SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 0-25700
QCF BANCORP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Minnesota 41-1796789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
501 Chestnut Street, Virginia, Minnesota 55792-1147
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (218 741-2040
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act 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 such filing requirements for the past 90
days.
Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Class Outstanding at January 31, 2000
Common stock, .01 par value 1,066,389
1
QCF BANCORP, INC.
CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1: Financial Statements
Consolidated Statements of Financial Condition
at December 31, 1999 and June 30, 1999 3
Consolidated Statements of Income for the Six
Months Ended December 31, 1999 and 1998 4
Consolidated Statement of Stockholders' Equity
for the Six Months Ended December 31, 1999 5
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 10
Item 2: Changes in Securities 10
Item 3: Defaults Upon Senior Securities 10
Item 4: Submission of Matters to a Vote of Security Holders 10
Item 5: Other Information 10
Item 6: Exhibits and Reports on Form 8-K 10
Signatures 11
2
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
Assets December 31, 1999 June 30, 1999
Cash $ 965,433 879,094
Interest-bearing deposits with banks 3,918,241 3,643,229
Cash and cash equivalents 4,883,674 4,522,323
Securities held to maturity (estimated market value of
$81,180,042 and 74,141,613 at December 31, 1999
and June 30, 1999 respectively) 83,101,721 74,871,676
Loans receivable, net 65,694,936 65,632,062
Federal Home Loan Bank stock, at cost 525,000 499,800
Accrued interest receivable 1,096,965 983,826
Premises and equipment, net 667,695 737,277
Deferred tax asset 573,000 573,000
Prepaid expenses and other assets 580,974 531,065
Total Assets $157,123,965 148,351,029
Liabilities and Stockholders' Equity
Deposits 112,144,709 109,561,041
Short-term borrowings 11,600,979 14,217,535
Federal Home Loan Bank advances 10,500,000 2,000,000
Accrued interest payable 1,151,545 1,077,269
Advance payments made by borrowers
for taxes and insurance 50,486 71,063
Accrued expenses and other liabilities 1,458,145 1,442,808
Total Liabilities 136,905,864 128,369,716
Stockholders' equity:
Serial preferred stock; authorized 1,000,000 shares;
issued and outstanding none 0 0
Common stock ($.01 par value): authorized 7,000,000 shares;
issued 1,080,439; shares at December 31,
1999 and 1,116,371 at June 30, 1999 10,804 11,164
Additional paid-in capital 10,955,635 11,236,851
Retained earnings, subject to certain restrictions 16,720,239 16,188,396
Unearned employee stock ownership plan shares (912,400) (951,550)
Unearned management recognition plan shares (104,304) (104,304)
Deferred compensation payable in common stock 774,534 669,830
Shares in stock option trust, at the exercise price (5,411,153) (5,411,153)
Treasury stock, at cost, 101,051 shares at December 31,
1999 and 94,857 at June 30, 1999 (1,815,254) (1,657,921)
Total Stockholders' Equity 20,218,101 19,981,313
Total Liabilities and Stockholders' Equity $157,123,965 148,351,029
See accompanying notes to consolidated financial statements.
3
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
1999 1998 1999 1998
Interest income:
Loans $1,373,401 1,458,639 2,778,280 2,890,997
Securities 1,398,325 1,155,927 2,673,616 2,418,886
Total interest income 2,771,726 2,614,566 5,451,896 5,309,883
Interest expense:
Deposits 1,060,666 1,002,870 2,105,065 2,004,276
Short-term borrowings 192,729 164,417 362,162 322,643
Total interest expense 1,253,395 1,167,287 2,467,227 2,326,919
Net interest income 1,518,331 1,447,279 2,984,669 2,982,964
Provision for loan losses 15,000 0 30,000 0
Net interest income after
provision for loan losses 1,503,331 1,447,279 2,954,669 2,982,964
Non-interest Income:
Fees and service charges 128,716 133,664 256,783 269,148
Other 22,654 37,809 49,850 62,332
Total Non-interest income 151,370 171,473 306,633 331,480
Non-interest expense:
Compensation and benefits 522,598 525,603 1,056,314 1,046,453
Occupancy 76,281 92,402 155,605 179,420
Other 126,708 157,195 266,816 312,030
Total non-interest expense 725,587 775,200 1,478,735 1,537,903
Income before income tax expenses 929,114 843,552 1,782,567 1,776,541
Income tax expense 354,000 318,000 677,000 672,000
Net income $ 575,114 525,552 1,105,567 1,104,541
Basic earnings per common share $0.85 0.68 1.62 1.32
Diluted earnings per common share $0.77 0.61 1.47 1.19
See accompanying notes to consolidated financial statements.
4
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(Unaudited)
Unearned
Employee Unearned
Stock Management Total
Additional Ownership Recognition Deferred Stock Stock-
Common Paid-in Retained Plan Plan Compensation Option Treasury holders'
Stock Capital Earnings Shares Shares Payable Trust Stock Equity
Balance, June 30, 1999 $ 11,164 11,236,851 16,188,396 (951,550) (104,304) 669,830 (5,411,153) (1,657,921) 19,981,313
Net Income 1,105,567 1,105,567
Purchase of treasury stock (1,073,489)(1,073,489)
Retirement of treasury stock (360) (342,072) (573,724) 916,156 -
Increase in deferred
compensation payable 104,704 104,704
Earned employee stock
ownership plan shares 60,856 39,150 100,006
Balance, September 30, 1999 $10,804 10,955,635 16,720,239 (912,400) (104,304) 774,534 (5,411,153) (1,815,254) 20,218,101
See accompanying notes of consolidated financial statements.
5
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
December 31
1999 1998
Operating activities:
Net income $1,105,567 1,104,541
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 100,004 112,192
Amortization of net premiums on securities 107,653 31,981
(Increase) decrease in accrued interest receivable (113,139) 306,588
Increase in accrued interest payable 74,276 5,353
Decrease in accrued expenses and other liabilities (5,240) (30,174)
Increase in deferred compensation payable 104,704 0
Amortization of unearned ESOP shares 100,006 98,221
Amortization of MRP 0 93,996
(Increase) decrease in other assets (60,941) 155,969
Net cash provided by operating activities 1,412,890 1,878,667
Investing activities:
Proceeds from maturities and principal collected
on securities held to maturity 12,508,153 32,146,549
Purchases of securities held to maturity (20,845,851) (23,757,780)
Purchase of Federal Home Loan Bank stock (25,200) 0
Net increase in loans (62,874) (700,599)
Net (increase) decrease in real estate owned 11,032 107,987
Purchase of premises and equipment (30,422) (134,635)
Net cash (used in) provided by investing activities (8,445,162) 7,661,522
Financing activities:
Net increase in deposits 2,583,668 2,141,545
Net (decrease) increase in short-term borrowing (2,616,556) 1,355,406
Net increase (decrease) in Federal Home Loan Bank advances 8,500,000 (2,000,000)
Purchase of stock for stock option trust 0 (2,840,619)
Purchase of treasury stock (1,073,489) (5,190,146)
Net cash provided by (used in) financing activities 7,393,623 (6,533,814)
Increase in cash and cash equivalents 361,351 3,006,375
Cash and cash equivalents at beginning of period 4,522,323 3,958,369
Cash and cash equivalents at end of period $4,883,674 6,964,744
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $346,000 846,423
Interest on deposits and short-term borrowings 2,392,951 2,321,566
See accompanying notes to consolidated financial statements.
6
QCF BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1) QCF Bancorp, Inc.
The consolidated financial statements included herein are for QCF Bancorp,
Inc. (the "Company"), Queen City Federal Savings Bank (the "Bank") and the
Bank's wholly owned subsidiary, Queen City Service Corporation. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the footnotes thereto contained in the
Annual Report on Form 10-KSB for the year ended June 30, 1999 of the Company, as
filed with the Securities and Exchange Commission. The June 30, 1999 balance
sheet was derived from audited consolidated financial statements, but does not
include all disclosures required by generally accepted accounting principles.
(2) Basis of Preparation
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and therefore, do not include
all disclosures necessary for a complete presentation of the consolidated
statements of financial condition, consolidated statements of income,
consolidated statement of stockholders' equity and consolidated statements of
cash flows in conformity with generally accepted accounting principles. However,
all adjustments, consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary for the fair presentation of the interim
financial statements have been included. The statement of income for the three
month period ended September 30, l999 is not necessarily indicative of the
results which may be expected for the entire year.
(3) Earnings Per Share
Basic per-share amounts are computed by dividing net income (the numerator)
by the weighted-average number of common shares outstanding (the denominator).
Diluted per-share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless the effect is to reduce the loss or
increase the income per common share from continuing operations.
Following is information about the computation of the earnings per share
data for the periods ended December 31, 1999 and l998.
Quarter Ended December 31 Six Months Ended December 31
Net Net
Income Income
Per Per
Numerator Denominator Share Numerator Denominator Share
1999
Basic earnings per share, income
available to common stockholders $575,114 678,709 $0.85 1,105,567 683,986 $1.62
Effect of dilutive securities:
Stock options - 67,759 - 68,607
Diluted earnings per share, income
available to common stockholders $575,114 746,468 $0.77 1,105,567 752,593 1.47
1998
Basic earnings per share, income
available to common stockholders $525,550 775,657 $0.68 $1,104,539 839,559 $1.32
Effect of dilutive securities
Stock options - 79,177 - 75,415
Management recognition plan - 12,842 - 17,103
Diluted earnings per share, income
available to common stockholders $525,550 859,676 $0.61 $1,104,539 932,077 $1.19
7
(4) Regulatory Capital Requirements
The Bank as a member of the Federal Home Loan Bank System is required to
hold a specified number of shares of capital stock, which is carried at cost, in
the Federal Home Loan Bank of Des Moines. In addition, the Bank is required to
maintain cash and liquid assets in an amount equal to 4% of its deposit accounts
and other obligations due within one year. The Bank has met these requirements.
The Bank is subject to various regulatory capital requirements administered
by the Bank's primary federal regulatory agency. Failure to meet minimum capital
requirements can initiate mandatory and possibly discretionary actions by
regulators that, if undertaken, could have a direct material affect on the
Company's consolidated financial statements. Under capital adequacy guidelines,
and the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of assets and
certain off-balance sheet items calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weighting, and
other factors. Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum ratios of total and Tier I
capital, and of Tier I capital to average assets (all as defined in the
regulations). Management believes, as of December 31, 1999, that the Bank meets
all capital adequacy requirements to which it is subject. At December 31, 1999,
and June 30, 1999, the Bank met each of the three capital requirements. As of
December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of Operating Results for the Quarter Ended December 31, l999 and l998
Net Income. Net income increased by $50,000 or 9.4% from $525,000 for the
quarter ended December 31, l998 to $575,000 for the quarter ended December 31,
l999. The increase in net income was attributable to an increase of $56,000 in
net interest income and a decrease of $50,000 in non-interest expense. Net
income remained stable at $1.1 million for the six months ended December 31,
1999 and 1998.
Net Interest Income. Net interest income increased by $71,000 or 4.9%
between the quarter ended December 31, l999 and the quarter ended December 31,
l998. Net interest income was at $3.0 million for the six months ended December
31, 1998 and for the six months ended December 31, 1999. The increase in net
interest income for the quarter primarily resulted from an increase in the
Bank's net interest margin.
Interest Income. Interest income increased $157,000 or 6.0% from the
quarter ended December 31, 1998 to the quarter ended December 31, 1999. Interest
income for the six month period ended December 31, 1999 increased by $142,000 or
2.7% compared to the six-month period ended December 31, 1998. The increases
were due to an increase in average interest-earning assets and a slight increase
in their interest rate yields.
Interest Expense. Interest expense increased by $86,000 or 7.4%, from the
quarter ended December 31, 1998 to the quarter ended December 31, l999 and
increased by $140,000 or 6.0% from the six months ended December 31, 1998 to the
six months ended December 31, 1999. The increases were due to an increase in
average interest-bearing liabilities primarily as a result of increases in
Federal Home Loan Bank advances along with an increase in interest rates on
deposits.
Noninterest Income. The Bank's non-interest income decreased $20,000 from
$171,000 in the second quarter of fiscal 1999 to $151,000 in the second quarter
of fiscal 2000. Noninterest income decreased by $25,000 for the six months ended
December 31, 1999. The decreases are primarily due to decreases in miscellaneous
income.
Noninterest Expense. Total noninterest expense decreased by $50,000 or 6.4%
and by $59,000 or 3.8% during the quarter and six-months ended December 31,
1999, respectively. The decreases for the quarter and for the six-month period
were primarily due to additional expenses incurred for the conversion of the
Bank's data processing system during fiscal 1999.
8
Provision for Loan Losses. The Bank provided for $15,000 and $30,000 in
loan losses during the quarter ended September 30, 1999 and the six-month period
ending December 31, 1999 respectively. No provision was made during the quarter
ended September 30, 1998 and the six month period ending December 31, 1998. The
Bank had low levels of nonperforming loans and has maintained an adequate level
of allowance for loan losses in relation to total loans during these periods.
Income Taxes. The Bank's income tax expense increased by $36,000 and by
$5,000 for the quarter and six months ended December 31, l999 as compared to the
quarter and six months ended December 31, 1998, respectively. The changes
reflect the changes in income before income taxes during these periods.
Comparison of Financial Condition at December 31, l999 and June 30, 1999.
Total assets increased by $8.8 million, or 5.9% from $148.3 million at June 30,
1999 to $157.1 million at December 31, l999. The increase was primarily due to
an $8.2 million increase in investment securities.
Deposits increased by $2.6 million or 2.4% and short-term borrowings
decreased by $2.6 million, or 1.8%. Federal Home Loan Bank advances increased by
$8.5 million.
The Bank's investment securities increased by $8.2 million or 11.0%, from
$74.9 million at June 30, 1999 to $83.1 million at December 31, l999. The
increase in investment securities was primarily due to investing the proceeds of
the $8.5 million increase in Federal Home Loan Bank advances.
The Bank's net loans receivable remained stable at June 30, 1999 and
December 31, 1999.
Year 2000 (Y2k) Compliance. The Bank did not encounter any Y2k related
problems with the date change to January 1, 2000. We continue to monitor our
commercial customers for evidence of any Y2k problems that may affect their
ability to operate and therefore repay their loans. We also continue to monitor
our vendors to ensure that they are Y2k compliant and will have no negative
impact on the Bank.
9
Part II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Change in Securities.
Not applicable.
ITEM 3. Defaults Upon Senior Securities.
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders.
Election of Directors at the annual meeting on October 13, 1999.
For Withheld
Craig W. Nordling 1,033,694 4,855
Robert L. Muhich 1,033,994 4,555
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
None.
10
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.
QCF Bancorp, Inc.
Registrant
Date: February 11, 2000 /s/ Daniel F. Schultz
Daniel F. Schultz
Vice President/Treasurer
(Principal Financial Officer)
11