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, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number: 0-22528
QUAKER CITY BANCORP, INC.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4444221
- -------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7021 Greenleaf Avenue, Whittier, California 90602
- --------------------------------------------- -----
(Address or principal executive offices) (Zip code)
Registrant's telephone number, including area code (310) 907-2200
Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
YES [X] NO [ ]
Number of shares outstanding of the registrant's sole class of common stock at
November 13, 1996: 3,820,600
QUAKER CITY BANCORP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (unaudited)
as of September 30, 1996 and June 30, 1996.........................3
Consolidated Statements of Operations (unaudited) for the
Three Months Ended September 30, 1996 and 1995.....................4
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended September 30, 1996 and 1995.....................5
Notes to Consolidated Financial Statements.........................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................16
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, JUNE 30,
1996 1996
------------- ---------
ASSETS
Cash and due from banks.................................................. $ 7,932 $ 2,184
Interest-bearing deposits................................................ -- 4,984
Federal funds sold and other short-term investments...................... 5,379 6,400
Investment securities held to maturity................................... 38,241 37,419
Loans receivable, net.................................................... 620,677 607,672
Loans receivable held for sale........................................... 1,465 2,890
Mortgage-backed securities held to maturity.............................. 41,154 41,175
Real estate held for sale................................................ 3,741 3,058
Federal Home Loan Bank stock, at cost.................................... 8,256 8,151
Office premises and equipment, net....................................... 4,171 4,176
Accrued interest receivable and other assets............................. 6,983 6,976
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Total assets................................................... $ 737,999 $ 725,085
============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits................................................................. $ 518,334 $ 512,517
Federal Home Loan Bank advances.......................................... 139,500 135,300
Securities sold under agreements to repurchase........................... -- 300
Deferred tax liability................................................... 1,174 1,174
Accounts payable and accrued expenses.................................... 6,491 2,870
Other liabilities........................................................ 5,831 4,998
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Total liabilities.................................................... 671,330 657,159
Stockholders' equity:
Common stock, $.01 par value. Authorized 10,000,000 shares; issued
and outstanding 3,800,600 shares and 3,813,600 at September 30,
and June 30, 1996, respectively...................................... 38 38
Additional paid-in capital............................................... 26,988 27,017
Retained earnings, substantially restricted.............................. 42,128 43,515
Deferred compensation.................................................... (2,485) (2,644)
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Total stockholders' equity........................................... 66,669 67,926
------------- ---------
Total liabilities and stockholders' equity........................... $ 737,999 $ 725,085
============= =========
See accompanying notes to consolidated financial statements.
3
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
Interest income:
Loans receivable............................................................ $ 12,431 $ 11,049
Mortgage-backed securities.................................................. 750 758
Investment securities....................................................... 670 407
Other....................................................................... 216 177
---------- ----------
Total interest income.................................................. 14,067 12,391
---------- ----------
Interest expense:
Deposits.................................................................... 6,408 6,238
Federal Home Loan Bank advances............................................. 1,869 1,042
Other....................................................................... 4 259
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Total interest expense................................................. 8,281 7,539
---------- ----------
Net interest income before provision for loan losses........................ 5,786 4,852
Provision for loan losses..................................................... 1,500 201
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Net interest income after provision for loan losses......................... 4,286 4,651
---------- ----------
Other income:
Loan servicing charges and fees............................................. 411 365
Gain on sale of loans held for sale......................................... 53 39
Commissions................................................................. 140 76
Other....................................................................... 6 19
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Total other income..................................................... 610 499
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Other expense:
Compensation and employee benefits.......................................... 1,928 1,911
Occupancy, net.............................................................. 472 514
Federal deposit insurance premiums.......................................... 326 306
Other general and administrative expense.................................... 862 865
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Total general and administrative expense............................... 3,588 3,596
Savings Association Insurance Fund special assessment....................... 3,100 --
Real estate operations, net................................................. 282 137
Amortization of core deposit intangible..................................... 76 76
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Total other expense.................................................... 7,046 3,809
---------- ----------
Earnings (loss) before income taxes......................................... (2,150) 1,341
Income taxes (benefit)........................................................ (883) 566
---------- ----------
Net earnings (loss)......................................................... ($1,267) $ 775
========== ==========
Net earnings (loss) per share............................................... ($0.35) $0.20
Weighted average common and common equivalent shares outstanding............ 3,636,661 3,885,607
See accompanying notes to consolidated financial statements.
4
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
Cash flows from operating activities:
Net earnings (loss)........................................................................... $ (1,267) $ 775
-------- --------
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization.............................................................. (16) (5)
Provision for loan losses.................................................................. 1,500 201
Write-downs and provision for losses on real estate held for sale.......................... 120 156
Provision for deferred income taxes........................................................ -- 452
Gain on sale of loans held for sale........................................................ (53) (39)
Loans originated for sale.................................................................. (4,572) (5,094)
Sale of loans held for sale................................................................ 5,988 5,896
Federal Home Loan Bank (FHLB) stock dividend received...................................... -- (56)
Increase in accrued interest receivable and other assets................................... (83) (1,214)
Increase in other liabilities.............................................................. 833 1,914
Increase (decrease) in accounts payable and accrued expenses............................... 3,621 (697)
Other...................................................................................... (522) 492
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Total adjustments...................................................................... 6,816 2,006
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Net cash provided by operating activities.............................................. 5,549 2,781
-------- --------
Cash flows from investing activities:
Loans originated for investment............................................................... (24,139) (18,605)
Loans purchased for investment................................................................ (3,549) (10,027)
Principal repayments on loans................................................................. 11,901 9,579
Sale of investment securities available for sale.............................................. -- 2,550
Purchases of investment securities available for sale......................................... -- (2,400)
Purchases of investment securities held to maturity........................................... (2,999) (3,498)
Maturities and principal repayments of investment securities held to maturity................. 2,185 1,159
Purchases of mortgage-backed securities held to maturity...................................... (1,349) (2,621)
Principal repayments on mortgage-backed securities held to maturity........................... 1,391 1,346
Sale of real estate held for sale............................................................. 1,679 803
Purchase of FHLB stock........................................................................ (105) --
Investment in office premises and equipment................................................... (171) (138)
-------- --------
Net cash used by investing activities.................................................. (15,156) (21,852)
-------- --------
Cash flows from financing activities:
Increase in deposits.......................................................................... 5,817 9,637
Proceeds from securities sold under agreements to repurchase.................................. -- 39,711
Repayments of securities sold under agreements to repurchase.................................. (300) (46,740)
Proceeds from funding of FHLB advances........................................................ 74,200 60,680
Repayments of FHLB advances................................................................... (70,000) (49,495)
Repurchase of stock........................................................................... (367) (425)
-------- --------
Net cash provided by financing activities.............................................. 9,350 13,368
-------- --------
Decrease in cash and cash equivalents.................................................. (257) (5,703)
Cash and cash equivalents at beginning of period................................................ 13,568 19,348
-------- --------
Cash and cash equivalents at end of period...................................................... $ 13,311 $ 13,645
======== ========
5
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
UNAUDITED
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
Supplemental disclosures of cash flow information:
Interest paid (including interest credited)...................................... $ 8,261 $7,487
Cash paid for income taxes....................................................... 418 --
======== ======
Supplemental schedule of noncash investing and financing activities:
Additions to loans resulting from the sale of real estate acquired
through foreclosure............................................................. $ 219 $1,794
Additions to real estate acquired through foreclosure............................ 2,272 1,767
======== ======
See accompanying notes to consolidated financial statements.
6
QUAKER CITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated statement of financial condition as of September 30, 1996,
the related consolidated statements of earnings for the three months ended
September 30, 1996 and 1995 and the related consolidated statements of cash
flows for the three months ended September 30, 1996 and 1995 are unaudited.
These statements reflect, in the opinion of management, all material
adjustments, consisting solely of normal recurring accruals, necessary for
a fair presentation of the financial condition of Quaker City Bancorp,
Inc. (the "Company") as of September 30, 1996 and its results of earnings
for the three months ended September 30, 1996 and 1995 and cash flows for
the three months ended September 30, 1996 and 1995. The results of
operations for the unaudited periods are not necessarily indicative of the
results of operations to be expected for the entire year of fiscal 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.
7
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 September 30, 1996, the
Company operated eight retail banking offices located in Los Angeles and Orange
counties.
The Company is subject to significant competition from other financial
institutions in its market area. The Company is also subject to regulation by
certain federal agencies and undergoes periodic examinations by those agencies.
On September 30, 1996, federal legislation which will recapitalize the Savings
Association Insurance Fund (SAIF) through a one-time special assessment was
enacted. The special assessment is based on the level of the Association's
deposits as of March 31, 1995 at an assessment rate of approximately 65.7 basis
points. The FDIC will issue final regulations concerning the assessment rate in
November 1996. For the quarter ended September 30, 1996, the Association
estimated and accrued $3.1 million in expense for this special assessment and
expects to pay this amount during the second quarter of fiscal 1997. Subsequent
to the payment of the special assessment, the annual amount the Association pays
toward the deposit insurance fund will be substantially reduced. Starting in
January 1997, the amount paid to the insurance fund is expected to be 6.44 basis
points as compared to the 23 basis points that the Association is currently
paying.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Total stockholders' equity for the Company was $66.7 million at September 30,
1996, compared to $67.9 million at June 30, 1996. The decrease in capital is a
result of the net loss in the quarter due to the one-time SAIF assessment.
Consolidated assets totaled $738.0 million at September 30, 1996, an increase of
$12.9 million compared to June 30, 1996.
The company completed its previously approved capital stock repurchase during
the quarter and has now repurchased approximately 10% of its original
outstanding shares. Late in the quarter, the Office of Thrift Supervision
approved an additional stock repurchase of 189,000 shares, which is
approximately 5% of the outstanding shares. To date, no stock has been
repurchased as allowable under the latest approval.
8
Loans receivable increased to $622.1 million at September 30, 1996, from $610.6
million at June 30, 1996. This growth was achieved as a result of loan
originations and purchases. Loan originations and purchases totaled $32.3
million for the quarter ended September 30, 1996, compared to $33.7 million for
the quarter ended September 30, 1995.
For the quarter ended September 30, 1996 loan originations and purchases were
comprised of $9.6 million of one-to-four family residential loans and $22.7
million of multifamily loans. No commercial or industrial loans were originated
or purchased for the quarter ended September 30, 1996. This compares to $23.4
million of one-to-four family residential loans, $10.2 million of multifamily
loans and $100,000 of commercial and industrial loans for the quarter ended
September 30, 1995. One-to-four family loan originations decreased from the
prior year due to the rise in interest rates for much of the period.
Multifamily originations increased over comparable periods last year due to
marketplace opportunities. The Company expects to continue its focus on
multifamily lending during the current fiscal year.
Loan sales amounted to $6.0 million for the quarter ended September 30, 1996 as
compared to $5.9 million for the quarter ended September 30, 1995. At present,
the Company's policy is to sell all 30 and 15 year fixed rate loans as well as
certain single family adjustable and multifamily loans originated that meet
predefined criteria. As a result of loans being sold, loans serviced for others
increased to $212.1 million at September 30, 1996, from $205.6 million at
September 30, 1995.
The primary sources of liquidity for the Company include principal repayments on
loans and mortgage-backed securities, proceeds from sales of loans held for
sale, cash flows generated from operations and proceeds from increases in
customer deposits, Federal Home Loan Bank advances and short term borrowings.
Retail deposits increased to $518.3 million at September 30, 1996 from $512.5
million at June 30, 1996, due primarily to interest credited on deposits.
Principal repayments on loans were $11.9 million and $9.6 million for the three
months ended September 30, 1996 and 1995, 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, 1996 and 1995 was
5.21%.
9
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 The Company,
- ----------------------------------------------------------------
after accruing for a $3.1 million one-time SAIF special assessment, recorded a
net loss of $1.3 million, $0.35 per share, for the quarter ended September 30,
1996. This compares to net earnings of $775,000, $0.20 per share for the same
period a year earlier. Net earnings without the one-time SAIF assessment would
have been $547,000, $0.14 per share for the quarter ended September 30, 1996.
INTEREST INCOME Interest income amounted to $14.1 million for the quarter ended
- ---------------
September 30, 1996 as compared to $12.4 million for the quarter ended September
30, 1995. The increase in interest income is a result of the interest margin
increasing 17 basis points in the quarter compared to the same quarter in the
previous year as well as a larger earning asset base.
INTEREST EXPENSE Interest expense for the quarter ended September 30, 1996 was
- ----------------
$8.3 million, compared to $7.5 million for the same quarter in the previous
year. This increase is a result of an increased average balance of liabilities
during the current fiscal year.
NET INTEREST INCOME The net interest margin for the quarter ended September 30,
- -------------------
1996 was 3.26%, a 17 basis point increase from the same period last year. Net
interest income before provision for loan losses for the quarter ended September
30, 1996 amounted to $5.8 million compared to $4.9 million for the same period
last year. This increase is a result of a larger earning asset base combined
with higher yields on interest-earning assets. The following table displays
average interest rates on the Company's interest-earning assets and interest-
bearing liabilities:
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
---- ----
Quarter Quarter
Average Average
------- -------
Yield on interest-earning assets........... 7.93% 7.89%
Cost of interest-bearing liabilities....... 5.16% 5.38%
---- ----
Interest rate spread (1)................... 2.77% 2.51%
==== ====
Net interest margin (2).................... 3.26% 3.09%
==== ====
(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 percent of
average interest-earning assets.
10
PROVISION FOR LOAN LOSSES The provision for loan losses was $1.5 million for
- -------------------------
the three months ended September 30, 1996, compared to $800,000 for the quarter
ended June 30, 1996. Although the level of non-performing assets was
relatively unchanged from the previous quarter, management believed it prudent
to increase the general valuation allowance keep pace with the growth in the
loan portfolio and an increase in performing loans which demonstrated some
weakness during the quarter. 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):
AT OR FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
---- ----
(IN THOUSANDS)
Accumulated through a charge to earnings:
Balance at beginning of period.............................. $ 6,542 $ 10,614
Provision for loan losses................................... 1,500 201
Charge-offs, net (1)........................................ (1,118) (1,680)
--------- ---------
Balance at end of period.................................... 6,924 9,135
Valuation allowance for portfolios acquired:
Balance at beginning of period.............................. 1,291 1,494
Reductions credited......................................... (3) (5)
--------- ---------
Balance at end of period.................................... 1,288 1,489
--------- ---------
Total allowance for loan losses(2)....................... $ 8,212 $ 10,624
========= =========
Allowance for REO losses:
Balance at beginning of period.............................. $ 175 $ 175
Additions charged to operations............................. -- --
--------- ---------
Balance at end of period.................................... $ 175 $ 175
========= =========
(1) Charge-offs were primarily from the real estate loan portfolio.
(2) Includes specific allowances of $2.0 million and $3.4 million at September
30, 1996 and 1995, respectively.
11
OTHER INCOME Other income for the three months ended September 30, 1996 was
- ------------
$610,000 compared to $499,000 for the same period last year. The increase in
other income was a result of increased commissions earned on the sale of non-
insured financial products, primarily mutual funds and annuities.
OTHER EXPENSE Other expense for the three months ended September 30, 1996 was
- -------------
$7.0 million compared to $3.8 million for the same period last year. The
increase in other expense was primarily a result of the $3.1 million accrual for
the one-time special SAIF assessment.
INCOME TAXES The effective tax rates were 41.1% and 42.2% for the quarters
- ------------
ended September 30, 1996 and 1995, 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:
AT AT AT
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1996 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
Non-accrual loans (1):
Real estate loans:
One-to-four family.......................................... $ 2,595 $ 1,614 $ 1,859
Multifamily................................................. 3,528 4,949 4,750
Commercial.................................................. 3,795 3,781 3,142
Other....................................................... 101 105 1
---------- --------- ---------
Total non-accrual loans..................................... 10,019 10,449 9,752
Troubled debt restructured loans (5)................................ 233 234 1,244
---------- --------- ---------
Total non-performing loans.................................. 10,252 10,683 10,996
Real estate acquired through foreclosure............................ 3,127 2,435 1,201
---------- --------- ---------
Total non-performing assets................................. $ 13,379 $ 13,118 $ 12,197
========== ========= =========
Non-performing loans as a percentage of total loans (1)(2).......... 1.61% 1.71% 1.92%
Non-performing assets as a percentage of total assets (3)........... 1.81% 1.81% 1.86%
General Valuation Allowance (GVA) on loans
as a percentage of total loans................................... 0.98% 0.92% 1.26%
GVA on loans as a percentage of non-performing loans (1)(2)......... 60.71% 53.52% 65.70%
Total GVA as a percentage of total non-performing assets (3)(4)..... 47.83% 44.92% 60.66%
(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 (TDRs).
(3) Non-performing assets include non-performing loans and REO.
(4) Includes loan and REO general valuation allowances.
(5) All TDRs are currently performing according to their restructured terms.
The Company's non-accrual policy provides that interest accruals generally cease
once a loan is past due for a period of 60 days or more. Loans may also be
placed on non-accrual status even though they are less than
12
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.
Non-accrual loans at September 30, 1996 consisted of $2.6 million in one-to-four
family loans, $3.5 million in multifamily loans and $3.8 million in commercial
and industrial loans, which includes $1.4 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 (TDR's) remained relatively unchanged at
$233,000.
The Company defines non-performing loans as non-accrual loans and troubled debt
restructured loans (at September 30, 1996, 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.
Non-performing assets were $13.4 million at September 30, 1996 which increased
from $13.1 million at June 30, 1996. Non-performing assets to total assets
remained unchanged at 1.81% at September 30, 1996 and June 30, 1996.
The loan portfolio continues to experience problems resulting from factors such
as borrower layoffs and deterioration of real estate values. Multifamily loans
were also affected by increased vacancy rates and lower rents collected.
Although non-performing asset ratios have remained unchanged, the Company's non-
performing assets and allowance for loan losses may increase as a result of the
continued weakness in the Southern California economy.
A loan is considered impaired under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan." and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosure.", 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, which is an acceptable methodology under the provisions contained in
SFAS 114 and 118. 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.
The Association considers a loan to be impaired when, based upon current
information and events, the Association believes it is probable that it will be
unable to collect all amounts due according to the contractual terms of the loan
agreement on a timely basis. The Association's impaired loans include
nonaccrual loans greater than $300,000 and certain performing loans. At
September 30, 1996, the Company had a gross investment in impaired loans of $8.6
million, including $5.6 million for which allowances of $1.2 million had been
recorded and $3.0 million for which no allowances were required.
During the three months ended September 30, 1996, the Company's average
investment in impaired loans was $9.3 million and income recorded on impaired
loans totaled $149,000, substantially all of which was recorded utilizing the
cash-basis method of accounting. Payments received on impaired loans which are
performing
13
under their contractual terms are allocated to principle and interest in
accordance with the terms of the loans. Impaired loans totalling to $5.6 million
were not performing in accordance with their contractual terms at September 30,
1996, and have been included in non-accrual 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.
The Association was in compliance with all capital requirements in effect at
September 30, 1996, 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 7.35% and risk-based capital to 12.30% at
September 30, 1996 from 7.67% and 12.74%, respectively at June 30, 1996, was due
primarily to an increase in assets during the three months ended September 30,
1996 and the one-time SAIF assessment.
14
The following table reflects the required and actual regulatory capital ratios
of the Association at the dates indicated:
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 1996 1996
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Tangible capital.......................... 1.50% N/A 7.35% 7.67%
Core capital.............................. 3.00% 5.00% 7.35% 7.67%
Risk-based capital........................ 8.00% 10.00% 12.30% 12.74%
Tier 1 Risk-based capital................. N/A 6.00% 11.05% 11.53%
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PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(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.
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SIGNATURES
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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, 1996 By: /s/ Dwight L. Wilson
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Dwight L. Wilson
Senior Vice President,
Treasurer and Chief Financial Officer
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