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, 1998
--------------
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.
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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
-----------------------------------------------
(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 X NO
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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
--------
Page(s)
-------
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 March 31, 1998. The Conversion was completed on April 2, 1998.
Financial statements for the Bank for the three months ended March 31, 1998 and
1997, the six months ended March 31, 1998 and 1997 and at September 30, 1997 and
March 31, 1998 are included with this form.
This Form 10-QSB includes forward-looking statements that involve
inherent risks and uncertainties. Quitman Bancorp, Inc. cautions readers that a
number of important factors could cause actual results to differ materially from
those in the forward- looking statements. Those factors include fluctuations in
interest rates, inflation, government regulations, and economic conditions and
competition in the geographic and business areas in which Quitman Bancorp, Inc.,
through the Bank, conducts its operations.
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QUITMAN FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
ASSETS
------
MARCH 31, SEPTEMBER 30,
1998 1997
----------- -------------
(Unaudited) (Audited)
Cash and Cash Equivalents:
Cash and amounts due from depository
institutions $ 400,149 108,650
Interest-bearing deposits in other banks 5,625,675 548,158
----------- -----------
Total Cash and Cash Equivalents 6,025,824 656,808
Investment securities:
Available-for-sale 3,183,006 3,046,109
Held-to-maturity 700,411 804,706
Loans receivable - net of allowance for loan
losses and deferred origination fees 33,027,088 33,325,719
Office properties and equipment, at cost, net of
accumulated depreciation 464,394 322,527
Real estate and other property acquired
in settlement of loans 185,692 63,915
Accrued interest receivable 361,905 381,218
Investment required by law-stock in Federal
Home Loan Bank, at cost 239,800 227,700
Cash value of life insurance 297,788 218,106
Other assets 332,971 145,356
----------- -----------
Total Assets $44,818,879 39,192,164
=========== ===========
LIABILITIES AND RETAINED EARNINGS
---------------------------------
Liabilities:
Deposits $41,329,949 34,470,803
Advances from Federal Home Loan Bank -0- 1,300,000
Accrued interest payable 280,811 272,346
Income taxes payable 98,777 114,766
Other liabilities 36,284 75,696
----------- -----------
Total Liabilities 41,745,821 36,233,611
----------- -----------
Equity:
Retained Earnings 3,056,212 2,952,560
Unrealized gains (losses) on available-
for-sale securities, net of deferred
income taxes 16,846 5,993
----------- -----------
Total Equity 3,073,058 2,958,553
----------- -----------
Total Liabilities and Retained Earnings $44,818,879 39,192,164
=========== ===========
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QUITMAN FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
--------------------
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- -----------------------
1998 1997 1998 1997
----------- ----------- ----------- ---------
Interest Income:
Loans receivable:
First mortgage loans $ 741,700 712,620 1,499,330 1,398,929
Consumer and other loans 28,492 27,391 57,720 51,527
Interest on FHLMC Pool 68 92 142 92
Investment securities 62,830 58,134 125,558 114,508
Interest-bearing deposits 20,503 6,530 26,253 12,071
Federal funds sold -0- -0- 68 -0-
---------- ---------- ---------- ----------
Total Interest Income 853,593 804,767 1,709,071 1,577,127
---------- ---------- ---------- ----------
Interest Expense:
Deposits 529,440 470,429 1,041,331 932,166
Interest on Federal Home Loan
Bank advances 15,401 12,900 36,622 29,314
---------- ---------- ---------- ----------
Total Interest Expense 544,841 483,329 1,077,953 961,480
---------- ---------- ---------- ----------
Net Interest Income 308,752 321,438 631,118 615,647
Provision for loan losses 9,000 9,000 18,000 18,000
---------- ---------- ---------- ----------
Net Interest Income After Provision for Losses 299,752 312,438 613,118 597,647
---------- ---------- ---------- ----------
Non-Interest Income:
Gain (loss) on sale of securities -0- (2) 18 (2)
Other income 9,440 11,933 25,819 23,449
---------- ---------- ---------- ----------
Total Non-Interest Income 9,440 11,931 25,837 23,447
---------- ---------- ---------- ----------
Non-Interest Expense:
Compensation 77,901 64,221 150,646 123,653
Other personnel expenses 38,250 37,874 81,278 75,280
Occupancy expenses of premises 4,936 5,060 10,430 10,186
Furniture and equipment expenses 31,055 18,755 47,259 37,558
Federal deposit insurance 5,402 2,616 10,705 20,327
Other operating expenses 68,295 52,840 172,603 126,613
---------- ---------- ---------- ----------
Total Non-Interest Expense 225,839 181,366 472,921 393,617
---------- ---------- ---------- ----------
Income Before Income Taxes 83,353 143,003 166,034 227,477
Provision for Income Taxes 27,221 47,484 62,382 78,244
---------- ---------- ---------- ----------
Net Income $ 56,132 95,519 103,652 149,234
========== ========== ========== ==========
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QUITMAN FEDERAL SAVINGS BANK
STATEMENTS OF EQUITY
--------------------
UNREALIZED
GAINS
(LOSS) ON
AVAILABLE-
FOR-SALE
SECURITIES
NET OF
APPLICABLE
RETAINED DEFERRED
EARNINGS INCOME TAXES TOTAL
-------- ------------ -----
Balance, September 30, 1996 $2,689,761 (22,921) 2,666,840
Net Income 149,234 -0- 149,234
Change In Unrealized Gains
(Losses) On Available-For-
Sale Securities Net Of
Applicable Deferred
Income Taxes -0- (10,142) (10,142)
---------- ---------- ----------
Balance, March 31, 1997
(Unaudited) $2,838,995 (33,063) 2,805,932
========== ========== ==========
Balance, September 30, 1997 $2,952,560 5,993 2,958,553
Net Income 103,652 -0- 103,652
Change In Unrealized Gains
(Losses) On Available-For-
Sale Securities Net Of
Applicable Deferred
Income Taxes -0- 10,853 10,853
---------- ---------- ----------
Balances, March 31, 1998
(Unaudited) $3,056,212 16,846 3,073,058
========== ========== ==========
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QUITMAN FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
------------------------
SIX MONTHS ENDED MARCH 31,
--------------------------
1998 1997
---- ----
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
Net income $ 103,652 149,234
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 35,059 25,840
Provision for loan losses 18,000 18,000
Amortization (Accretion) of securities and loans 8,438 5,028
Gain on sale of foreclosed assets (3,012) -0-
Change in Assets and Liabilities:
(Increase) Decrease in accrued interest receivable 19,313 20,126
Increase (Decrease) in accrued interest payable 8,465 3,041
Increase (Decrease) in other liabilities (39,412) (229,721)
Increase (Decrease) in income taxes payable (24,667) 26,544
(Increase) Decrease in other assets (187,615) 55,574
----------- -----------
Net cash provided by operating activities (61,779) 73,666
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Cash Flows From Investing Activities:
Capital expenditures (176,926) -0-
Purchase of available-for-sale securities (230,102) (945,230)
Proceeds from sale of foreclosed property 66,927 -0-
Proceeds from maturity of held-to-maturity securities 100,000 300,000
Proceeds from maturity of available-for-sale securities 100,000 100,000
Proceeds from sale of available-for-sale securities -0- 399,844
Purchase of stock in Federal Home Loan Bank (12,100) (8,600)
Net (increase) decrease in loans 94,939 (1,353,747)
Principal collected on mortgage-backed securities 8,593 -0-
Increase in cash value of life insurance (79,682) (72,457)
----------- -----------
Net cash provided (used) by investing activities (128,351) (1,580,190)
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Cash Flows From Financing Activities:
Net increase (decrease) in deposits 6,859,146 1,422,383
Proceeds from Federal Home Loan Bank advances 300,000 -0-
Payments on Federal Home Loan advances (1,600,000) (300,000)
----------- -----------
Net cash provided (used) by financing activities 5,559,146 1,122,383
----------- -----------
Net Increase (Decrease) in cash and cash equivalents 5,369,016 (384,141)
Cash and Cash Equivalents at Beginning of Period 656,808 765,250
----------- -----------
Cash and Cash Equivalents at End of Period $ 6,025,824 381,109
=========== ===========
Supplemental Disclosures of Cash Flows Information:
Cash Paid During The Period:
Interest $ 1,069,488 958,439
Income taxes 90,109 1,000
Non-Cash Investing Activities:
Increase in unrealized gains on available-
for-sale securities 19,531 10,142
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QUITMAN FEDERAL SAVINGS BANK
Notes to Financial Statements
(Unaudited)
1. Basis of Preparation
--------------------
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 six month
period ended March 31, 1998 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
------------------
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
March 31, 1998. 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 March 31, 1998 and September 30, 1997
Total assets increased by $5.6 million or 14.36% due primarily to the increase
in cash and cash equivalents resulting from funds held in escrow for
subscriptions to the capital stock to be issued by Quitman Bancorp, Inc., the
Bank's newly formed holding company.
Deposits increased by $6.9 million due primarily to increases in certificates of
deposit and escrow accounts for subscriptions to the capital stock to be issued
by Quitman Bancorp, Inc., the Bank's newly formed holding company. Advances from
the Federal Home Loan Bank in the amount of $1.6 million were repaid.
Total equity increased by $114,505 as result of net income for the six months
ended March 31, 1998 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 $15,000 at March 31,
1998 from $124,000 at September 30, 1997. The decrease was the result of four
loans being reclassified to performing loans and one loan being added to
non-accrual. At March 31, 1998, the Bank had real estate owned in the amount of
$185,692. The allowance for loan losses was $364,000 at March 31, 1998.
Comparison of the Results of Operations for the Three Months Ended March 31,
1998 and 1997
Net Income. Net income decreased by $39,000 or 41% from net income of $95,000
for the three months ended March 31, 1997 to net income of $56,000 for the three
months ended March 31, 1998. This decrease is primarily the result of increased
interest expense and non-interest expense that more than offset increases in
interest income and non-interest income. The return on average assets decreased
from 1.03% to .53% for the three months ended March 31, 1997 and 1998,
respectively.
Net Interest Income. Net interest income decreased $13,000 or 4%, from $313,000
for the three months ended March 31, 1997 to $300,000 for the three months ended
March 31, 1998. The decrease was primarily due to an increase in savings
deposits.
Interest Income. Interest income increased $49,000 for the three months ended
March 31, 1998 compared to the same three months ended March 31, 1997. 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 5.1%. This increase in average interest-earning assets added
an additional $49,000 of interest income. The average yield on interest-earning
assets increased moderately to 9.1% from 8.7% for the three months ended March
31, 1998 and 1997, respectively.
Interest Expense. Interest expense increased $62,000 from $483,000 for the three
months ended March 31, 1997 to $545,000 for the three months ended March 31,
1998. The increase in interest expense was due to an increase in
interest-bearing liabilities of $7.3 million and a slight increase in the cost
of funds of 20 basis points (100 basis points equals 1%). The average balances
of deposits and advances from the Federal Home Loan Bank increased by $2.4
million and decreased by $.3 million, respectively, from the three months ended
March 31, 1997 to the three months ended March 31, 1998.
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Non-Interest Income. Non-interest income decreased by $2,500 primarily from an
decrease in late charges and service charges on deposit accounts of $1,800 and
$700, respectively.
Non-Interest Expense. Non-interest expense increased by $44,000 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 $14,000 between the periods as a result of
year-end pay raises and our hiring of additional part time employees. Our
furniture and equipment expense increased by $12,300 between the periods as a
result of acquisition of new equipment which increased our depreciation cost by
$11,000 and our repairs and maintenance cost increased by a $1,000. The
increases in other operating expenses were primarily attributable to other real
estate expenses in the amount of $8,000, increase in federal insurance premiums
of $1,500, increase in other taxes of $1,700, increase in accounting and
professional expense of $5,700, increase in communications expense of $1,000,
all of which were offset somewhat by a decrease in advertising of $3,900.
Income Taxes. Income tax expense amounted to $47,000 for the three months ended
March 31, 1997 compared to $27,000 for the three months ended March 31, 1998.
Comparison of the Results of Operations for the Six Months Ended March 31, 1998
and 1997
Net Income. Net income decreased by $45,000 or 30% from net income of $149,000
for the six months ended March 31, 1997 to net income of $103,000 for the same
six months of fiscal 1998. 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 .81% to .49%
for the six months ended March 31, 1997 and 1998, respectively.
Net Interest Income. Net interest income increased $15,000 or 2.5%, from
$598,000 for the six months ended March 31, 1997 to $613,000 for the six months
ended March 31, 1998. The increase was primarily due to an increase in
residential mortgages and consumer loans.
Interest Income. Interest income increased $132,000 for the six months ended
March 31, 1998 compared to the same six months ended March 31, 1997. 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 5.9%. This increase in average
interest-earning assets added an additional $132,000 of interest income. The
average yield on interest-earning assets increased moderately to 9.6% from 9.0%
for the six months ended March 31, 1998 and 1997, respectively.
Interest Expense. Interest expense increased $116,000 from $961,000 for the six
months ended March 31, 1997 to $1,078,000 for the six months ended March 31,
1998. The increase in interest expense was attributable to an increase in
interest-bearing liabilities of $8.1 million and a slight increase in the cost
of funds of 20 basis points (100 basis points equals 1%). The average balances
of deposits and advances from the Federal Home Loan Bank increased by $2.6
million and decreased by $.4 million, respectively, from the six months ended
March 31, 1997 to the six months ended March 31, 1998.
Non-Interest Income. Non-interest income increased by $2,400 primarily from an
increase in service charges on deposit accounts of $400 and gain on the sale of
other real estate of $3,000, and partially offset by a decrease in late charges.
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Non-Interest Expense. Non-interest expense increased by $79,000 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 $33,000 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 1997 period. During the 1997 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 1998 period and we do not expect in the future to
have as low an advertising expense as we did during the 1997 period. Our
contributions during the six months ended March 31, 1997 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 $78,000 for the six months ended
March 31, 1997 compared to $62,000 for the six months ended March 31, 1998.
Liquidity and Capital Resources
Management monitors our risk-based capital and leverage capital ratios in order
to assess compliance with regulatory guidelines. At March 31, 1998, the Bank had
tangible capital, leverage, and total risk-based capital of 6.59%, 6.59% and
12.94%, 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 second calendar quarter of 1998 with year 2000 testing to occur by
the end of the third 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
-----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
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.
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. Fees and expenses paid to Trident Securities, Inc.
totaled $150,054.
Total expenses are estimated at $368,249, resulting in net proceeds of
$6,244,251. These amounts and the following amounts are reasonable
estimates. One half of the net proceeds, $3,122,125, was paid directly
by the registrant to its subsidiary bank in return for 100,000 shares
(100% of the issued and outstanding securities of the subsidiary
bank). Of this amount, $10,000 constitutes capital stock of the bank
and $3,112,125 constitutes paid in capital of the bank. The remaining
one half of the net proceeds, $3,122,126, was retained by the
registrant. Of this amount, $529,000 was a direct payment in the form
of a loan by the registrant to its subsidiary bank to fund the
purchase by the employee stock ownership plan of the bank of 52,900
shares of common stock of the registrant. The remaining amount,
$2,593,126, was deposited by the registrant into an account at the
subsidiary bank.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
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
March 31, 1998.
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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 14, 1998 By: /s/Melvin E. Plair
--------------------------------------
Melvin E. Plair
President and Chief Executive Officer
(Principal Executive and Financial
Officer)
(Duly Authorized Officer)
Date: May 14, 1998 By: /s/Peggy L. Forgione
--------------------------------------
Peggy L. Forgione
Vice President and Controller
(Chief Accounting Officer)
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