SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 December 31, 1997
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OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 0-23763
Quitman Bancorp, Inc.
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(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.)
100 West Screven Street, Quitman, Georgia 31643
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(Address of Principal Executive Offices)
(912) 263-7538
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Issuer's Telephone Number, Including Area Code
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 NO X
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Number of shares of Common Stock outstanding as of April 10, 1998: 661,250
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...............................................12
Item 2. Changes in Securities and Use of Proceeds.......................12
Item 3. Defaults upon Senior Securities.................................12
Item 4. Submission of Matters to a Vote of Security Holders.............12
Item 5. Other Information...............................................12
Item 6. Exhibits and Reports on Form 8-K................................12
Signatures...............................................................13
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PART I. FINANCIAL INFORMATION
Quitman Bancorp, Inc. is a savings and loan holding company for Quitman
Federal Savings Bank (the "Bank"), the wholly owned subsidiary of the
registrant. The information required by Items 1 and 2 of Part I of Form 10-QSB
has been omitted because the conversion of the Bank from the mutual to stock
form of ownership and simultaneous issuance of shares of common stock of the
registrant (the "Conversion"), as described in the registration statement filed
on Form SB-2 (File No. 333-43063) with the Securities and Exchange Commission
occurred after December 31, 1997. The Conversion was completed on April 2, 1998.
Financial statements for the Bank for the three months ended December 31, 1997
and 1996 and at September 30 and December 31, 1997 are included with this form.
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QUITMAN FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
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ASSETS
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DECEMBER 31, SEPTEMBER 30,
1997 1997
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(Unaudited) (Audited)
Cash and Cash Equivalents:
Cash and amounts due from depository
institutions $ 187,066 108,650
Interest-bearing deposits in other banks 464,465 548,158
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Total Cash and Cash Equivalents 651,531 656,808
Investment securities:
Available-for-sale 3,279,380 3,046,109
Held-to-maturity 702,463 804,706
Loans receivable - net of allowance for loan
losses and deferred origination fees 33,794,751 33,325,719
Office properties and equipment, at cost, net of
accumulated depreciation 457,776 322,527
Real estate and other property acquired
in settlement of loans -0- 63,915
Accrued interest receivable 425,355 381,218
Investment required by law-stock in Federal
Home Loan Bank, at cost 227,700 227,700
Cash value of life insurance 276,188 218,106
Other assets 219,000 145,356
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Total Assets $40,034,144 39,192,164
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LIABILITIES AND RETAINED EARNINGS
---------------------------------
Liabilities:
Deposits $34,992,108 34,470,803
Advances from Federal Home Loan Bank 1,600,000 1,300,000
Accrued interest payable 296,353 272,346
Income taxes payable 103,266 114,766
Other liabilities 32,091 75,696
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Total Liabilities 37,023,818 36,233,611
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Equity:
Retained Earnings 3,000,080 2,952,560
Unrealized gains (losses) on available-
for-sale securities, net of deferred
income taxes 10,246 5,993
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Total Equity 3,010,326 2,958,553
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Total Liabilities and Retained Earnings $40,034,144 39,192,164
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QUITMAN FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
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QUARTER ENDED DECEMBER 31,
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1997 1996
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(Unaudited) (Unaudited)
Interest Income:
Loans receivable:
First mortgage loans $757,630 686,309
Consumer and other loans 29,228 24,136
Interest on FHLMC Pool 74 -0-
Investment securities 62,728 56,374
Interest-bearing deposits 5,750 5,541
Federal funds sold 68 -0-
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Total Interest Income 855,478 772,360
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Interest Expense:
Deposits 511,891 461,737
Interest on Federal Home Loan
Bank advances 21,221 16,414
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Total Interest Expense 533,112 478,151
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Net Interest Income 322,366 294,209
Provision for loan losses 9,000 9,000
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Net Interest Income After Provision for Losses 313,366 285,209
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Non-Interest Income:
Gain (loss) on sale of securities 18 -0-
Other income 16,379 11,516
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Total Non-Interest Income 16,397 11,516
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Non-Interest Expense:
Compensation 72,745 59,432
Other personnel expenses 43,028 37,406
Occupancy expenses of premises 5,494 5,126
Furniture and equipment expenses 16,204 18,803
Federal deposit insurance 5,303 17,711
Other operating expenses 104,308 73,773
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Total Non-Interest Expense 247,082 212,251
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Income Before Income Taxes 82,681 84,474
Provision for Income Taxes 35,161 30,760
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Net Income $ 47,520 53,714
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QUITMAN FEDERAL SAVINGS BANK
STATEMENTS OF EQUITY
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UNREALIZED
GAINS
(LOSS) ON
AVAILABLE-
FOR-SALE
SECURITIES
NET OF
APPLICABLE
RETAINED DEFERRED
EARNINGS INCOME TAXES TOTAL
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Balance, September 30, 1996 $2,689,761 (22,921) 2,666,840
Net Income 53,714 -0- 53,714
Change In Unrealized Gains
Losses) On Available-For-
Sale Securities Net Of
Applicable Deferred
Income Taxes -0- 18,335 18,335
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Balance, December 31, 1996
(Unaudited) $2,743,475 (4,586) 2,738,889
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Balance, September 30, 1997 $2,952,560 5,993 2,958,553
Net Income 47,520 -0- 47,520
Change In Unrealized Gains
Losses) On Available-For-
Sale Securities Net Of
Applicable Deferred
Income Taxes -0- 4,253 4,253
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Balances, December 31, 1997
(Unaudited) $3,000,080 10,246 3,010,326
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QUITMAN FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
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QUARTER ENDED DECEMBER 31,
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1997 1996
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(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
Net income $ 47,520 53,714
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 14,185 16,071
Provision for loan losses 9,000 9,000
Amortization (Accretion) of securities and loans 2,755 2,464
Gain on sale of foreclosed assets (3,012) -0-
Change in Assets and Liabilities:
(Increase) Decrease in accrued interest receivable (44,137) 7,413
Increase (Decrease) in accrued interest payable 24,007 33,034
Increase (Decrease) in other liabilities (43,605) (177,135)
Increase (Decrease) in income taxes payable (11,500) (57,573)
(Increase) Decrease in other assets (73,644) 96,819
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Net cash provided by operating activities (78,431) (16,193)
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Cash Flows From Investing Activities:
Capital expenditures (149,434) -0-
Purchase of available-for-sale securities (230,102) (346,175)
Proceeds from sale of foreclosed property 66,927 -0-
Proceeds from maturity of held-to-maturity securities 100,000 300,000
Net (increase) decrease in loans (478,032) (487,699)
Principal collected on mortgage-backed securities 572 -0-
Increase in cash value of life insurance (58,082) (51,937)
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Net cash provided (used) by investing activities (748,151) (585,811)
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Cash Flows From Financing Activities:
Net increase (decrease) in deposits 521,305 1,092,944
Proceeds from Federal Home Loan Bank advances 300,000 -0-
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Net cash provided (used) by financing activities 821,305 1,092,944
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Net Increase (Decrease) in cash and cash equivalents (5,277) 490,940
Cash and Cash Equivalents at Beginning of Period 656,808 765,250
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Cash and Cash Equivalents at End of Period $ 651,531 1,256,190
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QUITMAN FEDERAL SAVINGS BANK
Notes to Financial Statements
(Unaudited)
1. Basis of Preparation
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The financial statements included herein are for Quitman Federal
Savings Bank (the "Bank").
The accompanying unaudited financial statements were prepared in
accordance with instructions for Form 10-QSB and therefore do not
include all disclosure necessary for a complete presentation of the
statements of financial condition, statements of 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 three month
period ended December 31, 1997 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 financial statements and notes thereto for
the Bank for the year ended September 30, 1997.
2. Plan of Conversion
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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 not completed until after
December 31, 1997. Actual conversion costs will be 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 will be asked to approve a
proposed stock option plan and a proposed restricted stock plan at a
meeting of the stockholders after the conversion. 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
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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.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Comparison of Financial Condition at December 31, 1997 and September 30, 1997
Total assets increased by $.8 million or 2.2% due primarily to loan growth of
$.5 million or 1.4% in residential mortgages and consumer loans.
Deposits increased by $.5 million due primarily to increases in certificates of
deposit. Advances from the Federal Home Loan Bank increased by $.3 million or
25.0% as a result of an increase in loan demand.
Total equity increased $51,000 as a result of net income for the three months
ended December 31, 1997 and changes in the unrealized gain or loss on
available-for-sale securities.
Non-Performing Assets and Delinquencies
Loans accounted for on a non-accrual basis decreased to $27,000 at December 31,
1997 from $124,000 at September 30, 1997. The decrease was the result of three
loans being reclassified to performing loans. At December 31, 1997, the Bank had
no repossessed assets or real estate owned. The allowance for loan losses was
$355,000 at December 31, 1997.
Comparison of the Results of Operations for the Three Months Ended December 31,
1997 and 1996
Net Income. Net income decreased by $7,000 or 13% from net income of $54,000 for
the three months ended December 31, 1996 to net income of $47,000 for the same
three months of fiscal 1997. This decrease is primarily the result of increased
non-interest expense that more than offset increases in net interest income and
non-interest income. The return on average assets decreased from .15% to .12%
for the three months ended December 31, 1997 and 1996, respectively.
Net Interest Income. Net interest income increased $28,000 or 9.5%, from
$294,000 for the three months ended December 31, 1996 to $322,000 for the three
months ended December 31, 1997. The increase was primarily due to an increase in
residential mortgages and consumer loans.
Interest Income. Interest income increased $83,000 for the three months ended
December 31, 1997 compared to the same three months ended December 31, 1996. 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 7.5%. This increase in average
interest-earning assets added an additional $83,000 of interest income. The
average yield on interest-earning assets increased moderately to 8.9% from 8.7%
for the quarters ended December 31, 1997 and 1996, respectively.
Interest Expense. Interest expense increased $55,000 from $478,000 for the three
months ended December 31, 1996 to $533,000 for the three months ended December
31, 1997. The increase in interest expense was attributable to an increase in
interest-bearing liabilities of $2.7 million and a slight increase in the cost
of funds of 18 basis points (100 basis points equals 1%). The average balances
of deposits and advances from the Federal Home Loan Bank increased by $2.5
million and $.3 million, respectively, from the three months ended December 31,
1996 to the three months ended December 31, 1997.
Non-Interest Income. Non-interest income increased by $5,000 primarily from an
increase in service charges on deposit accounts of $1,000 and gain on the sale
of other real estate of $3,000.
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Non-Interest Expense. Non-interest expense increased by $35,000 primarily due to
increased compensation and other personnel expense, advertising and
contributions to local charitable and volunteer organizations. Our compensation
and other personnel expense increased an aggregate of $19,000 between the
periods as a result of year-end pay raises and our hiring of additional part
time employees. Our advertising increased between the two periods primarily
because the cost for our annual gift to customers (a form of advertising) was
unusually low during the 1996 period. During the 1996 period, we were able to
secure a bulk quantity of gifts at a large discount. We did not obtain such a
favorable price during the 1997 period and we do not expect in the future to
have as low an advertising expense as we did during the 1996 period. Our
contributions during the three months ended December 31, 1996 were smaller by
comparison due to the one-time deposit premium to recapitalize the SAIF that we
expensed during the 1996 fiscal year and paid during November 1997.
Income Taxes. Income tax expense amounted to $30,000 for the three months ended
December 31, 1996 compared to $35,000 for the three months ended December 31,
1997.
Liquidity and Capital Resources
Management monitors our risk-based capital and leverage capital ratios in order
to assess compliance with regulatory guidelines. At December 31, 1997, the Bank
had tangible capital, leverage, and total risk-based capital of 7.50%, 7.50% and
14.73%, respectively, which exceeded the OTS's minimum requirements of 1.50%,
3.00% and 8.00%, respectively.
We have received a letter from our computer service vendor assuring us that the
computer services of our vendor will properly function on January 1, 2000, the
date that computer problems are expected to develop worldwide on computer
systems that incorrectly identify the year 2000 as the year 1900 and incorrectly
compute interest, payment or delinquency. However, our vendor, and other
vendors, have not yet eliminated the year 2000 computer problem. Accurate data
processing is essential to our operations and a lack of accurate processing by
our vendor or by us could have a significant adverse impact on our financial
condition and results of operation. We have also examined our computers to
determine whether they will properly function on January 1, 2000 and do not
believe that we will experience material costs to upgrade our computers to meet
our requirements.
We have ordered an upgrade to our computer system that is intended to solve our
internal year 2000 computer problem. We expect installation of this upgrade
during the first calendar quarter of 1998 with year 2000 testing to occur by the
end of the second calendar quarter of 1998. We are also awaiting updates from
our computer service vendor concerning their progress with the year 2000
computer program. In the event our computer service vendor indicates that the
year 2000 computer problem cannot be solved in time, we will try to locate a
computer service vendor who has solved the year 2000 computer problem, or if
that is not possible, to identify what steps we can take to minimize the
negative impact the year 2000 computer problem could have on us.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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Not applicable.
Item 2. Changes in Securities and Use of Proceeds
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As described in the beginning of Part I of this report, the
Conversion, including the initial public offering of the shares of the
registrant, was not completed until April 2, 1998. At December 31,
1997, the offering had not commenced. Subsequent reports filed
pursuant to Section 13(a) of the Securities Exchange Act of 1934 (such
reports as Form 10-QSB will include a more complete report about the
use of proceeds.
The Conversion resulted in the issuance of 661,250 shares of common
stock, $0.10 par value per share, at $10.00 per share for gross
proceeds of $6,612,500. The referenced shares constitute all of the
shares registered by means of a Form SB-2 (file no. 333-43063) that
was declared effective on February 11, 1998. The offering of
securities commenced on February 20, 1998 and ended on March 17, 1998.
The registrant was assisted by Trident Securities, Inc. on a best
efforts basis. Total expenses are estimated at $378,000. Of the net
proceeds, one half was used by the registrant to purchase 100,000
shares of the common stock of its subsidiary bank with the proceeds
going to the bank. In addition, $529,000 of the proceeds retained by
the registrant was loaned by the registrant to the bank to enable the
employee stock ownership plan of the bank to purchase 52,900 shares.
Item 3. Defaults Upon Senior Securities
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
Item 5. Other Information
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Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) None.
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
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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: April 16, 1998 By: /s/Melvin E. Plair
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Melvin E. Plair
President and Chief Executive Officer
(Principal Executive and Financial
Officer)
(Duly Authorized Officer)
Date: April 16, 1998 By: /s/Peggy L. Forgione
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Peggy L. Forgione
Vice President and Controller
(Chief Accounting Officer)
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