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 March 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 April 30, 1999
Common stock, .01 par value 1,116,679
QCF BANCORP, INC.
CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1:Financial Statements
Consolidated Statements of Financial Condition
at March 3l, 1999 and June 30, 1998 3
Consolidated Statements of Income for the Nine
Months Ended March 3l, 1999 and 1998 4
Consolidated Statement of Stockholders' Equity
for the Nine Months Ended March 3l, 1999 5
Consolidated Statements of Cash Flows for the
Nine Months Ended March 3l, 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 March 31, 1999 June 30, 1998
Cash $ 621,274 764,128
Interest-bearing deposits with banks 2,22l,484 3,194,241
Cash and cash equivalents 2,842,758 3,958,369
Securities held to maturity (estimated market value of
$73,462,816 and $78,384,314 at March 31,
1999 and June 30, 1998 respectively) 73,333,746 78,111,850
Loans receivable, net 65,225,950 65,194,321
Federal Home Loan Bank stock, at cost 425,200 425,200
Accrued interest receivable 973,584 1,274,412
Premises and equipment, net 675,026 480,169
Deferred tax asset 479,200 479,200
Prepaid expenses and other assets 978,997 562,812
Total Assets $144,934,46l 150,486,333
Liabilities and Stockholders' Equity
Deposits 108,574,04l 105,566,338
Short-term borrowings 14,453,046 14,081,081
Federal Home Loan Bank advances 0 2,000,000
Accrued interest payable 1,028,854 1,129,347
Advance payments made by borrowers
for taxes and insurance 94,894 66,831
Accrued expenses and other liabilities 1,369,3l8 1,314,640
Total Liabilities 125,520,l53 124,158,237
Stockholders' equity:
Serial preferred stock; authorized 1,000,000 shares;
issued and outstanding none 0 0
Common stock ($.01 par value): authorized 7,000,000 shares;
issued 1,782,750; outstanding 1,116,679 shares at
March 31, 1999 and 1,321,034 at June 30, 1998. 17,828 17,828
Additional paid-in capital 16,689,3l8 16,375,783
Retained earnings, subject to certain restrictions 24,3l8,322 22,704,864
Unearned employee stock ownership plan shares (967,l80) (1,022,230)
Unearned management recognition plan shares (385,l29) (526,123)
Deferred compensation payable in common stock 66l,380 541,339
Shares in stock option trust, at the exercise price (5,411,153) (2,349,884)
Treasury stock, at cost, 740,409 shares at March 31,
1999 and 533,484 at June 30, 1998 (15,509,078) (9,413,481)
Total Stockholders' Equity 19,414,308 26,328,096
Total Liabilities and Stockholders' Equity $144,934,46l 150,486,333
See accompanying notes to consolidated financial statements.
3
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
1999 1998 1999 1998
Interest income:
Loans $1,480,182 1,103,744 4,371,179 4,278,807
Securities 1,100,549 1,356,90l 3,5l9,435 4,179,186
Total interest income 2,580,731 2,760,645 7,890,6l4 8,457,993
Interest expense:
Deposits 982,738 973,884 2,987,0l4 2,952,085
Short-term borrowings 138,306 177,052 460,949 663,099
Total interest expense 1,121,044 1,150,936 3,447,963 3,615,184
Net interest income 1,459,687 1,609,709 4,442,65l 4,842,809
Provision for loan losses 0 0 0 0
Net interest income after
provision for loan losses 1,459,687 1,609,709 4,442,65l 4,842,809
Non-interest Income:
Fees and service charges 104,989 104,889 374,l37 361,978
Other 23,601 31,526 85,933 63,615
Gain on sale of securities 0 48,218 0 48,218
Total Non-interest income 128,590 184,633 460,070 473,811
Non-interest expense:
Compensation and benefits 499,370 496,274 1,545,823 1,523,822
Occupancy 10l,366 60,155 280,786 174,914
Other 174,624 162,948 486,654 434,971
Total non-interest expense 775,360 719,377 2,3l3,263 2,l33,007
Income before income tax expenses 812,917 1,074,965 2,589,458 3,l83,6l3
Income tax expense 304,000 393,000 976,000 l,208,000
Net income $ 508,917 681,965 l,613,458 1,975,613
Basic earnings per common share $0.72 0.65 2.02 1.85
Diluted earnings per common share $0.65 0.60 1.82 1.69
Comprehensive income $508,917 715,692 1,613,458 2,198,358
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 1,6l3,458 1,6l3,458
Purchase of treasury stock (6,095,597) (6,095,597)
Purchase of stock for
stock option trust 220,650 (3,061,269) (2,840,619)
Increase in deferred
compensation payable 120,041 120,041
Amortization of management
recognition plan 140,994 140,994
Earned employee stock
ownership plan shares 92,885 55,050 l47,935
Balance, March 3l, 1999 $ 17,828 16,689,3l8 24,3l8,322 (967,l80) (385,l29) 66l,380 (5,411,153) (15,509,078) 19,4l4,308
See accompanying notes of consolidated financial statements.
5
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
March 31
1999 1998
Operating activities:
Net income $1,613,458 1,975,613
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 166,706 81,967
Amortization of net premiums (discounts) on securities 63,046 (88,333)
Gain on sale of interest receivable 0 (48,218)
Decrease in accrued interest receivable 300,828 236,698
Decrease in accrued interest payable (100,493) (18.921)
Increase in accrued expenses and other liabilities 54,678 218,383
Increase in deferred compensation payable 120,041 0
Amortization of unearned ESOP shares 147,935 129,370
Amortization of MRP 140,994 173,151
Increase in other assets (364,800) (588,584)
Net cash provided by operating activities 2,142,393 2,071,126
Investing activities:
Proceeds from sales of securities available for sale 0 285,600
Proceeds from maturities and principal collected
on securities held to maturity 51,292,963 40,690,466
Proceeds from maturities and principal collected
on securities available for sale 0 7,617,805
Purchases of securities held to maturity (46,577,905) (42,883,358)
Net increase in loans (3l,629) (3,322,274)
Net increase in real estate owned (23,322) (189,954)
Purchase of premises and equipment (361,563) (18,795)
Net cash provided by investing activities 4,298,544 2,179,490
Financing activities:
Net increase in deposits 3,007,703 l,557,l44
Net increase(decrease) in short-term borrowing 371,965 (177,782)
Net decrease in Federal Home Loan Bank advances (2,000,000) (4,100,000)
Purchase of stock for stock option trust (2,840,619) (1,007,769)
Purchase of treasury stock (6,095,597) (1,641,850)
Net cash used by financing activities (7,556,548) (5,370,257)
Decrease in cash and cash equivalents (1,115,611) (1,119,641)
Cash and cash equivalents at beginning of period 3,958,369 7,774,416
Cash and cash equivalents at end of period $2,842,758 6,654,775
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $1,374,423 1,386,547
Interest on deposits and short-term borrowings 3,548,456 3,543,587
See accompanying notes to consolidated financial statements.
6
QCF BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
March 3l, 1999 and l998
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
and nine months periods ended March 3l, l999 are 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 March 3l, 1999 and l998.
Quarter Ended March 3l, 1999 Nine Months Ended March 3l, 1999
Net Net
Income Income
Per Per
Numerator Denominator Share Numerator Denominator Share
Basic earnings per share, income
available to common stockholders $508,9l7 702,74l $0.72 $1,6l3,458 797,257 $2.02
Effect of dilutive securities:
Stock options - 67,86l - 72,897
Management recognition plan - 12,243 - 15,483
Diluted earnings per share, income
available to common stockholders $508,9l7 782,845 $0.65 $1,6l3,458 885,638 $1.82
7
Quarter Ended March 31, 1998 Nine Months Ended March 3l, 1998
Basic earnings per share, income
available to common stockholders $68l,965 1,047,l79 $0.65 1,6l3,457 1,067,836 $1.85
Effect of dilutive securities
Stock options - 77,272 - 75,277
Management recognition plan - 24,727 - 22,568
Diluted earnings per share, income
available to common stockholders $68l,965 1,145,178 $0.60 1,6l3,457 1,165,68l $l.69
(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 March 3l, l999, 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 Nine Months Ended March
3l, l999 and l998.
Net Income. Net income decreased by $173,000 or 25.4% from $682,000 for the
quarter ended March 3l, l998 to $509,000 for the quarter ended March 3l, l999.
The decrease in net income was primarily attributable to a decrease of $150,000
in net interest income. Net income decreased by $362,000, or 18.3%, from $2.0
million for the nine months ended March 3l, l998 to $1.6 million for the nine
months ended March 3l, l999. The decrease was primarily attributable to a
reduction in net interest income of $400,000.
Net Interest Income. Net interest income decreased by $150,000 or 9.3%
between the quarter ended March 3l, l999 and the quarter ended March 3l, l998.
Net interest income decreased by $400,000 or 8.3% from $4.8 million for the nine
months ended March 3l, l998 to $4.4 million for the nine months ended March 3l,
l999. 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 $180,000 or 6.5% from the
quarter ended March 31, 1998 to the quarter ended March 3l, 1999. Interest
income for the nine month period ended March 31, 1999 decreased by $567,000 or
6.7% compared to the nine month period ended March 31, 1998. The decreases were
due to a decrease in average interest-earning assets.
8
Interest Expense. Interest expense decreased by $30,000 or 2.6%, from the
quarter ended March 3l, 1998 to the quarter ended March 3l, l999 and decreased
by $167,000 or 4.6% from the nine months ended March 3l, l998 to the nine months
ended March 31, 1999. The decreases were due to a slight decrease 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
level of the allowance for loan losses in relation to total loans during these
periods.
Noninterest Income. The Bank's non-interest income decreased $56,000 from
$184,000 in the third quarter of fiscal 1998 to $129,000 in the third quarter of
fiscal 1999. Noninterest income decreased by $14,000 for the nine months ended
March 31, 1999. The decreases are primarily due to a gain from the sale of an
investment security in the prior periods.
Noninterest Expense. Total noninterest expense increased by $56,000 and by
$180,000 or 8.5% during the quarter and nine months ended March 3l, 1999,
respectively. The increases for the quarter and for the nine-month period were
primarily due to additional expenses incurred for the conversion to a new data
processing system.
Income Taxes. The Bank's income tax expense decreased by $89,000 and by
$232,000 for the quarter and nine months ended March 3l, l999 as compared to the
quarter and nine months ended March 31, 1998, respectively. The changes reflect
the changes in income before income taxes during these periods.
Comparison of Financial Condition at March 3l, l999 and June 30, 1998.
Total assets decreased by $5.6 million, or 3.7% from $150.5 million at June 30,
1998 to $144.9 million at March 3l, l999. The decrease was primarily due to a
decrease in investment securities and interest-bearing deposits with banks.
The Bank's investment securities decreased by $4.8 million or 6.l%, from
$78.1 million at June 30, 1998 to $73.3 million at March 3l, l999. The decrease
in investment securities was primarily due to the company's stock buyback
program.
The Bank's net loans receivable remained stable during this time. Deposits
increased by $3.0 million or 2.8% and Federal Home Loan Bank advances decreased
by $2.0 million.
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 have been remedied as of 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.
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: May 14, 1999 /s/ Daniel F. Schultz
Daniel F. Schultz
Vice President/Treasurer
(Principal Financial Officer)
11