U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] 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
incorporation or organization) ID Number)
3551 7th Street, Suite 100, Moline, Illinois 61265
--------------------------------------------------
(Address of principal executive offices)
(309) 736-3580
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: As of May 1, 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,
March 31, 2001 and June 30, 2000
Consolidated Statements of Income,
For the Three Months Ended March 31, 2001 and 2000
Consolidated Statements of Income,
For the Nine Months Ended March 31, 2001 and 2000
Consolidated Statements of Cash Flows,
For the Nine Months Ended March 31, 2001 and 2000
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)
March 31, 2001 and June 30, 2000
March 31, June 30,
2001 2000
------------------------------
ASSETS
Cash and due from banks ........................................................ $ 20,463,814 $ 15,130,357
Federal funds sold ............................................................. 25,835,000 26,105,000
Certificates of deposit at financial institutions .............................. 10,910,085 12,776,463
Securities held to maturity, at amortized cost ................................. 575,417 574,988
Securities available for sale, at fair value ................................... 54,185,987 55,554,062
------------------------------
54,761,404 56,129,050
-----------------------------
Loans receivable ............................................................... 277,446,150 241,852,851
Less: Allowance for estimated losses on loans .................................. (4,084,375) (3,617,401)
-----------------------------
273,361,775 238,235,450
-----------------------------
Premises and equipment, net .................................................... 8,509,369 7,715,621
Accrued interest receivable .................................................... 3,176,679 2,633,120
Other assets ................................................................... 9,692,825 8,896,554
-----------------------------
Total assets ........................................................... $406,710,951 $ 367,621,615
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing ......................................................... $ 48,660,508 $ 44,043,932
Interest-bearing ............................................................ 260,403,544 244,022,824
------------------------------
Total deposits ............................................................ 309,064,052 288,066,756
------------------------------
Short-term borrowings .......................................................... 27,787,475 20,771,724
Federal Home Loan Bank advances ................................................ 29,293,857 22,425,398
Company obligated manditorily redeemable preferred securities of ............... 12,000,000 12,000,000
subsidiary trust holding solely subordinated debentures
Other liabilities .............................................................. 5,486,512 4,286,318
-----------------------------
Total liabilities ...................................................... 383,631,896 347,550,196
-----------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; shares authorized 5,000,000; ....................... 2,325,566 2,325,416
shares issued and outstanding March 2001 - 2,325,566 and 2,265,420; June 2000
- 2,325,416 and 2,283,920 respectively
Additional paid-in capital ..................................................... 12,148,759 12,147,984
Retained earnings .............................................................. 8,923,082 7,296,017
Accumulated other comprehensive income (loss), unrealized gains (losses) on
securities available for sale, net ........................................... 536,184 (1,098,518)
------------------------------
23,933,591 20,670,899
Less: Cost of common shares acquired for the treasury;
March 2001 - 60,146; June 2000 - 41,496 ..................................... (854,536) (599,480)
------------------------------
Total stockholders' equity ............................................. 23,079,055 20,071,419
------------------------------
Total liabilities and stockholders' equity ............................. $ 406,710,951 $367,621,615
==============================
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31
2001 2000
-----------------------
Interest income:
Interest and fees on loans ............................. $5,781,051 $4,451,546
Interest and dividends on securities:
Taxable .......................................... 776,055 830,407
Nontaxable ....................................... 74,455 61,004
Interest on federal funds sold ......................... 403,412 423,266
Other interest ......................................... 244,566 186,296
-----------------------
Total interest income ............................. 7,279,539 5,952,519
-----------------------
Interest expense:
Interest on deposits .................................. 3,392,761 2,563,733
Interest on company obligated manditorily ............. 283,376 276,000
redeemable preferred securities
Interest on short-term and other borrowings ........... 637,232 459,970
-----------------------
Total interest expense ............................ 4,313,369 3,299,703
-----------------------
Net interest income ............................... 2,966,170 2,652,816
Provision for loan losses .................................. 148,374 85,600
-----------------------
Net interest income after provision for loan losses 2,817,796 2,567,216
-----------------------
Noninterest income:
Merchant credit card fees, net of processing costs ..... 401,946 652,510
Trust department fees .................................. 566,017 525,235
Deposit service fees ................................... 218,078 137,169
Gains on sales of loans, net ........................... 313,796 71,253
Securities gains, net .................................. 0 14,970
Other .................................................. 132,224 223,272
-----------------------
Total noninterest income .......................... 1,632,061 1,624,409
-----------------------
Noninterest expenses:
Salaries and employee benefits ......................... 2,105,388 1,806,069
Professional and data processing fees .................. 267,494 230,558
Advertising and marketing .............................. 113,078 116,991
Occupancy and equipment expense ........................ 488,593 376,142
Stationery and supplies ................................ 82,959 82,649
Postage and telephone .................................. 98,173 83,811
Other .................................................. 315,781 263,841
-----------------------
Total noninterest expenses ........................ 3,471,466 2,960,061
-----------------------
Income before income taxes ........................ 978,391 1,231,564
Federal and state income taxes .............................. 355,520 471,890
-----------------------
Net income ........................................ $ 622,871 $ 759,674
=======================
Earnings per common share:
Basic ............................................. $ 0.28 $ 0.33
Diluted ........................................... $ 0.27 $ 0.32
Weighted average common shares outstanding ........ 2,265,420 2,324,004
Weighted average common and common equivalent ..... 2,311,112 2,383,478
shares outstanding
Comprehensive income ........................................ $1,262,374 $ 480,095
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended March 31
2001 2000
----------------------------
Interest income:
Interest and fees on loans ............................. $ 17,173,270 $ 13,353,768
Interest and dividends on securities:
Taxable .......................................... 2,333,765 2,341,513
Nontaxable ....................................... 204,818 170,515
Interest on federal funds sold ......................... 1,109,752 1,257,820
Other interest ......................................... 700,674 564,791
----------------------------
Total interest income ............................. 21,522,279 17,688,407
----------------------------
Interest expense:
Interest on deposits .................................. 10,130,780 7,420,361
Interest on company obligated manditorily ............. 851,164 831,949
redeemable preferred securities
Interest on short-term and other borrowings ........... 1,773,623 1,479,760
----------------------------
Total interest expense ............................ 12,755,567 9,732,070
----------------------------
Net interest income ............................... 8,766,712 7,956,337
Provision for loan losses .................................. 668,249 657,100
----------------------------
Net interest income after provision for loan losses 8,098,463 7,299,237
----------------------------
Noninterest income:
Merchant credit card fees, net of processing costs ..... 1,202,429 1,836,006
Trust department fees .................................. 1,583,304 1,387,965
Deposit service fees ................................... 564,927 444,018
Gains on sales of loans, net ........................... 611,475 299,967
Securities gains (losses), net ......................... (22,730) 14,970
Other .................................................. 480,237 637,355
----------------------------
Total noninterest income .......................... 4,419,642 4,620,281
----------------------------
Noninterest expenses:
Salaries and employee benefits ......................... 5,840,949 5,019,151
Professional and data processing fees .................. 859,753 655,487
Advertising and marketing .............................. 393,430 304,013
Occupancy and equipment expense ........................ 1,406,658 1,177,320
Stationery and supplies ................................ 253,449 243,895
Postage and telephone .................................. 292,141 265,589
Other .................................................. 968,895 796,036
----------------------------
Total noninterest expenses ........................ 10,015,275 8,461,491
----------------------------
Income before income taxes ........................ 2,502,830 3,458,027
Federal and state income taxes .............................. 875,765 1,322,785
----------------------------
Net income ........................................ $ 1,627,065 $ 2,135,242
============================
Earnings per common share:
Basic ............................................. $ 0.72 $ 0.92
Diluted ........................................... $ 0.70 $ 0.90
Weighted average common shares outstanding ........ 2,269,476 2,311,313
Weighted average common and common equivalent ..... 2,316,811 2,377,011
shares outstanding
Comprehensive income ........................................ $ 3,261,767 $ 1,456,643
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended March 31
2001 2000
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................................. $ 1,627,065 $ 2,135,242
Adjustments to reconcile net income to net cash (used in)
operating activities:
Depreciation .............................................................. 567,043 466,799
Provision for loan losses ................................................. 668,249 657,100
Amortization of offering costs on subordinated debentures ................. 22,129 22,832
Amortization of premiums on securities, net ............................... 40,311 48,781
Securities (gains) losses, net ............................................ 22,730 (14,970)
Loans originated for sale ................................................. (53,699,958) (27,046,565)
Proceeds on sales of loans ................................................ 47,959,757 28,104,418
Net gains on sales of loans ............................................... (611,475) (299,967)
Tax benefit of nonqualified stock options exercised ....................... 0 69,165
Increase in accrued interest receivable ................................... (543,559) (581,474)
Increase in other assets .................................................. (1,657,901) (187,706)
Increase (decrease) in other liabilities ................................... 1,200,194 (4,642,397)
----------------------------
Net cash used in operating activities ................................. $ (4,405,415) (1,268,742)
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold .......................................... 270,000 4,780,000
Net (increase) decrease in certificates of deposits at financial 1,866,378ons (166,810)
Purchase of securities available for sale ................................... (5,110,785) (17,314,898)
Purchase of securities held to maturity ..................................... 0 (50,000)
Proceeds from calls and maturities of securities ............................ 7,545,000 5,200,000
Proceeds from paydowns on securities ........................................ 1,156,226 1,133,620
Proceeds from sales of securities available for sale ........................ 254,247 43,413
Increase in cash value of life insurance contracts .......................... (65,880) (378,543)
Net loans originated ........................................................ (29,442,898) (21,214,193)
Purchase of premises and equipment, net ..................................... (1,360,791) (521,664)
----------------------------
Net cash used in investing activities ................................. $(24,888,503) $(28,489,075)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts ............................................ 20,997,296 29,464,887
Net increase in short-term borrowings ....................................... 7,015,751 6,112,282
Proceeds from Federal Home Loan Bank advances ............................... 16,250,000 2,500,000
Payments on Federal Home Loan Bank advances ................................. (9,381,541) (7,091,724)
Purchase of treasury stock .................................................. (255,056) 0
Proceeds from issuance of common stock, net ................................. 925 67,726
---------------------------
Net cash provided by financing activities .............................. $ 34,627,375 $ 31,053,171
----------------------------
Net increase in cash and due from banks ................................ 5,333,457 1,295,354
Cash and due from banks, beginning ............................................. 15,130,357 8,528,195
---------------------------
Cash and due from banks, ending ................................................ $ 20,463,814 $ 9,823,549
===========================
Supplemental disclosure of cash flow information, cash payments for:
Interest ..................................................................... $ 11,616,540 $ 9,636,007
===========================
Income/franchise taxes ....................................................... $ 1,174,613 $ 1,551,321
===========================
Supplemental schedule of noncash investing activities:
Change in accumulated other comprehensive income (loss),
unrealized gains (losses) on securities available for sale, net .............. $ 1,634,702 $ (678,599)
===========================
See Notes to Consolidated Financial Statements
Part I
Item 1
QUAD CITY HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include information or footnotes necessary for a fair presentation of
financial position, results of operations and changes in financial condition in
conformity with generally accepted accounting principles. However, all
adjustments that are, in the opinion of management, necessary for a fair
presentation have been included. Any differences appearing between numbers
presented in financial statements and management's discussion and analysis are
due to rounding. Results for the periods ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2001.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Quad
City Holdings, Inc. (the "Company"), a Delaware corporation, and its wholly
owned subsidiaries, Quad City Bank and Trust Company (the "Bank"), Quad City
Bancard, Inc. ("Bancard"), Allied Merchant Services, Inc. ("Allied"), and Quad
City Holdings Capital Trust I ("Capital Trust"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
NOTE 3 - EARNINGS PER SHARE
The following information was used in the computation of earnings per share on a
basic and diluted basis.
Three months ended Nine months ended
March 31, March 31,
---------------------- ----------------------
2001 2000 2001 2000
----------------------------------------------
Net income, basic and diluted
earnings ................. $ 622,871 $ 759,674 $1,627,065 $2,135,242
==============================================
Weighted average common shares
outstanding .................. 2,265,420 2,324,004 2,269,476 2,311,313
Weighted average common shares
issuable upon exercise of
stock options and warrants ... 45,692 59,474 47,335 65,698
----------------------------------------------
Weighted average common and
common equivalent shares
outstanding .................. 2,311,112 2,383,478 2,316,811 2,377,011
==============================================
NOTE 4 - BUSINESS SEGMENT INFORMATION
Selected financial information on the Company's business segments is presented
as follows for the three and nine months ended March 31, 2001 and 2000.
Three months ended Nine months ended
March 31, March 31,
---------------------------- ----------------------------
2001 2000 2001 2000
------------------------------------------------------------
Revenue:
Quad City Holdings, Inc. .................. $ 58,507 $ 70,171 $ 95,721 $ 158,385
Quad City Bank and Trust Company .......... 7,823,729 6,293,625 22,893,415 18,813,070
Quad City Bancard, Inc. ................... 463,347 687,897 1,369,481 1,949,268
Trust Department, Quad City Bank
and Trust Company ...................... 566,017 525,235 1,583,304 1,387,965
------------------------------------------------------------
Total revenue ........................ $ 8,911,600 $ 7,576,928 $ 25,941,921 $ 22,308,688
============================================================
Net income (loss):
Quad City Holdings, Inc. .................. $ (213,465) $ (210,583) $ (685,823) $ (631,459)
Quad City Bank and Trust Company .......... 640,705 634,013 1,806,618 1,902,374
Quad City Bancard, Inc. ................... 48,854 198,203 139,254 530,010
Trust Department, Quad City Bank
and Trust Company ...................... 146,777 138,041 367,016 334,317
------------------------------------------------------------
Total net income ..................... $ 622,871 $ 759,674 $ 1,627,065 $ 2,135,242
============================================================
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 March 31, 2001,
approximately 12,900 merchants were processing transactions with Bancard.
In April 2001, the Company announced plans to expand its banking operations to
the Cedar Rapids, Iowa market. Initially, the Cedar Rapids operation will
function as a branch of Quad City Bank and Trust Company, subject to regulatory
approvals that are expected in May 2001. The Company has filed the required
regulatory applications to obtain a separate bank charter in the Cedar Rapids
market, to be named Cedar Rapids Bank and Trust Company. Expectations are to
convert the branch operations into this newly chartered bank upon receiving
regulatory approval, which is likely to occur in the fall of 2001. The Company
plans to raise additional equity capital of approximately $5 million through a
private placement of its common stock during the summer of 2001 to assist with
capitalization of the new bank.
The Company has a fiscal year end of June 30.
FINANCIAL CONDITION
Total assets of the Company increased by $39.1 million or 11% to $406.7 million
at March 31, 2001 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 proceeds from short-term borrowings and Federal Home Loan Bank
advances.
Cash and due from banks increased by $5.3 million or 35% to $20.4 million at
March 31, 2001 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.
Federal funds sold are inter-bank funds with daily liquidity. At March 31, 2001,
the Bank had $25.8 million invested in such funds. This amount decreased by $270
thousand or 1% from $26.1 million at June 30, 2000.
Certificates of deposit at financial institutions decreased by $1.9 million or
15% to $10.9 million at March 31, 2001 from $12.8 million at June 30, 2000.
During the first nine months of fiscal 2001, the Bank's certificate of deposit
portfolio had 29 maturities totaling $4.7 million and 28 purchases, which
totaled $2.8 million.
Securities decreased by $1.4 million or 2% to $54.7 million at March 31, 2001
from $56.1 million at June 30, 2000. The decrease was the result of a number of
transactions in the securities portfolio. Paydowns of $1.2 million were received
on mortgage-backed securities, and the amortization of premiums, net of the
accretion of discounts, was $40 thousand. Maturities and calls of securities
occurred in the amount of $7.5 million, and sales of securities totaled $277
thousand. These portfolio decreases were primarily offset by the purchase of an
additional $5.1 million of securities and a $2.5 million increase in the fair
value of securities, classified as available for sale.
Total loans receivable increased by $35.6 million or 15% to $277.5 million at
March 31, 2001 from $241.9 million at June 30, 2000. The increase was the result
of the origination or purchase of $201.2 million of commercial business,
consumer and real estate loans, less loan charge-offs, net of recoveries, of
$201 thousand, and loan repayments or sales of loans of $165.4 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 $4.1 million at March 31, 2001
compared to $3.6 million at June 30, 2000, an increase of $467 thousand or 13%.
The adequacy of the allowance for estimated losses on loans was determined 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. To ensure that an adequate allowance was
maintained, provisions were made based on the increase in loans and a detailed
analysis of the loan portfolio. The loan portfolio was reviewed and analyzed
monthly utilizing the percentage allocation method. In addition, specific
reviews were completed on all credits risk-rated less than "fair quality" and
carrying aggregate exposure in excess of $250 thousand. 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. Although management
believes that the allowance for estimated losses on loans at March 31, 2001 was
at a level adequate to absorb losses on existing loans, there can be no
assurance that such losses will not exceed the estimated amounts.
Net charge-offs for the nine months ended March 31, were $201 thousand in 2001
and $250 thousand in 2000. 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 March 31, 2001 and June 30, 2000.
At March 31, 2001, total nonperforming assets were $1.6 million compared to $737
thousand at June 30, 2000. The $868 thousand increase was the result of a $778
thousand increase in nonaccrual loans and an increase of $90 thousand in
accruing loans past due 90 days or more.
Nonaccrual loans were $1.2 million at March 31, 2001 compared to $383 thousand
at June 30, 2000, an increase of $778 thousand. The increase in nonaccrual loans
was comprised of increases in real estate loans of $546 thousand and commercial
loans of $248 thousand, partially offset by a decrease in consumer loans of $16
thousand. The net increase in nonaccrual real estate loans was due to the
addition of six loans with oustanding balances ranging from $39 thousand to $150
thousand. The net increase in nonaccrual commercial loans was due entirely to
the addition of a single loan. In general, nonaccrual loans consisted primarily
of loans that were well collateralized and were not expected to result in
material losses, and represented less than one half of one percent of the Bank's
loan portfolio at March 31, 2001.
From June 30, 2000 to March 31, 2001, accruing loans past due 90 days or more
increased from $353 thousand to $440 thousand, respectively. The balance at
March 31 was primarily comprised of two well-collateralized construction loans
that were not anticipated to produce any material losses.
Premises and equipment showed an increase of $794 thousand or 10% to $8.5
million at March 31, 2001 from $7.7 million at June 30, 2000. The increase
resulted from the purchase of additional furniture, fixtures and equipment and
leasehold improvements of $1.4 million during the period offset by depreciation
expense of $567 thousand. The opening of a fourth full service banking facility
on October 30, 2000 accounted for $921 thousand, or 68%, of the premises and
equipment expenditures during the first nine months of fiscal 2001.
Accrued interest receivable on loans, securities and interest-bearing cash
accounts increased by $544 thousand or 21% to $3.2 million at March 31, 2001
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 $796 thousand or 9% to $9.7 million at March 31, 2001
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. 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 $21.0 million or 7% to $309.1 million at March 31, 2001
from $288.1 million at June 30, 2000. The increase resulted from a $4.6 million
net increase in non-interest bearing, NOW, money market and other savings
accounts and a $16.4 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 $7.0 million or 34% from $20.8 million at June
30, 2000 to $27.8 million at March 31, 2001. The Bank offers short-term
repurchase agreements to some of its major customers. Also, on occasion, the
Bank purchases Federal funds for short-term funding needs from the Federal
Reserve Bank, or from some of its correspondent banks. As of March 31, 2001,
short-term borrowings were comprised entirely of customer repurchase agreements
with no Federal funds purchased. 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 increased by $6.9 million or 31% to $29.3
million at March 31, 2001 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
utilizes FHLB advances for loan matching as a hedge against the possibility of
rising interest rates, and when these advances provide a less costly source of
funds than customer deposits.
In June 1999, the Company issued 1,200,000 shares of trust preferred securities
through a newly formed subsidiary, Quad City Holdings Capital Trust I. On the
Company's balance sheet these securities are included with liabilities and are
presented as "company obligated manditorily redeemable preferred securities of
subsidiary trust holding solely subordinated debentures", and were $12.0 million
at both March 31, 2001 and June 30, 2000.
Other liabilities increased by $1.2 million or 28% to $5.5 million at March 31,
2001 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 March 31, 2001, the primary component of other
liabilities was $3.0 million of interest payable.
Common stock at March 31, 2001 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 March 31, 2001 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 $1.6 million or 22% to $8.9 million at March 31,
2001 from $7.3 million at June 30, 2000. The increase reflected net income for
the nine-month period.
Unrealized gains on securities available for sale, net of related income taxes,
totaled $536 thousand at March 31, 2001 as compared to $1.1 million of
unrealized losses at June 30, 2000. The reversal from losses to gains of $1.6
million was attributable to the increase during the period in fair value of the
securities identified as available for sale, primarily the result of a decline
in interest rates.
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 March 31, 2001, the Company had acquired 60,146 treasury shares at a
total cost of $854 thousand.
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 December
31, 2000, projects that net portfolio value would decrease by approximately
9.79% if interest rates would rise 200 basis points over the next year. It
projects a decrease in net portfolio value of approximately 3.04% if interest
rates would drop 200 basis points. Both simulations are within board-established
policy limits.
RESULTS OF OPERATIONS
OVERVIEW
Net income for the nine-month period ended March 31, 2001 was $1.6 million as
compared to net income of $2.1 million for the same period in 1999, a decrease
of $508 thousand or 24%. Basic earnings per share for the first nine months
decreased to $0.72 from $0.92 in 2000. The decrease in net income was comprised
of an increase of $799 thousand in net interest income after provision for loan
losses and a decrease in income tax expense of $447 thousand offset by a
decrease in noninterest income of $201 thousand and an increase in noninterest
expense of $1.5 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 0.43% for the
nine months ended March 31, 2001 when compared to the nine months ended March
31, 2000. With the same comparison, the average cost of interest-bearing
liabilities increased 0.72% which resulted in a 0.29% decrease in the net
interest spread of 2.92% at March 31, 2000 to 2.63% at March 31, 2001. The
narrowing of the net interest spread created a decline in the net interest
margin. For the nine months ended March 31, 2001, net interest margin was 3.33%
compared to 3.48% for the same period in 2000. Management continues to closely
monitor and manage net interest margin.
For the nine months ended March 31, 2001, basic earnings per share declined
$0.20 when compared to the same period in 2000. Several factors contributed to
the 22% 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
nine months ended March 31, 2001, management is confident that these additions
will provide significant long-term benefits to the Company.
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Net income for the quarter ended March 31, 2001 was $623 thousand as compared to
net income of $760 thousand for the same period in 2000, a decrease of $137
thousand or 18%. Basic earnings per share for the quarter decreased to $0.28
from $0.33 in 2000. The decrease in net income was comprised of an increase of
$250 thousand in net interest income after provision for loan losses, an
increase in noninterest income of $8 thousand, and a decrease in income tax
expense of $116 thousand offset by an increase in noninterest expense of $511
thousand.
Interest income increased by $1.3 million from $6.0 million for the three-month
period ended March 31, 2000 to $7.3 million for the quarter ended March 31,
2001. 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 $1.0 million from $3.3 million for the three-month
period ended March 31, 2000 to $4.3 million for the three-month period ended
March 31, 2001. 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 March 31, 2001 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 $63 thousand from $85 thousand for the three month
period ended March 31, 2000 to $148 thousand for the three month period ended
March 31, 2001. During the third quarter of fiscal 2001, management made monthly
provisions for loan losses based upon the increase in loans and a detailed
analysis of the loan portfolio. Both real estate and commercial loans had no
charge-offs or recoveries for the three months ended March 31, 2001. Consumer
loan charge-offs and recoveries totaled $43 thousand and $7 thousand,
respectively, during the quarter. Indirect auto and credit card loans accounted
for a majority of the consumer loan charge-offs. The ability to grow profitably
is, in part, dependent upon the maintenance of asset quality. Because asset
quality is a priority for Quad City and its subsidiaries, in the first quarter
of fiscal 1999 management made the decision to downscale indirect auto loan
activity based on charge-off history. The average, third quarter balance of the
indirect auto loan portfolio for fiscal 2001 was $4.3 million compared to $7.5
million for fiscal 2000. This 43% decrease in the average portfolio brought with
it a 90% decrease in the net charge-offs of indirect auto loans. Net charge-offs
for the indirect auto loan portfolio were $5 thousand for the third quarter of
fiscal 2001 compared to $48 thousand for the same period in fiscal 2000 for a
decrease of $43 thousand.
Noninterest income of $1.6 million for the three-month period ended March 31,
2001 was unchanged from $1.6 million for the three-month period ended March 31,
2000. 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. Third quarter fiscal 2001,
when compared to the same quarter in fiscal 2000, posted a $251 thousand
decrease in fees earned by the merchant credit card operation of Bancard. This
38% 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 $15 thousand decrease
in gains realized on investment securities and a $91 thousand decrease in other
noninterest income, resulting from both a decrease in the rental income of the
Bank and losses experienced on two investments in unconsolidated subsidiaries of
the Company. In previous periods, investments in unconsolidated subsidiaries
have had no significant impact on Company earnings. The various decreases in
noninterest income were offset by an 8% increase in fees earned by the trust
department of the Bank, a 340% increase in gains on sales of loans and a 59%
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 the first nine months of fiscal 2000 was
$95 million, and of that, $61 million was attributable to the ISO that
terminated its relationship. During the first nine months of fiscal 2001, the
average dollar volume of transactions processed per month by Bancard decreased
16% to $80 million. 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 March 31, 2001, trust department fees increased $41
thousand, or 8%, to $566 thousand from $525 thousand for the same quarter in
2000. The increase was primarily a reflection of the growth of existing trust
relationships and the addition of new trust customers.
Deposit service fees increased $81 thousand, or 59%, to $218 thousand from $137
thousand for the three-month periods ended March 31, 2001 and March 31, 2000.
This increase was primarily a result of the new deposit accounts fee structure
that was implemented beginning February 1, 2001. 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 $314 thousand for the three months ended March
31, 2001, which reflected an increase of 340%, or $243 thousand, from $71
thousand for the three months ended March 31, 2000. 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 decline in
interest rates over recent months accelerated the activity within this area of
the Bank.
The main components of noninterest expenses were primarily salaries and
benefits, occupancy and equipment expenses, and professional and data processing
fees, for both quarters. Noninterest expenses for the three months ended March
31, 2001 were $3.5 million as compared to $3.0 million for the same period in
2000, for an increase of $511 thousand or 17%.
The following table sets forth the various categories of noninterest expenses
for the three months ended March 31, 2001 and 2000.
Noninterest Expenses
Three months ended
March 31,
-----------------------
2001 2000 % change
----------------------------------
Salaries and employee benefits ............ $2,105,388 $1,806,069 16.6%
Professional and data processing fees ..... 267,494 230,558 16.0%
Advertising and marketing ................. 113,078 116,991 -3.3%
Occupancy and equipment expense ........... 488,593 376,142 29.9%
Stationery and supplies ................... 82,959 82,649 0.4%
Postage and telephone ..................... 98,173 83,811 17.1%
Other ..................................... 315,781 263,841 19.7%
----------------------------------
Total noninterest expenses .......... $3,471,466 2,960,061 17.3%
==================================
Salaries and benefits experienced the most significant dollar increase of any
noninterest expense component. For the quarter ended March 31, 2001, total
salaries and benefits increased to $2.1 million or $299 thousand over the
previous year's quarter total of $1.8 million. The change was primarily
attributable to the increase from March 2000 to March 2001 in the number of Bank
employees and increased incentive compensation to real estate officers
proportionate to the increased volumes of gains on sales of loans. Professional
and data processing fees increased from $230 thousand for the three months ended
March 31, 2000 to $267 thousand for the same three month period in 2001. The $37
thousand increase was predominately due to legal fees resulting from the legal
proceedings in process between Bancard and PMT Services, Inc., discussed further
in Part II, Item 1. Advertising and marketing decreased 3% or $4 thousand for
the quarter. The initial costs for the development and start-up of the Bank's
website (qcbt.com ) were incurred in the third quarter of fiscal 2000. Occupancy
and equipment expense increased $112 thousand or 30% for the quarter. The
increase was predominately due to the addition of a fourth full service banking
facility and the resulting increased levels of rent, utilities, depreciation,
maintenance, and other occupancy expenses. Other noninterest expense increased
$52 thousand or 20% 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 $356 thousand for the three-month period
ended March 31, 2001 compared to $472 thousand for the three-month period ended
March 31, 2000 for a decrease of $116 thousand or 25%. The decrease was the
result of a decrease in income before income taxes of $253 thousand or 21% for
the fiscal 2001 quarter when compared to the fiscal 2000 quarter, as well as a
reduction in the Company's effective tax rate.
NINE MONTHS ENDED MARCH 31, 2001 AND 2000
Interest income increased by $3.8 million from $17.7 million for the nine-month
period ended March 31, 2000 to $21.5 million for the quarter ended March 31,
2001. 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 $3.0 million from $9.7 million for the nine-month
period ended March 31, 2000 to $12.7 million for the nine-month period ended
March 31, 2001. 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 March 31, 2001 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 $11 thousand from $657 thousand for the nine-month
period ended March 31, 2000 to $668 thousand for the nine-month period ended
March 31, 2001. During the both nine month periods, management made monthly
provisions for loan losses based upon the increase in loans and a detailed
analysis of the loan portfolio. Real estate loans had no charge-offs or
recoveries for the nine months ended March 31, 2001. For the same nine-month
period, commercial loans had $87 thousand in charge-offs, and recoveries totaled
$2 thousand. Consumer loan charge-offs and recoveries totaled $146 thousand and
$30 thousand during the nine months. Primarily, indirect auto and credit card
loans accounted for the consumer loan charge-offs. The ability to grow
profitably is, in part, dependent upon the maintenance of asset quality. Because
asset quality is a priority for Quad City and its subsidiaries, in the first
quarter of fiscal 1999 management made the decision to downscale indirect auto
loan activity based on charge-off history. The average balance of the indirect
auto loan portfolio for the first nine months of fiscal 2001 was $5.0 million
compared to $8.2 million for fiscal 2000. This 39% decrease in the average
portfolio brought with it a 56% decrease in the net charge-offs of indirect auto
loans. Net charge-offs for the indirect auto loan portfolio were $18 thousand
for the nine-month period ended March 31, 2001 compared to $41 thousand for the
same period in fiscal 2000 for a decrease of $23 thousand.
Noninterest income was down $200 thousand, or 4%, to $4.4 million for the
nine-month period ended March 31, 2001 from $4.6 million for the same period
ended March 31, 2000. Noninterest income during each of the periods 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 $634 thousand decrease in fees earned by the
merchant credit card operation of Bancard. This 35% 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 $157
thousand decrease in other noninterest income, resulting primarily from a
decrease in the rental income of the Bank and from decreased earnings
experienced on two investments in unconsolidated subsidiaries of the Company. In
previous periods, investments in unconsolidated subsidiaries have had no
significant impact on Company earnings. The various decreases in noninterest
income were partially offset by an 14% increase in fees earned by the trust
department of the Bank, a 104% increase in gains on sales of loans and a 27%
increase in deposit service fees.
For the nine months ended March 31, 2001, trust department fees increased $195
thousand, or 14%, to $1.6 million from $1.4 million for the same period in 2000.
The increase was a reflection of the revision of the trust department fee
structure effective January 1, 2000, in combination with the growth of existing
trust relationships and the addition of new trust customers.
Deposit service fees increased $121 thousand, or 27%, to $565 thousand from $444
thousand for the nine-month periods ended March 31, 2001 and March 31, 2000.
This increase was primarily the result of a new deposit account fee structure
that was implemented beginning February 1, 2001. 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 $611 thousand for the nine months ended March
31, 2001, which reflected an increase of 104%, or $311 thousand, from $300
thousand for the nine months ended March 31, 2000. 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 decline in
interest rates over recent months has accelerated the activity within this area
of the Bank.
The main components of noninterest expenses were primarily salaries and
benefits, occupancy and equipment expenses, and professional and data processing
fees, for both periods. Noninterest expenses for the nine months ended March 31,
2001 were $10.0 million as compared to $8.5 million for the same period in 2000,
for an increase of $1.5 million or 18%.
The following table sets forth the various categories of noninterest expenses
for the nine months ended March 31, 2001 and 2000.
Noninterest Expenses
Nine months ended
March 31,
-------------------------
2001 2000 % change
-------------------------------------
Salaries and employee benefits ......... $ 5,840,949 $ 5,019,151 16.4%
Professional and data processing fees .. 859,753 655,487 31.2%
Advertising and marketing .............. 393,430 304,013 29.4%
Occupancy and equipment expense ........ 1,406,658 1,177,320 19.5%
Stationery and supplies ................ 253,449 243,895 3.9%
Postage and telephone .................. 292,141 265,589 10.0%
Other .................................. 968,895 796,036 21.7%
-------------------------------------
Total noninterest expenses ..... $10,015,275 8,461,491 18.4%
=====================================
Salaries and benefits experienced the most significant dollar increase of any
noninterest expense component. For the nine months ended March 31, 2001, total
salaries and benefits increased to $5.8 million or $822 thousand over the first
three quarters of 2000 total of $5.0 million. The change was primarily
attributable to the increase from March 2000 to March 2001 in the number of Bank
employees and increased incentive compensation to real estate officers
proportionate to the increased volumes of gains on sales of loans. Professional
and data processing fees increased from $655 thousand for the nine months ended
March 31, 2000 to $859 thousand for the same nine-month period in 2001. The $204
thousand increase was predominately due to legal fees resulting from the legal
proceedings in process between Bancard and PMT Services, Inc.,discussed further
in Part II, Item I, combined with increased fees to outside consultants
addressing compliance, efficiency, and profitability issues of the subsidiary
bank. Advertising and marketing increased 29% or $89 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 $229
thousand or 19% for the period. The increase was predominately due to the
addition of a fourth full service banking facility and the resulting increased
levels of rent, utilities, depreciation, maintenance, and other occupancy
expenses. Other noninterest expense increased $173 thousand or 22% 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 $876 thousand for the nine-month period ended
March 31, 2001 compared to $1.3 million for the nine-month period ended March
31, 2000 for a decrease of $447 thousand or 34%. The decrease was the result of
a decrease in income before income taxes of $955 thousand or 28% 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 $4.4 million for the nine months
ended March 31, 2001 compared to $1.3 million for the same period in 2000. Net
cash used in investing activities, consisting principally of loan originations,
was $24.9 million for the nine months ended March 31, 2001 and $28.5 million for
the nine months ended March 31, 2000. Net cash provided by financing activities,
consisting primarily of deposit growth, and net proceeds from short-term
borrowings and Federal Home Loan Bank advances, for the nine months ended March
31, 2001 was $34.6 million and for same period in 2000 was $31.1 million.
The Company has a variety of sources of short-term liquidity available to it,
including federal funds purchased from correspondent banks, sales of securities
available for sale, FHLB advances, lines of credit and loan participations or
sales. At both March 31, 2001 and June 30, 2000, the Bank had six unused lines
of credit totaling $31.0 million of which $8.0 million was secured and $23.0
million was unsecured. At both March 31, 2001 and June 30, 2000, the Company
also had an unused line of credit for $3.0 million, which was secured.
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 leases
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 leases
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.
In April 2001, the Company announced plans to expand its banking operations to
the Cedar Rapids, Iowa market. Initially, the Cedar Rapids operation will
function as a branch of Quad City Bank and Trust Company, subject to regulatory
approvals that are expected in May 2001. The Company has filed the required
regulatory applications to obtain a separate bank charter in the Cedar Rapids
market, to be named Cedar Rapids Bank and Trust Company. Expectations are to
convert the branch operations into this newly chartered bank upon receiving
regulatory approval, which is likely to occur in the fall of 2001. The Company
plans to raise additional equity capital of approximately $5 million through a
private placement of its common stock during the summer of 2001 to assist with
capitalization of the new bank.
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
$1,700,000 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. Because of that ruling, the California lawsuit was
dismissed, and arbitration is pending. Bancard and the Company continue to
believe that PMT's allegations are without merit and will vigorously pursue the
collection of the receivable and the defense of 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 - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Press release dated May 15, 2001 announcing earnings for
the third quarter ended March 31, 2001 and related
financial information
99.2 Shareholder letter dated May 2001 discussing earnings for
the third quarter ended March 31, 2001 and related
financial information
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QUAD CITY HOLDINGS, INC.
(Registrant)
Date May 15, 2001 /s/ Michael A. Bauer
------------ ---------------------------------------------
Michael A. Bauer, Chairman
Date May 15, 2001 /s/ Douglas M. Hultquist
------------ ---------------------------------------------
Douglas M. Hultquist, President
Principal Executive Officer
Date May 15, 2001 /s/ Todd A. Gipple
------------ ---------------------------------------------
Todd A. Gipple, Executive Vice President
Chief Financial Officer