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 September 30, 1998
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 October 31, 1998
Common stock, .01 par value 1,152,044
1
QCF BANCORP, INC.
CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1: Financial Statements
Consolidated Statements of Financial Condition
at September 30, 1998 and June 30, 1998 3
Consolidated Statements of Income for the Three
Months Ended September 30, 1998 and 1997 4
Consolidated Statement of Stockholders' Equity
for the Three Months Ended September 30, 1998 5
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1998 and 1997 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 September 30, 1998 June 30, 1998
Cash $ 529,840 764,128
Interest-bearing deposits with banks 4,174,367 3,194,241
Cash and cash equivalents 4,704,207 3,958,369
Securities held to maturity (estimated market value of
$75,447,244 and $78,384,314 at September 30,
1998 and June 30, 1998 respectively) 74,563,018 78,111,850
Loans receivable, net 66,669,848 65,194,321
Federal Home Loan Bank stock, at cost 425,200 425,200
Accrued interest receivable 962,055 1,274,412
Premises and equipment, net 434,568 480,169
Deferred tax asset 479,200 479,200
Prepaid expenses and other assets 639,716 562,812
Total Assets $148,877,812 150,486,333
Liabilities and Stockholders' Equity
Deposits 105,869,437 105,566,338
Short-term borrowings 17,079,299 14,081,081
Federal Home Loan Bank advances 1,000,000 2,000,000
Accrued interest payable 1,201,104 1,129,347
Advance payments made by borrowers
for taxes and insurance 93,344 66,831
Accrued expenses and other liabilities 1,715,192 1,314,640
Total Liabilities 126,958,376 124,158,237
Stockholders' equity:
Serial preferred stock; authorized 1,000,000 shares;
issued and outstanding none 0 0
Common stock ($.01 par value): authorized 7,000,000 shares;
issued 1,782,750; outstanding 1,152,044 shares at 17,828 17,828
September 30, 1998 and 1,321,034 at June 30, 1998.
Additional paid-in capital 16,408,104 16,375,783
Retained earnings, subject to certain restrictions 23,283,853 22,704,864
Unearned employee stock ownership plan shares (1,005,440) (1,022,230)
Unearned management recognition plan shares (479,125) (526,123)
Deferred compensation payable in common stock 596,364 541,33
Shares in stock option trust, at the exercise price (2,349,884) (2,349,884)
Treasury stock, at cost, 702,474 shares at September 30, 1998 (14,552,264) (9,413,481)
and 533,484 at June 30, 1998
Total Stockholders' Equity 21,919,436 26,328,096
Total Liabilities and Stockholders' Equity $148,877,812 150,486,333
See accompanying notes to consolidated financial statements.
3
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Income
(Unaudited)
Three Months Ended
September 30
1998 1997
Interest income:
Loans $1,432,358 1,411,779
Securities 1,262,959 1,417,692
Total interest income 2,695,317 2,829,471
Interest expense:
Deposits 1,001,406 991,397
Short-term borrowings 158,226 238,017
Total interest expense 1,159,632 1,229,414
Net interest income 1,535,685 1,600,057
Provision for loan losses 0 0
Net interest income after
provision for loan losses 1,535,685 1,600,057
Non-interest Income:
Fees and service charges 135,484 128,336
Other 24,521 12,536
Total Non-interest income 160,005 140,872
Non-interest expense:
Compensation and benefits 520,850 496,197
Occupancy 87,018 57,882
Federal deposit insurance premiums 16,800 16,800
Advertising 18,835 13,445
Other 119,198 94,796
Total non-interest expense 762,701 679,120
Income before income tax expenses 932,989 1,061,809
Income tax expense 354,000 422,000
Net income $ 578,989 639,809
Basic earnings per common share $0.65 0.58
Diluted earnings per common share $0.58 0.54
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, 1998 $ 17,828 16,375,783 22,704,864 (1,022,230) (526,123) 541,339 (2,349,884) (9,413,481) 26,328,096
Net Income 578,989 578,989
Purchase of treasury stock (5,138,783) (5,138,783)
Increase in deferred 55,025 55,025
compensation payable
Amortization of management 46,998 46,998
recognition plan
Earned employee stock
ownership plan shares 32,321 16,790 49,111
Balance, September 30,1998 $17,828 16,408,104 23,283,853(1,005,440) (479,125) 596,364 (2,349,884) (14,552,264) 21,919,436
See accompanying Notes of Consolidated Financial Statements.
5
QCF BANCORP , INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30
1998 1997
Operating activities:
Net income $578,989 639,809
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 55,502 26,926
Amortization of net discounts on securities (2,673) (23,041)
Decrease in accrued interest receivable 312,357 127,260
Increase in accrued interest payable 71,757 85,441
Increase in accrued expenses and other liabilities 400,552 1,069,051
Amortization of unearned ESOP shares 49,111 42,975
Amortization of MRP 46,998 49,471
(Increase) in other assets (67,915) (560,397)
Net cash provided by operating activities 1,444,678 1,457,495
Investing activities:
Proceeds from maturities and principal collected
on securities held to maturity 13,257,799 7,685,750
Proceeds from maturities and principal collected
on securities available for sale 0 4,316,942
Purchases of securities held to maturity (9,706,294) (11,054,156)
Net increase in loans (1,475,527) (2,470,850)
Net decrease (increase) in real estate owned 46,036 (115,636)
Purchase of premises and equipment (9,901) (14,304)
Net cash provided by (used in) investing activities 2,112,113 (1,652,254)
Financing activities:
Net increase in deposits 303,099 867,244
Net increase in short-term borrowing 2,998,218 213,619
Net decrease in Federal Home Loan Bank advances (1,000,000) (1,100,000)
Purchase of stock for stock option trust (598,745)
Purchase of treasury stock (5,138,783) 0
Increase in advance payments made by borrowers
for taxes and insurance 26,513 30,850
Net cash used by financing activities (2,810,953) (587,032)
Increase (decrease) in cash and cash equivalents 745,838 (781,791)
Cash and cash equivalents at beginning of period 3,958,369 7,774,416
Cash and cash equivalents at end of period $4,704,207 6,992,625
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income Taxes $ 459,423 533,547
Interest on deposits and short-term borrowings 1,087,875 1,143,973
Supplemental disclosure non-cash operating & financing
activities:
Commitment to purchase stock for stock option trust 0 532,706
Commitment to purchase treasury stock 0 1,168,587
See accompanying notes to consolidated financial statements.
6
QCF BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1998 and 1997
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, 1998 of the Company, as
filed with the Securities and Exchange Commission. The June 30, 1998 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, 1998 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 September 30, 1998 and 1997.
7
Quarter Ended September 30, 1998
Net
Income
Per
Numerator Denominator Share
Basic earnings per share, income
available to common stockholders $578,989 896,064 $0.65
Effect of dilutive securities:
Stock options - 79,652
Management recognition plan - 21,365
Diluted earnings per share, income
available to common stockholders $578,989 997,081 $0.58
Quarter Ended September 30, 1997
Basic earnings per share, income
available to common stockholders $639,809 1,097,807 $0.58
Effect of dilutive securities:
Stock options - 68,881
Management recognition plan - 24,491
Diluted earnings per share, income
available to common stockholders $639,809 1,191,179 $0.54
(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.
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 September 30, 1998, and June 30, 1998, the bank met each of
the three capital requirements. As of June 30, 1998, 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.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of Operating Results for the Quarter Ended September 30, 1998
and September 30, 1997.
Net Income. Net income decreased by $61,000 from $640,000 for the quarter
ended September 30, 1997 to $579,000 for the quarter ended September 30, 1998.
The decrease in net income was primarily attributable to a reduction in average
interest-earning assets as a result of the Bank's stock buyback program.
Net Interest Income. Net interest income decreased by $64,000 or 4.0%, from
$1.6 million for the quarter ended September 30, 1997 to $1.5 million for the
quarter ended September 30, 1998. The decrease in the Bank's net interest income
resulted from a decrease in the Bank's average interest-earning assets as a
result of the Bank's stock buyback program.
Interest Income. Interest income was $2.7 million for the quarter ended
September 30, 1998. This represents a decrease of $134,000 or 4.7%, from the
quarter ended September 30, 1997. The decrease was due to a decrease in average
interest-earning assets as a result of the Bank's stock buyback program.
Interest Expense. Interest expense decreased by $70,000 or 5.7%, from $1.23
million for the quarter ended September 30, 1997 to $1.16 million for the
quarter ended September 30, 1998. The decrease resulted primarily from lower
average interest-bearing liabilities for the quarter ended September 30, 1998
versus September 30, 1997.
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 $19,000 or
13.6% from $141,000 in the first quarter of fiscal 1998 to $160,000 in the first
quarter of fiscal 1999 due primarily to increased loan fees and ATM fees.
Noninterest Expense. Total noninterest expense increased by $84,000 or
12.3% during the quarter ended September 30, 1998. The increase was primarily
due to expenses related to the Bank's forthcoming data processing conversion.
Income Taxes. The Bank's income tax expense decreased by $68,000 for the
quarter ended September 30, 1998 as compared to the quarter ended September 30,
1997. The decrease reflects decreased income before income taxes during this
period.
Comparison of Financial Condition at September 30, 1998 and June 30, 1998.
Total assets decreased by $1.6 million, or 1.1% from $150.5 million at June 30,
1998 to $148.9 million at September 30, 1998. The decrease was primarily due to
a $3.5 million decrease in investment securities offset by a $1.5 million
increase in net loans receivable.
Deposits increased by $303,000 or 0.3% and short-term borrowings increased
by $3.0 million,or 21.3%.
The Bank's investment securities decreased by $3.5 million or 4.5%, from
$78.1 million at June 30, 1998 to $74.6 million at September 30, 1998. The
decrease in investment securities was primarily due to the company's stock
buyback program and increased funding for loans.
The Bank's net loans receivable increased by $1.5 million, or 2.3%, from
$65.2 million at June 30, 1998 to $66.7 million at September 30, 1998. The
increase in interest loans receivable reflects increased loan demand during this
period.
9
Year 2000 Compliance
The year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to interpret dates beyond the year 1999, which
could cause a system failure or other computer errors, leading to disruptions in
operations. The Bank has been identifying potential problems associated with the
Y2K issue and has implemented a plan designed to ensure that all software used
in connection with the Bank's business will manage and manipulate data involving
the transition with data from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such data. In addition,
the Bank recognizes that its ability to be Y2K compliant is dependent upon the
cooperation of its vendors. The Bank is requiring its vendors to represent that
their products are or will be Y2K compliant and has planned a program for
testing compliance. All Y2K issues for the Bank, including testing, are expected
to be addressed by December 31, 1998 and any problems would be remedied by March
31, 1999. The bank will also prepare contingency plans in the event there are
system interruptions. The Bank believes that its costs related to Y2K will be
approximately $700,000, primarily related to replacing the bank's core inhouse
computer software and hardware systems.
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.
None.
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: November 12, 1998 /s/ Daniel F. Schultz
Daniel F. Schultz
Vice President/Treasurer
(Principal Financial Officer)
11