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 December 31, 1999
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer ID Number)
incorporation or organization)
3551 7th Street, Suite 100, Moline, Illinois 61265
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(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 February 1,
2000, the Registrant had outstanding 2,322,996 shares of common stock, $1.00 par
value per share.
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
INDEX
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Part I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets,
December 31, 1999 and June 30, 1999
Consolidated Statements of Income,
For the Three Months Ended December 31, 1999 and 1998
Consolidated Statements of Income,
For the Six Months Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows,
For the Six Months Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, 1999 and June 30, 1999
December 31, June 30,
1999 1999
------------- --------------
ASSETS
Cash and due from banks ...........................$ 13,578,976 $ 8,528,195
Federal funds sold ................................ 32,895,000 39,125,000
Certificates of deposit at financial institutions . 12,306,220 12,535,193
Securities held to maturity, at amortized cost .... 574,703 724,415
Securities available for sale, at fair value ...... 58,069,571 50,941,759
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58,644,274 51,666,174
------------- -------------
Loans receivable .................................. 211,376,203 197,976,692
Less: Allowance for estimated losses on loans ..... (3,340,761) (2,895,457)
------------- -------------
208,035,442 195,081,235
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Premises and equipment, net ....................... 7,606,911 7,553,616
Accrued interest receivable ....................... 2,346,675 2,006,503
Other assets ...................................... 7,870,102 4,850,299
------------- -------------
$ 343,283,600 $ 321,346,215
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing deposits ...................$ 41,630,246 $ 35,833,094
Interest-bearing deposits ...................... 230,137,123 212,132,785
------------- -------------
Total deposits ............................... 271,767,369 247,965,879
------------- -------------
Short-term borrowings ............................. 11,318,288 9,685,877
Federal Home Loan Bank advances ................... 22,601,546 24,605,890
Company obligated manditorily redeemable
preferred securities of subsidiary trust
holding solely subordinated debentures ....... 12,000,000 12,000,000
Other liabilities ................................. 5,952,312 8,615,098
------------- -------------
323,639,515 302,872,744
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STOCKHOLDERS' EQUITY
Common stock, $1 par value; shares authorized
5,000,000; shares issued and outstanding
December 1999, 2,322,331; June 1999,
2,296,251..................................... 2,322,331 2,296,251
Additional paid-in capital ........................ 12,127,066 11,959,080
Retained earnings ................................. 5,926,058 4,550,490
Accumulated other comprehensive (loss), unrealized
(loss) on securities available for sale, net . (731,370) (332,350)
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19,644,085 18,473,471
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Total liabilities and stockholders' equity ...$ 343,283,600 $ 321,346,215
============= =============
See Notes to Consolidated Financial Statements
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended December 31
Three Months Ended December 31,
1999 1998
-------------------------------
Interest income:
Interest and fees on loans ...................$ 4,445,500 $ 3,917,314
Interest and dividends on securities ......... 854,130 504,153
Interest on federal funds sold ............... 448,216 354,438
Other interest ............................... 187,405 174,056
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Total interest income ................... 5,935,251 4,949,961
------------- -------------
Interest expense:
Interest on deposits ........................ 2,539,440 2,254,491
Interest on company obligated manditorily
redeemable preferred securities ........ 278,970 0
Interest on borrowings ...................... 511,131 463,943
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Total interest expense .................. 3,329,541 2,718,434
------------- -------------
Net interest income ..................... 2,605,710 2,231,527
Provision for loan losses ........................ 296,800 174,200
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Net interest income after provision
for loan losses .................... 2,308,910 2,057,327
------------- -------------
Noninterest income:
Merchant credit card fees, net of processing
costs ................................... 645,700 217,459
Trust department fees ........................ 463,086 372,987
Deposit service fees ......................... 150,812 100,886
Gains on sales of loans, net ................. 127,541 337,375
Amortization of deferred income resulting from
restructuring of merchant broker
agreement ............................... 0 183,000
Other ........................................ 236,620 118,112
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Total noninterest income ................ 1,623,759 1,329,819
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Noninterest expenses:
Salaries and employee benefits ............... 1,584,640 1,450,346
Professional and data processing fees ........ 204,092 139,539
Advertising and marketing .................... 103,565 95,866
Occupancy and equipment expense .............. 407,321 362,159
Stationery and supplies ...................... 79,178 65,595
Provision for merchant credit card losses .... 10,494 (538)
Postage and telephone ........................ 100,079 71,192
Other ........................................ 238,520 192,217
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Total noninterest expenses .............. 2,727,889 2,376,376
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Income before income taxes .............. 1,204,780 1,010,770
Federal and state income taxes .................... 461,860 391,314
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Net income ..............................$ 742,920 $ 619,456
============= =============
Earnings per common share:
Basic ...................................$ 0.32 $ 0.27
Diluted .................................$ 0.31 $ 0.26
Weighted average common shares
outstanding ........................ 2,310,643 2,280,794
Weighted average common and common
equivalent shares outstanding ...... 2,388,693 2,404,968
Comprehensive income ..............................$ 597,206 $ 626,237
See Notes to Consolidated Financial Statements
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended December 31
Six Months Ended December 31,
1999 1998
-----------------------------
Interest income:
Interest and fees on loans ...................$ 8,902,222 $ 7,631,184
Interest and dividends on securities ......... 1,620,617 1,012,231
Interest on federal funds sold ............... 834,554 757,694
Other interest ............................... 378,495 333,866
------------- -------------
Total interest income ................... 11,735,888 9,734,975
------------- -------------
Interest expense:
Interest on deposits ........................ 4,856,628 4,492,393
Interest on company obligated manditorily
redeemable preferred securities ........ 555,949 0
Interest on short-term and other borrowings . 1,019,790 919,020
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Total interest expense .................. 6,432,367 5,411,413
------------- -------------
Net interest income ..................... 5,303,521 4,323,562
Provision for loan losses ........................ 571,500 426,200
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Net interest income after provision for
loan losses ........................ 4,732,021 3,897,362
------------- -------------
Noninterest income:
Merchant credit card fees, net of processing
costs ................................... 1,183,496 411,086
Trust department fees ........................ 862,730 686,692
Deposit service fees ......................... 306,849 201,166
Gains on sales of loans, net ................. 228,714 607,923
Amortization of deferred income resulting from
restructuring of merchant broker
agreement ............................... 0 366,000
Other ........................................ 414,083 248,018
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Total noninterest income ................ 2,995,872 2,520,885
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Noninterest expenses:
Salaries and employee benefits ............... 3,213,082 2,816,802
Professional and data processing fees ........ 424,929 279,480
Advertising and marketing .................... 187,022 182,356
Occupancy and equipment expense .............. 801,178 713,824
Stationery and supplies ...................... 161,246 138,800
Provision for merchant credit card losses .... 29,500 1,425
Postage and telephone ........................ 181,778 141,573
Other ........................................ 502,695 403,945
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Total noninterest expenses .............. 5,501,430 4,678,205
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Income before income taxes .............. 2,226,463 1,740,042
Federal and state income taxes .................... 850,895 681,765
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Net income ..............................$ 1,375,568 $ 1,058,277
============= =============
Earnings per common share:
Basic ...................................$ 0.60 $ 0.46
Diluted .................................$ 0.58 $ 0.44
Weighted average common shares
outstanding ........................ 2,305,037 2,279,554
Weighted average common and common
equivalent shares outstanding ...... 2,384,908 2,402,597
Comprehensive income ..............................$ 976,548 $ 1,317,800
See Notes to Consolidated Financial Statements
<PAGE>
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended December 31
Six Months Ended December 31,
1999 1998
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................$ 1,375,568 $ 1,058,277
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation ............................... 330,094 295,313
Provision for loan losses .................. 571,500 426,200
Provision for merchant credit card
losses .................................. 29,500 1,425
Amortization of premiums on securities,
net ..................................... 34,131 909
Loans originated for sale .................. (20,849,007) (50,843,410)
Proceeds on sales of loans ................. 21,933,819 50,720,117
Net gains on sales of loans ................ (228,714) (607,923)
Amortization of deferred income
resulting from restructuring of
merchant broker agreement ............... 0 (366,000)
Increase in accrued interest receivable .... (340,172) (48,423)
Increase in other assets ................... (2,814,928) (412,050)
Decrease in other liabilities .............. (2,623,121) (798,414)
------------- -------------
Net cash used in operating
activities ..........................$ (2,581,330) $ (573,979)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds
sold ....................................... 6,230,000 (4,515,000)
Net (increase) decrease in certificates of
deposits at financial institutions ......... 228,973 (3,680,078)
Purchase of securities available for sale ..... (11,519,825) (11,853,678)
Purchase of securities held to maturity ....... (50,000) 0
Proceeds from calls and maturities of
securities ................................. 3,200,000 6,850,000
Proceeds from paydowns on securities .......... 753,699 928,652
Net loans originated .......................... (14,381,805) (23,596,795)
Purchase of premises and equipment, net ....... (383,389) (132,180)
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Net cash used in investing
activities ..........................$ (15,922,347) $ (35,999,079)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts .............. 23,801,490 34,025,384
Net increase (decrease) in short-term
borrowings ................................. 1,632,411 (2,000,000)
Proceeds from Federal Home Loan Bank
advances ................................... 1,000,000 9,944,698
Payments on Federal Home Loan Bank
advances ................................... (3,004,344) (7,740,325)
Net increase in other borrowings .............. 0 1,000,000
Proceeds from issuance of common stock,
net ........................................ 124,901 111,505
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Net cash provided by financing
activities ..........................$ 23,554,458 $ 35,341,262
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Net increase (decrease) in cash and
due from banks ...................... 5,050,781 (1,231,796)
Cash and due from banks, beginning ................ 8,528,195 11,640,813
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Cash and due from banks, ending ...................$ 13,578,976 $ 10,409,017
============= =============
Supplemental disclosure of cash flow information,
cash payments for:
Interest ......................................$ 6,345,827 $ 5,250,847
============= =============
Income/franchise taxes ........................$ 1,096,848 $ 880,000
============= =============
Supplemental schedule of noncash investing
activities:
Change in accumulated other comprehensive
income (loss), unrealized gain (loss)
on securities available for sale,
net .......................................$ (399,020) $ 259,523
============= =============
See Notes to Consolidated Financial Statements
<PAGE>
Part I
Item 1
QUAD CITY HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1999
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 period ended December 31, 1999 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 Six months ended
December 31, December 31,
------------------ ----------------
1999 1998 1999 1998
------ ------ ------ ------
Net income, basic and diluted
Earnings ..................... $ 742,920 $ 619,456 $1,375,568 $1,058,277
========== ========== ========== ==========
Weighted average common shares
Outstanding ................. 2,310,643 2,280,794 2,305,037 2,279,554
Weighted average common shares
issuable upon exercise of stock
options and warrants ......... 78,050 124,174 79,871 123,043
---------- ---------- ---------- ----------
Weighted average common and
common equivalent shares
outstanding ................. 2,388,693 2,404,968 2,384,908 2,402,597
========== ========== ========== ==========
<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 June 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 December
31, 1999, approximately 17,000 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 $22.0 million or 7% to $343.3
million at December 31, 1999 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 had declined over the past few quarters as the
Company's total asset base was increased.
Cash and due from banks increased by $5.1 million or 59% to $13.6 million
at December 31, 1999 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. The
increase was primarily the result of additional cash reserves retained in
anticipation of customer demands associated with Year 2000.
Federal funds sold are inter-bank funds with daily liquidity. At December
31, 1999, the Bank had $32.9 million invested in such funds. This amount
decreased by $6.2 million or 16% from $39.1 million at June 30, 1999.
Certificates of deposit at financial institutions decreased by $229
thousand or 2% to $12.3 million at December 31, 1999 from $12.5 million at June
30, 1999. During the first six months of fiscal 2000, the Bank's certificate of
deposit portfolio had fifteen maturities totaling $1.3 million and eleven
purchases which totaled $1.1 million.
Securities increased by $6.9 million or 13% to $58.6 million at December
31, 1999 from $51.7 million at June 30, 1999. The increase was the result of a
number of transactions in the securities portfolio. Paydowns of $754 thousand
were received on mortgage-backed securities, and the amortization of premiums,
net of the accretion of discounts, was $34 thousand. Maturities and calls of
securities occurred in the amount of $3.2 million. An increase in unrealized
losses on securities available for sale, before applicable income tax, occurred
in the amount of $604 thousand. These portfolio decreases were offset by the
purchase of additional securities in the amount of $11.5 million, classified as
available for sale and $50 thousand, classified as held to maturity.
Loans receivable increased by $13.4 million or 7% to $211.4 million at
December 31, 1999 from $198.0 million at June 30, 1999. The increase was the
result of the origination or purchase of $98.3 million of commercial business,
consumer and real estate loans, less loan charge-offs, net of recoveries, of
$126 thousand, and loan repayments or sales of loans of $84.8 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 December
31, 1999 compared to $2.9 million at June 30, 1999 for an increase of $445
thousand or 15%. 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
December 31, 1999 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 six months ended December 31, were $126 thousand
in 1999 and $147 thousand in 1998. 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 1.58% at December 31, 1999 and 1.46% at June 30, 1999.
Nonaccrual loans were $1.2 million at December 31, 1999 compared to $1.3
million at June 30, 1999 for a decrease of $109 thousand or 9%. The decrease in
nonaccrual loans was comprised of an increase in real estate loans of $69
thousand offset by decreases in commercial loans of $110 thousand and in
consumer loans of $68 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 $53 thousand or less
than 1% to remain at $7.6 million at December 31, 1999. The increase resulted
from the purchase of additional furniture, fixtures and equipment of $383
thousand during the quarter offset by depreciation expense of $330 thousand.
Accrued interest receivable on loans, securities and interest-bearing cash
accounts increased by $340 thousand or 17% to $2.3 million at December 31, 1999
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 $3.1 million or 62% to $7.9 million at December
31, 1999 from $4.8 million at June 30, 1999. The largest component of the
increase was a rise in prepaid expenses of $1.8 million. Other assets also
included miscellaneous receivables and accrued income.
Deposits increased by $23.8 million or 10% to $271.8 million at December
31, 1999 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 $13.6 million net increase in 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 $1.6 million or 17% from $9.7 million at
June 30, 1999 to $11.3 million at December 31, 1999. 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 December 31, 1999, short-term borrowings were comprised entirely of
customer repurchase agreements. As of June 30, 1999, short-term borrowings
represented $9.6 million in customer repurchase agreements and Federal funds
purchased from correspondent banks of $140 thousand.
Federal Home Loan Bank advances decreased by $2.0 million or 8% to $22.6
million at December 31, 1999 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 a liability and are
presented as "company obligated manditorily redeemable preferred securities of
subsidiary trust holding solely subordinated debentures", and were $12.0 million
at both December 31, 1999 and June 30, 1999.
<PAGE>
Other liabilities decreased by $2.6 million or 31% to $6.0 million at
December 31, 1999 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.
Common stock at December 31, 1999 increased by $26 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
26,080 additional shares of common stock.
Additional paid-in capital totaled $12.1 million at December 31, 1999 and
$12.0 million at June 30, 1999. An increase of $168 thousand, or 1%, resulted
from $99 thousand in proceeds received in excess of the $1.00 per share par
value for 26,080 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 $1.3 million or 30% to $5.9 million at
December 31, 1999 from $4.6 million at June 30, 1999. The increase reflected
net income for the six-month period.
Unrealized losses on securities available for sale, net of related income
taxes, totaled $731 thousand at December 31, 1999 as compared to $332 thousand
at June 30, 1999. The increased loss 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 12.8% if interest rates would
rise 200 basis points over the next year. It projects an increase in net
portfolio value of approximately 4.6% if interest rates would drop 200 basis
points. Both simulations are within board-established policy limits.
RESULTS OF OPERATIONS
OVERVIEW
Net income for the six-month period ended December 31, 1999 was $1.4
million as compared to net income of $1.1 million for the same period in 1998,
for an increase of $317 thousand or 30%. Basic earnings per share for the first
six months increased to $0.60 from $0.46 in 1998. The increase in net income was
comprised of an increase of $834 thousand in net interest income after provision
for loan losses and an increase in noninterest income of $475 thousand offset by
increases in noninterest expense of $823 thousand and income tax expense of $169
thousand.
<PAGE>
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 six months ended December 31, 1999 was 3.45% compared to 3.39% for the
six months ended December 31, 1998.
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
Interest income increased by $985 thousand from $4.9 million for the
three-month period ended December 31, 1998 to $5.9 million for the quarter ended
December 31, 1999. The 20% rise in interest income was basically attributable to
greater average, outstanding balances in interest earning assets, principally
with respect to both loans receivable and securities.
Interest expense increased by $611 thousand from $2.7 million for the
three-month period ended December 31, 1998 to $3.3 million for the three-month
period ended December 31, 1999. The 22% increase in interest expense was
basically caused by greater average, outstanding balances in interest-bearing
liabilities, principally with respect to customer deposits in the subsidiary
bank.
At December 31, 1999 and June 30, 1999, the Company had an allowance for
estimated losses on loans of approximately 1.6% and 1.5% of total loans,
respectively. The provision for loan losses increased by $123 thousand from $174
thousand for the three month period ended December 31, 1998 to $297 thousand for
the three month period ended December 31, 1999. Among other factors considered
by management, the agricultural manufacturing sector experienced a slowdown in
1999. Due, in part, to the fact that certain of the Company's borrowers are
engaged in or depend on this industry, management made an increased provision
for loan losses. Commercial and real estate loans combined for total charge-offs
of $2 thousand and no recoveries for the three months ending December 31, 1999.
Consumer loan charge-offs and recoveries totaled $77 thousand and $37 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 $294 thousand from $1.3 million for the
three-month period ended December 31, 1998 to $1.6 million for the three-month
period ended December 31, 1999. Noninterest income at December 31, 1999 and 1998
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 22% 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.
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 June 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. This ISO accounts for approximately two thirds of the dollar volume
processed by Bancard. Net earnings from this ISO represent 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.
<PAGE>
During the three months ended December 31, 1999, merchant credit card
fees, net of processing costs, increased by $429 thousand to $646 thousand from
$217 thousand for the three months ended December 31, 1998. The 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
December 31, 1999 and 1998.
For the quarter ended December 31, 1999, trust department fees increased
$90 thousand, or 24%, to $463 thousand from $373 thousand for the same quarter
in 1998. The increase was primarily a reflection of the development of
additional trust relationships.
Gains on sales of loans, net was $127 thousand for the three months ended
December 31, 1999, which reflected a decrease of 62%, or $210 thousand, from
$337 thousand for the three months ended December 31, 1998. The decrease
resulted from smaller numbers of both home refinances and first-time home
purchases, and the subsequent sale of the majority of these loans into the
secondary market. Recent increases in interest rates 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
December 31, 1999 were $2.7 million as compared to $2.4 million for the same
period in 1998, or an increase of $352 thousand or 15%.
The following table sets forth the various categories of noninterest
expenses for the three months ended December 31, 1999 and 1998.
Noninterest Expenses
Three months ended
December 31,
------------------------
1999 1998 % change
----------- ----------- ---------
Salaries and employee benefits ..............$ 1,584,640 $ 1,450,346 9.3%
Professional and data processing fees ....... 204,092 139,539 46.3%
Advertising and marketing ................... 103,565 95,866 8.0%
Occupancy and equipment expense ............. 407,321 362,159 12.5%
Stationery and supplies ..................... 79,178 65,595 20.7%
Provision for merchant credit card losses ... 10,494 (538) 2050.6%
Postage and telephone ....................... 100,079 71,192 40.6%
Other ....................................... 238,520 192,217 24.1%
----------- -----------
Total noninterest expenses ..$ 2,727,889 $ 2,376,376 14.8%
=========== ===========
Salaries and benefits experienced the most significant dollar increase of
any noninterest expense component. For the quarter ended December 31, 1999,
total salaries and benefits increased to $1.6 million or $134 thousand over the
1998 quarter total of $1.5 million. The change was primarily attributable to the
increased number of Bank and Bancard employees during the 1999 quarter versus
the 1998 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 $140 thousand for the three months ended
December 31, 1998 to $204 thousand for the same three month period in 1999. The
$64 thousand increase was partially the result of increased charges from the
Bank's data processing provider for both, preparation for the Year 2000 and
increased account and transaction volumes. The increase also occurred, in part,
as the result of one-time fees to outside consultants relating to compliance
issues. Occupancy and equipment expense increased $45 thousand or 12% 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 merchant credit card losses for the quarter
increased $11 thousand, which reflected Bancard's increased merchant credit card
activity resulting from several newly established ISO relationships and
increased activity with its primary ISO.
<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 cost 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 six months
of fiscal 2000 was $142 thousand. For the quarter ended December 31, 1999, Year
2000 expenses were down $12 thousand, or 54%, to $10 thousand from $22 thousand
during the same period in 1998. Additional Year 2000 is expense is expected to
be minimal as final invoices are received and paid.
The considerable time and effort extended 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
2/29/2000 and 10/10/2000, and will address any related issues.
The provision for income taxes was $462 thousand for the three-month
period ended December 31, 1999 compared to $391 thousand for the three-month
period ended December 31, 1998 for an increase of $71 thousand or 18%. The
increase was the result of an increase in income before income taxes of $194
thousand or 19% for the 1999 quarter when compared to the 1998 quarter.
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
Interest income increased by $2.0 million from $9.7 million for the
six-month period ended December 31, 1998 to $11.7 million for the six months
ended December 31, 1999. The 21% 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 $1.0 million from $5.4 million for the
six-month period ended December 31, 1998 to $6.4 million for the six-month
period ended December 31, 1999. The 19% increase in interest expense was
basically caused by greater average, outstanding balances in interest-bearing
liabilities, largely with respect to the preferred securities of the subsidiary
trust.
At December 31, 1999 and June 30, 1999, the Company had an allowance for
estimated losses on loans of approximately 1.6% and 1.5% of total loans,
respectively. The provision for loan losses increased by $145 thousand from $426
thousand for the six-month period ended December 31, 1998 to $571 thousand for
the six-month period ended December 31, 1999. Among other factors considered by
management, the agricultural manufacturing sector experienced a slowdown in
1999. Due, in part, to the fact that certain of the Company's borrowers are
engaged in or depend on this industry, management made an increased provision
for loan losses. Commercial and real estate loans combined for total charge-offs
of $50 thousand and $1 thousand of recoveries for the six months ending December
31, 1999. Consumer loan charge-offs and recoveries totaled $125 thousand and $48
thousand, respectively, for the same six-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 $475 thousand from $2.5 million for the
six-month period ended December 31, 1998 to $3.0 million for the six-month
period ended December 31, 1999. Noninterest income at December 31, 1999 and 1998
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 19% 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.
<PAGE>
During the six months ended December 31, 1999, merchant credit card fees,
net of processing costs, increased by $772 thousand to $1.2 million from $411
thousand for the six months ended December 31, 1998. The 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 $150
thousand of merchant servicing fees for the six months ended December 31, 1999.
As anticipated, in November 1999 Bancard's largest ISO notified Bancard
that it intends to terminate its processing relationship with Bancard in May
2000. This ISO accounts for approximately two thirds of the dollar volume
processed by Bancard. Net earnings from this ISO represent 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.
For the six months ended December 31, 1999, trust department fees
increased $176 thousand, or 26%, to $863 thousand from $687 thousand for the
same period in 1998. The increase was a reflection of the development of
additional trust relationships.
Gains on sales of loans, net was $229 thousand for the six months ended
December 31, 1999, which reflected a decrease of 62%, or $379 thousand, from
$608 thousand for the six months ended December 31, 1998. The decrease resulted
from smaller numbers of both home refinances and first-time home purchases, and
the subsequent sale of the majority of these loans into the secondary market.
Recent increases in interest rates 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 six months ended December
31, 1999 were $5.5 million as compared to $4.7 million for the same period in
1998, or an increase of $823 thousand or 18%.
The following table sets forth the various categories of noninterest
expenses for the six months ended December 31, 1999 and 1998.
Noninterest Expenses
Six months ended
December 31,
------------------------
1999 1998 % change
----------- ----------- ---------
Salaries and employee benefits ..............$ 3,213,082 $ 2,816,802 14.1%
Professional and data processing fees ....... 424,929 279,480 52.0%
Advertising and marketing ................... 187,022 182,356 2.6%
Occupancy and equipment expense ............. 801,178 713,824 12.2%
Stationery and supplies ..................... 161,246 138,800 16.2%
Provision for merchant credit card losses ... 29,500 1,425 1970.2%
Postage and telephone ....................... 181,778 141,573 28.4%
Other ....................................... 502,695 403,945 24.5%
----------- -----------
Total noninterest expenses ..$ 5,501,430 4,678,205 17.6%
=========== ===========
<PAGE>
Salaries and benefits experienced the most significant dollar increase of
any noninterest expense component. For the six months ended December 31, 1999,
total salaries and benefits increased to $3.2 million or $396 thousand over the
1998 six-month total of $2.8 million. The change was primarily attributable to
the increased number of Bank and Bancard employees during the 1999 period versus
the 1998 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 $279 thousand for the six months ended
December 31, 1998 to $425 thousand for the same six-month period in 1999. The
$146 thousand increase was partially the result of increased charges from the
Bank's data processing provider for both, preparation for the Year 2000 and
increased account and transaction volumes. The increase also occurred, in part,
as the result of one-time fees to outside consultants relating to compliance
issues. Occupancy and equipment expense increased $87 thousand or 12% 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 quarter
increased $28 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 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 cost 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 six months
of fiscal 2000 was $142 thousand. For the six months ended December 31, 1999,
Year 2000 expenses were down $48 thousand, or 60%, to $32 thousand from $80
thousand during the same period in 1998. Additional Year 2000 is expense is
expected to be minimal as final invoices are received and paid.
The considerable time and effort extended 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 the 2000, the
Company will remain aware of dates defined by the FDIC as "critical", such as
2/29/2000 and 10/10/2000, and will address any related issues.
The provision for income taxes was $851 thousand for the six-month period
ended December 31, 1999 compared to $682 thousand for the six-month period ended
December 31, 1998 for an increase of $169 thousand or 25%. The increase was the
result of an increase in income before income taxes of $486 thousand or 28% for
the 1999 period when compared to the 1998 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 activities, cash
flows from investing activities, and cash flows from financing activities. Net
cash used in operating activities, consisting primarily of the funding of
prepaid expenses, was $2.6 million for the six months ended December 31, 1999
compared to $574 thousand used in the same period in 1998. Net cash used in
investing activities, consisting principally of loan and investment funding, was
$15.9 million for the six months ended December 31, 1999 and $36.0 million for
the six months ended December 31, 1998. Net cash provided by financing
activities, consisting primarily of deposit growth and proceeds from short-term
borrowings, for the six months ended December 31, 1999 was $23.6 million and for
same period in 1998 was $35.3 million, consisting principally of deposit growth
and proceeds from Federal Home Loan Bank advances.
<PAGE>
RECENT INDUSTRY DEVELOPMENT
In January 2000 the Hartford-Carlisle Savings Bank of Carlisle, Iowa
failed and was shut down by regulators. With a one-time assessment to be levied
by the state, Iowa banks and thrifts will be required to cover approximately
$8.5 million of uninsured deposits of local schools and governments held by the
failed bank. The Company does not expect its assessment to significantly impact
earnings in the future.
OTHER DEVELOPMENTS
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. The developer 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 twenty-four months of
the lease contract.
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.
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 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.
<PAGE>
RECENT REGULATORY DEVELOPMENTS
On November 12, 1999, the President signed into law legislation allowing
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 (i) financial in nature, (ii) incidental to any such financial
activity, or (iii) 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 a financial
holding company (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 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 stare law) subject to the same conditions that apply
to national bank investments in financial subsidiaries.
Various bank regulatory agencies have begun issuing proposed regulations
as mandated by the Act. On January 19, 2000, the Federal Reserve issued an
interim rule, which sets forth procedures by which bank holding companies may
become financial holding companies, the criteria necessary for such a
conversion, and the Federal Reserve's enforcement powers should a holding
company fail to maintain compliance with the criteria. That same day the Office
of the Comptroller of the Currency issued a proposed rule discussing the
procedures by which national banks may establish financial subsidiaries, as well
as the qualifications and safeguards that will be required. Both rules will
become effective on March 11, 2000, the effective day of the Act. At this time,
the Company is unable to predict the impact the Act and related regulations will
have on the Company and its subsidiaries.
<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
---------------------------------------------------
The annual meeting of stockholders was held at the Jumer's Castle
Lodge located at 900 Spruce Hills Drive, Bettendorf, Iowa on October 20,
1999 at 10:00 a.m. At the meeting, Richard R. Horst and Ronald G. Peterson
were re-elected to serve as Class III directors, with terms expiring in
2002. Continuing as Class II directors, with terms expiring in 2001, are
Douglas M. Hultquist and John W. Schricker. Continuing as Class I
directors, with terms expiring in 2000, are Michael A. Bauer and James J.
Brownson. Robert A. VanVooren retired as a Class I director on December
31, 1999.
At the time of the annual meeting, there were 2,307,501 issued and
outstanding shares of common stock. Either in person or by proxy, there
were 2,095,378 common shares represented at the meeting, constituting
approximately 91% of the outstanding shares. The voting was as follows:
Votes Votes
For Withheld
--------- ----------
Richard R. Horst ....................... 2,088,241 7,137
Ronald G. Peterson ..................... 2,090,641 4,737
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 February 9, 2000 /s/ Michael A. Bauer
---------------------------- ---------------------------------
Michael A. Bauer, Chairman
Date February 9, 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
DECEMBER 31, 1999 FORM 10-Q 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 13,579
<INT-BEARING-DEPOSITS> 12,306
<FED-FUNDS-SOLD> 32,895
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 58,070
<INVESTMENTS-CARRYING> 575
<INVESTMENTS-MARKET> 575
<LOANS> 211,376
<ALLOWANCE> 3,341
<TOTAL-ASSETS> 343,284
<DEPOSITS> 271,767
<SHORT-TERM> 11,318
<LIABILITIES-OTHER> 5,952
<LONG-TERM> 34,602
0
0
<COMMON> 2,322
<OTHER-SE> 17,322
<TOTAL-LIABILITIES-AND-EQUITY> 343,284
<INTEREST-LOAN> 8,902
<INTEREST-INVEST> 1,621
<INTEREST-OTHER> 1,213
<INTEREST-TOTAL> 11,736
<INTEREST-DEPOSIT> 4,857
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<INCOME-PRETAX> 2,226
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,376
<EPS-BASIC> .60
<EPS-DILUTED> .58
<YIELD-ACTUAL> 3.45
<LOANS-NON> 0
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<ALLOWANCE-OPEN> 2,895
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</TABLE>
