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, 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 January 31, 1999
Common stock, .01 par value 1,150,414
QCF BANCORP, INC.
CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1: Financial Statements
Consolidated Statements of Financial Condition
at December 31, 1998 and June 30, 1998 3
Consolidated Statements of Income for the Six
Months Ended December 31, 1998 and 1997 4
Consolidated Statement of Stockholders' Equity
for the Six Months Ended December 31, 1998 5
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 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
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
Assets December 31, 1998 June 30, 1998
Cash $ 731,404 764,128
Interest-bearing deposits with banks 6,233,340 3,194,241
Cash and cash equivalents 6,964,744 3,958,369
Securities held to maturity (estimated market value of
$69,892,896 and $78,384,314 at December 31,
1998 and June 30, 1998 respectively) 69,691,100 78,111,850
Loans receivable, net 65,894,920 65,194,321
Federal Home Loan Bank stock, at cost 425,200 425,200
Accrued interest receivable 967,824 1,274,412
Premises and equipment, net 502,612 480,169
Deferred tax asset 479,200 479,200
Prepaid expenses and other assets 406,233 562,812
Total Assets $145,331,833 150,486,333
Liabilities and Stockholders' Equity
Deposits 107,707,883 105,566,338
Short-term borrowings 15,436,487 14,081,081
Federal Home Loan Bank advances 0 2,000,000
Accrued interest payable 1,134,700 1,129,347
Advance payments made by borrowers
for taxes and insurance 71,123 66,831
Accrued expenses and other liabilities 1,280,174 1,314,640
Total Liabilities 125,630,367 124,158,237
Stockholders' equity:
Serial preferred stock; authorized 1,000,000 shares;
issued and outstanding none 0 0
Common stock ($.01 par value): authorized 7,000,000 shares;
issued 1,782,750; outstanding 1,150,614 shares at 17,828 17,828
December 31, 1998 and 1,321,034 at June 30, 1998.
Additional paid-in capital 16,659,244 16,375,783
Retained earnings, subject to certain restrictions 23,809,405 22,704,864
Unearned employee stock ownership plan shares (986,820) (1,022,230)
Unearned management recognition plan shares (432,127) (526,123)
Deferred compensation payable in common stock 648,716 541,339
Shares in stock option trust, at the exercise price (5,411,153) (2,349,884)
Treasury stock, at cost, 706,474 shares at December 31, (14,603,627) (9,413,481)
1998 and 533,484 at June 30, 1998
Total Stockholders' Equity 19,701,466 26,328,096
Total Liabilities and Stockholders' Equity $145,331,833 150,486,333
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
1998 1997 1998 1997
Interest income:
Loans $1,458,639 1,463,284 2,890,997 2,875,063
Securities 1,155,927 1,404,593 2,418,886 2,822,285
Total interest income 2,614,566 2,867,877 5,309,883 5,697,348
Interest expense:
Deposits 1,002,870 986,804 2,004,276 1,978,201
Short-term borrowings 164,417 248,030 322,643 486,047
Total interest expense 1,167,287 1,234,834 2,326,919 2,464,248
Net interest income 1,447,279 1,633,043 2,982,964 3,233,100
Provision for loan losses 0 0 0 0
Net interest income after
provision for loan losses 1,447,279 1,633,043 2,982,964 3,233,100
Non-interest Income:
Fees and service charges 133,664 128,753 269,148 257,089
Other 37,809 19,553 62,332 32,089
Total Non-interest income 171,473 148,306 331,480 289,178
Non-interest expense:
Compensation and benefits 525,603 530,651 1,046,453 1,026,848
Occupancy 92,402 56,877 179,420 114,759
Federal deposit insurance premiums 16,800 16,800 33,600 33,600
Advertising 17,237 13,393 36,072 26,838
Other 123,160 116,789 242,358 211,585
Total non-interest expense 775,202 734,510 1,537,903 1,413,630
Income before income tax expenses 843,550 1,046,839 1,776,541 2,108,648
Income tax expense 318,000 393,000 672,000 815,000
Net income $ 525,550 653,839 1,104,541 1,293,648
Basic earnings per common share $0.68 0.63 1.32 1.20
Diluted earnings per common share $0.61 0.57 1.19 1.10
Comprehensive Income $525,550 733,840 l,l04,541 1,482,666
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 1,104,541 1,104,541
Purchase of treasury stock (5,190,146)(5,190,146)
Purchase of stock for
Stock option trust 220,650 (3,061,269) (2,840,619)
Increase in deferred 107,377 107,377
compensation payable
Amortization of management 93,996 93,996
recognition plan
Earned employee stock
ownership plan shares 62,811 35,410 98,221
Balance, December 31, 1998 $ 17,828 16,659,244 23,809,405 (986,820) (432,127) 648,716 (5,411,153) (14,603,627) 19,701,466
See accompanying Notes of Consolidated Financial Statements.
5
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
December 31
1998 1997
Operating activities:
Net income $1,104,541 1,293,648
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 112,192 55,041
Amortization of net premiums (discounts) on securities 31,981 (54,660)
Decrease in accrued interest receivable 306,588 56,115
Increase in accrued interest payable 5,353 71,597
(Decrease) increase in accrued expenses and other liabilities (34,466) 449,354
Amortization of unearned ESOP shares 98,221 86,165
Amortization of MRP 93,996 126,148
Decrease(increase) in other assets 155,969 (817,284)
Net cash provided by operating activities 1,874,375 1,266,124
Investing activities:
Proceeds from maturities and principal collected
on securities held to maturity 32,146,549 22,512,720
Proceeds from maturities and principal collected
on securities available for sale 0 7,855,187
Purchases of securities held to maturity (23,757,780) (23,814,040)
Net increase in loans (700,599) (3,617,073)
Net decrease (increase) in real estate owned 107,987 (130,751)
Purchase of premises and equipment (134,635) (18,795)
Net cash provided by investing activities 7,661,522 2,787,248
Financing activities:
Net increase in deposits 2,141,545 11,259
Net increase in short-term borrowing 1,355,406 118,626
Net(decrease)increase in Federal Home Loan Bank advances (2,000,000) 4,100,000
Purchase of stock for stock option trust (2,840,619) (1,131,452)
Purchase of treasury stock (5,190,146) (1,166,581)
Increase(decrease) in advance payments made by borrowers
for taxes and insurance 4,292 (7,218)
Net cash used by financing activities (6,529,522) (6,275,366)
Increase (decrease) in cash and cash equivalents 3,006,375 (2,221,994)
Cash and cash equivalents at beginning of period 3,958,369 7,774,416
Cash and cash equivalents at end of period $6,964,744 5,552,422
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income Taxes $ 846,423 986,852
Interest on deposits and short-term borrowings 2,321,566 2,392,651
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, 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 six
month period ended December 31, 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 December 31, 1998 and 1997.
Quarter Ended December 31 Six Months Ended December 31
Net Net
Income Income
Per Per
Numerator Denominator Share Numerator Denominator Share
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 - 71,177 - 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
1997
Basic earnings per share, income
available to common stockholders $653,839 1,046,122 $0.63 1,293,648 1,077,239 $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 1,148,287 0.57 1,293,648 1,177,901 l.10
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.
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, 1998, and June 30, 1998, the bank met each of the
three capital requirements. As of December 31, 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.
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, 1998 and 1997
Net Income. Net income decreased by $128,000 or 19.6% from $654,000 for the
quarter ended December 31, 1997 to $526,000 for the quarter ended December 31,
1998. The decrease in net income was primarily attributable to a decrease of
$186,000 in net interest income. Net income decreased by $189,000, or 14.6%,
from $1.3 million for the six months ended December 31, 1997 to $1.1 million for
the six months ended December 31, 1998. The decrease was primarily attributable
to a reduction in net interest income of $250,000.
Net Interest Income. Net interest income decreased by $186,000 or ll.4%
between the quarter ended December 31, 1998 and the quarter ended December 31,
1997. Net interest income decreased by $250,000 or 7.7% from $3.2 million for
the six months ended December 31, 1997 to $3.0 million for the six months ended
December 31, 1998. The decrease in net interest income primarily resulted from a
decrease in the Bank's ratio of average interest-earning assets to average
interest-bearing liabilities and a slight decrease in the Bank's net interest
margin. The decrease in average interest- earning assets was due to a reduction
in investment securities primarily as a result of the Bank's stock buyback
program.
Interest Income. Interest income decreased $253,000 or 8.8% from the
quarter ended December 31, 1997 to the quarter ended December 31, 1998. Interest
income for the six month period ended December 31, 1998 decreased by $387,000 or
6.8% compared to the six month period ended December 31, 1997. The decreases
were due to a decrease in average interest-earning assets and a slight decrease
in their interest rate yields.
Interest Expense. Interest expense decreased by $68,000 or 5.5%, from the
qurter ended December 31, 1997 to the quarter ended December 31, 1998 and
decreased by $137,000 or 5.6% from the six months ended December 31, 1997 to the
six months ended December 31, 1998. The decreases were due to a decrease in
average interest-bearing liabilities as a result of decreases in Federal Home
Loan Bank advances.
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 $23,000 from
$148,000 in the second quarter of fiscal 1998 to $171,000 in the second quarter
of fiscal 1999. Noninterest income increased by $42,000 for the six months ended
December 31, 1998. The increases are primarily due to increases in fee income.
Noninterest Expense. Total noninterest expense increased by $41,000 or 5.5%
and by $124,000 or 8.8% during the quarter and six months ended December 31,
1998, respectively. The increases for the quarter and for the six-month period
were primarily due to additional expenses incurred for the pending conversion of
the Bank's data processing system.
8
Income Taxes. The Bank's income tax expense decreased by $75,000 and by
$143,000 for the quarter and six months ended December 31, 1998 as compared to
the quarter and six months ended December 31, 1997, respectively. The changes
reflect the changes in income before income taxes during these periods.
Comparison of Financial Condition at December 31, 1998 and June 30, 1998.
Total assets decreased by $5.2 million, or 3.4% from $150.5 million at June 30,
1998 to $145.3 million at December 31, 1998. The decrease was primarily due to a
$8.4 million decrease in investment securities offset by a $3.0 million increase
in cash and cash equivalents.
Deposits increased by $2.1 million or 2.0% and short-term borrowings
increased by $1.4 million,or 9.6%.
The Bank's investment securities decreased by $8.4 million or 10.8%, from
$78.1 million at June 30, 1998 to $69.7 million at December 31, 1998. The
decrease in investment securities was primarily due to the company's stock
buyback program and increased level of interest-bearing deposits with banks.
The Bank's net loans receivable increased by $701,000 or 1.1%, from $65.2
million at June 30, 1998 to $65.9 million at December 31, 1998. The increase in
interest loans receivable reflects normal loan demand fluctuations.
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'' 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 is in the process of testing
compliance. All major Y2K issues for the Bank, including testing, have been
addressed and all problems will be remedied by March 31, 1999. The bank has also
prepared a contingency plan 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.
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 l4, 1998.
For Withheld
John A. Trenti 1,030,221 20,450
Kevin E. Pietrini 1,030,346 20,325
Approval of the QCF Bancorp, Inc. 1998 Stock Option and Incentive Plan
For Withheld Abstain
744,460 157,825 4,775
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 12, 1999 /s/ Daniel F. Schultz
Daniel F. Schultz
Vice President/Treasurer
(Principal Financial Officer)
11