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, 2000
[ ] 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,
2001, the Registrant had outstanding 2,265,420 shares of common stock, $1.00 par
value per share.
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets,
December 31, 2000 and June 30, 2000
Consolidated Statements of Income,
For the Three Months Ended December 31, 2000 and 1999
Consolidated Statements of Income,
For the Six Months Ended December 31, 2000 and 1999
Consolidated Statements of Cash Flows,
For the Six Months Ended December 31, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, 2000 and June 30, 2000
December 31, June 30,
2000 2000
------------------------------
ASSETS
Cash and due from banks ........................................................ $ 22,125,331 $ 15,130,357
Federal funds sold ............................................................. 20,405,000 26,105,000
Certificates of deposit at financial institutions .............................. 11,502,085 12,776,463
Securities held to maturity, at amortized cost ................................. 575,275 574,988
Securities available for sale, at fair value ................................... 56,826,060 55,554,062
------------------------------
57,401,335 56,129,050
------------------------------
Loans receivable ............................................................... 265,618,488 241,852,851
Less: Allowance for estimated losses on loans .................................. (3,972,433) (3,617,401)
------------------------------
261,646,055 238,235,450
------------------------------
Premises and equipment, net .................................................... 8,562,054 7,715,621
Accrued interest receivable .................................................... 3,111,264 2,633,120
Other assets ................................................................... 9,728,550 8,896,554
------------------------------
Total assets ........................................................... $ 394,481,674 $ 367,621,615
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing ......................................................... $ 44,157,781 $ 44,043,932
Interest-bearing ............................................................ 263,263,900 244,022,824
------------------------------
Total deposits ............................................................ 307,421,681 288,066,756
------------------------------
Short-term borrowings .......................................................... 25,571,827 20,771,724
Federal Home Loan Bank advances ................................................ 20,373,704 22,425,398
Company obligated manditorily redeemable preferred securities of
subsidiary trust holding solely subordinated debentures ................... 12,000,000 12,000,000
Other borrowings ............................................................... 0 0
Other liabilities .............................................................. 7,297,781 4,286,318
------------------------------
Total liabilities ...................................................... 372,664,993 347,550,196
------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; shares authorized 5,000,000;
shares issued and outstanding December 2000 - 2,325,566 and 2,265,420;
June 2000 - 2,325,416 and 2,283,920 respectively ............................ 2,325,566 2,325,416
Additional paid-in capital ..................................................... 12,148,759 12,147,984
Retained earnings .............................................................. 8,300,211 7,296,017
Accumulated other comprehensive (loss), unrealized (losses) on
securities available for sale, net ........................................... (103,319) (1,098,518)
------------------------------
22,671,217 20,670,899
Less: Cost of common shares acquired for the treasury;
December 2000 - 60,146; June 2000 - 41,496 .................................. (854,536) (599,480)
------------------------------
Total stockholders' equity ............................................. 21,816,681 20,071,419
------------------------------
Total liabilities and stockholders' equity ............................. $ 394,481,674 $ 367,621,615
==============================
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended December 31
2000 1999
--------------------------
Interest income:
Interest and fees on loans ................................. $ 5,898,649 $ 4,445,500
Interest and dividends on securities:
Taxable .............................................. 771,376 793,124
Nontaxable ........................................... 64,420 61,006
Interest on federal funds sold ............................. 296,599 448,216
Other interest ............................................. 233,657 187,405
--------------------------
Total interest income ................................. 7,264,701 5,935,251
--------------------------
Interest expense:
Interest on deposits ...................................... 3,452,477 2,539,440
Interest on company obligated manditorily
redeemable preferred securities ...................... 283,377 278,970
Interest on short-term and other borrowings ............... 587,169 511,131
--------------------------
Total interest expense ................................ 4,323,023 3,329,541
--------------------------
Net interest income ................................... 2,941,678 2,605,710
Provision for loan losses ...................................... 343,800 296,800
--------------------------
Net interest income after provision for loan losses ... 2,597,878 2,308,910
--------------------------
Noninterest income:
Merchant credit card fees, net of processing costs ......... 428,041 645,700
Trust department fees ...................................... 512,370 463,086
Deposit service fees ....................................... 169,052 150,812
Gains on sales of loans, net ............................... 170,539 127,541
Securities losses, net ..................................... (22,855) 0
Other ...................................................... 158,349 236,620
--------------------------
Total noninterest income .............................. 1,415,496 1,623,759
--------------------------
Noninterest expenses:
Salaries and employee benefits ............................. 1,953,749 1,584,640
Professional and data processing fees ...................... 328,256 204,092
Advertising and marketing .................................. 152,921 103,565
Occupancy and equipment expense ............................ 498,413 407,321
Stationery and supplies .................................... 98,238 79,178
Postage and telephone ...................................... 99,982 100,079
Other ...................................................... 334,612 249,014
--------------------------
Total noninterest expenses ............................ 3,466,171 2,727,889
--------------------------
Income before income taxes ............................ 547,203 1,204,780
Federal and state income taxes .................................. 203,258 461,860
--------------------------
Net income ............................................ $ 343,945 $ 742,920
==========================
Earnings per common share:
Basic ................................................. $ 0.15 $ 0.32
Diluted ............................................... $ 0.15 $ 0.31
Weighted average common shares outstanding ............ 2,267,659 2,310,643
Weighted average common and common equivalent ......... 2,306,866 2,388,693
shares outstanding
Comprehensive income ............................................ $ 901,351 $ 597,206
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended December 31
2000 1999
----------------------------
Interest income:
Interest and fees on loans ................................. $ 11,392,219 $ 8,902,222
Interest and dividends on securities:
Taxable .............................................. 1,557,710 1,511,106
Nontaxable ........................................... 130,363 109,511
Interest on federal funds sold ............................. 706,340 834,554
Other interest ............................................. 456,108 378,495
----------------------------
Total interest income ................................. 14,242,740 11,735,888
----------------------------
Interest expense:
Interest on deposits ...................................... 6,738,019 4,856,628
Interest on company obligated manditorily
redeemable preferred securities ...................... 567,788 555,949
Interest on short-term and other borrowings ............... 1,136,391 1,019,790
----------------------------
Total interest expense ................................ 8,442,198 6,432,367
----------------------------
Net interest income ................................... 5,800,542 5,303,521
Provision for loan losses ...................................... 519,875 571,500
----------------------------
Net interest income after provision for loan losses ... 5,280,667 4,732,021
----------------------------
Noninterest income:
Merchant credit card fees, net of processing costs ......... 800,483 1,183,496
Trust department fees ...................................... 1,017,287 862,730
Deposit service fees ....................................... 346,849 306,849
Gains on sales of loans, net ............................... 297,679 228,714
Securities losses, net ..................................... (22,730) 0
Other ...................................................... 348,013 414,083
----------------------------
Total noninterest income .............................. 2,787,581 2,995,872
----------------------------
Noninterest expenses:
Salaries and employee benefits ............................. 3,735,561 3,213,082
Professional and data processing fees ...................... 592,259 424,929
Advertising and marketing .................................. 280,352 187,022
Occupancy and equipment expense ............................ 918,065 801,178
Stationery and supplies .................................... 170,490 161,246
Postage and telephone ...................................... 193,968 181,778
Other ...................................................... 653,114 532,195
----------------------------
Total noninterest expenses ............................ 6,543,809 5,501,430
----------------------------
Income before income taxes ............................ 1,524,439 2,226,463
Federal and state income taxes .................................. 520,245 850,895
----------------------------
Net income ............................................ $ 1,004,194 $ 1,375,568
============================
Earnings per common share:
Basic ................................................. $ 0.44 $ 0.60
Diluted ............................................... $ 0.43 $ 0.58
Weighted average common shares outstanding ............ 2,271,460 2,305,037
Weighted average common and common equivalent ......... 2,319,619 2,384,908
shares outstanding
Comprehensive income ............................................ $ 1,999,393 $ 976,548
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended December 31
2000 1999
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................... $ 1,004,194 $ 1,375,568
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation ..................................................... 367,458 330,094
Provision for loan losses ........................................ 519,875 571,500
Amortization of offering costs on subordinated debentures ........ 15,788 15,221
Amortization of premiums on securities, net ...................... 27,240 34,131
Securities losses, net ........................................... 22,730 0
Loans originated for sale ........................................ (26,910,723) (20,849,007)
Proceeds on sales of loans ....................................... 26,702,926 21,933,819
Net gains on sales of loans ...................................... (297,679) (228,714)
Tax benefit of nonqualified stock options exercised .............. 0 69,165
Increase in accrued interest receivable .......................... (478,144) (340,172)
Increase in other assets ......................................... (1,309,759) (2,830,149)
Increase in other liabilities .................................... 245,394 1,206,379
---------------------------
Net cash provided by (used in) operating activities ........... $ (90,700) $ 1,287,835
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold ................................. 5,700,000 6,230,000
Net decrease in certificates of deposits at financial institutions . 1,274,378 228,973
Purchase of securities available for sale .......................... (239,984) (15,319,825)
Purchase of securities held to maturity ............................ 0 (50,000)
Proceeds from calls and maturities of securities ................... 2,000,000 3,200,000
Proceeds from paydowns on securities ............................... 930,645 753,699
Proceeds from sales of securities available for sale ............... 254,247 0
Increase in cash value of life insurance contracts ................. (43,920) 0
Net loans originated ............................................... (23,425,004) (14,381,805)
Purchase of premises and equipment, net ............................ (1,213,891) (383,389)
---------------------------
Net cash used in investing activities ......................... $(14,763,529) $(19,722,347)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts ................................... 19,354,925 23,801,490
Net increase in short-term borrowings .............................. 4,800,103 1,632,411
Proceeds from Federal Home Loan Bank advances ...................... 7,250,000 1,000,000
Payments on Federal Home Loan Bank advances ........................ (9,301,694) (3,004,344)
Purchase of treasury stock ......................................... (255,056) 0
Proceeds from issuance of common stock, net ........................ 925 55,736
---------------------------
Net cash provided by financing activities ..................... $ 21,849,203 $23,485,293
---------------------------
Net increase in cash and due from banks ....................... 6,994,974 5,050,781
Cash and due from banks, beginning ........................................... 15,130,357 8,528,195
---------------------------
Cash and due from banks, ending .............................................. $ 22,125,331 $13,578,976
===========================
Supplemental disclosure of cash flow information, cash payments for:
Interest ........................................................... $ 7,852,504 $ 6,345,827
Income/franchise taxes ............................................. $ 700,106 $ 1,096,848
Supplemental schedule of noncash investing activities:
Change in accummulated other comprehensive income (loss),
unrealized gain (loss) on securities available for sale, net ............ $ 995,199 $ (399,020)
===========================
Due to broker for purchase of securities available for sale ............... $ 2,766,069 $(3,800,000)
===========================
See Notes to Consolidated Financial Statements
Part I
Item 1
QUAD CITY HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include information or footnotes necessary for a fair presentation of
financial position, results of operations and changes in financial condition in
conformity with generally accepted accounting principles. However, all
adjustments that are, in the opinion of management, necessary for a fair
presentation have been included. Any differences appearing between numbers
presented in financial statements and management's discussion and analysis are
due to rounding. Results for the periods ended December 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2001.
Certain amounts in the 1999 financial statements have been reclassified, with no
effect on net income or stockholders' equity to conform with current year
presentations.
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,
---------------------- -----------------------
2000 1999 2000 1999
----------------------- -----------------------
Net income, basic and diluted earnings ...... $ 343,945 $ 742,920 $1,004,194 $1,375,568
=================================================
Weighted average common shares
outstanding ........................... 2,267,659 2,310,643 2,271,460 2,305,037
Weighted average common shares
issuable upon exercise of stock
options and warrants .................. 39,207 78,050 48,157 79,871
-------------------------------------------------
Weighted average common and
common equivalent shares
outstanding ........................... 2,306,866 2,388,693 2,319,617 2,384,908
=================================================
NOTE 4 - BUSINESS SEGMENT INFORMATION
Selected financial information on the Company's business segments is presented
as follows for the three and six months ended December 31, 2000 and 1999.
Three months ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------------------------------------------------------
Revenue:
Quad City Holdings, Inc. ................. $ (25,548) $ 43,329 $ 37,214 $ 88,217
Quad City Bank and Trust Company ......... 7,709,536 6,348,145 15,069,686 12,519,411
Quad City Bancard, Inc. .................. 483,839 704,449 906,134 1,261,401
Trust Department, Quad City Bank
and Trust Company ...................... 512,370 463,087 1,017,287 862,731
------------------------------------------------------------
Total revenue ....................... $ 8,680,197 $ 7,559,010 $ 17,030,321 $ 14,731,760
============================================================
Net income (loss):
Quad City Holdings, Inc. ................. $ (264,821) $ (192,122) $ (472,358) $ (420,875)
Quad City Bank and Trust Company ......... 474,257 615,881 1,165,913 1,252,483
Quad City Bancard, Inc. .................. 26,286 205,269 90,400 331,837
Trust Department, Quad City Bank
and Trust Company ...................... 108,223 113,892 220,239 212,123
------------------------------------------------------------
Total net income .................... $ 343,945 $ 742,920 $ 1,004,194 $ 1,375,568
============================================================
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 four 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 expired in May 2000. In March 1999, Bancard
formed its own subsidiary ISO, Allied Merchant Services, Inc., for the purpose
of generating additional credit card processing business. At December 31, 2000,
approximately 11,800 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 $26.9 million or 7% to $394.5
million at December 31, 2000 from $367.6 million at June 30, 2000. The growth
primarily resulted from an increase in the loan portfolio funded by deposits
received from customers and by short-term borrowings.
Cash and due from banks increased by $7.0 million or 46% to $22.1 million
at December 31, 2000 from $15.1 million at June 30, 2000. 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. A weather-related delay in the transmittal of cash letters on December
29, 2000 created a balance of $15.4 million in the Bank's account at its primary
correspondent in Chicago, and accounted for 70% of all cash and due from banks
at December 31, 2000.
Federal funds sold are inter-bank funds with daily liquidity. At December
31, 2000, the Bank had $20.4 million invested in such funds. This amount
decreased by $5.7 million or 22% from $26.1 million at June 30, 2000.
Certificates of deposit at financial institutions decreased by $1.3
million or 10% to $11.5 million at December 31, 2000 from $12.8 million at June
30, 2000. During the first six months of fiscal 2001, the Bank's certificate of
deposit portfolio had 17 maturities totaling $3.5 million and 22 purchases,
which totaled $2.2 million.
Securities increased by $1.3 million or 2% to $57.4 million at December
31, 2000 from $56.1 million at June 30, 2000. The increase was the result of a
number of transactions in the securities portfolio. Paydowns of $931 thousand
were received on mortgage-backed securities, and the amortization of premiums,
net of the accretion of discounts, was $27 thousand. Maturities and calls of
securities occurred in the amount of $2.0 million, and sales of securities
totaled $277 thousand. These portfolio decreases were primarily offset by the
purchase of an additional $3.0 million of securities and a $1.5 million increase
in the fair value of securities, classified as available for sale.
Loans receivable increased by $23.7 million or 10% to $265.6 million at
December 31, 2000 from $241.9 million at June 30, 2000. The increase was the
result of the origination or purchase of $134.3 million of commercial business,
consumer and real estate loans, less loan charge-offs, net of recoveries, of
$165 thousand, and loan repayments or sales of loans of $110.4 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 $4.0 million at December
31, 2000 compared to $3.6 million at June 30, 2000, an increase of $355 thousand
or 10%. 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, economic conditions, 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, 2000 was at a level adequate to absorb losses on
existing loans, there can be no assurance that such losses will not exceed the
estimated amounts.
Net charge-offs for the six months ended December 31, were $165 thousand
in 2000 and $126 thousand in 1999. One measure of the adequacy of the allowance
for estimated losses on loans is the ratio of the allowance to the total loan
portfolio. The allowance for estimated losses on loans as a percentage of total
loans was 1.5% at both December 31, 2000 and June 30, 2000.
At December 31, 2000, total nonperforming assets were $1.9 million
compared to $736 thousand at June 30, 2000. The $1.1 million increase was the
result of a $272 thousand increase in nonaccrual loans and an increase of $844
thousand in accruing loans past due 90 days or more.
Nonaccrual loans were $655 thousand at December 31, 2000 compared to $383
thousand at June 30, 2000, an increase of 71%. The increase in nonaccrual loans
was comprised of increases in real estate loans of $64 thousand and commercial
loans of $268 thousand partially offset by a decrease in consumer loans of $60
thousand. The net increase in commercial, nonaccrual loans was due entirely to
the addition of a single, fully-reserved loan which was not anticipated to
result in a material loss. In general, nonaccrual loans consisted primarily of
loans that were well collateralized and were not expected to result in material
losses.
From June 30, 2000 to December 31, 2000, accruing loans past due 90 days
or more increased from $353 thousand to $1.2 million, respectively. The increase
was primarily comprised of a number of well-collateralized real estate loans
that were not anticipated to produce any material losses.
Premises and equipment showed an increase of $846 thousand or 11% to $8.6
million at December 31, 2000 from $7.7 million at June 30, 2000. The increase
resulted from the purchase of additional furniture, fixtures and equipment and
leasehold improvements of $1.2 million during the period offset by depreciation
expense of $367 thousand. The opening of a fourth full service banking facility
on October 30, 2000 accounted for $845 thousand or 70% of the premises and
equipment expenditures.
Accrued interest receivable on loans, securities and interest-bearing cash
accounts increased by $478 thousand or 18% to $3.1 million at December 31, 2000
from $2.6 million at June 30, 2000. The increase was primarily due to greater
average outstanding balances in interest-bearing assets.
Other assets increased by $832 thousand or 9% to $9.7 million at December
31, 2000 from $8.9 million at June 30, 2000. The largest component of the
increase was the $1.3 million growth in receivables due Bancard from its
terminated, primary ISO. As discussed further in Part II, Item 1, Bancard is
vigorously pursuing the collection of this receivable through legal avenues.
Other assets also included accrued trust department fees, other miscellaneous
receivables, and various prepaid expenses.
Deposits increased by $19.3 million or 7% to $307.4 million at December
31, 2000 from $288.1 million at June 30, 2000. The increase resulted from an
$8.8 million net increase in non-interest bearing, NOW, money market and other
savings accounts and a $10.5 million net increase in interest-bearing
certificates of deposit. Management believes the increases were a result of
periodic aggressive pricing programs for deposits and increased marketing
efforts.
Short-term borrowings increased $4.8 million or 23% from $20.8 million at
June 30, 2000 to $25.6 million at December 31, 2000. The Bank offers short-term
repurchase agreements to some of its major customers. Also, on occasion, the
Bank purchases Federal funds for the short-term from the Federal Reserve Bank or
from some of its correspondent banks. As of December 31, 2000, short-term
borrowings were comprised of $23.7 million of customer repurchase agreements and
$1.9 million of Federal funds purchased from the Federal Reserve Bank. As of
June 30, 2000, short-term borrowings represented customer repurchase agreements
of $15.8 million and Federal funds purchased from the Federal Reserve Bank of
$5.0 million.
Federal Home Loan Bank advances decreased by $2.0 million or 9% to $20.4
million at December 31, 2000 from $22.4 million at June 30, 2000. As a result of
its membership in the FHLB of Des Moines, the Bank has the ability to borrow
funds for short or long-term purposes under a variety of programs. The Bank
primarily utilizes FHLB advances for loan matching and for hedging against the
possibility of rising interest rates.
In June 1999, the Company issued 1,200,000 shares of trust preferred
securities through a newly formed subsidiary, Quad City Holdings Capital Trust
I. On the Company's balance sheet these securities are included with liabilities
and are presented as "company obligated manditorily redeemable preferred
securities of subsidiary trust holding solely subordinated debentures", and were
$12.0 million at both December 31, 2000 and June 30, 2000.
Other liabilities increased by $3.0 million or 70% to $7.3 million at
December 31, 2000 from $4.3 million at June 30, 2000. Other liabilities was
comprised of unpaid amounts for various products and services, and accrued but
unpaid interest on deposits. At December 31, 2000, other liabilities included
$2.8 million of security purchase commitments, all of which settled in January
2001.
Common stock at December 31, 2000 increased by less than 1% to remain
unchanged at $2.3 million from June 30, 2000. The increase was the result of a
single exercise of stock options resulting in the issuance of 150 additional
shares of common stock.
Additional paid-in capital totaled $12.1 million at both December 31, 2000
and June 30, 2000. An increase of less than 1% resulted from proceeds received
in excess of the $1.00 per share par value for 150 shares of common stock issued
as the result of an exercise of stock options.
Retained earnings increased by $1.0 million or 14% to $8.3 million at
December 31, 2000 from $7.3 million at June 30, 2000. The increase reflected net
income for the six-month period.
Unrealized losses on securities available for sale, net of related income
taxes, totaled $103 thousand at December 31, 2000 as compared to $1.1 million at
June 30, 2000. The decrease in losses of $995 thousand was attributable to the
increase during the period in fair value of the securities identified as
available for sale.
On April 5, 2000, the Company announced that the board of directors
approved a stock repurchase program enabling the Company to repurchase
approximately 60,000 shares of its common stock. This stock repurchase program
has been completed, and as of December 31, 2000, the Company had acquired 60,146
treasury shares at a total cost of $854 thousand, compared to 41,496 treasury
shares at a total cost of $599 thousand at June 30, 2000.
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, as of September
30, 2000, projects that net portfolio value would decrease by approximately
12.33% if interest rates would rise 200 basis points over the next year. It
projects an increase in net portfolio value of approximately 0.26% 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, 2000 was $1.0
million as compared to net income of $1.4 million for the same period in 1999, a
decrease of $371 thousand or 27%. Basic earnings per share for the first six
months decreased to $0.44 from $0.60 in 1999. The decrease in net income was
comprised of an increase of $549 thousand in net interest income after provision
for loan losses and a decrease in income tax expense of $331 thousand offset by
a decrease in noninterest income of $208 thousand and an increase in noninterest
expense of $1.0 million.
The Company's net income is derived largely 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.
The Company's average yield on interest-earning assets increased 0.52% for
the six months ended December 31, 2000 when compared to the six months ended
December 31, 1999. With the same comparison, the average cost of
interest-bearing liabilities increased 0.82% which resulted in a 0.30% decrease
in the net interest spread of 2.96% at December 31, 1999 to 2.66% at December
31, 2000. The narrowing of the net interest spread created a decline in the net
interest margin. For the six months ended December 31, 2000 net interest margin
was 3.36% compared to 3.48% for the same period in 1999. Management is taking
steps to address this decline in net interest margin.
For the six months ended December 31, 2000, basic earnings per share
declined $0.16 when compared to the same period in 1999. Several factors
contributed to the 27% reduction. The reduced earnings were due to the increased
overhead and one-time costs associated with the opening of the Bank's fourth
full service banking facility, higher employee compensation costs resulting from
the addition of four senior officer positions during calendar 2000, and a
reduction in the earnings of Bancard resulting from the planned termination of
its contract with a major independent sales organization. While the addition of
the new banking facility and the senior officer positions negatively impacted
earnings for the six months ended December 31, 2000, management is confident
that these additions will provide significant long-term benefits to the Company.
For the six months ended December 31, 2000, the Company's bank subsidiary
enjoyed improved core earnings. Offsetting these earnings improvements were
legal costs at Bancard resulting from the litigation with PMT Services, Inc., an
increased loan loss provision for the second quarter due to loan growth in
combination with increased reserves on a few specific commercial loans in the
Bank's portfolio, and a higher cost of funds at the Bank.
THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
Net income for the quarter ended December 31, 2000 was $344 thousand as
compared to net income of $743 thousand for the same period in 1999, a decrease
of $399 thousand or 54%. Basic earnings per share for the quarter decreased to
$0.15 from $0.32 in 1999. The decrease in net income was comprised of an
increase of $289 thousand in net interest income after provision for loan losses
and a decrease in income tax expense of $259 thousand offset by a decrease in
noninterest income of $208 thousand and an increase in noninterest expense of
$738 thousand.
Interest income increased by $1.4 million from $5.9 million for the
three-month period ended December 31, 1999 to $7.3 million for the quarter ended
December 31, 2000. The 22% rise in interest income was attributable to greater
average, outstanding balances in interest earning assets, principally with
respect to loans receivable, and higher interest rates.
Interest expense increased by $993 thousand from $3.3 million for the
three-month period ended December 31, 1999 to $4.3 million for the three-month
period ended December 31, 2000. The 30% increase in interest expense was caused
by greater average, outstanding balances in interest-bearing liabilities,
principally with respect to customers' time deposits in and repurchase
agreements with the subsidiary bank, and higher interest rates.
At both December 31, 2000 and June 30, 2000, the Company had an allowance
for estimated losses on loans of approximately 1.5% of total loans. The
provision for loan losses increased by $47 thousand from $297 thousand for the
three month period ended December 31, 1999 to $344 thousand for the three month
period ended December 31, 2000. During the second quarter of fiscal 2001,
management made the decision to increase the risk rating on a few significant
commercial loans. Based upon that reclassification, the increase in total loans
and the overall analysis of the loan portfolio, an increased provision for loan
losses was made. Real estate loans had no charge-offs or recoveries for the
three months ended December 31, 2000. For the same three-month period,
commercial loans had $87 thousand in charge-offs, and no recoveries. Consumer
loan charge-offs and recoveries totaled $76 thousand and $14 thousand,
respectively, during the quarter. Indirect auto and credit card loans accounted
for the consumer loan charge-offs. As asset quality is a priority for the
Company and its subsidiaries, management has made the decision to significantly
reduce indirect auto loan activity based on charge-off experience. The ability
to grow profitably is, in part, dependent upon the ability to maintain asset
quality.
Noninterest income of $1.4 million for the three-month period ended
December 31, 2000 was down 13% or $208 thousand from $1.6 million for the
three-month period ended December 31, 1999. Noninterest income during each of
the quarters in comparison consisted primarily 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 decrease was primarily due to a $218 thousand decrease in fees earned
by the merchant credit card operation of Bancard. This 34% reduction in merchant
credit card fees was anticipated as a result of Bancard's largest ISO
terminating its processing relationship in May 2000. Additional reductions in
noninterest income consisted of a $23 thousand loss realized on investment
securities and a $78 thousand decrease in other noninterest income, resulting
from losses experienced on two investments in unconsolidated subsidiaries of the
Company. In previous periods, investments in such nonconsolidated subsidiaries
have had no significant impact on Company earnings. The various decreases in
noninterest income were partially offset by an 11% increase in fees earned by
the trust department of the Bank, a 34% increase in gains on sales of loans and
a 12% increase in deposit service fees.
In November 1999, Bancard's largest ISO notified Bancard that it intended
to terminate its processing relationship in May 2000 and start processing its
own transactions, as per a previous agreement. Processing for this ISO ceased in
May 2000 as anticipated. Bancard has begun processing for nine additional ISOs.
In spite of this, Bancard's net merchant credit card fee income will remain
below previous levels until additional ISO relationships can be developed,
processing volumes with existing ISOs increase, or Allied can generate
processing volumes comparable to those experienced by Bancard prior to the
termination of processing with the original ISO. Bancard's average dollar volume
of transactions processed per month during fiscal 2000 was $90 million, and of
that, $58 million was attributable to the ISO that terminated its relationship.
It is expected that because of this reduction in processing fees and the
cessation of a related monthly service fee to Bancard, that income contributed
to the Company by Bancard will continue to be lower than that contributed in
earlier periods.
For the quarter ended December 31, 2000, trust department fees increased
$49 thousand, or 11%, to $512 thousand from $463 thousand for the same quarter
in 1999. The increase was primarily a reflection of the development of
additional trust relationships and a revision of the trust department fee
structure effective January 1, 2000.
Deposit service fees increased $18 thousand, or 12%, to $169 thousand from
$151 thousand for the three-month periods ended December 31, 2000 and December
31, 1999. Service charges and NSF (non-sufficient funds) charges related to
demand deposit accounts were the main components of deposit service fees.
Gains on sales of loans, net, was $170 thousand for the three months ended
December 31, 2000, which reflected an increase of 34%, or $43 thousand, from
$127 thousand for the three months ended December 31, 1999. The increase
resulted from larger numbers of both home refinances and home purchases, and the
subsequent sale of the majority of these loans into the secondary market. The
stability of interest rates over recent months has accounted for the increased
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, 2000 were $3.5 million as compared to $2.7 million for the same
period in 1999, for an increase of $738 thousand or 27%.
The following table sets forth the various categories of noninterest
expenses for the three months ended December 31, 2000 and 1999.
Noninterest Expenses
Three months ended
December 31,
-----------------------
2000 1999 % change
----------------------------------
Salaries and employee benefits ........................ $1,953,749 $1,584,640 23.3%
Professional and data processing fees ................. 328,256 204,092 60.8%
Advertising and marketing ............................. 152,921 103,565 47.7%
Occupancy and equipment expense ....................... 498,413 407,321 22.4%
Stationery and supplies ............................... 98,238 79,178 24.1%
Postage and telephone ................................. 99,982 100,079 -0.1%
Other ................................................. 334,612 249,014 34.4%
-----------------------
Total noninterest expenses $3,466,171 2,727,889 27.1%
=======================
Salaries and benefits experienced the most significant dollar increase of
any noninterest expense component. For the quarter ended December 31, 2000,
total salaries and benefits increased to $2.0 million or $369 thousand over the
previous year's quarter total of $1.6 million. The change was primarily
attributable to the increase from December 1999 to December 2000 in the number
of Bank employees and increased incentive compensation to real estate officers
and trust employees proportionate to the increased volumes of gains on sales of
loans and trust fees earned. Professional and data processing fees increased
from $204 thousand for the three months ended December 31, 1999 to $328 thousand
for the same three month period in 2000. The $124 thousand increase was
predominately due to legal fees resulting from the legal proceedings in process
between Bancard and PMT Services, Inc. Advertising and marketing increased 48%
or $49 thousand for the quarter. The increase was the result of the development
and start-up of the Bank's new website (qcbt.com ), the establishment of an
online partnership with America Online, Inc. creating local access to that
website, and media expenses incurred in support of marketing efforts for the
Bank's Utica location and various Bank products and departments. Occupancy and
equipment expense increased $91 thousand or 22% for the quarter. The increase
was predominately due to the October 30th opening of a fourth full service
banking facility and the resulting increased levels of depreciation,
maintenance, utilities and other occupancy expenses. Other noninterest expense
increased $86 thousand or 34% for the quarter. The increase was primarily the
result of increased service charges from upstream banks incurred by the
subsidiary bank and increased expenses related to Bancard's cardholder program.
The provision for income taxes was $203 thousand for the three-month
period ended December 31, 2000 compared to $462 thousand for the three-month
period ended December 31, 1999 for a decrease of $259 thousand or 56%. The
decrease was the result of a decrease in income before income taxes of $658
thousand or 55% for the fiscal 2001 quarter when compared to the fiscal 2000
quarter, as well as a reduction in the Company's effective tax rate.
SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
Interest income increased by $2.5 million from $11.7 million for the
six-month period ended December 31, 1999 to $14.2 million for the quarter ended
December 31, 2000. The 21% rise in interest income was attributable to greater
average, outstanding balances in interest earning assets, principally with
respect to loans receivable, and higher interest rates.
Interest expense increased by $2.0 million from $6.4 million for the
six-month period ended December 31, 1999 to $8.4 million for the six-month
period ended December 31, 2000. The 31% increase in interest expense was caused
by greater average, outstanding balances in interest-bearing liabilities,
principally with respect to customers' time deposits in and repurchase
agreements with the subsidiary bank, and higher interest rates.
At both December 31, 2000 and June 30, 2000, the Company had an allowance
for estimated losses on loans of approximately 1.5% of total loans. The
provision for loan losses decreased by $52 thousand from $572 thousand for the
six-month period ended December 31, 1999 to $520 thousand for the six-month
period ended December 31, 2000. In calendar 1999 the agricultural manufacturing
sector, which certain of the Company's borrowers were engaged in or depended
upon, experienced a slowdown. Consideration of this fact and other factors led
management to make an increased provision for loan losses in December 1999. Real
estate loans had no charge-offs or recoveries for the six months ended December
31, 2000. For the same six-month period, commercial loans had $87 thousand in
charge-offs, and recoveries totaled $2 thousand. Consumer loan charge-offs and
recoveries totaled $103 thousand and $23 thousand during the six months.
Indirect auto and credit card loans accounted for the consumer loan charge-offs.
As asset quality is a priority for the Company and its subsidiaries, management
has made the decision to significantly reduce indirect auto loan activity based
on charge-off experience. The ability to grow profitably is, in part, dependent
upon the ability to maintain asset quality.
Noninterest income was down $208 thousand, or 7%, to $2.8 million for the
six-month period ended December 31, 2000 from $3.0 million for the same period
ended December 31, 1999. Noninterest income during each of the quarters in
comparison consisted primarily 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
decrease was primarily due to a $383 thousand decrease in fees earned by the
merchant credit card operation of Bancard. This 32% reduction in merchant credit
card fees was anticipated as a result of Bancard's largest ISO terminating its
processing relationship in May 2000. Additional reductions in noninterest income
consisted of a $23 thousand loss realized on investment securities and a $66
thousand decrease in other noninterest income, resulting from decreased earnings
experienced on two investments in unconsolidated subsidiaries of the Company. In
previous periods, investments in such nonconsolidated subsidiaries have had no
significant impact on Company earnings. The various decreases in noninterest
income were partially offset by an 18% increase in fees earned by the trust
department of the Bank, a 30% increase in gains on sales of loans and a 13%
increase in deposit service fees.
For the six months ended December 31, 2000, trust department fees
increased $155 thousand, or 18%, to $1.0 million from $863 thousand for the same
period in 1999. The increase was primarily a reflection of the development of
additional trust relationships and a revision of the trust department fee
structure effective January 1, 2000.
Deposit service fees increased $40 thousand, or 13%, to $347 thousand from
$307 thousand for the six-month periods ended December 31, 2000 and December 31,
1999. Service charges and NSF (non-sufficient funds) charges related to demand
deposit accounts were the main components of deposit service fees.
Gains on sales of loans, net was $298 thousand for the six months ended
December 31, 2000, which reflected an increase of 30%, or $69 thousand, from
$229 thousand for the six months ended December 31, 1999. The increase resulted
from larger numbers of both home refinances and home purchases, and the
subsequent sale of the majority of these loans into the secondary market. The
stability of interest rates over recent months has accounted for the increased
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, 2000 were $6.5 million as compared to $5.5 million for the same period in
1999, for an increase of $1.0 million or 19%.
The following table sets forth the various categories of noninterest
expenses for the six months ended December 31, 2000 and 1999.
Noninterest Expenses
Six months ended
December 31,
-----------------------
2000 1999 % change
----------------------------------
Salaries and employee benefits ........................ $3,735,561 $3,213,082 16.3%
Professional and data processing fees ................. 592,259 424,929 39.4%
Advertising and marketing ............................. 280,352 187,022 49.9%
Occupancy and equipment expense ....................... 918,065 801,178 14.6%
Stationery and supplies ............................... 170,490 161,246 5.7%
Postage and telephone ................................. 193,968 181,778 6.7%
Other ................................................. 653,114 532,195 22.7%
-----------------------
Total noninterest expenses $6,543,809 5,501,430 19.0%
=======================
Salaries and benefits experienced the most significant dollar increase of
any noninterest expense component. For the six months ended December 31, 2000,
total salaries and benefits increased to $3.7 million or $522 thousand over the
1999 quarter total of $3.2 million. The change was primarily attributable to the
increase from December 1999 to December 2000 in the number of Bank employees and
increased incentive compensation to trust employees proportionate to the
increased volume of fees earned. Professional and data processing fees increased
from $425 thousand for the six months ended December 31, 1999 to $592 thousand
for the same six-month period in 2000. The $167 thousand increase was
predominately due to legal fees resulting from the legal proceedings in process
between Bancard and PMT Services, Inc., combined with increased fees to outside
consultants addressing compliance, efficiency, profitability and other
growth-related issues of the subsidiary bank. Advertising and marketing
increased 50% or $93 thousand for the period. The increase was the result of the
development and start-up of the Bank's new website (qcbt.com ), the
establishment of an online partnership with America Online, Inc. creating local
access to that website, and media expenses incurred in support of marketing
efforts for the Bank's Utica location and various Bank products and departments.
Occupancy and equipment expense increased $117 thousand or 15% for the quarter.
The increase was predominately due to the October 30th opening of a fourth full
service banking facility and the resulting increased levels of depreciation,
maintenance, utilities and other occupancy expenses. Other noninterest expense
increased $121 thousand or 23% for the period. The increase was primarily the
result of increased service charges from upstream banks incurred by the
subsidiary bank and increased expenses related to Bancard's cardholder program.
The provision for income taxes was $520 thousand for the six-month period
ended December 31, 2000 compared to $851 thousand for the six-month period ended
December 31, 1999 for a decrease of $331 thousand or 39%. The decrease was the
result of a decrease in income before income taxes of $702 thousand or 32% for
the fiscal 2001 period when compared to the fiscal 2000 period, as well as a
reduction in the Company's effective tax rate.
LIQUIDITY
Liquidity measures the ability of the Company to meet maturing obligations
and its existing commitments, to withstand fluctuations in deposit levels, to
fund its operations, and to provide for customers' credit needs. The liquidity
of the Company primarily depends upon cash flows from operating, investing, and
financing activities. Net cash used in operating activities, consisting
primarily of the funding of loans for sale, was $91 thousand for the six months
ended December 31, 2000 compared to $1.3 million net cash provided by operating
activities for the same period in 1999. Net cash used in investing activities,
consisting principally of loan originations, was $14.8 million for the six
months ended December 31, 2000 and $19.7 million for the six months ended
December 30, 1999. Net cash provided by financing activities, consisting
primarily of deposit growth and net proceeds from Federal Home Loan Bank
advances, for the six months ended December 31, 2000 was $21.8 million and for
same period in 1999 was $23.5 million.
OTHER DEVELOPMENTS
In addition to the main office in Bettendorf, IA, the Bank has two full
service banking locations in Davenport, IA, and a full-service banking location
in the Velie Plantation Mansion in Moline, IL. The Company also maintains two
locations that are utilized for various operational and administrative
functions. In March 1999, the Bank acquired and improved a 3,000 square foot
office building adjacent to the Davenport facility for utilization by its
technology and credit administration departments. Beginning May 1, 2000, the
Company leased approximately 2,000 square feet on the second floor of the Velie
facility in Moline. The space was renovated and serves as the corporate
headquarters of the Company.
Construction of the fourth full service banking facility was completed in
October, 2000 at 5515 Utica Ridge Road in Davenport. The Bank leased
approximately 6,000 square feet on the first floor and 2,200 square feet in the
lower level of the 24,000 square foot facility. The office was opened for
business on October 30, 2000.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words, "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and its subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area, our implementation of new technologies, our ability
to develop and maintain secure and reliable electronic systems, and accounting
principles, policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement No.
140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement replaces FASB Statement No. 125
in its entirety. It revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but carries over most of Statement 125's provisions without
reconsideration. This Statement is effective for transfers and servicing of
financial assets and distinguishments of liabilities occurring after March 31,
2001. The Statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Management believes
that adoption of this Statement will not have a significant effect on the
Company's consolidated financial statements.
Part II
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Bancard is the holder of an account receivable in the approximate amount of
$1,600,000 owing from PMT Services, Inc. ("PMT"). PMT is a subsidiary of Nova
Corporation (trading symbol NIS on the New York Stock Exchange). This receivable
arises pursuant to Bancard's provision of electronic credit card sales
authorization and settlement services to PMT pursuant to a written contract that
includes PMT's obligation to indemnify Bancard for credit card chargeback losses
arising from those services. PMT has failed to timely pay Bancard for monthly
invoices, including service charges and substantial chargeback losses, for the
period beginning May, 2000. Bancard intends to vigorously pursue collection of
this receivable. On September 25, 2000, PMT filed a lawsuit in federal court in
Los Angeles, California, against Bancard and the Company. This lawsuit alleges
tortious acts and breaches of contract by Bancard, the Company, and others and
seeks recovery from Bancard and the Company of not less than $3,600,000 of
alleged actual damages, plus punitive damages. Bancard and the Company filed
lawsuits in federal and state courts in Davenport, Iowa against PMT. These
lawsuits sought a court order compelling PMT to participate in arbitration in
Bettendorf, Iowa, as provided for in the pertinent contract documents, and to
resolve the disputes between PMT, Bancard and the Company, including the unpaid
account receivable. The federal court in Iowa ruled that the arbitration issue
should be determined by the state court in Iowa. Subsequently, the (Iowa)
District Court of Scott County ruled that all claims, including the tort claims,
must be arbitrated in Iowa. Bancard and the Company continue to believe that PMT
allegations are without merit and will vigorously pursue the collection of the
receivable and to defend against PMT's claims.
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 18, 2000 at 10:00
a.m. At the meeting, Michael A. Bauer and James J. Brownson were re-elected to
serve as Class I directors, with terms expiring in 2003. Continuing as Class II
directors, with terms expiring in 2001, are Douglas M. Hultquist and John W.
Schricker. Continuing as Class III directors, with terms expiring in 2002, are
Richard R. Horst and Ronald G. Peterson.
At the time of the annual meeting, there were 2,325,566 issued shares and
2,270,920 outstanding shares of common stock. Either in person or by proxy,
there were 2,013,162 common shares represented at the meeting, constituting
approximately 89% of the outstanding shares. The voting was as follows:
Votes Votes
For Withheld
-----------------------------
Michael A Bauer ........................ 2,002,509 10,653
James J. Brownson ...................... 2,004,459 8,703
Item 5 Other Information
At the board of directors meeting held November 21, 2000, John Lawson was
elected as an additional Class III director of the Company with a term expiring
in 2002.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
99.1 Press release dated February 12, 2001 announcing
earnings for the second quarter ended December
31, 2000 and related financial information
99.2 Shareholder letter dated February 2001
discussing earnings for the second quarter ended
December 31, 2000 and related financial
information
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K with the
Securities and Exchange Commission on November 7, 2000 under Item 5
which reported first quarter financial information in the format of a
press release and a shareholder letter.
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 12, 2001 /s/ Michael A. Bauer
----------------- -------------------------------------------
Michael A. Bauer, Chairman
Date February 12, 2001 /s/ Douglas M. Hultquist
----------------- --------------------------------------------
Douglas M. Hultquist, President
Principal Executive Officer
Date February 12, 2001 /s/ Todd A. Gipple
----------------- --------------------------------------------
Todd A. Gipple, Executive Vice President
Chief Financial Officer