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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ x ] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required) For the fiscal year ended June 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required)
For the transition period from __________________ to _____________________
Commission file number: 0-22208
Quad City Holdings, Inc.
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(Name of Small Business Issuer in Its Charter)
Delaware 42-1397595
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2118 Middle Road, Bettendorf, Iowa 52722
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(319) 344-0600
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(Issuer s Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $1 Par Value
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the Issuer was required to file such reports), and
(2) has been subject to such filing requirements for past 90 days. Yes [ x ] No
[ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ x ]
The Issuer s revenues for its most recent fiscal year were $8,245,754.
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of August 23, 1996 was approximately $18,950,000. As of said date, the
Issuer had 1,437,824 shares of Common Stock issued and outstanding.
Documents incorporated by reference:
---------------------------------------------------------------
Part III of Form 10-KSB - Proxy statement for annual meeting of
stockholders to be held in 1996.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ x ]
Part I
Item 1. Description of the Business
Quad City Holdings, Inc. (the "Company") was formed in February of 1993
under the laws of the state of Delaware for the purpose of becoming the
bank holding company of Quad City Bank and Trust Company (the "Bank").
The Bank was capitalized on October 13, 1993 and commenced operations
on January 7, 1994. The Bank is organized as an Iowa-chartered
commercial bank that is a member of the Federal Reserve System with
depository accounts insured by the Federal Deposit Insurance
Corporation. The Bank provides full-service commercial and consumer
banking services in Bettendorf and Davenport, Iowa and adjacent
communities.
Quad City Bancard, Inc. ("Bancard") was capitalized on April 3, 1995,
as a Delaware corporation which provides merchant credit card
processing services. This operation had previously been a division of
the Bank since July 1994. Bancard has contracted with an independent
sales organization which markets credit card services to merchants
throughout the country. Currently, approximately 8,500 merchants
process transactions with Bancard.
The Company owns 100% of the Bank and Bancard, and in addition to such
ownership invests its capital in stocks of financial institutions and
mutual funds, as well as participates in loans with the Bank.
The Bank competes with other commercial banks, savings banks, savings
and loan institutions, credit unions and other financial service
organizations in the Quad Cities market. Being established in 1994, the
Bank is one of the smaller financial institutions in its market. The
Bank, the Company and Bancard are regulated by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board"). In
addition, the Bank is regulated by the Iowa Superintendent of Banking
(the "Iowa Superintendent") and the Federal Deposit Insurance
Corporation (the "FDIC").
The Company s principal business consists of attracting deposits from
the public and investing those deposits in loans and securities. The
Bank s deposits are insured to the maximum allowable by the FDIC. The
Company s results of operations are dependent primarily on net interest
income, which is the difference between the interest earned on its
loans and securities and the interest paid on deposits. The Company s
operating results are affected by merchant credit card fees, trust
fees, deposit service charges, and other income. Operating expenses of
the Company include employee compensation and benefits, occupancy and
equipment expense, professional and data processing fees, advertising
and marketing expenses and other administrative expenses. The Company s
operating results are also affected by economic and competitive
conditions, particularly changes in interest rates, government policies
and actions of regulatory authorities.
The commercial banking business is a highly regulated business. See
Appendix A for a brief summary regarding federal and state statutes and
regulations, which are applicable to the Company and its subsidiaries.
Supervision, regulation and examination of banks and bank holding
companies by bank regulatory agencies are intended primarily for the
protection of depositors rather than stockholders of bank holding
companies and banks.
The Company, the Bank and Bancard have a June 30th fiscal year end and
employ 53 individuals. No one customer accounts for more than 10% of
revenues, loans or deposits.
See Appendix B for the tables and schedules which show selected
comparative statistical information required pursuant to the industry
guides promulgated under the Securities Act of 1993, relating to the
business of the Company.
Item 2. Description of Property
The main offices of the Company and the Bank are in a 6,700 square foot
facility which was completed in January of 1994. In March of 1994, the
Bank acquired that facility, which is located at 2118 Middle Road in
Bettendorf.
Construction of a second full service banking facility was completed in
July of 1996 to provide for the convenience of customers and to expand
its market territory. The Bank also owns its portion of that facility
which is located at 4500 Brady Street in Davenport. The two story
building is in two segments that are separated by an atrium. The Bank
owns the south half of the building, while the northern portion is
owned by the developer. Each floor is 6,000 square feet. The Bank
occupies its first floor and utilizes the basement for storage and item
processing. Three thousand square feet of its second floor has been
leased to a professional services firm. The remaining 3,000 square feet
is available for lease.
Bancard leases approximately 1,700 square feet of office space in
Bettendorf from an unrelated third party.
Management is of the opinion that the facilities are of sound
construction, in good operating condition, are appropriately insured
and are adequately equipped for carrying on the business of the
Company.
The Bank has limited its investment in premises to approximately 50% of
Bank capital. The Bank frequently invests in commercial real estate
mortgages. The Bank also invests in residential mortgages. The Bank has
established lending policies which include a number of underwriting
factors to be considered in making a loan including, location, loan to
value ratio, interest rate and credit worthiness of the borrower.
No individual real estate property or mortgage amounts to 10% or more
of consolidated assets.
Item 3. Legal Proceedings
The Company is not aware of any legal proceedings against it, the Bank
or Bancard.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the stockholders of the Company for
a vote during the fourth quarter of the fiscal year ended June 30,
1996.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company s common stock has been traded on The Nasdaq SmallCap Market since
October 6, 1993. High and low sales prices, as reported on Nasdaq for each
quarterly period during the two fiscal years ended June 30, 1996 and 1995 were
as follows:
Fiscal 1996 Fiscal 1995
Sale Price Sale Price
------------------ ----------------------
High Low High Low
------- ------- ------- -------
First quarter .......... $12 $ 9 3/4 $10 $ 9
Second quarter ......... 12 10 1/2 $10 9 1/4
Third quarter .......... 12 3/4 10 3/4 9 3/4 8 1/2
Fourth quarter ......... 13 3/4 12 10 1/2 8 3/4
No cash dividends were declared during the past fiscal year. At June
30, 1996, there were estimated to be approximately 2,200 holders of
record of the Company s common stock.
The Company expects that all earnings, will be retained to finance the
growth of the Company, the Bank and Bancard, and that no cash dividends
will be paid for the foreseeable future. If and when dividends are
declared, the Company will probably be largely dependent upon dividends
from the Bank and Bancard for funds to pay dividends on the common
stock.
Under Iowa law, the Bank will be restricted as to the maximum amount of
dividends it may pay on its common stock. The Iowa Banking Act provides
that an Iowa bank may not pay dividends in an amount greater than its
undivided profits. The Bank is a member of the Federal Reserve System.
The total of all dividends declared by the Bank in a calendar year may
not exceed the total of its net profits of that year combined with its
retained net profits of the preceding two years. In addition, the
Federal Reserve Board, the Iowa Superintendent and the FDIC are
authorized under certain circumstances to prohibit the payment of
dividends by the Bank. In the case of the Company, further restrictions
on dividends may be imposed by the Federal Reserve Board.
Item 6. Management s Discussion and Analysis
Results of Operations
Net income for the year ended June 30, 1996 was $682,588, compared to a
net loss of $373,782 for the year ended June 30, 1995. Results improved
primarily because of a $1,224,743 increase in net interest income after
provision for loan losses, and a $1,114,590 increase in other income.
These increases were offset by a $1,282,963 increase in other expenses
due primarily to the increased number of employees and higher operating
costs related to the increased volume of business. A loss was reported
for the period ended June 30, 1994 of $1,122,402. Because the Company
was a start-up venture, there were expected losses during the
pre-opening period and for the first several years of operations.
Interest income increased to $6,583,467 in fiscal 1996 from $3,550,122
in fiscal 1995, a rise of $3,033,345. The rise was primarily due to
greater average outstanding balances in interest bearing assets.
Interest income is comprised primarily of interest income on loans
(including loan fees), securities, federal funds sold and the Company s
own deposits maintained at other financial institutions. Interest
income should continue to grow as the loan portfolio and other assets
increase, and would also increase as a result of a rise in interest
rates.
Interest expense increased to $3,486,380 in fiscal 1996 from $1,895,575
in fiscal 1995, an increase of $1,590,805, and represented interest
paid primarily to depositors, as well as interest paid on federal funds
purchased, and Federal Home Loan Bank advances. The increase in
interest expense was again primarily due to greater average outstanding
balances in interest bearing liabilities. Interest expense will
continue to increase as deposits and Federal Home Loan Bank advances
grow and would also increase as a result of a rise in interest rates.
Net interest income for the years ended June 30, 1996 and June 30, 1995
amounted to $3,097,087 and $1,654,547, respectively, and represented
the difference between interest income earned on earning assets and
interest expense paid on interest bearing liabilities.
The provision for loan losses is established based on factors such as
the local and national economy and the risk associated with the loans
in the portfolio. The Company s provision for loan losses was $500,397
for the year ended June 30, 1996, compared to $282,600 for the year
ended June 30, 1995. The $217,797 increase in the provision for loan
losses was primarily attributable to the growth in the loan portfolio
during fiscal 1996. The increase maintained the Company s allowance for
estimated losses on loans at 1.5% of total loans at both June 30, 1996
and June 30, 1995.
Other income of $1,662,287 and $547,697 during the fiscal years 1996
and 1995, respectively, consisted of merchant credit card income, trust
income, deposit service charges, the net of investment securities gains
and losses and miscellaneous income. The $1,114,590 increase was
primarily due to the addition of new customers and increased volume of
the merchant credit card processing services at Bancard, the addition
of new clients in the trust department at the Bank, the increase in
demand deposit customers, and the growth in the commission income
generated by the investment center.
Operating expenses consisted primarily of salaries and benefits; other
expense, including bank service charges and trust related expenses;
professional fees, including data processing fees; and marketing and
advertising expenses. Other operating expenses increased to $3,576,389
in fiscal 1996 from $2,293,426 in fiscal 1995. The $1,282,963 increase
was primarily due to higher overhead expenses on the increased volume
of business attained during fiscal 1996. Management will continue to
attempt to contain overhead costs while maintaining optimal service
levels and productivity.
In fiscal 1996, salaries and benefits experienced the most significant
increase of any noninterest expense component. For the twelve months
ended June 30, 1996, total salaries and benefits increased to
$1,973,682, or $798,808 over the June 30, 1995 total of $1,174,874. The
change was primarily attributable to the increase in the Company s
number of employees.
In fiscal 1995, the Bank s FDIC premiums were assessed at the rate of
.23% of insured deposits. On November 14, 1995, the FDIC reduced the
Bank s FDIC premium to 0%. However, the Bank will continue to pay the
$1,000 minimum semi-annual assessment required by federal statute.
Financial Condition and Liquidity
Total assets of the Company grew by $30,674,895, or 37.96%, to
$111,474,977 at June 30, 1996 from $80,800,082 at June 30, 1995. The
increase primarily resulted from an increase in deposits received from
customers. While asset growth is expected to continue for the year
ended June 30, 1997, it is likely to be at a lesser percentage rate
from the increase during the past year.
Cash and due from banks increased by $2,785,137, or 72.71%, to
$6,615,407 at June 30, 1996 from $3,830,270 at June 30, 1995 and
represented cash maintained at the Bank, and 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 June
30, 1996, the Bank had invested $2,728,000 in such funds. Such amount
decreased by $10,222,000, or 78.93%, from $12,950,000 at June 30, 1995.
This decrease was attributable to the reduction in funds received from
correspondent banking customers to be reinvested in overnight deposits
"as principal". In August 1995, the Company s correspondent banking
department implemented an "agent" federal funds program, whereby the
funds received from downstream correspondent banking customers merely
pass through the Company s financial statements to upstream
correspondent banks. The implementation of the "agent" program resulted
in a decrease to assets (federal funds sold) and liabilities (federal
funds purchased). This department provides various services to other
financial institutions, including cash management services.
Certificates of deposit at financial institutions increased by
$1,489,154, or 37.39% to $5,472,012 at June 30, 1996 from $3,982,858 at
June 30, 1995 and represented funds that the Company and its
subsidiaries had deposited in other banks in the form of certificates
of deposit. Management elected to invest in these deposits to earn a
yield that exceeded the yield of U.S. treasury securities at comparable
maturities.
Pursuant to a FASB Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities", the Company transferred securities with an amortized cost
of $7,992,513 and an unrealized gain of $12,030 from the held to
maturity portfolio to the available for sale portfolio in December,
1995. This "one-time" transfer was made based on management s
reassessment of their previous designations of securities giving
consideration to liquidity needs, the management of interest rate risk
and other factors.
A portion of the Bank s investment securities are purchased with the
intent to hold the securities until they mature. These held to maturity
securities were recorded at amortized cost at both June 30, 1996 and
June 30, 1995. At June 30, 1996, mortgage-backed securities and
municipal securities made up the $3,156,601 balance. This was a
decrease of $7,861,542, or 71.35%, from June 30, 1995, when U.S.
treasury and agency securities, mortgage-backed securities and taxable
municipal securities made up the $11,018,143 balance. Market values at
June 30, 1996 and June 30, 1995 were $3,097,115 and $10,901,057,
respectively. The decrease was primarily attributable to the "one-time"
transfer described in the previous paragraph.
All of the Company s and a portion of the Bank s securities are placed
in the available for sale category as the securities may be liquidated
to provide cash for operating or financing purposes. These securities
were reported at fair value and increased by $15,999,757, or 106.43% to
$31,032,652 at June 30, 1996 from $15,032,895 at June 30,1995. The
amortized cost of such securities at June 30, 1996 and June 30, 1995
was $31,518,121 and $14,914,642, respectively. The increase was
attributable to the "one-time" transfer described above, as well as the
purchase of U.S. agency and other securities into the investment
portfolio.
The amortized cost and the weighted average rate yields for the
categories of securities are summarized below.
1996 1995
------------------------- ---------------------------
Amortized Average Amortized Average
Cost Yield Cost Yield
----------- ------------ ----------- --------------
Securities held to maturity:
U.S. treasury securities . $ 0 0.000 $ 8,000,218 4.640%
U.S. agency securities ... 0 0.000 500,000 7.100
Mortgage-backed securities 2,560,793 5.983 2,318,460 5.962
Municipal securities ..... 595,808 6.657 199,465 7.456
----------- -----------
Totals .............. $ 3,156,601 $11,018,143
=========== ===========
Securities available for sale:
U.S. treasury securities . $14,504,449 5.920 $ 6,016,543 7.032%
U.S. agency securities ... 12,612,166 6.222 5,477,243 7.407
Mortgage-backed securities 2,851,340 6.737 3,092,266 7.490
Other securities ......... 1,550,166 Variable 328,590 Variable
----------- -----------
Totals .............. $31,518,121 $14,914,642
=========== ===========
Loans receivable increased by $25,302,143, or 80.30%, to $56,809,720 at June 30,
1996 from $31,507,577 at June 30, 1995. The totals represented loans made by the
Bank and also loan participations the Company had purchased from the Bank, on
loans that exceeded the Bank s legal lending limit. As of June 30, 1996, the
Bank s legal lending limit was $1,725,000. The Company has received approval
from the Federal Reserve Board to grant loans and to participate in loans with
the Bank. 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. During the fiscal year ended 1996, the Bank
originated $41,276,181 of loans and received repayments of $15,853,666.
The Company s allowance for estimated losses on loans was $852,500 at June 30,
1996 or 1.5% of total loans, compared to $472,475 or 1.5% at June 30, 1995.
Although management believes that the allowance for estimated losses on loans at
June 30, 1996 was at a level that is adequate to absorb losses on existing
loans, there can be no assurance that such losses will not exceed the estimated
amounts or that the Company will not be required to make additional
contributions to its provision for loan losses in the future. Asset quality is a
priority for the Company and its subsidiaries. The ability to grow profitably is
in part dependent upon the ability to maintain that quality.
At June 30, 1996, past due loans 30 days or more amounted to $864,368. At June
30, 1995, past due loans 30 days or more amounted to $87,574. Past due loans as
a percentage of gross loans receivable at June 30, 1996 and June 30, 1995 was
1.52% and 0.28%, respectively. The Company anticipated an increase in this
category in fiscal 1996 from the prior year. At June 30, 1995, much of the loan
portfolio had been on the books for a relatively short time period, thus an
increase in past due loans was likely as the portfolio matured. Over one third
of the past due total at June 30, 1996, has subsequently been repaid and the
remainder has been or is in the process of renegotiation. The Company intends to
closely monitor these loans and does not anticipate any material losses.
The Company experienced charge-offs of $120,372 during the fiscal 1996 year
compared to $1,725 during the fiscal 1995 year. The fiscal 1996 charge-offs were
comprised primarily of a single $400,000 commercial loan that was not fully
realized upon liquidation of the borrower. The Company charged off all of the
uncollected balance at June 30, 1996 and still holds stock in the parent company
of the borrower. The ultimate realization of this collateral is unknown,
therefore the Company has placed no value on the stock.
Premises and equipment increased by $2,729,199 to $4,531,038 at June 30, 1996
from $1,801,839 at June 30, 1995. The increase resulted primarily from the Bank
paying the developer its accumulated construction costs of the new Davenport
banking location. Additional information regarding the composition of this
account and related accumulated depreciation is described in footnote 4 to the
consolidated financial statements.
Accrued interest receivable on loans, securities and interest-bearing cash
accounts increased to $1,121,268 at June 30, 1996 from $685,880 at June 30,
1995. The increase was primarily due to greater average outstanding balances in
interest bearing assets.
Other assets at June 30, 1996 and June 30, 1995 consisted primarily of
miscellaneous receivables, prepaid expenses and accrued trust department income,
and totaled $860,779 and $463,095, respectively. The increase was attributable
to the increased volume of business and the related prepaid expenses associated
with the pace of growth at the Bank and Bancard.
Deposits grew to $92,918,118 at June 30, 1996 from $61,097,686 at June 30,1995,
for an increase of $31,820,432, or 52.08%. The increase consisted of a
$20,746,932 increase in demand, NOW, money market and savings accounts and a
$11,073,500 increase in time deposit accounts.
Federal funds purchased representing inter-bank funds received from other banks
decreased by $6,021,072 to $1,190,000 at June 30, 1996 from $7,211,072 at June
30, 1995. This decrease was attributable to the reduction in funds received from
correspondent banking customers to be reinvested in overnight deposits "as
principal".
Federal Home Loan Bank ("FHLB") advances increased to $3,411,470 at June 30,
1996 from $0 at June 30, 1995. The Bank is a member of the FHLB of Des Moines.
As of June 30, 1996, the Bank held $1,249,700 of FHLB stock. As a result of its
membership in the FHLB, the Bank has the ability to borrow funds for short-or
long-term purposes under a variety of programs.
Other borrowings increased to $1,000,000 at June 30, 1996 from $0 at June 30,
1995. Other borrowings consist of the amount outstanding on a $1,500,000
revolving credit note, which is secured by all the outstanding stock of the
Bank. The borrowed funds were utilized to provide additional capital to the Bank
to maintain the required 9% leverage ratio.
Other liabilities grew to $1,286,783 at June 30, 1996 from $901,584 at June 30,
1995 for an increase of $385,199 or 42.72%. Other liabilities consisted
primarily of accrued interest payable on deposit accounts, accrued expenses and
accounts payable. The increase was primarily attributable to the greater average
outstanding balances in interest bearing liabilities.
Stockholders equity increased slightly to $11,668,606 at June 30, 1996 from
$11,589,740 at June 30, 1995. Such increase was the combination of the net
income offset by an increase in the unrealized losses on securities available
for sale.
Common stock of $1,437,824 at June 30, 1996 and June 30, 1995 represented
1,437,824 shares at $1.00 par value of the Company s common stock.
The accumulated deficit decreased by $682,588 to $1,048,165 at June 30, 1996
from $1,730,753 at June 30, 1995. The accumulated deficit was comprised of
pre-opening expenses, start-up expenses for the Bank, and prior net losses
incurred, offset by the current fiscal year net income. The Company expected to
experience start-up losses for the first several years of operation.
In anticipation of continued asset growth, the Company has decided to conduct a
preferred stock offering. The Company desires to raise at least $7.5 million.
Liquidity
For banks, liquidity represents the ability to meet both withdrawals from
deposits and the funding of loans. The assets that provide for liquidity are
cash, federal funds sold, and short term loans and securities. Liquidity needs
are influenced by economic conditions, interest rates and competition.
Securities that are available for sale in the Company s portfolio can be readily
converted to cash if necessary. Management believes that current liquidity
levels are sufficient to meet future demands. Net cash inflows from operating
activities provided cash of $836,093 for the year ended June 30, 1996 and used
cash of $185,902 for the year ended June 30, 1995. The improvement in cash flow
during the year resulted primarily from improved earnings. Net cash outflows
from investing activities totaled $28,261,786 for the year ended June 30, 1996,
compared to cash outflows of $39,379,019 for the year ended June 30, 1995. The
net outflows of cash were largely associated with the growth in the loan
portfolio combined with the purchases of available for sale securities. Cash
inflows from financing activities totaled $30,210,830 for the year ended June
30, 1996, compared to cash inflows of $41,281,203 for the year ended June 30,
1995. The components of the net cash inflows were the growth of deposit
accounts, as well as the increase in other borrowings and FHLB advances.
Impact of Inflation and Changing Prices
Unlike most industries, essentially all of the assets and liabilities of a bank
are monetary in nature. As such, the level of prices has less of an effect than
do interest rates. Prices and interest rates do not always move in the same
direction. The Company s financial statements and notes are generally prepared
in terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation.
Impact of New Accounting Standards
The Financial Accounting Standards Board has issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" which becomes effective for years beginning after December 15,
1995. The Statement generally requires long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment is recognized. Management
believes that adoption of this Statement will not have a material effect on the
Company s financial statements.
The Financial Accounting Standards Board has issued Statement No. 123
"Accounting for Stock Based Compensation" which becomes effective for years
beginning after December 15, 1995. This Statement establishes a fair value based
method for stock-based compensation plans. Management believes that adoption of
this Statement will not have a material effect on the Company s financial
statements.
The Financial Accounting Standards Board has issued Statement No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" which becomes effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996.
This Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. The Statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. Management believes that
adoption of this Statement will not have a material effect on the Company s
financial statements.
Item 7. Financial statements
QUAD CITY HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditor's Report
Consolidated Balance Sheets at June 30, 1996 and 1995
Consolidated Statements of Income for the years ended
June 30, 1996, 1995 and 1994
Consolidated Statements of Stockholders Equity for the years ended
June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
Independent Auditor s Report
To the Board of Directors
and Stockholders
Quad City Holdings, Inc.
Bettendorf, Iowa
We have audited the accompanying consolidated balance sheets of Quad City
Holdings, Inc. and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of income, stockholders equity, and cash flows for the
years ended June 30, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quad City Holdings,
Inc. and subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for the years ended June 30, 1996, 1995 and
1994, in conformity with generally accepted accounting principles.
/s/ McGLADREY & PULLEN, LLP
Davenport, Iowa
July 26, 1996
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
1996 1995
------------- -------------
ASSETS
Cash and due from banks .................................................................. $ 6,615,407 $ 3,830,270
Federal funds sold ....................................................................... 2,728,000 12,950,000
Certificates of deposit at financial institutions ........................................ 5,472,012 3,982,858
Securities held to maturity, at amortized cost (Note 2) .................................. 3,156,601 11,018,143
Securities available for sale, at fair value (Note 2) .................................... 31,032,652 15,032,895
------------- -------------
Total securities .................................................................... 34,189,253 26,051,038
------------- -------------
Loans receivable (Note 3) ................................................................ 56,809,720 31,507,577
Less: Allowance for estimated losses on loans (Note 3) ................................... (852,500) (472,475)
------------- -------------
Net loans receivable ................................................................ 55,957,220 31,035,102
------------- -------------
Premises and equipment, net (Note 4) ..................................................... 4,531,038 1,801,839
Accrued interest receivable .............................................................. 1,121,268 685,880
Other assets ............................................................................. 860,779 463,095
------------- -------------
Total assets ..................................................................... $ 111,474,977 $ 80,800,082
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing ................................................................... $ 15,730,265 $ 5,628,526
Interest-bearing ...................................................................... 77,187,853 55,469,160
------------- -------------
Total deposits (Note 5) ............................................................. 92,918,118 61,097,686
------------- -------------
Federal funds purchased .................................................................. 1,190,000 7,211,072
Federal Home Loan Bank advances (Note 6) ................................................. 3,411,470 0
Other borrowings (Note 7) ................................................................ 1,000,000 0
Other liabilities ........................................................................ 1,286,783 901,584
------------- -------------
Total liabilities ................................................................ 99,806,371 69,210,342
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Note 11)
Preferred stock, $1 par value; shares authorized 250,000; shares issued none ............. 0 0
Common stock, $1 par value; shares authorized 2,500,000; shares issued
and outstanding 1,437,824 .............................................................. 1,437,824 1,437,824
Additional paid-in capital ............................................................... 11,764,416 11,764,416
Retained earnings (deficit) .............................................................. (1,048,165) (1,730,753)
------------- -------------
12,154,075 11,471,487
Unrealized gains (losses) on securities available for sale, net .......................... (485,469) 118,253
------------- -------------
Total stockholders' equity ....................................................... 11,668,606 11,589,740
------------- -------------
Total liabilities and stockholders' equity ....................................... $ 111,474,977 $ 80,800,082
============= =============
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
----------- ----------- -----------
Interest income:
Interest and fees on loans ............................................ $ 3,972,856 $ 1,974,150 $ 213,036
Interest and dividends on securities .................................. 1,868,976 1,052,557 408,255
Interest on federal funds sold ........................................ 382,226 423,292 90,987
Other interest ........................................................ 359,409 100,123 24,816
----------- ----------- -----------
Total interest income ............................................ 6,583,467 3,550,122 737,094
----------- ----------- -----------
Interest expense:
Interest on deposits (Note 5) ........................................ 3,349,548 1,792,850 253,513
Interest on other borrowings ......................................... 136,832 102,725 0
----------- ----------- -----------
Total interest expense ........................................... 3,486,380 1,895,575 253,513
----------- ----------- -----------
Net interest income .............................................. 3,097,087 1,654,547 483,581
Provision for loan losses (Note 3) ........................................ 500,397 282,600 191,500
----------- ----------- -----------
Net interest income after provision for loan losses .............. 2,596,690 1,371,947 292,081
----------- ----------- -----------
Other income (loss):
Merchant credit card, net of processing fees .......................... 1,007,830 306,051 0
Trust department ...................................................... 355,360 149,218 26,918
Deposit service fees .................................................. 147,678 73,016 8,784
Investment securities gains (losses), net ............................. 22,272 (16,656) (70,532)
Other ................................................................. 129,147 36,068 33,723
----------- ----------- -----------
Total other income (loss) ........................................ 1,662,287 547,697 (1,107)
----------- ----------- -----------
Other expenses:
Salaries and benefits ................................................. 1,973,682 1,174,874 723,099
Professional and data processing fees ................................. 282,640 192,556 155,439
Advertising and marketing ............................................. 189,761 98,584 122,533
Occupancy and equipment expense ....................................... 289,230 209,468 100,500
Stationery and supplies ............................................... 100,672 58,585 75,854
Provision for merchant credit card losses ............................. 126,805 126,831 0
Insurance ............................................................. 86,291 136,015 57,279
Postage and telephone ................................................. 117,741 55,630 31,559
Unrealized loss on securities held for sale ........................... 0 0 150,693
Other ................................................................. 409,567 240,883 147,113
----------- ----------- -----------
Total other expenses ............................................. 3,576,389 2,293,426 1,564,069
----------- ----------- -----------
Income (loss) before cumulative effect of a change
in accounting principle ................................................. 682,588 (373,782) (1,273,095)
Cumulative effect of a change in accounting principle (Note 1) ............. 0 0 150,693
----------- ----------- -----------
Net income (loss) ................................................ $ 682,588 $ (373,782) $(1,122,402)
=========== =========== ===========
Before cumulative effect of a change
in accounting principle ................................................. 0.47 (0.26) (1.23)
Cumulative effect of a change in accounting principle ...................... 0.00 0.00 0.15
----------- ----------- -----------
Net income (loss) ................................................ $ 0.47 $ (0.26) $ (1.08)
=========== =========== ===========
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1996, 1995 and 1994 Securities
Unrealized
Gains (Losses)
Additional Retained On Securities
Common Paid-In Earnings Available For
Stock Capital (Deficit) Sale, Net Total
----------- ----------- ----------- -------------- ------------
Balance, June 30, 1993 $ 75,000 $ 630,313 $ (234,569) $ 0 $ 470,744
Proceeds from sale of 1,200,000
shares of common stock,
net of stock offering costs 1,200,000 9,803,851 0 0 0
Proceeds from sale of 162,824
shares of common stock,
net of stock offering costs 162,824 1,330,252 0 0 1,493,076
Unrealized (losses) on securities
available for sale, net 0 0 0 (150,693) (150,693)
Net (loss) 0 0 (1,122,402) 0 (1,122,402)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1994 $ 1,437,824 $11,764,416 $(1,356,971) $ (150,693) $11,694,576
Change in unrealized gains on
securities available for sale, net 0 0 0 268,946 268,946
Net (loss) 0 0 (373,782) 0 (373,782)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1995 $ 1,437,824 $11,764,416 $(1,730,753) $ 118,253 $11,589,740
Change in unrealized gains (losses)
on securities available for sale, net 0 0 0 (603,722) (603,722)
Net income 0 0 682,588 0 682,588
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 $ 1,437,824 $11,764,416 $(1,048,165) $ (485,469) $11,668,606
=========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................ $ 682,588 $ (373,782) $ (1,122,402)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization .......................................... 143,173 107,313 41,973
Provision for loan losses .............................................. 500,397 282,600 191,500
Provision for merchant credit card losses .............................. 126,805 126,831 0
Amortization of premiums (accretion of discounts) on securities, net ... (16,920) 8,108 42,351
Federal Home Loan Bank stock dividends ................................. (3,000) 0 0
Realized loss on securities held for sale .............................. 0 0 70,532
Realized (gains) losses on securities available for sale ............... (22,272) 16,656 0
(Increase) in accrued interest receivable .............................. (435,388) (450,468) (201,302)
(Increase) in other assets ............................................. (397,684) (437,544) (14,377)
Increase in other liabilities .......................................... 258,394 534,384 131,418
------------ ------------ ------------
Net cash provided by (used in) operating activities ................. $ 836,093 $ (185,902) $ (860,307)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold ............................ 10,222,000 (8,250,000) (4,700,000)
Net (increase) in certificates of deposits at financial institutions ..... (1,489,154) (2,128,005) (1,854,853)
Net loans originated ..................................................... (25,422,515) (18,741,741) (12,767,461)
Purchase of securities held to maturity .................................. (2,873,782) (500,000) (10,677,625)
Purchase of securities available for sale ................................ (18,947,247) (10,297,885) 0
Purchase of securities held for sale ..................................... 0 0 (8,121,736)
Proceeds from maturity of securities ..................................... 4,000,000 0 0
Proceeds from calls/paydowns on securities ............................... 4,483,584 387,271 538,630
Proceeds from sale of securities available for sale ...................... 4,637,700 338,600 0
Proceeds from sale of securities held for sale ........................... 0 0 2,262,313
Purchase of premises and equipment ....................................... (2,872,372) (187,259) (1,763,866)
------------ ------------ ------------
Net cash (used in) investing activities ............................. $(28,261,786) $(39,379,019) $(37,084,598)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................................... 0 0 12,496,927
Decrease in deferred registration costs .................................. 0 0 45,600
Net increase (decrease) in federal funds purchased ....................... (6,021,072) 7,211,072 0
Net increase in time certificates of deposit accounts .................... 11,073,500 19,370,853 15,156,786
Net increase in non-time deposit accounts ................................ 20,746,932 14,699,278 11,870,769
Net increase in other borrowings ......................................... 1,000,000 0 0
Net increase in Federal Home Loan Bank advances .......................... 3,411,470 0 0
------------ ------------ ------------
Net cash provided by financing activities ........................... $ 30,210,830 $ 41,281,203 $ 39,570,082
------------ ------------ ------------
Net increase in cash and due from banks ............................. 2,785,137 1,716,282 1,625,177
Cash and due from banks, beginning .................................. 3,830,270 2,113,988 488,811
------------ ------------ ------------
Cash and due from banks, ending ..................................... $ 6,615,407 $ 3,830,270 $ 2,113,988
============ ============ ============
Supplemental disclosure of cash flow information, cash payments for:
Interest ................................................................. $ 3,384,353 $ 1,513,310 $ 143,760
============ ============ ============
Supplemental schedule of noncash investing and financing activities:
Change in unrealized gains (losses) on securities available for sale, net $ (603,722) $ 268,946 $ (150,693)
============ ============ ============
Investment securities transferred from held to maturity portfolio to
available for sale portfoilio, at fair value ......................... $ 8,004,543 $ 0 $ 0
============ ============ ============1
See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
Quad City Holdings, Inc. (the "Company") is a bank holding company providing
bank and bank related services through its subsidiaries, Quad City Bank and
Trust Company (the "Bank") and Quad City Bancard, Inc. ("Bancard"). The Bank
is a commercial bank that serves the Quad Cities area, is chartered and
regulated by the state of Iowa, is insured and subject to regulation by the
Federal Deposit Insurance Corporation and is a member of and regulated by
the Federal Reserve System. Bancard is an entity formed in April, 1995 to
conduct the Company s merchant credit card operation. This activity was
previously conducted by the Bank.
Significant accounting policies:
Accounting estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Principals of consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, the Bank and Bancard.
All material intercompany accounts and transactions have been eliminated
in consolidation.
Presentation of cash flows:
For purposes of reporting cash flows, cash and due from banks include
cash on hand, amounts due from banks and interest-bearing balances with
other banks. Cash flows from loans originated by the Bank, deposits, and
federal funds purchased and sold are reported net.
Investment securities:
Effective June 30, 1994, the Company adopted FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS
115") and classified investments as held to maturity or available for
sale. There were no investments held for trading purposes at June 30,
1996, 1995 or 1994. Investment securities held to maturity are those
debt securities that the Company has the ability and intent to hold
until maturity regardless of changes in market conditions, liquidity
needs or changes in general economic conditions. Such securities are
carried at cost adjusted for amortization of premiums and accretion of
discounts. If the ability or intent to hold to maturity is not present
for certain specified securities, such securities are considered
available for sale as the Company intends to hold them for an indefinite
period of time but not necessarily to maturity. Any decision to sell a
security classified as available for sale would be based on various
factors, including significant movements in interest rates, changes in
the maturity mix of the Company s assets and liabilities, liquidity
needs, regulatory capital considerations, and other similar factors.
Securities available for sale are carried at fair value. Unrealized
gains or losses are reported as increases or decreases in stockholders
equity, net of the related deferred tax effect. Realized gains or
losses, determined on the basis of the cost of specific securities sold,
are included in earnings.
Note 1. Continued
The cumulative effect of implementing FAS 115 at June 30, 1994 , was to
report investment securities previously reported as held for sale to
available for sale, with unrealized losses of $150,693 at June 30, 1994
as a separate component of stockholders equity and as a cumulative
effect on the statement of income.
Pursuant to a FASB Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities", the Company transferred at fair value $8,004,543 of
investment securities from held to maturity to available for sale in
December 1995.
Loans and allowance for loan losses:
Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses. The allowance for loan losses is maintained
at the level considered adequate by management of the Company and the
Bank to provide for losses that can be reasonably anticipated. The
allowance is increased by provisions charged to expense and reduced by
net charge-offs. In determining the adequacy of the allowance, the
Company and the Bank make continuous evaluations of the loan portfolio
and related off-balance sheet commitments, and consider current economic
conditions and other factors that may effect a borrower s ability to
repay.
In accordance with FASB Statement No. 114 "Accounting by Creditors for
Impairment of a Loan," loans are considered impaired when, based on
current information and events, it is probable the Company and the Bank
will not be able to collect all amounts due. The portion of the
allowance for loan losses applicable to an impaired loan is computed
based on the present value of the estimated future cash flows of
interest and principal discounted at the loan s effective interest rate
or on the fair value of the collateral for collateral dependent loans.
The entire change in present value of expected cash flows of impaired
loans is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of
bad debt expense that otherwise would be reported. The Company and the
Bank recognize interest income on impaired loans on an accrual basis.
Premises and equipment:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed primarily by the straight-line method over the
estimated useful lives.
Income taxes:
The Company files its tax return on a consolidated basis with its
subsidiaries. The entities follow the direct reimbursement method of
accounting for income taxes under which income taxes or credits which
result from the inclusion of the subsidiaries in the consolidated tax
return are paid to or received from the parent company.
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Note 1. Continued
Trust assets:
Trust assets held by the Bank in fiduciary, agency or custody capacities
for its customers, other than cash on deposit at the Bank, are not
included in the accompanying consolidated balance sheets since such
items are not assets of the Bank.
Per share data:
Earnings per common share are determined by dividing net income by the
weighted average number of common shares outstanding during the year.
Note 2. Investment Securities
The amortized cost and fair value of investment securities at June 30, 1996 and
1995 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------- ------------- ------------ ------------
June 30, 1996
Securities held to maturity:
Mortgage-backed securities ................ $ 2,560,793 $ 2,513 $ (48,911) $ 2,514,395
Municipal securities ...................... 582,720 595,808 1,355 (14,443)
------------ ------------ ------------ ------------
Totals ............................... $ 3,156,601 $ 3,868 $ (63,354) $ 3,097,115
============ ============ ============ ============
Securities available for sale:
U.S. treasury securities .................. $ 14,504,449 $ 42,191 $ (156,912) $ 14,389,728
U.S. agency securities .................... 12,612,166 8,759 (355,026) 12,265,899
Mortgage-backed securities ................ 2,851,340 12,930 (20,365) 2,843,905
Other securities .......................... 1,550,166 9,079 (26,125) 1,533,120
------------ ------------ ------------ ------------
Totals ............................... $ 31,518,121 $ 72,959 $ (558,428) $ 31,032,652
============ ============ ============ ============
June 30, 1995
Securities held to maturity:
U.S. treasury securities ..................... $ 8,000,218 $ 0 $ (78,031) $ 7,922,187
U.S. agency securities ....................... 500,000 0 0 500,000
Mortgage-backed securities ................... 2,318,460 0 (44,810) 2,273,650
Taxable municipal securities ................. 199,465 5,755 0 205,220
----------- ------------- ------------- ------------
Totals .................................. $11,018,143 $ 5,755 $ (122,841) $ 10,901,057
=========== ============= ============= ============
Securities available for sale:
U.S. treasury securities ..................... $ 6,016,543 $ 124,114 $ (24,875) $ 6,115,782
U.S. agency securities ....................... 5,477,243 53,225 0 5,530,468
Mortgage-backed securities ................... 3,092,266 10,889 (48,325) 3,054,830
Other securities.............................. 328,590 3,225 0 331,815
----------- ------------- ------------- ------------
Totals .................................. $14,914,642 $ 191,453 $ (73,200) $ 15,032,895
=========== ============= ============= ============
Note 2. Continued
All sales of securities during the years ended June 30, 1996, 1995 and 1994 were
from securities identified as available for sale or held for sale. Information
on proceeds received, as well as the gains and losses from the sales of those
securities is as follows:
1996 1995 1994
---------- ---------- ----------
Proceeds from sales of securities ....... $4,637,700 $ 338,600 $2,262,313
Gross losses from sales of securities ... 18,848 18,793 70,532
Gross gains from sales of securities .... 41,120 2,137 0
The amortized cost and fair value of securities at June 30, 1996 by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay with or without
call or prepayment penalties.
Amortized
Cost Fair Value
----------- -----------
Securities held to maturity
Due in one year or less .................... $ 250,284 $ 246,953
Due after one year through five years ...... 2,660,112 2,616,007
Due after five years ....................... 246,205 234,155
----------- -----------
Totals ................................ $ 3,156,601 $ 3,097,115
=========== ===========
Securities available for sale
Due in one year or less .................... $ 3,182,415 $ 3,157,782
Due after one year through five years ...... 24,536,423 24,210,421
Due after five years ....................... 2,249,117 2,131,329
Marketable equity securities ............... 1,550,166 1,533,120
----------- -----------
Totals ................. $31,518,121 $31,032,652
=========== ===========
At June 30, 1996 and 1995, investment securities with a carrying value and a
fair value of $16,503,665 and $16,239,844, and $5,771,440 and $5,773,203,
respectively, were pledged on public deposits and for other purposes as required
or permitted by law.
The Company transferred securities with an amortized cost of $7,992,513 and an
unrealized gain of $12,030 from the held to maturity portfolio to the available
for sale portfolio in December, 1995, based on management s reassessment of
their previous designations of securities giving consideration to liquidity
needs, management of interest rate risk and other factors.
Note 3. Loans Receivable
The composition of the loan portfolio at June 30, 1996 and 1995 is presented as
follows:
1996 1995
------------ ------------
Commercial .................................. $ 40,338,645 $ 24,748,659
Real estate 9,011,608 2,879,530
Installment and other consumer 7,459,467 3,879,388
------------ ------------
Total loans
56,809,720 31,507,577
Less allowance for estimated losses on loans (852,500) (472,475)
------------ ------------
Net loans ............................. $ 55,957,220 $ 31,035,102
============ ============
There were no nonaccrual loans at June 30, 1996 or 1995.
Note 3. Continued
Changes in the allowance for estimated losses on loans for the years ended June
30, 1996, 1995 and 1994 are presented as follows:
1996 1995 1994
--------- --------- ---------
Balance, beginning .......................... $ 472,475 $ 191,500 $ 0
Provisions charged to expense ............ 500,397 282,600 191,500
Loans charged off ........................ (120,372) (1,725) 0
Recoveries on loans previously charged off 0 100 0
--------- --------- ---------
Balance, ending ............................. $ 852,500 $ 472,475 $ 191,500
========= ========= =========
Impaired loans were not material at June 30, 1996.
Loans are made in the normal course of business to directors, officers and their
related interests. The terms of these loans, including interest rates and
collateral, are similar to those prevailing for comparable transactions with
other persons. An analysis of the changes in the aggregate amount of these loans
during the years ending June 30, 1996 and 1995 is as follows:
1996 1995
----------- -----------
Balance, beginning ................... $ 859,020 $ 1,171,899
Advances .......................... 262,319 390,104
Repayments ........................ (575,198) (235,250)
----------- -----------
Balance, ending ..................... $ 1,013,874 $ 859,020
=========== ===========
Note 4. Premises and Equipment
The following summarizes the components of premises and equipment at June 30,
1996 and 1995:
1996 1995
----------- -----------
Land ......................................... $ 200,000 $ 200,000
Building and construction in progress ........ 3,456,818 1,031,608
Furniture & equipment......................... 1,165,137 719,517
----------- -----------
Total premises and equipment ............ 4,821,955 1,951,125
Less accumulated depreciation ................ (290,917) (149,286)
----------- -----------
Total premises and equipment, net ....... $ 4,531,038 $ 1,801,839
=========== ===========
Note 5. Deposits
The following summarizes the components of deposits at June 30, 1996 and 1995:
1996 1995
----------- -----------
Demand accounts ........................ $15,730,265 $ 5,628,526
NOW accounts ........................... 9,724,779 6,668,486
Money market accounts .................. 19,882,850 13,113,801
Savings accounts ....................... 1,979,085 1,159,234
Time certificates ...................... 45,601,139 34,527,639
----------- -----------
Total deposits ................... $92,918,118 $61,097,686
=========== ===========
Note 5. Continued
Included in interest bearing deposits at June 30, 1996 and 1995 were
certificates of deposit totaling $13,720,210 and $9,824,217, respectively, that
were $100,000 or greater. Maturities of these certificates were as follows:
1996 1995
----------- -----------
One to three months ................................ $ 5,984,277 $ 1,914,336
Three to six months ................................ 1,931,085 1,797,359
Six to twelve months ............................... 3,494,877 3,511,243
Over twelve months ................................. 2,601,279 2,309,971
----------- -----------
Total certificates of deposit greater than
$100,000 $13,720,210 $ 9,824,217
=========== ===========
Interest expense on deposits for the years ended June 30, 1996, 1995 and 1994
was as follows:
1996 1995 1994
---------- ---------- ----------
Interest-bearing demand accounts .................... $ 188,315 $ 117,596 $ 19,087
Money market accounts ............................... 758,555 317,897 47,923
Savings accounts .................................... 39,365 24,037 3,165
Time certificates greater than or equal to
672,668 399,249 82,376
Time certificates less than $100,000 ................ 1,690,645 934,071 100,962
---------- ---------- ----------
Total interest expense ......................... $3,349,548 $1,792,850 $ 253,513
========== ========== ==========
Note 6. Federal Home Loan Bank Advances
The Bank is a member of the Federal Home Loan Bank of Des Moines (the "FHLB").
As of June 30, 1996, the Bank held $1,249,700 of FHLB stock. Advances from the
FHLB as of June 30, 1996 bear interest and are due as follows:
Amount Due Interest Rate
---------- --------------
Due more than 5 years from June 30, 1996 .......... $3,411,470 5.95% to 7.08%
Securities of approximately $4,973,226 as of June 30, 1996 were pledged as
collateral on these advances.
Note 7. Other Borrowings
The Company has a revolving credit note for $1,500,000, which is secured by all
the outstanding stock of the Bank. Interest is payable quarterly at the prime
rate. Prime was 8.25% at June 30, 1996. At June 30, 1996, $1,000,000 was
outstanding on this note. The revolving credit note expires July 1, 1998.
The revolving credit note agreement contains certain covenants which place
restrictions on additional debt and stipulate minimum capital and various
operating ratios. The Company was in compliance with all of the covenants as of
June 30, 1996.
Note 8. Income Taxes
The Company incurred no income tax expense or benefit for the years ended June
30, 1996, 1995 and 1994. At June 30, 1996, the Company had net operating loss
carryforwards for income tax purposes of approximately $900,000, of which, if
not utilized to reduce taxable income in future periods will expire in varying
amounts in 2009 and 2010. Deferred tax assets arose primarily due to the net
operating loss carryforwards, and have been reduced to zero through a valuation
allowance, as realization of the asset is uncertain.
Note 9. Employee Benefit Plan
On February 1, 1994, the Company implemented a profit sharing plan, which
includes a provision designed to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended, to allow for participant contributions. All
employees are eligible to participate in the plan. The Company matches 100% of
the first 2% of employee contributions, 50% of the next 2% of employee
contributions, and 25% of the next 2% of employee contributions, up to a maximum
amount of 3.5%. Additionally, the Company may, at its discretion, make
additional contributions to the plan which are allocated to the accounts of
participants in the plan on the basis of relative compensation. Company
contributions for the years ended June 30, 1996, 1995 and 1994 were as follows:
1996 1995 1994
------- ------- -------
Matching contribution ................ $47,233 $18,954 $ 6,080
Discretionary contribution ........... 20,000 10,000 6,000
------- ------- -------
Total contributions ............. $67,233 $28,954 $12,080
======= ======= =======
Note 10. Warrants and Options
Warrants
As part of the underwriting agreement for its initial public offering, the
Company issued warrants to the underwriters for the purchase of 25,000
shares of common stock at $12.00 per share. The warrants became exercisable
on October 13, 1994 (the date commencing one year from the date of the
public offering) and remain exercisable for a period of four years after
such date. Private placement stockholders were issued warrants as described
below.
Common stock of $75,000 at June 30, 1993 represented 75,000 shares of the
Company s common stock issued in a private placement in 1993. Each
stockholder who purchased stock in the private placement received a unit (at
a price of $10.00 per unit) which consisted of one share of the Company s
common stock and one warrant to purchase an additional share of Company
common stock for $11.00, exercisable during a five year period commencing
October 13, 1994 (one year after completion of the public offering). As of
June 30, 1996, none of the warrants had been exercised.
Stock Option Plan
The Company s Board of Directors and its stockholders adopted in June, 1993
the Quad City Holdings, Inc. Stock Option Plan (the "Stock Option Plan"). Up
to 100,000 shares of common stock may be issued to employees and directors
of the Company and its subsidiaries pursuant to the exercise of incentive
stock options or non-qualified stock options granted under the Stock Option
Plan. The Stock Option Plan is administered by a committee appointed by the
Board of Directors (the "Committee").
The number and exercise price of options granted under the Stock Option Plan
is determined by the Committee at the time the option is granted. In no
event can the exercise price be less than the value of the common stock at
the date of the grant for incentive stock options, or 85% of such fair
market value for non-qualified stock options. The stock options vest 20% per
year. The term of the options may not exceed 10 years from the date of the
grant.
In the case of non-qualified stock options, the Stock Option Plan provides
for the granting of "Tax Benefit Rights" to certain participants at the same
time as these participants are awarded non-qualified options. Each Tax
Benefit Right entitles a participant to a cash payment equaling the excess
of the fair market value of a share of common stock on the exercise date
over the exercise price of the related option multiplied by the difference
between the rate of tax on ordinary income over the rate of tax on capital
gains (federal and state).
Note 10. Continued
Company grants for the years ended June 30, 1996, 1995, 1994 and 1993 were
as follows:
Number of Number of Number of Number of
Shares Shares Shares Shares
Date of Grant Granted Canceled Vested Unvested Option Price
- --------------------------------------- ---------- ---------- ---------- --------- -------------
June 30, 1993 ......................... 50,000 0 30,000 20,000 $10.00
March 31, 1994 ........................ 25,000 0 10,000 15,000 10.25
June 30, 1994 ......................... 8,000 1,600 2,800 3,600 9.00
October 19, 1994 ...................... 4,300 180 840 3,280 9.25
January 21, 1995 ...................... 500 0 100 400 9.25
June 30, 1995 ......................... 5,500 300 1,040 4,160 10.25
September 30, 1995 .................... 600 100 0 500 11.75
June 28, 1996 ......................... 6,300 0 0 6,300 13.25
------- ------- ------- -------
Totals ............................. 100,200 2,180 44,780 53,240
======= ======= ======= =======
None of the options had been exercised.
The Financial Accounting Standards Board has issued Statement No. 123
"Accounting for Stock Based Compensation" which becomes effective for years
beginning after December 15, 1995. The Company anticipates that it will
elect to continue to measure compensation cost using Opinion 25 and present
the proforma disclosures required by Statement No. 123. Accordingly,
adoption of this standard should have no effect on the Company s financial
statements.
Note 11. Regulatory Capital Requirements and Restrictions on Dividends
Federal regulatory agencies have adopted various capital standards for financial
institutions, including risk-based capital standards. The primary objectives of
the risk-based capital framework are to provide a more consistent system for
comparing capital positions of financial institutions and to take into account
the different risks among financial institutions assets and off-balance sheet
items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to average total assets ratio (leverage ratio). In
addition, regulatory agencies consider the published capital levels as minimum
levels and may require a financial institution to maintain capital at higher
levels.
The actual amounts and capital ratios at June 30, 1996 and 1995 with the minimum
requirements for the Bank are presented below:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
-------------------- ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
----------- -------- ------------ --------- ------------ ----------
As of June 30, 1996:
Total Capital (to Risk Weighted
Assets) ....................... $11,455,003 16.9% $ 5,419,280 8.0% $ 6,774,100 10.0%
Tier 1 Capital (to Risk Weighted
Assets) ........................ 10,666,032 18.2% 2,349,346 4.0% 3,524,019 6.0%
Tier 1 Capital (to Average
Assets) ........................ 10,666,032 9.8% 4,357,929 4.0% 5,447,412 5.0%
As of June 30, 1995:
Total Capital (to Risk Weighted
Assets ......................... 7,559,527 19.5% 3,096,580 8.0% 3,870,726 10.0%
Tier 1 Capital (to Risk Weighted
Assets) ........................ 7,112,852 20.8% 1,370,492 4.0% 2,055,738 6.0%
Tier 1 Capital(to Average Assets). 7,112,852 9.2% 3,085,836 4.0% 3,857,295 5.0%
Note 11. Continued
Federal Reserve Board policy provides that a bank holding company should not pay
dividends unless (i) the dividends can be fully funded out of net income from
the company s net earnings over the prior year and (ii) the prospective rate of
earnings retention appears consistent with the company s (and its subsidiaries )
capital needs, asset quality and overall financial condition.
In addition, the Delaware General Corporation Law restricts the Company from
paying dividends except out of its surplus, or in the case there shall be no
such surplus, out of its net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year.
The Iowa Banking Act provides that an Iowa bank may not pay dividends in an
amount greater than its undivided profits. In addition, the Bank, as a member of
the Federal Reserve System, will be prohibited from paying dividends to the
extent such dividends declared in any calendar year exceed the total of its net
profits of that year combined with its retained net profits of the preceding two
years, or are otherwise determined to be an "unsafe and unsound practice" by the
Federal Reserve Board.
Note 12. Commitments and Contingencies
In the normal course of business, the Bank makes various commitments and incurs
certain contingent liabilities that are not presented in the accompanying
consolidated financial statements. The commitments and contingent liabilities
include various guarantees, commitments to extend credit and standby letters of
credit.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based upon management
s credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
At June 30, 1996, commitments to extend credit aggregated $16,860,159 and
standby letters of credit aggregated $1,428,301. At June 30, 1995, commitments
to extend credit aggregated $8,321,032 and standby letters of credit aggregated
$10,000.
Bancard is subject to the risk of chargebacks from cardholders and the merchant
being incapable of refunding the amount charged back. Management attempts to
mitigate such risk by regular monitoring of merchant activity and in appropriate
cases, holding cash reserves deposited by the merchant.
The Company also has a guaranty to MasterCard International Incorporated, which
is backed up by a performance bond in the amount of $1,000,000. At June 30,
1996, there were no pending liabilities.
Note 13. Quarterly Results of Operations (Unaudited)
Fiscal year ended June 30, 1996
--------------------------------------------------------
Sept. 1995 Dec. 1995 Mar. 1996 June 1996
----------- ----------- ----------- -----------
Total interest income ......... $ 1,442,418 $ 1,534,274 $ 1,690,993 $ 1,915,782
Total interest expense 809,854 800,009 897,467 979,050
----------- ----------- ----------- -----------
Net interest income 632,564 734,265 793,526 936,732
Provision for loan losses ..... (100,800) (153,300) (113,835) (132,462)
Other income .................. 369,435 373,641 403,425 515,786
Other expense ................. (807,357) (789,828) (887,637) (1,091,567)
----------- ----------- ----------- -----------
Net income .................... $ 93,842 $ 164,778 $ 195,479 $ 228,489
=========== =========== =========== ===========
Net income per share .......... $ 0.06 $ 0.11 $ 0.14 $ 0.16
=========== =========== =========== ===========
Note 13. Continued
Fiscal year ended June 30, 1995
--------------------------------------------------------
Sept. 1994 Dec. 1994 Mar. 1994 June 1994
----------- ----------- ----------- -----------
Total interest income ......... $ 546,867 $ 745,118 $ 977,256 $ 1,280,881
Total interest expense ........ 259,397 376,530 515,171 744,477
----------- ----------- ------------ -----------
Net interest income ........... 287,470 368,588 462,085 536,404
Provision for loan losses ..... (78,000) (79,400) (79,200) (46,000)
Other income .................. 35,135 65,291 172,100 275,171
Other expense ................. (486,530) (459,287) (604,202) (743,407)
----------- ----------- ----------- -----------
Net income (loss) ............. $ (241,925) $ (104,808) $ (49,217) $ 22,168
=========== =========== =========== ===========
Net income (loss) per share ... $ (0.17) $ (0.07) $ (0.03) $ 0.01
=========== ============ =========== ===========
Note 14. Parent Company Only Financial Statements
The following is condensed financial information of Quad City Holdings, Inc.
(parent company only):
Condensed Balance Sheets
June 30,
----------------------------
1996 1995
------------ ------------
Assets
Cash and due from banks .......................................... $ 343,188 $ 482,549
Certificates of deposits with financial institutions ............. 0 420,035
Securities available for sale .................................... 174,671 1,283,644
Investment in Quad City Bank and Trust Company ................... 10,197,609 7,326,184
Investment in Quad City Bancard, Inc. ............................ 785,605 389,511
Loans receivable, net ............................................ 1,132,696 1,697,233
Other assets ..................................................... 135,477 58,795
------------ ------------
Total assets ............................................. $ 12,769,246 $ 11,657,951
============ ============
Liabilities and Stockholders' Equity
Other liabilities ................................................ $ 100,640 $ 68,211
Other borrowings ................................................. 1,000,000 0
Stockholders' equity
Common stock .................................................. 1,437,824 1,437,824
Additional paid-in capital .................................... 11,764,416 11,764,416
Retained earnings(deficit) .................................... (1,048,165) (1,730,753)
Unrealized gains (losses) on securities available for sale, net (485,469) 118,253
------------ ------------
Total stockholders' equity ............................... $ 11,668,606 $ 11,589,740
------------ ------------
Total liabilities and stockholders' equity ................ $ 12,769,246 $ 11,657,951
============ ============
Condensed Statements of Income
Year Ended June 30,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
Net interest income .............................................. $ 178,783 $ 339,260 $ 229,168
Provision for loan losses ........................................ 8,300 (4,900) (20,900)
Investment securities gains (losses), net ........................ 26,345 2,137 (70,532)
Other ............................................................ 24,000 24,002 12,307
------------ ------------ ------------
Total income ............................................. 237,428 360,499 150,043
Expenses ......................................................... 251,606 280,824 714,323
------------ ------------ ------------
Income (loss) before equity in undistributed
loss of subsidiaries ............................................ (14,178) 79,675 (564,280)
Equity in undistributed income (loss) of
Quad City Bank and Trust Company ................................ 300,672 (392,968) (707,372)
Equity in undistributed income (loss) of
Quad City Bancard, Inc. ......................................... 396,094 (60,489) 0
------------ ------------ ------------
Income before cumulative effect of a change in
accounting principle ............................................ 682,588 (373,782) (1,271,652)
Cumulative effect of a change in accounting principle ............ 0 0 149,250
------------ ------------ ------------
Net income (loss) ........................................ $ 682,588 $ (373,782) $ (1,122,402)
============ ============ ============
Condensed Statements of Cash Flows
Year Ended June 30,
-----------------------------------------
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................................ $ 682,588 $ (373,782) $ (1,122,402)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Equity in undistributed (income) loss of:
Quad City Bank and Trust Company .......................................... (300,672) 392,968 707,372
Quad City Bancard, Inc. ................................................... (396,094) 60,489 0
Depreciation and amortization .............................................. 2,524 758 1,567
Provision for loan losses .................................................. (8,300) 4,900 20,900
Amortization of premiums and accretion of discounts on securities, net ..... 3,079 33,853 34,958
Realized (gains) losses on securities available for sale ................... (26,345) (2,137) 70,532
(Increase) decrease in accrued interest receivable ......................... 20,746 6,763 (35,814)
(Increase) decrease in other assets ........................................ (30,731) (1,077) 36,996
Increase (decrease) in other liabilities ................................... 32,429 59,325 (100,065)
------------ ------------ ------------
Net cash provided by (used in) operating activities ..................... $ (20,776) $ 182,060 $ (385,956)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net loans (originated) or repaid ............................................. 572,837 (330,527) (1,392,506)
Purchase of securities held for sale ......................................... 0 0 (7,771,585)
Purchase of securities available for sale .................................... (117,167) (25,209) 0
Purchase of stock in Quad City Bank and Trust Company ........................ 0 0 (4,500,000)
Capital infusion, Quad City Bank and Trust Company ........................... (2,099,000) (800,000) 0
Purchase of stock in Quad City Bancard, Inc. ................................. 0 (450,000) 0
Net (increase) decrease in certificate of deposits with financial institutions 420,035 486,818 (906,853)
Proceeds from sales of securities held for sale .............................. 0 0 2,262,313
Proceeds from sales of securities available for sale ......................... 145,512 489,789 0
Proceeds from calls on securities ............................................ 28,419 207,225 408,346
Purchase of premises and equipment ........................................... (69,221) (21,853) (851)
------------ ------------ ------------
Net cash (used in) investing activities ................................. $ (1,118,585) $ (443,757) $(11,901,136)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in other borrowings ............................................. 1,000,000 0 0
Issuance of common stock ..................................................... 0 0 12,496,927
Decrease in deferred registration costs ...................................... 0 0 45,600
------------ ------------ ------------
Net cash provided by financing activities ............................... $ 1,000,000 $ 0 $ 12,542,527
------------ ------------ ------------
Net increase (decrease) in cash and due from banks ...................... (139,361) (261,697) 255,435
Cash and due from banks, beginning ...................................... 482,549 744,246 488,811
------------ ------------ ------------
Cash and due from banks, ending ......................................... $ 343,188 $ 482,549 $ 744,246
============ ============ ============
Note 15. Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments for
which it is practicable to estimate that value. When quoted market prices are
not available, fair values are based on estimates using present value or other
techniques. Those techniques are significantly affected by the assumptions used,
including the discounted rates and estimates of future cash flows. In this
regard, fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in an immediate
settlement. Some financial instruments and all nonfinancial instruments are
excluded from the disclosures. The aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating the
fair value of their financial instruments:
Cash and due from banks, federal funds sold, and certificates of deposit:
The carrying amounts reported in the balance sheets for cash and due from
banks, federal funds sold, and certificates of deposit approximate their
fair values.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans receivable: The fair values for all types of loans are estimated using
discounted cash flow analysis, using interest rates currently being offered
for loans with similar terms to borrowers with similar credit quality.
Accrued interest receivable: The fair value of accrued interest receivable
is considered to approximate its carrying value.
Deposits: The fair values disclosed for demand deposits equal their carrying
amounts which represents the amount payable on demand. Fair values for time
deposits are estimated using a discount cash flow calculation that applies
interest rates currently being offered on time deposits to a schedule of
aggregated expected monthly maturities on time deposits.
Federal funds purchased: The carrying amount reported in the balance sheets
for federal funds purchased approximates its fair value.
Federal Home Loan Bank advances: The fair value of the Company s Federal
Home Loan Bank advances is estimated using discounted cash flow analysis,
based on the Company s current incremental borrowing rates for similar types
of borrowing arrangements.
Other borrowings: For variable rate debt, the carrying amount is a
reasonable estimate of fair value.
Accrued interest payable: The fair value of accrued interest payable is
considered to approximate its carrying value.
Commitments to extend credit: The fair value of these commitments is not
material.
The carrying values and estimated fair values of the Company s financial
instruments as of June 30, 1996 are as follows
Estimated
Carrying Value Fair Value
-------------- -----------
Cash and due from banks ............................ $6,615,407 $ 6,615,407
Federal funds sold ................................. 2,728,000 2,728,000
Certificates of deposit at financial institutions .. 5,472,012 5,472,012
Investment securities:
Held to maturity .............................. 3,156,601 3,097,115
Available for sale ............................ 31,032,652 31,032,652
Loans receivable, net .............................. 55,957,220 56,155,633
Accrued interest receivable ........................ 1,121,268 1,121,268
Deposits ........................................... 92,918,118 93,403,739
Federal funds purchased ............................ 1,190,000 1,190,000
Federal Home Loan Bank advances .................... 3,411,470 3,254,299
Other borrowings ................................... 1,000,000 1,000,000
Accrued interest payable ........................... 594,045 594,045
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Company will file with the securities and exchange commission a
definitive proxy statement no later than 120 days after the close of
its fiscal year ended June 30, 1996 (the "Proxy Statement"). The
information required by this item is incorporated by reference from the
Proxy Statement.
Item 10. Executive Compensation
The information required by this item is incorporated by reference from
the Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from
the Proxy Statement.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from
the Proxy Statement.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
The Index to Exhibits appears at page 37 of this Report.
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, as amended, the
Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
QUAD CITY HOLDINGS, INC.
Date: September 18, 1996 By: /s/ Douglas M. Hultquist
-------------------------------------
Douglas M. Hultquist
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Issuer and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Michael A. Bauer Chairman of the Board September 18, 1996
- ------------------------- of Directors
Michael A. Bauer
/s/ Douglas M. Hultquist President, Chief Executive September 18, 1996
- ------------------------- and Financial Officer and Director
Douglas M. Hultquist
/s/ Richard R. Horst Director and Secretary September 18, 1996
- -------------------------
Richard R. Horst
/s/ Ronald G. Peterson Director September 18, 1996
- -------------------------
Ronald G. Peterson
/s/ John W. Schricker Director September 18, 1996
- -------------------------
John W. Schricker
INDEX TO EXHIBITS
Incorporated
Herein by in Filed Sequential
Exhibit No. Description Reference To Herewith Page No.
- ----------- ------------------------ ------------------ -------- ----------
3.1 Certificate of Exhibit 3.1 to the
Incorporation of Quad Registration
City Holdings, Inc., as Statement of Quad
amended City Holdings, Inc.
on Form SB-2, File
No. 33-67028
3.2 Bylaws of Quad City Exhibit 3.2 to the
Holdings, Inc. Registration
Statement of Quad
City Holdings, Inc.
on Form SB-2, File
No. 33-67028
4.1 Specimen Stock Exhibit 4.1 to the
Certificate of Quad Registration
City Holdings, Inc.(See Statement of Quad
also Articles VIII, XII City Holdings, Inc.
and XIII of Exhibit 3.1 on Form SB-2, File
and Articles II, VI, IX No. 33-67028
and XII of Exhibit 3.2)
10.1 Quad City Holdings, Exhibit 10.1 to the
Inc. Stock Option Plan Registration
Statement of Quad
City Holdings, Inc.
on Form SB-2, File
No. 33-67028
10.2 Form of Stock Option Exhibit 10.2 to the
Agreement between Registration
Quad City Holdings, Inc. Statement of Quad
and each of Michael A. City Holdings, Inc.
Bauer, Douglas M. on Form SB-2, File
Hultquist and Victor J. No. 33-67028
Quinn
10.3 Employment Agreement Exhibit 10.3 to the
between Quad City Registration
Holdings, Inc. and Statement of Quad
Michael A. Bauer dated City Holdings, Inc.
May 4, 1993 on Form SB-2, File
No. 33-67028
10.4 Employment Agreement Exhibit 10.4 to the
between Quad City Registration
Holdings, Inc. and Statement of Quad
Michael A. Bauer dated City Holdings, Inc.
July 1, 1993 on Form SB-2, File
No. 33-67028
10.5 Employment Agreement Exhibit 10.5 to the
between Quad City Registration
Holdings, Inc. and Statement of Quad
Douglas M. Hultquist City Holdings, Inc.
dated April 30, 1993 on Form SB-2, File
No. 33-67028
Incorporated
Herein by in Filed Sequential
Exhibit No. Description Reference To Herewith Page No.
- ----------- ------------------------ ------------------ -------- ----------
10.6 Employment Agreement Exhibit 10.6 to the
between Quad City Registration
Holdings, Inc. and Statement of Quad
Douglas M. Hultquist City Holdings, Inc.
dated July 1, 1993 on Form SB-2, File
No. 33-67028
13.1 Quad City Holdings, Inc.
1996 Annual Report to
Stockholders is furnished
for the information of the
Commission and is not
deemed to be "filed" as a
part of this Form 10-KSB,
except for portions
incorporated by reference
herein.
22.1 Subsidiaries of Quad Exhibit 22.1 to the
City Holdings, Inc. Registration
Statement of Quad
City Holdings, Inc.
on Form SB-2, File
No. 33-67028
23.1 Consent of McGladrey
and Pullen X
27.1 Financial Data Schedule X
99.1 Quad City Holdings, Inc.
Proxy Statement for the
1996 Annual Meeting to
be held October 23, 1996 X
APPENDIX A
SUPERVISION AND REGULATION
Bank Holding Company Regulation
Banking is a highly regulated industry. The following references to applicable
federal and state statutes and regulations are brief summaries thereof which do
not purport to be complete and are qualified in their entirety by reference to
such statutes and regulations. Supervision, regulation and examination of banks
and bank holding companies by bank regulatory agencies are intended primarily
for the protection of depositors rather than stockholders of bank holding
companies and banks.
As the sole shareholder of the Bank, the Company is a bank holding company
subject to the federal Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act"), and as such is subject to supervision and regulation by
the Federal Reserve Board. The Company is required to file an annual report with
the Federal Reserve Board and such additional information as the Federal Reserve
Board may require pursuant to the Bank Holding Company Act. The Federal Reserve
Board may examine a bank holding company and any of its subsidiaries and charge
the company for the cost of such examination.
Scope of Permissible Activities . The Bank Holding Company Act prohibits bank
holding companies, with certain limited exceptions, from acquiring or retaining
direct or indirect ownership or control of more than 5% of the voting shares of
any company that is not a bank or a bank holding company, or from engaging
directly or indirectly in activities other than those of banking, managing or
controlling banks, or furnishing services to subsidiaries.
Capital Requirements . The Federal Reserve Board monitors the capital adequacy
of both banks and bank holding companies, using a combination of risk-based and
leverage capital ratios. These ratios are substantially the same as the ratios
which apply to banks. See "Supervision and Regulation -- Bank Regulation --
Capital Requirements." However, because they apply on a "bank only" (rather than
a consolidated) basis to any bank holding company having total assets of less
than $150 million, these standards do not presently apply to the Company on a
consolidated basis.
Acquisitions . The Bank Holding Company Act prohibits a bank holding company
from acquiring, in one or more transactions, direct or indirect ownership or
control of more than 5% of the voting shares of any bank or bank holding
company, without prior approval of the Federal Reserve Board. The Attorney
General of the United States may, within 30 days after approval of an
acquisition by the Federal Reserve Board, bring an action challenging such
acquisition under the federal anti-trust laws, in which case the effectiveness
of such approval is stayed pending a final ruling by the courts.
Prior to September 29, 1995, the Bank Holding Company Act prohibited the Federal
Reserve Board from approving any direct or indirect acquisition by a bank
holding company of more than 5% of the voting shares, or of all or substantially
all of the assets, of a bank located outside of the state in which the
operations of the bank holding company's banking subsidiaries are principally
located unless the laws of the state in which the bank to be acquired is located
specifically authorized such an acquisition. Pursuant to amendments to the Bank
Holding Company Act which took effect September 29, 1995, the Federal Reserve
Board may now allow a bank holding company to acquire banks located in any state
of the United States without regard to geographic restrictions or reciprocity
requirements imposed by state law, but subject to certain conditions, including
limitations on the aggregate amount of deposits that may be held by the
acquiring holding company and all of its insured depository institution
affiliates.
Dividends . Federal Reserve Board policy provides that a bank holding company
should not pay dividends unless (i) the dividends can be fully funded out of net
income from the company's net earnings over the prior year and (ii) the
prospective rate of earnings retention appears consistent with the company's
(and its subsidiaries') capital needs, asset quality and overall financial
condition. Further, the Federal Reserve Board may prohibit a bank holding
company from paying any dividends if the company's bank subsidiary is classified
as "undercapitalized" under the Federal Reserve Board's prompt corrective action
system. See "Supervision and Regulation -- Bank Regulation -- Prompt Corrective
Action."
In addition, the Delaware General Corporation Law restricts the Company from
paying dividends except out of its surplus, or in the case the Company has no
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Finally, the Company's ability to pay
dividends is dependent on the amount of dividends paid by the Bank. See
"Supervision and Regulation -- Bank Regulation -- Dividends" for a discussion of
dividend payments by the Bank.
Imposition of Liability for Undercapitalized Subsidiaries. Federal law requires
bank regulators to take "prompt corrective action" to resolve problems
associated with undercapitalized insured depository institutions. In the event
an institution becomes "undercapitalized," it must submit a capital restoration
plan. The capital restoration plan will not be accepted by the regulators unless
each company "having control of" the undercapitalized institution "guarantees"
the subsidiary's compliance with the capital restoration plan until it becomes
"adequately capitalized." For purposes of this statute, the Company has control
of the Bank.
The aggregate liability of all companies controlling a particular institution is
limited to the lesser of 5% of the institution's assets at the time it became
"undercapitalized" or the amount necessary to bring the institution into
compliance with applicable capital standards as of the time the bank initially
fails to comply with its capital restoration plan. See "Supervision and
Regulation -- Bank Regulation -- Prompt Corrective Action." Federal law grants
greater powers to the bank regulators in situations where an institution becomes
"significantly" or "critically" undercapitalized or fails to submit a capital
restoration plan.
Bank holding companies are also subject to the "source of strength doctrine"
adopted by the Federal Reserve Board. The source of strength doctrine directs
bank holding companies to "serve as a source of financial and managerial
strength" to their subsidiary banks.
Bank Regulation
General . As an Iowa-chartered bank, the Bank is subject to supervision and
examination by the Iowa Superintendent of Banking (the "Iowa Superintendent").
As a member of the Federal Reserve System, the Bank is also subject to
supervision and examination by the Federal Reserve Board. The deposits of the
Bank are insured by the FDIC up to the maximum amount permitted by law, thereby
rendering the Bank subject to supervision and potential examination by the FDIC.
Pursuant to regulations adopted by the Iowa Superintendent, the Federal Reserve
Board and the FDIC, the Bank is subject to extensive activity restrictions and
supervisory requirements and may be subject to enforcement action by the Iowa
Superintendent, the Federal Reserve Board or the FDIC for violating applicable
restrictions or supervisory requirements.
Federal and state law and regulations and the supervising policies of the bank
regulatory agencies regulate various aspects of the banking business including,
among other things, permissible types and amounts of loans, investments and
other activities, capital adequacy, branching rights and restrictions and the
safety and soundness of banking practices.
Lending Limit . Under Iowa law, a state bank's lending limit is equal generally
to 15% of the bank's capital, surplus, undivided profits and reserves. As of
June 30, 1996, the Bank's capital surplus, undivided profits and reserves
totalled $11,500,000, resulting in a general lending limit of $1,725,000.
FDIC Insurance Premiums . As an FDIC-insured institution, the Bank is required
to pay deposit insurance premium assessments to the FDIC. The amount each
institution pays for FDIC deposit insurance coverage is determined in accordance
with a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their level of capital and supervisory evaluation.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Presently, BIF assessments ranged
from 0% of deposits to 0.27% of deposits. BIF-member institutions which qualify
for the 0% assessment category, however, still have to pay the $1000 minimum
semi-annual assessment required by federal statute. Risk classification of all
insured institutions is made by the FDIC for each semi-annual assessment period.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital.
Capital Requirements . The Federal Reserve Board has adopted a system using
risk-based capital adequacy guidelines to evaluate the capital adequacy of banks
and bank holding companies on a consolidated basis or, in the event total
consolidated bank holding company assets are less than $150 million, on a "bank
only" basis. Under the risk-based capital guidelines, different categories of
assets are assigned different risk weights, based generally on the perceived
credit risk of the asset. These risk weights are multiplied by corresponding
asset balances to determine a "risk-weighted" asset base. In addition, the
guidelines define the capital components. Total capital is defined as the sum of
"Tier 1" and "Tier 2" capital elements, with "Tier 2" being limited to 100% of
"Tier 1." For bank holding companies and banks, "Tier 1" capital includes common
stockholders' equity, perpetual preferred stock (subject to certain conditions)
and minority interests in consolidated subsidiaries. "Tier 2" capital includes,
with certain limitations, certain forms of perpetual preferred stock that do not
qualify as Tier 1 Capital, as well as certain forms of maturing capital
instruments and the reserve for possible loan losses. The guidelines require a
minimum ratio of total capital to risk-weighted assets of 8.0% (of which at
least half must be in the form of "Tier 1" capital elements).
In addition to the risk-based capital requirements, the Federal Reserve Board
has adopted the use of a leverage ratio as an additional tool to evaluate the
capital adequacy of banks and bank holding companies. The leverage ratio is
defined to be a company's "Tier 1" capital divided by its adjusted total assets.
The Bank will be subject to a 9.0% leverage ratio during its first three years
of operations as a condition of approval of its application for membership in
the Federal Reserve System.
Failure to meet applicable capital guidelines may result in institution by the
Federal Reserve Board of appropriate supervisory or enforcement actions,
including the issuance of a cease and desist order and/or the assessment of
civil monetary penalties.
During the fiscal year ended June 30, 1996, the Bank was in compliance with all
applicable capital requirements.
On August 2, 1995, the Federal Reserve Board published amendments to its
risk-based capital standards, which are designed to take into account interest
rate risk exposure. The amendments provide that a bank's exposure to declines in
the economic value of its capital due to changes in interest rates will be among
the factors considered by the Federal Reserve Board in evaluating a bank's
capital adequacy. Management does not anticipate that this amendment will
adversely affect the Bank's ability to maintain compliance with applicable
capital requirements.
Prompt Corrective Action . Federal law requires the Federal Reserve Board to
implement a system of prompt corrective action for depository institutions which
it regulates. Under the regulations adopted by the Federal Reserve Board, an
institution is deemed to be (i) "well capitalized" if it has a total risk-based
capital ratio of 10.0% or more, has a Tier 1 risk-based capital ratio of 6.0% or
more, has a Tier 1 leverage capital ratio of 5.0% or more and is not subject to
any Federal Reserve Board agreement, order or directive to meet and maintain a
specific capital level or capital measure; (ii) "adequately capitalized" if it
has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based
capital ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is
less than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances), (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based
capital ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is
less than 3.0%, and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%.
In addition, federal law empowers the Federal Reserve Board to reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category if the institution
is in an unsafe or unsound condition or engaging in an unsafe or unsound
practice.
The prompt corrective action regulations require a bank to file a written
capital restoration plan which meets specified requirements with the Federal
Reserve Board within 45 days of the date that the bank receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. The Federal Reserve Board
generally must provide the institution with written notice of approval or
disapproval within 60 days after receiving a capital restoration plan.
Immediately upon becoming undercapitalized, in addition to filing a capital
restoration plan, a bank will be (i) restricted in its ability to pay capital
distributions and management fees; (ii) subject to intensive supervision by the
Federal Reserve Board; (iii) subject to asset growth restrictions; and (iv)
required to obtain prior approval of certain expansion proposals. The Federal
Reserve Board may take a number of additional discretionary supervisory actions
if it determines that any of these actions is necessary to resolve the problems
of a significantly undercapitalized or critically undercapitalized bank at the
least possible long-term cost to the deposit insurance fund, subject in certain
cases to specified procedures.
During the fiscal year ended June 30, 1996, the Bank qualified as a
"well-capitalized" institution under the Federal Reserve Board's prompt
corrective action regulation.
Dividends. As a condition of the approval of its application to join the Federal
Reserve System, the Bank has agreed that it will not declare or pay any cash
dividends without prior Federal Reserve Board approval until the earlier of the
completion of three years of operations, or until the Bank has achieved two
consecutive "satisfactory" or better ratings after regulatory examinations. The
Iowa Banking Act provides that an Iowa bank may not pay dividends in an amount
greater than its undivided profits. In addition, the Bank, as a member of the
Federal Reserve System, will be prohibited from paying dividends to the extent
such dividends declared in any calendar year exceed the total of its net profits
of that year combined with its retained net profits of the preceding two years,
or are otherwise determined to be an "unsafe and unsound practice" by the
Federal Reserve Board. See also "Supervision and Regulation -- Bank Regulation
- -- Prompt Corrective Action" which discusses the Federal Reserve Board's
authority to restrict the ability of the Bank to pay dividends if the Bank is
undercapitalized.
Branching Authority . Iowa law strictly regulates the establishment of bank
offices and thus may affect the Company's future plans to establish additional
offices of the Bank. Under Iowa law, a state bank may not establish a bank
office outside the boundaries of the counties contiguous to or cornering upon
the county in which the principal place of business of the state bank is
located. The number of offices a state bank may establish in a particular
municipality is also limited depending upon the municipality's population.
Effective June 1, 1997 (or earlier if expressly authorized by applicable state
law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act") allows banks to establish interstate branch networks
through acquisitions of other banks, subject to certain conditions, including
certain limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of de novo interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if
specifically authorized by state law. The legislation allows individual states
to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. Iowa has enacted legislation
permitting interstate bank mergers beginning on June 1, 1997, subject to the
condition that any Iowa bank to be acquired by an out-of-state institution have
been in existence for at least five years prior to the merger.
Restrictions on Transactions With Affiliates . The Company is a legal entity
separate and distinct from the Bank and any other subsidiaries. Federal law
restricts the ability of the Bank to lend or otherwise supply funds to the
Company or any other subsidiary of the Company, by, among other things,
generally limiting such transactions with any one affiliate to 10% of the Bank's
capital and surplus and limiting all such transactions with all affiliates to
20% of the Bank's capital and surplus and requiring certain levels of collateral
for loans to affiliates. Such affiliate transactions also must be on terms and
conditions, including credit standards, that are consistent with safe and sound
banking practices and that are substantially the same or at least as favorable
to the Bank as those prevailing at the time for comparable transactions with
unaffiliated companies.
Additionally, the Bank is restricted in its ability to make loans to its (and
the Company's) officers, directors and principal stockholders. Among other
restrictions, the aggregate amount of the Bank's loans to such insiders is
limited to the amount of its unimpaired capital and surplus. Insiders are
subject to enforcement actions for knowingly accepting loans in violation of
applicable restrictions.
Safety and Soundness Standards. The Federal Reserve Board has adopted guidelines
establishing operational and managerial standards to promote the safety and
soundness of the banks it regulates. The guidelines establish standards for
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, asset quality and earnings. In general, the
guidelines prescribe the goals to be achieved in each area, and each institution
will be responsible for establishing its own procedures to achieve those goals.
If an institution fails to comply with any of the standards set forth in the
guidelines, the Federal Reserve Board may require the institution to submit a
plan for achieving and maintaining compliance. The preamble to the guidelines
states that the Federal Reserve Board expect to require a compliance plan from
an institution whose failure to meet one or more of the standards is of such
severity that it could threaten the safe and sound operation of the institution.
Failure to submit an acceptable compliance plan, or failure to adhere to a
compliance plan that has been accepted by the Federal Reserve Board, would
constitute grounds for further enforcement action.
Monetary Policy and Economic Conditions
The earnings of bank holding companies and their subsidiary banks are affected
by general economic conditions and also by the fiscal and monetary policies of
federal regulatory agencies, including the Federal Reserve Board. Through open
market transactions, variations in the discount rate and the establishment of
reserve requirements, the Federal Reserve Board exerts considerable influence
over short and long term interest rates and thus the cost and availability of
funds obtainable for lending or investing. While the Bank could be severely
impacted by a significant increase in interest rates over a relatively short
period of time, the Bank intends to manage carefully its interest rate risk.
The above monetary and fiscal policies have affected the operating results of
all commercial banks in the past and are expected to do so in the future. The
Company cannot fully predict the nature or the extent of any effects which
fiscal or monetary policies may have on its or the Bank's business and earnings.
APPENDIX B
GUIDE 3 INFORMATION
The following tables and schedules show selected comparative financial
information required by the Securities and Exchange Commission Securities Act
Guide 3, regarding the business of the Company for the periods shown. All
average amounts in these tables and schedules were determined by using monthly
data, which management believes provides a fair representation of the daily
operations of the Company.
I. Distribution of Assets, Liabilities and Stockholders' Equity
A. Consolidated Average Balance Sheets
June 30, 1996 and 1995
1996 1995
------------ ------------
ASSETS
Cash and due from banks ....................................... $ 4,910,046 $ 2,824,241
Federal funds sold ............................................ 6,867,750 7,794,250
Certificates of deposit at financial institutions ............. 5,453,878 1,992,132
Total securities .............................................. 31,201,706 19,565,815
Loans receivable .............................................. 44,749,454 23,451,527
Less: Allowance for estimated losses on loans ................. (685,151) (354,808)
------------ ------------
Net loans receivable ..................................... 44,064,303 23,096,719
------------ ------------
Premises and equipment, net ................................... 2,634,978 1,743,021
Other assets .................................................. 1,839,122 705,858
------------ ------------
Total assets .......................................... $ 96,971,783 $ 57,722,036
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing demand ................................. $ 12,338,863 $ 5,262,609
Interest bearing demand .................................... 27,172,011 12,892,724
Savings .................................................... 1,515,687 797,101
Time ....................................................... 40,511,816 24,385,175
------------ ------------
Total deposits ........................................... 81,538,377 43,337,609
------------ ------------
Federal funds purchased ....................................... 1,236,896 2,148,839
Federal Home Loan Bank advances ............................... 1,248,101 0
Other borrowings .............................................. 83,333 0
Other liabilities ............................................. 1,134,660 755,774
------------ ------------
Total liabilities ..................................... 85,241,367 46,242,222
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock ............................................... -- --
Common stock .................................................. 1,437,824 1,437,824
Additional paid-in capital .................................... 11,764,416 11,764,416
Retained earnings (deficit) ................................... (1,534,097) (1,620,503)
------------ ------------
11,668,143 11,581,737
Unrealized gains (losses) on securities available for sale, net 62,273 (101,923)
------------ ------------
Total stockholders' equity ............................ 11,730,416 11,479,814
------------ ------------
Total liabilities and stockholders' equity ............ $ 96,971,783 $ 57,722,036
============ ============
I. Interest Rates and Interest Differential
B. Analysis of Net Interest Earnings
June 30, 1996 and 1995
Average Interest
Amount Income/ Average Yield/
Outstanding Expense Cost of Funds
-------------------------------------------
1996
-------------------------------------------
INTEREST EARNING ASSETS
Federal funds sold .............................. $ 6,867,750 $ 382,226 5.57%
Certificates of deposit at financial institutions 5,453,878 359,409 6.59%
Total securities (1) ............................ 31,201,706 1,868,976 5.99%
Net loans receivable (3) ........................ 44,064,303 3,972,856 9.02%
----------- ----------- ------
Total interest earning assets ........... $87,587,637 $ 6,583,467 7.52%
=========== =========== ======
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits ................ $27,172,011 $ 946,870 3.48%
Savings deposits ................................ 1,515,687 39,365 2.60%
Time deposits ................................... 40,511,816 2,363,313 5.83%
Federal funds purchased ......................... 1,236,896 64,909 5.25%
Federal Home Loan Bank advances ................. 1,248,101 70,319 5.63%
Other borrowings ................................ 83,333 1,604 1.92%
----------- ----------- ------
Total interest bearing liabilities ...... $71,767,844 $ 3,486,380 4.86%
=========== =========== ======
Net interest margin ............................. $ 3,097,087 3.54%
=========== ======
1995
---------------------------------------
INTEREST EARNING ASSETS
Federal funds sold .............................. $ 7,794,250 $ 423,292 5.43%
Certificates of deposit at financial institutions 1,992,132 100,123 5.03%
Total securities (2) ............................ 19,565,815 1,052,557 5.38%
Net loans receivable (3) ........................ 23,096,719 1,974,150 8.55%
----------- ----------- ------
Total interest earning assets ........... $52,448,916 $ 3,550,122 6.77%
=========== =========== ======
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits ................ $12,892,724 $ 435,493 3.38%
Savings deposits ................................ 797,101 24,037 3.02%
Time deposits ................................... 24,385,175 1,333,320 5.47%
Federal funds purchased ......................... 2,148,839 102,725 4.78%
----------- ----------- ------
Total interest bearing liabilities ...... $40,223,839 $ 1,895,575 4.71%
=========== =========== ======
Net interest margin ............................. $ 1,654,547 3.15%
=========== =======
(1)Interest earned and yields on nontaxable investment securities are stated at
face rate.
(2)All such securities were subject to tax. The Company owned no non-taxable
securities at June 30, 1995.
(3)Loan fees are not material and are included in interest income from loans
receivable.
C. Analysis of Changes of Interest Income/Expense Items
June 30, 1996 and 1995
Inc./(Dec.) Components
From of Change(1)
Prior Year Rate Volume
----------- ----------- ----------
1996
----------------------------------------
INTEREST EARNING ASSETS
Federal funds sold .............................. $ (41,066) $ 10,284 $ (51,350)
Certificates of deposit at financial institutions 259,286 39,381 219,905
Total securities (2) ............................ 816,419 130,811 685,608
Net loans receivable (4) ........................ 1,998,706 113,859 1,884,847
----------- ----------- -----------
Total interest earning assets ........... $ 3,033,345 $ 294,335 $ 2,739,010
=========== =========== ===========
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits ................ $ 511,377 $ 14,207 $ 497,170
Savings deposits ................................ 15,328 (3,736) 19,064
Time deposits ................................... 1,029,993 94,645 935,348
Federal funds purchased ......................... (37,816) 9,242 (47,058)
Federal Home Loan Bank advances ................. 70,319 0 70,319
Other borrowings ................................ 1,604 0 1,604
----------- ----------- -----------
Total interest bearing liabilities ...... $ 1,590,805 $ 114,358 $ 1,476,447
=========== =========== ===========
1995
-----------------------------------------
EARNING ASSETS
Federal funds sold .............................. $ 332,305 $ 117,524 $ 214,781
Certificates of deposit at financial institutions 75,307 19,064 56,243
Total securities (3) ............................ 644,302 85,206 559,096
Net loans receivable (4) ........................ 1,761,114 102,041 1,659,073
----------- ----------- -----------
Total interest earning assets ............ $ 2,813,028 $ 323,835 $ 2,489,193
=========== =========== ===========
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits ................ $ 368,483 $ 41,158 $ 327,325
Savings deposits ................................ 20,872 3,946 16,926
Time deposits ................................... 1,149,982 130,976 1,019,006
Federal funds purchased ......................... 102,725 0 102,725
----------- ----------- -----------
Total interest bearing liabilities ...... $ 1,642,062 $ 176,080 $ 1,465,982
=========== =========== ===========
(1) The column "increase/decrease from prior year" is segmented into the
changes attributable to variations in volume and the changes attributable
to changes in interest rates. The variations attributable to simultaneous
volume and rate changes have been proportionately allocated to rate and
volume.
(2) Interest earned and yields on nontaxable investment securities are stated
at face rate.
(3) All such securities were subject to tax. The Company owned no non-taxable
securities at June 30, 1995.
(4) Loan fees are not material and are included in interest income from loans
receivable.
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES
GAP ANALYSIS
JUNE 30, 1996
A methodology known as a "gap analysis" measures the difference between rate
sensitive assets and rate sensitive liabilities, which under the current
interest rate environment, management estimates will mature or reprice in the
same period. The following table sets forth management's estimate of the
projected maturities and/or repricing of the Company's assets and liabilities as
of June 30, 1996. In preparing the table, certificates of deposit have been
entered into the analysis based on contractual maturity. This table does not
necessarily indicate the impact of general interest rate movements on the
Company's net interest income because the repricing of certain assets and
liabilities is discretionary and is subject to competitive and other pressures.
As a result, assets and liabilities indicated as repricing within the same
period may in fact reprice at different times and at different rate levels.
3 Months Over 3 Months Over 1 to
or Less to One Year 5 Years Over 5 Years Total
------------ ------------ ------------ ------------ ------------
INTEREST-EARNING ASSETS:
Commercial loans ................. $ 22,995,471 $ 1,988,678 $ 11,712,209 $ 3,642,287 $ 40,338,645
Real estate loans ................ 903,596 3,780,131 2,144,453 2,183,428 9,011,608
Installment & other consumer loans 1,931,627 926,460 4,416,294 185,086 7,459,467
Investment securities & other .... 5,827,016 4,386,909 27,842,826 4,817,983 42,874,734
------------ ------------ ------------ ------------ ------------
Total interest-earning
assets ......................... $ 31,657,710 $ 11,082,178 $ 46,115,782 $ 10,828,784 $ 99,684,454
INTEREST-BEARING LIABILITIES:
NOW accounts ..................... $ 9,724,779 $ 0 $ 0 $ 0 $ 9,724,779
Money market accounts ............ 19,882,850 0 0 0 $ 19,882,850
Savings .......................... 1,979,085 0 0 0 $ 1,979,085
Certificates ..................... 14,917,025 18,133,189 12,550,925 0 $ 45,601,139
Other ............................ 1,190,000 0 1,000,000 3,411,470 $ 5,601,470
------------ ------------ ------------ ------------ ------------
Total Interest-Bearing
Liabilities .................... $ 47,693,739 $ 18,133,189 $ 13,550,925 $ 3,411,470 $ 82,789,323
============ ============ ============ ============ ============
Interest-Earning Assets Less
Interest-Bearing Liabilities ... ($16,036,029) ($ 7,051,011) $ 32,564,857 $ 7,417,314 $ 16,895,131
============ ============ ============ ============ ============
Cumulative Interest
Rate Sensitivity ............... ($16,036,029) ($23,087,040) $ 9,477,817 $ 16,895,131
============ ============ ============ ============ ============
Cumulative Interest Rate Gap
as a Percentage of Interest
Earning Assets ................. -16.09% -23.16% 9.51% 16.95%
============ ============ ============ ============
Cumulative Interest Rate
Sensitivity Ratio (1) .......... 0.66 0.65 1.12 1.20
============ ============ ============ ============
(1) Interest-earning assets divided by interest-bearing liabilities
II. A. Investment Securities.
Total investments, by category, are disclosed in Footnote 2 to the
consolidated financial statements found on pages 18 and 19 of this
report.
B. Investment Securities Maturities and Yields.
The following table presents the maturity of securities held on June
30, 1996, and the weighted average rates by range of maturity:
Average
Amount Yield
U.S. treasury securities:
Within 1 year ....................................... $ 2,003,468 5.24%
After 1 but within 5 years .......................... 12,500,981 6.03%
----------- ----
Total .......................................... $14,504,449 5.92%
=========== ====
U.S. agency securities:
After 1 but within 5 years .......................... $10,363,049 6.25%
After 5 years ....................................... 2,249,117 6.11%
----------- ----
Total .......................................... $12,612,166 6.22%
=========== ====
Mortgage-backed securities:
Within 1 year ....................................... $ 1,429,231 6.15%
After 1 but within 5 years .......................... 3,982,902 6.46%
----------- ----
Total .......................................... $ 5,412,133 6.38%
=========== ====
Municipal securities:
After 1 but within 5 years .......................... $ 349,603 7.01%
After 5 years ....................................... 246,205 6.17%
----------- ----
Total .......................................... $ 595,808 6.66%
=========== ====
Other securities with no maturity or stated face rate .... $ 1,550,166
===========
The Company does not utilize any financial instruments referred to as
derivatives to manage interest rate risk.
C. Investment Concentrations.
As of June 30, 1996, there existed no security in the investment
portfolio above (other than U.S. Government and U.S. Government
agencies) that exceeded 10% of stockholders equity at that date.
III. A. Types of Loans.
Total loans, by category, are disclosed in Footnote 3 to the
consolidated financial statements found on pages 19 and 20 of this
report.
B. Loan Maturities and Sensitivities of Loans to Changes in Interest
Rates.
The following table presents consolidated loan maturities by yearly
ranges. Also included for loans after one year are the amounts which
have predetermined interest rates and floating or adjustable rates.
As of June 30, 1996
Maturities After One Year
--------------------------------
Due within After one but Pre-determined Adjustable
one year within 5 years After 5 years Interest Rates Interest Rates
------------ -------------- ------------- -------------- --------------
Commercial .............. $ 9,952,899 $ 24,502,829 $ 5,882,917 $ 14,519,497 $ 15,866,249
Real estate ............. 1,425,533 1,058,731 6,527,344 3,242,159 4,343,916
Installment and other
consumer ............. 2,152,851 5,074,066 232,550 4,590,463 716,153
------------ ------------- ------------ ------------- -------------
Totals $ 13,531,283 $ 30,635,626 $ 12,642,811 $ 22,352,119 $ 20,926,318
============ ============= ============ ============= =============
C. Risk Elements.
1. Nonaccrual, past due and renegotiated loans.
1996 1995
-------- --------
Loans accounted for on nonaccrual basis .......... $ 0 $ 0
Accruing loans past due 90 days or more .......... 306,774 1,678
Troubled debt restructurings 0 0
-------- --------
Total ....................................... $306,774 $ 1,678
======== ========
The policy of the Company is to place a loan on nonaccrual status
if: (a) payment in full of interest or principal is not expected,
or (b) principal or interest has been in default for a period of
90 days or more unless the obligation is both in the process of
collection and well secured. Well secured is defined as
collateral with sufficient market value to repay principal and
all accrued interest. A debt is in the process of collection if
collection of the debt is proceeding in due course either through
legal action, including judgment enforcement procedures, or in
appropriate circumstances, through collection efforts not
involving legal action which are reasonably expected to result in
repayment of the debt or in its restoration to current status.
2.Potential Problem Loans. To management s best knowledge, there
are no such significant loans that have not been disclosed in the
above table.
3. Foreign Outstandings.
None
4. Loan Concentrations. No individual real estate property or
mortgage amounts to 10% or more of consolidated assets.
D. Other Interest Earning Assets.
There are no interest bearing assets required to be disclosed here.
IV. Summary of Loan Loss Experience.
The following table summarizes activity in the allowance for estimated
losses on loans of the Company for the fiscal years ending June 30, 1996 and
June 30, 1995:
1996 1995
------------ ------------
Average amount of loans outstanding, before
allowance for estimated losses on loans ..... $ 44,749,454 $ 23,451,527
Allowance for estimated losses on loans:
Balance, beginning of fiscal year ........... $ 472,475 $ 191,500
Loans charged off:
Commercial ............................. (117,555) 0
Real estate ............................ 0 0
Installment and other consumer ......... (2,817) (1,725)
Loan recoveries:
Commercial ............................. 0 0
Real estate ............................ 0 0
Installment and other consumer
0 100
------------ ------------
Net charge-offs ............................. (120,372) (1,625)
Provision charged to expense ................ 500,397 282,600
Balance, end of fiscal year ................. $ 852,500 $ 472,475
============ ============
Ratio of net charge-offs to average loans
outstanding ................................. 0.27% 0.01%
The following table presents the allowance for estimated losses on loans by type
of loans and the percentage of loans in each category to total loans
1996 1995
---------------------- ----------------------
% of Loans to % of Loans to
Amount Total Loans Amount Total Loans
-------- ------------- ------- -------------
Commercial and industrial .......................... $ 0 71.01% $ 0 78.55%
Real estate ........................................ 0 15.86% 0 9.14%
Consumer ........................................... 0 13.13% 0 12.31%
Unallocated ........................................ 852,500 N/A 472,475 N/A
- ---------------------------------------------------- -------- -------- -------- --------
Total ......................................... $852,500 100.00% $472,475 100.00%
======== ======== ======== ========
V. Deposits
The average amount of and average rate paid for the categories of deposits for
the fiscal years 1996 and 1995 are disclosed in the consolidated average balance
sheets and can be found on page 3 of Appendix B.
Total time deposits in amounts greater than $100,000 at June 30, 1996 by
maturity are disclosed in Footnote 5 to the consolidated financial statements
found on page 21 of this report.
VI. Return on Equity and Assets
The following table presents the return on assets and equity and the equity to
assets ratio of the Company for the years ended June 30, 1996 and 1995.
1996 1995
-------------- --------------
Average total assets .................. $ 96,971,783 $ 57,722,036
Average equity ........................ $ 11,730,416 $ 11,479,814
Net income (loss) ..................... $ 682,588 $ (373,782)
Net income (loss) per share ........... $ .47 $ (0.26)
Return on average assets .............. 0.70% (0.65%)
Return on average equity .............. 5.82% (3.26%)
Average equity to assets ratio ........ 12.10% 19.89%
VII. Short Term Borrowings
No disclosure is required as the average balance of short term borrowings during
the period was less than 30% of stockholders equity at June 30, 1996 and 1995.