SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 1998
------------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
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Commission File No. 0-23763
Quitman Bancorp, Inc.
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(Name of Small Business Issuer in Its Charter)
Georgia 58-2365866
- --------------------------------------------- ------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
100 West Screven Street, Quitman, Georgia 31643
- ----------------------------------------- --------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (912) 263-7538
----------------
Securities registered under Section 12(b) of the Exchange Act: None
------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO .
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $3,613,715
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the average bid and asked price of the registrant's
Common Stock on December 16, 1998, was $6.2 million.
As of December 16, 1998, there were issued and outstanding 661,250 shares
of the registrant's Common Stock.
Transitional Small Business Disclosure Format (check one): YES NO X
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year ended
September 30, 1998. (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders for
the Fiscal Year ended September 30, 1998. (Parts II and III)
<PAGE>
PART I
Quitman Bancorp, Inc. (the "Company" or "Registrant") may from time to
time make written or oral "forward-looking statements", including statements
contained in the Company's filings with the Securities and Exchange Commission
(including this annual report on Form 10-KSB and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the board of governors of the
federal reserve system, inflation, interest rates, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks
resulting from these factors.
The Company cautions that the listed factors are not exclusive. The
Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
Item 1. Description of Business
General
The Company is a Georgia-chartered corporation organized in December
1997 at the direction of Quitman Federal Savings Bank (the "Bank") to acquire
all of the capital stock that the Bank issued in its conversion from the mutual
to stock form of ownership (the "Conversion"). On April 2, 1998, the Bank
completed the Conversion and became a wholly owned subsidiary of the Company.
The Company is a unitary savings and loan holding company which, under existing
laws, generally is not restricted in the types of business activities in which
it may engage provided that the Bank retains a specified amount of its assets in
housing-related investments. The Company conducts no significant business or
operations of its own other than holding all of the outstanding stock of the
Bank and investing the Company's portion of the net proceeds obtained in the
Conversion.
The Bank, which was founded in 1936 under the name Quitman Federal
Savings and Loan Association, is a federally chartered stock savings bank
headquartered in Quitman, Georgia. The Bank obtained its current name in
November 1997. The Bank is subject to examination and comprehensive regulation
by the Office of Thrift Supervision ("OTS") and its deposits are federally
insured by the
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Savings Association Insurance Fund ("SAIF"). The Bank is a member of and owns
capital stock in the Federal Home Loan Bank (the "FHLB") of Atlanta, which is
one of the 12 regional banks in the FHLB System.
The Bank attracts deposits from the general public (primarily
certificates of deposit) and uses those deposits, together with other funds,
primarily to originate and invest in loans secured by one- to four-family
residential real estate. The Bank also originates consumer, commercial and
construction loans and uses borrowings to fund loans.
Competition
The Bank is one of many financial institutions serving its market area
of Brooks County and parts of Lowdnes County, Georgia. The competition for
deposits comes from other insured financial institutions such as commercial
banks, thrift institutions, credit unions, finance companies, and multi-state
regional banks in the Bank's market area. Deposit competition also includes a
number of insurance products sold by local agents and investment products such
as mutual funds and other securities sold by local and regional brokers. Loan
competition varies depending upon market conditions and comes from other insured
financial institutions such as commercial banks, thrift institutions, credit
unions, multi-state regional banks, and mortgage bankers.
Lending Activities
Loan Portfolio Data. Set forth below is selected data relating to the
composition of the Company's loan portfolio by type of loan and type of security
on the dates indicated:
At September 30,
------------------------------------
1998 1997
---------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
Real estate loans:
One-to-four family residential....... $27,073 70.69% $23,656 68.09%
Multi-family (5 or more) dwelling.... 810 2.11 699 2.01
Non residential...................... 5,339 13.94 5,394 15.52
Construction......................... 3,433 8.96 3,655 10.52
FHLMC pools.......................... 3 0.01 4 0.01
Share loans............................ 557 1.45 470 1.35
Consumer .............................. 1,089 2.84 867 2.50
------ ----- ------ -----
38,304 100.00% 34,745 100.00%
------ ====== ------ ======
Less:
Loans in process..................... 1,489 1,023
Allowance for loan losses............ 370 346
Deferred loan origination fees
and costs........................... 48 50
------ ------
Total loans, net....................... $36,397 $33,326
====== ======
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Loan Maturity Tables
The following table sets forth the estimated maturity of the Company's
loan portfolio at September 30, 1998. The table does not include the effects of
possible prepayments or scheduled principal repayments. All mortgage loans are
shown as maturing based on the date of the last payment required by the loan
agreement.
Non
Residential Residential Construction Other Total
----------- ----------- ------------ ----- -----
(In thousands)
Amounts due:
Within 1 year............... $ 3,594 $1,917 $3,410 $ 903 $ 9,824
Over 1 to 5 years........... 15,167 1,760 79 671 17,677
Over 5 years................ 8,986 1,475 74 268 10,803
------ ----- ------ ----- ------
Total amount due.......... $27,747 $5,152 $3,563 $1,842 38,304
====== ===== ===== ===== ------
Less:
Allowance for loan losses... 370
Loans in process............ 1,489
Deferred loan fees.......... 48
-------
Loans receivable, net..... $36,397
======
The following table sets forth the dollar amount of all loans due after
September 30, 1999, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
Real estate:
Residential......................... $23,863 $290 $24,153
Non-residential..................... 3,235 -- 3,235
------ ----- ------
Non real estate:
Share loans......................... 78 -- 78
Consumer............................ 778 -- 778
------- ----- -------
$27,954 $290 $28,244
====== === ======
One- Four-Family Residential Loans. The Bank's primary lending activity
consists of the origination of one- to four-family residential mortgage loans
secured by property located in its primary market area. The Bank generally
originates one- to four-family residential mortgage loans in amounts up to 85%
of the appraised market value or purchase price. The maximum loan-to-value ratio
on mortgage loans secured by non-owner occupied properties generally is limited
to 80%. The Bank primarily originates and retains fixed-rate balloon loans
having terms of 3 or 5 years, with principal and interest payments calculated
using up to a 25-year amortization period. Because of the amortization
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period, relatively short term and renewability of there loans, there are
similarities between these loans and ARMs, particularly from the Bank's
asset/liability management perspective. The Bank occasionally originates 15 year
fixed-rate loans.
The interest rate on the Bank's ARM loans is based on an index plus a
stated margin. The Bank may offer discounted initial interest rates on ARM loans
but it requires that the borrower qualify for the ARM loan at the fully indexed
rate (the index rate plus the margin). ARM loans provide for periodic interest
rate adjustments upward or downward.
ARM loans decrease the risk associated with changes in interest rates
by periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore is potentially limited in effectiveness during periods
of rapidly rising interest rates. At September 30, 1998, less than 10% of the
one- to four-family residential loans that the Bank held had adjustable rates of
interest.
All of the Bank's loans are originated for the Bank's portfolio. The
Bank does not conform its loans to the standards that are used in the mortgage
industry that would allow its loans to be readily sold into the secondary market
since it does not expect to sell its loans. For example, the Bank's lending
policy does not require its borrowers to obtain private mortgage insurance on
the amount of a loan that exceeds the typical loan to value ratios used in the
mortgage loan industry and the Bank may lend money to individuals based on its
review of personal circumstances that other lenders might not consider.
Mortgage loans originated and held by the Bank generally include
due-on-sale clauses. This gives the Bank the right to deem the loan immediately
due and payable in the event the borrower transfers ownership of the property
securing the mortgage loan without the Bank's consent.
Residential Construction Loans. The Bank makes residential construction
loans on one- to four-family residential property to the individuals who will be
the owners and occupants upon completion of construction. No principal payments
are required during construction. After that time, the payments are set at an
amount that will repay the loan over the term of the loan. The maximum
loan-to-value ratio is 85%. Because residential construction loans are not
rewritten if permanent financing is obtained from the Bank, these loans are made
on terms similar to those of the Bank's single family residential loans and may
be paid off over terms of 3 to 5 years with an amortization period of 25 years.
The Bank also originates speculative loans to residential builders who
have established business relationships with the Bank. These speculative loans
typically are made for a term of six months after which the Bank allows one
extension of six months. If after one year a unit remains unsold, the Bank
requires that the builder make a 10% principal reduction payment and the Bank
either then allows the builder to make interest payments for 90 days before he
is required to make another principal reduction payment, or the builder may
choose that the Bank treat the loan as a regular loan, pursuant to which he will
make monthly payments for the full term of the loan. In underwriting such loans,
the Bank considers the number of units that the builder has on a speculative bid
basis that remain unsold. The Bank's experience has been that most speculative
loans are repaid well within the twelve month period. Speculative loans are
generally originated with a loan to value ratio that does not exceed 75%. At
September 30, 1998 the Bank's largest speculative loan was $65,000, drawn on a
line of credit, and was performing in accordance with its terms.
4
<PAGE>
Construction lending is generally considered to involve a higher degree of
credit risk than long-term financing of residential properties. The Bank's risk
of loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction and the
estimated cost of construction. If the estimate of construction cost and the
marketability of the property upon completion of the project prove to be
inaccurate, the Bank may be compelled to advance additional funds to complete
the construction. Furthermore, if the final value of the completed property is
less than the estimated amount, the value of the property might not be
sufficient to assure the repayment of the loan. For speculative loans that the
Bank originates to builders, the ability of the builder to sell completed
dwelling units will depend, among other things, on demand, pricing and
availability of comparable properties, and general economic conditions.
Non-Residential Real Estate Loans. The Bank's non-residential real estate
loans consist of commercial business loans and farm real estate loans.
Commercial real estate loans are secured by churches, office buildings, and
other commercial properties. Farm loans are secured by the farm land. These
loans generally have not exceeded $500,000 or had terms greater than 25 years.
Commercial and farm real estate lending entails significant additional
risks compared to residential property lending. These loans typically involve
large loan balances to single borrowers or groups of related borrowers. The
repayment of these loans typically is dependent on the successful operation of
the real estate project securing the loan. For commercial real estate these
risks can be significantly affected by supply and demand conditions in the
market for office retail space and may also be subject to adverse conditions in
the economy. For loans secured by farm real estate, repayment may be affected by
weather conditions, government policies, and subsidies concerning farming. To
minimize these risks, the Bank generally limits this type of lending to its
market area and to borrowers who are otherwise well known to the Bank, and
generally limits the loan to value ratio to 80%.
Consumer Loans. The Bank offers consumer loans in order to provide a wider
range of financial services to its customers and because these loans provide
higher interest rates and shorter terms than many of the Bank's other loans. The
Bank's consumer loans consist of home equity, automobile, and mobile home loans
and are generally in smaller dollar amounts than the Bank's other loans.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly. Repossessed collateral for a defaulted consumer
loan may not be sufficient for repayment of the outstanding loan, and the
remaining deficiency may not be collectible.
Loan Approval Authority and Underwriting. The Bank's loan committee, which
is comprised of all 5 directors on the board, approves all loans. Mr. Plair, the
Bank's President, has loan authority to approve consumer loans of up to $5,000.
Loan Commitments. At September 30, 1998, commitments to cover originations
of mortgage loans totalled $1.5 million. The Bank believes that virtually all of
its commitments will be funded.
Loans to One Borrower. The maximum amount of loans which the Bank may make
to any one borrower may not exceed the greater of $500,000 or 15% of the Bank's
unimpaired capital and unimpaired surplus. The Bank may lend an additional 10%
of the Bank's unimpaired capital and unimpaired surplus if the loan is fully
secured by readily marketable collateral. At September 30, 1998, the aggregate
loans outstanding of the Bank's five largest borrowers have outstanding balances
of between $399,000 and $592,000.
5
<PAGE>
Nonperforming and Problem Assets
Loan Delinquencies. Loans are reviewed on a monthly basis and are
placed on a non-accrual status when, in the Bank's opinion, the collection of
additional interest is doubtful. Interest accrued and unpaid at the time a loan
is placed on nonaccrual status is charged against interest income. Subsequent
interest payments, if any, are either applied to the outstanding principal
balance or recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan.
Nonperforming Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. The
Bank has no loans categorized as troubled debt restructurings within the meaning
of SFAS 15. For the year ended September 30, 1998, there was $7,146 in interest
income that would have been recorded on loans accounted for on a nonaccrual
basis under the original terms of such loans; however, interest income on these
loans, which is recorded only when received, was $3,372.
At September 30,
1998 1997
(In thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Construction loans............................ $ 15 $ --
One- to four-family residential............... 88 73
All other mortgage loans...................... -- 51
Non-mortgage loans:
Commercial.................................... -- --
Consumer...................................... -- --
------ -----
Total........................................... $ 103 $ 124
====== =====
Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
Construction loans............................ $ 15 $ 58
One- to four-family residential............... 185 249
All other mortgage loans...................... -- 25
Non-mortgage loans:
Commercial.................................... -- --
Consumer...................................... 10 21
------ -----
Total........................................... $ 210 $ 353
====== =====
Total non-accrual and accrual loans............. $ 313 $ 477
====== =====
Real estate owned............................... $ -- $ 64
====== =====
Other non-performing assets..................... $ -- $ --
====== =====
Total non-performing assets..................... $ 313 $ 541
==== =====
Total non-performing loans to total loans, net.. .86% 1.43%
==== =====
Total non-performing loans to total assets...... .72% 1.22%
==== =====
Total non-performing assets to total assets..... .72% 1.38%
==== =====
Classified Assets. OTS regulations provide for a classification system
for problem assets of savings associations which covers all problem assets.
Under this classification system, problem assets of savings institutions such as
the Bank are classified as "substandard," "doubtful," or "loss." An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of
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<PAGE>
the borrower or of the collateral pledged, if any. Substandard assets include
those characterized by the "distinct possibility" that the savings institution
will sustain "some loss" if the deficiencies are not corrected. Assets
classified as doubtful have all of the weaknesses inherent in those classified
substandard, with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as loss are those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted. Assets may be designated "special mention" because of potential
weakness that do not currently warrant classification in one of the
aforementioned categories.
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. A savings association's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which may order the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included in determining a savings association's regulatory capital. Specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. At September 30, 1998, the Bank had $99,000, $551,000, $0, and $0 of
loans classified as special mention, substandard, doubtful and loss,
respectively.
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in the Bank's loan portfolio. The evaluation, including a review of all loans on
which full collectibility of interest and principal may not be reasonably
assured, considers: (i) the Bank's past loan loss experience, (ii) known and
inherent risks in the Bank's portfolio, (iii) adverse situations that may affect
the borrower's ability to repay, (iv) the estimated value of any underlying
collateral, and (v) current economic conditions.
The Bank monitors its allowance for loan losses and make additions to
the allowance as economic conditions dictate. Although the Bank maintains the
Bank's allowance for loan losses at a level that it considers adequate for the
inherent risk of loss in its loan portfolio, future losses could exceed
estimated amounts and additional provisions for loan losses could be required.
In addition, the Bank's determination as to the amount of allowance for loan
losses is subject to review by the OTS, as part of its examination process.
After a review of the information available, the OTS might require the
establishment of an additional allowance.
The following table illustrates the allocation of the allowance for
loan losses for each category of loans. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the Bank's use of the allowance to absorb losses in other
loan categories.
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<PAGE>
At September 30
--------------------------------------------
1998 1997
----------------------- -------------------
Percent of Percent of
Loans in Loans in
Each Each
Category Category
to Total to Total
Amount Loans Amount Loans
------ ----- ------ -----
(Dollars in thousands)
At end of period allocated to:
One- to four-family........... $ 262 70.7% $ 231 68.1%
Multi-family.................. 7 2.0 7 2.0
Other real estate............. 85 22.9 90 26.1
Consumer...................... 16 4.4 18 3.8
----- ----- ----- -----
Total allowance............ $ 370 100.0% $ 346 100.0%
==== ===== ==== =====
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates and for the periods indicated:
At September 30,
----------------------
1998 1997
-------- -------
(Dollars in thousands)
Total loans, net............................. $36,397 $33,326
====== ======
Average loans outstanding.................... $34,862 $32,065
====== ======
Allowance balances (at beginning of period).. $ 346 $ 210
Provision:
Residential................................ 17 94
Non-residential............................ 6 35
Consumer................................... 1 7
Net charge-offs (recoveries):
Residential................................ -- --
Non-residential............................ -- --
Consumer................................... -- --
------ ------
Allowance balance (at end of period)......... $ 370 $ 346
====== ======
Allowance for loan losses as a percent
of total loans outstanding................. 1.01% 1.03%
Net loans charged off as a percent of
average loans outstanding.................. -- --
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Investment Activities
Investment Securities. The Bank is required under federal regulations
to maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. The Company classifies its
investment securities as "available-for-sale" or "held-to- maturity" in
accordance with SFAS No. 115.
The Company's investment securities "available-for-sale" and
"held-to-maturity" portfolios at September 30, 1998 did not contain securities
of any issuer with an aggregate book value in excess of 10% of the Company's
equity, excluding those issued by the United States government agencies.
Mortgage-Backed Securities. To supplement lending activities, the
Company has invested in residential mortgage-backed securities. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. Mortgage-backed securities represent a participation
interest in a pool of single-family or other type of mortgages. Principal and
interest payments are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interests in the form of securities, to investors such as the
Company. The quasi-governmental agencies guarantee the payment of principal and
interest to investors and include the Federal Home Loan Mortgage Company
("FHLMC"), the Government National Mortgage Association ("GNMA"), and the
Federal National Mortgage Association ("FNMA"). Expected maturities will differ
from contractual maturities due to scheduled repayments and because borrowers
may have the right to call or prepay obligations with or without prepayment
penalties.
Investment Portfolio. The following table sets forth the carrying value
of the Company's investment securities available-for-sale and held-to-maturity
portfolios, and FHLB stock at the dates indicated.
At September 30,
--------------------
1998 1997
------ -------
(In thousands)
Investment securities:
U.S. Government securities available-for-sale.. $ 714 $ 904
U.S. Government securities held-to-maturity.... -- 100
U.S. Agency securities available-for-sale...... 4,409 1,600
U.S. Agency securities held-to-maturity........ 200 705
Total investment securities.................. 5,323 3,309
Interest-bearing deposits....................... 203 548
FHLB stock...................................... 240 228
Mortgage-backed securities available-for-sale... 518 542
Mortgage-backed securities held-to-maturity..... -- --
----- -----
Total investments............................ $6,284 $4,627
===== =====
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<PAGE>
The following table sets forth certain information regarding scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for the Company's investments at September 30, 1998 by contractual
maturity. The following table does not take into consideration the effects of
scheduled repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
----------------- ----------------- ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government securities.$ -- --% $ 714 6.23% $ -- --% $ -- --% $ 714 6.23% $ 714
U. S. Agency securities.... 1,255 6.12 3,353 6.10 -- -- -- -- 4,608 6.11 4,608
Corporate notes and bonds.. -- -- -- -- -- -- -- -- -- -- --
Other securities(1)........ -- -- -- -- -- -- -- -- -- -- --
----- ----- ----- --- ------ ------
Total investment securities 1,255 6.12 4,067 6.12 -- -- -- -- 5,322 6.13 5,322
Interest-bearing deposits.... 203 6.33 -- -- -- -- -- -- 203 6.33 203
Federal funds sold........... -- -- -- -- -- -- -- -- -- -- --
FHLB stock................... 240 7.37 -- -- -- -- -- -- 240 7.37 240
Mortgage-backed securities... -- -- -- -- -- -- 519 5.75 519 5.75 519
----- ----- ----- --- ----- -----
Total investments...........$1,698 6.32 $4,067 6.12 $ -- -- $519 5.75 $6,284 6.15 $6,284
===== ===== ===== === ===== =====
</TABLE>
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Sources of Funds
General. Deposits are the Bank's major external source of funds for lending
and other investment purposes. Funds are also derived from the receipt of
payments on loans and prepayment of loans and maturities of investment
securities and mortgage-backed securities and, to a much lesser extent,
borrowings and operations. Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are significantly influenced by general interest rates and market conditions.
Consumer and commercial deposits are attracted principally from within the
Bank's primary market area through the offering of a selection of deposit
instruments including checking accounts, regular savings accounts, money market
accounts, and term certificate accounts. IRA accounts are also offered.
Certificates of Deposit. The following table indicates the amount of the
Bank's certificates of deposit of $100,000 or more by time remaining until
maturity as of September 30, 1998.
Certificates
Maturity Period of Deposit
- --------------- ----------
(In thousands)
Within three months............... $1,018
Three through six months.......... 1,158
Six through twelve months......... 2,721
Over twelve months................ 1,853
-----
$6,750
Borrowings. Advances (borrowings) may be obtained from the FHLB of Atlanta
to supplement the Bank's supply of lendable funds. Advances from the FHLB of
Atlanta are typically secured by a pledge of the Bank's stock in the FHLB of
Atlanta, a portion of the Bank's first mortgage loans, and other assets.
The following table sets forth the terms of the Bank's short-term FHLB
advances.
During the Year ended September 30,
-----------------------------------
1998 1997
---- ----
(Dollars in thousands)
Balance at period end.............................. $ -- $1,300
Average balance outstanding during the period...... 615 1,175
Maximum amount outstanding at any month-end
during the period................................ 1,600 1,300
Weighted average interest rate during the period... 5.5% 5.4%
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Personnel
At September 30, 1998 the Bank had 10 full-time employees and one
part-time employee. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with the Bank's
employees is good.
Regulation
Set forth below is a brief description of certain laws which relate to
the Company and the Bank. The description is not complete and is qualified in
its entirety by references to applicable laws and regulation.
Holding Company Regulation
General. The Company is a unitary savings and loan holding company that
files reports with the OTS and is subject to regulation and examination by the
OTS. In addition, the OTS has enforcement authority over the Company and any
non-savings institution subsidiaries. This permits the OTS to restrict or
prohibit activities that it determines to be a serious risk to the Bank. This
regulation is intended primarily for the protection of the Bank's depositors and
not for the benefit of stockholders of the Company. The Company is also
registered with the Georgia Department of Banking and Finance.
Qualified Thrift Lender ("QTL") Test. As the Company owns only one
savings institution, it is able to diversify its operations into activities not
related to banking, but only so long as the Bank satisfies the QTL test. If the
Company controlled more than one savings institution, it would lose the ability
to diversify its operations into nonbanking related activities, unless such
other savings institutions each also qualified as a QTL or were acquired in a
supervised acquisition. See "-- Savings Institution Regulation -- Qualified
Thrift Lender Test."
Savings Institution Regulation
General. As a federally chartered, SAIF-insured savings institution,
the Bank is subject to extensive regulation by the OTS and the Federal Deposit
Insurance Corporation ("FDIC"). Lending activities and other investments must
comply with various federal and state statutory and regulatory requirements. The
Bank is also subject to certain reserve requirements promulgated by the Board of
Governors of the Federal Reserve System ("Federal Reserve").
Insurance of Deposit Accounts. The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation). Insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator.
As a member of the SAIF, the Bank pays an insurance premium to the
FDIC. The FDIC also maintains another insurance fund, the Bank Insurance Fund
("BIF"), which primarily insures commercial bank deposits.
The deposit insurance assessment for most SAIF members is .064% of
deposits on an annual basis through the end of 1999. During this same period,
BIF members will be assessed approximately .013%
12
<PAGE>
of deposits. After 1999, assessments for BIF and SAIF members should be the
same. It is expected that these continuing assessments for both SAIF and BIF
members will be used to repay outstanding Financing Corporation bond
obligations.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends by the Bank to the
Company. In addition, the Bank may not declare or pay a cash dividend on its
capital stock if the effect would be to reduce the Bank's regulatory capital
below the amount required for the liquidation account established at the time of
the conversion from mutual to stock form.
In the event the Bank's capital falls below the Bank's fully phased-in
requirement or the OTS notifies the Bank that it is in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If the Bank maintains an appropriate level
of qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualify as a QTL, the Bank will continue to enjoy full borrowing
privileges from the FHLB of Atlanta. The required percentage of QTIs is 65% of
portfolio assets (defined as all assets minus goodwill and other intangible
assets, property used by the institution in conducting its business and liquid
assets in an amount not exceeding 20% of total assets). In addition, savings
institutions may include shares of stock of the FHLBs, FNMA, and FHLMC as QTIs.
Compliance with the QTL test is determined on a monthly basis in nine out of
every twelve months. As of September 30, 1998, the Bank was in compliance with
its QTL requirement.
Federal Reserve. The Federal Reserve requires all depository
institutions to maintain non-interest-bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy liquidity requirements that are imposed by the OTS.
Item 2. Description of Property
(a) Properties.
The Company and the Bank operate from their office at 100 West Screven
Street, Quitman, Georgia. The Bank has began construction of a new office at 602
East Screven Street, Quitman, Georgia, which when completed, will become the
main office.
13
<PAGE>
(b) Investment Policies.
See "Item 1. Description of Business" above for a general description of
the Bank's investment policies and any regulatory or Board of Directors'
percentage of assets limitations regarding certain investments. The Bank's
investments are primarily acquired to produce income, and to a lesser extent,
possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item 1.
Description of Business - Lending Activities" and "Item 2. Description of
Property."
(2) Investments in Real Estate Mortgages. See "Item 1. Description of
Business - Lending Activities."
(3) Investments in Securities of or Interests in Persons Primarily Engaged
in Real Estate Activities. See "Item 1. Description of Business - Lending
Activities."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
There are various claims and lawsuits in which the Company or the Bank
are periodically involved, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans, and other issues
incident to the Bank's business. In the opinion of management, no material loss
is expected from any of such pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The information contained under the section captioned "Common Stock
Information" of the Company's Annual Report to Stockholders for the fiscal year
ended September 30, 1998 (the "Annual Report"), is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
Annual Report is incorporated herein by reference.
Item 7. Financial Statements
The Registrant's financial statements listed under Item 13 are
incorporated herein by reference.
14
<PAGE>
Item 8. Changes in and Disagreements with Accountants On Accounting and
Financial Disclosure.
On September 30, 1997, the audit proposal of Stewart, Fowler & Stalvey,
P.C. for the 1997 audit year was accepted at a meeting of the Board of Directors
of the Bank. Stewart, Fowler & Stalvey, P.C. subsequently stated that it would
also audit the 1996 and 1998 audit years. Simmons & Simmons, P.C., the
independent auditor for the Bank, orally advised the Bank on August 27, 1997
that it did not wish to continue as independent auditor following the conversion
and that it was resigning to allow Stewart, Fowler & Stalvey, P.C. to audit the
fiscal year ending September 30, 1997 in connection with the conversion. The
report of Simmons & Simmons, P.C. for the fiscal year ended September 30, 1996
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
fiscal year ended September 30, 1996 and during the period from September 30,
1996 to September 30, 1997, there were no disagreements between the Bank and
Simmons & Simmons, P.C. concerning accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
with Section 16(a) of the Exchange Act.
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Proposal I - Election of
Directors" in the Proxy Statement is incorporated herein by reference.
Item 10. Executive Compensation
The information contained in the section captioned "Director and
Executive Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the first chart in the section captioned "Proposal I - Election of Directors"
in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the first chart in the section captioned "Proposal I - Election of Directors"
in the Proxy Statement.
(c) Management of the Registrant knows of no arrangements, including
any pledge by any person of securities of the Registrant, the operation of which
may at a subsequent date result in a change in control of the Registrant.
15
<PAGE>
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" in the Proxy Statement.
Item 13. Exhibits, List, and Reports on Form 8-K
(a) Listed below are all financial statements and exhibits filed as
part of this report.
1. The consolidated statements of financial condition of
Quitman Bancorp, Inc. as of September 30, 1998 and
1997 and the related consolidated statements of
income, consolidated statements of equity and cash
flows for each of the years in the two year period
ended September 30, 1998, together with the related
notes and the independent auditors' report of
Stewart, Fowler & Stalvey, P.C., independent
certified public accountants.
2. Schedules omitted as they are not applicable.
3. The following exhibits are included in this Report or
incorporated herein by reference:
(a) List of Exhibits:
3(i) Articles of Incorporation of Quitman Bancorp, Inc. *
3(ii) Bylaws of Quitman Bancorp, Inc. *
10.1 Director Indexed Salary Continuation Plan *
10.2 Executive Indexed Salary Continuation Plan *
13 Portions of Annual Report to Stockholders for the
fiscal year ended
September 30, 1998
21 Subsidiaries of the Registrant
27 Financial Data Schedule (electronic filing only)
* Incorporated by reference to the identically numbered exhibit to the
registration statement on Form SB-2 (File No. 333-43063) declared effective
by the SEC on February 11, 1998.
(b) Not applicable
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized as of
December 28, 1998.
QUITMAN BANCORP, INC.
By: /s/ Melvin E. Plair
-------------------------------------
Melvin E. Plair
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated as of December 28, 1998.
/s/ Claude R. Butler /s/ Melvin E. Plair
- ---------------------------------- -----------------------------------------
Claude R. Butler Melvin E. Plair
Chairman of the Board and Director President and Chief Executive Officer
(Principal Executive and Financial Officer)
/s/ Robert L. Cunningham, III /s/ Peggy L. Forgione
- ---------------------------------- -----------------------------------------
Robert L. Cunningham, III Peggy L. Forgione
Vice Chairman and Director Vice President and Controller
(Principal Accounting Officer)
/s/ Walter B. Holwell
- ----------------------------------
Walter B. Holwell
Director
/s/ John W. Romine
John W. Romine
Director
/s/ Daniel M. Mitchell, Jr.
Daniel M. Mitchell, Jr.
Director
EXHIBIT 13
<PAGE>
QUITMAN BANCORP, INC.
ANNUAL REPORT
For the Year Ended
September 30, 1998
<PAGE>
QUITMAN BANCORP, INC.
ANNUAL REPORT
TABLE OF CONTENTS
Letter to Stockholders...................................................... 1
Company Information......................................................... 2
Common Stock Information.................................................... 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 4
Independent Auditors' Report................................................ 16
Consolidated Financial Statements........................................... 17
Notes to Consolidated Financial Statements.................................. 21
Office Locations and Other Corporate Information............................ 40
<PAGE>
QUITMAN BANCORP, INC.
100 West Screven Street
P.O. Box 592
Quitman, Georgia 31643
Telephone (912) 263-7538
December 15, 1998
Dear Fellow Stockholders:
This is the first annual stockholders' report for Quitman Bancorp, Inc., the
holding company for Quitman Federal Savings Bank. The bank completed its
conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank in April 1998.
The conversion generated $6.2 million of new capital, of which $3.1 million was
contributed to the bank, whose capital ratios already significantly exceeded all
minimum federal regulatory requirements. The remainder of the new capital was
retained by the company. The bank's financial safety and soundness is the result
of many years of conservative management.
We believe the company is well positioned to meet tomorrow's challenges and
demands as a community savings bank, and we look forward to the future with
enthusiasm and optimism. Our new main office is under construction and should be
completed in April 1999. With this new office we will provide even more service
to the communities we serve. We have a loyal customer base, a dedicated board of
directors and an excellent staff who recognize the importance of quality
service. We will continue to focus on what we do best. These have been the key
ingredients to our profitability and growth for 60 years and will continue to
shape our future.
While we are pleased with the response to our stock offering, the resulting
consolidated equity in the Company is approximately 20.2% of total assets at
September 30, 1998. Consequently, in the years ahead capital management will be
one of our greatest challenges. We are also aware of the recent declines in the
stock market and how it has affected the price of company stock. As fellow
stockholders, we, like you, are not pleased with the current stock price. While
we can't control the stock market, we can continue to run the bank and trust
that our stock price will increase in the future because of the actions we take
now. Our construction of a new office and our increased construction lending are
some examples of this.
Your board of directors and management are committed to protecting and enhancing
the value of your investment in the company. To do so, we are challenged to
continue delivering high quality services to our customers and community. We
appreciate the confidence, support, and loyalty of our customers, employees, and
stockholders.
Sincerely,
/s/Melvin E. Plair /s/Claude R. Butler
Melvin E. Plair Claude R. Butler
President and CEO Chairman of the Board
<PAGE>
QUITMAN BANCORP, INC.
Company Information
Quitman Bancorp, Inc. (the "Company") is a Georgia-chartered corporation
organized at the direction of Quitman Federal Savings Bank (the "Bank") in
connection with the Bank's conversion from a mutual to stock form of
organization (the "Conversion"). On April 2, 1998, the Bank completed the
Conversion and became a wholly owned subsidiary of the Company. The Company is a
unitary savings and loan holding company which, under existing laws, generally
is not restricted in the types of business activities in which it may engage
provided the Bank retains a specified amount of its assets in housing-related
investments.
Because the Company owns the Bank and most of the income and operations that are
being reported are those of the Bank, in this report references to "we," "us,"
and "our" refer to the Company and the Bank.
The Bank is a federally chartered stock savings bank that commenced business in
1936. The Bank examined and regulated by the Office of Thrift Supervision
("OTS") and its deposits are federally insured by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of and owns capital stock in the Federal Home Loan Bank
("FHLB") of Atlanta, which is one of the 12 regional banks in the FHLB System.
We are located in Quitman, which is in the center of the southern part of
Georgia, approximately 15 miles west of Valdosta and Interstate 75 and 10 miles
north of the Florida border. Our market area is Brooks county (in which Quitman
is located) as well as parts of Lowndes county, both of which are in Georgia.
Our market area is based primarily on agricultural goods such as cotton,
peanuts, corn and tobacco and dairy products.
We attract deposits from the general public and use these deposits primarily to
originate residential loans. Our principal sources of funds for lending
activities are deposits, Federal Home Loan Bank borrowings and the amortization,
repayment, and maturity of loans and investment securities. We do not rely on
brokered deposits. Principal sources of income are interest on loans and
investment securities. Our principal expense is interest paid on deposits.
Common Stock Information
Since its issuance in April 1998, our common stock ("Common Stock") has been
traded in the over-the-counter market with quotations available through the OTC
Bulletin Board (symbol: QTMB). The following table reflects high and low bid
quotations as published by Charles Schwab & Co. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down, or commission, and may
not represent actual transactions.
2
<PAGE>
Date High Low
---- ------- -------
April 2, 1998 to June 30, 1998 $15.125 $12.000
July 1, 1998 to September 30, 1998 13.250 9.000
The number of shareholders of record of Common Stock as of September 30, 1998,
was approximately 185, exclusive of the number of persons or entities who held
stock in nominee or "street" name through various brokerage firms. At September
30, 1998, there were 661,250 shares issued and outstanding. Our ability to pay
dividends to stockholders is primarily dependent upon the dividends we receive
from the Bank. The Bank may not declare or pay a cash dividend on any of its
stock if that dividend would cause the Bank's regulatory capital to be reduced
below (1) the amount required for the liquidation account established in
connection with the Conversion, or (2) the regulatory capital requirements
imposed by the OTS. We have not paid any dividends on the Common Stock.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We may from time to time make written or oral "forward-looking
statements", including statements contained in our filings with the Securities
and Exchange Commission, in our reports to stockholders and in our other
communications, which are made in good faith pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of our plans, expectations, and estimates that are subject to
change based on several factors (some of which are beyond our control). The
following factors, among others, could cause our financial performance to differ
materially from the plans, expectations, and estimates expressed in our
forward-looking statements: the strength of the United States economy and the
strength of the local economies in which we operate; the effects of, and changes
in, trade, monetary and fiscal policies and laws, including interest rate
policies of the Board of Governors of the Federal Reserve System, inflation,
interest rate, market and monetary fluctuations; the timely development of and
acceptance of our new products and services and the perceived overall value of
these products and services by customers, including the features and pricing
compared to competitors' products and services; the willingness of customers to
substitute our products and services for those of our competitors; the impact of
changes in financial services' laws and regulations (including laws concerning
taxes, banking, and securities); technological changes, acquisitions; changes in
consumer spending and saving habits; and our success in dealing with these
factors.
This list of factors is not exclusive. We do not undertake to update
any forward-looking statement, whether written or oral, that may be made from
time to time by us or on our behalf.
Our results of operations depend primarily on net interest income,
which is determined by (i) the difference between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. Our results of operations are also affected by
non-interest income, including, primarily, income from customer deposit account
service charges, gains and losses from the sale of investments and
mortgage-backed securities and non-interest expense, including, primarily,
compensation and employee benefits, federal deposit insurance premiums, office
occupancy costs, and data processing cost. Our results of operations also are
affected significantly by general and economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities, all of which are beyond our control.
Market Risk Analysis
Asset/Liability Management. Our assets and liabilities may be analyzed
by examining the extent to which our assets and liabilities are interest rate
sensitive and by monitoring the expected effects of interest rate changes on our
net portfolio value. We also use this information to analyze the risk that
changes in market interest rates will have on our operations. Part of this
analysis of market risk is made by estimating how our operations would be
affected by instantaneous changes in market interest rates.
We discuss these estimates under "Net Portfolio Value."
4
<PAGE>
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If our assets
mature or reprice more quickly or to a greater extent than our liabilities, our
net portfolio value and net interest income would tend to increase during
periods of rising interest rates but decrease during periods of falling interest
rates. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, our net portfolio value and net interest income
would tend to decrease during periods of rising interest rates but increase
during periods of falling interest rates. As described in the following
paragraph, our policy has been to address the interest rate risk inherent in the
historical savings institution business of originating long-term loans funded by
short-term deposits by maintaining liquid assets in excess of regulatory
minimums for material and prolonged changes in interest rates. At September 30,
1998, our liquid asset ratio was 13.98%.
We originate fixed rate real estate loans which approximated 90.2% of
our loan portfolio at September 30, 1998. To manage the interest rate risk of
this type of loan portfolio, generally we limit maturities of fixed rate loans
to no more than 5 years and maintain a portfolio of liquid assets. Our liquid
assets include cash and cash equivalents and investment securities
available-for-sale. At September 30, 1998, these liquid assets totalled $6.0
million, which was more than 16.9% of our total liabilities of $35.5 million. We
maintain these liquid assets to protect us in the event market interest rates
rise and we experience losses because we are paying more for our liabilities
than we are earning on our assets. If this happens, we may need liquid assets to
continue paying our liabilities and to continue operating with required capital
levels. However, maintaining liquid assets tends to reduce potential net income
because liquid assets usually provide a lower yield than less liquid assets. In
the past several years we have increased the size of our construction lending
portfolio through, in part, the use of short term borrowings from the FHLB.
Construction loans have a shorter duration than most of our other loans and this
type of lending and borrowing has somewhat reduced our interest rate risk. At
September 30, 1998, the average weighted term to maturity of our mortgage loan
portfolio was slightly more than 3 years and the average weighted term of our
deposits was slightly less than 15 months. In the future, we may begin funding
parts of loans originated by other financial institutions as a way of increasing
our interest rate spread. However, these loan participations and the method we
use to fund them may result in additional interest rate risk as well, as
possibly, credit risk.
Net Portfolio Value. In recent years, we have measured our interest
rate sensitivity by computing the "gap" between the assets and liabilities which
were expected to mature or reprice within certain time periods, based on
assumptions regarding loan prepayment and deposit decay rates formerly provided
by the OTS. However, we now receive computations of amounts by which our net
interest income over the next 12 months ("NII") would change in the event of
assumed changes in market interest rates. We use this information to analyze the
risk we face from changes in market interest rates. We also analyze market risk
in managing our assets and liabilities. See "Asset/Liability Management." These
computations indicate to us how the net present value of our cash flow from
assets, liabilities and off balance sheet items (our net portfolio value or
"NPV") would change in the event of assumed changes in market interest rates.
These computations estimate the effect on our NII from instantaneous and
permanent increases and decreases in market interest rates. In our interest rate
risk management policy we have set maximum decreases in NII and NPV that we
would be willing to tolerate under these assumed conditions. In addition, we
have also received computations of how these assumed conditions would impact our
NPV.
5
<PAGE>
<TABLE>
<CAPTION>
Board Limit of a
Percentage Change In Change in NPV
-------------------- --------------------------------
Dollars
NII NPV (in thousands) Percentages
Changes -------- ------- -------------- -----------
in Market
Interest Rates(1)
-----------------
(basis points)
<S> <C> <C> <C> <C>
+400 -60% -65% -$1,569 -25.77%
+300 -60% -60% -$1,200 -19.71%
+200 -40% -40% -$ 816 -13.40%
+100 -20% -25% -$ 416 -6.83%
-100 -25% -25% $ 428 7.03%
-200 -40% -40% $ 952 15.63%
-300 -50% -50% $1,564 25.69%
-400 -60% -60% $2,204 36.20%
</TABLE>
- --------------------
(1) 100 basis points equals 1%.
Because most of our loans have a longer term than most of our deposits,
the computation of the impact on our net income indicated we would earn more
income if interest rates were to fall and we would earn less income if interest
rates were to rise. Specifically, the computation of an instantaneous and
permanent 200 basis point decrease in market interest rates indicated an
approximately 20% increase in estimated pre-tax income. The computation of an
instantaneous and permanent 200 basis point increase in market interest rates
indicated an approximately 10% decrease in estimated pre-tax income. Both of
these computations (1) were based on financial information at September 30,
1998, (2) assumed net income over the 12 months following September 30, 1998 and
(3) resulted in financial results within the guidelines shown in the table
above. These computations assumed that certain types of our loans, securities,
and deposit accounts would have certain interest rates during the 12 month
period. For example, our savings and NOW accounts were assumed to yield no more
than 5.25% and our consumer loans and fixed rate mortgage loans were assumed to
yield 9.25% and 8.75%, respectively. The use of different assumptions would also
result in different results.
While we cannot predict future interest rates or their effects on our
NPV or net interest income, we do not expect current interest rates, assuming
rates remain stable, to have a material adverse effect on our NPV or net
interest income. Computations of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including relative levels of
market interest rates resulting in specific interest rates for our various
investment securities, loan portfolios and liabilities. These assumptions also
include estimates of other components of our income and the duration of certain
of our investment securities as well as prepayments, deposit run-offs and growth
rates and should not be relied upon as indicative of actual results. Certain
shortcomings are inherent in such computations. Although certain assets and
liabilities may have similar maturity or periods of repricing they may react at
different times and in different degrees to changes in the market interest
rates. The interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while rates on other
6
<PAGE>
types of assets and liabilities may lag behind changes in market interest rates.
In the event of a change in interest rates, prepayments and early withdrawal
levels could deviate significantly from those assumed in making the calculations
discussed above. Additionally, an increased credit risk may result as the
ability of many borrowers to service their debt may decrease in the event of an
interest rate increase.
The board of directors reviews our asset and liability policies. The
board of directors meets quarterly to review interest rate risk and trends, as
well as liquidity and capital ratios and requirements. Management administers
the policies and determinations of the board of directors with respect to our
asset and liability goals and strategies. We expect that our asset and liability
policies and strategies will continue as described so long as competitive and
regulatory conditions in the financial institution industry and market interest
rates continue as they have in recent years.
Financial Condition
Total consolidated assets increased $5.3 million, or 13.5% to $44.5
million at September 30, 1998, from $39.2 million at September 30, 1997. The
increase in total assets reflects a $3.1 million increase in loans receivable, a
$1,990,000 increase in investment securities, and a $120,000 increase in the
cash value of life insurance. Our increase in loans receivable is mainly due to
increased demand for loans in our market area.
Deposits increased $.5 million or 1.5% to $35.0 million at September
30, 1998 from $34.5 million at September 30, 1997. The increase in fiscal 1998
was a result of competitive pricing to fund loan demand. Advances from the
Federal Home Loan Bank ("FHLB") of Atlanta decreased $1.3 million to $-0-. Other
liabilities increased by $69,000 primarily due to the accrual of contributions
to our employee stock ownership plan of $60,000. As a result of the conversion,
our equity increased $5.7 million. This has resulted in greater liquid assets
and in reduced interest rate risk.
7
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the
Savings Bank's average balance sheet and reflects the average yield on assets
and average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
average balances has caused any material differences in the information
presented.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------
1998 1997
--------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable(1).......................... $34,577 $3,156 9.13% $32,065 $2,942 9.18%
Mortgage-backed securities................... 524 30 5.73 140 8 5.71
Investment securities........................ 3,490 230 6.59 3,617 226 6.25
Other interest-earning assets................ 1,563 99 6.33 345 22 6.38
------- ------ ------ ------
Total interest-earning assets.............. 40,154 3,515 8.75 36,167 3,198 8.84
Non-interest-earning assets.................... 1,767 -- 1,515 --
------- ------ ------ ------
Total assets............................... $41,921 $3,515 $37,682 $3,198
====== ===== ====== =====
Interest-bearing liabilities:
NOW Accounts................................. $ 1,464 $ 52 3.55 $ 1,488 $ 49 3.29
Savings accounts............................. 2,240 87 3.88 2,185 82 3.75
Money market accounts........................ -- -- -- -- -- --
Certificates of deposit...................... 31,783 1,929 6.07 29,427 1,782 6.06
Other liabilities............................ 615 36 5.85 1,175 65 5.53
------- ------ ------ ------
Total interest-bearing liabilities......... 36,102 2,104 5.83 34,275 1,978 5.77
Non-interest bearing liabilities............... 1,537 -- 519 --
------- ------ ------ ------
Total liabilities.......................... 37,639 $2,104 34,794 $1,978
===== =====
Equity......................................... 4,282 2,888
------ ------
Total liabilities and retained earnings.... $41,921 $37,682
====== ======
Net interest income............................ $1,411 $1,220
Interest rate spread(2)........................ 2.92% 3.07%
Net yield on interest-earning assets(3)........ 3.51% 3.37%
Ratio of average interest-earning assets
to average interest-bearing liabilities....... 111.22% 105.52%
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(4) Annualized (where appropriate) for purposes of comparability with year-end
data.
8
<PAGE>
The table below sets forth certain information regarding changes in
interest income and interest expense of the Savings Bank for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
---------------------------------------- -----------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------------- -----------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable................... $231 $(15) $ (1) $ 215 $ 250 $ 35 $ 3 $ 288
Investment securities.............. 16 9 1 26 (6) 17 7 18
Other interest-earning assets...... 78 -- (1) 77 (18) 6 (3) (15)
--- --- --- ---- ---- ---- ---- ----
Total interest-earning assets.... $325 $ (6) $ (1) $ 318 $ 226 $ 58 $ 7 $ 291
=== === === ==== ==== ==== ==== ====
Interest expense:
NOW accounts....................... $ (1) $ 4 $ -- $ 3 $ 1 $ 1 $ -- $ 2
Savings accounts................... 2 3 -- 5 3 1 -- 4
Money market accounts.............. -- -- -- -- -- -- -- --
Certificate of deposit 143 3 1 147 139 (55) (5) 79
Other liabilities.................. (31) 4 (2) (29) 43 2 5 50
--- --- --- ---- ---- ---- ---- ----
Total interest-bearing
liabilities.................... $113 $ 14 $ (1) $126 $ 186 $ (51) $ -- $ 135
=== ==== === === ==== ==== ==== ====
Net change in interest income........ $212 $(20) $ -- $192 $ 40 $ 109 $ 7 $ 156
=== === === === ==== ==== ==== ====
</TABLE>
9
<PAGE>
Results of Operations for the Years Ended September 30, 1998 and 1997
Net Income. Net income increased $40,738 or 15.5% from $262,799 for
fiscal 1997 to $303,537 for fiscal 1998. The increase was primarily the result
of an increase in interest on loans receivable due to an increase in the average
balance of $2.5 million and an increase in other interest income on other
interest earning assets due to an increase in the average balance of $1.5
million partially offset by an increase interest expense due to an increase in
the average balance of interest-bearing liabilities of $1.8 million and increase
in non-interest expenses of $257,000.
Net Interest Income. Our net interest income increased $234,717 or
19.3% to $1,454,198 in fiscal 1998 compared to $1,219,481 in fiscal 1997. The
increase was due primarily to the growth of average interest-earning assets from
$36.2 million in fiscal 1997 to $40.2 million in fiscal 1998.
The increase in our average interest-earning assets of $4.0 million
reflects an increase of $2.5 million in average loans. Our increase in average
loans receivable is mainly due to increased demand for loans in our market area.
Our interest rate spread decreased and net interest margin increased in
fiscal 1998 compared to fiscal 1997. This was due to the decrease in the yield
on interest-earning assets from 8.84% in fiscal 1997 to 8.75% in fiscal 1998 and
the increase in the interest cost of average interest-bearing liabilities from
5.77% in fiscal 1997 to 5.83% in fiscal 1998.
The yield on our average interest-earning assets decreased in fiscal
1998 primarily due to a decrease in the yield on loans receivable. This decrease
in yield on our loans receivable primarily reflected a decrease in the average
interest rates and, to a lesser degree, the payoff of higher yielding loans.
The increase in the cost of our average interest-bearing liabilities
was due primarily to an increase in the average balance of our certificates of
deposit from $29.4 million in fiscal 1997 to $31.8 million in fiscal 1998. The
$2.4 million increase in the average balance of certificates of deposits was
attributable primarily to our increased efforts to market our certificates of
deposit by offering competitive rates to fund our loan demand.
As a result of the conversion, the interest we earned on the proceeds
has contributed to the increase in our net interest income. Initially, the
proceeds were invested in shorter term investments that generally have lower
yields than residential mortgage loans. To the extent we are able through time
to find higher yielding uses for these funds, our net interest income may
further increase.
Provision for Loan Losses. Our provision for loan losses decreased
$112,000 from $136,000 for fiscal 1997 to $24,000 for fiscal 1998. The decrease
in the provision for fiscal 1998 was the result of management's review of our
loan portfolio, the potential losses in our loan portfolio and our history of
experiencing no losses on loans in recent years.
Noninterest Income. Our non-interest income decreased approximately
$10,000 in fiscal 1998 as compared to fiscal 1997. This was attributable to a
gain on the sale of foreclosed real estate and an increase in other income.
10
<PAGE>
Noninterest Expense. Our non-interest expense increased by $257,161 or
34.4% from $746,874 for fiscal 1997 to $1,004,035 for fiscal 1998. The increase
was primarily attributable to increases in compensation expense, other personnel
expense and depreciation expense on equipment additions.
As a result of the conversion, our expenses have increased because of
the costs associated with our employee stock ownership plan, and the costs of
being a public company. We also expect to offer checking accounts and may offer
the use of an automated teller machine (an "ATM") to our customers during 1998.
Our preparation costs for these products and the costs of soliciting checking
account funds has also increased our expenses. We have not yet received
sufficient checking account funds or other income to offset these additional
costs.
Although no definite plans have been made, we are exploring whether to
purchase land and construct a branch. We would likely hire experts or spend
money before we commit to purchasing land or constructing a new branch. If we
decided not to build a new branch, the money that we had spent up to that time
would be a noninterest expense and would negatively affect our income.
We expect noninterest expense will increase as a result of the opening,
staffing and equipping of the new bank building under construction that is
expected to open in April 1999. Our current lack of space limits our ability to
process loan applications and provide other services in our market area. We
expect a reduction in net income (and possibly losses) compared to prior periods
as a result of these expenses until the new building results in higher overall
levels of loan and deposit activity to offset the additional expenses. We
believe that this expansion should enhance shareholder value and hope that the
decrease in earnings will not be as great following the end of year 2000. Our
statement of beliefs concerning our expansion is a forward looking statement.
The Private Securities Litigation Reform Act of 1995 (the "Act") provides
protection to us in making certain forward looking statements that are
accompanied by the factors that could cause actual results to differ materially
from the forward looking statement. As with any expansion, if a new office or
additional personnel do not ultimately result in increased loan and deposit
activity and increased net income, these expenses would continue to have an
adverse affect on net income past the end of year 2000. Our noninterest expense
would further increase if we build the new branch discussed in the prior
paragraph.
Income Tax Expense. Our income tax expense increased $40,739 from
$119,211 in fiscal 1997 to $177,815 in fiscal 1998 due to the increase in income
before taxes.
Return on Equity and Assets:
YEAR ENDED SEPTEMBER 30,
----------------------------
1998 1997
---- ----
Return on Assets .70% .70%
Return on Equity 5.08% 9.11%
Dividend Payout Ratio -- --
Equity to Assets Ratio 13.80% 7.66%
11
<PAGE>
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined by OTS
regulations. This requirement, which varies from time to time depending upon
economic conditions and deposit flows, is based upon a percentage of our
deposits and short-term borrowings. The required ratio is 4.0% and our liquidity
ratio average was 14% and 12% at September 30, 1998 and 1997, respectively. The
proceeds we received from the conversion has increased our liquidity and capital
resources.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments and interest-bearing
deposits, funds provided from operations and advances from the FHLB of Atlanta.
While scheduled repayments of loans and mortgage-backed securities and
maturities of investment securities are predicable sources of funds, deposit
flows, and loan prepayments are greatly influenced by the general level of
interest rates, economic conditions and competition. We use our liquidity
resources principally to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, to maintain liquidity, and to meet operating
expenses. We expect that these liquidity needs will continue to exist in future
years.
Net cash provided by our operating activities (the cash effects of
transactions that enter into our determination of net income -- e.g., non-cash
items, amortization and depreciation, provision for loan losses) for the year
ended September 30, 1998 was $402,899 as compared to $328,902 for the year ended
September 30, 1997.
Net cash used in our investing activities (i.e., cash receipts, primarily from
our investment securities and mortgage-backed securities portfolios and our loan
portfolio) for the year ended September 30, 1998 totalled $6.1 million, an
increase of $2.8 million from September 30, 1997. The increase was primarily
attributable to our use of $3.6 million in cash to fund the purchase of
available-for-sale investment securities and the use of $3.3 million in cash to
fund the net increase in loan originations, partially offset by the proceeds
from the maturity and sale of investment securities.
Net cash provided by our financing activities (i.e., cash receipts primarily
from net increases in deposits and net FHLB advances) for fiscal 1998 totalled
$5.4 million compared to $2.8 million for fiscal 1997. This is a result of a net
increase in deposits of $.5 million in fiscal 1998 as compared to an increase of
$2.7 million in fiscal 1997 and proceeds of $6.2 million from the commission and
repayment of $1.3 million in FHLB advances.
We are taking necessary steps to be certain our data processing equipment and
software will properly function on January 1, 2000, the date that computer
problems are expected to develop worldwide on computer systems that incorrectly
identify the year 2000 and incorrectly compute interest, payment or delinquency.
Accurate data processing is essential to our operations.
We have examined our computers to determine whether they will properly
function on January 1, 2000 and do not believe that we will experience material
costs to upgrade our computers. We have ordered and installed an upgrade to our
computer system that is intended to solve the Year 2000 Computer software issue.
We installed this upgrade during the first calendar quarter of 1998 with testing
of this software in progress. We anticipate completion of the testing phase by
year end.
12
<PAGE>
If there is a malfunction of the software during testing, we plan to implement
"manual processing" until our software becomes Y2K compliant. We have ordered
packages of all forms required to handle loans, deposits and operations.
Detailed plans for the manual operation of Quitman Federal Savings Bank are in
progress.
Non-information technology such as; heating, air conditioning and door locks
have been tested. These areas will not be impacted.
We have made contact with our Commercial Borrowers regarding the Year 2000
issue, advising them of the potential problem. As the majority of our loan
portfolio is 1 to 4 family dwellings, we do not feel our commercial borrowers
will be an issue.
During the fiscal year ended September 30, 1998, approximately $27.5 million
of certificates of deposit (approximately 79% of our total deposits) will
mature. We expect that most of these certificates of deposit will be renewed.
Even if many of these certificates of deposit are not renewed, we believe that
we have sufficient liquidity and other sources of funds to successfully manage
the outflow of funds.
A new bank building is currently under construction, the estimated cost of the
new facility and land is $960,000. We are exploring whether to purchase land and
construct a branch. Although no definite plans have been made, if a new branch
is built, the land and construction costs could total approximately $600,000. We
have sufficient liquid assets to pay for these costs. These costs will be
partially offset by the sale of our existing office. We also have sufficient
capital resources to install an ATM machine, if we decide to offer that service
in the future.
Recent Accounting Pronouncements
FASB Statement on Earnings Per Share. In March 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS) No. 128. The Statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This Statement simplifies the standards for
computing earnings per share previously found in Accounting Principles Board
("APB") Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This statement
supersedes Opinion 15 and AICPA Accounting Interpretation 1-102 of Opinion 15.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. SFAS No. 128 has been
adopted by us for the year ended September 30, 1998. We do not believe the
impact of adopting SFAS No. 128 was material to our financial statements.
13
<PAGE>
FASB Statement on Disclosure of Information about Capital Structure. In
February 1997, the FASB issued SFAS No. 129. The Statement incorporates the
disclosure requirements of APB Opinion No. 15, Earnings per Share, and makes
them applicable to all public and nonpublic entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires disclosure of
descriptive information about securities that is not necessarily related to the
computation of earnings per share. This statement continues the previous
requirements to disclose certain information about an entity's capital structure
found in APB Opinions No. 10, Omnibus Opinion- 1966, and No. 15, Earnings per
Share, and FASB Statement No. 47, Disclosure of Long-Term Obligations, for
entities that were subject to the requirements of those standards. This
Statement eliminates the exemption of nonpublic entities from certain disclosure
requirements of Opinion 15 as provided by FASB Statement No. 21, Suspension of
the Reporting of Earnings per Share and Segment Information by Nonpublic
Enterprises. It supersedes specific disclosure requirements of Opinions 10 and
15 and Statement 47 and consolidates them in this Statement for ease of
retrieval and for greater visibility to nonpublic entities. The Statement is
effective for financial statements for periods ending after December 15, 1997.
SFAS No. 129 has been adopted by us for the year ended September 30, 1998. We do
not believe the impact of adopting SFAS No. 129 was material to our financial
statements.
FASB Statement of Accounting for Stock-Based Compensation. In October 1995,
the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value based method"
of accounting for an employee stock option whereby compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period. FASB has encouraged all entities to adopt the fair value based
method, however, it will allow entities to continue the use of the "intrinsic
value based method" prescribed by APB Opinion No. 25. Under the intrinsic value
based method, compensation cost is the excess of the market price of the stock
at the grant date over the amount an employee must pay to acquire the stock.
However, most stock option plans have no intrinsic value at the grant date and,
as such, no compensation cost is recognized under APB Opinion No. 25. Entities
electing to continue use of the accounting treatment of APB Opinion No. 25 must
make certain pro forma disclosures as if the fair value based method had been
applied. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years beginning after December 15, 1995. Pro
forma disclosures must include the effects of all awards granted in fiscal years
beginning after December 15, 1994. We expect to use the "intrinsic value based
method" as prescribed by APB Opinion No. 25. Accordingly, we do not believe the
impact of adopting SFAS No. 123 will be material to our financial statements.
Currently, we do not have an approved employee stock option plan.
FASB Statement on Reporting Comprehensive Income. In June 1997, the FASB
issued SFAS No. 130. This Statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. The statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The statement requires that we (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. The statement is effective for our financial statements as
of September 30, 1999. We do not anticipate that the implementation of this
Statement will have a material impact on our consolidated financial statements.
14
<PAGE>
FASB Statement on Disclosures about Segments of an Enterprise and Related
Information. In June 1997, the FASB issued SFAS No. 131. The statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The statement is effective for our financial statements as of
September 30, 1999. We do not anticipate that the implementation of this
statement will have a material impact on our consolidated financial statements.
SOP 93-6 Employers' Accounting for Employee Stock Ownership Plan. In November
1993, the American Institute of Certified Public Accountants ("AICPA") issued
SOP 93-6 Employers' Accounting for Employee Stock Ownership Plan. SOP 93-6
addresses accounting for shares of stock issued to employees by an employee
stock ownership plan. SOP 93-6 requires that the employer record compensation
expense in an amount equal to the fair value of shares committed to be released
from the ESOP to employees. SOP 93-6 is effective for fiscal years beginning
after December 15, 1993 and relates to shares purchased by an ESOP after
December 31, 1992. If the common stock appreciates over time, SOP 93-6 will
increase compensation expense relative to the ESOP, as compared with prior
guidance that required recognition of compensation expense based on the cost of
the shares acquired by the ESOP. The amount of any such increase, however,
cannot be determined at this time because the expense will be based on the fair
value of the shares committed to be released to employees, which amount is not
determinable.
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
Quitman Bancorp, Inc. and Subsidiary
Quitman, Georgia
We have audited the accompanying consolidated statements of financial condition
of Quitman Bancorp, Inc. and Subsidiary as of September 30, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Quitman
Bancorp, Inc. and Subsidiary as of September 30, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/Stewart, Fowler & Stalvey, P.C.
- ----------------------------------
STEWART, FOWLER & STALVEY, P.C.
Valdosta, Georgia
October 15, 1998
16
<PAGE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash and Cash Equivalents, Notes 1 and 2:
Cash and amounts due from depository
institutions $ 168,404 108,650
Interest-bearing deposits in other banks 203,462 548,158
------------ ------------
Total Cash and Cash Equivalents 371,866 656,808
Investment securities:
Available-for-sale (fair value $5,640,709 in 1998
and $3,046,109 in 1997), Notes 1 and 3 5,640,709 3,046,109
Held-to-maturity (fair value $199,936 in 1998 and
$801,061 in 1997), Notes 1 and 3 200,000 804,706
Loans receivable, Notes 1 and 4 36,397,067 33,325,719
Office properties and equipment, at cost, net of
accumulated depreciation, Notes 1 and 5 681,453 322,527
Real estate and other property acquired in
settlement of loans, Note 1 -0- 63,915
Accrued interest receivable, Note 6 447,854 381,218
Investment required by law-stock in Federal
Home Loan Bank, at cost, Note 13 239,800 227,700
Cash value of life insurance, Note 11 337,813 218,106
Other assets, Notes 1 and 9 45,182 87,446
------------ ------------
Total Assets $ 44,361,744 39,134,254
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits, Note 7 $ 34,954,584 34,470,803
Advances from Federal Home Loan Bank, Note 13 -0- 1,300,000
Accrued interest payable 275,028 272,346
Income taxes payable, Note 9 24,660 56,856
Other liabilities 143,719 75,696
------------ ------------
Total Liabilities 35,397,991 36,175,701
------------ ------------
Stockholders' Equity:
Common stock, $.10 par value, 4,000,000 shares
authorized, 661,250 shares issued and
outstanding 66,125 -0-
Additional paid in capital 6,135,412 -0-
Retained Earnings, Note 8 3,256,097 2,952,560
Unrealized gains (losses) on available-
for-sale securities, net of applicable deferred
income taxes 35,119 5,993
Receivable from ESOP, Note 11 (529,000) -0-
------------ ------------
Total Stockholders' Equity 8,963,753 2,958,553
------------ ------------
Total Liabilities and Stockholders' Equity $ 44,361,744 39,134,254
============ ============
</TABLE>
Note: The accompanying notes to financial statements are an integral part of
this statement.
17
<PAGE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
Interest Income:
Loans receivable:
First mortgage loans $ 3,029,927 2,833,489
Consumer and other loans 148,753 108,748
Interest on FHLMC Pool 259 219
Investment securities 280,948 233,416
Interest-bearing deposits 98,115 21,552
Federal funds sold 524 520
----------- -----------
Total Interest Income 3,558,526 3,197,944
----------- -----------
Interest Expense:
Deposits, Note 7 2,067,707 1,913,045
Interest on Federal Home Loan
Bank advances 36,621 65,418
----------- -----------
Total Interest Expense 2,104,328 1,978,463
----------- -----------
Net Interest Income 1,454,198 1,219,481
Provision for loan losses, Notes 1 and 4 24,000 136,000
----------- -----------
Net Interest Income After Provision for Losses 1,430,198 1,083,481
----------- -----------
Non-Interest Income:
Gain (loss) on sale of securities 18 (133)
Gain (loss) on sale of other real estate 7,102 -0-
Late charges on loans 32,811 34,247
Insurance commissions 1,584 1,701
Other income 13,674 9,588
----------- -----------
Total Non-Interest Income 55,189 45,403
----------- -----------
Non-Interest Expense:
Compensation 317,778 255,966
Other personnel expenses, Note 11 231,509 150,382
Occupancy expenses of premises 22,048 22,900
Furniture and equipment expenses 121,847 69,892
Advertising 41,529 31,279
Federal deposit insurance 22,419 29,553
Other operating expenses 246,905 186,902
----------- -----------
Total Non-Interest Expense 1,004,035 746,874
----------- -----------
Income Before Income Taxes 481,352 382,010
Provision for Income Taxes, Note 9 177,815 119,211
----------- -----------
Net Income $ 303,537 262,799
=========== ===========
Earnings Per Share (Basic and Diluted), Note 1 $ .46 N/A
=========== ===========
Note: The accompanying notes to financial statements are an integral part of
this statement.
18
<PAGE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
AVAILABLE-
FOR-SALE
SECURITIES,
NET OF
ADDITIONAL RECEIVABLE APPLICABLE
COMMON PAID IN RETAINED FROM DEFERRED
STOCK CAPITAL EARNINGS ESOP INCOME TAXES TOTAL
----------- ------------- ----------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1996 $ -0- -0- 2,689,761 -0- (22,921) 2,666,840
Net Income -0- -0- 262,799 -0- -0- 262,799
Change in unrealized gains
(losses) on available-
for-sale securities, net
of applicable deferred
income taxes -0- -0- -0- -0- 28,914 28,914
---------- ---------- ---------- ------ ---------- ----------
Balances, September 30, 1997 -0- -0- 2,952,560 -0- 5,993 2,958,553
Net Income -0- -0- 303,537 -0- -0- 303,537
Issuance of 661,250 shares of
common stock 66,125 6,135,412 -0- -0- -0- 6,201,537
Change in loan receivable
from employee stock
ownership plan -0- -0- -0- (529,000) -0- (529,000)
Change in unrealized gains
(losses) on available-
for-sale securities, net
of applicable deferred
income taxes -0- -0- -0- -0- 29,126 29,126
---------- ---------- ---------- -------- ---------- ----------
Balances, September 30, 1998 $ 66,125 6,135,412 3,256,097 (529,000) 35,119 8,963,753
========== ========== ========= ======== ========== ==========
</TABLE>
Note:The accompanying notes to financial statements are an integral part of this
statement.
19
<PAGE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1998 1997
---------- -----------
Cash Flows From Operating Activities:
- -------------------------------------
<S> <C> <C>
Net income $ 303,537 262,799
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 79,081 41,067
Provision for loan losses 24,000 136,000
Increase (Decrease) in deferred income tax benefit 4,532 (51,972)
Amortization (Accretion) of securities and loans 7,338 11,022
Gain on sale of other real estate (7,102) -0-
Change in Assets and Liabilities:
(Increase) Decrease in accrued interest receivable (66,636) (11,171)
Increase (Decrease) in accrued interest payable 2,682 19,074
Increase (Decrease) in other liabilities 68,023 (188,262)
Increase (Decrease) in income taxes payable (32,196) 60,483
(Increase) Decrease in other assets 19,640 49,862
----------- -----------
Net cash provided by operating activities 402,899 328,902
----------- -----------
Cash Flows From Investing Activities:
- -------------------------------------
Capital expenditures (438,007) (52,673)
Purchase of available-for-sale securities (3,634,680) (1,740,910)
Loan to employee stock ownership plan (529,000) -0-
Proceeds from sale of foreclosed property 296,710 -0-
Proceeds from maturity of held-to-maturity securities 600,000 300,000
Net (increase) decrease in loans (3,321,041) (2,720,447)
Purchase of stock in Federal Home Loan Bank (12,100) (8,600)
Principal collected on mortgage-backed securities 36,666 2,289
Proceeds from sale of available-for-sale securities 498,000 400,063
Proceeds from call of held-to-maturity securities -0- 549,781
Proceeds from maturity of available-for-sale securities 550,000 100,000
Increase in cash value of life insurance (119,707) (108,687)
----------- -----------
Net cash provided (used) by investing activities (6,073,159) (3,279,184)
----------- -----------
Cash Flows From Financing Activities:
- -------------------------------------
Net increase (decrease) in deposits 483,781 2,741,840
Proceeds from Federal Home Loan Bank advances -0- 100,000
Payments on Federal Home Loan Bank advances (1,300,000) -0-
Issuance of 661,250 shares of common stock 6,201,537 -0-
Net cash provided (used) by financing activities 5,385,318 2,841,840
----------- -----------
Net Increase (Decrease) in cash and cash equivalents (284,942) (108,442)
Cash and Cash Equivalents at Beginning of Period 656,808 765,250
----------- -----------
Cash and Cash Equivalents at End of Period $ 371,866 656,808
=========== ===========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid during the year for:
Income taxes net of refunds $ 205,479 60,000
=========== ===========
Interest $ 2,101,646 1,959,389
=========== ===========
Schedule of Non-Cash Investing and Financing Activities
- -------------------------------------------------------
Total increase (decrease) in unrealized gains
on securities available-for-sale $ 47,218 28,914
=========== ===========
Loans transferred to foreclosed real estate $ 225,693 63,915
=========== ===========
</TABLE>
Note:The accompanying notes to financial statements are an integral part of this
statement.
20
<PAGE>
QUITMAN FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Business Activities: Quitman Bancorp, Inc. (the "Company") is a Georgia -
chartered corporation organized at the direction of Quitman Federal Savings Bank
(the "Bank") (formerly Quitman Federal Savings & Loan Association) in connection
with the Bank's conversion from a mutual to stock form of organization (the
"Conversion"). On April 2, 1998, the Bank completed the conversion and became a
wholly owned subsidiary of the Company.
The Company is engaged in the activity of providing traditional banking services
through its banking subsidiary, Quitman Federal Savings Bank. The Bank is a
federally chartered stock savings bank that commenced business in 1936. Business
activities are predominately with customers in the Brooks and Lowndes County,
Georgia area.
Consolidated financial statements: The accompanying consolidated financial
statements include the accounts of Quitman Bancorp, Inc. and its wholly owned
subsidiary, Quitman Federal Savings Bank. All inter-company transactions and
accounts have been eliminated in consolidation.
Investment Securities: Investment securities for which the management has the
ability and intent to hold to maturity are classified as held-to-maturity and
carried at amortized cost using methods approximating the interest method. Other
securities are classified as available-for-sale and are carried at fair value.
Unrealized gains and losses on securities available-for-sale are recognized as
direct increases or decreases in stockholders' equity. Cost of any securities
sold is recognized by the specific identification method.
Loans Receivable: Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses and net deferred loan-origination fees and
discounts. Uncollectible interest on loans that are contractually past due is
charged off or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgement, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.
Office properties and equipment and related depreciation and amortization:
Office properties and equipment, consisting of land, buildings, furniture and
fixtures and automobile are carried at cost, less accumulated depreciation. The
building is being depreciated on the straight-line method and the furniture,
fixtures and equipment, with minor exceptions, by accelerated methods.
Loan origination fees: Commencing with loans originated during the year ended
September 30, 1988, mortgage loan origination fees and related direct loan
origination costs are deferred and the net amount so deferred is amortized over
the life of the loan by a method that approximates the level yield method and
reflected as an adjustment of interest income. Fees for originating consumer
loans which do not materially exceed the direct loan origination cost, are
recorded as income when received and the direct loan origination costs are
expensed as incurred.
21
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------------------
Real estate and other property acquired in settlement of loans: At the time of
foreclosure, real estate and other property acquired in settlement of loans is
recorded at fair value, less estimated costs to sell. Any write-downs based on
the asset's fair value at date of acquisition are charged to the allowance for
loan losses. Subsequent to acquisition, such assets are carried at the lower of
cost or market value less estimated costs to sell. Cost incurred in maintaining
such assets and any subsequent write-downs to reflect declines in the fair value
of the property are included in income (loss) on foreclosed assets.
Allowance for losses: An allowance for loan losses is charged to operations
based upon management's evaluation of the potential losses in its loan
portfolio. This evaluation includes a review of all loans on which full
collectibility may not be reasonably assured, considers the estimated value of
the underlying collateral and such other factors as, in management's judgement,
deserve recognition under existing economic conditions.
Income taxes: Income taxes have been computed under Statement of Financial
Accounting Standards No. 109. Implementation of Statement No. 109 with regard to
income taxes did not have a material effect on the tax provisions of the
Company. Deferral of income taxes results primarily from differences in the
provision for loan losses, depreciation and unrealized gains and losses on
available-for-sale securities for tax purposes and financial reporting purposes.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. The financial
statements reflect a net deferred asset of $26,906 and $49,530 at September 30,
1998 and 1997, respectively.
Cash and cash equivalents: For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents and includes cash on hand and
amounts due from banks (excluding certificates of deposit).
Off balance sheet financial instruments: In the ordinary course of business, the
Bank has entered into off balance sheet financial instruments consisting of
commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain significant estimates: Material estimates that are particularly
susceptible to significant change relate to the determination of the allowance
for losses on loans and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination
of allowances for losses on loans and the valuation of foreclosed real estate,
management obtains independent appraisals for significant properties.
22
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------------------
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgements about information available to them at the time of their examination.
It is at least reasonably possible that the allowances for losses on loans and
foreclosed real estate may change in the near term.
Advertising costs: The Bank expenses advertising costs as they are incurred.
Advertising costs charged to expenses were $41,529 and $31,279 for the years
ended September 30, 1998 and 1997, respectively.
Fair values of financial instruments: Statement of Financial Accounting
Standards No. 107, Disclosure about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets, and, in many
cases, could not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement of
financial condition for cash and cash equivalents approximate those assets'
fair values.
Time deposits: Fair values for time deposits are estimated using a discounted
cash flow analysis that applies interest rates currently being offered on
certificates to a schedule of aggregated contractual maturities on such time
deposits.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans (for example, fixed rate commercial real
estate, mortgage loans and commercial and industrial loans) are estimated
using discounted cash flow analysis, based on interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
Loan fair value estimates include judgements regarding future expected loss
experience and risk characteristics. The carrying amount of accrued interest
receivable approximates its fair value.
23
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------------------
Deposits: The fair values disclosed for demand deposits (for example,
checking accounts, interest-bearing checking accounts and savings accounts)
are, by definition, equal to the amount payable on demand at the reporting
date (that is, their carrying amounts). The fair values for certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated contractual maturities on such time deposits. The carrying amount
of accrued interest payable approximates fair value.
Advances from Federal Home Loan Bank: The carrying amounts of advances from
the Federal Home Loan Bank approximate their fair value.
Other liabilities: Commitments to extend credit were evaluated and fair value
was estimated using the terms for similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates.
Earnings per share: Earnings per share are computed on the weighted average
number of shares outstanding. Weighted average shares used in the computation
of earnings per share at September 30, 1998 were 661,250 shares.
Note 2 - Cash
- -------------
As of September 30, 1998, the Bank had cash on deposit with certain commercial
banks in excess of federal depository insurance as follows:
FEDERAL
BOOK BANK DEPOSITORY
BALANCE BALANCE INSURANCE
---------- ---------- -----------
Total $ 254,580 389,271 214,982
========== ========== ==========
As of September 30, 1997, the Association had cash on deposit with certain
commercial banks in excess of federal depository insurance as follows:
FEDERAL
BOOK BANK DEPOSITORY
BALANCE BALANCE INSURANCE
---------- ---------- -----------
Total $ 635,611 762,746 187,453
========== ========== ==========
24
<PAGE>
Note 3 - Investment Securities
- ------------------------------
Investment securities are carried in the accompanying balance sheets as follows:
Securities available-for-sale consist of the following:
- -------------------------------------------------------
<TABLE>
<CAPTION>
As of September 30, 1998:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $ 697,263 16,284 -0- 713,547
Obligations of other U.S.
Government agencies 4,383,021 25,728 145 4,408,604
Mortgage-backed securities 507,214 11,344 -0- 518,558
----------- ----------- -------- -----------
$ 5,587,498 53,356 145 5,640,709
=========== =========== ======== ===========
As of September 30, 1997:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $ 897,299 6,763 -0- 904,062
Obligations of other U.S.
Government agencies 1,601,903 3,120 5,108 1,599,915
Mortgage-backed securities 540,914 2,168 950 542,132
----------- ----------- -------- -----------
$ 3,040,116 12,051 6,058 3,046,109
=========== =========== ======== ===========
</TABLE>
Securities held-to-maturity consist of the following:
- -----------------------------------------------------
<TABLE>
<CAPTION>
As of September 30, 1998:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Obligations of other U.S.
Government agencies 200,000 -0- 64 199,936
=========== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1997:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $ 100,077 -0- 31 100,046
Obligations of other U.S.
Government agencies 704,629 -0- 3,614 701,015
----------- ----------- --------- -----------
$ 804,706 -0- 3,645 801,061
=========== =========== ========= ===========
</TABLE>
The amortized cost and estimated market value of debt securities at September
30, 1998, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
25
<PAGE>
Note 3 - Investment Securities (Continued)
SECURITIES SECURITIES
AVAILABLE-FOR-SALE HELD-TO-MATURITY
-------------------------- ---------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ---------- ------------
Due in one year or less $1,054,478 1,055,444 200,000 199,936
Due after one year through
five years 4,028,806 4,066,708 -0- -0-
Due after five years through
ten years 507,214 518,557 -0- -0-
----------- ----------- --------- ---------
$ 5,587,498 5,640,709 200,000 199,936
=========== =========== ========= =========
Proceeds from sales of available-for-sale securities during the years ended
September 30, 1998 and 1997 were $498,000 and $400,063 with gross gains of $18
and gross losses of $2 being realized, respectively. Proceeds from maturities of
available-for-sale securities during the years ended September 30, 1998 and 1997
were $550,000 and $100,000, respectively. Proceeds from maturities of held-to-
maturity securities during the years ended September 30, 1998 and 1997 were
$600,000 and $300,000, respectively.
Securities with a book value of $375,000 (market value $382,148) and $1,104,767
(market value $1,104,249) at September 30, 1998 and 1997, respectively, were
pledged to secure public monies as required by law.
Note 4 - Loans Receivable
- -------------------------
A summary of loans receivable is presented below:
SEPTEMBER 30,
-----------------------------
1998 1997
----------- -----------
First mortgage loans $33,221,746 29,748,471
Construction loans 3,433,262 3,654,458
FHLMC pool 2,850 4,203
Share loans 556,740 470,366
Consumer loans 1,089,165 867,450
----------- -----------
38,303,763 34,744,948
Loans in process (1,488,548) (1,022,930)
Allowance for loan losses (370,000) (346,000)
Deferred loan origination fees (48,148) (50,299)
----------- -----------
$36,397,067 33,325,719
=========== ===========
26
<PAGE>
Note 4 - Loans Receivable (Continued)
- -------------------------------------
An analysis of changes in the allowance for loan losses is as follows:
YEAR ENDED SEPTEMBER 30,
---------------------------
1998 1997
----------- -----------
Balance at beginning of period $ 346,000 210,000
Provision charged to income 24,000 136,000
Recoveries -0- -0-
Losses charged to allowance -0- -0-
----------- -----------
Balance at end of period $ 370,000 346,000
=========== ===========
First mortgage loans on residential (one-to-four units) real estate are pledged
to secure advances from the Federal Home Loan Bank (See Note 13). The advances
must be fully secured after discounting the qualifying loans at 75% of the
principal balances outstanding.
The Bank predominately grants mortgage and consumer loans to customers in the
immediate Quitman and South Georgia area. The Bank has a diversified loan
portfolio consisting predominately of mortgage loans collateralized by
residential properties. The following schedule provides an additional summary of
the Bank's loans:
SEPTEMBER 30,
----------------------------
1998 1997
------------ ------------
First Mortgage Loans:
Secured by 1 to 4 family
residences $ 27,072,746 23,655,471
Secured by over 4 family
residences 810,000 699,000
Other real estate 5,339,000 5,394,000
Construction loans 3,433,262 3,654,458
FHLMC pools 2,850 4,203
Share loans 556,740 470,366
Consumer loans 1,089,165 867,450
------------ ------------
38,303,763 34,744,948
Loans in Process (1,488,548) (1,022,930)
Allowance for loan losses (370,000) (346,000)
Deferred loan origination fees (48,148) (50,299)
------------ ------------
Total $ 36,397,067 33,325,719
============ ============
Loans on which the accrual of interest has been discontinued amounted to
$103,213 and $124,002 at September 30, 1998 and 1997, respectively. If interest
on those loans had been accrued, such income would have approximated $7,146 and
$11,072 for the years ended September 30, 1998 and 1997, respectively. Interest
income on those loans, which is recorded only when received, amounted to $3,372
and $5,156 for the years ended September 30, 1998 and 1997, respectively. No
contractual modifications have been made to these loans that would affect the
interest ultimately due.
There were no loans at September 30, 1998 or 1997, which the Bank's management
considered to be impaired.
27
<PAGE>
Note 4 - Loans Receivable (Continued)
- -------------------------------------
Loans receivable includes loans to officers and directors of the Bank totalling
approximately $720,735 and $674,614 at September 30, 1998 and 1997,
respectively. Since November 1996, loans to officers and directors are made at
an interest rate equal to two percent (2.00%) above the Bank's cost of funds
rate. All related party loans were made in the ordinary course of business and
did not involve more than the normal risk of collectibility or present other
unfavorable features.
Note 5 - Office Properties and Equipment
- ----------------------------------------
Office properties and equipment, at cost, are summarized as follows:
SEPTEMBER 30,
-------------------------- ESTIMATED
1998 1997 USEFUL LIVES
---------- -------- ------------
Land $ 252,061 39,561
Buildings 234,087 234,087 20-31 years
Construction in progress 35,724 -0-
Furniture and fixtures 458,897 293,912 5-10 years
Automobile 31,337 15,513 5 years
---------- ----------
1,012,106 583,073
Less accumulated depreciation 330,653 260,546
---------- ----------
$ 681,453 322,527
========== ==========
Depreciation expense for the years ended September 30, 1998 and 1997 was $79,081
and $41,067 respectively.
At September 30, 1998, the Bank had construction of a new office building in
progress. The estimated cost to complete is approximately $715,000.
Note 6 - Accrued Interest Receivable
- ------------------------------------
Accrued interest receivable is summarized as follows:
SEPTEMBER 30,
------------------------
1998 1997
---------- ----------
Investment securities $ 97,290 54,267
Loans receivable 350,564 326,951
---------- ----------
$ 447,854 381,218
========== ==========
28
<PAGE>
Note 7 - Deposit Account Analysis
- ---------------------------------
An analysis of deposit accounts and the weighted average interest rates as of
the dates indicated is presented below:
SEPTEMBER 30,
------------------------------------------------
1998 1997
------------------------- ---------------------
BOOK VALUE % BOOK VALUE %
------------ --------- ------------ -------
Type of Account:
Checking Accounts $ 220,800 4.63 -0- .00
N.O.W. Accounts - 3.42%
(1997 - 3.39%) 1,523,871 4.36 1,439,374 4.18
Passbook - 3.15%
(1997 - 4.11%) 1,507,207 4.31 1,944,865 5.64
Certificates - 6.07%
(1997 - 6.00%) 31,702,706 90.70 31,086,564 90.18
------------ -------- ----------- -------
$ 34,954,584 100.00% 34,470,803 100.00%
============ ======== ============ ========
The aggregate amount of certificates of deposit in denominations of $100,000 or
more was $6,749,622 and $6,333,000 at September 30, 1998 and 1997, respectively.
At September 30, 1998, scheduled maturities of certificates of deposit were as
follows:
YEAR ENDING
SEPTEMBER 30,
--------------
1999 $27,575,771
2000 2,733,210
2001 802,172
2002 591,553
-----------
$31,702,706
===========
The Bank held deposits of $381,331 and $556,252 for related parties at September
30, 1998 and 1997, respectively.
Interest expense on deposits is summarized as follows:
YEAR ENDED SEPTEMBER 30,
-----------------------
1998 1997
---------- ----------
Passbook savings $ 86,717 88,675
NOW 51,765 50,072
Certificates of deposit 1,929,225 1,774,298
---------- ----------
$2,067,707 1,913,045
========== ==========
29
<PAGE>
Note 8 - Stockholders' Equity and Regulatory Matters
- ----------------------------------------------------
On October 14, 1997, the Bank's Board of Directors formally approved a plan
("Plan") to convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank. The Plan, which included formation of a
holding company, was approved by the Office of Thrift Supervision (OTS) and
included the filing of a registration statement with the Securities and Exchange
Commission. The conversion was completed on April 2, 1998.
The Plan called for the common stock of the Bank to be purchased by the holding
company and for the common stock of the holding company to be offered to various
parties in a subscription offering at a price based on an independent appraisal.
The proceeds received under the conversion were as follows:
661,250 shares of common stock issued
@ $10 per share $6,612,500
Cost of conversion 410,963
----------
Net Proceeds $6,201,537
==========
The stockholders of the holding company will be asked to approve a proposed
stock option plan and a proposed restricted stock plan at a meeting of the
stockholders after the conversion. Shares issued to the 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. These plans have not been approved as of September 30, 1998.
The Bank may not declare or pay a cash dividend if the effect thereof would
cause its net worth to be reduced below either the amounts required for the
liquidation account discussed below or the regulatory capital requirements
imposed by federal regulations.
At the time of conversion, the Bank established a liquidation account, which
will be a memorandum account that does not appear on the balance sheet, 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
will be maintained for the benefit of eligible account holders who continue to
maintain their deposit accounts in the Bank after conversion. In the event of a
complete liquidation of the Bank (and only in such an event), eligible
depositors who continue to maintain accounts shall be entitled to receive a
distribution from the liquidation account before any liquidation may be made
with respect to common stock.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off- balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
30
<PAGE>
Note 8 - Stockholders' Equity and Regulatory Matters (Continued)
- ----------------------------------------------------------------
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of risk-based capital (as defined in the regulations) to risk-weighted
assets (as defined), tangible capital (as defined) to adjusted total assets (as
defined) and core capital (as defined) to adjusted total assets (as defined).
Management believes, as of September 30, 1998 and 1997, that the Bank meets all
capital adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the OTS categorized the
Bank as "well capitalized" under the regulatory framework for prompt corrective
action. To be categorized as "well capitalized" the Bank must maintain minimum
total tangible, core and risk-based ratios as set forth in the following tables.
There are no conditions or events since that notification that management
believes have changed the institution's category.
The following tables reconcile capital under generally accepted accounting
principles (GAAP) to regulatory capital (in thousands).
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
---------- ---------- ----------
At September 30, 1998:
Total equity $ 5,839 5,839 5,839
Unrealized gains on securities (29) (29) (29)
General valuation allowance -0- -0- 370
---------- -------- ----------
Regulatory Capital $ 5,810 5,810 6,180
========== ========= ==========
At September 30, 1997:
Total equity $ 2,959 2,959 2,959
Unrealized gains on securities (6) (6) (6)
General valuation allowance -0- -0- 346
---------- ---------- ----------
Regulatory Capital $ 2,953 2,953 3,299
========== ========== ==========
The Bank's actual capital amounts and ratios are presented (dollars in
thousands) as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
---------------- --------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998:
Tangible Capital
(to adjusted total assets) $5,810 13.4% 650 1.5% 2,168 5.0%
Core Capital
(to adjusted total assets) 5,810 13.4% 1,301 3.0% 2,168 5.0%
Risk-Based Capital
(to risk-weighted assets) 6,180 21.3% 2,321 8.0% 2,901 10.0%
As of September 30, 1997:
Tangible Capital
(to adjusted total assets) $2,953 7.5% 588 1.5% 1,959 5.0%
Core Capital
(to adjusted total assets) 2,953 7.5% 1,176 3.0% 1,959 5.0%
Risk-Based Capital
(to risk-weighted assets) 3,299 14.3% 1,852 8.0% 2,316 10.0%
</TABLE>
31
<PAGE>
Note 9 - Provision For Income Taxes
- -----------------------------------
The income tax provision is as follows:
YEAR ENDED SEPTEMBER 30,
----------------------------
1998 1997
---------- ----------
Taxes payable currently $ 173,283 171,183
Deferred taxes (benefit) 4,532 (51,972)
---------- ----------
Total tax provision $ 177,815 119,211
========== ==========
The provision for income taxes represents the portion of estimated income taxes
relating to the years ended September 30, 1998 and 1997.
Through 1995, the Bank qualified under provisions of the Internal Revenue Code
which permitted annual bad debt deductions based on a percentage of taxable
income before such deductions. The maximum annual bad debt deduction was 8%
under the Tax Reform Act of 1986. New tax legislation effective for 1996
eliminates the percentage of taxable income method for computing the provision
for bad debts of thrift institutions and requires the recapture of the provision
for bad debts since 1987 to the extent that the provision computed under the
percentage of taxable income method exceeds that which would have been computed
under the experience method. Such recapture totals $142,587 for the Bank and
results in an additional income tax liability of $48,480. This additional tax
may be repaid over a six year period beginning in 1996 or, if certain conditions
are met, over a six year period beginning in 1998. The full amount of the
recapture was accrued as of September 30, 1996.
Retained earnings at September 30, 1998 include accumulated bad debt deductions
prior to 1988 amounting to approximately $6,000 for which no provision for
income taxes has been made. If, in the future, these amounts are used for any
purpose other than to absorb losses on bad debts, federal income taxes will be
imposed at the then applicable rates. The amount of unrecognized deferred tax
liability is approximately $2,040.
Deferred taxes on income result from timing differences in the recognition of
revenue and expense for tax and financial statement purposes. Deferred tax
assets have been recorded. No valuation allowance was required. The amount and
sources of these assets were as follows:
SEPTEMBER 30,
---------------------
1998 1997
---------- ---------
Deferred Tax Assets:
Allowance for loan losses $ 115,600 107,440
---------- ---------
Total 115,600 107,440
---------- ---------
Deferred Tax Liabilities:
Bad debt deduction recapture 42,419 48,480
Unrealized gains on available-for-sale securities 18,092 -0-
Depreciation 28,183 9,430
---------- ---------
Total 88,694 57,910
---------- ---------
Net Deferred Tax Assets (Liabilities) $ 26,906 49,530
========== =========
32
<PAGE>
Note 9 - Provision For Income Taxes (Continued)
- -----------------------------------------------
The following is a summary of the differences between the income tax expense as
shown in the accompanying financial statements and the income tax expense which
would result from applying the Federal statutory tax rate of 34% to earnings
before taxes on income:
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997
---------- ----------
Expected income tax $ 163,660 129,883
Increase (decrease) in tax resulting from:
State and local taxes 12,459 (2,440)
Other, net 1,696 (8,232)
---------- ----------
Actual income tax expense $ 177,815 119,211
========== ==========
Note 10 - Commitments and Contingencies
- ---------------------------------------
The Bank had outstanding mortgage loan commitments at September 30, 1998 and
1997 of $1,488,548 and $1,022,930, respectively. These commitments represent
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of the Bank's customers. These commitments
involve elements of credit and interest-rate risk in excess of the amount
recognized in the statement of financial condition. Outstanding loan commitments
are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained varies but includes
primarily real estate.
Note 11 - Retirement Plans
- --------------------------
401(k) Plan - The Bank has a 401(k) plan, covering all full-time employees who
meet the plan's eligibility requirements. The plan is a defined contribution
plan. The Bank made contributions to the plan in the amount of $12,000 and
$10,000 for the years ended September 30, 1998 and 1997, respectively.
Deferred Compensation Plan - Effective December 15, 1996, the Bank adopted a
deferred compensation plan for the benefit of its officers and directors.
Although the plan is to be funded from the general assets of the Bank, life
insurance policies were acquired for the purpose of serving as the primary
funding source. As of September 30, 1998 and 1997, the cash values of those
policies were $337,813 and $218,106 and the liability accrued for benefits
payable under the plan was $-0- and $-0-, respectively.
Employee Stock Ownership Plan - Effective April 2, 1998, the Bank adopted an
employee stock ownership plan (ESOP) for those employees who meet the
eligibility requirements of the plan.
The ESOP trust borrowed $529,000 on April 2, 1998 from the Company and purchased
52,900 shares of the Company's common stock at a price of $10 per share. The
loan is a ten-year loan with principal payments of $52,900 annually plus
interest at 8.5% and is guaranteed by the Bank.
33
<PAGE>
Note 11 - Retirement Plans (Continued)
- --------------------------------------
ESOP shares are maintained in a suspense account until released to participants'
accounts. The release of shares from the suspense account is based on the debt
service paid in the year in proportion to the total of current year and
remaining debt service. Allocation of released shares to participants' accounts
is done as of December 31 based on the then fair market value of the shares.
Since the first valuation date for the purpose of allocating the shares has not
yet occurred, cost is estimated to approximate fair value.
As of September 30, 1998, the ESOP held 52,900 shares of the Company's common
stock as follows:
SEPTEMBER 30,
1998
------------
Number of Shares:
Released and allocated $ -0-
Suspense 52,900
Fair Value:
Released and allocated $ -0-
Suspense 529,000
The expense recorded by the Company is based on contributions to the ESOP
accrued during the year in amounts determined by the Board of Directors and
represents compensation and interest as follows:
YEAR ENDED
SEPTEMBER 30,
1998
-------------
Compensation $ 37,698
Interest 22,302
----------
$ 60,000
==========
Note 12 - Reconciliation of Regulatory Reports
- ----------------------------------------------
Net income and net worth of the Bank reported in these audited financial
statements differs from amounts in reports filed with the Office of Thrift
Supervision (OTS) as follows (In Thousands):
Net Income:
- -----------
YEAR ENDED SEPTEMBER 30,
1998 1997
------ ------
Net Income reported to OTS $ 334 193
Reconciling Items (48) 68
------ ------
Net Income for the twelve months ended
September 30 per audited financial statement $ 286 263
====== ======
34
<PAGE>
Note 12 - Reconciliation of Regulatory Reports (Continued)
- ----------------------------------------------------------
Net Worth:
- ----------
SEPTEMBER 30,
-------------------------
1998 1997
----------- ----------
Net Worth reported to OTS $ 5,839 2,910
Reconciling Items -0- 48
Total Net Worth on September 30, per audited
financial statement $ 5,839 2,958
=========== ==========
Note 13 - Advances From Federal Home Loan Bank
Advances consist of the following:
SEPTEMBER 30,
-------------------------
1998 1997
----------- ----------
Advances payable - Federal Home Loan Bank of
Atlanta, bearing interest at variable rate,
due July 16, 1998, collateralized by all
stock in the Federal Home Loan Bank and
qualifying first mortgage loans. $ -0- 1,300,000
=========== ==========
Note 14 - Fair Values of Financial Instruments
- ----------------------------------------------
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
--------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 371,866 371,866 656,808 656,808
Investment securities 5,840,709 5,840,645 3,850,815 3,847,170
Loans, net of allowance
for loan losses 36,397,067 36,447,000 33,325,719 33,322,000
Accrued interest receivable 447,854 447,854 381,218 381,218
Investment in Federal Home
Loan Bank stock 239,800 239,800 227,700 227,700
Financial liabilities:
Deposits 34,954,584 35,084,000 34,470,803 34,598,000
Advances from Federal Home
Loan Bank -0- -0- 1,300,000 1,300,000
Accrued interest payable 275,028 275,028 272,346 272,346
</TABLE>
35
<PAGE>
Note 14 - Fair Values of Financial Instruments (Continued
- ---------------------------------------------------------
The carrying amounts in the preceding table are included in the statement of
financial condition under the applicable captions.
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------- -----------------------
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- --------- ---------
Other:
Loan commitments $ 1,488,548 1,488,548 1,022,930 1,022,930
Note 15 - Related Party Transactions
- ------------------------------------
Related parties to the Company are identified as its officers and directors.
During the years ended September 30, 1998 and 1997, the Company had the
following related party transactions:
SEPTEMBER 30,
----------------------
1998 1997
--------- --------
Loans to officers and directors (balance at
September 30), Note 4 $ 720,735 674,614
Deposits held for officers and directors (balance
at September 30),Note 7 381,331 556,252
Insurance premiums paid - director 17,353 22,314
Legal fees paid - director 8,146 3,000
Supplies purchased - officers and directors 321 8,218
Note 16 - Year 2000 Issue
- -------------------------
The Bank is aware of the issues associated with the programming code in existing
computer systems as the Millennium (Year 2000) approaches. The "year 2000"
problem is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Bank is utilizing external resources to identify, correct or reprogram and
test the systems for the year 2000 compliance. It is believed that all
reprogramming efforts have been completed, allowing adequate time for testing.
Management estimates the cost of the year 2000 compliance will be $10,000.
36
<PAGE>
Note 17 - Financial Information of Quitman Bancorp, Inc. (Parent Only)
- ----------------------------------------------------------------------
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1998
------------------
Assets
------
Cash on deposit $1,553,906
Investment in Quitman Federal Savings Bank 5,839,420
Investment securities available-for-sale 1,010,200
Loans receivable - subsidiary ESOP 529,000
Accrued interest receivable 43,702
----------
Total Assets $8,976,228
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Income taxes payable $ 9,417
Deferred income taxes payable 3,058
----------
12,475
----------
Stockholders' Equity:
Capital stock 66,125
Additional paid in capital 6,135,412
Retained earnings 3,256,097
Unrealized gains (losses) on available-for-sale securities 35,119
Esop loan guaranty of subsidiary (529,000)
----------
8,963,753
----------
Total Liabilities and Stockholders' Equity $8,976,228
==========
37
<PAGE>
Note 17 - Financial Information of Quitman Bancorp, Inc.(Parent Only)(Continued)
- --------------------------------------------------------------------------------
STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1998
-----------------------------
Income:
Equity in income of subsidiary $ 238,388
Interest income 43,424
----------
281,812
Expenses 16,378
----------
Income before taxes 265,434
Income taxes 9,417
----------
Net Income $ 256,017
==========
38
<PAGE>
Note 17 - Financial Information of Quitman Bancorp, Inc.(Parent Only) Continued)
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1998
-----------------------------
Cash Flows From Operating Activities:
Net income $ 256,017
Adjustments:
Equity in income of subsidiary (238,388)
Amortization of premium on securities 278
(Increase) decrease in accrued interest receivable (43,702)
Increase (decrease) in income taxes payable 9,417
----------
Net Cash Provided (Used) By Operating Activities (16,378)
----------
Cash Flows From Investing Activities:
Purchase of available-for-sale securities (1,001,484)
Loan to subsidiary ESOP (529,000)
Investment in subsidiary (3,100,769)
----------
Net Cash Provided (Used) By Investing Activities (4,631,253)
----------
Cash Flows From Financing Activities:
Issuance of 661,250 shares of common stock 6,201,537
----------
Net Cash Provided By Financing Activities 6,201,537
----------
Net Increase In Cash 1,553,906
Cash And Cash Equivalents At Beginning Of Period -0-
Cash And Cash Equivalents At End Of Period $1,553,906
==========
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
Cash Paid During The Period For:
Interest $ -0-
==========
Income taxes $ -0-
==========
Schedule Of Non-Cash Investing And Financing Activities:
- --------------------------------------------------------
Total increase in unrealized gains on securities
available-for-sale $ 8,994
==========
39
<PAGE>
QUITMAN BANCORP, INC.
100 West Screven Street
Quitman, Georgia 31643
(912) 263-7538
Board of Directors and Executive Officers of Quitman Bancorp, Inc.
Claude R. Butler John W. Romine
Chairman of the Board President and owner
Pork Producer Romine Furniture Co., Inc.
Robert L. Cunningham, III Melvin E. Plair
Vice Chairman of the Board President and Chief Executive Officer
Secretary & Treasurer of Quitman Bancorp, Inc. and Quitman
R.L. Cunningham & Sons, Inc. Federal Savings Bank
Peanut warehouse and peanut
seed business
Peggy L. Forgione
Walter B. Holwell Vice President and Controller
President and owner Quitman Bancorp, Inc. and Quitman
Holwell & Holwell, Inc. Federal Savings Bank
Insurance agents
Daniel M. Mitchell, Jr.
Attorney at Law
Corporate Counsel Independent Auditors
Daniel M. Mitchell, Jr. Esquire Stewart, Fowler & Stalvey, P.C.
110 S. Washington Street 3208 Wildwood Plantation Drive
Quitman, Georgia 31643 Valdosta, Georgia 31605
Special Counsel Transfer Agent and Registrar
Malizia, Spidi, Sloane & Fisch, P.C. Registrar & Transfer Company
One Franklin Square 10 Commerce Drive
1301 K Street, N.W., Suite 700 East Cranford, New Jersey 07016
Washington, D.C. 20005 (908) 497-2300
Our Annual Report for the year ended September 30, 1998 on Form 10-KSB is
available without charge upon written request. For a copy of the Form 10-KSB or
any other investor information, please write Mr. Melvin E. Plair, President and
Chief Executive Officer. The Annual Meeting of Stockholders will be held on
January 27, 1999 at 11:00 a.m. at the Brooks County Library, Quitman, Georgia.
40
EXHIBIT 21
<PAGE>
Subsidiaries of the Registrant
Quitman Federal Savings Bank (the "Bank") is the sole subsidiary of the
Registrant and is a federally chartered stock savings bank. The Bank does
business under the name "Quitman Federal Savings Bank."
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 168
<INT-BEARING-DEPOSITS> 203
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,641
<INVESTMENTS-CARRYING> 200
<INVESTMENTS-MARKET> 200
<LOANS> 36,767
<ALLOWANCE> 370
<TOTAL-ASSETS> 44,450
<DEPOSITS> 34,955
<SHORT-TERM> 0
<LIABILITIES-OTHER> 532
<LONG-TERM> 0
0
0
<COMMON> 66
<OTHER-SE> 8,898
<TOTAL-LIABILITIES-AND-EQUITY> 44,450
<INTEREST-LOAN> 3,179
<INTEREST-INVEST> 281
<INTEREST-OTHER> 99
<INTEREST-TOTAL> 3,559
<INTEREST-DEPOSIT> 2,068
<INTEREST-EXPENSE> 37
<INTEREST-INCOME-NET> 1,454
<LOAN-LOSSES> 24
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,004
<INCOME-PRETAX> 481
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 304
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
<YIELD-ACTUAL> 3.51
<LOANS-NON> 103
<LOANS-PAST> 294
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 346
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 370
<ALLOWANCE-DOMESTIC> 370
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
