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 September 30, 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 October 31, 1999
Common stock, .01 par value 1,113,104
1
QCF BANCORP, INC.
CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1:Financial Statements
Consolidated Statements of Financial Condition
at September 30, 1999 and June 30, 1999 3
Consolidated Statements of Income for the Three
Months Ended September 30, 1999 and 1998 4
Consolidated Statement of Stockholders' Equity
for the Three Months Ended September 30, 1999 5
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 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 September 30, 1999 June 30, 1999
Cash $ 728,795 879,094
Interest-bearing deposits with banks 2,217,427 3,643,229
Cash and cash equivalents 2,946,222 4,522,323
Securities held to maturity (estimated market value of
$84,097,289 and 74,141,613 at September 30, 1999
and June 30, 1999 respectively) 85,339,415 74,871,676
Loans receivable, net 65,695,447 65,632,062
Federal Home Loan Bank stock, at cost 499,800 499,800
Accrued interest receivable 1,020,510 983,826
Premises and equipment, net 696,406 737,277
Deferred tax asset 573,000 573,000
Prepaid expenses and other assets 628,298 531,065
Total Assets $157,399,098 148,351,029
Liabilities and Stockholders' Equity
Deposits 112,049,407 109,561,041
Short-term borrowings 12,766,719 14,217,535
Federal Home Loan Bank advances 9,500,000 2,000,000
Accrued interest payable 1,196,320 1,077,269
Advance payments made by borrowers
for taxes and insurance 85,653 71,063
Accrued expenses and other liabilities 1,252,076 1,442,808
Total Liabilities 136,850,175 128,369,716
Stockholders' equity:
Serial preferred stock; authorized 1,000,000 shares;
issued and outstanding none
Common stock ($.01 par value): authorized 7,000,000 shares;
issued 1,116,371 shares at September 30,
1999 and at June 30, 1999. 11,164 11,164
Additional paid-in capital 11,267,481 11,236,851
Retained earnings, subject to certain restrictions 16,718,849 16,188,396
Unearned employee stock ownership plan shares (932,180) (951,550)
Unearned management recognition plan shares (104,304) (104,304)
Deferred compensation payable in common stock 761,600 669,830
Shares in stock option trust, at the exercise price (5,411,153) (5,411,153)
Treasury stock, at cost, 98,957 shares at September 30,
1999 and 94,857 at June 30, 1999 (1,762,534) (1,657,921)
Total Stockholders' Equity 20,548,923 19,981,313
Total Liabilities and Stockholders' Equity $157,399,098 148,351,029
See accompanying notes to consolidated financial statements.
3
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended September 30
1999 1998
Interest income:
Loans $1,404,879 1,432,358
Securities 1,275,291 1,262,959
Total interest income 2,680,170 2,695,317
Interest expense:
Deposits 1,044,399 1,001,406
Short-term borrowings 169,433 158,226
Total interest expense 1,213,832 1,159,632
Net interest income 1,466,338 1,535,685
Provision for loan losses 15,000 0
Net interest income after
provision for loan losses 1,451,338 1,535,685
Non-interest Income:
Fees and service charges 128,067 135,484
Other 27,196 24,521
Total Non-interest income 155,263 160,005
Non-interest expense:
Compensation and benefits 533,716 520,850
Occupancy 79,324 87,018
Other 140,108 154,833
Total non-interest expense 753,148 762,701
Income before income tax expenses 853,453 932,989
Income tax expense 323,000 354,000
Net income $ 530,453 578,989
Basic earnings per common share $0.77 0.65
Diluted earnings per common share $0.70 0.58
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 530,453 530,453
Purchase of treasury stock (104,613) (104,613)
Increase in deferred
compensation payable 91,770 91,770
Earned employee stock
ownership plan shares 30,630 19,370 50,000
Balance, September 30, 1999 $11,164 11,267,481 16,718,849 (932,180) (104,304) 761,600 (5,411,153) (1,762,534) 20,548,923
See accompanying notes of consolidated financial statements.
5
QCF BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
September 30
1999 1998
Operating activities:
Net income $530,453 578,989
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 51,102 55,502
Provision for loan losses 15,000 0
Amortization of net premiums (discounts) on securities 79,819 (2,673)
(Increase) decrease in accrued interest receivable (36,684) 312,357
Increase in accrued interest payable 119,051 71,757
(Decrease) increase in accrued expenses and other liabilities (176,142) 427,065
Increase in deferred compensation payable 91,770 0
Amortization of unearned ESOP shares 50,000 49,111
Amortization of MRP 0 46,998
Increase in other assets (67,477) (67,915)
Net cash provided by operating activities 656,892 1,471,191
Investing activities:
Proceeds from maturities and principal collected
on securities held to maturity 7,598,293 13,257,799
Purchases of securities held to maturity (18,145,851) (9,706,294)
Net increase in loans (78,385) (1,475,527)
Net (increase) decrease in real estate owned (29,756) 46,036
Purchase of premises and equipment (10,231) (9,901)
Net cash (used in) provided by investing activities (10,665,930) 2,112,113
Financing activities:
Net increase in deposits 2,488,366 303,099
Net (decrease) increase in short-term borrowing (1,450,816) 2,998,218
Net increase (decrease) in Federal Home Loan Bank advances 7,500,000 (1,000,000)
Purchase of stock for stock option trust 0 (598,745)
Purchase of treasury stock (104,613) (1,540,038)
Net cash provided by (used in) financing activities 8,432,937 (2,837,466)
(Decrease) increase in cash and cash equivalents (1,576,101) 745,838
Cash and cash equivalents at beginning of period 4,522,323 3,958,369
Cash and cash equivalents at end of period $2,946,222 4,704,207
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $15,000 459,423
Interest on deposits and short-term borrowings 1,094,781 1,087,875
See accompanying notes to consolidated financial statements.
6
QCF BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 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, 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 September 30, 1999 and l998.
Quarter Ended September 30, 1999
Net
Income
Per
Numerator Denominator Share
Basic earnings per share, income
available to common stockholders $530,453 692,259 $0.77
Effect of dilutive securities:
Stock options - 69,456
Diluted earnings per share, income
available to common stockholders $530,453 761,715 $0.70
7
Quarter Ended September 30, 1999
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
(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 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.
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 September 30, 1999, that the Bank meets
all capital adequacy requirements to which it is subject. At September 30, l999,
and June 30, 1999, the Bank met each of the three capital requirements. As of
June 30, 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 September 30, l999
and l998.
Net Income. Net income decreased by $49,000 or 8.4% from $579,000 for the
quarter ended September 30, l998 to $530,000 for the quarter ended September 30,
l999. The decrease in net income was primarily attributable to a decrease of
$69,000 in net interest income.
Net Interest Income. Net interest income decreased by $69,000 or 4.5%
between the quarter ended September 30, l998 and the quarter ended September 30,
l999. The decrease in net interest income primarily resulted from a decrease in
the Bank's net interest margin.
Interest Income. Interest income decreased $15,000 or 0.6% from the quarter
ended September 30, 1998 to the quarter ended September 30, 1999. The decrease
was due to a general decrease in interest rates.
Interest Expense. Interest expense increased by $54,000 or 4.7%, from the
quarter ended September 30, 1998 to the quarter ended September 30, l999. The
decrease was due primarily to an increase in average interest-bearing
liabilities for the quarter ended September 30, 1999 versus September 30, 1998.
8
Provision for Loan Losses. The Bank provided for $15,000 in loan losses
during the quarter ended September 30, 1999 and made no provision during the
quarter ended September 30, 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.
Noninterest Income. The Bank's non-interest income decreased $5,000 from
$160,000 in the first quarter of fiscal 1998 to $129,000 in the first quarter of
fiscal 2000.
Noninterest Expense. Total noninterest expense decreased by $10,000 or 1.3%
during the quarter ended September 30, 1999.
Income Taxes. The Bank's income tax expense decreased by $31,000 for the
quarter ended September 30, l999 as compared to the quarter ended September 30,
1998. The changes reflect the changes in income before income taxes during these
periods.
Comparison of Financial Condition at September 30, l999 and June 30, 1999.
Total assets increased by $9.0 million, or 6.1% from $148.3 million at June 30,
1999 to $157.4 million at September 30, l999. The increase was primarily due to
an increase in investment securities.
The Bank's investment securities increased by $10.5 million or 15.9%, from
$74.8 million at June 30, 1999 to $85.3 million at September 30, l999. The
increase in investment securities was primarily due to the Bank's leveraged
borrowing funds from the Federal Home Loan Bank.
The Bank's net loans receivable remained stable during this time. Deposits
increased by $2.5 million or 2.3% and Federal Home Loan Bank advances increased
by $7.5 million.
Year 2000 Readiness Disclosure
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 September 30, 1999. The bank
has also prepared a contingency plan in the event there are system
interruptions. The Bank's costs related to Y2K have been approximately $700,000,
primarily related to replacing the Bank's core inhouse computer software and
hardware systems.
The most likely, worst case scenario for the transition to the Year 2000
would be the failure of the application software and teller software. Due to the
complexity and time needed to convert to an alternative system in the event that
the Bank's application and teller system do not operate in the Year 2000, it
will be necessary to manually update information until such time that the
programs and applications are corrected to accommodate the year 2000. When data
processing functions are completed on December 31, 1999, a detailed trial
balance of all the applications will be generated. Authorization for withdrawals
will be based on the information contained in these trial balances. Any
transactions completed in subsequent days will be reflected in an addendum to
the trial balances on a daily basis.
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: November 12, 1999 /s/ Daniel F. Schultz
Daniel F. Schultz
Vice President/Treasurer
(Principal Financial Officer)
11