 thousand in proceeds received in excess of the $1.00 per share par
value for 29,165 shares of common stock issued as the result of the exercise of
stock options and warrants and the recognition of a $69 thousand tax benefit.
Retained earnings increased by $2.1 million or 47% to $6.7 million at
March 31, 2000 from $4.6 million at June 30, 1999. The increase reflected net
income for the nine-month period.
Unrealized losses on securities available for sale, net of related income
taxes, totaled $1.0 million at March 31, 2000 as compared to $332 thousand at
June 30, 1999. The increase in losses of $679 thousand was attributable to the
decrease during the period in fair value of the securities identified as
available for sale primarily due to rising interest rates.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company realizes income principally from the spread between the
interest earned on loans, investments and other interest-earning assets and the
interest paid on deposits and borrowings. Loan volumes and yields, as well as
the volume of and rates on investments, deposits and borrowings, are affected by
market interest rates. Additionally, because of the terms and conditions of many
of the Bank's loan and deposit accounts, a change in interest rates could also
affect the projected maturities in the loan portfolio and/or the deposit base
which could alter the Company's sensitivity to future changes in interest rates.
Accordingly, management considers interest rate risk to be a significant market
risk.
Interest rate risk management focuses on maintaining consistent growth
in net interest income within policy limits approved by the Board of Directors,
while taking into consideration, among other factors, the Company's overall
credit, operating income, operating cost, and capital profile. The Company's
ALM/Investment Committee, which includes senior management representatives and
members of the Board of Directors, monitors and manages interest rate risk to
maintain an acceptable level of change to net interest income as a result of
changes in interest rates.
One method used to quantify interest rate risk is the net portfolio
value ("NPV") analysis. This analysis calculates the difference between the
present value of liabilities and the present value of expected cash flows from
assets and off-balance sheet contracts. The most recent NPV analysis projects
that net portfolio value would decrease by approximately 13.09% if interest
rates would rise 200 basis points over the next year. It projects an increase in
net portfolio value of approximately 5.21% if interest rates would drop 200
basis points. Both simulations are within board-established policy limits.
RESULTS OF OPERATIONS
OVERVIEW
Net income for the nine-month period ended March 31, 2000 was $2.1
million as compared to net income of $1.7 million for the same period in 1999,
an increase of $463 thousand or 28%. Basic earnings per share for the first nine
months increased to $0.92 from $0.73 in 1999. The increase in net income was
comprised of an increase of $1.3 million in net interest income after provision
for loan losses and an increase in noninterest income of $662 thousand offset by
increases in noninterest expense of $1.3 million and income tax expense of $234
thousand.
The Company's net income is derived primarily from net interest income.
Net interest income is the difference between interest income, principally from
loans and investment securities, and interest expense, principally on borrowings
and customer deposits. Changes in net interest income result from changes in
volume, net interest spread and net interest margin. Volume refers to the
average dollar levels of interest-earning assets and interest-bearing
liabilities. Net interest spread refers to the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities. Net interest margin refers to the net interest income divided by
average interest-earning assets and is influenced by the level and relative mix
of interest-earning assets and interest-bearing liabilities. Net interest margin
for the nine months ended March 31, 2000 was 3.38% compared to 3.47% for the
nine months ended March 31, 1999.
<PAGE>
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Interest income increased by $1.0 million from $4.9 million for the
three-month period ended March 31, 1999 to $5.9 million for the quarter ended
March 31, 2000. The 20% rise in interest income was attributable to both greater
average, outstanding balances in interest earning assets and higher interest
rates, principally with respect to both loans receivable and securities.
Interest expense increased by $626 thousand from $2.7 million for the
three-month period ended March 31, 1999 to $3.3 million for the three-month
period ended March 31, 2000. The 23% increase in interest expense was primarily
caused by greater average, outstanding balances in interest-bearing liabilities,
principally with respect to customer deposits in the subsidiary bank.
At both March 31, 2000 and June 30, 1999, the Company had an allowance for
estimated losses on loans of approximately 1.5% of total loans. The provision
for loan losses decreased by $132 thousand from $218 thousand for the three
month period ended March 31, 1999 to $86 thousand for the three month period
ended March 31, 2000. During the second quarter of fiscal 2000, management made
an increased provision for loan losses based on the economic outlook of the
agricultural manufacturing sector and the possible consequences it could bring
to significant commercial lending customers. Based in part on the improvement of
the economic situations of a number of these same commercial lending customers
during the third quarter, management determined that a lower provision for the
quarter was appropriate. Commercial and real estate loans had no charge-offs or
recoveries for the three months ending March 31, 2000. Consumer loan charge-offs
and recoveries totaled $158 thousand and $34 thousand, respectively, for the
same three month period. Indirect auto loans accounted for a majority of the
consumer loan charge-offs. Because asset quality is a priority for the Company
and its subsidiaries, management has made the decision to downscale indirect
auto loan activity based on charge-off history. The ability to grow profitably
is, in part, dependent upon the ability to maintain asset quality.
Noninterest income increased by $187 thousand from $1.4 million for the
three-month period ended March 31, 1999 to $1.6 million for the three-month
period ended March 31, 2000. Noninterest income at both March 31, 2000 and 1999
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 13% increase was
primarily due to an increased volume of fees earned by the merchant credit card
operation of Bancard and by the trust department of the Bank offset by a
reduction in gains on sales of loans.
In June 1998, the Company recognized $2.2 million of gross income
resulting from the amendment of the merchant broker agreement with Bancard's
current, major independent sales organization (ISO). The term of the amended
agreement is for a minimum of one year and replaced a prior agreement that was
to expire in the year 2002. In consideration for the reduction in term from four
years to one year, the Company received total compensation of $2.9 million, of
which $732 thousand was deferred and recognized in income during fiscal 1999.
The agreement was subsequently extended and is currently scheduled to terminate
in May 2000. In the prior agreement, Bancard and the ISO had shared both the
merchant servicing fees and related merchant credit risk. With the amended
agreement, Bancard receives a fixed, monthly fee of $25 thousand for servicing
the current merchants and is released of the responsibility for any merchant
credit risk. The new agreement exchanges a substantial reduction in merchant
servicing income for a like reduction in the related merchant credit risk. In an
effort to offset the reduced merchant servicing income, Bancard has established
other ISO relationships and has begun processing for additional ISOs. Also,
Bancard formed its own subsidiary ISO, Allied Merchant Services, Inc., which
will seek to generate additional credit card processing business.
As anticipated, in November 1999 Bancard's largest ISO notified Bancard
that it intends to terminate its processing relationship with Bancard in May
2000 and process its own transactions. This ISO accounted for approximately two
thirds of the dollar volume processed by Bancard during the third quarter. Net
earnings from this ISO during the quarter represented approximately 15% of
current consolidated net after tax earnings. Efforts are in process to create
additional volume with other ISOs, but will take some time to develop.
During the three months ended March 31, 2000, merchant credit card fees,
net of processing costs, increased by $283 thousand to $653 thousand from $370
thousand for the three months ended March 31, 1999. The 77% increase was the
result of merchant servicing fees obtained through new ISO relationships
established by Bancard, in combination with increased business with existing
ISOs. Also, as a result of the amended merchant broker agreement, the Company
earned $75 thousand of merchant servicing fees for the three months ended March
31, 2000 and 1999.
<PAGE>
For the quarter ended March 31, 2000, trust department fees increased
$97 thousand, or 23%, to $525 thousand from $428 thousand for the same quarter
in 1999. The increase was primarily a reflection of the development of
additional trust relationships and a revision of the trust fee structure
effective January 1, 2000.
Gains on sales of loans, net was $71 thousand for the three months
ended March 31, 2000, which reflected a decrease of 68%, or $151 thousand, from
$222 thousand for the three months ended March 31, 1999. The decrease resulted
from smaller numbers of both home refinances and home purchases, and the
subsequent sale of the majority of these loans into the secondary market.
Increases in interest rates over the past several months have depressed the
activity in this area.
The main components of noninterest expenses were primarily salaries and
benefits, occupancy and equipment expenses, and professional and data processing
fees, for both quarters. Noninterest expenses for the three months ended March
31, 2000 were $3.0 million as compared to $2.5 million for the same period in
1999, or an increase of $487 thousand or 20%.
The following table sets forth the various categories of noninterest
expenses for the three months ended March 31, 2000 and 1999.
Noninterest Expenses
<TABLE>
Three months ended
March 31,
-----------------------
2000 1999 % change
----------------------------------
<S> <C> <C> <C>
Salaries and employee benefits ........................ $1,806,069 $1,508,891 19.7%
Professional and data processing fees ................. 230,558 147,581 56.2%
Advertising and marketing ............................. 116,991 84,321 38.7%
Occupancy and equipment expense ....................... 376,142 351,045 7.1%
Stationery and supplies ............................... 82,649 60,084 37.6%
Provision for merchant credit card losses ............. 5,743 4,200 36.7%
Postage and telephone ................................. 83,811 82,572 1.5%
Other ................................................. 258,098 234,283 10.2%
-----------------------
Total noninterest expenses $2,960,061 $2,472,977 19.7%
=======================
</TABLE>
Salaries and benefits experienced the most significant dollar increase of
any noninterest expense component. For the quarter ended March 31, 2000, total
salaries and benefits increased to $1.8 million or $297 thousand over the 1999
quarter total of $1.5 million. The change was primarily attributable to the
increased number of Bank and Bancard employees during the 2000 quarter versus
the 1999 quarter and increased incentive compensation to Bancard officers and
trust employees proportionate to the large volume of fees earned. Professional
and data processing fees increased from $148 thousand for the three months ended
March 31, 1999 to $231 thousand for the same three month period in 2000. The $83
thousand increase was partially the result of increased charges from the Bank's
data processing provider for increased account and transaction volumes. The
increase also occurred, in part, as the result of fees to outside consultants
related to outsourcing compliance and internal audit functions. Advertising and
marketing increased 39% or $33 thousand for the quarter. The increase was
partially the result of the development of the Bank's future website and the
development of new advertising materials for the Bank's real estate and
commercial lending areas. The increase was also the result of business
development expenses incurred in support of various area events, such as the
John Deere Classic. Occupancy and equipment expense increased $25 thousand or 7%
for the quarter. The increase was due to increased levels of depreciation,
maintenance, utilities and other expenses related to the upkeep of the four
physical locations.
The provision for income taxes was $472 thousand for the three-month
period ended March 31, 2000 compared to $407 thousand for the three-month period
ended March 31, 1999 for an increase of $65 thousand or 16%. The increase was
the result of an increase in income before income taxes of $211 thousand or 21%
for the 2000 quarter when compared to the 1999 quarter.
<PAGE>
The Year 2000 posed a unique set of challenges to industries reliant on
information technology, financial institutions in particular. Since 1997, the
Company has been addressing issues related to the Year 2000 and their potential
to adversely affect both the Company's operations and ability to provide prompt,
reliable customer service. The estimated total cost of the Year 2000 project was
$175 thousand. This included costs to upgrade equipment specifically for the
purpose of Year 2000 compliance and various administrative expenditures. The
Company's cumulative cost for the Year 2000 project through the first nine
months of fiscal 2000 was $147 thousand. For the quarter ended March 31, 2000,
Year 2000 expenses were down $6 thousand, or 54%, to $5 thousand from $11
thousand during the same period in 1999. Additional Year 2000 expense is
expected to be minimal.
The considerable time and effort expended by the Company's Year 2000
committee resulted in an uneventful turn of the millenium with respect to the
Company. The Company's operations and those of its subsidiaries experienced no
disruption of services to customers. The efforts of the Year 2000 committee also
prompted the review and updating of the Company's disaster recovery plan. The
Company now stands better prepared to handle various natural and technical
disasters that could threaten the Company's operations. Throughout 2000, the
Company will remain aware of dates defined by the FDIC as "critical", such as
10/10/2000, and will address any related issues.
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
Interest income increased by $3.0 million from $14.7 million for the
nine-month period ended March 31, 1999 to $17.7 million for the nine months
ended March 31, 2000. The 20% rise in interest income was basically attributable
to greater average, outstanding balances in interest earning assets, principally
with respect to loans receivable.
Interest expense increased by $1.6 million from $8.1 million for the
nine-month period ended March 31, 1999 to $9.7 million for the nine-month period
ended March 31, 2000. The 20% increase in interest expense was primarily caused
by greater average, outstanding balances in interest-bearing liabilities,
largely with respect to the preferred securities of the subsidiary trust.
At both March 31, 2000 and June 30, 1999, the Company had an allowance for
estimated losses on loans of approximately 1.5% of total loans. The provision
for loan losses increased by $13 thousand from $644 thousand for the nine-month
period ended March 31, 1999 to $657 thousand for the nine-month period ended
March 31, 2000. During the second quarter of fiscal 2000, management made an
increased provision for loan losses based on the economic outlook of the
agricultural manufacturing sector and the possible consequences it could bring
to significant commercial lending customers. Based in part on the improvement of
the economic situations of a number of these same commercial lending customers
during the third quarter, management determined that a lower provision for the
quarter was appropriate. Commercial and real estate loans combined for total
charge-offs of $50 thousand and $1 thousand of recoveries for the nine months
ending March 31, 2000. Consumer loan charge-offs and recoveries totaled $283
thousand and $82 thousand, respectively, for the same nine-month period.
Indirect auto loans accounted for a majority of the consumer loan charge-offs.
Because asset quality is a priority for the Company and its subsidiaries,
management has made the decision to downscale indirect auto loan activity based
on charge-off history. The ability to grow profitably is, in part, dependent
upon the ability to maintain asset quality.
Noninterest income increased by $662 thousand from $3.9 million for the
nine-month period ended March 31, 1999 to $4.6 million for the nine-month period
ended March 31, 2000. Noninterest income at March 31, 2000 and 1999 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 17% increase was primarily due to an increased
volume of fees earned by the merchant credit card operation of Bancard and by
the trust department of the Bank offset by a reduction in gains on sales of
loans.
During the nine months ended March 31, 2000, merchant credit card fees,
net of processing costs, increased by $1.0 million to $1.8 million from $781
thousand for the nine months ended March 31, 1999. The 135% increase was the
result of merchant servicing fees obtained through new ISO relationships
established by Bancard, in combination with increased business with existing
ISOs. Also as a result of the amended merchant broker agreement, the Company
earned $225 thousand of merchant servicing fees for the nine months ended March
31, 2000.
<PAGE>
As anticipated, in November 1999 Bancard's largest ISO notified Bancard
that it intends to terminate its processing relationship with Bancard in May
2000 and process its own transactions. During the nine-month period ended March
31, 2000, this ISO accounted for approximately three fourths of the dollar
volume processed by Bancard. Net earnings from this ISO represented
approximately 15% of consolidated net after tax earnings for the nine-month
period. Efforts are in process to create additional volume with other ISOs, but
will take some time to develop.
For the nine months ended March 31, 2000, trust department fees increased
$273 thousand, or 25%, to $1.4 million from $1.1 million for the same period in
1999. The increase was a reflection of the development of additional trust
relationships and a revision of the trust fee structure effective January 1,
2000.
Gains on sales of loans, net was $300 thousand for the nine months ended
March 31, 2000, which reflected a decrease of 64%, or $530 thousand, from $830
thousand for the nine months ended March 31, 1999. The decrease resulted from
smaller numbers of both home refinances and home purchases, and the subsequent
sale of the majority of these loans into the secondary market. Increases in
interest rates over the past several months have depressed the activity in this
area.
The main components of noninterest expenses were primarily salaries and
benefits, occupancy and equipment expenses, and professional and data processing
fees, for both periods. Noninterest expenses for the nine months ended March 31,
2000 were $8.5 million as compared to $7.2 million for the same period in 1999,
or an increase of $1.3 million or 18%.
The following table sets forth the various categories of noninterest
expenses for the nine months ended March 31, 2000 and 1999.
Noninterest Expenses
<TABLE>
Nine months ended
March 31,
------------------------------------
2000 1999 % Change
------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits ........................ $5,019,151 $4,325,693 16.0%
Professional and data processing fees ................. 655,487 427,061 53.5%
Advertising and marketing ............................. 304,013 266,677 14.0%
Occupancy and equipment expense ....................... 1,177,320 1,064,869 10.6%
Stationery and supplies ............................... 243,895 198,884 22.6%
Provision for merchant credit card losses ............. 35,243 5,625 526.5%
Postage and telephone ................................. 265,589 224,145 18.5%
Other ................................................. 760,793 638,228 19.2%
-----------------------
Total noninterest expenses $8,461,491 7,151,182 18.3%
=======================
</TABLE>
Salaries and benefits experienced the most significant dollar increase of
any noninterest expense component. For the nine months ended March 31, 2000,
total salaries and benefits increased to $5.0 million or $693 thousand over the
1999 nine-month total of $4.3 million. The change was primarily attributable to
the increased number of Bank and Bancard employees during the 2000 period versus
the 1999 period and increased incentive compensation to Bancard officers and
trust employees proportionate to the large volume of fees earned. Professional
and data processing fees increased from $427 thousand for the nine months ended
March 31, 1999 to $655 thousand for the same nine-month period in 2000. The $228
thousand increase was partially the result of increased charges from the Bank's
data processing provider for increased account and transaction volumes. The
increase also occurred, in part, as the result of fees to outside consultants
relating to outsourcing compliance and internal audit functions. Occupancy and
equipment expense increased $112 thousand or 11% for the period. The increase
was due to increased levels of depreciation, maintenance, utilities and other
expenses related to the upkeep of the four physical locations. The provision for
merchant credit card losses for the period increased $30 thousand, which
reflected Bancard's increased merchant credit card activity resulting from
several newly established ISO relationships and increased activity with its
primary ISO. The 19% increase in other expenses was partially the result of a
$32 thousand assessment levied by the state of Iowa due to the failure of
Hartford-Carlisle Savings Bank of Carlisle, Iowa. Iowa banks and thrifts were
required to cover approximately $8.5 million of uninsured deposits of local
schools and governments held by the failed bank.
<PAGE>
The Company's cumulative cost for the Year 2000 project through the
first nine months of fiscal 2000 was $147 thousand. For the nine months ended
March 31, 2000, Year 2000 expenses were down $54 thousand, or 59%, to $37
thousand from $91 thousand during the same period in 1999. Additional Year 2000
expense is expected to be minimal.
The provision for income taxes was $1.3 million for the nine-month
period ended March 31, 2000 compared to $1.1 million for the nine-month period
ended March 31, 1999 for an increase of $234 thousand or 22%. The increase was
the result of an increase in income before income taxes of $697 thousand or 25%
for the 2000 period when compared to the 1999 period.
LIQUIDITY
Liquidity measures the ability of the Company to meet maturing
obligations and its existing commitments, to withstand fluctuations in deposit
levels, to fund its operations, and to provide for customers' credit needs. The
liquidity of the Company primarily depends upon cash flows from operating,
investing, and financing activities. Net cash used in operating activities,
consisting primarily of a reduction in liabilities, was $1.7 million for the
nine months ended March 31, 2000 compared to $2.2 million net cash provided by
operating activities in the same period in 1999. Net cash used in investing
activities, consisting principally of loan and investment funding, was $28.1
million for the nine months ended March 31, 2000 and $55.0 million for the nine
months ended March 31, 1999. Net cash provided by financing activities,
consisting primarily of deposit growth and proceeds from short-term borrowings,
for the nine months ended March 31, 2000 was $31.1 million and for same period
in 1999 was $49.6 million.
OTHER DEVELOPMENTS
On April 5, 2000, the Company announced that the board of directors
approved a stock repurchase program enabling the Company to repurchase up to
60,000 shares of its common stock at a maximum price of $15 per share.
In addition to the Bank's main office in Bettendorf, construction of the
Davenport full service banking facility was completed in July 1996. 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 lower level 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 in
February 1998 at the historic Velie Plantation Mansion located near the
intersection of 7th Street and John Deere Road in Moline, Illinois near the Rock
Island/Moline border. An investor group owns the building and both the Bank and
Bancard are major tenants. Bancard relocated its operations to the lower level
of the 35,000 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 non-related entity for the first thirty-six months of the
lease contract. Beginning May 1, 2000, the Company will lease approximately
1,600 square feet on the second floor. The space has been renovated and will
serve as the administrative offices of the Company.
In March 1999, the Bank acquired a 3,000 square foot office building
adjacent to the Davenport facility at a cost of $225 thousand. Over several
months, improvements were made to the Davenport annex, and in mid August the
space became operational. The annex is currently being utilized for various
operational and administrative functions.
The Company is currently exploring the possibility of opening a fourth
banking facility in the Quad City area in the future. Board approval has been
obtained to pursue an additional location.
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words, "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and its subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area, our implementation of new technologies, our ability
to develop and maintain secure and reliable electronic systems, and accounting
principles, policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
RECENT REGULATORY DEVELOPMENTS
On November 12, 1999, President Clinton signed legislation that will
allow bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. Under the Gramm-Leach-Bliley Act (the "Act"), a bank holding company
that elects to become a financial holding company may engage in any activity
that the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), in consultation with the Secretary of the Treasury, determines by
regulation or order is financial in nature, incidental to any such financial
activity, or complementary to any such financial activity and does not pose a
substantial risk to the safety or soundness of depository institutions or the
financial system generally. The Act specifies certain activities that are deemed
to be financial in nature, including lending, exchanging, transferring,
investing for others, or safeguarding money or securities; underwriting and
selling insurance; providing financial, investment, or economic advisory
services; underwriting, dealing in or making a market in, securities; and any
activity currently permitted for bank holding companies by the Federal Reserve
under section 4(c)(8) of the Bank Holding Company Act. A bank holding company
may elect to be treated as a financial holding company only if all depository
institution subsidiaries of the holding company are well-capitalized,
well-managed and have at least a satisfactory rating under the Community
Reinvestment Act.
National banks are also authorized by the Act to engage, through
"financial subsidiaries," in any activity that is permissible for financial
holding companies (as described above) and any activity that the Secretary of
the Treasury, in consultation with the Federal Reserve, determines is financial
in nature or incidental to any such financial activity, except (i) insurance
underwriting, (ii) real estate development or real estate investment activities
(unless otherwise expressly permitted by law), (iii) insurance company portfolio
investments and (iv) merchant banking. The authority of a national bank to
invest in a financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be well-managed
and well-capitalized (after deducting from capital the bank's outstanding
investments in financial subsidiaries). The Act provides that state banks may
invest in financial subsidiaries (assuming they have the requisite investment
authority under applicable state law) subject to the same conditions that apply
to national banks.
<PAGE>
Various bank regulatory agencies have begun issuing regulations as
mandated by the Act. The Federal Reserve has issued an interim regulation
establishing procedures for bank holding companies to elect to become financial
holding companies. In addition, the Federal Reserve has issued interim
regulations listing the financial activities permissible for financial holding
companies and describing the parameters under which financial holding companies
may engage in securities and merchant banking activities. The Federal Reserve
has issued an interim regulation regarding the parameters under which state
member banks may establish and maintain financial subsidiaries. In addition, all
federal bank regulatory agencies have jointly issued a proposed regulation that
would implement the privacy provisions of the Act. At this time, it is not
possible to predict the impact the Act and its implementing regulations may have
on the Company. As of the date of this filing, the Company has not applied for
or received approval to operate as a financial holding company. In addition, the
Bank has not applied for or received approval to establish financial
subsidiaries. The Company may, however, elect to file for treatment as a
financial holding company in the future.
<PAGE>
Part II
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 Legal Proceedings - None
-----------------
Item 2 Changes in Securities and Use of Proceeds - None
-----------------------------------------
Item 3 Defaults Upon Senior Securities - None
-------------------------------
Item 4 Submission of Matters to a Vote of Security Holders - None
---------------------------------------------------
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)
Date May 12, 2000 /s/ Michael A. Bauer
---------------------- ---------------------------------------
Michael A. Bauer, Chairman
Date May 12, 2000 /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 FROM THE MARCH
31, 2000 FORM 10-Q OF QUAD CITY HOLDINGS, INC. IN 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-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,824
<INT-BEARING-DEPOSITS> 12,702
<FED-FUNDS-SOLD> 34,345
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,019
<INVESTMENTS-CARRYING> 575
<INVESTMENTS-MARKET> 575
<LOANS> 218,183
<ALLOWANCE> 3,303
<TOTAL-ASSETS> 349,352
<DEPOSITS> 277,431
<SHORT-TERM> 15,798
<LIABILITIES-OTHER> 3,973
<LONG-TERM> 32,014
0
0
<COMMON> 2,325
<OTHER-SE> 17,811
<TOTAL-LIABILITIES-AND-EQUITY> 349,352
<INTEREST-LOAN> 13,354
<INTEREST-INVEST> 2,512
<INTEREST-OTHER> 1,823
<INTEREST-TOTAL> 17,688
<INTEREST-DEPOSIT> 7,420
<INTEREST-EXPENSE> 9,732
<INTEREST-INCOME-NET> 7,956
<LOAN-LOSSES> 657
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 8,461
<INCOME-PRETAX> 3,458
<INCOME-PRE-EXTRAORDINARY> 2,135
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,135
<EPS-BASIC> .92
<EPS-DILUTED> .90
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,895
<CHARGE-OFFS> 249
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,303
<ALLOWANCE-DOMESTIC> 3,303
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
