<PAGE> 1
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, 2000
-------------
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
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(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, 2000: 507,262
Transitional Small Business Disclosure Format (check one)
YES NO X
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<PAGE> 2
QUITMAN BANCORP, INC.
Contents
--------
Page(s)
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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 . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . 15
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE> 3
<TABLE>
PART I. FINANCIAL INFORMATION
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
ASSETS
------
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Cash and Cash Equivalents:
Cash and amounts due from depository
institutions $ 2,231,278 1,706,799
Interest-bearing deposits in other banks 79,360 261,896
------------ ------------
Total Cash and Cash Equivalents 2,310,638 1,968,695
Investment securities - Available-for-sale 6,512,612 6,558,701
Loans receivable - net of allowance for loan
losses and deferred origination fees 47,152,723 41,120,768
Office properties and equipment, at cost, net of
accumulated depreciation 1,508,311 1,601,398
Real estate and other property acquired
in settlement of loans 76,596 139,045
Accrued interest receivable 544,040 514,290
Investment required by law-stock in Federal
Home Loan Bank, at cost 320,300 286,700
Cash value of life insurance 599,757 482,354
Other assets 200,729 170,198
------------ ------------
Total Assets $ 59,225,706 52,842,149
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 46,234,988 41,993,095
Advances from Federal Home Loan Bank 5,000,000 2,500,000
Accrued interest payable 378,905 303,512
Income taxes payable 7,380 1,312
Other liabilities 96,344 369,230
------------ ------------
Total Liabilities 51,717,617 45,167,149
------------ ------------
Stockholders' Equity:
Common stock, $.10 par value, 4,000,000
shares authorized, 661,250 shares
issued and 507,262 shares outstanding
June 30, 2000 (533,960 September 30, 1999) 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 3,592,605 3,491,984
Accumulated other comprehensive income (loss) (117,879) (77,699)
------------ ------------
9,676,263 9,615,822
Receivable from employee stock ownership plan (449,650) (502,550)
Treasury stock, 153,988 shares at cost June 30,
2000 (127,290 September 30, 1999) (1,718,524) (1,438,272)
------------ ------------
Total Stockholders' Equity 7,508,089 7,675,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 59,225,706 52,842,149
============ ============
</TABLE>
<PAGE> 4
<TABLE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable:
First mortgage loans $ 961,780 834,731 2,790,474 2,424,872
Consumer and other loans 82,078 52,523 228,166 155,849
Interest on FHLMC Pool 24 40 83 136
Investment securities 98,900 92,270 293,922 270,168
Interest-bearing deposits 6,428 9,442 20,474 24,304
Federal funds sold 714 -0- 2,118 482
---------- ---------- ---------- ----------
Total Interest Income 1,149,924 989,006 3,335,237 2,875,811
---------- ---------- ---------- ----------
Interest Expense:
Deposits 623,241 553,394 1,800,063 1,603,401
Interest on Federal Home Loan
Bank advances 76,661 -0- 183,078 11,546
---------- ---------- ---------- ----------
Total Interest Expense 699,902 553,394 1,983,141 1,614,947
---------- ---------- ---------- ----------
Net Interest Income 450,022 435,612 1,352,096 1,260,864
Provision for loan losses 15,154 -0- 45,154 10,000
---------- ---------- ---------- ----------
Net Interest Income After
Provision for Losses 434,868 435,612 1,306,942 1,250,864
---------- ---------- ---------- ----------
Non-Interest Income:
Gain (loss) on sale of securities -0- -0- (7,387) 1,094
Late charges on loans 9,278 8,411 27,815 27,137
Service charges 26,868 11,902 73,120 21,538
Insurance commissions 2,372 5,168 7,953 5,725
Other income 7,804 2,065 19,602 4,640
Gain on sale of other real estate -0- -0- 5,911 -0-
Gain on sale of fixed assets -0- 84,019 -0- 84,019
---------- ---------- ---------- ----------
Total Non-Interest Income 46,322 111,565 127,014 144,153
---------- ---------- ---------- ----------
Non-Interest Expense:
Compensation 138,924 158,136 403,818 337,324
Other personnel expenses 48,847 55,358 174,296 152,177
Occupancy expenses of premises 12,361 9,854 37,399 21,420
Furniture and equipment expenses 51,518 40,329 158,592 113,175
Federal deposit insurance 2,205 5,525 10,489 16,286
Advertising 5,405 9,504 22,775 34,509
Legal expense 3,355 15,425 21,628 41,624
Accounting and auditing 12,475 10,810 40,475 37,360
Office supplies and printing 8,879 18,828 31,279 39,373
Business occupation and other taxes 12,441 11,707 39,690 41,451
Charitable contributions 1,900 1,171 15,333 8,268
Other operating expenses 53,028 45,180 168,226 113,498
---------- ---------- ---------- ----------
Total Non-Interest Expense 351,338 381,827 1,124,000 956,465
---------- ---------- ---------- ----------
Income Before Income Taxes 129,852 165,350 309,956 438,552
Provision for Income Taxes 44,526 71,084 107,883 168,606
---------- ---------- ---------- ----------
Net Income $ 85,326 94,266 202,073 269,946
========== ========== ========== ==========
Earnings Per Share
(Basic and Diluted) $ .18 .19 .43 .49
========== ========== ========== ==========
</TABLE>
<PAGE> 5
<TABLE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<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, 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 paid -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,
99,187 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
========== ========== ========== ========== ========== ========== ==========
Balances,
September 30, 1999 $ 66,125 6,135,412 3,491,984 (77,699) (502,550)(1,438,272) 7,675,000
Net income -0- -0- 202,073 -0- -0- -0- 202,073
Dividends paid -0- -0- (101,452) -0- -0- -0- (101,452)
Other comprehensive
income (loss) -0- -0- -0- (40,180) -0- -0- (40,180)
Change in receivable
from employee stock
ownership plan -0- -0- -0- -0- 52,900 -0- 52,900
Treasury stock acquired,
26,698 Shares -0- -0- -0- -0- -0- (280,252) (280,252)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances,
June 30, 2000,
(Unaudited) $ 66,125 6,135,412 3,592,605 (117,879) (449,650)(1,718,524) 7,508,089
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE> 6
<TABLE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<CAPTION> NINE MONTHS ENDED JUNE 30,
--------------------------
2000 1999
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
-------------------------------------
Net income $ 202,073 269,946
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 106,623 74,304
Provision for loan losses 45,154 10,000
Amortization (Accretion) of securities 8,645 10,615
Gain on sale of foreclosed assets (5,911) -0-
(Gain) loss on sale of securities 7,387 (1,094)
Deferred income taxes 33 (1,813)
Change in Assets and Liabilities:
(Increase) Decrease in accrued interest receivable (29,750) (989)
Increase (Decrease) in accrued interest payable 75,393 62,911
Increase (Decrease) in other liabilities (52,886) (28,717)
Increase (Decrease) in income taxes payable 6,068 (8,409)
(Increase) Decrease in other assets (9,864) (31,352)
----------- -----------
Net cash provided (used) by operating activities 352,965 355,402
----------- -----------
Cash Flows From Investing Activities:
-------------------------------------
Capital expenditures (13,536) (1,013,913)
Purchase of available-for-sale securities (873,319) (3,126,358)
Proceeds from sale of foreclosed property 68,360 -0-
Proceeds from maturity of held-to-maturity securities -0- 200,000
Proceeds from maturity of available-for-sale securities -0- 100,000
Proceeds from sale of available-for-sale securities 541,477 2,150,000
Purchase of stock in Federal Home Loan Bank (33,600) (46,900)
Net (increase) decrease in loans (6,077,109) (3,464,320)
Principal collected on mortgage-backed securities 81,019 127,115
Increase in cash value of life insurance (117,403) (110,098)
----------- -----------
Net cash provided (used) by investing activities (6,424,111) (5,184,474)
----------- -----------
Cash Flows From Financing Activities:
-------------------------------------
Net increase (decrease) in deposits 4,241,893 6,703,028
Proceeds from Federal Home Loan Bank advances 2,500,000 2,000,000
Principal collected on receivable from ESOP 52,900 26,450
Purchase of treasury stock (280,252) (1,398,633)
Payment on Federal Home Loan advances -0- (1,000,000)
Dividends paid (101,452) (112,413)
----------- -----------
Net cash provided (used) by financing activities 6,413,089 6,218,432
----------- -----------
Net Increase (Decrease) in cash and cash equivalents 341,943 1,389,360
Cash and Cash Equivalents at Beginning of Period 1,968,695 371,866
----------- -----------
Cash and Cash Equivalents at End of Period $ 2,310,638 1,761,266
=========== ===========
Supplemental Disclosures of Cash Flows Information:
---------------------------------------------------
Cash Paid During The Period:
Interest $ 1,907,748 1,552,036
Income taxes 97,725 185,014
Non-Cash Investing Activities:
Increase (Decrease) in unrealized gains on
available-for-sale securities (60,879) (94,135)
</TABLE>
<PAGE> 7
<TABLE>
QUITMAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $ 85,326 94,266 202,073 269,946
---------- ---------- ---------- ----------
Other Comprehensive Income,
Net of Tax:
Unrealized gains (losses)
on securities:
Unrealized holding gains
(losses) arising during
the period 6,310 (55,046) (45,055) (93,041)
Reclassification adjustment
for (gains)losses included
in net income -0- -0- 4,875 (1,094)
---------- ---------- ---------- ----------
Other Comprehensive Income (Loss) 6,310 (55,046) (40,180) (94,135)
---------- ---------- ---------- ----------
Comprehensive Income $ 91,636 39,220 161,893 175,811
========== ========== ========== ==========
</TABLE>
<PAGE> 8
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, 2000 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, 1999.
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), 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.
<PAGE> 9
Note 3 - Stock Repurchase
-------------------------
The Company has adopted a stock repurchase program that allows for the
repurchase, from time to time, of up to 153,988 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. On
December 9, 1999, the Company completed its stock repurchase program, having
repurchased 153,988 shares of its common stock at a cost of $1,718,524.
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,
--------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(a) Net income available
to shareholders $ 85,326 94,266 202,073 269,946
---------- ---------- ---------- ----------
Denominator:
Weighted-average
shares outstanding 507,262 556,585 513,704 600,543
Less: ESOP weighted-
average shares
unallocated 44,965 50,255 46,741 51,137
---------- ---------- ---------- ----------
(b) Basic EPS weighted-average
shares outstanding 462,297 506,330 466,963 549,406
Effect of dilutive
securities -0- -0- -0- -0-
---------- ---------- ---------- ----------
(c) Diluted EPS weighted-average
shares outstanding 462,297 506,330 466,963 549,406
========== ========== ========== ==========
Basic earnings per
share (a/b) $ .18 .19 .43 .49
========== ========== ========== ==========
Diluted earnings per
share (a/c) $ .18 .19 .43 .49
========== ========== ========== ==========
</TABLE>
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Comparison of Financial Condition at June 30, 2000 and September 30, 1999
-------------------------------------------------------------------------
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, 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 $6.4 million or 12.1% due primarily to the increase in
loans resulting from funds received from increases in deposits and advances from
the Federal Home Loan Bank.
Total equity decreased by $166,911 as result of net income for the nine months
ended June 30, 2000, changes in the unrealized gain or loss on available-for-
sale securities, reduction of a loan to the Bank's employee stock ownership
plan, and purchase of 26,698 shares of treasury stock at a cost of $280,252.
Non-Performing Assets and Delinquencies
---------------------------------------
Loans accounted for on a non-accrual basis increased to $256,242 at June 30,
2000 from $228,113 at September 30, 1999. The increase was the result of nine
loans being reclassified to performing loans and eleven loans being added to
non-accrual. The allowance for loan losses was $428,200 at June 30, 2000.
Comparison of the Results of Operations for the Three Months Ended June 30, 2000
and 1999
--------------------------------------------------------------------------------
Net Income. Net income decreased by $9,000 or 9.5% from net income of $94,000
for the three months ended June 30, 1999 to net income of $85,000 for the three
months ended June 30, 2000. This decrease is primarily the result of reduced
non-interest expense, a reduced income tax provision, and increased service
charge income that were more than offset by a non-recurring gain on the sale of
the Company's former offices. The annualized return on average assets decreased
from .77% to .60% for the three months ended June 30, 1999 and 2000,
respectively.
<PAGE> 11
Net Interest Income. Net interest income increased $14,000 or 3.3% from
$436,000 for the three months ended June 30, 1999 to $450,000 for the three
months ended June 30, 2000. The increase was primarily due to an increase in
loans resulting from the increase in deposits and advances from the Federal Home
Loan Bank.
Interest Income. Interest income increased $161,000 for the three months ended
June 30, 2000 compared to the same three months ended June 30, 1999. 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 16.04%. This increase in average interest-earning assets
added an additional $161,000 of interest income. The average yield on interest-
earning assets was 8.6% for the three months ended June 30, 2000 and 1999,
respectively.
Interest Expense. Interest expense increased $147,000 from $553,000 for the
three months ended June 30, 1999 to $700,000 for the three months ended June 30,
2000. The increase in interest expense was due to an increase in average
interest-bearing liabilities of $7.2 million and a slight increase in the cost
of funds of 39 basis points (100 basis points equals 1%). The average balances
of deposits and advances from the Federal Home Loan bank increased by $7.2
million, from the three months ended June 30, 1999 to the three months ended
June 30, 2000.
Non-Interest Income. Non-interest income decreased by $65,000 primarily from a
decrease in gain on sale of assets, of $84,000, off-set by an increase in
service charges of $15,000 and miscellaneous income of $4,000.
Non-Interest Expense. Non-interest expense decreased by $30,000 primarily due
to decreased compensation and other personnel expense. Our compensation and
other personnel expense decreased an aggregate of $26,000 between the periods as
a result of decreased contributions to the Bank's Employee Stock Ownership Plan
and Restricted Stock Plan. Other non-interest expenses decreased $4,000.
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, any money that we had spent up to that time would be a non-
interest expense and would negatively affect our income.
Non-interest expense has increased as a result of staffing and equipping of the
new bank building opened in April 1999. 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 off-set the additional expenses. We believe this expansion should
enhance shareholder value and hope that the decrease in earnings will not be as
great following the end of fiscal 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 the 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 effect on net income
past the end of year 2000. Our non-interest expense would further increase if
we built the new branch discussed in the prior paragraph.
Income Taxes. Income tax expense amounted to $71,000 for the three months ended
June 30, 1999 compared to $45,000 for the three months ended June 30, 2000.
This decrease is due to the gain on the sale of our former office facility and
equipment during the three months ended June 30, 1999 not recurring in the three
months ended June 30, 2000.
<PAGE> 12
Comparison of the Results of Operations for the Nine Months Ended June 30, 2000
and 1999
-------------------------------------------------------------------------------
Net Income. Net income decreased by $68,000 or 25.1% from net income of
$270,000 for the nine months ended June 30, 1999 to net income of $202,000 for
the same nine months of fiscal 2000. This decrease is primarily the result of
the non-recurring gain on the sale of our old office facilities and equipment in
the amount of $84,000 realized in the nine months ended June 30, 1999 and
increased interest income, service charges, gain on sale of other real estate
and other income that was partially offset by an increase in interest and non-
interest expense. The annualized return on average assets decreased from .76%
to .49% for the nine months ended June 30, 1999 and 2000, respectively.
Net Interest Income. Net interest income increased $91,000 or 7.2%, from
$1,261,000 for the nine months ended June 30, 1999 to $1,352,000 for the nine
months ended June 30, 2000. The increase was primarily due to an increase in
residential mortgages and consumer loans and partially offset by a moderate
increase in the cost of funds.
Interest Income. Interest income increased $459,000 for the nine months ended
June 30, 2000 compared to the nine months ended June 30, 1999. 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%. This increase in average interest-earning assets added an
additional $459,000 of interest income. The average yield on interest-earning
assets increased moderately to 8.7% from 8.6% for the nine months ended June 30,
2000 and 1999, respectively.
Interest Expense. Interest expense increased $368,000 from $1,615,000 for the
nine months ended June 30, 1999 to $1,983,000 for the nine months ended June 30,
2000. The increase in interest expense was attributable to an increase in the
average interest-bearing liabilities of $8.1 million and an increase in the cost
of funds of 6 basis points (100 basis points equals 1%). The average balances
of deposits and advances from the Federal Home Loan Bank increased by $8.1
million from the nine months ended June 30, 1999 to the nine months ended June
30, 2000.
Non-Interest Income. Non-interest income decreased by $17,000 primarily from a
decrease in gain on sale of assets of $84,000 which was partially offset by an
increase in service charges on deposit accounts of $52,000, gain on sale of
other real estate of $6,000, insurance commissions of $2,000, other income
$7,000.
Non-Interest Expense. Non-interest expense increased by $168,000 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 $88,000 between the periods as a result of
year-end pay raises, our hiring of additional employees and contributions to the
Bank's Restricted Stock Plan approved in April of 1999. Our occupancy and
furniture and equipment expense increased an aggregate of $61,000 between the
periods as a result of occupying and equiping our new bank building. Other non-
interest expense increased an aggregate of $19,000.
Our expenses have increased because of the cost associated with our Employee
Stock Ownership Plan, Restricted Stock Plan, and Stock Option Plan, and the cost
of being a public company. We also offered checking accounts and the use of an
automated teller machine (an "ATM") to our customers during fiscal 1999. Our
preparation cost for these products and the cost 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, any money that we had spent up to that time would be a non-
interest expense and would negatively affect our income.
<PAGE> 13
Non-interest expense has increased as a result of staffing and equipping of the
new bank building opened in April 1999. 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 off-set the additional expenses. We believe 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 the 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 effect on net income past the end of
year 2000. Our non-interest expense would further increase if we built the new
branch discussed in the prior paragraph.
Income Taxes. Income tax expense amounted to $169,000 for the nine months ended
June 30, 1999 compared to $108,000 for the nine months ended June 30, 2000.
Liquidity and Capital Resources
-------------------------------
Management monitors our risk-based capital and leverage capital ratios in order
to asses compliance with regulatory guidelines. At June 30, 2000, the Bank had
tangible capital, leverage, and total risk-based capital of 10.80%, 10.80% and
16.65%, respectively, which exceeded the OTS's minimum requirements of 1.50%,
4.00% and 8.00%, respectively.
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 therefor. 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. Also, the Bank may not pay a dividend if the payment would
cause its net worth to be reduced below the amount required for the liquidation
account established at the time of the conversion of the Bank from mutual to
stock form.
On April 4, 2000 the Board of Directors approved a dividend of $.20 per share,
payable May 31, 2000 to shareholders of record on May 17, 2000. This dividend
was paid from funds made available by dividends from the subsidiary bank.
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.
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 cost would total approximately $600,000. We have sufficient liquid
assets to pay for these costs.
Pursuant to FASB No. 130 the Company is required to record changes in the value
of its investment portfolio as regards unrealized gains or losses that may
result from movements in interest rates. For the quarter and nine months ended
June 30, 2000, the savings bank showed unrealized gains (losses), net of tax
effect, totaling $6,000 and $(40,000), respectively due to increases in interest
rates as the National Money Market reacted to
<PAGE> 14
actions by the Federal Open Market Committee. Management does not anticipate
the realization of the above loss. The unrealized loss does however negatively
impact the Company's capital. The unrealized losses, net of applicable taxes,
combined with net operating income of $202,073, a reduction in the receivable
from the Bank's Employee Stock Ownership Plan of $52,900 and the acquisition of
26,698 shares of treasury stock at a cost of $280,000 yields a net decrease in
the Company's capital of $167,000. However, because of the treasury stock
acquisition reducing the number of shares of common stock outstanding the book
value per share of common stock increased from $14.37 on September 30, 1999 to
$14.80 as of June 30, 2000. The Bank's capital continues to exceed regulatory
requirements and continues to be adequate to support future asset growth.
<PAGE> 15
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
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) None.
(b) None.
<PAGE> 16
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 8, 2000 By: MELVIN E. PLAIR
-------------------------------------
Melvin E. Plair
President and Chief Executive Officer
(Principal Executive and Financial
Officer)
(Duly Authorized Officer)
Date: August 8, 2000 By: PEGGY L. FORGIONE
-------------------------------------
Peggy L. Forgione
Vice President and Controller
(Chief Accounting Officer)
