<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[_] 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: 0-22528
QUAKER CITY BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4444221
- - -------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7021 Greenleaf Avenue, Whittier, California 90602
- - ------------------------------------------- -----
(Address or principal executive offices) (Zip code)
Registrant's telephone number, including area code (310) 907-2200
Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
YES [X] NO [_]
Number of shares outstanding of the registrant's sole class of common stock at
May 10, 1996: 3,897,600
<PAGE>
QUAKER CITY BANCORP, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 1996 (unaudited) and June 30, 1995...................... 3
Consolidated Statements of Earnings (unaudited) for the Three
Months and Nine Months Ended March 31, 1996 and 1995.............. 4
Consolidated Statements of Cash Flows (unaudited) for the Nine
Months Ended March 31, 1996 and 1995.............................. 5
Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 8
PART II. OTHER INFORMATION
Item 5. Other Information: Date of Annual Meeting........................ 16
Item 6. Exhibits and Reports on Form 8-K................................. 16
</TABLE>
<PAGE>
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
--------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks................................. $ 1,511 $ 2,430
Interest-bearing deposits............................... 5,257 7,468
Federal funds sold and other short-term investments..... 15,200 9,450
Investment securities held to maturity.................. 22,576 23,898
Investment securities available for sale, at fair value. -- 150
Loans receivable, net................................... 588,588 537,478
Loans receivable held for sale.......................... 775 1,666
Mortgage-backed securities held to maturity............. 41,042 39,993
Real estate held for sale............................... 1,387 2,743
Federal Home Loan Bank stock, at cost................... 5,892 4,736
Office premises and equipment, net...................... 4,439 3,992
Deferred tax asset...................................... -- 233
Accrued interest receivable and other assets............ 6,307 6,936
-------- --------
Total assets....................................... $692,974 $641,173
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits................................................ $506,033 $481,158
Federal Home Loan Bank advances......................... 107,700 63,950
Securities sold under agreements to repurchase.......... 300 22,873
Deferred tax liability.................................. 710 --
Accounts payable and accrued expenses................... 6,386 3,419
Other liabilities....................................... 3,384 3,332
-------- --------
Total liabilities.................................. 624,513 574,732
Stockholders' equity:
Common stock, $.01 par value.............................. 39 40
Authorized shares: 10,000,000 at March 31, 1996
Outstanding shares: 3,927,600 at March 31, 1996
Additional paid-in capital................................ 27,801 28,260
Retained earnings, substantially restricted............... 43,425 41,437
Deferred compensation..................................... (2,804) (3,296)
-------- --------
Total stockholders' equity......................... 68,461 66,441
-------- --------
Total liabilities and stockholders' equity......... $692,974 $641,173
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
------- -------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable...................................... $11,964 $ 9,395 $34,765 $26,548
Mortgage-backed securities............................ 744 656 2,282 1,377
Investment securities................................. 413 393 1,197 954
Other................................................. 204 129 586 448
------- ------- ------- -------
Total interest income........................ 13,325 10,573 38,830 29,327
------- ------- ------- -------
Interest expense:
Deposits.............................................. 6,267 5,345 18,937 14,426
Federal Home Loan Bank advances....................... 1,485 720 3,778 1,738
Other................................................. 53 145 478 232
------- ------- ------- -------
Total interest expense....................... 7,805 6,210 23,193 16,396
------- ------- ------- -------
Net interest income before provision for loan losses.. 5,520 4,363 15,637 12,931
Provision for loan losses.................................. 600 -- 1,301 795
------- ------- ------- -------
Net interest income after provision for loan losses... 4,920 4,363 14,336 12,136
------- ------- ------- -------
Other income:
Loan servicing charges and fees....................... 410 350 1,163 1,087
Gain on sale of loans held for sale................... 37 10 142 30
Commissions........................................... 216 83 420 317
Other................................................. 3 16 31 72
------- ------- ------- -------
Total other income........................... 666 459 1,756 1,506
------- ------- ------- -------
Other expense:
Compensation and employee benefits.................... 1,921 1,881 5,750 5,556
Occupancy, net........................................ 481 474 1,505 1,423
Federal deposit insurance premiums.................... 317 289 932 827
Other general and administrative expense.............. 1,057 989 2,888 2,914
------- ------- ------- -------
Total general and administrative expense..... 3,776 3,633 11,075 10,720
Real estate operations, net........................... 146 286 441 379
Amortization of core deposit intangible............... 76 76 227 227
------- ------- ------- -------
Total other expense........................... 3,998 3,995 11,743 11,326
------- ------- ------- -------
Earnings before income taxes.......................... 1,588 827 4,349 2,316
Income tax expense......................................... 655 264 1,810 751
------- ------- ------- -------
Net earnings.......................................... $ 933 $ 563 $ 2,539 $ 1,565
======= ======= ======= =======
Net earnings per share................................ $ 0.24 $ 0.15 $ 0.65 $ 0.41
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings..................................................................... $ 2,539 $ 1,565
--------- ---------
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization................................................ (304) (38)
Provision for loan losses.................................................... 1,301 795
Write-downs and provision for losses on real estate held for sale............ 231 431
Gain on sale of real estate held for sale.................................... (266) (453)
Provision for deferred income taxes.......................................... 943 576
Gain on sale of loans held for sale.......................................... (142) (30)
Loans originated for sale.................................................... (20,964) (5,478)
Sale of loans held for sale.................................................. 21,817 4,912
Federal Home Loan Bank (FHLB) stock dividend received........................ (185) (175)
(Increase) decrease in accrued interest receivable and other assets.......... 402 (2,735)
Increase in other liabilities................................................ 52 435
Increase in accounts payable and accrued expenses............................ 2,967 3,097
Other........................................................................ 432 (1,826)
--------- ---------
Total adjustments.......................................................... 6,284 (489)
--------- ---------
Net cash provided by operating activities.................................. 8,823 1,076
--------- ---------
Cash flows from investing activities:
Loans originated for investment.................................................. (66,004) (69,134)
Loans purchased for investment................................................... (21,569) (20,700)
Principal repayments on loans.................................................... 36,797 26,206
Sale of investment securities available for sale................................. 2,550 10,500
Purchases of investment securities available for sale............................ (2,400) (12,580)
Purchases of investment securities held to maturity.............................. (28,805) (12,188)
Maturities and principal repayments of investment securities held to maturity.... 30,134 7,016
Purchases of mortgage-backed securities held to maturity......................... (8,849) (26,784)
Sale of mortgage-backed securities available for sale............................ 1,754 --
Principal repayments on mortgage-backed securities held to maturity.............. 6,180 1,604
Sale of real estate held for sale................................................ 1,186 1,309
Purchase of FHLB stock........................................................... (971) (314)
Investment in office premises and equipment...................................... (953) (263)
--------- ---------
Net cash used by investing activities...................................... (50,950) (95,328)
--------- ---------
Cash flows from financing activities:
Increase in deposits............................................................. 24,875 54,819
Proceeds from securities sold under agreements to repurchase..................... 74,078 64,781
Repayments of securities sold under agreements to repurchase..................... (96,651) (48,015)
Proceeds from funding of FHLB advances........................................... 227,780 220,700
Repayments of FHLB advances...................................................... (184,030) (192,500)
Repurchase of stock.............................................................. (1,305) (986)
--------- ---------
Net cash provided by financing activities.................................. 44,747 98,799
--------- ---------
Increase in cash and cash equivalents...................................... 2,620 4,547
Cash and cash equivalents at beginning of period..................................... 19,348 4,327
--------- ---------
Cash and cash equivalents at end of period........................................... $ 21,968 $ 8,874
========= =========
</TABLE>
5
<PAGE>
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid (including interest credited)........................................ $ 23,096 $ 16,328
Cash paid for income taxes......................................................... 605 785
========= =========
Supplemental schedule of noncash investing and financing activities:
Additions to loans resulting from the sale of real estate acquired
through foreclosure............................................................... $ 2,758 $ 6,899
Additions to real estate acquired through foreclosure............................... 2,983 5,672
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
QUAKER CITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated statement of financial condition as of March 31, 1996, the
related consolidated statements of earnings for the three and nine months
ended March 31, 1996 and 1995 and the related consolidated statements of
cash flows for the nine months ended March 31, 1996 and 1995 are unaudited.
These statements reflect, in the opinion of management, all material
adjustments, consisting solely of normal recurring accruals, necessary for
a fair presentation of the financial condition of Quaker City Bancorp, Inc.
(the "Company") as of March 31, 1996 and its results of earnings for the
three and nine months ended March 31, 1996 and 1995 and cash flows for the
nine months ended March 31, 1996 and 1995. The results of operations for
the unaudited periods are not necessarily indicative of the results of
operations to be expected for the entire year of fiscal 1996.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all information and footnotes normally included in financial
statements prepared in conformity with generally accepted accounting
principles. Accordingly, these consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Form 10-K for the year ended June
30, 1995.
2. Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents, when dilutive, during the period.
3. Effective July 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 was subsequently amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure." A loan is considered impaired when based on current
circumstances and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Creditors are required to measure impairment of a loan based on
any one of the following: (i) the present value of expected future cash
flows from the loan discounted at the loan's effective interest rate, (ii)
an observable market price or (iii) the fair value of the loan's underlying
collateral. The adoption of SFAS 114 and 118 did not result in additional
charge-offs, provisions for loan losses or changes in previously reported
earnings, primarily because of the Company's historical practice of
measuring loan impairment based upon the fair value of the loan's
underlying collateral property, which is an acceptable methodology under
the provisions contained in SFAS 114 and 118.
At March 31, 1996, the Company had a gross investment in impaired loans of
$11.0 million, including $8.6 million for which provisions of $2.6 million
had been recorded and $2.4 million for which no provisions were required.
During the nine months ended March 31, 1996, the Company's average
investment in impaired loans was $12.9 million and income recorded on
impaired loans totaled $483,000, substantially all of which was recorded
utilizing the cash-basis method of accounting. Payments received on
impaired loans which are performing under their contractual terms are
allocated to principle and interest in accordance with the terms of the
loans. Impaired loans totalling to $8.6 million were not performing in
accordance with their contractual terms at March 31, 1996, and have been
included in non-accrual loans at that date.
7
<PAGE>
QUAKER CITY BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Quaker City Bancorp, Inc. (the "Company") is a Delaware corporation organized by
Quaker City Federal Savings and Loan Association (the "Association") for the
purpose of acquiring all of the capital stock of the Association issued during
the conversion of the Association from a federally chartered mutual savings
association to a federally chartered stock savings association. The Company
began trading on NASDAQ under the symbol "QCBC" on December 30, 1993.
The Company is primarily engaged in attracting deposits from the general public
in the areas in which its branches are located and investing such deposits and
other available funds in loans secured by one-to-four family residential
mortgages and multifamily mortgages. At March 31, 1996, the Company operated
eight retail banking offices located in Los Angeles and Orange counties.
The Company is subject to significant competition from other financial
institutions in its market area. The Company is also subject to regulation by
certain federal agencies and undergoes periodic examinations by those agencies.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Total stockholders' equity for the Company was $68.5 million at March 31, 1996,
compared to $66.4 million at June 30, 1995. During the third quarter of fiscal
1996, the Company completed its previously announced repurchase of 207,000
outstanding shares. The increase in the Company's book value per share reflects
both the Company's higher earnings during the past quarter and the reduced
number of shares outstanding resulting from the stock repurchase program.
Consolidated assets totaled $693.0 million at March 31, 1996, an increase of
$51.8 million compared to June 30, 1995.
In January 1996, the Company obtained approval to commence a new repurchase of
an additional 5%, or 197,000 shares, of the Company's outstanding stock. As
with the first repurchase program, the action is being taken to provide broader
market support for the Company's stock and in recognition of the relatively low
price of the stock, particularly compared to book value. At March 31, 1996,
30,000 shares had been repurchased under the new authorization.
8
<PAGE>
Loans receivable increased to $589.4 million at March 31, 1996, from $539.1
million at June 30, 1995. This growth was achieved as a result of loan
originations and purchases. Loan originations and purchases increased to $29.5
million for the quarter ended March 31, 1996, compared to $25.2 million for the
quarter ended March 31, 1995. For the nine months ended March 31, 1996 loan
originations and purchases increased to $108.5 million from $95.3 million for
the nine months ended March 31, 1995.
For the quarter ended March 31, 1996 loan originations and purchases were
comprised of $13.6 million of one-to-four family residential loans and $15.9
million of multifamily loans. No commercial or industrial loans were originated
or purchased for the quarter ended March 31, 1996. This compares to $10.1
million of one-to-four family residential loans, $13.9 million of multifamily
loans and $1.2 million of commercial and industrial loans for the quarter ended
March 31, 1995. For the nine months ended March 31, 1996 loan originations and
purchases were comprised of $50.5 million of one-to-four family residential
loans, $54.8 million of multifamily loans and $3.2 million of commercial and
industrial loans. This compares to $67.6 million of one-to-four family
residential loans, $23.4 million of multifamily loans and $4.3 million of
commercial and industrial loans for the nine months ended March 31, 1995. One-
to-four family loan originations decreased from the prior year due to the rise
in interest rates for much of the period. Multifamily originations increased
over comparable periods last year due to marketplace opportunities. The Company
expects to continue its focus on multifamily lending during the next fiscal
year.
Loan sales amounted to $7.3 million for the quarter ended March 31, 1996 as
compared to $1.4 million for the quarter ended March 31, 1995. Loans sales were
$21.8 million for the nine months ended March 31, 1996 as compared to $4.9
million for the nine months ended March 31, 1995. At present, the Company's
policy is to sell all 30 and 15 year fixed rate loans as well as certain single
family adjustable and multifamily loans originated that meet predefined
criteria. As a result of more loans being sold, loans serviced for others
increased slightly to $211.8 million at March 31, 1996, from $210.9 million at
March 31, 1995.
The primary sources of liquidity for the Company include principal repayments on
loans and mortgage-backed securities, proceeds from sales of loans held for
sale, cash flows generated from operations and proceeds from increases in
customer deposits, Federal Home Loan Bank advances and short term borrowings.
Retail deposits increased to $506.0 million at March 31, 1996 from $481.2
million at June 30, 1995, due to savings deposit promotions and interest
credited on deposits.
Principal repayments on loans were $15.1 million and $5.8 million for the three
months ended March 31, 1996 and 1995, respectively. For the nine months ended
March 31, 1996 and 1995 principal repayments on loans were $36.8 and $26.2
million, respectively.
Savings and loan associations must, by regulation, maintain liquidity of a
monthly average of 5% of deposits and short-term borrowings. The Association's
average liquidity ratios for the quarter ended March 31, 1996 and 1995 were
5.23% and 5.12%, respectively.
9
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995. The
- - ----------------------------------------------------------------------
Company recorded net earnings of $933,000 for the quarter ended March 31, 1996.
This compares to net earnings of $563,000 for the same period a year earlier.
Net earnings for the nine months ended March 31, 1996 were $2.5 million compared
to $1.6 million for the same period in the preceding year. Earnings per share
totaled $0.24 and $0.15 for the quarters ended March 31, 1996 and 1995,
respectively. Earnings per share totaled $0.65 and $0.41 for the nine months
ended March 31, 1996 and 1995, respectively. The earnings increase was
primarily the result of an increase in net interest income before provision for
loan losses.
INTEREST INCOME. Interest income amounted to $13.3 million for the quarter
- - ----------------
ended March 31, 1996 as compared to $10.6 million for the quarter ended March
31, 1995. For the nine months ended March 31, 1996, interest income totaled
$38.8 million, compared to $29.3 million for the same period in the previous
year. The increase in interest income is a result of the interest margin
increasing 30 basis points in the quarter compared to the same quarter in the
previous year as well as a larger earning asset base.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 1996 was
- - -----------------
$7.8 million, compared to $6.2 million for the same quarter in the previous
year. For the nine months ended March 31, 1996 interest expense totaled $23.2
million, compared to $16.4 million for the same period in the previous year.
This increase is a result of a higher cost of interest-bearing liabilities due
to higher interest rates and an increased balance of these liabilities during
the current fiscal year.
NET INTEREST INCOME. The net interest margin for the quarter ended March 31,
- - --------------------
1996 was 3.28%, a 30 basis point increase from the same period last year. For
the nine months ended March 31, 1996 the net interest margin was 3.20%, a 11
basis point increase from the same period last year. Net interest income before
provision for loan losses for the quarter ended March 31, 1996 amounted to $5.5
million compared to $4.4 million for the same period last year. Net interest
income before provision for loan losses for the nine months ended March 31, 1996
amounted to $15.6 million compared to $12.9 million for the same period last
year. This increase is a result of a larger earning asset base combined with
higher yields on interest-earning assets. The following table displays average
interest rates on the Company's interest-earning assets and interest-bearing
liabilities:
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1995
------------------------------------------------
NINE NINE
QUARTER MONTH QUARTER MONTH
AVERAGE AVERAGE AVERAGE AVERAGE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Yield on interest-earning assets........... 7.92% 7.94% 7.23% 7.02%
Cost of interest-bearing liabilities....... 5.20% 5.32% 4.76% 4.42%
---- ---- ---- ----
Interest rate spread (1)................... 2.72% 2.62% 2.47% 2.60%
==== ==== ==== ====
Net interest margin (2).................... 3.28% 3.20% 2.98% 3.09%
==== ==== ==== ====
</TABLE>
(1) The interest rate spread represents the difference between the weighted-
average rate on interest-earning assets and the weighted average rate on
interest-bearing liabilities.
(2) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
10
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan losses was $600,000 for the
- - --------------------------
three months ended March 31, 1996, compared to none for the same period last
year. The provision for loan losses for the nine months ended March 31, 1996
was $1.3 million as compared to $795,000 for the same period last year. The
allowance for loan losses is maintained at an amount management considers
adequate to cover losses on loans receivable which are deemed probable and
estimable and is based on management's evaluation of the risks inherent in its
loan portfolio and the general economy. A number of factors are considered,
including asset classifications, estimated collateral values, local economic
conditions, management's assessment of the credit risk inherent in the
portfolio, historical loan loss experience, and the Association's underwriting
policies.
As a result of the weakness in certain real estate markets and other economic
factors, increases in the allowance for loan losses may be required in future
periods. In addition, the Office of Thrift Supervision (OTS) and the Federal
Deposit Insurance Corporation (FDIC), as an integral part of their examination
process, periodically review the Company's allowance for loan losses. These
agencies may require the Company to establish additional allowance for loan
losses based on their judgments of the information available at the time of the
examination.
The following is a summary of the activity in the allowances for loan and real
estate losses:
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
--------- --------- --------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Accumulated through a charge to earnings:
Balance at beginning of period $ 7,921 $11,771 $10,614 $13,458
Provision for loan losses 600 -- 1,301 795
Charge-offs, net (1) (1,108) (682) (4,502) (3,164)
------- ------- ------- -------
Balance at end of period 7,413 11,089 7,413 11,089
------- ------- ------- -------
Valuation allowance for portfolios acquired:
Balance at beginning of period 1,780 191 1,494 202
Purchases -- -- 294 --
Reductions credited (4) (3) (12) (14)
------- ------- ------- -------
Balance at end of period 1,776 188 1,776 188
------- ------- ------- -------
Total allowance for loan losses $ 9,189 $11,277 $ 9,189 $11,277
======= ======= ======= =======
Allowance for real estate owned losses:
Balance at beginning of period $ 175 $ 175 $ 175 $ 115
Additions charged to operations -- -- -- 60
------- ------- ------- -------
Balance at end of period $ 175 $ 175 $ 175 $ 175
======= ======= ======= =======
</TABLE>
(1) Charge-offs were primarily from the real estate loan portfolio.
11
<PAGE>
OTHER INCOME. Other income for the three months ended March 31, 1996 was
- - -------------
$666,000 compared to $459,000 for the same period last year. For the nine
months ended March 31, 1996 other income was $1.8 million as compared to $1.5
million for the same period last year. The increase in other income was a
result of increased commissions earned on the sale of non-insured financial
products, primarily mutual funds and annuities and an increase in loan sales
during the current fiscal year and the gains associated with these sales.
OTHER EXPENSE. Other expense for the three months ended March 31, 1996 and
- - --------------
March 31, 1995 remained unchanged at $4.0 million. For the nine months ended
March 31, 1996 other expense was $11.7 million, compared to $11.3 million for
the same period earlier. The increase in other expense was a result of
compensation and employee benefits plans as well as an increase in FDIC
insurance premiums assessed due to the Company's asset growth.
NON-PERFORMING ASSETS AND RESTRUCTURED LOANS
The following table sets forth information regarding non-accrual loans, troubled
debt restructured loans and real estate acquired through foreclosure at the
dates indicated:
<TABLE>
<CAPTION>
AT AT AT
MARCH 31, JUNE 30, MARCH 31,
1996 1995 1995
--------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans:
Real estate loans:
One-to-four family $ 4,990 $ 1,503 $ 1,306
Multifamily 5,363 6,097 6,781
Commercial 3,689 3,868 4,227
Other 11 -- 1
------- ------- -------
Total non-accrual loans 14,053 11,468 12,315
Troubled debt restructured loans 1,255 3,387 3,390
------- ------- -------
Total non-performing loans 15,308 14,855 15,705
Real estate acquired through foreclosure 720 2,045 2,523
------- ------- -------
Total non-performing assets $16,028 $16,900 $18,228
======= ======= =======
Non-performing loans as a percentage of total loans (1)(2) 2.53% 2.67% 2.92%
Non-performing assets as a percentage of total assets (3) 2.31% 2.64% 2.96%
Allowance for loan losses as a percentage of total loans 1.52% 2.17% 2.10%
Allowance for loan losses as a percentage of non-performing loans 60.03% 81.51% 71.81%
Allowance for losses as a percentage of total non-performing assets (4) 58.42% 72.68% 62.83%
</TABLE>
(1) Generally, the Company discontinues interest accrual when loans become 60
days past due.
(2) Non-performing loans includes non-accrual loans and troubled debt
restructured loans (TDR) (TDRs are currently performing according to their
restructured terms).
(3) Non-performing assets include non-performing loans and real estate owned
(REO).
(4) Includes loan and REO valuation allowances.
The Company's non-accrual policy provides that interest accruals generally cease
once a loan is past due for a period of 60 days or more. Loans may also be
placed on non-accrual status even though they are less than 60 days past due if
management concludes that it is probable that the borrower will not be able to
comply with the repayment terms of the loan.
12
<PAGE>
Non-accrual loans at March 31, 1996 consisted of $5.0 million in one-to-four
family loans, $5.4 million in multifamily loans and $3.7 million in commercial
and industrial loans, which includes $1.4 million in land loans. At June 30,
1995, non-accrual loans consisted of $1.5 million in one-to-four family loans,
$6.1 million in multifamily loans and $3.9 million in commercial and industrial
loans, which includes $713,000 in land loans. Troubled debt restructured loans
(TDR's) declined to $1.3 million at March 31, 1996, from $3.4 million at June
30, 1995 as $2.1 million of TDR's were reclassified as non-accrual during the
first quarter. The composition of delinquencies and non-performing assets is
changing. During the current fiscal year, non-performing loans secured by
multifamily and commercial properties have steadily declined in both absolute
numbers and as a percentage of non-performing assets. Non-performing loans
secured by one-to-four family unit properties increased from 9.5% of non-
performing assets at June 30, 1995 to 34.6% at March 31, 1996.
The Company defines non-performing loans as non-accrual loans and troubled debt
restructured loans (at March 31, 1996, all troubled debt restructured loans were
performing according to their restructured terms). Non-performing assets are
defined as non-performing loans and real estate acquired through foreclosure.
Non-performing assets were $16.0 million at March 31, 1996, reduced from $16.9
million at June 30, 1995. Non-performing assets to total assets decreased to
2.31% at March 31, 1996, from 2.64% at June 30, 1995 primarily due to a decrease
in non-performing assets and an increase in total assets during the period.
The loan portfolio continues to experience problems resulting from factors such
as borrower layoffs and deterioration of real estate values. Multifamily loans
were also affected by increased vacancy rates and lower rents collected.
Although non-performing asset ratios have decreased, the Company's non-
performing assets and allowance for loan loss may increase as a result of the
continued weakness in the Southern California economy.
REGULATORY CAPITAL
Under OTS capital regulations the Association must meet three capital tests.
First, the tangible capital requirement mandates that the Association's
stockholder's equity less intangible assets be at least 1.50% of adjusted total
assets as defined in the capital regulations. Second, the core capital
requirement currently mandates core capital (tangible capital plus qualifying
supervisory goodwill) be at least 3.00% of adjusted total assets as defined in
the capital regulations. Third, the risk-based capital requirement presently
mandates that core capital plus supplemental capital as defined by the OTS be at
least 8.00% of risk-weighted assets as prescribed in the capital regulations.
The capital regulations assign specific risk weightings to all assets and off-
balance sheet items.
The Association was in compliance with all capital requirements in effect at
March 31, 1996, and meets all standards necessary to be considered "well-
capitalized" as defined by the Federal Deposit Insurance Corporation. The
decrease in tangible and core capital ratios to 7.89% and risk-based capital to
13.03% at March 31, 1996 from 8.11% and 14.07%, respectively at June 30, 1995,
was due primarily to an increase in assets during the nine months ended March
31, 1996.
13
<PAGE>
The following table reflects the required and actual regulatory capital ratios
of the Association at the dates indicated:
<TABLE>
<CAPTION>
REGULATORY CAPITAL RATIOS FOR QUAKER CITY FEDERAL SAVINGS AT MARCH 31, AT JUNE 30,
AND LOAN ASSOCIATION REQUIRED 1996 1995
- - --------------------------------------------------------- -------- ------------ -----------
<S> <C> <C> <C>
Tangible capital 1.50% 7.89% 8.11%
Core capital 3.00% 7.89% 8.11%
Risk-based capital 8.00% 13.03% 14.07%
</TABLE>
14
<PAGE>
PROSPECTIVE LEGISLATION
Under legislation currently pending in Congress, the FDIC would be granted
authority to impose a one-time special charge on the deposits of all savings
associations, including the Association, in order to insure the long term
solvency of the Savings Association Insurance Fund (SAIF). In its current form,
the legislation would permit the FDIC to impose an assessment on an
institution's total insured deposits as of the measurement date. If the
legislation is passed with a December 31, 1995 measurement date, the special
assessment could be $4.0 million to $4.5 million of pre-tax earnings for the
Association based upon contemplated assessment levels of [80-90] basis points.
Given the uncertainty of the legislative process, there can be no assurance that
such legislation will be adopted in this or any other form or that the
assessment rate will not be changed.
15
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information: Date of Annual Meeting
-----------------------------------------
The date of the 1996 annual meeting of stockholders of Quaker City
Bancorp, Inc. ("the Company") has been set for Wednesday, November 13,
1996. Pursuant to Section 6 of Article I of the Company's Bylaws,
stockholders who intend to submit a proposal or to make a nomination
of a person for election to the Board of Directors at the 1996 Annual
Meeting must provide timely written notice of the matter to the
Corporate Secretary of the Company. To be timely, a stockholder's
notice must be delivered or mailed to and received at the principal
executive offices of the Corporation no less than ninety (90) days
prior to the date of the Annual Meeting. Any notice to the Corporate
Secretary must comply with the notice procedures and informational
requirements of Section 6 of Article I of the Company's Bylaws (a copy
of which is available upon request to the Corporate Secretary of the
Company). No person shall be eligible for election as a Director of
the Corporation unless nominated in accordance with the provisions of
Section 6(c) of Article I of the Company's Bylaws.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits -
11.1 Computation of Earnings Per Share
(b) Reports on Form 8-K -
No reports on Form 8-K were filed by the registrant during the
quarter for which this report is filed.
16
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUAKER CITY BANCORP, INC.
Date: May 10, 1996 By: /s/ Dwight L. Wilson
------------ ---------------------------
Dwight L. Wilson
Senior Vice President,
Treasurer and Chief Financial Officer
17
<PAGE>
QUAKER CITY BANCORP
- - -------------------
COMPUTATION OF EARNINGS PER SHARE
MARCH 31, 1996
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1996
-------------- --------------
<S> <C> <C> <C>
A Average Common Shares Outstanding 3,693,528 3,711,149
-------------- -------------
Common Share Equivalents:
B Average Stock Options Outstanding 385,425 392,692
-------------- -------------
C Average Option Exercise Price $ 7.50 $ 7.50
-------------- -------------
D Exercise Proceeds [ B x C ] $2,890,688 $2,945,190
-------------- -------------
E Average Market Price in Period $ 13.17 $ 13.24
-------------- -------------
F Shares Repurchased At Market Price [ D / E ] 219,490 222,446
-------------- -------------
G Increase in Common Shares [ B - F ] 165,935 170,246
-------------- -------------
H Shares Outstanding and Equivalents [ A + G ] 3,859,463 3,881,395
============== =============
I Net Income for Period $ 933,000 $2,539,000
============== =============
Earnings Per Share [ I /H ] $ 0.24 $ 0.65
============== ==============
Market Price @ 3/31/96 $ 13.875
==============
</TABLE>
EXHIBIT 11.1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,511
<INT-BEARING-DEPOSITS> 5,257
<FED-FUNDS-SOLD> 15,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 22,576
<INVESTMENTS-MARKET> 0
<LOANS> 589,363
<ALLOWANCE> 9,189
<TOTAL-ASSETS> 692,974
<DEPOSITS> 506,033
<SHORT-TERM> 16,200
<LIABILITIES-OTHER> 10,480
<LONG-TERM> 91,800
0
0
<COMMON> 39
<OTHER-SE> 68,422
<TOTAL-LIABILITIES-AND-EQUITY> 692,974
<INTEREST-LOAN> 34,765
<INTEREST-INVEST> 3,479
<INTEREST-OTHER> 586
<INTEREST-TOTAL> 38,830
<INTEREST-DEPOSIT> 18,937
<INTEREST-EXPENSE> 23,193
<INTEREST-INCOME-NET> 15,637
<LOAN-LOSSES> 1,301
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,743
<INCOME-PRETAX> 4,349
<INCOME-PRE-EXTRAORDINARY> 4,349
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,539
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 7.94
<LOANS-NON> 14,053
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,255
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,108
<CHARGE-OFFS> 4,502
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 9,189
<ALLOWANCE-DOMESTIC> 9,189
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
