U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] 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 0-28446
MITCHELL BANCORP, INC.
(Exact name of Registrant as specified in its Charter)
North Carolina 56-1966011
-------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
210 Oak Avenue, Spruce Pine, North Carolina 28777
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 765-7324
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.
[ X ] Yes [ ] No
As of March 31, 1997, there were 967,897 shares of the Registrant's
common stock, par value $0.01 per share, outstanding. The Registrant has no
other classes of common equity outstanding.
Transitional small business disclosure format:
[ ] Yes [ X ] No
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MITCHELL BANCORP, INC.
AND SUBSIDIARY
SPRUCE PINE, NORTH CAROLINA
Index
PART I. PAGE(S)
- ------- --------
FINANCIAL INFORMATION
ITEM 1.
Financial Statements
Consolidated Balance Sheets-(Unaudited) as of June 30, 1996 and
March 31, 1997 ...................................................... 3
Consolidated Statements of Income - (Unaudited) for the three and
nine month periods ended March 31, 1996 and 1997..................... 4
Consolidated Statements of Stockholders' Equity (unaudited)........... 5
Consolidated Statements of Cash Flows - (Unaudited) for the nine months
ended March 31, 1996 and 1997........................................ 6
Notes to (Unaudited) Consolidated Financial Statements ............... 7-10
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 11-15
PART II.
- --------
OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 16
Item 2. Changes in Securities........................................ 16
Item 3. Defaults Upon Senior Securities.............................. 16
Item 4. Submission of Matters to a Vote of Security Holders.......... 16
Item 5. Other Information............................................ 17
Item 6. Exhibits and Reports on Form 8-K............................. 17
Signatures............................................................ 18
2
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MITCHELL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands except share information)
JUNE 30, MARCH 31,
ASSETS 1996 1997
-------- --------
Cash on hand $ 133 $ 91
Interest earning deposits in other banks 11,996 5,198
Investment securities:
Available for sale (amortized cost of $13,000) 285 364
Loans receivable, net 23,568 27,395
Real estate owned 84 64
Premises and equipment, net 70 68
Federal Home Loan Bank stock 291 291
Accrued interest receivable 5 5
Deferred income taxes 230 199
Prepaid expenses and other assets 114 219
-------- --------
Total assets $ 36,776 $ 33,894
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 20,346 $ 18,176
Accounts payable--conversion cost 347 -
Stock oversubscriptions 523 -
Accrued interest payable 60 60
Accrued expenses and other liabilities 818 825
Current income taxes payable 48 149
-------- --------
Total liabilities 22,142 19,210
-------- --------
Stockholders' equity:
Preferred stock ($.01 par value, 500,000 shares
authorized; none outstanding) - -
Common stock ($.01 par value, 3,000,000 shares
authorized; 979,897 and 967,897 shares issued
and outstanding, respectively) 10 10
Paid-in capital 9,204 9,217
Retained earnings, substantially restricted 6,038 6,180
Treasury stock, at cost - (192)
Unrealized gain on securities available for sale,
net of income taxes 166 214
Unearned compensation:
Employee stock ownership plan (784) (745)
-------- --------
Total stockholders' equity 14,634 14,684
-------- --------
Total liabilities and stockholders' equity $ 36,776 $ 33,894
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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MITCHELL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share)
FOR THREE MONTHS FOR NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1996 1997 1996 1997
------ ------ ------ ------
Interest income:
Loans $ 497 $ 579 $ 1,495 $ 1,665
Investments 5 5 19 19
Interest earning deposits 52 73 176 319
------ ------ ------ ------
Total interest income 554 657 1,690 2,003
Interest expense:
Deposits 286 228 871 750
------ ------ ------ ------
Net interest income 268 429 819 1,253
Provision for loan losses 6 6 54 18
------ ------ ------ ------
Net interest income after
provision for loan losses 262 423 765 1,235
Non-interest income:
Other - 6 4 8
------ ------ ------ ------
Total non-interest income - 6 4 8
Non-interest expenses:
Compensation 67 85 201 233
Other employee benefits 47 27 393 116
Net occupancy expense 7 7 21 21
Deposit insurance premiums 12 2 36 152
Data processing 6 7 20 20
Provision for real estate losses - - 5 -
Other 23 57 79 165
------ ------ ------ ------
Total non-interest expenses 162 185 755 707
------ ------ ------ ------
Income before income taxes 100 244 14 536
Income tax expense (benefit) 27 88 (4) 198
------ ------ ------ ------
Net income $ 73 $ 156 $ 18 $ 338
====== ====== ====== ======
Weighted average common equivalent
share outstanding: N/A 904 N/A 903
Net income per share N/A $ .17 N/A $ .37
The accompanying notes are an integral part of these consolidated financial
statements.
4
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MITCHELL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(Unaudited)
(in thousands except share information)
UNREALIZED UNEARNED
COMMON PAID-IN RETAINED TREASURY GAIN ON COMPENSATION
STOCK CAPITAL EARNINGS STOCK SECURITIES FOR ESOP TOTAL
----- ------- -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 $ - $ - $ 5,947 $ - $ 131 $ - $ 6,078
Net income - - 91 - - - 91
Unrealized gain on securities
available for sale, net of
income taxes - - - - 35 - 35
Sale of common stock
(979,897 shares) 10 9,204 - - - (784) 8,430
----- ------- -------- -------- ---------- -------- -------
Balance at June 30, 1996 10 9,204 6,038 - 166 (784) 14,634
Net income - - 338 - - - 338
Dividends paid ($.20 per share) - - (196) - - - (196)
Unrealized gain on securities
available for sale, net of
income taxes - - - - 48 - 48
Repurchase of common stock
(12,000 shares held in treasury) - - - (192) - - (192)
Compensation Earned - 13 - - - 39 52
----- ------- -------- -------- ---------- -------- -------
Balance at March 31, 1997 $ 10 $ 9,217 $ 6,180 $ (192) $ 214 $ (745) $14,684
===== ======= ======== ======== ========== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
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MITCHELL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
NINE MONTHS ENDED
MARCH 31,
1996 1997
------ ------
Operating activities:
Net income $ 18 $ 338
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 8 8
Provision for loan losses 54 18
Provisions for losses on real estate 5 -
Increase (decrease) in reserve for uncollected interest 30 17
Deferred income taxes (benefit) (142) -
Net increase in deferred loan fees 4 30
Amortization of unearned compensation - 52
Gain on real estate owned (2) (5)
(Increase) decrease in prepaid expenses and other assets (106) (80)
Increase (decrease) in accrued interest payable (17) -
Increase in accrued expenses and other liabilities 367 108
------ ------
Net cash provided by operating activities 219 486
------ ------
Investing activities:
Net increase in loans (769) (3,867)
Purchase of premises and equipment (3) (6)
Investment in life insurance cash surrender value (25) (25)
------ ------
Net cash used by investing activities (797) (3,898)
------ ------
Financing activities:
Net increase (decrease) in deposits 360 (2,170)
Repayment of stock oversubscriptions - (523)
Payment of accrued conversion cost (142) (347)
Repurchase of common stock - (192)
Dividends paid - (196)
------ ------
Net cash provided (used) by financing activities 218 (3,428)
------ ------
Increase (decrease) in cash and cash equivalents (360) (6,840)
Cash and cash equivalents at beginning of period 4,241 12,129
------ ------
Cash and cash equivalents at end of period $ 3,881 $ 5,289
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 888 $ 750
Income taxes 157 54
Noncash transactions:
Loan to facilitate sale of real estate owned 36 25
Unrealized gain on securities available for sale,
net of deferred tax liability $ 34 $ 48
The accompanying notes are an integral part of these consolidated financial
statements.
6
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MITCHELL BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. Mitchell Bancorp, Inc.
----------------------
Mitchell Bancorp, Inc. (the "Company") was incorporated under the laws of
the State of North Carolina for the purpose of becoming the savings and
loan holding company of Mitchell Savings Bank, Inc. SSB (the "Savings
Bank") in connection with the Savings Bank's conversion from a state
chartered mutual savings bank to a state chartered stock savings bank (the
"Conversion"), pursuant to its Plan of Conversion. The Company commenced on
May 8, 1996, a Subscription Offering of its shares in connection with the
Conversion. On July 12, 1996, the Conversion was completed (see Note 4).
The financial statements of the Savings Bank are presented on a
consolidated basis with those of the Company.
The consolidated financial statements included herein are for the Company,
the Savings Bank and the Savings Bank's wholly owned subsidiary, Mitchell
Mortgage and Investment Co. (MMI). The impact of MMI on the consolidated
financial statements is insignificant. MMI has no operating activity other
than to own stock in the third-party service bureau.
2. Basis of Preparation
--------------------
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and, therefore, do not
include all disclosures necessary for a complete presentation of the
consolidated balance sheets, consolidated statements of income,
consolidated statements of stockholders' equity, and consolidated
statements of cash flows 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 statements of income for the three and nine month
period ended March 31, 1997 are not necessarily indicative of the results
which may be expected for the entire year.
It is suggested that these unaudited consolidated financial statements be
read in conjunction with the audited consolidated financial statements and
notes thereto for the Company for the year ended June 30, 1996.
3. Earnings Per Share
------------------
Earnings per share amounts for the three and nine month periods ended March
31, 1997, are based on the average number of shares outstanding throughout
the periods, except that the initial issuance of shares in the Conversion
has been given an effective date of June 30, 1996.
7
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No comparative amounts have been presented for the three and nine month
periods ended March 31,1996, because no shares were outstanding during that
period. Unallocated ESOP shares are not considered as outstanding for
purposes of this calculation.
4. Stockholders' Equity
--------------------
In connection with the Conversion, which was consummated on July 12, 1996,
the Company issued and sold 979,897 shares of common stock at a price of
$10.00 per share for total net proceeds of approximately $9.2 million
after conversion expenses of approximately $585,000. The Company retained
one-half of the net proceeds and used the remaining net proceeds to
purchase the newly issued capital stock of the Savings Bank. The net
conversion proceeds of approximately $9.2 million and over-subscription
proceeds of approximately $523,000 were held in withdrawable accounts at
the Savings Bank at June 30, 1996. Since the Conversion was essentially
consummated prior July 12, 1996, the Conversion has been accounted for as
being effective as of June 30, 1996, with the net conversion offering
proceeds of approximately $9.2 million shown on the statements of
stockholders' equity as proceeds from the sale of common stock and stock
oversubscription proceeds of approximately $523,000 recorded as a
liability. The oversubscription proceeds were refunded, with accrued
interest, by July 12, 1996.
On January 29, 1997, the stockholders of the Company approved the Company's
Stock Option Plan and Management Recognition Plan at the Company's annual
meeting. 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 Company had previously announced that it would repurchase
5% of its outstanding common stock to fund its approved Stock Option Plan
and Management Recognition Plan. As of March 31, 1997, 12,000 shares of
common stock had been repurchased. The remaining portion of the 5%
repurchase has been acquired as of May 13, 1997.
The Savings 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 and state regulations.
At the time of Conversion, the Savings Bank established a liquidation
account in an amount equal to its retained income as reflected in the
latest consolidated balance sheet used in the final conversion prospectus.
The liquidation account is maintained for the benefit of eligible account
holders who continue to maintain their deposit accounts in the Savings Bank
after conversion. In the event of a complete liquidation of the Savings
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 the
Company's common stock.
8
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5. Employee Stock Ownership Plan (ESOP)
------------------------------------
As part of the Conversion discussed in Note 4, an Employee Stock Ownership
Plan (ESOP) was established for all employees who have attained the age of
21 and have been credited with at least 500 hours of service during a
12-month period. The ESOP borrowed approximately $784,000 from the Company
and used the funds to purchase 78,391 shares of common stock of the Company
issued in the Conversion. The loan will be repaid principally from the
Company's discretionary contributions to the ESOP over a period of 15
years. On March 31, 1997, the loan had an outstanding balance of
approximately $763,000 and an interest rate of 8.25%. The loan obligation
of the ESOP is considered unearned compensation and, as such, recorded as a
reduction of the Company's stockholders' equity. Both the loan obligation
and the unearned compensation are reduced by an amount of the loan
repayments made by the ESOP. Shares purchased with the loan proceeds are
held in a suspense account for allocation among participants as the loan is
repaid. Contributions to the ESOP and shares released from the suspense
account are allocated among participants on the basis of compensation in
the year of allocation. Benefits become fully vested at the end of seven
years of service under the terms of the ESOP Plan. Benefits may be payable
upon retirement, death, disability, or separation from service. Since the
Company's annual contributions are discretionary, benefits payable under
the ESOP cannot be estimated. Compensation expenses are recognized to the
extent of the fair value of shares committed to be released.
For the three and nine months ending March 31, 1997, compensation from the
ESOP of approximately $20,000 and $52,000, respectively, was expensed.
Compensation is recognized at the average fair value of the ratably
released shares during the accounting period as the employees performed
services. At March 31, 1997, the ESOP had approximately 3,900 allocated
shares and 74,491 unallocated shares.
The ESOP administrators will determine whether dividends on allocated and
unallocated shares will be used for debt service. Any allocated dividends
used will be replaced with common stock of equal value. For the purpose of
computing earnings per share, all ESOP shares committed to be released have
been considered outstanding.
6. Deposit Insurance Assessment
----------------------------
The Company was required to pay a special assessment to recapitalize the
Savings Association Insurance Fund (SAIF). The special SAIF assessment for
deposit insurance premiums of approximately $137,000 has been reflected in
operations for the nine months ending March 31, 1997 with an after tax
impact on net income of approximately $85,000. The FDIC collected the
assessment in late November and effective January 1, 1997, the Company
began paying reduced premium assessments of .067% of assessable deposits
which was down from .23% of assessable deposits, previously.
9
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7. Tax Bad Debt Reserves
---------------------
With the repeal of the reserve method of accounting for thrift bad debt
reserves for tax years beginning after December 31, 1995, the Company will
have to recapture its post-1987 excess reserves over a six-year period. The
amount of the post-1987 excess is approximately $55,000. The tax effect of
this excess had been previously recorded as deferred income taxes and,
therefore, will not have a material impact on income when recaptured.
8. Asset Quality
-------------
At March 31, 1997, the Company had total nonperforming loans (i.e., loans
which are contractually past due 90 days or more) and real estate owned of
approximately $699,000. Of the $635,000 of nonperforming loans, 76%, or
$485,000, were the result of loan customers in Chapter 13 bankruptcy. As a
percentage of net loans at March 31, 1997, nonperforming loans was 2.32%.
Total nonperforming assets as a percent of total assets at March 31, 1997
was 2.06%.
10
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis is intended to assist in understanding
the financial condition and the results of operations of the Company.
References to the "Company" include Mitchell Bancorp, Inc. and/or Mitchell
Savings Bank, Inc. SSB, as appropriate.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1996 AND MARCH 31, 1997
The Company's total consolidated assets decreased by approximately $2.9
million or 7.8% from $36.8 million at June 30, 1996 to $33.9 million at March
31, 1997. The decrease in assets for the period was primarily attributable to
the decrease in deposits and the repayment of stock oversubscriptions.
The composition of the Company's balance sheet has not been materially
affected by market conditions between June 30, 1996 and March 31, 1997. Net
loans increased $3.8 million, or 16.2%. This increase resulted from the
Company's origination of loans to satisfy increased demand for fixed rate
mortgage loans, as well as funding a $1.2 million commercial loan, and was
funded with cash provided from the stock conversion. The commercial loan which
is secured by a retail strip mall located in Marion, North Carolina, which
bears interest at 8% and has a 15 year maturity.
Consistent with its historical lending practices, virtually all of the
Company's loan portfolio at March 31, 1997 consisted of fixed rate loans with
maturities up to sixteen (16) years. Consequently, the Company is exposed to a
high degree of interest rate risk in a rising interest rate environment. The
Company has historically accepted this risk in light of its relatively high
capital levels. See Liquidity and Capital Resources" discussion below.
Deposits decreased $2.2 million or 10.7%, from $20.3 million at June 30, 1996
to $18.2 million at March 31, 1997. The decrease in deposits was primarily
attributable to the withdrawal of deposits in certificate accounts, which the
Company attributes to other competing investment alternatives available to its
customers. The Company also repaid approximately $500,000 in stock
oversubscription and $350,000 in accounts payable for stock conversion cost.
11
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COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND 1997
NET INCOME. Net income increased $83,000 or 114% from net income of $73,000
for the three months ended March 31, 1996 to net income of $156,000 for the
three months ended March 31, 1997. The increase was primarily the result of
the combined increase in net interest income offset by a decrease in
non-interest expense. The return on average assets was 1.83% for the three
months ended March 31, 1997.
NET INTEREST INCOME. Net interest income increased $161,000 or 60.1% from
$268,000 for the three months ended March 31, 1996 to $429,000 for the three
months ended March 31, 1997. The improvement in net interest income primarily
reflects an increase in average interest-earning assets over average
interest-bearing liabilities for the Company of $9.0 million or 142% for the
three months ended March 31, 1997 as compared to 1996 as a result of the
investment of the proceeds from the stock offering. The interest rate spread
increased from 2.65% for three months ending March 31, 1996 to 2.83% for the
three months ending March 31, 1997. In addition, interest earned on
investments in overnight funds held by the Company increased by $21,000 for
the three months ending March 31, 1997 over 1996.
INTEREST INCOME. Total interest income increased $103,000 from $554,000 for
the three months ended March 31, 1996 to $657,000 for the three months ended
March 31, 1997. Interest on loans increased $82,000 as a result of a $4.3
million increase in average loans outstanding, or 16.5% and interest on
overnight funds increased by $21,000. Interest on investments remained
constant.
INTEREST EXPENSE. Interest expense decreased $58,000 from $286,000 for the
three months ended March 31, 1996 to $228,000 for the three months ended March
31, 1997. The decrease for the three months ending March 31, 1997 was the
result of a $3.1 million decrease in the average deposit outstanding combined
with a 37 basis point decrease in the average cost of funds.
PROVISION FOR LOAN LOSSES. The provision for loan losses for three month
periods ended March 31, 1996 and 1997 was $6,000. Historically, management has
emphasized the Company's loss experience over other factors in establishing
provisions for loan losses. However, management has reviewed the allowance for
loan losses in relation to the Company's composition of its loan portfolio and
observations of the general economic climate and loan loss expectations. The
ratio of allowance to non-performing loans at March 31, 1997 was 26.8 %.
NON-INTEREST INCOME. Non-interest income continues to be an insignificant
source of income for the Company. This income remained at consistently the
same level during both periods.
NON-INTEREST EXPENSE. Non-interest expense increased by $23,000 from $162,000
for the three months ending March 31, 1996 to $185,000 for 1997. This increase
was the result additional operating expense as a public company and the effect
of increased compensation from the recognition of allocated ESOP shares at
fair market value. During the three month period ending March 31, 1997, the
Company recognized $20,000 of compensation expense related to the ESOP. Other
non-interest expense items remained relatively stable with anticipated
inflationary increases
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and expected decreases for employee benefits and deposit insurance.
Non-interest expense is expected to increase in future periods as a result of
the implementation of the Company's Management Recognition Plan is expected to
increase.
INCOME TAXES. Income tax expense for the three months ending March 31,
1997 was $88,000 compared to income tax expense $27,000 for the same period
in 1996. The increase was the result of pre-tax income increasing by
$144,000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1996
AND 1997
NET INCOME. Net income increased $320,000 from $18,000 for the nine months
ended March 31, 1996 to $338,000 for the nine months ended March 31, 1997.
Included in operations for the nine months ending March 31, 1997 was $137,000
for the SAIF premium assessment signed into law on September 30, 1996. The
after tax effect of the one-time assessment was approximately $85,000. The
return on average assets was 1.94% for the nine months ended March 31, 1997.
NET INTEREST INCOME. Net interest income increased $434,000 or 53.0% from
$819,000 for the nine months ended March 31, 1996 to $1,253,000 for the nine
months ended March 31, 1997. The improvement in net interest income primarily
reflects an increase in average interest-earning assets over average
interest-bearing liabilities for the Company of $8.9 million or 140% for the
nine months ended March 31, 1997 as compared to 1996 as a result of the
investment of the proceeds from the stock offering. The interest rate spread
decreased from 2.70% for nine months ending March 31, 1996 to 2.53% for the
nine months ending March 31, 1997. In addition, interest earned on investments
in overnight funds held by the Company increased by $143,000 for the nine
months ending March 31, 1997 over 1996.
INTEREST INCOME. Total interest income increased $313,000 from $1,690,000 for
the nine months ended March 31, 1996 to $2,003,000 for the nine months ended
March 31, 1997. Interest on loans increased $170,000, or 11.4%. Interest on
overnight funds invested by the Company also increased. Interest on
investments remained constant.
INTEREST EXPENSE. Interest expense decreased $121,000 from $871,000 for the
nine months ended March 31, 1996 to $750,000 for the nine months ended March
31, 1997. The decrease for the nine months ending March 31, 1997 was the
result of a $2.3 million decrease in average deposits outstanding and a 18
basis point decrease in the average cost of funds.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the nine month
periods ended March 31, 1996 and 1997 was $54,000 and $18,000, respectively.
Historically, management has emphasized the Company's loss experience over
other factors in establishing provisions for loan losses. However, management
has reviewed the allowance for loan losses in relation to the
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Company's composition of its loan portfolio and observations of the general
economic climate and loan loss expectations.
NON-INTEREST INCOME. Non-interest income continues to be an insignificant
source of income for the Company. This income remained at consistently the
same level during both periods.
NON-INTEREST EXPENSE. Non-interest expense decreased by $48,000 from $755,000
for the nine months ending March 31, 1996 to $707,000 for 1997. This decrease
was the direct result of less employee benefit expense during the nine months
of 1997 offset by additional operating expense as a public company, by the
effect of increased compensation from the recognition of allocated ESOP shares
at fair market value and by the recognition of the SAIF special assessment.
During the nine month period ending March 31, 1997, the Company recognized
$52,000 of compensation expense related to the Employee Stock Ownership Plan
and $137,000 for additional deposit insurance premiums. Other non-interest
expense items remained relatively stable with anticipated inflationary
increases. Non-interest expense is expected to increase in future periods as a
result of the implementation of the Company's Management Recognition Plan.
INCOME TAXES. Income tax expense for the nine months ending March 31, 1997 was
$198,000 compare to income tax benefit of ($4,000) for the same period in
1996. The increase was the result of pre-tax income increasing by $522,000 for
the nine months in 1997.
LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources of funds are
deposits and proceeds from principal and interest payments on loans. While
maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by
general interest rates, economic conditions and competition. The Company's
primary investing activity is loan originations. The Company maintains
liquidity levels adequate to fund loan commitments, investment opportunities,
deposit withdrawals and other financial commitments. At March 31, 1997, there
were no material commitments for capital expenditures and the Company had
unfunded loan commitments of approximately $339,000. At March 31, 1997,
management had no knowledge of any trends, events or uncertainties that will
have or are reasonably likely to have material effects on the liquidity,
capital resources or operations of the Company. Further at March 31, 1997,
management was not aware of any current recommendations by the regulatory
authorities which, if implemented, would have such an effect.
The Savings Bank exceeded all of its capital requirements at March 31, 1997.
The Savings Bank had the following capital ratios at March 31, 1997:
14
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CATEGORIZED
FOR CAPITAL AS "WELL"
ACTUAL ADEQUACY PURPOSES CAPITALIZED" (1)
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
As of March 31, 1997:
Total Capital
(To risk weighted assets) $10,353 60.5% $1,370 8.00% $1,712 10.0%
Tier I Capital
(To risk weighted assets) $10,183 59.5% $ 685 4.00% $1,027 6.0%
Tier I Capital
(To total assets) $10,183 33.8% $ 904 3.00% $1,507 5.0%
Tangible Capital
(To total assets) $10,183 33.8% $ 452 1.50% N/A
(1) As categorized under the Prompt Corrective Action Provisions.
15
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and any subsidiaries may be a party
to various legal proceedings incident to its or their business. At
March 31, 1997, there were no legal proceedings to which the Company
or any subsidiary was a party, or to which of any of their property
was subject, which were expected by management to result in a
material loss.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company ("Meeting") was
held on January 29, 1997. The results of the vote on the matters
presented at the Meeting were as follows:
1. The following individuals were elected as directors, each for a
one-year term:
VOTE FOR VOTE WITHHELD
-------- -------------
Calvin F. Hall 844,326 -
Edward Ballew, Jr. 844,326 -
Emma Lee M. Wilson 844,226 100
Baxter D. Johnson 844,026 300
Lloyd Hise, Jr. 844,326 -
The above individuals constitute all of the members of the
Company's Board of Directors.
2. The Company's 1996 Stock Option Plan was approved by stockholders
by the following vote:
For 745,373; Against 26,830; Abstain -0-
16
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<PAGE>
3. The Company's 1996 Management Recognition and Development Plan was
approved by stockholders by the following vote
For 693,023; Against 79,530; Abstain -0-
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
3(a) Company's Articles of Incorporation (incorporated by
reference to the Company's Registration Statement on Form SB-2
File No. 333-1888).
3(b) Company's Bylaws (incorporated by reference to the Company's
Registration Statement on Form SB-2 File No. 333-1888).
10.1 Employment Agreement with Emma Lee M. Wilson (incorporated by
reference to the Company's Registration Statement on Form SB-2
File No. 333-1888).
10.2 Employment Agreement with Edward Ballew, Jr. (incorporated by
reference to the Company's Registration Statement on Form SB-2
File No. 333-1888).
10.3 Mitchell Savings Bank, Inc., SSB 1996 Employee Stock
Ownership Plan (incorporated by reference to the Company's
Registration Statement on Form SB-2 File No. 333-1888).
10.4 Mitchell Bancorp, Inc. 1996 Stock Option Plan (incorporated by
reference to the Company's proxy statement for the 1996 Annual
Meeting of Stockholders).
10.5 Mitchell Bancorp, Inc. 1996 Management Recognition and
Development Plan (incorporated by reference to the Company's
proxy statement for the 1996 Annual Meeting of Stockholders).
27 Financial Data Schedule
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
17
<PAGE>
<PAGE>
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.
MITCHELL BANCORP, INC.
Date: May 13, 1997 By /s/Edward Ballew, Jr.
---------------------
Edward Ballew Jr.
(Executive Vice President and
Chief Executive Officer)
MITCHELL BANCORP, INC.
Date: May 13, 1997 By /s/ Emma Lee Wilson
-------------------
Emma Lee Wilson
(Chief Financial Officer)
18
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<PAGE>
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