U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-22208 QUAD CITY HOLDINGS, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 42-1397595 - ------------------------------- --------------------------- (State or other jurisdiction of (I.R.S. Employer ID Number) incorporation or organization) 3551 7th Street, Suite 100, Moline, Illinois 61265 -------------------------------------------------- (Address of principal executive offices) (309) 736-3580 ---------------------------------------------------- (Registrant's telephone number, including area code) Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: As of February 1, 2001, the Registrant had outstanding 2,265,420 shares of common stock, $1.00 par value per share.
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES INDEX Page Number Part I FINANCIAL INFORMATION Item 1 Consolidated Financial Statements (Unaudited) Consolidated Balance Sheets, December 31, 2000 and June 30, 2000 Consolidated Statements of Income, For the Three Months Ended December 31, 2000 and 1999 Consolidated Statements of Income, For the Six Months Ended December 31, 2000 and 1999 Consolidated Statements of Cash Flows, For the Six Months Ended December 31, 2000 and 1999 Notes to Consolidated Financial Statements Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Part II OTHER INFORMATION Item 1 Legal Proceedings Item 2 Changes in Securities and Use of Proceeds Item 3 Defaults Upon Senior Securities Item 4 Submission of Matters to a Vote of Security Holders Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K Signatures
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 31, 2000 and June 30, 2000 <TABLE> December 31, June 30, 2000 2000 ------------------------------ <S> <C> <C> ASSETS Cash and due from banks ........................................................ $ 22,125,331 $ 15,130,357 Federal funds sold ............................................................. 20,405,000 26,105,000 Certificates of deposit at financial institutions .............................. 11,502,085 12,776,463 Securities held to maturity, at amortized cost ................................. 575,275 574,988 Securities available for sale, at fair value ................................... 56,826,060 55,554,062 ------------------------------ 57,401,335 56,129,050 ------------------------------ Loans receivable ............................................................... 265,618,488 241,852,851 Less: Allowance for estimated losses on loans .................................. (3,972,433) (3,617,401) ------------------------------ 261,646,055 238,235,450 ------------------------------ Premises and equipment, net .................................................... 8,562,054 7,715,621 Accrued interest receivable .................................................... 3,111,264 2,633,120 Other assets ................................................................... 9,728,550 8,896,554 ------------------------------ Total assets ........................................................... $ 394,481,674 $ 367,621,615 ============================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing ......................................................... $ 44,157,781 $ 44,043,932 Interest-bearing ............................................................ 263,263,900 244,022,824 ------------------------------ Total deposits ............................................................ 307,421,681 288,066,756 ------------------------------ Short-term borrowings .......................................................... 25,571,827 20,771,724 Federal Home Loan Bank advances ................................................ 20,373,704 22,425,398 Company obligated manditorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures ................... 12,000,000 12,000,000 Other borrowings ............................................................... 0 0 Other liabilities .............................................................. 7,297,781 4,286,318 ------------------------------ Total liabilities ...................................................... 372,664,993 347,550,196 ------------------------------ STOCKHOLDERS' EQUITY Common stock, $1 par value; shares authorized 5,000,000; shares issued and outstanding December 2000 - 2,325,566 and 2,265,420; June 2000 - 2,325,416 and 2,283,920 respectively ............................ 2,325,566 2,325,416 Additional paid-in capital ..................................................... 12,148,759 12,147,984 Retained earnings .............................................................. 8,300,211 7,296,017 Accumulated other comprehensive (loss), unrealized (losses) on securities available for sale, net ........................................... (103,319) (1,098,518) ------------------------------ 22,671,217 20,670,899 Less: Cost of common shares acquired for the treasury; December 2000 - 60,146; June 2000 - 41,496 .................................. (854,536) (599,480) ------------------------------ Total stockholders' equity ............................................. 21,816,681 20,071,419 ------------------------------ Total liabilities and stockholders' equity ............................. $ 394,481,674 $ 367,621,615 ============================== </TABLE> See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended December 31 <TABLE> 2000 1999 -------------------------- <S> <C> <C> Interest income: Interest and fees on loans ................................. $ 5,898,649 $ 4,445,500 Interest and dividends on securities: Taxable .............................................. 771,376 793,124 Nontaxable ........................................... 64,420 61,006 Interest on federal funds sold ............................. 296,599 448,216 Other interest ............................................. 233,657 187,405 -------------------------- Total interest income ................................. 7,264,701 5,935,251 -------------------------- Interest expense: Interest on deposits ...................................... 3,452,477 2,539,440 Interest on company obligated manditorily redeemable preferred securities ...................... 283,377 278,970 Interest on short-term and other borrowings ............... 587,169 511,131 -------------------------- Total interest expense ................................ 4,323,023 3,329,541 -------------------------- Net interest income ................................... 2,941,678 2,605,710 Provision for loan losses ...................................... 343,800 296,800 -------------------------- Net interest income after provision for loan losses ... 2,597,878 2,308,910 -------------------------- Noninterest income: Merchant credit card fees, net of processing costs ......... 428,041 645,700 Trust department fees ...................................... 512,370 463,086 Deposit service fees ....................................... 169,052 150,812 Gains on sales of loans, net ............................... 170,539 127,541 Securities losses, net ..................................... (22,855) 0 Other ...................................................... 158,349 236,620 -------------------------- Total noninterest income .............................. 1,415,496 1,623,759 -------------------------- Noninterest expenses: Salaries and employee benefits ............................. 1,953,749 1,584,640 Professional and data processing fees ...................... 328,256 204,092 Advertising and marketing .................................. 152,921 103,565 Occupancy and equipment expense ............................ 498,413 407,321 Stationery and supplies .................................... 98,238 79,178 Postage and telephone ...................................... 99,982 100,079 Other ...................................................... 334,612 249,014 -------------------------- Total noninterest expenses ............................ 3,466,171 2,727,889 -------------------------- Income before income taxes ............................ 547,203 1,204,780 Federal and state income taxes .................................. 203,258 461,860 -------------------------- Net income ............................................ $ 343,945 $ 742,920 ========================== Earnings per common share: Basic ................................................. $ 0.15 $ 0.32 Diluted ............................................... $ 0.15 $ 0.31 Weighted average common shares outstanding ............ 2,267,659 2,310,643 Weighted average common and common equivalent ......... 2,306,866 2,388,693 shares outstanding Comprehensive income ............................................ $ 901,351 $ 597,206 </TABLE> See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Six Months Ended December 31 <TABLE> 2000 1999 ---------------------------- <S> <C> <C> Interest income: Interest and fees on loans ................................. $ 11,392,219 $ 8,902,222 Interest and dividends on securities: Taxable .............................................. 1,557,710 1,511,106 Nontaxable ........................................... 130,363 109,511 Interest on federal funds sold ............................. 706,340 834,554 Other interest ............................................. 456,108 378,495 ---------------------------- Total interest income ................................. 14,242,740 11,735,888 ---------------------------- Interest expense: Interest on deposits ...................................... 6,738,019 4,856,628 Interest on company obligated manditorily redeemable preferred securities ...................... 567,788 555,949 Interest on short-term and other borrowings ............... 1,136,391 1,019,790 ---------------------------- Total interest expense ................................ 8,442,198 6,432,367 ---------------------------- Net interest income ................................... 5,800,542 5,303,521 Provision for loan losses ...................................... 519,875 571,500 ---------------------------- Net interest income after provision for loan losses ... 5,280,667 4,732,021 ---------------------------- Noninterest income: Merchant credit card fees, net of processing costs ......... 800,483 1,183,496 Trust department fees ...................................... 1,017,287 862,730 Deposit service fees ....................................... 346,849 306,849 Gains on sales of loans, net ............................... 297,679 228,714 Securities losses, net ..................................... (22,730) 0 Other ...................................................... 348,013 414,083 ---------------------------- Total noninterest income .............................. 2,787,581 2,995,872 ---------------------------- Noninterest expenses: Salaries and employee benefits ............................. 3,735,561 3,213,082 Professional and data processing fees ...................... 592,259 424,929 Advertising and marketing .................................. 280,352 187,022 Occupancy and equipment expense ............................ 918,065 801,178 Stationery and supplies .................................... 170,490 161,246 Postage and telephone ...................................... 193,968 181,778 Other ...................................................... 653,114 532,195 ---------------------------- Total noninterest expenses ............................ 6,543,809 5,501,430 ---------------------------- Income before income taxes ............................ 1,524,439 2,226,463 Federal and state income taxes .................................. 520,245 850,895 ---------------------------- Net income ............................................ $ 1,004,194 $ 1,375,568 ============================ Earnings per common share: Basic ................................................. $ 0.44 $ 0.60 Diluted ............................................... $ 0.43 $ 0.58 Weighted average common shares outstanding ............ 2,271,460 2,305,037 Weighted average common and common equivalent ......... 2,319,619 2,384,908 shares outstanding Comprehensive income ............................................ $ 1,999,393 $ 976,548 </TABLE> See Notes to Consolidated Financial Statements
QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended December 31 <TABLE> 2000 1999 --------------------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income ......................................................... $ 1,004,194 $ 1,375,568 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation ..................................................... 367,458 330,094 Provision for loan losses ........................................ 519,875 571,500 Amortization of offering costs on subordinated debentures ........ 15,788 15,221 Amortization of premiums on securities, net ...................... 27,240 34,131 Securities losses, net ........................................... 22,730 0 Loans originated for sale ........................................ (26,910,723) (20,849,007) Proceeds on sales of loans ....................................... 26,702,926 21,933,819 Net gains on sales of loans ...................................... (297,679) (228,714) Tax benefit of nonqualified stock options exercised .............. 0 69,165 Increase in accrued interest receivable .......................... (478,144) (340,172) Increase in other assets ......................................... (1,309,759) (2,830,149) Increase in other liabilities .................................... 245,394 1,206,379 --------------------------- Net cash provided by (used in) operating activities ........... $ (90,700) $ 1,287,835 --------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in federal funds sold ................................. 5,700,000 6,230,000 Net decrease in certificates of deposits at financial institutions . 1,274,378 228,973 Purchase of securities available for sale .......................... (239,984) (15,319,825) Purchase of securities held to maturity ............................ 0 (50,000) Proceeds from calls and maturities of securities ................... 2,000,000 3,200,000 Proceeds from paydowns on securities ............................... 930,645 753,699 Proceeds from sales of securities available for sale ............... 254,247 0 Increase in cash value of life insurance contracts ................. (43,920) 0 Net loans originated ............................................... (23,425,004) (14,381,805) Purchase of premises and equipment, net ............................ (1,213,891) (383,389) --------------------------- Net cash used in investing activities ......................... $(14,763,529) $(19,722,347) --------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposit accounts ................................... 19,354,925 23,801,490 Net increase in short-term borrowings .............................. 4,800,103 1,632,411 Proceeds from Federal Home Loan Bank advances ...................... 7,250,000 1,000,000 Payments on Federal Home Loan Bank advances ........................ (9,301,694) (3,004,344) Purchase of treasury stock ......................................... (255,056) 0 Proceeds from issuance of common stock, net ........................ 925 55,736 --------------------------- Net cash provided by financing activities ..................... $ 21,849,203 $23,485,293 --------------------------- Net increase in cash and due from banks ....................... 6,994,974 5,050,781 Cash and due from banks, beginning ........................................... 15,130,357 8,528,195 --------------------------- Cash and due from banks, ending .............................................. $ 22,125,331 $13,578,976 =========================== Supplemental disclosure of cash flow information, cash payments for: Interest ........................................................... $ 7,852,504 $ 6,345,827 Income/franchise taxes ............................................. $ 700,106 $ 1,096,848 Supplemental schedule of noncash investing activities: Change in accummulated other comprehensive income (loss), unrealized gain (loss) on securities available for sale, net ............ $ 995,199 $ (399,020) =========================== Due to broker for purchase of securities available for sale ............... $ 2,766,069 $(3,800,000) =========================== </TABLE> See Notes to Consolidated Financial Statements
Part I Item 1 QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 2000 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include information or footnotes necessary for a fair presentation of financial position, results of operations and changes in financial condition in conformity with generally accepted accounting principles. However, all adjustments that are, in the opinion of management, necessary for a fair presentation have been included. Any differences appearing between numbers presented in financial statements and management's discussion and analysis are due to rounding. Results for the periods ended December 31, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2001. Certain amounts in the 1999 financial statements have been reclassified, with no effect on net income or stockholders' equity to conform with current year presentations. NOTE 2 - PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Quad City Holdings, Inc. (the "Company"), a Delaware corporation, and its wholly owned subsidiaries, Quad City Bank and Trust Company (the "Bank"), Quad City Bancard, Inc. ("Bancard"), Allied Merchant Services, Inc. ("Allied"), and Quad City Holdings Capital Trust I ("Capital Trust"). All significant intercompany accounts and transactions have been eliminated in consolidation. NOTE 3 - EARNINGS PER SHARE The following information was used in the computation of earnings per share on a basic and diluted basis. <TABLE> Three months ended Six months ended December 31, December 31, ---------------------- ----------------------- 2000 1999 2000 1999 ----------------------- ----------------------- <S> <C> <C> <C> <C> Net income, basic and diluted earnings ...... $ 343,945 $ 742,920 $1,004,194 $1,375,568 ================================================= Weighted average common shares outstanding ........................... 2,267,659 2,310,643 2,271,460 2,305,037 Weighted average common shares issuable upon exercise of stock options and warrants .................. 39,207 78,050 48,157 79,871 ------------------------------------------------- Weighted average common and common equivalent shares outstanding ........................... 2,306,866 2,388,693 2,319,617 2,384,908 ================================================= </TABLE>
NOTE 4 - BUSINESS SEGMENT INFORMATION Selected financial information on the Company's business segments is presented as follows for the three and six months ended December 31, 2000 and 1999. <TABLE> Three months ended Six months ended December 31, December 31, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------------------------------------------------------ <S> <C> <C> <C> <C> Revenue: Quad City Holdings, Inc. ................. $ (25,548) $ 43,329 $ 37,214 $ 88,217 Quad City Bank and Trust Company ......... 7,709,536 6,348,145 15,069,686 12,519,411 Quad City Bancard, Inc. .................. 483,839 704,449 906,134 1,261,401 Trust Department, Quad City Bank and Trust Company ...................... 512,370 463,087 1,017,287 862,731 ------------------------------------------------------------ Total revenue ....................... $ 8,680,197 $ 7,559,010 $ 17,030,321 $ 14,731,760 ============================================================ Net income (loss): Quad City Holdings, Inc. ................. $ (264,821) $ (192,122) $ (472,358) $ (420,875) Quad City Bank and Trust Company ......... 474,257 615,881 1,165,913 1,252,483 Quad City Bancard, Inc. .................. 26,286 205,269 90,400 331,837 Trust Department, Quad City Bank and Trust Company ...................... 108,223 113,892 220,239 212,123 ------------------------------------------------------------ Total net income .................... $ 343,945 $ 742,920 $ 1,004,194 $ 1,375,568 ============================================================ </TABLE>
Part I Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Quad City Holdings, Inc. (the "Company") is the parent company of Quad City Bank and Trust Company (the "Bank"), which commenced operations in January 1994. The Bank is an Iowa-chartered commercial bank that is a member of the Federal Reserve System with depository accounts insured by the Federal Deposit Insurance Corporation. The Bank provides full-service commercial and consumer banking, and trust and asset management services to the Quad City area and adjacent communities through its four offices that are located in Bettendorf and Davenport, Iowa and Moline, Illinois. Quad City Bancard, Inc. ("Bancard") provides merchant credit card processing services. Bancard has contracted with independent sales organizations ("ISOs") that market credit card services to merchants throughout the country. The Company's primary ISO contract expired in May 2000. In March 1999, Bancard formed its own subsidiary ISO, Allied Merchant Services, Inc., for the purpose of generating additional credit card processing business. At December 31, 2000, approximately 11,800 merchants were processing transactions with Bancard. The Company has a fiscal year end of June 30. FINANCIAL CONDITION Total assets of the Company increased by $26.9 million or 7% to $394.5 million at December 31, 2000 from $367.6 million at June 30, 2000. The growth primarily resulted from an increase in the loan portfolio funded by deposits received from customers and by short-term borrowings. Cash and due from banks increased by $7.0 million or 46% to $22.1 million at December 31, 2000 from $15.1 million at June 30, 2000. Cash and due from banks represented both cash maintained at the Bank, as well as funds that the Bank and the Company had deposited in other banks in the form of demand deposits. A weather-related delay in the transmittal of cash letters on December 29, 2000 created a balance of $15.4 million in the Bank's account at its primary correspondent in Chicago, and accounted for 70% of all cash and due from banks at December 31, 2000. Federal funds sold are inter-bank funds with daily liquidity. At December 31, 2000, the Bank had $20.4 million invested in such funds. This amount decreased by $5.7 million or 22% from $26.1 million at June 30, 2000. Certificates of deposit at financial institutions decreased by $1.3 million or 10% to $11.5 million at December 31, 2000 from $12.8 million at June 30, 2000. During the first six months of fiscal 2001, the Bank's certificate of deposit portfolio had 17 maturities totaling $3.5 million and 22 purchases, which totaled $2.2 million. Securities increased by $1.3 million or 2% to $57.4 million at December 31, 2000 from $56.1 million at June 30, 2000. The increase was the result of a number of transactions in the securities portfolio. Paydowns of $931 thousand were received on mortgage-backed securities, and the amortization of premiums, net of the accretion of discounts, was $27 thousand. Maturities and calls of securities occurred in the amount of $2.0 million, and sales of securities totaled $277 thousand. These portfolio decreases were primarily offset by the purchase of an additional $3.0 million of securities and a $1.5 million increase in the fair value of securities, classified as available for sale. Loans receivable increased by $23.7 million or 10% to $265.6 million at December 31, 2000 from $241.9 million at June 30, 2000. The increase was the result of the origination or purchase of $134.3 million of commercial business, consumer and real estate loans, less loan charge-offs, net of recoveries, of $165 thousand, and loan repayments or sales of loans of $110.4 million. The majority of residential real estate loans originated by the Bank were sold on the secondary market to avoid the interest rate risk associated with long term fixed rate loans.
The allowance for estimated losses on loans was $4.0 million at December 31, 2000 compared to $3.6 million at June 30, 2000, an increase of $355 thousand or 10%. The adequacy of the allowance for estimated losses on loans was determined by management based on factors that included the overall composition of the loan portfolio, types of loans, past loss experience, loan delinquencies, potential substandard and doubtful credits, economic conditions, and other factors that, in management's judgement, deserved evaluation in estimating loan losses. The adequacy of the allowance for estimated losses on loans was monitored by the loan review staff, and reported to management and the board of directors. Provisions were made monthly to ensure that an adequate level was maintained. Although management believes that the allowance for estimated losses on loans at December 31, 2000 was at a level adequate to absorb losses on existing loans, there can be no assurance that such losses will not exceed the estimated amounts. Net charge-offs for the six months ended December 31, were $165 thousand in 2000 and $126 thousand in 1999. One measure of the adequacy of the allowance for estimated losses on loans is the ratio of the allowance to the total loan portfolio. The allowance for estimated losses on loans as a percentage of total loans was 1.5% at both December 31, 2000 and June 30, 2000. At December 31, 2000, total nonperforming assets were $1.9 million compared to $736 thousand at June 30, 2000. The $1.1 million increase was the result of a $272 thousand increase in nonaccrual loans and an increase of $844 thousand in accruing loans past due 90 days or more. Nonaccrual loans were $655 thousand at December 31, 2000 compared to $383 thousand at June 30, 2000, an increase of 71%. The increase in nonaccrual loans was comprised of increases in real estate loans of $64 thousand and commercial loans of $268 thousand partially offset by a decrease in consumer loans of $60 thousand. The net increase in commercial, nonaccrual loans was due entirely to the addition of a single, fully-reserved loan which was not anticipated to result in a material loss. In general, nonaccrual loans consisted primarily of loans that were well collateralized and were not expected to result in material losses. From June 30, 2000 to December 31, 2000, accruing loans past due 90 days or more increased from $353 thousand to $1.2 million, respectively. The increase was primarily comprised of a number of well-collateralized real estate loans that were not anticipated to produce any material losses. Premises and equipment showed an increase of $846 thousand or 11% to $8.6 million at December 31, 2000 from $7.7 million at June 30, 2000. The increase resulted from the purchase of additional furniture, fixtures and equipment and leasehold improvements of $1.2 million during the period offset by depreciation expense of $367 thousand. The opening of a fourth full service banking facility on October 30, 2000 accounted for $845 thousand or 70% of the premises and equipment expenditures. Accrued interest receivable on loans, securities and interest-bearing cash accounts increased by $478 thousand or 18% to $3.1 million at December 31, 2000 from $2.6 million at June 30, 2000. The increase was primarily due to greater average outstanding balances in interest-bearing assets. Other assets increased by $832 thousand or 9% to $9.7 million at December 31, 2000 from $8.9 million at June 30, 2000. The largest component of the increase was the $1.3 million growth in receivables due Bancard from its terminated, primary ISO. As discussed further in Part II, Item 1, Bancard is vigorously pursuing the collection of this receivable through legal avenues. Other assets also included accrued trust department fees, other miscellaneous receivables, and various prepaid expenses. Deposits increased by $19.3 million or 7% to $307.4 million at December 31, 2000 from $288.1 million at June 30, 2000. The increase resulted from an $8.8 million net increase in non-interest bearing, NOW, money market and other savings accounts and a $10.5 million net increase in interest-bearing certificates of deposit. Management believes the increases were a result of periodic aggressive pricing programs for deposits and increased marketing efforts.
Short-term borrowings increased $4.8 million or 23% from $20.8 million at June 30, 2000 to $25.6 million at December 31, 2000. The Bank offers short-term repurchase agreements to some of its major customers. Also, on occasion, the Bank purchases Federal funds for the short-term from the Federal Reserve Bank or from some of its correspondent banks. As of December 31, 2000, short-term borrowings were comprised of $23.7 million of customer repurchase agreements and $1.9 million of Federal funds purchased from the Federal Reserve Bank. As of June 30, 2000, short-term borrowings represented customer repurchase agreements of $15.8 million and Federal funds purchased from the Federal Reserve Bank of $5.0 million. Federal Home Loan Bank advances decreased by $2.0 million or 9% to $20.4 million at December 31, 2000 from $22.4 million at June 30, 2000. As a result of its membership in the FHLB of Des Moines, the Bank has the ability to borrow funds for short or long-term purposes under a variety of programs. The Bank primarily utilizes FHLB advances for loan matching and for hedging against the possibility of rising interest rates. In June 1999, the Company issued 1,200,000 shares of trust preferred securities through a newly formed subsidiary, Quad City Holdings Capital Trust I. On the Company's balance sheet these securities are included with liabilities and are presented as "company obligated manditorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures", and were $12.0 million at both December 31, 2000 and June 30, 2000. Other liabilities increased by $3.0 million or 70% to $7.3 million at December 31, 2000 from $4.3 million at June 30, 2000. Other liabilities was comprised of unpaid amounts for various products and services, and accrued but unpaid interest on deposits. At December 31, 2000, other liabilities included $2.8 million of security purchase commitments, all of which settled in January 2001. Common stock at December 31, 2000 increased by less than 1% to remain unchanged at $2.3 million from June 30, 2000. The increase was the result of a single exercise of stock options resulting in the issuance of 150 additional shares of common stock. Additional paid-in capital totaled $12.1 million at both December 31, 2000 and June 30, 2000. An increase of less than 1% resulted from proceeds received in excess of the $1.00 per share par value for 150 shares of common stock issued as the result of an exercise of stock options. Retained earnings increased by $1.0 million or 14% to $8.3 million at December 31, 2000 from $7.3 million at June 30, 2000. The increase reflected net income for the six-month period. Unrealized losses on securities available for sale, net of related income taxes, totaled $103 thousand at December 31, 2000 as compared to $1.1 million at June 30, 2000. The decrease in losses of $995 thousand was attributable to the increase during the period in fair value of the securities identified as available for sale. On April 5, 2000, the Company announced that the board of directors approved a stock repurchase program enabling the Company to repurchase approximately 60,000 shares of its common stock. This stock repurchase program has been completed, and as of December 31, 2000, the Company had acquired 60,146 treasury shares at a total cost of $854 thousand, compared to 41,496 treasury shares at a total cost of $599 thousand at June 30, 2000. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company realizes income principally from the spread between the interest earned on loans, investments and other interest-earning assets and the interest paid on deposits and borrowings. Loan volumes and yields, as well as the volume of and rates on investments, deposits and borrowings, are affected by market interest rates. Additionally, because of the terms and conditions of many of the Bank's loan and deposit accounts, a change in interest rates could also affect the projected maturities in the loan portfolio and/or the deposit base, which could alter the Company's sensitivity to future changes in interest rates. Accordingly, management considers interest rate risk to be a significant market risk.
Interest rate risk management focuses on maintaining consistent growth in net interest income within policy limits approved by the Board of Directors, while taking into consideration, among other factors, the Company's overall credit, operating income, operating cost, and capital profile. The Company's ALM/Investment Committee, which includes senior management representatives and members of the board of directors, monitors and manages interest rate risk to maintain an acceptable level of change to net interest income as a result of changes in interest rates. One method used to quantify interest rate risk is the net portfolio value ("NPV") analysis. This analysis calculates the difference between the present value of liabilities and the present value of expected cash flows from assets and off-balance sheet contracts. The most recent NPV analysis, as of September 30, 2000, projects that net portfolio value would decrease by approximately 12.33% if interest rates would rise 200 basis points over the next year. It projects an increase in net portfolio value of approximately 0.26% if interest rates would drop 200 basis points. Both simulations are within board-established policy limits. RESULTS OF OPERATIONS OVERVIEW Net income for the six-month period ended December 31, 2000 was $1.0 million as compared to net income of $1.4 million for the same period in 1999, a decrease of $371 thousand or 27%. Basic earnings per share for the first six months decreased to $0.44 from $0.60 in 1999. The decrease in net income was comprised of an increase of $549 thousand in net interest income after provision for loan losses and a decrease in income tax expense of $331 thousand offset by a decrease in noninterest income of $208 thousand and an increase in noninterest expense of $1.0 million. The Company's net income is derived largely from net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, and interest expense, principally on borrowings and customer deposits. Changes in net interest income result from changes in volume, net interest spread and net interest margin. Volume refers to the average dollar levels of interest-earning assets and interest-bearing liabilities. Net interest spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Net interest margin refers to the net interest income divided by average interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. The Company's average yield on interest-earning assets increased 0.52% for the six months ended December 31, 2000 when compared to the six months ended December 31, 1999. With the same comparison, the average cost of interest-bearing liabilities increased 0.82% which resulted in a 0.30% decrease in the net interest spread of 2.96% at December 31, 1999 to 2.66% at December 31, 2000. The narrowing of the net interest spread created a decline in the net interest margin. For the six months ended December 31, 2000 net interest margin was 3.36% compared to 3.48% for the same period in 1999. Management is taking steps to address this decline in net interest margin. For the six months ended December 31, 2000, basic earnings per share declined $0.16 when compared to the same period in 1999. Several factors contributed to the 27% reduction. The reduced earnings were due to the increased overhead and one-time costs associated with the opening of the Bank's fourth full service banking facility, higher employee compensation costs resulting from the addition of four senior officer positions during calendar 2000, and a reduction in the earnings of Bancard resulting from the planned termination of its contract with a major independent sales organization. While the addition of the new banking facility and the senior officer positions negatively impacted earnings for the six months ended December 31, 2000, management is confident that these additions will provide significant long-term benefits to the Company. For the six months ended December 31, 2000, the Company's bank subsidiary enjoyed improved core earnings. Offsetting these earnings improvements were legal costs at Bancard resulting from the litigation with PMT Services, Inc., an increased loan loss provision for the second quarter due to loan growth in combination with increased reserves on a few specific commercial loans in the Bank's portfolio, and a higher cost of funds at the Bank.
THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 Net income for the quarter ended December 31, 2000 was $344 thousand as compared to net income of $743 thousand for the same period in 1999, a decrease of $399 thousand or 54%. Basic earnings per share for the quarter decreased to $0.15 from $0.32 in 1999. The decrease in net income was comprised of an increase of $289 thousand in net interest income after provision for loan losses and a decrease in income tax expense of $259 thousand offset by a decrease in noninterest income of $208 thousand and an increase in noninterest expense of $738 thousand. Interest income increased by $1.4 million from $5.9 million for the three-month period ended December 31, 1999 to $7.3 million for the quarter ended December 31, 2000. The 22% rise in interest income was attributable to greater average, outstanding balances in interest earning assets, principally with respect to loans receivable, and higher interest rates. Interest expense increased by $993 thousand from $3.3 million for the three-month period ended December 31, 1999 to $4.3 million for the three-month period ended December 31, 2000. The 30% increase in interest expense was caused by greater average, outstanding balances in interest-bearing liabilities, principally with respect to customers' time deposits in and repurchase agreements with the subsidiary bank, and higher interest rates. At both December 31, 2000 and June 30, 2000, the Company had an allowance for estimated losses on loans of approximately 1.5% of total loans. The provision for loan losses increased by $47 thousand from $297 thousand for the three month period ended December 31, 1999 to $344 thousand for the three month period ended December 31, 2000. During the second quarter of fiscal 2001, management made the decision to increase the risk rating on a few significant commercial loans. Based upon that reclassification, the increase in total loans and the overall analysis of the loan portfolio, an increased provision for loan losses was made. Real estate loans had no charge-offs or recoveries for the three months ended December 31, 2000. For the same three-month period, commercial loans had $87 thousand in charge-offs, and no recoveries. Consumer loan charge-offs and recoveries totaled $76 thousand and $14 thousand, respectively, during the quarter. Indirect auto and credit card loans accounted for the consumer loan charge-offs. As asset quality is a priority for the Company and its subsidiaries, management has made the decision to significantly reduce indirect auto loan activity based on charge-off experience. The ability to grow profitably is, in part, dependent upon the ability to maintain asset quality. Noninterest income of $1.4 million for the three-month period ended December 31, 2000 was down 13% or $208 thousand from $1.6 million for the three-month period ended December 31, 1999. Noninterest income during each of the quarters in comparison consisted primarily of income from the merchant credit card operation, the trust department, depository service fees, gains on the sale of residential real estate mortgage loans, and other miscellaneous fees. The decrease was primarily due to a $218 thousand decrease in fees earned by the merchant credit card operation of Bancard. This 34% reduction in merchant credit card fees was anticipated as a result of Bancard's largest ISO terminating its processing relationship in May 2000. Additional reductions in noninterest income consisted of a $23 thousand loss realized on investment securities and a $78 thousand decrease in other noninterest income, resulting from losses experienced on two investments in unconsolidated subsidiaries of the Company. In previous periods, investments in such nonconsolidated subsidiaries have had no significant impact on Company earnings. The various decreases in noninterest income were partially offset by an 11% increase in fees earned by the trust department of the Bank, a 34% increase in gains on sales of loans and a 12% increase in deposit service fees. In November 1999, Bancard's largest ISO notified Bancard that it intended to terminate its processing relationship in May 2000 and start processing its own transactions, as per a previous agreement. Processing for this ISO ceased in May 2000 as anticipated. Bancard has begun processing for nine additional ISOs. In spite of this, Bancard's net merchant credit card fee income will remain below previous levels until additional ISO relationships can be developed, processing volumes with existing ISOs increase, or Allied can generate processing volumes comparable to those experienced by Bancard prior to the termination of processing with the original ISO. Bancard's average dollar volume of transactions processed per month during fiscal 2000 was $90 million, and of that, $58 million was attributable to the ISO that terminated its relationship. It is expected that because of this reduction in processing fees and the cessation of a related monthly service fee to Bancard, that income contributed to the Company by Bancard will continue to be lower than that contributed in earlier periods.
For the quarter ended December 31, 2000, trust department fees increased $49 thousand, or 11%, to $512 thousand from $463 thousand for the same quarter in 1999. The increase was primarily a reflection of the development of additional trust relationships and a revision of the trust department fee structure effective January 1, 2000. Deposit service fees increased $18 thousand, or 12%, to $169 thousand from $151 thousand for the three-month periods ended December 31, 2000 and December 31, 1999. Service charges and NSF (non-sufficient funds) charges related to demand deposit accounts were the main components of deposit service fees. Gains on sales of loans, net, was $170 thousand for the three months ended December 31, 2000, which reflected an increase of 34%, or $43 thousand, from $127 thousand for the three months ended December 31, 1999. The increase resulted from larger numbers of both home refinances and home purchases, and the subsequent sale of the majority of these loans into the secondary market. The stability of interest rates over recent months has accounted for the increased activity in this area. The main components of noninterest expenses were primarily salaries and benefits, occupancy and equipment expenses, and professional and data processing fees, for both quarters. Noninterest expenses for the three months ended December 31, 2000 were $3.5 million as compared to $2.7 million for the same period in 1999, for an increase of $738 thousand or 27%. The following table sets forth the various categories of noninterest expenses for the three months ended December 31, 2000 and 1999. Noninterest Expenses <TABLE> Three months ended December 31, ----------------------- 2000 1999 % change ---------------------------------- <S> <C> <C> <C> Salaries and employee benefits ........................ $1,953,749 $1,584,640 23.3% Professional and data processing fees ................. 328,256 204,092 60.8% Advertising and marketing ............................. 152,921 103,565 47.7% Occupancy and equipment expense ....................... 498,413 407,321 22.4% Stationery and supplies ............................... 98,238 79,178 24.1% Postage and telephone ................................. 99,982 100,079 -0.1% Other ................................................. 334,612 249,014 34.4% ----------------------- Total noninterest expenses $3,466,171 2,727,889 27.1% ======================= </TABLE> Salaries and benefits experienced the most significant dollar increase of any noninterest expense component. For the quarter ended December 31, 2000, total salaries and benefits increased to $2.0 million or $369 thousand over the previous year's quarter total of $1.6 million. The change was primarily attributable to the increase from December 1999 to December 2000 in the number of Bank employees and increased incentive compensation to real estate officers and trust employees proportionate to the increased volumes of gains on sales of loans and trust fees earned. Professional and data processing fees increased from $204 thousand for the three months ended December 31, 1999 to $328 thousand for the same three month period in 2000. The $124 thousand increase was predominately due to legal fees resulting from the legal proceedings in process between Bancard and PMT Services, Inc. Advertising and marketing increased 48% or $49 thousand for the quarter. The increase was the result of the development and start-up of the Bank's new website (qcbt.com ), the establishment of an online partnership with America Online, Inc. creating local access to that website, and media expenses incurred in support of marketing efforts for the Bank's Utica location and various Bank products and departments. Occupancy and equipment expense increased $91 thousand or 22% for the quarter. The increase was predominately due to the October 30th opening of a fourth full service banking facility and the resulting increased levels of depreciation, maintenance, utilities and other occupancy expenses. Other noninterest expense increased $86 thousand or 34% for the quarter. The increase was primarily the result of increased service charges from upstream banks incurred by the subsidiary bank and increased expenses related to Bancard's cardholder program.
The provision for income taxes was $203 thousand for the three-month period ended December 31, 2000 compared to $462 thousand for the three-month period ended December 31, 1999 for a decrease of $259 thousand or 56%. The decrease was the result of a decrease in income before income taxes of $658 thousand or 55% for the fiscal 2001 quarter when compared to the fiscal 2000 quarter, as well as a reduction in the Company's effective tax rate. SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999 Interest income increased by $2.5 million from $11.7 million for the six-month period ended December 31, 1999 to $14.2 million for the quarter ended December 31, 2000. The 21% rise in interest income was attributable to greater average, outstanding balances in interest earning assets, principally with respect to loans receivable, and higher interest rates. Interest expense increased by $2.0 million from $6.4 million for the six-month period ended December 31, 1999 to $8.4 million for the six-month period ended December 31, 2000. The 31% increase in interest expense was caused by greater average, outstanding balances in interest-bearing liabilities, principally with respect to customers' time deposits in and repurchase agreements with the subsidiary bank, and higher interest rates. At both December 31, 2000 and June 30, 2000, the Company had an allowance for estimated losses on loans of approximately 1.5% of total loans. The provision for loan losses decreased by $52 thousand from $572 thousand for the six-month period ended December 31, 1999 to $520 thousand for the six-month period ended December 31, 2000. In calendar 1999 the agricultural manufacturing sector, which certain of the Company's borrowers were engaged in or depended upon, experienced a slowdown. Consideration of this fact and other factors led management to make an increased provision for loan losses in December 1999. Real estate loans had no charge-offs or recoveries for the six months ended December 31, 2000. For the same six-month period, commercial loans had $87 thousand in charge-offs, and recoveries totaled $2 thousand. Consumer loan charge-offs and recoveries totaled $103 thousand and $23 thousand during the six months. Indirect auto and credit card loans accounted for the consumer loan charge-offs. As asset quality is a priority for the Company and its subsidiaries, management has made the decision to significantly reduce indirect auto loan activity based on charge-off experience. The ability to grow profitably is, in part, dependent upon the ability to maintain asset quality. Noninterest income was down $208 thousand, or 7%, to $2.8 million for the six-month period ended December 31, 2000 from $3.0 million for the same period ended December 31, 1999. Noninterest income during each of the quarters in comparison consisted primarily of income from the merchant credit card operation, the trust department, depository service fees, gains on the sale of residential real estate mortgage loans, and other miscellaneous fees. The decrease was primarily due to a $383 thousand decrease in fees earned by the merchant credit card operation of Bancard. This 32% reduction in merchant credit card fees was anticipated as a result of Bancard's largest ISO terminating its processing relationship in May 2000. Additional reductions in noninterest income consisted of a $23 thousand loss realized on investment securities and a $66 thousand decrease in other noninterest income, resulting from decreased earnings experienced on two investments in unconsolidated subsidiaries of the Company. In previous periods, investments in such nonconsolidated subsidiaries have had no significant impact on Company earnings. The various decreases in noninterest income were partially offset by an 18% increase in fees earned by the trust department of the Bank, a 30% increase in gains on sales of loans and a 13% increase in deposit service fees.
For the six months ended December 31, 2000, trust department fees increased $155 thousand, or 18%, to $1.0 million from $863 thousand for the same period in 1999. The increase was primarily a reflection of the development of additional trust relationships and a revision of the trust department fee structure effective January 1, 2000. Deposit service fees increased $40 thousand, or 13%, to $347 thousand from $307 thousand for the six-month periods ended December 31, 2000 and December 31, 1999. Service charges and NSF (non-sufficient funds) charges related to demand deposit accounts were the main components of deposit service fees. Gains on sales of loans, net was $298 thousand for the six months ended December 31, 2000, which reflected an increase of 30%, or $69 thousand, from $229 thousand for the six months ended December 31, 1999. The increase resulted from larger numbers of both home refinances and home purchases, and the subsequent sale of the majority of these loans into the secondary market. The stability of interest rates over recent months has accounted for the increased activity in this area. The main components of noninterest expenses were primarily salaries and benefits, occupancy and equipment expenses, and professional and data processing fees, for both periods. Noninterest expenses for the six months ended December 31, 2000 were $6.5 million as compared to $5.5 million for the same period in 1999, for an increase of $1.0 million or 19%. The following table sets forth the various categories of noninterest expenses for the six months ended December 31, 2000 and 1999. Noninterest Expenses <TABLE> Six months ended December 31, ----------------------- 2000 1999 % change ---------------------------------- <S> <C> <C> <C> Salaries and employee benefits ........................ $3,735,561 $3,213,082 16.3% Professional and data processing fees ................. 592,259 424,929 39.4% Advertising and marketing ............................. 280,352 187,022 49.9% Occupancy and equipment expense ....................... 918,065 801,178 14.6% Stationery and supplies ............................... 170,490 161,246 5.7% Postage and telephone ................................. 193,968 181,778 6.7% Other ................................................. 653,114 532,195 22.7% ----------------------- Total noninterest expenses $6,543,809 5,501,430 19.0% ======================= </TABLE> Salaries and benefits experienced the most significant dollar increase of any noninterest expense component. For the six months ended December 31, 2000, total salaries and benefits increased to $3.7 million or $522 thousand over the 1999 quarter total of $3.2 million. The change was primarily attributable to the increase from December 1999 to December 2000 in the number of Bank employees and increased incentive compensation to trust employees proportionate to the increased volume of fees earned. Professional and data processing fees increased from $425 thousand for the six months ended December 31, 1999 to $592 thousand for the same six-month period in 2000. The $167 thousand increase was predominately due to legal fees resulting from the legal proceedings in process between Bancard and PMT Services, Inc., combined with increased fees to outside consultants addressing compliance, efficiency, profitability and other growth-related issues of the subsidiary bank. Advertising and marketing increased 50% or $93 thousand for the period. The increase was the result of the development and start-up of the Bank's new website (qcbt.com ), the establishment of an online partnership with America Online, Inc. creating local access to that website, and media expenses incurred in support of marketing efforts for the Bank's Utica location and various Bank products and departments. Occupancy and equipment expense increased $117 thousand or 15% for the quarter. The increase was predominately due to the October 30th opening of a fourth full service banking facility and the resulting increased levels of depreciation, maintenance, utilities and other occupancy expenses. Other noninterest expense increased $121 thousand or 23% for the period. The increase was primarily the result of increased service charges from upstream banks incurred by the subsidiary bank and increased expenses related to Bancard's cardholder program.
The provision for income taxes was $520 thousand for the six-month period ended December 31, 2000 compared to $851 thousand for the six-month period ended December 31, 1999 for a decrease of $331 thousand or 39%. The decrease was the result of a decrease in income before income taxes of $702 thousand or 32% for the fiscal 2001 period when compared to the fiscal 2000 period, as well as a reduction in the Company's effective tax rate. LIQUIDITY Liquidity measures the ability of the Company to meet maturing obligations and its existing commitments, to withstand fluctuations in deposit levels, to fund its operations, and to provide for customers' credit needs. The liquidity of the Company primarily depends upon cash flows from operating, investing, and financing activities. Net cash used in operating activities, consisting primarily of the funding of loans for sale, was $91 thousand for the six months ended December 31, 2000 compared to $1.3 million net cash provided by operating activities for the same period in 1999. Net cash used in investing activities, consisting principally of loan originations, was $14.8 million for the six months ended December 31, 2000 and $19.7 million for the six months ended December 30, 1999. Net cash provided by financing activities, consisting primarily of deposit growth and net proceeds from Federal Home Loan Bank advances, for the six months ended December 31, 2000 was $21.8 million and for same period in 1999 was $23.5 million. OTHER DEVELOPMENTS In addition to the main office in Bettendorf, IA, the Bank has two full service banking locations in Davenport, IA, and a full-service banking location in the Velie Plantation Mansion in Moline, IL. The Company also maintains two locations that are utilized for various operational and administrative functions. In March 1999, the Bank acquired and improved a 3,000 square foot office building adjacent to the Davenport facility for utilization by its technology and credit administration departments. Beginning May 1, 2000, the Company leased approximately 2,000 square feet on the second floor of the Velie facility in Moline. The space was renovated and serves as the corporate headquarters of the Company. Construction of the fourth full service banking facility was completed in October, 2000 at 5515 Utica Ridge Road in Davenport. The Bank leased approximately 6,000 square feet on the first floor and 2,200 square feet in the lower level of the 24,000 square foot facility. The office was opened for business on October 30, 2000. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - -------------------------------------------------------------------------------- This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words, "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area, our implementation of new technologies, our ability to develop and maintain secure and reliable electronic systems, and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission.
RECENT ACCOUNTING DEVELOPMENTS The Financial Accounting Standards Board (FASB) has issued Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This statement replaces FASB Statement No. 125 in its entirety. It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of Statement 125's provisions without reconsideration. This Statement is effective for transfers and servicing of financial assets and distinguishments of liabilities occurring after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Management believes that adoption of this Statement will not have a significant effect on the Company's consolidated financial statements.
Part II QUAD CITY HOLDINGS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1 Legal Proceedings Bancard is the holder of an account receivable in the approximate amount of $1,600,000 owing from PMT Services, Inc. ("PMT"). PMT is a subsidiary of Nova Corporation (trading symbol NIS on the New York Stock Exchange). This receivable arises pursuant to Bancard's provision of electronic credit card sales authorization and settlement services to PMT pursuant to a written contract that includes PMT's obligation to indemnify Bancard for credit card chargeback losses arising from those services. PMT has failed to timely pay Bancard for monthly invoices, including service charges and substantial chargeback losses, for the period beginning May, 2000. Bancard intends to vigorously pursue collection of this receivable. On September 25, 2000, PMT filed a lawsuit in federal court in Los Angeles, California, against Bancard and the Company. This lawsuit alleges tortious acts and breaches of contract by Bancard, the Company, and others and seeks recovery from Bancard and the Company of not less than $3,600,000 of alleged actual damages, plus punitive damages. Bancard and the Company filed lawsuits in federal and state courts in Davenport, Iowa against PMT. These lawsuits sought a court order compelling PMT to participate in arbitration in Bettendorf, Iowa, as provided for in the pertinent contract documents, and to resolve the disputes between PMT, Bancard and the Company, including the unpaid account receivable. The federal court in Iowa ruled that the arbitration issue should be determined by the state court in Iowa. Subsequently, the (Iowa) District Court of Scott County ruled that all claims, including the tort claims, must be arbitrated in Iowa. Bancard and the Company continue to believe that PMT allegations are without merit and will vigorously pursue the collection of the receivable and to defend against PMT's claims. Item 2 Changes in Securities and Use of Proceeds - None ---------------------------------------- Item 3 Defaults Upon Senior Securities - None ------------------------------- Item 4 Submission of Matters to a Vote of Security Holders --------------------------------------------------- The annual meeting of stockholders was held at the Jumer's Castle Lodge located at 900 Spruce Hills Drive, Bettendorf, Iowa on October 18, 2000 at 10:00 a.m. At the meeting, Michael A. Bauer and James J. Brownson were re-elected to serve as Class I directors, with terms expiring in 2003. Continuing as Class II directors, with terms expiring in 2001, are Douglas M. Hultquist and John W. Schricker. Continuing as Class III directors, with terms expiring in 2002, are Richard R. Horst and Ronald G. Peterson. At the time of the annual meeting, there were 2,325,566 issued shares and 2,270,920 outstanding shares of common stock. Either in person or by proxy, there were 2,013,162 common shares represented at the meeting, constituting approximately 89% of the outstanding shares. The voting was as follows: Votes Votes For Withheld ----------------------------- Michael A Bauer ........................ 2,002,509 10,653 James J. Brownson ...................... 2,004,459 8,703 Item 5 Other Information At the board of directors meeting held November 21, 2000, John Lawson was elected as an additional Class III director of the Company with a term expiring in 2002.
Item 6 Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 99.1 Press release dated February 12, 2001 announcing earnings for the second quarter ended December 31, 2000 and related financial information 99.2 Shareholder letter dated February 2001 discussing earnings for the second quarter ended December 31, 2000 and related financial information (b) Reports on Form 8-K The Company filed a current report on Form 8-K with the Securities and Exchange Commission on November 7, 2000 under Item 5 which reported first quarter financial information in the format of a press release and a shareholder letter.
SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. QUAD CITY HOLDINGS, INC. (Registrant) Date February 12, 2001 /s/ Michael A. Bauer ----------------- ------------------------------------------- Michael A. Bauer, Chairman Date February 12, 2001 /s/ Douglas M. Hultquist ----------------- -------------------------------------------- Douglas M. Hultquist, President Principal Executive Officer Date February 12, 2001 /s/ Todd A. Gipple ----------------- -------------------------------------------- Todd A. Gipple, Executive Vice President Chief Financial Officer