-----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, Tl9R8PwGvpfMkLxOn5fVp2oUyyC3uSuHVcAIXD0HbeMQiRUUBxUv8TH+iM7lZrZF UqZZgP88H1af7S/fYvjqIg== 0000743530-98-000040.txt : 19980518 0000743530-98-000040.hdr.sgml : 19980518 ACCESSION NUMBER: 0000743530-98-000040 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-22208 FILM NUMBER: 98623164 BUSINESS ADDRESS: STREET 1: 2118 MIDDLE RD STREET 2: PO BOX 395 CITY: BETTENDORF STATE: IA ZIP: 52722 BUSINESS PHONE: 3193440600 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to -------------- ------------------------ Commission file number 0-22208 Quad City Holdings, Inc. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 42-1397595 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2118 Middle Road, Bettendorf, IA 52722 ---------------------------------------- (Address of principal executive offices) (319) 344-0600 --------------------------- (Issuer's telephone number) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days Yes [ x ] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 1,462,824 as of May 13, 1998 Transitional Small Business Disclosure Format (check one): Yes [ x ] No [ ] QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES INDEX Page Number Part I FINANCIAL INFORMATION Item 1 Consolidated Condensed Financial Statements (Unaudited) Consolidated Condensed Balance Sheets, March 31, 1998 & June 30, 1997 Consolidated Condensed Statements of Income, For the Three Months Ended March 31, 1998 and 1997 Consolidated Condensed Statements of Income, For the Nine Months Ended March 31, 1998 and 1997 Consolidated Condensed Statements of Cash Flows, For the Nine Months Ended March 31, 1998 and 1997 Notes to Consolidated Condensed Financial Statements Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Part II OTHER INFORMATION Item 1 Legal Proceedings Item 2 Changes in Securities Item 3 Defaults Upon Senior Securities Item 4 Submission of Matters to a Vote of Security Holders Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K SIGNATURES Part I, Item 1 QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) March 31, June 30, ASSETS 1998 1997 ----------------------------- Cash and due from banks ................................................... $ 17,368,379 $ 6,953,463 Federal funds sold ........................................................ 12,785,000 9,190,000 Certificates of deposit at financial institutions ......................... 7,782,903 5,359,124 Securities held to maturity, at amortized cost ............................ 2,547,087 2,914,129 Securities available for sale, at fair value .............................. 26,933,576 28,897,629 ----------------------------- Total securities ..................................................... 29,480,663 31,811,758 ----------------------------- Loans receivable .......................................................... 153,464,613 108,365,429 Less: Allowance for estimated losses on loans ............................. (2,309,023) (1,632,500) ----------------------------- Net loans receivable ................................................. 151,155,590 106,732,929 ----------------------------- Premises and equipment, net ............................................... 7,536,493 5,248,689 Accrued interest receivable ............................................... 1,750,583 1,374,307 Other assets .............................................................. 2,149,952 1,708,481 ----------------------------- Total assets ...................................................... $230,009,563 $168,378,751 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing .................................................... $ 24,453,094 $ 22,103,036 Interest-bearing ....................................................... 160,826,169 113,857,159 ----------------------------- Total deposits ....................................................... 185,279,263 135,960,195 ----------------------------- Federal Home Loan Bank advances ........................................... 23,240,932 10,777,712 Other borrowings .......................................................... 1,500,000 1,500,000 Other liabilities ......................................................... 2,778,522 5,527,618 ----------------------------- Total liabilities ................................................. 212,798,717 153,765,525 ----------------------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, $1 par value; shares authorized 250,000; shares issued and 25 10 outstanding March 1998, 25; June 1997, 10 Common stock, $1 par value; shares authorized 2,500,000; shares issued and outstanding March 1998 and June 1997, 1,462,824 ......................... 1,462,824 1,462,824 Additional paid-in capital ................................................ 14,539,391 13,039,406 Retained earnings ......................................................... 1,180,135 171,171 ----------------------------- 17,182,375 14,673,411 Unrealized gains (losses) on securities available for sale, net ........... 28,471 (60,185) ----------------------------- Total stockholders' equity ........................................ 17,210,846 14,613,226 ----------------------------- Total liabilities and stockholders' equity ........................ $230,009,563 $168,378,751 =============================
See Notes to Consolidated Condensed Financial Statements Part I, Item 1 QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended March 31, ---------------------------- 1998 1997 ----------------------- Interest income: Interest and fees on loans ............................. $3,069,419 $1,755,823 Interest and dividends on securities ................... 468,600 556,770 Interest on federal funds sold ......................... 137,878 80,248 Other interest ......................................... 121,486 106,884 ----------------------- Total interest income ............................. 3,797,383 2,499,725 ----------------------- Interest expense: Interest on deposits .................................. 1,770,112 1,142,614 Interest on borrowings ................................ 387,805 182,849 ----------------------- Total interest expense ............................ 2,157,917 1,325,463 ----------------------- Net interest income ............................... 1,639,466 1,174,262 Provision for loan losses .................................. 233,260 222,775 ----------------------- Net interest income after provision for loan losses 1,406,206 951,487 ----------------------- Other income: Merchant credit card fees, net of processing costs ..... 326,122 406,718 Trust department fees .................................. 299,602 194,480 Deposit service fees ................................... 73,775 50,385 Gains on sales of loans, net ........................... 284,083 38,584 Investment securities gains, net ....................... 8,734 14,248 Other .................................................. 141,787 85,930 ----------------------- Total other income ................................ 1,134,103 790,345 ----------------------- Other expenses: Salaries and benefits .................................. 1,173,299 792,267 Professional and data processing fees .................. 126,530 102,837 Advertising and marketing .............................. 103,430 24,151 Occupancy and equipment expense ........................ 282,105 173,534 Stationery and supplies ................................ 71,754 40,504 Provision for merchant credit card losses .............. 23,226 26,122 Postage and telephone .................................. 74,307 42,024 Other .................................................. 193,866 190,571 ----------------------- Total other expenses .............................. 2,048,517 1,392,010 ----------------------- Income before income taxes .................................. 491,792 349,822 Income taxes ................................................ 191,425 0 ----------------------- Net income ........................................ $ 300,367 $ 349,822 ======================= Earnings per common share: Basic ............................................. 0.21 0.24 Diluted ........................................... 0.19 0.23 Weighted average common shares outstanding ........ 1,462,824 1,437,824 Weighted average common and common equivalent shares outstanding .......................... 1,585,514 1,500,516
See Notes to Consolidated Condensed Financial Statements Part I, Item 1 QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) Nine Months Ended March 31, --------------------------- 1998 1997 ------------------------- Interest income: Interest and fees on loans ............................. $ 8,642,021 $ 4,661,770 Interest and dividends on securities ................... 1,454,024 1,620,207 Interest on federal funds sold ......................... 305,467 232,542 Other interest ......................................... 318,810 309,083 ------------------------- Total interest income ............................. 10,720,322 6,823,602 ------------------------- Interest expense: Interest on deposits .................................. 4,909,441 3,121,028 Interest on borrowings ................................ 969,225 414,962 ------------------------- Total interest expense ............................ 5,878,666 3,535,990 ------------------------- Net interest income ............................... 4,841,656 3,287,612 Provision for loan losses .................................. 753,258 526,500 ------------------------- Net interest income after provision for loan losses 4,088,398 2,761,112 ------------------------- Other income: Merchant credit card fees, net of processing costs ..... 1,061,550 1,096,775 Trust department fees .................................. 825,389 445,613 Deposit service fees ................................... 203,143 139,499 Gains on sales of loans, net ........................... 512,387 38,584 Investment securities gains, net ....................... 8,734 14,248 Other .................................................. 317,512 173,049 ------------------------- Total other income ................................ 2,928,715 1,907,768 ------------------------- Other expenses: Salaries and benefits .................................. 3,109,580 2,004,360 Professional and data processing fees .................. 375,337 307,727 Advertising and marketing .............................. 236,033 75,981 Occupancy and equipment expense ........................ 689,784 476,082 Stationery and supplies ................................ 156,163 133,994 Provision for merchant credit card losses .............. 83,426 137,317 Postage and telephone .................................. 161,696 124,641 Other .................................................. 549,430 497,525 ------------------------- Total other expenses .............................. 5,361,449 3,757,627 ------------------------- Income before income taxes .................................. 1,655,664 911,253 Income taxes ................................................ 646,700 0 ------------------------- Net income ........................................ $ 1,008,964 $ 911,253 ========================= Earnings per common share: Basic ............................................. 0.69 0.63 Diluted ........................................... 0.64 0.61 Weighted average common shares outstanding ........ 1,462,824 1,437,824 Weighted average common and common equivalent shares outstanding .......................... 1,585,514 1,500,516
See Notes to Consolidated Condensed Financial Statements Part I, Item 1 QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended March 31, ---------------------------- 1998 1997 ---------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income .............................................................. $ 1,008,964 $ 911,253 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation .......................................................... 330,521 246,243 Provision for loan losses ............................................. 753,258 526,500 Provision for merchant credit card losses ............................. 83,426 137,317 Amortization of premiums (accretion of discounts) on securities, net .. (14,329) (24,044) Loans originated for sale ............................................. (38,142,945) (1,568,205) Proceeds on sales of loans ............................................ 32,137,607 1,606,789 Net (gains) on sales of loans ......................................... (512,387) (38,584) Realized (gains) on securities available for sale, net ................ (8,734) (14,248) (Increase) in accrued interest receivable ............................. (376,276) (71,690) (Increase) in other assets ............................................ (469,927) (43,985) Increase (decrease) in other liabilities .............................. (2,846,105) 2,994,205 ---------------------------- Net cash provided by (used in) operating activities ................ $ (8,056,927) $ 4,661,551 ---------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) in federal funds sold .................................... (3,595,000) (2,977,000) Net (increase) in certificates of deposits at financial institutions .... (2,423,779) (383,905) Net loans originated .................................................... (38,658,194) (34,426,464) Purchase of securities available for sale ............................... (5,751,974) (4,884,260) Purchase of securities held to maturity ................................. (251,413) 0 Proceeds from calls and maturity of securities .......................... 7,500,000 2,000,000 Proceeds from paydowns on securities .................................... 974,227 862,603 Proceeds from sale of securities available for sale ..................... 14,013 32,700 Purchase of premises and equipment, net ................................. (2,618,325) (937,286) ---------------------------- Net cash (used in) investing activities ............................ $(44,810,445) $(40,713,612) ---------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposit accounts ........................................ 49,319,068 28,481,572 Net (decrease) in federal funds purchased ............................... 0 (1,190,000) Proceeds from issuance of preferred stock ............................... 1,500,000 1,000,000 Net increase in other borrowings ........................................ 0 500,000 Proceeds from Federal Home Loan Bank advances ........................... 20,400,000 10,461,000 Payments on Federal Home Loan Bank advances ............................. (7,936,780) (4,560,918) ---------------------------- Net cash provided by financing activities .......................... $ 63,282,288 $ 34,691,654 ---------------------------- Net increase (decrease) in cash and due from banks ................. 10,414,916 (1,360,407) Cash and due from banks, beginning ................................. 6,953,463 6,615,407 ---------------------------- Cash and due from banks, ending .................................... $ 17,368,379 $ 5,255,000 ============================ Supplemental disclosure of cash flow information, cash payments for: Interest ................................................................ $ 5,495,988 $ 3,386,596 ============================ Income/franchise taxes .................................................. $ 1,324,000 $ 0 ============================ Change in unrealized gains (losses) on securities available for sale, net $ 88,656 $ (253,257) ============================
See Notes to Consolidated Condensed Financial Statements Part I Item 1 QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1998 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include information or footnotes necessary for a fair presentation of financial position, results of operations and changes in financial condition in conformity with generally accepted accounting principles. However, all adjustments that are, in the opinion of management, necessary for a fair presentation have been included. Results for the periods ended March 31, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 1998. NOTE 2 - PRINCIPLES OF CONSOLIDATION The accompanying consolidated condensed financial statements include the accounts of Quad City Holdings, Inc. (the "Company"), a Delaware corporation, and its wholly owned subsidiaries, Quad City Bank and Trust Company (the "Bank") and Quad City Bancard, Inc. ("Bancard"). All significant intercompany accounts and transactions have been eliminated in consolidation. NOTE 3 - EARNINGS PER SHARE The following information was used in the computation of earnings per share on a basic and diluted basis. Three months ended Nine months ended March 31, March 31, ------------------------------------------------- 1998 1997 1998 1997 ------------------------------------------------- Net income, basic and diluted Earnings ...................... $ 300,367 $ 349,822 $1,008,964 $ 911,253 Weighted average common shares Outstanding ................... 1,462,824 1,437,824 1,462,824 1,437,824 Weighted average common shares issuable upon exercise of stock options and warrants .......... 122,690 62,692 122,690 62,692 Weighted average common and common equivalent shares outstanding ................... 1,585,514 1,500,516 1,585,514 1,500,516
Part I Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Quad City Holdings, Inc. (the "Company") is the parent company of Quad City Bank and Trust Company (the "Bank"), which commenced operations in January, 1994. The Bank is an Iowa-chartered commercial bank that is a member of the Federal Reserve System with depository accounts insured by the Federal Deposit Insurance Corporation. The Bank provides full-service commercial and consumer banking services in Bettendorf and Davenport, Iowa and Moline, Illinois and in adjacent communities. Quad City Bancard, Inc. ("Bancard") provides merchant credit card processing services. Bancard has contracted with an independent sales organization that markets credit card services to merchants throughout the country. Currently, approximately 12,000 merchants process transactions with Bancard. The Company has a fiscal year end of June 30. FINANCIAL CONDITION Total assets of the Company increased by $61,630,812 or 36.60% to $230,009,563 at March 31, 1998 from $168,378,751 at June 30, 1997. The growth primarily resulted from an increase in deposits received from customers and from advances received from the Federal Home Loan Bank. Cash and due from banks increased by $10,414,916 or 149.78% to $17,368,379 at March 31, 1998 from $6,953,463 at June 30, 1997 and represented both cash maintained at the Bank, as well as funds that the Bank and the Company had deposited in other banks in the form of demand deposits. Federal funds sold are inter-bank funds with daily liquidity. At March 31, 1998, the Bank had $12,785,000 invested in such funds. This amount increased by $3,595,000, or 39.12%, from $9,190,000 at June 30, 1997. Certificates of deposit at financial institutions increased by $2,423,779 or 45.23% to $7,782,903 at March 31, 1998 from $5,359,124 at June 30, 1997. The increase was due to new deposits in other banks in the form of certificates of deposit. Securities decreased by $2,331,095 or 7.33% to $29,480,663 at March 31, 1998 from $31,811,758 at June 30, 1997. The decrease was the result of a number of transactions in the securities portfolio. Additional securities, classified as available for sale, were purchased in the amount of $5,751,974. Additional securities, classified as held to maturity, were purchased in the amount of $251,413. The net of the amortization of premiums and accretion of discounts was $14,329, and the increase in unrealized gains on securities available for sale, before applicable income tax, was $130,695. The increase was offset by paydowns received on mortgage-backed securities of $974,227 and the maturity and calls of securities in the amount of $7,500,000. Additionally, one security classified as available for sale was sold for $14,013, resulting in a gain of $8,734. Loans receivable increased by $45,099,184 or 41.62% to $153,464,613 at March 31, 1998 from $108,365,429 at June 30, 1997. The increase was the result of the origination of $110,044,815 of commercial business, consumer and real estate loans, less loan repayments and payments on sales of loans of $64,945,631. The allowance for estimated losses on loans at March 31, 1998 was $2,309,023, representing approximately 1.5% of gross loans outstanding. Similarly, the allowance for estimated losses on loans at June 30, 1997 was approximately 1.5% of gross loans outstanding, or $1,632,500. Although management believes that the allowance for estimated losses on loans at March 31, 1998 was at a level adequate to absorb losses on existing loans, there can be no assurance that such losses will not exceed the estimated amounts or that the Company will not be required to make additional provisions for loan losses in the future. Premises and equipment increased by $2,287,804 or 43.59% to $7,536,493 at March 31, 1998 from $5,248,689 at June 30, 1997. The increase resulted from the purchase of additional furniture, fixtures and equipment for the Bank and Bancard, and certain site construction costs for the new Moline banking location, offset by depreciation expense. Accrued interest receivable on loans, securities and interest-bearing cash accounts increased by $376,276 or 27.38% to $1,750,583 at March 31, 1998 from $1,374,307 at June 30, 1997. Other assets increased by $441,471 or 25.84% to $2,149,952 at March 31, 1998 from $1,708,481 at June 30, 1997. Other assets consisted mainly of miscellaneous receivables, prepaid expenses and accrued trust department income. Deposits increased by $49,319,068 or 36.27% to $185,279,263 at March 31, 1998 from $135,960,195 at June 30, 1997. The increase resulted from an $18,429,948 net increase in non-interest bearing, NOW, money market and other savings accounts and a $30,889,120 net increase in certificates of deposit. Federal Home Loan Bank ("FHLB") advances increased by $12,463,220 or 115.64% to $23,240,932 at March 31, 1998 from $10,777,712 at June 30, 1997. As a result of its membership in the FHLB of Des Moines, the Bank has the ability to borrow funds for short or long-term purposes under a variety of programs. The increase was primarily attributable to the fact that deposit growth was less than loan demand during the period. Additionally, the use of the advances enabled the Bank to hedge against the possibility of rising interest rates. Other borrowings totaled $1,500,000 at both March 31, 1998 and June 30, 1997. Other borrowings consist of the amount outstanding on a revolving credit note with a third party lender, which is secured by all the outstanding stock of the Bank. At June 30, 1997, the total credit note was in the amount of $1,500,000, however on March 10, 1998 the Company increased the credit note by $2,000,000 to a total amount of $3,500,000. The borrowed funds were utilized to provide additional capital to the Bank to maintain an 8% leverage ratio. Other liabilities decreased by $2,749,096 or 49.73% to $2,778,522 at March 31, 1998 from $5,527,618 at June 30, 1997. Other liabilities was comprised of unpaid amounts for various products and services, and accrued but unpaid interest on deposits. Preferred stock increased by $15 to $25 at March 31, 1998 from $10 at June 30, 1997. The increase was due to the issuance of 15 shares at $1.00 par value of perpetual, nonvoting preferred stock for consideration of $1,500,000. Common stock of $1,462,824 at both March 31, 1998 and June 30, 1997 represented 1,462,824 shares at $1.00 par value of the Company's common stock. Additional paid-in capital increased by $1,499,985 to $14,539,391 at March 31, 1998 from $13,039,406 at June 30, 1997. The increase resulted from cash received in excess of the par value for the 15 shares of preferred stock. Retained earnings increased by $1,008,964 to $1,180,135 at March 31, 1998 from $171,171 at June 30, 1997 to reflect net income for the nine months. Unrealized gains and losses on securities available for sale, net of related income taxes, was a $28,471 gain at March 31, 1998 as compared to a $60,185 loss at June 30, 1997. The increase was attributable to the increase in fair value of the securities, identified as available for sale, for the three prior quarters. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 Income before income taxes increased by $141,970 from $349,822 for the three month period ended March 31, 1997 to $491,792 in the same period in 1998. There was no provision for income taxes for the quarter ended March 31, 1997, as the Company still had net operating losses from its start-up period for income tax purposes. As a result, net income for the three-month period ended March 31, 1998 was $300,367 as compared to net income of $349,822 for the same period in 1997. Interest income increased by $1,297,658 from $2,499,725 for the three month period ended March 31, 1997 to $3,797,383 for the three month period ended March 31, 1998. The 51.91% rise in interest income was primarily attributable to greater average outstanding balances in interest earning assets. Interest expense increased by $832,454 from $1,325,463 for the three month period ended March 31, 1997 to $2,157,917 for the three month period ended March 31, 1998. The 62.80% increase in interest expense was again primarily attributable to greater average outstanding balances in interest bearing liabilities. The Company had an allowance for estimated losses on loans of approximately 1.5% of total loans at March 31, 1998 and 1997. The provision for loan losses increased by $10,485 from $222,775 for the three month period ended March 31, 1997 to $233,260 for the three month period ended March 31, 1998. The increase in the provision was made as a result of the increase in the total loan portfolio during this quarter. Asset quality is a priority for the Company and its subsidiaries. The ability to grow profitably is, in part, dependent upon the ability to maintain that quality. The Company intends to continue to closely monitor the loan portfolio and currently does not anticipate any material losses. Other income increased by $334,758 from $790,345 for the three month period ended March 31, 1997 to $1,134,103 for the three month period ended March 31, 1998. Other income at March 31, 1998 and 1997 consisted of income from the merchant credit card operation, the trust department, depository service fees, gains on the sale of residential real estate mortgage loans, the gain on a sale of an investment security and other miscellaneous fees. The increase was primarily due to an increase in assets being managed by the trust department of the Bank, much of which resulted from the addition of new clients, and the expansion of the residential real estate department of the Bank. Merchant credit card fees, net of processing costs decreased by $80,596 from $406,718 for the three month period ended March 31, 1997 to $326,122 for the three month period ended March 31, 1998. Bancard is currently in the process of restructuring its merchant portfolio to focus on smaller merchants with less risk and as a result experienced reduced earnings. The main components of other expenses were primarily salaries and benefits, occupancy and equipment expenses, and professional and data processing fees, for both periods. Other expenses for the three months ended March 31, 1998 were $2,048,517 as compared to $1,392,010 for the same period in 1997. From March 31, 1997 to March 31, 1998, salaries and benefits experienced the most significant increase of any noninterest expense component. For the three months ended March 31, 1998, total salaries and benefits increased to $1,173,299 or $381,032 over the March 31, 1997 total of $792,267. The change was primarily attributable to the addition of new employees. Some of the new positions added during that twelve month period were: a trust officer, a technology manager, a consumer loan officer, four real estate loan originators, a real estate underwriter, a loan quality manager, a credit analyst, a correspondent banking officer, a marketing manager and a business development officer. The provision for income taxes was $191,425 for the three-month period ended March 31, 1998 compared to no provision for the three-month period ended March 31, 1997. There was no provision for the quarter ended March 31, 1997, as the Company had net operating losses for income tax purposes. NINE MONTHS ENDED MARCH 31, 1998 AND 1997 Income before income taxes increased by $744,411 from $911,253 for the nine month period ended March 31, 1997 to $1,655,664 in the same period in 1998. There was no provision for income taxes for the nine months ended March 31, 1997, as the Company still had net operating losses from its start-up period for income tax purposes. As a result, net income for the nine-month period ended March 31, 1998 increased slightly to $1,008,964 as compared to a net income of $911,253 for the same period in 1997. Interest income increased by $3,896,720 from $6,823,602 for the nine month period ended March 31, 1997 to $10,720,322 for the nine month period ended March 31, 1998. The 57.11% rise in interest income was primarily attributable to greater average outstanding balances in interest earning assets. Interest expense increased by $2,342,676 from $3,535,990 for the nine month period ended March 31, 1997 to $5,878,666 for the nine month period ended March 31, 1998. The 66.25% increase in interest expense was again primarily attributable to greater average outstanding balances in interest bearing liabilities. The Company had an allowance for estimated losses on loans of approximately 1.5% of total loans at March 31, 1998 and 1997. The provision for loan losses increased by $226,758 from $526,500 for the nine month period ended March 31, 1997 to $753,258 for the nine month period ended March 31, 1998. The 43.07% increase in the provision was made as a result of the increase in the total loan portfolio during this quarter. Asset quality is a priority for the Company and its subsidiaries. The ability to grow profitably is, in part, dependent upon the ability to maintain that quality. The Company intends to continue to closely monitor the loan portfolio and currently does not anticipate any material losses. Other income increased by $1,020,947 from $1,907,768 for the nine month period ended March 31, 1997 to $2,928,715 for the nine month period ended March 31, 1998. Other income at March 31, 1998 and 1997 consisted of income from the merchant credit card operation, the trust department, depository service fees, gains on the sale of residential real estate mortgage loans, the gain on a sale of an investment security and other miscellaneous fees. The increase was primarily due to an increase in assets being managed by the trust department of the Bank, much of which resulted from the addition of new clients, and the expansion of the residential real estate department of the Bank. The main components of other expenses were primarily salaries and benefits, occupancy and equipment expenses, professional and data processing fees, and advertising and marketing expenses, for both periods. Other expenses for the nine months ended March 31, 1998 were $5,361,449 as compared to $3,757,627 for the same period in 1997. From March 31, 1997 to March 31, 1998, salaries and benefits experienced the most significant increase of any noninterest expense component. For the nine months ended March 31, 1998, total salaries and benefits increased to $3,109,580 or $1,105,220 over the March 31, 1997 total of $2,004,360. The change was primarily attributable to the addition of new employees, as well as to normal salary increases for existing employees. The provision for income taxes was $646,700 for the nine-month period ended March 31, 1998 compared to no provision for the nine-month period ended March 31, 1997. There was no provision for the nine-month period ended March 31, 1997, as the Company had net operating losses for income tax purposes. OTHER DEVELOPMENTS Construction of the Davenport full service banking facility was completed in July, 1996 to provide for the convenience of customers and to expand the Bank's market territory. The two-story building is in two segments that are separated by an atrium. The Bank owns the south half of the building, while the developer owns the northern portion. The Bank occupies its first floor and utilizes the basement for the operations and item processing department, as well as storage. The second floor is leased to two law firms. In addition, the residential real estate department of the Bank began leasing approximately 2,500 square feet in the attached building across the first floor atrium in January, 1998. Renovation of a third full service banking facility was completed at the historic Velie Plantation Mansion located near the intersection of 7th Street and John Deere Road in Moline near the Rock Island/Moline border. The developer owns the building and both the Bank and Bancard are major tenants. Bancard relocated its operations to the lower level of the 30,000 square foot building in December, 1997. The Bank began its operations on the first floor of the building on February 17, 1998. The Bank is leasing the entire first floor of the building, and is subleasing approximately 3,500 square feet to a nonrelated entity for the first twenty-four months of the lease contract. YEAR 2000 COMPLIANCE The federal banking regulators have issued several statements providing guidance to financial institutions on the steps the regulators expect financial institutions to take to become Year 2000 compliant. Each of the federal banking regulators is also examining the financial institutions under its jurisdiction to assess each institution's compliance with the outstanding guidance. If an institution's progress in addressing the Year 2000 problem is deemed by its primary federal regulator to be less than satisfactory, the institution will be required to enter into a memorandum of understanding with the regulator which will, among other things, require the institution to promptly develop and submit an acceptable plan for becoming Year 2000 compliant and to provide periodic reports describing the institution's progress in implementing the plan. Failure to satisfactorily address the Year 2000 problem may also expose a financial institution to other forms of enforcement action that its primary federal regulator deems appropriate to address the deficiencies in the institution's Year 2000 remediation program. The Company utilizes and is dependent upon data processing systems and software to conduct its business. The data processing systems and software include those developed and maintained by the Company's third-party data processing vendor and purchased software which is run on in-house computer networks. During 1997, the Company initiated a review and assessment of all hardware and software to confirm that it will function properly in the year 2000. In the first quarter of 1998, the Company has contacted each vendor, and required those vendors to represent that their products provided are or will be year 2000 compliant. It is recognized that any Year 2000 compliance failures could result in additional expense to the Company, however the Company has not identified any situations at this time that will require material cost expenditures to become fully compliant. An unknown element at this time is the impact of the Year 2000 on the Company's borrowing customers and their ability to repay. The Company has initiated a program to communicate with key bank commercial customers to ensure they are properly prepared for the Year 2000 and will not suffer serious adverse consequences. NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued SFAS No. 130 "Reporting Comprehensive Income" which is effective for fiscal years beginning after December 15, 1997. This Statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The purpose of reporting comprehensive income is to disclose a measure of all changes in equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. The Company will be required to disclose comprehensive income. Currently, the Company's comprehensive income would include net income and the change in unrealized gains (losses) on securities available for sale, net. The Financial Accounting Standards Board has issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" which is effective for fiscal years beginning after December 15, 1997. This Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Management believes that adoption of this Statement will not have a material effect on the consolidated financial statements. The Financial Accounting Standards Board has issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" which is effective for fiscal years beginning after December 15, 1997. This Statement standardizes employers' disclosures about pensions and other postretirement benefit plans, requires certain additional information, and eliminates other existing disclosures. It does not change the measurement or recognition of these benefit plans. Management believes that adoption of this Statement will not have a material effect on the consolidated financial statements. Part II QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1 Legal Proceedings Item 2 Changes in Securities Item 3 Defaults Upon Senior Securities Item 4 Submission of Matters to a Vote of Security Holders Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (b) Reports on Form 8-K None. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. QUAD CITY HOLDINGS, INC. (Registrant) By: /s/ Douglas M. Hultquist ------------------------------------- Douglas M. Hultquist, President Date May 13, 1998 /s/ Michael A. Bauer ------------------------------------- Michael A. Bauer, Chairman Date May 13, 1998 /s/ Douglas M. Hultquist ------------------------------------- Douglas M. Hultquist, President Principal Executive, Financial and Accounting Officer EX-27 2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIN EXTRACTED FROM THE MARCH 31, 1998 FORM 10-QSB OF QUAD CITY HOLDINGS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 9-MOS JUN-30-1998 MAR-31-1998 17,368 7,783 12,785 0 26,934 2,547 2,532 153,465 2,309 230,010 185,279 1,500 2,779 23,241 0 0 1,463 15,748 230,010 8,642 1,454 624 10,720 4,909 5,879 4,842 753 9 5,361 1,656 1,009 0 0 1,009 .69 .64 0 0 0 0 0 1,633 77 0 2,309 2,309 0 0
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