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, 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
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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 December 31, 1997, there were 930,902 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, 1997 and December 31, 1997................................3
Consolidated Statements of Income - (Unaudited)
for the three and six month periods
ended December 31, 1996 and 1997...................................4
Consolidated Statements of Stockholders' Equity (Unaudited)..........5
Consolidated Statements of Cash Flows -
(Unaudited) for the six months
ended December 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 and Use of Proceeds...................16
Item 3. Defaults Upon Senior Securities.............................16
Item 4. Submission of Matters to a Vote of Security Holders.........16
Item 5. Other Information...........................................16
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 data)
June 30, December 31,
-----------------------------
Assets 1997 1997
------ ---- ----
Cash on hand $211 $86
Interest earning deposits 3,395 5,690
Investment securities:
Available for sale (amortized
cost of $13) 467 560
Loans receivable, net 28,203 28,991
Real estate owned 91 91
Premises and equipment, net 65 60
Federal Home Loan Bank stock 291 291
Accrued interest receivable 7 5
Deferred income taxes 164 154
Prepaid expenses and other assets 165 175
-------- --------
Total assets $ 33,059 $ 36,103
======== ========
Liabilities and Stockholders' Equity
Deposits $ 17,672 $ 20,411
Accrued interest payable 63 69
Accrued expenses and other
liabilities 845 893
Current income taxes payable 154 242
-------- --------
Total liabilities 18,734 21,615
-------- --------
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 9,225 9,243
Retained earnings, substantially
restricted 6,329 6,392
Treasury stock, at cost
(48,995 shares) (784) (784)
Unrealized gain on securities
available for sale, net of
income taxes 277 333
Unearned compensation:
Employee stock ownership plan (732) (706)
-------- --------
Total stockholders' equity 14,325 14,488
-------- --------
Total liabilities and
stockholders' equity $ 33,059 $ 36,103
======== ========
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 data)
For Three For Six
Months Ended Months Ended
December 31, December 31,
-------------- --------------
1996 1997 1996 1997
---- ---- ---- ----
Interest income:
Loans $ 568 $ 615 $1,086 $1,223
Investments 8 5 14 12
Interest earning deposits 103 72 246 120
------ ------ ------ ------
Total interest income 679 692 1,346 1,355
Interest expense:
Deposits 248 268 522 503
------ ------ ------ ------
Net interest income 431 424 824 852
Provision for loan losses 6 6 12 12
------ ------ ------ ------
Net interest income after
provision for loan
losses 425 418 812 840
Non-interest income:
Other 1 2 2 3
------ ------ ------ ------
Total non-interest income 1 2 2 3
------ ------ ------ ------
Non-interest expenses:
Compensation 70 115 148 224
Other employee benefits 48 34 89 77
Net occupancy expense 8 7 14 13
Deposit insurance premiums - 3 150 6
Data processing 6 5 13 12
Other 70 73 108 120
------ ------ ------ ------
Total non-interest
expenses 202 237 522 452
------ ------ ------ ------
Income before income
taxes 224 183 292 391
Income tax expense 86 74 110 157
------ ------ ------ ------
Net income $ 138 $ 109 $ 182 $ 234
====== ====== ====== ======
Weighted average shares
outstanding:
for basis EPS 903 861 903 861
Basic EPS $ .15 $ .13 $ .20 $ .28
Diluted EPS $ .15 $ .13 $ .20 $ .28
The accompanying notes are an integral part of these consolidated financial
statements.
4
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<TABLE>
MITCHELL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(Unaudited)
(in thousands except share data)
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, 1996 $ 10 $9,204 $6,038 $ - $ 166 $ (784) $14,634
Net income - - 471 - - - 471
Dividends paid ($.20 per
share) - - (180) - - - (180)
Unrealized gain on
securities available
for sale, net of
income taxes - - - - 111 - 111
Repurchase of common stock
(48,995 shares held
in treasury) - - - (784) - - (784)
Compensation Earned- ESOP - 21 - - - 52 73
------ ------ ------ ------ ------ ------ -------
Balance at June 30, 1997 10 9,225 6,329 (784) 277 (732) 14,325
Net income - - 234 - - - 234
Dividends paid ($.20
per share) - - (171) - - - (171)
Unrealized gain on
securities available
for sale, net of
income taxes - - - - 56 - 56
Compensation Earned - ESOP - 18 - - - 26 44
------ ------ ------ ------ ------ ------ -------
Balance at December 31,
1997 $ 10 $9,243 $6,392 $ (784) $ 333 $ (706) $14,488
====== ====== ====== ====== ====== ====== =======
The accompanying notes are an integral part of these consolidated financial statements.
5
</TABLE>
PAGE
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MITCHELL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended
December 31,
-------------------------
1996 1997
---- ----
Operating activities:
Net income $ 182 $ 234
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5 5
Provision for loan losses 12 12
Increase in reserve for uncollected
interest 10 8
Deferred income tax benefit - (27)
Net increase in deferred loan fees 25 5
Amortization of unearned compensation 32 44
Increase in prepaid expenses and other
assets (88) (6)
Increase (decrease) in accrued interest
payable (6) 6
Increase in accrued expenses and other
liabilities 12 136
------- -------
Net cash provided by operating
activities 184 417
------- -------
Investing activities:
Net increase in loans (3,269) (813)
Purchase of premises and equipment (2) -
Investment in life insurance cash surrender
value (3) (2)
------- -------
Net cash used by investing activities (3,274) (815)
------- -------
Financing activities:
Net increase (decrease) in deposits (1,973) 2,739
Repayment of stock oversubscriptions (523) -
Payment of accrued conversion cost (347) -
Dividends paid - (171)
------- -------
Net cash provided (used) by
financing activities (2,843) 2,568
------- -------
Increase (decrease) in cash and
cash equivalents (5,933) 2,170
Cash and cash equivalents at beginning of
period 12,129 3,606
------- -------
Cash and cash equivalents at end of period $ 6,196 $ 5,776
======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 528 $ 497
Income taxes 86 96
Noncash transactions:
Unrealized gain on securities available
for sale, net of deferred tax liability $ 50 $ 56
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. ("Bancorp") 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. Bancorp 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
Bancorp.
The consolidated financial statements included herein are for the Bancorp, 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 used by the Savings Bank.
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 three and six month
periods ended December 31, 1997 is not necessarily indicative of the results
which may be expected for the entire year.
It is suggested that these unaudited 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, 1997.
7
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MITCHELL BANCORP, INC. Notes to Consolidated Financial
AND SUBSIDIARY Statements, Continued
- ----------------------------------------------------------------------------
3. Earnings Per Share
------------------
Basis and dilutive earnings per share amounts for the three and six month
periods ended December 31, 1996 and 1997 have been computed in accordance with
the Statement of Financial Accounting Standards No 128 "Earnings per Share"
(SFAS 128). All prior period earnings per share data presented has been
restated to conform with the provisions of SFAS 128.
4. Stockholders' Equity
--------------------
In connection with the Conversion, which was consummated on July 12, 1996, the
Bancorp 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. Bancorp retained one-half of
the net proceeds and used the remaining net proceeds to purchase the newly
issued capital stock of the Savings Bank. Since the Conversion was essentially
consummated prior July 12, 1996, the Conversion has been accounted for as
being effective as of June 30, 1996 for financial reporting purposes.
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. The Company had previously announced that it would
repurchase 5% of its outstanding common stock (approximately 49,000 shares) to
fund its approved Stock Option Plan and Management Recognition Plan. As of
December 31, 1997, 48,995 shares of common stock had been repurchased.
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 Bancorp's common stock.
8
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MITCHELL BANCORP, INC. Notes to Consolidated Financial
AND SUBSIDIARY 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 Bancorp and used the
funds to purchase 78,391 shares of common stock issued in the Conversion. The
loan will be repaid principally from the Savings Bank's discretionary
contributions to the ESOP over a period of 15 years. As of December 31, 1997,
the loan had an outstanding balance of approximately $710,000 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 Savings Bank's annual contributions are discretionary,
benefits payable under the ESOP cannot be estimated. Compensation expense is
recognized to the extent of the fair value of shares committed to be released.
For the three and six months ending December 31, 1997, compensation from the
ESOP of approximately $23,000 and $45,000, 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, 1997, the ESOP had approximately 9,400 allocated shares and
68,991 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. Stock Based Compensation
------------------------
The Company granted and awarded on July 14, 1997 under its stockholder
approved stock option plan and management recognition plan (MRP) 68,596 and
31,358 shares, respectively. The stock options were granted to employees and
non-employee directors at an exercise price $16.375 per share. The shares
awarded under the MRP plan will be earned and vested to the
9
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MITCHELL BANCORP, INC. Notes to Consolidated Financial
AND SUBSIDIARY Statements, Continued
- ----------------------------------------------------------------------------
employees and non-employee directors over a five year period. MRP expense
recognized for the three months and six months ending December 31, 1997 was
$25,000 and $46,000, respectively.
7. Deposit Insurance Assessment
----------------------------
The Company was required to accrued 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 six months ending December 31, 1996 with an after tax
impact on net income of approximately $87,000. The assessment was collected in
late November and, effective January 1, 1997, the Company began paying reduced
premium assessments in accordance with the new SAIF assessment schedule.
8. 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 Savings Bank
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.
9. Asset Quality
-------------
At December 31, 1997, the Company had nonperforming loans (i.e., loans which
are contractually past due 90 days or more) of approximately $548,000 and real
estate owned of approximately $91,000. Of the $548,000 of nonperforming loans,
67%, or $367,000, were the result of loan customers in Chapter 13 bankruptcy.
Management does not expect to incur any material losses on the resolution of
the loans from customers in Chapter 13 bankruptcy due to the individual
underlying collateral. However, ultimate losses could result from other
economic conditions beyond management's control. As a percentage of net loans
at December 31, 1997, nonperforming loans was 1.89%. Total nonperforming
assets as a percent of total assets at December 31, 1997 was 1.77%.
10
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MITCHELL BANCORP, INC. Notes to Consolidated Financial
AND SUBSIDIARY Statements, Continued
- ----------------------------------------------------------------------------
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, 1997 and December 31, 1997
The Company's total consolidated assets decreased by approximately $3.0
million or 9.28% from $33 million at June 30, 1997 to $36 million at December
31, 1997. The increase in assets for the period was primarily attributable to
an increase in cash invested in interest earning deposits. The increase in
cash resulted primarily from an increase in new deposits.
The composition of the Company's balance sheet has not been materially
affected by market conditions between June 30, 1997 and December 31, 1997. Net
loans increased $788,000, or 2.79%. This net increase resulted from the
Company's ability to originate new loans in an amount in excess of repayments
on the existing loan portfolio.
Consistent with its historical lending practices, virtually all of the
Company's loan portfolio at December 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 increased $2.7 million or 15.5%, from $17.7 million at June 30, 1997
to $20.4 million at December 31, 1997. The increase in deposits was primarily
attributable to the Company's ability to attract new funds for certificate of
deposit accounts.
Comparison of Results of Operations for the Three Months Ended December 31,
1996 and 1997
Net Income. Net income decreased $29,000 or 21.0% from a net income of
$138,000 for the three months ended December 31, 1996 to net income of
$109,000 for the three months ended December 31, 1997. The decrease was
primarily the result of the combined decrease in net interest income and the
increase in non-interest expense. The return on average assets was 1.20% for
the three months ended December 31, 1997 compared to 1.58% for the same period
in 1996.
11
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Net Interest Income. Net interest income decreased $7,000 or 1.6% from
$431,000 for the three months ended December 31, 1996 to $424,000 for the
three months ended December 31, 1997. The decline in net interest income
primarily reflects a 9 basis point increase in average cost of funds for the
three months period ended December 31, 1997 as compared to 1996 and a $1.2
million increase in average deposits outstatnding. The interest rate spread
decreased from 2.69% for the three months ending December 31, 1996 to 2.51%
for the three months ending December 31, 1997.
Interest Income. Total interest income increased $13,000 from $679,000 for the
three months ended December 31, 1996 to $692,000 for the three months ended
December 31, 1997. Interest on loans increased $46,000, or 8.1% as a result of
a $2.3 million or 8.8% increase in average loans outstanding. Interest on
overnight funds decreased by $31,000 for the three months ending December 31,
1997 as compared to the same period in 1996 as the average balance of
overnight investments decreased. Interest on investments decreased $3,000 from
$8,000 for the three months ended December 31, 1996 to $5,000 for the three
months ended December 31, 1997.
Interest Expense. Interest expense increased $20,000 from $248,000 for the
three months ended December 31, 1996 to $268,000 for the three months ended
December 31, 1997. The increase for the three months ending December 31, 1997
was the result of a $1.1 million increase in the average deposits outstanding
combined with a increase in the average cost of funds of 9 basis points.
Provision for Loan Losses. The provision for loan losses for three month
periods ended December 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 December 31,
1997 was 34.3 %.
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 $35,000 from $202,000
for the three months ending December 31, 1996 to $237,000 for 1997. MRP
expense of $25,000 for 1997 was the primary reason for the increase. The MRP
plan was not in existence in 1996. Other non-interest expense items remained
relatively stable with anticipated inflationary increases.
Income Taxes. Income tax expense for the three months ending December 31, 1997
was $74,000 compared to income tax expense of 86,000 for the same period in
1996. The decrease was the result of pre-tax income decreasing by $41,000.
12
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Comparison of Results of Operations for the Six Months Ended December 31, 1996
and 1997
Net Income. Net income increased $52,000 or 28.6% from a $182,000 for the six
months ended December 31, 1996 to $234,000 for the six months ended December
31, 1997. 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 1.32% for the six months ended
December 31, 1997, compared to 1.04% for the same period in 1996.
Net Interest Income. Net interest income increased $28,000 or 3.4% from
$824,000 for the six months ended December 31, 1996 to $852,000 for the six
months ended December 31, 1997. The improvement in net interest income
primarily reflects an increase in average loans outstanding of $3.2 million
for the six months ended December 31, 1997 as compared to 1996 combined with
an increase in the interest rate spread. The interest rate spread increased
from 2.46% for six months ending December 31, 1996 to 2.67% for the six
months ending December 31, 1997.
Interest Income. Total interest income increased $9,000 from $1,346,000 for
the six months ended December 31, 1996 to $1,355,000 for the six months ended
December 31, 1997. Interest on loans increased $137,000, or 12.6%. Interest on
overnight funds invested by the Company decreased by $126,000 and interest on
investments decreased by $2,000.
Interest Expense. Interest expense decreased $19,000 from $522,000 for the six
months ended December 31, 1996 to $503,000 for the six months ended December
31, 1997. The decrease for the six months ending December 31, 1997 was the
result of a $70,000 decrease in average deposits outstanding combined with an
18 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, 1996 and 1997 was $12,000. 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.
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 $70,000 from $522,000
for the six months ending December 31, 1996 to $452,000 for 1997. This
decrease was primarily the result of a decrease of $144,000 in deposit
insurance premiums after the one time special SAIF assesment recognized in
1996 offset by an $46,000 increase in compensation for MRP expense and an
increase of $13,000 for ESOP expense recognized in 1997. Other non-interest
expense items remained relatively stable with anticipated inflationary
increases.
13
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Income Taxes. Income tax expense for the six months ending December 31, 1997
was $157,000 compared to $110,000 for the same period in 1996. The increase
was the result of pre-tax income increasing by $99,000 for the six months
ended December 31, 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 December 31, 1997,
there were no material commitments for capital expenditures and the Company
had unfunded loan commitments of approximately $137,000. At December 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 December 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 December 31,
1997. The Savings Bank had the following capital ratios at December 31, 1997:
<PAGE>
<TABLE>
For Capital Categorized as
Actual Adequacy Purposes "Well Capitalized"(1)
--------------- ----------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
--------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Tier I Capital greater/ greater/
(To average assets) $10,585 32.3% $1,312 equal to 4% $1,639 equal to 5%
Tier I Capital greater/ greater/
(To risk weighted assets) $10,585 56.8% $ 745 equal to 4% $1,118 equal to 6%
Total Capital greater/ greater/
(To risk weighted assets) $10,773 57.0% $1,491 equal to 8% $1,863 equal to 10%
1) As categorized under the Prompt Corrective Action Provisions.
</TABLE>
<PAGE>
Year 2000 Compliance. The Company has established a plan to address Year 2000
issues. Successful implementation of this plan will eliminate any
extraordinary expenses related to the Year 2000 issue. The Company has
received confirmation from its sole data processing company
14
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<PAGE>
regarding their Year 2000 plans and compliance. The Company has requested from
its data processing company information that would enable it to test all
critical systems by mid 1998 in order to ensure compliance by December 31,
1998. The Company has a reasonable basis to conclude that the Year 2000 issue
will not materially affect future financial results, or cause reported
financial information not to be necessarily indicative of future operating
results or future financial condition.
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 December 31, 1997,
there were no legal proceedings to which the Bancorp 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 and Use of Proceeds
-----------------------------------------
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
October 22, 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 713,968 105,900
Edward Ballew, Jr. 716,668 103,200
Emma Lee M. Wilson 716,668 103,200
Baxter D. Johnson 715,768 104,100
Lloyd Hise, Jr. 713,968 105,900
Michael B.Thomas 713,968 105,900
The above individuals constitute all of the members of the Company's Board of
Directors.
16
<PAGE>
<PAGE>
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(a) 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(b) Employment Agreement with Edward Ballew, Jr. (incorporated by
reference to the Company's Registration Statement on Form SB-2
File No. 333-1888).
10(c) 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(d) Mitchell Bancorp, Inc. 1996 Stock Option Plan (incorporated by
reference to the Company's proxy statement for the 1996 Annual
Meeting of Stockholders).
10(e) 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 December 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: February 12, 1998 By /s/ Edward Ballew, Jr.
----------------- ----------------------
Edward Ballew, Jr.
(Executive Vice President and Chief
Executive Officer)
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