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 December 31, 1996
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number: 0-22528
QUAKER CITY BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4444221
- -------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7021 Greenleaf Avenue, Whittier, California 90602
- --------------------------------------------- -----
(Address or principal executive offices) (Zip code)
Registrant's telephone number, including area code (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
February 13, 1997: 3,792,125
QUAKER CITY BANCORP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (unaudited) as of
December 31, 1996 and June 30, 1996............................................ 3
Consolidated Statements of Operations (unaudited) for the Three Months
and Six Months Ended December 31, 1996 and 1995................................ 4
Consolidated Statements of Cash Flows (unaudited) for the Six Months
Ended December 31, 1996 and 1995............................................... 5
Notes to Consolidated Financial Statements..................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders................................ 15
Item 6. Exhibits and Reports on Form 8-K............................................... 15
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30,
1996 1996
---- ----
ASSETS
Cash and due from banks............................................... $ 7,910 $ 2,184
Interest-bearing deposits............................................. 432 4,984
Federal funds sold and other short-term investments................... 8,628 6,400
Investment securities held to maturity................................ 34,168 37,419
Investment securities available for sale.............................. 331 --
Loans receivable, net................................................. 632,859 607,672
Loans receivable held for sale........................................ 5,446 2,890
Mortgage-backed securities held to maturity........................... 51,627 41,175
Real estate held for sale............................................. 2,395 3,058
Federal Home Loan Bank stock, at cost................................. 9,441 8,151
Office premises and equipment, net.................................... 4,103 4,176
Accrued interest receivable and other assets.......................... 7,126 6,976
-------- --------
Total assets........................................................ $764,466 $725,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.............................................................. $521,592 $512,517
Federal Home Loan Bank advances....................................... 166,600 135,300
Securities sold under agreements to repurchase........................ -- 300
Deferred tax liability................................................ 1,174 1,174
Accounts payable and accrued expenses................................. 2,841 2,870
Other liabilities..................................................... 4,474 4,998
-------- --------
Total liabilities................................................... 696,681 657,159
Stockholders' equity:
Common stock, $.01 par value. Authorized 10,000,000 shares; issued
and outstanding 3,792,125 shares and 3,813,600 at December 31,
and June 30, 1996, respectively..................................... 38 38
Additional paid-in capital............................................ 27,019 27,017
Unrealized loss on securities available for sale...................... (9) --
Retained earnings, substantially restricted........................... 43,063 43,515
Deferred compensation................................................. (2,326) (2,644)
-------- --------
Total stockholders' equity.......................................... 67,785 67,926
-------- --------
Total liabilities and stockholders' equity.......................... $764,466 $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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
---------- ---------- ----------- ------------
Interest income:
Loans receivable....................................... $ 12,796 $ 11,752 $ 25,227 $ 22,801
Mortgage-backed securities............................. 804 780 1,554 1,538
Investment securities.................................. 659 377 1,329 784
Other.................................................. 222 205 438 382
---------- ---------- ---------- ----------
Total interest income.............................. 14,481 13,114 28,548 25,505
---------- ---------- ---------- ----------
Interest expense:
Deposits............................................... 6,389 6,432 12,797 12,670
Federal Home Loan Bank advances........................ 2,172 1,251 4,041 2,293
Other.................................................. -- 166 4 425
---------- ---------- ---------- ----------
Total interest expense............................. 8,561 7,849 16,842 15,388
---------- ---------- ---------- ----------
Net interest income before provision for loan losses.... 5,920 5,265 11,706 10,117
Provision for loan losses................................. 501 500 2,001 701
---------- ---------- ---------- ----------
Net interest income after provision for loan losses..... 5,419 4,765 9,705 9,416
---------- ---------- ---------- ----------
Other income:
Loan servicing charges and fees........................ 449 388 860 753
Gain on sale of loans held for sale.................... 58 66 111 105
Commissions............................................ 148 128 288 204
Other.................................................. 4 9 10 28
---------- ---------- ---------- ----------
Total other income................................. 659 591 1,269 1,090
---------- ---------- ---------- ----------
Other expense:
Compensation and employee benefits..................... 1,900 1,918 3,828 3,829
Occupancy, net......................................... 488 510 960 1,024
Federal deposit insurance premiums..................... 283 309 609 615
Other general and administrative expense............... 972 966 1,834 1,831
---------- ---------- ---------- ----------
Total general and administrative expense........... 3,643 3,703 7,231 7,299
Savings Association Insurance Fund special assessment.. -- -- 3,100 --
Real estate operations, net............................ 169 158 451 295
Amortization of core deposit intangible................ 75 75 151 151
---------- ---------- ---------- ----------
Total other expense................................ 3,887 3,936 10,933 7,745
---------- ---------- ---------- ----------
Earnings before income taxes........................... 2,191 1,420 41 2,761
Income taxes.............................................. 932 589 49 1,155
---------- ---------- ---------- ----------
Net earnings (loss).................................... $ 1,259 $ 831 $ (8) $ 1,606
========== ========== ========== ==========
Net earnings per share................................. $0.33 $0.21 $0.00 $0.41
Weighted average common and common equivalent shares... 3,801,507 3,900,329 3,616,382 3,892,456
See accompanying notes to consolidated financial statements.
4
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
1996 1995
---- ----
Cash flows from operating activities:
Net earnings (loss)................................................................. ($8) $ 1,606
--------- ---------
Adjustments to reconcile net earnings to net cash provided (used)
by operating activities:
Depreciation and amortization................................................... (91) 54
Provision for loan losses....................................................... 2,001 701
Write-downs and provision for losses on real estate held for sale............... 210 231
(Gain) loss on sale of real estate held for sale................................ 88 (269)
Provision for deferred income taxes............................................. -- 452
Gain on sale of loans held for sale............................................. (111) (105)
Loans originated for sale....................................................... (14,563) (15,977)
Proceeds from sale of loans held for sale....................................... 12,001 14,991
Federal Home Loan Bank (FHLB) stock dividend received........................... (236) (119)
Increase (decrease) in accrued interest receivable and other assets............. (301) 484
Increase (decrease) in other liabilities........................................ (524) 457
Increase (decrease) in accounts payable and accrued expenses.................... (29) 12
Other........................................................................... 734 395
--------- ---------
Total adjustments........................................................... (821) 1,307
--------- ---------
Net cash provided (used) by operating activities............................ (829) 2,913
--------- ---------
Cash flows from investing activities:
Loans originated for investment..................................................... (44,851) (44,397)
Loans purchased for investment...................................................... (6,542) (18,647)
Principal repayments on loans....................................................... 23,306 21,667
Proceeds from sale of investment securities available for sale...................... -- 2,550
Purchases of investment securities available for sale............................... (340) (2,400)
Purchases of investment securities held to maturity................................. (2,999) (24,620)
Maturities and principal repayments of investment securities held to maturity....... 6,267 21,629
Purchases of mortgage-backed securities held to maturity............................ (13,693) (6,789)
Proceeds from sale of mortgage-backed securities available for sale................. -- 1,754
Principal repayments on mortgage-backed securities held to maturity................. 3,281 3,368
Proceeds from sale of real estate held for sale..................................... 2,027 1,189
Purchase of FHLB stock.............................................................. (1,054) (797)
Investment in office premises and equipment......................................... (293) (789)
--------- ---------
Net cash used by investing activities....................................... (34,891) (46,282)
--------- ---------
Cash flows from financing activities:
Increase in deposits................................................................ 9,075 19,999
Proceeds from securities sold under agreements to repurchase........................ -- 74,078
Repayments of securities sold under agreements to repurchase........................ (300) (82,579)
Proceeds from funding of FHLB advances.............................................. 205,700 145,780
Repayments of FHLB advances......................................................... (174,400) (117,730)
Repurchase of stock................................................................. (953) (426)
--------- ---------
Net cash provided by financing activities................................... 39,122 39,122
--------- ---------
Increase (decrease) in cash and cash equivalents............................ 3,402 (4,247)
Cash and cash equivalents at beginning of period........................................ 13,568 19,348
--------- ---------
Cash and cash equivalents at end of period.............................................. $ 16,970 $ 15,101
========= =========
5
QUAKER CITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
UNAUDITED
(IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
1996 1995
---- ----
Supplemental disclosures of cash flow information:
Interest paid (including interest credited)....................................... $ 16,620 $15,340
Cash paid for income taxes........................................................ 418 605
========= =======
Supplemental schedule of noncash investing and financing activities:
Additions to loans resulting from the sale of real estate acquired
through foreclosure............................................................. $ 2,736 $ 2,421
Additions to real estate acquired through foreclosure............................. 4,327 2,377
========= =======
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 December 31, 1996,
the related consolidated statements of operations for the three and six
months ended December 31, 1996 and 1995 and the related consolidated
statements of cash flows for the six months ended December 31, 1996 and
1995 are unaudited. These statements reflect, in the opinion of
management, all material adjustments, consisting solely of normal recurring
accruals, necessary for a fair presentation of the financial condition of
Quaker City Bancorp, Inc. (the "Company") as of December 31, 1996 and its
results of operations for the three and six months ended December 31, 1996
and 1995 and cash flows for the six months ended December 31, 1996 and
1995. The results of operations for the unaudited periods are not
necessarily indicative of the results of operations to be expected for the
entire year of fiscal 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 December 31, 1996, the
Company operated eight retail banking offices located in Los Angeles and Orange
counties.
The Company is subject to significant competition from other financial
institutions in its market area. The Company is also subject to regulation by
certain federal agencies and undergoes periodic examinations by those agencies.
In September 1996, federal legislation which recapitalized the Savings
Association Insurance Fund (SAIF) through a one-time special assessment was
enacted. The special assessment was based on the level of the Association's
deposits as of March 31, 1995 at an assessment rate of 65.7 basis points. For
the quarter ended September 30, 1996, the Association accrued $3.1 million in
expense for this special assessment and paid this amount during the second
quarter of fiscal 1997. Effective January 1, 1997, the annual amount the
Association pays for deposit insurance was reduced to 6.45 basis points from 23
basis points.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Total stockholders' equity for the Company was $67.8 million at December 31,
1996, compared to $67.9 million at June 30, 1996. Consolidated assets totaled
$764.5 million at December 31, 1996, an increase of $39.4 million compared to
June 30, 1996.
In the first quarter of fiscal 1997, the Office of Thrift Supervision approved
an additional stock repurchase of 189,000 shares, which is approximately 5% of
outstanding shares. To date, 35,000 shares of stock have been repurchased as
allowable under this latest approval.
Loans receivable increased to $638.3 million at December 31, 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 $33.7
million for the quarter ended December 31, 1996, compared to $45.3 million for
the quarter ended December 31, 1995. For the six months ended December 31,
1996, loan originations and purchases totaled $66.0 million compared to $79.0
million for the six months ended December 31, 1995.
8
For the quarter ended December 31, 1996 loan originations and purchases were
comprised of $8.0 million of one-to-four family residential loans and $25.7
million of multifamily loans. No commercial or industrial loans were originated
or purchased for the quarter ended December 31, 1996. This compares to $13.5
million of one-to-four family residential loans, $28.7 million of multifamily
loans and $3.1 million of commercial and industrial loans for the quarter ended
December 31, 1995. For the six months ended December 31, 1996, loan originations
and purchases were comprised of $17.6 million of one-to-four family residential
loans and $48.4 million of multifamily loans. No commercial or industrial loans
were originated or purchased for the six months ended December 31, 1996. This
compares to $36.9 million of one-to-four family residential loans, $38.9 million
of multifamily loans and $3.2 million of commercial and industrial loans for the
six months ended December 31, 1995. One-to-four family loan originations
decreased from the prior year due to the rise in interest rates for much of the
period. Multifamily originations increased over comparable periods last year due
to marketplace opportunities. At present, the Company expects to continue its
focus on multifamily lending during the current fiscal year.
Proceeds from loan sales amounted to $6.0 million for the quarter ended December
31, 1996 as compared to $9.1 million for the quarter ended December 31, 1995.
Proceeds from loan sales were $12.0 million for the six months ended December
31, 1996 as compared to $15.0 million for the six months ended December 31,
1995. At present, the Company's policy is to sell all 30 and 15 year fixed rate
loans as well as certain single family adjustable and multifamily loans
originated that meet predefined criteria. As a result of loans being sold,
loans serviced for others increased to $213.6 million at December 31, 1996, from
$209.6 million at December 31, 1995.
The primary sources of liquidity for the Company include principal repayments on
loans and mortgage-backed securities, proceeds from sales of loans held for
sale, other 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 $521.6 million at December 31, 1996 from $512.5
million at June 30, 1996, due primarily to interest credited on deposits.
Principal repayments on loans were $11.4 million and $12.1 million for the three
months ended December 31, 1996 and 1995, respectively. For the six months ended
December 31, 1996 and 1995, principal repayments on loans were $23.3 and $21.7
million respectfully.
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 December 31, 1996 and 1995 was
5.12% and 5.13%.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 The
- -----------------------------------------------------------------------
Company recorded net earnings of $1.3 million, $0.33 per share, for the quarter
ended December 31, 1996. This compares to net earnings of $831,000, $0.21 per
share, for the same period in fiscal 1996. For the six months ended December 31,
1996, the company reported a loss of $8,000, $0.00 per share, due primarily to
the one-time SAIF special assessment accrued in the first quarter of fiscal
1997. Net earnings without the one-time SAIF assessment would have been $1.8
million, $0.48 per share, for the six months ended December 31, 1996. This
compares to net earnings of $1.6 million, $0.41 per share, for the same period a
year earlier.
9
INTEREST INCOME Interest income amounted to $14.5 million for the quarter ended
- ---------------
December 31, 1996 as compared to $13.1 million for the quarter ended December
31, 1995. For the six months ended December 31, 1996, interest income amounted
to $28.5 million as compared to $25.5 million a year earlier. The increase in
interest income for the six month period is a result of a larger earning asset
base for the period compared to the same period in the previous year.
INTEREST EXPENSE Interest expense for the quarter ended December 31, 1996 was
- ----------------
$8.6 million, compared to $7.8 million for the same quarter in the previous
year. Interest expense for the six months ended December 31, 1996 was $16.8
million, compared to $15.4 million for the same period in the previous year.
The increase in interest expense is a result of an increase in the average
balance of liabilities during the current fiscal year partially offset by a
decline in the cost of interest-bearing liabilities that followed the general
decline in market rates during the period.
NET INTEREST INCOME The net interest margin for the quarter ended December 31,
- -------------------
1996 was 3.24%, a 2 basis point increase from the same period last year. For
the six months ended December 31, 1996 the net interest margin was 3.25%, a 9
basis point increase from the same period last year. Net interest income before
provision for loan losses for the quarter ended December 31, 1996 amounted to
$5.9 million compared to $5.3 million for the same period last year. For the
six months ended December 31, 1996 and December 31, 1995 net interest income
before provision for loan losses was $11.7 million and $10.1 million,
respectively. This increase is primarily a result of a larger earning asset
base combined with a decline in the cost of liabilities that has followed the
general decline in market rates during the period. The following table displays
average interest rates on the Company's interest-earning assets and interest-
bearing liabilities:
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- -----------------------
Six Six
Quarter Month Quarter Month
Average Average Average Average
------- ------- ------- -------
Yield on interest-earning assets........... 7.93% 7.93% 8.02% 7.96%
Cost of interest-bearing liabilities....... 5.16% 5.16% 5.40% 5.39%
---- ---- ---- ----
Interest rate spread (1)................... 2.77% 2.77% 2.62% 2.57%
==== ==== ==== ====
Net interest margin (2).................... 3.24% 3.25% 3.22% 3.16%
==== ==== ==== ====
(1) The interest rate spread represents the difference between the weighted-
average rate on interest-earning assets and the weighted average rate on
interest-bearing liabilities.
(2) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
PROVISION FOR LOAN LOSSES The provision for loan losses was $501,000 for the
- -------------------------
three months ended December 31, 1996, compared to $500,000 for the same period
last year. The provision for loan losses for the six months ended December 31,
1996 was $2.0 million as compared to $701,000 for the same period last year.
Although the level of non-performing assets has declined from June 30, 1996,
management believed it prudent to increase the general valuation allowance to
keep pace with the growth in the loan portfolio and an increase in performing
loans which demonstrated some weakness during the first quarter. 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
10
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 AT OR FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
Accumulated through a charge to earnings:
Balance at beginning of period................... $6,924 $ 9,135 $ 6,542 $10,614
Provision for loan losses........................ 501 500 2,001 701
Charge-offs, net................................. (761) (1,714) (1,879) (3,394)
------ ------- ------- -------
Balance at end of period......................... 6,664 7,921 6,664 7,921
Valuation allowance for portfolios acquired:
Balance at beginning of period................... 1,288 1,489 1,291 1,494
Purchases........................................ -- 294 -- 294
Reductions credited.............................. (4) (3) (7) (8)
------ ------- ------- -------
Balance at end of period......................... 1,284 1,780 1,284 1,780
------ ------- ------- -------
Total allowance for loan losses(1)............ $7,948 $ 9,701 $ 7,948 $ 9,701
====== ======= ======= =======
Allowance for REO losses:
Balance at beginning of period................... $ 175 $ 175 $ 175 $ 175
Additions charged to operations.................. -- -- -- --
------ ------- ------- -------
Balance at end of period......................... $ 175 $ 175 $ 175 $ 175
====== ======= ======= =======
(1) Includes specific allowances of $1.8 million and $3.9 million at December
31, 1996 and 1995, respectively.
OTHER INCOME Other income for the three months ended December 31, 1996 was
- ------------
$659,000 compared to $591,000 for the same period last year. For the six months
ended December 31, 1996 other income was $1.3 million as compared to $1.1
million for the same period a year earlier. The increase in other income was a
result of increased loan servicing fees and commissions earned on the sale of
non-insured financial products, primarily mutual funds and annuities.
OTHER EXPENSE Other expense for the three months ended December 31, 1996
- -------------
remained substantially unchanged at $3.9 million compared to the same period
last year. For the six months ended December 31, 1996 other
11
expense was $10.9 million, compared to $7.7 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 42.5% and 41.5% for the quarter
- ------------
ended December 31, 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
DECEMBER 31, JUNE 30, DECEMBER 31,
1996 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
Non-accrual loans (1):
Real estate loans:
One-to-four family.............................................. $ 3,490 $ 1,614 $ 2,309
Multifamily..................................................... 3,044 4,949 4,019
Commercial...................................................... 2,974 3,781 3,609
Other........................................................... 28 105 8
------- ------- -------
Total non-accrual loans......................................... 9,536 10,449 9,945
Troubled debt restructured loans (5).................................... 232 234 1,242
------- ------- -------
Total non-performing loans...................................... 9,768 10,683 11,187
Real estate acquired through foreclosure................................ 1,789 2,435 450
------- ------- -------
Total non-performing assets.................................... $11,557 $13,118 $11,637
======= ======= =======
Non-performing loans as a percentage of total loans (1)(2).............. 1.50% 1.71% 1.87%
Non-performing assets as a percentage of total assets (3)............... 1.51% 1.81% 1.70%
General Valuation Allowance (GVA) on loans
as a percentage of total loans...................................... 0.95% 0.92% 0.97%
GVA on loans as a percentage of non-performing loans (1)(2)............. 63.25% 53.52% 51.86%
Total GVA as a percentage of total non-performing assets (3)(4)......... 54.97% 44.92% 51.36%
(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 60 days past due if
management concludes that it is probable that the borrower will not be able to
comply with the repayment terms of the loan.
The Company defines non-performing loans as non-accrual loans and troubled debt
restructured loans (at December 31, 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.
12
Non-accrual loans at December 31, 1996 consisted of $3.5 million in one-to-four
family loans, $3.0 million in multifamily loans and $3.0 million in commercial
and industrial loans, which includes $1.0 million in land loans, and $28,000 in
other 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 $232,000.
Non-performing assets were $11.6 million at December 31, 1996 which decreased
from $13.1 million at June 30, 1996. Non-performing assets to total assets
decreased to 1.51% at December 31, 1996 from 1.81% at June 30, 1996 primarily
due to a decrease in non-performing assets during the period.
Although there was an overall decline in non-performing assets, the loan
portfolio continues to experience problems resulting from factors such as
borrower layoffs and deterioration of real estate values particularly in one-to-
four family properties as evidenced by an increase in non-accrual one-to-four
family loans. The Company believes however that the Southern California economy
may be improving and many property owners are reporting lower vacancy rates on
multifamily properties.
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
December 31, 1996, the Company had a gross investment in impaired loans of $7.5
million, including $4.1 million for which allowances of $896,000 had been
recorded and $3.4 million for which no allowances were required.
During the three and six months ended December 31, 1996, the Company's average
investment in impaired loans was $7.6 million and $8.4 million, respectively.
For the three and six months ended December 31, 1996, income recorded on
impaired loans totaled $178,000 and $327,000 respectively, substantially all of
which was recorded utilizing the cash-basis method of accounting. Payments
received on impaired loans which are performing under their contractual terms
are allocated to principle and interest in accordance with the terms of the
loans. Impaired loans totalling $4.9 million were not performing in accordance
with their contractual terms at December 31, 1996, and have been included in
non-accrual loans at that date.
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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
December 31, 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 7.30% and risk-based capital to 12.02% at
December 31, 1996 from 7.67% and 12.74%, respectively at June 30, 1996, was due
primarily to an increase in assets during the six months ended December 31, 1996
and the one-time SAIF assessment.
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 DECEMBER 31, AT JUNE 30,
FEDERAL SAVINGS AND LOAN ASSOCIATION REQUIREMENT REQUIREMENT 1996 1996
- ------------------------------------ ----------- ----------- ---- ----
Tangible capital............................. 1.50% N/A 7.30% 7.67%
Core capital................................. 3.00% 5.00% 7.30% 7.67%
Risk-based capital........................... 8.00% 10.00% 12.02% 12.74%
Tier 1 Risk-based capital.................... N/A 6.00% 10.80% 11.53%
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PART II. OTHER INFORMATION
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
- ------- -----------------------------------------------
At the Annual Meeting of Stockholders of the Company held on November
13, 1996, the following were approved:
The election of the nominees as directors of the Company:
(1) David T. Cannon was elected by a vote of 3,547,705 in favor,
76,829 against, with no abstentions.
(2) David K. Leichtfuss was elected by a vote of 3,547,705 in
favor, 76,829 against, with no abstentions.
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: February 13, 1997 By: /s/ Dwight L. Wilson
- ------------------------ -------------------------------------
Dwight L. Wilson
----------------
Senior Vice President,
Treasurer and Chief Financial Officer
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