-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GlGr7t4mT8LcRoB0pdArb+fykBeeF9s+AQdGymPARxKgqneFjHMcN30S4OINEfTB 6QLvNWVh+fFeTrKlfKoD8w== 0000743530-00-000004.txt : 20000215 0000743530-00-000004.hdr.sgml : 20000215 ACCESSION NUMBER: 0000743530-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUAD CITY HOLDINGS INC CENTRAL INDEX KEY: 0000906465 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 421397595 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15021 FILM NUMBER: 537156 BUSINESS ADDRESS: STREET 1: 3551 7TH STREET CITY: MOLINE STATE: IL ZIP: 61265 BUSINESS PHONE: 3097363580 10-Q 1 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 ------- ------- 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 February 1, 2000, the Registrant had outstanding 2,322,996 shares of common stock, $1.00 par value per share. QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES INDEX ----- Part I FINANCIAL INFORMATION Item 1 Consolidated Financial Statements (Unaudited) Consolidated Balance Sheets, December 31, 1999 and June 30, 1999 Consolidated Statements of Income, For the Three Months Ended December 31, 1999 and 1998 Consolidated Statements of Income, For the Six Months Ended December 31, 1999 and 1998 Consolidated Statements of Cash Flows, For the Six Months Ended December 31, 1999 and 1998 Notes to Consolidated Financial Statements Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Part II OTHER INFORMATION Item 1 Legal Proceedings Item 2 Changes in Securities and Use of Proceeds Item 3 Defaults Upon Senior Securities Item 4 Submission of Matters to a Vote of Security Holders Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K Signatures QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 31, 1999 and June 30, 1999 December 31, June 30, 1999 1999 ------------- -------------- ASSETS Cash and due from banks ...........................$ 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 ------------- ------------- 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 ------------- ------------- 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 ------------- ------------- STOCKHOLDERS' EQUITY Common stock, $1 par value; shares authorized 5,000,000; shares issued and outstanding December 1999, 2,322,331; June 1999, 2,296,251..................................... 2,322,331 2,296,251 Additional paid-in capital ........................ 12,127,066 11,959,080 Retained earnings ................................. 5,926,058 4,550,490 Accumulated other comprehensive (loss), unrealized (loss) on securities available for sale, net . (731,370) (332,350) ------------- ------------- 19,644,085 18,473,471 ------------- ------------- Total liabilities and stockholders' equity ...$ 343,283,600 $ 321,346,215 ============= ============= See Notes to Consolidated Financial Statements 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 ------------- ------------- 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 ------------- ------------- 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 ------------- ------------- 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 ------------- ------------- Total noninterest income ................ 1,623,759 1,329,819 ------------- ------------- 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 ------------- ------------- Total noninterest expenses .............. 2,727,889 2,376,376 ------------- ------------- Income before income taxes .............. 1,204,780 1,010,770 Federal and state income taxes .................... 461,860 391,314 ------------- ------------- 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 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 ------------- ------------- 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 ------------- ------------- 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 ------------- ------------- Total noninterest income ................ 2,995,872 2,520,885 ------------- ------------- 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 ------------- ------------- Total noninterest expenses .............. 5,501,430 4,678,205 ------------- ------------- Income before income taxes .............. 2,226,463 1,740,042 Federal and state income taxes .................... 850,895 681,765 ------------- ------------- 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 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) ------------- ------------- Net cash used in investing activities ..........................$ (15,922,347) $ (35,999,079) ------------- ------------- 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 ------------- ------------- Net cash provided by financing activities ..........................$ 23,554,458 $ 35,341,262 ------------- ------------- 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 ------------- ------------- 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 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 ========== ========== ========== ========== 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. 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. 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. 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. 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. 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. 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% =========== =========== 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. 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. 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. 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 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 EX-27 2
9 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. 1,000 6-MOS JUN-30-2000 DEC-31-1999 13,579 12,306 32,895 0 58,070 575 575 211,376 3,341 343,284 271,767 11,318 5,952 34,602 0 0 2,322 17,322 343,284 8,902 1,621 1,213 11,736 4,857 6,432 5,304 572 0 5,501 2,226 1,376 0 0 1,376 .60 .58 3.45 0 0 0 0 2,895 126 0 3,341 3,341 0 0
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