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 December 31, 1996
[ ] 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
incorporation or organization) Identification
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 December 31, 1996, there were 979,897 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
1
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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 December 31, 1996......................... 3
Consolidated Statements of Income - (Unaudited)
for the three and six month periods ended
December 31, 1995 and 1996............................. 4
Consolidated Statements of Stockholders' Equity
(unaudited)............................................ 5
Consolidated Statements of Cash Flows - (Unaudited)
for the six months ended December 31, 1995 and 1996.... 6
Notes to (Unaudited) Consolidated Financial Statements.. 7-10
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 11-14
PART II.
- --------
OTHER INFORMATION
Item 1. Legal Proceedings............................. 15
Item 2. Changes in Securities......................... 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
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MITCHELL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands except share information)
June 30, December 31,
----------------------------
Assets 1996 1996
------ ---- ----
Cash on hand $ 133 $ 85
Interest earning deposits in other
banks 11,996 6,111
Investment securities:
Available for sale (amortized cost
of $13,000) 285 368
Loans receivable, net 23,568 26,790
Real estate owned 84 84
Premises and equipment, net 70 67
Federal Home Loan Bank stock 291 291
Accrued interest receivable 5 5
Deferred income taxes 230 197
Prepaid expenses and other assets 114 205
--------- ----------
Total assets $ 36,776 $ 34,203
========= ==========
Liabilities and Stockholders' Equity
-------------------------------------
Deposits $ 20,346 $ 18,373
Accounts payable--conversion cost 347 --
Stock oversubscriptions 523 --
Accrued interest payable 60 54
Accrued expenses and other liabilities 818 798
Current income taxes payable 48 80
--------- ----------
Total liabilities 22,142 19,305
--------- ----------
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 shares
issued and outstanding) 10 10
Paid-in capital 9,204 9,210
Retained earnings, substantially
restricted 6,038 6,220
Unrealized gain on securities available
for sale, net of income taxes 166 216
Unearned compensation:
Employee stock ownership plan (784) (758)
--------- ----------
Total stockholders' equity 14,634 14,898
--------- ----------
Total liabilities and stockholders'
equity $ 36,776 $ 34,203
========= ==========
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 Ended For Six Months Ended
December 31, December 31,
---------------------- --------------------
1995 1996 1995 1996
---- ---- ---- ----
Interest income:
Loans $ 498 $ 568 $ 998 $ 1,086
Investments 8 8 14 14
Interest earning
deposits 62 103 124 246
Total interest
income 568 679 1,136 1,346
Interest expense:
Deposits 293 248 585 522
------- ------- ------- --------
Net interest
income 275 431 551 824
Provision for loan
losses 42 6 48 12
------- ------- ------- --------
Net interest
income after
provision for
loan losses 233 425 503 812
Non-interest income:
Other 3 1 4 2
------- ------- ------- --------
Total non-
interest income 3 1 4 2
------- ------- ------- --------
Non-interest
expenses:
Compensation 72 70 134 148
Other employee
benefits 317 48 346 89
Net occupancy
expense 8 8 14 14
Deposit insurance
premiums 12 -- 24 150
Data processing 6 6 14 13
Provision for real
estate losses 5 -- 5 --
Other 36 70 56 108
------- ------- ------- --------
Total non-
interest
expenses 456 202 593 522
------- ------- ------- --------
Income (loss)
before income
taxes (220) 224 (86) 292
Income tax expense
(benefit) (79) 86 (31) 110
------- ------- ------- --------
Net income
(loss) $ (141) $ 138 $ (55) $ 182
======= ======= ======= ========
Weighted average
common equivalent
share
outstanding: N/A 903 N/A 903
Net income per
share N/A $ .15 N/A $ .20
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 Gain on Compensation
Stock Capital Earnings Securities for ESOP Total
-------- -------- --------- ---------- ------------ ------
Balance at June
<S> <C> <C> <C> <C> <C> <C>
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 -- -- 182 -- -- 182
Unrealized gain on
securities available
for sale, net of
income taxes -- -- -- 50 -- 50
Compensation Earned -- 6 -- -- 26 32
-------- -------- -------- -------- -------- --------
Balance at September
30, 1996 $ 10 $ 9,210 $ 6,220 $ 216 $ (758) $ 14,898
======== ======== ======== ======== ======== ========
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)
Six Months Ended
December 31,
-----------------
1995 1996
------- -------
Operating activities:
Net income (loss) $ (55) $ 182
Adjustments to reconcile net income
(loss) to net cash provided
(used) by operating activities:
Depreciation 5 5
Provision for loan losses 48 12
Provisions for losses on real estate 5 --
Increase (decrease) in reserve for
uncollected interest 14 10
Deferred income taxes (benefit) (132) --
Net increase in deferred loan fees 2 25
Amortization of unearned compensation -- 32
Gain on real estate owned (2) --
(Increase) decrease in prepaid expenses
and other assets (97) (88)
Increase (decrease) in accrued interest
payable (18) (6)
Increase in accrued expenses and other
liabilities 283 12
------- -------
Net cash provided by operating activities 53 184
------- -------
Investing activities:
Net increase in loans (490) (3,269)
Purchase of premises and equipment (3) (2)
Investment in life insurance cash
surrender value (25) (3)
------- -------
Net cash used by investing activities (518) (3,274)
------- -------
Financing activities:
Net increase (decrease) in deposits 385 (1,973)
Repayment of stock oversubscriptions -- (523)
Payment of accrued conversion cost -- (347)
------- -------
Net cash provided (used) by financing
activities 385 (2,843)
------- -------
Increase (decrease) in cash and cash
equivalents (80) (5,933)
Cash and cash equivalents at
beginning of period 4,241 12,129
------- -------
Cash and cash equivalents at end of period $ 4,161 $ 6,196
======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 567 $ 528
Income taxes 157 86
Noncash transactions:
Loan to facilitate sale of real estate
owned 36 --
Unrealized gain on securities available
for sale, net of deferred tax liability $ 31 $ 50
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, 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 statement of income for the six month period ended
December 31, 1996 is not necessarily indicative of the results which
may be expected for the entire year.
It is suggested that these consolidated financial statements be read in
conjunction with the audited consolidated financial statements and note
thereto for the Company for the year ended June 30, 1996.
3. Earnings Per Share
------------------
Earnings per share amounts for the three and six month periods ended
December 31, 1996 are based on the average number of shares outstanding
throughout the periods, except that the initial issue has been given an
effective date of June 30, 1996. No comparative amounts have
7
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MITCHELL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial
Statements, Continued
- -----------------------------------------------------------------------------
been presented for the three and six month periods ended December 31, 1995
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 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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MITCHELL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial
Statements, Continued
- -----------------------------------------------------------------------------
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 December 31, 1996, the loan had an outstanding balance of
approximately $770,000 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 six months ending December 31, 1996, compensation from
the ESOP of approximately $17,000 and $32,000, 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 December 31, 1996, the ESOP had approximately 2,600 allocated
shares and 75,791 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 special SAIF assessment for deposit insurance premiums of
approximately $137,000 has been reflected in operations for the six months
ending December 31, 1996 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 in accordance with the BIF/SAIF legislation.
9
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MITCHELL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial
Statements, Continued
- -----------------------------------------------------------------------------
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 have no impact on income when recaptured.
8. Asset Quality
-------------
At December 31, 1996, the Company had total nonperforming loans and real
estate owned of approximately $796,000. Of the $696,000 of nonperforming
loans, 68% or $475,000 were the result of loan customers in Chapter 13
bankruptcy. As a percentage of net loans at December 31, 1996,
nonperforming loans was 2.6%. Total nonperforming assets as a percent of
total assets at December 31, 1996 was 2.3%.
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 December 31, 1996
The Company's total consolidated assets decreased by approximately $2.6
million or 7.0% from $36.8 million at June 30, 1996 to $34.2 million at
December 31, 1996. 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 December 31, 1996. Net
loans increased $3.2 million, or 13.7%. 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 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 December 31, 1996 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 $2.0 million or 9.7%, from $20.3 million at June 30, 1996
to $18.4 million at December 31, 1996. The decrease in deposits was primarily
attributable to the withdrawal of deposits in certificate accounts, which the
Company attributes to other competitive 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.
Comparison of Results of Operations for the Three Months Ended December 31,
1995 and 1996
Net Income. Net income increased $279,000 or 198% from a net loss of
$(141,000) for the three months ended December
11
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31, 1995 to net income of $138,000 for the three months ended December 31,
1996. The increase was primarily the result of the combined increase in net
interest income and the decrease in non-interest expense. The return on
average assets was 1.58% for the three months ended December 31, 1996.
Net Interest Income. Net interest income increased $156,000 or 56.7% from
$275,000 for the three months ended December 31, 1995 to $431,000 for the
three months ended December 31, 1996. The improvement in net interest income
primarily reflects an increase in average interest-earning assets over average
interest-bearing liabilities for the Company of $8.6 million or 138% for the
three months ended December 31, 1996 as compared to 1995 as a result of the
proceeds from the stock offering. The interest rate spread increased from
2.72% for three months ending December 31, 1995 to 2.78% for the three months
ending December 31, 1996. In addition, interest earned on investments in
overnight funds held by the Company increased by $41,000 for the three months
ending December 31, 1996 over 1995.
Interest Income. Total interest income increased $111,000 from $568,000 for
the three months ended December 31, 1995 to $679,000 for the three months
ended December 31, 1996. Interest on loans increased $70,000, or 14.1% and
interest on overnight funds increase by $41,000. Interest on investments
remained constant.
Interest Expense. Interest expense decreased $45,000 from $293,000 for the
three months ended December 31, 1995 to $248,000 for the three months ended
December 31, 1996. The decrease for the three months ending December 31, 1996
was the result of a $2.3 million decrease in the average deposit outstanding
combined with a 28 basis point decrease in the average cost of funds.
Provision for Loan Losses. The provision for loan losses for three month
periods ended December 31, 1995 and 1996 was $42,000 and $6,000, 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 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 December 31, 1996 was 25.5 %.
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 $254,000 from $456,000
for the three months ending December 31, 1995 to $202,000 for 1996. The
primary reason for the decrease was as a result of significant benefit plan
cost recognized in the second quarter of 1995 with no comparable amounts
recognized in 1996. This decrease was offset by 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 December 31, 1996, the Company recognized $17,000 of
compensation expense related to the Employee Stock Ownership Plan. 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 is expected to increase.
12
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Income Taxes. Income tax expense for the three months ending December 31, 1996
was $86,000 compared to income tax benefit of ($79,000) for the same period in
1995. The increase was the result of pre-tax income increasing by $444,000.
Comparison of Results of Operations for the Six Months Ended December 31, 1995
and 1996
Net Income. Net income increased $237,000 or 431% from a net loss of
($55,000) for the six months ended December 31, 1995 to $182,000 for the six
months ended December 31, 1996. Included in operations for the six months
ending December 31, 1996 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 1.04%
for the six months ended December 31, 1996.
Net Interest Income. Net interest income increased $273,000 or 49.5% from
$551,000 for the six months ended December 31, 1995 to $824,000 for the six
months ended December 31, 1996. The improvement in net interest income
primarily reflects an increase in average interest-earning assets over average
interest-bearing liabilities for the Company of $8.6 million or 136% for the
six months ended December 31, 1996 as compared to 1995 as a result of the
proceeds from the stock offering. The interest rate spread decreased from
2.80% for six months ending December 31, 1995 to 2.78% for the six months
ending December 31, 1996. In addition, interest earned on investments in
overnight funds held by the Company increased by $122,000 for the six months
ending December 31, 1996 over 1995.
Interest Income. Total interest income increased $210,000 from $1,136,000 for
the six months ended December 31, 1995 to $1,346,000 for the six months ended
December 31, 1996. Interest on loans increased $88,000, or 8.8%. Interest on
overnight funds invested by the Company also increased. Interest on
investments remained constant.
Interest Expense. Interest expense decreased $63,000 from $585,000 for the six
months ended December 31, 1995 to $522,000 for the six months ended December
31, 1996. The decrease for the six months ending December 31, 1996 was the
result of a $2.0 million decrease in average deposits outstanding and a 9
basis point decrease in the average cost of funds.
Provision for Loan Losses. The provision for loan losses for the six month
periods ended December 31, 1995 and 1996 was $48,000 and $12,000,
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 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.
13
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Non-Interest Expense. Non-interest expense decreased by $71,000 from $593,000
for the six months ending December 31, 1995 to $522,000 for 1996. This
decrease was the direct result of less employee benefit expense during the six
months of 1996 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 six month period ending December 31, 1996, the Company
recognized $32,000 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 six months ending December 31, 1996
was $110,000 compare to income tax benefit of ($31,000) for the same period in
1995. The increase was the result of pre-tax income increasing by $378,000 for
the six months in 1996.
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 December 31, 1996,
there were no material commitments for capital expenditures and the Company
had unfunded loan commitments of approximately $861,000. At December 31, 1996,
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 December 31, 1996,
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 December 31,
1996. The Savings Bank had the following capital ratios at December 31, 1996:
December 31, 1996
-----------------
Tier I capital to adjusted total assets 33.1%
Tier I to risk-weighted assets 60.3%
Total capital to risk-weighted assets 61.3%
14
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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
December 31, 1996, 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
---------------------------------------------------
None
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).
27 Financial Data Schedule
No reports on Form 8-K were filed during the quarter ended December
31, 1996.
15
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<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: February 11, 1997 By /s/ Edward Ballew, Jr.
------------------- ---------------------------
Edward Ballew, Jr.
(Executive Vice President
and Chief Executive
Officer)
<PAGE>
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