<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, 1997
--------------
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 (562) 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 14, 1997: 3,797,475
<PAGE>
QUAKER CITY BANCORP, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Financial Condition (unaudited) as of
March 31, 1997 and June 30, 1996.............................................................. 3
Consolidated Statements of Earnings (unaudited) for the Three Months
and Nine Months Ended March 31, 1997 and 1996................................................. 4
Consolidated Statements of Cash Flows (unaudited) for the Nine Months
Ended March 31, 1997 and 1996................................................................. 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 4. 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
Unaudited
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks......................................... $ 5,105 $ 2,184
Interest-bearing deposits....................................... 3,220 4,984
Federal funds sold and other short-term investments............. 8,750 6,400
Investment securities held to maturity.......................... 38,710 37,419
Investment securities available for sale........................ 1,116 --
Loans receivable, net................. ......................... 636,474 607,672
Loans receivable held for sale.................................. 1,498 2,890
Mortgage-backed securities held to maturity..................... 62,365 41,175
Real estate held for sale....................................... 2,153 3,058
Federal Home Loan Bank stock, at cost........................... 9,441 8,151
Office premises and equipment, net.............................. 4,293 4,176
Accrued interest receivable and other assets.................... 7,718 6,976
-------- --------
Total assets................................................. $780,843 $725,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits........................................................ $545,887 $512,517
Federal Home Loan Bank advances................................. 151,100 135,300
Securities sold under agreements to repurchase.................. -- 300
Deferred tax liability.......................................... 1,219 1,174
Accounts payable and accrued expenses........................... 9,401 2,870
Other liabilities............................................... 3,665 4,998
-------- --------
Total liabilities............................................ 711,272 657,159
Stockholders' equity:
Common stock, $.01 par value. Authorized 10,000,000 shares;
issued and outstanding 3,822,475 shares and 3,813,600 at
March 31, 1997 and June 30, 1996, respectively............... 38 38
Additional paid-in capital...................................... 27,286 27,017
Unrealized gain on securities available for sale................ 108 --
Retained earnings, substantially restricted..................... 44,358 43,515
Deferred compensation........................................... (2,219) (2,644)
-------- --------
Total stockholders' equity................................... 69,571 67,926
-------- --------
Total liabilities and stockholders' equity................... $780,843 $725,085
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited
(In thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable......................................... $13,040 $11,964 $38,267 $34,765
Mortgage-backed securities............................... 959 744 2,513 2,282
Investment securities.................................... 652 413 1,981 1,197
Other.................................................... 187 204 625 586
--------- --------- --------- ---------
Total interest income............................... 14,838 13,325 43,386 38,830
--------- --------- --------- ---------
Interest expense:
Deposits................................................. 6,660 6,267 19,457 18,937
Federal Home Loan Bank advances.......................... 2,184 1,485 6,225 3,778
Other.................................................... -- 53 4 478
---------- --------- --------- ---------
Total interest expense.............................. 8,844 7,805 25,686 23,193
---------- --------- --------- ---------
Net interest income before provision for loan losses..... 5,994 5,520 17,700 15,637
Provision for loan losses.................................. 500 600 2,501 1,301
---------- --------- --------- ---------
Net interest income after provision for loan losses...... 5,494 4,920 15,199 14,336
---------- --------- --------- ---------
Other income:
Loan servicing charges and fees.......................... 431 410 1,291 1,163
Gain on sale of loans held for sale...................... 78 37 189 142
Commissions.............................................. 113 216 401 420
Other.................................................... 18 3 27 31
--------- --------- --------- ---------
Total other income.................................. 640 666 1,908 1,756
--------- --------- --------- ---------
Other expense:
Compensation and employee benefits....................... 1,987 1,921 5,815 5,750
Occupancy, net........................................... 508 481 1,467 1,505
Federal deposit insurance premiums....................... 123 317 732 932
Other general and administrative expense................. 999 1,057 2,833 2,888
--------- --------- --------- ---------
Total general and administrative expense............ 3,617 3,776 10,847 11,075
Savings Association Insurance Fund special assessment.... -- -- 3,100 --
Real estate operations, net.............................. 116 146 567 441
Amortization of core deposit intangible.................. 61 76 212 227
--------- --------- --------- ---------
Total other expense................................. 3,794 3,998 14,726 11,743
--------- --------- --------- ---------
Earnings before income taxes............................. 2,340 1,588 2,381 4,349
Income taxes............................................... 1,001 655 1,050 1,810
--------- --------- --------- ---------
Net earnings............................................. $1,339 $933 $1,331 $2,539
========= ========= ========= =========
Net earnings per share................................... $0.36 $0.24 $0.36 $0.65
Weighted average common and common equivalent shares..... 3,707,077 3,859,463 3,695,690 3,881,395
</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,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings..................................................................... $ 1,331 $ 2,539
---------- ---------
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization................................................ (168) (304)
Provision for loan losses.................................................... 2,501 1,301
Write-downs and provision for losses on real estate held for sale............ 357 231
Gain on sale of real estate held for sale.................................... (248) (266)
Provision for deferred income taxes.......................................... 45 943
Gain on sale of loans held for sale.......................................... (189) (142)
Loans originated for sale.................................................... (18,915) (20,964)
Proceeds from sale of loans held for sale.................................... 20,309 21,817
Federal Home Loan Bank (FHLB) stock dividend received........................ (236) (185)
(Increase) decrease in accrued interest receivable and other assets.......... (953) 402
Increase (decrease) in other liabilities..................................... (1,333) 52
Increase in accounts payable and accrued expenses............................ 6,531 2,967
Other........................................................................ 1,346 432
-------- --------
Total adjustments........................................................ 9,047 6,284
-------- --------
Net cash provided by operating activities................................ 10,378 8,823
-------- --------
Cash flows from investing activities:
Loans originated for investment.................................................. (63,150) (66,004)
Loans purchased for investment................................................... (8,098) (21,569)
Principal repayments on loans.................................................... 39,284 36,797
Proceeds from sale of investment securities available for sale................... -- 2,550
Purchases of investment securities available for sale............................ (1,008) (2,400)
Purchases of investment securities held to maturity.............................. (7,996) (28,805)
Maturities and principal repayments of investment securities held to maturity.... 6,726 30,134
Purchases of mortgage-backed securities held to maturity......................... (26,897) (8,849)
Proceeds from sale of mortgage-backed securities available for sale.............. -- 1,754
Principal repayments on mortgage-backed securities held to maturity.............. 5,750 6,180
Proceeds from sale of real estate held for sale.................................. 2,371 1,186
Purchase of FHLB stock........................................................... (1,054) (971)
Investment in office premises and equipment...................................... (716) (953)
-------- --------
Net cash used by investing activities.................................... (54,788) (50,950)
-------- --------
Cash flows from financing activities:
Increase in deposits............................................................. 33,370 24,875
Proceeds from securities sold under agreements to repurchase..................... -- 74,078
Repayments of securities sold under agreements to repurchase..................... (300) (96,651)
Proceeds from funding of FHLB advances........................................... 291,500 227,780
Repayments of FHLB advances...................................................... (275,700) (184,030)
Repurchase of stock.............................................................. (953) (1,305)
-------- --------
Net cash provided by financing activities................................ 47,917 44,747
-------- --------
Increase in cash and cash equivalents.................................... 3,507 2,620
Cash and cash equivalents at beginning of period................................... 13,568 19,348
-------- --------
Cash and cash equivalents at end of period......................................... $ 17,075 $ 21,968
========= =========
</TABLE>
5
<PAGE>
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Unaudited
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid (including interest credited)............................................. $25,226 $23,096
Cash paid for income taxes.............................................................. 418 605
======= =======
Supplemental schedule of noncash investing and financing activities:
Additions to loans resulting from the sale of real estate acquired
through foreclosure................................................................... $ 3,850 $ 2,758
Additions to real estate acquired through foreclosure................................... 5,729 2,983
======= =======
</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, 1997, the
related consolidated statements of earnings for the three and nine months
ended March 31, 1997 and 1996 and the related consolidated statements of
cash flows for the nine months ended March 31, 1997 and 1996 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, 1997 and its results of earnings for
the three and nine months ended March 31, 1997 and 1996 and cash flows for
the nine months ended March 31, 1997 and 1996. 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 1997.
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, 1996.
2. Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents, when dilutive, during the period.
3. In June 1996, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets, and distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
This statement supersedes SFAS No. 122, although the general concepts of
SFAS No. 122 are retained in it. Effective January 1, 1997, the Company
adopted SFAS No. 125. There was no material effect on the Company's
financial condition as of March 31, 1997, or results of operations for the
three month period then ended, resulting from the adoption of SFAS No. 125.
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 primarily in loans secured by one-to-four family
residential mortgages and multifamily mortgages. At March 31, 1997, 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.
On April 24, 1997, the Board of Directors of the Company declared a 25% common
stock dividend payable on May 30, 1997, to shareholders of record as of the
close of business on May 12, 1997. Certificates representing the additional
shares will be mailed to shareholders in early June. As of May 12, 1997, the
Company had 3,797,475 shares of common stock outstanding.
In September 1996, federal legislation which recapitalized the Savings
Association Insurance Fund (SAIF) through a one-time special assessment was
enacted. The special assessment was based on the level of the Association's
deposits as of March 31, 1995 at an assessment rate of 65.7 basis points. For
the quarter ended September 30, 1996, the Association accrued $3.1 million in
expense for this special assessment and paid this amount during the second
quarter of fiscal 1997. Effective January 1, 1997, the annual amount the
Association pays for deposit insurance was reduced to 6.45 basis points from 23
basis points.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Total stockholders' equity for the Company was $69.6 million at March 31, 1997,
compared to $67.9 million at June 30, 1996. Consolidated assets totaled $780.8
million at March 31, 1997, an increase of $55.7 million compared to June 30,
1996.
In the first quarter of fiscal 1997, the Office of Thrift Supervision approved
an additional stock repurchase of 189,000 shares, which is approximately 5% of
outstanding shares. To date, 60,000 shares of stock have been repurchased as
allowable under this latest approval.
8
<PAGE>
Total loans receivable amounted to $638.0 million at March 31, 1997, compared to
$610.6 million at June 30, 1996. Loan originations and purchases totaled $24.2
million for the quarter ended March 31, 1997, compared to $29.5 million for the
quarter ended March 31, 1996. For the nine months ended March 31, 1997, loan
originations and purchases totaled $90.2 million compared to $108.5 million for
the nine months ended March 31, 1996.
For the quarter ended March 31, 1997 loan originations and purchases were
comprised of $8.1 million of one-to-four family residential loans, $15.8 million
of multifamily loans and $292,000 of commercial and industrial loans. This
compares to $13.6 million of one-to-four family residential loans and $15.9
million of multifamily loans for the quarter ended March 31, 1996. No
commercial or industrial loans were originated or purchased for the quarter
ended March 31, 1996. For the nine months ended March 31, 1997, loan
originations and purchases were comprised of $25.7 million of one-to-four family
residential loans, $64.2 million of multifamily loans and $292,000 of commercial
and industrial loans. This compares to $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 for the nine months ended March 31, 1996. One-
to-four family loan originations and purchases decreased from the prior year
primarily as a result of a reduction in loans purchased. Increased pricing in
the marketplace on potential loan purchase transactions has made these purchases
less attractive to the Company. As a result, loans purchased decreased to $8.1
million for the nine months ended March 31, 1997 as compared to $21.6 million
for the same period in the previous year. Multifamily originations increased
over comparable periods last year due to marketplace opportunities. At present,
the Company expects to continue its focus on multifamily lending during the
current fiscal year.
Mortgage-backed securities held to maturity amounted to $62.4 million at March
31, 1997, compared to $41.2 million at June 30, 1996. The Company increased
earning assets during the first nine months of the fiscal year by purchasing
mortgage-backed securities consistent with its current business strategy. For
the nine months ended March 31, 1997 the Company purchased $26.9 million in
mortgage-backed securities, compared to $8.8 million for the same period in the
previous year. The purchase of mortgage-backed securities were funded primarily
with Federal Home Loan Bank advances.
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, other cash flows generated from operations and proceeds from increases in
customer deposits and Federal Home Loan Bank advances.
Proceeds from loan sales amounted to $8.3 million for the quarter ended March
31, 1997 as compared to $6.8 million for the quarter ended March 31, 1996.
Proceeds from loan sales were $20.3 million for the nine months ended March 31,
1997 as compared to $21.8 million for the nine months ended March 31, 1996. At
present, the Company's policy is to sell all 30 and 15 year fixed rate loans as
well as certain one-to-four family adjustable and multifamily loans originated
that meet predefined criteria. As a result of loans being sold, loans serviced
for others increased to $216.4 million at March 31, 1997, from $211.8 million at
March 31, 1996.
Principal repayments on loans were $16.0 million and $15.1 million for the three
months ended March 31, 1997 and 1996, respectively. For the nine months ended
March 31, 1997 and 1996, principal repayments on loans were $39.3 and $36.8
million, respectively.
9
<PAGE>
Retail deposits increased to $545.9 million at March 31, 1997 from $512.5
million at June 30, 1996. During the quarter ended March 31, 1997, the
Association initiated a retail banking promotion featuring money market checking
accounts with minimum balances of $5,000 to increase total transaction accounts
as a percentage of total retail deposits. Transaction accounts consist of
checking and passbook accounts including money market accounts. Primarily as a
result of this promotion, total transaction accounts at the end of the quarter
increased to $157.1 million or 28.8% of total retail deposits compared to $118.2
million or 22.7% of retail deposits at December 31, 1996. The promotion offered
a higher introductory rate on the money market account guaranteed through March
31, 1997. The impact of this introductory rate combined with the new retail
deposits attracted by this promotion contributed to a decline in the net
interest margin for the quarter.
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 ratio for the quarters ended March 31, 1997 and 1996 was 5.11%
and 5.23%, respectively.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996 The
- ---------------------------------------------------------------------
Company recorded net earnings of $1.3 million, $0.36 per share, for the quarter
ended March 31, 1997. This compares to net earnings of $933,000, $0.24 per
share, for the same period in fiscal 1996. For the nine months ended March 31,
1997, the Company reported net earnings of $1.3 million, $0.36 per share. This
compared to net earnings of $2.5 million, $0.65 per share, for the same period a
year earlier. The decrease in net earnings for the nine months ended March 31,
1997 is due primarily to the one-time SAIF special assessment accrued in the
first quarter and paid in the second quarter of fiscal 1997.
INTEREST INCOME Interest income amounted to $14.8 million for the quarter ended
- ---------------
March 31, 1997 as compared to $13.3 million for the quarter ended March 31,
1996. For the nine months ended March 31, 1997, interest income amounted to
$43.4 million as compared to $38.8 million a year earlier. The increase in
interest income for the three and nine month periods is a result of a larger
earning asset base for the respective period compared to the same period in the
previous year.
INTEREST EXPENSE Interest expense for the quarter ended March 31, 1997 was $8.8
- ----------------
million, compared to $7.8 million for the same quarter in the previous year.
Interest expense for the nine months ended March 31, 1997 was $25.7 million,
compared to $23.2 million for the same period in the previous year. The
increase in interest expense is a result of an increase in the average balance
of liabilities during the current fiscal year partially offset by a decline in
the cost of interest-bearing liabilities for the first two quarters of the
current fiscal year.
NET INTEREST INCOME The net interest margin for the quarter ended March 31,
- -------------------
1997 was 3.21%, a 7 basis point decrease from the same period last year. For
the nine months ended March 31, 1997 the net interest margin was 3.24%, a 4
basis point increase from the same period last year. Net interest income before
provision for loan losses for the quarter ended March 31, 1997 amounted to $6.0
million compared to $5.5 million for the same period last year. For the nine
months ended March 31, 1997 and 1996, net interest income before provision for
loan losses was $17.7 million and $15.6 million, respectively. This increase is
primarily a result of a larger earning asset base combined with a decline in the
cost of liabilities that was a result of the general decline in market rates for
the first two quarters of the fiscal year.
10
<PAGE>
The following table displays average interest rates on the Company's interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
Three Nine Three Nine
Month Month Month Month
Average Average Average Average
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Yield on interest-earning assets............................ 7.94% 7.93% 7.92% 7.94%
Cost of interest-bearing liabilities........................ 5.21% 5.18% 5.20% 5.32%
----- ----- ----- -----
Interest rate spread (1).................................... 2.73% 2.75% 2.72% 2.62%
===== ===== ===== =====
Net interest margin (2)..................................... 3.21% 3.24% 3.28% 3.20%
===== ===== ===== =====
</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.
PROVISION FOR LOAN LOSSES The provision for loan losses was $500,000 for the
- -------------------------
three months ended March 31, 1997, compared to $600,000 for the same period last
year. The provision for loan losses for the nine months ended March 31, 1997
was $2.5 million as compared to $1.3 million for the same period last year.
Although the level of non-performing assets has declined from June 30, 1996,
management believed it prudent to increase the general valuation allowance to
keep pace with the growth in the loan portfolio and an increase in performing
loans which demonstrated some weakness during the first quarter of fiscal 1997.
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.
11
<PAGE>
The following is a summary of the activity in the allowance for loan losses and
the allowance for losses on real estate acquired through foreclosure (REO):
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Accumulated through a charge to earnings:
Balance at beginning of period............... $6,664 $ 7,921 $ 6,542 $10,614
Provision for loan losses.................... 500 600 2,501 1,301
Charge-offs, net............................. (375) (1,108) (2,254) (4,502)
----- ------ ------ -------
Balance at end of period..................... 6,789 7,413 6,789 7,413
Valuation allowance for portfolios acquired:
Balance at beginning of period............... 1,284 1,780 1,291 1,494
Purchases.................................... -- -- -- 294
Reductions credited.......................... (6) (4) (13) (12)
------ ------- ------ ------
Balance at end of period..................... 1,278 1,776 1,278 1,776
------ ------- ------ ------
Total allowance for loan losses(1)........ $8,067 $ 9,189 $ 8,067 $ 9,189
====== ======= ====== ======
Allowance for REO losses:
Balance at beginning of period............... $175 $175 $175 $175
Additions charged to operations.............. -- -- -- --
------ ------- ------- -------
Balance at end of period..................... $175 $175 $175 $175
====== ======= ======= =======
(1) Includes specific allowances of $1.8 million and $3.3 million at March 31, 1997 and 1996, respectively.
</TABLE>
OTHER INCOME Other income for the three months ended March 31, 1997 was
- ------------
$640,000 compared to $666,000 for the same period last year. For the nine
months ended March 31, 1997 other income was $1.9 million as compared to $1.8
million for the same period a year earlier. The decline in other income for the
three months ended March 31, 1997 was a result of reduced commission on the sale
of non-insured financial products, partially offset by an increase in loan
servicing fees and gain on sale of loans held for sale. The increase in other
income for the nine months ended March 31, 1997 was primarily a result of
increased loan servicing fees.
OTHER EXPENSE Other expense for the three months ended March 31, 1997 was $3.8
- -------------
million, compared to $4.0 million the same period last year. For the nine
months ended March 31, 1997 other expense was $14.7 million, compared to $11.7
million for the same period last year. The decline in other expense for the
three months ended March 31, 1997 was primarily a result of reduction in deposit
insurance from 23 basis points to 6.45 basis points effective January 1, 1997.
The increase in other expense for the nine months ended March 31, 1997 was
primarily a result of the $3.1 million expense for the one-time special SAIF
assessment.
Compensation expense recognized with respect to the ESOP for the three months
ended March 31, 1997 was $194,000, compared to $136,000 for the same period last
year. For the nine months ended March 31, 1997, compensation expense with
respect to the ESOP was $513,000, compared to $436,000 for the same period last
12
<PAGE>
year. Fair value exceeded the cost basis of the ESOP shares by $280,000 and
$189,000 for the nine months ended March 31, 1997 and 1996, respectively, and
was offset as a credit to paid in capital.
INCOME TAXES The effective tax rates were 42.8% and 41.2% for the quarter
- ------------
ended March 31, 1997 and 1996, respectively, and were comparable to the
applicable statutory rates in effect.
ASSET QUALITY
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,
1997 1996 1996
---- ---- ----
<S> (Dollars in thousands)
Non-accrual loans (1):
Real estate loans:
<C> <C> <C>
One-to-four family......................................... $ 4,389 $ 1,614 $ 4,464
Multifamily................................................ 2,520 4,949 3,528
Commercial................................................. 2,971 3,781 3,228
Other...................................................... -- 105 11
------- ------- -------
Total non-accrual loans.................................... 9,880 10,449 14,053
Troubled debt restructured loans (5)............................... 232 234 1,255
------- ------- -------
Total non-performing loans................................ 10,112 10,683 15,308
Real estate acquired through foreclosure.......................... 1,551 2,435 720
------- ------- -------
Total non-performing assets.............................. $11,663 $13,118 $16,028
======= ======= =======
Non-performing loans as a percentage of total loans (1)(2)........ 1.55% 1.71% 2.06%
Non-performing assets as a percentage of total assets (3)......... 1.49% 1.81% 1.91%
General Valuation Allowance (GVA) on loans
as a percentage of total loans................................ 0.96% 0.92% 0.97%
GVA on loans as a percentage of non-performing loans (1)(2)....... 61.87% 53.52% 47.00%
Total GVA as a percentage of total non-performing assets (3)(4)... 55.14% 44.92% 45.76%
</TABLE>
(1) Generally, the Company discontinues interest accrual when loans become 60
days past due.
(2) Non-performing loans are net of specific allowances and include non-accrual
loans and troubled debt restructured loans.
(3) Non-performing assets include non-performing loans and REO.
(4) Includes loan and REO general valuation allowances.
(5) All troubled debt restructured loans are currently performing according to
their restructured terms.
The Company's non-accrual policy provides that interest accruals generally are
to be discontinued 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.
The Company defines non-performing loans as non-accrual loans and troubled debt
restructured loans (at March 31, 1997, all troubled debt restructured loans
were performing according to their restructured terms). Non-performing loans are
reported net of specific allowances. Non-performing assets are defined as non-
performing loans and real estate acquired through foreclosure.
13
<PAGE>
Non-accrual loans at March 31, 1997 consisted of $4.4 million in one-to-four
family loans, $2.5 million in multifamily loans and $3.0 million in commercial
and industrial loans, which includes $1.0 million in land loans. At June 30,
1996, non-accrual loans consisted of $1.6 million in one-to-four family loans,
$4.9 million in multifamily loans and $3.8 million in commercial and industrial
loans, which includes $1.4 million in land loans, and $105,000 in other loans.
Troubled debt restructured loans at March 31, 1997 remained relatively unchanged
as compared to June 30, 1996 at approximately $230,000.
Non-performing assets were $11.7 million at March 31, 1997 which decreased from
$13.1 million at June 30, 1996. Non-performing assets to total assets decreased
to 1.49% at March 31, 1997 from 1.81% at June 30, 1996 due to a decrease in non-
performing assets during the period, as well as an increase in total assets of
the Company.
Although there was an overall decline in non-performing assets, the loan
portfolio continues to experience problems resulting from factors such as
borrower layoffs and deterioration of real estate values particularly in one-to-
four family properties as evidenced by an increase in non-accrual one-to-four
family loans at March 31, 1997 as compared to June 30, 1996. The Company
believes, however, that the Southern California economy may be improving and
many borrowers are reporting lower vacancy rates on multifamily properties.
IMPAIRED LOANS 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
Company measures loan impairment based upon the fair value of the loan's
underlying collateral property. Impaired loans exclude large groups of smaller
balance homogeneous loans that are collectively evaluated for impairment. For
the Association, loans collectively reviewed for impairment include all loans
with principal balances of less than $300,000. At March 31, 1997, the Company
had a gross investment in impaired loans of $8.2 million, including $5.4 million
for which allowances of $1.2 million had been recorded and $2.8 million for
which no allowances were required.
During the three and nine months ended March 31, 1997, the Company's average
investment in impaired loans was $7.7 million and $8.2 million, respectively.
For the three and nine months ended March 31, 1997, income recorded on impaired
loans totaled $196,000 and $523,000 respectively, 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 principal and interest in accordance with the terms of the loans. Impaired
loans totalling $4.1 million were not performing in accordance with their
contractual terms at March 31, 1997, and have been included in non-accrual loans
at that date.
14
<PAGE>
REGULATORY CAPITAL
FIRREA and the regulations promulgated thereunder established certain minimum
levels of regulatory capital for savings institutions subject to OTS
supervision. 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, 1997, and meets all standards necessary to be considered "well-
capitalized" under the prompt corrective action regulations adopted by the OTS
pursuant to the Federal Deposit Improvement Act of 1991 (FDICIA). The decrease
in tangible and core capital ratios to 7.33% and risk-based capital to 12.31% at
March 31, 1997 from 7.67% and 12.74%, respectively, at June 30, 1996, was due
primarily to an increase in assets during the nine months ended March 31, 1997
and the one-time SAIF assessment.
The following table reflects the required and actual regulatory capital ratios
of the Association at the dates indicated:
<TABLE>
<CAPTION>
FIRREA FDICIA ACTUAL ACTUAL
REGULATORY CAPITAL RATIOS FOR QUAKER CITY MINIMUM "WELL-CAPITALIZED" AT MARCH 31, AT JUNE 30,
FEDERAL SAVINGS AND LOAN ASSOCIATION REQUIREMENT REQUIREMENT 1997 1996
- -------------------------------------------- ----------- ------------------ ------------ -----------
<S> <C> <C> <C> <C>
Tangible capital........................... 1.50% N/A 7.33% 7.67%
Core capital............................... 3.00% 5.00% 7.33% 7.67%
Risk-based capital......................... 8.00% 10.00% 12.31% 12.74%
Tier 1 Risk-based capital.................. N/A 6.00% 11.08% 11.53%
</TABLE>
15
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 5. Other Information: Date of Annual Meeting
- ------- -----------------------------------------
The date of the 1997 annual meeting of stockholders of Quaker City
Bancorp, Inc. ("the Company") has been set for Wednesday, November
19, 1997. 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 1997 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
27.1 Financial Data Schedule
(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 14, 1997 By: /s/ Dwight L. Wilson
------------ -----------------------------------
Dwight L. Wilson
Senior Vice President,
Treasurer and Chief Financial Officer
17
<PAGE>
QUAKER CITY BANCORP, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1997
---- ----
<S> <C> <C>
A Average Common Shares Outstanding 3,522,702 3,517,119
------------------- -----------------
Common Share Equivalents:
B Average Stock Options Outstanding 307,183 327,050
------------------- -----------------
C Average Option Exercise Price $ 7.50 $ 7.50
------------------- -----------------
D Exercise Proceeds [ B x C ] $2,303,873 $2,452,875
------------------- -----------------
E Average Market Price in Period $ 18.76 $ 16.52
------------------- -----------------
F Shares Repurchased At Market Price [ D / E ] 122,808 148,479
------------------- -----------------
G Increase in Common Shares [ B - F ] 184,375 178,571
------------------- -----------------
H Shares Outstanding and Equivalents [ A + G ] 3,707,077 3,695,690
=================== =================
I Net earnings for Period $1,339,000 $1,331,000
=================== =================
Earnings Per Share [ I /H ] $ 0.36 $ 0.36
=================== =================
Market Price at end of period $ 19.50
=================
</TABLE>
EXHIBIT 11.1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 5,105
<INT-BEARING-DEPOSITS> 3,220
<FED-FUNDS-SOLD> 2,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,116
<INVESTMENTS-CARRYING> 38,710
<INVESTMENTS-MARKET> 38,710
<LOANS> 637,972
<ALLOWANCE> 8,067
<TOTAL-ASSETS> 780,843
<DEPOSITS> 545,887
<SHORT-TERM> 80,100
<LIABILITIES-OTHER> 14,285
<LONG-TERM> 71,000
0
0
<COMMON> 38
<OTHER-SE> 69,533
<TOTAL-LIABILITIES-AND-EQUITY> 780,843
<INTEREST-LOAN> 38,267
<INTEREST-INVEST> 4,494
<INTEREST-OTHER> 625
<INTEREST-TOTAL> 43,386
<INTEREST-DEPOSIT> 19,457
<INTEREST-EXPENSE> 25,686
<INTEREST-INCOME-NET> 17,700
<LOAN-LOSSES> 2,501
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,726
<INCOME-PRETAX> 2,381
<INCOME-PRE-EXTRAORDINARY> 2,381
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,331
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 7.93
<LOANS-NON> 9,880
<LOANS-PAST> 0
<LOANS-TROUBLED> 232
<LOANS-PROBLEM> 4,100
<ALLOWANCE-OPEN> 6,542
<CHARGE-OFFS> 2,254
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 8,067
<ALLOWANCE-DOMESTIC> 8,067
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
