SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
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, 1998
Common stock, .01 par value 1,381,816
QCF BANCORP, INC
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements Page
Consolidated Statements of Financial Condition 3
at December 31, 1997 and June 30, 1997
Consolidated Statements of Income for the Six 4
Months Ended December 31, 1997 and 1996
Consolidated Statement of Stockholders' Equity 5
for the Six Months Ended December 31, 1997
Consolidated Statements of Cash Flows for the 6
Six Months Ended December 31, 1997 and
1996
Notes to Consolidated Financial Statements 7-8
Item 2: Management's Discussion and Analysis of Financial 8-9
Condition and Results of Operations
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, 1997 June 30, 1997
Cash $ 636,283 747,733
Interest-bearing deposits with banks 4,916,159 7,026,683
Cash and cash equivalents 5,552,442 7,774,416
Securities available for sale (amortized cost of
$17,469,904 and $25,359,674 at December 31, 1997
and June 30, 1997 respectively) 17,414,972 24,985,627
Securities held to maturity (estimated market value
$61,111,755 and $58,334,591 at December 31,
1997 and June 30, 1997 respectively) 59,503,360 58,112,799
Loans receivable, net 64,819,374 61,202,301
Federal Home Loan Bank stock, at cost 553,900 553,900
Accrued interest receivable 1,254,664 1,310,779
Premises and equipment, net 388,363 424,609
Deferred tax asset 389,205 563,300
Prepaid expenses and other assets 2,791,687 1,799,672
Total Assets $152,667,967 156,727,403
Liabilities and Stockholders' Equity
Deposits 103,692,749 103,681,490
Short-term borrowings 14,158,420 14,039,794
Federal Home Loan Bank advances 4,000,000 8,100,000
Accrued interest payable 1,142,910 1,071,313
Advance payments made by borrowers
for taxes and insurance 54,457 61,675
Accrued expenses and other liabilities 2,799,199 2,349,845
Total Liabilities $125,847,735 129,304,117
Stockholders' equity:
Serial preferred stock; authorized 1,000,000 shares;
issued and outstanding none 0 0
Common stock ($.01 par value): authorized 7,000,000 shares;
issued 1,782,750; outstanding 1,381,816 shares at
December 31, 1997 and 1,426,200 at June 30, 1997 17,828 17,828
Additional paid-in capital 16,188,483 16,665,625
Retained earnings, subject to certain restrictions 21,345,091 20,051,443
Net unrealized loss on securities available for sale (33,727) (222,745)
Unearned employee stock ownership plan shares (1,047,360) (1,080,710)
Unearned management recognition plan shares (620,144) (746,292)
Shares in stock option trust, at the exercise price (2,473,566) (1,872,071)
Stock option trust, at cost, 400,934 shares at December 31,1997
and 356,550 shares at June 30, 1997 (6,556,373) (5,389,792)
Total Stockholders' Equity 26,820,232 27,423,286
Total Liabilities and Stockholders' Equity $152,667,967 156,727,403
See accompanying notes to consolidated financial statements.
3
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Income
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
1997 1996 1997 1996
Interest income:
Loans $1,463,284 1,289,399 2,875,063 2,520,236
Securities 1,404,593 1,403,012 2,822,285 2,829,468
Total interest income 2,867,877 2,692,411 5,697,348 5,349,704
Interest expense:
Deposits 986,804 1,086,542 1,978,201 1,916,166
Short-term borrowings 248,030 88,784 486,047 423,997
Total interest expense 1,234,834 1,175,326 2,464,248 2,340,163
Net interest income 1,633,043 1,517,085 3,233,100 3,009,541
Provision for loan losses 0 0 0 0
Net interest income after
provision for loan losses 1,633,043 1,517,085 3,233,100 3,009,541
Non-interest Income:
Fees and service charges 128,753 124,207 257,089 249,628
Other 19,553 9,508 32,089 19,414
Total Non-interest income 148,306 133,715 289,178 269,042
Non-interest expenses:
Compensation and benefits 530,651 460,183 1,026,848 916,924
Occupancy 56,877 58,258 114,759 106,909
Federal deposit insurance premiums 16,800 (104,030) 33,600 641,760
Advertising 13,393 24,546 26,838 38,635
Other 116,789 104,464 211,585 220,056
Total non-interest expense 734,510 543,421 1,413,630 1,924,284
Income before income tax expenses 1,046,839 1,107,379 2,108,648 1,354,299
Income tax expense 393,000 436,000 815,000 536,000
Net income $ 653,839 671,379 1,293,648 818,299
Basic earnings per common share $0.63 0.58 1.20 0.68
Diluted earnings per common share $0.57 0.57 1.10 0.67
See accompanying notes to consolidated financial statements.
4
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(Unaudited)
Net Unearned
Unrealized Employee Unearned
Gain (Loss) Stock Management Total
Additional on Securities Ownership Recognition Stock Stock-
Common Paid-in Retained Available Plan Plan Option Treasury holders
Stock Capital Earnings for Sale Shares Shares Trust Stock Equity
Balance, June 30 1997 $17,828 16,665,625 20,051,443 (222,745) (1,080,710) (746,292) (1,872,071) (5,389,792) 27,423,286
Net Income 1,293,648 1,293,648
Purchase of treasury stock (1,166,581) (1,166,581)
Purchase of stock for stock (601,495) (1,131,452)
option trust (529,957)
Amortization of management 126,148 126,148
recognition plan
Change in net unrealized loss
on securities available for sale 189,018 189,018
Earned employee stock
ownership plan shares 52,815 33,350 86,165
Balance, December 31, 1997 $17,828 16,188,483 21,345,091 (33,727) (1,047,360) (620,144) (2,473,566) (6,556,373) 26,820,232
See accompanying Notes of Consolidated Financial Statements.
5
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31
1997 1996
Operating activities:
Net income $ 1,293,648 818,299
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 55,041 44,626
Amortization of net (discounts) premiums on securities (54,660) (11,083)
Decrease (increase) in accrued interest receivable 56,115 41,896
Increase in accrued interest payable 71,597 24,490
Increase (decrease) in accrued expenses and other liabilities 449,354 126,170
Amortization of unearned ESOP shares 86,165 93,843
Amortization of MRP 126,148 98,942
(Increase) decrease in other assets (817,284) (64,027)
Net cash provided by operating activities 1,266,124 1,173,156
Investing activities:
Proceeds from maturities and principal collected
on securities held to maturity 22,512,720 10,756,295
Proceeds from maturities and principal collected
on securities available for sale 7,855,187 5,146,460
Purchases of securities held to maturity (23,814,040) (6,725,993)
Net increase in loans (3,617,073) (5,304,160)
Net increase in real estate owned (130,751) ( 38,136)
Purchase of premises and equipment (18,795) (4,174)
Net cash provided by investing activities 2,787,248 3,830,292
Financial activities:
Net increase (decrease) in deposits 11,259 14,009,588
Net (decrease) increase in short-term borrowing 118,626 (14,788,173)
Net increase in Federal Home Loan Bank advances 4,100,000 1,000,000
Adoption of Stock Option Trust (1,131,452) (1,443,912)
Purchase of Treasury Stock (1,166,581) (2,777,117)
Decrease in advance payments made by borrowers
for taxes and insurance (7,218) (5,669)
Net cash (used) provided by financing activities (6,275,366) 4,005,283
(Decrease) increase in cash and cash equivalents (2,221,994) 998,165
Cash and cash equivalents at beginning of period 7,774,416 4,734,993
Cash and cash equivalents at end of period $5,552,422 5,733,158
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income Taxes $ 986,852 384,807
Interest on deposits and short-term borrowings 2,392,651 2,315,673
See accompanying notes to consolidated financial statements.
6
QCF BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
December 31, 1997 and 1996
(1) QCF Bancorp, Inc.
QCF Bancorp, Inc. (the "Company") was incorporated under the laws of the state
of Minnesota for the purpose of becoming the savings and loan holding company of
Queen City Federal Savings Bank ( the "Bank") in connection with the Bank's
conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank, pursuant to its Plan of Conversion. The Company
commenced on February 10, 1995, a Subscription and Community Offering of its
shares in connection with the conversion of the Bank (the "Offering"). The
Offering was closed on March 17, 1995, and final approval for the conversion was
received from the Office of Thrift Supervision on March 31, 1995.
The consolidated financial statements included herein are for the Company, the
Bank and the Bank's wholly owned subsidiary, Queen City Service Corporation.
(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 statements of income for the three
and six month periods ended December 31, 1997 are not necessarily indicative of
the results which may be expected for the entire year.
(3) Earnings Per Share
The FASB has issued Statement No. 128, Earnings per Share, which supersedes APB
Opinion No. l5. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants and convertible securities, outstanding that trade in a public
market. Those entities that have only common stock outstanding are required to
present basic earnings per share amounts. (Basic per-share amounts are computed
by dividing (income from continuing operations) (income before extraordinary
item(s)) (income before cumulative effect of accounting change) (and) net income
(adjusted for (dividends declared on preferred stock) (dividends accumulated on
cumulative preferred stock)) (the numerator) by the weighted-average number of
common shares outstanding (the denominator).) All other entities are required to
present basic and diluted per-share amounts. 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.
The Company initially applied Statement No. l28 for the quarter and six months
ended December 3l, l997 and (as required by the Statement), has restated all per
share information for the prior periods to conform to the Statement.
Following is information about the computation of the earnings per share data
for the periods ended December 3l, l997 and l996.
7
Quarter Ended December 3l, 1997 Six Months Ended December 3l, 1997
Net Net
Income Income
Per Per
Numerator Denominator Share Numerator Denominator Share
Basic earnings per share, income
available to common stockholders $ 653,839 l,046,l22 $0.63 $l,293,648 l,077,239 $1.20
Effect of dilutive securities:
Stock options - 79,678 - 74,280
Management recognition plan - 22,487 - 26,382
Diluted earnings per share, income
available to common stockholders $653,839 l,l48,287 $0.57 $l,293,648 l,l77,90l $1.10
Quarter Ended December 3l, 1996 Six Months Ended December 3l, l996
Basic earnings per share, income
available to common stockholders $67l,379 1,l55,240 $0.58 $818,299 1,202930 $0.68
Effect of dilutive securities:
Stock options 23,7l3 l7,873
Management Recognition Plan 8,957 9,635
Diluted earnings per share, income
available to common stockholders 671,379 l,l87,9l0 0.57 8l8,299 l,230,438 0.67
(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 5% of its deposit accounts
and other obligations due within one year. The Bank has met these requirements.
Federal savings institutions are required to satisfy three capital requirements:
(I) a requirement that "tangible capital" equal or exceed 1.5% of adjusted total
assets, (ii) a requirement that "core-capital" equal or exceed 3% of adjusted
total assets, and (iii) a risk-based capital standard of 8% of "risk-adjusted"
assets. Failure to meet these requirements can initiate mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material affect on the Bank's financial statements. The Bank's capital
amounts and classification are also subject to qualitative judgements by the
regulators about components, risk weightings, and other factors. At December 31,
1997, and June 30, 1997, the bank met each of the three capital requirements. As
of November 30, 1997, 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 and Six Months Ended December
31, 1997 and 1996.
Net Income. Net income decreased by $18,000 or 2.6% from $671,000 for the
quarter ended December 31, 1996 to $654,000 for the quarter ended December 31,
1997. The decrease in net income was primarily attributable to an increase of
$191,000 in non-interest expense offset by an increase in net interest income of
$116,000. Net income increased by $475,000, or 58.4%, from $818,000 for the six
months ended December 31, 1996 to $1.3 million for the six months ended December
31, 1997. The increase
8
was primarily attributable to a special assessment by the FDIC of 65.7 basis
points or $686,000 in the six-month period ended December 31, 1996.
Net Interest Income. Net interest income increased by $116,000 or 7.6% between
the quarter ended December 31, 1997 and the quarter ended December 31, 1996. Net
interest income increased by $224,000, or 7.4%, from $3.0 million for the six
months ended December 31, 1996 to $3.2 million for the six months ended December
31,1997. The increase in net interest income primarily resulted from an increase
in the Bank's ratio of average interest-earning assets to average
interest-bearing liabilities and a slight increase in the Bank's net interest
margin.
Interest Income. Interest income increased $175,000 or 6.5% from the quarter
ended December 31, 1996 to the quarter ended December 31, 1997. Interest income
for the six month period ended December 31, 1997 increased by $348,000 or 6.5%
as compared to the six month period ended December 31, 1996. 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 $116,000 or 7.6%, from the
quarter ended December 31, 1996 the quarter ended December 31, 1997, and
increased by $124,000 or 5.3% from the six months ended December 31, 1996 to the
six months ended December 31, 1997. The increases were due to both an increase
in average interest-earning liabilities and a slight increase in cost of funds.
Provision for Loan Losses. The Bank has not provided for loan losses during
either of the two periods due to low levels of nonperforming loans and to the
high level of the allowance for loan losses in relation to nonperforming
loans during these periods.
Noninterest Income. The Bank's non-interest income increased $115,000 from
$134,000 in the second quarter of fiscal 1997 to $148,000 in the second quarter
of fiscal 1998. Noninterest income increased by $20,000 for the six months ended
December 31, 1997. The increases were primarily due to increases in
miscellaneous income.
Noninterest Expense. Total noninterest expense increased by 191,000 and
decreased by $511,000, or 26.54% during the quarter and six months ended
December 31, 1997, respectively. The increase for the quarter was primarily due
to reversing an over accrual of FDIC insurance premiums. The decrease for the
six month period was primarily due to the special assessment of $686,000 by the
FDIC in the first quarter of fiscal 1997.
Income Taxes. The Bank's income tax expense decreased by $43,000 and increased
by $279,000 for the quarter and six months ended December 31, 1997 as compared
to the quarter and six months ended December 31, 1996, respectively. The changes
reflect the changes in income before income taxes during these periods.
Comparison of Financial Condition at December 31, 1997 and June 30, 1997. Total
assets decreased by $4.1 million, or 2.6% from $156.7 million at June 30, 1997
to $152.7 million at December 31, 1997. The decrease was due to a decrease in
Federal Home Loan Bank advances of $4.1 million. Deposits and short-term
borrowings remained stable during these periods. The Bank's investment
securities decreased by $6.2 million, or 7.4%, from $83.1 million at June 30,
1997 to $76.9 million at December 31, 1997. The decrease in investment
securities was primarily due to the increase in loan demands and to the decrease
in funding from Federal Home Loan Bank advances. The Bank's net loans receivable
increased by $3.6 million, or 5.9%, from $61.2 million at June 30, 1997 to $64.8
million at December 31, 1997. The increase in loans receivable reflects the loan
demand during this period.
9
QCF BANCORP, INC.
Part II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes 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 8, 1997
For Withheld
Peter J. Johnson 1,226,208 25
Philip K. Schumacher 1,224,943 1,290
John C. Pearsall 1,226,208 25
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 13, 1998 /s/ Daniel F. Schultz
Daniel F. Schultz
Vice President/Treasurer
(Principal Financial Officer)
11