Back to GetFilings.com



Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM              TO             

 

COMMISSION FILE NUMBER:  0-22528

 


 

QUAKER CITY BANCORP, INC.

(Exact name of registrant as specified in its charter)

 


 

DELAWARE   95-4444221
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
7021 GREENLEAF AVENUE, WHITTIER, CALIFORNIA   90602
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code (562) 907-2200

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES  x    NO  ¨

 

Number of shares outstanding of the registrant’s sole class of common stock at May 7, 2004:  6,281,783.

 



Table of Contents

QUAKER CITY BANCORP, INC.

Index

 

PART I.

  FINANCIAL INFORMATION     

      ITEM 1.

  Financial Statements     
    Consolidated Statements of Financial Condition (unaudited) as of March 31, 2004 and June 30, 2003    3
    Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended March 31, 2004 and 2003    4
    Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended March 31, 2004 and 2003    5
    Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended March 31, 2004 and 2003    6
    Notes to Consolidated Financial Statements    8

      ITEM 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations    11

      ITEM 3.

  Quantitative and Qualitative Disclosures About Market Risk    26

      ITEM 4.

  Controls and Procedures    26

PART II.

  OTHER INFORMATION     

      ITEM 2.

  Changes In Securities and Use of Proceeds    27

      ITEM 5.

  Other Information    27

      ITEM 6.

  Exhibits and Reports on Form 8-K    28

SIGNATURES

   36


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

Quaker City Bancorp, Inc.

Consolidated Statements of Financial Condition

Unaudited

(In thousands, except share data)

 

    

March 31,

2004


   

June 30,

2003


 

Assets

                

Cash and due from banks

   $ 23,512     $ 31,275  

Interest-bearing deposits

     1,374       943  

Federal funds sold and other short-term investments

     3,000       —    

Investment securities held-to-maturity

     7,062       12,178  

Investment securities available-for-sale

     47,826       48,137  

Loans receivable, net

     1,441,717       1,323,268  

Loans receivable held-for-sale

     215       2,997  

Mortgage-backed securities held-to-maturity

     147,983       90,014  

Mortgage-backed securities available-for-sale

     91,431       73,683  

Federal Home Loan Bank stock, at cost

     25,868       19,807  

Office premises and equipment, net

     7,471       7,275  

Accrued interest receivable and other assets

     12,457       12,534  
    


 


Total assets

   $ 1,809,916     $ 1,622,111  
    


 


Liabilities and Stockholders’ Equity

                

Deposits

   $ 1,136,232     $ 1,084,117  

Federal Home Loan Bank advances

     508,000       381,500  

Accounts payable and accrued expenses

     6,751       7,269  

Other liabilities

     9,643       10,088  
    


 


Total liabilities

     1,660,626       1,482,974  
    


 


Stockholders’ Equity:

                

Common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 6,281,783 shares and 6,365,943 at March 31, 2004 and June 30, 2003, respectively

     63       64  

Additional paid-in capital

     131,451       128,581  

Accumulated other comprehensive loss

     (1,862 )     (1,377 )

Retained earnings, substantially restricted

     19,800       12,197  

Deferred compensation

     (162 )     (328 )
    


 


Total stockholders’ equity

     149,290       139,137  
    


 


Total liabilities and stockholders’ equity

   $ 1,809,916     $ 1,622,111  
    


 


 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

Quaker City Bancorp, Inc.

Consolidated Statements of Operations

Unaudited

(In thousands, except share and per share data)

 

    

Three Months Ended

March 31,


   

Nine Months Ended

March 31,


     2004

   2003

    2004

   2003

Interest income:

                            

Loans receivable

   $ 21,048    $ 21,770     $ 62,361    $ 65,975

Mortgage-backed securities

     2,421      1,920       6,033      5,809

Investment securities

     446      527       1,380      1,854

Other

     227      256       708      761
    

  


 

  

Total interest income

     24,142      24,473       70,482      74,399
    

  


 

  

Interest expense:

                            

Deposits

     4,858      5,964       14,952      19,012

Federal Home Loan Bank advances

     3,752      3,873       11,041      11,663
    

  


 

  

Total interest expense

     8,610      9,837       25,993      30,675
    

  


 

  

Net interest income before provision for loan losses

     15,532      14,636       44,489      43,724

Provision for loan losses

     250      114       350      514
    

  


 

  

Net interest income after provision for loan losses

     15,282      14,522       44,139      43,210
    

  


 

  

Other income:

                            

Deposit fees

     1,630      1,315       4,608      3,707

Loan service charges and fees

     417      410       1,644      1,503

Gain on sale of loans held-for-sale

     92      844       985      1,445

Commissions

     167      125       585      484

Gain on sale of securities available-for-sale

     —        —         —        47

Other

     1,003      61       1,439      208
    

  


 

  

Total other income

     3,309      2,755       9,261      7,394
    

  


 

  

Other expense:

                            

Compensation and employee benefits

     4,686      4,043       13,270      11,558

Occupancy, net

     869      805       2,676      2,450

Federal deposit insurance premiums

     115      110       336      326

Data processing

     546      400       1,610      1,166

Advertising and promotional

     310      364       1,200      1,046

Consulting fees

     124      202       668      641

Other general and administrative expense

     1,234      1,099       3,570      3,619
    

  


 

  

Total general and administrative expense

     7,884      7,023       23,330      20,806

Real estate operations, net

     —        (1 )     1      —  

Amortization of core deposit intangible

     29      29       86      86
    

  


 

  

Total other expense

     7,913      7,051       23,417      20,892
    

  


 

  

Earnings before income taxes

     10,678      10,226       29,983      29,712

Income taxes

     4,702      4,403       13,158      12,650
    

  


 

  

Net earnings

   $ 5,976    $ 5,823     $ 16,825    $ 17,062
    

  


 

  

Average common shares outstanding

     6,228,208      6,284,135       6,237,497      6,340,838

Average shares outstanding and equivalents

     6,432,331      6,500,468       6,437,607      6,621,889

Basic earnings per share

   $ 0.96    $ 0.93     $ 2.70    $ 2.69

Diluted earnings per share

   $ 0.93    $ 0.90     $ 2.61    $ 2.58

 

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

QUAKER CITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited

(In thousands)

 

    

Three Months Ended

March 31,


  

Nine Months Ended

March 31,


 
     2004

   2003

   2004

    2003

 

Net earnings

   $ 5,976    $ 5,823    $ 16,825     $ 17,062  

Other comprehensive income:

                              

Unrealized holding gain (loss) on securities available-for-sale arising during the period, net of tax

     142      229      (485 )     (200 )

Reclassification adjustment for realized (gain) included in net earnings and previously included in other comprehensive income, net of tax

     —        —        —         (27 )
    

  

  


 


Increase (decrease) in accumulated other comprehensive income, net of tax

     142      229      (485 )     (227 )
    

  

  


 


Total comprehensive income

   $ 6,118    $ 6,052    $ 16,340     $ 16,835  
    

  

  


 


 

See accompanying notes to consolidated financial statements.

 

 

5


Table of Contents

QUAKER CITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In thousands)

 

    

Nine Months Ended

March 31,


 
     2004

    2003

 

Cash flows from operating activities:

                

Net earnings

   $ 16,825     $ 17,062  

Adjustments to reconcile net earnings to net cash provided by operating activities:

                

Depreciation and amortization

     2,918       1,205  

Provision for loan losses

     350       514  

Write-downs on real estate held-for-sale

     5       —    

Gain on sale of real estate held-for-sale

     (4 )     (10 )

Gain on sale of loans held-for-sale

     (985 )     (1,445 )

Gain on sale of securities available-for-sale

     —         (47 )

Loans originated for sale

     (30,642 )     (99,176 )

Loans purchased for sale

     (8,073 )     (6,263 )

Proceeds from sale of loans held-for-sale

     34,391       108,623  

Federal Home Loan Bank stock dividend received

     (641 )     (681 )

(Increase) decrease in accrued interest receivable and other assets

     (9 )     36  

Decrease in other liabilities

     (445 )     (3,010 )

Decrease in accounts payable and accrued expenses

     (518 )     (815 )

Other

     1,638       2,054  
    


 


Net cash provided by operating activities

     14,810       18,047  
    


 


Cash flows from investing activities:

                

Loans originated for investment

     (346,050 )     (250,114 )

Loans purchased for investment

     (174,600 )     (106,046 )

Principal repayments on loans

     410,945       282,356  

Net change in undisbursed construction loan funds

     (1,193 )     —    

Sale of investment securities available-for-sale

     —         49,058  

Purchases of investment securities available-for-sale

     (323 )     (266 )

Purchases of investment securities held-to-maturity

     —         (5,000 )

Maturities and principal repayments of investment securities held-to-maturity

     5,000       2,000  

Purchases of mortgage-backed securities available-for-sale

     (49,633 )     (78,309 )

Purchases of mortgage-backed securities held-to-maturity

     (94,507 )     (45,861 )

Principal repayments on mortgage-backed securities held-to-maturity

     36,252       66,150  

Principal repayments on mortgage-backed securities available-for-sale

     30,956       18,895  

Sale of real estate held-for-sale

     49       82  

Purchase of Federal Home Loan Bank stock

     (5,420 )     (2,212 )

Investment in office premises and equipment

     (1,179 )     (1,029 )
    


 


Net cash used by investing activities

     (189,703 )     (70,296 )
    


 


Cash flows from financing activities:

                

Increase in deposits

     52,115       54,699  

Proceeds from funding of Federal Home Loan Bank advances

     387,000       273,400  

Repayments of Federal Home Loan Bank advances

     (260,500 )     (249,600 )

Stock options exercised

     1,730       4,607  

Dividend

     (3,714 )     —    
    


 


Repurchase and retirement of stock

     (6,070 )     (15,308 )
    


 


Net cash provided by financing activities

     170,561       67,798  
    


 


Increase in cash and cash equivalents

     (4,332 )     15,549  

Cash and cash equivalents at beginning of period

     32,218       18,390  
    


 


Cash and cash equivalents at end of period

   $ 27,886     $ 33,939  
    


 


 

6


Table of Contents

QUAKER CITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)

Unaudited

(In thousands)

 

    

Nine Months Ended

March 31,


     2004

   2003

Supplemental disclosures of cash flow information:

             

Interest paid (including interest credited)

   $ 25,538    $ 31,746

Cash paid for income taxes

     9,800      10,402
    

  

Supplemental schedule of noncash investing and financing activities:

             

Additions to real estate acquired through foreclosure

   $ 50    $ 57

Reclassification of loans from available-for-sale to held-to-maturity

     8,073      —  
    

  

 

See accompanying notes to consolidated financial statements.

 

7


Table of Contents

QUAKER CITY BANCORP, INC.

Notes to Consolidated Financial Statements

 

1. The consolidated statements of financial condition as of March 31, 2004, the related consolidated statements of operations and comprehensive income for the three and nine months ended March 31, 2004 and 2003, and the related consolidated statements of cash flows for the nine months ended March 31, 2004 and 2003 are unaudited. These statements reflect, in the opinion of management, all material adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial condition of Quaker City Bancorp, Inc. (the “Company”) as of March 31, 2004, its results of operations and comprehensive income for the three and nine months ended March 31, 2004 and 2003, and cash flows for the nine months ended March 31, 2004 and 2003. The results of operations for the unaudited periods are not necessarily indicative of the results of operations to be expected for the entire year of fiscal 2004.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003.

 

2. Earnings per share is reported on both a basic and diluted basis. Basic earnings per share is determined by dividing net earnings by the average number of shares of common stock outstanding, while diluted earnings per share is determined by dividing net earnings by the average number of shares of common stock outstanding adjusted for the dilutive effect of common stock equivalents. Calculation of earnings per share can be found in Exhibit 11.1 to this Quarterly Report on Form 10-Q.

 

3. The Company accounts for derivative instruments in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). A derivative is considered either an asset or liability in the statement of financial position and measured at fair value. If a derivative is designated as a hedging instrument, the changes in fair value of the derivative are either (a) recognized in earnings in the period of change together with the offsetting gain or loss on the hedged item, or (b) reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. For a derivative not designated as a hedging instrument, changes in fair value are recognized in earnings in the period of change. As of March 31, 2004, the Company had approximately $866,500 of commitments to originate loans which will be held-for-sale and approximately $215,000 of loan sale commitments that qualify as derivatives under SFAS 133. The fair value of such commitments approximated zero at March 31, 2004.

 

8


Table of Contents
4. Financial Accounting Standards Board Interpretation 46, “Consolidation of Variable Interest Entities” (revised December 2003) (“FIN 46R”), requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. Prior to FIN 46R, a company included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46R also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidated requirements of FIN 46R apply to all Special Purpose Entities (“SPEs”) by the end of the first reporting period that ends after December 15, 2003. The provisions of FIN 46R for interests held by public entities in variable interest entities that are not SPEs are required to be applied by the first reporting period that ends after March 15, 2004. The Company has no business interests that require consolidation as a result of applying the provisions of FIN 46R.

 

5. The Company has a stock-based employee compensation plan, which is described more fully in Note 14 to the consolidated financial statements contained in its Annual Report on Form 10-K for the fiscal year ended June 30, 2003. Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure” (“SFAS 148”), requires expanded disclosure in interim reporting since the Company has elected to continue to apply APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for awards granted under its plan. Accordingly, no compensation cost has been recognized for awards granted under the plan.

 

9


Table of Contents

Had compensation cost been determined using the fair value based method prescribed by SFAS 123, “Accounting for Stock Based Compensation,” the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below:

 

    

Three Months Ended

March 31,


   

Nine Months Ended

March 31,


 
     2004

    2003

    2004

    2003

 
     (In thousands, except per share data)  

Net income, as reported

   $ 5,976     $ 5,823     $ 16,825     $ 17,062  

Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects

     (156 )     (154 )     (502 )     (464 )
    


 


 


 


Pro forma net income

   $ 5,820     $ 5,669     $ 16,323     $ 16,598  
    


 


 


 


Basic earnings per share

                                

As reported

   $ 0.96     $ 0.93     $ 2.70     $ 2.69  

Pro forma

   $ 0.93     $ 0.90     $ 2.62     $ 2.62  

Diluted earnings per share

                                

As reported

   $ 0.93     $ 0.90     $ 2.61     $ 2.58  

Pro forma

   $ 0.90     $ 0.87     $ 2.54     $ 2.51  

 

6. Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”), establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity that have been presented either entirely as equity or between the liabilities section and the equity section of the statement of financial position. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of SFAS 150 has not had a material effect on the Company.

 

10


Table of Contents

QUAKER CITY BANCORP, INC.

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Quarterly Report on Form 10-Q (and documents referred to in this report) includes “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this report that address results or developments that the Company expects or anticipates will or may occur in the future, including such things as (i) business strategy; (ii) economic trends, including the condition of the real estate market in southern California, and the direction of interest rates and prepayment speeds of mortgage loans and mortgage-backed securities (“MBS”); (iii) the adequacy of the Company’s allowance for loan losses; (iv) goals; (v) expansion and growth of the Company’s business and operations; and (vi) the pending merger between the Company and Popular, Inc. are forward-looking statements. These statements often include words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “may,” or similar expressions. These statements are based upon certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances.

 

These statements are subject to a number of risks and uncertainties, many of which are beyond the control of the Company, including, but not limited to, (i) general economic, market or business conditions in the U.S. and southern California, including changes in market interest rates; (ii) real estate market conditions, particularly in southern California; (iii) the opportunities (or lack thereof) that may be presented to and pursued by the Company; (iv) competitive actions by other financial institutions; (v) changes in federal, state and local laws, regulations and policies affecting the Company’s business; (vi) factors relating to the pending merger between the Company and Popular, Inc.; and (vii) other factors. Actual results could differ materially from those contemplated by these forward-looking statements. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company and its business or operations. Forward-looking statements made in this report speak as of the date hereof. The Company undertakes no obligation to update or revise any forward-looking statement made in this report.

 

GENERAL OVERVIEW AND ORGANIZATION OF INFORMATION

 

Quaker City Bancorp, Inc., incorporated in Delaware, is primarily engaged in the savings and loan business through its wholly owned subsidiary Quaker City Bank (the “Bank”). At March 31, 2004, the Bank operated twenty-seven retail banking offices in southern California, including sixteen “in-store” Wal-Mart branches. The Bank opened two additional Wal-Mart in-store branches in the communities of San Marcos (north San Diego area) in January 2004 and La Quinta (Palm Springs area) in early March 2004.

 

The La Quinta branch is located in Wal-Mart’s first “super center” in California. The Bank is subject to the regulations of various government agencies and undergoes periodic examinations by those regulatory authorities.

 

11


Table of Contents

The Bank’s principal business has been and continues to be attracting retail deposits from the general public in its primary deposit market area surrounding its offices and investing those deposits and other available funds (primarily Federal Home Loan Bank (“FHLB”) advances), in loans secured by multifamily mortgages, one-to-four family residential mortgages, commercial real estate mortgages and MBS.

 

Historically, the Company’s principal business has been making and purchasing one-to-four family, multifamily (five or more units) and commercial real estate loans. To a lesser extent, the Bank also makes home equity loans, credit lines and second trust deed loans secured by property. At March 31, 2004, the Company’s gross loan portfolio (including loans held-for-sale) totaled $1.46 billion, 70.81% of which was secured by multifamily properties (approximately $724.4 million) and commercial real estate (approximately $307.3 million). From March 31, 2003 to March 31, 2004, the net increase in the Company’s multifamily portfolio was $48.4 million, representing a 7.15% increase in the size of the portfolio. From March 31, 2003 to March 31, 2004, the net increase in the Company’s commercial real estate loan portfolio was $19.4 million, representing a 6.74% increase in the size of the portfolio.

 

Management’s discussion and analysis presented below provides a narrative on the Company’s financial performance and condition and is intended to provide information that will assist in understanding the Company’s consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that caused those changes, including how certain accounting principles, policies and estimates affect such financial statements. The discussion and analysis that follows should be read in conjunction with the accompanying financial statements and the related notes appearing elsewhere in this report, and includes the following sections:

 

  Critical Accounting Policies,

 

  Results of Operations,

 

  Financial Condition,

 

  Transactions with Related Parties,

 

  Capital Resources and Liquidity,

 

  Contractual Obligations and Commitments,

 

  Asset Quality, and

 

  Regulatory Capital.

 

12


Table of Contents

CRITICAL ACCOUNTING POLICIES

 

Management has established various accounting policies which govern the application of accounting policies generally accepted in the United States of America in the preparation of the Company’s consolidated financial statements. Management believes that the determination of the level of the allowance for loan losses is the Company’s only critical accounting policy. This policy requires the use of estimates and assumptions in the preparation of the Company’s consolidated financial statements that are most susceptible to significant change. For further information, please see “Results of Operations – Provision for Loan Losses.

 

Certain other accounting policies require management to make estimates and assumptions which have a material impact on the carrying value of certain assets and liabilities; management considers these to be significant accounting policies. Those significant accounting policies are described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003. The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and the Company’s results of operations for the reporting periods.

 

RESULTS OF OPERATIONS

 

Net Earnings. The Company recorded net earnings of $6.0 million, $0.93 per diluted share, for the quarter ended March 31, 2004, a 3.33% increase in net earnings per diluted share from the same period last year, with net earnings of $5.8 million, $0.90 per diluted share. The company recorded net earnings of $16.8 million, $2.61 per diluted share, for the nine months ended March 31, 2004, a 1.16% increase in net earnings per diluted share from the same period last year, with net earnings of $17.1 million, $2.58 per diluted share. Net earnings for the nine months ended March 31, 2004 declined primarily due to an increase in general and administrative (“G&A”) expenses of $2.5 million, partially offset by an increase in other income of $1.9 million, compared to the nine months ended March 31, 2003.

 

Interest Income. Interest income amounted to $24.1 million for the quarter ended March 31, 2004, compared to $24.5 million for the quarter ended March 31, 2003. Interest income amounted to $70.5 million for the nine months ended March 31, 2004, compared to $74.4 million for the nine months ended March 31, 2003. The decrease in interest income for the three and nine months ended March 31, 2004 is primarily a result of a decline in the yield on average interest-earning assets. The yield on average interest-earning assets was 5.50% for the quarter ended March 31, 2004, compared to 6.38% for the quarter ended March 31, 2003. The yield on average interest-earning assets was 5.63% for the nine months ended March 31, 2004, compared to 6.60% for the nine months ended March 31, 2003.

 

Interest Expense. Interest expense for the quarter ended March 31, 2004 was $8.6 million, compared to $9.8 million for the same period last year. Interest expense for the nine months ended March 31, 2004 was $26.0 million, compared to $30.7 million for the same period last year. The decrease in interest expense for the three and nine months ended March 31, 2004 was primarily a result of a decrease in the cost of average interest-bearing liabilities, partially offset by an increase in average interest-bearing liabilities. The average cost of funds was 2.17% for the quarter ended March 31, 2004, compared to 2.84% for the quarter ended March 31, 2003, a decrease of 67 basis

 

13


Table of Contents

points or 23.6% over the comparable period last year. The average cost of funds was 2.29% for the nine months ended March 31, 2004, compared to 3.04% for the nine months ended March 31, 2003, a decrease of 75 basis points or 24.7% over the comparable period last year.

 

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses for the quarter ended March 31, 2004 amounted to $15.5 million, compared to $14.6 million for the same period last year. Net interest income before provision for loan losses for the nine months ended March 31, 2004 amounted to $44.5 million, compared to $43.7 million for the same period last year. The net interest margin for the three months ended March 31, 2004 was 3.54% compared to 3.82% for the same period last year. The net interest margin was 3.46% for the quarter ended December 31, 2003. The improvement in the net interest margin from the previous quarter was primarily due to the increase in mortgage interest rates in recent months. Pay off speeds on loans have slowed, reducing the amount of premium amortization for the quarter. The net interest margin for the nine months ended March 31, 2004 was 3.56%, compared to 3.88% for the same period last year. The decrease in net interest margin for the three and nine month periods ended March 31, 2004 compared to the same periods last year was primarily the result of average interest-earning assets growing faster than net interest income during the comparable periods. Approximately $517.3 million of the Bank’s adjustable rate loans were constrained by floor rates that were at or above the then current market rates as of the quarter ended March 31, 2004. Accordingly, should market rates rise, these assets will not reprice upwards until the fully indexed loan rate once again exceeds the lifetime floor rate.

 

The following table displays average interest rates on the Company’s interest-earning assets and interest-bearing liabilities:

 

     Three month average

    Nine month average

 
     March 31,
2004


    March 31,
2003


    March 31,
2004


    March 31,
2003


 

Yield on interest-earning assets

   5.50 %   6.38 %   5.63 %   6.60 %

Cost of interest-bearing liabilities

   2.17 %   2.84 %   2.29 %   3.04 %
    

 

 

 

Interest rate spread (1)

   3.33 %   3.54 %   3.34 %   3.56 %
    

 

 

 

Net interest margin (2)

   3.54 %   3.82 %   3.56 %   3.88 %
    

 

 

 


(1) The interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities.
(2) The net interest margin represents net interest income as a percentage of average interest-earning assets.

 

Provision for Loan Losses. The Company maintains valuation allowances for losses on loans that the Company’s management believes to be inherent in those portfolios. The Company’s management evaluates the adequacy of the level of the allowance for loan losses quarterly as a function of its internal asset review process.

 

The Company’s Internal Asset Review Committee meets monthly to review and determine asset classifications and to recommend any changes to the asset valuation allowance. This committee is comprised of the Senior Loan Servicing Officer (Chairperson), Chief Executive Officer, Chief Financial Officer, Senior Residential Lending Officer, Senior Capital Markets Officer, Senior Income Property Lending Officer, Assistant Treasurer and Controller. The internal auditors of the Company also attend the meeting. The Chairperson of the Internal Asset Review Committee prepares reports for the Board of Directors’ Loan Committee regarding asset quality.

 

14


Table of Contents

The Company’s management considers various factors when assessing the adequacy of the allowance for loan losses including risk characteristics inherent in the collateral types, asset classifications, estimated collateral values, local and national economic conditions, historical loan loss experience, and the Company’s underwriting policies.

 

The Company’s internal asset review system and allowance for loan losses methodology are designed to provide for timely identification of problem assets and recognition of losses. The current asset monitoring process includes the use of asset classification to segregate the assets, primarily real estate loans, into types of loans. Currently, loan type classifications include one-to-four family loans, multifamily loans, commercial, construction and land loans, and other loans.

 

The allowance for loan losses consists of three elements: (i) specific valuation allowances, (ii) general valuation allowances based on historical loan loss experience and current trends, and (iii) adjustments to general valuation allowances based on general economic conditions and other risk factors in the Company’s individual markets.

 

Specific Valuation Allowances. A specific valuation allowance for losses on a loan is established when management determines the loan to be impaired and the loss can be reasonably estimated. Generally, the Company’s loans are collateral dependent, therefore, specific reserves would be established based upon the value of the underlying collateral. To comply with this policy, management has established a monitoring system that requires an annual review of real estate loans on commercial properties with balances in excess of $500,000, for multifamily loans in excess of $750,000 and for one-to-four family loans in excess of $1.0 million. In addition, all assets considered to be adversely classified or criticized are reviewed monthly for impairment. The annual review process requires an analysis of current operating statements requested from the borrower (although they are not always received from the borrower), an evaluation of the property’s current and past performance, an evaluation of the borrower’s ability to repay, and an evaluation of the overall condition and estimated value of the collateral.

 

General Valuation Allowances. These allowances relate to assets with no well-defined deficiencies or weaknesses and take into consideration incurred losses that are inherent within the portfolio but that have not yet been realized. General valuation allowances are determined by applying factors that include the mix of loan products within the portfolio, any change in underwriting standards, past loss experience and general economic conditions and other risk factors. Past loss experience within homogeneous loan categories is analyzed at least annually. The Company may revise general valuation allowance factors whenever necessary in order to address improving or deteriorating credit quality trends or specific risks associated with a given loan category.

 

General Economic Conditions and Other Risk Factors. The Company considers general economic conditions and other risk factors when establishing valuation allowances. These factors are based on local marketplace conditions and/or events that could affect loan repayment. The assessment of general economic conditions inherently involves a higher degree of uncertainty as it requires management to anticipate the impact that economic trends, legislative actions or other unique market and/or portfolio issues have on estimated credit losses. For example, in assessing

 

15


Table of Contents

economic risks in the marketplace, management considers local unemployment trends, expansion and contraction plans of major employers, and other similar indicators. Consideration of other risk factors typically includes recent loss experience in specific portfolio segments, trends in loan quality, concentrations of credit risk together with any internal administrative risk factors. These risk factors are carefully reviewed by management and are revised as conditions dictate.

 

Multifamily and commercial real estate loans are generally considered to involve a higher degree of credit risk and to be more vulnerable to adverse conditions in the real estate market and to deteriorating economic conditions, particularly changes in interest rates, than one-to-four family residential mortgage loans. As a result of the potentially higher risk of these loans, a higher level of general allowance for loan losses has been allocated to the multifamily and commercial real estate portfolios. These loans typically involve higher loan principal amounts and the repayment of such loans generally depends on the income produced by the operation or sale of the property being sufficient to cover operating expenses and debt service. In addition, multifamily and commercial real estate values tend to be more cyclical, recessionary economic conditions of the type that prevailed in prior years in the Company’s lending market area tend to result in higher vacancy and reduced rental rates and net operating incomes from multifamily and commercial real estate properties.

 

The following table sets forth the Company’s allowance for loan losses as a percentage of total loans and the percentage of loans to total loans for each of the loan types listed:

 

     At March 31, 2004

    At June 30, 2003

 
     Amount

  

Percentage

of

Allowance

to Total

Allowance


   

Percentage

of Loans

in Each

Category to

Total Loans


    Amount

  

Percentage

of

Allowance

to Total

Allowance


   

Percentage

of Loans

in Each

Category to

Total Loans


 
     (Dollars in thousands)  

One-to-four family

   $ 1,056    8.85 %   26.92 %   $ 955    8.23 %   25.08 %

Multifamily

     6,781    56.84     49.72       6,333    54.57     50.55  

Commercial, land and construction

     3,756    31.48     21.62       3,859    33.25     22.79  

Other

     287    2.41     1.74       273    2.35     1.58  

Unallocated

     50    0.42     N/A       186    1.60     N/A  
    

  

 

 

  

 

Total allowance for loan losses

   $ 11,930    100.00 %   100.00 %   $ 11,606    100.00 %   100.00 %
    

  

 

 

  

 

 

 

For the quarter ended March 31, 2004, the Company recorded a $250,000 provision to the allowance for loan losses due to growth in the real estate loan portfolio and the establishment of specific reserves of $176,000 on one commercial real estate loan, as compared to the $114,000 addition to the allowance for the quarter ended March 31, 2003. The provision for loan losses was $350,000 for the nine months ended March 31, 2004, compared to $514,000 for the same period last year. The amounts added to the allowance for loan losses during the nine months ended March 31, 2004 as compared to the nine months ended March 31, 2003 were lower than in the previous reporting periods as a result of changes in the mix of loans outstanding, general economic conditions and other risk factors. As a result of the potential weakness in certain segments of real estate markets and other economic factors, increases in the allowance for loan losses, however, may be required in future periods.

 

16


Table of Contents

In addition, the Office of Thrift Supervision (“OTS”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their respective examination processes, periodically review the Company’s allowance for loan losses. These agencies may require the Company to increase the allowance for loan losses based on their judgments of the information available at the time of their examination.

 

The following is a summary of the activity in the allowance for loan losses:

 

    

At or for the

Three Months Ended


   

At or for the

Nine Months Ended


 
    

March 31,

2004


   

March 31,

2003


   

March 31,

2004


   

March 31,

2003


 
     (In thousands)  

Balance at beginning of period

   $ 11,705     $ 11,531     $ 11,606     $ 11,131  

Provision for loan losses

     250       114       350       514  

Charge-offs

     (25 )     (39 )     (26 )     (39 )
    


 


 


 


Balance at end of period

   $ 11,930     $ 11,606     $ 11,930     $ 11,606  
    


 


 


 


 

The specific valuation allowance for loan and real estate losses was $176,000 at March 31, 2004, compared to $37,000 at March 31, 2003.

 

Other Income. Other income for the three months ended March 31, 2004 was $3.3 million, compared to $2.8 million for the same period last year, an increase of 20.1%. The increase during the quarter was due to an increase in retail deposit fees to $1.6 million for the current quarter (compared to $1.3 million for the same period last year), a decrease in gain on sale of loans held-for-sale to $92,000 (compared to $844,000 for the same period last year), an increase in commissions to $167,000 (compared to $125,000 for the same period last year), and an increase in other income to $1.0 million (compared to $61,000 for the same period last year). Gain on sale of loans held-for-sale decreased for the quarter ended March 31, 2004, as compared to the quarter ended March 31, 2003, as the quarter ended March 31, 2003 included the sale of a package of single family second trust deed loans for a gain of $226,000, as well as reduced loan refinancing activity to fixed rate loans that were subsequently sold, from $618,000 for the quarter ended March 31, 2003 to $92,000 for the quarter ended March 31, 2004. Other income for the quarter ended March 31, 2004 included the gain of $856,000 on sale of assets the Company owned with a zero basis and $133,000 in collections on loans purchased that the Company also owned with a zero basis.

 

Other income for the nine months ended March 31, 2004 was $9.3 million, compared to $7.4 million for the same period last year, an increase of 25.3%. The increase during the nine months ended March 31, 2004 was primarily due to an increase in retail deposit fees to $4.6 million (compared to $3.7 million for the same period last year), a decrease in gain on sale of loans held-for-sale to $985,000 (compared to $1.4 million for the same period last year) and an increase in other income to $1.4 million (compared to $208,000 for the same period last year). Gain on sale of loans held-for-sale of $985,000 for the nine months ended March 31, 2004 included a gain on the sale of loans purchased at a discount and subsequently sold at a pretax gain of $374,000. Gain on sale of loans held-for-sale for the nine months ended March 31, 2003 of $1.4 million primarily included gains on the sale of loans originated by the Company. Other income for the nine months ended March 31, 2004 included the gain of $1.0 million on sale of assets the Company owned with a zero basis and $380,000 in collections on loans purchased that the Company also owned with a zero basis.

 

17


Table of Contents

Other Expense. Other expense for the three months ended March 31, 2004 increased to $7.9 million, compared to $7.0 million for the same period last year, an increase of 12.3%. Other expenses for the nine months ended March 31, 2003 increased to $23.4 million, compared to $20.9 million for the same period last year, an increase of 12.1%. The increase in other expense for the three months ended March 31, 2004 compared to the same period in the previous year, was primarily the result of a $643,000, or 15.9%, increase in compensation expense. This increase in compensation expense was primarily attributable to staff additions relating to expansion of the branch network, loan origination and loan service divisions. Other items contributing to this increase in compensation expense included a $136,000 increase in costs related to the Employee Stock Ownership Plan (“ESOP”). The increase in other expense for the nine months ended March 31, 2004 compared to the same period in the previous year was primarily the result of a $1.7 million, or 14.8%, increase in compensation expense and a $444,000, or 38.1%, increase in data processing expense. From March 31, 2003 to March 31, 2004, the Company experienced an increase in compensation expense as a result of an increase in full and part time employees of 8.2%, which primarily was attributable to staff additions relating to expansion of the branch network, loan origination and loan service divisions. Other items contributing to the increase in compensation expense for the nine months ended March 31, 2004 compared to the nine months ended March 31, 2003 included a $276,000 increase in costs related to the ESOP and a $48,000 expense adjustment to the accrued employee vacation compensation liability. Data processing expense increased as a result of branch computer technology upgrades and branch network expansion.

 

The ratio of G&A expenses to average assets (the “G&A ratio”) was 1.75% for the quarter ended March 31, 2004, compared to 1.78% for the same period last year. The G&A ratio for the nine months ended March 31, 2004 was 1.80%, compared to 1.80% for the same period last year. The relatively flat G&A ratio for the three and nine month periods ended March 31, 2004 as compared to the three and nine month periods ended March 31, 2003 was primarily a result of average asset growth offsetting the increases in G&A expenses.

 

The efficiency ratio for the current quarter increased to 41.84%, compared to 40.38% for the quarter ended March 31, 2003, as net interest income before provision for loan losses and noninterest income grew at a faster rate than G&A expenses during the quarter. The efficiency ratio is the measurement of G&A expenses as a percentage of net interest income before provision for loan losses and noninterest income.

 

Income Taxes. The Company’s effective tax rates were 44.03% and 43.06% for the quarters ended March 31, 2004 and 2003, respectively. The Company’s effective tax rates were 43.88% and 42.58% for the nine months ended March 31, 2004 and 2003, respectively. The effective tax rates were comparable to the applicable statutory rates in effect.

 

18


Table of Contents

FINANCIAL CONDITION

 

Total stockholders’ equity for the Company was $149.3 million at March 31, 2004, representing 8.2% of total assets, compared to $139.1 million at June 30, 2003, representing 8.6% of total assets. Total assets were $1.81 billion at March 31, 2004, representing an increase of $187.8 million or 11.6% compared to June 30, 2003.

 

At a meeting held on April 22, 2004, the Board of Directors declared a cash dividend of $0.20 per outstanding share of common stock, payable on May 14, 2004 to stockholders of record at the close of business on May 3, 2004.

 

Pursuant to previously announced plans to repurchase Company stock, the Company did not repurchase any shares of common stock during the quarter ended March 31, 2004. The Company acquired 146,750 shares of common stock at an average price per share of $41.37 for the nine months ended March 31, 2004. Up to an additional 276,317 shares may be repurchased under the current Board of Directors authorization.

 

Total loans receivable (including loans receivable held-for-sale) amounted to $1.44 billion at March 31, 2004, compared to $1.33 billion at June 30, 2003. The following table presents loans receivable at the dates indicated:

 

    

At March 31,

2004


   

At June 30,

2003


 
     (In millions)  

One-to-four family

   $ 392.2     $ 335.7  

Multifamily

     724.4       676.6  

Commercial and land

     309.4       299.3  

Construction

     5.6       10.2  

Other

     25.4       21.2  

Undisbursed construction / loan funds

     (3.1 )     (4.5 )

Unamortized discounts

     (0.1 )     (0.6 )

Allowance for loan losses

     (11.9 )     (11.6 )
    


 


Total

   $ 1,441.9     $ 1,326.3  
    


 


 

Loan originations totaled $163.6 million and loan purchases totaled $17.3 million for the quarter ended March 31, 2004, compared to loan originations of $118.1 million and loan purchases of $28.3 million for the quarter ended March 31, 2003. Loan originations totaled $376.7 million and loan purchases totaled $182.7 million for the nine months ended March 31, 2004, compared to loan originations of $349.3 million and loan purchases of $112.3 million for the nine months ended March 31, 2003.

 

19


Table of Contents

Loan originations were comprised of the following:

 

    

For the Three Months

Ended


  

For the Nine Months

Ended


    

March 31,

2004


  

March 31,

2003


  

March 31,

2004


  

March 31,

2003


     (In millions)

One-to-four family

   $ 22.4    $ 39.9    $ 75.6    $ 110.6

Multifamily

     110.9      55.0      234.3      178.6

Commercial and land

     30.3      23.2      66.3      59.9

Other

     —        —        0.5      0.2
    

  

  

  

Total loans originated

   $ 163.6    $ 118.1    $ 376.7    $ 349.3
    

  

  

  

 

Loan purchases were comprised of the following:

 

    

For the Three Months

Ended


  

For the Nine Months

Ended


     March 31,
2004


   March 31,
2003


   March 31,
2004


   March 31,
2003


     (In millions)

One-to-four family

   $ 6.9    $ 26.8    $ 147.4    $ 51.6

Multifamily

     3.7      0.3      10.1      40.2

Commercial and land

     3.1      1.2      12.6      13.4

Construction

     —        —        2.0      —  

Other

     3.6      —        10.6      7.1
    

  

  

  

Total loans purchased

   $ 17.3    $ 28.3    $ 182.7    $ 112.3
    

  

  

  

 

The increase in loan production for the three months ended March 31, 2004, compared to the same period in the previous year, was primarily a result of an increase in multifamily loan originations. The increase in loan production for the nine months ended March 31, 2004, compared to the same period in the previous year, was primarily due to multifamily loan originations and one-to-four family loan purchases. Presently, the Company expects to continue its focus on one-to-four family, multifamily and commercial real estate lending during the remainder of fiscal 2004.

 

MBS held-to-maturity totaled $148.0 million at March 31, 2004, compared to $90.0 million at June 30, 2003. There were $36.5 million in amortization and payoffs and $94.5 million of MBS held-to-maturity purchases made during the nine months ended March 31, 2004. MBS available-for-sale amounted to $91.4 million at March 31, 2004, compared to $73.7 million at June 30, 2003. Approximately $49.6 million of MBS available-for-sale purchases were partially offset by $31.7 million in amortization and payoffs during the nine months ended March 31, 2004.

 

In the past few years, the Company has had fair value short falls, which have been recognized through capital, on its investment in Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) preferred stock. The FNMA and FHLMC preferred stock are classified as available-for-sale. Available-for-sale assets are carried at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, net of income tax effect. The gross unrealized loss on the FNMA and FHLMC preferred stock was $3.9 million at March 31, 2004 and $3.7 million at June 30, 2003. The Company believes that these shortfalls are directly related to historically low interest rates. The Company also believes that it has sufficient liquidity to hold these securities through this historically low interest rate cycle.

 

20


Table of Contents

TRANSACTIONS WITH RELATED PARTIES

 

It is the policy of the Bank to offer loans to executive officers and directors on their principal residence and to offer to extend a line of credit for overdraft protection on a checking account held at the Bank. The Bank’s policy provides that all loans to executive officers and directors shall be made in the ordinary course of business, shall be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with all other employees, and shall not involve more than the normal risk of collectibility or present other unfavorable features.

 

CAPITAL RESOURCES AND LIQUIDITY

 

The Company obtains advances from the FHLB as needed, as an alternative to retail deposit funds. The net increase in FHLB advances was $32.0 million and $126.5 million, respectively, for the three and nine months ended March 31, 2004. Deposits increased by $22.0 million and $52.1 million, respectively, for the three and nine months ended March 31, 2004. In addition, while the majority of the Bank’s deposits are retail in nature, the Bank has accepted $65.0 million in time deposits from the State of California. The Bank considers these funds to be wholesale deposits and an alternative borrowing source rather than a customer relationship and their levels are determined by management’s decision as to the most economic funding sources.

 

In addition to FHLB advances and proceeds from increases in customer deposits, other sources of liquidity for the Company include principal repayments on loans and MBS, proceeds from sales of loans held-for-sale and other cash flows generated from operations. In the future, the Company may include repurchase agreements and brokered deposits as additional sources of liquity. Principal repayments on loans were $99.4 million and $96.5 million for the three months ended March 31, 2004 and 2003, respectively. Principal payments on loans were $411.0 million and $282.4 million for the nine months ended March 31, 2004 and 2003, respectively.

 

Proceeds from loan sales amounted to $8.0 million for the quarter ended March 31, 2004, compared to $46.7 million for the quarter ended March 31, 2003. Proceeds from loan sales amounted to $34.4 million for the nine months ended March 31, 2004, compared to $108.6 million for the nine months ended March 31, 2003. At March 31, 2004, the Company had mortgage servicing assets related to loans sold, servicing retained, with a carrying value of $1.0 million. Loans serviced for others were $246.8 million at March 31, 2004, compared to $287.1 million at June 30, 2003.

 

The Financial Regulatory Relief and Economic Efficiency Act of 2000 repealed the statutory liquidity requirement for savings associations, citing the requirement as unnecessary. In light of this action, the OTS repealed its liquidity regulations, with the following exception. Savings associations must continue to maintain sufficient liquidity to ensure safe and sound operation; the appropriate level of liquidity will vary depending on the activities in which the savings association engages. The Bank believes that its level of liquidity is consistent with its safe and sound operation.

 

Sources of capital and liquidity for the Company on a stand-alone basis include distributions from the Bank. Dividends and other capital distributions from the Bank are subject to regulatory restrictions.

 

21


Table of Contents

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

 

The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and its asset/liability management to meet required capital needs. These obligations require the Company to make cash payments over time. The following table summarizes the Company’s contractual obligations as of March 31, 2004:

 

     Payment Due by Period

     Total

  

Less than

1 year


  

Over 1 year

to 3 years


  

Over 3
years

to 5 years


  

Over

5 years


     (In thousands)

Contractual obligations:

                                  

FHLB borrowings

   $ 508,000    $ 241,750    $ 241,250    $ 25,000    $ —  

Certificates of deposit

     557,039      350,789      136,663      69,572      15

California state time deposits

     65,000      65,000      —        —        —  

Operating leases

     4,132      1,016      1,726      858      532
    

  

  

  

  

Total contractual cash obligations

   $ 1,134,171    $ 658,555    $ 379,639    $ 95,430    $ 547
    

  

  

  

  

 

The following table summarizes the Company’s contractual commitments with off-balance sheet risk as of March 31, 2004:

 

    

Amount of Commitment

Expiration Per Period


     Total

  

Less than

1 year


  

Over

5 years


     (In thousands)

Other commitments:

                    

Commitments to originate loans

   $ 36,881    $ 36,881    $ —  

Commitments to purchase loans

     14,713      14,713      —  

Commitments to sell loans

     1,082      1,082      —  

Unused equity lines of credit

     39,370      —        39,370

Consumer overdraft protection

     941      —        941

Undisbursed construction funds

     3,310      3,310      —  
    

  

  

Total commitments

   $ 96,297    $ 55,986    $ 40,311
    

  

  

 

The Company utilizes financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to originate fixed and variable rate mortgage loans held-for-investment and held-for-sale, commitments to purchase and sell loans, commitments to purchase and sell mortgage-backed and investment securities, unused equity lines of credit and overdraft protection, and funds committed to construction projects. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

 

22


Table of Contents

Commitments to originate fixed and variable rate mortgage loans are agreements to lend to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Undisbursed loan funds and unused lines of credit include funds not disbursed, but committed to construction projects and home equity lines of credit.

 

The Company minimizes its exposure to loss under these commitments by requiring that customers meet certain conditions prior to disbursing funds. The Company receives collateral to support commitments for which collateral is deemed necessary. The most significant category of collateral includes real estate properties underlying mortgage loans.

 

ASSET QUALITY

 

The following table sets forth information regarding nonaccrual loans, troubled debt restructured loans and real estate acquired through foreclosure at the dates indicated:

 

    

At

March 31,

2004


   

At

June 30,

2003


   

At

March 31,

2003


 
     (Dollars in thousands)  

Nonaccrual loans (1):

                        

Real estate loans:

                        

One-to-four family

   $ 3,441     $ 3,014     $ 3,482  

Multifamily

     141       272       328  

Commercial, land and construction

     700       —         —    

Consumer

     152       21       85  
    


 


 


Total nonaccrual loans (1)

     4,434       3,307       3,895  

Troubled debt restructured loans

     —         —         —    
    


 


 


Total nonperforming loans

     4,434       3,307       3,895  

Real estate acquired through foreclosure

     —         —         —    
    


 


 


Total nonperforming assets

   $ 4,434     $ 3,307     $ 3,895  
    


 


 


Nonperforming loans as a percentage of gross loans (2)

     0.31 %     0.25 %     0.30 %

Nonperforming assets as a percentage of total assets (3)

     0.24 %     0.20 %     0.25 %

Total allowance for loan losses as a percentage of gross loans

     0.82 %     0.86 %     0.91 %

Total allowance for loan losses as a percentage of total nonperforming loans

     269.06 %     350.95 %     297.97 %

Total allowance as a percentage of total nonperforming assets (4)

     269.06 %     350.95 %     297.97 %

(1) Nonaccrual loans are net of specific allowances of $176, $36 and $37 at March 31, 2004, June 30, 2003 and March 31, 2003, respectively.
(2) Nonperforming loans are net of specific allowances and include nonaccrual and troubled debt restructured loans. Gross loans include loans held-for-sale.
(3) Nonperforming assets include nonperforming loans and Real Estate Owned (“REO”).
(4) Total allowance includes loan and REO valuation allowances.

 

23


Table of Contents

The Company’s nonaccrual policy provides that interest accruals generally are to be discontinued once a loan is past due for a period of 60 days or more. Loans may also be placed on nonaccrual status even though they are less than 60 days past due if management concludes that it is probable that the borrower will not be able to comply with the repayment terms of the loan.

 

The Company defines nonperforming loans as nonaccrual loans and troubled debt restructured loans. Nonperforming loans are reported net of specific allowances. Nonperforming assets are defined as nonperforming loans and real estate acquired through foreclosure.

 

Nonperforming assets increased to $4.4 million, 0.24% of total assets at March 31, 2004, compared to $3.3 million, 0.20% of total assets at June 30, 2003. Nonperforming one-to-four and commercial and industrial real estate loans at March 31, 2004 increased $427,000 and $700,000, respectively, from June 30, 2003. The Company has incorporated the OTS internal asset classifications as a part of its credit monitoring system. Classified loans decreased to $5.6 million at March 31, 2004, compared to $6.8 million at June 30, 2003.

 

Impaired Loans. A loan is considered impaired when, based on current circumstances and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Creditors are required to measure impairment of a loan based on any one of the following: (i) the present value of expected future cash flows from the loan discounted at the loan’s effective interest rate, (ii) an observable market price, or (iii) the fair value of the loan’s underlying collateral. The Company generally measures impairment based on the fair value of the loan’s underlying collateral property. Impaired loans exclude large groups of smaller balance homogeneous loans that are collectively evaluated for impairment. For the Company, loans collectively reviewed for impairment include one-to-four family loans with principal balances of less than $1.0 million, real estate loans on commercial properties with balances of less than $500,000 and multifamily loans with balances of less than $750,000. In addition, all assets considered to be adversely classified or criticized are reviewed monthly for impairment.

 

Factors considered as part of the periodic loan review process to determine whether a loan is impaired, as defined under Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan,” and as amended by Statement of Financial Accounting Standards No. 118, “Accounting by Creditors for Impairment of a Loan–Income Recognition and Disclosures,” address both the amount the Company believes is probable that it will collect and the timing of such collection. As part of the Company’s loan review process, the Company considers such factors as the ability of the borrower to continue to meet the debt service requirements, assessments of other sources of repayment, the fair value of any collateral and the Company’s prior history in dealing with the particular type of loan involved. In evaluating whether a loan is considered impaired, insignificant delays (less than twelve months) in the absence of other facts and circumstances do not alone lead to the conclusion that a loan was impaired. At March 31, 2004, the Company had a gross investment in impaired loans of $1.3 million for which specific valuation allowances of $176,000 had been established.

 

24


Table of Contents

During the three and nine months ended March 31, 2004, the Company’s average investment in impaired loans was $1.0 million and $857,000, respectively. For the three and nine months ended March 31, 2003, the Company’s average investment in impaired loans was $250,000 and $141,000, respectively. For the three and nine months ended March 31, 2004, income recorded on impaired loans totaled $14,000 and $52,000, substantially all of which was recorded in accordance with the policy for nonaccrual loans. Payments received on impaired loans that are performing under their contractual terms are allocated to principal and interest in accordance with the terms of the loans. Impaired loans totaling $877,000 were not performing in accordance with their contractual terms at March 31, 2004. All impaired loans were included in nonaccrual loans net of specific allowances of $176,000, at that date.

 

REGULATORY CAPITAL

 

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), and implementing OTS capital regulations include three separate minimum capital requirements for financial institutions subject to OTS supervision. First, the tangible capital requirement mandates that the Bank’s stockholders’ equity less intangible assets be at least 1.50% of adjusted total assets as defined in the capital regulations. Second, the core capital requirement currently mandates core capital (tangible capital plus qualifying supervisory goodwill) be at least 4.00% of adjusted total assets as defined in the capital regulations. Third, the risk-based capital requirement presently mandates that core capital plus supplemental capital as defined by the OTS be at least 8.00% of risk-weighted assets as prescribed in the capital regulations. The capital regulations assign specific risk weightings to all assets and off-balance sheet items. The Bank was in compliance with all capital requirements in effect at March 31, 2004, and meets all standards necessary to be considered “well-capitalized” under the prompt corrective action regulations adopted by the OTS pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”). The following table reflects the required and actual regulatory capital ratios of the Bank at the dates indicated:

 

Regulatory Capital Ratios for

Quaker City Bank


   FIRREA
Minimum
Requirement


    FDICIA
“Well-Capitalized”
Minimum
Requirement


    Actual
at March 31,
2004


    Actual
at June 30,
2003


 

Tangible capital

   1.50 %   N/A     7.97 %   8.24 %

Core capital to adjusted total assets

   4.00 %   5.00 %   7.97 %   8.24 %

Core capital to risk-weighted assets

   4.00 %   6.00 %   11.68 %   11.98 %

Total capital to risk-weighted assets

   8.00 %   10.00 %   12.64 %   13.02 %

 

In the past few years, the Company has had fair value short falls, which have been recognized through capital, on its investment in Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) preferred stock. The FNMA and FHLMC preferred stock are classified as available-for-sale. Available-for-sale assets are carried at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, net of income tax effect. The gross unrealized loss on the FNMA and FHLMC preferred stock was $3.9 million at March 31, 2004 and $3.7 million at June 30, 2003. The Company believes that these shortfalls are directly related to historically low interest rates. The Company also believes that it has sufficient liquidity to hold these securities through this historically low interest rate cycle.

 

25


Table of Contents

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure. The Company does not currently engage in trading activities. The Company’s financial instruments include interest sensitive loans receivable, federal funds sold, MBS, investment securities, FHLB stock, deposits and borrowings. The Company’s average interest-sensitive assets totaled approximately $1.67 billion for the nine months ended March 31, 2004. Approximately $517.3 million of the Bank’s adjustable rate loans were constrained by floor rates that were at or above the then current market rates as of the quarter ended March 31, 2004. Accordingly, should market rates rise, these assets will not reprice upwards until the fully indexed loan rate once again exceeds the lifetime floor rate. Average interest-sensitive liabilities totaled approximately $1.51 billion at March 31, 2004. The composition of the Company’s financial instruments subject to market risk has not changed materially since June 30, 2003.

 

Item 4. CONTROLS AND PROCEDURES

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-14 and 13a-15 promulgated under the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

 

There were no significant changes in the Company’s internal control over financial reporting or in other factors that could significantly affect the internal control over financial reporting subsequent to the date of the most recent evaluation. Since there were no significant deficiencies or material weaknesses in the Company’s internal control over financial reporting, no corrective actions were taken.

 

26


Table of Contents

PART II. OTHER INFORMATION

 

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

 

Three Months

Ended

March 31, 2004


  

Total Number

of Shares

Purchased (1)


  

Average Price

Paid per Share


  

Total Number

Of Shares Purchased
as Part of Publicly
Announced Program


   Maximum Number of
Shares that May Yet
be Purchased Under
the Program(2)


January 1-31

   150    $ 45.85    —      276,317

February 1-29

   —        —      —      276,317

March 1-31

   199    $ 54.57    —      276,317
    
  

  
  
     349    $ 50.82    —      276,317
    
  

  
  

(1) The 349 shares purchased between January 1 and March 31, 2004 were acquired by the Company in open market transactions to hedge the Company’s obligations in connection with its Deferred Compensation Plan.
(2) At a meeting held on September 17, 2003, the Company’s Board of Directors authorized an increase in the number of shares subject to its previously announced stock repurchase program to 318,297 shares. During the quarter ended March 31, 2004, the Company did not repurchase any shares pursuant to its repurchase program. Under the current Board of Directors authorization, the Company may repurchase up to an additional 276, 317 shares of its common stock.

 

Item 5. OTHER INFORMATION

 

Popular, Inc. and the Company jointly announced on March 19, 2004 the signing of a definitive merger agreement pursuant to which Popular, Inc. will acquire all of the common stock of the Company at a price of $55.00 in cash per share. The merger, subject to regulatory approval, the approval of the Company’s stockholders and other customary closing conditions, is expected to be completed in the third calendar quarter of this year. The Company is holding a special meeting for its stockholders on Wednesday, June 16, 2004, at 10:00 a.m. at the Radisson Hotel Whittier to obtain stockholder approval of the merger with Popular, Inc.

 

27


Table of Contents

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

 

(a) Exhibits

 

Exhibit
Number


 

Description


3.1   Amended and Restated Certificate of Incorporation of Quaker City Bancorp, Inc.(8)
3.2   Bylaws of Quaker City Bancorp, Inc.(1)
10.1   Quaker City Bancorp, Inc. 1993 Incentive Stock Option Plan.*(1)
10.2   Quaker City Bancorp, Inc. 1993 Stock Option Plan for Outside Directors.*(1)
10.3   Quaker City Federal Savings and Loan Association Recognition and Retention Plan for Officers and Employees.*(1)
10.4   Quaker City Federal Savings and Loan Association Recognition and Retention Plan for Outside Directors.*(1)
10.5   Employment Agreements between Quaker City Bancorp, Inc. and Quaker City Federal Savings and Loan Association, respectively, and J.L. Thomas as of January 1, 1994 and as amended to September 27, 1994, respectively.*(1)
10.5.1   Quaker City Federal Savings and Loan Association Three Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and J.L. Thomas dated June 23, 1995.*(2)
10.5.2   Employment Agreements between Quaker City Bancorp, Inc. and Quaker City Federal Savings and Loan Association, respectively, and J.L. Thomas as of July 1, 1996.*(3)
10.5.3   Quaker City Federal Savings and Loan Association Three Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and J.L. Thomas dated July 1, 1997.*(4)
10.5.4   Quaker City Federal Savings and Loan Association Three Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and J. L. Thomas dated July 1, 1998.*(5)
10.6   Employment Agreements between Quaker City Bancorp, Inc. and Quaker City Federal Savings and Loan Association, respectively, and Frederic R. (Rick) McGill as of January 1, 1994 and as amended to September 27, 1994, respectively.*(1)
10.6.1   Quaker City Federal Savings and Loan Association Two Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Frederic R. (Rick) McGill dated June 23, 1995.*(2)
10.6.2   Employment Agreements between Quaker City Bancorp, Inc. and Quaker City Federal Savings and Loan Association, respectively, and Frederic R. (Rick) McGill as of July 1, 1996.*(3)
10.6.3   Quaker City Federal Savings and Loan Association Three Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Frederic R. (Rick) McGill dated July 1, 1997.*(4)

 

28


Table of Contents
Exhibit
Number


 

Description


10.6.4   Quaker City Federal Savings and Loan Association Three Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Frederic R. (Rick) McGill dated July 1, 1998.*(5)
10.6.5   Quaker City Federal Savings and Loan Association Three Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Frederic R. (Rick) McGill dated July 1, 1999.*(6)
10.6.6   Quaker City Bank Three Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Frederic R. (Rick) McGill dated July 1, 2000.*(7)
10.6.7   Quaker City Bank Three Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Frederic R. (Rick) McGill dated July 1, 2001.*(8)
10.6.8   Quaker City Bank Three Year Employment Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Frederic R. (Rick) McGill dated July 1, 2002.*(9)
10.6.9   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Frederic R. (Rick) McGill dated July 1, 2003.*(10)
10.7   Change in Control Agreements between Quaker City Bancorp, Inc. and Quaker City Federal Savings and Loan Association, respectively, and Dwight L. Wilson as of January 1, 1994 and as amended September 27, 1994, respectively.*(1)
10.7.1   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Dwight L. Wilson dated September 7, 1995.*(2)
10.7.2   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Dwight L. Wilson dated July 1, 1996.*(3)
10.7.3   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Dwight L. Wilson dated July 1, 1997.*(4)
10.7.4   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Dwight L. Wilson dated July 1, 1998.*(5)
10.7.5   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Dwight L. Wilson dated July 1, 1999.*(6)
10.7.6   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Dwight L. Wilson dated July 1, 2000.*(7)
10.7.7   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Dwight L. Wilson dated July 1, 2001.*(8)

 

29


Table of Contents

Exhibit

Number


 

Description


10.7.8   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Dwight L. Wilson dated July 1, 2002.*(9)
10.7.9   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Dwight L. Wilson dated July 1, 2003.*(10)
10.8   Change in Control Agreements between Quaker City Bancorp, Inc. and Quaker City Federal Savings and Loan Association, respectively, and Harold L. Rams as of January 1, 1994 and as amended September 27, 1994, respectively.*(1)
10.8.1   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Harold Rams dated July 1, 1995.*(2)
10.8.2   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Harold Rams dated July 1, 1996.*(3)
10.8.3   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Harold Rams dated July 1, 1997.*(4)
10.8.4   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Harold Rams dated July 1, 1998.*(5)
10.8.5   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Harold Rams dated July 1, 1999.*(6)
10.8.6   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Harold Rams dated July 1, 2000.*(7)
10.8.7   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Harold Rams dated July 1, 2001.*(8)
10.8.8   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Harold Rams dated July 1, 2002.*(9)
10.8.9   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Harold Rams dated July 1, 2003.*(10)
10.9   Change in Control Agreements between Quaker City Bancorp, Inc. and Quaker City Federal Savings and Loan Association, respectively, and Kathryn M. Hennigan as of January 1, 1994 and as amended September 27, 1994, respectively.*(1)
10.9.1   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Kathryn M. Hennigan dated July 1, 1995.*(2)

 

30


Table of Contents

Exhibit

Number


 

Description


10.9.2   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Kathryn M. Hennigan dated July 1, 1996.*(3)
10.9.3   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Kathryn M. Hennigan dated July 1, 1997.*(4)
10.9.4   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Kathryn M. Hennigan dated July 1, 1998.*(5)
10.9.5   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Kathryn M. Hennigan dated July 1, 1999.*(6)
10.9.6   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Kathryn M. Hennigan dated July 1, 2000.*(7)
10.9.7   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Kathryn M. Hennigan dated July 1, 2001.*(8)
10.9.8   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Kathryn M. Hennigan dated July 1, 2002.*(9)
10.9.9   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Kathryn M. Hennigan dated July 1, 2003.*(10)
10.11   Change in Control Agreements between Quaker City Bancorp, Inc. and Quaker City Federal Savings and Loan Association, respectively, and Robert C. Teeling as of January 1, 1994 and as amended September 27, 1994, respectively.*(1)
10.11.1   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Robert C. Teeling dated July 1, 1995.*(2)
10.11.2   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Robert C. Teeling dated July 1, 1996.*(3)
10.11.3   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Robert C. Teeling dated July 1, 1997.*(4)
10.11.4   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Robert C. Teeling dated July 1, 1998.*(5)

 

31


Table of Contents

Exhibit

Number


 

Description


10.11.5   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Robert C. Teeling dated July 1, 1999.*(6)
10.11.6   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Robert C. Teeling dated July 1, 2000.*(7)
10.11.7   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Robert C. Teeling dated July 1, 2001.*(8)
10.11.8   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Robert C. Teeling dated July 1, 2002.*(9)
10.11.9   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Robert C. Teeling dated July 1, 2003.*(10)
10.12   The Quaker City Federal Savings and Loan Association Supplemental Executive Retirement Plan.*(1)
10.13   Quaker City Federal Savings Association Employee Stock Ownership Trust Loan and Security Agreement between California Central Trust Bank, as trustee (the “Trustee”) and Quaker City Bancorp, Inc. dated as of December 30, 1993 and related Promissory Note and Security Agreement Re Instruments or Negotiable Documents to be Deposited of the Trustee dated December 30, 1993.*(1)
10.14   Quaker City Bancorp, Inc. Amended and Restated 1997 Stock Incentive Plan.*(9)
10.15   Change in Control Agreements between Quaker City Bancorp, Inc. and Quaker City Federal Savings and Loan Association, respectively, and Hank H. Kadowaki as of April 1, 1998.*(5)
10.15.1   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Hank H. Kadowaki dated July 1, 1998.*(5)
10.15.2   Quaker City Federal Savings and Loan Association Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Federal Savings and Loan Association and Hank H. Kadowaki dated July 1, 1999.*(6)
10.15.3   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Hank H. Kadowaki dated July 1, 2000.*(7)
10.15.4   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Hank H. Kadowaki dated July 1, 2001.*(8)
10.15.5   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Hank H. Kadowaki dated July 1, 2002.*(9)

 

32


Table of Contents

Exhibit

Number


 

Description


10.15.6   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Hank H. Kadowaki dated July 1, 2003.*(10)
10.16   Change in Control Agreements between Quaker City Bancorp, Inc. and Quaker City Bank, respectively, and Jerrold S. Perisho as of May 22, 2000.*(7)
10.16.1   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Jerrold S. Perisho dated July 1, 2000.*(7)
10.16.2   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Jerrold S. Perisho dated July 1, 2001.*(8)
10.16.3   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Jerrold S. Perisho dated July 1, 2002.*(9)
10.16.4   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Jerrold S. Perisho dated July 1, 2003.*(10)
10.17   Quaker City Bank Employees Retirement Plan.*(7)
10.18   Quaker City Bank Retirement Benefit Equalization Plan.*(7)
10.19   Quaker City Bank Employee Stock Ownership Trust amended Loan and Security Agreement between CNA Trust, as trustee (the “Trustee”) and Quaker City Bancorp, Inc. and amended related Promissory Note and Security Agreement Re Instruments or Negotiable Documents to be Deposited of the Trustee.*(8)
10.19.1   Quaker City Bank Employee Stock Ownership Plan, amended and restated effective as of January 1, 2001.*(10)
10.20   Form of Change in Control Agreement between Quaker City Bancorp, Inc. and Elizabeth A. Conrado as of February 11, 2002.*(9)
10.20.1   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Elizabeth A. Conrado dated July 1, 2002.*(9)
10.20.2   Quaker City Bank Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Elizabeth A. Conrado dated July 1, 2003.*(10)
10.21   Quaker City Bancorp, Inc. 2002 Equity Incentive Plan.*(9)
10.22   Change in Control Agreements between Quaker City Bancorp, Inc. Quaker City Bank, respectively, and Teresa A. Thompson dated July 1, 2003.*(10)
10.22.1   Change in Control Agreement Renewal and Extension Acknowledgment between Quaker City Bank and Teresa A. Thompson dated July 1, 2003.*(10)
10.23   Quaker City Bank Deferred Compensation Plan, amended and restated March 30, 1999.*(10)

 

33


Table of Contents

Exhibit

Number


 

Description


11.1   Statement Regarding Computation of Earnings Per Share.
31.1   Certification of Chief Executive Officer Pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification of Chief Financial Officer Pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Annual Report on Form 10-K pursuant to Item 14(c) of Form 10-K.
(1) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 1994.
(2) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 1995.
(3) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 1996.
(4) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 1997.
(5) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 1998.
(6) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 1999.
(7) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2000.
(8) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2001.
(9) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2002.
(10) Incorporated by reference to the corresponding exhibit to the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2003.

 

34


Table of Contents
(b) Reports on Form 8-K

 

     Current Report on Form 8-K, dated January 22, 2004 and furnished to the SEC on January 27, 2004, reporting the issuance of a press release captioned “Quaker City Bancorp, Inc. Reports Earnings for Second Quarter Fiscal 2004 and Cash Dividend.”

 

     Current Report on Form 8-K, dated and filed with the SEC on March 19, 2004, reporting the issuance of a press release captioned “Popular and Quaker City Announce Merger.”

 

35


Table of Contents

SIGNATURES

 

Pursuant to the requirements 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.

 

     QUAKER CITY BANCORP, INC.

Date: May 14, 2004

  

By: /s/ Dwight L. Wilson


    

Dwight L. Wilson

    

Senior Vice President,

    

Treasurer and Chief Financial Officer

 

36