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
<TABLE>
<CAPTION>
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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,
<S> <C> <C> <C> <C>
$.10 Par Value $661,250 $10.00 $6,612,500 $1,950.69
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</TABLE>
(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.
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C>
For information on how to subscribe, call the Stock Information Center at (912) ____ - ____
</TABLE>
TRIDENT SECURITIES, INC.
, 1998
----------
<PAGE>
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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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<PAGE>
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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)
<PAGE>
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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)
<PAGE>
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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)
<PAGE>
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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)
<PAGE>
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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)
<PAGE>
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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:
<TABLE>
<CAPTION>
At September 30,
----------------------------
1997 1996
----------- ------------
(Dollars in
thousands)
<S> <C> <C>
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
</TABLE>
- -----------------------------
(1) Includes retained earnings and unrealized gains and losses on
available-for-sale securities.
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(vi)
<PAGE>
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Summary of Operations
The following table summarizes the Savings Bank's results of operations
for each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1997 1996
-------- -------
(In thousands)
<S> <C> <C>
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
===== =====
</TABLE>
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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)
<PAGE>
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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.
<TABLE>
<CAPTION>
At or For the Year Ended
September 30,
-------------------------------------
1997 1996
------------- ------------
<S> <C> <C>
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%
</TABLE>
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(viii)
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Aggregate
Total Price of Percent
Shares Shares of Shares
Name Position Purchased(1) Purchased(1) Purchased(1)
- ------------------------------ ----------------------------- ------------------ ------------------- ---------------
<S> <C> <C> <C> <C>
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%
====== ======= ===
</TABLE>
- ----------
(1) Does not include shares purchased by the employee stock ownership plan (the
"ESOP").
4
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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
========= ========== ========= ========= ==========
</TABLE>
- ---------------------
(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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
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
========== ========= ========= ========
</TABLE>
(Footnotes on following page)
10
<PAGE>
- -------------------
(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
<PAGE>
(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
<PAGE>
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."
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- -----------------
(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.
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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
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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
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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
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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
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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
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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.
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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
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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.
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Quitman Federal Savings and Loan Association
Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-------------------------------------
1997 1996
------------ -------------
<S> <C> <C>
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
========= =========
</TABLE>
Note:The accompanying notes to financial statements beginning on page F-5 are
an integral part of this statement.
26
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the
Savings Bank's average balance sheet and reflects the average yield on assets
and average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
average balances has caused any material differences in the information
presented.
<TABLE>
<CAPTION>
Year Ended September 30, 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
- ---------------------------------
(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
<PAGE>
The table below sets forth certain information regarding changes in
interest income and interest expense of the Savings Bank for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
31
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
The following table sets forth information concerning the types of
loans held by us.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------
1997 1996
------------------------- ----------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
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
====== ======
</TABLE>
37
<PAGE>
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.
<TABLE>
<CAPTION>
Real Estate
------------------------------------------
Residential
Real Estate Non
Mortgage Residential Construction Other Total
-------- ----------- ------------ ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
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
======
</TABLE>
38
<PAGE>
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.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
<S> <C> <C> <C>
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
====== ===== =======
</TABLE>
The following information contains information concerning changes in
the amount of loans held by us.
<TABLE>
<CAPTION>
For the Years Ended
September 30,
----------------------------
1997 1996
--------- ---------
<S> <C> <C>
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
====== ======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
At September 30,
---------------------------------
1997 1996
----------- ------------
(In thousands)
<S> <C> <C>
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%
==== =====
</TABLE>
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.
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<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
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%
===== ===== ==== =====
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
====== ====== ===== ==== ====== ======
</TABLE>
48
<PAGE>
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
<PAGE>
At September 30, 1997, our deposits were represented by the various
types of savings programs described below.
<TABLE>
<CAPTION>
Interest Minimum Balance as of Percentage of
Category Term Rate(1) Balance Amount September 30, 1997 Total Deposits
- -------- ---- -------------- -------------- ------------------ --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
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%
====== ======
</TABLE>
- -------------------------
(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
<PAGE>
The following table sets forth the time deposits in the Savings Bank
classified by interest rate as of the dates indicated.
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------------------------------------------------------------------
After
September 30, September 30, September 30, September 30,
1998 1999 2000 2001 Total
------------- ------------- ------------- ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= =======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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."
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<PAGE>
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.
<TABLE>
<CAPTION>
Age at Current
September 30, Director Term
Name 1997 Position Since Expires(1)
- ---- ---- -------- -------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
- ----------------------
(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.
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<PAGE>
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.
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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."
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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
<PAGE>
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.
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<PAGE>
<TABLE>
<CAPTION>
Highest Balance
Date Original During 1997 Interest
Name of Officer or Director(1) Loan Type Originated Loan Amount Fiscal Year Rate Paid
- --------------------------- --------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
- ---------------
(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.
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<PAGE>
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
<PAGE>
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
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<PAGE>
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.
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<PAGE>
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.
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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."
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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.
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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.
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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
<PAGE>
QUITMAN FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
ASSETS
------
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
Note:The accompanying notes to financial statements are an integral part of
this statement.
F-2
<PAGE>
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
<PAGE>
QUITMAN FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
Note:The accompanying notes to financial statements are an integral part of
this statement.
F-4
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $ 897,299 6,763 -0- 904,062
Obligations of other U.S.
Government agencies 1,601,903 3,120 5,108 1,599,915
Mortgage-backed securities 540,914 2,168 950 542,132
----------- --------- ----------- -----------
$ 3,040,116 12,051 6,058 3,046,109
=========== ========= =========== ===========
</TABLE>
F-8
<PAGE>
Note 3 - Investment Securities (Continued)
- ------------------------------------------
As of September 30, 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Obligations of other U.S.
Government agencies $ 1,803,795 -0- 22,920 1,780,875
=========== ========== ========== ===========
</TABLE>
Securities held-to-maturity consist of the following:
- -----------------------------------------------------
As of September 30, 1997:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations $ 100,077 -0- 31 100,046
Obligations of other U.S.
Government agencies 704,629 -0- 3,614 701,015
--------- ----------- ----------- -----------
$ 804,706 -0- 3,645 801,061
========= =========== =========== ===========
</TABLE>
As of September 30, 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Obligations of other U.S.
Government agencies $ 1,663,271 -0- 20,443 1,642,828
=========== ========== ========= =========
</TABLE>
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.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------------- ------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
An analysis of changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------
1997 1996
--------------------- ---------------------
BOOK VALUE % BOOK VALUE %
------------ ------ ----------- ------
<S> <C> <C> <C> <C>
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%
============ ====== =========== ======
</TABLE>
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
<PAGE>
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
<PAGE>
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).
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========= ==========
</TABLE>
The Association's actual capital amounts and ratios are presented (in thousands)
as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
---------------------- ------------------------ -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 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%
</TABLE>
Note 9 - Provision For Income Taxes
- -----------------------------------
The income tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Taxes payable currently $ 171,183 51,806
Deferred taxes (benefit) (51,972) (1,185)
---------- ----------
Total tax provision $ 119,211 50,621
========== ==========
</TABLE>
F-14
<PAGE>
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
<PAGE>
Note 9 - Provision For Income Taxes (Continued)
- -----------------------------------------------
The following is a summary of the differences between the income tax expense as
shown in the accompanying financial statements and the income tax expense which
would result from applying the Federal statutory tax rate of 34% to earnings
before taxes on income:
YEAR ENDED SEPTEMBER 30,
--------------------------
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
<PAGE>
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
<PAGE>
Note 15 - Fair Values of Financial Instruments
- ----------------------------------------------
The estimated fair values of the Association's financial instruments are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
----------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
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
</TABLE>
The carrying amounts in the preceding table are included in the statement of
financial condition under the applicable captions.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
----------------------------- ----------------------------
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Other:
Loan commitments $ 1,022,930 1,022,930 2,608,790 2,608,790
</TABLE>
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
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
</TABLE>
F-18
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
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*
</TABLE>
----------------
* 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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
INDEX TO EXHIBITS TO FORM SB-2
Exhibit
The exhibits filed as part of this Registration Statement are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
EXHIBIT 1.1
<PAGE>
Quitman Bancorp, Inc.
Common Stock
425,000 to 661,250 Shares
$10.00 Per Share
SALES AGENCY AGREEMENT
----------------------
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Dear Sirs:
Quitman Bancorp, Inc., a Georgia-chartered corporation (the "Company"),
and Quitman Federal Savings Bank, a federally chartered and insured mutual
savings association (the "Bank"), hereby confirm, as of February ___, 1998,
their respective agreements with Trident Securities, Inc. ("Trident"), a
broker-dealer registered with the Securities and Exchange Commission
("Commission") and a member of the National Association of Securities Dealers,
Inc. ("NASD"), as follows:
1. Introductory. The Bank intends to convert from a federally chartered
mutual savings association to a federally chartered stock savings association as
a wholly owned subsidiary of the Company (together with the Offerings, as
defined below, the issuance of shares of common stock of the Bank to the Company
and the incorporation of the Company, the "Conversion") pursuant to a plan of
conversion adopted on October 14, 1997 (as amended, if amended, the "Plan"). In
accordance with the Plan, the Company is offering shares of its common stock
(the "Shares" and the "Common Stock"), pursuant to nontransferable subscription
rights in a subscription offering (the "Subscription Offering") to certain
depositors and borrowers of the Bank and to the Bank's tax-qualified employee
benefit plans (i.e., the Bank's Employee Stock Ownership Plan (the "ESOP")).
Shares of the Common Stock not sold in the Subscription Offering may be offered
to the general public in a community offering, with preference given to natural
persons residing in Brooks County, Georgia (the "Community Offering"), subject
to the right of the Company and the Bank, in their absolute discretion, to
reject orders in the Community Offering in whole or in part. Shares not sold in
the Subscription Offering or otherwise in the Community Offering may be offered
to certain members of the general public as part of the Community Offering by a
group of broker-dealers (the "Syndicated Community Offering") (the Subscription
Offering and, if any, the Community and Syndicated Community Offerings are
sometimes referred to collectively as the "Offerings"). In the Offerings, the
Company is offering between 425,000 and 575,000 Shares, with the possibility of
offering up to 661,250 Shares without a resolicitation of subscribers, as
contemplated by Part 563b
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 2
of Title 12 of the Code of Federal Regulations. With the exception of the ESOP,
no person (or persons through a single account) may purchase in the Offerings
more than 6,000 Shares; no person, together with associates of and persons
acting in concert with such person, may purchase in the Offerings more than
10,000 Shares.
The Company and the Bank have been advised by Trident that it will
utilize its best efforts in assisting the Company and the Bank with the sale of
the Shares in the Offerings, including any Syndicated Community Offering. Prior
to the execution of this Agreement, the Company has delivered to Trident a
prospectus dated as of the date hereof and all supplements thereto to be used in
the Offerings. Such prospectus contains information with respect to the Company,
the Bank and the Shares.
2. Representations and Warranties.
(a) The Company and the Bank jointly and severally represent
and warrant to Trident that:
(i) The Company has filed with the Commission a
registration statement, including exhibits and an amendment or
amendments thereto, on Form SB-2 (No. 333-_____), including a
prospectus relating to the Offerings, for the registration of
the Shares under the Securities Act of 1933, as amended (the
"Act"); and such registration statement has become effective
under the Act and no stop order has been issued with respect
thereto and no proceedings therefor have been initiated or, to
the Company's best knowledge, threatened by the Commission.
Except as the context may otherwise require, such registration
statement, as amended or supplemented, on file with the
Commission at the time the registration statement became
effective, including the prospectus, financial statements,
schedules, exhibits and all other documents filed as part
thereof, as amended and supplemented, is herein called the
"Registration Statement," and the prospectus, as amended or
supplemented, on file with the Commission at the time the
Registration Statement became effective is herein called the
"Prospectus," except that if the prospectus filed by the
Company with the Commission pursuant to Rule 424(b) of the
general rules and regulations of the Commission under the Act
(together with the enforceable published policies and actions
of the Commission thereunder, the "SEC Regulations") differs
from the form of prospectus on file at the time the
Registration Statement became effective, the term "Prospectus"
shall refer to the Rule 424(b) prospectus from and after the
time it is filed with or mailed for filing to the Commission
and shall include any amendments or supplements thereto from
and after their dates of effectiveness or use, respectively.
If any Shares remain unsubscribed following completion of the
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 3
Subscription Offering and, if any, the Community Offering, the
Company (i) will promptly file with the Commission a
post-effective amendment to such Registration Statement
relating to the results of the Subscription Offering and, if
any, the Community Offering, any additional information with
respect to the proposed plan of distribution and any revised
pricing information or (ii) if no such post-effective
amendment is required, will file with, or mail for filing to,
the Commission a prospectus or prospectus supplement
containing information relating to the results of the
Subscription Offering and, if any, the Community Offering and
pricing information pursuant to Rule 424(c) of the
Regulations, in either case in a form reasonably acceptable to
the Company and Trident.
(ii) The Bank has filed an Application for Approval
of Conversion on Form AC, including exhibits (as amended or
supplemented, the "Form AC" and together with the Form
H-(e)1-S referred to below, the "Conversion Application") with
the Office of Thrift Supervision (the "Office") under the Home
Owners' Loan Act, as amended (the "HOLA") and the enforceable
rules and regulations, including published policies and
actions, of the Office thereunder (the "OTS Regulations"),
which has been approved by the Office; and the Prospectus and
the proxy statement for the solicitation of proxies from
members for the special meeting to approve the Plan (the
"Proxy Statement") included as part of the Form AC have been
approved for use by the Office. No order has been issued by
the Office preventing or suspending the use of the Prospectus
or the Proxy Statement; and no action by or before the Office
revoking such approvals is pending or, to the Bank's best
knowledge, threatened. The Company has filed with the Office
the Company's application on Form H-(e)1-S promulgated under
the savings and loan holding company provisions of the HOLA
and the OTS Regulations and has received approval of its
acquisition of the Bank from the Office.
(iii) At the date of the Prospectus and at all times
subsequent thereto through and including the Closing Date (i)
the Registration Statement and the Prospectus (as amended or
supplemented, if amended or supplemented) complied with the
Act and the Regulations, (ii) the Registration Statement (as
amended or supplemented, if amended or supplemented) did not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
(iii) the Prospectus (as amended or supplemented, if amended
or supplemented) did not contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading. Representations or warranties in this subsection
shall not apply to statements or omissions made in reliance
upon and in
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 4
conformity with written information furnished to the Company
or the Bank relating to Trident by or on behalf of Trident
expressly for use in the Registration Statement or Prospectus.
(iv) The Company has been duly organized as a Georgia
corporation, and the Bank has been duly organized as a mutual
savings association under the laws of the United States, and
each of them is validly existing and in good standing under
the laws of the jurisdiction of its organization with full
power and authority to own its property and conduct its
business as described in the Registration Statement and
Prospectus; the Bank is a member in good standing of the
Federal Home Loan Bank of Atlanta; and the deposit accounts of
the Bank are insured by the Savings Association Insurance Fund
("SAIF") administered by the Federal Deposit Insurance
Corporation ("FDIC") up to the applicable legal limits. Each
of the Company and the Bank is not required to be qualified to
do business as a foreign corporation in any jurisdiction where
non-qualification would have a material adverse effect on the
Company and the Bank, taken as a whole. The Bank does not own
equity securities of or an equity interest in any business
enterprise except as described in the Prospectus. Upon
amendment of the Bank's charter and bylaws as provided in the
rules and regulations of the Office and completion of the sale
by the Company of the Shares as contemplated by the
Prospectus, (i) the Bank will be converted pursuant to the
Plan to a federally chartered capital stock savings
association with full power and authority to own its property
and conduct its business as described in the Prospectus, (ii)
all of the authorized and outstanding capital stock of the
Bank will be owned of record and beneficially by the Company,
and (iii) the Company will have no direct subsidiaries other
than the Bank.
(v) The Bank has good, marketable and insurable title
to all assets material to its business and to those assets
described in the Prospectus as owned by it, free and clear of
all material liens, charges, encumbrances or restrictions,
except for liens for taxes not yet due, except as described in
the Prospectus and except as could not in the aggregate have a
material adverse effect upon the operations or financial
condition of the Bank; and all of the leases and subleases
material to the operations or financial condition of the Bank,
under which it holds properties, including those described in
the Prospectus, are in full force and effect as described
therein.
(vi) The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary actions on
the part of each of the Company and the Bank, and this
Agreement is a valid and binding obligation with valid
execution and delivery of
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 5
each of the Company and the Bank, enforceable in accordance
with its terms (except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization
or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of
savings and loan holding companies the accounts of whose
subsidiaries are insured by the FDIC or by general equity
principles, regardless of whether such enforceability is
considered in a proceeding in equity or at law, and except to
the extent that the provisions of Sections 8 and 9 hereof may
be unenforceable as against public policy or pursuant to
Section 23A of the Federal Reserve Act, 12 U.S.C. Section 371c
("Section 23A")).
(vii) There is no litigation or governmental
proceeding pending or, to the best knowledge of the Company or
the Bank, threatened against or involving the Company, the
Bank or any of their respective assets which individually or
in the aggregate would reasonably be expected to have a
material adverse effect on the condition (financial or
otherwise), results of operations and business, including the
assets and properties, of the Company and the Bank, taken as a
whole.
(viii) The Company and the Bank have received the
opinions of Malizia, Spidi, Sloane & Fisch, P.C. with respect
to federal tax consequences of the Conversion, and of Stewart,
Fowler & Stalvey, P.C., with respect to Georgia tax
consequences of the Conversion, to the effect that the
Conversion will constitute a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, and will not be a
taxable transaction for the Bank or the Company under the laws
of Georgia, and the facts relied upon in such opinions are
accurate and complete.
(ix) Each of the Company and the Bank has all such
corporate power, authority, authorizations, approvals and
orders as may be required to enter into this Agreement and to
carry out the provisions and conditions hereof, subject to the
limitations set forth herein and subject to the satisfaction
of certain conditions imposed by the Office in connection with
its approvals of the Form AC and the Application H-(e)1-S, and
except as may be required under the securities laws of various
jurisdictions, and in the case of the Company, as of the
Closing Date, will have such approvals and orders to issue and
sell the Shares to be sold by the Company as provided herein,
and in the case of the Bank, as of the Closing Date, will have
such approvals and orders to issue and sell the Shares of its
Common Stock to be sold to the Company as provided in the
Plan, subject to the issuance of amended charter in the form
required for federally chartered stock savings associations
(the "Stock Charter"), the form of which Stock Charter has
been approved by the Office.
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 6
(x) Neither the Company nor the Bank is in violation
of any rule or regulation of the Office or the FDIC that could
reasonably be expected to result in any enforcement action
against the Company, the Bank or their officers or directors
that might have a material adverse effect on the condition
(financial or otherwise), operations, businesses, assets or
properties of the Company and the Bank, taken as a whole.
(xi) The financial statements and any related notes
or schedules which are included in the Registration Statement
and the Prospectus fairly present the financial condition,
income, retained earnings and cash flows of the Bank at the
respective dates thereof and for the respective periods
covered thereby and comply as to form with the applicable
accounting requirements of the SEC and OTS Regulations. Such
financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved, except as set forth therein,
and such financial statements are consistent with financial
statements and other reports filed by the Bank with
supervisory and regulatory authorities except as such
generally accepted accounting principles may otherwise
require. The tables in the Prospectus accurately present the
information purported to be shown thereby at the respective
dates thereof and for the respective periods therein.
(xii) There has been no material change in the
condition (financial or otherwise), results of operations or
business, including assets and properties, of the Company and
the Bank, taken as a whole, since the latest date as of which
such condition is set forth in the Prospectus, except as set
forth therein; and the capitalization, assets, properties and
business of each of the Company and the Bank conform to the
descriptions thereof contained in the Prospectus. None of the
Company or the Bank has any material liabilities of any kind,
contingent or otherwise, except as set forth in the
Prospectus.
(xiii) There has been no breach or default (or the
occurrence of any event which, with notice or lapse of time or
both, would constitute a default) under, or creation or
imposition of any lien, charge or other encumbrance upon any
of the properties or assets of the Company or the Bank
pursuant to any of the terms, provisions or conditions of, any
agreement, contract, indenture, bond, debenture, note,
instrument or obligation to which the Company or the Bank is a
party or by which any of them or any of their respective
assets or properties may be bound or is subject, or violation
of any governmental license or permit or any enforceable
published law, administrative regulation or order or court
order, writ, injunction or decree, which breach, default,
encumbrance or violation would have a material
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 7
adverse effect on the condition (financial or otherwise),
operations, business, assets or properties of the Company and
the Bank, taken as a whole; all agreements which are material
to the condition (financial or otherwise), results of
operations or business of the Company and the Bank, taken as a
whole are in full force and effect, and no party to any such
agreement has instituted or, to the best knowledge of the
Company and the Bank, threatened any action or proceeding
wherein the Company or the Bank would be alleged to be in
default thereunder.
(xiv) None of the Company or the Bank is in violation
of its respective charter or bylaws. The execution and
delivery hereof and the consummation of the transactions
contemplated hereby by the Company and the Bank do not
conflict with or result in a breach of the charter or bylaws
of the Company or the Bank (in either mutual or stock form) or
constitute a material breach of or default (or an event which,
with notice or lapse of time or both, would constitute a
default) under, give rise to any right of termination,
cancellation or acceleration contained in, or result in the
creation or imposition of any lien, charge or other
encumbrance upon any of the properties or assets of the
Company or the Bank pursuant to any of the terms, provisions
or conditions of, any material agreement, contract, indenture,
bond, debenture, note, instrument or obligation to which the
Company or the Bank is a party or violate any governmental
license or permit or any enforceable published law,
administrative regulation or order or court order, writ,
injunction or decree (subject to the satisfaction of certain
conditions imposed by the Office in connection with its
approval of the Conversion Application), which breach,
default, encumbrance or violation would have a material
adverse effect on the condition (financial or otherwise),
operations or business of the Company and the Bank, taken as a
whole.
(xv) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus and prior to the Closing Date (as hereinafter
defined), except as otherwise may be indicated or contemplated
therein, none of the Company or the Bank has issued any
securities which will remain issued at the Closing Date or
incurred any liability or obligation, direct or contingent, or
borrowed money, except borrowings in the ordinary course of
business, or entered into any other transaction not in the
ordinary course of business and consistent with prior
practices, which is material in light of the business of the
Company and the Bank, taken as a whole.
(xvi) Upon consummation of the Conversion, the
authorized, issued and outstanding equity capital of the
Company shall be within the range as set forth in the
Prospectus under the caption "Capitalization," and no Common
Stock of the Company shall be outstanding immediately prior to
the Closing Date; the issuance
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 8
and the sale of the Shares of the Company have been duly
authorized by all necessary action of the Company and approved
by the Office and, when issued in accordance with the terms of
the Plan and paid for, shall be validly issued, fully paid and
nonassessable and shall conform to the description thereof
contained in the Prospectus; the issuance of the Shares is not
subject to preemptive rights, except as set forth in the
Prospectus; and good title to the Shares will be transferred
by the Company upon issuance thereof against payment therefor,
free and clear of all claims, encumbrances, security interests
and liens against the Company whatsoever. The certificates
representing the Shares will conform in all material respects
with the requirements of applicable laws and regulations. The
issuance and sale of the capital stock of the Bank to the
Company has been duly authorized by all necessary action of
the Bank and the Company and appropriate regulatory
authorities (subject to the satisfaction of various conditions
imposed by the Office in connection with its approval of the
Conversion Application), and such capital stock, when issued
in accordance with the terms of the Plan, will be fully paid
and nonassessable and will conform in all material respects to
the description thereof contained in the Prospectus.
(xvii) No approval of any regulatory or supervisory
or other public authority is required in connection with the
execution and delivery of this Agreement or the issuance of
the Shares, except for the declaration of effectiveness of any
required post-effective amendment by the Commission and
approval thereof by the Office and approval of the Company's
application on Form H-(e)1-S by the Office, the issuance of
the Stock Charter by the Office and as may be required under
the securities laws of various jurisdictions.
(xviii) All contracts and other documents required to
be filed as exhibits to the Registration Statement or the
Conversion Application have been filed with the Commission
and/or the Office, as the case may be.
(xix) Stewart, Fowler & Stalvey, P.C., which has
audited the financial statements of the Bank at September 30,
1997 and 1996 and for the years ended September 30, 1997 and
1996 included in the Prospectus, is an independent public
accountant within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public
Accountants and Title 12 of the Code of Federal Regulations,
Section 571.2(c)(3).
(xx) For the past five years, the Company and the
Bank have timely filed all required federal, state and local
franchise tax returns, and no deficiency has been asserted
with respect to such returns by any taxing authorities, and
the Company and
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 9
the Bank have paid all taxes that have become due and, to the
best of their knowledge, have made adequate reserves for
similar future tax liabilities, except where any failure to
make such filings, payments and reserves, or the assertion of
such a deficiency, would not have a material adverse effect on
the condition of the Company and the Bank, taken as a whole.
(xxi) All of the loans represented as assets of the
Bank on the most recent financial statements of the Bank
included in the Prospectus meet or are exempt from all
requirements of federal, state or local law pertaining to
lending and interest, including without limitation truth in
lending (including the requirements of Regulation Z and 12
C.F.R. Part 226 and Section 563.99), real estate settlement
procedures, consumer credit protection, equal credit
opportunity and all disclosure laws applicable to such loans,
except for violations which, if asserted, would not have a
material adverse effect on the Company and the Bank, taken as
a whole.
(xxii) The records of account holders, depositors,
borrowers and other members of the Bank delivered to Trident
by the Bank or its agent for use during the Conversion have
been prepared or reviewed by the Bank and, to the best
knowledge of the Company and the Bank, are reliable and
accurate.
(xxiii) None of the Company, the Bank or the
employees of the Company or the Bank, has made any payment of
funds of the Company or the Bank prohibited by law, and no
funds of the Company or the Bank have been set aside to be
used for any payment prohibited by law.
(xxiv) To the best knowledge of the Company and the
Bank, the Company and the Bank are in compliance with all
laws, rules and regulations relating to the discharge,
storage, handling and disposal of hazardous or toxic
substances, pollutants or contaminants and neither the Company
nor the Bank believes that the Company or the Bank is subject
to liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or any
similar law, except for violations which, if asserted, would
not have a material adverse effect on the Company and the
Bank, taken as a whole. There are no actions, suits,
regulatory investigations or other proceedings pending or, to
the best knowledge of the Company or the Bank, threatened
against the Company or the Bank relating to the discharge,
storage, handling and disposal of hazardous or toxic
substances, pollutants or contaminants. To the best knowledge
of the Company and the Bank, no disposal, release or discharge
of hazardous or toxic substances, pollutants or contaminants,
including petroleum and gas products, as any of such terms may
be defined under federal, state or local law, has been caused
by the Company or the Bank or, to the
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 10
best knowledge of the Company or the Bank, has occurred on, in
or at any of the facilities or properties of the Company or
the Bank, except such disposal, release or discharge which
would not have a material adverse effect on the Company and
the Bank, taken as a whole.
(xxv) At the Closing Date, the Company and the Bank
will have completed the conditions precedent to, and shall
have conducted the Conversion in all material respects in
accordance with, the Plan, the HOLA, the OTS Regulations and
all other applicable laws, regulations, published decisions
and orders, including all terms, conditions, requirements and
provisions precedent to the Conversion imposed by the Office.
(b) Trident represents and warrants to the Company and the
Bank that:
(i) Trident is registered as a broker-dealer with the
Commission, and is in good standing with the Commission and
the NASD.
(ii) Trident is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to
provide the services to be furnished to the Company and the
Bank hereunder.
(iii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary action
on the part of Trident, and this Agreement is a legal, valid
and binding obligation of Trident, enforceable in accordance
with its terms (except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization
or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of
registered broker-dealers accounts of whose may be protected
by the Securities Investor Protection Corporation or by
general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at
law, and except to the extent that the provisions of Sections
8 and 9 hereof may be unenforceable as against public policy
or pursuant to Section 23A).
(iv) Each of Trident and, to Trident's knowledge, its
employees, agents and representatives who shall perform any of
the services required hereunder to be performed by Trident
shall be duly authorized and shall have all licenses,
approvals and permits necessary to perform such services, and
Trident is a registered selling agent in the jurisdictions
listed in Exhibit A hereto and will remain registered in such
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 11
jurisdictions in which the Company is relying on such
registration for the sale of the Shares, until the Conversion
is consummated or terminated.
(v) The execution and delivery of this Agreement by
Trident, the fulfillment of the terms set forth herein and the
consummation of the transactions contemplated hereby shall not
violate or conflict with the corporate charter or bylaws of
Trident or violate, conflict with or constitute a breach of,
or default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, any material
agreement, indenture or other instrument by which Trident is
bound or under any governmental license or permit or any law,
administrative regulation, authorization, approval or order or
court decree, injunction or order.
(vi) Any funds received by Trident to purchase Common
Stock will be handled in accordance with Rule 15c2-4 under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(vii) There is not now pending or, to Trident's
knowledge, threatened against Trident any action or proceeding
before the Commission, the NASD, any state securities
commission or any state or federal court concerning Trident's
activities as a broker-dealer.
3. Employment of Trident; Sale and Delivery of the Shares. On the basis
of the representations and warranties herein contained, but subject to the terms
and conditions herein set forth, the Company and the Bank hereby employ Trident
as their agent to utilize its best efforts in assisting the Company with the
Company's sale of the Shares in the Subscription Offering and, if any, the
Community Offering. The employment of Trident hereunder shall terminate (a)
forty-five (45) days after the Offerings close, unless the Company and the Bank,
with the approval of the Office, are permitted to extend such period of time, or
(b) upon consummation of the Conversion, whichever date shall first occur.
In the event the Company is unable to sell a minimum of 425,000 Shares
(or such lesser amount as the Office may permit) within the period herein
provided, this Agreement shall terminate, and the Company and the Bank shall
refund promptly to any persons who have subscribed for any of the Shares, the
full amount which it may have received from them, together with interest as
provided in the Prospectus, and no party to this Agreement shall have any
obligation to the other party hereunder, except as set forth in Sections 6, 8(a)
and 9 hereof. Appropriate arrangements for placing the funds received from
subscriptions for Shares in special interest-bearing accounts with the Bank
until all Shares are sold and paid for were made prior to the commencement of
the Offerings, with provision for prompt refund to the purchasers as set forth
above, or for delivery to the Company if all Shares are sold.
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 12
If all conditions precedent to the consummation of the Conversion are
satisfied, including the sale of all Shares required by the Plan to be sold, the
Company agrees to issue or have issued such Shares and to release for delivery
certificates to subscribers thereof for such Shares on the Closing Date against
payment to the Company by any means authorized pursuant to the Prospectus, at
the principal office of the Company at 100 West Screven Street, Quitman, Georgia
31643, or at such other place as shall be agreed upon between the parties
hereto. The date upon which Trident is paid the compensation due hereunder is
herein called the "Closing Date."
Trident agrees either (a) upon receipt of an executed order form of a
subscriber to forward the offering price of the Common Stock ordered on or
before twelve noon on the next business day following receipt or execution of an
order form by Trident to the Bank for deposit in a segregated account or (b) to
solicit indications of interest in which event (i) Trident will subsequently
contact any potential subscriber indicating interest to confirm the interest and
give instructions to execute and return an order form or to receive
authorization to execute the order form on the subscriber's behalf, (ii) Trident
will mail acknowledgements of receipt of orders to each subscriber confirming
interest on the business day following such confirmation, (iii) Trident will
debit accounts of such subscribers on the third business day ("debit date")
following receipt of the confirmation referred to in (i), and (iv) Trident will
forward completed order forms together with such funds to the Bank on or before
twelve noon on the next business day following the debit date for deposit in a
segregated account. Trident acknowledges that if the procedure in (b) is
adopted, subscribers' funds are not required to be in their accounts until the
debit date.
In addition to the expenses specified in Section 6 hereof, Trident
shall receive the following compensation for its services hereunder:
(a)(i) a commission equal to 2.5% of the aggregate dollar
amount of Common Stock sold in the Subscription Offering and any
Community Offering, except no commissions shall be payable on shares
purchased by directors, executive officers or their associates or
employee benefit plans and (ii) a commission to be agreed upon by
Trident and the Company for Shares sold by other member firms of the
NASD through a selected dealers arrangement in any Syndicated Community
Offering. All commissions shall be based on the amount of Common Stock
sold. All such commissions are to be payable in same-day funds to
Trident on the Closing Date.
(b) Trident shall be reimbursed for allocable expenses,
including but not limited to travel, communications and postage and
legal fees and expenses, whether or not the Offerings are successfully
completed; provided, however, that neither the Company nor the Bank
shall pay or reimburse Trident for any of the foregoing expenses
accrued after Trident shall have notified the Company or the Bank of
its election to terminate this Agreement pursuant to Section 11 hereof
or after such time as the Company or the Bank shall have given
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 13
notice in accordance with Section 12 hereof that Trident is in breach
of this Agreement. Trident's out-of-pocket expenses will not exceed
$10,000, and its legal fees will not exceed $27,500, without the
consent of the Company and the Bank. Full payment to defray Trident's
reimbursable expenses shall be made in same-day funds on the Closing
Date or, if the Conversion is not completed and is terminated for any
reason, within ten (10) business days of receipt by the Company of a
written request from Trident for reimbursement of its expenses. Trident
acknowledges receipt of $10,000 advance payment from the Bank which
shall be credited against the total reimbursement due Trident
hereunder.
The Company shall pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Shares. The Company and the Bank shall
also pay all expenses of the Conversion incurred by them or on their prior
approval including but not limited to their attorneys' fees, NASD filing fees,
and attorneys' fees relating to any required state securities laws research and
filings, telephone charges, air freight, rental equipment, supplies, transfer
agent charges, fees relating to auditing and accounting and costs of printing
all documents necessary in connection with the Conversion.
4. Offering. Subject to the provisions of Section 7 hereof, Trident is
assisting the Company on a best efforts basis in offering a minimum of 425,000
and a maximum of 575,000 Shares, with the possibility of offering up to 661,250
Shares (except as the Office may permit to be decreased or increased) in the
Offerings. The Shares are to be offered to the public at the price set forth on
the cover page of the Prospectus and the first page of this Agreement.
5. Further Agreements. The Company and the Bank jointly and severally
covenant and agree that:
(a) The Company shall deliver to Trident, from time to time,
such number of copies of the Prospectus as Trident reasonably may
request. The Company authorizes Trident to use the Prospectus in any
lawful manner in connection with the offer and sale of the Shares.
(b) The Company will notify Trident immediately upon
discovery, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement becomes
effective or any supplement to the Prospectus has been filed, (ii) of
the issuance by the Commission of any stop order relating to the
Registration Statement or of the initiation or the threat of any
proceedings for that purpose, (iii) of the receipt of any notice with
respect to the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, and (iv) of the receipt of any
comments from the staff of the Commission relating to the Registration
Statement. If the Commission enters a stop order relating to the
Registration
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 14
Statement at any time, the Company will make every reasonable effort to
obtain the lifting of such order at the earliest possible moment.
(c) During the time when a prospectus is required to be
delivered under the Act, the Company will comply so far as it is able
with all requirements imposed upon it by the Act, as now in effect and
hereafter amended, and by the Regulations, as from time to time in
force, so far as necessary to permit the continuance of offers and
sales of or dealings in the Shares in accordance with the provisions
hereof and the Prospectus. If during the period when the Prospectus is
required to be delivered in connection with the offer and sale of the
Shares any event relating to or affecting the Company and the Bank,
taken as a whole, shall occur as a result of which it is necessary, in
the opinion of counsel for Trident, with the concurrence of counsel to
the Company, to amend or supplement the Prospectus in order to make the
Prospectus not false or misleading in light of the circumstances
existing at the time it is delivered to a purchaser of the Shares, the
Company forthwith shall prepare and furnish to Trident a reasonable
number of copies of an amendment or amendments or of a supplement or
supplements to the Prospectus (in form and substance satisfactory to
counsel for Trident) which shall amend or supplement the Prospectus so
that, as amended or supplemented, the Prospectus shall not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser of the Shares, not misleading. The Company will not file or
use any amendment or supplement to the Registration Statement or the
Prospectus of which Trident has not first been furnished a copy or to
which Trident shall reasonably object after having been furnished such
copy. For the purposes of this subsection the Company and the Bank
shall furnish such information with respect to themselves as Trident
from time to time may reasonably request.
(d) The Company and the Bank have taken or will take all
reasonably necessary action as may be required to qualify or register
the Shares for offer and sale by the Company under the securities laws
of such jurisdictions as Trident and either the Company or its counsel
may agree upon; provided, however, that the Company shall not be
obligated to qualify as a foreign corporation to do business under the
laws of any such jurisdiction. In each jurisdiction where such
qualification or registration shall be effected, the Company, unless
Trident agrees that such action is not necessary or advisable in
connection with the distribution of the Shares, shall file and make
such statements or reports as are, or reasonably may be, required by
the laws of such jurisdiction.
(e) Appropriate entries will be made in the financial records
of the Bank sufficient to establish a liquidation account for the
benefit of eligible account holders and supplemental eligible account
holders in accordance with the requirements of the Office.
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 15
(f) The Company will file a registration statement for the
Common Stock under Section 12(g) of the Exchange Act, prior to
completion of the stock offering pursuant to the Plan and shall request
that such registration statement be effective upon completion of the
Conversion. The Company shall maintain the effectiveness of such
registration for a minimum period of three years or for such shorter
period as may be required by applicable law.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the regulations
promulgated under the Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following
the effective date (as defined in said Rule 158) of the Registration
Statement.
(h) For a period of three (3) years from the date of this
Agreement (unless the Common Stock shall have been deregistered under
the Exchange Act), the Company will furnish to Trident, as soon as
publicly available after the end of each fiscal year, a copy of its
annual report to shareholders for such year; and the Company will
furnish to Trident (i) as soon as publicly available, a copy of each
report or definitive proxy statement of the Company filed with the
Commission under the Exchange Act or mailed to shareholders, and (ii)
from time to time, such other public information concerning the Company
as Trident may reasonably request.
(i) The Company shall use the net proceeds from the sale of
the Shares consistently with the manner set forth in the Prospectus.
(j) The Company shall not deliver the Shares until each and
every condition set forth in Section 7 hereof has been satisfied,
unless such condition is waived in writing by Trident.
(k) The Company shall advise Trident, if necessary, as to the
allocation of deposits, in the case of eligible account holders, and
votes, in the case of other members, and of the Shares in the event of
an oversubscription and shall, after consultation with Trident, provide
Trident final instructions as to the allocation of the Shares
("Allocation Instructions") in such event and such information shall be
accurate and reliable. Trident shall be entitled to rely on such
instructions and shall have no liability in respect of its reliance
thereon, including without limitation, no liability for or related to
any denial or grant of a subscription in whole or in part.
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 16
(l) The Company and the Bank will take such actions and
furnish such information as are reasonably requested by Trident in
order for Trident to ensure compliance with the NASD's "Interpretation
Relating to Free-Riding and Withholding."
6. Payment of Expenses. Whether or not the Conversion is consummated,
the Company and the Bank shall pay or reimburse Trident for (a) all filing fees
paid or incurred by Trident in connection with all filings with the NASD with
respect to the Offerings and, (b) in addition, if the Company is unable to sell
a minimum of 425,000 Shares or such lesser amount as the Office may permit or
the Conversion is otherwise terminated, the Company and the Bank shall reimburse
Trident for allocable expenses incurred by Trident relating to the offering of
the Shares as provided in Section 3 hereof; provided, however, that neither the
Company nor the Bank shall pay or reimburse Trident for any of the foregoing
expenses accrued after Trident shall have notified the Company or the Bank of
its election to terminate this Agreement pursuant to Section 11 hereof or after
such time as the Company or the Bank shall have given notice in accordance with
Section 12 hereof that Trident is in breach of this Agreement.
7. Conditions of Trident's Obligations. Except as may be waived in
writing by Trident, the obligations of Trident as provided herein shall be
subject to the accuracy of the representations and warranties contained in
Section 2 hereof as of the date hereof and as of the Closing Date, to the
performance by the Company and the Bank of their obligations hereunder and to
the following conditions:
(a) At the Closing Date, Trident shall receive the favorable
opinions of Malizia, Spidi, Sloane & Fisch, P.C., special counsel for
the Company and the Bank, and ______________________________, counsel
for the Company and the Bank, dated the Closing Date, addressed to
Trident, in form and substance reasonably satisfactory to counsel for
Trident, substantially as set forth in Exhibits B and C, respectively,
hereto.
(b) At the Closing Date, Trident shall receive the letter of
Malizia, Spidi, Sloane & Fisch, P.C., special counsel for the Company
and the Bank, dated the Closing Date, addressed to Trident, in form and
substance reasonably satisfactory to counsel for Trident, substantially
as set forth in Exhibit D hereto.
(c) Counsel for Trident shall have been furnished such
documents as they reasonably may require for the purpose of enabling
them to review or pass upon the matters required by Trident, and for
the purpose of evidencing the accuracy, completeness or satisfaction of
any of the representations, warranties or conditions herein contained,
including but not limited to, resolutions of the Board of Directors of
the Company and the Bank regarding the authorization of this Agreement
and the transactions contemplated hereby.
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 17
(d) Prior to and at the Closing Date, in the reasonable
opinion of Trident, (i) there shall have been no material change in the
condition, financial or otherwise, business or results of operations of
the Company and the Bank, taken as a whole, since the latest date as of
which such condition is set forth in the Prospectus, except as referred
to therein; (ii) there shall have been no transaction entered into by
the Company or the Bank after the latest date as of which the financial
condition of the Company or the Bank is set forth in the Prospectus
other than transactions referred to or contemplated therein,
transactions in the ordinary course of business, and transactions which
are not material to the Company and the Bank, taken as a whole; (iii)
none of the Company or the Bank shall have received from the Office or
Commission any direction (oral or written) to make any change in the
method of conducting their respective businesses which is material to
the business of the Company and the Bank, taken as a whole, with which
they have not complied; (iv) no action, suit or proceeding, at law or
in equity or before or by any federal or state commission, board or
other administrative agency, shall be pending or threatened against the
Company or the Bank or affecting any of their respective assets,
wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the business, operations, financial
condition or income of the Company and the Bank, taken as a whole; and
(v) the Shares shall have been qualified or registered for offering and
sale by the Company under the securities laws of such jurisdictions as
Trident and the Company shall have agreed upon.
(e) At the Closing Date, Trident shall receive a certificate
of the principal executive, financial and accounting officer(s) of each
of the Company and the Bank, dated the Closing Date, to the effect
that: (i) they have examined the Prospectus and, at the time the
Prospectus became authorized by the Company for use, the Prospectus did
not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading
with respect to the Company or the Bank; (ii) since the date the
Prospectus became authorized by the Company for use, no event has
occurred which should have been set forth in an amendment or supplement
to the Prospectus which has not been so set forth, including
specifically, but without limitation, any material change in the
business, condition (financial or otherwise) or results of operations
of the Company or the Bank and, the conditions set forth in clauses
(ii) through (iv) inclusive of subsection (d) of this Section 7 have
been satisfied; (iii) to the best knowledge of such officers, no order
has been issued by the Commission or the Office to suspend the
Offerings or the effectiveness of the Prospectus, and no action for
such purposes has been instituted or threatened by the Commission or
the Office; (iv) to the best knowledge of such officers, no person has
sought to obtain review of the final actions of the Office and division
approving the Plan; and (v) all of the representations and warranties
contained in Section 2 of this Agreement are true and correct, with the
same force and effect as though expressly made on the Closing Date.
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 18
(f) At the Closing Date, Trident shall receive, among other
documents, (i) copies of the letters from the Office authorizing the
use of the Prospectus and the Proxy Statement, (ii) a copy of the order
of the Commission declaring the Registration Statement effective; (iii)
copies of the letters from the Office evidencing the corporate
existence of the Bank; (iv) a copy of the letter from the appropriate
Georgia authority evidencing the incorporation (and, if generally
available from such authority, good standing) of the Company; (v) a
copy of the Company's charter certified by the appropriate Georgia
governmental authority; and, (vi) if available, a copy of the letter
from the Office approving the Bank's Stock Charter.
(g) As soon as available after the Closing Date, Trident shall
receive a copy of the Bank's Certified Stock Charter executed by the
appropriate federal governmental authority.
(h) Concurrently with the execution of this Agreement, Trident
acknowledges receipt of a letter from Stewart, Fowler & Stalvey, P.C.,
independent certified public accountants, addressed to Trident and the
Company, in substance and form satisfactory to counsel for Trident,
with respect to the financial statements and certain financial
information contained in the Prospectus.
(i) At the Closing Date, Trident shall receive a letter in
form and substance satisfactory to counsel for Trident from Stewart,
Fowler & Stalvey, P.C., independent certified public accountants, dated
the Closing Date and addressed to Trident and the Company, confirming
the statements made by them in the letter delivered by them pursuant to
the preceding subsection as of a specified date not more than five (5)
days prior to the Closing Date.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Trident and its counsel, satisfactory to Trident and its counsel. Any
certificates signed by an officer or director of the Company or the Bank
prepared for Trident's reliance and delivered to Trident or to counsel for
Trident shall be deemed a representation and warranty by the Company and the
Bank to Trident as to the statements made therein. If any condition to Trident's
obligations hereunder to be fulfilled prior to or at the Closing Date is not so
fulfilled, Trident may terminate this Agreement or, if Trident so elects, may
waive in writing any such conditions which have not been fulfilled, or may
extend the time of their fulfillment. If Trident terminates this Agreement as
aforesaid, the Company and the Bank shall reimburse Trident for its expenses as
provided in Section 3(b) hereof.
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 19
8. Indemnification.
(a) The Company and the Bank jointly and severally agree to
indemnify and hold harmless Trident, its officers, directors and
employees and each person, if any, who controls Trident within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any and all loss, liability, claim, damage and expense
whatsoever and shall further promptly reimburse such persons for any
legal or other expenses reasonably incurred by each or any of them in
investigating, preparing to defend or defending against any such
action, proceeding or claim (whether commenced or threatened) arising
out of or based upon (A) any misrepresentation by the Company or the
Bank in this Agreement or any breach of warranty by the Company or the
Bank with respect to this Agreement or arising out of or based upon any
untrue or alleged untrue statement of a material fact or the omission
or alleged omission of a material fact required to be stated or
necessary to make not misleading any statements contained in (i) the
Registration Statement or the Prospectus or (ii) any application
(including the Form AC and the Form H-(e)1-S) or other document or
communication (in this Section 8 collectively called "Application")
prepared or executed by or on behalf of the Company or the Bank or
based upon written information furnished by or on behalf of the Company
or the Bank, whether or not filed in any jurisdiction, to effect the
Conversion or qualify the Shares under the securities laws thereof or
filed with the Office or Commission, unless such statement or omission
was made in reliance upon and in conformity with written information
furnished to the Company or the Bank with respect to Trident by or on
behalf of Trident expressly for use in the Prospectus or any amendment
or supplement thereof or in any Application, as the case may be, or (B)
the participation by Trident in the Conversion. This indemnity shall be
in addition to any liability the Company and the Bank may have to
Trident otherwise.
(b) The Company shall indemnify and hold Trident harmless for
any liability whatsoever arising out of (i) the Allocation Instructions
or (ii) any records of account holders, depositors, borrowers and other
members of the Bank delivered to Trident by the Bank or its agents for
use during the Conversion.
(c) Trident agrees to indemnify and hold harmless the Company
and the Bank, their officers, directors and employees and each person,
if any, who controls the Company or the Bank within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, to the same
extent as the foregoing indemnity from the Company and the Bank to
Trident, but only with respect to (A) statements or omissions, if any,
made in the Prospectus or any amendment or supplement thereof, in any
Application or to a purchaser of the Shares in reliance upon, and in
conformity with, written information furnished to the Company or the
Bank with respect to Trident by or on behalf of Trident expressly for
use in the Prospectus or in any Application; (B) any misrepresentation
by Trident in Section 2(b) of
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 20
this Agreement; or (C) any liability of the Company or the Bank which
is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) to have principally and directly resulted
from gross negligence or willful misconduct of Trident.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party
of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this Section 8. In
case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with the other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable
to such indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than the reasonable cost of
investigation except as otherwise provided herein. In the event the
indemnifying party elects to assume the defense of any such action and
retain counsel acceptable to the indemnified party, the indemnified
party may retain additional counsel, but shall bear the fees and
expenses of such counsel unless (i) the indemnifying party shall have
specifically authorized the indemnified party to retain such counsel or
(ii) the parties to such suit include such indemnifying party and the
indemnified party, and such indemnified party shall have been advised
by counsel that one or more material legal defenses may be available to
the indemnified party which may not be available to the indemnifying
party, in which case the indemnifying party shall not be entitled to
assume the defense of such suit notwithstanding the indemnifying
party's obligation to bear the fees and expenses of such counsel. An
indemnifying party against whom indemnity may be sought shall not be
liable to indemnify an indemnified party under this Section 8 if any
settlement of any such action is effected without such indemnifying
party's consent. To the extent required by law, this Section 8 is
subject to and limited by the provisions of Section 23A.
9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 above is for any reason held to be unavailable to Trident, the Company
and/or the Bank other than in accordance with its terms, the Company or the Bank
and Trident shall contribute to the aggregate losses, liabilities, claims,
damages, and expenses of the nature contemplated by said indemnity agreement
incurred by the Company or the Bank and Trident (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Bank on the one hand and Trident on the other from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 21
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above, but also the relative fault
of the Company or the Bank on the one hand and Trident on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Bank on the one hand and Trident on the other shall be deemed to be in the same
proportions as the total net proceeds from the Conversion received by the
Company and the Bank bear to the total commissions received by Trident under
this Agreement. The relative fault of the Company or the Bank on the one hand
and Trident on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Bank or by Trident and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Bank and Trident agree that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by the indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, Trident shall not be required
to contribute any amount in excess of the amount by which commissions owed
Trident pursuant to this Agreement exceeds the amount of any damages which
Trident has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. To the extent required by law, this Section 8 is subject to
and limited by the provisions of Section 23A.
10. Survival of Agreements, Representations and Indemnities. The
respective indemnities of the Company and the Bank and Trident and the
representation and warranties of the Company and the Bank and of Trident set
forth in or made pursuant to this Agreement shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of Trident or the Company or the Bank or any
controlling person or indemnified party referred to in Section 8 hereof, and
shall survive any termination or consummation of this Agreement and/or the
issuance of the Shares, and any legal representative of Trident, the Company,
the Bank and any such controlling persons shall be entitled to the benefit of
the respective agreements, indemnities, warranties and representations.
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 22
11. Termination. Trident may terminate this Agreement by giving the
notice indicated below in this Section at any time after this Agreement becomes
effective as follows:
(a) If any domestic or international event or act or
occurrence has materially disrupted the United States securities
markets such as to make it, in Trident's reasonable opinion,
impracticable to proceed with the offering of the Shares; or if trading
on the New York Stock Exchange shall have suspended; or if the United
States shall have become involved in a war or major hostilities; or if
a general banking moratorium has been declared by a state or federal
authority which has material effect on the Bank or the Conversion; or
if a moratorium in foreign exchange trading by major international
banks or persons has been declared; or if there shall have been a
material change in the capitalization, condition or business of the
Company, or if the Bank shall have sustained a material or substantial
loss by fire, flood, accident, hurricane, earthquake, theft, sabotage
or other calamity or malicious act, whether or not said loss shall have
been insured; or if there shall have been a material adverse change in
the condition or prospects of the Company, the Bank or the Subsidiary.
(b) If Trident elects to terminate this Agreement as provided
in this Section, the Company and the Bank shall be notified promptly by
Trident by telephone or telegram, confirmed by letter.
(c) If this Agreement is terminated by Trident for any of the
reasons set forth in subsection (a) above, and to fulfill its
obligations, if any, pursuant to Sections 3, 6, 8(a) and 9 of this
Agreement and upon demand, the Company and the Bank shall pay Trident
the full amount so owing thereunder.
(d) The Bank may terminate the Conversion in accordance with
the terms of the Plan. Such termination shall be without liability to
any party, except that the Company and the Bank shall be required to
fulfill their obligations pursuant to Sections 3(b), 6, 8(a) and 9 of
this Agreement.
12. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to Trident shall be
mailed, delivered or telegraphed and confirmed to Trident Securities, Inc., 4601
Six Forks Road, Suite 400, Raleigh, North Carolina 27609, Attention: Mr. R. Lee
Burrows, Jr. (with a copy to Housley Kantarian & Bronstein, P.C., 1220 19th
Street, N.W., Washington, DC 20036, Attention: K. Scott Fife, Esquire) and if
sent to the Company or the Bank, shall be mailed, delivered or telegraphed and
confirmed to Quitman Bancorp, Inc., Quitman Federal Savings Bank, 100 West
Screven Street, Quitman, Georgia 31643, Attention: Mr. Melvin Plair, President
(with a copy to Malizia, Spidi, Sloane & Fisch, P.C., 1301 K Street, N.W., Suite
700 East, Washington, D.C. 20005, Attention: Charles E. Sloane, Esquire).
<PAGE>
Trident Securities, Inc.
Quitman Bancorp, Inc.
Sales Agency Agreement
Page 23
13. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, Trident, the Company, the Bank and the controlling and
other persons referred to in Section 8 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
14. Construction. Unless governed by preemptive federal law, this
Agreement shall be governed by and construed in accordance with the substantive
laws of Georgia.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
* * *
<PAGE>
Please acknowledge your agreement to the foregoing by signing below and
returning to the Company one copy of this letter.
QUITMAN BANCORP, INC. QUITMAN FEDERAL SAVINGS BANK
By: By:
------------------------------------- -------------------------------------
Melvin Plair Melvin Plair
President and Chief Executive Officer President and Chief Executive Officer
Date: February , 1998 Date: February , 1998
----- -----
Agreed to and accepted:
TRIDENT SECURITIES, INC.
By:
------------------------------------
Date: February , 1998
-----
<PAGE>
Exhibit A
<PAGE>
Trident Securities, Inc. is a registered selling agent in the jurisdictions
listed below:
<TABLE>
<CAPTION>
<S> <C>
Alabama Missouri
Arizona Nebraska
Arkansas Nevada
California New Hampshire
Colorado New Jersey
Connecticut New Mexico
Delaware New York
District of Columbia North Carolina
Florida North Dakota (Trident Securities, Inc. only, no agents)
Georgia Ohio
Idaho Oklahoma
Illinois Oregon
Indiana Pennsylvania
Iowa Rhode Island
Kansas South Carolina
Kentucky Tennessee
Louisiana Texas
Maine Vermont
Maryland Virginia
Massachusetts Washington
Michigan Tennessee
Minnesota Wisconsin
Mississippi Wyoming
</TABLE>
Trident Securities, Inc. is not a registered selling agent in the jurisdictions
listed below:
Alaska
Hawaii
Montana
South Dakota
Utah
<PAGE>
Exhibit B
<PAGE>
[PLEASE PROVIDE FORM OF OPINION ON PAPER AND DISK]
<PAGE>
Exhibit C
<PAGE>
[PLEASE PROVIDE FORM OF OPINION ON PAPER AND DISK]
<PAGE>
Exhibit D
<PAGE>
[PLEASE PROVIDE FORM OF LETTER ON PAPER AND DISK]
EXHIBIT 2
<PAGE>
PLAN OF CONVERSION
As Amended
Adopted on
October 14, 1997
By the Board of Directors of
QUITMAN FEDERAL SAVINGS AND LOAN ASSOCIATION
Quitman, Georgia
<PAGE>
TABLE OF CONTENTS
Page
----
1. Introduction.................................................. 1
2. Definitions................................................... 2
3. Procedure for Conversion...................................... 5
4. Holding Company Applications and Approvals.................... 5
5. Sale of Conversion Stock...................................... 6
6. Number of Shares and Purchase Price of
Conversion Stock....................................... 6
7. Purchase by the Holding Company of the Stock
of the Institution..................................... 7
8. Subscription Rights of Eligible Account
Holders (First Priority)............................... 7
9. Subscription Rights of Employee Plans (Second Priority)....... 8
10. Subscription Rights of Supplemental Eligible
Account Holders (Third Priority)....................... 8
11. Subscription Rights of Other Members
(Fourth Priority)...................................... 9
12. Community Offering............................................ 10
13. Public Offering and Syndicated Public Offering................ 11
14. Limitation on Purchases....................................... 12
15. Payment for Conversion Stock.................................. 13
16. Manner of Exercising Subscription Rights
Through Order Forms.................................... 14
17. Undelivered, Defective or Late Order Forms or
Insufficient Payment................................... 15
18. Restrictions on Resale or Subsequent Disposition.............. 16
19. Voting Rights of Stockholders................................. 16
20. Establishment of Liquidation Account.......................... 16
21. Transfer of Savings Accounts.................................. 17
22. Restrictions on Acquisition of the Institution
and Holding Company.................................... 18
23. Payment of Dividends and Repurchases of Stock................. 19
24. Amendment of Plan............................................. 19
25. Charter and Bylaws............................................ 19
26. Consummation of Conversion.................................... 19
27. Registration and Marketing.................................... 19
28. Residents of Foreign Countries and Certain States............. 20
29. Expenses of Conversion........................................ 20
30. Conditions to Conversion...................................... 20
31. Interpretation................................................ 20
<PAGE>
PLAN OF CONVERSION
FOR
QUITMAN FEDERAL SAVINGS AND LOAN ASSOCIATION
QUITMAN, GEORGIA
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Quitman
Federal Savings and Loan Association ("INSTITUTION") into a federal capital
stock savings institution, to be known as "Quitman Federal Savings Bank." The
Board of Directors of the INSTITUTION currently contemplates that all of the
stock of the INSTITUTION shall be held by another corporation (the "Holding
Company"). The purpose of this conversion is to enable the INSTITUTION to be in
the stock form of organization, like commercial banks and most other
corporations. The conversion will result in an increase in the INSTITUTION's
capital available to support growth and for expansion of its facilities,
possible diversification into other related financial services activities and
further enhance the INSTITUTION's ability to render services to the public and
compete with other financial institutions. The use of the Holding Company would
also provide greater organizational flexibility. Shares of capital stock of the
INSTITUTION will be sold to the Holding Company and the Holding Company will
offer the Conversion Stock upon the terms and conditions set forth herein to
Eligible Account Holders, the tax-qualified employee stock benefit plans (the
"Employee Plans") established by the INSTITUTION or the Holding Company, which
may be funded by the Holding Company, Supplemental Eligible Account Holders, and
Other Members in the respective priorities set forth in this Plan. Any shares of
Conversion Stock not subscribed for by the foregoing classes of persons may be
offered for sale to certain members of the public either directly by the
INSTITUTION and the Holding Company through a Community Offering or through a
Public Offering or Syndicated Public Offering. In the event that the INSTITUTION
decides not to utilize the Holding Company in the conversion, Conversion Stock
of the INSTITUTION, in lieu of the Holding Company, will be sold as set forth
above and in the respective priorities set forth in this Plan. In addition to
the foregoing, the INSTITUTION and the Holding Company intend to implement stock
option plans and other stock benefit plans at the time of or subsequent to the
conversion and may provide employment or severance agreements to certain
management employees and certain other benefits to the directors, officers and
employees of the INSTITUTION as described in the prospectus for the Conversion
Stock.
This Plan, which has been unanimously approved by the Board of
Directors of the INSTITUTION, must also be approved by the affirmative vote of a
majority of the total number of votes entitled to be cast by Voting Members of
the INSTITUTION at a special meeting to be called for that purpose. Prior to the
submission of this Plan to the Voting Members for consideration, the Plan must
be approved by the Office of Thrift Supervision (the "OTS").
Upon conversion, each Account Holder having a Savings Account at the
INSTITUTION prior to conversion will continue to have a Savings Account, without
payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
conversion. After conversion, the INSTITUTION will succeed to all the rights,
interests, duties
A-1
<PAGE>
and obligations of the INSTITUTION before conversion, including but not limited
to all rights and interests of the INSTITUTION in and to its assets and
properties, whether real, personal or mixed. The INSTITUTION will continue to be
a member of the Federal Home Loan Bank System and all its insured savings
deposits will continue to be insured by the Federal Deposit Insurance
Corporation (the "FDIC") to the extent provided by applicable law.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a
Savings Account in the INSTITUTION.
Acting in Concert - The Term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.
Associate - The term Associate when used to indicate a relationship
with any person, means (i) any corporation or organization (other than the
INSTITUTION or a majority-owned subsidiary of the INSTITUTION) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10 percent 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 trustee or in a similar fiduciary capacity except
that for the purposes of Sections 8 and 14 hereof, the term "Associate" does not
include any Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified
Employee Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and except
that, for purposes of aggregating total shares that may be held by Officers and
Directors the term "Associate" does not include any Tax-Qualified Employee Stock
Benefit Plan, 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 the INSTITUTION or the Holding Company, or any of its parents or
subsidiaries.
Community Offering - The term Community Offering means the offering for
sale to certain members of the general public directly by the Holding Company,
of shares not subscribed for in the Subscription Offering.
Conversion Stock - The term Conversion Stock means the $.10 par value
common stock offered and issued by the Holding Company upon conversion.
Director - The term Director means a member of the Board of Directors
of the INSTITUTION and, where applicable, a member of the Board of Directors of
the Holding Company.
A-2
<PAGE>
Eligible Account Holder - The term Eligible Account Holder means any
person holding a Qualifying Deposit at the INSTITUTION on the Eligibility Record
Date. Only the name(s) of the Person(s) listed on the account as of the
Eligibility Record Date (or a successor entity or estate) is an Eligible Account
Holder. Any Person(s) added to a Qualifying Deposit after the Eligibility Record
Date is not an Eligible Account Holder.
Eligibility Record Date - The term Eligibility Record Date means the
date for determining Eligible Account Holders in the INSTITUTION and is the
close of business on December 31, 1995.
Employees - The term Employees means all Persons who are employed by
the INSTITUTION.
Employee Plans - The term Employee Plans means the Tax-Qualified
Employee Stock Benefit Plans, including the Employee Stock Ownership Plan,
approved by the Board of Directors of the INSTITUTION.
Estimated Valuation Range. The term Estimated Valuation Range means the
range of the estimated pro forma market value of the Conversion Stock as
determined by the Independent Appraiser prior to the Subscription Offering and
as it may be amended from time to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
Holding Company - The term Holding Company means the corporation formed
for the purpose of acquiring all of the shares of capital stock of the
INSTITUTION to be issued upon its conversion to stock form unless the Holding
Company form of organization is not utilized. Shares of common stock of the
Holding Company will be issued in the Conversion to Participants and others in a
Subscription, Community, Public or Syndicated Public Offering, or through a
combination thereof.
Independent Appraiser - The term Independent Appraiser means an
appraiser retained by the INSTITUTION to prepare an appraisal of the pro forma
market value of the Conversion Stock.
Institution - The term INSTITUTION means Quitman Federal Savings and
Loan Association, Quitman, Georgia.
Local Community - The term local community means the county of Brooks
in the State of Georgia.
Member - The term Member means any Person or entity who qualifies as a
member of the INSTITUTION pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department
of the Treasury.
Officer - The term Officer means an executive officer of the
INSTITUTION and may include the Chairman of the Board, President, Vice
Presidents in charge of principal business functions, Secretary and Treasurer
and any individual performing functions similar to those performed by the
foregoing persons.
Order Form - The term Order Form means any form together with attached
cover letter, sent by the INSTITUTION to any Person containing among other
things a description of the alternatives available
A-3
<PAGE>
to such Person under the Plan and by which any such Person may make elections
regarding subscriptions for Conversion Stock in the Subscription and Community
Offerings.
Other Member - The term Other Member means any person, who is a Member
of the INSTITUTION (other than Eligible Account Holders or Supplemental Eligible
Account Holders) at the close of business on the voting record date.
Participants - The term Participants means the Eligible Account
Holders, Employee Plans, Supplemental Eligible Account Holders and Other
Members.
Person - The term Person means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts and KEOGH Accounts), any unincorporated
organization, a government or political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion of the INSTITUTION
as it exists on the date hereof and as it may hereafter be amended in accordance
with its terms.
Public Offering - The term Public Offering means the offering for sale
through the Underwriter to the general public of any shares of Conversion Stock
not subscribed for in the Subscription Offering.
Purchase Order - The term Purchase Order means any form together with
attached cover letter, sent by the Underwriter to any Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Public Offering.
Purchase Price - The term Purchase Price means the per share price at
which the Conversion Stock will be sold in accordance with the terms hereof.
Qualifying Deposit - The term Qualifying Deposit means the balance of
each Savings Account of $50 or more in the INSTITUTION at the close of business
on the Eligibility Record Date or Supplemental Eligibility Record Date. Savings
Accounts with total deposit balances of less than $50 shall not constitute a
Qualifying Deposit. Pursuant to the authority contained in 12 C.F.R.
ss.563b.3(e)(1), the term Qualifying Deposit also includes demand accounts as
defined in 12 C.F.R. ss.561.16(a) of $50 or more in the INSTITUTION at the close
of business on the Eligibility Record Date or Supplemental Eligibility Record
Date.
SEC - The term SEC refers to the Securities and Exchange Commission.
Savings Account - The term Savings Account includes savings accounts as
defined in Section 561.42 of the Rules and Regulations of the OTS and includes
certificates of deposit.
Special Meeting of Members - The term Special Meeting of Members means
the special meeting and any adjournments thereof held to consider and vote upon
this Plan.
Subscription Offering - The term Subscription Offering means the
offering of Conversion Stock for purchase through Order Forms to Participants.
A-4
<PAGE>
Supplemental Eligibility Record Date - The term Supplemental
Eligibility Record Date means the close of business on the last day of the
calendar quarter preceding the approval of the Plan by the OTS.
Supplemental Eligible Account Holder - The term Supplemental Eligible
Account Holder means a holder of a Qualifying Deposit in the INSTITUTION (other
than an officer or trustee or their Associates) at the close of business on the
Supplemental Eligibility Record Date.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified
Employee Stock Benefit Plan means any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust, meets the
requirements to be "qualified" under Section 401 of the Internal Revenue Code.
Syndicated Public Offering - The term Syndicated Public Offering means
the offering of Conversion Stock following the Subscription, Community (if
applicable) or Public Offerings through a syndicate of broker-dealers.
Underwriter - The term Underwriter means the investment banking firm or
firms through which the Conversion Stock will be offered and sold in the Public
Offering.
Voting Members - The term Voting Members means those Persons qualifying
as voting members of the INSTITUTION pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed
by the Directors in accordance with OTS regulations for determining eligibility
to vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Directors of the
INSTITUTION, the Plan shall be submitted together with all other requisite
material to the OTS for its approval. Notice of the adoption of the Plan by the
Board of Directors of the INSTITUTION will be published in a newspaper having
general circulation in each community in which an office of the INSTITUTION is
located and copies of the Plan will be made available at each office of the
INSTITUTION for inspection by the Members. Upon filing the application with the
OTS, the INSTITUTION also will cause to be published a notice of the filing with
the OTS of an application to convert in accordance with the provisions of the
Plan. Following approval by the OTS, the Plan will be submitted to a vote of the
Voting Members at a Special Meeting of Members called for that purpose. Upon
approval of the Plan by a majority of the total votes eligible to be cast by the
Voting Members, the INSTITUTION will take all other necessary steps pursuant to
applicable laws and regulations to convert the INSTITUTION to stock form. The
conversion must be completed within 24 months of the approval of the Plan by the
Voting Members, unless a longer time period is permitted by governing laws and
regulations.
The Board of Directors of the INSTITUTION intends to take all necessary
steps to form the Holding Company including the filing of an Application on Form
H-(e)1 or H-(e)1-S, if available to the Holding Company, with the OTS. Upon
conversion, the INSTITUTION will issue its capital stock to the Holding Company
and the Holding Company will issue and sell the Conversion Stock in accordance
with this Plan.
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The Board of Directors of the INSTITUTION may determine for any reason
at any time prior to the issuance of the Conversion Stock not to utilize a
holding company form of organization in the Conversion, in which case, the
Holding Company's registration statement on Form S-1 or Form SB-2 will be
withdrawn from the SEC, the INSTITUTION will take all steps necessary to
complete the conversion from the mutual to the stock form of organization,
including filing any necessary documents with the OTS and will issue and sell
the Conversion Stock in accordance with this Plan. In such event, any
subscriptions or orders received for Conversion Stock of the Holding Company
shall be deemed to be subscriptions or orders for Conversion Stock of the
INSTITUTION without any further action by the INSTITUTION or the subscribers for
the Conversion Stock. Any references to the Holding Company in this Plan shall
mean the INSTITUTION in the event the Holding Company is eliminated in the
Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION
will not knowingly lend funds or otherwise extend credit to any Person to
purchase shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 or Form SB-2 to be filed with the SEC. The INSTITUTION
shall be a wholly owned subsidiary of the Holding Company.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering may be offered for sale in the Community Offering, if any, as provided
in Section 12 of this Plan or offered in a Public Offering or Syndicated Public
Offering, as provided in Section 13, if necessary and feasible. The Subscription
Offering may be commenced prior to the Special Meeting of Members and, in that
event, the Community Offering or Public Offering may also be commenced prior to
the Special Meeting of Members. The offer and sale of Conversion Stock, prior to
the Special Meeting of Members shall, however, be conditioned upon approval of
the Plan by the Voting Members.
Shares of Conversion Stock may be sold in a Syndicated Public Offering
or in a Public Offering, as provided in Section 13 of this Plan in a manner that
will achieve the widest distribution of the Conversion Stock as determined by
the INSTITUTION. In the event of a Syndicated Public Offering or Public
Offering, the sale of all Conversion Stock subscribed for in the Subscription
Offering will be consummated simultaneously on the date the sale of Conversion
Stock in the Syndicated Public Offering or Public Offering is consummated and
only if all unsubscribed for Conversion Stock is sold.
The INSTITUTION may elect to pay fees on either a fixed fee or
commission basis or combination thereof to an investment banking firm which
assists it in the sale of the Conversion Stock in the offerings.
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The INSTITUTION may also elect to offer to pay fees on a per share
basis to brokers who assist Persons in determining to purchase shares in the
Syndicated Public Offering and whose broker's name appears on the Order Form of
the Person.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to
be issued and offered for sale will be determined by the Boards of Directors of
the INSTITUTION and the Holding Company, immediately prior to the commencement
of the Offerings, subject to adjustment thereafter if necessitated by a change
in the appraisal due to changes in market or financial conditions, with the
approval of the OTS, if necessary.
All shares sold in the Conversion will be sold at a uniform price per
share referred to in this Plan as the Purchase Price. The aggregate Purchase
Price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the INSTITUTION. The estimated
consolidated pro forma market value of the INSTITUTION will be determined for
such purpose by the Independent Appraiser. Prior to the commencement of the
Subscription and Community Offerings, an Estimated Valuation Range will be
established, which range will vary within 15% above to 15% below the midpoint of
such range. The number of shares of Conversion Stock to be issued and/or the
Purchase Price may be increased or decreased by the INSTITUTION. In the event
that the aggregate Purchase Price of the Conversion Stock is below the minimum
of the Estimated Valuation Range, or materially above the maximum of the
Estimated Valuation Range, resolicitation of purchasers may be required,
provided that up to a 15% increase above the maximum of the Estimated Valuation
Range will not be deemed material so as to require a resolicitation. Any such
resolicitation shall be effected in such manner and within such time as the
INSTITUTION shall establish, with the approval of the OTS, if required. Up to a
15% increase in the number of shares to be issued which is supported by an
appropriate change in the estimated pro forma market value of the INSTITUTION or
in order to fill the order by the Employee Plans will not be deemed to be
material so as to require a resolicitation of subscriptions.
Based upon the independent valuation, as updated prior to the
consummation of the Subscription, Community and/or Public Offerings, the Boards
of Directors of the INSTITUTION and the Holding Company will fix the Purchase
Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Conversion
Stock sold at the Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the INSTITUTION. If such
confirmation is not received, the INSTITUTION may cancel the Subscription
Offering, Community Offering and/or the Public Offering and Syndicated Public
Offering, reopen or hold new Offerings to take such other action as the OTS may
permit.
The Conversion Stock to be issued in the Conversion shall be fully paid
and nonassessable.
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7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, the
Holding Company will purchase from the INSTITUTION all of the capital stock of
the INSTITUTION to be issued by the INSTITUTION in the conversion in exchange
for the Conversion proceeds that are not permitted to be retained by the Holding
Company.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Conversion Stock
equal to the greater of: (i) the maximum established for the Community Offering;
(ii) one-tenth of one percent of the Conversion Stock offered; or (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders but in no event greater than the maximum purchase
limitation specified in Section 14 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 14 and are
exclusive of an increase in the total number of shares issued due to an increase
in the maximum of the Estimated Valuation Range of up to 15%. 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
Qualifying Deposit after the Eligibility Record Date is not an Eligible Account
Holder.
B. In the event that Eligible Account Holders exercise Subscription
Rights for a number of shares of Conversion Stock in excess of the total number
of such shares eligible for subscription, the shares of Conversion Stock shall
be allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
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9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
Subject to the availability of sufficient shares after filling
subscription orders of Eligible Account Holders under Section 8, the Employee
Plans shall receive without payment nontransferable subscription rights to
purchase in the Subscription Offering the number of shares of Conversion Stock
requested by such Plans, subject to the purchase limitations set forth in
Section 14.
The Employee Plans shall not be deemed to be associates or affiliates
of or Persons Acting in Concert with any Director or Officer of the Holding
Company or the INSTITUTION.
10. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application filed prior to OTS
approval, then, and only in that event, each Supplemental Eligible Account
Holder shall receive, without payment, nontransferable subscription rights
entitling such Supplemental Eligible Account Holder to purchase that number of
shares of Conversion Stock which is equal to the greater of: (i) the maximum
purchase limitation established for the Community Offering; (ii) one-tenth of 1%
of the Conversion Stock Offered; and (iii) or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock 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 the Qualifying Deposits of all Supplemental
Eligible Account Holders. All such purchases are subject to the maximum and
minimum purchase limitations in Section 14 and are exclusive of an increase in
the total number of shares issued due to an increase in the maximum of the
Estimated Valuation Range of up to 15%.
B. Subscription rights received pursuant to this Category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Employee Plans.
C. Any subscription rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Section 8 shall reduce
to the extent thereof the subscription rights to be distributed pursuant to this
Section.
D. In the event of an oversubscription for shares of Conversion Stock
pursuant to this Section, shares of Conversion Stock shall be allocated among
the subscribing Supplemental Eligible Account Holders as follows:
(1) Shares of Conversion Stock shall be
allocated so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to
purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including
the number of shares of Conversion Stock, if any,
allocated in accordance with Section 8) equal to 100
shares of Conversion Stock or the total amount of his
subscription, whichever is less.
(2) Any shares of Conversion Stock not
allocated in accordance with subparagraph (1) above
shall be allocated among the subscribing Supplemental
Eligible Account Holders on an equitable basis,
related to the amounts of their
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respective Qualifying Deposits as compared to the
total Qualifying Deposits of all subscribing
Supplemental Eligible Account Holders.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Conversion Stock in an amount
equal to the greater of the maximum purchase limitation established for the
Community Offering or one-tenth of one percent of the Conversion Stock offered,
subject to the maximum and minimum purchase limitations specified in Section 14
and exclusive of an increase in the total number of shares issued due to an
increase in the maximum of the Estimated Valuation Range of up to 15%, which
will be allocated only after first allocating to Eligible Account Holders, the
Employee Plans and Supplemental Eligible Account Holders all shares of
Conversion Stock subscribed for pursuant to Sections 8, 9 and 10 above.
B. In the event that such Other Members subscribe for a number of
shares of Conversion Stock which, when added to the shares of Conversion Stock
subscribed for by the Eligible Account Holders, the Employee Plans and the
Supplemental Eligible Account Holders is in excess of the total number of shares
of Conversion Stock being issued, the subscriptions of such Other Members will
be allocated among the subscribing Other Members so as to permit each
subscribing Other Member, to the extent possible, to purchase a number of shares
sufficient to make his total allocation of Conversion Stock equal to the lesser
of 100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on a 100 shares (or whatever lesser amount is
available) per order basis until all orders have been filled or the remaining
shares have been allocated.
12. COMMUNITY OFFERING
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, shares
remaining unsubscribed may be made available for purchase in the Community
Offering to certain members of the general public. The maximum number of shares
of Conversion Stock, which may be subscribed for in the Community Offering by
any Person shall not exceed such number of shares of Conversion Stock as shall
equal $60,000 divided by the Purchase Price, subject to the maximum and minimum
purchase limitations specified in Section 14. The shares may be made available
in the Community Offering through a direct community marketing program which may
provide for utilization of a broker, dealer, consultant or investment banking
firm, experienced and expert in the sale of savings institution securities. In
the Community Offering, if any, shares will be available for purchase by the
general public with preference given to natural persons residing in the Local
Community. Subject to these preferences, the INSTITUTION shall make distribution
of the Conversion Stock to be sold in the Community Offering in such a manner as
to promote the widest distribution of Conversion Stock.
If the Community Purchasers in the Community Offering, whose orders
would otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among persons
submitting orders in the Community Offering in an equitable manner as determined
by the Board of Directors. The INSTITUTION may establish all terms and
conditions of such offer.
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The Community Offering, if any, may commence simultaneously with,
during or subsequent to the completion of the Subscription Offering and if
commenced simultaneously with or during the Subscription Offering the Community
Offering may be limited to Community Purchases. The Community Offering must be
completed within 45 days after the completion of the Subscription Offering
unless otherwise extended by the OTS.
The INSTITUTION and the Holding Company, in their absolute discretion,
reserve the right to reject any or all orders in whole or in part which are
received in the Community Offering, at the time of receipt or as soon as
practicable following the completion of the Community Offering.
13. PUBLIC OFFERING AND SYNDICATED PUBLIC OFFERING
Any shares of Conversion Stock not sold in the Subscription Offering or
in the Community Offering, if any, may then be sold through the Underwriter to
the general public at the Purchase Price in the Public Offering, subject to such
terms, conditions and procedures as may be determined by the Boards of Directors
of the INSTITUTION and the Holding Company, in a manner that will achieve the
widest distribution of the Conversion Stock and subject to the right of the
INSTITUTION and the Holding Company, in their absolute discretion, to accept or
reject in whole or in part all subscriptions in the Public Offering. In the
Public Offering, if any, any Person may purchase up to the maximum purchase
limitation established for the Community Offering, subject to the maximum and
minimum purchase limitations specified in Section 14. Shares purchased by any
Person together with any Associate or group of persons Acting in Concert
pursuant to Section 12 shall be counted toward meeting the maximum purchase
limitation specified for this Section. Provided that the Subscription Offering
has commenced, the INSTITUTION may commence the Public Offering at any time
after the mailing to the Members of the Proxy Statement to be used in connection
with the Special Meeting of Members, provided that the completion of the offer
and sale of the Conversion Stock shall be conditioned upon the approval of this
Plan by the Voting Members. It is expected that the Public Offering, if any,
will commence just prior to, or as soon as practicable after, the termination of
the Subscription Offering. The Public Offering shall be completed within 45 days
after the termination of the Subscription Offering, unless such period is
extended as provided in Section 3, above.
Shares of Conversion Stock not subscribed for in the Subscription
Offering, Community Offering, if any, and Public Offering may be sold in a
Syndicated Public Offering, subject to such terms, conditions and procedures as
may be determined by the Boards of Directors of the INSTITUTION and the Holding
Company, in a manner that will achieve the widest distribution of the Conversion
Stock subject to the right of the INSTITUTION and the Holding Company, in their
absolute discretion, to accept or reject in whole or in part all subscriptions
in the Syndicated Public Offering. In the Syndicated Public Offering, any person
together with any Associate or group of persons Acting in Concert may purchase
up to the maximum purchase limitation established for the Public Offering,
subject to the maximum and minimum purchase limitations specified in Section 14
and exclusive of an increase in the total number of shares issued due to an
increase in the maximum of the Estimated Valuation Range of up to 15%. Shares
purchased by any Person together with any Associate or group of persons Acting
in Concert pursuant to Section 12 shall be counted toward meeting the maximum
purchase limitation specified for this Section. Provided that the Subscription
Offering has commenced, the INSTITUTION may commence the Syndicated Public
Offering at any time after the mailing to the Members of the Proxy Statement to
be used in connection with the Special Meeting of Members, provided that the
completion of the offer and sale of the Conversion Stock shall be conditioned
upon the approval of this Plan by the Voting Members.
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If the Syndicated Public Offering is not sooner commenced pursuant to the
provisions of the preceding sentence, the Syndicated Public Offering will be
commenced as soon as practicable following the date upon which the Subscription
Offering and Community Offering, if any, terminate.
If for any reason a Public Offering or Syndicated Public Offering of
shares of Conversion Stock not sold in the Subscription and Community Offerings
can not be effected, other purchase arrangements will be made for the sale of
unsubscribed shares by the INSTITUTION, if possible. Such other purchase
arrangements will be subject to the approval of the OTS.
14. LIMITATION ON PURCHASES
The following limitations shall apply to all purchases of shares of
Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
purchased in the Subscription Offering, Community Offering and/or Public
Offering by any Person (or person through a single account) shall not exceed
such number of shares as shall equal $60,000 divided by the Purchase Price.
B. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person
(or persons through a single account) or Participant together with any Associate
or group of persons Acting in Concert shall not exceed such number of shares as
shall equal $100,000 divided by the Purchase Price, except for Employee Plans,
which in the aggregate may subscribe for up to 10% of the Conversion Stock
issued.
C. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the conversion by Officers and Directors of the
INSTITUTION and their Associates in the aggregate shall not exceed 35% of the
total number of shares of Conversion Stock issued.
D. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the conversion to the extent those shares are
available; provided, however, that the minimum number of shares requirement will
not apply if the number of shares of Conversion Stock purchased times the price
per share exceeds $500.
If the number of shares of Conversion Stock otherwise allocable
pursuant to Sections 8 through 13, inclusive, to any Person or that Person's
Associates would be in excess of the maximum number of shares permitted as set
forth above, the number of shares of Conversion Stock allocated to each such
person shall be reduced to the lowest limitation applicable to that Person, and
then the number of shares allocated to each group consisting of a Person and
that Person's Associates shall be reduced so that the aggregate allocation to
that Person and his Associates complies with the above maximums, and such
maximum number of shares shall be reallocated among that Person and his
Associates as they may agree, or in the absence of an agreement, in proportion
to the shares subscribed by each (after first applying the maximums applicable
to each Person, separately).
Depending upon market or financial conditions, the Board of Directors
of the INSTITUTION and the Holding Company, without further approval of the
Members, may decrease or increase the purchase limitations in this Plan,
provided that the maximum purchase limitations may not be increased to a
percentage in excess of 5%. Notwithstanding the foregoing, the maximum purchase
limitation may be increased up to 9.99% provided that orders for Conversion
Stock exceeding 5% of the shares being
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offered shall not exceed, in the aggregate, 10% of the total offering. If the
INSTITUTION and the Holding Company increase the maximum purchase limitations,
the INSTITUTION and the Holding Company are only required to resolicit Persons
who subscribed for the maximum purchase amount and may, in the sole discretion
of the INSTITUTION and the Holding Company, resolicit certain other large
subscribers. For purposes of this Section 14, the Directors of the INSTITUTION
and the Holding Company shall not be deemed to be Associates or a group
affiliated with each other or otherwise Acting in Concert solely as a result of
their being Directors of the INSTITUTION or the Holding Company.
In the event of an increase in the total number of shares offered in
the conversion due to an increase in the maximum of the Estimated Valuation
Range of up to 15% (the "Adjusted Maximum") the additional shares will be used
in the following order of priority: (i) to fill the Employees Plan's
subscription to up to 10% of the Adjusted Maximum; (ii) in the event that there
is an oversubscription at the Eligible Account Holder level, to fill unfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 8, with preference given to Community Purchasers; (iii) in
the event that there is an oversubscription at the Supplemental Eligible Account
Holder level, to fill unfilled subscriptions of Supplemental Eligible Account
Holders exclusive of the Adjusted Maximum according to Section 10, with
preference given to Community Purchasers; (iv) in the event that there is an
oversubscription at the Other Member level, to fill unfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 11,
with preference given to Community Purchasers; and (v) to fill unfilled
Subscriptions in the Community Offering exclusive of the Adjusted Maximum, with
preference given to Community Purchasers.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the conversion, no Officer,
Director or their Associates shall purchase, without the prior written approval
of the OTS, any outstanding shares of common stock of the Holding Company,
except from a broker-dealer registered with the SEC. This provision shall not
apply to negotiated transactions involving more than one percent of the
outstanding shares of common stock of the Holding Company, the exercise of any
options pursuant to a stock option plan or purchases of common stock of the
Holding Company, made by or held by any Tax-Qualified Employee Stock Benefit
Plan or Non-Tax Qualified Employee Stock Benefit Plan of the INSTITUTION or the
Holding Company (including the Employee Plans) which may be attributable to any
Officer or Director. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any person acting on its behalf and the purchaser or his investment
representative. The term "investment representative" shall mean a professional
investment advisor acting as agent for the purchaser and independent of the
seller and not acting on behalf of the seller in connection with the
transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community, Public and Syndicated Public Offerings must be delivered in full to
the INSTITUTION, together with a properly completed and executed Order Form, or
Purchase Order in the case of the Public or Syndicated Public Offering, on or
prior to the expiration date specified on the Order Form or Purchase Order, as
the case may be, unless such date is extended by the INSTITUTION; provided,
however, that if the Employee Plans subscribes for shares during the
Subscription Offering, the Employee Plan will not be required to pay for the
shares at the time they subscribe but rather may pay for such shares of
Conversion Stock upon
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consummation of the Conversion. The INSTITUTION may make scheduled discretionary
contributions to an Employee Plan provided such contributions do not cause the
INSTITUTION to fail to meet its regulatory capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company
shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community Offering,
Public Offering or Syndicated Public Offering and to thereafter submit payment
for the Conversion Stock for which they are subscribing in the Community
Offering, Public Offering or Syndicated Public Offering at any time prior to the
completion of the Conversion.
Payment for Conversion Stock subscribed for shall be made either in
cash (if delivered in person), check or money order. Alternatively, subscribers
in the Offerings may pay for the shares subscribed for by authorizing the
INSTITUTION on the Order Form or Purchase Order to make a withdrawal from the
subscriber's Qualifying Deposit at the INSTITUTION in an amount equal to the
purchase price of such shares. Such authorized withdrawal, whether from a
savings, passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the subscriber's
Qualifying Deposit but may not be used by the subscriber until the Conversion
Stock has been sold or the 45-day period (or such longer period as may be
approved by the OTS) following the Subscription Offering has expired, whichever
occurs first. Thereafter, the withdrawal will be given effect only to the extent
necessary to satisfy the subscription (to the extent it can be filled) at the
Purchase Price per share. Interest will continue to be earned on any amounts
authorized for withdrawal until such withdrawal is given effect. Interest will
be paid by the INSTITUTION at not less than the passbook annual rate on payments
for Conversion Stock received in cash or by money order or check. Such interest
will be paid from the date payment is received by the INSTITUTION until
consummation or termination of the conversion. If for any reason the Conversion
is not consummated, all payments made by subscribers in the Offerings will be
refunded to them with interest. In case of amounts authorized for withdrawal
from Qualifying Deposits, refunds will be made by canceling the authorization
for withdrawal.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding
Company and INSTITUTION has been declared effective by the OTS and the SEC,
Order Forms will be distributed to the Participants at their last known
addresses appearing on the records of the INSTITUTION for the purpose of
subscribing to shares of Conversion Stock in the Subscription Offering and will
be made available for use in the Community Offering. Notwithstanding the
foregoing, the INSTITUTION may elect to send Order Forms only to those Persons
who request them after such notice as is approved by the OTS and is adequate to
apprise the Participants of the pendency of the Subscription Offering has been
given. Such notice may be included with the proxy statement for the Special
Meeting of Members and may also be included in a notice of the pendency of the
conversion and the Special Meeting of Members sent to all Eligible Account
Holders in accordance with regulations of the OTS.
Each Order Form or Purchase Order will be preceded or accompanied by
the Prospectus (if a holding company form of organization is utilized) or the
Offering Circular (if the holding company form of organization is not utilized)
describing the Holding Company (if utilized), the INSTITUTION, the
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Conversion Stock and the Offerings. Each Order Form or Purchase Order will
contain, among other things, the following:
A. A specified date by which all Order Forms and Purchase Orders must
be received by the INSTITUTION, which date shall be not less than twenty (20),
nor more than forty-five (45) days, following the date on which the Order Forms
are mailed by the INSTITUTION, and which date will constitute the termination of
the Subscription Offering;
B. The purchase price per share for shares of Conversion Stock to be
sold in the Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
Subscription Rights or otherwise purchased in the Community Offering, Public
Offering or Syndicated Public Offering;
D. Instructions as to how the recipient of the Order Form or Purchase
Order is to indicate thereon the number of shares of Conversion Stock for which
such person elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the Order Form or Purchase
Order has received a final copy of the Prospectus or Offering Circular, as the
case may be, prior to execution of the Order Form or Purchase Order.
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the INSTITUTION withdraw said amount from the subscriber's Qualifying
Deposit at the INSTITUTION) to the INSTITUTION; and
G. A statement to the effect that the executed Order Form or Purchase
Order, once received by the INSTITUTION, may not be modified or amended by the
subscriber without the consent of the INSTITUTION.
Notwithstanding the above, the INSTITUTION and the Holding Company
reserve the right in their sole discretion to accept or reject orders received
on photocopied or facsimiled order forms or whose payment is to be made by wire
transfer.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
INSTITUTION by the United States Postal Service or the INSTITUTION is unable to
locate the addressee, (b) are not received back by the INSTITUTION or are
received by the INSTITUTION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
Public Offering or Syndicated Public Offering, by delivering irrevocable orders
together with a legally binding commitment to pay in cash, check, money order or
wire transfer the full amount of the purchase price prior to 48 hours before the
completion of the conversion for the shares of Conversion Stock subscribed for
(including cases in which
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accounts from which withdrawals are authorized are insufficient to cover the
amount of the required payment), or (e) are not mailed pursuant to a "no mail"
order placed in effect by the account holder, the subscription rights of the
person to whom such rights have been granted will lapse as though such person
failed to return the completed Order Form within the time period specified
thereon; provided, however, that the INSTITUTION may, but will not be required
to, waive any immaterial irregularity on any Order Form or Purchase Order or
require the submission of corrected Order Forms or Purchase Orders or the
remittance of full payment for subscribed shares by such date as the INSTITUTION
may specify. The interpretation of the INSTITUTION of terms and conditions of
the Plan and of the Order Forms or Purchase Orders will be final, subject to the
authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the INSTITUTION or the Holding Company in the conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (1) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set
forth in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, which has been
approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to
restrictions on resale or subsequent disposition, each of the following
provisions shall apply;
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent
for the Holding Company not to recognize or effect any transfer of any
certificate or record of ownership of any such shares in violation of the
restriction on transfer; and
(iii) Any shares of capital stock of the Holding Company
issued with respect to a stock dividend, stock split, or otherwise with respect
to ownership of outstanding shares of Conversion Stock subject to the
restriction on transfer hereunder shall be subject to the same restriction as is
applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION
shall have the exclusive voting rights with respect to the INSTITUTION as
specified in its charter. The holders of the common stock of the Holding Company
shall have the exclusive voting rights with respect to the Holding Company.
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20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to conversion. The liquidation account will be maintained by the
INSTITUTION for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their Savings Accounts at the
INSTITUTION. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to his Savings Account, hold a related inchoate
interest in a portion of the liquidation account balance, in relation to his
Savings Account balance at the Eligibility Record Date and Supplemental
Eligibility Record Date or to such balance as it may be subsequently reduced, as
hereinafter provided.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
INSTITUTION's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transactions with an FDIC institution, in which the INSTITUTION is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, the numerator of which is the amount of such Eligible Account Holder's
and Supplemental Eligible Account Holder's Qualifying Deposit and the
denominator of which is the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the
INSTITUTION. Such initial subaccount balance shall not be increased, but shall
be subject to downward adjustment as described below.
If, at the close of business on any annual closing date, commencing on
or after the effective date of conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, as applicable, or (ii) the amount
of the Qualifying Deposit in such Savings Account, the subaccount balance of
such Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the liquidation account shall not
operate to restrict the use or application of any of the net worth accounts of
the INSTITUTION.
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21. TRANSFER OF SAVINGS ACCOUNTS
Each person holding a Savings Account at the INSTITUTION at the time of
conversion shall retain an identical Savings Account at the INSTITUTION
following conversion in the same amount and subject to the same terms and
conditions (except as to voting and liquidation rights).
22. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of conversion, no Person, other than the Holding
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the INSTITUTION
without the prior written consent of the OTS.
B.1. The charter of the INSTITUTION contains a provision stipulating
that no person, except the Holding Company, for a period of five years following
the date of conversion shall directly or indirectly offer to acquire or acquire
the beneficial ownership of more than 10% of any class of an equity security of
the INSTITUTION, without the prior written approval of the OTS. In addition,
such charter may also provide that for a period of five years following the
conversion, shares beneficially owned in violation of the above-described
charter provision shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to
stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
B.2. The Certificate of Incorporation of the Holding Company will
contain a provision stipulating that in no event shall any record owner of any
outstanding shares of the Holding Company's common stock who beneficially owns
in excess of 10% of such outstanding shares be entitled or permitted to any vote
in respect to any shares held in excess of 10%. In addition, the Certificate of
Incorporation and Bylaws of the Holding Company provide for staggered terms of
the directors, noncumulative voting for directors, limitations on the calling of
special meetings, a fair price provision for certain business combinations and
certain notice requirements.
C. For the purposes of this Section 22, B.1.:
(i) The term "person" includes an individual, a group acting
in concert, a corporation, a partnership, an association, a joint stock company,
a trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable
subscription rights issued pursuant to a plan of conversion as well as a
"security" as defined in 15 U.S.C. ss.78c(a)(10).
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23. PAYMENT OF DIVIDENDS AND REPURCHASES OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof would cause its
regulatory capital to be reduced below (i) the amount required for the
Liquidation Account or (ii) the federal regulatory capital requirement in
Section 567.2 of the Rules and Regulations of the OTS. Otherwise, the
INSTITUTION may declare dividends or make capital distributions in accordance
with applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended
at any time prior to solicitation of proxies from Members to vote on the Plan by
a two-thirds vote of the INSTITUTION's Board of Directors, and at any time
thereafter by such vote of such Board of Directors with the concurrence of the
OTS. Any amendment to the Plan made after approval by the Members with the
approval of the OTS shall not necessitate further approval by the Members unless
otherwise required by the OTS. The Plan may be terminated by majority vote of
the INSTITUTION's Board of Directors at any time prior to the Special Meeting of
Members to vote on the Plan, and at any time thereafter with the concurrence of
the OTS.
By adoption of the Plan, the Members of the INSTITUTION authorize the
Board of Directors to amend or terminate the Plan under the circumstances set
forth in this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the INSTITUTION will be voting
to adopt a charter and bylaws to read in the form of charter and bylaws for a
federally chartered stock institution. The effective date of the INSTITUTION's
amended charter and bylaws shall be the date of issuance and sale of the
Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining the federal stock charter for the INSTITUTION and sale of all
Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the Holding Company. In addition, the Holding
Company will use its best efforts to encourage and assist a market-maker to
establish and maintain a market for the Conversion Stock and to list those
securities on a national or regional securities exchange or the NASDAQ System.
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28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION will make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person will be issued subscription rights or be permitted to purchase
shares of Conversion Stock in the Subscription Offering if such Person resides
in a foreign country or in a state of the United States 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 such state; (ii) the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the INSTITUTION or the Holding Company, as the case may
be, under the securities laws of such state, to register as a broker, dealer,
salesman or agent or to register or otherwise qualify its securities for sale in
such state; or (iii) such registration or qualification would be impracticable
for reasons of cost or otherwise.
29. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses
incurred by it in connection with the conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of rulings of the United States
Internal Revenue Service and the State of Georgia taxing authorities, or
opinions of counsel, substantially to the effect that the conversion will not
result in any adverse federal or state tax consequences to Eligible Account
Holders or the INSTITUTION and the Holding Company before or after the
conversion;
(b) The sale of all of the Conversion Stock offered in the conversion;
and
(c) The completion of the conversion within the time period specified
in Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
INSTITUTION shall be final, subject to the authority of the OTS.
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EXHIBIT 3.(i)
<PAGE>
ARTICLES OF INCORPORATION
OF
QUITMAN BANCORP, INC.
ARTICLE 1.
NAME AND ADDRESS. The name of the corporation is Quitman Bancorp, Inc.
(hereinafter referred to as the "Corporation") and its principal executive
office is located at 100 West Screven Street, Quitman, Georgia.
ARTICLE 2.
REGISTERED AGENT; REGISTERED OFFICE. The name of the Corporation's
Registered Agent is Melvin E. Plair, who is a resident of the State of Georgia
and is the President and a director of the Corporation. The post office address
of the Corporation's registered office is at 100 West Screven Street, Quitman,
Georgia.
ARTICLE 3.
PURPOSE; POWERS. The purpose of the Corporation is to act as a savings
and loan holding company and to engage in any lawful act or activity for which
corporations may be organized under the Georgia Business Corporation Code
(hereinafter referred to as the "Code"). The Corporation shall have all the
powers of a corporation organized under said Code.
ARTICLE 4.
DURATION. The duration of the Corporation shall be perpetual.
ARTICLE 5.
CAPITAL STOCK.
A. AUTHORIZED STOCK. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is five million
(5,000,000), of which four million (4,000,000) shall be shares of
common stock, $0.10 par value per share (hereinafter referred to as the
"Common Stock"), and of which one million (1,000,000) shall be shares
of preferred stock, no par value per share (hereinafter referred to as
the "Preferred Stock"). The aggregate par value of all authorized
shares (of all classes) having a par value is $400,000.
B. COMMON STOCK. Except to the extent to which the Board of Directors
shall have specified voting power with respect to any other class of
stock and except as otherwise provided by law, the exclusive voting
power shall be vested in the Common Stock, the holders thereof being
entitled to one vote for each share of such Common Stock standing in
his or her name on the books of the Corporation. Subject to any rights
and preferences of any other class of stock, holders of Common Stock
are entitled to such dividends as may be declared by the Board of
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Directors out of funds lawfully available therefor. Upon any
liquidation, dissolution, or winding up of the affairs of the
Corporation, whether voluntary or involuntary, holders of Common Stock
are entitled to receive pro rata the remaining assets of the
Corporation after the holders of any class of stock ranking prior to
the Common Stock have been paid in full any sums to which they may be
entitled.
C. PREFERRED STOCK. Shares of Preferred Stock may be issued from time
to time in one or more series as may from time to time be determined by
the Board of Directors, each of said series to be distinctly
designated. All shares of any one series of Preferred Stock shall be
identical. The voting powers and the preferences and relative,
participating, optional and other special rights of each such series,
and the qualifications, limitations or restrictions thereof, if any,
may differ from those of any and all other series at any time
outstanding; and the Board of Directors of the Corporation is hereby
expressly granted authority to fix by amendment to these Articles of
Incorporation (which amendment, pursuant to Georgia law, may become
effective without stockholder action) adopted prior to the issuance of
any shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions of
such series, including, but without limiting the generality of the
foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased or decreased (but not below the number
of shares then outstanding) from time to time by like action
of the Board of Directors;
(2) The rate and times at which, and the terms and conditions
on which, dividends, if any, on Preferred Stock of such series
shall be paid, the extent of the preference or relation, if
any, of such dividends to the dividends payable on any other
class or classes or series of the same or other classes of
stock and whether (and the dates from which) such dividends
shall be cumulative or noncumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same for,
shares of any other class or classes or of any series of the
same or any other class or classes of stock of the Corporation
or any other corporation and the terms and conditions of such
conversion or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices and
the time or times at which, and the terms and conditions on
which, Preferred Stock or such series may be redeemed;
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding up of the Corporation;
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock.
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<PAGE>
D. SHARE DIVIDENDS. The Board of Directors may issue shares of one
class or series as a share dividend in respect of another class or
series.
ARTICLE 6.
CONDUCT OF CORPORATE AFFAIRS. The following provisions are inserted for
the management of the business and the conduct of the affairs of the
Corporation, and for further definition, limitation and regulation of the powers
of the Corporation and of its directors and stockholders.
A. PREEMPTIVE RIGHTS; CUMULATIVE VOTING. The holders of the Common
Stock have no preemptive rights or other rights to subscribe to any
other shares of Common Stock or other securities of the Corporation.
Holders of the Common Stock or any other equity securities of the
Corporation have no right to cumulate votes for the election of
directors.
B. BYLAWS. The Board of Directors is expressly empowered to adopt,
amend, or repeal Bylaws of the Corporation. Any adoption, amendment, or
repeal of the Bylaws of the Corporation shall require the approval of a
majority of the total number of authorized directors (whether or not
there exist any vacancies in previously authorized directorships at the
time any resolution is presented to the Board for adoption) (the "Whole
Board"). The stockholders shall also have the power to adopt, amend, or
repeal the Bylaws of the Corporation. In addition to any vote of the
holders of any class or series of stock of this Corporation required by
law or these Articles of Incorporation, the affirmative vote of the
holders of at least 80% of all of the then-outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors voting together as a single class, shall be
required in order for the stockholders to adopt, amend, or repeal any
provisions of the Bylaws of the Corporation.
C. APPLICABILITY OF STATUTES. The Corporation shall be governed by the
provisions of the Code ss.ss. 14-2-860 to 14-2-864 (directors' and
officers' conflicting interest transactions), as now or hereinafter in
effect.
D. SHAREHOLDER INSPECTION RIGHTS. The right to inspect the corporate
records granted by Section 14-2-1602 of the Code, and any successor
section thereto, to shareholders is hereby limited to shareholders of
record owning two percent or more of the outstanding shares of capital
stock of the Corporation.
ARTICLE 7.
BOARD OF DIRECTORS.
A. NUMBER; NAMES. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. The number
of directors of the Corporation (exclusive of directors to be elected
by the holders of any one or more series of any class of stock voting
separately as a class or classes) that shall constitute the initial
Board of Directors shall be six. The authorized number of directors of
the Corporation, as stated in the Corporation's Bylaws, shall be not
fewer than five nor more than fifteen. A majority of the Whole Board of
Directors may vote to increase or decrease the number of directors
constituting the Whole Board of Directors, provided however, that the
minimum number of directors shall be five and the
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maximum number of directors shall be fifteen. The names and business or
home addresses of the persons who are to serve as initial directors are
as follows:
Claude R. Butler Route 4, Box 75
Quitman, Georgia 31643
Robert L. Cunningham, III Route 3, Box 2195
Quitman, Georgia 31643
Robert B. Holwell Route 1, Troupeville Road
Quitman, Georgia 31643
Daniel M. Mitchell, Jr. 202 Plantation Drive
Quitman, Georgia 31643
Melvin A. Plair Route 1, Box 43
Quitman, Georgia 31643
John W. Romine 702 Pine Circle
Quitman, Georgia 31643
B. CLASSES. The Board of Directors shall be divided into three classes,
designated Classes I, II and III, as nearly equal in number as the then
total number of directors constituting the whole Board of Directors
permits, with the term of office of one class expiring each year. At
the first annual meeting of stockholders, directors of Class I shall be
elected to hold office for a term expiring at the next succeeding
annual meeting, directors of Class II shall be elected to hold office
for a term expiring at the second succeeding annual meeting, and
directors of Class III shall be elected to hold office for a term
expiring at the third succeeding annual meeting. Subject to the
foregoing, at each annual meeting of stockholders, the successors to
the class of directors whose term shall then expire shall be elected to
hold office for a term expiring at the third succeeding annual meeting
and until their successors shall be elected and qualified. Any
vacancies in the Board of Directors for any reason, and any newly
created directorships resulting from any increase in the number of
directors, may be filled only by the Board of Directors, acting by vote
of a majority of the directors then in office, although less than a
quorum, and any directors so chosen shall hold office until the next
succeeding annual election of directors and until their successors
shall be elected and qualified. No decrease in the number of directors
shall shorten the term of any incumbent director.
C. REMOVAL. Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the
fact that some lesser percentage may be specified by law, these
Articles of Incorporation or the Bylaws of the Corporation), any
director or the entire Board of Directors of the Corporation may be
removed at any time with cause only by the affirmative vote, at a
meeting of the stockholders called for that purpose, by the holders of
80% or more of the shares of the class or classes entitled to vote at
that meeting and that elected the director.
D. STOCKHOLDER NOMINATIONS. In addition to the right of the Board of
Directors of the Corporation to make nominations for the election of
directors, nominations for the election
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<PAGE>
of directors may be made by any stockholder entitled to vote for the
election of directors if that stockholder complies with all the
provisions of this Section 7.D.
(1) Advance notice of such proposed nomination shall be
received by the Chairman of the Nominating Committee of the
Board of Directors of the Corporation (which notice may be
sent to such Chairman in care of the Secretary of the
Corporation) or, in the absence of such a Nominating
Committee, by the Secretary of the Corporation, not less than
14 days nor more than 60 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if fewer than 21 days notice of the meeting is
given to stockholders, such written notice shall be received
not later than the close of the tenth day following the day on
which notice of the meeting was mailed to stockholders.
(2) Each notice under Section 7.D(1) shall set forth (i) the
name, age, business address and, if known, residence address
of each nominee proposed in such notice, (ii) the principal
occupation or employment of each such nominee, and (iii) the
number of shares of stock of the Corporation which are
beneficially owned by each such nominee. In addition, the
stockholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation.
(3) The nomination made by a stockholder may be made only at a
meeting of the stockholders of the Corporation called for the
election of directors at which such stockholder is present in
person or by proxy, and can only be made by a stockholder who
has theretofore complied with the notice provisions of Section
7.D(1) and (2) above.
(4) The Chairman of the meeting may in his discretion
determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedures, and if he
should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
E. DUTIES OF DIRECTORS; LIABILITY OF DIRECTORS AND OFFICERS. The
directors of the Corporation shall discharge their duties in a manner
in which they believe in good faith to be in the best interests of the
Corporation and with the care of ordinary prudent persons in like
positions would exercise under similar circumstances. No director of
this Corporation shall be personally liable to this Corporation or any
of its stockholders for monetary damages for breach of his or her
duties as a director, including the duty of care, under the Code ss.
14-2- 202(b)(4), provided that this Article 7.E shall not eliminate
liability of a director (i) for any appropriation, in violation of the
director's duties, of any business opportunity of this Corporation,
(ii) for acts or omissions which involve intentional misconduct or a
knowing violation of law, (iii) for the types of liability set forth in
the Code ss. 14-2-832, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Code is amended
after the effective date of these Articles of Incorporation to further
eliminate or limit the personal liability of directors or officers,
then the liability of a director or officer of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Code, as
so amended.
In discharging the duties of their respective positions and
determining what is believed to be in the best interest of the
Corporation, the Board of Directors, committees of the Board of
Directors, and individual directors, in addition to considering the
effect of any action on the
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Corporation or its shareholders, may consider the interests of the
employees, customers, suppliers, and creditors of the Corporation and
its subsidiaries, the communities in which offices or other
establishments of the Corporation and its subsidiaries are located, and
all other factors such directors consider pertinent; provided however,
this provision shall be deemed solely to grant discretionary authority
to the directors and shall not be deemed to provide to any constituency
any right to be considered.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE 8.
INDEMNIFICATION, ETC. OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.
A. INDEMNIFICATION. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, including actions by
or in the right of the Corporation, whether civil, criminal,
administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or agent of the
Corporation, or was servings at the request of the Corporation as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit, or proceeding to the full extent
permissible under Georgia law.
B. ADVANCEMENT OF EXPENSES. Reasonable expenses incurred by an officer,
director, employee, or agent of the Corporation in defending any
action, suit, or proceeding described in Section A of this Article 8
may be paid by the Corporation in advance of the final disposition of
such action, suit, or proceeding if authorized by the Board of
Directors (without regard to whether participating members thereof are
parties to such action, suit, or proceeding) or as otherwise required
and to the fullest extent permitted by the Code, upon receipt of an
undertaking by or on behalf of such person to repay such amount if it
shall ultimately be determined that the person is not entitled to be
indemnified by the Corporation.
C. OTHER RIGHTS. The indemnification and advancement of expenses
provided by or pursuant to this Article 8 shall not be deemed exclusive
of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any insurance or other
agreement, or pursuant to a vote of stockholders or directors or
otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding an office, and shall continue
as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
D. INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation, or who, while a
director, officer, employee, or agent of the Corporation, is or was
serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise, against any
liability asserted against him or incurred by him in that capacity, or
arising out of his status as such,
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whether or not the Corporation would have the power to indemnify him
against such liability under the provisions the Code or of this Article
8.
E. SECURITY FUND; INDEMNITY AGREEMENTS. By action of the Board of
Directors (notwithstanding their interest in the transaction), the
Corporation may create and fund a trust fund or fund of any nature,
and may enter into agreements with its officers, directors, employees,
and agents for the purpose of securing or insuring in any manner its
obligation to indemnify or advance expenses provided for in this
Article 8.
F. MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to any person as provided in this Article 8 shall be
in the nature of a contract between the Corporation and each such
person, and no amendment or repeal of any provision of this Article 8,
and no amendment or termination of any trust or other fund created
pursuant to Article 8.E hereof, shall alter to the detriment of such
person the right of such person to the advancement of expenses or
indemnification related to a claim based on an act or failure to act
which took place prior to such amendment, repeal, or termination.
G. PROCEEDINGS INITIATED BY INDEMNIFIED PERSONS. Notwithstanding any
other provision in this Article 8, the Corporation shall not indemnify
a director, officer, employee, or agent for any liability incurred in
an action, suit, or proceeding initiated by (which shall not be deemed
to include counter-claims or affirmative defenses) or participated in
as an intervenor or amicus curiae by the person seeking indemnification
unless such initiation of or participation in the action, suit, or
proceeding is authorized, either before or after its commencement, by
the affirmative vote of a majority of the directors then in office.
H. SAVINGS CLAUSE. If this Article 8 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director, officer,
employee, and agent of the Corporation as to costs, charges, and
expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement with respect to any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, including an
action by or in the right of the Corporation to the full extent
permitted by any applicable portion of this Article 8 that shall not
have been invalidated and to the full extent permitted by applicable
law.
If the Code is amended to permit further indemnification of
the directors, officers, employees, and agents of the Corporation, then
the Corporation shall indemnify such persons to the fullest extent
permitted by the Code, as so amended. Any repeal or modification of
this Article by the stockholders of the Corporation shall not adversely
affect any right or protection of a director, officer, employee, or
agent existing at the time of such repeal or modification.
ARTICLE 9.
MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS.
A. DEFINITIONS.
(1) Acquire. The term "Acquire" includes every type of
acquisition, whether effected by purchase, exchange, operation
of law or otherwise.
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(2) Affiliate. An "Affiliate" of, or a Person "affiliated
with," a specified Person, means a Person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person
specified.
(3) Associate. The term "Associate" when used to indicate a
relationship with any Person means:
(i) Any corporation or organization (other than the
Corporation or a Subsidiary of the Corporation), or
any subsidiary or parent thereof, of which such
Person is a director, officer or partner or is,
directly or indirectly, the Beneficial Owner of 10%
or more of any class of equity securities; or
(ii) Any trust or other estate in which such Person
has a 20% or greater beneficial interest or as to
which such Person serves as trustee or in a similar
fiduciary capacity, provided, however, such term
shall not include any employee stock benefit plan of
the Corporation or a Subsidiary of the Corporation in
which such Person has a 20% or greater beneficial
interest or serves as a trustee or in a similar
fiduciary capacity; or
(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 the
Corporation or a Subsidiary of the Corporation (or
any subsidiary or parent thereof).
(4) Beneficial Owner. Any corporation, partnership, person, or
entity will be deemed to be a "beneficial owner" of or to own
beneficially any share or shares of stock of the Corporation:
(i) which it owns directly, whether or not of record;
or
(ii) which it has the right to acquire (whether such
right is exercisable immediately or only after the
passage of time) pursuant to any agreement or
arrangement or understanding or upon exercise of
conversion rights, exchange rights, warrants or
options, or otherwise, or which it has the right to
vote pursuant to any agreement, arrangement, or
understanding; or
(iii) which are beneficially owned, directly or
indirectly (including shares deemed to be owned
through application of clause (ii) above) by any
Affiliate or Associate; or
(iv) which are beneficially owned, directly or
indirectly (including shares deemed to be owned
through application of clause (ii) above) by any
other corporation, person, or entity with which it or
any of its Affiliates or Associates have any
agreement or arrangement or understanding for the
purpose of acquiring, holding, voting, or disposing
of Voting Stock (as hereinafter defined).
For the purpose only of determining the percentage of the
outstanding shares of Voting Stock which any corporation, partnership,
person, or other entity beneficially owns, directly or indirectly, the
outstanding shares of Voting Stock will be deemed to include any shares
of Voting
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Stock which such corporation, partnership, person or other entity
beneficially owns pursuant to the foregoing provisions of this
subsection (whether or not such shares of Voting Stock are in fact
issued or outstanding), but shall not include any other shares of
Voting Stock which may be issuable either immediately or at some future
date pursuant to any agreement, arrangement, or understanding or upon
exercise of conversion rights, exchange rights, warrants, options, or
otherwise.
(5) Offer. The term "Offer" shall mean every written offer to
buy or acquire, solicitation of an offer to sell, tender offer
or request or invitation for tender of, a security or interest
in a security for value; provided that the term "Offer" shall
not include (i) inquiries directed solely to the management of
the Corporation and not intended to be communicated to
stockholders which are designed to elicit an indication of
management's receptivity to the basic structure of a potential
acquisition with respect to the amount of cash and or
securities, manner of acquisition and formula for determining
price, or (ii) non-binding expressions of understanding or
letters of intent with the management of the Corporation
regarding the basic structure of a potential acquisition with
respect to the amount of cash and/or securities, manner of
acquisition and formula for determining price.
(6) Person. The term "Person" shall mean any individual,
partnership, corporation, unincorporated association, or other
entity. When two or more Persons act as a partnership, limited
partnership, syndicate, association or other group for the
purpose of acquiring, holding or disposing of shares of stock,
such partnership, syndicate, associate or group shall be
deemed a "Person."
(7) Subsidiary. "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Person in question.
(8) Voting Stock. "Voting Stock" shall mean shares of the
Corporation entitled to vote generally in an election of
directors.
B. DIRECTORS, OFFICERS OR EMPLOYEES. Directors, officers, or employees
of the Corporation or any subsidiary thereof shall not be deemed to be
a group with respect to their individual acquisitions of any class of
equity securities of the Corporation solely as a result of their
capacities as such.
C. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders of the Corporation may be called only by (i) the Board of
Directors pursuant to a resolution approved by the affirmative vote of
a majority of the directors then in office, (ii) the Chairman of the
Board, (iii) the President, (iv) stockholders, if all of the
stockholders representing eighty percent of all the votes entitled to
be cast on any issue to be considered at the proposed meeting, sign,
date, and deliver to the Corporation's secretary one or more written
demands for the meeting describing the purpose or purposes for which it
is to be held or (v) stockholders, if, in the case the Corporation has
one hundred or fewer stockholders, twenty-five percent of all the votes
entitled to be cast on any issue to be considered at the proposed
meeting, sign, date, and deliver to the Corporation's secretary one or
more written demands for the meeting describing the purpose or purposes
for which it is to be held.
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D. ACTION WITHOUT A MEETING. Notwithstanding any other provision of
these Articles of Incorporation or the Bylaws of the Corporation, no
action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without
a meeting unless the action is taken by all shareholders entitled to
vote on the action.
E. STOCKHOLDER PROPOSALS. At an annual meeting of stockholders, only
such new business shall be conducted, and only such proposals shall be
acted upon, as shall have been brought before the annual meeting by, or
at the direction of, (a) the Board of Directors or (b) any stockholder
of the Corporation who complies with all the requirements set forth in
this Article.
Proposals, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice in writing
to the Secretary of the Corporation as set forth in this Article. For
stockholder proposals to be included in the Corporation's proxy
materials, the stockholder must comply with all the timing and
informational requirements of Rule 14a-8 of the Exchange Act, or any
successor regulation. With respect to stockholder proposals to be
considered at the annual meeting of stockholders but not included in
the Corporation's proxy materials, the stockholder's notice shall be
delivered to, or mailed and received at, the principal executive
offices of the Corporation not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders of the Corporation. Such stockholder's notice shall set
forth as to each matter the stockholder proposes to bring before the
annual meeting (a) a brief description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they
appear on the Corporation's books, of the stockholder proposing such
business and, to the extent known, any other stockholders known by such
stockholder to be supporting such proposal, (c) the class and number of
shares of the Corporation stock which are beneficially owned by the
stockholder on the date of such stockholder notice and, to the extent
known, by any other stockholders known by such stockholder to be
supporting such proposal on the date of such stockholder notice, and
(d) any financial interest of the stockholder in such proposal (other
than interests which all stockholders would have).
The Board of Directors may reject any stockholder proposal not
timely made in accordance with the terms of this Article. If the Board
of Directors, or a designated committee thereof, determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Article in any material respect, the
Secretary of the Corporation shall promptly notify such stockholder of
the deficiency in the notice. The stockholder shall have an opportunity
to cure the deficiency by providing additional information to the
Secretary within such period of time, not to exceed five days from the
date such deficiency notice is given to the stockholder, as the Board
of Directors or such committee shall reasonably determine. If the
deficiency is not cured within such period, or if the Board of
Directors or such committee determines that the additional information
provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Article in any
material respect, then the Board of Directors may reject such
stockholder's proposal. The Secretary of the Corporation shall notify a
stockholder in writing whether his proposal has been made in accordance
with the time and informational requirements of this Article.
Notwithstanding the procedures set forth in this paragraph, if neither
the Board of Directors nor such committee makes a determination as to
the validity of any stockholder proposal, the presiding officer of the
annual meeting shall determine and declare at the annual meeting
whether the stockholder proposal was made in accordance with the terms
of this Article. If the presiding officer
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determines that a stockholder proposal was made in accordance with the
terms of this Article, he shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to any
such proposal. If the presiding officer determines that a stockholder
proposal was not made in accordance with the terms of this Article, he
shall so declare at the annual meeting and any such proposal shall not
be acted upon at the annual meeting.
This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of report of officers,
directors and committees of the Board of Directors, but in connection
with such reports, no new business shall be acted upon at such annual
meeting unless stated, filed and received as herein provided.
ARTICLE 10.
RESTRICTIONS ON VOTING AND ACQUIRING THE CORPORATION'S COMMON STOCK.
A. VOTING RESTRICTION. Unless otherwise indicated in this Article, the
definitions and other provisions set forth in Articles 9.A, 9.B, and
9.C are also applicable to this Article 10. Notwithstanding any other
provision of these Articles of Incorporation, unless with the prior
approval of two thirds (2/3) of the Whole Board, no record owner of any
outstanding Common Stock which is beneficially owned, directly or
indirectly, by a Person (including Associates and Affiliates of such
Person) who, as of any record date for the determination of
stockholders entitled to vote on any matter, beneficially owns in
excess of 10% of the then-outstanding shares of Common Stock (the
"Limit"), be entitled or permitted to any vote in respect of the shares
held in excess of the Limit.
B. ACQUISITION RESTRICTION. For a period of five years from the
completion of the conversion of Quitman Federal Savings Bank from
mutual to stock form, no Person shall directly or indirectly Offer to
Acquire or Acquire the beneficial ownership of more than 10% of any
class of an equity security of the Corporation. The foregoing
restriction shall not apply to (i) the purchase of shares by
underwriters in connection with a public offering, (ii) the purchase of
shares by a tax-qualified employee stock benefit plan of the
Corporation or Quitman Federal Savings Bank, or (iii) the purchase of
shares with the prior approval of two-thirds (2/3) of the Whole Board.
C. BOARD DETERMINATIONS. The Board of Directors shall have the power to
construe and apply the provisions of this Article and to make all
determinations necessary or desirable to implement such provisions,
including but not limited to matters with respect to (i) the number of
shares of Common Stock Owned by any Person, (ii) whether a Person is an
Affiliate of another, (iii) whether a Person has an agreement,
arrangement, or understanding with another as to the matters referred
to in the definition of beneficial ownership, (iv) the application of
any other definition or operative provision of the Article to the given
facts, or (v) any other matter relating to the applicability or effect
of this Article. The Board of Directors shall have the right to demand
that any person who is reasonably believed to own Common Stock in
excess of the Limit (or holds of record Common Stock beneficially owned
by any person in excess of the Limit) supply the Corporation with
complete information as to (i) the record owner(s) of all shares
beneficially owned by such person who is reasonably believed to
beneficially own shares in excess of the Limit, (ii) any other factual
matter relating to the applicability or effect of this Article as may
reasonably be requested of such person. Any constructions,
applications, or
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determinations made by the Board of Directors, pursuant to this Article
in good faith and on the basis of such information and assistance as
was then reasonably available for such purpose shall be conclusive and
binding upon the Corporation and its stockholders.
D. ENFORCEABILITY. In the event any provision (or portion thereof) of
this Article shall be found to be invalid, prohibited or unenforceable
for any reason, the remaining provisions (or portions thereof) of this
Article shall remain in full force and effect, and shall be construed
as if such invalid, prohibited or unenforceable provision had been
stricken here from or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each such
remaining provision (or portion thereof) of this Article remain, to the
fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the
Limit, notwithstanding any such finding.
ARTICLE 11.
APPROVAL OF BUSINESS COMBINATIONS AND FAIR PRICE REQUIREMENTS.
A. GENERAL REQUIREMENT. The Corporation hereby elects to be governed by
the provisions set forth in the Code ss.ss. 14-2-1131 to 14-2-1133
pertaining to business combinations with interested shareholders
("Business Combinations"), or any successor law or regulation, and the
Code ss.ss. 14-2-1110 to 14-2-1113 ("Fair price requirements"), or any
successor law or regulation.
B. ADDITIONAL PROVISIONS. Nothing contained in this Article shall be
construed to relieve an interested shareholder as defined under Code
ss.ss. 14-2-1110 and 14-2-1112, or any successor law or regulation
("Interested Shareholder"), from any fiduciary obligation imposed by
law. In addition, nothing contained in this Article shall prevent any
stockholders of the Corporation from objecting to any Business
Combination and from demanding any appraisal rights which may be
available to such Interested Shareholder.
C. Notwithstanding Article 12 or any provisions of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the
fact that a lesser percentage may be specified by law, these Articles
or the Bylaws of the Corporation), the affirmative vote of the holders
of at least 80% of the outstanding shares entitled to vote thereon
(and, if any class or series is entitled to vote thereon separately,
the affirmative vote of the holders of at least 80% of the outstanding
shares of each such class or series) shall be required to amend or
repeal this Article 11 or adopt any provisions inconsistent with this
Article 11.
ARTICLE 12.
AMENDMENT. The Corporation reserves the right to amend or repeal any
provision contained in these Articles of Incorporation in the manner
prescribed by the laws of the State of Georgia and all rights conferred
upon stockholders are granted subject to this reservation; provided,
however, that notwithstanding any other provision of these Articles of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any vote of the holders of
any class or series of the stock of this Corporation required by law or
by these Articles of Incorporation, the affirmative vote of the holders
of at least 80% of the then outstanding shares of the class or classes
entitled to vote at that meeting, voting together as a single class,
shall be required to amend or repeal this Article 12, and Articles 6,
7.C, 7.E, 8, 9, 10, and 11 of these Articles of Incorporation.
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EXHIBIT 3(ii)
<PAGE>
BYLAWS
OF
QUITMAN BANCORP, INC.
ARTICLE I
Home Office
The home office of Quitman Bancorp, Inc. (the "Corporation") shall be
at 100 West Screven Street, City of Quitman, County of Brooks, in the State of
Georgia. The Corporation may also have offices at such other places within or
without the State of Georgia as the board of directors shall from time to time
determine.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at the home office of the Corporation or at such
other place within or without the State of Georgia as the board of directors may
determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called at any time by the majority of the board
of directors or the chief executive officer, and only such persons as are
specifically permitted to call meetings by the Georgia Business Corporation Code
(the "Code") in accordance with the provisions of the Corporation's Articles of
Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. Voting. At each election for directors, every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held by him. Unless otherwise provided in the Articles of
Incorporation, by Statute, or by these Bylaws, a majority of those votes cast by
stockholders at a lawful meeting shall be sufficient to pass on a transaction or
matter.
SECTION 6. Notice of Meetings. Written notice stating the place, day,
and hour of the meeting and the purpose or purposes for which the meeting is
called shall be mailed by the secretary or the officer performing his duties,
not less than ten days nor more than sixty days before the meeting to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books or records of the Corporation as of the record date prescribed in Section
7 of this Article II, with postage thereon prepaid. If a stockholder is present
at a meeting, or in writing waives notice thereof before or after the meeting,
notice of the meeting to such stockholder shall be unnecessary. When any
stockholders' meeting, either annual or special, is adjourned for 120 days,
<PAGE>
notice of the adjourned meeting shall be given as in the case of an original
meeting. It shall not be necessary to give any notice of the time and place of
any meeting adjourned for less than 120 days or of the business to be transacted
at such adjourned meeting, other than an announcement at the meeting at which
such adjournment is taken.
SECTION 7. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than seventy days, and in case of a meeting of stockholders, not less
than ten days prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
SECTION 8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
SECTION 9. Proxies. A shareholder may cast or authorize the casting of
a vote by filing a written appointment of a proxy with an officer of the
Corporation at or before the meeting at which the appointment is to be
effective. A written appointment of a proxy may be signed by the shareholder or
authorized by the shareholder by transmission of a telegram, cablegram, or other
means of electronic transmission, provided that the corporation has no reason to
believe that the telegram, cablegram, or other electronic transmission was not
authorized by the shareholder. Any reproduction of the writing or transmission
may be substituted or used in lieu of the original writing or transmission for
any purpose for which the original transmission could be used, provided that the
copy, facsimile telecommunication, or other reproduction is a complete and
legible reproduction of the entire original writing or transmission. Proxies
solicited on behalf of the management shall be voted as directed by the
stockholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid after eleven months from the
date of its execution unless otherwise provided in the proxy.
SECTION 10. Voting of Shares in the Name of Two or More Persons. When
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such stockholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
- 2 -
<PAGE>
SECTION 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, trustee, or conservator may be voted by him,
either in person or by proxy, without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee
and thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation,
nor shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting. This
provision does not limit the power of the Corporation to vote any shares,
including its own shares, held by it in a fiduciary capacity.
SECTION 12. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board or the president may make such
appointment at the meeting. In case any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment by
the board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the right to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all stockholders.
SECTION 13. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least twenty days prior to the
date of the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Articles of Incorporation.
- 3 -
<PAGE>
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its board of directors. The board of directors
shall annually elect a president and a chief executive officer from among its
members and may also elect a chairman of the board from among its members. The
board of directors shall designate, when present, either of the chairman of the
board or president to preside at its meetings.
SECTION 2. Number, Term, and Election. The board of directors shall
initially consist of five members and shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be elected
for a term of three years and until their successors are elected or qualified.
The board of directors shall be classified in accordance with the provisions of
the Corporation's Articles of Incorporation. Directors are to be elected by a
plurality of votes cast by the shares entitled to vote in the election at a
meeting of stockholders at which a quorum is present. The board of directors may
increase the number of members of the board of directors but in no event shall
the number of directors be increased in excess of fifteen.
SECTION 3. Place of Meetings. All annual and special meetings of the
board of directors shall be held at the home office of the Corporation or at
such other place within or without the State in which the home office of the
Corporation is located as the board of directors may determine and as designated
in the notice of such meeting.
SECTION 4. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this Bylaw at such time and
date as the board of directors may determine.
SECTION 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board or president, or
by two-thirds of the directors. The persons authorized to call special meetings
of the board of directors may fix any place within or without the State of
Georgia as the place for holding any special meeting of the board of directors
called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other.
SECTION 6. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the nominees for election as directors.
Except in the case of a nominee substituted as a result of the death or other
incapacity of a management nominee, the nominating committee shall deliver
written nominations to the secretary at least twenty days prior to the date of
the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Articles of Incorporation.
SECTION 7. Notice. Written notice of any special meeting shall be given
to each director at least two days previous thereto delivered personally or by
telegram or at least five days previous thereto delivered by mail at the address
at which the director is most likely to be reached. Such notice shall be
- 4 -
<PAGE>
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid if mailed or when delivered to the telegraph
company if sent be telegram. Any director may waive notice of any meeting by a
writing filed with the secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the board of
directors need be specified in the notice or waiver of notice of such meeting.
SECTION 8. Quorum. A majority of the number of directors fixed by
Section 2 of Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 8 of Article III.
SECTION 9. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these Bylaws, the
Articles of Incorporation, or the laws of Georgia.
SECTION 10. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 11. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Corporation
addressed to the chairman of the board or the board of directors. Unless
otherwise specified therein, such resignation shall take effect upon receipt
thereof.
SECTION 12. Vacancies. Any vacancy occurring in the board of directors
shall be filled in accordance with the provisions of the Corporation's Articles
of Incorporation. Any directorship to be filled by reason of an increase in the
number of directors may be filled by the affirmative vote of a majority of the
directors then in office. The term of such director shall be in accordance with
the provisions of the Corporation's Articles of Incorporation. A vacancy that
will occur a late date may be filled before the vacancy date occurs, however,
the new director may not take office until the vacancy occurs.
SECTION 13. Removal of Directors. Any director or the entire board of
directors may be removed for cause and then only in accordance with the
provisions of the Corporation's Articles of Incorporation.
SECTION 14. Compensation. Directors, as such, may receive a stated fee
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
Nothing herein shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
- 5 -
<PAGE>
SECTION 15. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting, unless
he objects at the beginning of the meeting (or promptly upon his arrival) to
holding such meeting or transacting business at such meeting, or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who votes in favor of such action.
ARTICLE IV
Committees of the Board of Directors
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, as they may determine to be
necessary or appropriate for the conduct of the business of the Corporation, and
may prescribe the duties, constitution, and procedures thereof. Each committee
shall consist of one or more directors of the Corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
The board of directors shall have power, by the affirmative vote of a
majority of the authorized number of directors, at any time to change the
members of, to fill vacancies in, and to discharge any committee of the board.
Any member of any such committee may resign at any time by giving notice to the
Corporation provided, however, that notice to the board, the chairman of the
board, the chairman of such committee, or the secretary shall be deemed to
constitute notice to the Corporation. Such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the board called for
that purpose.
ARTICLE V
Officers
SECTION 1. Positions. The officers of the Corporation shall be a
president, a chief executive officer, one or more vice presidents, a secretary,
and a treasurer, each of whom shall be elected by the board of directors. The
offices of the secretary and treasurer may be held by the same person and a vice
president may also be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors may designate the treasurer as
chief financial officer. The board may designate the president as chief
executive officer. The board of directors may also elect or authorize the
appointment of such other officers as the business of the Corporation may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual
- 6 -
<PAGE>
meeting of the stockholders. If the election of officers is not held at such
meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until his successor shall have been duly elected and
qualified or until his death or until he shall resign or shall have been removed
in the manner hereinafter provided. Election or appointment of an officer,
employee, or agent shall not of itself create contract rights. The board of
directors may authorize the Corporation to enter into an employment contract
with any officer in accordance with state law; but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with Section 4 of this Article V.
SECTION 3. Removal. Any officer may be removed by vote of the majority
of the board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE VI
Contracts, Loans, Checks, and Deposits
SECTION 1. Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Articles of Incorporation or these Bylaws
with respect to certificates for shares, the board of directors may authorize
any officer, employee, or agent of the Corporation to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Corporation. Such authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees, or
agents of the Corporation in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the board of directors may select.
- 7 -
<PAGE>
ARTICLE VII
Applicability of "Fair Price Requirements" and
"Business Combinations With Interested Stockholders"
Part 2 of the Code ("Fair Price Requirements") shall apply, in its
entirety, to all business combinations of the Corporation.
Part 3 of the Code ("Business Combinations With Interested
Stockholders") shall apply, in its entirety, to all business combinations with
interested shareholders of the Corporation.
ARTICLE VIII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. The shares of the Corporation shall
be represented by certificates signed by the chairman of the board of directors,
by the president or vice president, by the treasurer/chief financial officer, or
by the secretary of the Corporation, and may be sealed with the seal of the
Corporation or a facsimile thereof. Any or all of the signatures upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation and such countersignature may also be either
manually signed or by facsimile. If any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of its
issue.
SECTION 2. Form of Share Certificates. All certificates representing
shares issued by the Corporation shall set forth upon the face or back that the
Corporation will furnish to any shareholder upon request and without charge a
full statement of the designations, preferences, limitations, and relative
rights of the shares of each class authorized to be issued, the variations in
the relative rights and preferences between the shares of each such series so
far as the same have been fixed and determined, and the authority of the board
of directors to fix and determine the relative rights and preferences of
subsequent series.
Each certificate representing shares shall state upon the face thereof:
that the Corporation is organized under the laws of the State of Georgia; the
name of the person to whom issued; the number and class of shares; the date of
issue; the designation of the series, if any, which such certificate represents;
the par value of each share represented by such certificate, or a statement that
the shares are without par value. Other matters in regard to the form of the
certificates shall be determined by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for any
shares until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
issuance of shares shall be paid in accordance with the provisions of Georgia
law.
SECTION 5. Transfer of Shares. Transfer of shares of capital stock of
the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder
- 8 -
<PAGE>
of record thereof or by his legal representative, who shall furnish proper
evidence of such authority, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Corporation. Such transfer shall be
made only on surrender for cancellation of the certificate for such shares. The
person in whose name shares of capital stock stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes.
SECTION 6. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Georgia law or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders.
SECTION 7. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 8. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE IX
Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the last day of
September of each year. The Corporation shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors.
ARTICLE X
Dividends
Subject to the provisions of the Articles of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Corporation's outstanding capital stock. Dividends may
be paid in cash, in property, or in the Corporation's own stock and as provided
for the Corporation's Articles of Incorporation.
- 9 -
<PAGE>
ARTICLE XI
Corporate Seal
The corporate seal of the Corporation shall be in such form as the
board of directors shall prescribe.
ARTICLE XII
Amendments
The Bylaws may be altered, amended or repealed or new Bylaws may be
adopted in the manner set forth in the Articles of Incorporation.
- 10 -
EXHIBIT 4
<PAGE>
================================================================================
COMMON STOCK QUITMAN BANCORP, INC. CUSIP ______ __ _
CERTIFICATE NO.
INCORPORATED UNDER THE
LAWS OF THE STATE OF GEORGIA SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT:
IS THE OWNER OF:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$0.10 PAR VALUE PER SHARE OF
Quitman Bancorp, Inc.
The shares represented by this certificate are transferable only on the
stock transfer books of the corporation by the holder of record hereof in
person, or by his duly authorized attorney or legal representative, upon the
surrender of this certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to all the provisions
contained in the corporation's official corporate papers filed with the
Department of State of the State of Georgia (copies of which are on file with
the Transfer Agent), and to all of these provisions the holder by acceptance
hereof, assents.
This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED OR GUARANTEED.
In Witness Whereof, Quitman Bancorp, Inc. has caused this certificate
to be executed by the facsimile signatures of its duly authorized officers and
has caused a facsimile of its corporate seal to be hereunto affixed.
DATED:
- ------------------------------------ -----------------------------------
PRESIDENT SECRETARY
SEAL
Incorporated 1997
================================================================================
<PAGE>
QUITMAN BANCORP, INC.
The shares represented by this certificate are subject to a limitation
contained in the articles of incorporation (the "Articles") that absent prior
approval by the board of directors, a record owner who beneficially owns in
excess of 10% of the outstanding shares of common stock (the "Limit") is not
entitled or permitted to any vote in respect of shares held in excess of the
Limit. In addition, generally for five years from the initial sale of common
stock, no person or entity may offer to acquire or acquire more than 10% of the
then outstanding shares of any class of equity securities of the corporation.
The Board of Directors of the corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, and relative, participating, optional, or other special rights of
the shares of each such series and the qualifications, limitations, and
restrictions thereof. The corporation will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.
The shares represented by this certificate may not be cumulatively
voted in the election of directors of the corporation. The Articles also require
the approval of not less than 80% of the corporation's voting stock prior to the
corporation engaging in certain business combinations (as defined in the
Articles) with a person who is the beneficial owner of 10% or more of the
corporation's outstanding voting stock, or with an affiliate or associate of the
corporation. This restriction does not apply if certain approvals are obtained
from the Board of Directors. The affirmative vote of holders of 80% of the
outstanding shares of capital stock of the corporation entitled to vote
is required to amend this and certain other provisions of the Articles and
bylaws of the corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF TRANS MIN ACT - Custodian
--------------- ---------------
(Cus) (Minor)
TEN ENT - as tenants by the entireties under Uniform Transfers to Minors Act
JT TEN - as joint tenants with right of ---------------------------
survivorship and not as tenants (State)
in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED hereby sell, assign and
transfer unto ------------------------
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
shares of the common stock represented by the within certificate and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said shares on the books of the within named corporation with
full power of substitution in the premises.
Dated X
--------------------- ----------------------------------------------
X
----------------------------------------------
NOTICE: The signatures to this assignment must correspond with the
name(s) as written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
SIGNATURE(S) GUARANTEED:
-------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS, AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Countersigned and Registered:
REGISTRAR AND TRANSFER COMPANY
10 Commerce Drive
Cranford, New Jersey 07016
Transfer Agent and Registrar
By:
---------------------------------
Authorized Signature
EXHIBIT 5.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITER'S DIRECT DIAL NUMBER
December 22, 1997
Board of Directors
Quitman Bancorp, Inc.
100 West Screven Street
Quitman, Georgia 31643
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement
on Form SB-2 to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer and sale of up to 661,250 shares of
common stock, par value $0.10 per share (the "Common Stock"), of Quitman
Bancorp, Inc. (the "Company"), including shares to be issued to certain employee
benefit plans of the Company and its subsidiary. The Common Stock is proposed to
be issued pursuant to the Plan of Conversion (the "Plan") of Quitman Federal
Savings Bank (the "Savings Bank") in connection with the Savings Bank's
conversion from a mutual savings bank form of organization to a stock savings
bank form of organization and reorganization into a wholly-owned subsidiary of
the Company (the "Conversion"). As special counsel to the Savings Bank and the
Company, we have reviewed the corporate proceedings relating to the Plan and the
Conversion and such other legal matters as we have deemed appropriate for the
purpose of rendering this opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Plan against full payment therefor,
be validly issued, fully paid, and non-assessable shares of Common Stock of the
Company.
We assume no obligation to advise you of changes that may hereafter be
brought to our attention.
<PAGE>
Board of Directors
December 22, 1997
Page Two
We hereby consent to the use of this opinion and to the reference to
our firm appearing in the Company's Prospectus under the headings "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
Quitman Federal Savings Bank--Tax Effects" and "Legal and Tax Matters." We also
consent to any references to our legal opinion referred to under the
aforementioned headings in the Prospectus.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch, P.C.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITER's DIRECT DIAL NUMBER
December 15, 1997
Board of Directors
Quitman Federal Savings Bank
100 W. Screven Street
Quitman, Georgia 31643-0592
Re: Federal Income Tax Opinion Relating to the Proposed Conversion of
Quitman Federal Savings Bank from a Federally-Chartered Mutual
Savings Bank to a Federally-Chartered Stock Savings Bank Pursuant
to Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended
-----------------------------------------------------------------
Members of the Board:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to certain federal income tax consequences of the proposed
conversion (the "Conversion") of Quitman Federal Savings Bank (the "Bank") from
a federally-chartered mutual savings bank to a federally-chartered capital stock
savings bank (the "Stock Bank"), and formation of a parent holding company (the
"Holding Company") which will simultaneously acquire all of the outstanding
stock of Stock Bank. As proposed, the Conversion will be implemented pursuant to
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code").
We have examined such corporate records, certificates and other
documents as we have considered necessary or appropriate for this opinion. In
such examination, we have accepted, and have not independently verified, the
authenticity of all original documents, the accuracy of all copies, and the
genuineness of all signatures. Further, the capitalized terms which are used in
this opinion and are not expressly defined herein shall have the meaning
ascribed to them in the Bank's Plan of Conversion adopted on October 14, 1997,
as amended (the "Plan of Conversion").
STATEMENT OF FACTS
------------------
Based solely upon our review of such documents, and upon such
information as the Bank has provided to us (which we have not attempted to
verify in any respect), and in reliance upon such documents and information, we
understand the relevant facts with respect to the Conversion to be as follows:
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 2
The Bank is a federally-chartered mutual savings bank. As a mutual
savings bank, the Bank has no authorized capital stock. Instead, the Bank, in
mutual form, has a unique equity structure. A savings depositor of the Bank is
entitled to interest income on his or her account balance as declared and paid
by the Bank. A savings depositor has no right to a distribution of any earnings
of the Bank, but rather these amounts become retained earnings of the Bank.
However, a savings depositor has a right to share pro rata, with respect to the
withdrawal value of his or her respective savings account, in any liquidation
proceeds distributed in the event the Bank is ever liquidated. Voting rights in
the Bank are held by its members. Each member is entitled to cast one vote for
each $100 or a fraction thereof of the withdrawal value of the member's account
and each borrower member is entitled to one vote. Each member shall have a
maximum of 1,000 votes. All of the interests held by a savings depositor in the
Bank cease when such depositor closes his or her account(s) with the Bank.
The Board of Directors of the Bank has decided that in order to promote
the growth and expansion of the Bank through the raising of additional capital,
it would be advantageous for the Bank to: (i) convert from a federally-chartered
mutual savings bank to a federally-chartered capital stock savings bank, and
(ii) arrange for the Holding Company to simultaneously acquire all of the Stock
Bank's stock. The Bank's Board of Directors has determined that in order to
provide greater flexibility in future operations of the Bank, including
diversification of business opportunities and acquisitions, it is advantageous
to have the Stock Bank's stock held by the Holding Company. Pursuant to the Plan
of Conversion, the Bank's certificate of incorporation to operate as a mutual
savings bank will be amended and a new certificate of incorporation will be
acquired to allow it to continue its operations in the form of a
federally-chartered capital stock savings bank. The Plan of Conversion provides
for the conversion of the Bank from mutual-to-stock form, and an appraisal of
the pro forma market value of the stock of the Stock Bank, which will be owned
solely by the Holding Company. The Plan of Conversion must be approved by the
Office of Thrift Supervision ("OTS"), and by an affirmative vote of at least a
majority of the total votes eligible to be cast at a special meeting of the
Bank's members called to vote on the Plan of Conversion.
The Holding Company is being formed under the laws of the State of
Georgia for the purpose of the proposed transaction described herein, to engage
in business as a savings and loan holding company and to hold all of the stock
of the Stock Bank. The Holding Company will issue shares of its voting common
stock ("Holding Company Stock") upon completion of the Conversion, as described
below, to persons purchasing such shares through a Subscription Offering and to
the general public in a Public Offering.
Following appropriate regulatory approval, the Plan of Conversion
provides for the issuance of shares of Holding Company Stock to eligible
depositors and borrowers of the Bank and others as described below and set forth
in the Plan of Conversion. The aggregate purchase price at which all shares of
Holding Company Stock will be offered and sold pursuant to the
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 3
Plan of Conversion will be equal to the estimated pro forma market value of the
Bank at the time of the Conversion as held as a subsidiary of the Holding
Company. The estimated pro forma market value will be determined by an
independent appraiser. Pursuant to the Plan of Conversion, all such shares of
Holding Company Stock will be issued and sold at a uniform price per share. The
Conversion and the sale of newly issued shares of the Stock Bank's stock to the
Holding Company will be deemed effective concurrently with the closing of the
sale of Holding Company Stock.
As required by OTS regulations, shares of Holding Company Stock will be
offered pursuant to non-transferable subscription rights on the basis of
preference categories. All shares must be sold and to the extent that Holding
Company Stock is available, no subscriber will be allowed to purchase less than
25 shares of Holding Company Stock, provided that the aggregate purchase price
does not exceed $500. The Bank has established various preference categories
under which shares of Holding Company Stock may be purchased and a public
offering category for the sale of shares not purchased under the preference
categories. If the third preference category is determined to be inappropriate
to the Conversion, then there will only be three preference categories
consisting of the first, second, and fourth preference categories set forth
below, and all references herein to Supplemental Eligible Account Holder and the
Supplemental Eligibility Record Date shall not be applicable to the Conversion.
The first preference category is reserved for the Bank's Eligible
Account Holders. The Plan of Conversion defines "Eligible Account Holder" as any
person holding a Qualifying Deposit. The Plan of Conversion defines "Qualifying
Deposit" as the aggregate balance of all savings accounts of an Eligible Account
Holder in the Bank at the close of business on December 31, 1995, which is at
least equal to $50.00. If a savings account holder of the Bank qualifies as an
Eligible Account Holder, he or she will receive, without payment,
non-transferable subscription rights to purchase Holding Company Stock. The
number of shares that each Eligible Account Holder may subscribe to is equal to
the greater of (a) the maximum purchase limitation established for the Public
Offering; (b) one tenth of one percent of the total offering of shares; or (c)
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Holding Company Stock 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 the
Qualifying Deposits of all Eligible Account Holders. If there is an
oversubscription, shares will be allocated among subscribing Eligible Account
Holders so as to permit each account holder, to the extent possible, to purchase
a number of shares sufficient to make his or her total allocation equal to 100
shares. Any shares not then allocated shall be allocated among the subscribing
Eligible Account Holders on an equitable basis, related to the amounts of their
respective deposits as compared to the total deposits of Eligible Account
Holders on the Eligibility Record Date. Non-transferable subscription rights to
purchase Holding Company Stock received by officers and directors of the Bank
and their associates based on their increased deposits in the Bank in the one
year period
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 4
preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of nontransferable subscription rights to
purchase shares of Holding Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee
stock benefit plans of the Stock Bank. The Plan of Conversion defines "tax
qualified employee stock benefit plans" as any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust meets the
requirements to be "qualified" under Section 401 of the Code. Under the Plan of
Conversion, the Stock Bank's tax-qualified employee stock benefit plans may
subscribe for up to 10% of the shares of Holding Company Stock to be offered in
the Conversion.
The third preference category is reserved for the Bank's Supplemental
Eligible Account Holders. The Plan of Conversion defines "Supplemental Eligible
Account Holder" as any person (other than officers or directors of the Bank and
their associates) holding a deposit in the Bank on the last day of the calendar
quarter preceding the approval of the Plan of Conversion by the OTS
("Supplemental Eligibility Record Date"). This third preference category will
only be used in the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Application for Approval
of Conversion on Form AC filed prior to approval by the OTS. The third
preference category provides that each Supplemental Eligible Account Holder will
receive, without payment, nontransferable subscription rights to purchase
Holding Company Stock to the extent that such shares of Holding Company Stock
are available after satisfying subscriptions for shares in the first and second
preference categories above. The number of shares to which a Supplemental
Eligible Account Holder may subscribe to is the greater of (a) the maximum
purchase limitation established for the Community Offering; (b) one-tenth of one
percent of the total offering of shares; or (c) fifteen times the product
(rounded down to the next whole number) obtained by multiplying the total number
of the shares of Holding Company Stock to be issued by a fraction of which the
numerator is the amount of the deposit of the Supplemental Eligible Account
Holder and the denominator is the total amount of the deposits of all
Supplemental Eligible Account Holders on the Supplemental Eligibility Record
Date. Subscription rights received pursuant to the third preference category
shall be subordinated to all rights under the first and second preference
categories. Non-transferable subscription rights to be received by a
Supplemental Eligible Account Holder in the third preference category shall be
reduced by the subscription rights received by such account holder as an
Eligible Account Holder under the first and second preference categories. In the
event of an oversubscription, shares will be allocated so as to enable each
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation, including shares
previously allocated in the first and second preference categories, equal to 100
shares or the total amount of his subscription, whichever is less. Any shares
not then allocated shall be allocated among the subscribing Supplemental
Eligible Account Holders
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 5
on an equitable basis related to the amount of their respective deposits as
compared to the total deposits of Supplemental Eligible Account Holders on the
Supplemental Eligibility Record Date.
If there is no oversubscription of the Holding Company Stock in the
first, second, and third preference categories, the fourth preference category
becomes operable. In the fourth preference category, members of the Bank
entitled to vote at the special meeting of members to approve the Plan of
Conversion who are not Eligible Account Holders or Supplemental Eligible Account
Holders ("Other Members") will receive, without payment, non-transferable
subscription rights entitling them to purchase Holding Company Stock. Other
Members shall each receive subscription rights to purchase up to the maximum
purchase limitation established for the Public Offering or one-tenth of one
percent of the total offering of shares, to the extent that Holding Company
Stock is available. In the event of an oversubscription by Other Members,
Holding Company Stock will be allocated pro rata according to the number of
shares subscribed for by each Other Member.
The Plan of Conversion further provides for limitations upon purchases
of Holding Company Stock. Specifically, any person by himself or herself or with
an associate or a group of persons acting in concert may subscribe for not more
than $125,000 of Holding Company Stock offered pursuant to the Plan of
Conversion, except that Tax-Qualified Employee Stock Benefit Plans may purchase
up to 10% of the total shares of Holding Company Stock issued. Subject to any
required regulatory approval and the requirements of applicable laws and
regulations, the Bank may increase or decrease any of the purchase limitations
set forth herein at any time. The Board of Directors of the Bank may, in its
sole discretion, increase the maximum purchase limitation up to 5.0%. Requests
to purchase additional shares of Holding Company Stock under this provision will
be allocated by the Board of Directors on a pro rata basis giving priority in
accordance with the priority rights set forth in the Plan of Conversion.
Officers and directors of the Bank and their associates may not purchase in the
aggregate more than 35% of the Holding Company Stock issued pursuant to the
Conversion. Directors of the Bank will not be deemed associates or a group
acting in concert solely as a result of their membership on the board of
directors of the Bank. All of the shares of Holding Company Stock purchased by
officers and directors will be subject to certain restrictions on sale for a
period of one year.
The Plan of Conversion provides that no person will be issued any
subscription rights or be permitted to purchase any Holding Company Stock if
such person resides in a foreign country or in a state of the United States with
respect to which all of the following apply: (a) a small number of persons
otherwise eligible to subscribe for shares under the Plan of Conversion reside
in such state; (b) the issuance of subscription rights or the offer or sale of
the Holding Company Stock in such state, would require the Bank or the Holding
Company under the securities law of such state to register as a broker or dealer
or to register or otherwise qualify its securities for
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 6
sale in such state; and (c) such registration or qualification would be
impracticable for reasons of cost or otherwise.
The Plan of Conversion also provides for the establishment of a
Liquidation Account by the Stock Bank for the benefit of all Eligible Account
Holders and Supplemental Eligible Account Holders (if applicable). The
Liquidation Account will be equal in amount to the net worth of Bank as of the
time of the Conversion. The establishment of the Liquidation Account will not
operate to restrict the use or application of any of the net worth accounts of
the Stock Bank, except that the Stock Bank will not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its net worth below the amount required to maintain the Liquidation
Account. The Liquidation Account will be for the benefit of the Bank's Eligible
Account Holders and Supplemental Eligible Account Holders who maintain accounts
in the Bank at the time of the Conversion. All such account holders, including
those not entitled to subscription rights for reasons of foreign or out-of-state
residency (as described above), will have an interest in the Liquidation
Account. The interest an Eligible Account Holder and Supplemental Eligible
Account Holder will have a right to receive, in the event of a complete
liquidation of the Stock Bank, is a distribution from the Liquidation Account in
the amount of the then current adjusted subaccount balances for savings accounts
then held, which will be made prior to any liquidation distribution with respect
to the capital stock of the Stock Bank.
The initial subaccount balance for a savings account held by an
Eligible Account Holder and/or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction of which the numerator is the amount of the qualifying deposit in the
savings account, and the denominator is the total amount of qualifying deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders in the
Stock Bank. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
Eligible Account Holder or any savings account of any Supplemental Eligible
Account Holder on any annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, whichever is applicable, is less
than the lesser of (1) the deposit balance in the savings account at the close
of business on any other annual closing date subsequent to the Eligibility
Record Date or the Supplemental Eligibility Record Date, or (2) the amount of
the qualifying deposit in such savings account. In such event, the subaccount
balance for the savings account will be adjusted by reducing each subaccount
balance in an amount proportionate to the reduction in the savings account
balance. Once decreased, the Plan of Conversion provides that the subaccount
balance will never be subsequently increased, and if the savings account of an
Eligible Account Holder or Supplemental Eligible Account Holder is closed, the
related subaccount balance in the Liquidation Account will be reduced to zero.
The net proceeds from the sale of the shares of Holding Company Stock
will become the permanent capital of Holding Company, and the Holding Company
will in turn purchase 100%
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 7
of the stock issued by Stock Bank, in exchange for up to 50% of the Holding
Company's stock offering net proceeds or such other percentage as is approved by
the Board of Directors with the concurrence of the OTS.
Following the Conversion, voting rights in Stock Bank will rest
exclusively in the Holding Company. Voting rights in the Holding Company will
rest exclusively in the stockholders of the Holding Company. The Conversion will
not interrupt the business of the Bank, and its business will continue as usual
under the Stock Bank. Each depositor will retain a withdrawable savings account
or accounts equal in amount to the withdrawable account or accounts at the time
of the Conversion. Mortgage loans of the Bank will remain unchanged and retain
their same characteristics in the Stock Bank after the Conversion. The Stock
Bank will continue membership in the Federal Home Loan Bank System, and will
remain subject to the regulatory authority of the OTS. Deposits in Stock Bank
will continue to be insured by the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation up to applicable
limits of insurance coverage.
Immediately prior to the Conversion, the Bank will have a positive net
worth in accordance with generally accepted accounting principles. The savings
account holders of the Bank will pay expenses of the Conversion solely
attributable to them, if any. Further, the Bank will pay its own expenses of the
Conversion and will not pay any expenses solely attributable to the Bank's
savings account holders or to the purchasers of Holding Company Stock.
REPRESENTATIONS BY MANAGEMENT
-----------------------------
In connection with the Conversion, the following statements,
representations and declarations have been made to us by management of the Bank:
1. The Conversion will be implemented in accordance with the terms of
the Plan of Conversion and all conditions precedent contained in the Plan of
Conversion shall be performed prior to the consummation of the Conversion.
2. The fair market value of the withdrawable savings accounts plus
interests in the Liquidation Account to be constructively received under the
Plan of Conversion will in each instance be equal to the fair market value of
each savings account of the Bank plus the interest in the residual equity of the
Bank surrendered in exchange therefor. All proprietary rights in the Bank form
an integral part of the withdrawable savings accounts being surrendered in the
Conversion.
3. The Holding Company and the Stock Bank each have no plan or
intention to redeem or otherwise acquire any of the Holding Company Stock issued
in the proposed transaction.
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 8
4. To the best of the knowledge of the management of the Bank, there is
not now nor will there be at the time of the Conversion, any plan or intention,
on the part of the depositors in the Bank to withdraw their deposits following
the Conversion. Deposits withdrawn immediately prior to or immediately
subsequent to the Conversion (other than maturing deposits) are considered in
making these assumptions.
5. Immediately following the consummation of the proposed transaction,
the Stock Bank will possess the same assets and liabilities as the Bank held
immediately prior to the proposed transaction, plus substantially all of the net
proceeds from the sale of its stock to the Holding Company (except for assets
used to pay expenses in the Conversion). Assets used to pay expenses of the
Conversion (without reference to the expenses of the Subscription Offering and
the Public Offering) and all distributions (except for regular normal interest
payments made by the Bank immediately preceding the transaction) will in the
aggregate constitute less than one percent (1%) of the assets of the Bank, net
of liabilities associated with such assets, and will be paid by the Bank and the
Holding Company from the proceeds of the Subscription Offering and Public
Offering.
6. Following the Conversion, the Stock Bank will continue to engage in
its business in substantially the same manner as engaged in by the Bank prior to
the Conversion. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of its assets, except in the ordinary course of business.
7. No cash or property will be given to any member of the Bank in lieu
of subscription rights or an interest in the Liquidation Account of the Stock
Bank.
8. None of the compensation to be received by any deposit account
holder-employees of the Bank or the Holding Company will be separate
consideration for, or allocable to, any of their deposits in the Bank. No
interest in the Liquidation Account of the Stock Bank will be received by any
deposit account holder-employees as separate consideration for, or will
otherwise be allocable to, any employment agreement, and the compensation paid
to each deposit account holder-employee, during the twelve month period
preceding or subsequent to the Conversion, will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services. No shares of Holding Company Stock will be
issued to or purchased by any deposit account holder-employee of the Bank or the
Holding Company at a discount or as compensation in the Conversion.
9. The aggregate fair market value of the Qualifying Deposits held by
Eligible Account Holders or Supplemental Eligible Account Holders (if
applicable) as of the close of business on the Eligibility Record Date or
Supplemental Eligibility Record Date (if applicable) entitled to interests in
the Liquidation Account to be established by Stock Bank equalled or
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 9
exceeded 99% of the aggregate fair market value of all savings accounts
(including those accounts of less than $50.00) in the Bank as of the close of
business on such date.
10. There is no plan or intention for the Stock Bank to be liquidated
or merged with another corporation following the consummation of the Conversion.
11. For taxable years prior to January 1, 1996, the Bank had utilized
the reserve method of accounting for bad debts in accordance with Section 593 of
the Code. Pursuant to the Small Business Job Protection Act of 1996, the Bank
began to utilize (for taxable years ending after January 1, 1996) the reserve
method of accounting for bad debts in accordance with Section 585 of the Code.
Following the Conversion, the Stock Bank will continue to utilize a reserve for
bad debts in accordance with Section 585 of the Code.
12. The Bank and the Stock Bank are corporations within the meaning of
Section 7701(a)(3) of the Code.
13. The Holding Company has no plan or intention to sell or otherwise
dispose of the stock of the Stock Bank received by it in the proposed
transaction.
14. Both the Stock Bank and the Holding Company have no plan or
intention, either currently or at the time of the Conversion, to issue
additional shares of common stock following the proposed transaction, other than
shares that may be issued to employees or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
15. If all of the net proceeds from the sale of Holding Company Stock
had been contributed by the Holding Company to the Stock Bank in exchange for
common stock of the Stock Bank in the Conversion, as opposed to the Holding
Company retaining a portion of such net proceeds ("retained proceeds"), and if
the Stock Bank immediately thereafter made a distribution of the retained
proceeds to the Holding Company, the Stock Bank would have sufficient current
and accumulated earnings and profits for tax purposes such that the distribution
would not result in the recapture of any portion of the bad debt reserves of the
Stock Bank under Section 593(e) of the Code.
16. At the time of the proposed transaction, the fair market value of
the assets of the Bank on a going concern basis (including intangibles) will
equal or exceed the amount of its liabilities plus the amount of liability to
which such assets are subject. The Bank will have a positive regulatory net
worth at the time of the Conversion.
17. The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 10
involve a receivership, foreclosure, or similar proceeding before a federal or
state agency involving a financial institution to which Section 585 or 593 of
the Code applies.
18. The Bank's savings depositors will pay expenses of the Conversion
solely attributable to them, if any. The Holding Company, the Stock Bank, and
the Bank will pay their own expenses of the Conversion and will not pay any
expenses solely attributable to the savings depositors or to the Holding Company
stockholders.
19. The liabilities of the Bank assumed by the Stock Bank plus the
liabilities, if any, to which the transferred assets are subject were incurred
by the Bank in the ordinary course of its business and are associated with the
assets transferred.
20. There will be no purchase price advantage for the Bank's deposit
account holders who purchase Holding Company Stock in the Conversion.
21. Neither the Bank nor the Stock Bank is an investment company as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
22. No creditors of the Bank have taken any steps to enforce their
claims against the Bank by instituting bankruptcy or other legal proceedings, in
either a court or appropriate regulatory agency, that would eliminate the
proprietary interests of the members of the Bank prior to the Conversion.
23. The proposed transaction does not involve the payment to the Stock
Bank or the Bank of financial assistance from federal agencies within the
meaning of Notice 89-102, 1989-40 C.B. 1.
24. The Eligible Account Holders' and Supplemental Eligible Account
Holders' proprietary interest in the Bank arise solely by virtue of the fact
that they are account holders in the Bank.
25. At the time of the Conversion, the Bank will not have outstanding
any warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire an equity interest in the Holding
Company or the Stock Bank.
26. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of the assets of the Bank acquired in the transaction (except for
dispositions, including deposit withdrawals, made in the ordinary course of
business).
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 11
27. On a per share basis, the purchase price of the Holding Company
Stock in the Conversion will be equal to the fair market value of such stock at
the time of the completion of the proposed transaction.
28. The Bank has received or will receive an opinion from FinPro, Inc.
("Appraiser's Opinion"), which concludes that subscription rights to be received
by Eligible Account Holders, Supplemental Eligible Account Holders, and other
eligible subscribers do not have any ascertainable fair market value, because
they are acquired by the recipients without cost, are non-transferable, exist
for such a short duration, and merely afford the recipients a right only to
purchase Holding Company Stock at a price equal to its estimated fair market
value, which will be the same price used in the Public Offering for unsubscribed
shares of Holding Company Stock.
29. The Bank will not have any net operating losses, capital loss
carryovers, or built-in losses at the time of the Conversion.
OPINION OF COUNSEL
------------------
Based solely upon the foregoing information and our analysis and
examination of current applicable federal income tax laws, rulings, regulations,
judicial precedents, and the Appraiser's Opinion, and provided the Conversion is
undertaken in accordance with the above assumptions, we render the following
opinion of counsel:
1. The change in the form of operation of the Bank from a
federally-chartered mutual savings bank to a federally chartered capital stock
savings bank, as described above, will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized to either the Bank or to the Stock Bank as a result of such
Conversion. (See Rev. Rul. 80-105, 1980-1 C.B. 78). The Bank and the Stock Bank
will each be a party to a reorganization within the meaning of Section 368(b) of
the Code. (Rev. Rul. 72-206, 1972-1 C.B. 104).
2. No gain or loss will be recognized by the Stock Bank on the receipt
of money in exchange for shares of Stock Bank stock. (Section 1032(a) of the
Code).
3. The Holding Company will recognize no gain or loss upon its receipt
of money in exchange for shares of Holding Company Stock. (Section 1032(a) of
the Code).
4. The assets of the Bank will have the same basis in the hands of the
Stock Bank as in the hands of the Bank immediately prior to the Conversion.
(Section 362(b) of the Code).
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 12
5. The holding period of the assets of the Bank to be received by the
Stock Bank will include the period during which the assets were held by the Bank
prior to the Conversion. (Section 1223(2) of the Code).
6. Depositors will realize gain, if any, upon the issuance to them of
(i) withdrawable deposit accounts of the Stock Bank, (ii) subscription rights in
connection with the Conversion, and/or (iii) interests in the Liquidation
Account of the Stock Bank. Any gain resulting therefrom will be recognized, but
only in an amount not in excess of the fair market value of the Liquidation
Accounts and/or subscription rights received. The Liquidation Accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such opinion,
that the subscription rights have no value at the time of distribution or
exercise, no gain or loss will be required to be recognized by depositors upon
receipt or distribution of subscription rights. (Section 1001 of the Code). See
Paulsen v. Commissioner, 469 U.S. 131, 139 (1985).
Likewise, based solely on the accuracy of the aforesaid conclusion
reached in the Appraiser's Opinion, and our reliance thereon, we give the
following opinions: (a) no taxable income will be recognized by the borrowers,
directors, officers, and employees of the Bank upon distribution to them of
subscription rights or upon the exercise or lapse of the subscription rights to
acquire Holding Company Stock at fair market value; (b) no taxable income will
be realized by the depositors of the Bank as a result of the exercise or lapse
of the subscription rights to purchase Holding Company Stock at fair market
value (Rev. Rul. 56-572, 1956-2 C.B. 182); and (c) no taxable income will be
realized by the Bank, the Stock Bank, or the Holding Company on the issuance or
distribution of subscription rights to depositors of the Bank to purchase shares
of Holding Company Stock at fair market value (Section 311 of the Code).
Notwithstanding the Appraiser's Opinion, if the subscription rights are
subsequently found to have a fair market value greater than zero, income may be
recognized by various recipients of the subscription rights (in certain cases,
whether or not the rights are exercised) and the Holding Company and/or the
Stock Bank may be taxable on the distribution of the subscription rights.
(Section 311 of the Code). In this regard, the subscription rights may be taxed
partially or entirely at ordinary income tax rates.
7. The basis of the savings accounts in the Stock Bank received by the
account holders of the Bank will be the same as the basis of their savings
accounts in the Bank surrendered in exchange therefor (Section 358(a)(1)). The
basis of the interests in the Liquidation Account of the Stock Bank received by
the Eligible Account Holders and Supplemental Eligible Account Holders will be
zero, that being the cost of such property. (Paulsen v. Commissioner, 469 U.S.
131, 139 (1985)). The basis of the non-transferable subscription rights will be
zero, provided that such subscription rights are not deemed to have a fair
market value and that the subscription price of such stock issuable upon
exercise of such
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 13
rights is equal to the fair market value of such stock. The basis of the Holding
Company Stock to its stockholders will be the purchase price thereof, increased
by the basis, if any, of the subscription rights exercised (Section 1012 of the
Code). The holding period of Holding Company Stock will commence upon the
effective date of exercise of the subscription rights (Section 1223(6) of the
Code). The holding period for the Holding Company Stock purchased pursuant to
the direct community offering, public offering or under other purchase
arrangements will commence on the date following the date on which such stock is
purchased. (Rev. Rul. 70- 598, 1970-2 C.B. 168).
8. The part of the taxable year of the Bank before the Conversion and
the part of the taxable year of the Stock Bank after the Conversion will
constitute a single taxable year of the Stock Bank. (See Rev. Rul. 57-276,
1957-1 C.B. 126). Consequently, the Bank will not be required to file a federal
income tax return for any portion of such taxable year (Section 1.381(b)-1(a)(2)
of the Treasury Regulations).
9. As provided by Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Treasury Regulations, the Stock Bank will succeed to and
take into account the earnings and profits or deficit in earnings and profits of
the Bank as of the date or dates of transfer.
10. Pursuant to the provisions of Section 381(c)(4) of the Code and
Section 1.381(c)(4)-1(a)(1)(ii) of the Treasury Regulations, the Stock Bank will
succeed to and take into account, immediately after the reorganization, those
accounts of the Bank which represent bad debt reserves in respect of which the
Bank has taken a bad debt deduction for taxable years ending on or before the
date of the reorganization. The bad debt reserves will not be required to be
restored to the gross income of either the Bank or the Stock Bank for the
taxable year of the reorganization, and such bad debt reserves will have the
same character in the hands of the Stock Bank as they would have had in the
hands of the Bank if no distribution or transfer had occurred. No opinion is
being expressed as to whether the bad debt reserves will be required to be
restored to the gross income of either the Bank or the Stock Bank for the
taxable year of the reorganization.
11. Regardless of book entries made for the creation of the Liquidation
Account, the Conversion, as described above, will not diminish the accumulated
earnings and profits of the Stock Bank available for the subsequent distribution
of dividends within the meaning of Section 316 of the Code. (Section 1.312-11(b)
and (c) of the Treasury Regulations).
12. For purposes of Section 381 of the Code, the Stock Bank will be
treated the same as the Bank would have been had there been no reorganization.
Accordingly, the taxable year of the Bank will not end on the effective date of
the proposed transaction merely because of the transfer of assets of the Bank to
the Stock Bank and the tax attributes of the Bank enumerated
<PAGE>
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 14
in Section 381(c) will be taken into account by the Stock Bank as if there had
been no reorganization (Section 1.381(b)-1(a)(2)) of the Treasury Regulations).
No opinion is expressed as to the tax treatment of the Conversion under
the provisions of any of the other sections of the Code and Treasury Regulations
which may also be applicable thereto, or under federal law, or to the tax
treatment of any conditions existing at the time of, or effects resulting from,
the transactions which are not specifically covered by the items set forth
above. Notwithstanding any reference to Section 381 above, no opinion is
expressed or intended to be expressed herein as to the effect, if any, of this
transaction on the continued existence of, the carryover or carryback of, or the
limitation on, any net operating losses of the Bank or its successor, the Stock
Bank, under the Code.
We hereby consent to the filing of this opinion as an exhibit to the
Application for Conversion on Form AC of the Bank filed with the OTS, the
Application H-(e)(1)-S of the Holding Company filed with the OTS, and the
Registration Statement on Form SB-2 of the Holding Company filed under the
Securities Act of 1933, as amended, and to the reference of our firm in the
prospectus related to this opinion.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch, P.C.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.2
<PAGE>
DANIEL M. MITCHELL, JR.
Attorney at Law
Telephone P.O. Box 787
(912) 263-7509 110 S. Washington Street
Fax Quitman, Georgia 31643
(912) 263-4656
December 15, 1997
Board of Directors
Quitman Federal Savings and Loan Association
100 West Screven St.
Quitman, GA 31643
Re: State Income tax opinion relating to conversion of Quitman
Federal from mutual to stock and acquisition of stock
Association by Holding Company
Gentlemen:
You have requested an opinion from this law firm regarding certain
income tax consequences under the laws of the State of Georgia regarding the
mutual-to-stock conversion (the "Conversion") of Quitman Federal Savings and
Loan Association (the "Association") to a federally-chartered capital stock
savings institution (the "Stock Association") and simultaneous acquisition of
all the capital stock of the Stock Association by a parent savings and loan
holding company (the "Holding Company") pursuant to a plan of Conversion adopted
by the Board of Directors.
You have previously received an opinion of counsel ("Federal Tax
Opinion") stating that the Conversion qualifies as a tax free reorganization
under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended
("Code"). The Federal Tax Opinion rendered is predicated upon Revenue Ruling
80-105, 1980-1 C.B. 78, which holds that a similar transaction qualified as a
tax-free reorganization under Section 368(a)(1)(F) of the Code. The Federal Tax
Opinion provides that, based upon the facts and circumstances attendant to the
Conversion of the Association, no adverse federal income tax consequences would
result to the Association or its account holders by virtue of the implementation
of the Plan of Conversion.
Based upon the facts and circumstances attendant to the Conversion as
detailed in the Plan of Conversion and as described in the Federal Tax Opinion,
the provisions of the Code and the Federal Tax Opinion rendered, it is my
opinion that the laws of the State of Georgia will, for income tax purposes,
treat the Conversion transaction as a tax-free reorganization pursuant to
Section 368(a)(1)(F) and/or section 368(a)(1)(E) of the Code in an identical
manner as it is treated by the Internal Revenue Service for federal income tax
purposes. O.C.G. A Section 48-7-21 provides that a corporation's Georgia
Quitman Federal Savings and Loan/Tax Opinion Letter Page - 1
<PAGE>
taxable income shall consist of the taxpayer's taxable income as defined in the
Internal Revenue Code of 1986, with certain adjustments not relevant here.
Further, O.C.G.A. Section 48-7-28 provides that the Georgia taxable income of an
individual shall be the taxpayer's federal adjusted gross income, as defined in
the Internal Revenue Code of 1986, with certain adjustments not revelant here.
Under O.C.G.A Section 48-1-2(14), "Internal Revenue Code of 1986" means the
United States Internal Revenue Code of 1986 provided for in Federal law enacted
on or before January 1, 1997. Therefore, based upon the Federal Tax Opinion and
as limited herein under Scope of Opinion, no adverse Georgia income tax
consequences will be incurred by either the Association or its account holders
as a result of the implementation of the Plan of Conversion.
Scope of Opinion
- ----------------
The opinion herein expressed specifically does not include, without
limitation by the specification thereof, an opinion with respect to any
franchise tax, capital stock tax, realty transfer tax, sales or use tax, or any
tax, other than the income tax, which might result from the implementation of
the Plan of Conversion.
Finally, I hereby consent to the filing of this opinion as an exhibit
to the Application for Conversion on Form AC ("Form AC") or similar filings of
the Association filed with the Office of Thrift Supervision, the filing of this
opinion as an exhibit to the Application H-(e)(1)S of the Holding Company to be
filed with the Office of Thrift Supervision, and the filing of this opinion as
an exhibit to the Holding Company's Registration Statement on Form SB- 2 ("Form
SB-2") to be filed with the Securities and Exchange Commission, and to reference
to this firm in the prospectus contained in the form AC, Form SB-2 and documents
related to this opinion.
Sincerely yours,
/s/Daniel M. Mitchell, Jr.
Daniel M. Mitchell, Jr.
DMM:JR/lst
cc
Quitman Federal Savings and Loan/Tax Opinion Letter Page - 2
EXHIBIT 8.3
<PAGE>
FinPro 26 Church Street - P.O. Box 323
Liberty Corner, NJ 07938
(908) 604-9336 - (908) 604-5951 (FAX)
- --------------------------------------------------------------------------------
December 19, 1997
Board of Directors
Quitman Federal Savings Bank
100 West Screven Street
Quitman, Georgia 31643
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion, as amended (the "Plan") adopted by
the Board of Directors of Quitman Federal Savings Bank (the "Bank"), whereby the
Bank will convert from a federally charted mutual savings bank to a federally
chartered stock savings bank and issue all of the Bank's outstanding capital
stock to Quitman Bancorp, Inc. (the "Company"). Simultaneously, the Company will
issue shares of common stock.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Conversion Stock are to be issued to (i) Eligible Account Holders;
and (ii) the ESOP; together collectively referred to as the "Recipients". Based
solely on our observation that the Subscription Rights will be available to such
Recipients without cost, will be legally non-transferable and of short duration,
and will afford the Recipients the right only to purchase shares of Conversion
Stock at the same price as will be paid by members of the general public in the
Community Offering, but without undertaking any independent investigation of
state or federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market value; and
(2) the price at which the Subscription Rights are exercisable will not be
more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Conversion Stock in the conversion
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/Donald J. Musso
Donald J. Musso
President
EXHIBIT 16
<PAGE>
[SIMMONS & SIMMONS P.C. LETTERHEAD]
December 19, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Pursuant to 17 C.F.R. 228.304(a)(3) ("Item 304"), we have reviewed the
language under heading "CHANGE IN AUDITOR" in the prospectus included as part of
the Registration Statement on Form SB-2 to be filed with the Securities and
Exchange Commission by Quitman Bancorp, Inc., the proposed parent holding
company for Quitman Federal Savings Bank, the successor to Quitman Federal
Savings and Loan Association. We do not disagree with the statements contained
therein concerning our firm. We understand that this letter will also be filed
as an exhibit to an application for conversion on Form AC filed by Quitman
Federal Savings Bank with the Office of Thrift Supervision.
Sincerely,
SIMMONS & SIMMONS P.C.
/s/Edwin A. Simmons
Edwin A. Simmons
EXHIBIT 23.2
<PAGE>
Stewart, Fowler, & Stalvey, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
BUSINESS CONSULTANTS
- ------------------------------------------------------------------
3208 Wildwood Plantation Drive - Post Office Box 1887 -
Valdosta, GA 31603-1887 - (912) 244-1559-Fax(912) 245-7369
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption
"Experts" included in the Registration Statement on Form SB-2 filed
by Quitman Bancorp, Inc. and to the use therein of our report dated
October 30, 1997, concerning the financial statements of Quitman
Federal Savings and Loan Association.
/s/Stewart, Fowler & Stalvey, P.C.
Stewart, Fowler & Stalvey, P.C.
Valdosta, Georgia
December 19, 1997
Member of AICPA Division for CPA Firms -
SEC and Private Companies Practice Sections
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Curtis G. Fowler, C.P.A., C.F.P., P.F.S. Richard A. Stalvey, C.P.A. James E. Folsom, C.P.A. Carlton W. Holley, C.P.A.
C. Wayne Rambo, C.P.A. Scott Y. Haynes, C.P.A. Kenneth E. Hughes, C.P.A. Jeanne R. Kelley, C.P.A.
Josie Miller, C.P.A. Sue D. Mink, C.P.A. Susanne S. DeMersseman, C.P.A. Richard M. Stewart, C.P.A. Retired
</TABLE>
EXHIBIT 23.3
<PAGE>
FinPro 26 Church Street - P.O. Box 323
Liberty Corner, NJ 07938
(908) 604-9336 - (908) 604-5951 (FAX)
- --------------------------------------------------------------------------------
December 19, 1997
Board of Directors
Quitman Federal Savings Bank
100 West Screven Street
Quitman, Georgia 31643
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") and the
reference to our firm as experts in the Application for Conversion to be filed
by Quitman Federal Savings Bank and any amendments thereto and references to our
opinion regarding subscription rights filed as an exhibit to the applications
referred to hereafter. We also consent to the use of our firm's name in the
Registration Statement Form SB-2 to be filed by Quitman Bancorp, Inc. with the
Securities and Exchange Commission and all amendments thereto, and to the
statements with respect to us and the references to our Valuation Appraisal
Report and in the said Application for Conversion and any amendments thereto and
in the Notice and Application for Conversion filed by Quitman Federal Savings
Bank, Quitman, Georgia.
Very Truly Yours,
FinPro, Inc.
/s/Donald J. Musso
Donald J. Musso
Liberty Corner, New Jersey
December 19, 1997
<TABLE> <S> <C>
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