<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 September 30, 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
November 14, 1997: 4,673,094
<PAGE>
QUAKER CITY BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Financial Condition (unaudited) as of
September 30, 1997 and June 30, 1997......................................... 3
Consolidated Statements of Operations (unaudited) for the Three Months
Ended September 30, 1997 and 1996............................................ 4
Consolidated Statements of Cash Flows (unaudited) for the Three Months
Ended September 30, 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 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>
SEPTEMBER 30, JUNE 30,
1997 1997
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks.................................................... $ 6,640 $ 7,067
Interest-bearing deposits................................................... 239 336
Federal funds sold and other short-term investments......................... 12,150 12,950
Investment securities held to maturity...................................... 33,529 36,654
Investment securities available for sale, at fair value..................... 1,832 1,432
Loans receivable, net....................................................... 659,800 644,964
Loans receivable held for sale.............................................. 726 623
Mortgage-backed securities held to maturity................................. 99,399 74,139
Mortgage-backed securities available for sale, at fair value................ 8,237 --
Real estate held for sale................................................... 3,520 2,314
Federal Home Loan Bank stock, at cost....................................... 10,291 9,718
Office premises and equipment, net.......................................... 4,171 4,217
Accrued interest receivable and other assets................................ 6,490 6,988
-------- --------
Total assets............................................................... $847,024 $801,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits................................................................... $562,677 $553,186
Federal Home Loan Bank advances............................................. 188,600 157,700
Deferred tax liability...................................................... 1,579 1,413
Accounts payable and accrued expenses...................................... 4,156 3,543
Other liabilities........................................................... 18,378 15,317
-------- --------
Total liabilities.......................................................... 775,390 731,159
Stockholders' equity:
Common stock, $.01 par value. Authorized 10,000,000 shares; issued
and outstanding 4,673,094 shares and 4,703,102 at September 30, 1997
and June 30, 1997, respectively............................................ 47 47
Additional paid-in capital................................................. 44,058 44,051
Unrealized gain on securities available for sale............................ 370 136
Retained earnings, substantially restricted................................ 29,166 28,122
Deferred compensation....................................................... (2,007) (2,113)
-------- --------
Total stockholders' equity................................................. 71,634 70,243
-------- --------
Total liabilities and stockholders' equity................................. $847,024 $801,402
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans receivable....................................................... $ 13,318 $ 12,431
Mortgage-backed securities............................................. 1,508 750
Investment securities.................................................. 568 670
Other.................................................................. 333 216
---------- ----------
Total interest income.............................................. 15,727 14,067
---------- ----------
Interest expense:
Deposits............................................................... 7,124 6,408
Federal Home Loan Bank advances and other borrowings................... 2,544 1,873
---------- ----------
Total interest expense............................................. 9,668 8,281
Net interest income before provision for loan losses.................... 6,059 5,786
Provision for loan losses................................................. 250 1,500
---------- ----------
Net interest income after provision for loan losses..................... 5,809 4,286
---------- ----------
Other income:
Loan servicing charges and other fees.................................. 485 411
Gain on sale of loans held for sale.................................... 30 53
Commissions............................................................ 174 140
Other.................................................................. 2 6
---------- ----------
Total other income................................................. 691 610
---------- ----------
Other expense:
Compensation and employee benefits..................................... 2,043 1,928
Occupancy, net......................................................... 483 472
Federal deposit insurance premiums..................................... 126 326
Data processing........................................................ 169 168
Other general and administrative expense............................... 728 694
---------- ----------
Total general and administrative expense........................... 3,549 3,588
Savings Association Insurance Fund special assessment.................. -- 3,100
Real estate operations, net............................................ 159 282
Amortization of core deposit intangible................................ 35 76
---------- ----------
Total other expense................................................ 3,743 7,046
---------- ----------
Earnings (loss) before income taxes................................... 2,757 (2,150)
Income taxes (benefit).................................................... 1,227 (883)
---------- ----------
Net earnings (loss).................................................... $ 1,530 ($1,267)
========== ==========
Net earnings (loss) per share.......................................... $0.33 ($0.28)
Weighted average shares outstanding.................................... 4,670,212 4,545,826
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)...................................................................... $ 1,530 ($1,267)
-------- --------
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization........................................................ 75 (16)
Provision for loan losses............................................................ 250 1,500
Write-downs and provision for losses on real estate held for sale.................... 32 120
Gain (loss) on sale of real estate held for sale..................................... (27) 2
Gain on sale of loans held for sale.................................................. (30) (53)
Loans originated for sale............................................................ (3,570) (4,572)
Proceeds from sale of loans held for sale............................................ 3,460 5,988
Federal Home Loan Bank (FHLB) stock dividend received................................ (148) --
(Increase) decrease in accrued interest receivable and other assets.................. 463 (83)
Increase in other liabilities........................................................ 3,061 833
Increase in accounts payable and accrued expenses.................................... 613 3,621
Other................................................................................ (453) (524)
-------- --------
Total adjustments................................................................ 3,726 6,816
-------- --------
Net cash provided by operating activities........................................ 5,256 5,549
-------- --------
Cash flows from investing activities:
Loans originated for investment.......................................................... (14,057) (24,139)
Loans purchased for investment........................................................... (18,153) (3,549)
Principal repayments on loans............................................................ 16,700 11,901
Purchases of investment securities held to maturity...................................... -- (2,999)
Maturities and principal repayments of investment securities held to maturity............ 3,128 2,185
Purchases of mortgage-backed securities available for sale............................... (8,237) --
Purchases of mortgage-backed securities held to maturity................................. (28,478) (1,349)
Principal repayments on mortgage-backed securities held to maturity...................... 3,188 1,391
Proceeds from sale of real estate held for sale.......................................... 192 1,679
Purchase of FHLB stock................................................................... (425) (105)
Investment in office premises and equipment.............................................. (163) (171)
-------- --------
Net cash used by investing activities............................................ (46,305) (15,156)
-------- --------
Cash flows from financing activities:
Increase in deposits..................................................................... 9,491 5,817
Repayments of securities sold under agreements to repurchase............................. -- (300)
Proceeds from funding of FHLB advances................................................... 115,800 74,200
Repayments of FHLB advances.............................................................. (84,900) (70,000)
Stock options exercised.................................................................. 21 150
Repurchase of stock...................................................................... (687) (517)
-------- --------
Net cash provided by financing activities........................................ 39,725 9,350
-------- --------
Decrease in cash and cash equivalents............................................ (1,324) (257)
Cash and cash equivalents at beginning of period............................................. 20,353 13,568
-------- --------
Cash and cash equivalents at end of period................................................... $ 19,029 $ 13,311
======== ========
</TABLE>
5
<PAGE>
Quaker City Bancorp, Inc.
Consolidated Statements of Cash Flows
(continued)
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid (including interest credited)...................................... $9,336 $8,261
Cash paid for income taxes....................................................... 2,025 418
====== ======
Supplemental schedule of noncash investing and financing activities:
Additions to loans resulting from the sale of real estate acquired
through foreclosure............................................................. $ 43 $ 219
Additions to real estate acquired through foreclosure............................ 1,394 2,272
Net change in unrealized gain on securities available for sale, net of taxes... 234 --
====== ======
</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 September 30, 1997,
the related consolidated statements of operations for the three months
ended September 30, 1997 and 1996 and the related consolidated statements
of cash flows for the three months ended September 30, 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 September 30, 1997 and its results of
operations for the three months ended September 30, 1997 and 1996 and cash
flows for the three months ended September 30, 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
1998.
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, 1997.
2. Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents, when dilutive, during the period.
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"), incorporated in Delaware, is
primarily engaged in the savings and loan business through its wholly owned
subsidiary, Quaker City Federal Savings and Loan Association (the Association).
At September 30, 1997, the Association operated eight retail banking offices in
Southern California. The Association is subject to significant competition from
other financial institutions, and is also subject to the regulations of various
government agencies and undergoes periodic examinations by those regulatory
authorities.
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.
Two new retail banking branches are scheduled to be opened during fiscal 1998 in
Orange County, increasing the total number of branches to ten. The Company will
utilize these branches to expand its operating area and increase its retail
deposit base in order to fund the Company's plans for continued asset growth.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Total stockholders' equity for the Company was $71.6 million at September 30,
1997, compared to $70.2 million at June 30, 1997. Consolidated assets totaled
$847.0 million at September 30, 1997, an increase of $45.6 million compared to
June 30, 1997. All historical earnings per share data herein reflect a 25%
common stock dividend paid to shareholders on May 30, 1997.
In the first quarter of fiscal 1997, the Office of Thrift Supervision approved
an additional stock repurchase of 236,000 shares, which is approximately 5% of
outstanding shares. To date, 152,250 shares of stock have been repurchased as
allowable under this latest approval. Included in the 152,250 shares are 33,500
shares that were repurchased during the quarter ended September 30, 1997.
Total loans receivable amounted to $660.5 million at September 30, 1997,
compared to $645.6 million at June 30, 1997. Loan originations and purchases
totaled $35.8 million for the quarter ended September 30, 1997, compared to
$32.3 million for the quarter ended September 30, 1996.
8
<PAGE>
For the quarter ended September 30, 1997 loan originations and purchases were
comprised of $25.6 million of one-to-four family residential loans, $9.0 million
of multifamily loans and $1.2 of commercial and industrial loans. This compares
to $9.6 million of one-to-four family residential loans and $22.7 million of
multifamily loans for the quarter ended September 30, 1996. No commercial or
industrial loans were originated or purchased for the quarter ended September
30, 1996. One-to-four family loan originations and purchases increased from the
prior year primarily as a result of an increase in loans purchased. Multifamily
originations decreased over comparable periods last year due to an increase in
the number of financial institutions competing for loans on multifamily
properties. 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 $99.4 million at
September 30, 1997, compared to $74.1 million at June 30, 1997. Mortgage-backed
securities available for sale amounted to $8.2 million at September 30, 1997,
compared to none at June 30, 1997. The Company increased earning assets during
the first three months of the fiscal year by purchasing mortgage-backed
securities consistent with its current business strategy. For the three months
ended September 30, 1997 the Company purchased $28.5 million in mortgage-backed
securities held to maturity, compared to $1.3 million for the same period in
the previous year. Purchases of mortgage-backed securities available for sale
amounted to $8.2 million at September 30, 1997, compared to none at June 30,
1997. 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 $3.5 million for the quarter ended
September 30, 1997 as compared to $6.0 million for the quarter ended September
30, 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. Loans serviced for others
increased to $223.8 million at September 30, 1997, from $212.1 million at
September 30, 1996.
Principal repayments on loans were $16.7 million and $11.9 million for the three
months ended September 30, 1997 and 1996, 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 ratio for the quarters ended September 30, 1997 and 1996 was
5.16% and 5.21%, respectively.
9
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 The Company
- ----------------------------------------------------------------
recorded net earnings of $1.5 million, $0.33 per share, for the quarter ended
September 30, 1997. This compares to a net loss of $1.3 million, $0.28 per
share, for the same period in fiscal 1996. The change in net earnings is
attributable to the one-time SAIF special assessment of $3.1 million accrued in
the first quarter and paid in the second quarter of fiscal 1997, as well as a
decline in the provision for loan losses. Without the one-time special
assessment, the Company's net earnings for the same period last year would have
been $548,000, $0.11 per share.
INTEREST INCOME Interest income amounted to $15.7 million for the quarter ended
- ---------------
September 30, 1997 as compared to $14.1 million for the quarter ended September
30, 1996. The increase in interest income 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 September 30, 1997 was
- ----------------
$9.7 million, compared to $8.3 million for the same quarter in the previous
year. The increase in interest expense is a result of an increase in the
average balance of interest-bearing liabilities as well as an increase in the
cost of interest-bearing liabilities.
NET INTEREST INCOME The net interest margin for the quarter ended September 30,
- -------------------
1997 was 3.06%, a 20 basis point decrease from the same period last year. The
decline in the net interest margin is primarily a result of the increase in the
cost of interest-bearing liabilities. Net interest income before provision for
loan losses for the quarter ended September 30, 1997 amounted to $6.1 million
compared to $5.8 million for the same period last year. This increase is
primarily a result of the increase in interest-earning assets relative to
interest-bearing liabilities.
The following table displays average interest rates on the Company's interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---- ----
Three Three
Month Month
Average Average
------- -------
<S> <C> <C>
Yield on interest-earning assets............ 7.93% 7.93%
Cost of interest-bearing liabilities........ 5.38% 5.16%
---- ----
Interest rate spread (1).................... 2.55% 2.77%
==== ====
Net interest margin (2)..................... 3.06% 3.26%
==== ====
</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 $250,000 for the
- -------------------------
three months ended September 30, 1997, compared to $1.5 million for the same
period last year. The reduction in the provision is a result of the decline in
nonperforming loans from $10.3 million at September 30, 1996 to $8.5 million at
September 30, 1997. Additionally, during the first quarter of 1996 there was an
increase in performing loans which demonstrated some weakness. 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 allowance for loan losses and
the allowance for losses on real estate acquired through foreclosure (REO):
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Accumulated through a charge to earnings:
Balance at beginning of period.......................... $6,496 $ 6,542
Provision for loan losses............................... 250 1,500
Charge-offs, net........................................ (332) (1,118)
------ -------
Balance at end of period................................ 6,414 6,924
Valuation allowance for portfolios acquired:
Balance at beginning of period.......................... 1,276 1,291
Purchases............................................... -- --
Reductions credited..................................... (4) (3)
------ -------
Balance at end of period................................ 1,272 1,288
------ -------
Total allowance for loan losses(1)................... $7,686 $ 8,212
====== =======
Allowance for REO losses:
Balance at beginning of period.......................... $ 175 $ 175
Additions charged to operations......................... -- --
------ -------
Balance at end of period................................ $ 175 $ 175
====== =======
</TABLE>
11
<PAGE>
OTHER INCOME Other income for the three months ended September 30, 1997 was
- ------------
$691,000 compared to $610,000 for the same period last year. The increase in
other income for the three months ended September 30, 1997 was a result of an
increase in commissions on the sale of non-insured financial products in
addition to an increase in loan servicing charges and other fees.
OTHER EXPENSE Other expense for the three months ended September 30, 1997 was
- -------------
$3.5 million, compared to $3.6 million the same period last year. The decline
in other expense for the three months ended September 30, 1997 was primarily a
result of reduction in deposit insurance from 23 basis points to 6.45 basis
points effective January 1, 1997 offset by an increase in compensation and
employee benefits expense.
Compensation and employee benefits expense increased $115,000 or 5.96% for the
quarter ended September 30, 1997 as compared to the same quarter last year.
This increase in compensation and employee benefits expense is due to an
increase in expense related to the Company's Employee Stock Ownership Plan
(ESOP) established in 1993. When shares of stock are released from an ESOP, the
sponsoring company recognizes employee benefit expense for accounting purposes.
Companies that established an ESOP after 1992, like the Company, are required to
account for such expense at the fair value at the time of release of the Company
stock to employee participants, not the original cost, of the shares released.
Accordingly, as the fair value of the Company's stock has increased during the
past few quarters, ESOP expense has correspondingly increased. The expense
related to the ESOP was $265,000 and $146,000 for the quarters ended September
30, 1997 and 1996, respectively, with virtually all of the increase resulting
from the required fair value treatment of ESOP expense described above.
INCOME TAXES The effective tax rates were 44.5% and 41.1% for the quarter
- ------------
ended September 30, 1997 and 1996, respectively, and were comparable to the
applicable statutory rates in effect.
12
<PAGE>
ASSET QUALITY
The following table sets forth information regarding nonaccrual loans, troubled
debt restructured loans and real estate acquired through foreclosure at the
dates indicated:
<TABLE>
<CAPTION>
AT AT AT
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1997 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans (1):
Real estate loans:
One-to-four family................................................... $ 2,827 $ 3,226 $ 2,595
Multifamily.......................................................... 2,363 2,387 3,528
Commercial and land.................................................. 3,077 2,926 3,795
Other...................................................................... 50 -- 101
------- ------- -------
Total nonaccrual loans (1)........................................... 8,317 8,539 10,019
Troubled debt restructured loans............................................. 227 229 233
------- ------- -------
Total nonperforming loans............................................ 8,544 8,768 10,252
Real estate acquired through foreclosure..................................... 2,863 1,720 3,127
------- ------- -------
Total nonperforming assets........................................... $11,407 $10,488 $13,379
======= ======= =======
Nonperforming loans as a percentage of gross loans (2)....................... 1.27% 1.33% 1.61%
Nonperforming assets as a percentage of total assets (4)..................... 1.35% 1.31% 1.81%
General Valuation Allowance (GVA) on loans
as a percentage of gross loans............................................. 0.97% 0.94% 0.98%
GVA on loans as a percentage of total nonperforming loans (2)................ 76.18% 70.91% 60.71%
Total GVA as a percentage of total nonperforming assets (3).................. 58.60% 60.95% 47.83%
</TABLE>
(1) Nonaccrual loans are net of specific allowances of $647,000, $1.0 million
and $1.4 million at September 30, 1997, June 30, 1997 and September 30,
1996.
(2) Nonperforming loans include nonaccrual and troubled debt restructured loans.
Gross loans include loans held for sale.
(3) Total GVA includes loan and REO general valuation allowances.
(4) Nonperforming assets include nonperforming loans and REO.
The Company's nonaccrual 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 nonaccrual 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 nonperforming loans as nonaccrual loans and troubled debt
restructured loans (at September 30, 1997, all troubled debt restructured loans
were performing according to their restructured terms). Nonperforming loans are
reported net of specific allowances. Nonperforming assets are defined as
nonperforming loans and real estate acquired through foreclosure.
Nonaccrual loans at September 30, 1997 consisted of $2.8 million in one-to-four
family loans, $2.4 million in multifamily loans and $3.1 million in commercial
and industrial loans, which includes $1.0 million in land loans and $50,000 in
other loans. At June 30, 1997, nonaccrual loans consisted of $3.2 million in
one-to-four family loans, $2.4 million in multifamily loans and $2.9 million in
commercial and industrial loans, which includes $1.0 million in land loans.
13
<PAGE>
Nonperforming assets increased to $11.4 million, 1.35% of total assets at
September 30, 1997, compared to $10.5 million, 1.31% of total assets at June 30,
1997. The increase in nonperforming assets this quarter is primarily a result
of an increase in real estate acquired through foreclosure (REO). Although the
Company's nonperforming loans, which are included in nonperforming assets, have
decreased slightly form the previous quarter, the number of loans moving to REO
status has increased. The majority of the Company's REO are now single-family
properties, which take longer to sell than multifamily properties. Controlling
and reducing nonperforming assets continues to be a primary focus of the Company
even in an improving Southern California economy.
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 Company, loans collectively reviewed for impairment include all loans with
principal balances of less than $300,000. At September 30, 1997, the Company
had a gross investment in impaired loans of $7.5 million, including $4.8 million
for which specific valuation allowances of $756,000 had been established and
$2.7 million for which no specific valuation allowance was considered necessary.
During the three months ended September 30, 1997, the Company's average
investment in impaired loans was $7.7 million. For the three months ended
September 30, 1997, income recorded on impaired loans totaled $168,000,
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 principal and interest in accordance
with the terms of the loans. Impaired loans totalling $3.7 million were not
performing in accordance with their contractual terms at September 30, 1997, and
have been included in nonaccrual loans at that date.
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.
14
<PAGE>
The Association was in compliance with all capital requirements in effect at
September 30, 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 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 SEPTEMBER 30, AT JUNE 30,
FEDERAL SAVINGS AND LOAN ASSOCIATION REQUIREMENT REQUIREMENT 1997 1997
- ------------------------------------ ----------- ----------- ---- ----
<S> <C> <C> <C> <C>
Tangible capital........................... 1.50% N/A 7.14% 7.34%
Core capital............................... 3.00% 5.00% 7.14% 7.34%
Risk-based capital......................... 8.00% 10.00% 13.06% 12.64%
Tier 1 Risk-based capital.................. N/A 6.00% 11.81% 11.42%
</TABLE>
15
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits -
11.1 Computation of Earnings per Share
27 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: November 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
SEPTEMBER 30,
1997
----
<S> <C> <C>
A Average Common Shares Outstanding 4,435,409
-----------------
Common Share Equivalents :
B Average Stock Options Outstanding 457,765
-----------------
C Option Exercise Price $ 9.98
-----------------
D Exercise Proceeds [ B x C ] $4,568,495
-----------------
E Average Market Price in Period $ 20.49
-----------------
F Shares Repurchased at Market Price [ D / E ] 222,962
-----------------
G Increase in Common Shares [ B - F ] 234,803
-----------------
H Shares Outstanding and Equivalents [ A + G ] 4,670,212
=================
I Net earnings for Period $1,530,000
=================
Primary Earnings Per Share [ I / H ] $ 0.33
=================
J Market Price at end of period $ 22.75
=================
K Shares Repurchased at Market Price at end of Period [ D / J ] 200,813
-----------------
L Increase in common Shares [ B - K ] 256,952
-----------------
M Shares Outstanding and Equivalents [ A + L ] 4,692,361
=================
Fully Diluted Earnings Per Share [ I / M ] $ 0.33
=================
</TABLE>
EXHIBIT 11.1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,640
<INT-BEARING-DEPOSITS> 239
<FED-FUNDS-SOLD> 12,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,069
<INVESTMENTS-CARRYING> 132,928
<INVESTMENTS-MARKET> 132,928
<LOANS> 660,526
<ALLOWANCE> 7,686
<TOTAL-ASSETS> 847,024
<DEPOSITS> 562,677
<SHORT-TERM> 98,750
<LIABILITIES-OTHER> 24,113
<LONG-TERM> 89,850
0
0
<COMMON> 47
<OTHER-SE> 71,587
<TOTAL-LIABILITIES-AND-EQUITY> 71,634
<INTEREST-LOAN> 13,318
<INTEREST-INVEST> 2,076
<INTEREST-OTHER> 333
<INTEREST-TOTAL> 15,727
<INTEREST-DEPOSIT> 7,124
<INTEREST-EXPENSE> 9,668
<INTEREST-INCOME-NET> 6,059
<LOAN-LOSSES> 250
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,743
<INCOME-PRETAX> 2,757
<INCOME-PRE-EXTRAORDINARY> 2,757
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,530
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
<YIELD-ACTUAL> 7.93
<LOANS-NON> 8,317
<LOANS-PAST> 0
<LOANS-TROUBLED> 227
<LOANS-PROBLEM> 3,733
<ALLOWANCE-OPEN> 7,772
<CHARGE-OFFS> 336
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 7,686
<ALLOWANCE-DOMESTIC> 7,686
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
