As filed with the Securities and Exchange Commission on December 23, 1997
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Quitman Bancorp, Inc.
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(Exact Name of Small Business Issuer as Specified in Charter)
Georgia 6035 Requested
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(State or Other Jurisdiction (Primary SIC No.) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
100 West Screven Street, Quitman, Georgia 31643
(912) 263-7538
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(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Mr. Melvin E. Plair
President and Chief Executive Officer
Quitman Bancorp, Inc.
100 West Screven Street, Quitman, Georgia 31643
(912) 263-7538
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(Name, Address and Telephone Number of Agent for Service)
Please send copies of all communications to:
Charles E. Sloane, Esq.
Gregory J. Rubis, Esq.
Jean A. Milner, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Proposed Maximum Proposed
Class of Securities Amount to Offering Price Maximum Aggregate Amount of
To Be Registered be Registered Per Unit Offering Price(1) Registration Fee
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Common Stock,
$.10 Par Value $661,250 $10.00 $6,612,500 $1,950.69
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(1) Estimated solely for purposes of calculating the registration fee.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
Up to 575,000 Shares of Common Stock (Anticipated Maximum)
QUITMAN BANCORP, INC.
(Proposed Holding Company for Quitman Federal Savings Bank)
100 West Screven Street
Quitman, Georgia 31643
(912) 263-7538
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Quitman Federal Savings Bank is converting from the mutual form to the
stock form of organization. As part of the conversion, Quitman Federal Savings
Bank will become a wholly owned subsidiary of Quitman Bancorp, Inc. Quitman
Bancorp, Inc. was formed in December 1997 and upon consummation of the
conversion will own all of the shares of Quitman Federal Savings Bank. The
common stock of Quitman Bancorp, Inc. is being offered to the public in
accordance with a Plan of Conversion. The Plan of Conversion must be approved by
a majority of the votes eligible to be cast by members of Quitman Federal
Savings Bank and by the Office of Thrift Supervision. No common stock will be
sold if Quitman Federal Savings Bank does not receive these approvals and
Quitman Bancorp, Inc. does not receive orders for at least the minimum number of
shares.
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TERMS OF OFFERING
An independent appraiser has estimated the market value of the
converted Quitman Federal Savings Bank to be between $4,250,000 and $5,750,000,
which establishes the number of shares to be offered. Subject to Office of
Thrift Supervision approval, up to 661,250 shares, an additional 15% above the
maximum number of shares, may be offered. Based on these estimates, we are
making the following offering of shares of common stock:
o Price Per Share: $10.00
o Number of Shares
Minimum/Maximum/Maximum, as adjusted: 425,000 to 575,000 to 661,250
o Underwriting Commissions and Expenses
Minimum/Maximum/Maximum, as adjusted: $324,000 to $358,000 to $378,000
o Net Proceeds to Quitman Bancorp, Inc.
Minimum/Maximum/Maximum, as adjusted: $3,926,000 to $4,659,000 to $6,235,000
o Net Proceeds per Share
Minimum/Maximum/Maximum, as adjusted: $9.24 to $9.38 to $9.43
Please refer to Risk Factors beginning on page 1 of this document.
Any transfer of subscription rights is prohibited.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, Office of Thrift Supervision,
nor any state securities regulator has approved or disapproved these securities
or determined if this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
For information on how to subscribe, call the Stock Information Center at (912) ____ - ____
TRIDENT SECURITIES, INC.
, 1998
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TABLE OF CONTENTS
Page
----
Questions and Answers About the Stock Offering..........................
Summary.................................................................
Selected Financial and Other Data.......................................
Risk Factors............................................................
Proposed Purchases by Directors and Officers............................
Use of Proceeds.........................................................
Dividends...............................................................
Market for the Common Stock.............................................
Capitalization..........................................................
Pro Forma Data..........................................................
Historical and Pro Forma Capital Compliance.............................
The Conversion..........................................................
Consolidated Statements of Income of
Quitman Federal Savings Bank..........................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................
Business of Quitman Bancorp, Inc........................................
Business of Quitman Federal Savings Bank................................
Regulation..............................................................
Taxation................................................................
Management of Quitman Bancorp, Inc......................................
Management of Quitman Federal Savings Bank..............................
Restrictions on Acquisitions of Quitman Bancorp, Inc....................
Description of Capital Stock............................................
Legal and Tax Matters...................................................
Experts.................................................................
Change in Auditor.......................................................
Registration Requirements...............................................
Where You Can Find Additional Information...............................
Index to Consolidated Financial Statements of
Quitman Federal Savings Bank..........................................
This document contains forward-looking statements which involve risks
and uncertainties. Quitman Bancorp, Inc.'s actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" beginning on page 1 of this document.
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: What is the purpose of the Offering?
A: The offering means that you will have the chance to become a
stockholder of our newly formed holding company, Quitman Bancorp, Inc.,
which will allow you to share in our future as a federal stock savings
bank. The stock offering will increase our capital and funds for
lending and investment activities. As a stock savings institution
operating through a holding company structure, we will have greater
flexibility for investments.
Q: How do I purchase the stock?
A: You must complete and return the Stock Order Form to us together with
your payment, on or before 12:00 noon, __________, __________, 1998. If
the stock is not all sold in the Subscription Offering, the stock
offering may be extended until __________ ____, 1998.
Q: How much stock may I purchase?
A: The minimum purchase is 25 shares (or $250). The maximum purchase is
6,000 shares (or $60,000), for any individual person or persons
ordering through a single account. No person, related person or persons
acting together, may purchase in total more than 10,000 shares (or
$100,000). We may decrease or increase the maximum purchase limitation
without notifying you. In the event that the offering is
oversubscribed, shares will be allocated based upon a formula.
Q: What happens if there are not enough shares to fill all orders?
A: You might not receive any or all of the shares you want to purchase.
If there is an oversubscription in the Subscription Offering, the stock
will be offered to the following persons:
o Priority 1 - Persons who had a deposit account with us of at
least $50.00 on December 31, 1995.
o Priority 2 - Tax Qualified Employee Plans, including the employee
stock ownership plan of Quitman Federal Savings Bank.
o Priority 3 - Persons who had a deposit account of at least $50.00
with us on December 31, 1997.
o Priority 4 - Other persons entitled to vote on the approval of
the conversion.
If the above persons do not subscribe for all of the shares, the remaining
shares may be offered in a Community Offering with a preference to persons who
reside in Brooks County, Georgia, in a Public Offering, or through Trident
Securities, Inc. to certain persons in a Syndicated Public Offering. We have the
right to reject any stock order in the community offering or Syndicated Public
Offering.
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(i)
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Q: What particular factors should I consider when deciding whether to buy
the stock?
A: Because of the small size of the offering, there is not expected to be
an active market for the shares, which may make it difficult to resell
any shares you may own. Also, before you decide to purchase stock, you
should read this Prospectus, including the Risk Factors section on
pages 1-____.
Q: As a depositor or borrower member of Quitman Federal Savings Bank, what
will happen if I do not purchase any stock?
A: You presently have voting rights since we are in the mutual form;
however, once we convert, voting rights will be held by the
stockholders. You are NOT required to purchase stock. Your deposit
account, certificate account and any loans you may have with us will be
NOT be affected.
Q: Who can help answer any other questions I may have about the stock
offering?
A: In order to make an informed investment decision, you should read this
entire document. In addition, you should contact:
Stock Information Center
Quitman Bancorp, Inc.
100 W. Screven Street
Quitman, Georgia 31643
(912) ____-____
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(ii)
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements of Quitman
Federal Savings Bank. References is this document to "we", "us", and "our" refer
to Quitman Federal Savings Bank. In certain instances where appropriate, "we",
"us", or "ours" refers collectively to Quitman Bancorp, Inc. and Quitman Federal
Savings Bank. References in this document to "QBI" refers to Quitman Bancorp,
Inc.
The Companies
Quitman Bancorp, Inc.
100 West Screven Street
Quitman, Georgia 31643
(912) 263-7538
Quitman Bancorp, Inc. is not an operating company and has not engaged
in any significant business to date. It was formed in December 1997 as a
Georgia-chartered corporation to be the holding company for Quitman Federal
Savings Bank. The holding company structure will provide greater flexibility in
terms of operations, expansion and diversification. See page __________.
Quitman Federal Savings Bank
100 West Screven Street
Quitman, Georgia 31643
(912) 263-7538
Quitman Federal Savings Bank was founded in 1936 under the name
"Quitman Federal Savings and Loan Association." In November 1997 we changed our
name to Quitman Federal Savings Bank. We are a community and customer oriented
federal mutual savings bank. We provide financial services to individuals,
families and small businesses. Historically, we have emphasized residential
mortgage lending, primarily originating one- to four-family mortgage loans and
funded these loans with certificates of deposit. In recent years we have
increasingly emphasized consumer, commercial and construction lending and have
begun to use borrowings as a source of funding. At September 30, 1997 we had
total assets of $39.2 million, deposits of $34.5 million, and total equity of
$3.0 million. See pages __________ to ____________.
The Stock Offering
Between 425,000 and 575,000 shares of common stock are being offered at
$10.00 per share. As a result of changes in market and financial conditions
prior to completion of the conversion, or to fill the order of our employee
stock ownership plan and subject to Office of Thrift Supervision approval, the
offering may be increased to 661,250 shares without further notice to you. In
such event, you will not have the opportunity to change or cancel any stock
order previously delivered to us.
Stock Purchases
The shares of common stock will be offered on the basis of priorities.
As a depositor or borrower member, you will receive subscription rights to
purchase the shares. The shares will be offered first in a Subscription Offering
and any remaining shares may be offered in a Community Offering, Public
Offering, or Syndicated Public Offering. See pages __________ to __________.
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(iii)
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Subscription Rights
You may not sell or assign your subscription rights. Any transfer of
subscription rights is prohibited by law.
The Offering Range and Determination of the Price Per Share
The offering range is based on an independent appraisal of the
estimated market value of the common stock by FinPro Financial Services, Inc.,
an appraisal firm experienced in appraisals of savings institutions. FinPro has
estimated, that in its opinion as of __________ ____, 1997 the aggregate pro
forma market value of the common stock ranged between $4,250,000 and $5,750,000
(with a mid-point of $5,000,000). The estimated market value of the shares is
our estimated market value after giving effect to the sale of shares in this
offering.
The appraisal was based in part upon our financial condition and
operations and the effect of the additional capital raised by the sale of common
stock in this offering. The $10.00 price per share was determined by our board
of directors and is the price most commonly used in stock offerings involving
conversions of mutual savings institutions. The independent appraisal will be
updated prior to the consummation of the conversion. If the estimated market
value of the common stock is either below $4,250,000 or above $6,612,500. You
will be notified and will have the opportunity to modify or cancel your order.
See pages __________ to __________.
Termination of the Offering
The Subscription Offering will terminate at 12:00 p.m., Eastern Time,
on __________ ____, 1997. The Community Offering or Public Offering, if any, may
terminate at any time without notice but no later than __________ ____, 1998,
without approval by the OTS.
Benefits to Management from the Offering
Our full-time employees will participate in the offering through
individual purchases and through purchases of stock by our employee stock
ownership plan, which is a type of retirement plan. We also intend to implement
a restricted stock plan and a stock option plan, which may benefit the President
and other officers and directors. Officers and directors may be granted common
stock under a restricted stock plan without payment of cash. The restricted
stock plan and stock option plan may not be adopted until after the conversion
and are subject to stockholder approval and compliance with OTS regulations.
Use of the Proceeds Raised from the Sale of Common Stock
Quitman Bancorp, Inc. will use a portion of the net proceeds from the
stock offerings to purchase all the common stock to be issued by us in the
conversion and to make a loan to our employee stock ownership plan to fund its
purchase of stock in the conversion. The balance of the funds will be retained
as Quitman Bancorp, Inc.'s initial capitalization. See page __________.
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(iv)
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Dividends
It is anticipated that QBI will pay an annual cash dividend of $.20 per
share following the completion of the first quarter of 1999.
Market for the Common Stock
Since the size of the offering is relatively small, it is unlikely that
an active and liquid trading market will develop and be maintained. Investors
should have a long-term investment intent. Persons purchasing shares may not be
able to sell their shares when they desire or sell them at a price equal to or
above $10.00. See page __________.
Important Risks in Owning Quitman Bancorp, Inc.'s Common Stock
Before you decide to purchase stock in the offering, you should read
the Risk Factors section on pages 1 -__________ of this document.
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(v)
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SELECTED FINANCIAL AND OTHER DATA
We are providing the following summary financial information about us
for your benefit. This information is derived from our 1997 and 1996 audited
financial statements, as shown below. The following information is only a
summary and you should read it in conjunction with our financial statements and
notes beginning on page F-1.
Selected Financial Data
The following table sets forth certain information concerning the
financial position of the Savings Bank at the dates indicated:
At September 30,
----------------------------
1997 1996
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(Dollars in
thousands)
Total amount of:
Assets................................................... $39,192 $36,173
Cash and cash equivalents................................ 657 765
Loans receivable, net.................................... 33,326 30,805
Investment securities available-for-sale................. 3,046 1,781
Investment securities held-to-maturity................... 805 1,663
Savings deposits......................................... 34,471 31,729
Other borrowings......................................... 1,300 1,200
Total equity(1).......................................... 2,959 2,667
Number of:
Loans.................................................... 1,471 1,421
Full service offices..................................... 1 1
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(1) Includes retained earnings and unrealized gains and losses on
available-for-sale securities.
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(vi)
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Summary of Operations
The following table summarizes the Savings Bank's results of operations
for each of the periods indicated:
Year Ended September 30,
----------------------------
1997 1996
-------- -------
(In thousands)
Interest income..................................................... $3,198 $2,907
Interest expense.................................................... 1,978 1,844
----- -----
Net interest income................................................. 1,220 1,063
Provision for loan losses........................................... 136 36
----- -----
Net interest income after provision for loan losses................. 1,084 1,027
----- -----
Non-interest income................................................. 45 49
Non-interest expense(1)............................................. 747 922
----- -----
Income before income taxes.......................................... 382 154
Income tax expense.................................................. 119 51
----- -----
Net income ......................................................... $ 263 $ 103
===== =====
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(1) Includes a non-recurring expense of $185,647 for the year ended September
30, 1996 for a one-time deposit premium to recapitalize the SAIF.
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(vii)
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Key Operating Ratios
The table below sets forth certain performance ratios of the Savings
Bank at the dates or for the periods indicated.
At or For the Year Ended
September 30,
-------------------------------------
1997 1996
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Performance Ratios:
Return on average assets (net income
divided by average total assets).................................. .70% .30%
Return on average equity (net income
divided by average equity)........................................ 9.34% 3.93%
Ratio of average equity to average assets ratios (average
equity divided by average total assets)........................... 7.46% 7.58%
Equity to assets at period end...................................... 7.55% 7.38%
Interest rate spread................................................ 3.07% 2.78%
Net interest margin................................................. 3.37% 3.15%
Average interest-earning assets to average
interest-bearing liabilities...................................... 105.52% 106.83%
Net interest income after provision for loan
losses, to total non-interest expenses............................ 145.07% 111.35%
Asset Quality Ratios:
Non-performing loans to total assets................................ 1.22% 2.41%
Non-performing assets to total assets............................... 1.38% 2.41%
Non-performing loans to total loans, net............................ 1.43% 2.83%
Allowance for loan losses to total loans, net,
at end of period.................................................. 1.03% .68%
Allowance for loan losses to
non-performing loans.............................................. 72.54% 24.11%
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(viii)
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
Intent to Remain Independent
We have operated as an independent community oriented savings bank
since 1936. It is our intention to continue to operate as an independent
community institution following the Conversion. Accordingly, you are urged not
to subscribe for shares of our common stock if you are anticipating a quick sale
by us. See "Business of Quitman Bancorp, Inc."
Increased Construction Lending in Recent Periods
More than 10% of our loan portfolio consists of construction loans.
Most of these construction loans have been originated during the past several
years to a small number of borrowers to enable each of them to construct
multiple homes in our market area. We originate construction loans, which are a
form of temporary financing, because we receive higher interest rates from these
borrowers. We also typically originate permanent financing loans for the
purchase of these homes after they are constructed. We think construction loans
have more risk than other loans we originate. We have not always originated the
dollar volume of construction loans that we recently have. We do not expect the
dollar amount of construction loans to significantly increase in the future.
Because most of our construction loan borrowers are building more than one home
at a time, including homes for which the ultimate borrower has not yet been
identified, these loans are more speculative than our other loans. Construction
loans are for relatively greater dollar amounts than we usually extend for other
loans. The resulting larger loans with the increased risk could have a material
negative impact on our financial condition and results of operations if one or
more of these builders were unable to repay the amount they borrowed. See
"Business of Quitman Federal Savings Bank -- Lending Activities -- Residential
Construction Loans."
Lack of Active Market for Common Stock
Due to the small size of the offering, it is highly unlikely that an
active trading market will develop and be maintained. If an active market does
not develop, you may not be able to sell your shares promptly or perhaps at all,
or sell your shares at a price equal to or above the price you paid for them.
The common stock may not be appropriate as a short-term investment. See "Market
for the Common Stock."
Limitations on Growth
Economic growth in our market area remains dependent upon a local,
agriculture-based economy. Our deposit and loan activity is affected by economic
conditions in our market area. Housing values, employment levels, and household
income are at lower levels within a five mile radius of our office than they are
within a 10 and 20 mile radius of our office. Within a five mile radius of our
office, the population is declining and certain areas have extremely low housing
values and household income. Most of our growth in recent years has come from
outside five and ten mile radiuses of our office. We may not be able to remain
the same size or continue to grow in our market area if our office is too far
from our potential customers. Further, we do not believe that we will
substantially increase our consumer lending portfolio without hiring another
employee who is experienced in consumer lending or that we will be able to
significantly increase our construction lending portfolio, both of which
portfolios have grown in recent years. As a result, our continued growth may
depend upon such things as opening a branch
1
office, and our success in hiring additional people or creating new products.
See "Business of Quitman Federal Savings Bank -- Market Area."
Potential Impact of Changes in Interest Rates and the Current Interest Rate
Environment
Our ability to make a profit, like that of most financial institutions,
is substantially dependent on our net interest income, which is the difference
between the interest income we earn on our interest-earning assets (such as
mortgage loans and investment securities) and the interest expense we pay on our
interest-bearing liabilities (such as deposits and borrowings). Most of our
mortgage loans have rates of interest which are fixed for the term of the loan
("fixed rates") and are generally originated with terms of up to five years,
while deposit accounts have significantly shorter terms to maturity. Because our
interest-earning assets generally have fixed rates of interest and have longer
effective maturities than our interest-bearing liabilities, the yield on our
interest-earning assets generally will adjust more slowly to changes in interest
rates than the cost of our interest-bearing liabilities. As a result, our net
interest income will be adversely affected by material and prolonged increases
in interest rates. In addition, rising interest rates may adversely affect our
earnings because there may be a lack of customer demand for loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Asset/Liability Management."
Changes in interest rates can also affect the average life of loans and
mortgage-backed securities. Historically lower interest rates have resulted in
increased prepayments of loans and mortgage-backed securities, as borrowers
refinanced their mortgages in order to reduce their borrowing cost. Under these
circumstances, we are subject to reinvestment risk to the extent that we are not
able to reinvest such prepayments at rates which are comparable to the rates on
the prepaid loans or securities.
Decreased Return on Average Equity and Increased Expenses Immediately After
Conversion
As a result of the conversion, our equity will increase substantially.
Our expenses will increase because of the costs associated with our employee
stock ownership plan, restricted stock 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 will also increase our expenses. We do not know if we will receive
sufficient checking account funds or other income to offset these additional
costs. Because of the increases in our equity and expenses, our return on equity
may decrease as compared to our performance in previous years. Initially, we
intend to invest the net proceeds in short term investments which generally have
lower yields than residential mortgage loans. A lower return on equity could
reduce the trading price of our shares. For 1997 our return on average equity
was 9.34%.
Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control
Provisions in QBI's articles of incorporation and bylaws, the general
corporation law of Georgia, and certain federal regulations may make it
difficult for someone to pursue a tender offer, change in control or takeover
attempt which is opposed by our management and the board of directors. As a
result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of the current board of directors or management of QBI more difficult. In
addition, the effect of these provisions could be to reduce the trading price of
our stock. These provisions include: restrictions on the acquisition of QBI's
equity securities and limitations on voting rights; the classification of the
terms of the members of the board of directors; certain provisions relating to
the meeting of stockholders; denial of cumulative voting to stockholders in the
election of
2
directors; the issuance of preferred stock and additional shares of common stock
without shareholder approval; and supermajority provisions for the approval of
certain business combinations. See "Restrictions on Acquisitions of Quitman
Bancorp, Inc."
Possible Voting Control by Directors and Officers
The proposed purchases of the common stock by our directors, officers
and employee stock ownership plan, as well as the potential acquisition of the
common stock through the stock option plan and restricted stock plan, together
with the votes of a few supporters, could make it difficult to obtain majority
support for stockholder proposals which are opposed by our management and board
of directors. Based upon the midpoint of the estimated valuation range, our
officers and directors intend to purchase approximately 8% of the common shares
offered in the conversion. In addition, the voting of those shares could block
the approval of transactions (i.e., business combinations and amendment to our
articles of incorporation and bylaws) requiring the approval of 80% of the
stockholders under QBI's articles of incorporation. See "Proposed Purchases by
Directors and Officers," "Management of Quitman Federal Savings Bank --
Executive Compensation," "Description of Capital Stock," and "Restrictions on
Acquisitions of Quitman Bancorp, Inc."
Possible Dilutive Effect of RSP and Stock Options
If the conversion is completed and shareholders approve the restricted
stock plan and stock option plan, we will issue stock to our officers and
directors through these plans. If the shares for the restricted stock plan and
stock options are issued from our authorized but unissued stock, your voting
interests could be cumulatively diluted by up to approximately 12.3% and the
trading price of our stock may be reduced. See "Pro Forma Data," "Management of
Quitman Federal Savings Bank -- Proposed Future Stock Benefit Plans," and "--
Restricted Stock Plan."
Financial Institution Regulation and Future of the Thrift Industry
We are subject to extensive regulation, supervision, and examination by
the OTS and FDIC. Bills have been introduced in Congress that could consolidate
the OTS with the Office of the Comptroller of the Currency ("OCC") and require
the Bank to adopt a commercial charter. If we become a commercial bank, our
investment authority and the ability of QBI to engage in diversified activities
may be limited, which could adversely affect our value and profitability. See
"Regulation."
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, QBI may not
repurchase its shares. During each of the second and third years following the
conversion, QBI may repurchase up to 5% of its outstanding shares. During those
periods, if we decide that additional repurchases would be a good use of funds,
we would not be able to do so without first obtaining OTS approval. There is no
assurance that OTS approval would be given. See "The Conversion -- Restrictions
on Repurchase of Shares."
3
PROPOSED PURCHASES BY DIRECTORS AND OFFICERS
The following table sets forth the approximate purchases of common
stock by each director and executive officer and their associates in the
conversion. Shares purchased by officers and directors in the conversion may not
be sold for at least one year. The table assumes that 500,000 shares (the
midpoint of the estimated valuation range, "EVR") of the common stock will be
sold at $10 per share and that sufficient shares will be available to satisfy
subscriptions in all categories. However, officers and directors and their
associates may not buy more than 35% of the total amount of shares sold in the
conversion.
Aggregate
Total Price of Percent
Shares Shares of Shares
Name Position Purchased(1) Purchased(1) Purchased(1)
- ------------------------------ ----------------------------- ------------------ ------------------- ---------------
Claude R. Butler Chairman 10,000 $100,000 2.0%
Larry Cunningham Vice Chairman 5,000 50,000 1.0%
Walter B. Holwell Director 3,500 35,000 0.7%
John W. Romaine Director 6,000 60,000 1.1%
Daniel M. Mitchell, Jr. Director 10,000 100,000 2.0%
Melvin E. Plair Director, President and
Chief Executive
Officer 1,500 15,000 0.4%
Peggy Forgione Vice President and
Controller 2,500 25,000 0.5%
------ ------- ---
$38,500 $385,000 7.7%
====== ======= ===
- ----------
(1) Does not include shares purchased by the employee stock ownership plan (the
"ESOP").
4
USE OF PROCEEDS
QBI Bancorp will use 50% of the net proceeds from the offering to
purchase all of the capital stock we will issue in connection with the
conversion. A portion of the net proceeds to be retained by QBI will be loaned
to our employee stock ownership plan to fund its purchase of 8% of the shares
sold in the Conversion. On a short-term basis, the balance of the net proceeds
retained by QBI will initially be invested in short-term investments. Although
there are no current plans, the net proceeds may later be used to fund
acquisitions of other financial services institutions or to diversify into
non-banking activities, such as real estate acquisition and development. The net
proceeds may also serve as a source of funds for the payment of dividends to
stockholders or for the repurchase of the shares. A portion of the net proceeds
may also be used to fund the purchase of 4% of the shares for a restricted stock
plan (the "RSP") which is anticipated to be adopted following the Conversion.
See "Pro Forma Data."
The funds we receive from the sale of our capital stock to QBI will be
added to our general funds and will be used for general corporate purposes
including: (i) investment in mortgages and other loans, (ii) investment in U.S.
Government and federal agency securities, (iii) investment in mortgage-backed
securities, (iv) funding loan commitments or (v) repaying FHLB advances. We may
also use some of these funds for the preparation costs we expect to incur in
connection with offering checking accounts and the use of an ATM to our
customers. However, initially we intend to invest the net proceeds in short-term
investments until we can deploy the proceeds into higher yielding loans. The
funds added to our capital will further strengthen our capital position. We may
use a portion of the funds to expand or relocate our office or to establish a
branch office; however, we have no definite plans at this time.
The net proceeds may vary because the total expenses of the conversion
may be more or less than those estimated. We expect our estimated expenses to
range from $324,000 to $358,000 (or up to $378,000 in the event the maximum of
the estimated valuation range is increased to up to $6,612,500). Our estimated
net proceeds will range from $3,926,000 to $4,659,000 (or up to $6,235,000 in
the event the maximum of the estimated valuation range is increased to
$6,612,500). See "Pro Forma Data." The net proceeds will also vary if expenses
are different or if the number of shares to be issued in the conversion is
adjusted to reflect a change in our estimated pro forma market value. Payments
for shares made through withdrawals from existing deposit accounts with us will
not result in the receipt of new funds for investment by us but will result in a
reduction of our liabilities and interest expense as funds are transferred from
interest-bearing certificates or accounts.
DIVIDENDS
Upon conversion, QBI's board of directors will have the authority to
declare dividends on the shares, subject to statutory and regulatory
requirements. It is anticipated that QBI will pay an annual cash dividend of
$.20 following completion of the first quarter of 1999. Declarations of
dividends by the board of directors will depend upon a number of factors,
including: (i) the amount of the net proceeds retained by QBI in the conversion,
(ii) investment opportunities available, (iii) capital requirements, (iv)
regulatory limitations, (v) results of operations and financial condition, (vi)
tax considerations, and (vii) general economic conditions. Upon review of such
considerations, the board may authorize future dividends if it deems such
payment appropriate and in compliance with applicable law and regulation. In
addition, from time to time in an effort to prevent the accumulation of excess
levels of capital, QBI may pay special cash dividends. Special cash dividends,
if paid, may be paid in addition to, or instead of, regular cash dividends. For
a period of one year following the completion of the conversion, we will not pay
any dividends that would be treated for tax purposes as a return of capital nor
take any actions to pursue or propose such dividends. In addition, there can be
no assurance that regular or special dividends will be paid, or, if paid, will
continue to be paid. See "Historical and Pro Forma Capital Compliance," "The
5
Conversion -- Effects of Conversion to Stock Form on Depositors and Borrowers of
Quitman Federal Savings Bank -- Liquidation Account" and "Regulation -- Dividend
and Other Capital Distribution Limitations."
QBI is not subject to OTS regulatory restrictions on the payment of
dividends to its stockholders although the source of such dividends will be
dependent in part upon the receipt of dividends from us. QBI is subject,
however, to the requirements of Georgia law, which generally limit the payment
of dividends to amounts that will not affect the ability of QBI, after the
dividend has been distributed, to pay its debts in the ordinary course of
business.
In addition to the foregoing, the portion of our earnings which has
been appropriated for bad debt reserves and deducted for federal income tax
purposes cannot be used by us to pay cash dividends to QBI without the payment
of federal income taxes by us at the then current income tax rate on the amount
deemed distributed, which would include the amount of any federal income taxes
attributable to the distribution. See "Taxation -- Federal Taxation" and Note 9
to our financial statements. QBI does not contemplate any distribution by us
that would result in a recapture of our bad debt reserve or otherwise create
federal tax liabilities.
MARKET FOR THE COMMON STOCK
As a newly organized company, QBI has never issued capital stock, and
consequently there is no established market for the common stock. Following the
completion of the offering, it is anticipated that the common stock (symbol:
___________) will be traded on the over-the-counter market with quotations
available through the OTC Electronic Bulletin Board. Trident is expected to make
a market in the common stock by developing and maintaining historical stock
trading records, soliciting potential buyers and sellers and attempting to match
buy and sell orders. In connection with its market making activities, Trident
may buy or sell shares from time to time for its own account. However, Trident
will not be subject to any obligation with respect to such efforts. If the
common stock cannot be quoted and traded on the OTC Bulletin Board it is
expected that the transactions in the common stock will be reported in the pink
sheets of the National Quotation Bureau, Inc.
The development of an active trading market depends on the existence of
willing buyers and sellers. Due to the small size of the offering, it is highly
unlikely that an active trading market will develop and be maintained. You could
have difficulty disposing of your shares and you should not view the shares as a
short-term investment. You may not be able to sell your shares at a price equal
to or above the price you paid for the shares.
6
CAPITALIZATION
The following table presents, as of September 30, 1997, our historical
capitalization and the consolidated capitalization of QBI after giving effect to
the conversion and the other assumptions set forth below and under "Pro Forma
Data," based upon the sale of shares at the minimum, midpoint, maximum, and 15%
above the maximum of the EVR at a price of $10.00 per share.
Pro Forma Consolidated Capitalization
Based on the Sale of (2)(3)
---------------------------------------------------------------
Historical 425,000 500,000 575,000 661,250
Capitalization Shares at Shares at Shares at Shares At
at September 30, $10.00 $10.00 $10.00 $10.00
1997 Per Share Per Share Per Share Per Share
------ --------- --------- --------- ---------
(In thousands)
Deposits(1) .................................. $ 34,471 $ 34,471 $ 34,471 $ 34,471 $ 34,471
Other Borrowings.............................. 1,300 1,300 1,300 1,300 1,300
------ ---------- --------- --------- ----------
Total deposits and other borrowings......... $ 35,771 $ 35,771 $ 35,771 $ 35,771 $ 35,771
====== ========== ========= ========= ==========
Stockholders' Equity:
Preferred Stock, no par value per share,
1,000,000 shares authorized; none to be
issued..................................... $ -- $ -- $ -- $ -- $ --
Common Stock, $.10 par value, 4,000,000
shares authorized; total shares to be
issued as reflected........................ -- 43 50 58 66
Additional paid in capital.................... -- 3,883 4,609 5,334 6,169
Total equity(4)............................. 2,959 2,959 2,959 2,959 2,959
Less:
Common Stock acquired by ESOP............... -- (340) (400) (460) (529)
Common Stock acquired by RSP................ (170) (200) (230) (265)
--------- ---------- --------- --------- ----------
Total stockholders' equity.................... $ 2,959 $ 6,375 $ 7,018 $ 7,661 $ 8,400
========= ========== ========= ========= ==========
- ---------------------
(1) Excludes accrued interest payable on deposits. Withdrawals from savings
accounts for the purchase of stock have not been reflected in these
adjustments. Any withdrawals will reduce pro forma capitalization by the
amount of such withdrawals.
(2) Does not reflect the increase in the number of shares of common stock after
the conversion in the event of implementation of the Option Plan or RSP.
See "Management of Security Federal Savings Bank - Proposed Future Stock
Benefit Plans -- Stock Option Plan" and "-- Restricted Stock Plan."
(3) Assumes that 8% and 4% of the shares issued in the conversion will be
purchased by the ESOP and RSP, respectively. No shares will be purchased by
the RSP in the conversion. It is assumed on a pro forma basis that the RSP
will be adopted by the board of directors, approved by stockholders of QBI,
and reviewed by the OTS. It is assumed that the RSP will purchase common
stock in the open market within one year of the conversion in order to give
an indication of its effect on capitalization. The pro forma presentation
does not show the impact of: (a) results of operations after the
conversion, (b) changing market prices of shares of common stock after the
conversion, or (c) a smaller than 4% purchase by the RSP. Assumes that the
funds used to acquire the ESOP shares will be borrowed from QBI for a ten
year term at the prime rate as published in The Wall Street Journal. For an
estimate of the impact of the ESOP on earnings, see "Pro Forma Data." The
Savings Bank intends to make contributions to the ESOP sufficient to
service and ultimately retire its debt. The amount to be acquired by the
ESOP and RSP is reflected as a reduction of stockholders' equity. The
issuance of authorized but unissued shares for the RSP in an amount equal
to 4% of the outstanding shares of common stock will have the effect of
diluting existing stockholders' interests by 3.9%. There can be no
assurance that stockholder approval of the RSP will be obtained. See
"Management of Quitman Federal Savings Bank - Proposed Future Stock Benefit
Plans - Restricted Stock Plan."
(4) Includes retained earnings and gains and losses on available-for-sale
securities. The equity of the Bank will be substantially restricted after
the conversion. See "Dividends," "Regulation - Dividends and Other Capital
Distribution Limitations," "The Conversion - Effects of Conversion to Stock
Form on Depositors and Borrowers of Security Federal Savings Bank -
Liquidation Account" and Note 17 to the Financial Statements.
7
PRO FORMA DATA
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, net proceeds are
currently estimated to be between $3.4 million and $5.4 million at the minimum
and maximum, as adjusted, of the EVR, based upon the following assumptions: (i)
8% of the shares will be sold to the ESOP and 38,500 shares will be sold to
executive officers, and their associates; (ii) Trident will receive a fee of
2.5% of the Common Stock sold in the Conversion, excluding the sale of shares to
the ESOP, executive officers, directors and their associates; (iii) no shares
will be sold in a Public Offering; (iv) other conversion expenses, excluding the
sales fees paid to Trident, will be $236,000; and (v) 4% of the shares will be
sold to the RSP. Because management of the Savings Bank presently intends to
adopt the RSP within the first year following the conversion, a purchase by the
RSP in the conversion has been included with the pro forma data to give an
indication of the effect of a 4% purchase by the RSP, at a $10.00 per share
purchase price in the market, even though the RSP does not currently exist and
is prohibited by OTS regulation from purchasing shares in the conversion. The
pro forma presentation does not show the effect of: (a) results of operations
after the conversion, (b) changing market prices of the shares after the
conversion, (c) less than a 4% purchase by the RSP, or (d) dilutive effects of
newly issued shares under the restricted stock plan and the stock option plan
(see footnotes 2 and 3).
The following table sets forth, our historical net earnings and
stockholders' equity prior to the conversion and the pro forma consolidated net
earnings and stockholders' equity of QBI following the conversion. Unaudited pro
forma consolidated net earnings and stockholders' equity have been calculated
for the fiscal year ended September 30, 1997 as if the common stock to be issued
in the conversion had been sold at October 1, 1996 and the estimated net
proceeds had been invested at 5.52%, which was approximately equal to the
one-year U.S. Treasury bill rate at September 30, 1997. The one-year U.S.
Treasury bill rate, rather than an arithmetic average of the average yield on
interest-earning assets and average rate paid on deposits, has been used to
estimate income on net proceeds because it is believed that the one-year U.S.
Treasury bill rate is a more accurate estimate of the rate that would be
obtained on an investment of net proceeds from the offering. In calculating pro
forma income, an effective state and federal income tax rate of 37% has been
assumed, resulting in an after tax yield of 3.48% for the fiscal year ended
September 30, 1997. Withdrawals from deposit accounts for the purchase of shares
are not reflected in the pro forma adjustments. The computations are based upon
the assumptions that 425,000 shares (minimum of EVR) shares, 500,000 (midpoint
of EVR), 575,000 shares (maximum of EVR) or 661,250 shares (maximum, as
adjusted, of the EVR) are sold at a price of $10.00 per share. As discussed
under "Use of Proceeds," a portion of the net proceeds that QBI will receive
will be loaned to the ESOP to fund its anticipated purchase of 8.0% of shares
issued in the conversion. It is assumed that the yield on the net proceeds of
the conversion retained by QBI will be the same as the yield on the net proceeds
of the conversion transferred to us. Historical and pro forma per share amounts
have been calculated by dividing historical and pro forma amounts by the
indicated number of shares. Per share amounts have been computed as if the
shares had been outstanding at the beginning of the periods or at the dates
shown, but without any adjustment of per share historical or pro forma
stockholders' equity to reflect the earnings on the estimated net proceeds.
8
The stockholders' equity information is not intended to represent the
fair market value of the shares, or the current value of our assets or
liabilities, or the amounts, if any, that would be available for distribution to
stockholders in the event of liquidation. For additional information regarding
the liquidation account, see "The Conversion -- Certain Effects of the
Conversion to Stock Form on Depositors and Borrowers of Quitman Federal Savings
Bank -- Liquidation Account" and Note 17 to the Financial Statements. The pro
forma income derived from the assumptions set forth above should not be
considered indicative of the actual results of our operations for any period.
Such pro forma data may be materially affected by a change in the price per
share or number of shares to be issued in the conversion and by other factors.
For information regarding investment of the proceeds see "Use of Proceeds" and
"The Conversion -- Stock Pricing" and "-- Change in Number of Shares to be
Issued in the Conversion."
9
At or For the Year Ended September 30, 1997
------------------------------------------------------------------------
425,000 500,000 575,000 661,250
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
Gross proceeds........................................... $ 4,250 $ 5,000 $ 5,750 $ 6,613
Less estimated offering expenses......................... 324 341 359 378
------ -------- -------- ------
Estimated net proceeds................................. 3,926 4,659 5,391 6,235
Less: ESOP funded by the Company...................... (340) (400) (460) (529)
RSP funded by the Company....................... (170) (200) (230) (265)
--------- -------- -------- -------
Estimated investable net proceeds: $ 3,416 $ 4,059 $ 4,701 $ 5,441
========= ======== ======== =======
Net income:
Historical net income.................................. $ 263 $ 263 $ 263 $ 263
Pro forma earnings on investable net proceeds.......... 119 141 164 189
Pro forma ESOP adjustment(1)........................... (21) (25) (29) (33)
Pro forma RSPs adjustment(2)........................... (21) (25) (29) (33)
--------- -------- -------- -------
Total................................................... $ 340 $ 354 $ 369 $ 386
========= ======== ======== =======
Net income per share:
Historical net income per share........................ $ 0.67 $ 0.57 $ 0.49 $ 0.43
Pro forma earnings on net proceeds..................... 0.30 0.30 0.31 0.31
Pro forma ESOP adjustment(1)........................... (0.05) (0.05) (0.05) (0.05)
Pro forma RSP adjustment(2)........................... (0.05) (0.05) (0.05) (0.05)
--------- --------- --------- --------
Total(5)................................................ $ 0.87 $ 0.77 $ 0.70 $ 0.64
========= ======== ======== =======
Stockholders' equity:(3)
Historical............................................. $ 2,959 $ 2,959 $ 2,959 $ 2,959
Estimated net proceeds................................. 3,926 4,659 5,391 6,235
Less: Common stock acquired by ESOP(1)................ (340) (400) (460) (529)
Common stock acquired by RSP(2)................. (170) (200) (230) (265)
--------- -------- -------- -------
Total................................................... $ 6,375 $ 7,018 $ 7,660 $ 8,400
========= ======== ======== =======
Stockholders' equity per share:(3)
Historical............................................. $ 6.96 $ 5.92 $ 5.15 $ 4.47
Estimated net proceeds................................. 9.24 9.32 9.38 9.43
Less Common Stock acquired by ESOP(1).................. (0.80) (0.80) (0.80) (0.80)
Common stock acquired by RSP(2)................. (0.40) (0.40) (0.40) (0.40)
--------- -------- -------- -------
Total................................................... $ 15.00 $ 14.04 $ 13.33 $ 12.70
========= ======== ======== =======
Offering price as percentage of pro forma
stockholders' equity per share(4)........................ 66.67% 71.23% 75.02% 78.74%
========= ======== ======== =======
Ratio of offering price to pro forma earnings per
share(5)................................................. 11.49x 12.99x 14.29x 15.63x
========== ========= ========= ========
(Footnotes on following page)
10
- -------------------
(1) Assumes 8% of the shares sold in the conversion are purchased by the ESOP,
and that the funds used to purchase such shares are borrowed from QBI. The
approximate amount expected to be borrowed by the ESOP is not reflected as
a liability but is reflected as a reduction of capital. We intend to make
annual contributions to the ESOP over a ten year period in an amount at
least equal to the principal and interest requirement of the debt. The pro
forma net income assumes: (i) that 425,000, 500,000, 575,000 and 661,250
shares at the minimum, mid-point, maximum and maximum, as adjusted of the
EVR, were committed to be released during the year ended September 30, 1997
at an average fair value of $10.00 per share in accordance with Statement
of Position (SOP) 93-6 of the American Institute of Certified Public
Accountants ("AICPA"); (ii) the effective tax rate was 37% for such
periods; and (iii) only the ESOP shares committed to be released were
considered outstanding for purposes of the per share net earnings. The pro
forma stockholders' equity per share calculation assumes all ESOP shares
were outstanding, regardless of whether such shares would have been
released. Because QBI will be providing the ESOP loan, only principal
payments on the ESOP loan are reflected as employee compensation and
benefits expense. As a result, to the extent the value of the shares
appreciates over time, compensation expense related to the ESOP will
increase. For purposes of the preceding tables, it was assumed that a
ratable portion of the ESOP shares purchased in the conversion were
committed to be released during the period ended September 30, 1997. See
Note 5 below. If it is assumed that all of the ESOP shares were included in
the calculation of earnings per share for the period ended at September 30,
1997, earnings per share would have been $.80, $.71, and $.64, and $.58,
respectively, based on the sale of shares at the minimum, midpoint, maximum
and the maximum, as adjusted, of the EVR. See Management of Quitman Federal
Savings Bank -- Other Benefits -- Employee Stock Ownership Plan.
(2) Assumes issuance to the RSP of 17,000, 20,000, 23,000, and 26,450 shares at
the minimum, mid-point, maximum, and maximum, as adjusted of the EVR. The
assumption in the pro forma calculation is that (i) shares were purchased
by QBI following the conversion, (ii) the purchase price for the shares
purchased by the RSP was equal to the purchase price of $10.00 per share
and (iii) 20% of the amount contributed was an amortized expense during
such period. Such amount does not reflect possible increases or decreases
in the value of such stock relative to the Purchase Price. As we accrue
compensation expense to reflect the five year vesting period of such shares
pursuant to the RSP, the charge against capital will be reduced
accordingly. Implementation of the RSP within one year of conversion would
require regulatory and stockholder approval at a meeting of our
stockholders to be held no earlier than six months after the conversion. If
the shares to be purchased by the RSP are assumed at September 30, 1997, to
be newly issued shares purchased from QBI by the RSP at the Purchase Price,
at the minimum, midpoint, maximum and maximum, as adjusted, of the EVR, pro
forma stockholders' equity per share would have been $14.42, $13.50, $12.81
and $12.21, respectively, and pro forma earnings per share would have been
$.84, $.75, $.68 and $.62 for the year ended September 30, 1997. As a
result of the RSP from newly issued shares, stockholders' voting interests
could be diluted by up to approximately 3.9%. See Management of Quitman
Federal Savings Bank -- Proposed Future Stock Benefit Plans -- Restricted
Stock Plan.
(3) Assumes that following the consummation of the conversion, QBI will adopt
the Option Plan, which if implemented within one year of conversion would
be subject to regulatory review and board of director and stockholder
approval, and that such plan would be considered and voted upon at a
meeting of QBI stockholders to be held no earlier than six months after the
conversion. Under the Option Plan, employees and directors could be granted
options to purchase an aggregate amount of shares equal to 1096 of the
shares issued in the conversion at an exercise price equal to the market
price of the shares on the date of grant. In the event the shares issued
under the Option Plan were newly issued rather than purchased in the open
market, the voting interests of existing stockholders could be diluted by
up to approximately 9.1% . At the minimum, midpoint, maximum and the
maximum, as adjusted, of the EVR, if all shares under the Option Plan were
newly issued at the beginning of the respective periods and the exercise
price for the option shares were equal to the Purchase Price, the number of
outstanding shares would increase to 467,500, 550,000, 632,500 and 727,375,
respectively, pro forma stockholders' equity per share would have been
$14.55, $13.67, $13.02 and $12.46, respectively and pro forma earnings per
share would have been $.78, $.69 $.62 and $.57, respectively.
11
(4) Consolidated stockholders' equity represents the excess of the carrying
value of the assets of the over its liabilities. The calculations are based
upon the number of shares issued in the conversion, without giving effect
to SOP 93-6. The amounts shown do not reflect the federal income tax
consequences of the potential restoration to income of the tax bad debt
reserves for income tax purposes, which would be required in the event of
liquidation. The amounts shown also do not reflect the amounts required to
be distributed in the event of liquidation to eligible depositors from the
liquidation account which will be established upon the consummation of the
conversion. Pro forma stockholders' equity information is not intended to
represent the fair market value of the shares, the current value of our
assets or liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro forma
data may be materially affected by a change in the number of shares to be
sold in the conversion and by other factors.
(5) Pro forma net income per share calculations include the number of shares
assumed to be sold in the conversion and, in accordance with SOP 93-6,
exclude ESOP shares which would not have been released during the period.
Accordingly, 30,600, 36,000, 41,400, and 47,610 shares have been subtracted
from the shares assumed to be sold at the minimum, mid-point, maximum, and
maximum, as adjusted, of the EVR, respectively, and 3,400, 4,000, 4,600,
and 5,290 shares are assumed to be outstanding at the minimum, mid-point,
maximum, and maximum, as adjusted of the EVR. See Note 1 above.
12
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents our historical and pro forma capital
position relative to our capital requirements as of September 30, 1997. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "Use of Proceeds," "Capitalization" and "Pro Forma Data."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the OTS. For a discussion of the capital standards
applicable to us, see "Regulation -- Savings Institution Regulation --
Regulatory Capital Requirements."
Pro Forma(1)
------------------------------------------------------------------------------------------
$4,250,000 $5,000,000 $5,750,000 $6,612,500
Minimum Midpoint Maximum Maximum, as adjusted
-------------------- --------------------- --------------------- ---------------------
Percentage Percentage Percentage Percentage Percentage
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ ------------ ------ ------------ ------ ------------ ------ ------------ ------ ------------
(Dollars in Thousands)
GAAP Capital....... $2,959 7.55% $4,412 10.86% $4,689 11.46% $4,965 12.05% $5,283 12.73%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Tangible
Capital........ $2,953 7.54% $4,406 10.84% $4,683 11.44% $4,959 12.04% $5,277 12.71%
Tangible
Capital
Requirement.... 588 1.50 610 1.50 614 1.50 618 1.50 623 1.50
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Excess........... $2,365 6.04% $3,796 9.34% $4,069 9.94% $4,341 10.54% $4,654 11.21%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Core
Capital(3)..... $2,953 7.54% $4,406 10.84% $4,683 11.44% $4,959 12.04% $5,277 12.71%
Core Capital
Requirement(4). 1,176 3.00 1,219 3.00 1,227 3.00 1,236 3.00 1,245 3.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Excess........... $1,777 4.54% $3,187 7.84% $3,455 8.44% $3,723 9.04% $4,031 9.71%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Risk-
Based
Capital(4)..... $3,299 14.25% $4,406 18.79% $4,683 19.92% $4,959 21.05% $5,277 22.34%
Risk-Based
Capital
Requirement.... 1,852 8.00 1,876 8.00 1,880 8.00 1,885 8.00 1,890 8.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Excess........... $1,447 6.25% $2,530 10.79% $2,802 11.92% $3,074 13.05% $3,387 14.34%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
- -----------------
(1) Institutions must value available-for-sale debt securities at amortized
cost, rather than at fair value, for purposes of calculating regulatory
capital. Institutions are still required to comply with SFAS No. 115 for
financial reporting purposes. The pro forma data has been adjusted to
reflect reductions in our capital that would result from an assumed 8%
purchase by the ESOP and 4% purchase by the RSP as of September 30, 1997.
It is assumed that QBI will retain 50% of net conversion proceeds. See "Use
of Proceeds."
(2) GAAP, adjusted, or risk-weighted assets as appropriate.
(3) The unrealized gain on securities available-for-sale of $6,000 has been
added to GAAP Capital to arrive at our Tangible and Core Capital.
(4) Proposed regulations of the OTS could increase the core capital
requirements to a ratio between 4% and 5%, based upon an association's
regulatory examination rating. See "Regulation - Regulatory Capital
Requirements." Our Risk-Based Capital includes our Tangible Capital plus
$346,000 of our allowance for loan losses. Our Risk-weighted assets as of
September 30, 1997 totaled approximately $23.2 million. Net proceeds
available for investment by us are assumed to be invested in interest
earning assets that have a 20% risk-weighting.
13
THE CONVERSION
Our board of directors and the OTS have approved the Plan subject to
it's approval by our members, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval. OTS approval, however, does not
constitute a recommendation or endorsement of the Plan.
General
On October 14, 1997, our board of directors adopted a Plan of
Conversion, pursuant to which we will convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank and become a wholly
owned subsidiary of QBI. The conversion will include adoption of the proposed
Federal Stock charter and Bylaws which will authorize the issuance of capital
stock by us. Under the Plan, our capital stock is being sold to QBI and the
common stock of QBI is being offered to our eligible depositors and members and
then to the public. The conversion will be accounted for at historical cost in a
manner similar to a pooling of interests. The OTS has approved QBI's application
to become a savings and loan holding company and to acquire all of our common
stock to be issued in the conversion.
The shares are first being offered in a Subscription Offering to
holders of subscription rights. To the extent shares of common stock remain
available after the Subscription Offering, shares of common stock may be offered
in a Community Offering or Public Offering on a best efforts basis through
Trident in such a manner as to promote a wide distribution of the shares. The
Community Offering or Public Offering, if any, may commence anytime subsequent
to the commencement of the Subscription Offering. Shares not subscribed for in
the Subscription, Community and Public Offerings may be offered for sale by QBI
on a best efforts basis in a Syndicated Public Offering conducted by Trident. We
have the right, in our sole discretion, to accept or reject, in whole or in
part, any orders to purchase shares of the common stock received in the
Community, Public and Syndicated Public Offering. See "-- Community or Public
Offering."
Shares of common stock in an amount equal to our pro forma market value
as a stock savings institution must be sold in order for the conversion to
become effective. The Community Offering, Public Offering or Syndicated Public
Offering must be completed within 45 days after the last day of the Subscription
Offering period unless such period is extended by us with the approval of the
OTS. The Plan provides that the conversion must be completed within 24 months
after the date of the approval of the Plan by our members.
In the event that we are unable to complete the sale of common stock
and effect the conversion within 45 days after the end of the Subscription
Offering, we may request an extension of the period by the OTS. No assurance can
be given that the extension would be granted if requested. Due to the volatile
nature of market conditions, no assurances can be given that our valuation would
not substantially change during any such extension. If the EVR of the shares
must be amended, no assurance can be given that such amended EVR would be
approved by the OTS. Therefore, it is possible that if the conversion cannot be
completed within the requisite period, we may not be permitted to complete the
conversion. A substantial delay caused by an extension of the period may also
significantly increase the expense of the conversion. No sales of the shares may
be completed in the offering unless the Plan is approved by our members.
The completion of the offering is subject to market conditions and
other factors beyond our control. No assurance can be given as to the length of
time following approval of the Plan at the meeting
14
of our members that will be required to complete the sale of shares being
offered in the conversion. If delays are experienced, significant changes may
occur in our estimated pro forma market value upon conversion together with
corresponding changes in the offering price and the net proceeds to be realized
by us from the sale of the shares. In the event the conversion is terminated, we
will charge all conversion expenses against current income and any funds
collected by us in the offering will be promptly returned, with interest, to
each potential investor.
Effects of Conversion to Stock Form on Depositors and Borrowers of Quitman
Federal Savings Bank
Voting Rights. Currently in our mutual form, our depositor and certain
borrower members have voting rights and may vote for the election of directors.
Following the conversion, all voting rights will be held solely by stockholders.
Savings Accounts and Loans. The balances, terms and FDIC insurance
coverage of savings accounts will not be affected by the conversion.
Furthermore, the amounts and terms of loans and obligations of the borrowers
under their individual contractual arrangements with us will not be affected by
the conversion.
Tax Effects. We have received an opinion from our counsel, Malizia,
Spidi, Sloane & Fisch, P.C. on the federal tax consequences of the conversion.
The opinion has been filed as an exhibit to the registration statement of which
this Prospectus is a part and covers those federal tax matters that are material
to the transaction. The opinion provides, in part, that: (i) the conversion will
qualify as a reorganization under Section 368(a)(1)(F) of the Code, and no gain
or loss will be recognized by us by reason of the proposed conversion; (ii) no
gain or loss will be recognized by us upon the receipt of money from QBI for our
stock, and no gain or loss will be recognized by QBI upon the receipt of money
for the shares; (iii) our assets will have the same basis before and after the
conversion; (iv) the holding period of our assets will include the period during
which the assets were held by us in our mutual form; (v) no gain or loss will be
recognized by the Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members upon the issuance to them of withdrawable savings
accounts in us in the stock form in the same dollar amount as their savings
accounts in us in the mutual form plus an interest in the liquidation account of
us in the stock form in exchange for their savings accounts in us in the mutual
form; (vi) provided that the amount to be paid for the shares pursuant to the
subscription rights is equal to the fair market value of such shares, no gain or
loss will be recognized by Eligible Account Holders, Supplemental Eligible
Account Holders, and Other Members under the Plan upon the distribution to them
of nontransferable subscription rights; (vii) the basis of each account holder's
savings accounts after the conversion will be the same as the basis of his
savings accounts prior to the conversion, decreased by the fair market value of
the nontransferable subscription rights received and increased by the amount, if
any, of gain recognized on the exchange; (viii) the basis of each account
holder's interest in the liquidation account will be zero; (ix) the holding
period of the common stock acquired through the exercise of subscription rights
shall begin on the date on which the subscription rights are exercised; (x) we
will succeed to and take into account the earnings and profits or deficit in
earnings and profits of us as of the date of conversion; (xi) immediately after
conversion, we will succeed to the bad debt reserve accounts previously held by
us, and the bad debt reserves will have the same character in our hands after
conversion as if no distribution or transfer had occurred; and (xii) the
creation of the liquidation account will have no effect on our taxable income.
The opinion from Malizia, Spidi, Sloane & Fisch, P.C. is based in part
on the assumption that the exercise price of the subscription rights will be
approximately equal to the fair market value of those shares at the time of the
completion of the proposed conversion. We have received an opinion of FinPro
15
which, based on certain assumptions, concludes that the subscription rights to
be received by Eligible Account Holders and other eligible subscribers do not
have any economic value at the time of distribution or at the time the
subscription rights are exercised. Such opinion is based on the fact that such
rights are: (i) acquired by the recipients without payment therefor, (ii)
non-transferable, (iii) of short duration, and (iv) afford the recipients the
right only to purchase shares at a price equal to their estimated fair market
value, which will be the same price at which shares for which no subscription
right is received in the Subscription Offering will be offered in the Public
Offering. If the subscription rights granted to Eligible Account Holders or
other eligible subscribers are deemed to have an ascertainable value, receipt of
such rights would be taxable only to those Eligible Account Holders or other
eligible subscribers who exercise the subscription rights in an amount equal to
such value (either as a capital gain or ordinary income), and we could recognize
gain on such distribution.
We are also subject to Georgia income taxes and have received an
opinion from Daniel M. Mitchell, Jr., Esq. that the conversion will be treated
for Georgia state tax purposes similar to the conversion's treatment for federal
tax purposes. The opinion has been filed as an exhibit to the registration
statement to which this Prospectus is a part and covers those state tax matters
that are material to the transaction.
Unlike a private letter ruling, the opinions of Malizia, Spidi, Sloane
& Fisch, P.C., Daniel M. Mitchell, Esq. and FinPro have no binding effect or
official status, and no assurance can be given that the conclusions reached in
any of those opinions would be sustained by a court if contested by the IRS or
the Georgia tax authorities. Eligible Account Holders, Supplemental Eligible
Account Holders, and Other Members are encouraged to consult with their own tax
advisers as to the tax consequences in the event the subscription rights are
deemed to have an ascertainable value.
Liquidation Account. In the unlikely event of our complete liquidation
in our present mutual form, each depositor is entitled to equal distribution of
any of our assets, pro rata to the value of his accounts, remaining after
payment of claims of all creditors (including the claims of all depositors to
the withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
accounts was to the total value of all deposit accounts in us at the time of
liquidation.
Upon a complete liquidation after the conversion, each depositor would
have a claim, as a creditor, of the same general priority as the claims of all
other general creditors of ours. Therefore, except as described below, a
depositor's claim would be solely in the amount of the balance in his deposit
account plus accrued interest. A depositor would not have an interest in the
residual value of our assets above that amount, if any.
The Plan provides for the establishment, upon the completion of the
conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders. Each Eligible Account
Holder and Supplemental Eligible Account Holder, if he continues to maintain his
deposit account with us, would be entitled on a complete liquidation of us after
conversion, to an interest in the liquidation account prior to any payment to
stockholders. Each Eligible Account Holder would have an initial interest in
such liquidation account for each deposit account held in us on the qualifying
date, December 31, 1995. Each Supplemental Eligible Account Holder would have a
similar interest as of the qualifying date, December 31, 1997. The interest as
to each deposit account would be in the same proportion of the total liquidation
account as the balance of the deposit account on the qualifying dates was to the
aggregate balance in all the deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on such qualifying dates. However, if the
amount in the deposit account on any annual closing date of ours (September 30)
is less than the amount in such account
16
on the respective qualifying dates, then the interest in this special
liquidation account would be reduced from time to time by an amount
proportionate to any such reduction, and the interest would cease to exist if
such deposit account were closed. The interest in the special liquidation
account will never be increased despite any increase in the related deposit
account after the respective qualifying dates.
No merger, consolidation, purchase of bulk assets with assumptions of
savings accounts and other liabilities, or similar transactions with another
insured institution in which transaction we in our converted form are not the
surviving institution shall be considered a complete liquidation. In such
transactions, the liquidation account shall be assumed by the surviving
institution.
Subscription Rights and the Subscription Offering
Non-transferable subscription rights to purchase shares of the common
stock have been granted to persons and entities entitled to purchase shares in
the Subscription Offering under the Plan. If the Community Offering, Public
Offering or Syndicated Public Offering, as described below, extends beyond 45
days following the completion of the Subscription Offering, subscribers will be
resolicited. Subscription priorities have been established for the allocation of
stock to the extent that shares are available after satisfaction of all
subscriptions of all persons having prior rights and subject to the purchase
limitations set forth in the Plan and as described below under "-- Limitations
on Purchases of Shares." The following priorities have been established:
Category 1: Eligible Account Holders (First Priority). Eligible Account Holders
are persons who had a deposit account of at least $50 with us on December 31,
1995. Each Eligible Account Holder will receive non-transferable subscription
rights on a priority basis to purchase that number of shares of common stock
which is equal to the greater of 6,000 shares ($60,000), or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares to be issued by a fraction of which the numerator is the amount of the
qualifying deposit of the Eligible Account Holder and the denominator is the
total amount of qualifying deposits of all Eligible Account Holders. If such
allocation results in an oversubscription, shares shall be allocated among
subscribing Eligible Account Holders so as to permit each such account holder,
to the extent possible, to purchase the lesser of 100 shares or the total amount
of his subscription. Any shares not so allocated shall be allocated among the
subscribing Eligible Account Holders on an equitable basis, related to the
amounts of their respective qualifying deposits as compared to the total
qualifying deposits of all subscribing Eligible Account Holders. Only a
person(s) with a qualifying deposit as of the eligibility record date (or a
successor entity or estate) shall receive subscription rights. Any Person(s)
added to a Savings Account after the Eligibility Record Date is not an Eligible
Account Holder. Subscription rights received by officers and directors in this
category based on their increased deposits in us in the one-year period
preceding December 31, 1995, are subordinated to the subscription rights of
other Eligible Account Holders. See "-- Limitations on Purchases and Transfer of
Shares."
Category 2: Tax-Qualified Employee Benefit Plans (Second Priority). Our
tax-qualified employee benefit plans ("Employee Plans") have been granted
subscription rights to purchase up to 8% of the total shares issued in the
conversion. The ESOP is an Employee Plan.
The right of Employee Plans to subscribe for shares is subordinate to
the right of the Eligible Account Holders to subscribe for shares. However, in
the event the offering result in the issuance of shares above the maximum of the
EVR (i.e., more than 575,000 shares), the Employee Plans have a priority right
to fill their subscription (the ESOP, the only Employee Plan, currently intends
to purchase up to 8 % of the common stock issued in the conversion). The
Employee Plans may, however, determine to purchase some or all of the shares
covered by their subscriptions after the conversion in the open
17
market or, if approved by the OTS, out of authorized but unissued shares in the
event of an oversubscription.
Category 3: Supplemental Eligible Account Holders (Third Priority). Supplemental
Eligible Account Holders are persons who had a deposit account of at least $50
with us on December 31, 1997. Each Supplemental Eligible Account Holder who is
not an Eligible Account Holder will receive non-transferable subscription rights
to purchase that number of shares which is equal to the greater of 6,000 shares
($60,000) or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares to be issued by a fraction of
which the numerator is the amount of the qualifying deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Supplemental Eligible Account Holders. If the allocation made in
this paragraph results in an oversubscription, shares shall be allocated among
subscribing Supplemental Eligible Account Holders so as to permit each such
account holder, to the extent possible, to purchase the lesser of 100 shares or
the total amount of his subscription. Any shares not so allocated shall be
allocated among the subscribing Supplemental Eligible Account Holders on an
equitable basis, related to the amounts of their respective qualifying deposits
as compared to the total qualifying deposits of all subscribing Supplemental
Eligible Account Holders. See "-- Limitations on Purchases and Transfer of
Shares."
The right of Supplemental Eligible Account Holders to subscribe for
shares is subordinate to the rights of the Eligible Account Holders and Employee
Plans to subscribe for shares.
Category 4: Other Members (Fourth Priority). Other Members are persons who have
a deposit account of at least $50 on the voting record date of our special
meeting and certain borrowers whose loans were outstanding as of _________,
1997 and continue to be outstanding, on the voting record date of our special
meeting. Each Other Member who is not an Eligible Account Holder or Supplemental
Eligible Account Holder, will receive non-transferable subscription rights to
purchase up to 6,000 shares ($60,000) to the extent such shares are available
following subscriptions by Eligible Account Holders, Employee Plans, and
Supplemental Eligible Account Holders. In the event there are not enough shares
to fill the orders of the Other Members, the subscriptions of the Other Members
will be allocated so that each subscribing Other Member will be entitled to
purchase the lesser of 100 shares or the number of shares ordered. Any remaining
shares will be allocated among Other Members whose subscriptions remain
unsatisfied on a 100 share (or whatever lesser amount is available) per order
basis until all orders have been filled on the remaining shares have been
allocated. See "-- Limitations on Purchases and Transfer of Shares."
Members in Non-Qualified States. We will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for the shares pursuant to the Plan reside.
However, no person will be offered or allowed to purchase any shares under the
Plan if he resides in a foreign country or in a state with respect to which any
of the following apply: (i) a small number of persons otherwise eligible to
subscribe for shares under the Plan reside in that state or foreign country;
(ii) the granting of subscription rights or offer or sale of shares of common
stock to those persons would require either us, or our employees to register,
under the securities laws of that state or foreign country, as a broker or
dealer or to register or otherwise qualify our securities for sale in that state
or foreign country; or (iii) such registration or qualification would be
impracticable for reasons of cost or otherwise. No payments will be made in lieu
of the granting of subscription rights to any person.
Restrictions on Transfer of Subscription Rights and Shares. Persons are
prohibited from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of their subscription rights.
Subscription rights may be exercised only by the person to whom they are granted
and only for his account. Each person subscribing for shares will be required to
certify that he
18
is purchasing shares solely for his own account and has not entered into an
agreement or understanding regarding the sale or transfer of those shares. The
regulations also prohibit any person from offering or making an announcement of
an offer or intent to make an offer to purchase subscription rights or shares of
common stock prior to the completion of the conversion.
We will pursue any and all legal and equitable remedies in the event we
become aware of the transfer of subscription rights and will not honor orders
believed by us to involve the transfer of subscription rights.
Expiration Date. The Subscription Offering will expire at ____:____
p.m., Eastern Time, on __________ ____, 1998, (Expiration Date). Subscription
rights will become void if not exercised prior to the Expiration Date.
Community or Public Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the Subscription Offering, we may offer
shares in a Community Offering, with a preference to persons who reside in
Brooks County, Georgia, or to selected persons in a Public Offering on a
best-efforts basis through Trident in such a manner as to promote a wide
distribution of the Common Stock. Any orders received in connection with the
Community Offering or Public Offering, if any, will receive a lower priority
than orders properly made in the Subscription Offering by persons exercising
Subscription Rights. Common Stock sold in the Community Offering or Public
Offering will be sold at the same price as all other shares in the Subscription
Offering. We have the right to reject any orders in the Community Offering or
Public Offering.
No person will be permitted to purchase more than 6,000 shares or
$60,000 of Common Stock in the Community Offering or Public Offering. In
addition, no person, related person or persons acting together, may purchase in
all categories more than 10,000 shares of stock sold in the conversion. To order
Common Stock in connection with the Community Offering or Public Offering, if
held, an executed stock order and account withdrawal authorization (if
applicable) must be received prior to the termination of the Community Offering
or Public Offering. Promptly upon receipt of available funds, together with a
properly executed stock order and account withdrawal authorization, if
applicable, and certification, Trident will forward funds for any order in a
Community Offering or Public Offering to the Bank to be deposited in a
subscription escrow account.
The date by which orders must be received in the Community Offering or
Public Offering ("Community Offering or Public Offering Expiration Date") will
be set by us at the time of commencement of the Community Offering or Public
Offering; provided however, if the Offerings are extended beyond __________
____, 1998, each purchaser will have the opportunity to maintain, modify, or
rescind his order. In such event, all funds received in the Community Offering
or Public Offering will be promptly returned with interest unless the subscriber
affirmatively indicates otherwise.
If an order in the Community Offering or Public Offering is accepted,
promptly after the completion of the conversion, a certificate for the
appropriate amount of shares will be forwarded to Trident as nominee for the
beneficial owner. In the event that an order is not accepted in the Community
Offering or Public Offering or the conversion is not consummated, the Savings
Bank will promptly refund with interest the funds received to Trident which will
then return the funds to purchasers' accounts. If the appraisal of the aggregate
estimated pro forma market value of the Savings Bank and QBI is less than
$4,250,000 or more than $6,612,500, each purchaser will have the right to modify
or rescind his order. The Plan also permits Trident to conduct a Syndicated
Public Offering, which is not expected to occur.
19
If a Syndicated Public Offering does occur, it will occur on a best-efforts
basis through Trident on terms negotiated prior to commencement of the
Syndicated Public Offering and, therefore, Trident will not be committed to
purchase any shares.
Ordering and Receiving Shares
Use of Order Forms. Rights to subscribe in the Subscription Offering or
purchase stock in the Community Offering or Public Offering (if any) may only be
exercised by completion of an original order form. Persons ordering shares in
the Subscription Offering must deliver by mail or in person a properly completed
and executed original order form to us prior to the Expiration Date. Order forms
must be accompanied by full payment for all shares ordered. See "-- Payment for
Shares." Subscription rights under the Plan will expire on the Expiration Date,
whether or not we have been able to locate each person entitled to subscription
rights. Once submitted, subscription orders cannot be revoked without our
consent unless the conversion is not completed within 45 days of the Expiration
Date.
In the event an order form (i) is not delivered and is returned to us
by the United States Postal Service or we are unable to locate the addressee,
(ii) is not received or is received after the Expiration Date, (iii) is
defectively completed or executed, or (iv) is not accompanied by full payment
for the shares subscribed for (including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient to fund
the amount of such required payment), the subscription rights for the person to
whom such rights have been granted will lapse as though that person failed to
return the completed order form within the time period specified. We may, but
will not be required to, waive any irregularity on any order form or require the
submission of corrected order forms or the remittance of full payment for
subscribed shares by such date as we specify. The waiver of an irregularity on
an order form in no way obligates us to waive any other irregularity on that, or
any irregularity on any other, order form. Waivers will be considered on a case
by case basis. Photocopies of order forms, payments from private third parties,
or electronic transfers of funds will not be accepted. Our interpretation of the
terms and conditions of the Plan and of the acceptability of the order forms
will be final. We have the right to investigate any irregularity on any order
form.
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with Rule l5c2-8. Order
forms will only be distributed with a prospectus.
Payment for Shares. Payment for shares of common stock may be made (i)
in cash, if delivered in person, (ii) by check or money order, or (iii) by
authorization of withdrawal from savings accounts (including certificates of
deposit) maintained with us or (iv) by an IRA not held by us. Appropriate means
by which such withdrawals may be authorized are provided in the order form. Once
such a withdrawal has been authorized, none of the designated withdrawal amount
may be used by the subscriber for any purpose other than to purchase the shares.
Where payment has been authorized to be made through withdrawal from a savings
account, the sum authorized for withdrawal will continue to earn interest at the
contract rate until the conversion has been completed or terminated. Interest
penalties for early withdrawal applicable to certificate accounts will not apply
to withdrawals authorized for the purchase of shares; however, if a partial
withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate evidencing the remaining
balance will earn interest at the passbook savings account rate subsequent to
the withdrawal. Payments made in cash or by check or money order, will be placed
in a segregated savings account and interest will be paid by us at our passbook
savings account rate from the date payment is received until the conversion is
completed
20
or terminated. An executed order form, once received by us, may not be modified,
amended, or rescinded without our consent, unless the conversion is not
completed within 45 days after the conclusion of the Subscription Offering, in
which event subscribers may be given an opportunity to increase, decrease, or
rescind their order. In the event that the conversion is not consummated, all
funds submitted pursuant to the offering will be refunded promptly with
interest.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares in the offering, provided that such IRAs are not maintained on
deposit with us. Persons with IRAs maintained with us must have their accounts
transferred to an unaffiliated institution or broker to purchase shares in the
offering. The Stock Information can assist you in transferring your
self-directed IRA. Because of the paperwork involved, persons owning IRAs with
us who wish to use their IRA account to purchase stock in the offering, must
contact the Stock Information Center no later than __________ ____, 1998.
The ESOP may subscribe for shares by submitting its order form along
with evidence of a loan commitment from a financial institution or QBI for the
purchase of the shares during the Subscription Offering and by making payment
for shares on the date of completion of the conversion.
Federal regulations prohibit us from lending funds or extending credit
to any person to purchase shares in the conversion.
Delivery of Stock Certificates. Certificates representing shares of
common stock issued in the conversion will be mailed to the person(s) at the
address noted on the order form, as soon as practicable following consummation
of the conversion. Any certificates returned as undeliverable will be held until
properly claimed or otherwise disposed. Persons ordering shares might not be
able to sell their shares until they receive their stock certificates.
Plan of Distribution
Materials for the offering have been distributed to eligible
subscribers by mail. Additional copies are available at our stock information
center. Our officers may be available to answer questions about the conversion.
Responses to questions about us will be limited to the information contained in
this document. Officers will not be authorized to render investment advice. All
subscribers for the shares being offered will be instructed to send payment
directly to us. The funds will be held in a segregated special escrow account
and will not be released until the closing of the conversion or its termination.
Marketing Arrangements
Trident has been engaged as our financial advisor in connection with
the offering. Trident has agreed to exercise its best efforts to assist us in
the sale of the shares in the offering. Trident will receive a fee of 2.5% of
the aggregate dollar amount of Common Stock sold in the Offerings, excluding
shares sold to the Bank's directors and executive officers and their associates
and the ESOP. We will also reimburse Trident for its out-of-pocket expenses (up
to $10,000) and legal expenses (up to $27,500). Also, we have agreed to
indemnify Trident for reasonable costs and expenses in connection with certain
claims or liabilities which might be asserted against Trident. This
indemnification covers the investigation, preparation of defense and defense of
any action, proceeding or claim relating to, among other things,
misrepresentation or breach of warranty of the written agreement among Trident
and us or the omission or alleged omission of a material fact required to be
stated or necessary in the prospectus or other documents. We will negotiate the
fees and reimbursement of expenses for Trident before we begin any Syndicated
Public Offering.
21
The shares will be offered principally by the distribution of this
document and through activities conducted at the Stock Information Center. The
Stock Information Center is expected to operate during our normal business hours
throughout the offering. A registered representative employed by Trident will be
working at, and supervising the operation of, the Stock Information Center.
Trident will assist us in responding to questions regarding the conversion and
the offering and processing order forms. Our personnel will be present in the
Stock Information Center to assist Trident with clerical matters and to answer
questions related solely to our business.
Stock Pricing
FinPro, an independent economic consulting and appraisal firm, which is
experienced in the evaluation and appraisal of business entities, including
savings institutions involved in the conversion process has been retained by us
to prepare an appraisal of our estimated pro forma market value. FinPro will
receive fees of $12,000 for preparing the appraisal and $10,000 for its
assistance in connection with the preparation of a business plan and also will
be reimbursed reasonable out-of-pocket expenses. We have agreed to indemnify
FinPro under certain circumstances against liabilities and expenses arising out
of or based on any misstatement or untrue statement of a material fact contained
in the information supplied by us to FinPro.
The appraisal was prepared by FinPro in reliance upon the information
contained herein, including the financial statements. The appraisal contains an
analysis of a number of factors including, but not limited to, our financial
condition and operating trends, the competitive environment within which we
operate, operating trends of certain savings institutions and savings and loan
holding companies, relevant economic conditions, both nationally and in the
State of Georgia which affect the operations of savings institutions, and stock
market values of certain savings institutions. In addition, FinPro has advised
us that it has considered the effect of the additional capital raised by the
sale of the shares on our estimated aggregate pro forma market value.
On the basis of the above, FinPro has determined, in its opinion, that
as of __________ ____, 1997, our estimated aggregate pro forma market value was
$5,000,000. OTS regulations require, however, that the appraiser establish a
range of value for the stock to allow for fluctuations in the aggregate value of
the stock due to changing market conditions and other factors. Accordingly,
FinPro has established a range of value from $4,250,000 to $5,750,000 for the
offering, the EVR. The EVR will be updated prior to consummation of the
conversion and the EVR may increase to $6,612,500.
The board of directors has reviewed the independent appraisal,
including the stated methodology of the independent appraiser and the
assumptions used in the preparation of the independent appraisal. The board of
directors is relying upon the expertise, experience and independence of the
appraiser and is not qualified to determine the appropriateness of the
assumptions.
In order for stock sales to take place FinPro must confirm to the OTS
that, to the best of FinPro's knowledge and judgment, nothing of a material
nature has occurred which would cause FinPro to conclude that the Purchase Price
on an aggregate basis was incompatible with FinPro's estimate of our pro forma
market value of us in converted form at the time of the sale. If, however, facts
do not justify such a statement, an amended EVR may be established.
The appraisal is not a recommendation of any kind as to the
advisability of purchasing these shares. In preparing the appraisal, FinPro has
relied upon and assumed the accuracy and completeness of financial and
statistical information provided by us. FinPro did not independently verify the
financial statements and other information provided by us, nor did FinPro value
22
independently our assets and liabilities. The appraisal considers us only as a
going concern and should not be considered as our liquidation value. Moreover,
because the appraisal is based upon estimates and projections of a number of
matters which are subject to change, the market price of the common stock could
decline below $10.00.
Change in Number of Shares to be Issued in the Conversion
Depending on market and financial conditions at the time of the
completion of the offerings, we may significantly increase or decrease the
number of shares to be issued in the conversion. In the event of an increase in
the valuation, we may increase the total number of shares to be issued in the
conversion. An increase in the total number of shares to be issued in the
conversion would decrease a subscriber's percentage ownership interest and the
pro forma net worth (book value) per share and increase the pro forma net income
and net worth (book value) on an aggregate basis. In the event of a material
reduction in the valuation, we may decrease the number of shares to be issued to
reflect the reduced valuation. A decrease in the number of shares to be issued
in the conversion would increase a subscriber's percentage ownership interest
and the pro forma net worth (book value) per share and decrease pro forma net
income and net worth on an aggregate basis.
Persons ordering shares will not be permitted to modify or cancel their
orders unless the change in the number of shares to be issued in the conversion
results in an offering which is either less than $4,250,000 or more than
$6,612,500. If the offering is either less than $4,250,000 or more than
$6,612,500, only, persons who subscribed for shares will have an opportunity to
modify or cancel their orders. Persons who did not subscribe for shares will not
have the opportunity to do so.
Limitations on Purchases and Transfer of Shares
The Plan provides for certain additional purchase limitations. The
minimum purchase is 25 shares and the maximum purchase for any individual person
or persons ordering through a single account, is 6,000 shares. In addition, no
person or persons ordering through a single account, together with their
associates, or group of persons acting together, may purchase more than 10,000
shares. However, the Employee Plans may purchase up to 8% of the shares sold.
The OTS regulations governing the conversion provide that officers and directors
and their associates may not purchase, in the aggregate, more than 35% of the
shares issued pursuant to the conversion.
Depending on market conditions and the results of the offering, the
board of directors may increase or decrease any of the purchase limitations
without the approval of our members and without resoliciting subscribers. If the
maximum purchase limitation is increased, persons who ordered the maximum amount
will be given the first opportunity to increase their orders. In doing so the
preference categories in the offerings will be followed.
In the event of an increase in the total number of shares offered in
the conversion due to an increase in the EVR of up to 15% (the "Adjusted
Maximum"), the additional shares will be allocated in the following order of
priority: (i) to fill the Employee Plans' subscription of up to 8% of the
Adjusted Maximum number of shares (the ESOP currently intends to subscribe for
8%); (ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unfulfilled subscriptions of Eligible Account Holders; (iii) in
the event that there is an oversubscription by Supplemental Eligible Account
Holders, to fill unfulfilled subscriptions to Supplemental Eligible Account
Holders; (iv) in the event that there is an oversubscription by Other Members,
to fill unfulfilled subscriptions of Other Members; and (v) to fill unfulfilled
subscriptions in the Community Offering or Public Offering to the extent
possible.
23
The term "associate" of a person means (i) any corporation or
organization (other than us or a majority-owned subsidiary of ours) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other estate in which such person has a substantial beneficial interest
or as to which such person serves as director or in a similar fiduciary capacity
(excluding tax-qualified employee stock benefit plans), and (iii) any relative
or spouse of such person or any relative of such spouse, who has the same home
as such person or who is a director or officer of us, or any of our
subsidiaries. For example, a corporation of which a person serves as an officer
would be an associate of that person, and therefore all shares purchased by that
corporation would be included with the number of shares which that person
individually could purchase under the above limitations.
The term "officer" may include our chairman of the board, president,
vice presidents in charge of principal business functions, Secretary and
Treasurer and any other person performing similar functions. All references
herein to an officer have the same meaning as used for an officer in the Plan.
To order shares in the conversion, persons must certify that their
purchase does not conflict with the purchase limitations. In the event that the
purchase limitations are notated by any person (including any associate or group
of persons affiliated or otherwise acting in concert with such persons), we will
have the right to purchase from that person at $10.00 per share all shares
acquired by that person in excess of the purchase limitations. If the excess
shares have been sold by that person, we may recover the profit from the sale of
the shares by that person. We may assign our right either to purchase the excess
shares or to recover the profits from their sale.
Shares of common stock purchased pursuant to the conversion will be
freely transferable, except for shares purchased by our directors and officers.
For certain restrictions on the shares purchased by directors and officers, see
"-- Restrictions on Sales and Purchases of Shares by Directors and Officers." In
addition, under guidelines of the NASD, members of the NASD and their associates
are subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, QBI may not
repurchase its shares and during each of the second and third years following
the conversion, QBI may repurchase five percent of the outstanding shares
provided they are purchased in open-market transactions. Repurchases must not
cause us to become undercapitalized and at least 10 days prior notice of the
repurchase must be provided to the OTS. The OTS may disapprove a repurchase
program upon a determination that (1) the repurchase program would adversely
affect our financial condition, (2) the information submitted is insufficient
upon which to base a conclusion as to whether the financial condition would be
adversely affected, or (3) a valid business purpose was not demonstrated.
However, the OTS may grant special permission to repurchase shares after six
months following the conversion and to repurchase more than five percent during
each of the second and third years. In addition, SEC rules also govern the
method, time, price, and number of shares of common stock that may be
repurchased by QBI and affiliated purchasers. If, in the future, the rules and
regulations regarding the repurchase of stock are liberalized, QBI may utilize
the rules and regulations then in effect.
Restrictions on Sales and Purchases of Shares by Directors and Officers
Shares purchased by directors and officers of QBI may not be sold for
one year following the conversion, except in the event of the death of the
director or officer. Any shares issued to directors and
24
officers as a stock dividend, stock split, or otherwise with respect to
restricted stock shall be subject to the same restrictions.
For three years following the conversion, directors and officers may
purchase shares only through a registered broker or dealer. Exceptions are
available only if the OTS has approved the purchase or the purchase is an arm's
length transaction and involves more than one percent of the outstanding shares.
Interpretation and Amendment of the Plan
We have the authority to interpret and amend the Plan. Our
interpretations are final. Amendments to the Plan after the receipt of member
approval will not need further member approval unless required by the OTS.
Conditions and Termination
Completion of the conversion requires (i) the approval of the Plan by
the affirmative vote of not less than a majority of the total number of votes
eligible to be cast by our members, and (ii) completion of the sale of shares
within 24 months following approval of the Plan by our members If these
conditions are not satisfied, the Plan will be terminated and we will continue
our business in the mutual form of organization. We may terminate the Plan at
any time prior to the meeting of members to vote on the Plan or at any time
thereafter with the approval of the OTS.
Other
All statements made in this document are hereby qualified by the
contents of the Plan of Conversion, the material terms of which are set forth
herein. The Plan of Conversion is attached to the proxy statement mailed to
certain depositors and borrowers. Copies of the Plan are available from us and
should be consulted for further information. Adoption of the Plan by our members
authorizes us to interpret, amend or terminate the Plan.
25
Quitman Federal Savings and Loan Association
Statements of Income
YEARS ENDED
SEPTEMBER 30,
-------------------------------------
1997 1996
------------ -------------
Interest Income:
Loans receivable:
First mortgage loans............................ $2,833,489 2,615,633
Consumer and other loans........................ 108,748 38,644
Interest on FHLMC Pool............................ 219 636
Investment securities............................. 233,416 214,266
Interest-bearing deposits......................... 21,552 37,560
Federal funds sold................................ 520 0
--------- ---------
Total Interest Income......................... 3,197,944 2,906,739
--------- ---------
Interest Expense:
Deposits, Note 7.................................. 1,913,045 1,828,770
Interest on Federal Home Loan Bank advances....... 65,418 14,900
--------- ---------
Total Interest Expense........................ 1,978,463 1,843,670
--------- ---------
Net Interest Income................................. 1,219,481 1,063,069
Provision for loan losses, Notes 1 and 4............ 136,000 36,000
--------- ---------
Net Interest Income After Provision for Losses...... 1,083,481 1,027,069
--------- ---------
Non-Interest Income:
Gain (loss) on sale of securities................. (133) 0
Other income...................................... 45,536 49,196
--------- ---------
Total Non-Interest Income....................... 45,403 49,196
--------- ---------
Non-Interest Expense:
Compensation...................................... 255,966 221,056
Other personnel expenses, Note 11................. 150,382 138,188
Occupancy expenses of premises.................... 22,900 22,042
Furniture and equipment expenses.................. 69,892 67,268
Federal deposit insurance......................... 29,553 69,874
Special SAIF Assessment, Note 13.................. 0 185,647
Other operating expenses.......................... 218,181 218,283
--------- ---------
Total Non-Interest Expense.................... 746,874 922,358
--------- ---------
Income Before Income Taxes.......................... 382,010 153,907
Provision for Income Taxes, Note 9.................. 119,211 50,621
--------- ---------
Net Income.......................................... $ 262,799 103,286
========= =========
Note:The accompanying notes to financial statements beginning on page F-5 are
an integral part of this statement.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition results of
operations is intended to assist you in understanding our financial condition
and results of operations. The information in this section should also be read
with our Financial Statements and Notes to the Financial Statements elsewhere in
this document.
QBI has recently been formed and, accordingly, has no results of
operations. The following discussion relates only to our financial condition and
results of operations.
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.
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.
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,
1997, our liquid asset ratio was 13%.
We originate fixed rate real estate loans which approximated 88.7% of
our loan portfolio at September 30, 1997. 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, 1997, these liquid assets totalled $3.7
million, which was more than 10% of our total liabilities of $36.2 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
27
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, 1997, 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 17 months. See "Business of Quitman Federal Savings Bank --
Lending Activities."
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. 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 an 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 net
interest income (over a 12 month period) and NPV that we would be willing to
tolerate under these assumed conditions.
Board Limit of a Percentage Change In
-------------------------------------
Changes
in Market
Interest Rates(1) NII NPV
----------------- --- ---
(basis points)
+400 -60% -65%
+300 -60% -60%
+200 -40% -40%
+100 -20% -25%
-100 -25% -25%
-200 -40% -40%
-300 -50% -50%
-400 -60% -60%
- -----------------
(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
28
and permanent 200 basis point decrease in market interest rates indicated an
approximately 15% increase in estimated pre-tax income. The computation of an
instantaneous and permanent 200 basis point increase in market interest rates
indicated an approximately 18% decrease in estimated pre-tax income. Both of
these computations (1) were based on financial information at September 30,
1997, (2) assumed net income over the 12 months following September 30, 1997 and
(3) resulted in financial results within the guidelines shown in the table
above.
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
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 $3.0 million, or 8.3 % to $39.2
million at September 30, 1997, from $36.2 million at September 30, 1996. The
increase in total assets reflects a $2.5 million increase in loans receivable, a
$406,000 increase in investment securities, and a $109,000 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 $2.7 million or 8.5% to $34.5 million at September
30, 1997 from $31.7 million at September 30, 1996. The increase in fiscal 1997
was a result of competitive pricing to fund loan demand. Advances from the
Federal Home Loan Bank ("FHLB") of Atlanta increased $100,000 to $1.3 million.
Other liabilities decreased by $188,000 primarily due to the one time SAIF
special assessment of $185,000 in fiscal 1996.
29
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.
Year Ended September 30, At September 30,
----------------------------------------------------------- --------------------------
1997 1996 1997
------------------------------- --------------------------- --------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable(1)................... $32,065 $2,942 9.18% $29,351 $ 2,654 9.04% $33,326 9.13%
Mortgage-backed securities............ 140 8 5.71 -- -- -- 542 5.14
Investment securities(2).............. 3,617 226 6.25 3,732 216 5.79 3,309 5.94
Other interest-earning assets......... 345 22 6.38 671 37 5.51 548 5.26
------ ----- ------ ----- ------
Total interest-earning assets....... 36,167 3,198 8.84 33,754 2,907 8.61 37,825 8.74
Non-interest-earning assets............. 1,515 -- 897 -- 1,367
------ ------ ------ ------ ------
Total assets........................ $37,682 $3,198 $34,651 $ 2,907 $39,192
====== ===== ====== ===== ======
Interest-bearing liabilities:
NOW Accounts.......................... $ 1,488 $ 49 3.29 $ 1,452 $ 47 3.24 $ 1,439 3.45
Savings accounts...................... 2,185 82 3.75 2,103 78 3.73 1,945 4.25
Money market accounts................. -- -- -- -- -- -- --
Certificates of deposit............... 29,427 1,782 6.06 27,737 1,703 6.14 31,087 6.06
Other liabilities..................... 1,175 65 5.53 304 15 4.93 1,300 6.55
------ ----- ------ ----- ------
Total interest-bearing liabilities 34,275 1,978 5.77 31,596 1,843 5.83 35,771 5.87
Non-interest bearing liabilities........ 519 -- 428 -- 463
------ ------ ------ ------ ------
Total liabilities................... 34,794 1,978 32,024 $ 1,843 36,234
====== ======
Retained earnings....................... 2,888 2,627 2,958
------ ------ ------
Total liabilities and retained earnings $37,682 $34,651 $39,192
====== ====== ======
Net interest income..................... $1,220 $ 1,064
Interest rate spread(3)................. 3.07% 2.78% 2.87%
Net yield on interest-earning assets(4). 3.37% 3.15% 3.18%
Ratio of average interest-earning assets
to average interest-bearing liabilities 105.52% 106.83% 105.74%
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(5) Annualized (where appropriate) for purposes of comparability with year-end
data.
30
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).
Year Ended September 30,
----------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
--------------------------------- -----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------------------- -----------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ----- ------ ------ ------ ---- ------- -------
(Dollars in thousands)
Interest income:
Loans receivable .............. $ 250 $ 35 $ 3 $ 288 $ 278 $ (5) $ (1) $ 272
Investment securities ......... (6) 17 7 18 (1) (1) -- (2)
Other interest-earning assets . (18) 6 (3) (15) 9 (1) (1) 7
----- ----- ----- ----- ----- ----- ----- -----
Total interest-earning assets $ 226 $ 58 $ 7 $ 291 $ 286 $ (7) $ (2) $ 277
===== ===== ===== ===== ===== ===== ===== =====
Interest expense:
NOW Accounts .................. $ 1 $ 1 $-- $ 2 $ 8 $-- $-- $ 8
Savings accounts .............. 3 1 -- 4 13 -- -- 13
Money market accounts ......... -- -- -- -- -- -- -- --
Certificate of deposit ........ 139 (55) (5) 79 191 86 12 289
Other liabilities ............. 43 2 5 50 (2) (1) -- (3)
----- ----- ----- ----- ----- ----- ----- -----
Total interest-bearing
liabilities ............... $ 186 $ (51) $-- $ 135 $ 210 $ 85 $ 12 $ 307
===== ===== ===== ===== ===== ===== ===== =====
Net change in interest income ... $ 40 $ 109 $ 7 $ 156 $ 76 $ (92) $ (14) $ (30)
===== ===== ===== ===== ===== ===== ===== =====
31
Results of Operations for the Years Ended September 30, 1997 and 1996
Net Income. Net income increased $159,513 or 154.4% from $103,286 for
fiscal 1996 to $262,799 for fiscal 1997. The increase was primarily the result
of an increase in interest on loans receivable due to an increase in the average
balance of $2.7 million and a one-time SAIF assessment of $185,647 in fiscal
1996, partially offset by a $100,000 increase in the provision for loan losses.
Net Interest Income. Our net interest income increased $156,412 or
14.7% to $1,219,481 in fiscal 1997 compared to $1,063,069 in fiscal 1996. The
increase was due primarily to the growth of average interest-earning assets from
$33.8 million in fiscal 1996 to $36.2 million in fiscal 1997.
The increase in our average interest-earning assets of $2.4 million
reflects an increase of $2.7 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 and net interest margin increased in fiscal
1997 compared to fiscal 1996. This was due to the increase in the yield on
interest-earning assets from 8.61% in fiscal 1996 to 8.84% in fiscal 1997 and
the decrease in the interest cost of average interest-bearing liabilities from
5.83% in fiscal 1996 to 5.77% in fiscal 1997.
The yield on our average interest-earning assets increased in fiscal
1997 primarily due to an increase in the yield on loans receivable and to a
lesser degree an increase in the yield on investment securities. This increase
in yield on our loans receivable primarily reflected an increase in the average
balance of our loans and, to a lesser degree, increased levels of higher
yielding construction loans, and the increase in the yield on our investment
securities reflected the reinvestment at higher interest rates of those proceeds
we received when our investment securities matured.
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 $27.7 million in fiscal 1996 to $29.4 million in fiscal 1997,
offset partially by a decrease in the cost of certificates of deposit from 6.14%
in fiscal 1996 to 6.06% in fiscal 1997. The lower cost of certificates of
deposit reflects our reduction of rates to match declining market rates. The
$1.7 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.
Provision for Loan Losses. Our provision for loan losses increased
$100,000 from $36,000 for fiscal 1996 to $136,000 for fiscal 1997. The increase
in the provision for fiscal 1997 was the result of management's review of our
loan portfolio, including the increasing importance in the portfolio of riskier
construction and consumer loans and a $124,000 increase in classified assets in
the loan portfolio.
Noninterest Income. Our non-interest income decreased approximately
$4,000 in fiscal 1997 as compared to fiscal 1996. This was attributable to a
decrease in other income.
Noninterest Expense. Our non-interest expense decreased by $175,484 or
19.0% from $922,358 for fiscal 1996 to $746,874 for fiscal 1997. The decrease
was primarily attributable to a special SAIF assessment of 185,647 in fiscal
1996 which was partially offset by increases in compensation expense and other
personnel expense.
32
Income Tax Expense. Our income tax expense increased $68,590 from
$50,621 in fiscal 1996 to $119,211 in fiscal 1997 due to the increase in income
before taxes.
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 currently is 5.0% and our
liquidity ratio average was 12% at both September 30, 1997 and 1996.
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.
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, 1997 was $328,902 as compared to $298,754 for the year ended
September 30, 1996.
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, 1997
totalled $3.3 million, an increase of $377,542 from September 30, 1996. The
increase was primarily attributable to our use of $1.7 million in cash to fund
the purchase of available-for-sale investment securities and for loan
originations, the use of $4 million in cash to fund the net increase in
investment and mortgage-backed securities.
Net cash provided by our financing activities (i.e., cash receipts
primarily from net increases in deposits and net FHLB advances) for fiscal 1997
totalled $2.8 million compared to $2.7 million for fiscal 1996. This is a result
of a net increase in deposits of $2.7 million in fiscal 1997 as compared to an
increase of $2.0 million in fiscal 1996 and proceeds of $100,000 in FHLB
advances in fiscal 1997 compared to $600,000 in fiscal 1996.
We have received a letter from our computer service vendor assuring us
that the computer services of our vendor 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 as the year 1900 and
incorrectly compute interest, payment or delinquency. However, our vendor, and
other vendors, have not yet eliminated the year 2000 computer problem. Accurate
data processing is essential to our operations and a lack of accurate processing
by our vendor or by us could have a significant adverse impact on our financial
condition and results of operation. We have also 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 to meet
our requirements.
33
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 will be adopted
by us in the initial period after December 15, 1997. We do not believe the
impact of adopting SFAS No. 128 will be material to our financial statements.
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 will be adopted by us in the initial period after December 15,
1997. We do not believe the impact of adopting SFAS No. 129 will be material to
our financial statements.
FASB Statement of on 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
34
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.
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. See "Pro Forma Data."
BUSINESS OF QUITMAN BANCORP, INC.
QBI is not an operating company and has not engaged in any significant
business to date. It was formed in December 1997 as a Georgia-chartered
corporation to be the holding company for Quitman Federal Savings Bank. The
holding company structure and retention of proceeds will facilitate: (i)
diversification into non-banking activities, (ii) acquisitions of other
financial institutions, such as savings institutions, (iii) expansion within
existing and into new market areas and (iv) stock repurchases without adverse
tax consequences. There are no present plans regarding diversification,
acquisitions, expansion, or repurchases, although QBI is considering engaging in
the acquisition and development of real estate.
Since QBI will own only one savings association, it generally will not
be restricted in the types of business activities in which it may engage,
provided that we retain a specified amount of our assets in housing-related
investments. QBI initially will not conduct any active business and does not
intend to employ any persons other than officers but will utilize our support
staff from time to time.
The office of the QBI is located at 100 West Screven Street, Quitman,
Georgia. The telephone number is (912) 263-7538.
BUSINESS OF QUITMAN FEDERAL SAVINGS BANK
The principal sources of funds for our activities are deposits,
payments on loans and borrowings from the FHLB of Atlanta. Our deposits totalled
$34.5 million at September 30, 1997. Funds are used principally for the
origination of fixed rate loans secured by first mortgages on one- to
four-family residences which are located in our market area. Such loans totalled
$23.5 million, or 67.05% of our total loans receivable portfolio at September
30, 1997. Our principal source of revenue is interest received on loans and
investments and our principal expense is interest paid on deposits.
35
Market Area
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 Lowdnes 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.
Our area has benefitted from its location of within 30 miles of Moody
Air Force Base as well as from small garment factories, although employment from
these sources is not expected to grow. Although the population in a five and ten
mile radius of our office has been declining and is expected to decline somewhat
in the future, the population in a 20 mile radius of our office has grown and is
expected to grow more modestly in the future. The income of the population
within a 10 mile radius of us is primarily low to moderate. The income within a
20 mile radius is somewhat higher.
Unemployment levels are higher within a five mile radius of our office
than those within a 10 and 20 mile radius of our office but, for all three
areas, are below the national average. In addition, housing values are lower
within a five mile radius of our office than they are within a 10 or 20 mile
radius of our office. Approximately two-thirds of the homes within a five mile
radius have a value of less than $50,000, with almost half of these homes having
a value of less than $25,000. We expect that most of the future growth in our
loan portfolio would come from within a 20 mile radius of our office rather than
within a five mile radius. We believe our market share of deposits within a five
mile radius of our office is approximately 30% while within a 20 mile radius it
is approximately 3%.
Lending Activities
Most of our loans are mortgage loans which are secured by one- to
four-family residences. We also make multi-family, commercial real estate and
consumer loans. Most of the loans we originate have rates of interest which are
fixed for a three or five year term of the loan ("fixed rate"). We do also
originate some adjustable-rate mortgage ("ARM") loans.
36
The following table sets forth information concerning the types of
loans held by us.
At September 30,
-------------------------------------------------------------
1997 1996
------------------------- ----------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
- --------------
Real estate loans:
One-to-four family residential................... $23,656 68.09% $23,717 70.43%
Multi-family (5 or more) dwelling................ 699 2.01 607 1.80
Non residential.................................. 5,394 15.52 5,083 15.09
Construction..................................... 3,655 10.52 3,142 9.33
FHLMC pools...................................... 4 .01 6 .02
Share loans........................................ 470 1.35 476 1.41
Consumer .......................................... 867 2.50 645 1.92
------ ------ ------ ------
34,745 100.00% 33,676 100.00%
------ ====== ------ ======
Less:
Loans in process................................. 1,023 2,609
Allowance for loan losses........................ 346 210
Deferred loan origination fees
and costs....................................... 50 52
------- ------
Total loans, net................................... $33,326 $30,805
====== ======
37
The following table sets forth the estimated maturity of our loan
portfolio at September 30, 1997. 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.
Real Estate
------------------------------------------
Residential
Real Estate Non
Mortgage Residential Construction Other Total
-------- ----------- ------------ ----- -----
(In thousands)
Amounts due:
Within 1 year ........... $ 2,042 $ 1,408 $ 3,655 $ 736 $ 7,841
Over 1 to 5 years ....... 13,271 2,562 -- 398 16,231
Over 5 years ............ 9,046 1,424 -- 203 10,673
------- ------- ------- ------- -------
Total amount due ...... $24,359 $ 5,394 $ 3,655 $ 1,337 34,745
======= ======= ======= ======= -------
Less:
Allowance for loan loss.. 346
Loans in process......... 1,023
Deferred loan fees....... 50
-----
Loans receivable, net.. $33,326
======
38
The following table sets forth the dollar amount of all loans due after
September 30, 1998, 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............................ $19,943 $2,374 $22,317
Non-residential........................ 3,926 60 3,986
------ ----- -----
23,869 2,434 26,303
Non real estate:
Share loans............................ 78 -- 78
Consumer............................... 523 -- 523
------- ------ -------
$24,470 $2,434 $26,904
====== ===== =======
The following information contains information concerning changes in
the amount of loans held by us.
For the Years Ended
September 30,
----------------------------
1997 1996
--------- ---------
Total gross loans receivable at beginning of period........... $36,676 $29,102
------ ------
Loans originated:
Residential real estate..................................... 15,156 16,258
Non-residential real estate................................. 2,864 3,081
Consumer.................................................... 1,218 1,080
------ ------
Total loans originated........................................ 19,238 20,419
------ ------
Loan principal repayments..................................... 18,169 15,845
------ ------
Net loan activity............................................. 1,069 4,574
------ ------
Total gross loans receivable at
end of period............................................ $34,745 $33,676
====== ======
One-to Four-Family Residential Loans. Our primary lending activity
consists of the origination of one- to four-family residential mortgage loans
secured by property located in our primary market area. We generally originate
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% . We primarily originate and retain 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 period, relatively
short term and renewability of these loans, there are similarities between these
loans and ARMs, particularly from our asset/liability management perspective. We
occasionally originate 15 year fixed-rate loans.
39
The interest rate on our ARM loans is based on an index plus a stated
margin. We may offer discounted initial interest rates on ARM loans but we
require 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 of up to 2% per year . The interest rate may not
increase more than 6% over the life of the loan. ARM loans typically reprice
every year and provide for terms of up to 25 years with most loans having terms
of between 20 and 25 years. ARM loans are offered to all applicants; however,
consumer preference in our market area for ARM loans has been weak.
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, 1997, less than 10% of our
one- to four-family residential loans we held had adjustable rates of interest.
All of our loans are originated for our portfolio. We do not conform
our loans to the standards that are used in the mortgage industry that would
allow our loans to be readily sold into the secondary market since we do not
expect to sell our loans. For example, our lending policy does not require our
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
we may lend money to individuals based on our review of personal circumstances
that other lenders might not consider.
Mortgage loans originated and held by us generally include due-on-sale
clauses. This gives us 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 our consent.
Residential Construction Loans. We make 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 us, these loans are made on terms similar
to those of our single family residential loans and may be paid off over terms
of 3 to 5 years with an amortization period of 25 years.
We also originate speculative loans to residential builders who have
established business relationships with us. These speculative loans typically
are made for a term of six months after which we allow one extension of six
months. If after one year a unit remains unsold, we require that the builder
make a 10% principal reduction payment and we either then allow 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 we 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, we consider the number of units
that the builder has on a speculative bid basis that remain unsold. Our
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, 1997 our largest
speculative loan was $429,000, drawn on a line of credit, and was performing in
accordance with its terms.
40
Construction lending is generally considered to involve a higher degree
of credit risk than long-term financing of residential properties. Our 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, we 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 we originate 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.
We do not expect the dollar amount of construction loans to
significantly increase in the future.
Non-Residential Real Estate Loans. Our 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, we generally limit this type of lending to our market area
and to borrowers who are otherwise well known to us and generally limit the loan
to value ratio to 80%.
Consumer Loans. We offer consumer loans in order to provide a wider
range of financial services to our customers and because these loans provide
higher interest rates and shorter terms than many of our other loans. Consumer
loans totalled $867,000 or 2.5% of our total loans at September 30, 1997. Our
consumer loans consist of home equity, automobile, and mobile home loans and are
generally in smaller dollar amounts than our 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. Our loan committee, which is
comprised of all 5 directors on the board, approves all loans. Mr. Plair, our
President, has loan authority to approve consumer loans of up to $5,000.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers.
41
Construction/permanent loans are made on individual properties. Funds
advanced during the construction phase are held in a loans-in-process account
and disbursed at various stages of completion, following physical inspection of
the construction by a loan officer or appraiser.
Either title insurance or a title opinion is generally required on all
real estate loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property which is located in a
flood zone.
Loan Commitments. Verbal commitments are given to prospective borrowers
on all approved real estate loans. Written commitments are given where
requested. Generally, the commitment requires acceptance within 30 days of the
date of issuance. At September 30, 1997, commitments to cover originations of
mortgage loans totalled $3.2 million. We believe that virtually all of our
commitments will be funded.
Loans to One Borrower. The maximum amount of loans which we may make to
any one borrower may not exceed the greater of $500,000 or 15% of our unimpaired
capital and unimpaired surplus. We may lend an additional 10% of our unimpaired
capital and unimpaired surplus if the loan is fully secured by readily
marketable collateral. Our maximum loan to one borrower limit has been $500,000.
At September 30, 1997, the aggregate loans outstanding of our five largest
borrowers have outstanding balances of between $220,000 and $434,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations for the Years Ended September 30, 1997 and
1996."
Nonperforming and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 5 days past due, a
notice of nonpayment is sent to the borrower. After the loan becomes 30 days
past due, another notice of nonpayment, accompanied by a personal letter, is
sent to the borrower. If the loan continues in a delinquent status for 90 days
past due and no repayment plan is in effect, foreclosure proceedings will be
initiated. The customer will be notified when foreclosure is commenced.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when, in our 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. We
have no loans categorized as troubled debt restructurings within the meaning of
SFAS 15. There was no interest income that would have been recorded on loans
accounted for on a nonaccrual basis under the original terms of such loans for
the year ended September 30, 1997.
42
At September 30,
---------------------------------
1997 1996
----------- ------------
(In thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Construction loans................................... $ -- $ --
One- to four-family residential...................... 73 --
All other mortgage loans............................. 51 --
Non-mortgage loans:
Commercial........................................... -- --
Consumer............................................. -- --
---- ------
Total.................................................. $124 $ --
==== ======
Accruing loans which are contractually past due 90 days or more:
Mortgage loans:
Construction loans................................... $ 58 $ 18
One- to four-family residential...................... 249 820
All other mortgage loans............................. 25 18
Non-mortgage loans:
Commercial........................................... -- --
Consumer............................................. 21 15
--- -----
Total.................................................. $353 $ 871
==== =====
Total non-accrual and accrual loans.................... $477 $ 871
==== =====
Real estate owned...................................... $ 64 $ --
==== =====
Other non-performing assets............................ $ -- $ --
==== =====
Total non-performing assets............................ $541 $ 871
==== =====
Total non-performing loans to total loans, net......... 1.43% 2.83%
==== =====
Total non-performing loans to total assets............. 1.22% 2.41%
==== =====
Total non-performing assets to total assets............ 1.38% 2.41%
==== =====
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
ours 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 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.
43
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, 1997, we had loans classified as special mention,
substandard, doubtful and loss as follows:
At
September 30,
1997
--------------
(In thousands)
Special mention............................. $313
Substandard................................. 444
Doubtful assets............................. --
Loss assets................................. --
-----
Total.................................. $757
===
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 our 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) our past loan loss experience, (ii) known and inherent risks in
our 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.
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance for
loan losses at a level that we consider adequate for the inherent risk of loss
in our loan portfolio, future losses could exceed estimated amounts and
additional provisions for loan losses could be required. In addition, our
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.
44
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 our use of the allowance to absorb losses in other loan
categories.
At September 30
-------------------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------------------
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...................... $ 231 68.1% $ 144 70.4%
Multi-family............................. 7 2.0 4 1.8
Other real estate........................ 90 26.1 53 24.5
Consumer................................. 18 3.8 9 3.3
----- ----- ---- -----
Total allowance....................... $ 346 100.0% $ 210 100.0%
===== ===== ==== =====
The following table sets forth information with respect to our
allowance for loan losses at the dates and for the periods indicated:
At September 30,
---------------------------
1997 1996
-------- -------
(Dollars in thousands)
Total loans, net............................... $33,326 $30,805
====== ======
Average loans outstanding...................... $32,065 $29,351
====== ======
Allowance balances (at beginning of period).... $ 210 $ 174
Provision:
Residential.................................. 94 25
Non-residential.............................. 35 9
Consumer..................................... 7 2
Net charge-offs (recoveries):
Residential.................................. -- --
Non-residential.............................. -- --
Consumer..................................... -- --
------- ------
Allowance balance (at end of period)........... $ 346 $ 210
======= ======
Allowance for loan losses as a percent
of total loans outstanding................... 1.03% .68%
Net loans charged off as a percent of
average loans outstanding.................... -- --
45
Investment Activities
Investment Securities. We are 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. See "Regulation -- Savings
Institution Regulation -- Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The level of liquid assets varies depending
upon several factors, including: (i) the yields on investment alternatives, (ii)
our judgment as to the attractiveness of the yields then available in relation
to other opportunities, (iii) expectation of future yield levels, (iv)
asset/liability management, and (v) our projections as to the short-term demand
for funds to be used in loan origination and other activities. We classify our
investment securities as "available-for-sale" or "held-to-maturity" in
accordance with SFAS No. 115. At September 30, 1997, our investment portfolio
policy allowed investments in instruments such as: (i) U.S. Treasury
obligations, (ii) U.S. federal agency or federally sponsored agency obligations,
(iii) local municipal obligations, (iv) mortgage-backed securities, (v) banker's
acceptances, (vi) certificates of deposit, (vii) federal funds, including FHLB
overnight and term deposits (up to six months), and (viii) investment grade
corporate bonds, commercial paper and mortgage derivative products. See "--
- -Mortgage-backed Securities." The board of directors may authorize additional
investments.
Our investment securities "available-for-sale" and "held-to-maturity"
portfolios at September 30, 1997, did not contain securities of any issuer with
an aggregate book value in excess of 10% of our equity, excluding those issued
by the United States Government or its agencies.
Mortgage-backed Securities. To supplement lending activities, we have
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 us. The
quasi-governmental agencies guarantee the payment of principal and interest to
investors and include the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Government National Mortgage Association ("GNMA"), and Federal National Mortgage
Association ("FNMA").
At September 30, 1997, our mortgaged-backed securities portfolio was
classified as "available-for- sale" and totalled $542,000. Each security was
issued by GNMA, FHLMC or 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.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Mortgage-backed securities issued by FHLMC and GNMA
make up a majority of the pass-through certificates market.
46
Securities Portfolio. The following table sets forth the carrying
(i.e., amortized cost) value of our investment securities held-to-maturity, at
the dates indicated. Our securities portfolio classified as available-for-sale
is carried at market value. At September 30, 1997, the market value of our
investment securities, held-to-maturity, was $801,000 million. At September 30,
1997, our securities portfolio available-for-sale contained net unrealized
losses, net of tax, of $6,000. See Notes 1 and 3 to our financial statements
elsewhere in this document.
Investment Portfolio
The following table sets forth the carrying value of the Savings Bank's
investment securities portfolio, short-term investments, FHLB stock, and
mortgage-backed securities at the dates indicated. At September 30, 1997, the
market value of the Savings Bank's investment securities portfolio held-to-
maturity was $801,000.
At September 30,
---------------------
1997 1996
------ ------
(In thousands)
Investment securities:
U.S. Government securities available-for-sale..... $ 904 $ --
U.S. Agency securities held-to-maturity........... 100 --
U.S. Agency securities available-for-sale......... 1,600 1,781
U.S. Agency securities held-to-maturity........... 705 1,663
Total investment securities..................... 3,309 3,444
Interest-bearing deposits.......................... 548 679
FHLB stock......................................... 228 219
Mortgage-backed securities available-for-sale...... 542 --
Mortgage-backed securities held-to-maturity........ -- --
------ -------
Total investments............................... $4,627 $4,342
===== =====
47
The following table sets forth certain information regarding scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for our investment securities portfolio at September 30, 1997 by
contractual maturity. The following table does not take into consideration the
effects of scheduled repayments or the effects of possible prepayments.
More than Total
One Year or Less One to Five Years Five to Ten Years Ten Years 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)
Investment securities:
U.S. Government securities .. $ 100 4.68% $ 904 6.27% $ -- --% $ -- --% $1,004 6.42% $1,004
U. S. Agency securities ..... -- -- 2,305 6.25 -- -- -- -- 2,305 6.25 2,301
Corporate notes and bonds ... --
Other securities(1) ......... -- -- -- -- -- -- -- -- -- -- --
------ ------ ----- ---- ------ ------
Total investment securities 100 4.68 3,209 6.26 -- -- -- -- 3,309 6.30 3,305
Interest-bearing deposits ..... 548 5.69 -- -- -- -- -- -- 548 5.69 548
Federal Funds sold ............ -- -- -- -- -- -- -- -- -- -- --
FHLB stock .................... 228 7.25 -- -- -- -- -- -- 228 7.25 228
Mortgage-backed securities .... -- -- -- -- -- -- 542 5.13 542 5.13 542
------ ------ ----- ---- ------ ------
Total investments ......... $ 876 5.98 $3,209 6.26 $ -- -- $542 5.13 $4,627 6.07 $4,623
====== ====== ===== ==== ====== ======
48
Sources of Funds
Deposits are our 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.
Deposits. Consumer and commercial deposits are attracted principally
from within our primary market area through the offering of a selection of
deposit instruments including regular savings accounts, money market accounts,
and term certificate accounts. IRA accounts are also offered. Deposit account
terms vary according to the minimum balance required, the time period the funds
must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set weekly at the
direction of our senior management. Interest rates are determined based on our
liquidity requirements, interest rates paid by our competitors, and our growth
goals and applicable regulatory restrictions and requirements.
Regular savings and NOW accounts constituted $3.4 million, or 9.38%, of
our deposit portfolio at September 30, 1997. Certificates of deposit constituted
$31.1 million or 90.17% of the deposit portfolio of which $6.3 million or 18.38%
of the deposit portfolio were certificates of deposit with balances of $100,000
or more. Such deposits are offered at negotiated rates. As of September 30,
1997, we had no brokered deposits.
We hope to offer checking accounts to our customers during 1998. These
accounts will provide us with an additional source of funds.
49
At September 30, 1997, our deposits were represented by the various
types of savings programs described below.
Interest Minimum Balance as of Percentage of
Category Term Rate(1) Balance Amount September 30, 1997 Total Deposits
- -------- ---- -------------- -------------- ------------------ --------------
(In thousands)
Now Accounts None 3.50% $1,000 $ 1,439 4.18%
Regular Savings None 4.25% 25 1,945 5.65%
------
Certificates of Deposit:
3,384 9.83
------ ------
Fixed Term, Fixed Rate 1-3 Months 4.25 - 4.50% 100 1 .01%
Fixed Term, Fixed Rate 4-6 Months 5.10 - 5.75% 100 1,406 4.08%
Fixed Term, Fixed Rate 7-12 Months 5.75 - 6.25% 100 9,978 28.90%
Fixed Term, Fixed Rate 13-24 Months 5.70 - 6.40% 100 9,628 27.93%
Fixed Term, Fixed Rate 25-36 Months 5.70 - 7.10% 100 2,176 6.32%
Fixed Term, Fixed Rate 36-48 Months 5.30 - 7.35% 100 1,221 3.55%
Fixed Term, Fixed Rate 49-120 Months 5.65 - 6.75% 100 344 1.00%
Fixed Term, Variable Rate 12-18 Months 5.15 - 6.90%
Jumbo Certificates 98,000 6,333 18.38%
------ ------
31,087 90.17%
------ ------
Total $34,471 100.00%
====== ======
- -------------------------
(1) Current interest rate offerings as of September 30, 1997:
6 mos 5.10%
12 mos 5.75%
15 mos 5.90%
24 mos 6.25%
36 mos 6.25%
48 mos 6.25%
The following table sets forth our time deposits classified by interest
rate at the dates indicated.
As of September 30,
----------------------------------
1997 1996
---------- ----------
(In thousands)
2.00% or less.................. $ -- $ --
2.01-4.00%..................... -- 1
4.01-6.00%..................... 14,976 18,329
6.01-8.00%..................... 16,111 9,437
------ ------
Total.......................... $31,087 $27,767
====== ======
50
The following table sets forth the time deposits in the Savings Bank
classified by interest rate as of the dates indicated.
Amount Due
---------------------------------------------------------------------------------------------------------
After
September 30, September 30, September 30, September 30,
1998 1999 2000 2001 Total
------------- ------------- ------------- ------------ -------------
(In thousands)
2.00% or less........ $ -- $ -- $ -- $ -- $ --
2.01-4.00%........... -- -- -- -- --
4.01-6.00%........... 14,478 448 50 -- 14,976
6.01-8.00%........... 7,232 7,107 949 823 16,111
8.01% or more........ -- -- -- -- --
--------- --------- --------- --------- ---------
Total $ 21,710 $ 7,555 $ 999 $ 823 $ 31,087
======= ======= ======= ======= =======
The following table sets forth our savings activity for the periods
indicated:
Year Ended September 30,
----------------------------
1997 1996
------------- ----------
(In thousands)
Net increase (decrease) before interest credited.... $ 829 $ 293
Interest credited................................... 1,913 1,673
----- -----
Net increase (decrease) in savings deposits......... $ 2,742 $ 1,966
===== =====
The following table indicates the amount of our certificates of
deposits of $100,000 or more by time remaining until maturity as of September
30, 1997.
Certificates
Maturity Period of Deposits
--------------- -----------
(In thousands)
Within three months............... $ 403
Three through six months.......... 2,180
Six through twelve months......... 2,404
Over twelve months................ 1,346
-----
$6,333
======
51
Borrowings. Advances (borrowing) may be obtained from the FHLB of
Atlanta to supplement our supply of lendable funds. Advances from the FHLB of
Atlanta are typically secured by a pledge of our stock in the FHLB of Atlanta, a
portion of our first mortgage loans and other assets. Each FHLB credit program
has its own interest rate (which may be fixed or adjustable) and range of
maturities. We may borrow up to $3 million from the FHLB of Atlanta. If the need
arises, we may also access the Federal Reserve Bank discount window to
supplement our supply of lendable funds and to meet deposit withdrawal
requirements. At September 30, 1997, borrowings from the FHLB of Atlanta totaled
$1.3 million (all of which were variable rate short-term borrowings maturing on
July 16, 1998). We had no other borrowings outstanding. At September 30, 1996,
FHLB advances were $1.2 million.
The following table sets forth the terms of our short-term FHLB
advances during the year ended September 30, 1997.
(Dollars in thousands)
Average balance outstanding......................... $1,175
Maximum amount outstanding at any month-end
during the period................................. 1,300
Weighted average interest rates during the period... 5.60%
Competition
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 our market areas.
Competition for funds 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 commercial banks, thrift institutions, credit unions
and mortgage bankers, most of whom have far greater resources than we have.
Properties
We operate from our main office which we own. The net book value of
this real property at September 30, 1997, was $180,000. Our total investment in
office equipment had a net book value of $142,000 at September 30, 1997.
Personnel
At September 30, 1997 we had 8 full-time employees and 1 part-time
employee. None of our employees are represented by a collective bargaining
group. We believe that our relationship with our employees is good.
Legal Proceedings
We are, from time to time, a party to legal proceedings arising in the
ordinary course of our business, including legal proceedings to enforce our
rights against borrowers. We are not a party to any legal proceedings which are
expected to have a material adverse effect on our financial statements.
52
REGULATION
Set forth below is a brief description of certain laws which relate to
us. The description is not complete and is qualified in its entirety by
references to applicable laws and regulation.
Holding Company Regulation
General. QBI will be required to register and file reports with the OTS
and will be subject to regulation and examination by the OTS. In addition, the
OTS will have enforcement authority over QBI and any non-savings institution
subsidiaries. This will permit the OTS to restrict or prohibit activities that
it determines to be a serious risk to us. This regulation is intended primarily
for the protection of our depositors and not for the benefit of you, as
stockholders of QBI.
QTL Test. Since QBI will only own one savings institution, it will be
able to diversify its operations into activities not related to banking, but
only so long as we satisfy the QTL test. If QBI controls more than one savings
institution, it would lose the ability to diversify its operations into
non-banking related activities, unless such other savings institutions each also
qualify as a QTL or were acquired in a supervised acquisition. See "-- Savings
Institution Regulation -- Qualified Thrift Lender Test. "
Restrictions on Acquisitions. QBI must obtain approval from the OTS
before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
Savings Institution Regulation
General. As a federally chartered, SAIF-insured savings institution, we
are subject to extensive regulation by the OTS and the FDIC. Our lending
activities and other investments must comply with various federal and state
statutory and regulatory requirements. We are also subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
("Federal Reserve").
The OTS, in conjunction with the FDIC, regularly examines us and
prepares reports for the consideration of our board of directors on any
deficiencies that the OTS finds in our operations. Our relationship with our
depositors and borrowers is also regulated to a great extent by federal and
state law, especially in such matters as the ownership of savings accounts and
the form and content of our mortgage documents.
We must file reports with the OTS and the FDIC concerning our
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in regulations, whether by the OTS, the FDIC or any other
government agency, could have a material adverse impact on our operations.
53
Insurance of Deposit Accounts. The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of the BIF
and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such assessment rates if
such target level has been met. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
were substantially less than premiums for deposits such as ours which are
insured by the SAIF. Legislation to capitalize the SAIF and to eliminate the
significant premium disparity between the BIF and the SAIF became effective
September 30, 1996. The recapitalization plan provided for a special assessment
equal to $.657 per $100 of SAIF deposits held at March 31, 1995, in order to
increase SAIF reserves to the level required by law. Certain BIF institutions
holding SAIF-insured deposits were required to pay a lower special assessment.
Based on our deposits at March 31, 1995, we paid a pre-tax special assessment of
$186,000.
The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of Fico Bonds (bonds issued to fund the
cost of savings institution failures in prior years) will be shared by members
of both the SAIF and the BIF. This will increase BIF assessments for healthy
banks to approximately $.013 per $100 of deposits in 1997. SAIF assessments for
healthy savings institutions in 1997 will be approximately $.064 per $100 in
deposits and may be reduced, but not below the level set for healthy BIF
institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and
widened the spread of those rates. The FDIC's action established a base
assessment schedule for the SAIF with rates ranging from 4 to 31 basis points,
and an adjusted assessment schedule that reduces these rates by 4 basis points.
As a result, the effective SAIF rates range from 0 to 27 to basis points as of
October 1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corp. (Fico Bonds). Finally, the FDIC's action established
a procedure for making limited adjustments to the base assessment rates by
rulemaking without notice and comment, for both the SAIF and the BIF.
The recapitalization plan also provides for the merger of the SAIF and
BIF effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. As a result, we might have to convert to a
different financial institution charter and be regulated under federal law as a
bank, including being subject to the more restrictive activity limitations
imposed on national banks. We cannot predict the impact of our conversion to, or
regulation as, a bank until the legislation requiring such change is enacted.
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
54
to at least 3% of total adjusted assets, and (3) risk-based capital equal to 8%
of total risk-weighted assets. Our capital ratios are set forth under
"Historical and Pro Forma Capital Compliance."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio
value with data submitted by the institution and the interest rate risk
measurement model adopted by the OTS. The amount of the interest rate risk
component, if any, to be deducted from an institution's total capital will be
based on the institution's Thrift Financial Report filed two quarters earlier.
Savings institutions with less than $300 million in assets and a risk-based
capital ratio above 12% are generally exempt from filing the interest rate risk
schedule with their Thrift Financial Reports. However, the OTS may require any
exempt institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis and may be subject to
an additional capital requirement based upon its level of interest rate risk as
compared to its peers. Although the rule is not yet in effect, due to our net
size and risk-based capital level, we are exempt from the interest rate risk
component.
Dividend and Other Capital Distribution Limitations. OTS regulations
require us to give the OTS 30 days advance notice of any proposed declaration of
dividends to QBI, and the OTS has the authority under its supervisory powers to
prohibit the payment of dividends by us to QBI. In addition,
55
we may not declare or pay a cash dividend on our capital stock if the effect
would be to reduce our regulatory capital below the amount required for the
liquidation account to be established at the time of the conversion. See "The
Conversion -- Effects of Conversion to Stock Form on Depositors and Borrowers of
Quitman Federal Savings Bank -- Liquidation Account."
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
September 30, 1997, we qualified as a Tier 1 institution.
In the event our capital falls below our fully phased-in requirement or
the OTS notifies us that we are in need of more than normal supervision, we
would become a Tier 2 or Tier 3 institution and as a result, our ability to make
capital distributions could be restricted. Tier 2 institutions, which are
institutions that before and after the proposed distribution meet their current
minimum capital requirements, may only make capital distributions of up to 75 %
of net income over the most recent four quarter period. Tier 3 institutions,
which are institutions that do not meet current minimum capital requirements and
propose to make any capital distribution, and Tier 2 institutions that propose
to make a capital distribution in excess of the noted safe harbor level, must
obtain OTS approval prior to making such distribution. 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. The OTS has
proposed rules relaxing certain approval and notice requirements for
well-capitalized institutions.
A savings institution is prohibited from making a capital distribution
if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a savings institution cannot distribute regulatory
capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If we maintain 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, we 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 intangible assets, property used by the
institution in conducting its business and liquid assets equal to 10% of total
assets). Certain assets are subject to a percentage limitation of 20% of
portfolio 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 12 months. As of September
30, 1997, we were in compliance with our QTL requirement with approximately 85%
of our assets invested in QTIs.
56
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. Within
certain limits, affiliates are permitted to receive more favorable loan terms
than non-affiliates. Our affiliates include QBI and any company which would be
under common control with us. In addition, a savings institution may not extend
credit to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of any affiliate that is not a subsidiary. The
OTS has the discretion to treat subsidiaries of savings institution as
affiliates on a case-by-case basis.
Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At September 30, 1997, our required liquid
asset ratio was 5% and our actual ratio was 13%. In November 1997, the required
ratio was reduced to 4%. Monetary penalties may be imposed upon institutions for
violations of liquidity requirements.
Federal Home Loan Savings Bank System. We are a member of the FHLB of
Atlanta, which is one of 12 regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by savings institutions and proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB.
As a member, we are required to purchase and maintain stock in the FHLB
of Atlanta in an amount equal to at least 1% of our aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year. At September 30, 1997, we had $228,000 in FHLB stock, at cost,
which was in compliance with this requirement. The FHLB imposes various
limitations on advances such as limiting the amount of certain types of real
estate related collateral to 30% of a member's capital and limiting total
advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve. The Federal Reserve requires all depository
institutions to maintain noninterest 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 the liquidity requirements that are imposed by the OTS. At September 30,
1997, our reserve met the minimum level required by the Federal Reserve.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System. We had no borrowings from the Federal Reserve System at
September 30, 1997.
57
TAXATION
Federal Taxation
We are subject to the provisions of the Internal Revenue Code of 1986,
as amended (the "Coder), in the same general manner as other corporations. In
August 1996, the Code was revised to equalize the taxation of thrifts and banks.
Thrifts, such as us, no longer have a choice between the percentage of taxable
income method and the experience method in determining additions to bad debt
reserves. Thrifts with $500 million of assets or less may still use the
experience method, which is generally available to small banks. Larger thrifts
must use the specific charge off method regarding bad debts. Any reserve amounts
added to our bad debt reserve after 1987 will be recaptured into our taxable
income over a six year period beginning in 1996. A thrift may delay recapturing
into income its post-1987 bad debt reserves for an additional two years if it
meets a residential lending test. This recapture will not have a material impact
on us.
Under the experience method, the bad debt deduction may be based on (i)
a six-year moving average of actual losses on qualifying and non-qualifying
loans, or (ii) a fill-up to the institution's base year reserve amount, which is
the tax bad debt reserve determined as of December 31, 1987.
The percentage of specially computed taxable income that was used to
compute a savings institution's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") was 8%. The
percentage of taxable income bad debt deduction thus computed was reduced by the
amount permitted as a deduction for non-qualifying loans under the experience
method. In the past the availability of the percentage of taxable income method
permitted qualifying savings institutions to be taxed at a lower effective
federal income tax rate than that applicable to corporations generally
(approximately 31.3% assuming the maximum percentage bad debt deduction).
If a savings institution's qualifying assets (generally, loans secured
by residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
institution may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period, which is
immediately accruable for financial reporting purposes. As of September 30,
1997, at least 60% of our assets were qualifying assets as defined in the Code.
No assurance can be given that we will meet the 60% test for subsequent taxable
years.
Earnings appropriated to our bad debt reserve and claimed as a tax
deduction including our supplemental reserves for losses will not be available
for the payment of cash dividends or for distribution to you, our stockholders
(including distributions made on dissolution or liquidation), unless we include
the amount in income. Distributable amounts may be reduced by any amount deemed
necessary to pay the resulting federal income tax. As of September 30, 1997, we
had $6,000 of accumulated earnings, representing our base year tax reserve, for
which federal income taxes have not been provided. If such amount is used for
any purpose other than bad debt losses, including a dividend distribution or a
distribution in liquidation, it will be subject to federal income tax at the
then current rate.
Generally, for taxable years beginning after 1986, the Code also
requires most corporations, including savings institutions, to utilize the
accrual method of accounting for tax purposes. Further, for taxable years ending
after 1986, the Code disallows 100% of a savings institution's interest expense
deemed allocated to certain tax-exempt obligations acquired after August 7,
1986. Interest expense
58
allocable to (i) tax-exempt obligations acquired after August 7, 1986 which are
not subject to this rule, and (ii) tax-exempt obligations issued after 1982 but
before August 8, 1986, are subject to the rule which applied prior to the Code
disallowing the deductibility of 20% of the interest expense.
The Code imposes an alternative minimum tax ("AMT") on a corporation's
alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is increased
by certain preference items, including the excess of the tax bad debt reserve
deduction using the percentage of taxable income method over the deduction that
would have been allowable under the experience method. Only 90% of AMTI can be
offset by net operating loss carryovers of which we currently have none. AMTI is
also adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of those
items. Thus, our AMTI is increased by an amount equal to 75 % of the amount by
which our adjusted current earnings exceeds our AMTI (determined without regard
to this adjustment and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986 and before January
1, 1996, an environmental tax of 0.12% of the excess of AMTI (with certain
modifications) over $2 million is imposed on corporations, including us, whether
or not an AMT is paid. For tax years beginning in 1998 a corporation that has
had average annual gross receipts of $5 million or less over its 1995, 1996 and
1997 tax years will be a "small corporation". Once the corporation is recognized
as a small corporation it will be exempt from the AMT for so long as its average
annual gross receipts for the prior 3 year period does not exceed $7,500,000.
QBI may exclude from its income 100% of dividends received from us as a
member of the same affiliated group of corporations. A 70% dividends received
deduction generally applies with respect to dividends received from corporations
that are not members of such affiliated group, except that an 80% dividends
received deduction applies if QBI owns more than 20% of the stock of a
corporation paying a dividend. The above exclusion amounts, with the exception
of the affiliated group figure, were reduced in years in which we availed
ourself of the percentage of taxable income bad debt deduction method.
Our federal income tax returns have not been audited by the IRS during
the past ten years.
State Taxation
The Association files Georgia income tax returns. For Georgia income
tax purposes, savings institutions are presently taxed at a rate equal to 6% of
net income, which is calculated based on federal taxable income, subject to
certain adjustments. The State of Georgia also imposes franchise and privilege
taxes on savings institutions which, in the case of Quitman, do not constitute
significant tax items.
Our state tax returns have not been audited by the State of Georgia
during the past ten years.
MANAGEMENT OF QUITMAN BANCORP, INC.
Our board of directors consists of the same individuals who serve as
directors of our subsidiary, Quitman Federal Savings Bank. Our articles of
incorporation and bylaws require that directors be divided into three classes,
as nearly equal in number as possible. Each class of directors serves for a
three-year period, with approximately one-third of the directors elected each
year. Our officers will be elected annually by the board and serve at the
board's discretion. See "Management of Quitman Federal Savings Bank."
59
MANAGEMENT OF QUITMAN FEDERAL SAVINGS BANK
Directors and Executive Officers
Our board of directors is composed of six members each of whom serves
for a term of three years, with approximately one-third of the directors elected
each year. Our current charter and bylaws and our proposed stock charter and
bylaws require that directors be divided into three classes, as nearly equal in
number as possible. Our officers are elected annually by our board and serve at
the board's discretion.
The following table sets forth information with respect to our
directors and executive officers, all of whom will continue to serve in the same
capacities after the conversion.
Age at Current
September 30, Director Term
Name 1997 Position Since Expires(1)
- ---- ---- -------- -------- -------
Claude R. Butler 59 Chairman 1980 1999
Robert L. Cunningham, III 41 Vice Chairman 1985 1998
Walter B. Holwell 41 Director 1988 1999
Daniel M. Mitchell, Jr. 47 Director 1986 1997
John W. Romine 50 Director 1987 1997
Melvin E. Plair 60 Director, President 1997 1998
and CEO
Peggy L. Forgione 46 Vice President and N/A
Controller
- ----------------------
(1) The terms for directors of QBI are the same as those of Quitman Federal
Savings Bank.
The business experience for the past five years of each of the
directors and executive officers is as follows:
Claude R. Butler is a pork producer in Brooks County. He was elected to
the Board of Directors in 1980, and has served as Chairman since 1987. Mr.
Butler is also a Brooks County Commissioner, and was Chairman of the Brooks
County Commission in 1996.
Robert L. Cunningham, III is the corporate secretary and treasurer of
R.L. Cunningham & Sons, Inc., a peanut warehouse and peanut seed business. Mr.
Cunningham has served as a director of the Savings Bank since 1985, and as Vice
Chairman since 1987.
60
Walter B. Holwell is the sole proprietor of Holwell & Holwell, Inc., an
insurance enterprise. Mr. Holwell has served on the board of directors since
1988. Active in the community, Mr. Holwell was President of the Brooks County
Chamber of Commerce from 1992 to 1993. He was President of Brooks Co. Athletic
Boosters. Mr. Holwell is Secretary of Brooks Co. Industrial Authority.
Daniel M. Mitchell, Jr. is an attorney with a practice in Quitman. He
has served as a director of the Savings Bank since 1986. Mr. Mitchell is a
Deacon of the First Baptist Church of Quitman and is Trustee of Westbrook School
in Dixie, Georgia.
John W. Romine is President and 100% stockholder of Romine Furniture
Co., Inc., a retail furniture store. Mr. Romine has been a Director of the
Savings Bank since 1987.
Melvin E. Plair is the President and Chief Executive Officer ("CEO") of
the Savings Bank. He has served in this capacity since 1993. Prior to that, Mr.
Plair was a loan officer for the Savings Bank. Mr. Plair became a director of
the Savings Bank and QBI in December 1997. Mr. Plair has been a director of both
the Brooks County and the South Georgia Chambers of Commerce for the past three
years, and has also been a director of the South Georgia Area Bankers
Association for three years.
Peggy L. Forgione has been the Vice President since January 1993 and
Controller of the Savings Bank since January 1987. She has served the Savings
Bank since 1982, and also holds the position of Officer in Charge of Operations.
Ms. Forgione was also a director of the Brooks County Chamber of Commerce until
1994.
Meetings and Committees of the Board of Directors
The board of directors conducts its business through meetings of the
board and through activities of its committees. During the year ended September
30, 1997, the board of directors held 14 regular meetings and 4 special
meetings. Additionally, the full board, functioning as the Executive Committee
meets weekly to review loan applications and to consider related business. No
director attended fewer than 75 % of the total meetings of the board of
directors and committees on which such director served during this time period.
Director Compensation
Each director is paid monthly. Total aggregate fees paid to the
directors for the year ended September 30, 1997 were $39,750. Since October 1,
1997, each director has been paid a monthly fee of $750 and the Chairman of the
Board has been paid a monthly fee of $875.
Director Fee Continuation Program ("DFCP"). We expect to implement a
DFCP to provide retirement benefits to our directors based upon the number of
years of service to our board. If a director agrees to become a consulting
director to our board upon retirement, he would receive a monthly payment for a
period of time or until death. Benefits under our DFCP would begin upon a
director's retirement. In the event there is a change in control, all directors
would be entitled to receive a lump sum payment based upon future benefits. We
have not determined the specific benefit to be provided to any director and have
not yet determined the full cost to us of this program because the specific
benefits have yet to be determined.
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Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer at
September 30, 1997. No employee earned in excess of $100,000 for the year ended
September 30, 1997.
Annual Compensation
-------------------------------------
Other Annual
Name and Principal Position Salary Bonus Compensation
- --------------------------- ------ ----- ------------
Melvin E. Plair, Director, President $54,000 $8,400 N/A
and CEO
Supplemental Executive Retirement Plan. We are considering whether to
implement a supplemental executive retirement plan ("SERP") for the benefit of
our President, Mr. Plair. The SERP could provide Mr. Plair with a supplemental
retirement benefit in addition to benefits under the Profit Sharing Plan and the
proposed ESOP. Payments under the SERP would be accrued for financial reporting
purposes during the period of employment. The SERP would be unfunded. All
benefits payable under the SERP would be paid from our current assets. There are
no tax consequences to either participant or us related to the SERP prior to
payment of benefits. Upon receipt of payment of benefits, the participant will
recognize taxable ordinary income in the amount of such payments received and we
will be entitled to recognize a tax-deductible compensation expense at that
time. We have not determined whether to implement a SERP or whether the cost
would be material to us.
Employee Stock Ownership Plan. We have established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employees
of ours, to be implemented upon the completion of the conversion. Participating
employees are employees who have completed one year of service with us or our
subsidiary and have attained the age of 21. An application for a letter of
determination as to the tax-qualified status of the ESOP will be submitted to
the IRS. Although no assurances can be given, we expect that the ESOP will
receive a favorable letter of determination from the IRS.
The ESOP is to be funded by contributions made by us in cash or common
stock. Benefits may be paid either in shares of the common stock or in cash. In
accordance with the Plan, the ESOP may borrow funds with which to acquire up to
8 % of the common stock to be issued in the conversion. The ESOP intends to
borrow funds from QBI. The loan is expected to be for a term of ten years at an
annual interest rate equal to the prime rate as published in The Wall Street
Journal. Presently it is anticipated that the ESOP will purchase up to 8% of the
common stock to be issued in the offering (i.e., $400,000, based on the midpoint
of the EVR). The loan will be secured by the shares purchased and earnings of
ESOP assets. Shares purchased with such loan proceeds will be held in a suspense
account for allocation among participants as the loan is repaid. We anticipate
contributing approximately $40,000 annually (based on a $400,000 purchase) to
the ESOP to meet principal obligations under the ESOP loan, as proposed. It is
anticipated that all such contributions will be tax-deductible. This loan is
expected to be fully repaid in approximately 10 years.
62
Shares sold above the maximum of the EVR (i.e., more than 575,000
shares) may be sold to the ESOP before satisfying remaining unfilled orders of
Eligible Account Holders to fill the ESOP's subscription or the ESOP may
purchase some or all of the shares covered by its subscription after the
conversion in the open market.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year, or have
terminated employment following death, disability or retirement, in order to
receive an allocation. Participant benefits become vested in plan allocations
following five years of service. Employment prior to the adoption of the ESOP
shall be credited for the purposes of vesting. Vesting will be accelerated upon
retirement, death, disability, change in control of QBI, or termination of the
ESOP. Forfeitures will be reallocated to participants on the same basis as other
contributions in the plan year. Benefits may be payable in the form of a lump
sum upon retirement, death, disability or separation from service. Our
contributions to the ESOP are discretionary and may cause a reduction in other
forms of compensation. Therefore, benefits payable under the ESOP cannot be
estimated.
The board of directors has appointed non-employee directors to the ESOP
Committee to administer the ESOP and to serve as the initial ESOP Trustees. The
board of directors or the ESOP Committee may instruct the ESOP Trustees
regarding investments of funds contributed to the ESOP. The ESOP Trustees must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Unallocated shares and allocated shares for
which no timely direction is received will be voted by the ESOP Trustees as
directed by the board of directors or the ESOP Committee, subject to the
Trustees' fiduciary duties.
Profit Sharing Plan. We sponsor a tax-qualified defined contribution
savings plan ("401(k) Plan") for the benefit of our employees. Employees become
eligible to participate under the 401(k) Plan after reaching age 20 1/2 and
completing 6 months of service. Under the 401(k) Plan, employees may voluntarily
elect to defer compensation, not to exceed applicable limits under the Code
(i.e., $9,500 in calendar year 1997). In recent years the Bank has contributed
$10,000 to the 401(k) Plan that is allocated to each participant's account in
proportion to the ratio which each participant's total compensation for the
calendar year bears to the total compensation of all participants for the
calendar year. Contributions from the Bank to employees vest over immediate as
of the contribution date. [The Savings Bank intends to amend the 401(k) Plan to
permit voluntary investments of plan assets by participants in the Common Stock
in the Conversion and thereafter.]
Benefits are payable upon termination of employment, retirement, death,
disability, or plan termination. Normal retirement age under the 401(k) Plan is
age 65. It is intended that the 401(k) Plan operate in compliance with the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the requirements of Section 401(a) of the Code.
Costs associated with the 401(k) Plan were $10,000 for the year ended
September 30, 1997. Contributions to the 401(k) Plan by the Savings Bank for
employees may be reduced in the future or eliminated as a result of
contributions made to the Employee Stock Ownership Plan. See "- Employee Stock
Ownership Plan."
63
Proposed Future Stock Benefit Plans
Stock Option Plan. The boards of directors intend to adopt a stock
option plan (the Option Plan) following the conversion, subject to approval by
QBI's stockholders, at a stockholders' meeting to be held no sooner than six
months after the conversion. The Option Plan would be in compliance with the OTS
regulations in effect. See "-- Restrictions on Stock Benefit Plans." If the
Option Plan is implemented within one year after the conversion, in accordance
with OTS regulations, a number of shares equal to 10% of the aggregate shares of
common stock to be issued in the offering (i.e., 50,000 shares based upon the
sale of 500,000 shares at the midpoint of the EVR) would be reserved for
issuance by QBI upon exercise of stock options to be granted to our officers,
directors and employees from time to time under the Option Plan. The purpose of
the Option Plan would be to provide additional performance and retention
incentives to certain officers, directors and employees by facilitating their
purchase of a stock interest in QBI. Under the OTS regulations, the Option Plan,
would provide for a term of 10 years, after which no awards could be made,
unless earlier terminated by the board of directors pursuant to the Option Plan
and the options would vest over a five year period (i.e., 20% per year),
beginning one year after the date of grant of the option. Options would be
granted based upon several factors, including seniority, job duties and
responsibilities, job performance, our financial performance and a comparison of
awards given by other savings institutions converting from mutual to stock form.
QBI would receive no monetary consideration for the granting of stock
options under the Option Plan. It would receive the option price for each share
issued to optionees upon the exercise of such options. Shares issued as a result
of the exercise of options will be either authorized but unissued shares or
shares purchased in the open market by QBI. However, no purchases in the open
market will be made that would violate applicable regulations restricting
purchases by QBI. The exercise of options and payment for the shares received
would contribute to the equity of QBI.
If the Option Plan is implemented more than one year after the
conversion, the Option Plan will comply with OTS regulations and policies that
are applicable at such time.
Restricted Stock Plan. The board of directors intends to adopt the RSP
following the conversion, the objective of which is to enable us to retain
personnel and directors of experience and ability in key positions of
responsibility. QBI expects to hold a stockholders' meeting no sooner than six
months after the conversion in order for stockholders to vote to approve the
RSP. If the RSP is implemented within one year after the conversion, in
accordance with applicable OTS regulations, the shares granted under the RSP
will be in the form of restricted stock vesting over a five year period (i.e.,
20% per year) beginning one year after the date of grant of the award.
Compensation expense in the amount of the fair market value of the common stock
granted will be recognized pro rata over the years during which the shares are
payable. Until they have vested, such shares may not be sold, pledged or
otherwise disposed of and are required to be held in escrow. Any shares not so
allocated would be voted by the RSP Trustees. The RSP will be implemented in
accordance with applicable OTS regulations. See "-- Restrictions on Stock
Benefit Plans." Awards would be granted based upon a number of factors,
including seniority, job duties and responsibilities, job performance, our
performance and a comparison of awards given by other institutions converting
from mutual to stock form. The RSP would be managed by a committee of
non-employee directors (the "RSP Trustees"). The RSP Trustees would have the
responsibility to invest all funds contributed by us to the trust created for
the RSP (the "RSP Trust").
We expect to contribute sufficient to the RSP so that the RSP Trust can
purchase, in the aggregate, up to 4% of the amount of common stock that is sold
in the conversion. The shares purchased
64
by the RSP would be authorized but unissued shares or would be purchased in the
open market. In the event the market price of the common stock is greater than
$10 per share, our contribution of funds will be increased. Likewise, in the
event the market price is lower than $10 per share, our contribution will be
decreased. In recognition of their prior and expected services to us and QBI, as
the case may be, the officers, other employees and directors responsible for
implementation of the policies adopted by the board of directors and our
profitable operation will, without cost to them, be awarded stock under the RSP.
Based upon the sale of 500,000 shares of common stock in the offering at the
midpoint of the EVR, the RSP Trust is expected to purchase up to 20,000 shares
of common stock.
If the RSP is implemented more than one year after the conversion, the
RSP will comply with such OTS regulations and policies that are applicable at
such time.
Restrictions on Stock Benefit Plans. OTS regulations provide that in
the event stock option or management and/or employee stock benefit plans are
implemented within one year from the date of conversion, such plans must comply
with the following restrictions: (1) the plans must be fully disclosed in the
prospectus, (2) for stock option plans, the total number of shares for which
options may be granted may not exceed 10% of the shares issued in the
conversion, (3) for restricted stock plans, the shares may not exceed 3% of the
shares issued in the conversion (4% for institutions with 10% or greater
tangible capital), (4) the aggregate amount of stock purchased by the ESOP in
the conversion may not exceed 10% (8% for well-capitalized institutions
utilizing a 4% restricted stock plan), (5) no individual employee may receive
more than 25 % of the available awards under the option plan or the restricted
stock plans, (6) directors who are not employees may not receive more than 5 %
individually or 30% in the aggregate of the awards under any plan, (7) all plans
must be approved by a majority of the total votes eligible to be cast at any
duly called meeting of QBI's stockholders held no earlier than six months
following the conversion, (8) for stock option plans, the exercise price must be
at least equal to the market price of the stock at the time of grant, (9) for
restricted stock plans, no stock issued in a conversion may be used to fund the
plan, (10) neither stock option awards nor restricted stock awards may vest
earlier than 20% as of one year after the date of stockholder approval and 20%
per year thereafter, and vesting may be accelerated only in the case of
disability or death (or if not inconsistent with applicable OTS regulations in
effect at such time, in the event of a change in control), (11) the proxy
material must clearly state that the OTS in no way endorses or approves of the
plans, and (12) prior to implementing the plans, all plans must be submitted to
the Regional Director of the OTS within five days after stockholder approval
with a certification that the plans approved by the stockholders are the same
plans that were filed with and disclosed in the proxy materials relating to the
meeting at which stockholder approval was received.
Certain Related Transactions. We grant loans to our officers, directors
and employees. These loans are made in the ordinary course of business and upon
the same terms, including collateral, as those prevailing at the time for
comparable transactions and do not involve more than the normal risk of
collectibility or present any other unfavorable features, except that we charge
an interest rate that is two percent above our cost of funds and we may waive
loan fees. That interest rate and the waiver of loan fees are not available to
our other borrowers. Loans to officers and directors and their affiliates
amounted to $675,000 or 23% of our total equity at September 30, 1997. Assuming
the conversion had occurred at September 30, 1997 with the issuance of 500,000
shares, these loans would have totalled approximately 10% of pro forma
consolidated stockholders' equity.
Set forth below is information about these loans to our executive
officers and directors and members of their immediate family where the aggregate
balance of loans or lines of credit exceeded $60,000 at any time during the
fiscal years ended September 30, 1997 or 1996.
65
Highest Balance
Date Original During 1997 Interest
Name of Officer or Director(1) Loan Type Originated Loan Amount Fiscal Year Rate Paid
- --------------------------- --------- ---------- ----------- ----------- ---------
Melvin E. Plair (President).......... real estate 3/28/97 $ 86,006 $ 86,006 7.30%
vehicle 1/31/97 8,200 8,200 7.80%
real estate 8/16/94 8,852 8,467 7.95%
consumer 6/30/97 4,800 4,800 8.09%
Claude R. Butler (Chairman).......... real estate 3/4/97 $ 80,000 $ 80,000 7.31%
W. B. Holwell (Director)............. real estate 5/14/93 $ 13,550 $ 11,412 8.81%
real estate 8/19/97 220,516 220,516 8.45%
consumer 6/27/97 4,506 4,006 9.00%
- ---------------
(1) Includes all loans for these individuals, even if only one loan had
preferential terms.
RESTRICTIONS ON ACQUISITION OF QUITMAN BANCORP, INC.
While the board of directors is not aware of any effort that might be
made to obtain control of QBI after conversion, the board of directors believes
that it is appropriate to include certain provisions as part of QBI's articles
of incorporation to protect the interests of QBI and its stockholders from
hostile takeovers ("anti-takeover" provisions) which the board of directors
might conclude are not in the best interests of us or our stockholders. These
provisions may have the effect of discouraging a future takeover attempt which
is not approved by the board of directors but which individual stockholders may
deem to be in their best interests or in which stockholders may receive a
substantial premium for their shares over the current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of the current board of directors or management of QBI more difficult.
The following discussion is a general summary of the material
provisions of the articles of incorporation, bylaws, and certain other
regulatory provisions of QBI, which may be deemed to have such an anti-takeover
effect. The description of these provisions is necessarily general and reference
should be made in each case to the articles of incorporation and bylaws of QBI
which are filed as exhibits to the registration statement of which this
prospectus is a part. See "Where You Can Find Additional Information" as to how
to obtain a copy of these documents.
Provisions of QBI Articles of Incorporation and Bylaws
Limitations on Voting Rights. The articles of incorporation of QBI
provide that for a period of five years from completion of the conversion, in no
event shall any record owner of any outstanding equity security which is
beneficially owned, directly or indirectly, by a person who beneficially owns in
excess of 10% of any class of equity security outstanding (the "Limit") be
entitled or permitted to any vote in respect of the shares held in excess of the
Limit. In addition, for a period of five years from the completion of our
conversion, no person may directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of QBI
without the approval of the Board of Directors.
66
The impact of these provisions on the submission of a proxy on behalf
of a beneficial holder of more than 10% of the common stock is (1) to disregard
for voting purposes and require divestiture of the amount of stock held in
excess of 10% (if within five years of the conversion more than 10% of the
common stock is beneficially owned by a person) and (2) limit the vote on common
stock held by the beneficial owner to 10% or possibly reduce the amount that may
be voted below the 10% level (if more than 10% of the common stock is
beneficially owned by a person more than five years after the conversion).
Unless the grantor of a revocable proxy is an affiliate or an associate of such
a 10% holder or there is an arrangement, agreement or understanding with such a
10% holder, these provisions would not restrict the ability of such a 10% holder
of revocable proxies to exercise revocable proxies for which the 10% holder is
neither a beneficial nor record owner. A person is a beneficial owner of a
security if he has the power to vote or direct the voting of all or part of the
voting rights of the security, or has the power to dispose of or direct the
disposition of the security. The articles of incorporation of QBI further
provide that this provision limiting voting rights may only be amended upon the
vote of 80% of the outstanding shares of voting stock.
Election of Directors. Certain provisions of QBI's articles of
incorporation and bylaws will impede changes in majority control of the board of
directors. QBI's articles of incorporation provide that the board of directors
of QBI will be divided into three staggered classes, with directors in each
class elected for three-year terms. Thus, it would take two annual elections to
replace a majority of QBI's board. QBI's articles of incorporation provide that
the size of the board of directors may be increased or decreased only if aproved
by majority vote of the whole board of the directors. The articles of
incorporation also provide that any vacancy occurring in the board of directors,
including a vacancy created by an increase in the number of directors, may be
filled only by the board of directors, acting by a majority vote of the
directors then in office and any directors so chosen shall hold office until the
next succeding annual election of directors. Finally, the articles of
incorporation and the bylaws impose certain notice and information requirements
in connection with the nomination by stockholders of candidates for election to
the board of directors or the proposal by stockholders of business to be acted
upon at an annual meeting of stockholders.
The articles of incorporation provide that a director may only be
removed for cause by the affirmative vote of at least 80% of the shares of QBI
entitled to vote generally in an election of directors cast at a meeting of
stockholders called for that purpose.
Restrictions on Call of Special Meetings. The articles of incorporation
of QBI provide that a special meeting of stockholders may be called only
pursuant to a resolution adopted by a majority of the board of directors, the
chairman, the president or 80% of all shareholder votes that may be cast at a
meeting. If QBI has 100 or fewer stockholders, then 25% of all shareholder votes
that may be cast at a meeting is sufficient to call a special meeting.
Absence of Cumulative Voting. QBI's articles of incorporation provide
that stockholders may not cumulate their votes in the election of directors.
Authorized Shares. The articles of incorporation authorize the issuance
of 4,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
shares of common stock and preferred stock were authorized in an amount greater
than that to be issued in the conversion to provide QBI's board of directors
with as much flexibility as possible to effect, among other transactions,
financings, acquisitions, stock dividends, stock splits and the exercise of
stock options. However, these additional authorized shares may also be used by
the board of directors consistent with its fiduciary duty to deter future
67
attempts to gain control of QBI. The board of directors also has sole authority
to determine the terms of any one or more series of preferred stock, including
voting rights, conversion rates, and liquidation preferences. As a result of the
ability to fix voting rights for a series of preferred stock, the board has the
power, to the extent consistent with its fiduciary duty, to issue a series of
preferred stock to persons friendly to management in order to attempt to block a
post-tender offer merger or other transaction by which a third party seeks
control, and thereby assist management to retain its position.
Procedures for Certain Business Combinations. The articles of
incorporation require that unless certain fair price provisions set forth in
Georgia law are met, business combinations must be (1) unanimously approved by
directors who are not affiliated with an "interested shareholder" (as defined
below) or (2) recommended by two-thirds of directors not affiliated with an
interested shareholder and approved by a majority of the votes entitled to be
cast that are not owned by an interested shareholder. An interested shareholder
is a person other than QBI or the Savings Bank that beneficially owns 10% or
more of the outstanding voting shares of QBI within the two years prior to the
time a business transaction is proposed. Exceptions to this requirement may
occur if the board of directors has previously approved the business transaction
or if the interested shareholder becomes the owner of 90% or more of the
outstanding shares of QBI. Any amendment to this provision requires the
affirmative vote of at least 80% of the shares of QBI entitled to vote generally
in an election of directors.
Amendment to Articles of Incorporation and Bylaws. Amendments to QBI's
articles of incorporation must be approved by QBI's board of directors and also
by a majority of the outstanding shares of QBI's voting stock, provided,
however, that approval by at least 80% of the outstanding voting stock is
generally required for certain provisions (i.e., provisions relating to
restrictions on the acquisition and voting of greater than 10% of the common
stock; number, classification, election and removal of directors; amendment of
bylaws; call of special stockholder meetings; director liability; certain
business combinations; power of indemnification; and amendments to provisions
relating to the foregoing in the articles of incorporation).
The bylaws may be amended by a majority vote of the board of directors
or the affirmative vote of the holders of at least 80 % of the outstanding
shares of QBI entitled to vote in the election of directors cast at a meeting
called for that purpose.
Benefit Plans. In addition to the provisions of QBI's articles of
incorporation and bylaws described above, certain benefit plans of ours adopted
in connection with the conversion contain provisions which also may discourage
hostile takeover attempts which the boards of directors might conclude are not
in the best interests of us or our stockholders. For a description of the
benefit plans and the provisions of such plans relating to changes in control,
see "Management of Quitman Federal Savings Bank -- Proposed Future Stock Benefit
Plans."
Regulatory Restrictions. A federal regulation prohibits any person
prior to the completion of a conversion from transferring, or entering into any
agreement or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, OTS regulations prohibit any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire more
than 10% of the stock of any converted savings institution if such person is, or
after consummation of such acquisition would be, the beneficial owner of more
than 10% of such stock. In the event that any person, directly
68
or indirectly, violates this regulation, the securities beneficially owned by
such person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matter submitted to a vote of stockholders.
Federal regulations require that, prior to obtaining control of an
insured institution, a person, other than a company, must give 60 days notice to
the OTS and have received no OTS objection to such acquisition of control, and a
company must apply for and receive OTS approval of the acquisition. Control,
involves a 25% voting stock test, control in any manner of the election of a
majority of the institution's directors, or a determination by the OTS that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of an institution's voting stock, if the acquiror
also is subject to any one of either "control factors," constitutes a rebuttable
determination of control under the regulations. The determination of control may
be rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock after the
effective date of the regulations must file with the OTS a certification that
the holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
QBI is authorized to issue 4,000,000 shares of the common stock, $0.10
par value per share, and 1,000,000 shares of serial preferred stock, no par
value per share. QBI currently expects to issue up to 575,000 shares of common
stock in the conversion. QBI does not intend to issue any shares of serial
preferred stock in the conversion, nor are there any present plans to issue such
preferred stock following the conversion. The aggregate par value of the issued
shares will constitute the capital account of QBI. The balance of the purchase
price will be recorded for accounting purposes as additional paid-in capital.
See "Capitalization". The capital stock of QBI will represent nonwithdrawable
capital and will not be insured by us, the FDIC, or any other governmental
agency.
Common Stock
Voting Rights. Each share of the common stock will have the same
relative rights and will be identical in all respects with every other share of
the common stock. The holders of the common stock will possess exclusive voting
rights in QBI, except to the extent that shares of serial preferred stock issued
in the future may have voting rights, if any. Each holder of the common stock
will be entitled to only one vote for each share held of record on all matters
submitted to a vote of holders of the common stock and will not be permitted to
cumulate their votes in the election of QBI's directors.
Liquidation. In the unlikely event of the complete liquidation or
dissolution of QBI, the holders of the common stock will be entitled to receive
all assets of QBI available for distribution in cash or in kind, after payment
or provision for payment of (i) all debts and liabilities of QBI; (ii) any
accrued dividend claims; and (iii) liquidation preferences of any serial
preferred stock which may be issued in the future.
69
Restrictions on Acquisition of the Common Stock. See "Restrictions on
Acquisition of Quitman Bancorp, Inc." for a discussion of the limitations on
acquisition of shares of the common stock.
Other Characteristics. Holders of the common stock will not have
preemptive rights with respect to any additional shares of the common stock
which may be issued. Therefore, the board of directors may sell shares of
capital stock of QBI without first offering such shares to existing stockholders
of QBI. The common stock is not subject to call for redemption, and the
outstanding shares of common stock when issued and upon receipt by QBI of the
full purchase price therefor will be fully paid and non-assessable.
Issuance of Additional Shares. Except in the offering and possibly
pursuant to the RSP or Option Plan, the QBI has no present plans, proposals,
arrangements or understandings to issue additional authorized shares of the
common stock. In the future, the authorized but unissued and unreserved shares
of the common stock will be available for general corporate purposes, including,
but not limited to, possible issuance: (i) as stock dividends; (ii) in
connection with mergers or acquisitions; (iii) under a cash dividend
reinvestment or stock purchase plan; (iv) in a public or private offering; or
(v) under employee benefit plans. See "Risk Factors -- Possible Dilutive Effect
of RSP and Stock Options" and "Pro Forma Data." Normally no stockholder approval
would be required for the issuance of these shares, except as described herein
or as otherwise required to approve a transaction in which additional authorized
shares of the common stock are to be issued.
For additional information, see "Dividends," "Regulation" and
"Taxation" with respect to restrictions on the payment of cash dividends; "The
Conversion -- Restrictions on Sales and Purchases of Shares by Directors and
Officers relating to certain restrictions on the transferability of shares
purchased by directors and officers; and "Restrictions on Acquisitions of
Quitman Bancorp, Inc." for information regarding restrictions on acquiring
common stock of QBI.
Serial Preferred Stock
None of the 1,000,000 authorized shares of serial preferred stock of
QBI will be issued in the conversion. After the conversion is completed, the
board of directors of QBI will be authorized to issue serial preferred stock and
to fix and state voting powers, designations, preferences or other special
rights of such shares and the qualifications, limitations and restrictions
thereof, subject to regulatory approval but without stockholder approval. If and
when issued, the serial preferred stock is likely to rank prior to the common
stock as to dividend rights, liquidation preferences, or both, and may have full
or limited voting rights. The board of directors, without stockholder approval,
can issue serial preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of the common stock. The board
of directors has no present intention to issue any of the serial preferred
stock.
LEGAL AND TAX MATTERS
The legality of the common stock has been passed upon for us by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. Certain legal matters for
Trident Securities, Inc. may be passed upon by Housley Kantarian & Bronstein,
P.C., Washington, DC. The federal income tax consequences of the conversion have
been passed upon for us by Malizia, Spidi, Sloane & Fisch, P.C., Washington,
D.C. The Georgia income tax consequences of the Conversion have been passed upon
for us by Daniel M. Mitchell, Jr., Esq., Quitman, Georgia.
70
EXPERTS
The financial statements of Quitman Federal Savings Bank as of and for
the years ended September 30, 1997 and 1996, appearing in this document have
been audited by Stewart, Fowler & Stalvey, P.C., independent certified public
accountants, as set forth in their report which appears elsewhere in this
document, and is included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
FinPro has consented to the publication herein of a summary of its
letters to Quitman Federal Savings Bank setting forth its opinion as to the
estimated pro forma market value of us in the converted form and its opinion
setting forth the value of subscription rights and to the use of its name and
statements with respect to it appearing in this document.
CHANGE IN AUDITOR
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 Savings 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 Savings Bank, orally advised the Savings Bank that
it did not wish to continue as independent auditor following 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 Savings Bank
and Simmons & Simmons, P.C. concerning accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
REGISTRATION REQUIREMENTS
The common stock of QBI is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). QBI will be
subject to the information, proxy solicitation, insider trading restrictions,
tender offer rules, periodic reporting and other requirements of the SEC under
the Exchange Act. QBI may not deregister the common stock under the Exchange Act
for a period of at least three years following the conversion.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
QBI is subject to the informational requirements of the Exchange Act
and must file reports and other information with the SEC.
QBI has filed with the SEC a registration statement on Form SB-2 under
the Securities Act of 1933, as amended, with respect to the common stock offered
in this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. The SEC also maintains an internet address ("Web site") that
contains reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with the
SEC. The address for this Web site is "http://www.sec.gov."
71
The statements contained in this document as to the contents of any contract or
other document filed as an exhibit to the Form SB-2 are, of necessity, brief
descriptions and are not necessarily complete; each such statement is qualified
by reference to such contract or document.
Quitman Federal Savings Bank has filed an Application for conversion
with the OTS with respect to the conversion. Pursuant to the rules and
regulations of the OTS, this document omits certain information contained in
that Application. The Application may be examined at the principal office of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the Southeast Regional
Office of the OTS, 1475 Peachtree Street, N.E., Atlanta, Georgia 30309, without
charge.
A copy of the Articles of Incorporation and the Bylaws of QBI are
available without charge from Quitman Federal Savings Bank.
72
QUITMAN FEDERAL SAVINGS BANK
Index to Financial Statements
Page
----
Independent Auditors' Report............................................ F-1
Balance Sheets.......................................................... F-2
Statements of Income.................................................... 26
Statements of Changes in Retained Earnings.............................. F-3
Statements of Cash Flows................................................ F-4
Notes to Financial Statements........................................... F-5
All schedules are omitted because the required information is either not
applicable or is included in the consolidated financial statements or related
notes.
Separate financial statements for QBI have not been included since it will not
engage in material transactions until after the conversion. QBI, which has been
inactive to date, has no significant assets, liabilities, revenues, expenses or
contingent liabilities.
73
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Quitman Federal Savings and Loan Association
Quitman, Georgia
We have audited the accompanying statements of financial condition of Quitman
Federal Savings and Loan Association as of September 30, 1997 and 1996, and the
related statements of income, retained earnings and cash flows for the years
then ended. These financial statements are the responsibility of the
Association's management. Our responsibility is to express an opinion on these
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 financial statements referred to above present fairly, in
all material respects, the financial position of Quitman Federal Savings and
Loan Association as of September 30, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/Stewart Fowler and Stalvey, P.C.
Valdosta, Georgia
October 30, 1997
F-1
QUITMAN FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
ASSETS
------
SEPTEMBER 30,
-------------------------
1997 1996
----------- -----------
Cash and Cash Equivalents, Notes 1 and 2:
Cash and amounts due from depository
institutions $ 108,650 86,461
Interest-bearing deposits in other banks 548,158 678,789
----------- -----------
Total Cash and Cash Equivalents 656,808 765,250
Investment securities:
Available-for-sale (fair value $3,046,109 in 1997
and $1,780,875 in 1996), Notes 1 and 3 3,046,109 1,780,875
Held-to-maturity (fair value $801,061 in 1997 and
$1,642,828 in 1996), Notes 1 and 3 804,706 1,663,271
Loans receivable, Notes 1 and 4 33,325,719 30,805,187
Office properties and equipment, at cost, net of
accumulated depreciation, Notes 1 and 5 322,527 310,921
Real estate and other property acquired in
settlement of loans, Note 1 63,915 -0-
Accrued interest receivable, Note 6 381,218 370,047
Investment required by law-stock in Federal
Home Loan Bank, at cost, Note 14 227,700 219,100
Cash value of life insurance, Note 11 218,106 109,419
Other assets, Notes 1 and 9 145,356 148,978
----------- -----------
Total Assets $39,192,164 36,173,048
=========== ===========
LIABILITIES AND RETAINED EARNINGS
Liabilities:
Deposits, Note 7 $34,470,803 31,728,963
Advances from Federal Home Loan Bank, Note 14 1,300,000 1,200,000
Accrued interest payable 272,346 253,272
Income taxes payable, Note 9 114,766 60,015
Other liabilities, Note 13 75,696 263,958
----------- -----------
Total Liabilities 36,233,611 33,506,208
----------- -----------
Equity:
Retained Earnings, Notes 8 and 9 2,952,560 2,689,761
Unrealized gains (losses) on available-
for-sale securities 5,993 (22,921)
----------- -----------
Total Equity 2,958,553 2,666,840
----------- -----------
Total Liabilities and Retained Earnings $39,192,164 36,173,048
=========== ===========
Note:The accompanying notes to financial statements are an integral part of
this statement.
F-2
QUITMAN FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF RETAINED EARNINGS
-------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------
1997 1996
---------- ----------
Balance, October 1 $2,689,761 2,586,475
Net Income 262,799 103,286
---------- ----------
Balance, September 30 $2,952,560 2,689,761
========== ==========
Note:The accompanying notes to financial statements are an integral part of
this statement.
F-3
QUITMAN FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
------------------------
YEAR ENDED SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
Cash Flows From Operating Activities:
- -------------------------------------
Net income $ 262,799 103,286
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 41,067 42,601
Provision for loan losses 136,000 36,000
Increase (Decrease) in deferred income tax benefit (51,972) (1,185)
Amortization (Accretion) of securities and loans 11,022 9,856
Change in Assets and Liabilities:
(Increase) Decrease in accrued interest receivable (11,171) (39,840)
Increase (Decrease) in accrued interest payable 19,074 (16,116)
Increase (Decrease) in other liabilities (188,262) 208,601
Increase (Decrease) in income taxes payable 60,483 2,934
(Increase) Decrease in other assets 49,862 (47,383)
----------- -----------
Net cash provided by operating activities 328,902 298,754
----------- -----------
Cash Flows From Investing Activities:
- -------------------------------------
Capital expenditures (52,673) (22,478)
Purchase of available-for-sale securities (1,740,910) (1,408,307)
Purchase of held-to-maturity securities -0- (864,994)
Proceeds from sale of foreclosed property -0- 86,733
Proceeds from maturity of held-to-maturity securities 300,000 1,050,000
Net (increase) decrease in loans (2,720,447) (2,961,051)
Purchase of stock in Federal Home Loan Bank (8,600) -0-
Principal collected on mortgage-backed securities 2,289 -0-
Proceeds from sale of available-for-sale securities 400,063 -0-
Proceeds from call of held-to-maturity securities 549,781 777,874
Proceeds from maturity of available-for-sale securities 100,000 550,000
Increase in cash value of life insurance (108,687) (109,419)
----------- -----------
Net cash provided (used) by investing activities (3,279,184) (2,901,642)
----------- -----------
Cash Flows From Financing Activities:
- -------------------------------------
Net increase (decrease) in deposits 2,741,840 1,965,769
Proceeds from Federal Home Loan Bank advances 100,000 700,000
----------- -----------
Net cash provided (used) by financing activities 2,841,840 2,665,769
----------- -----------
Net Increase (Decrease) in cash and cash equivalents (108,442) 62,881
Cash and Cash Equivalents at Beginning of Period 765,250 702,369
----------- -----------
Cash and Cash Equivalents at End of Period $ 656,808 765,250
=========== ===========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid during the year for:
Income taxes net of refunds $ 60,000 27,806
=========== ===========
Interest $ 1,959,389 1,859,786
=========== ===========
Note:The accompanying notes to financial statements are an integral part of
this statement.
F-4
QUITMAN FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Business Activities: Quitman Federal Savings and Loan Association is a federally
chartered mutual savings and loan association chartered in 1936. The Association
engages in traditional savings and loan association activities through its
office in Quitman, Georgia. Business activities are predominately with customers
in the Brooks and Lowndes County, Georgia area.
Investment Securities: Investment securities for which the Association has the
ability and management has the 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 and
are being depreciated on the straight-line method.
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.
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.
F-5
Note 1 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------------------
Allowance for losses: An allowance for possible 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
Association. Deferral of income taxes results primarily from differences in the
provision for loan losses 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 $49,530 and liability of $2,442 at September 30, 1997 and
1996, respectively.
Cash and cash equivalents: For purposes of the statement of cash flows, the
Association 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
Association 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.
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
Association's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Association 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.
F-6
Note 1 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------------------
Advertising costs: The Association expenses advertising costs as they are
incurred. Advertising costs charged to expenses were $31,279 and $37,931 for the
years ended September 30, 1997 and 1996, 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
Association.
The following methods and assumptions were used by the Association 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.
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.
F-7
Note 1 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------------------
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.
Note 2 - Cash
- -------------
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
========== ======== ==========
As of September 30, 1996, 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 $ 753,095 766,500 175,101
========== ======== ==========
Note 3 - Investment Securities
- ------------------------------
Investment securities are carried in the accompanying balance sheets as follows:
SEPTEMBER 30,
---------------------------
1997 1996
---------- ----------
Available-for-sale $3,046,109 1,780,875
Held-to-maturity 804,706 1,663,271
---------- ----------
$3,850,815 3,444,146
========== =========
Securities available-for-sale consist of the following:
- -------------------------------------------------------
As of September 30, 1997:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- --------- ----------- -----------
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
=========== ========= =========== ===========
F-8
Note 3 - Investment Securities (Continued)
- ------------------------------------------
As of September 30, 1996:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
Obligations of other U.S.
Government agencies $ 1,803,795 -0- 22,920 1,780,875
=========== ========== ========== ===========
Securities held-to-maturity consist of the following:
- -----------------------------------------------------
As of September 30, 1997:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ----------- ----------- -----------
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
========= =========== =========== ===========
As of September 30, 1996:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ---------
Obligations of other U.S.
Government agencies $ 1,663,271 -0- 20,443 1,642,828
=========== ========== ========= =========
The amortized cost and estimated market value of debt securities at September
30, 1997, 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.
SECURITIES SECURITIES
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------------- ------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
Due in one year or less $ 551,684 552,054 604,706 603,249
Due after one year through
five years 1,947,518 1,951,923 200,000 197,812
Due after five years through
ten years 540,914 542,132 -0- -0-
----------- ----------- ----------- -----------
$ 3,040,116 3,046,109 804,706 801,061
=========== =========== =========== ===========
Proceeds from sales of available-for-sale securities during the year ended
September 30, 1997 were $400,063 with gross losses of $2 being realized.
Proceeds from call of held-to-maturity securities during the year ended
September 30, 1997 were $549,781 with gross losses of $131 being realized.
Proceeds from maturities of available-for-sale and held-to-maturity securities
during the year ended September 30, 1997 were $100,000 and $300,000,
respectively.
F-9
Note 3 - Investment Securities (Continued)
- ------------------------------------------
Securities with a book value of $1,104,767 (market value $1,104,249) and
$1,105,752 (market value $1,092,395) at September 30, 1997 and 1996,
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,
----------------------------
1997 1996
------------ ------------
First mortgage loans $ 29,748,471 29,406,603
Construction loans 3,654,458 3,142,000
FHLMC pool 4,203 5,611
Share loans 470,366 476,148
Consumer loans 867,450 645,510
------------ ------------
34,744,948 33,675,872
Loans in process (1,022,930) (2,608,790)
Allowance for loan losses (346,000) (210,000)
Deferred loan origination fees (50,299) (51,895)
------------ ------------
$ 33,325,719 30,805,187
============ ============
An analysis of changes in the allowance for loan losses is as follows:
YEAR ENDED SEPTEMBER 30,
----------------------------
1997 1996
------------ ------------
Balance at beginning of period $ 210,000 174,000
Provision charged to income 136,000 36,000
Recoveries -0- -0-
Losses charged to allowance -0- -0-
------------ ------------
Balance at end of period $ 346,000 210,000
============ ============
First mortgage loans on residential (one-to-four units) real estate are pledged
to secure advances from the Federal Home Loan Bank (See Note 14). The advances
must be fully secured after discounting the qualifying loans at 75% of the
principal balances outstanding.
F-10
Note 4 - Loans Receivable (Continued)
- -------------------------------------
The Association predominately grants mortgage and consumer loans to customers in
the immediate Quitman and South Georgia area. The Association has a diversified
loan portfolio consisting predominately of mortgage loans collateralized by
residential properties. The following schedule provides an additional summary of
the Association's loans:
SEPTEMBER 30,
----------------------------
1997 1996
------------ ------------
First Mortgage Loans:
Secured by 1 to 4 family
residences $ 23,655,471 23,716,603
Secured by over 4 family
residences 699,000 607,000
Other real estate 5,394,000 5,083,000
Construction loans 3,654,458 3,142,000
FHLMC pools 4,203 5,611
Share loans 470,366 476,148
Consumer loans 867,450 645,510
------------ ------------
34,744,948 33,675,872
Loans in Process (1,022,930) (2,608,790)
Allowance for loan losses (346,000) (210,000)
Deferred loan origination fees (50,299) (51,895)
------------ ------------
Total $ 33,325,719 30,805,187
============ ============
Loans on which the accrual of interest has been discontinued amounted to
$124,002 and $-0- at September 30, 1997 and 1996, respectively. If interest on
those loans had been accrued, such income would have approximated $11,072 and
$-0- for the years ended September 30, 1997 and 1996, respectively. Interest
income on those loans, which is recorded only when received, amounted to $5,156
and $-0- for the years ended September 30, 1997 and 1996, respectively. No
contractual modifications have been made to these loans that would affect the
interest ultimately due.
Loans receivable includes loans to officers and directors of the Association
totalling approximately $674,614 and $681,037 at September 30, 1997 and 1996,
respectively. Since November 1996, loans to officers and directors are made at
an interest rate equal to two percentage points (2.00%) above the Associations
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.
F-11
Note 5 - Office Properties and Equipment
- ----------------------------------------
Office properties and equipment, at cost, are summarized as follows:
SEPTEMBER 30,
------------------- ESTIMATED
1997 1996 USEFUL LIVES
-------- -------- ------------
Land $ 39,561 39,561
Buildings 234,087 234,087 20-31 years
Furniture and fixtures 293,912 241,239 5-10 years
Automobile 15,513 15,513 5 years
-------- --------
583,073 530,400
Less accumulated depreciation 260,546 219,479
-------- --------
$322,527 310,921
======== ========
Depreciation expense for the years ended September 30, 1997 and 1996 was $41,067
and $42,601, respectively.
Note 6 - Accrued Interest Receivable
- ------------------------------------
Accrued interest receivable is summarized as follows:
SEPTEMBER 30,
------------------------
1997 1996
---------- ---------
Investment securities $ 54,267 56,702
Loans receivable 326,951 313,345
---------- ---------
$ 381,218 370,047
========= =========
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,
-----------------------------------------------
1997 1996
--------------------- ---------------------
BOOK VALUE % BOOK VALUE %
------------ ------ ----------- ------
Type of Account:
N.O.W. Accounts - 3.39%
(1996 - 3.42%) $ 1,439,374 4.18 1,536,858 4.84
Passbook - 4.11%
(1996 - 4.18%) 1,944,865 5.64 2,425,321 7.64
Certificates - 6.00%
(1996 - 6.19%) 31,086,564 90.18 27,766,784 87.52
------------ ------ ----------- ------
$ 34,470,803 100.00% 31,728,963 100.00%
============ ====== =========== ======
The aggregate amount of certificates of deposit in denominations of $100,000 or
more was $6,333,000 and $4,072,000 at September 30, 1997 and 1996, respectively.
F-12
Note 7 - Deposit Account Analysis (Continued)
- ---------------------------------------------
At September 30, 1997, scheduled maturities of certificates of deposit were as
follows:
YEAR ENDING
SEPTEMBER 30,
-------------
1998 $21,709,114
1999 7,555,518
2000 998,573
2001 823,359
-----------
$31,086,564
===========
The Association held deposits of $556,252 and $529,552 for related parties at
September 30, 1997 and 1996, respectively.
Interest expense on deposits is summarized as follows:
YEAR ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---------- ----------
Passbook savings $ 88,675 81,345
NOW 50,072 52,791
Certificates of deposit 1,774,298 1,694,634
---------- ----------
$1,913,045 1,828,770
========== ==========
Note 8 - Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of
- --------------------------------------------------------------------------------
1989
- ----
FIRREA was signed into law on August 9, 1989. Regulations for savings
institution's minimum capital requirements went into effect on December 7, 1989.
In addition to the capital requirements, FIRREA includes provisions for changes
in the Federal regulatory structure for financial institutions, including a new
deposit insurance system, increased deposit insurance premiums and restricted
investment activities with respect to non-investment grade corporate debt and
certain other investments. FIRREA also increases the required ratio of
housing-related assets needed to qualify as a savings institution. The
regulations currently require institutions to have minimum regulatory tangible
capital equal to 1.5% of total assets, 3% core capital ratio and 8.0% risk-based
capital ratio.
As of June 30, 1997, the most recent notification from the OTS categorized the
Association as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized" the Association 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.
F-13
Note 8 - Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of
- --------------------------------------------------------------------------------
1989 (Continued)
- ----------------
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, 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
========== ========== ==========
At September 30, 1996:
Total equity $ 2,667 2,667 2,667
Unrealized losses on securities 23 23 23
General valuation allowance -0- -0- 210
---------- --------- ----------
Regulatory Capital $ 2,690 2,690 2,900
========== ========= ==========
The Association's actual capital amounts and ratios are presented (in thousands)
as follows:
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
---------------------- ------------------------ -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
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%
As of September 30, 1996:
Tangible Capital
(to adjusted total assets) $2,690 7.4% 542 1.5% 1,808 5.0%
Core Capital
(to adjusted total assets) 2,690 7.4% 1,085 3.0% 1,808 5.0%
Risk-Based Capital
(to risk-weighted assets) 2,900 13.42% 1,729 8.0% 2,161 10.0%
Note 9 - Provision For Income Taxes
- -----------------------------------
The income tax provision is as follows:
YEAR ENDED SEPTEMBER 30,
----------------------------
1997 1996
---------- ----------
Taxes payable currently $ 171,183 51,806
Deferred taxes (benefit) (51,972) (1,185)
---------- ----------
Total tax provision $ 119,211 50,621
========== ==========
F-14
Note 9 - Provision For Income Taxes (Continued)
- -----------------------------------------------
The provision for income taxes represents the portion of estimated income taxes
relating to the years ended September 30, 1997 and 1996.
Through 1995, the Association 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 Association
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 has been accrued as of September 30, 1996.
Retained earnings at September 30, 1997 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,
---------------------------
1997 1996
---------- ----------
Deferred Tax Assets:
Allowance for loan losses $ 107,440 61,200
---------- ----------
Total 107,440 61,200
---------- ----------
Deferred Tax Liabilities:
Bad debt deduction recapture 48,480 48,480
Depreciation 9,430 15,162
---------- ----------
Total 57,910 63,642
---------- ----------
Net Deferred Tax Assets (Liabilities) $ 49,530 (2,442)
========== ==========
F-15
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,
--------------------------
1997 1996
---------- ----------
Expected income tax $ 129,883 52,328
Increase (decrease) in tax resulting from:
State and local taxes (2,440) (1,846)
Other, net (8,232) 139
---------- ----------
Actual income tax expense $ 119,211 50,621
========== ==========
Note 10 - Commitments and Contingencies
- ---------------------------------------
The Association had outstanding mortgage loan commitments at September 30, 1997
and 1996 of $1,022,930 and $2,608,790, respectively. These commitments represent
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of the Association'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 Association 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 Association 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 Association made contributions to the plan in the amount
of $10,000 and $10,000 for the years ended September 30, 1997 and 1996,
respectively.
Deferred Compensation Plan - Effective December 15, 1996, the Association
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
Association, life insurance policies were acquired for the purpose of serving as
the primary funding source. As of September 30, 1996 and 1995 the cash values of
those policies were $218,106 and $109,419 and the liability accrued for benefits
payable under the plan was $-0- and $-0-, respectively.
F-16
Note 12 - Reconciliation of Regulatory Reports
- ----------------------------------------------
Net income and net worth reported in these audited financial statements differs
from amounts in reports filed with the Office of Thrift Supervision (OTS) as
follows:
Net Income:
- -----------
YEAR ENDED SEPTEMBER 30,
----------------------------
1997 1996
----------- ---------
Net Income reported to OTS $ 193,000 116,000
Reconciling Items 69,799 (12,714)
----------- ---------
Net Income for the twelve months ended
September 30 per audited financial statement $ 262,799 103,286
=========== =========
Net Worth:
- ----------
SEPTEMBER 30,
------------------------------
1997 1996
----------- ---------
Net Worth reported to OTS $ 2,910,000 2,688,000
Reconciling Items 48,553 (21,160)
----------- ---------
Total Net Worth on September 30, per audited
financial statement $ 2,958,553 2,666,840
=========== =========
Note 13 - Special SAIF Assessment
- ---------------------------------
On September 30, 1996, legislation was signed into law which resulted in a
special assessment, the objective of which is to recapitalize the insurance
fund. The assessment which affects only Savings Associations and Thrifts,
results in a fee based on 65.7 cents per $100 in domestic deposits held as of
March 31, 1995. Other liabilities at September 30, 1996 includes an accrual of
this assessment in the amount of $185,647. No liability accrual was necessary in
1997.
Note 14 - Advances From Federal Home Loan Bank
- ----------------------------------------------
Advances consist of the following:
SEPTEMBER 30,
-----------------------
1997 1996
----------- ---------
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. $ 1,300,000 1,200,000
=========== =========
F-17
Note 15 - Fair Values of Financial Instruments
- ----------------------------------------------
The estimated fair values of the Association's financial instruments are as
follows:
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
----------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Financial assets:
Cash and cash equivalents $ 656,808 656,808 765,250 765,250
Investment securities 3,850,815 3,847,170 3,444,146 3,423,703
Loans, net of allowance
for loan losses 33,325,719 33,322,000 30,805,187 30,717,651
Accrued interest receivable 381,218 381,218 370,047 370,047
Investment in Federal Home
Loan Bank stock 227,700 227,700 219,100 219,100
Financial liabilities:
Deposits 34,470,803 34,598,000 31,728,963 31,814,631
Advances from Federal Home
Loan Bank 1,300,000 1,300,000 1,200,000 1,200,000
Accrued interest payable 272,346 272,346 253,272 253,272
The carrying amounts in the preceding table are included in the statement of
financial condition under the applicable captions.
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
----------------------------- ----------------------------
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- --------- ---------
Other:
Loan commitments $ 1,022,930 1,022,930 2,608,790 2,608,790
Note 16 - Related Party Transactions
- ------------------------------------
Related parties to the Association are identified as its officers and directors.
During the years ended September 30, 1997 and 1996, the Association had the
following related party transactions:
SEPTEMBER 30,
-----------------------------
1997 1996
----------- -----------
Loans to officers and directors (balance at
September 30), Note 6 $ 674,614 681,037
Deposits held for officers and directors (balance
at September 30),Note 7 556,252 529,552
Insurance premiums paid - director 22,314 38,532
Legal fees paid - director 3,000 4,016
Supplies purchased - officers and directors 8,218 7,141
F-18
Note 17 - Plan of Conversion
- ----------------------------
On October 14, 1997, the Association'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 subject to approval by the Association's
members as of a still-to-be-determined future voting record date. The Plan,
which includes formation of a holding company, is subject to approval by the
Office of Thrift Supervision (OTS) and includes the filing of a registration
statement with the Securities and Exchange Commission. As of September 30, 1997,
the Association had incurred conversion costs of approximately $10,000. If the
conversion is ultimately successful, actual conversion costs will be accounted
for as a reduction in gross proceeds. If the conversion is unsuccessful, the
conversion costs will be expensed.
The Plan calls 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
parities in a subscription offering at a price based on an independent
appraisal. It is anticipated that any shares not purchased in the subscription
offering will be offered in a direct community offering, and then any remaining
shares offered to the general public in a solicited offering.
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.
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 will establish 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.
F-19
You should rely only on the information contained in this document or that to
which we have referred you. We have not authorized anyone to provide you with
information that is different.This document does not constitute an offer to
sell, or the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which such offer or solicitation
would be unlawful. The affairs of Quitman Federal Savings Bank or Quitman
Bancorp, Inc. may change after the date of this prospectus. Delivery of this
document and the sales of shares made hereunder does not mean otherwise.
QUITMAN BANCORP, INC.
Up to 575,000 Shares
(Anticipated Maximum)
Common Stock
-------------------------
PROSPECTUS
-------------------------
TRIDENT SECURITIES, INC.
Dated ____ __, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
Until the later of _______ __, 1998, or 90 days after commencement of the
offering of common stock, all dealers that buy, sell or trade these securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Sections 14-2-850 through 14-2-859 of the Georgia Business Corporation
Code (the "Code") sets forth circumstances under which directors, officers,
employees and agents may be insured or indemnified against liability which they
may incur in their capacities as such.
The Articles of Incorporation of Quitman Bancorp, Inc. (the "Articles")
attached as Exhibit 3(i) hereto, require indemnification of directors, officers,
employees or agents of the Company to the full extent permissible under Georgia
law.
Quitman Bancorp, Inc. ("QBI") may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
QBI or is or was serving at the request of QBI as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not QBI would
have the power to indemnify him against such liability under the provisions of
the Code or of the Articles.
Item 25. Other Expenses of Issuance and Distribution
* Special counsel and local counsel legal fees........... $ 80,000
* Printing and postage................................... 30,000
* Appraisal/Business Plan................................ 20,000
* Accounting fees........................................ 20,000
* Data processing/Conversion agent....................... 3,500
* SEC Registration Fee................................... 2,000
* OTS Filing Fees........................................ 8,400
* NASD Fairness Filing................................... 1,300
* Blue Sky legal and filing fees......................... 10,000
* Underwriting fees...................................... 95,600
* Underwriter's expenses, including legal fees........... 37,500
* Stock Certificates..................................... 2,500
* Miscellaneous expenses................................. 30,200
------
* TOTAL .............................................. $ 341,000
=======
- -----------------
* Estimated at the mid-point of the offering range.
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are as
follows:
1.1 Form of Sales Agency Agreement with Trident Securities, Inc.
2 Plan of Conversion
3(i) Articles of Incorporation of Quitman Bancorp, Inc.
3(ii) Bylaws of Quitman Bancorp, Inc.
4 Specimen Stock Certificate of Quitman Bancorp, Inc.
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities registered
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Daniel M. Mitchell, Jr., Esq.
8.3 Opinion of FinPro, Inc. as to the value of subscription rights
16 Letter of Simmons & Simmons, P.C.
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions filed as Exhibits 5.1
and 8.1)
23.2 Consent of Stewart, Fowler & Stalvey, P.C.
23.3 Consent of FinPro, Inc.
23.4 Consent of Daniel M. Mitchell, Jr., Esq. (contained in his opinion filed as Exhibit 8.2)
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
99.1 Stock Order Form*
99.2 Appraisal Report of FinPro, Inc.*
99.3 Marketing Materials*
----------------
* To be filed by amendment
** Electronic filing only
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933 ("Securities Act");
(ii) Reflect in the prospectus any facts or events which
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in
Quitman, Georgia, on December 22, 1997.
QUITMAN BANCORP, INC.
By: /s/ Melvin E. Plair
-----------------------------------------------
Melvin E. Plair
President and Chief Executive Officer
(Duly Authorized Representative)
We the undersigned directors and officers of Quitman Bancorp, Inc. do
hereby severally constitute and appoint Melvin E. Plair our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Melvin E. Plair may deem
necessary or advisable to enable Quitman Bancorp, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form SB-2 relating to the offering of Quitman Bancorp, Inc. common
stock, including specifically, but not limited to, power and authority to sign
for us or any of us, in our names in the capacities indicated below, the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that Melvin E. Plair
shall do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by the following
persons in the capacities indicated as of December 22, 1997.
/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
As filed with the Securities and Exchange Commission on December 23, 1997
Registration No. 333-_______
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Quitman Bancorp, Inc.
-------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Charter)
Georgia 6035 Requested
- --------------------------------- ----------------- -------------------
(State or Other Jurisdiction (Primary SIC No.) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
100 West Screven Street, Quitman, Georgia 31643
(912) 263-7538
- --------------------------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Mr. Melvin E. Plair
President and Chief Executive Officer
Quitman Bancorp, Inc.
100 West Screven Street, Quitman, Georgia 31643
(912) 263-7538
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Please send copies of all communications to:
Charles E. Sloane, Esq.
Gregory J. Rubis, Esq.
Jean A. Milner, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
INDEX TO EXHIBITS TO FORM SB-2
Exhibit
The exhibits filed as part of this Registration Statement are
as follows:
1.1 Form of Sales Agency Agreement with Trident Securities, Inc.
2 Plan of Conversion
3(i) Articles of Incorporation of Quitman Bancorp, Inc.
3(ii) Bylaws of Quitman Bancorp, Inc.
4 Specimen Stock Certificate of Quitman Bancorp, Inc.
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities
registered
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Daniel M. Mitchell, Jr., Esq.
8.3 Opinion of FinPro, Inc. as to the value of subscription rights
16 Letter of Simmons & Simmons, P.C.
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions filed
as Exhibits 5.1 and 8.1)
23.2 Consent of Stewart, Fowler & Stalvey, P.C.
23.3 Consent of FinPro, Inc.
23.4 Consent of Daniel M. Mitchell, Jr., Esq. (contained in his opinion filed as Exhibit 8.2)
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
99.1 Stock Order Form*
99.2 Appraisal Report of FinPro, Inc.*
99.3 Marketing Materials*
- -----------------------
* To be filed by amendment
** Electronic filing only