SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1999
OR
[ } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________.
Commission File No. 0-23763
Quitman Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer as Specified in Its Charter)
Georgia 58-2365866
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
602 East Screven Street, Quitman, Georgia 31643
-----------------------------------------------
(Address of Principal Executive Offices)
(912) 263-7538
- --------------------------------------------------------------------------------
Issuer's Telephone Number, Including Area Code
-------------------------------------------------------------------
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)
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
--- ---
Number of shares of Common Stock outstanding as of June 30, 1999: 537,563
Transitional Small Business Disclosure Format (check one)
YES NO X
--- ---
<PAGE>
QUITMAN BANCORP, INC.
Contents
Page(s)
-------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements...........................................3
Item 2. Management's Discussion and Analysis or Plan of Operation.....10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................14
Item 2. Changes in Securities and Use of Proceeds.....................14
Item 3. Defaults upon Senior Securities...............................14
Item 4. Submission of Matters to a Vote of Security Holders...........14
Item 5. Other Information.............................................15
Item 6. Exhibits and Reports on Form 8-K..............................15
Signatures.............................................................16
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<PAGE>
PART I. FINANCIAL INFORMATION
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
ASSETS
------
JUNE 30, SEPTEMBER 30,
1999 1998
------------ --------------
(Unaudited)
<S> <C> <C>
Cash and Cash Equivalents:
Cash and amounts due from depository
institutions $ 1,016,442 168,404
Interest-bearing deposits in other banks 744,784 203,462
------------ ------------
Total Cash and Cash Equivalents 1,761,226 371,866
Investment securities:
Available-for-sale 6,237,801 5,640,709
Held-to-maturity -0- 200,000
Loans receivable - net of allowance for loan
losses and deferred origination fees 39,508,464 36,397,067
Office properties and equipment, at cost, net of
accumulated depreciation 1,621,062 681,453
Real estate and other property acquired
in settlement of loans 342,923 -0-
Accrued interest receivable 448,843 447,854
Investment required by law-stock in Federal
Home Loan Bank, at cost 286,700 239,800
Cash value of life insurance 447,911 337,813
Other assets 173,222 45,182
------------ ------------
Total Assets $ 50,828,152 44,361,744
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 41,657,612 34,954,584
Advances from Federal Home Loan Bank 1,000,000 -0-
Accrued interest payable 337,939 275,028
Income taxes payable 47,597 24,660
Other liabilities 130,036 143,719
------------ ------------
Total Liabilities 43,173,184 35,397,991
------------ ------------
Stockholders' Equity:
Common stock, $.10 par value, 4,000,000
shares authorized, 661,250 shares
issued and 537,563 shares outstanding
June 30, 1999 (661,250 September 30,
1998) 66,125 66,125
Preferred stock, no par value, 1,000,000
shares authorized, no shares issued
or outstanding -0- -0-
Additional paid in capital 6,135,412 6,135,412
Retained Earnings 3,413,630 3,256,097
Accumulated other comprehensive income (loss) (59,016) 35,119
9,556,151 9,492,753
Receivable from employee stock ownership plan (502,550) (529,000)
Treasury stock, 123,687 shares at cost (-0- September
30, 1998) (1,398,633) -0-
Total Stockholders' Equity 7,654,968 8,963,753
Total Liabilities and Stockholders' Equity $ 50,828,152 44,361,744
============ ============
</TABLE>
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<PAGE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable:
First mortgage loans $ 834,731 753,663 2,424,872 2,252,991
Consumer and other loans 52,523 33,067 155,849 90,787
Interest on FHLMC Pool 40 62 136 204
Investment securities 92,270 66,848 270,168 192,406
Interest-bearing deposits 9,442 52,784 24,304 79,037
Federal funds sold -0- 351 482 419
--------- --------- --------- ---------
Total Interest Income 989,006 906,775 2,875,811 2,615,844
--------- --------- --------- ---------
Interest Expense:
Deposits 553,394 511,219 1,603,401 1,552,550
Interest on Federal Home Loan
Bank advances -0- -0- 11,546 36,621
--------- --------- --------- ---------
Total Interest Expense 553,394 511,219 1,614,947 1,589,171
--------- --------- --------- ---------
Net Interest Income 435,612 395,556 1,260,864 1,026,673
Provision for loan losses -0- 6,000 10,000 24,000
--------- --------- --------- ---------
Net Interest Income After Provision for Losses 435,612 389,556 1,250,864 1,002,673
--------- --------- --------- ---------
Non-Interest Income:
Gain (loss) on sale of securities -0- -0- 1,094 18
Late charges on loans 8,411 8,220 27,137 24,396
Service charges 11,902 1,755 21,538 5,465
Insurance commissions 5,168 410 5,725 1,252
Other income 2,065 -0- 4,640 2,079
Gain on sale of other real estate -0- 4,090 -0- 7,102
Gain on sale of fixed assets 84,019 -0- 84,019 -0-
--------- --------- --------- ---------
Total Non-Interest Income 111,565 14,475 144,153 40,312
--------- --------- --------- ---------
Non-Interest Expense:
Compensation 113,136 82,202 292,324 232,848
Other personnel expenses 100,358 71,254 197,177 152,532
Occupancy expenses of premises 9,854 5,079 21,420 15,509
Furniture and equipment expenses 40,329 32,746 113,175 80,005
Federal deposit insurance 5,525 5,432 16,286 16,137
Advertising 9,504 7,058 34,509 37,418
Legal expense 15,425 7,462 41,624 8,962
Accounting and auditing 10,810 8,275 37,360 22,664
Office supplies and printing 18,828 10,519 39,373 22,859
Business occupation and other taxes 11,707 7,877 41,451 28,929
Charitable contributions 1,171 379 8,268 29,743
Other operating expenses 45,180 19,679 113,498 83,277
--------- --------- --------- ---------
Total Non-Interest Expense 381,827 257,962 956,465 730,883
--------- --------- --------- ---------
Income Before Income Taxes 165,350 146,069 438,552 312,102
Provision for Income Taxes 71,084 50,829 168,606 113,211
--------- --------- --------- ---------
Net Income $ 94,266 95,240 269,946 198,891
========= ========= ========= =========
Earnings Per Share (Basic and Diluted) $ .19 .14 .49 .30
========= ========= ========= =========
</TABLE>
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<PAGE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE RECEIVABLE
COMMON PAID IN RETAINED INCOME FROM TREASURY
STOCK CAPITAL EARNINGS (LOSS) ESOP STOCK TOTAL
----- ------- -------- ------ ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
September 30, 1997 $ -0- -0- 2,952,560 5,993 -0- -0- 2,958,553
Net income -0- -0- 198,891 -0- -0- -0- 198,891
Common stock
issued 661,250 shares 66,125 6,134,619 -0- -0- -0- -0- 6,200,744
Other comprehensive
income -0- -0- -0- 6,739 -0- -0- 6,739
ESOP loan guaranteed -0- -0- -0- -0- (529,000) -0- (529,000)
--------- --------- --------- ------- -------- ---------- ----------
Balances, June 30, 1998,
(Unaudited) $ 66,125 6,134,619 3,151,451 12,732 (529,000) -0- 8,835,927
========= ========= ========= ======== ========== ========== ==========
Balances,
September 30, 1998 $ 66,125 6,135,412 3,256,097 35,119 (529,000) -0- 8,963,753
Net income -0- -0- 269,946 -0- -0- -0- 269,946
Dividends -0- -0- (112,413) -0- -0- -0- (112,413)
Other comprehensive
income (loss) -0- -0- -0- (94,135) -0- -0- (94,135)
Change in receivable
from employee stock
ownership plan -0- -0- -0- -0- 26,450 -0- 26,450
Treasury stock
acquired, 123,687 shares -0- -0- -0- -0- -0- (1,398,633) (1,398,633)
--------- --------- ------- -------- ---------- ---------- ----------
Balances, June 30, 1999,
(Unaudited) $ 66,125 6,135,412 3,413,630 (59,016) (502,550) (1,398,633) 7,654,968
========= ========= ========= ======= ========== ========== ==========
</TABLE>
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<PAGE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
1999 1998
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
- -------------------------------------
Net income $ 269,946 198,891
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 74,304 55,934
Provision for loan losses 10,000 24,000
Amortization (Accretion) of securities 10,615 9,756
Gain on sale of foreclosed assets -0- (7,102)
Gain on sale of securities (1,094) -0-
Deferred income taxes (1,813) -0-
Change in Assets and Liabilities:
(Increase) Decrease in accrued interest receivable (989) (34,883)
Increase (Decrease) in accrued interest payable 62,911 38,005
Increase (Decrease) in other liabilities (28,717) 14,515
Increase (Decrease) in income taxes payable (8,409) (42,556)
(Increase) Decrease in other assets (31,352) (12,689)
----------- -----------
Net cash provided (used) by operating activities 355,402 243,871
----------- -----------
Cash Flows From Investing Activities:
- -------------------------------------
Capital expenditures (1,013,913) (394,608)
Purchase of available-for-sale securities (3,126,358) (2,432,535)
Proceeds from sale of foreclosed property -0- 256,709
Proceeds from maturity of held-to-maturity securities 200,000 600,000
Proceeds from maturity of available-for-sale securities 100,000 550,000
Proceeds from sale of available-for-sale securities 2,150,000 -0-
Purchase of stock in Federal Home Loan Bank (46,900) (12,100)
Net (increase) decrease in loans (3,464,320) (1,665,112)
Principal collected on mortgage-backed securities 127,115 19,090
Increase in cash value of life insurance (110,098) (102,559)
----------- -----------
Net cash provided (used) by investing activities (5,184,474) (3,181,115)
----------- -----------
Cash Flows From Financing Activities:
- -------------------------------------
Net increase (decrease) in deposits 6,703,028 114,651
Proceeds from Federal Home Loan Bank advances 2,000,000 300,000
Principal collected on receivable from ESOP 26,450 -0-
Purchase of treasury stock (1,398,633) -0-
Payment on Federal Home Loan advances (1,000,000) (1,600,000)
Common stock issued -0- 6,200,744
Dividends paid (112,413) -0-
----------- -----------
Net cash provided (used) by financing activities 6,218,432 5,015,395
----------- -----------
Net Increase (Decrease) in cash and cash equivalents 1,389,360 2,078,151
Cash and Cash Equivalents at Beginning of Period 371,866 656,808
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,761,226 2,734,959
=========== ===========
Supplemental Disclosures of Cash Flows Information:
- ---------------------------------------------------
Cash Paid During The Period:
Interest $ 1,552,036 1,551,166
Income taxes 185,014 163,435
Non-Cash Investing Activities:
Increase (Decrease) in other comprehensive income (94,135) 6,739
</TABLE>
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<PAGE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 94,266 95,240 269,946 198,891
-------- -------- -------- --------
Other Comprehensive Income, Net of Tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period (55,046) (4,114) (93,041) 6,757
Reclassification adjustment for (gains)
losses included in net income -0- -0- (1,094) (18)
-------- -------- -------- --------
Other Comprehensive Income (Loss) (55,046) (4,114) (94,135) 6,739
-------- -------- -------- --------
Comprehensive Income $ 39,220 91,126 175,811 205,630
======== ======== ======== ========
</TABLE>
-7-
<PAGE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Note 1 - Basis of Preparation
- -----------------------------
The accompanying unaudited financial statements were prepared in
accordance with instructions for Form 10-QSB and therefore do not
include all disclosures necessary for a complete presentation of the
statements of financial condition, statements of income, statements of
comprehensive income and statements of cash flow in conformity with
generally accepted accounting principles. However, all adjustments
which are, in the opinion of management, necessary for the fair
presentation of the interim financial statements have been included.
All such adjustments are of a normal recurring nature. The statement of
income for the nine month period ended June 30, 1999 is not necessarily
indicative of the results which may be expected for the entire year.
It is suggested that these unaudited financial statements be read in
conjunction with the audited consolidated financial statements and
notes thereto for Quitman Bancorp, Inc. and Subsidiary for the year
ended September 30, 1998.
Note 2 - Plan of Conversion
- ---------------------------
On October 14, 1997, the Bank's Board of Directors approved a plan
("Plan") to convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank subject to approval by the
Bank's members. The Plan, which included formation of the holding
company, Quitman Bancorp, Inc., was subject to approval by the Office
of Thrift Supervision (OTS) and included the filing of a registration
statement with the SEC. The conversion was completed on April 2, 1998.
Actual conversion costs were accounted for as a reduction in gross
proceeds.
The Plan called for the common stock of the Bank to be purchased by the
holding company and for the common stock of the holding company to be
offered to various parties in an offering at a price of $10.00 per
share.
The stockholders of the holding company approved a proposed stock
option plan and a proposed restricted stock plan at a meeting of the
stockholders on April 13, 1999. Shares issued to directors and
employees under these plans may be from authorized but unissued shares
of common stock or they may be purchased in the open market. In the
event that options or shares are issued under these plans, such
issuances will be included in the earnings per share calculation; thus,
the interests of existing stockholders would be diluted.
The Bank may not declare or pay a cash dividend if the effect thereof
would cause its net worth to be reduced below either the amounts
required for the liquidation account discussed below or the regulatory
capital requirements imposed by federal regulations.
At the time of conversion, the Bank established a liquidation account
(which is a memorandum account that does not appear on the balance
sheet) in an amount equal to its retained income as reflected in the
latest balance sheet used in the final conversion prospectus. The
liquidation account will be maintained for the benefit of eligible
account holders who continue to maintain their deposit accounts in the
Bank after the conversion. In the event of a complete liquidation of
the Bank (and only in such an event),
-8-
<PAGE>
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.
Note 3 - Stock Repurchase
- -------------------------
The Company has adopted a stock repurchase program that allows for the
repurchase, from time to time, of up to 127,290 shares of common stock.
Any shares repurchased may be used for general and other corporate
purposes, including the issuance of shares upon the exercise of stock
options. As of June 30, 1999, the Company had repurchased 123,687
shares of its common stock at a cost of $1,398,633.
Note 4 - Earnings Per Share
- ---------------------------
The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted earnings per share (EPS)
computations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ------------------
1999 1998 1999 1998
------------ ------- ------- -------
<S> <C> <C> <C> <C>
(a) Net income available to shareholders $ 94,266 95,240 269,946 198,891
------------ ------- ------- -------
Denominator:
Weighted-average shares outstanding 556,585 661,250 600,543 661,250
Less: ESOP weighted-average shares
unallocated 50,255 -0- 51,137 -0-
------------ ------- ------- -------
(b) Basic EPS weighted-average shares
outstanding 506,330 661,250 549,406 661,250
Effect of dilutive securities -0- -0- -0- -0-
(c) Diluted EPS weighted-average shares
outstanding 506,330 661,250 549,406 661,250
============ ======= ======= =======
Basic earnings per share (a/b) $ .19 .14 .49 .30
============ ======= ======= =======
Diluted earnings per share (a/c) $ .19 .14 .49 .30
============ ======= ======= =======
</TABLE>
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Comparison of Financial Condition at June 30, 1999 and September 30, 1998
Quitman Bancorp, Inc. (the "Company") 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 report on
Form 10-QSB), 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
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 effect 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 and 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; disruption in data processing caused by
computer malfunctions associated with the year 2000 that may be greater than
expected; acquisitions; changes in consumer spending and saving habits; and the
success of the Company at managing the risks described above involved in the
foregoing.
The Company cautions that these important 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 to the Company.
Total assets increased by $6.5 million or 14.5% due primarily to the increase in
cash and cash equivalents, office properties and equipment and loans resulting
from funds received from capital stock issued by Quitman Bancorp, Inc., the
Bank's newly formed holding company.
Total equity decreased by $1,308,785 as result of net income for the nine months
ended June 30, 1999, changes in other comprehensive income, reduction of a
guaranty of a loan to the Bank's employee stock ownership plan, purchase of
123,687 shares of treasury stock at a cost of $1,398,633, and payment of
dividends in the amount of $112,413.
Non-Performing Assets and Delinquencies
Loans accounted for on a non-accrual basis increased to $234,428 at June 30,
1999 from $103,213 at September 30, 1998. The increase was the result of eight
loans being reclassified to performing loans, eight loans being foreclosed and
twenty-one loans being added to non-accrual. The allowance for loan losses was
$38,000 at June 30, 1999.
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<PAGE>
Comparison of the Results of Operations for the Three Months Ended June 30, 1999
and 1998
Net Income. Net income decreased by $1,000 or 1.1% from net income of $95,000
for the three months ended June 30, 1998 to net income of $94,000 for the three
months ended June 30, 1999. This decrease is primarily the result of increased
income tax expense. The annualized return on average assets decreased from .86%
to .77% for the three months ended June 30, 1998 and 1999, respectively.
Net Interest Income. Net interest income increased $46,000 or 11.82% from
$390,000 for the three months ended June 30, 1998 to $436,000 for the three
months ended June 30, 1999. The increase was primarily due to an increase in
loans resulting from the approximately $6.2 million in net proceeds received in
April, 1998 from our initial public offering.
Interest Income. Interest income increased $82,000 for the three months ended
June 30, 1999 compared to the same three months ended June 30, 1998. The
increase in interest income was primarily due to an increase in the average
balance of interest-earning assets. The average balance of interest-earning
assets increased by 15.32%. This increase in average interest-earning assets
added an additional $82,000 of interest income. The average yield on
interest-earning assets decreased moderately to 8.6% from 9.1% for the three
months ended June 30, 1999 and 1998, respectively.
Interest Expense. Interest expense increased $4,200 from $511,000 for the three
months ended June 30, 1998 to $553,000 for the three months ended June 30, 1999.
The increase in interest expense was due to an increase in interest-bearing
liabilities of $4.8 million and a slight decrease in the cost of funds of 40
basis points (100 basis points equals 1%). The average balances of deposits and
advances from the Federal Home Loan bank increased by $2.0 million, from the
three months ended June 30, 1998 to the three months ended June 30, 1999.
Non-Interest Income. Non-interest income increased by $97,000 primarily from an
increase in service charges, $10,000 and miscellaneous income, $3,000, and gain
on sale of fixed assets $84,000.
Non-Interest Expense. Non-interest expense increased by $124,000 primarily due
to increased compensation and other personnel expense, furniture and equipment
expense and other operating expenses. Our compensation and other personnel
expense increased an aggregate of $60,000 between the periods as a result of
year-end pay raises, hiring of additional employees and contributions to the
Bank's Employee Stock Ownership Plan formed in April of 1998. Other non-interest
expenses including expenses of the Parent Company in the amount of $21,000,
increased $64,000.
As a result of our new bank building opening on April 26, 1999, our non-interest
expense increased. Also, on April 13, 1999 we implemented a restricted stock
plan and a stock option plan which further increased our non-interest expense.
Income Taxes. Income tax expense amounted to $51,000 for the three months ended
June 30, 1998 compared to $71,000 for the three months ended June 30, 1999.
Comparison of the Results of Operations for the Nine Months Ended June 30, 1999
and 1998
Net Income. Net income increased by $71,000 or 35.7% from net income of $199,000
for the nine months ended June 30, 1998 to net income of $270,000 for the same
nine months of fiscal 1999. This increase is primarily the result of increased
interest income that more than offset increases in non-interest expense and gain
-11-
<PAGE>
realized on the sale of fixed assets of $84,000. The annualized return on
average assets increased from .64% to .76% for the nine months ended June 30,
1998 and 1999, respectively.
Net Interest Income. Net interest income increased $248,000 or 24.8%, from
$1,003,000 for the nine months ended June 30, 1998 to $1,251,000 for the nine
months ended June 30, 1999. The increase was primarily due to an increase in
residential mortgages and consumer loans and a decrease in the cost of funds.
Interest Income. Interest income increased $260,000 for the nine months ended
June 30, 1999 compared to the same nine months ended June 30, 1998. The increase
in interest income was primarily attributable to an increase in the average
balance of interest-earning assets. The average balance of interest-earning
assets increased by 14.4%. This increase in average interest-earning assets
added an additional $260,000 of interest income. The average yield on
interest-earning assets decreased moderately to 8.6% from 8.9% for the nine
months ended June 30, 1999 and 1998, respectively.
Interest Expense. Interest expense increased $26,000 from $1,589,000 for the
nine months ended June 30, 1998 to $1,615,000 for the nine months ended June 30,
1999. The decrease in interest expense was attributable to an increase in
interest-bearing liabilities of $2.9 million and a decrease in the cost of funds
of 40 basis points (100 basis points equals 1%). The average balances of
deposits and advances from the Federal Home Loan Bank increased by $3 million
from the nine months ended June 30, 1998 to the nine months ended June 30, 1999.
Non-Interest Income. Non-interest income increased by $104,000 primarily from an
increase in service charges on deposit accounts of $16,000, late charges of
$3,000, gain on sale of fixed assets $84,000, miscellaneous income $8,000 and
partially offset by a decrease in gain in sale of other real estate of $7,000.
Non-Interest Expense. Non-interest expense increased by $226,000 primarily due
to increased compensation and other personnel expense, occupancy, furniture and
equipment expense and expense of the parent company. Our compensation and other
personnel expense increased an aggregate of $104,000 between the periods as a
result of year-end pay raises, our hiring of additional employees and
contributions to the Bank's Employee Stock Ownership Plan created in April of
1998. The Parent Company's operating expenses increased by $59,000 because it
only existed for three months in the prior period. Due to construction of a new
bank building and purchase of new furniture, fixtures and equipment our
occupancy, furniture and equipment expense increased an aggregate of $39,000.
Income Taxes. Income tax expense amounted to $113,000 for the nine months ended
June 30, 1998 compared to $168,000 for the nine months ended June 30, 1999.
Liquidity and Capital Resources
Management monitors our risk-based capital and leverage capital ratios in order
to assess compliance with regulatory guidelines. At June 30, 1999, the Bank had
tangible capital, leverage, and total risk-based capital of 12.27%, 12.27% and
19.20%, respectively, which exceeded the OTS's minimum requirements of 1.50%,
4.00% and 8.00%, respectively.
On April 20, 1999, the Board of Directors approved a dividend of $.20 per share,
payable May 24, 1999 to shareholders of record on May 10, 1999. While the
Company paid this dividend from its cash funds, the primary source of funds
available for the payment of cash dividends by the Company are dividends from
the subsidiary bank. Holders of the common stock of the Company are entitled to
share ratably in dividends, if and when, declared by the Board of Directors of
the Company, out of funds legally available therefore.
-12-
<PAGE>
Federal banking law provides that a savings bank may, by providing prior
regulatory notice, generally pay dividends during a calendar year in an amount
equal to net income for the calendar year plus retained net income for the
preceding two years. Any amount in excess of that level requires prior
regulatory approval from the Office of Thrift Supervision (the "OTS"). The OTS
may disapprove any dividend if the Bank is undercapitalized or the dividend
would render the Bank undercapitalized. The OTS may also disapprove any dividend
for, among other reasons, safety and soundness concerns.
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. Testing of
this software through December 31, 2000 has been completed.
There was no malfunction of the software during testing. If a malfunction of the
software is discovered, 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.
Our new bank building has been completed. The cost of the new facility and land
was $1,060,000. 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 were partially
offset by the sale of our existing office. We also have installed an ATM
machine, and are now offering that service.
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
We held a special meeting of stockholders on April 13, 1999.
At the meeting, a stock option plan and a restricted stock
plan were approved by stockholders.
The results of voting are shown for each matter considered.
1999 Stock Option Plan:
Votes For 358,693
Votes Against 60,694
Abstentions 4,967
Broker Non-Votes 10,350
1999 Restricted Stock Plan:
Votes For 369,143
Votes Against 60,594
Abstentions 4,967
Item 5. Other Information
-----------------
Not applicable.
-14-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 10.3 - Quitman Bancorp, Inc. 1999 Stock Option Plan
Incorporated by reference to Exhibit A to the proxy
statement for the special meeting of stockholders held on
April 13, 1999 (SEC File Number 0-23763).
Exhibit 10.4 - Quitman Federal Savings Bank Restricted Stock
Plan and Trust Agreement. Incorporated by reference to
Exhibit B to the proxy statement for the special meeting of
stockholders held on April 13, 1999 (SEC File Number
0-23763).
(b) A Form 8-K (Item 7), dated as of May 25, 1999, was filed
during the quarter concerning the authorization of a
repurchase plan.
-15-
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
QUITMAN BANCORP, INC.
Date: August 12, 1999 By: /s/Melvin E. Plair
---------------------------
Melvin E. Plair
President and Chief Executive Officer
(Principal Executive and Financial
Officer)
(Duly Authorized Officer)
August 12, 1999 By: /s/Peggy L. Forgione
---------------------------
Peggy L. Forgione
Vice President and Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,016
<INT-BEARING-DEPOSITS> 745
<FED-FUNDS-SOLD> 0
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<INVESTMENTS-HELD-FOR-SALE> 6,238
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<ALLOWANCE> 380
<TOTAL-ASSETS> 50,828
<DEPOSITS> 41,658
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 515
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0
0
<COMMON> 66
<OTHER-SE> 7,589
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<EPS-BASIC> .49
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<YIELD-ACTUAL> 2.94
<LOANS-NON> 234
<LOANS-PAST> 394
<LOANS-TROUBLED> 0
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