SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2000
--------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________.
Commission File No. 0-23763
Quitman Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer as Specified in Its Charter)
Georgia 58-2365866
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
602 East Screven Street, Quitman, Georgia 31643
----------------------------------------------------
(Address of Principal Executive Offices)
(912) 263-7538
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Issuer's Telephone Number, Including Area Code
- --------------------------------------------------------------------------------
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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Number of shares of Common Stock outstanding as of March 31, 2000: 507,262
Transitional Small Business Disclosure Format (check one)
YES NO X
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QUITMAN BANCORP, INC.
Contents
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Page(s)
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................................3
Item 2. Management's Discussion and Analysis or Plan of Operation......10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................15
Item 2. Changes in Securities and Use of Proceeds......................15
Item 3. Defaults upon Senior Securities................................15
Item 4. Submission of Matters to a Vote of Security Holders............15
Item 5. Other Information..............................................15
Item 6. Exhibits and Reports on Form 8-K...............................15
Signatures..............................................................16
-2-
PART I. FINANCIAL INFORMATION
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
------
MARCH 31, SEPTEMBER 30,
2000 1999
------------ -------------
(Unaudited)
Cash and Cash Equivalents:
Cash and amounts due from depository
institutions $ 806,925 1,706,799
Interest-bearing deposits in other banks 524,520 261,896
Federal funds sold 140,000 0
----------- -----------
Total Cash and Cash Equivalents 1,471,445 1,968,695
Investment securities -
Available-for-sale 6,435,193 6,558,701
Loans receivable - net of allowance for loan
losses and deferred origination fees 44,806,897 41,120,768
Office properties and equipment, at cost, net of
accumulated depreciation 1,539,771 1,601,398
Real estate and other property acquired
in settlement of loans 82,550 139,045
Accrued interest receivable 515,954 514,290
Investment required by law-stock in Federal
Home Loan Bank, at cost 320,300 286,700
Cash value of life insurance 572,875 482,354
Other assets 221,380 170,198
----------- -----------
Total Assets $55,966,365 52,842,149
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $43,305,442 41,993,095
Advances from Federal Home Loan Bank 4,500,000 2,500,000
Accrued interest payable 306,632 303,512
Income taxes payable 36,103 1,312
Other liabilities 300,285 369,230
----------- -----------
Total Liabilities 48,448,462 45,167,149
----------- -----------
Stockholders' Equity:
Common stock, $.10 par value, 4,000,000 shares authorized, 661,250 shares
issued and 507,262 shares outstanding March 31, 2000 (533,960 September
30, 1999) 66,125 66,125
Preferred stock, no par value, 1,000,000
shares authorized, no shares issued
or outstanding 0 0
Additional paid in capital 6,135,412 6,135,412
Retained Earnings 3,608,729 3,491,984
Accumulated other comprehensive income (loss) (124,189) (77,699)
----------- ----------
9,686,077 9,615,822
Receivable from employee stock ownership plan (449,650) (502,550)
Treasury stock, 153,988 shares at cost March 31,
2000 (127,290 September 30, 1999) (1,718,524) (1,438,272)
----------- ----------
Total Stockholders' Equity 7,517,903 7,675,000
----------- ----------
Total Liabilities and Stockholders' Equity $55,966,365 52,842,149
=========== ==========
-3-
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Interest Income:
Loans receivable:
First mortgage loans $ 944,873 801,461 1,828,694 1,590,141
Consumer and other loans 75,764 49,008 146,087 103,326
Interest on FHLMC Pool 28 45 59 95
Investment securities 95,913 89,017 195,021 177,898
Interest-bearing deposits 8,457 8,800 14,047 14,862
Federal funds sold 1,405 126 1,405 482
----------- ---------- ----------- ----------
Total Interest Income 1,126,440 948,457 2,185,313 1,886,804
----------- ---------- ----------- ----------
Interest Expense:
Deposits 601,207 530,856 1,176,821 1,050,008
Interest on Federal Home Loan
Bank advances 64,971 1,385 106,416 11,546
----------- ---------- ----------- ----------
Total Interest Expense 666,178 532,241 1,283,237 1,061,554
----------- ---------- ----------- ----------
Net Interest Income 460,262 416,216 902,076 825,250
Provision for loan losses 15,000 0 30,000 10,000
----------- ---------- ----------- ----------
Net Interest Income After Provision for Losses 445,262 416,216 872,076 815,250
----------- ---------- ----------- ----------
Non-Interest Income:
Gain (loss) on sale of securities (327) 0 (7,387) 1,094
Late charges on loans 9,583 9,763 18,537 18,725
Service charges 23,633 5,665 46,252 9,635
Insurance commissions 2,203 196 5,581 557
Other income 6,971 2,014 11,797 2,577
Gain on sale of other real estate 4,335 0 5,911 0
----------- ---------- ----------- ----------
Total Non-Interest Income 46,398 17,638 80,691 32,588
----------- ---------- ----------- ---------
Non-Interest Expense:
Compensation 138,042 91,881 264,894 179,188
Other personnel expenses 62,260 62,573 125,450 96,819
Occupancy expenses of premises 12,832 5,471 25,038 11,566
Furniture and equipment expenses 53,753 35,057 107,074 72,845
Federal deposit insurance 2,216 5,511 8,285 10,762
Advertising 5,894 15,275 17,369 25,005
Legal expense 3,574 13,619 18,273 26,198
Accounting and auditing 14,850 13,250 28,000 26,550
Office supplies and printing 10,544 11,433 22,121 20,546
Business occupation and other taxes 14,088 12,730 27,249 29,655
Charitable contributions 1,460 1,103 13,433 7,097
Other operating expenses 52,968 33,406 115,479 68,409
----------- ---------- ----------- ----------
Total Non-Interest Expense 372,481 301,309 772,665 574,640
----------- ---------- ------------ ----------
Income Before Income Taxes 119,179 132,545 180,102 273,198
Provision for Income Taxes 34,667 45,797 63,357 97,522
------------ ---------- ------------ ----------
Net Income $ 84,512 86,748 116,745 175,676
=========== ========== =========== ==========
Earnings Per Share (Basic and Diluted) $ .18 .16 .25 .31
=========== ========== =========== ==========
-4-
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE RECEIVABLE
COMMON PAID IN RETAINED INCOME FROM TREASURY
STOCK CAPITAL EARNINGS (LOSS) ESOP STOCK TOTAL
---------- ---------- ---------- ---------- ---------- ---------- -----------
Balances, September 30, 1998 $ 66,125 6,135,412 3,256,097 35,119 (529,000) 0 8,963,753
Net income 0 0 175,676 0 0 0 175,676
Other comprehensive income (loss) 0 0 0 (39,089) 0 0 (39,089)
Change in receivable from employee
stock ownership plan 0 0 0 0 26,450 0 26,450
Treasury stock acquired, 99,187
shares 0 0 0 0 0 (1,129,119) (1,129,119)
--------------------------- -------------- ------------- ------------- ---------- ----------
Balances, March 31, 1999,
(Unaudited) $ 66,125 6,135,412 3,431,773 (3,970) (502,550) (1,129,119) 7,997,671
========= ========= ========= ========= ======== ========== =========
Balances, September 30, 1999 $ 66,125 6,135,412 3,491,984 (77,699) (502,550) (1,438,272) 7,675,000
Net income 0 0 116,745 0 0 0 116,745
Other comprehensive income (loss) 0 0 0 (46,490) 0 0 (46,490)
Change in receivable from employee
stock ownership plan 0 0 0 0 52,900 0 52,900
Treasury stock acquired, 26,698
Shares 0 0 0 0 0 (280,252) (280,252)
--------------------------- -------------- ------------ ------------- ------------ ----------
Balances, March 31, 2000,
(Unaudited) $ 66,125 6,135,412 3,608,729 (124,189) (449,650) (1,718,524) 7,517,903
========= ========= ========= ======== ======== ========== =========
-5-
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
SIX MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
- -------------------------------------
Net income $ 116,745 175,676
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 71,909 42,410
Provision for loan losses 30,000 10,000
Amortization (Accretion) of securities 5,578 5,000
Gain on sale of foreclosed assets (5,911) 0
(Gain) loss on sale of securities 7,386 (1,094)
Deferred income taxes 33 (1,813)
Change in Assets and Liabilities:
(Increase) Decrease in accrued interest receivable (1,664) 2,609
Increase (Decrease) in accrued interest payable 3,120 12,501
Increase (Decrease) in other liabilities (98,945) (94,654)
Increase (Decrease) in income taxes payable 93,923 20,853
(Increase) Decrease in other assets (86,397) (49,620)
----------- -----------
Net cash provided (used) by operating activities 135,777 121,868
----------- -----------
Cash Flows From Investing Activities:
- -------------------------------------
Capital expenditures (10,281) (749,569)
Purchase of available-for-sale securities (523,319) (2,476,137)
Proceeds from sale of foreclosed property 68,360 0
Proceeds from maturity of held-to-maturity securities 0 200,000
Proceeds from maturity of available-for-sale securities 0 100,000
Proceeds from sale of available-for-sale securities 541,477 1,950,000
Purchase of stock in Federal Home Loan Bank (33,600) (46,900)
Net (increase) decrease in loans (3,722,083) (1,485,678)
Principal collected on mortgage-backed securities 51,945 79,107
Increase in cash value of life insurance (90,521) (85,257)
----------- -----------
Net cash provided (used) by investing activities (3,718,022) (2,514,434)
----------- -----------
Cash Flows From Financing Activities:
- -------------------------------------
Net increase (decrease) in deposits 1,312,347 4,196,779
Proceeds from Federal Home Loan Bank advances 2,000,000 1,000,000
Principal collected on receivable from ESOP 52,900 26,450
Purchase of treasury stock (280,252) (1,129,119)
Payment on Federal Home Loan advances 0 (1,000,000)
----------- -----------
Net cash provided (used) by financing activities 3,084,995 3,094,110
----------- -----------
Net Increase (Decrease) in cash and cash equivalents (497,250) 701,544
Cash and Cash Equivalents at Beginning of Period 1,968,695 371,866
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,471,445 1,073,410
=========== ===========
Supplemental Disclosures of Cash Flows Information:
- ---------------------------------------------------
Cash Paid During The Period:
Interest $ 1,227,887 1,049,053
Income taxes 27,132 89,064
Non-Cash Investing Activities:
Increase (Decrease) in unrealized gains on available-
for-sale securities (70,439) (59,226)
-6-
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net Income $ 84,512 86,748 116,745 175,676
-------- -------- -------- --------
Other Comprehensive Income, Net of Tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period (8,603) (27,902) (51,365) (37,995)
Reclassification adjustment for (gains)
losses included in net income 216 0 4,875 (1,094)
-------- -------- -------- --------
Other Comprehensive Income (Loss) (8,387) (27,902) (46,490) (39,089)
-------- -------- -------- --------
Comprehensive Income $ 76,125 58,846 70,255 136,587
======== ======== ======== ========
-7-
QUITMAN BANCORP, INC. AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Note 1 - Basis of Preparation
- -----------------------------
The accompanying unaudited financial statements were prepared in
accordance with instructions for Form 10-QSB and therefore do not
include all disclosures necessary for a complete presentation of the
statements of financial condition, statements of income, statements of
comprehensive income and statements of cash flow in conformity with
generally accepted accounting principles. However, all adjustments
which are, in the opinion of management, necessary for the fair
presentation of the interim financial statements have been included.
All such adjustments are of a normal recurring nature. The statement of
income for the six month period ended March 31, 2000 is not necessarily
indicative of the results which may be expected for the entire year.
It is suggested that these unaudited financial statements be read in
conjunction with the audited consolidated financial statements and
notes thereto for Quitman Bancorp, Inc. and Subsidiary for the year
ended September 30, 1999.
Note 2 - Plan of Conversion
- ---------------------------
On October 14, 1997, the Bank's Board of Directors approved a plan
("Plan") to convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank subject to approval by the
Bank's members. The Plan, which included formation of the holding
company, Quitman Bancorp, Inc., was subject to approval by the Office
of Thrift Supervision (OTS) and included the filing of a registration
statement with the SEC. The conversion was completed on April 2, 1998.
Actual conversion costs were accounted for as a reduction in gross
proceeds.
The Plan called for the common stock of the Bank to be purchased by the
holding company and for the common stock of the holding company to be
offered to various parties in an offering at a price of $10.00 per
share.
The stockholders of the holding company approved a proposed stock
option plan and a proposed restricted stock plan at a meeting of the
stockholders on April 13, 1999. Shares issued to directors and
employees under these plans may be from authorized but unissued shares
of common stock or they may be purchased in the open market. In the
event that options or shares are issued under these plans, such
issuances will be included in the earnings per share calculation; thus,
the interests of existing stockholders would be diluted.
The Bank may not declare or pay a cash dividend if the effect thereof
would cause its net worth to be reduced below either the amounts
required for the liquidation account discussed below or the regulatory
capital requirements imposed by federal regulations.
At the time of conversion, the Bank established a liquidation account
(which is a memorandum account that does not appear on the balance
sheet) in an amount equal to its retained income as reflected in the
latest balance sheet used in the final conversion prospectus. The
liquidation account will be maintained for the benefit of eligible
account holders who continue to maintain their deposit accounts in the
Bank after the conversion. In the event of a complete liquidation of
the Bank (and only in such an event), eligible depositors who continue
to maintain accounts shall be entitled to receive a distribution from
the liquidation account before any liquidation may be made with respect
to common stock.
-8-
Note 3 - Stock Repurchase
- -------------------------
The Company has adopted a stock repurchase program that allows for the
repurchase, from time to time, of up to 153,988 shares of common stock.
Any shares repurchased may be used for general and other corporate
purposes, including the issuance of shares upon the exercise of stock
options. On December 9, 1999, the Company completed its stock
repurchase program, having repurchased 153,988 shares of its common
stock at a cost of $1,718,524.
Note 4 - Earnings Per Share
- ---------------------------
The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted earnings per share (EPS)
computations:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(a) Net income available to shareholders $ 84,512 86,748 116,745 175,676
------------ --------- ---------- ----------
Denominator:
Weighted-average shares outstanding 507,262 588,712 516,907 622,522
Less: ESOP weighted-average shares
unallocated 44,965 50,225 47,624 51,578
------------ --------- ---------- ----------
(b) Basic EPS weighted-average shares
outstanding 462,297 538,457 469,283 570,944
Effect of dilutive securities 0 0 1,068 0
------------ --------- ---------- ----------
(c) Diluted EPS weighted-average shares
outstanding 462,297 538,457 468,215 570,944
============ =========== ============ ============
Basic earnings per share (a/b) $ .18 .16 .25 .31
============ =========== =========== ============
Diluted earnings per share (a/c) $ .18 .16 .25 .31
============ =========== =========== ============
-9-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Comparison of Financial Condition at March 31, 2000 and September 30, 1999
Quitman Bancorp, Inc. (the "Company") may from time to time make written or oral
"forward-looking statements" including statements contained in the Company's
filings with the Securities and Exchange Commission (including this report on
Form 10-QSB), in its reports to stockholders and in other communications by the
Company, which are made in good faith by the Company pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effect of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate and market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks
described above involved in the foregoing.
The Company cautions that these important factors are not exclusive. The Company
does not undertake to update any forward-looking statement, whether written or
oral, that may be made from time to time by or on behalf to the Company.
Total assets increased by $3.1 million or 5.9% due primarily to the increase in
loans resulting from funds received from increases in deposits and advances from
the Federal Home Loan Bank.
Total equity decreased by $157,097 as result of net income for the six months
ended March 31, 2000, changes in the unrealized gain or loss on
available-for-sale securities, reduction of a loan to the Bank's employee stock
ownership plan, and purchase of 26,698 shares of treasury stock at a cost of
$280,252.
Non-Performing Assets and Delinquencies
Loans accounted for on a non-accrual basis decreased to $67,308 at March 31,
2000 from $228,113 at September 30, 1999. The decrease was the result of nine
loans being reclassified to performing loans and three loans being added to
non-accrual. The allowance for loan losses was $419,000 at March 31, 2000.
-10-
Comparison of the Results of Operations for the Three Months Ended March 31,
2000 and 1999
Net Income. Net income decreased by $2,000 or 2.6% from net income of $87,000
for the three months ended March 31, 1999 to net income of $85,000 for the three
months ended March 31, 2000. This decrease is primarily the result of increased
interest income, service charges and other income that was reduced by an
increase in interest and non-interest expense. The annualized return on average
assets decreased from .74% to .61% for the three months ended March 31, 1999 and
2000, respectively.
Net Interest Income. Net interest income increased $44,000 or 10.6% from
$416,000 for the three months ended March 31, 1999 to $460,000 for the three
months ended March 31, 2000. The increase was primarily due to an increase in
loans resulting from the increase in deposits and advances from the Federal Home
Loan Bank.
Interest Income. Interest income increased $178,000 for the three months ended
March 31, 2000 compared to the same three months ended March 31, 1999. The
increase in interest income was primarily due to an increase in the average
balance of interest-earning assets. The average balance of interest-earning
assets increased by 13.61%. This increase in average interest-earning assets
added an additional $178,000 of interest income. The average yield on
interest-earning assets increased moderately to 8.9% from 8.5% for the three
months ended March 31, 2000 and 1999, respectively.
Interest Expense. Interest expense increased $134,000 from $532,000 for the
three months ended March 31, 1999 to $666,000 for the three months ended March
31, 2000. The increase in interest expense was due to an increase in average
interest-bearing liabilities of $8.2 million and a slight increase in the cost
of funds of 15 basis points (100 basis points equals 1%). The average balances
of deposits and advances from the Federal Home Loan bank increased by $8.2
million, from the three months ended March 31, 1999 to the three months ended
March 31, 2000.
Non-Interest Income. Non-interest income increased by $29,000 primarily from an
increase in gain on sale of foreclosed property, $4,000 service charges, $18,000
and miscellaneous income, $7,000.
Non-Interest Expense. Non-interest expense increased by $71,000 primarily due to
increased compensation and other personnel expense, furniture and equipment
expense and other operating expenses. Our compensation and other personnel
expense increased an aggregate of $46,000 between the periods as a result of
year-end pay raises, hiring of additional employees and contributions to the
Bank's Restricted Stock Plan approved in April of 1999. Other non-interest
expenses increased $25,000.
Our expenses have increased because of the cost associated with our Employee
Stock Ownership Plan, Restricted Stock Plan, and Stock Option Plan, and the cost
of being a public company. We also offered checking accounts and the use of an
automated teller machine (an "ATM") to our customers during fiscal 1999. Our
preparation cost for these products and the cost of soliciting checking account
funds has also increased our expenses. We have not yet received sufficient
checking account funds or other income to offset these additional costs.
Although no definite plans have been made, we are exploring whether to purchase
land and construct a branch. We would likely hire experts or spend money before
we commit to purchasing land or constructing a new branch. If we decided not to
build a new branch, any money that we had spent up to that time would be a
non-interest expense and would negatively affect our income.
-11-
Non-interest expense has increased as a result of staffing and equipping of the
new bank building opened in April 1999. We expect a reduction in net income (and
possibly losses) compared to prior periods as a result of these expenses until
the new building results in higher overall levels of loan and deposit activity
to off-set the additional expenses. We believe this expansion should enhance
shareholder value and hope that the decrease in earnings will not be as great
following the end of year 2000. Our statement of beliefs concerning our
expansion is a forward looking statement. The Private Securities Litigation
Reform Act of 1995 (the "Act") provides protection to us in making certain
forward looking statements that are accompanied by the factors that could cause
actual results to differ materially from the forward looking statement. As with
any expansion, if the new office or additional personnel do not ultimately
result in increased loan and deposit activity and increased net income, these
expenses would continue to have an adverse effect on net income past the end of
year 2000. Our non-interest expense would further increase if we built the new
branch discussed in the prior paragraph.
Income Taxes. Income tax expense amounted to $46,000 for the three months ended
March 31, 1999 compared to $35,000 for the three months ended March 31, 2000.
Comparison of the Results of Operations for the Six Months Ended March 31, 2000
and 1999
Net Income. Net income decreased by $59,000 or 33.5% from net income of $176,000
for the six months ended March 31, 1999 to net income of $117,000 for the same
six months of fiscal 2000. This decrease is primarily the result of increased
interest income that was more than offset by an increase in interest and
non-interest expense. The annualized return on average assets decreased from
.76% to .43% for the six months ended March 31, 1999 and 2000, respectively.
Net Interest Income. Net interest income increased $77,000 or 9.3%, from
$825,000 for the six months ended March 31, 1999 to $902,000 for the six months
ended March 31, 2000. The increase was primarily due to an increase in
residential mortgages and consumer loans and partially offset by a moderate
increase in the cost of funds.
Interest Income. Interest income increased $299,000 for the six months ended
March 31, 2000 compared to the six months ended March 31, 1999. The increase in
interest income was primarily attributable to an increase in the average balance
of interest-earning assets. The average balance of interest-earning assets
increased by 13.4%. This increase in average interest-earning assets added an
additional $299,000 of interest income. The average yield on interest-earning
assets increased moderately to 8.8% from 8.6% for the six months ended March 31,
2000 and 1999, respectively.
Interest Expense. Interest expense increased $222,000 from $1,061,000 for the
six months ended March 31, 1999 to $1,283,000 for the six months ended March 31,
2000. The increase in interest expense was attributable to an increase in the
average interest-bearing liabilities of $8.5 million and a decrease in the cost
of funds of 12 basis points (100 basis points equals 1%). The average balances
of deposits and advances from the Federal Home Loan Bank increased by $8.5
million from the six months ended March 31, 1999 to the six months ended March
31, 2000.
Non-Interest Income. Non-interest income increased by $48,000 primarily from an
increase in service charges on deposit accounts of $37,000, gain on sale of
other real estate of $6,000, insurance commissions of $5,000, other income
$8,000 and partially offset by a decrease in gains on sale of securities of
$8,000.
-12-
Non-Interest Expense. Non-interest expense increased by $198,000 primarily due
to increased compensation and other personnel expense, furniture and equipment
expense and other operating expenses. Our compensation and other personnel
expense increased an aggregate of $114,000 between the periods as a result of
year-end pay raises, our hiring of additional employees and contributions to the
Bank's Restricted Stock Plan approved in April of 1999. Other non-interest
expense increased $84,000.
Our expenses have increased because of the cost associated with our Employee
Stock Ownership Plan, Restricted Stock Plan, and Stock Option Plan, and the cost
of being a public company. We also offered checking accounts and the use of an
automated teller machine (an "ATM") to our customers during fiscal 1999. Our
preparation cost for these products and the cost of soliciting checking account
funds has also increased our expenses. We have not yet received sufficient
checking account funds or other income to offset these additional costs.
Although no definite plans have been made, we are exploring whether to purchase
land and construct a branch. We would likely hire experts or spend money before
we commit to purchasing land or constructing a new branch. If we decided not to
build a new branch, any money that we had spent up to that time would be a
non-interest expense and would negatively affect our income.
Non-interest expense has increased as a result of staffing and equipping of the
new bank building opened in April 1999. We expect a reduction in net income (and
possibly losses) compared to prior periods as a result of these expenses until
the new building results in higher overall levels of loan and deposit activity
to off-set the additional expenses. We believe this expansion should enhance
shareholder value and hope that the decrease in earnings will not be as great
following the end of year 2000. Our statement of beliefs concerning our
expansion is a forward looking statement. The Private Securities Litigation
Reform Act of 1995 (the "Act") provides protection to us in making certain
forward looking statements that are accompanied by the factors that could cause
actual results to differ materially from the forward looking statement. As with
any expansion, if the new office or additional personnel do not ultimately
result in increased loan and deposit activity and increased net income, these
expenses would continue to have an adverse effect on net income past the end of
year 2000. Our non-interest expense would further increase if we built the new
branch discussed in the prior paragraph.
Income Taxes. Income tax expense amounted to $176,000 for the six months ended
March 31, 1999 compared to $117,000 for the six months ended March 31, 2000.
Liquidity and Capital Resources
Management monitors our risk-based capital and leverage capital ratios in order
to asses compliance with regulatory guidelines. At March 31, 2000, the Bank had
tangible capital, leverage, and total risk-based capital of 11.4%, 11.4% and
17.8%, respectively, which exceeded the OTS's minimum requirements of 1.50%,
4.00% and 8.00%, respectively.
On April 20, 1999, the Board of Directors approved a dividend of $.20 per share,
payable May 24, 1999 to shareholders of record on May 10, 1999. While the
Company paid this dividend from its cash funds, the primary source of funds
available for the payment of cash dividends by the Company are dividends from
the subsidiary bank. Holders of the common stock of the Company are entitled to
share ratably in dividends, if and when, declared by the Board of Directors of
the Company, out of funds legally available therefore. Federal banking law
provides that a savings bank may , by providing prior regulatory notice,
generally pay dividends during a calendar year in an amount equal to net income
for the calendar year plus retained net income for the preceding two years. Any
amount in excess of that level requires prior regulatory approval from the
Office of Thrift Supervision (the "OTS"). The OTS may disapprove any
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dividend if the Bank is undercapitalized or the dividend would render the Bank
undercapitalized. The OTS may also disapprove any dividend for, among other
reasons, safety and soundness concerns. Also, the Bank may not pay a dividend if
the payment would cause its net worth to be reduced below the amount required
for the liquidation account established at the time of the conversion of the
Bank from mutual to stock form.
We are exploring whether to purchase land and construct a branch. Although no
definite plans have been made, if a new branch is built, the land and
construction cost would total approximately $600,000. We have sufficient liquid
assets to pay for these costs.
Pursuant to FASB No. 130 the Company is required to record changes in the value
of its investment portfolio as regards unrealized gains or losses that may
result from movements in interest rates. For the quarter and six months ended
March 31, 2000, the savings bank showed unrealized losses, net of tax effect,
totaling $8,300 and $46,000, respectively due to increases in interest rates as
the National Money Market reacted to actions by the Federal Open Market
Committee. Management does not anticipate the realization of the above loss. The
unrealized loss does however negatively impact the Company's capital. The
unrealized losses, net of applicable taxes, combined with net operating income
of $116,745, a reduction in the receivable from the Bank's Employee Stock
Ownership Plan of $52,900 and the acquisition of 26,698 shares of treasury stock
at a cost of $280,000 yields a net decrease in the Company's capital of
$157,000. However, because of the treasury stock acquisition reducing the number
of shares of common stock outstanding the book value per share of common stock
increased from $14.37 on September 30, 1999 to $14.82 as of March 31, 2000. The
Bank's capital continues to exceed regulatory requirements and continues to be
adequate to support future asset growth.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Our annual meeting of the stockholders was held on January 18,
2000. At the meeting, two directors were elected for terms to
expire in 2003 and the selection of independent auditors was
approved. We have a total of six directors.
The results of voting are shown for each matter considered.
Director Election:
Nominee Votes For Votes Withheld Broker Non-Votes
2003 Term Expiration:
Claude R. Butler 405,088 550 0
Walter B. Holwell 405,778 300 0
Auditor Ratification:
Votes For 415,890
Votes Against 0
Abstentions 113
Broker Non-Votes 0
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) None.
(b) None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
QUITMAN BANCORP, INC.
Date: May , 2000 By: /s/Melvin E. Plair
--- -------------------------------------
Melvin E. Plair
President and Chief Executive Officer
(Principal Executive and Financial
Officer)
(Duly Authorized Officer)
Date: May , 2000 By: /s/Peggy L. Forgione
--- -------------------------------------
Peggy L. Forgione
Vice President and Controller
(Chief Accounting Officer)