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, 2000
------------------
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 7, 2000: 5,091,077.
Quaker City Bancorp, Inc.
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (unaudited) as of
September 30, 2000 and June 30, 2000.................................. 3
Consolidated Statements of Operations (unaudited) for the Three Months
Ended September 30, 2000 and 1999..................................... 4
Consolidated Statements of Comprehensive Income (unaudited) for the Three
Months Ended September 30, 2000 and 1999.............................. 5
Consolidated Statements of Cash Flows (unaudited) for the Three Months
Ended September 30, 2000 and 1999..................................... 6
Notes to Consolidated Financial Statements............................ 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................... 20
Quaker City Bancorp, Inc.
Consolidated Statements of Financial Condition
Unaudited
(In thousands, except share data)
September 30, June 30,
2000 2000
---- ----
Assets
Cash and due from banks............................................... $ 12,126 $ 9,494
Interest-bearing deposits............................................. 364 673
Federal funds sold and other short-term investments................... 4,900 3,900
Investment securities held to maturity................................ 23,669 21,863
Investment securities available for sale.............................. 9,311 9,498
Loans receivable, net................................................. 1,009,445 990,675
Loans receivable held for sale........................................ 27,100 21,212
Mortgage-backed securities held to maturity........................... 79,986 85,457
Mortgage-backed securities available for sale......................... 28,279 24,404
Real estate held for sale............................................. 401 639
Federal Home Loan Bank stock, at cost................................. 15,880 15,607
Office premises and equipment, net.................................... 7,195 7,130
Accrued interest receivable and other assets.......................... 10,145 11,345
---------- ----------
Total assets.................................................... $1,228,801 $1,201,897
========== ==========
Liabilities and Stockholders' Equity
Deposits.............................................................. $ 830,734 $ 808,229
Federal Home Loan Bank advances....................................... 288,750 290,250
Deferred tax liability................................................ 23 73
Accounts payable and accrued expenses................................. 4,653 5,372
Other liabilities..................................................... 13,375 9,939
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Total liabilities............................................... 1,137,535 1,113,863
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Stockholders' equity:
Common stock, $.01 par value. Authorized 20,000,000 shares; issued
and outstanding 5,096,077 shares and 5,108,077 at September 30,
2000 and June 30, 2000, respectively............................... 51 51
Additional paid-in capital............................................ 71,846 71,726
Accumulated other comprehensive (loss) income......................... (122) (52)
Retained earnings, substantially restricted........................... 20,422 17,318
Deferred compensation................................................. (931) (1,009)
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Total stockholders' equity...................................... 91,266 88,034
---------- ----------
Total liabilities and stockholders' equity...................... $1,228,801 $1,201,897
========== ==========
See accompanying notes to consolidated financial statements.
3
Quaker City Bancorp, Inc.
Consolidated Statements of Operations
Unaudited
(In thousands, except per share data)
Three Months Ended
September 30,
2000 1999
---- ----
Interest income:
Loans receivable......................................... $21,799 $17,182
Mortgage-backed securities............................... 1,856 1,657
Investment securities.................................... 562 215
Other.................................................... 354 281
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Total interest income................................. 24,571 19,335
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Interest expense:
Deposits................................................. 10,430 7,825
Federal Home Loan Bank advances and other borrowings..... 4,476 3,151
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Total interest expense................................ 14,906 10,976
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Net interest income before provision for loan losses..... 9,665 8,359
Provision for loan losses.................................. 300 400
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Net interest income after provision for loan losses...... 9,365 7,959
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Other income:
Deposit fees............................................. 529 314
Loan servicing charges and fees.......................... 504 427
Gain on sale of loans held for sale...................... 63 132
Commissions.............................................. 207 177
Other.................................................... 61 10
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Total other income.................................... 1,364 1,060
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Other expense:
Compensation and employee benefits....................... 2,762 2,422
Occupancy, net........................................... 730 606
Federal deposit insurance premiums....................... 88 138
Data processing.......................................... 258 242
Advertising and promotional.............................. 289 183
Consulting fees.......................................... 167 180
Other general and administrative expense................. 690 626
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Total general and administrative expense.............. 4,984 4,397
Real estate operations, net.............................. 3 (180)
Amortization of core deposit intangible.................. 29 --
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Total other expense................................... 5,016 4,217
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Earnings before income taxes............................... 5,713 4,802
Income taxes............................................... 2,437 2,112
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Net earnings............................................... $ 3,276 $ 2,690
======= =======
Basic earnings per share................................... $0.67 $0.52
Diluted earnings per share................................. $0.64 $0.49
See accompanying notes to consolidated financial statements.
4
Quaker City Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Unaudited
(In thousands)
Three Months Ended
September 30,
2000 1999
---- ----
Net earnings......................................................... $3,276 $2,690
Other comprehensive income:
Unrealized holding loss on securities
available for sale arising during the period, net of taxes........ (70) (34)
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Increase (decrease) in accumulated other
comprehensive income, net of tax................................... (70) (34)
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Total comprehensive income......................................... $3,206 $2,656
====== ======
See accompanying notes to consolidated financial statements.
5
Quaker City Bancorp, Inc.
Consolidated Statements of Cash Flows
Unaudited
(In thousands)
Three Months Ended
September 30,
2000 1999
---- ----
Cash flows from operating activities:
Net earnings.................................................................... $ 3,276 $ 2,690
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Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................................... 94 (88)
Provision for loan losses................................................... 300 400
Gain on sale of real estate held for sale................................... (36) (179)
Gain on sale of loans held for sale......................................... (63) (132)
Loans originated for sale................................................... (18,987) (11,094)
Proceeds from sale of loans held for sale................................... 13,103 22,556
Federal Home Loan Bank (FHLB) stock dividend received....................... (273) (159)
Decrease in accrued interest receivable and other assets.................... 1,171 1,438
Increase (decrease) in other liabilities.................................... 3,436 (2,030)
Increase (decrease) in accounts payable and accrued expenses................ (719) 10
Other....................................................................... 142 52
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Total adjustments....................................................... (1,832) 10,774
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Net cash provided by operating activities............................... 1,444 13,464
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Cash flows from investing activities:
Loans originated for investment................................................. (45,804) (57,540)
Loans purchased for investment.................................................. (5,966) (10,835)
Principal repayments on loans................................................... 33,341 32,842
Purchases of investment securities held to maturity............................. (3,944) (2,925)
Maturities and principal repayments of investment securities held to maturity... 2,142 --
Purchases of mortgage-backed securities available for sale...................... (4,964) (1,750)
Purchases of mortgage-backed securities held to maturity........................ -- (3,006)
Principal repayments on mortgage-backed securities held to maturity............. 5,466 2,991
Principal repayments on mortgage-backed securities available for sale.......... 1,163 720
Proceeds from sale of real estate held for sale................................. 41 1,822
Purchase of FHLB stock.......................................................... -- (782)
Investment in office premises and equipment..................................... (372) (266)
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Net cash used by investing activities................................... (18,897) (38,729)
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Cash flows from financing activities:
Increase in deposits............................................................ 22,505 14,933
Proceeds from funding of FHLB advances.......................................... 119,400 103,050
Repayments of FHLB advances..................................................... (120,900) (106,200)
Stock options exercised......................................................... 29 86
Repurchase of stock............................................................. (258) (1,449)
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Net cash (used) provided by financing activities........................ 20,776 10,420
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Increase (decrease) in cash and cash equivalents........................ 3,323 (14,845)
Cash and cash equivalents at beginning of period.................................... 14,067 33,148
--------- ---------
Cash and cash equivalents at end of period.......................................... $ 17,390 $ 18,303
========= =========
6
Quaker City Bancorp, Inc.
Consolidated Statements of Cash Flows
(continued)
Unaudited
(In thousands)
Three Months Ended
September 30,
2000 1999
---- ----
Supplemental disclosures of cash flow information:
Interest paid (including interest credited)............................... $13,796 $11,230
Cash paid for income taxes................................................ 1,000 --
======= =======
Supplemental schedule of noncash investing and financing activities:
Additions to loans resulting from the sale of real estate acquired through
foreclosure............................................................... $ 262 --
Additions to real estate acquired through foreclosure..................... 22 524
======= =======
See accompanying notes to consolidated financial statements.
7
Quaker City Bancorp, Inc.
Notes to Consolidated Financial Statements
1. The consolidated statement of financial condition as of September 30, 2000
and the related consolidated statements of operations, comprehensive income
and cash flows for the three months ended September 30, 2000 and 1999 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, 2000 and its results of
operations, comprehensive income and cash flows for the three months ended
September 30, 2000 and 1999. 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 2001.
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, 2000. Certain prior period data may have been reclassified to conform
with current period presentation.
2. Earnings per share is reported on both a basic and diluted basis. Basic
earnings per share is determined by dividing net earnings by the average
number of shares of common stock outstanding, while diluted earnings per
share is determined by dividing net earnings by the average number of
shares of common stock outstanding adjusted for the dilutive effect of
common stock equivalents. Calculation of earnings per share can be found
in Exhibit 11.1.
3. The Company accounts for derivative instruments in accordance with SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." A
derivative is considered either an asset or liability in the statement of
financial position and measured at fair value. If a derivative is
designated as a hedging instrument the changes in fair value of the
derivative are either (a) recognized in earnings in the period of change
together with the offsetting gain or loss on the hedged item or (b)
reported as a component of other comprehensive income and subsequently
reclassified into earnings when the forecasted transaction affects
earnings. For a derivative not designated as a hedging instrument, changes
in fair value are recognized in earnings in the period of change. As of
September 30, 2000, the Company has no derivative instruments.
4. In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation." This Interpretation
clarifies issues relating to APB Opinion No. 25, "Accounting for Stock
Issues to Employees." FASB Interpretation No. 44 contains information
relating to (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a non-
compensatory plan, (c) the
8
accounting consequences of various modifications to the term of a
previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FASB
Interpretation No. 44 was effective July 1, 2000. The effects of applying
this Interpretation are recognized on a prospective basis from July 1,
2000. Management does not believe that the implementation of Interpretation
No. 44 will have a material impact on the Company.
5. In September 2000, the FASB issued SFAS No. 140, "Accounting For Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" as a
replacement of SFAS No. 125 effective for disclosures in financial
statements issued subsequent to December 15, 2000, and for transactions
entered after March 31, 2001. Accordingly, the Company does not expect
adoption of the statement will have a material impact on the financial
statements.
9
Quaker City Bancorp, Inc.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Quaker City Bancorp, Inc., incorporated in Delaware, is primarily engaged in the
savings and loan business through its wholly owned subsidiary, Quaker City Bank
(the "Bank"). At September 30, 2000, the Bank operated fifteen retail banking
offices in southern California. During the quarter, the Bank opened its newest
retail bank in-store branch located in the Wal-Mart Store in Foothill Ranch,
(Orange County) California. The Company now has four "in-store" branches. The
Bank 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 multifamily mortgages, one-
to-four family residential mortgages, commercial mortgages and mortgage-backed
securities ("MBS").
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Total stockholders' equity for the Company was $91.3 million at September 30,
2000, compared to $88.0 million at June 30, 2000. Consolidated assets totaled
$1.23 billion at September 30, 2000, an increase of $26.9 million compared to
June 30, 2000.
Pursuant to previously announced plans to repurchase Company stock, the Company
acquired in the open market 20,000 shares as of November 7, 2000 at an average
price of $17.86. Up to 250,000 additional shares can be repurchased in the
future under the current Board authorization.
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages its interest rate risk exposure. The Company does not
currently engage in trading activities. The Company's financial instruments
include interest sensitive loans receivable, federal funds sold, MBS, investment
securities, FHLB stock, deposits and borrowings. At September 30, 2000, the
Company's average interest sensitive assets and interest sensitive liabilities
totaled approximately $1.19 billion and $1.09 billion, respectively. The
composition of the Company's financial instruments subject to market risk has
not changed significantly since June 30, 2000.
10
Total loans receivable (including loans receivable held for sale) amounted to
$1.04 billion at September 30, 2000, compared to $1.01 billion at June 30, 2000.
The following table presents loans receivable at the dates indicated:
At September 30, At June 30,
2000 2000
(In millions)
One-to-four family.............. $ 312.1 $ 315.7
Multifamily..................... 524.0 505.4
Commercial and land............. 206.2 198.0
Other........................... 9.7 8.2
Unamortized discounts........... (5.0) (5.2)
Allowance for loan losses....... (10.5) (10.2)
-------- --------
Total........................ $1,036.5 $1,011.9
======== ========
Loan originations and purchases totaled $70.8 million for the quarter ended
September 30, 2000, compared to $79.5 million for the quarter ended September
30, 1999.
Loan originations and purchases were comprised of the following:
For the three months ended
September 30, September 30,
2000 1999
---- ----
(In millions)
One-to-four family........................ $ 7.8 $18.3
Multifamily............................... 41.6 44.1
Commercial and land....................... 21.4 16.6
Other..................................... -- 0.5
----- -----
Total loans originated and purchased.. $70.8 $79.5
===== =====
The decrease in loan production for the three months ended September 30, 2000 as
compared to the same period in the previous year is primarily a result of a
decrease in one-to-four family loan purchases. At present, the Company expects
to continue its focus on one-to-four family and multifamily lending during the
current fiscal year.
MBS held to maturity amounted to $80.0 million at September 30, 2000, compared
to $85.5 million at June 30, 2000. MBS available for sale amounted to $28.3
million at September 30, 2000, compared to $24.4 million at June 30, 2000.
11
From time to time the Company has obtained advances from the Federal Home Loan
Bank ("FHLB") as an alternative to retail deposit funds. The net repayments of
FHLB advances were $1.5 million for the three months ended September 30, 2000.
Deposits increased by $22.5 million for the three months ended September 30,
2000. This increase in deposits enabled the Company to fund asset growth during
the period.
In addition to FHLB advances and proceeds from increases in customer deposits,
other sources of liquidity for the Company include principal repayments on loans
and MBS, proceeds from sales of loans held for sale and other cash flows
generated from operations. Principal repayments on loans were $33.3 million and
$32.8 million for the three months ended September 30, 2000 and 1999,
respectively.
Proceeds from loan sales amounted to $13.1 million for the quarter ended
September 30, 2000 as compared to $22.6 million for the quarter ended September
30, 1999. At present, the Company's policy is to sell most 30 and 15 year
fixed-rate one-to-four family loans as well as certain adjustable-rate one-to-
four family loans, multifamily loans, and commercial and industrial loans
originated that meet predefined criteria. Loans serviced for others decreased
to $296.6 million at September 30, 2000, from $299.1 million at June 30, 2000,
primarily due to an increase in loan payoffs.
Savings and loan associations must, by regulation, maintain minimum levels of
liquidity as defined by Office of Thrift Supervision ("OTS") regulations. This
requirement, which may be varied at the direction of the OTS depending upon
economic conditions and deposit flows is based upon a percentage of deposits and
short-term borrowings. The required ratio is currently 4%. The Bank's average
liquidity ratio for the quarters ended September 30, 2000 and 1999 was 4.32% and
4.89%, respectively. Management currently attempts to maintain a liquidity
ratio as close to the minimum as possible. Liquidity levels reflect
management's strategy to invest excess liquidity in higher yielding interest-
earning assets such as loans or MBS.
Sources of capital and liquidity for the Company on a stand alone basis include
distributions from the Bank. Dividends and other capital distributions from the
Bank are subject to regulatory restrictions.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2000 and 1999 The Company
- ----------------------------------------------------------------
recorded net earnings of $3.3 million, $0.64 per diluted share for the quarter
ended September 30, 2000. This compares to net earnings of $2.7 million, $0.49
per diluted share for the same quarter last year. The increase in net earnings
for the quarter ended September 30, 2000 as compared to September 30, 1999 is
primarily a result of an increase in net interest income as discussed below.
Interest Income Interest income amounted to $24.6 million for the quarter ended
- ---------------
September 30, 2000 as compared to $19.3 million for the quarter ended September
30, 1999. The increase in interest income is primarily a result of a larger
earning asset base. Average earning assets for the current quarter increased to
$1.19 billion compared to $992.9 million for the same period last year,
12
a 20% increase. Interest income was further enhanced by an increase in the yield
on earning assets, 8.25% compared to 7.79% one year ago.
Interest Expense Interest expense for the quarter ended September 30, 2000 was
- ----------------
$14.9 million, compared to $11.0 million for the same quarter in the previous
year. The increase in interest expense for the three months ended September 30,
2000 is primarily a result of an increase in the average balance of interest-
bearing liabilities together with an increase in the cost of interest-bearing
liabilities during the period.
Net Interest Income Net interest income before provision for loan losses for
- -------------------
the quarter ended September 30, 2000 amounted to $9.7 million compared to $8.4
million for the same period last year. The net interest margin for the quarter
ended September 30, 2000 was 3.24%, reflecting a thirteen basis point decrease
from the same period last year. The decrease in the net interest margin is
primarily a result of the increase in the cost of interest-bearing liabilities
partially offset by an increase in the yield on interest-earning assets. The
increase in net interest income is primarily a result of an increase in the
amount of interest-earning assets relative to interest-bearing liabilities in
the respective periods.
The following table displays average interest rates on the Company's interest-
earning assets and interest-bearing liabilities:
Three month average
-------------------
September 30, September 30,
2000 1999
---- ----
Yield on interest-earning assets......... 8.25% 7.79%
Cost of interest-bearing liabilities..... 5.47% 4.92%
---- ----
Interest rate spread (1)................. 2.78% 2.87%
==== ====
Net interest margin (2).................. 3.24% 3.37%
==== ====
(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.
13
Provision for Loan Losses The provision for loan losses was reduced to $300,000
- -------------------------
for the three months ended September 30, 2000, down $100,000 compared to 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 Company's
underwriting policies.
As a result of the potential 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 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 increase the allowance for loan losses based on their
judgments of the information available at the time of their examination.
The following is a summary of the activity in the allowance for loan losses:
At or for the
Three Months Ended
September 30, September 30,
2000 1999
---- ----
(In thousands)
Allowance for loan losses:
Balance at beginning of period....... $10,161 $8,684
Provision for loan losses............ 300 400
Charge-offs.......................... -- (30)
Recoveries........................... -- 16
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Balance at end of period............. $10,461 $9,070
======= ======
Other Income Other income for the three months ended September 30, 2000 was
- ------------
$1.4 million compared to $1.1 million for the same period last year. The
increase in other income for the three months ended September 30, 2000 was
primarily a result of an increase in deposit fees, up $215,000 or 68.5% from
the same period last year. The deposit fee growth is the result of a continued
program, that began in the second quarter of fiscal 1998, with efforts to
attract checking accounts as well as a larger deposit base.
Other Expense Other expense for the three months ended September 30, 2000 was
- -------------
$5.0 million, compared to $4.2 million the same period last year. The increase
in other expense for the three months ended September 30, 2000 was primarily a
result of increased compensation and employee benefits and occupancy expense.
These increases are primarily a result of four retail banking branches opened
and the purchase of a branch facility and its deposits from another financial
institution during
14
Fiscal 2000. The efficiency ratio for the quarter ended September 30, 2000
improved to 45.19% compared to 47.35% for the same period last year. The
efficiency ratio is the measurement of general and administrative expense as a
percentage of net interest income and other income, excluding nonrecurring
items.
Income Taxes The Company's effective tax rates were 42.7% and 44.0% for the
- ------------
quarters ended September 30, 2000 and 1999, respectively. The effective
tax rates were comparable to the applicable statutory rates in effect.
15
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:
At At At
September 30, June 30, September 30,
2000 2000 1999
---- ---- ----
(Dollars in thousands)
Nonaccrual loans (1):
Real estate loans:
One-to-four family.................................... $ 1,585 $ 1,356 $ 3,048
Multifamily........................................... 743 526 --
Commercial and land................................... 1,700 1,707 1,797
Consumer.............................................. -- -- 110
------- ------- -------
Total nonaccrual loans (1)............................ 4,028 3,589 4,955
Troubled debt restructured loans.......................... 210 211 216
------- ------- -------
Total nonperforming loans............................. 4,238 3,800 5,171
Real estate acquired through foreclosure.................. 401 639 1,800
------- ------- -------
Total nonperforming assets............................ $ 4,639 $ 4,439 $ 6,971
======= ======= =======
Nonperforming loans as a percentage of gross loans (2).... 0.40% 0.37% 0.59%
Nonperforming assets as a percentage of total assets (3).. 0.38% 0.37% 0.68%
Total allowance for loan losses
as a percentage of gross loans........................ 0.99% 0.99% 1.03%
Total allowance for loan losses as a percentage of total
nonperforming loans................................... 246.84% 267.39% 175.00%
Total allowance as a percentage of total
nonperforming assets (4).............................. 225.50% 228.90% 129.81%
(1) Nonaccrual loans are net of specific allowances of $0, $0 and $51,000 at
September 30, 2000, June 30, 2000 and September 30, 1999, respectively.
(2) Nonperforming loans are net of specific allowances and include nonaccrual
and troubled debt restructured loans. Gross loans include loans held for
sale.
(3) Nonperforming assets include nonperforming loans and REO.
(4) Total allowance includes loan and REO valuation allowances.
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, 2000, 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.
16
Nonperforming assets increased to $4.6 million, 0.38% of total assets at
September 30, 2000, compared to $4.4 million, 0.37% of total assets at June 30,
2000. The increase in nonperforming assets for the three month period is
primarily a result of an increase in nonperforming loans in both the one-to-four
family and multifamily categories, offset by a decrease in real estate acquired
through foreclosure.
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, 2000, the Company
had a gross investment in impaired loans of $1.6 million for which specific
valuation allowances of $379,000 had been established.
During the three months ended September 30, 2000, the Company's average
investment in impaired loans was $1.6 million. For the three months ended
September 30, 2000, income recorded on impaired loans totaled $33,000,
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. All impaired loans were performing in accordance
with their contractual terms at September 30, 2000.
REGULATORY CAPITAL
The OTS' capital regulations include three separate minimum capital requirements
for savings institutions subject to OTS supervision. First, the tangible
capital requirement mandates that the Bank's stockholders' 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
4.00% 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.
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The Bank was in compliance with all capital requirements in effect at September
30, 2000, 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 Insurance Corporation Improvement Act of 1991 (FDICIA). The
following table reflects the required and actual regulatory capital ratios of
the Bank at the dates indicated:
FDICIA
FIRREA "Well-capitalized" Actual Actual
Regulatory Capital Ratios for Quaker City Minimum Minimum at September 30, at June 30,
Bank Requirement Requirement 2000 2000
- ---- ------------ ----------- ---- ----
Tangible capital......................... 1.50% N/A 7.31% 7.20%
Core capital to adjusted total assets.... 4.00% 5.00% 7.31% 7.20%
Core capital to risk-weighted assets..... N/A 6.00% 10.83% 10.82%
Total capital to risk-weighted assets.... 8.00% 10.00% 12.04% 12.03%
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* * * * *
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of the Securities Exchange Act of 1934, as amended by the Private
Securities Litigation Reform Act of 1995. All statements, other than statements
of historical facts, included in this report that address results or
developments that the Company expects or anticipates will or may occur in the
future, including such things as (i) business strategy; (ii) economic trends,
including the condition of the real estate market in southern California, and
the direction of interest rates and prepayment speeds of mortgage loans and MBS;
(iii) the adequacy of the Company's allowances for loan and real estate losses:
(iv) goals; (v) expansion and growth of the Company's business and operations;
and (vi) other matters are forward-looking statements. These statements are
based upon certain assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. These statements are subject to a number of
risks and uncertainties, many of which are beyond the control of the Company,
including general economic, market or business conditions; real estate market
conditions, particularly in California; the opportunities (or lack thereof) that
may be presented to and pursued by the Company; competitive actions by other
companies; changes in law of regulations; and other factors. Actual results
could differ materially from those contemplated by these forward-looking
statements. Consequently, all of the forward-looking statements made in this
report are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company and its business or
operations. Forward-looking statements made in this report speak as of the date
hereof. The Company undertakes no obligation to update or revise any forward-
looking statement made in this report.
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Part II. Other Information
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.
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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 13, 2000 By: /s/ Dwight L. Wilson
----------------- ---------------------------------
Dwight L. Wilson
Senior Vice President,
Treasurer and Chief Financial Officer
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