As filed with the Securities and Exchange Commission on January 27, 1998
Registration No. 333-43063
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
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 58-2365866
- --------------------------------- ----------------- -------------------
(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 Placeof 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.
<PAGE>
PROSPECTUS
Up to ^ 661,250 Shares of Common Stock ^
QUITMAN BANCORP, INC.
(Proposed Holding Company for Quitman Federal Savings Bank)
100 West Screven Street
Quitman, Georgia 31643
(912) 263-7538
================================================================================
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 ^
or 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 ^ $5,391,000 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.
For information on how to subscribe,
call the Stock Information Center at (912)___________
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.......................................
^Recent Developments.....................................................
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 ^ gives you ^ the chance to become a stockholder of our
newly formed holding company, Quitman Bancorp, Inc.^ Stockholders will
share indirectly 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 (no copies will be
accepted) to us together with your payment, on or before 12:00 noon,
__________, __________, 1998. If ^ we do not receive sufficient orders
by that time, the 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, ^ there will not be enough shares to fill all orders.
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 ^ in the following ^ priorities:
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^ (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 ^, with the help of Trident Securities, Inc. ^, in a
community offering. In the event of a community offering, we will give a
preference to natural persons who reside in Brooks County, Georgia. In a
syndicated community offering, we would offer any remaining shares to the
general public through a group of brokers/dealers organized by Trident
Securities, Inc. We have the right to reject any stock order in the community
offering or ^ syndicated community 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^. This may make it difficult for you to
resell any shares you ^ purchase. 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 only 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
^ We are offering between 425,000 and 575,000 shares of common stock ^
at $10.00 per share. ^ We may increase the offering to 661,250 shares without
further notice to you. We would do this for two reasons: changes in our
financial condition or market conditions that occur before we complete the
conversion; or to fill the order ^ from our employee stock ownership plan ^. Any
increase over 575,000 shares would require the approval of the OTS. If we do
increase the size of the offering, you may not change or cancel any stock order
previously delivered to us.
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(iii)
<PAGE>
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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^ or Syndicated ^
Community Offering. See pages __________ to __________.
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 ^ December 8, 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 ^ we will raise in this
offering. The $10.00 price per share was determined by our board of directors ^.
It is the price most commonly used in stock offerings involving conversions of
mutual savings institutions. The independent appraisal will be updated ^ before
we complete 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 __________ ____, ^ 1998. The community offering or syndicated community
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. ^ If we adopt the restricted stock plan ^, our
officers and directors will be awarded stock at no cost to them. 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.
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(iv)
<PAGE>
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Use of the Proceeds Raised from the Sale of Common Stock
Quitman Bancorp, Inc. will use a portion of the net proceeds from the ^
offering 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 __________.
Dividends
It is anticipated that ^ Quitman Bancorp, Inc. will pay an annual cash
dividend of $.20 per share following the completion of the first quarter of
1999. There are restrictions on dividends. See page __________.
Market for the Common Stock
We expect the Common Stock to be quoted on the OTC Bulletin Board under
the symbol "QMAN". 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^. 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
^
<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>
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(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
^
<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
^
<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%
^ Average equity to average assets ^(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>
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RECENT DEVELOPMENTS
Selected Financial and Other Data
Set forth below are the summaries of our historical financial and other
data. Financial data as of December 31, 1997 and for the three months ended
December 31, 1997 and 1996, are unaudited. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation have been included. The summary of operations and other data for
the three months ended December 31, 1997 are not necessarily indicative of the
results of operations for the fiscal year ending September 30, 1998.
<TABLE>
<CAPTION>
At At
December 31, September 30,
1997 1997
-------------------------- ----------------------
(Dollars In Thousands)
(unaudited)
<S> <C> <C>
Total Amount of:
Cash and cash equivalents................................... $ 652 $ 656
Loans receivable, net....................................... 33,795 33,326
Investment Securities:
Securities held to maturity................................. 702 805
Securities available-for-sale............................... 3,279 3,046
Assets........................................................ 40,034 39,192
Deposits...................................................... 34,992 34,471
FHLB advances................................................. 1,600 1,300
Total equity (substantially restricted)....................... 3,010 2,959
Number of:
Real estate loans outstanding............................... 937 935
Deposit accounts............................................ 1,991 1,968
Full service offices........................................ 1 1
</TABLE>
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(ix)
<PAGE>
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Summary of Operations
<TABLE>
<CAPTION>
For The Three Months Ended
December 31,
--------------------------------------
1997 1996
---------- -----------
(In Thousands)
(unaudited)
<S> <C> <C>
Interest income(1)..................... $ 855 $ 772
Interest expense....................... 533 478
----- -----
Net interest income.................. 322 294
Provision for loan losses.............. 9 9
----- -----
Net interest income after
provision for loan losses.......... 313 285
Non-interest income.................... 16 11
Non-interest expense................... 247 212
----- -----
Income (loss) before income
taxes (benefit)...................... 82 84
Income tax expense (benefit)........... 35 30
----- -----
Net income............................. $ 47 $ 54
===== =====
</TABLE>
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(1) Includes amortizable loan origination fees.
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(x)
<PAGE>
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Key Operating Ratios
<TABLE>
<CAPTION>
At or For The
Three Months Ended
December 31,(1)
-----------------------------------------
1997 1996
-------------- ---------------
(unaudited)
<S> <C> <C>
Performance Ratios:
Return on average assets (net income divided
by average total assets)......................................... .12% .15%
Return on average equity (net income divided
by average total equity)......................................... 6.28% 8.00%
Average interest-earning assets to average
interest-bearing liabilities..................................... 105.61% 106.19%
Net interest income after provision for loan
losses to average assets......................................... .79% .78%
Net interest rate spread........................................... 3.22% 3.51%
Equity Ratios:
Average assets to average equity (average
equity divided by average total assets).......................... 7.54% 7.37%
Equity to assets at period end..................................... 7.52% 7.38%
Asset Quality Ratios:
Non-performing assets to total assets.............................. .42% .44%
Non-performing loans to net loans................................. .50% .52%
Allowance for loan losses, REO and other repossessed
assets to non-performing assets.................................. 208.82% 127.33%
Allowance for loan losses to total loans........................... 1.04% .70%
</TABLE>
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(1) Annualized where appropriate.
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(xi)
<PAGE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
Comparison of Financial Condition at December 31, 1997 and September 30, 1997
Total assets increased by $.8 million or 2.2% due primarily to loan growth of
$.5 million or 1.4% in residential mortgages and consumer loans.
Deposits increased by $.5 million due primarily to increases in certificates of
deposit. Advances from the Federal Home Loan Bank increased by $.3 million or
25.0% as a result of an increase in loan demand.
Total equity increased $51,000 as a result of net income for the three months
ended December 31, 1997 and changes in the unrealized gain or loss on
available-for-sale securities.
Non-Performing Assets and Delinquencies
Loans accounted for on a non-accrual basis decreased to $27,000 at December 31,
1997 from $124,000 at September 30, 1997. The decrease was the result of three
loans being reclassified to performing loans. At December 31, 1997, the Bank had
no repossessed assets or real estate owned. The allowance for loan losses was
$355,000 at December 31, 1997.
Comparison of the Results of Operations for the Three Months Ended December 31,
1997 and 1996
Net Income. Net income decreased by $7,000 or 13% from net income of $54,000 for
the three months ended December 31, 1996 to net income of $47,000 for the same
three months of fiscal 1997. The return on average assets decreased from .15% to
.12% for the three months ended December 31, 1997 and 1996, respectively.
Net Interest Income. Net interest income increased $28,000, or 9.5%, from
$294,000 for the three months ended December 31, 1996 to $322,000 for the three
months ended December 31, 1997. The increase was primarily due to an increase in
residential mortgages and consumer loans.
Interest Income. Interest income increased $83,000 for the three months ended
December 31, 1997 compared to the same three months ended December 31, 1996. The
increase in interest income was primarily attributable to an increase in the
average balance of interest-earning assets. The average balance of
interest-earning assets increased by 7.5%. This increase in average
interest-earning assets added an additional $83,000 of interest income. The
average yield on interest-earning assets increased moderately to 8.9% from 8.7%
for the quarters ended December 31, 1997 and 1996, respectively.
Interest Expense. Interest expense increased $55,000 from $478,000 for the three
months ended December 31, 1996 to $533,000 for the three months ended December
31, 1997. The increase in interest expense was attributable to an increase in
interest-bearing liabilities of $2.7 million and a slight increase in the cost
of funds of 18 basis points (100 basis points equals 1%). The average balances
of deposits and advances from the Federal Home Loan Bank increased by $2.5
million and $.3 million, respectively, from the three months ended December 31,
1996 to the three months ended December 31, 1997.
Non-Interest Income. Non-interest income increased by $5,000 primarily from an
increase in service charges on deposit accounts of $1,000 and gain on the sale
of other real estate of $3,000.
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(xii)
<PAGE>
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Non-Interest Expense. Non-interest expense increased by $35,000 primarily due to
increased contributions to local charitable and volunteer organizations. Our
contributions during the three months ended December 31, 1996 were smaller by
comparison due to the one-time deposit premium to recapitalize the SAIF that we
paid during the 1996 fiscal year.
Income Taxes. Income tax expense amounted to $30,000 for the three months ended
December 31, 1996 compared to $35,000 for the three months ended December 31,
1997.
Capital Resources
Management monitors our risk-based capital and leverage capital ratios in order
to assess compliance with regulatory guidelines. At December 31, 1997, the Bank
had tangible capital, leverage, and total risk- based capital of 7.50%, 7.50%,
and 14.73%, respectively, which exceeded the OTS's minimum requirements of 1.50,
3.00% and 8.00%, respectively.
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(xiii)
<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 a five ^ mile ^ radius of our office. We may not be able to ^ maintain
our 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 office, and
1
<PAGE>
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^ largely depends on our net interest
income^. Net interest income 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 our 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 to our customers during 1998
and may offer the use of an automated teller machine (an "ATM") ^ in the future.
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 ^ board of directors. 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
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. 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
2
<PAGE>
addition, the effect of these provisions could be to reduce the trading price of
our stock.^ See "Restrictions on Acquisitions of Quitman Bancorp, Inc."
Possible Voting Control by Directors and Officers
^ 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. These purchases together with the purchase of stock
by our 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 for a
stockholder to obtain majority support for stockholder proposals which are
opposed by our management and board of directors. ^ 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 bank 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 ^ $10.00 per share and that sufficient shares will be available to
satisfy subscriptions in all categories. ^
<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. ^ Romine Director 6,000 60,000 ^ 1.2%
Daniel M. Mitchell, Jr. Director 10,000 100,000 2.0%
Melvin E. Plair Director, President and
Chief Executive
Officer 1,500 15,000 ^ 0.3%
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"). The numbers in this column have been rounded and do not
add to match the total.
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. 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 or take any actions to
pursue or propose such dividends. 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 ^ $5,391,000 (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
5
<PAGE>
any dividends that would be treated for tax purposes as a return of capital ^ or
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
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: ^
QMAN) will be traded on the over-the-counter market with quotations available
through the OTC ^ 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
Capitalization
at September 30, 425,000 ^ 500,000 ^ 575,000 ^ 661,250 ^
1997 Shares Shares Shares ^ Shares
------ ------ ------ ------ --------
(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 ^
equal to 2.5% of the ^ gross proceeds from 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 ^ syndicated
community 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% ^ $4,752 20 .39% $5,029 21.40% $5,305 22.48% $5,623 23.73%
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% ^ $2,876 12.39% $3,149 13.40% $3,420 14.48% $3,733 15.73%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</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 ^ proceeds from the offering.
See "Use of Proceeds."
(2) GAAP, adjusted, or risk-weighted assets as appropriate.
(3) The unrealized gain on securities available-for-sale of $6,000 has been
added to GAAP Capital to arrive at our Tangible and Core Capital.
(4) Proposed regulations of the OTS could increase the core capital
requirements to a ratio between 4% and 5%, based upon an association's
regulatory examination rating. See "Regulation - Regulatory Capital
Requirements." Our Risk-Based Capital includes our Tangible Capital plus
$346,000 of our allowance for loan losses. Our Risk-weighted assets as of
September 30, 1997 totaled approximately $23.2 million. Net proceeds
available for investment by us are assumed to be invested in interest
earning assets that have a 20% risk-weighting.
13
<PAGE>
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 ^ on a best efforts basis through Trident in such a manner as to
promote a wide distribution of the shares. The Community Offering ^, if any, may
commence anytime subsequent to the commencement of the Subscription Offering.
Shares not subscribed for in the Subscription^ and Community ^ Offerings may be
offered for sale by QBI on a best efforts basis in a Syndicated ^ Community
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^ and Syndicated ^ Community Offering. See
"-- Community ^ 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^ or Syndicated ^ Community 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 of our members that will be
required to complete the sale of shares being offered in the conversion. If
14
<PAGE>
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
which, based on certain assumptions, concludes that the subscription rights to
be received by Eligible
15
<PAGE>
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 ^ a 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 on the respective qualifying dates, then
the interest in this special liquidation account would be reduced
16
<PAGE>
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^ or
Syndicated ^ Community Offering, as described below, extends beyond 45 days
following the completion of the Subscription Offering, subscribers will be
resolicited. Subscription priorities have been established for the allocation of
stock to the extent that shares are available after satisfaction of all
subscriptions of all persons having prior rights and subject to the purchase
limitations set forth in the Plan and as described below under "-- Limitations
on Purchases of Shares." The following priorities have been established:
Category 1: Eligible Account Holders (First Priority). Eligible Account Holders
are persons who had a deposit account of at least $50 with us on December 31,
1995. Each Eligible Account Holder will receive non-transferable subscription
rights on a priority basis to purchase that number of shares of common stock
which is equal to the greater of 6,000 shares ($60,000), or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares to be issued by a fraction of which the numerator is the amount of the
qualifying deposit of the Eligible Account Holder and the denominator is the
total amount of qualifying deposits of all Eligible Account Holders. If such
allocation results in an oversubscription, shares shall be allocated among
subscribing Eligible Account Holders so as to permit each such account holder,
to the extent possible, to purchase the lesser of 100 shares or the total amount
of his subscription. Any shares not so allocated shall be allocated among the
subscribing Eligible Account Holders on an equitable basis, related to the
amounts of their respective qualifying deposits as compared to the total
qualifying deposits of all subscribing Eligible Account Holders. Only a
person(s) with a qualifying deposit as of the eligibility record date (or a
successor entity or estate) shall receive subscription rights. Any Person(s)
added to a Savings Account after the Eligibility Record Date is not an Eligible
Account Holder. Subscription rights received by officers and directors in this
category based on their increased deposits in us in the one-year period
preceding December 31, 1995, are subordinated to the subscription rights of
other Eligible Account Holders. See "-- Limitations on Purchases and Transfer of
Shares."
Category 2: Tax-Qualified Employee Benefit Plans (Second Priority). Our
tax-qualified employee benefit plans ("Employee Plans") have been granted
subscription rights to purchase up to 8% of the total shares issued in the
conversion. The ESOP is an Employee Plan.
The right of Employee Plans to subscribe for shares is subordinate to
the right of the Eligible Account Holders to subscribe for shares. However, in
the event the offering result in the issuance of shares above the maximum of the
EVR (i.e., more than 575,000 shares), the Employee Plans have a priority right
to fill their subscription (the ESOP, the only Employee Plan, currently intends
to purchase up to 8 % of the common stock issued in the conversion). The
Employee Plans may, however, determine to purchase some or all of the shares
covered by their subscriptions after the conversion in the open
17
<PAGE>
market or, if approved by the OTS, out of authorized but unissued shares in the
event of an oversubscription.
Category 3: Supplemental Eligible Account Holders (Third Priority). Supplemental
Eligible Account Holders are persons who had a deposit account of at least $50
with us on December 31, 1997. Each Supplemental Eligible Account Holder who is
not an Eligible Account Holder will receive non-transferable subscription rights
to purchase that number of shares which is equal to the greater of 6,000 shares
($60,000) or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares to be issued by a fraction of
which the numerator is the amount of the qualifying deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Supplemental Eligible Account Holders. If the allocation made in
this paragraph results in an oversubscription, shares shall be allocated among
subscribing Supplemental Eligible Account Holders so as to permit each such
account holder, to the extent possible, to purchase the lesser of 100 shares or
the total amount of his subscription. Any shares not so allocated shall be
allocated among the subscribing Supplemental Eligible Account Holders on an
equitable basis, related to the amounts of their respective qualifying deposits
as compared to the total qualifying deposits of all subscribing Supplemental
Eligible Account Holders. See "-- Limitations on Purchases and Transfer of
Shares."
The right of Supplemental Eligible Account Holders to subscribe for
shares is subordinate to the rights of the Eligible Account Holders and Employee
Plans to subscribe for shares.
Category 4: Other Members (Fourth Priority). Other Members are persons who have
a deposit account of at least $50 on the voting record date of our special
meeting and certain borrowers whose loans were outstanding as of , 1997 and
continue to be outstanding, on the voting record date of our special meeting.
Each Other Member who is not an Eligible Account Holder or Supplemental Eligible
Account Holder, will receive non-transferable subscription rights to purchase up
to 6,000 shares ($60,000) to the extent such shares are available following
subscriptions by Eligible Account Holders, Employee Plans, and Supplemental
Eligible Account Holders. In the event there are not enough shares to fill the
orders of the Other Members, the subscriptions of the Other Members will be
allocated so that each subscribing Other Member will be entitled to purchase the
lesser of 100 shares or the number of shares ordered. Any remaining shares will
be allocated among Other Members whose subscriptions remain unsatisfied on a 100
share (or whatever lesser amount is available) per order basis until all orders
have been filled on the remaining shares have been allocated. See "--
Limitations on Purchases and Transfer of Shares."
Members in Non-Qualified States. We will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for the shares pursuant to the Plan reside.
However, no person will be offered or allowed to purchase any shares under the
Plan if he resides in a foreign country or in a state with respect to which any
of the following apply: (i) a small number of persons otherwise eligible to
subscribe for shares under the Plan reside in that state or foreign country;
(ii) the granting of subscription rights or offer or sale of shares of common
stock to those persons would require either us, or our employees to register,
under the securities laws of that state or foreign country, as a broker or
dealer or to register or otherwise qualify our securities for sale in that state
or foreign country; or (iii) such registration or qualification would be
impracticable for reasons of cost or otherwise. No payments will be made in lieu
of the granting of subscription rights to any person.
Restrictions on Transfer of Subscription Rights and Shares. Persons are
prohibited from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of their subscription rights.
Subscription rights may be exercised only by the person to whom they are granted
and only for his account. Each person subscribing for shares will be required to
certify that he
18
<PAGE>
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 ^ 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 natural persons who reside
in Brooks County, Georgia, ^ 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 ^, 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 ^
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 ^.
No person will be permitted to purchase more than 6,000 shares or
$60,000 of Common Stock in the Community 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 ^, if held, an executed stock order and
account withdrawal authorization (if applicable) must be received prior to the
termination of the Community 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 ^ to the Bank to be deposited in a
subscription escrow account.
The date by which orders must be received in the Community Offering
^("Community ^ Offering Expiration Date") will be set by us at the time of
commencement of the Community Offering ^; provided however, if the ^ offering is
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 ^ will be promptly returned with interest unless the
subscriber affirmatively indicates otherwise.
If an order in the Community 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 ^ 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 ^ Community Offering, which is not expected to
occur. If a Syndicated ^ Community Offering does occur, it will occur on a
best-efforts basis through Trident on terms negotiated prior to commencement of
the Syndicated ^ Community Offering and, therefore, Trident will not be
committed to purchase any shares.
19
<PAGE>
Ordering and Receiving Shares
Use of Order Forms. Rights to subscribe in the Subscription Offering or
purchase stock in the Community 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 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,
20
<PAGE>
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 ^
Community Offering.
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
21
<PAGE>
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 ^ December 8, 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
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
22
<PAGE>
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, if the OTS agrees, 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 ^ to the extent possible.
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
23
<PAGE>
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 officers as a stock
dividend, stock split, or otherwise with respect to restricted stock shall be
subject to the same restrictions.
24
<PAGE>
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. In addition, we have also received
computations of how these assumed conditions would impact our NPV.
<TABLE>
<CAPTION>
Board Limit of a
Percentage Change In Change in NPV
------------------------------- ----------------------------------
Dollars
Changes ^ NII NPV (in thousands) Percentages
in Market --------- ---------- -------------- -----------
Interest Rates(1)
-----------------
(basis points)
<S> <C> <C> <C> <C>
+400 -60% -65% -$1,717 -54.87%
+300 -60% -60% -$1,279 -40.88%
+200 -40% -40% -$ 815 -26.05%
+100 -20% -25% -$ 350 -11.19%
-100 -25% -25% $ 371 11.86%
-200 -40% -40% $ 762 24.35%
-300 -50% -50% $1,201 38.38%
-400 -60% -60% $1,798 57.46%
</TABLE>
- ----------------
(1) 100 basis points equals 1%.
28
<PAGE>
Because most of our loans have a longer term than most of our deposits,
the computation of the impact on our net income indicated we would earn more
income if interest rates were to fall and we would earn less income if interest
rates were to rise. Specifically, the computation of an instantaneous and
permanent 200 basis point decrease in market interest rates indicated an
approximately 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. As a result of the conversion,
our equity will increase significantly. Initially, this will result in greater
liquid assets and in reduced interest rate risk.
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.
As a result of the conversion, the interest we expect to earn on the
proceeds we receive will likely increase our net interest income. Initially, the
proceeds would likely be invested in shorter term investments that generally
have lower yields than residential mortgage loans. To the extent we are able
through time to find higher yielding uses for these funds, our net interest
income may continue to increase.
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.
32
<PAGE>
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.
As a result of the conversion, 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.
Although no definite plans have been made, we are exploring whether to
purchase land and construct a branch. We would likely hire experts or spend
money before we commit to purchasing land or constructing a new branch. If we
decided not to build a new branch, the money that we had spent up to that time
would be a noninterest expense and would negatively affect our income.
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. The
proceeds we receive from the conversion will increase our liquidity and capital
resources.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments and interest-bearing
deposits, funds provided from operations and advances from the FHLB of Atlanta.
While scheduled repayments of loans and mortgage-backed securities and
maturities of investment securities are predicable sources of funds, deposit
flows, and loan prepayments are greatly influenced by the general level of
interest rates, economic conditions and competition. We use our liquidity
resources principally to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, to maintain liquidity, and to meet operating
expenses. We expect that these liquidity needs will continue to exist in future
years.
Net cash provided by our operating activities (the cash effects of
transactions that enter into our determination of net income -- e.g., non-cash
items, amortization and depreciation, provision for loan losses) for the year
ended September 30, 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
33
<PAGE>
investment securities and ^ the use of ^ $1.5 million in cash to fund the net
increase in investment and mortgage-backed securities and loan originations.
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 ^ $700,000 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.
During the fiscal year ended September 30, 1998, approximately $11.4
million of certificates of deposit (approximately 1/3 of our total deposits)
will mature. We expect that most of these certificates of deposit will be
renewed. Even if many of these certificates of deposit are not renewed, we
believe that we have sufficient liquidity and other sources of funds to
successfully manage the outflow of funds.
Regardless of whether this offering is completed, we are exploring
whether to purchase land and construct a branch. Although no definite plans have
been made, if a new branch is built, the land and construction costs could total
approximately $600,000. We have sufficient liquid assets to pay for these costs
even if the offering is not completed. These costs could be partially offset if
we sold our existing office. We also have sufficent capital resources to install
an ATM machine, if we decide to offer that service in the future.
Recent Accounting Pronouncements
FASB Statement on Earnings Per Share. In March 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS) No. 128. The Statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This Statement simplifies the standards for
computing earnings per share previously found in Accounting Principles Board
("APB") Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This statement
supersedes Opinion 15
34
<PAGE>
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 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
35
<PAGE>
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.
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
36
<PAGE>
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.
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........... ^ $33,676 $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. ^ For the year ended September 30, 1997, there was $11,000 in interest
income that would have been recorded on loans accounted for on a nonaccrual
basis under the original terms of such loans ^; however, interest income on
these loans, which is recorded only when received, was $5,000.
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.
43
<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:
<TABLE>
<CAPTION>
At September 30,
---------------------------
1997 1996
-------- -------
(Dollars in thousands)
<S> <C> <C>
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............................. -- --
</TABLE>
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 ^
gains, 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.
<TABLE>
<CAPTION>
At September 30,
-----------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
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
===== =====
</TABLE>
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 ^ 9.82%,
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 ^.
At or for the period ended
-----------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
(Dollars in thousands)
Balance at year end.................. $ 1,300 $ 1,200
Average balance outstanding ^
during the period.................. 1,175 319
Maximum amount outstanding
at any month-end ^ during
the period......................... ^ 1,300 1,200
Weighted average interest rate
during the period.................. 5.4% 4.9%
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.
52
<PAGE>
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.
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
53
<PAGE>
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.
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
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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 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
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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, 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
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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.
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.
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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.
TAXATION
Federal Taxation
We are subject to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), 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.
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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 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
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annually by the board and serve at the board's discretion. See "Management of
Quitman Federal Savings Bank."
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 ^ 2000
John W. Romine 50 Director 1987 ^ 2000
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. A director whose term expires during the year would serve
until the next annual meeting that would typically occur in January of the
following year.
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.
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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.
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
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and have not yet determined the full cost to us of this program because the
specific benefits have yet to be determined.
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
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proposed. It is anticipated that all such contributions will be tax-deductible.
This loan is expected to be fully repaid in approximately 10 years.
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.^
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
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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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<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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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 ^
approved 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 ^ succeeding 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
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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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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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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 on
August 27, 1997 that it did not wish to continue as independent auditor
following the conversion and that it was resigning to allow Stewart, Fowler &
Stalvey, P.C. to audit the fiscal year ending September 30, 1997 in connection
with the conversion. The report of Simmons & Simmons, P.C. for the fiscal year
ended September 30, 1996 contained no adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles. During the fiscal year ended September 30, 1996 and during the
period from September 30, 1996 to September 30, 1997, there were no
disagreements between the 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
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Company, that file electronically with the SEC. The address for this Web site is
"http://www.sec.gov." 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 for
90 days or more is charged off or an allowance is established unless the loans
are well collateralized and management deems them to be fully collectible. 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, principal and interest payments are current,
full collectibility of principal and interest is reasonably assured and a
consistent record of performance has been demonstrated, 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. Management does not deem the consumer loan origination
fees in excess of direct loan cost to be material in amount.
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.
As of September 30, 1997 and 1996 the Association had no loans which were
considered to be impaired loans.
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
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 27. Exhibits:
The exhibits filed as part of this Registration Statement are
as follows:
1.1 Form of Sales Agency Agreement with Trident Securities,
Inc.*
2 Plan of Conversion, as amended
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*
10.1 Director Indexed Salary Continuation Plan
10.2 Executive Indexed Salary Continuation Plan
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*
99.2 Appraisal Report of FinPro, Inc.
99.3 Marketing Materials
-----------------
* Previously filed
<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 January 27, 1998.
QUITMAN BANCORP, INC.
By: /s/ Melvin E. Plair
-------------------------------------
Melvin E. Plair
President and Chief Executive Officer
(Duly Authorized Representative)
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 January 27, 1998.
<TABLE>
<CAPTION>
<S> <C>
/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
</TABLE>
- ------------------
*Signed pursuant to a Power of Attorney
<PAGE>
As filed with the Securities and Exchange Commission on January 27, 1998
Registration No. 333-43063
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS TO
PRE-EFFECTIVE AMENDMENT NO. 1
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 58-2365866
- --------------------------------- ----------------- -------------------
(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:
1.1 Form of Sales Agency Agreement with Trident Securities,
Inc.*
2 Plan of Conversion, as amended
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*
10.1 Director Indexed Salary Continuation Plan
10.2 Executive Indexed Salary Continuation Plan
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*
99.2 Appraisal Report of FinPro, Inc.
99.3 Marketing Materials
-------------------
* Previously filed
<PAGE>
PLAN OF CONVERSION
AS AMENDED
Adopted on
October 14, 1997
and
Amended on
January 27, 1998
By the Board of Directors of
QUITMAN FEDERAL SAVINGS ^ BANK
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. ^ Syndicated ^ Community 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 ^ BANK
QUITMAN, GEORGIA
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Quitman
Federal Savings Bank ("INSTITUTION"), formerly known as Quitman Federal Savings
and Loan Association^, 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 ^ Syndicated ^
Community 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 and obligations of the INSTITUTION before conversion,
including but not limited to all rights and
A-1
<PAGE>
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 ^
Bank, 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
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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.
^
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.
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.
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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.
Syndicated Community Offering - The term Syndicated Community Offering
means the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
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.
^
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.
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
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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 ^ Syndicated ^ Community 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 ^ Syndicated Community 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 ^ Community
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 ^ Community Offering ^ the of all
Conversion Stock subscribed for in the Subscription ^ and Community Offerings
will be consummated simultaneously on the date the sale of Conversion Stock in
the Syndicated ^ Community 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.
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 ^
Subscription and Community Offerings and whose broker's name appears on the
Order Form of the Person.
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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 ^ Syndicated Community
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 ^ Syndicated ^ Community 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.
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.
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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.
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.
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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 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
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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.
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.
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13. SYNDICATED COMMUNITY OFFERING ^
Shares of Conversion Stock not subscribed for in the Subscription ^ and
Community ^ Offerings may be sold in a Syndicated ^ Community 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 ^ Community
Offering. In the Syndicated ^ Community 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 ^ Community 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 ^ Community 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. If the Syndicated ^ Community
Offering is not sooner commenced pursuant to the provisions of the preceding
sentence, the Syndicated ^ Community Offering will be commenced as soon as
practicable following the date upon which the Subscription ^ and Community ^
Offerings, if any, terminate.
If for any reason a ^ Syndicated ^ Community 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 ^ Syndicated
Community 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.
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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 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
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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^ and Syndicated ^ Community 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 ^ Syndicated ^ Community 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
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^
and Syndicated ^ Community Offering and to thereafter submit payment for the
Conversion Stock for which they are subscribing in the Community Offering^ and
Syndicated ^ Community 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.
A-13
<PAGE>
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 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^ or
Syndicated ^ Community 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
A-14
<PAGE>
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^
and Syndicated ^ Community 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 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;
A-15
<PAGE>
(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.
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.
A-16
<PAGE>
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.
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.
A-17
<PAGE>
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).
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.
A-18
<PAGE>
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.
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
A-19
<PAGE>
(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.
A-20
EXHIBIT 10.1
<PAGE>
DIRECTOR INDEXED SALARY CONTINUATION PLAN
-----------------------------------------
AGREEMENT
---------
This Agreement, made and entered into this 15th day of December, 1995,
by and between Quitman Federal Savings & Loan Association, a Bank organized and
existing under the laws of the State of Georgia, hereinafter referred to as "the
Bank", and Walter B. Holwell, a Key Employee and the Director of the Bank
hereinafter referred to as "the Director."
The Director has been on the Board of the Bank for several years and
has now and for years past faithfully served the Bank. It is the consensus of
the Board of Directors of the Bank (the Board) that the Director's services have
been of exceptional merit, in excess of the compensation paid and an invaluable
contribution to the profits and position of the Bank in its field of activity.
The Board further believes that the Director's experience, knowledge of
corporate affairs, reputation and industry contacts are of such value and his
continued services are so essential to the Bank's future growth and profits that
it would suffer severe financial loss should the Director terminate his
services.
Accordingly, it is the desire of the Bank and the Director to enter
into this Agreement under which the Bank will agree to make certain payments to
the Director upon his retirement and, alternatively, to his beneficiary(ies) in
the event of his premature death while employed by the Bank.
It is the intent of the parties hereto that this Agreement be
considered an arrangement maintained primarily to provide supplemental
retirement benefits for the Director, for purposes of the Employee Retirement
Security Act of 1974 (ERISA). The Director is fully advised of the Bank's
financial status and has had substantial input in the design and operation of
this benefit plan.
Therefore, in consideration of the Director's services performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Bank and the Director, agree as follows:
I. DEFINITIONS
A. Effective Date:
---------------
The Effective Date of this Agreement shall be December 15,
1995.
<PAGE>
B. Plan Year:
----------
Any reference to "Plan Year" shall mean a calendar year from
January 1 to December 31. In the year of implementation, the
term "Plan Year" shall mean the period from the effective date
to December 31 of the year of the effective date.
C. Retirement Date:
----------------
Retirement Date shall mean retirement from service with the
Bank which becomes effective on the first day of the calendar
month following the month in which the Director reaches his
sixty-fifth (65th) birthday or such later date as the Director
may actually retire.
D. Termination of Service:
-----------------------
Termination of Service shall mean voluntary resignation of
service by the Director or the Bank's discharge of the
Director without cause [as defined in subparagraph III (D)
hereinafter], prior to the Normal Retirement Age [described in
subparagraph I (J) hereinafter].
E. Pre-Retirement Account:
-----------------------
A Pre-Retirement Account shall be established as a liability
reserve account on the books of the Bank for the benefit of
the Director. Prior to termination of service or the
Director's retirement, such liability reserve account shall be
increased or decreased each Plan Year (including the Plan Year
in which the Director ceases to serve on the Board of the
Bank) by an amount equal to the annual earnings or loss for
that Plan Year determined by the Index [described in
subparagraph I (G) hereinafter], less the Cost of Funds
Expense for that Plan Year [described in subparagraph I (H)
hereinafter].
F. Index Retirement Benefit:
-------------------------
The Index Retirement Benefit for the Director for any year
shall be equal to the excess of the annual earnings (if any)
determined by the Index [subparagraph I (G)] for that Plan
Year over the Cost of Funds Expense [subparagraph I (H)] for
that Plan Year.
G. Index:
------
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contracts described
hereinafter as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contracts were
- 2 -
<PAGE>
purchased on the effective date hereof.
<TABLE>
<CAPTION>
<S> <C>
Insurance Company: The Guardian Life Insurance Company
Policy Form: Whole Life
Policy Name: Life Paid Up at 96
Insured's Age and Sex: 39, Male
Riders: None
Ratings: None
Option: None
Face Amount: $100,000
Premiums Paid: $4,111.70
Number of Premium Payments: Twenty Six
Assumed Issue Date: December 15, 1995
</TABLE>
If such contracts of life insurance are actually purchased by
the Bank then the actual policies as of the dates they were
purchased shall be used in calculations under this Agreement.
If such contracts of life insurance are not purchased or are
subsequently surrendered or lapsed, then the Bank shall
receive annual policy illustrations that assume the above
described policies were purchased from the above named
insurance company(ies) on the Effective Date from which the
increase in policy value will be used to calculate the amount
of the Index.
In either case, references to the life insurance contract are
merely for purposes of calculating a benefit. The Bank has no
obligation to purchase such life insurance and, if purchased,
the Director and his beneficiary(ies) shall have no ownership
interest in such policy and shall always have no greater
interest in the benefits under this Agreement than that of an
unsecured general creditor of the Bank.
H. Cost of Funds Expense:
----------------------
The Cost of Funds Expense for any Plan Year shall be
calculated by taking the sum of the amount of premiums set
forth in the Indexed policies described above plus the amount
of any benefits paid to the Director pursuant to this
Agreement (Paragraph III hereinafter) plus the amount of all
previous years after-tax Costs of Funds Expense, and
multiplying that sum by the average after-tax cost of funds of
the Bank's third quarter Call Report for the Plan Year as
filed with the Federal Reserve.
I. Change of Control
-----------------
Change of Control shall be deemed to be the cumulative
transfer of more than fifty percent (50%) of the voting stock
of the Bank holding company from the Effective Date of this
Agreement. For the purposes of this Agreement, transfers
- 3 -
<PAGE>
on account of deaths or gifts, transfers between family
members or transfers to a qualified retirement plan maintained
by the Bank shall not be considered in determining whether
there has been a change in control.
J. Normal Retirement Age:
----------------------
Normal Retirement Age shall mean the date on which the
Director attains age sixty-five (65).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any
existing employment agreement by and between the Bank and the Director,
nor shall any conditions herein create specific employment rights to
the Director nor limit the right of the Employer to discharge the
Director with or without cause. In a similar fashion, no provision
shall limit the Director's rights to voluntarily sever his employment
at any time.
III. INDEX BENEFITS
The following benefits provided by the Bank to the Director are in the
nature of a fringe benefit and shall in no event be construed to effect
nor limit the Director's current or prospective salary increases, cash
bonuses or profit-sharing distributions or credits.
A. Retirement Benefits:
--------------------
Should the Director continue to serve on the Board of the Bank
until his "Normal Retirement Age" defined in subparagraph
I(J), he shall be entitled to receive the balance in his
Pre-Retirement Account [as defined in subparagraph I (E)] in
ten (10) equal annual installments commencing thirty (30) days
following the Director's Retirement Date [as defined in
subparagraph I (C)]. In addition to these payments, commencing
with the Plan Year in which the Director attains his
Retirement Date, the Index Retirement Benefit [as defined in
subparagraph I (F) above] for each year shall be paid to the
Director until his death.
B. Termination of Service:
-----------------------
Subject to subparagraph III (D) hereinafter, should the
Director suffer a termination of service [defined in
subparagraph I (D)], he shall be entitled to receive ten
percent (10%), times the number of full years (to a maximum of
100%) the Director has served on the board of the Bank, times
the balance in the Pre-Retirement Account paid over ten (10)
years in equal installments commencing at the Retirement Date
[subparagraph I (C)]. In addition to these payments, ten
percent (10%) times full years of service with the Bank, times
the
- 4 -
<PAGE>
Index Retirement Benefit for each year shall be paid to the
Director until his death.
C. Death:
------
Should the Director die prior to having received the full
balance of the Pre- Retirement Account, the unpaid balance of
the Pre-Retirement Account shall be paid in a lump sum to the
beneficiary selected by the Director and filed with the Bank.
In the absence of or a failure to designate a beneficiary, the
unpaid balance shall be paid in a lump sum to the personal
representative of the Director's estate.
D. Discharge for Cause:
--------------------
Should the Director be discharged for cause at any time prior
to his Retirement Date, all Index Benefits under this
Agreement [subparagraphs III (A), (B) or (C)] shall be
forfeited. The term "for cause" shall mean gross negligence or
gross neglect or the conviction of a felony or
gross-misdemeanor involving moral turpitude, fraud, dishonesty
or willful violation of any law that results in any adverse
effect on the Bank. If a dispute arises as to discharge "for
cause", such dispute shall be resolved by arbitration as set
forth in this Agreement.
E. Death Benefit:
--------------
Except as set forth above, there is no death benefit provided
under this Agreement.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Director, his beneficiary(ies) or any successor in interest to him
shall be and remain simply a general creditor of the Bank in the same
manner as any other creditor having a general claim for matured and
unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the exact nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such funding at any time, in whole or in
part. At no time shall the Director be deemed to have any lien or
right, title or interest in or to any specific funding investment or to
any assets of the Bank.
- 5 -
<PAGE>
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Director, then the Director shall assist
the Bank by freely submitting to a physical exam and supplying such
additional information necessary to obtain such insurance or annuities.
V. CHANGE OF CONTROL
Upon a Change of Control [as defined in subparagraph I (I) herein], if
the Director's service on the Board is subsequently terminated then he
shall receive the benefits promised in this Agreement upon attaining
Normal Retirement Age, as if he has served continuously on the Board of
the Bank until that time. The Director will also remain eligible for
all promised death benefits in this Agreement. In addition, no sale,
merger or consolidation of the Bank shall take place unless the new or
surviving entity expressly acknowledges the obligations under this
Agreement and agrees to abide by its terms.
VI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
----------------------------------------
Neither the Director, his/her surviving spouse nor any other
beneficiary under this Agreement shall have any power or right
to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the
benefits payable hereunder nor shall any of said benefits be
subject to seizure for the payment of any debts, judgments,
alimony or separate maintenance owned by the Director or his
beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the
Director or any beneficiary attempts assignment, commutation,
hypothecation, transfer or disposal of the benefits hereunder,
the Bank's liabilities shall forthwith cease and terminate.
B. Binding Obligation of Bank and any Successor in Interest:
---------------------------------------------------------
The Bank expressly agrees that it shall not merge or
consolidate into or with another bank or sell substantially
all of its assets to another bank, firm or person until such
bank, firm or person expressly agrees, in writing, to assume
and discharge the duties and obligations of the Bank under
this Agreement. This Agreement shall be binding upon the
parties hereto, their successors, beneficiary(ies), heirs and
personal representatives.
C. Revocation:
-----------
It is agreed by and between the parties hereto that, during
the lifetime of the Director, this Agreement may be amended or
revoked at any time or times, in whole or in part, by the
mutual written assent of the Director and the Bank.
- 6 -
<PAGE>
D. Gender:
-------
Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should so
apply.
E. Effect on Other Bank Benefit Plans:
-----------------------------------
Nothing contained in this Agreement shall affect the right of
the Director to participate in or be covered by any qualified
or non-qualified pension, profit-sharing, group, bonus or
other supplemental compensation or fringe benefit plan
constituting a part of the Bank's existing or future
compensation structure.
F. Headings:
---------
Headings and subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part
of this Agreement.
G. Applicable Law:
---------------
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Georgia.
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
---------------------------------------
The "Named Fiduciary and Plan Administrator" of this plan
shall be Quitman Federal Savings & Loan Association until its
removal by the Board. As Named Fiduciary and Administrator,
the Bank shall be responsible for the management, control and
administration of the Salary Continuation Agreement as
established herein. He may delegate to others certain aspects
of the management and operation responsibilities of the plan
including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
---------------------------------
In the event a dispute arises over benefits under this
Agreement and benefits are not paid to the Director (or to his
beneficiary in the case of the Director's death) and such
claimants feel they are entitled to receive such benefits,
then a written claim must be made to the Plan Administrator
named above within ninety (90) days from the date payments are
refused. The Plan Administrator shall review the written claim
and if the claim is denied, in whole or in part, they shall
provide in writing within ninety (90) days of receipt of such
claim their specific
- 7 -
<PAGE>
reasons for such denial, reference to the provisions of this
Agreement upon which the denial is based and any additional
material or information necessary to perfect the claim. Such
written notice shall further indicate the additional steps to
be taken by claimants if a further review of the claim denial
is desired. A claim shall be deemed denied if the Plan
Administrator fails to take any action within the aforesaid
ninety-day period.
If claimants desire a second review they shall notify the Plan
Administrator in writing within ninety (90) days of the first
claim denial. Claimants may review this Agreement or any
documents relating thereto and submit any written issues and
comments they may feel appropriate. In its sole discretion,
the Plan Administrator shall then review the second claim and
provide a written decision within ninety (90) days of receipt
of such claim. This decision shall likewise state the specific
reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision
is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Bank, and the
third member selected by the first two members. The Board
shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns
shall be bound by the decision of such Board with respect to
any controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Director "for cause" such dispute shall likewise be submitted
to arbitration as above described and the parties hereto agree
to be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 15th day
of December, 1995 and that, upon execution, each has received a conforming copy.
QUITMAN FEDERAL SAVINGS & LOAN ASSOCIATION
/s/ Lisha Barwick By: /s/ Melvin Plair
- -------------------------------- ----------------------------
Witness Title
/s/ Lisha Barwick By: /s/ Walter B. Holwell
- -------------------------------- ----------------------------
Witness Walter B. Holwell
- 8 -
<PAGE>
ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT
----------------------------------------------
Insurer: The Guardian Life Insurance Company
Policy Number: 4029853
Bank: Quitman Federal Savings & Loan Association
Insured: Walter B. Holwell
Relationship of Bank to Insured: Employer
The respective rights and duties of the Bank and the insured in the subject
policy shall be as defined in the following:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the
use of the Insured all in accordance with this Agreement. The Bank
alone may, to the extent of its interest, exercise the right to borrow
or withdraw on the policy cash values. Where the Bank and the Insured
(or assignee, with the consent of the Insured) mutually agree to
exercise the right to increase the coverage under the subject split
dollar policy, then, in such event, the rights, duties and benefits of
the parties to such increased coverage shall continue to be subject to
the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds
payable upon the death of the Insured and to elect and change a payment
option for such beneficiary, subject to any right or interest the Bank
may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any
other premium payments that might become necessary to keep the policy
in force.
- 9 -
<PAGE>
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the
assumed cost of insurance as required by the Internal Revenue Service.
The Bank (or its administrator) will report to the Employee the amount
of imputed income received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of
the policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty
percent (80%) of the net at risk insurance portion of the
proceeds. The net at risk insurance portion is the total
proceeds less the cash value of the policy.
B. The Bank shall be entitled to the remainder of such proceeds.
C. The Bank and the Insured (or assignees) shall share in any
interest due on the death proceeds on a pro rata basis as the
proceeds due each respectively bears to the total proceeds,
excluding any such interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the
policy's cash value, as that term is defined in the policy contract,
less any policy loans and unpaid interest or cash withdrawals
previously incurred by the Bank and any applicable surrender charges.
Such cash value shall be determined as of the date of surrender or
death as the case may be.
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts
shall be considered for all purposes of this Agreement as having been
paid by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity
benefits, on expiration of the deferment period, shall be determined
under the provisions of this Agreement by regarding such endowment
proceeds or the commuted value of such annuity benefits as the policy's
cash value. Such endowment proceeds or annuity benefits shall be
considered to be like death
- 10 -
<PAGE>
proceeds for the purposes of division under this Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following
thirty (30) days written notice to the Insured upon the happening of
any one of the following:
1. The Insured shall leave the service of the Bank (voluntarily
or involuntarily) prior to ten years from the date of first
service, or
2. The Insured shall be discharged from employment with the Bank
for cause. The term "for cause" shall mean gross negligence or
gross neglect or the commission of a felony or
gross-misdemeanor involving moral turpitude, fraud, dishonesty
or wilful violation of any law that results in any adverse
effect on the Bank.
Upon such termination, the Insured (or assignee) shall have a ninety
(90) day option to receive from the Bank an absolute assignment of the
policy in consideration of a cash payment to the Bank, whereupon this
Agreement shall terminate. Such cash payment shall be the greater of:
1. The Bank's share of the cash value of the policy on the date
of such assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank
prior to the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within
the prescribed ninety (90) day period, the Insured (or assignee) agrees
that all of his rights, interest and claims in the policy shall
terminate as of the date of the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon
distribution of the death benefit proceeds in accordance with Paragraph
VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust, or other organization, any right, title or
interest in the subject policy nor any rights, options, privileges or
duties created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
- 11 -
<PAGE>
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Quitman Federal Savings & Loan Association is hereby designed the
"Named Fiduciary" until resignation or removal by the board of
directors. As Named Fiduciary, Quitman Federal Savings & Loan
Association shall be responsible for the management, control, and
administration of this Split Dollar Plan as established herein. The
Named Fiduciary may allocate to others certain aspects of the
management and operation responsibilities of the plan, including the
employment of advisors and the delegation of any ministerial duties to
qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XV. CLAIMS PROCEDURE FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claims forms or claim information as to the subject policy can be
obtained by contacting The Benefit Marketing Group, Inc.
(770-952-1529). When the Named Fiduciary has a claim which may be
covered under the provisions described in the insurance policy, he
should contact the office named above and they will either complete a
claim form and forward it to an authorized representative of the
Insurer or advise the named Fiduciary what further requirements are
necessary. The Insurer will evaluate and make a decision as to payment.
If the claim is payable, a benefit check will be issued to the Named
Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the
requirements under the terms of the policy. If the Named Fiduciary is
dissatisfied with the denial of the claim and wishes to contest such
claim denial, he should contact the office named above and they will
assist in making inquiry to the Insurer. All objections to the
Insurer's actions should be in writing and submitted to the office
named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
- 12 -
<PAGE>
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the right s of the parties as herein developed upon receiving
an executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
Executed at Quitman, Georgia this 15th day of December, 1995.
QUITMAN FEDERAL SAVINGS & LOAN ASSOCIATION
/s/ Lisha Barwick By: /s/ Melvin Plair
- --------------------------- -----------------------------------------
Witness Title
/s/ Lisha Barwick By: /s/ Walter B. Holwell
- --------------------------- -----------------------------------------
Witness Walter B. Holwell
- 13 -
<PAGE>
BENEFICIARY DESIGNATION FORM
Primary Designation:
Name Relationship
---- ------------
Kim T. Holwell Wife
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
Contingent Designation:
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
/s/ Walter B. Holwell 12/15/95
- ------------------------------ -----------------------------
Walter B. Holwell Date
- 14 -
EXHIBIT 10.2
<PAGE>
EXECUTIVE INDEXED SALARY CONTINUATION PLAN
AGREEMENT
This Agreement, made and entered into this 15th day of December, 1996,
by and between Quitman Federal Savings & Loan Association, a Bank organized and
existing under the laws of the State of Georgia, hereinafter referred to as "the
Bank," and Brenda C. Renfroe, a Key Employee and an Executive of the Bank,
hereinafter referred to as "the Executive."
The Executive has been in the employ of the Bank for several years and
has now and for years past faithfully served the Bank. It is the consensus of
the Board of Directors of the Bank (the Board) that the Executive's services
have been of exceptional merit, in excess of the compensation paid and an
invaluable contribution to the profits and position of the Bank in its field of
activity. The Board further believes that the Executive's experience, knowledge
of corporate affairs reputation and industry contacts are of such value and his
continued services are so essential to the Bank's future growth and profits that
it would suffer severe financial loss should the Executive terminate his
services.
Accordingly, it is the desire of the Bank and the Executive to enter
into this Agreement under which the Bank will agree to make certain payments to
the Executive upon his retirement and, alternatively, to his beneficiary(ies) in
the event of his premature death while employed by the Bank.
It is the intent of the parties hereto that this Agreement be
considered an arrangement maintained primarily to provide supplemental
retirement benefits for the Executive, as a member of a select group of
management or highly-compensated employees of the Bank, and to be considered a
non-qualified benefit plan for purposes of the Employee Retirement Security Act
of 1974 (ERISA). The Executive is fully advised of the Bank's financial status
and has had substantial input in the design and operation of this benefit plan.
Therefore, in consideration of the Executive's services performed in
the past and those to be performed in the future and based upon the mutual
promises and covenants herein contained, the Bank and the Executive, agree as
follows:
I. DEFINITIONS
A. Effective Date:
---------------
The Effective Date of this Agreement shall be December 15,
1996.
B. Plan Year:
----------
Any reference to the "Plan Year" shall mean a calendar year
from January 1 to December 31. In the year of implementation,
the term "Plan Year" shall mean the period from the effective
date to December 31 of the year of the effective date.
<PAGE>
C. Retirement Date:
----------------
Retirement Date shall mean retirement from service with the
Bank which becomes effective on the first day of the calendar
month following the month in which the Executive reaches his
sixty-fifth (65th) birthday or such later date as the
Executive may actually retire.
D. Termination of Service:
-----------------------
Termination of Service shall mean voluntary resignation of
service by the Executive or the Bank's discharge of the
Executive without cause [as defined in subparagraph III (D)
hereinafter], prior to the Normal Retirement Age [described in
subparagraph I (J) hereinafter].
E. Pre-Retirement Account:
-----------------------
A Pre-Retirement Account shall be established as a liability
reserve account on the books of the Bank for the benefit of
the Executive. Prior to termination of service or the
Executive's retirement, such liability reserve account shall
be increased or decreased each Plan Year (including the Plan
Year in which the Executive ceases to be employed by the Bank)
by an amount equal to the annual earnings or loss for that
Plan Year determined by the Index [described in subparagraph I
(G) hereinafter], less the Opportunity Cost for that Plan Year
[described in subparagraph I (H) hereinafter].
F. Index Retirement Benefit:
-------------------------
The Index Retirement Benefit for the Executive for any year
shall be equal to the excess of the annual earnings (if any)
determined by the Index [subparagraph I (G)] for that Plan
Year over the Opportunity Cost [subparagraph I (H)] for that
Plan Year.
G. Index:
------
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contracts described
hereinafter as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contracts were
purchased on the effective date hereof.
Insurance Company: The Guardian Life Insurance Company
Policy Form: Whole Life
Policy Name: Life Paid up at 96
Insured's Age and Sex: 48, Female
Riders: Paid-Up Additions Rider
Ratings: Table 3
Face Amount: $100,000
<PAGE>
Premiums Paid: $6,212.40
Number of Premium Payments: Seventeen
Assumed Purchase Date: December 15, 1996
If such contracts of life insurance are actually purchased by
the Bank then the actual policies as of the dates they were
purchased shall be used in calculations under this Agreement.
If such contracts of life insurance are not purchased or are
subsequently surrendered or lapsed, then the Bank shall
receive annual policy illustrations that assume the above
described policies were purchased from the above named
insurance company(ies) on the Effective Date from which the
increase in policy value will be used to calculate the amount
of the Index.
In either case, references to the life insurance contract are
merely for purposes of calculating a benefit. The Bank has no
obligation to purchase such life insurance and, if purchased,
the Executive and his beneficiary(ies) shall have no ownership
interest in such policy and shall always have no greater
interest in the benefits under this Agreement than that of an
unsecured general creditor of the Bank.
H. Opportunity Cost:
-----------------
The Opportunity Cost for any Plan Year shall be calculated by
taking the sum of the amount of premiums set forth in the
Indexed policies described above plus the amount of any
after-tax benefits paid to the Executive pursuant to this
Agreement (Paragraph III hereinafter) plus the amount of all
previous years after-tax Opportunity Cost, and multiplying
that sum by the average after-tax yield of a one year Treasury
bill for the Plan Year.
I. Change of Control:
------------------
Change of control shall be deemed to be the cumulative
transfer of more than fifty percent (50%) of the voting stock
of the Bank from the Executive Date of this Agreement. For the
purposes of this Agreement, transfers on account of deaths or
gifts, transfers between family members or transfers to a
qualified retirement plan maintained by the Bank shall not be
considered in determining whether there has been a change in
control.
J. Normal Retirement Age:
----------------------
Normal Retirement Age shall mean the date on which the
Executive attains age sixty-five (65).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any
existing employment agreement by and between the Bank and the
Executive, nor shall any
<PAGE>
conditions herein create specific employment rights to the Executive
nor limit the right of the Employer to discharge the Executive with or
without cause. In a similar fashion, no provision shall limit the
Executive's rights to voluntarily sever his employment at any time.
III. INDEX BENEFITS
The following benefits provided by the Bank to the Executive are in the
nature of a fringe benefit and shall in no event be construed to effect
nor limit the Executive's current or prospective salary increases, cash
bonuses or profit-sharing distributions or credits.
A. Retirement Benefits:
--------------------
Should the Executive continue to be employed by the Bank until
his "Normal Retirement Age" defined in subparagraph I (J), he
shall be entitled to receive the balance in his Pre-Retirement
Account [as defined in subparagraph I (E) in ten (10) equal
annual installments commencing thirty (30) days following the
Executive's Normal Retirement Date. In addition to these
payments, commencing with the Plan Year in which the Executive
attains his Retirement Date, the Index Retirement Benefit [as
defined in subparagraph I (F) above] for each year shall be
paid to the Executive until his death.
B. Termination of Service:
-----------------------
Subject to subparagraph III (D) hereinafter, should the
Executive suffer a termination of service [defined in
subparagraph I (D)], he shall be entitled to receive ten
percent (10%), times the number of full years (to a maximum of
100%) the Director has served on the Board from the date of
first service on the Board prior to his termination of
service, times the balance in the Pre-Retirement Account paid
over ten (10) years in equal installments commencing at the
Retirement Date [subparagraph I (C)]. In addition to these
payments, ten percent (10%) times full years of service with
the Bank, times the Index Retirement Benefit for each year
shall be paid to the Executive until his death.
C. Death:
------
Should the Executive die prior to having received the full
balance of the Pre- Retirement Account, the unpaid balance of
the Pre-Retirement Account shall be paid in a lump sum to the
beneficiary selected by the Executive and filed with the Bank.
In the absence of or a failure to designate a beneficiary, the
unpaid balance shall be paid in a lump sum to the personal
representative of the Executive's estate.
<PAGE>
D. Discharge for Cause:
--------------------
Should the Executive be discharged for cause at any time prior
to his Retirement Date, all Index Benefits under this
Agreement [subparagraphs III (A), (B) or (C)] shall be
forfeited. The term "for cause" shall mean gross negligence or
gross neglect or the conviction of a felony or
gross-misdemeanor involving moral turpitude, fraud, dishonesty
or willful violation of any law that results in any adverse
effect on the Bank. If a dispute arises as to discharge "for
cause," such dispute shall be resolved by arbitration as set
forth in this Agreement.
E. Death Benefit:
--------------
Except as set forth above, there is no death benefit provided
under this Agreement.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, his beneficiary(ies) or any successor in interest to him
shall be and remain simply a general creditor of the Bank in the same
manner as any other creditor having a general claim for matured and
unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the exact nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such funding at any time, in whole or in
part. At no time shall the Executive be deemed to have any lien or
right, title or interest in or to any specific funding investment or to
any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Executive, then the Executive shall assist
the Bank by freely submitting to a physical exam and supplying such
additional information necessary to obtain such insurance or annuities.
V. CHANGE OF CONTROL
Upon a Change of Control [as defined in subparagraph I (I) herein], if
the Executive's employment is subsequently terminated then he shall
receive the benefits promised in this Agreement upon attaining Normal
Retirement Age, as if he had been continuously employed by the Bank
until his Normal Retirement Age. The Executive will also remain
eligible for all promised death benefits in this Agreement. In
addition, no sale, merger or consolidation of the Bank shall take place
unless the new or surviving entity expressly acknowledges the
obligations under this Agreement and agrees to abide by its terms.
<PAGE>
VI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
----------------------------------------
Neither the Executive, his/her surviving spouse nor any other
beneficiary under this Agreement shall have any power or right
to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the
benefits payable hereunder nor shall any of said benefits be
subject to seizure for the payment of any debts, judgments,
alimony or separate maintenance owed by the Executive or his
beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the
Executive or any beneficiary attempts assignment, commutation,
hypothecation, transfer or disposal of the benefits hereunder,
the Bank's liabilities shall forthwith cease and terminate.
B. Binding Obligation of Bank and any Successor in Interest:
---------------------------------------------------------
The Bank expressly agrees that it shall not merge or
consolidate into or with another bank or sell substantially
all of its assets to another bank, firm or person until such
bank, firm or person expressly agrees, in writing, to assume
and discharge the duties and obligations of the Bank under
this Agreement. This Agreement shall be binding upon the
parties hereto, their successors, beneficiary(ies), heirs and
personal representatives.
C. Revocation:
-----------
It is agreed by and between the parties hereto that, during
the lifetime of the Executive, this Agreement may be amended
or revoked at any time or times, in whole or in part, by the
mutual written assent of the Executive and the Bank.
D. Gender:
-------
Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should so
apply.
E. Effect on Other Bank Benefit Plans:
-----------------------------------
Nothing contained in this Agreement shall affect the right of
the Executive to participate in or be covered by any qualified
or non-qualified pension, profit-sharing, group, bonus or
other supplemental compensation or fringe benefit plan
constituting a part of the Bank's existing or future
compensation structure.
<PAGE>
F. Headings:
---------
Headings and subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part
of this Agreement.
G. Applicable Law:
---------------
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Georgia.
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
---------------------------------------
The "Named Fiduciary and Plan Administrator" of this plan
shall be Quitman Federal Savings & Loan Association until its
removal by the Board. As Named Fiduciary and Administrator,
the Bank shall be responsible for the management, control and
administration of the Salary Continuation Agreement as
established herein. The Named Fiduciary may delegate to others
certain aspects of the management and operation
responsibilities of the plan including the employment of
advisors and the delegation of ministerial duties to qualified
individuals.
B. Claims Procedure and Arbitration:
---------------------------------
In the event a dispute arises over benefits under this
Agreement and benefits are not paid to the Executive (or to
his beneficiary in the case of the Executive's death) and such
claimants feel they are entitled to receive such benefits,
then a written claim must be made to the Plan Administrator
named above within ninety (90) days from the date payments are
refused. The Plan Administrator shall review the written claim
and if the claim is denied, in whole or in part, they shall
provide in writing within ninety (90) days of receipt of such
claim their specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based
and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate
the additional steps to be taken by claimants if a further
review of the claim denial is desired. A claim shall be deemed
denied if the Plan Administrator fails to take any action
within the aforesaid ninety-day period.
If claimants desire a second review they shall notify the Plan
Administrator in writing within ninety (90) days of the first
claim denial. Claimants may review this Agreement or any
documents relating thereto and submit any written issues and
comments they may feel appropriate. In its sole discretion,
the Plan Administrator shall then review the second claim and
provide a written decision within ninety (90) days of receipt
of such claim. This decision shall likewise state the specific
reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision
is based.
<PAGE>
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Bank, and the
third member selected by the first two members. The Board
shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns
shall be bound by the decision of such Board with respect to
any controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Executive "for cause," such dispute shall likewise be
submitted to arbitration as above described and the parties
hereto agree to be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 15th day
of December, 1996, and that, upon execution, each has received a conforming
copy.
QUITMAN FEDERAL SAVINGS & LOAN ASSOCIATION
By:
- ------------------------------- -------------------------------------
Witness Title
By:
- ------------------------------- -------------------------------------
Witness Brenda C. Renfroe
<PAGE>
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer: The Guardian Life Insurance Company
Policy Number: 3644016
Bank: Quitman Federal Savings & Loan Association
Insured: Brenda C. Renfroe
Relationship of Insured to Bank: Director
The respective rights and duties of the Bank and the Insured in the subject
policy shall be as defined in the following:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the
use of the Insured all in accordance with this Agreement. The Bank
alone may, to the extent of its interest, exercise the right to borrow
or withdraw on the policy cash values. Where the Bank and the Insured
(or assignee, with the consent of the Insured) mutually agree to
exercise the right to increase the coverage under the subject split
dollar policy, then, in such event, the rights, duties and benefits of
the parties to such increased coverage shall continue to be subject to
the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds
payable upon the death of the Insured, and to elect and change a
payment option for such beneficiary, subject to any right or interest
the Bank may have in such proceeds, as provided in this Agreement.
<PAGE>
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any
other premium payments that might become necessary to keep the policy
in force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the
assumed cost of insurance as required by the Internal Revenue Service.
The Bank (or its administrator) will report to the Employee the amount
of imputed income received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of
the policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty
percent (80%) of the net at risk insurance portion of the
proceeds. The net at risk insurance portion is the total
proceeds less the cash value of the policy.
B. The Bank shall be entitled to the remainder of such proceeds.
C. The Bank and the Insured (or assignees) shall share in any
interest due on the death proceeds on a pro rata basis as the
proceeds due each respectively bears to the total proceeds,
excluding any such interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the
policy's cash value, as that term is defined in the policy contract,
less any policy loans and unpaid interest or cash withdrawals
previously incurred by the Bank and any applicable surrender charges.
Such cash value shall be determined as of the date of surrender or
death as the case may be.
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts
shall be considered for all purposes of this Agreement as having been
paid by the Bank.
<PAGE>
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity
benefits, on expiration of the deferment period, shall be determined
under the provisions of this Agreement by regarding such endowment
proceeds or the commuted value of such annuity benefits as the policy's
cash value. Such endowment proceeds or annuity benefits shall be
considered to be like death proceeds for the purposes of division under
this Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following
thirty (30) days written notice to the Insured upon the happening of
any one of the following:
1. The Insured shall be in violation of the terms and conditions
of that certain Executive Indexed Salary Continuation Plan
Agreement dated the 15th of December, 1996, or
2. The Insured shall be discharged from service with the Bank for
cause. The term "for cause" shall mean gross negligence or
gross neglect or the commission of a felony or
gross-misdemeanor involving moral turpitude, fraud, dishonesty
or willful violation of any law that results in any adverse
effect on the Bank.
Upon such termination, the Insured (or assignee) shall have a ninety
(90) day option to receive from the Bank an absolute assignment of the
policy in consideration of a cash payment to the Bank, whereupon this
Agreement shall terminate. Such cash payment shall be the greater of:
1. The Bank's share of the cash value of the policy on the date
of such assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank
prior to the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within
the prescribed ninety (90) day period, the Insured (or assignee) agrees
that all of his rights, interest and claims in the policy shall
terminate as of the date of the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon
distribution of the death benefit proceeds in accordance with Paragraph
VI above.
<PAGE>
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust or other organization, any right, title or
interest in the subject policy nor any rights, options, privileges or
duties created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Quitman Federal Savings & Loan Association is hereby designated the
"Named Fiduciary" until resignation or removal by the board of
directors. As Named Fiduciary, the bank shall be responsible for the
management, control, and administration of this Split Dollar Plan as
established herein. The Named Fiduciary may allocate to others certain
aspects of the management and operation responsibilities of the plan,
including the employment of advisors and the delegation of any
ministerial duties to qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XV. CLAIM PROCEDURES FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be
obtained by contacting The Benefit Marketing Group, Inc.
(770-952-1529). When the Named Fiduciary has a claim which may be
covered under the provisions described in the insurance policy, he
should contact the office named above, and they will either complete a
claim form and forward it to an authorized representative of the
Insurer or advise the named Fiduciary what further requirements are
necessary. The Insurer will evaluate and make a decision as to payment.
If the claim is payable, a benefit check will be issued to the Named
Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the
requirements under the terms of the policy. If the Named Fiduciary is
dissatisfied with the denial of the claim and wishes to contest such
claim denial, he should contact the office named above and they will
assist in making inquiry to the Insurer. All objections to the
Insurer's actions should be in writing and submitted to the office
named above for transmittal to the Insurer.
<PAGE>
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
Executed at Quitman, Georgia this 15th day of December, 1996.
QUITMAN FEDERAL SAVINGS & LOAN ASSOCIATION
By:
- ------------------------------- -------------------------------------
Witness Title
By:
- ------------------------------- -------------------------------------
Witness Brenda C. Renfroe
<PAGE>
BENEFICIARY DESIGNATION FORM
PRIMARY DESIGNATION:
Name Relationship
---- ------------
- --------------------------- ----------------------------------
- --------------------------- ----------------------------------
- --------------------------- ----------------------------------
CONTINGENT DESIGNATION:
- --------------------------- ----------------------------------
- --------------------------- ----------------------------------
- --------------------------- ----------------------------------
- --------------------------- ----------------------------------
Brenda C. Renfroe Date
EXHIBIT 16
<PAGE>
[SIMMONS & SIMMONS P.C. LETTERHEAD]
January 26, 1998
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
January 27, 1998
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>
Table of Contents
Quitman Federal Savings and Loan Association
Quitman, Georgia
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INTRODUCTION 1
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1. OVERVIEW AND FINANCIAL ANALYSIS 3
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General Overview 3
History 4
Strategic Direction 4
Balance Sheet Trends 7
Loan Portfolio 10
Securities 13
Investments and Mortgage-Backed Securities 14
Asset Quality 15
Funding Composition 17
Asset/Liability Management 19
Net Worth and Capital 20
Income and Expense Trends 21
Subsidiaries 25
Legal Proceedings 25
2. MARKET AREA ANALYSIS 26
- -------------------------------------------------------------------------------------------------------------------
Market Area Demographics 26
Market area Deposit Characteristics 27
3. COMPARISONS WITH PUBLICLY TRADED THRIFTS 28
- -------------------------------------------------------------------------------------------------------------------
Introduction 28
Selection Screens 28
Selection Criteria 30
Comparable Group Profiles 32
Corporate Data 37
Key financial Data 38
Capital Data 39
Asset Quality Data 40
Profitability Data 41
Income Statement Data 42
Growth Data 43
Market Capitalization Data 44
Dividend Data 45
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Pricing Data 46
Earnings Data 47
4. MARKET VALUE DETERMINATION 48
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Introduction 48
Balance Sheet Strength 49
Asset Quality 50
Earnings Quality, Predictability and Growth 51
Market area 55
Management 56
Dividends 57
Liquidity of the Issue 58
Subscription Interest 59
Recent Regulatory matters 60
Market for Seasoned Thrift Stocks 61
Acquisition Market 65
Adjustments to value 70
Valuation Approach 71
Valuation Conclusion 74
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FinPro
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<PAGE>
List of Figures
Quitman Federal Savings and Loan Association
Quitman, Georgia
<TABLE>
<CAPTION>
<S> <C> <C>
FIGURE 1 - CURRENT BRANCH LIST 3
FIGURE 2 - ASSET AND RETAINED EARNINGS CHART 7
FIGURE 3 - AVERAGE YIELDS AND COSTS 8
FIGURE 4 - KEY BALANCE SHEET DATA 9
FIGURE 5 - KEY RATIOS 9
FIGURE 6 - LOAN MIX AS OF SEPTEMBER 30, 1997 CHART 10
FIGURE 7 - NET LOANS RECEIVABLE CHART 11
FIGURE 8 - LOAN MIX 12
FIGURE 9 - SECURITIES CHART 13
FIGURE 10 - INVESTMENT MIX 14
FIGURE 11 - INVESTMENT PORTFOLIO MATURITY 14
FIGURE 12 - NON-PERFORMING ASSETS CHART 15
FIGURE 13 - NON-PERFORMING LOANS 15
FIGURE 14 - ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES CHART 16
FIGURE 15 - DEPOSIT MIX 17
FIGURE 16 - DEPOSIT AND BORROWING TREND CHART 18
FIGURE 17 - NET PORTFOLIO VALUE 19
FIGURE 18 - CAPITAL ANALYSIS 20
FIGURE 19 - NET INCOME CHART 21
FIGURE 20 - SPREAD AND MARGIN CHART 22
FIGURE 21 - INCOME STATEMENT TRENDS 23
FIGURE 22 - PROFITABILITY TREND CHART 24
FIGURE 25 - POPULATION DEMOGRAPHICS 26
FIGURE 26 - DEPOSIT TRENDS AND MARKET SHARE TABLES 27
FIGURE 28 - KEY FINANCIAL INDICATORS 35
FIGURE 29 - COMPARABLE CORPORATE DATA 37
FIGURE 30 - COMPARABLE KEY FINANCIAL DATA 38
FIGURE 31 - COMPARABLE CAPITAL DATA 39
FIGURE 32 - COMPARABLE ASSET QUALITY DATA 40
FIGURE 33 - COMPARABLE PROFITABILITY DATA 41
FIGURE 34 - COMPARABLE INCOME STATEMENT DATA 42
FIGURE 35 - COMPARABLE GROWTH DATA 43
FIGURE 36 - COMPARABLE MARKET CAPITALIZATION DATA 44
FIGURE 37 - COMPARABLE DIVIDEND DATA 45
FIGURE 38 - COMPARABLE PRICING DATA 46
FIGURE 39 - COMPARABLE EARNINGS DATA 47
FIGURE 40 - ASSET QUALITY TABLE 50
FIGURE 41 - NET INCOME CHART 52
FIGURE 42 - SPREAD AND MARGIN CHART 53
FIGURE 43 - SNL THRIFT INDEX CHART 61
FIGURE 44 - HISTORICAL SNL INDEX 62
FIGURE 45 - EQUITY INDICES 63
FIGURE 46 - HISTORICAL RATES 64
FIGURE 47 - DEALS FOR LAST TEN QUARTERS 65
FIGURE 48 - CURRENT THRIFT ACQUISITION MULTIPLES, PRICE TO BOOK 66
FIGURE 49 - CURRENT THRIFT ACQUISITION MULTIPLES, PRICE TO TANGIBLE BOOK 67
FIGURE 50 - THRIFT ACQUISITION MULTIPLES, PRICE TO EARNINGS 67
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FIGURE 51 - CURRENT THRIFT ACQUISITION MULTIPLES, PRICE TO ASSETS 68
FIGURE 52 - CURRENT THRIFT ACQUISITION MULTIPLES, PRICE TO DEPOSITS 68
FIGURE 53 - DEAL MULTIPLES 69
FIGURE 54 - ACQUISITION TABLE 69
FIGURE 55 - VALUE RANGE OFFERING DATA 72
FIGURE 56 - COMPARABLE PRICING MULTIPLES TO THE BANK'S PROFORMA MIDPOINT 73
FIGURE 57 - COMPARABLE PRICING MULTIPLES TO THE BANK'S PROFORMA SUPERMAX 73
FIGURE 58 - RECENT STANDARD CONVERSION PROFORMA MULTIPLES TO THE BANK'S PROFORMA MIDPOINT 73
FIGURE 59 - RECENT STANDARD CONVERSION PROFORMA MULTIPLES TO THE BANK'S PROFORMA SUPERMAX 73
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FinPro
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<PAGE>
List of Exhibits
Quitman Federal Savings and Loan Association
Quitman, Georgia
Exhibit
- -----------
1 Consolidated Statements of Financial Condition
2 Consolidated Statements of Income
3 Consolidated Statements of Changes in Net Worth
4 Consolidated Statements of Cash Flows
5 Selected Data on All Public Thrifts
6 Industry Multiples
7 Standard Conversions 1996 to Date - Selected Market Data
8 Appraisal Proforma September 30, 1997 - 12 Months Data
9 Profile of FinPro, Inc.
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FinPro
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Conversion Valuation Appraisal Report Page: 1 - 1
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Introduction
This report represents FinPro, Inc.'s ("FinPro") independent appraisal of the
estimated pro-forma market value of the common stock ( the "Common Stock") of
Quitman Federal Savings and Loan Association (the "Bank" or "Quitman") in
connection with the Plan of Conversion ("Conversion") of Quitman from a
federally chartered mutual savings bank to a federally chartered stock savings
bank. Pursuant to the Plan of Conversion, (i) the Bank will convert from a
federally chartered savings bank organized in mutual form to a federally
chartered savings bank organized in the stock form, (ii) the Bank will offer and
sell shares of its common stock in a subscription and community offering.
It is our understanding that the Bank will offer its stock in a subscription and
community offering to the Bank's Eligible Account Holders, to Supplemental
Eligible Account Holders of the Bank, to Other Participants, to the board
members, officers and employees of the Bank, and to the community. This
appraisal has been prepared in accordance with Regulation 563b.7 and with the
"Guidelines for Appraisal Reports for the Valuation of Savings and Loan
Associations Converting from Mutual to Stock Form of Organization" of the Office
of Thrift Supervision ("OTS") which have been adopted in practice by the Federal
Deposit Insurance Corporation ("FDIC"), including the most recent revisions as
of October 21, 1994, and applicable regulatory interpretations thereof.
In the course of preparing our report, we reviewed the financial statements of
the Bank's operations for the years ended September 30, 1997 and September 30,
1996. We also reviewed the Bank's Application for Approval of Conversion
including the Proxy Statement and the Company's Form S-1 registration statement
as filed with the Securities and Exchange Commission ("SEC"). We have conducted
due diligence analysis of the Bank and the Company (hereinafter, collectively
referred to as "the Bank") and held due diligence related discussions with the
Bank's management and board, Stewart, Fowler & Stalvey (the Bank's independent
audit firm), Trident Securities, Inc. (the Bank's underwriter), and Malizia,
Spidi, Sloane & Fisch, P.C. (the Bank's special counsel). The valuation
parameters set forth in the appraisal were predicated on these discussions but
all conclusions related to the valuation were reached and made independent of
such discussions.
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Where appropriate, we considered information based upon other publicly available
sources, which we believe to be reliable; however, we cannot guarantee the
accuracy or completeness of such information. We visited the Bank's primary
market area and reviewed the market area economic condition. We also reviewed
the competitive environment in which the Bank operates and its relative
strengths and weaknesses. We compared the Bank's performance with selected
publicly traded thrift institutions. We reviewed conditions in the securities
markets in general and in the market for savings institutions in particular. Our
analysis included a review of the estimated effects of the Conversion on the
Bank, operation and expected financial performance as they related to the Bank's
estimated pro-forma value.
In preparing our valuation, we relied upon and assumed the accuracy and
completeness of financial and other information provided to us by the Bank and
its independent accountants. We did not independently verify the financial
statements and other information provided by the Bank and its independent
accountants, nor did we independently value any of the Bank's assets or
liabilities. This estimated valuation considers the Bank only as a going concern
and should not be considered as an indication of its liquidation value.
Our valuation is not intended, and must not be construed, to be a recommendation
of any kind as the advisability of purchasing shares of Common Stock in the
Conversion. Moreover, because such valuation is necessarily based upon estimates
and projections of a number of matters, all of which are subject to change from
time to time, no assurance can be given that persons who purchase shares of
Common Stock in the Conversion will thereafter be able to sell such shares at
prices related to the foregoing valuation of the pro-forma market value thereof.
FinPro is not a seller of securities within the meaning of any federal or state
securities laws and any report prepared by FinPro shall not be used as an offer
or solicitation with respect to the purchase or sale of any securities.
The estimated valuation herein will be updated as appropriate. These updates
will consider, among other factors, any developments or changes in the Bank
financial condition, operating performance, management policies and procedures
and current conditions in the securities market for thrift institution common
stock. Should any such developments or changes, in our opinion, be material to
the estimated pro-forma market value of the Bank, appropriate adjustments to the
estimated pro-forma market value will be made. The reasons for any such
adjustments will be explained at that time.
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1. Overview and Financial Analysis
- -------------------------------------------------
| |
| General Overview |
| |
- -------------------------------------------------
The Bank after the Conversion, will be a federally chartered stock savings bank.
As of September 30, 1997, the Bank had $39.2 million in total assets, $34.5
million in deposits, $33.3 million in net loans and $3.0 million in equity.
The following table shows the Bank's branch network as of September 30, 1997.
Figure 1 - Current Branch List
Branch Office Town County State
- --------------------------------------------------------------------------------
100 West Screven Street Quitman Brooks Georgia
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- -------------------------------------------------
| |
| History |
| |
- -------------------------------------------------
o Quitman Federal Savings & Loan was originally chartered in 1936.
o The office was originally located in the law offices of Attorney J.B. Baum.
o Moved offices into downstairs offices of Hotel Quitman.
o Moved to present site at 100 West Screven St. in 1964.
o Celebrated 60th Anniversary in 1996.
- -------------------------------------------------
| |
| Strategic Direction |
| |
- -------------------------------------------------
The Board of Directors of Quitman Federal Savings and Loan Association approved
a plan ("the Plan") to convert from a federally chartered mutual savings bank
into a federally chartered stock savings institution subject to approval by the
Association's members. In connection with the plan, which includes the formation
of a Holding Company, all of the capital stock of the Bank will be acquired by
the Holding Company. The Holding Company will issue shares to depositors of the
Bank, the community and the public at large. It is anticipated, for planning
purposes that the initial public offering will raise gross proceeds of $5.0
million, based upon preliminary appraisal data for the midpoint of the value
range. Conversion costs are estimated to be approximately $341 thousand at the
midpoint.
The Board of Directors of the Bank believes that the savings bank to stock
conversion is in the best interests of all parties associated with the bank. The
resultant entity will:
o be financially stronger, primarily as a result of additional capital;
o be better positioned to compete in the markets the Bank serves;
o facilitate possible acquisition opportunities and possible
diversification;
o provide access to capital markets;
o allow for a wider array of products and services; and,
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 5
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o provide financial capacity to buy or build critical mass in new
geographic markets or in the markets it currently serves.
The mutual to stock conversion also provides the Bank and its Holding Company
the corporate flexibility to raise additional capital and further diversify into
bank related activities when such opportunities or needs arise. The Bank can
utilize the Holding Company structure to:
o form new subsidiaries;
o purchase branches, acquire or merge with other banks, thrifts or
financial services related company; and,
o repurchase its own stock without adverse tax consequences.
Although there are no current arrangements, understandings or agreements
regarding any such opportunities, the Holding Company will be in a position
after the conversion (subject to regulatory limitations and the Holding
Company's financial condition) to take advantage of any such opportunity that
may arise.
The following is a quick synopsis of the highlights of the planned conversion:
1. Convert to stock with anticipated trading to begin in February 1998;
2. Raise approximately $5.0 million in gross proceeds ($4.7 million in net
proceeds) with 50% of the proceeds being put into the Bank and the other
50% left at the Holding Company;
3. Implement a new ESOP plan by purchasing 8%, or 40,000 shares;
4. Implement a new MRP plan by purchasing 4%, or 20,000 shares (in the
aftermarket);
5. The Bank will repurchase stock at the rate of 0% for the first year, 5% for
the second year, 5% for the third year, 10% for the fourth year, and 10%
for the fifth year. The Bank reserves the right to apply for a waiver of
the regulatory limits if certain economic conditions exist, such as closing
the subscription at the maximum or supermaximum;
6. Based on regulatory factors and other considerations, consider the issuance
of cash dividends based upon the financial performance of the Bank. The
Plan, as currently drafted, includes annual cash dividends of $0.20 per
share beginning twelve months after the conversion, growing to $0.31 per
share in the last year, although the Bank reserves the right to not issue
cash dividends at any time following the reorganization.
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7. Management recognizes that its fiduciary responsibility will require
controlled, profitable growth to maintain the earnings of the Bank and
appropriate capital levels. As such, if certain economic factors warrant,
the Bank will explore the possibility of applying for a nontaxable capital
distribution no sooner than eighteen months after the conversion. The
economic conditions may include, but are not limited to, a possible
oversubscription of the offering, limited deposit growth, or a change in
the interest rate environment.
8. The Bank will undertake an analysis to determine the feasibility of forming
realty and construction subsidiaries for the purpose of developing
additional housing in the Quitman area.
The net proceeds will also be utilized to purchase or lease additional branch
facilities outside of the Quitman and to leverage, or grow the Bank in total
assets over the five year planning period. The Bank will constantly monitor the
economic, business and market benefits of share repurchases and reserves the
right to apply for a waiver to repurchase at an even quicker rate should
economic, business or market conditions warrant same. One example of a condition
that could cause accelerated buybacks is if the Bank raised proceeds at the
maximum or supermaximum, generating more capital than it could safely and
soundly deploy.
The Business Plan calls for the following major thrusts over the five-year
planning horizon:
1. Converting to a stock institution to raise capital to fund growth
opportunities and strengthen the capital position of the Bank;
2. Planned core business growth of the Bank;
3. Open one de-novo branch during October 1999;
4. Explore the possible relocation of the main office in 1998 to an
improved location, offering additional drive-up and ATM services, or
alternately, refurbish the existing facility;
5. Change in the loan mix toward adjustable mortgages and home equity
products;
6. Change of the funding mix toward core deposits and away from time
deposits.
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- -------------------------------------------------
| |
| Balance Sheet Trends |
| |
- -------------------------------------------------
Since September 30, 1996, the Bank's balance sheet has grown $3.0 million or
8.35%. Retained earnings have increased $292 thousand from $2.7 million at
September 30, 1996 to $3.0 million at September 30, 1997.
Figure 2 - Asset and Retained Earnings Chart
$ in thousands
[GRAPHIC OMITTED - Chart Information follows]
Sep-96 Sep-97
------ ------
Assets $36,173 $39,192
Retained Earnings $ 2,667 $ 2,959
Source: Offering Prospectus
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Both the interest rate spread and margin have increased between September 30,
1996 and September 30, 1997. The increase is due to both an increased yield on
asset and a decreased cost of funds.
Figure 3 - Average Yields and Costs
<TABLE>
<CAPTION>
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At September 30, Year ended September 30,
-------------------------------------------------------------------------------------
1997 | 1997 | 1996
-------------------------------------------------------------------------------------
Weighted | Average| Average
Actual Average | Average Yield/ | Average Yield/
Balance Rate | Balance Interest Cost | Balance Interest Cost
-------------------------------------------------------------------------------------
(Dollars in Thousands)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable $ 33,326 9.13% $ 32,065 $ 2,942 9.18% $ 29,351 $ 2,654 9.04%
Mortgage-backed securities 542 5.14% 140 8 5.71% - - 0.00%
Investment securities 3,309 5.94% 3,617 226 6.25% 3,732 216 5.79%
Other earning assets 548 5.26% 345 22 6.38% 671 37 5.51%
------ ---- ------ ----- ---- ------ ----- ----
Total interest-earning assets 37,825 8.74% 36,167 3,198 8.84% 33,754 2,907 8.61%
Non-interest earning assets 1,367 1,515 897
----- ----- ----- ------ -----
Total assets $ 39,192 $ 37,682 $ 3,198 $ 34,651 $ 2,907
======== ======== ======= ======== =======
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits:
NOW accounts 1,439 3.45% 1,488 49 3.29% 1,452 47 3.24%
Savings accounts 1,945 4.25% 2,185 82 3.75% 2,103 78 3.73%
Money market accounts - 0.00% - - 0.00% - - 0.00%
Certificates of deposit 31,087 6.06% 29,427 1,782 6.06% 27,737 1,703 6.14%
Other liabilities 1,300 6.55% 1,175 65 5.53% 304 15 4.93%
------ ---- ------ ----- ---- ------ ----- ----
Total interest-bearing liabilities 35,771 5.87% 34,275 1,978 5.77% 31,596 1,843 5.83%
Non-interest bearing liabilities 463 519 428
------ ------ ----- ------
Total liabilities 36,234 34,794 1,978 32,024 1,843
====== ====== ===== ====== =====
Retained earnings 2,958 2,888 2,627
------ ------ ------
Total liabilities and retained earnings $ 39,192 $ 37,682 $ 34,651
======== ======== ========
Net interest income $ 1,220 $ 1,064
======= =======
Interest rate spread 2.87% 3.37% 2.78%
==== ==== ====
Net Yield on interest-earning assets 3.18% 3.31% 3.15%
==== ==== ====
Interest earning assets to interest
bearing liabilities 105.74% 105.52% 106.83%
====== ====== ======
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 9
================================================================================
The following tables set forth certain information concerning the financial
position of the Bank along with selected ratios at the dates indicated.
Figure 4 - Key Balance Sheet Data
At September 30,
---------------------
1997 1996
---------------------
Selected Consolidated Financial Data: (unaudited)
---------------------
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 2,959 2,667
Number of:
Full service offices 1 1
- --------------------------------------------------------------
Source: Offering Prospectus
Figure 5 - Key Ratios
- --------------------------------------------------------------------------------
Year Ended
September 30,
---------------------
1997 1996
---------------------
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets 0.70% 0.30%
Return on average equity 9.34% 3.93%
Ratio of average equity to average assets 7.46% 7.58%
Retained earnings to total assets 7.55% 7.38%
Net interest 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 loss, to
total noninterest expense 145.07% 111.35%
Asset Quality Ratios:
Non-performing loans as a percent of total assets 1.22% 2.41%
Non-performing assets as a percent of total asset 1.38% 2.41%
Non-performing loans as a percent of total loans 1.43% 2.83%
Allowance for loan losses as a percent of loans 1.03% 0.68%
Allowance for loan losses to non-performing loan 72.54% 24.11%
- --------------------------------------------------------------------------------
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 10
================================================================================
- -------------------------------------------------
Loan Portfolio
- -------------------------------------------------
The Bank originates primarily one-to-four family loans, although the Bank has
diversified the portfolio on a limited basis over the last five years.
Figure 6 - Loan Mix as of September 30, 1997 Chart
[GRAPHIC OMITTED - Plotted Pie Follows]
Consumer 2.50%
Share loans 1.35%
Construction 10.52%
FHLMC pools 0.01%
Non residential 15.52%
Multi-family 2.01%
Residential 68.09%
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 11
================================================================================
The Bank increased its lending portfolio by $2.5 million, from $30.8 million at
September 30, 1996, to $33.3 million at September 30, 1997. The Bank's net loan
to asset ratio was 85.03% at September 30, 1997.
Figure 7 - Net Loans Receivable Chart
[GRAPHIC OMITTED - Plotted Chart follows]
$ in thousands
Sep-96 Sep-97
------ ------
Loans receivable, net $30,805 $33,326
Net loans to assets 85.2% 85.03%
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 12
================================================================================
Over the two year period presented below, the Bank's loan mix has shifted
modestly away from one-to-four family real estate loans and toward construction
and consumer loans.
Figure 8 - Loan Mix
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
At September 30,
--------------------------------------------------------
1997 | 1996
--------------------------------------------------------
Amount Percent | Amount Percent
--------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate loans:
Conventional 1-4 family loans $23,656 68.09% $23,717 70.43%
Multi-family 699 2.01% 607 1.80%
Commercial real estate 5,394 15.52% 5,083 15.09%
Construction and land 3,655 10.52% 3,142 9.33%
FHLMC pools 4 0.01% 6 0.02%
Share loans 470 1.35% 476 1.41%
Consumer 867 2.50% 645 1.92%
------ ------ ------ ------
Total loans receivable 34,745 100.00% 33,675 100.00%
------ ------ ------ ------
Less:
Loans in process 1,023 2,609
Allowance for loan losses 346 210
Deferred loan origination fees and costs n losses 50 52
------ ------
Loans receivable, net $33,326 $30,805
======= =======
- -----------------------------------------------------------------------------------------------------
</TABLE>
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 13
================================================================================
- -------------------------------------------------
| |
| Securities |
| |
- -------------------------------------------------
The Bank's security portfolio has grown $407 thousand since September 30, 1996.
Figure 9 - Securities Chart
[GRAPHIC OMITTED - Chart Plots follow]
Sep-96 Sep-97
------ ------
AFS securities $1,781 $3,046
HTM securities 1,663 805
----- -----
Total $3,444 $3,851
====== ======
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 14
================================================================================
- -------------------------------------------------
| |
| Investments and Mortgage- |
| Backed Securities |
| |
- -------------------------------------------------
The Bank has shifted its investment portfolio away from agencies and has begun
to purchase U.S. Government securities and mortgage-backed securities.
Figure 10 - Investment Mix
- --------------------------------------------------------------------------------
September 30,
--------------------------------
1997 | 1996
--------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------
U.S. Government obligations $ 904 $ -
Agency securities 2,405 3,444
--------------------------------
Total investment securities 3,309 3,444
Interest-bearing deposits 548 679
FHLB stock 228 219
Mortgage-backed securities 542 -
Mortgage-backed securities held-for-sale - -
--------------------------------
Total investments $ 4,627 $ 4,342
- --------------------------------------------------------------------------------
Source: Prospectus Tables
Figure 11 - Investment Portfolio Maturity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
At September 30, 1997
-----------------------------------------------------------------------------------------------------------------
Due in
-----------------------------------------------------------------------------------------------------------------
One Year or Less Between One and Five Years Between Five and Ten Years More than Ten Years Total
------------------- -------------------------- -------------------------- ------------------- -----
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----------------------------------------------------------------------------------------------------------------
(in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations $ 100 4.68% $ 904 6.27% $ - 0.00% $ - 0.00% $ 1,004 6.42%
Agency securities - 0% 2,305 6.25% - 0.00% - 0.00% 2,305 6.25%
----- ---- ------- ---- ------ ---- ----- ---- ------- ----
Total investment
securities 100 4.68% 3,209 6.26% - 0.00% - 0.00% 3,309 6.30%
Interest-bearing
deposits 548 5.69% - 0.00% - 0.00% - 0.00% 548 5.69%
FHLB stock 228 7.25% - 0.00% - 0.00% - 0.00% 228 7.25%
Mortgage-backed
securities - 0.00% - 0.00% - 0.00% 542 5.13% 542 5.13%
----- ---- ------- ---- ------ ---- ----- ---- ------- ----
Total investments $ 876 5.98% $ 3,209 6.26% $ - 0.00% $ 542 5.13% $ 4,627 6.07%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Prospectus Tables
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 15
================================================================================
- -------------------------------------------------
| |
| Asset Quality |
| |
- -------------------------------------------------
Non-performing loans have decreased from $871 thousand at September 30, 1996 to
$477 thousand at September 30, 1997. As a percentage of assets, total
non-performing assets have decreased from 2.41% at September 30, 1996 to 1.38%
at September 30, 1997.
Figure 12 - Non-Performing Assets Chart
[GRAPHIC OMITTED - Chart Plots follow]
$ in thousands
Sep-96 Sep-97
------ ------
Non-Performing Loans $871 $477
REO - 64
NPAs to Pd End Assets 2.41% 1.38%
Source: Offering Prospectus
Figure 13 - Non-Performing Loans
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- -------------------------------------
At September 30, 1997
($ in thousands)
- ----------------------------------------------------------------- -------------------------------------
<S> <C>
Non-performing loans $477
- ----------------------------------------------------------------- -------------------------------------
Real estate owned, net $64
- ----------------------------------------------------------------- -------------------------------------
Total non-performing assets $541
- ----------------------------------------------------------------- -------------------------------------
Non-performing loans as a percentage of total loans 1.43%
- ----------------------------------------------------------------- -------------------------------------
Non-performing assets as a percent of total assets 1.38%
- ----------------------------------------------------------------- -------------------------------------
</TABLE>
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 16
================================================================================
The Bank has grown its allowance for loan and lease losses from $210 thousand at
September 30, 1996 to $346 thousand at September 30, 1997. ALLL to
non-performing assets was 63.96% as of September 30, 1997.
Figure 14 - Allowance for Possible Loan and Lease Losses Chart
[GRAPHIC OMITTED - Chart Plots follow]
$ in thousands
Sep-96 Sep-97
------ ------
ALLL $210 $346
ALLL to NPA 24.11% 63.96%
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 17
================================================================================
- -------------------------------------------------
| |
| Funding Composition |
| |
- -------------------------------------------------
The Bank's deposit mix as of September 30, 1997, is presented below. Time
deposits comprise 90.17% of the deposit mix.
Figure 15 - Deposit Mix
-------------------------------------------------------------------
At September 30, 1997
Balance Percentage
Category in thousands of Deposits
-------------------------------------------------------------------
NOW accounts $ 1,439 4.18%
Regular Savings accounts 1,945 5.65%
Certificates of deposits:
Term of 1-3 months 1 0.01%
Term of 4-6 months 1,406 4.08%
Term of 7-12 months 9,978 28.90%
Term of 13-24 months 9,628 27.93%
Term of 25-36 months 2,176 6.32%
Term of 36-48 months 1,221 3.55%
Term of 49-120 months 344 1.00%
Jumbo certificates 6,333 18.37%
Total deposits $ 34,471 100.00%
-------------------------------------------------------------------
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 18
================================================================================
Deposits have grown $2.7 million from $31.7 at September 30, 1996 to $34.5
million at September 30, 1997, or 8.64%. The Bank had $1.3 million in borrowings
as of September 30, 1997.
Figure 16 - Deposit and Borrowing Trend Chart
[GRAPHIC OMITTED - Chart Plots follow]
$ in thousands
Sep-96 Sep-97
------ ------
Total Deposits $31,729 $34,471
Borrowed Funds 1,200 1,300
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 19
================================================================================
- -------------------------------------------------
| |
| Asset/Liability Management |
| |
- -------------------------------------------------
The Bank manages its interest rate risk through normal balance sheet activities
and does not utilize any hedging techniques. The following chart illustrates the
Bank's net portfolio value at June 30, 1997, as calculated by the OTS.
Figure 17 - Net Portfolio Value
[GRAPHIC OMITTED - Chart Plots follow]
Net Portfolio Value
$ in thousands
NPV
-200 $3,472,000
at par $3,301,000
+200 $3,120,000
Tangible Equity $2,744
4% of Assets $1,532
Source: OTS Risk Management Division
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 20
================================================================================
- -------------------------------------------------
| |
| Net Worth and Capital |
| |
- -------------------------------------------------
At September 30, 1997, the Bank had capital in excess of the minimum
requirements for all three measures.
Figure 18 - Capital analysis
- -------------------------------------------------------------------------
Regulatory Capital Position
At Percent of
September 30,1997 Adj. Assets
- -------------------------------------------------------------------------
$ in thousands
GAAP Capital $2,959 7.55%
========================================
Tangible Capital
Actual capital $2,953 7.54%
Regulatory requirement $588 1.50%
----- ----
Excess: $2,365 6.04%
========================================
Core Capital
Actual capital $2,953 7.54%
Regulatory requirement $1,176 3.00%
------ ----
Excess: $1,777 4.54%
========================================
Risked-Based Capital
Actual capital $3,299 14.25%
Regulatory requirement $1,852 8.00%
------ ----
Excess: $1,447 6.25%
========================================
- -------------------------------------------------------------------------
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 21
================================================================================
- -------------------------------------------------
| |
| Income and Expense Trends |
| |
- -------------------------------------------------
The Bank earned $263 thousand for the year ended September 30, 1997. The
September 30, 1996 net income is skewed due to the one-time SAIF assessment of
$186 thousand.
Figure 19 - Net Income Chart
[GRAPHIC OMITTED - Chart Plots follow]
$ in thousands
Sep-96 Sep-97
------ ------
$103 $263
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 22
================================================================================
The following chart illustrates the Bank's spread and margin over the past two
years.
Figure 20 - Spread and Margin Chart
[GRAPHIC OMITTED - Chart Plots follow]
Sep-96 Sep-97
------ ------
Spread 2.78% 3.07%
Margin 3.15% 3.37%
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 23
================================================================================
A summary of the Bank's income statement is presented below.
Figure 21 - Income Statement Trends
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
For the Nine Months
Ended September 30,
--------------------------
1997 1996
--------------------------
($ In Thousands)
--------------------------
<S> <C> <C>
Total interest Income $ 3,198 $ 2,907
Total 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
------ -------
Total non-interest income 45 49
Total non-interest expense 747 922
------ -------
Income before taxes 382 154
------ -------
Income tax provision 119 51
Net income $ 263 $ 103
====== =======
-----------------------------------------------------------------------------
</TABLE>
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 24
================================================================================
The ROA and ROE have increased since September 30, 1996. The September 30, 1996
ratios are artificially skewed due to the $186 thousand one-time SAIF assessment
and the September 30, 1997 ratio includes a one time provision of $100 thousand.
On a core basis the ROA at September 30, 1997 would be 9.61% and the ROE would
be 12.57%
Figure 22 - Profitability Trend chart
[GRAPHIC OMITTED - Chart Plots follow]
Sep-96 Sep-97
------ ------
ROAA .30% .70%
ROAE 3.93% 9.34%
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 25
================================================================================
- -------------------------------------------------
| |
| Subsidiaries |
| |
- -------------------------------------------------
The Bank currently has no subsidiaries.
- -------------------------------------------------
| |
| Legal Proceedings |
| |
- -------------------------------------------------
The Bank is not currently involved in any legal proceedings which with have a
material effect on the financial statements of the Bank.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 26
================================================================================
2. Market Area Analysis
- -------------------------------------------------
| |
| Market Area Demographics |
| |
- -------------------------------------------------
The following tables contain detailed demographics for the primary, secondary
and tertiary market areas defined as 5, 10 and 20 mile radii, respectively. All
data is from the 1990 census and Claritas, Inc.
Figure 25 - Population Demographics
<TABLE>
<CAPTION>
5 Mile Radius 10 Mile Radius 20 Mile Radius
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Population by Race 6,874 10,261 91,245
White 51.88% 58.71% 67.59%
Black 45.89% 38.98% 29.59%
Hispanic 1.43% 1.68% 1.61%
Asian & P.I. 0.26% 0.23% 0.76%
Other 0.54% 0.64% 0.63%
Households by income 2,558 3,850 33,555
Under $5,000 15.36% 13.61% 9.15%
$5,000 to $14,999 23.63% 21.20% 20.74%
$15,000 to $24,999 22.81% 22.32% 18.73%
$25,000 to $34,999 15.99% 17.84% 16.24%
$35,000 to $49,999 12.56% 14.32% 14.99%
$50,000 to $74,999 6.85% 8.08% 12.62%
$75,000 to $99,999 0.74% 0.62% 3.11%
$100,000 to $149,999 1.63% 1.54% 1.85%
$150,000 or More 0.44% 0.47% 2.57%
1997 Est. Average Household Income $ 25,828 $ 27,397 $ 38,563
1997 Est. Median Household Income $ 19,829 $ 21,802 $ 25,848
1997 Est. Per Capita Income $ 9,862 $ 10,254 $ 14,547
median age 34.32 34.27 31.75
average age 37.22 36.73 34.29
Population
2002 Projection 6,700 9,884 94,231
1997 Estimate 6,874 10,261 91,245
Population 1990 7,060 10,703 85,761
Population 1980 7,304 11,198 80,227
Growth 1980 - 1990 -3.34% -4.43% 6.90%
Population 16+ by Occupation 2,538 4,106 36,786
Executive & Managerial 7.17% 7.95% 9.57%
Professional Specialty 8.26% 8.23% 12.21%
Technical Support 1.45% 1.82% 2.90%
Sales 9.21% 9.43% 12.62%
Administrative Support 10.37% 11.05% 13.14%
Service: Private Household 0.78% 0.88% 0.66%
Service: Protective 2.14% 2.11% 1.83%
Service: Other 13.57% 11.94% 12.08%
Farming Forestry & Fishing 7.45% 9.35% 5.08%
Precision Production & Craft 10.09% 10.62% 10.27%
Machine Operator 17.59% 14.93% 9.89%
Trans. & Material Moving 4.45% 5.44% 4.39%
Laborers 7.45% 6.26% 5.37%
Population by Education Level 4,226 6,495 50,448
Elementary 21.68% 20.09% 14.02%
Some High School 22.80% 22.87% 20.69%
High School Graduate 33.30% 34.78% 32.04%
Some College 9.02% 9.17% 14.07%
Associates Degree Only 2.86% 3.43% 4.26%
Bachelors Degree Only 5.10% 4.88% 8.91%
Graduate Degree 5.23% 4.78% 6.01%
Housing Units by Occupancy Status 2,671 4,094 33,414
Occupied 91.56% 90.96% 90.56%
Vacant 8.44% 9.04% 9.44%
Owner Occupied Property Values 1,048 1,454 12,586
Less than $25,000 28.72% 26.62% 15.28%
$25- $49,999 37.15% 36.42% 29.93%
$50 - $74,999 19.34% 22.10% 28.06%
$75- $99,999 9.95% 10.25% 15.48%
$100 - $149,999 4.15% 3.78% 7.29%
$150 - $199,999 0.51% 0.47% 2.11%
$200 - $399,999 0.19% 0.35% 1.76%
More than $400,000 0.00% 0.00% 0.11%
Unemployment 4.27% 3.66% 3.86%
</TABLE>
Source: Claritas
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 27
================================================================================
- -------------------------------------------------
| |
| Market area Deposit Characteristics |
| |
- -------------------------------------------------
Market Area
There is a moderate level of competition for deposits in this market
area, with 5 institutions operating 6 active branch offices competing
for $104.6 million in deposits. This market has a very low average
branch size of $17.4 million.
The Bank's deposits have grown 13.65% between June 30, 1994 and June
30, 1996.
Figure 26 - Deposit Trends and Market Share Tables
($ in 000's)
<TABLE>
<CAPTION>
Competition - Quitman -10 Mile Market Share
Total Deposits Mkt Share $ Growth % Growth Avg Branch
in Millions in Millions
Institution 1996 1996 1994 - 1996 1994 - 1996 1996 Count
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bank of Quitman 25.8 24.67% 1.3 5.31% 25.8 1
Brooks County FCU 0.2 0.19% -0.1 -33.33% 0.2 1
Citizens NB of Quitman 34.4 32.89% 1.6 4.88% 17.2 2
Quitman FS&LA 30.8 29.45% 3.7 13.65% 30.8 1
Thomas County FS&LA 13.4 12.81% 1.3 10.74% 13.4 1
==========================================================================================================================
Total 104.6 100.00% 7.8 8.06% 17.4 6
</TABLE>
Source: FDIC, data
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 28
================================================================================
3. Comparisons With Publicly Traded Thrifts
- -------------------------------------------------
| |
| Introduction |
| |
- -------------------------------------------------
This chapter presents an analysis of the Bank's operations against a Comparable
Group of publicly traded savings institutions. The Comparable Group ("Comparable
Group") was selected from a universe of 399 public thrifts as of December 8,
1997. The Comparable Group was selected based upon similarity of characteristics
to the Bank. The Comparable Group multiples provide the basis for the fair
market valuation of the Bank. Factors that influence the Bank's value such as
balance sheet structure and size, profitability, income and expense trends,
capital levels, credit risk, interest rate risk and recent operating results can
be measured against the Comparable Group. The Comparable Group current market
pricing, coupled with the appropriate adjustments for differences between the
Bank and the Comparable Group, will then be utilized as the basis for the
pro-forma valuation of the Bank to-be-issued common stock.
- -------------------------------------------------
| |
| Selection Screens |
| |
- -------------------------------------------------
When selecting the Comparables, it was determined that the balance sheet size of
the institution was of greater importance than geography due to the importance
economies of scale plays in a small organization.
The selection screens utilized to identify possible Comparables from the list of
399 public thrifts at December 8, 1997 included:
1. The IPO date had to be on or before June 30, 1996, eliminating any recent
conversions.
2. The conversion type had to be a full standard conversion.
3. The total asset size had to be less than or equal to $100 million.
4. The ROAA had to be less than or equal to 0.85%
5. The current price to tangible book multiple had to be less than or equal to
165%.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 29
================================================================================
This resulted in 12 institutions.
[GRAPHIC OMITTED]
Of these, two institutions were eliminated for the following reasons:
[GRAPHIC OMITTED]
This resulted in a comparable group of 10 institutions.
[GRAPHIC OMITTED]
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 30
================================================================================
- -------------------------------------------------
| |
| Selection Criteria |
| |
- -------------------------------------------------
Excluded from the Comparable Group were institutions that were pending mergers
or acquisitions along with companies whose prices appear to be distorted by
speculative factors or unusual operating conditions. Also, institutions that
completed their conversions within the last year were also excluded as the
earnings of newly converted institutions do not reflect a full years benefit
from the reinvestment of proceeds, and thus the price/earnings multiples and
return on equity measures for these institutions tend to be skewed upward and
downward respectively.
In an ideal world, all of the Comparable Group would contain the exact
characteristics of the Bank. The goal of the selection criteria process is to
find those institutions that most closely match those of the Bank. None of the
Comparables selected will be exact clones of the Bank.
The members of the Comparable Group were selected based upon the following
criteria:
1. Asset size
2. Profitability
3. Capital level
4. Asset mix
5. Operating strategy
6. Date of conversion
1. Asset size The Comparable Group should have a similar asset size to the
Bank. Large institutions are not appropriate for the peer group due to a more
extensive branch network, greater financial strength, more access to diverse
markets and more capacity in terms of infrastructure. The Comparable Group
ranged in size from $41.7 million to $97.3 million in total assets with an
average of $71.9 million. The Bank's asset size was $39.2 million as of
September 30, 1997 and will be $43.3 million on a proforma basis at the midpoint
of the valuation range.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 31
================================================================================
2. Profitability The Comparable Group should have similar financial
conditions and recent earnings that are comparable to the Bank. They should show
a comparable return on equity and return on assets measures. As such, the
Comparable Group have ROAAs averaging 0.31% and ROAEs averaging 1.49% for the
most recent quarter available. The Comparable Group profitability measures had a
dispersion about the mean for the ROAA measure ranging from a low of (0.86%) to
a high of 0.80% while the ROAE measure ranged from a low of (10.59%) to a high
of 6.60%. The Bank had an ROAA of (0.70%) and ROAE of (9.34%) for the year ended
September 30, 1997.
3. Capital level The Comparable Group should have a capital level similar to
the Bank's. Capital is important in that it is a determinant of asset size and
regulatory rating. Institutions with capital in a similar range as the Bank were
selected. The average equity to assets ratio for the Comparable Group was 14.09%
with a high of 25.04% and a low of 8.65%. At September 30, 1997, the Bank had an
equity to assets ratio of 7.55%. On a proforma basis, at the midpoint the Bank
would have an equity to assets ratio of 16.23%.
4. Asset Mix The asset mix is very important in the selection criteria
for Comparables. At September 30, 1997, the Bank had a total net loan to asset
ratio of 85.03%. The average loan to asset ratio for the Comparables was 64.48%,
ranging from a low of 51.58% to a high of 76.81%.
5. Operating strategy An institution's operating characteristics are
important because they determine future performance. They also affect expected
rates of return and investor's general perception of the quality, risk and
attractiveness of a given company. Specific operating characteristics include
profitability, balance sheet growth, asset quality, capitalization, and
non-financial factors such as management strategies and lines of business.
6. Date of conversion Recent conversions, those completed after June 30,
1996, were excluded since the earnings of a newly converted institution do not
reflect a full year's benefits of reinvestment of conversion proceeds.
Additionally, new issues tend to trade at a discount to the market averages.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 32
================================================================================
- -------------------------------------------------
| |
| Comparable Group Profiles |
| |
- -------------------------------------------------
o Albion Banc Corp. ALBC is a SAIF insured thrift that operates 2
branches in New York state and has $68.6 million in assets. ALBC
had the fourth highest efficiency ratio, 83.05%, primarily due to
the second highest noninterest expense ratio, 3.20%, in the
Comparable Group. ALBC was select based on asset size, lack of
intangibles, dependence on net interest income, high efficiency
ratio, number of offices and modest profitability.
o Am Trust Capital Corp. ATSB is a SAIF insured institution that
operates 2 branches in Indiana and is $69.7 million in assets.
ATSB has the highest level of nonperforming loans in the
Comparable Group, 2.70%. Am Trust also has the second highest
efficiency ratio 88.42%. ATSB was selected to the Group based on
asset size, level of capital, modest profitability, yield on
assets, high efficiency ratio, level of intangibles, number of
branches, and dependence on net interest income.
o CSB Financial Group Inc. CSBF is a SAIF insured institution that
operates 2 branches located in Centralia, Illinois. CSBF had the
second lowest interest income as a percent of average assets of
the Comparable Group, 6.68%, and the highest level of capital,
25.04%. CSB Financial was the only Comparable without any
borrowings. CSBF had the highest level of intangibles 5.53%. It
was selected as a Comparable based on its asset size, dependence
on net interest income, low level of non-interest income, lack of
borrowings, high efficiency ratio, number of branches, moderate
reserve levels and moderate loan to asset ratio.
o Falmouth Bancorp Inc. FCB has 2 branches and is a BIF insured
institution located in Falmouth, Massachusetts. Falmouth is the
second largest thrift in the Comparable Group with $93.9 million
in assets. FCB has lowest loans to deposits ratio 72.81% and the
highest level of reserves to non-performing loans 806.45%, along
with the lowest level of nonperforming assets, 0.07%. Falmouth has
the third highest margin in the Comparable Group, 3.70%, despite
having the lowest yield on assets, 6.64%, which is mitigated by
the lowest interest expense 3.03%. FCB was included in the
Comparable Group based on its asset size, number of branches, lack
of intangibles, modest level of borrowings, capital levels, modest
profitability, and low yield on assets.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 33
================================================================================
o First Financial Bancorp Inc. FFBI is a SAIF insured institution
with 2 branches located in Belvidere, Illinois. FFBI had the
highest deposit to asset ratio, 81.07%, the lowest equity to asset
ratio, 8.65%, and the worst ROAA (0.86%) and ROAE (10.59%). First
Financial also had the worst loan growth rate (100.44%). FFBI was
included with the Comparable Group based on its size, loan to
asset ratio, deposit to assets ratio, asset quality, ROAA and ROAE
ratios, number of branches and lack of intangibles.
o Gilmer Financial Svcs, Inc. GLMR is a SAIF insured institution
that operates 1 office in Gilmer, Texas. GLMR has the highest
efficiency ratio at 89.32%. GLMR had the second lowest ROAA and
ROAE (0.52%) and (5.64%)respectively. Gilmer had the lowest margin
2.39%, despite having the highest asset yield, 7.78%, which was
more than offset by the highest liability cost, 5.43%. GLMR was
included in the Comparable Group based on its asset size, modest
interest income, level of loans, lack of intangibles capital
levels and capital levels.
o Home Building Bancorp. HBBI is a SAIF insured, Indiana
institution that operates 2 branches. HBBI had assets of $41.7
million, the smallest in the Comparable Group. Home Building had
the second highest asset yield, 7.58% and the second lowest
efficiency ratio, 65.74%, in the Comparable Group. HBBI was
included in the Comparable Group based on its asset size, lack of
intangibles, number of branches, dependence on net interest
income, low level of non-interest income, moderate level of
non-performing assets, and high cost of funds.
o Harvest Home Financial Corp. HHFC is a SAIF insured thrift that
operates 3 offices in Cheviot, Ohio. HHFC had the highest level of
borrowings 22.43%, and the highest ROAA and ROAE, 0.80% and 6.60%,
respectively. Harvest Home had the second lowest level of
nonperforming assets 0.11% and the lowest efficiency ratio 57.52%
in the Comparable Group. HHFC was selected based on its balance
sheet size, capital levels, number of branches, loan to asset
ratio, lack of intangibles, high cost of funds and its dependence
on net interest income.
o Sobieski Bancorp Inc. SOBI is a SAIF insured institution that
operates 3 branches and is based in South Bend, Illinois. SOBI had
the highest loans to assets ratio, 76.81%, and the second highest
loan growth rate, 22.17%, in the Comparable Group. Sobieski had no
intangibles. SOBI was included in the Comparable Group based on
its asset size, capital levels, modest profitability, lack of
intangibles, limited branch network and modest noninterest income.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 34
================================================================================
o SouthFirst Bancshares Inc. SZB is located in Sylacauga, Alabama
and operates 2 branches. SouthFirst is one of two Comparables to
trade on AMEX. SZB has the highest level of noninterest income,
1.51%, but also has the highest level of noninterest expense,
4.13%. SouthFirst was included due to its limited branch network,
asset quality, high level of noninterest expense, modest
profitability, lack of intangibles, high efficiency ratio and
capital levels.
All data presented in figures 28 through 39 is from SNL Securities utilizing the
most recent quarter for balance sheet and income statement related items. All
data for the Bank is from the prospectus or the audited financials. The market
pricing data for the Comparables is as of December 8, 1997.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 35
================================================================================
Figure 28 - Key Financial Indicators
The Bank and the Comparable Group
<TABLE>
<CAPTION>
- --------------------------------------------------------------- -------------------------- -------------------------
The Bank at Comparable Group
September 30, 1997 Quarter Average
(Most Recent
Quarter)
- --------------------------------------------------------------- -------------------------- -------------------------
<S> <C> <C>
Balance Sheet Data
- --------------------------------------------------------------- -------------------------- -------------------------
Gross Loans to Deposits 96.68% 90.13%
- --------------------------------------------------------------- -------------------------- -------------------------
Total Net Loans to Assets 85.03% 64.48%
- --------------------------------------------------------------- -------------------------- -------------------------
Deposits to Assets 87.95% 71.91%
- --------------------------------------------------------------- -------------------------- -------------------------
Borrowed Funds to Assets 3.32% 12.89%
- --------------------------------------------------------------- -------------------------- -------------------------
Balance Sheet Growth
- --------------------------------------------------------------- -------------------------- -------------------------
Asset Growth Rate 8.35% 1.69%
- --------------------------------------------------------------- -------------------------- -------------------------
Loan Growth Rate 8.18% (0.75%)
- --------------------------------------------------------------- -------------------------- -------------------------
Deposit Growth Rate 8.64% (3.37%)
- --------------------------------------------------------------- -------------------------- -------------------------
Capital
- --------------------------------------------------------------- -------------------------- -------------------------
Equity to Assets 7.55% 14.09%
- --------------------------------------------------------------- -------------------------- -------------------------
Tangible Equity to Assets 7.54% 13.98%
- --------------------------------------------------------------- -------------------------- -------------------------
Intangible Assets to Equity 0.00% 0.65%
- --------------------------------------------------------------- -------------------------- -------------------------
Regulatory Core Capital to Assets 7.54% 14.11%
- --------------------------------------------------------------- -------------------------- -------------------------
Equity + Reserves to Assets 8.43% 14.51%
- --------------------------------------------------------------- -------------------------- -------------------------
Total Capital to Risk Adjusted Assets 14.25% 27.86%
- --------------------------------------------------------------- -------------------------- -------------------------
</TABLE>
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 36
================================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------- -------------------------- -------------------------
The Bank Comparable Group
- --------------------------------------------------------------- -------------------------- -------------------------
<S> <C> <C>
Asset Quality
- --------------------------------------------------------------- -------------------------- -------------------------
Non-Performing Loans to Loans 1.43% 0.95%
- --------------------------------------------------------------- -------------------------- -------------------------
Reserves to Non-Performing Loans 72.54% 157.99%
- --------------------------------------------------------------- -------------------------- -------------------------
Non-Performing Assets to Assets 1.38% 0.68%
- --------------------------------------------------------------- -------------------------- -------------------------
Non-Performing Assets to Equity 18.28% 6.26%
- --------------------------------------------------------------- -------------------------- -------------------------
Reserves to Loans 1.03% 0.66%
- --------------------------------------------------------------- -------------------------- -------------------------
Reserves to Non-Performing Assets + 90 Days Del. 63.96% 152.69%
- --------------------------------------------------------------- -------------------------- -------------------------
Profitability
- --------------------------------------------------------------- -------------------------- -------------------------
Return on Average Assets 0.70% 0.31%
- --------------------------------------------------------------- -------------------------- -------------------------
Return on Average Equity 9.34% 1.49%
- --------------------------------------------------------------- -------------------------- -------------------------
Income Statement
- --------------------------------------------------------------- -------------------------- -------------------------
Net Interest Margin 3.07% 3.24%
- --------------------------------------------------------------- -------------------------- -------------------------
Interest Income to Average Assets 8.49% 7.25%
- --------------------------------------------------------------- -------------------------- -------------------------
Interest Expense to Average Assets 5.25% 4.13%
- --------------------------------------------------------------- -------------------------- -------------------------
Net Interest Income to Average Assets 3.24% 3.12%
- --------------------------------------------------------------- -------------------------- -------------------------
Noninterest Income to Average Assets 0.12% 0.44%
- --------------------------------------------------------------- -------------------------- -------------------------
Noninterest Expense to Average Assets 1.98% 2.72%
- --------------------------------------------------------------- -------------------------- -------------------------
Efficiency Ratio 59.10% 75.94%
- --------------------------------------------------------------- -------------------------- -------------------------
Overhead Ratio 57.59% 73.34%
- --------------------------------------------------------------- -------------------------- -------------------------
</TABLE>
Source: The Bank Offering Prospectus, FinPro calculations and SNL Securities
Note: All of the Bank data is for the year ended September 30, 1997.
Note: All of the Comparable data is as of the most recent quarter.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 37
================================================================================
- -------------------------------------------------
| |
| Corporate Data |
| |
- -------------------------------------------------
Figure 29 - Comparable Corporate Data
[GRAPHIC OMITTED]
Source: SNL Securities
- -------------------------------------------------
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 38
================================================================================
Key financial Data
- -------------------------------------------------
Selected balance sheet ratios for the Comparable Group are shown in the
following table:
Figure 30 - Comparable Key Financial Data
[GRAPHIC OMITTED]
Source: SNL Securities
- -------------------------------------------------
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 39
================================================================================
Capital Data
- -------------------------------------------------
Figure 31 - Comparable Capital Data
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 40
================================================================================
- -------------------------------------------------
Asset Quality Data
- -------------------------------------------------
Figure 32 - Comparable Asset Quality Data
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 41
================================================================================
- -------------------------------------------------
Profitability Data
- -------------------------------------------------
Figure 33 - Comparable Profitability Data
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 42
================================================================================
- -------------------------------------------------
Income Statement Data
- -------------------------------------------------
Figure 34 - Comparable Income Statement Data
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 43
================================================================================
- -------------------------------------------------
Growth Data
- -------------------------------------------------
Figure 35 - Comparable Growth Data
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 44
================================================================================
- -------------------------------------------------
Market Capitalization Data
- -------------------------------------------------
Figure 36 - Comparable Market Capitalization Data
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 45
================================================================================
- -------------------------------------------------
Dividend Data
- -------------------------------------------------
Figure 37 - Comparable Dividend Data
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 46
================================================================================
- -------------------------------------------------
Pricing Data
- -------------------------------------------------
Figure 38 - Comparable Pricing Data
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 47
================================================================================
- -------------------------------------------------
Earnings Data
- -------------------------------------------------
Figure 39 - Comparable Earnings Data
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 48
================================================================================
4. Market Value Determination
- -------------------------------------------------
Introduction
- -------------------------------------------------
The estimated pro-forma market value of the Bank, along with certain adjustments
to its value relative to market values for the Comparable Group are delineated
in this section. The adjustments delineated in this section are made from
potential investors' viewpoints. A potential investor includes depositors
holding subscription rights and unrelated parties who may purchase stock in the
community offering and who are assumed to be aware of all relevant and necessary
facts as they pertain to the value of the Bank relative to other publicly traded
thrift institutions and relative to alternative investment opportunities.
There are numerous criteria on which the market value adjustments are based, but
the major ones utilized for purposes of this report include:
o Balance Sheet
o Asset Quality
o Earnings Quality, Predictability and Growth
o Market Area
o Management
o Dividends
o Liquidity of the Issue
o Subscription Interest
o Recent Regulatory Matters
o Market for Seasoned Thrift Stocks
o Acquisition Market
After identifying the adjustments that should be made to market value, the
pro-forma market value for the Bank is computed and adjusted. The estimated
pro-forma market value for the Bank is then compared with the market valuation
ratios of the Comparable Group, recently converted public thrifts and the
aggregate ratios for all public thrifts.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 49
================================================================================
- -------------------------------------------------
| |
| Balance Sheet Strength |
| |
- -------------------------------------------------
The balance sheet strength of an institution is an important market value
determinant, as the investment community considers such factors as bank
liquidity, capitalization, asset composition, funding mix, intangible levels and
interest rate risk in assessing the attractiveness of investing in the common
stock of a thrift. Following is a synopsis of the key financial elements of the
Bank measured against the Comparable Group. The numbers utilized for the Bank in
this comparison were on a pro-forma basis.
Liquidity - The liquidity of the Bank and the Comparable Group appear
similar and were sufficient to meet all regulatory guidelines.
Capitalization - The Comparable Group's average equity to assets ratio
of 14.09% is higher than the Bank's ratio of 7.55%, but will be below
the Bank's pro forma equity to assets ratio of 16.23% at the midpoint
of the valuation range.
Asset Composition - The Bank's net loan to asset ratio of 85.03% is
above the average for the Comparable Group of 64.48%.
Funding Mix - The Bank is funded through deposits, borrowings and
retained earnings. The Comparable Group had 12.89% of its funding base
from borrowings while the Bank's ratio is 3.32%. The Bank's low level
of borrowings leaves room for an additional funding source in the
future.
Intangible Levels - One of the most important factors influencing
market values is the level of intangibles that an institution carries
on its books. The Comparable Group has a limited level of intangibles
averaging 0.65% of equity. Thrifts trade more on tangible book than on
book. The Bank had no intangibles on its books at September 30, 1997.
Interest Rate Risk - The Bank has a high level of interest rate risk on
a cumulative gap basis, however, the net portfolio value is above the
tangible equity level for all rate shocks.
Based on these factors, the Bank's market value should not be adjusted in
comparison to the Comparable Group for these measures.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 40
================================================================================
- -------------------------------------------------
| |
| Asset Quality |
| |
- -------------------------------------------------
The asset quality of an institution is an important determinant of market value.
The investment community considers levels of nonperforming loans, REO and levels
of ALLL in assessing the attractiveness of investing in the common stock of an
institution.
Figure 40 - Asset Quality Table
- --------------------------------------------------------------------------------
As of September 30, 1997
- --------------------------------------------------------------------------------
Dollars in Thousands
Nonperforming Loans $477
REO $64
ALLL $541
ALLL to Loans 1.03%
ALLL to Nonperforming Loans 72.54%
- --------------------------------------------------------------------------------
The Bank's ALLL to loans ratio of 1.03%, is above the Comparable Group's 0.66%.
However, the ALLL to nonperforming loan ratio of 72.54% is less than half that
of the Comparable Group's 157.99%. As the Bank's nonperforming assets to assets
ratio of 1.38% is more than twice that of the Comparable Group's 0.68%, a slight
downward adjustment is warranted for this element.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 51
================================================================================
- -------------------------------------------------
| |
| Earnings Quality, Predictability and Growth |
| |
- -------------------------------------------------
The earnings quality, predictability and growth are critical components in the
establishment of market values for thrifts. Thrift earnings are primarily a
function of:
o net interest income
o loan loss provision
o non-interest income
o non-interest expense
The quality and predictability of earnings is dependent on both internal and
external factors. Some internal factors include the mix of the balance sheet,
the interest rate sensitivity of the balance sheet, the asset quality, and the
infrastructure in place to deliver the assets and liabilities to the public.
External factors include the competitive market for both assets and liabilities,
the global interest rate scenario, local economic factors and regulatory issues.
Each of these factors can influence the earnings of an institution, and each of
these factors is volatile. Investors prefer stability and consistency. As such,
solid, consistent earnings are preferred to high but risky earnings. Investors
also prefer earnings to be diversified and not entirely dependent on interest
income.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 52
================================================================================
The Bank's earnings for September 30, 1996 reflect the one-time SAIF special
assessment of $186 thousand and the September 30,1997 net income of $263
thousand reflects a one time loan loss provision of $100 thousand. Net income
for the year ended September 30, 1996 would be $220 thousand if adjusted for the
after tax effect of the one time assessment.
Figure 41 - Net Income Chart
[GRAPHIC OMITTED- Chart Plots follow]
Sep-96 Sep-97
------ ------
Net Income $103 $263
ROAA .30% .70%
Source: Offering Prospectus
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 53
================================================================================
The Bank's net interest spread and margin increased in fiscal 1997.
Figure 42 - Spread and Margin Chart
Sep-96 Sep-97
------ ------
Spread 2.78% 3.07%
Margin 3.15% 3.37%
Source: Offering Prospectus
The Bank has been posted loan loss provisions sufficient to cover periodic
charge-offs and to maintain solid reserve ratios. At September 30, 1997, the
Bank had an allowance for loan and lease losses (ALLL) to total loans ratio of
1.03%, which is higher than that of the Comparable Group's 0.66%.
The Bank has generated less non-interest income than the Comparable Group. For
the year ended September 30, 1997, the Bank had 0.12% of non-interest income to
average assets compared to the Comparable average of 0.44%.
For the year ended September 30, 1997, the Bank had a non-interest expense to
average assets ratio of 1.98% which was less than the 2.72% average of the
Comparable Group. On a percentage basis, non-interest expense, net of
non-interest income of 0.12%, is 1.86%, which puts the Bank at a 42 basis points
advantage with respect to the Comparable Group's net of 2.28%.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 54
================================================================================
Currently, investors are focusing on earnings sustainability as the interest
rate volatility has caused wide variation in income levels. With the intense
competition for both assets and deposits, banks can not easily replace lost
spread and margin with balance sheet growth.
Though the Bank has a nominal level of noninterest income and does not expect to
undertake any fee generating business in the near term, the low level of
noninterest expense provides the Bank with a ROA and ROE higher than the
Comparable Group averages. It is anticipated, however, that the Bank will lose
much of its competitive advantage in noninterest expense after the conversion as
new expenses such as legal and amortization of benefit plans begin. Also, de
novo branching for growth will increase operating expenses substantially.
Therefore, no adjustment is warranted to the market value for earnings.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 55
================================================================================
- -------------------------------------------------
| |
| Market area |
| |
- -------------------------------------------------
The market area that an institution serves has a significant impact on value, as
future success is interrelated with the economic, demographic and competitive
aspects of the market. Specifics on the Bank's market were delineated in Section
2 - Market Area Analysis.
Demographically, the Bank's markets are not favorable. Population in the market
area declined over the past seventeen years and is projected to decline through
the year 2002. The number of households is low and not expected to grow by more
than 2% over the next five years. Median income in 1997 had the largest
distributions in the $5,000 $14,999 and $15,000 to $25,000 ranges, indicating
low levels of income. More than 20% of the households have no automobiles and
over 65% have a value of less than $50,000.
The Bank's market has experienced a $7.8 million increase, or 8.06%, in deposits
over the two year period ending June 30, 1996. Quitman's growth of $3.7 million
contributed almost half of the market's total growth. The average branch size,
however, indicates a high level of competition.
Based on these factors a slight downward adjustment is warranted for this factor
since the Bank will have to substantially outperform other local institutions to
attain growth in this market.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 56
================================================================================
- -------------------------------------------------
| |
| Management |
| |
- -------------------------------------------------
The Bank has developed a good management team with considerable banking
experience and length of service with the bank. The Bank, due to its size, does
not have much depth in management which limits the strategic initiatives that
the Bank may undertake. As the Comparables are of similar size, they face a
similar problem.
The Board is active and oversees and advises on all key strategic and policy
decisions. The organization chart appears reasonable for an institution of the
Bank's size and complexity.
As such, no adjustment appears to be warranted for this factor.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 57
================================================================================
- -------------------------------------------------
| |
| Dividends |
| |
- -------------------------------------------------
Historically, banks have not established dividend policies immediately at or
after conversion to stock ownership. Rather, newly converted institutions, in
general, have preferred to establish an earnings track record, fully invest the
conversion proceeds, and allow for seasoning of the stock before establishing a
dividend policy. In the late 1980's and early 1990's however, there has been a
tendency toward initiating dividend policies concurrent with the conversion as a
means of increasing the attractiveness of the issue and to utilize the proceeds.
The last few years have seen yet another shift away from dividend policies
concurrent with conversion. Recent issues have been fully or over subscribing
without the need for the additional enticement of dividends. After the
conversion is another issue, however. Recent pressures on ROE and on internal
rate of returns to investors has prompted the industry toward cash dividends.
This trend is exacerbated by the lack of growth potential. Typically, when
institutions are in a growth mode, they issue stock dividends or do not declare
a dividend. When growth is stunted, these institutions shift toward reducing
equity levels and thus utilize cash dividends as a tool in this regard.
Seven of the ten comparable institutions had declared dividends. The average
dividend payout ratio for the Comparable Group was 28.73%, ranging from a high
of 114.81% to a low of 0.00%.
The Bank will have the capital levels to afford to pay dividends. As such, no
adjustment is indicated for this factor.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 58
================================================================================
- -------------------------------------------------
| |
| Liquidity of the Issue |
| |
- -------------------------------------------------
The Comparable Group is by definition composed only of companies that trade in
the public markets with all of the Comparables trading on NASDAQ or AMEX.
Typically, the number of shares outstanding and the market capitalization
provides an indication of how much liquidity there will be in a given stock. The
actual liquidity can be measured by volume traded over a given period of time.
The market capitalization values of the Comparable Group range from a low of
$2.70 million to a high of $28.37 million with an average market capitalization
of $11.56 million. The Bank expects to have $7.0 million of market capital at
the midpoint on a pro-forma basis.
Based on the comparison with the Comparable Group and the above data, no
adjustment appears warranted.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 59
================================================================================
- -------------------------------------------------
| |
| Subscription Interest |
| |
- -------------------------------------------------
The outcome of subscription offerings has been, historically, difficult to
predict. Since 1992, however, the conversions have experienced robust
subscription interest with the exception of late 1994 when the pricing multiples
were high. During late 1994, many subscriptions had the need to resolicit due to
lack of professional investor demand. During 1995, the investor demand returned
and the subscription interest increased, primarily the result of lower market
multiples. There were some offerings in July and June 1996 that went off at or
below the midpoint, indicating a possible shift away from interest in thrift
public offerings at that time. The vast majority of recent conversions have
oversubscribed and gone off at the maximum or super-maximum.
Of more importance is the general strength of the aftermarket. Thrift stock
prices have soared upwards in recent months (see Figure 40) and is showing
strength across the board. Additionally, as shown in Exhibit 7, the most recent
conversions (within the last 3 months) have demonstrated a strong price
appreciation.
Recently, there were two deals which over subscribed, resulting in
re-solicitations.
As such, an upward adjustment for subscription interest is warranted at this
time.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 60
================================================================================
- -------------------------------------------------
| |
| Recent Regulatory matters |
| |
- -------------------------------------------------
As a result of large after-market price increases of conversions during 1993 and
early 1994, the regulatory agencies have issued guidelines on appraisals for
conversions. The regulators publicly indicated that only modest immediate
after-market price increases are appropriate for converting institutions. The
guidelines issued November 22, 1994, indicate that the reasonableness and
adequacy of an appraisal will be partially judged by the immediate price
movement of the conversion stock in the after-market, using a very short time
frame of the second day of trading following closing. The guidelines further
discuss that the average price appreciation for all IPOs has been between 10 and
15%, which was deemed to be too high.
At around the same time period, IPO pricing was elevated on a book basis and
IPOs in late 1994 did not experience much appreciation. In fact, numerous IPOs
actually depreciated. 1995 brought back lower premiums to book but they have
been rising throughout 1996 to approximately the same levels as late 1994. 1997
has continued the trend with IPOs popping over 40% on average, for the first day
of trading.
The recent interest in thrift IPOs has caused large oversubscriptions, which in
turn have caused large price appreciations in the aftermarket. Recently,
regulators have been indicating the need for increased pricing of new issues in
the attempt lessen the aftermarket appreciation. Also, regulators have been
concerned with capital redistributions from thrifts which have converted within
the past three years. Regulatory agencies are publicly indicating that they will
enforce the limits of stock buy backs to: 0% in the first year, 5% in the second
year and 5% in the third year.
This threat to newly converted institutions, of not being able to use all of the
capital markets tools available, will hurt the stocks attractiveness, as it will
put them at a significant competitive disadvantage to the rest of the industry.
As such, a slight downward adjustment for this measure is warranted based on the
uncertainty surrounding the regulatory environment.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 61
================================================================================
- -------------------------------------------------
| |
| Market for Seasoned Thrift Stocks |
| |
- -------------------------------------------------
Data for all public thrifts as of December 8, 1997 is provided in Exhibit 5. A
common measure utilized as a proxy for the performance of the thrift industry is
the SNL thrift index graphically shown below and tabularly shown on the
following page:
Figure 43 - SNL Thrift Index Chart
[GRAPHIC OMITTED]
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 62
================================================================================
Figure 44 - Historical SNL Index
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SNL THRIFT INDEX MONTHLY PERFORMANCE
January 2, 1992 to December 8, 1997
- -------------------------------------------------------------------------------------------------------------------
SNL % Change % Change % Change % Change % Change % Change
Thrift Since Since Since Since Since Since
Date Index 1/2/92 1/4/93 1/3/94 12/30/94 12/29/95 12/31/96
---- ----- ------ ------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Jan-92 143.9 - - - - - -
Jul-92 175.1 21.7% - - - - -
Jan-93 201.1 39.7% - - - - -
Jul-93 220.5 53.2% 9.6% - - - -
Jan-94 252.5 75.5% 25.6% - - - -
Jul-94 273.8 90.3% 36.2% 8.4% - - -
Jan-95 256.1 78.0% 27.3% 1.4% - - -
Jul-95 328.2 128.1% 63.2% 30.0% 28.2% - -
Jan-96 370.7 157.6% 84.3% 46.8% 44.7% - -
Jul-96 389.9 171.0% 93.9% 54.4% 52.2% 5.2% -
Jan-97 520.1 261.4% 158.6% 106.0% 103.1% 40.3% -
Jul-97 684.5 375.7% 240.4% 171.1% 167.3% 84.7% 31.6%
08-Dec-97 799.6 455.7% 297.6% 216.7% 212.2% 115.7% 53.7%
</TABLE>
Source: SNL Securities
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 63
================================================================================
Figure 45 - Equity Indices
[GRAPHIC OMITTED]
Index Comparisons
- -------------------------------------------------------------------
SNL S&P DJIA
- -------------------------------------------------------------------
6/30/94 269.6 444.3 3,625.0
12/30/94 244.7 459.3 3,834.4
6/30/95 313.5 544.8 4,556.1
12/29/95 376.5 615.9 5,117.1
6/28/96 387.2 670.6 5,654.6
12/31/96 483.6 740.7 6,448.3
6/30/97 624.5 885.2 7,672.8
12/8/97 799.6 982.4 8,110.8
- -------------------------------------------------------------------
As the Figures 40 and 42 illustrate, the performance of the SNL index has been
robust through 1992, 1993, 1994 and 1995. The dip in the index, occurring in
late 1994, was the product of the interest rate rise during that period along
with the overall uneasiness in the stock market in general. The rate scenario
covering the same period as the SNL index can be seen in the following chart.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 64
================================================================================
Figure 46 - Historical Rates
[GRAPHIC OMITTED]
Source: Prudential Bache Securities
As the graph demonstrates, the rate rise in late 1994 correlates closely to the
fall in thrift prices. The drop in rates in 1995 was one of the primary drivers
of the rapid rise in the SNL index. During 1996, rates increased slightly and
then remained stable, fueling the rise in the conversion prices. 1997 has seen a
continuation of this trend, with the average IPO pricing at 70.9%, 69.7%, 70.9%,
and 73.6% of book value for the first, second, third, and fourth quarters of
1997, respectively.
Thrift pricing in general was robust in 1995 due to the falling interest rates,
the industry consolidation and renewed earnings. Contrasting this view, in late
1994 investors faced shrinking spreads and margins due to rising rates and
consolidation that was tailing off and slowing down. The blockbuster level of
consolidations have led many investors to think that all institutions are fair
game for acquisitions and prices have risen accordingly.
As Figure 45 and 46 show, in 1997, the SNL index has continued to increase as a
result of the flat interest rate environment. In addition, the market continues
to demonstrate evidence of acquisition speculation.
As such, a downward adjustment for this measure is warranted, as newly converted
thrifts will not trade at the same multiples as seasoned thrifts because
investors do not have a proven track record on which to base investment
decisions. Additionally, newly converted thrifts need time to reinvest proceeds
and leverage the capital raised in the IPO.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 65
================================================================================
- -------------------------------------------------
Acquisition Market
- -------------------------------------------------
The level of bank and thrift deals is cyclical, with banks peaking in the third
quarter of each year and thrifts peaking in the second quarter. The overall
trend, however, has been downward.
Figure 47 - Deals for Last Ten Quarters
[GRAPHIC OMITTED - Chart Plots follows]
<TABLE>
<CAPTION>
1995-2 1995-3 1995-4 1996-1 1996-2 1996-3 1996-4 1997-1 1997-2 1997-3 1997-4
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bank 85 92 80 79 87 91 82 66 74 84 49
Thrift 35 27 22 22 29 21 19 25 31 17 21
</TABLE>
Source: SNL Securities
Note: Figures for the fourth quarter of 1997 are through December 8, 1997.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 66
================================================================================
From 1994 through December 8, 1997, thrift deal prices remained high. As
illustrated by the following graphs and tables, thrift deal prices as a multiple
of book value and earnings continue to climb through December 8, 1997, for all
thrifts and thrifts in the Mid-Atlantic region. The deal multiples for similar
sized thrifts has declined on a book basis, but continues to increase on an
earnings basis in 1997.
Figure 48 - Current Thrift Acquisition Multiples, Price to Book
Historical Price to Book Analysis
[GRAPHIC OMITTED]
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 67
================================================================================
Figure 49 - Current Thrift Acquisition Multiples, Price to Tangible Book
Historical Price to Tangible Book Value
[GRAPHIC OMITTED]
Figure 50 - Thrift Acquisition Multiples, Price to Earnings
Historical Median Price to Earnings
[GRAPHIC OMITTED]
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 68
================================================================================
Figure 51 - Current Thrift Acquisition Multiples, Price to Assets
Histroical Price to Assets
[GRAPHIC OMITTED]
Figure 52 - Current Thrift Acquisition Multiples, Price to Deposits
Historical Price to Deposits
[GRAPHIC OMITTED]
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 69
================================================================================
Figure 53 - Deal Multiples
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Median Price to LTM Earnings 1994 1995 1996 1997 YTD
Thrifts - Nationwide 13.8 18.6 17.7 25.3
Thrifts - Mid-Atlantic 13.3 17.9 17.0 21.7
Thrifts - Deal Value less than 10 Million 14.7 23.9 18.9 48.2
Average Price to Book
Thrifts - Nationwide 154.5 144.7 149.5 180.3
Thrifts - Mid-Atlantic 153.9 156.5 156.9 198.4
Thrifts - Deal Value less than 10 Million 143.8 134.5 145.6 137.4
Average Price to Tangible Book
Thrifts - Nationwide 158.9 149.1 153.6 185.2
Thrifts - Mid-Atlantic 160.4 157.6 159.4 204.1
Thrifts - Deal Value less than 10 Million 145.3 135.0 145.6 137.4
Average Price to Assets
Thrifts - Nationwide 13.9 14.8 15.0 18.2
Thrifts - Mid-Atlantic 13.2 15.3 17.7 16.5
Thrifts - Deal Value less than 10 Million 10.6 12.1 14.0 15.8
Average Price to Deposits
Thrifts - Nationwide 17.1 19.2 19.9 24.4
Thrifts - Mid-Atlantic 16.2 20.3 24.5 25.2
Thrifts - Deal Value less than 10 Million 12.3 15.3 16.7 19.3
-------------------------------------------------------------------------------------------------
</TABLE>
Currently there are no pending acquisitions in Georgia. The acquisition
multiples associated with all deals are shown below.
Figure 54 - Acquisition Table
At Announcement Offer Divided By
--------------------------------
Book Value LTM EPS
---------- -------
Pending Merger Median 192% 25.9x
Completed Merger Median 201% 23.6x
Source: SNL Securities
A slight downward adjustment is warranted for this factor at time of conversion,
since new conversions are not readily available for acquisition for well over
one year from the date of conversion and since the market prices of the
Comparables already have this acquisition premium built in their prices.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 70
================================================================================
- -------------------------------------------------
| |
| Adjustments to value |
| |
- -------------------------------------------------
Overall, FinPro believes that the Bank pro-forma market value should be
discounted relative to the Comparable Group, reflecting the following
adjustments.
Key Valuation Parameters Valuation Adjustment
- ----------------------------------------------------------- --------------------
Balance Sheet Strength No Adjustment
Asset Quality Slight Downward
Earnings Quality No Adjustment
Market Area Slight Downward
Management No Adjustment
Dividends No Adjustment
Liquidity of the Issue No Adjustment
Subscription Interest Upward
Recent Regulatory Matters Slight Downward
Market for Seasoned Thrift Stocks Downward
Acquisition Market Slight Downward
As a result of all the factors discussed, a full offering discount of
approximately 40% from the average trading values of the comparable companies
appears to be reasonable.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 71
================================================================================
- -------------------------------------------------
| |
| Valuation Approach |
| |
- -------------------------------------------------
In applying the accepted valuation methodology promulgated by the regulators,
i.e., the pro-forma market value approach, four key pricing multiples were
considered. The four multiples include:
Price to earnings ("P/E")
Price to tangible book value ("P/TB")
Price to book value ("P/B")
Price to assets ("P/A")
All of the approaches were calculated on a pro-forma basis including the effects
of the conversion proceeds. All of the assumptions utilized are presented in
Exhibits 8 and 9.
To ascertain the pro-forma estimated market value of the Bank, the market
multiples for the Comparable Group, all publicly traded thrifts and the recent
(1996 to date) standard conversion group were assessed.
Since thrift earnings in general have had a high degree of volatility over the
past decade, the P/B approach had gained in importance and is utilized
frequently as the benchmark for market value. It is interesting to note that the
P/B approach is more of a benchmark than a reliable valuation technique. A
better approach is the P/TB approach. In general, investors tend to price
financial institutions on a tangible book basis, because it incorporates the P/B
approach adjusted for intangibles. Most recently, the P/E approach has regained
favor among investors.
The evidence of the movement towards the P/E Multiple can be seen in the
acquisition, trading and IPO markets. The P/LTM EPS multiple for the pending
acquisitions is 25.9x, for all public thrifts the trading P/LTM is 19.44x and
for recent IPO's is 25.3x.
As such, in estimating the market value for the Bank, the most emphasis was
placed on the P/E approach. The P/B and P/TB were given much less weight and the
P/A ratio was not given much weight at all.
In terms of the market multiples, most weight was given to the Comparable Group
and the recent (1997 to date) standard conversions. Less weight was ascribed to
all public thrifts and all Georgia thrifts. The multiples for the Comparable
Group, all publicly traded thrifts, and Georgia publicly traded thrifts are
shown in Exhibit 6.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 72
================================================================================
Based upon the approximately 40% discount defined in the section above, the Bank
pricing at the midpoint is estimated to be $5,000,000. Based upon a range below
and above the midpoint value, the relative values are $4,250,000 at the minimum
and $5,750,000 at the maximum respectively. At the supermaximum of the range the
offering value would be $6,612,500.
At the various levels of the estimated value range, the offering would result in
the following offering data:
Figure 55 - Value Range Offering Data
[GRAPHIC OMITTED]
Source: FinPro Inc. Proforma Model
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 73
================================================================================
This equates to the following multiples:
Figure 56 - Comparable Pricing Multiples to the Bank's Proforma Midpoint
<TABLE>
<CAPTION>
Comparables
-----------------------------------------------------------------------
Price Relative to
-----------------------------------------------------------------------
Earnings Book Tangible Book Assets
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Bank (at midpoint) 12.99 71.23% 71.23% 11.56%
- -----------------------------------------------------------------------------------------------------------
Comparable Group Median 33.53 114.22% 114.22% 15.63%
- -----------------------------------------------------------------------------------------------------------
(Discount) Premium -61.26% -37.64% -37.64% -26.04%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Source: FinPro Calculations
Figure 57 - Comparable Pricing Multiples to the Bank's Proforma Supermax
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Price Relative to
-----------------------------------------------------------------------
Earnings Book Tangible Book Assets
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Bank (at supermax) 15.63 78.74% 78.74% 14.82%
- -----------------------------------------------------------------------------------------------------------
Comparable Group Median 33.53 114.22% 114.22% 15.63%
- -----------------------------------------------------------------------------------------------------------
(Discount) Premium -53.39% -31.06% -31.06% -5.18%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Source: FinPro Calculations
Figure 58 - Recent Standard Conversion Proforma Multiples
to the Bank's Proforma Midpoint
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Price Relative to
-----------------------------------------------------------------------
Earnings Book Tangible Book Assets
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Bank (at midpoint) 12.99 71.23% 71.23% 11.56%
- -----------------------------------------------------------------------------------------------------------
Recent Standard Conversions 21.30 71.93% 71.90% 17.00%
- -----------------------------------------------------------------------------------------------------------
(Discount) Premium -39.01% -0.97% -0.93% -32.00%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Source: FinPro Calculations
Figure 59 - Recent Standard Conversion Proforma Multiples
to the Bank's Proforma Supermax
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Price Relative to
-----------------------------------------------------------------------
Earnings Book Tangible Book Assets
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Bank (at the supermax) 15.63 78.74% 78.74% 14.82%
- -----------------------------------------------------------------------------------------------------------
Recent Standard Conversions 21.30 71.93% 71.90% 17.00%
- -----------------------------------------------------------------------------------------------------------
(Discount) Premium -26.62% 9.47% 9.51% -12.82%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Source: FinPro Calculations
As the tables above demonstrate, a discount of approximately 40% is applied to
the Bank relative to the Comparable Group. When compared to recent standard
conversions, the Bank is priced at a discount on both an earnings basis and on a
book basis.
In figure 55, the Recent Conversion multiple is based on public offerings which
have typically subscribed at the supermaximum. Figure 56 adjusts for this factor
by calculating the discount or premium in comparison to the Bank's multiples at
the supermaximum.
<PAGE>
Conversion Valuation Appraisal Report Page: 1 - 74
================================================================================
- -------------------------------------------------
| |
| Valuation Conclusion |
| |
- -------------------------------------------------
It is, therefore, our opinion that as of December 19, 1997, the estimated
pro-forma market value of the Bank in a full offering was $5,000,000 at the
midpoint of a range with a minimum of $4,250,000 to a maximum of $5,750,000 at
15% below and 15% above the midpoint of the range respectively. Assuming an
adjusted maximum value of 15% above the maximum value, the adjusted maximum
value or supermaximum value in a full offering is $6,612,500. The stock will be
issued at $10.00 per share.
Pro-forma comparisons of the Bank's value range with the Comparable Group, all
public thrifts, Georgia public thrifts and the recent standard conversion group
is shown in Exhibit 8.
<PAGE>
Exhibit 1
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Assets At September 30,
------ ------------------------------------------
1997 1996
------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents:
Cash and amounts due from banks $ 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 $1780,825 in 1996) 3,046,109 1,780,875
Held-to-maturity ( Fair value $801,061 in 1997 and 1,642,828 in 1996) 804,706 1,663,271
Loans receivable 33,325,719 30,805,187
Office properties and equipment, net 322,527 310,921
Real Estate and other property acquired in settlement of loans 63,915 -
Accrued interest recievable 381,218 370,047
Investment required by lawstock in FHLB, at cost 227,700 219,100
Cash value of life insurance 218,106 109,419
Other assets 145,356 148,978
------------ ------------
Total assets $ 39,192,164 $ 36,173,048
============ ============
Liabilities and Net Worth
-------------------------
Liabilities:
- ------------
Deposits $ 34,470,803 $ 31,728,963
Advances from FHLB 1,300,000 1,200,000
Accrued interest payable 272,346 253,272
Income taxes payable 114,766 60,015
Other liabilities 75,696 263,958
------------ ------------
Total liabilities 36,233,611 33,506,208
Equity:
- -------
Retained earnings 2,952,560 2,689,761
Net 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>
Source: Audited Financial Statements
<PAGE>
Exhibit 2
Consolidated Statements of Income
$ in 000's
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
For the Years Ended
Septeber 30,
-----------------------------------
1997 1996
-----------------------------------
<S> <C> <C>
Interest income:
Loans receivable:
First mortage loans $ 2,833,489 $ 2,616,633
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 -
--------- ---------
Total interest income 3,197,944 2,907,739
Interest and dividend expense:
Deposits 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 before provision for loan losses 1,219,481 1,063,069
Provision for loan losses 136,000 36,000
--------- ---------
Net interest income after provision for loan losses 1,083,481 1,027,069
Noninterest income:
Other income 45,536 49,196
Gain/(loss) on sale of securities (133) -
--------- ---------
Total non-interest income 45,403 49,196
Noninterest expense:
Compensation 255,966 221,056
Other personnel expenses 150,382 138,188
Occupancy expenses 22,900 22,042
Furniture & equipment expenses 69,892 67,268
Federal deposit insurance 29,553 69,874
Special SAIF assessment - 185,647
Other operating expenses 218,181 218,283
--------- ---------
Total noninterest expense 746,874 922,358
Income before provision for income taxes 382,010 153,907
Provision for income taxes 119,211 50,621
Net income $ 262,799 $ 103,286
========= =========
- ----------------------------------------------------------------------------------------------
</TABLE>
Source: Audited Financial Statements
<PAGE>
Exhibit 3
Consolidated Statements of Changes in Net Worth
- -------------------------------------------------------------------------
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
=========== ===========
- -------------------------------------------------------------------------
Source: Audited Financial Statements
<PAGE>
Exhibit 4
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years 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 loan 11,022 9,856
Changes 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 liabilites (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 - (864,994)
Proceeds from sale of foreclosed property - 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 -
Principal collected on mortage-backed securities 2,289 -
Proceeds from sale of available-for-sale securities 400,063 -
Proceeds from sale 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 used in 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 FHLB advances 100,000 700,000
----------- -----------
Net cash provided by financing activities 2,841,840 2,665,769
Increase (decrease) in cash and cash equivalents (108,442) 62,881
Cash and cash equivalents, beginning of year 765,250 702,369
----------- -----------
Cash and cash equivalents, end of year $ 656,808 $ 765,250
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes net of refunds $ 60,000 $ 27,806
Interest 1,959,389 1,659,786
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Audited Financial Statements
<PAGE>
Exhibit 5
Selected Data on all Public Thrifts
[OMITTED]
<PAGE>
Exhibit 6
Industry Multiples
Pricing Data as of December 8, 1997
[OMITTED]
<PAGE>
Exhibit 7
Standard Conversions - 1996 to Date
Selected Market Data
Market Data as of 12/08/97
[OMITTED]
<PAGE>
Exhibit 8 Appraisal - No Foundation
Quitman Federal Savings and Loan Association
Pro-Forma Analysis Sheet - Twelve Months Ended
September 30, 1997
Includes SOP 93-6
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Minimum Midpoint Maximum Supermaximum
-----------------------------------------------------------------------
Price-Earnings Ratio
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Comparable Mean | 47.90
Median | 33.53
- --------------------------------------------------------------------------------------------------------------------------
State Mean | 40.23
|-----------------------------------------------------------------------
Median | 24.22
- --------------------------------------------------------------------------------------------------------------------------
National Mean | 23.23
|-----------------------------------------------------------------------
Median | 19.44
- --------------------------------------------------------------------------------------------------------------------------
Recent Conversion Mean | 22.31
|-----------------------------------------------------------------------
Median | 21.30
- --------------------------------------------------------------------------------------------------------------------------
Bank Mean | 11.49 12.99 14.29 15.63
- --------------------------------------------------------------------------------------------------------------------------
Price-Book Ratio
- --------------------------------------------------------------------------------------------------------------------------
Comparable Mean | 110.54%
|-----------------------------------------------------------------------
Median | 114.22%
- --------------------------------------------------------------------------------------------------------------------------
State Mean | 184.94%
|-----------------------------------------------------------------------
Median | 170.03%
- --------------------------------------------------------------------------------------------------------------------------
National Mean | 171.50%
|-----------------------------------------------------------------------
Median | 156.91%
- --------------------------------------------------------------------------------------------------------------------------
Recent Conversion Mean | 71.06%
|-----------------------------------------------------------------------
Median | 71.93%
- --------------------------------------------------------------------------------------------------------------------------
Bank Mean | 66.67% 71.23% 75.02% 78.74%
- --------------------------------------------------------------------------------------------------------------------------
Price-Tangible Book Ratio
- --------------------------------------------------------------------------------------------------------------------------
Comparable Mean | 111.23%
|-----------------------------------------------------------------------
Median | 114.22%
- --------------------------------------------------------------------------------------------------------------------------
State Mean | 200.97%
|-----------------------------------------------------------------------
Median | 170.03%
- --------------------------------------------------------------------------------------------------------------------------
National Mean | 178.20%
|-----------------------------------------------------------------------
Median | 160.41%
- --------------------------------------------------------------------------------------------------------------------------
Recent Conversion Mean | 71.05%
|-----------------------------------------------------------------------
Median | 71.90%
- --------------------------------------------------------------------------------------------------------------------------
Bank Mean | 66.67% 71.23% 75.02% 78.74%
- --------------------------------------------------------------------------------------------------------------------------
Price-Assets Ratio
- --------------------------------------------------------------------------------------------------------------------------
Comparable Mean | 16.06%
|-----------------------------------------------------------------------
Median | 15.63%
- --------------------------------------------------------------------------------------------------------------------------
State Mean | 18.17%
|-----------------------------------------------------------------------
Median | 16.10%
- --------------------------------------------------------------------------------------------------------------------------
National Mean | 19.69%
|-----------------------------------------------------------------------
Median | 17.70%
- --------------------------------------------------------------------------------------------------------------------------
Recent Conversion Mean | 16.79%
|-----------------------------------------------------------------------
Median | 17.00%
- --------------------------------------------------------------------------------------------------------------------------
Bank Mean | 9.97% 11.56% 13.10% 14.82%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
Exhibit 8 Appraisal - No Foundation
Valuation Parameters
- --------------------
Prior Twelve Mos. Earning Base Y
Period Ended September 30, 1997 $ 263 (1)
Pre-Conversion Book Value B
As of September 30, 1997 $ 2,959
Pre-Conversion Assets A
As of September 30, 1997 $ 39,192
Return on Money R 3.48%(2)
Conversion Expenses $ 341
X 6.82%(3)
Proceeds Not Invested $ 600 (4)
Estimated ESOP Borrowings $400
ESOP Purchases E 8.00%(5)
Cost of ESOP Borrowings $40 (5)
Cost of ESOP Borrowings S 0.00%(5)
Amort of ESOP Borrowings T 10 Years
Amort of MRP Amount N 5 Years
Estimated MRP Amount $ 200 (6)
MRP Purchases M 4.00%
MRP Expense $ 40
Foundation Amount $ - (7)
Foundation Amount F 0.00%
Foundation Opportunity Cost $0
Tax Benefit Z $0 (8)
Tax Rate TAX 37.00%
Percentage Sold PCT 100.00%
Amount to be issued to Public $5,000 (9)
Earnings Multiple (1 if stub period, 0 if full twelve months) 12 0
(1) Net income for the twelve months ended September 30, 1997.
(2) Net Return assumes a reinvestment rate of 5.52 percent (the 1 year Treasury
at September 30, 1997), and a tax rate of 37%.
(3) Conversion expenses reflect estimated expenses as presented in the offering
document.
(4) Includes Stock from ESOP and MRP.
(5) Assumes ESOP is amortized straight line over 10 years.
(6) Assumes MRP is amortized straight line over 5 years.
(7) Not applicable.
(8) Not Applicable.
Page 2
<PAGE>
Pro Forma Calculation
Calculation of Estimated Value (V) at Midpoint Value
3. V= P/E*Y = $5,000,000
1-P/E*PCT*((1-X-E-M-F)*R-(1-TAX)*E/T-(1-TAX)*M/N)
2. V= P/B*(B+Z) = $5,000,000
1-P/B*PCT*(1-X-E-M-F)
1. V= P/A*A = $5,000,000
1-P/A*PCT*(1-X-E-M-F)
<TABLE>
<CAPTION>
Pre Foundation
-----------------------------------------------------------------------
Appraised Value
-----------------------------------------------------------------------
Conclusion Minimum Midpoint Maximum SuperMaximum *
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Shares 425,000 500,000 575,000 661,250
Price per Share $10 $10 $10 $10
Full Conversion Value $4,250,000 $5,000,000 $5,750,000 $6,612,500
Exchange Shares 0 0 0 0
Exchange Percent 0.00% 0.00% 0.00% 0.00%
Conversion Shares 425,000 500,000 575,000 661,250
Conversion Percent 100.00% 100.00% 100.00% 100.00%
Gross Proceeds $4,250,000 $5,000,000 $5,750,000 $6,612,500
Exchange Value $0 $0 $0 $0
Exchange Ratio 0.000 0.000 0.000 0.000
-----------------------------------------------------------------------
</TABLE>
* SuperMaximum is an overallotment option that is 15% above the maximum amount.
Page 3
<PAGE>
Exhibit 8 Appraisal - No Foundation
<TABLE>
<CAPTION>
Proforma Effect of Conversion Proceeds
As of September 30, 1997
(Dollars in Thousands)
- ------------------------------------------ -----------------------------------------------------------------------
| Conversion Proceeds | Minimum Midpoint Maximum SuperMax
- ------------------------------------------ -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Shares Offered 425 500 575 661
Conversion Shares Offered 425 500 575 661
Price Per Share $10 $10 $10 $10
-----------------------------------------------------------------------
Gross Proceeds $4,250 $5,000 $5,750 $6,613
Plus: Value issued to Foundation (9) $0 $0 $0 $0
-----------------------------------------------------------------------
Pro Forma Market Capitalization $4,250 $5,000 $5,750 $6,613
=======================================================================
Gross Proceeds $4,250 $5,000 $5,750 $6,613
Less: Est. Conversion Expenses $324 $341 $359 $378
=======================================================================
Net Proceeds $3,926 $4,659 $5,391 $6,235
=======================================================================
- ------------------------------------------
| Estimated Income from Proceeds |
- ------------------------------------------
Net Conversion Proceeds $3,926 $4,659 $5,391 $6,235
Less: ESOP Adjustment (3) $340 $400 $460 $529
Less: MRP Adjustment (3) $170 $200 $230 $265
-----------------------------------------------------------------------
Net Proceeds Reinvested $3,416 $4,059 $4,701 $5,441
Estimated Incremental Rate of Return 3.48% 3.48% 3.48% 3.48%
-----------------------------------------------------------------------
Estimated Incremental Return $119 $141 $164 $189
Less: Cost of ESOP (4) $0 $0 $0 $0
Less: Amortization of ESOP (7) $21 $25 $29 $33
Less: MRP Adjustment (7) $21 $25 $29 $33
-----------------------------------------------------------------------
Pro-forma Net Income $77 $91 $106 $123
Earnings Before Conversion $263 $263 $263 $263
-----------------------------------------------------------------------
Earnings Excluding Adjustment $340 $354 $369 $386
Earnings Adjustment (6) $0 $0 $0 $0
-----------------------------------------------------------------------
Earnings After Conversion $340 $354 $369 $386
- ------------------------------------------
| Pro-forma Net Worth |
- ------------------------------------------
Net Worth at September 30, 1997 $ 2,959 $ 2,959 $ 2,959 $ 2,959
Net Conversion Proceeds 3,926 4,659 5,391 6,235
Plus: MHC Adjustment (7) 0 0 0 0
Plus: After tax Foundation Contribution - - - -
Less: ESOP Adjustment (1) (340) (400) (460) (529)
Less: MRP Adjustment (2) (170) (200) (230) (265)
-----------------------------------------------------------------------
Pro-forma Net Worth $6,375 $7,018 $7,660 $8,400
- ------------------------------------------
| Pro-forma Tangible Net Worth |
- ------------------------------------------
Pro-forma Net Worth $6,375 $7,018 $7,660 $8,400
Less: Intangible (5) $0 $0 $0 $0
-----------------------------------------------------------------------
Pro-forma Tangible Net Worth $6,375 $7,018 $7,660 $8,400
- ------------------------------------------
| Pro-forma Assets |
- ------------------------------------------
Total Assets at September 30, 1997 $ 39,192 $ 39,192 $ 39,192 $ 39,192
Net Conversion Proceeds $3,926 $4,659 $5,391 $6,235
Plus: MHC Adjustment (7) 0 0 0 0
Plus: Tax Benefit of Foundation - - - -
Less: ESOP Adjustment (1) (340) (400) (460) (529)
Less: MRP Adjustment (2) (170) (200) (230) (265)
-----------------------------------------------------------------------
Pro-forma Assets Excluding Adjustment 42,608 43,251 43,893 44,633
Plus: Adjustment (6) 0 0 0 0
-----------------------------------------------------------------------
Pro-forma Total Assets $42,608 $43,251 $43,893 $44,633
-----------------------------------------------------------------------
</TABLE>
Page 4
<PAGE>
Exhibit 8 Appraisal - No Foundation
<TABLE>
<CAPTION>
Proforma Effect of Conversion Proceeds
As of September 30, 1997
(Dollars in Thousands)
---------------------------------------------------------------------------
Minimum Midpoint Maximum SuperMax
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------
| Stockholder's Equity Per Share |
- ------------------------------------------
Net Worth at September 30, 1997 $6.96 $5.92 $5.15 $4.47
Estimated Net Proceeds $9.24 $9.32 $9.38 $9.43
Plus: MHC Adjustment $0.00 $0.00 $0.00 $0.00
Plus: Foundation Contribution $0.00 $0.00 $0.00 $0.00
Less: ESOP Stock ($0.80) ($0.80) ($0.80) ($0.80)
Less: MRP Stock ($0.40) ($0.40) ($0.40) ($0.40)
------ ------ ------ ------
Pro-forma Net Worth Per Share $15.00 $14.04 $13.33 $12.70
Less: Intangible $0.00 $0.00 $0.00 $0.00
------ ----- ----- -----
Pro-forma Tangible Net Worth Per Share $15.00 $14.04 $13.33 $12.70
- ------------------------------------------
| Net Earnings Per Share |
- ------------------------------------------
Historical Earnings Per Share (8) $0.67 $0.57 $0.49 $0.43
Incremental return Per Share (8) $0.30 $0.30 $0.31 $0.31
ESOP Adjustment Per Share (8) ($0.05) ($0.05) ($0.05) ($0.05)
MRP Adjustment Per Share (8) ($0.05) ($0.05) ($0.05) ($0.05)
Normalizing Adjustment Per Share $0.00 $0.00 $0.00 $0.00
----- ----- ----- -----
Proforma Earnings Per Share (8) $0.87 $0.77 $0.70 $0.64
- ------------------------------------------
| Shares Utilized |
- ------------------------------------------
Shares Utilized 394 464 534 613
- ------------------------------------------
| Pro-forma Ratios |
- ------------------------------------------
Price/EPS without Adjustment 11.49 12.99 14.29 15.63
Price/EPS with Adjustment 11.49 12.99 14.29 15.63
Price/Book Value per Share 66.67% 71.23% 75.02% 78.74%
Price/Tangible Book Value 66.67% 71.23% 75.02% 78.74%
Market Value/Assets 9.97% 11.56% 13.10% 14.82%
-----------------------------------------------------------------------
</TABLE>
(1) ESOP Borrowings are deducted from net worth and assets, and amortized over
10 years.
(2) MRP Borrowings are omitted from net worth and assets, and amortized over 5
years.
(3) Consists of ESOP and MRP amortization.
(4) The ESOP loan is from the Holding Company and therefore, there are no
costs.
(5) Not applicable.
(6) Not applicable.
(7) ESOP and MRP are amortized over 10 and 5 years respectively, and tax
impacted at 37%.
(8) All EPS computations are done in accordance with SOP 93-6.
(9) Not applicable.
Page 5
<PAGE>
Exhibit 8 Appraisal - No Foundation
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Total Shares Offered 425 500 575 661
Price Per Share $10 $10 $10 $10
-----------------------------------------------------------------------
Gross Proceeds 4,250 5,000 5,750 6,613
Estimated Insider Purchases -385 -385 -385 -385
ESOP Purchases -340 -400 -460 -529
-----------------------------------------------------------------------
Proceeds to Base Fee On 3,525 4,215 4,905 5,699
Underwriters Percentage 2.50% 2.50% 2.50% 2.50%
-----------------------------------------------------------------------
Underwriters Fee 88 105 123 142
Advisory Fee 0 0 0 0
-----------------------------------------------------------------------
Total Underwriters Fee 88 105 123 142
All Other Expenses 236 236 236 236
-----------------------------------------------------------------------
Total Expense 324 341 359 378
Shares Outstanding 425 500 575 661
Less: New ESOP Adjustment 34 40 46 53
Less: Old ESOP Adjustment (1) 0 0 0 0
Plus: New SOP 93-6 ESOP Shares (2) 3 4 5 5
Plus: Old SOP 93-6 ESOP Shares (2) 0 0 0 0
Shares for all EPS Calculations 394 464 534 613
Dilution of Stock Options 10.78%
Dilution of MRP 4.31%
</TABLE>
<TABLE>
<CAPTION>
Post Foundation
-----------------------------------------------------------------------
Appraised Value
-----------------------------------------------------------------------
Conclusion Minimum Midpoint Maximum SuperMaximum
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares Issued and Exchanged 425,000 500,000 575,000 661,250
Price per Share $10 $10 $10 $10
Shares Issued to Foundation - - - -
Total Shares 425,000 500,000 575,000 661,250
Exchange Shares - - - -
Conversion Shares 425,000 500,000 575,000 661,250
Implied Exhange Ratio - - - -
Gross Proceeds $4,250,000 $5,000,000 $5,750,000 $6,612,500
Exchange Value $0 $0 $0 $0
-----------------------------------------------------------------------
MRP Dilution
Shares Outstanding 425 500 575 661
Less: New ESOP Adjustment 34 40 46 53
Plus: New MRP issued (1) 17 20 23 27
Plus: New SOP 93-6 ESOP Shares (2) 3 4 5 5
(2)
Shares for all EPS Calculations 411 484 557 640
EPS $ 0.84 $ 0.75 $ 0.68 $ 0.62
BV/Share $14.42 $13.50 $12.81 $12.21
</TABLE>
Page 6
<PAGE>
Exhibit 8 Appraisal - No Foundation
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Option dilution
Shares Outstanding 425 500 575 661
Less: New ESOP Adjustment 34 40 46 53
Plus: Options (1) 43 50 58 66
Plus: New SOP 93-6 ESOP Shares (2) 3 4 5 5
(2)
Shares for all EPS Calculations 437 514 592 679
EPS $ 0.78 $ 0.69 $ 0.62 $ 0.57
BV/Share $14.55 $13.67 $13.02 $12.46
Aftertax expense $0 $0 $0 $0
EPS $0.87 $0.77 $0.70 $0.64
Adjusted EPS 0.86 0.76 0.69 0.63
</TABLE>
Page 7
<PAGE>
Exhibit 9
FinPro
- ----------------------------
| |
| About the Firm |
| |
- ----------------------------
FinPro, Inc. was established in 1988 as a full service management consulting
firm specializing in providing advisory services to the Financial Institutions
Industry. FinPro provides management advisory services for Banks, Thrifts,
Finance Companies and NonBank Banks. Additionally, FinPro has performed work for
the Federal Bankruptcy Court, Federal Deposit Insurance Corporation, Office of
Thrift Supervision and the Resolution Trust Corporation. FinPro is recognized as
an expert in banking and in loan analysis by the Federal Bankruptcy Court.
FinPro is independently owned, not associated or affiliated with any transaction
oriented firm. This provides FinPro with an unbiased platform from which to make
analytical recommendations. FinPro believes that a client deserves to be told
all of the alternatives, along with their associated benefits and downsides and
that a decision should be made on its merits. This uniquely positions FinPro as
an objective third party willing to suggest the unpopular strategies, unlike its
competitors who rely on a transaction to get paid.
FinPro is headquartered in Liberty Corner, New Jersey and has a branch office in
Buffalo, New York. FinPro focuses geographically on the Mid-Atlantic region, but
has performed work in all other regions across the nation.
FinPro principals are frequent speakers and presenters at financial institution
trade association functions. In addition, FinPro designed the Statistical Report
Analysis currently produced quarterly by the New Jersey Savings League for its
members. FinPro also hosts a tri-annual Presidents Breakfast for Presidents of
New Jersey Community Banks.
FinPro maintains a library of databases encompassing bank and thrift capital
markets data, census data, branch deposit data, national peer data, market
research data along with many other related topics. As such, FinPro can provide
quick, current and precise analytical assessments based on timely data. In
addition, FinPros geographic mapping capabilities give it a unique capability to
thematically illustrate multiple issues and to provide targeted marketing
opportunities to its clients.
<PAGE>
FinPro, Inc.
About the Firm Page: 2
- --------------------------------------------------------------------------------
FinPro has also designed and built PC-based software programs to utilize as
tools in its work. Examples include:
o A proprietary software program (LaRS Registered) to perform loan
review analytics.
o A duration based asset/liability model.
o A five year strategic planning, three year business planning, and one
year budgetary model that completely simulates an entire institution.
o A branch and product profitability model.
o A market performance grid and branch improvement grid model.
Using systems such as these, FinPro provides state-of-the-art end products in
all of its product and service areas.
<PAGE>
FinPro, Inc.
About the Firm Page: 3
- --------------------------------------------------------------------------------
- ----------------------------
| |
Key Player Biographies |
| |
- ----------------------------
Donald J. Musso - Managing Director and President
Donald founded FinPro, Inc. in 1987 as a consulting and investment banking
firm located in New Jersey that specializes in providing advisory services
to the financial institutions industry. Mr. Musso has a broad background in
capital markets, bank valuations, enhancing franchise value, corporate
finance, mergers and acquisitions, asset/liability management, strategic
planning, market feasibility and differentiation, branch acquisition,
sales, consolidation and profitability, financial modeling and analysis,
balance sheet restructuring, product and segment profitability, business
development and project management. Besides his consulting experience, he
has solid industry experience, having worked for two $10 billion plus east
coast financial institutions.
Mr. Musso has provided expert testimony on financial institutions matters
for the Federal Bankruptcy Court, the Office of Thrift Supervision and the
United States Attorneys Office.
He is a frequent speaker on Financial Institution related topics and has
assisted trade groups in various activities.
Prior to establishing FinPro, Donald had direct industry experience having
managed the Corporate Planning and Mergers and Acquisitions departments for
Meritor Financial Group, a $20 billion institution in Philadelphia. Before
that, he had responsibility for the banking, thrift and real estate
consulting practice in the State of New Jersey for Deloitte Haskins &
Sells.
Donald has a B.S. in Finance from Villanova University and a M.B.A. in
Finance from Fairleigh Dickenson University.
<PAGE>
FinPro, Inc.
About the Firm Page: 4
- --------------------------------------------------------------------------------
Steven P. Musso - Managing Director
Steve joined FinPro in 1989 and is one of the founding members of the
firm. He has extensive experience in performing a wide array of market
feasibility studies, branch profitability analysis, CRA analysis, loan
reviews and work-outs and strategic planning engagements.
Steve manages the FinPro office in Western New York. Additionally, he
is responsible for managing many strategic planning, loan reviews,
market feasibility and CRA engagements.
Steve is responsible for the development of FinPros CRA, market
feasibility and Loan Review products.
Steve is currently a licensed real estate agent in New Jersey. Prior
to joining FinPro he practiced real estate in Philadelphia,
Pennsylvania.
Mr. Musso has a B.S. in Finance from Syracuse University.
<PAGE>
FinPro, Inc.
About the Firm Page: 5
- --------------------------------------------------------------------------------
Kenneth G. Emerson, CPA - Director
Ken joined FinPro in October 1996 and has concentrated on bank
valuations, strategic plans, and branch profitability. His twelve
years of experience at banks and brokerage firms, with respect to
accounting, reporting, and information systems serve him well in this
capacity. Kens prior employers include Summit Bancorp, Valley Savings
Bank, Howard Savings Bank, Carteret Mortgage Company, CIT Data Corp.,
and Mahler & Emerson Inc. While at those institutions his
responsibilities included asset/liability, cash, back office,
operations, objective, and LAN management, in addition to regulatory
reporting (FRB, FDIC, OTS, State of New Jersey Department of Banking,
and NASD), SEC reporting, shareholder reporting, budgeting,
acquisitions, sales, conversions, interfaces, and FASB
implementation.
Mr. Emerson has a B.A. in Accounting from Franklin & Marshall College.
<PAGE>
FinPro, Inc.
About the Firm Page: 6
- --------------------------------------------------------------------------------
Dennis E. Gibney - Senior Financial Analyst
Dennis has been concentrating on the firms asset/liability products.
Market feasibility, competitive analysis, branch profitability and
branch sales/acquisitions are other areas of specialization.
Dennis joined the firm in June of 1996. He received a B.S. from Babson
College with a triple-major in Finance, Investments and Economics.
Prior to joining the firm, Dennis received broad based experience in
the securities industry
Dennis worked for Merrill Lynch & Co. supporting their Mortgage-Backed
trading desk in New York as an Allocations Specialist and for Sandler
ONeill & Partners, where he provided sales and trade support.
EXHIBIT 99.3
<PAGE>
Quitman Bancorp, Inc.
Proposed Holding company for
Quitman Federal Savings Bank
Quitman, Georgia
Proposed Marketing Materials
12-19-97
<PAGE>
Marketing Materials
Quitman Bancorp, Inc.
Quitman, Georgia
Table of Contents
-----------------
I. Press Releases
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Question and Answer Brochure
IV. Individual Letters and Community Meeting Invitations
V. IRA Mailing
A. Explanation
B. Quantity
C. IRA Mailing Example
VI. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
VII. Proxy Reminder
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers receive prompt accurate
information in a simultaneous manner, Trident advises the Savings Bank
to forward press releases to area newspapers, radio stations, etc. at
various points during the conversion process.
Only press releases approved by Conversion Counsel and the OTS will be
forwarded for publication in any manner.
B. Schedule
1. OTS Approval of Conversion
2. Close of Stock Offering
<PAGE>
C. Distribution List
National Distribution List
--------------------------
National Thrift News Wall Street Journal
- -------------------- -------------------
212 West 35th Street World Financial Center
13th Floor 200 Liberty
New York, New York 10001 New York, NY 10004
Richard Chang
American Banker SNL Securities
- --------------- --------------
One State Street Plaza Post Office Box 2124
New York, New York 10004 Charlottesville, Virginia 22902
Michael Weinstein
Barrons Investors Business Daily
- ------- ------------------------
Dow Jones & Savings Bank 12655 Beatrice Street
Barrons Statistical Information Post Office Box 661750
200 Burnett Road Los Angeles, California 90066
Chicopee, Massachusetts 01020
New York Times
- --------------
229 West 43rd Street
New York, NY 10036
<PAGE>
Local Media List
----------------
(To be provided)
Newspaper
- ---------
Radio
- -----
<PAGE>
D. Press Release Examples
PRESS RELEASE FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Melvin E. Plair, President
(912) 263-7538
QUITMAN FEDERAL SAVINGS BANK
----------------------------
CONVERSION TO STOCK FORM APPROVED
---------------------------------
Quitman, Georgia (________, 1998) - Melvin E. Plair, President of
Quitman Federal Savings Bank ("Quitman Federal" or the "Savings Bank"), Quitman,
Georgia, announced that Quitman Federal has received approval from the Office of
Thrift Supervision to convert from a federally-chartered mutual savings bank to
a federally-chartered stock savings bank. In connection with the Conversion,
Quitman Federal has formed a holding company, Quitman Bancorp, Inc., to hold all
of the outstanding capital stock of Quitman Federal Savings Bank.
Quitman Bancorp, Inc. is offering up to 575,000 shares of its common
stock, subject to adjustment, at a price of $10.00 per share. Certain account
holders and borrowers of the Savings Bank will have an opportunity to subscribe
for stock through a Subscription Offering that closes on ________, 1998. Shares
that are not subscribed for during the Subscription Offering may be offered
subsequently to the general public in a Direct Community Offering, with first
preference given to natural persons residing in Brooks County, Georgia. The
Subscription Offering and Community Offering, if conducted, will be managed by
Trident Securities, Inc. of Raleigh, North Carolina. Copies of the Prospectus
relating to the offerings and describing the Plan of Conversion will be mailed
to customers on or about _________, 1998.
As a result of the Conversion, Quitman Federal will be structured in
the stock form as are all commercial banks and an increasing number of savings
institutions and will be a wholly-owned subsidiary of Quitman Bancorp, Inc.
According to Mr. Plair, "Our day to day operations will not
<PAGE>
change as a result of the Conversion and deposits will continue to be insured by
the FDIC up to the applicable legal limits."
Customers with questions concerning the stock offering should call
Quitman Federal's Stock Information Center at (912) 263-4243, or visit Quitman
Federal's office.
<PAGE>
PRESS RELEASE FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Melvin E. Plair
(912) 263-7538
QUITMAN BANCORP, INC. COMPLETES INITIAL STOCK OFFERING
------------------------------------------------------
Quitman, Georgia - (__________, 1998) Melvin E. Plair, President of
Quitman Federal Savings Bank ("Quitman Federal" or the "Savings Bank"),
announced today that Quitman Bancorp, Inc., the proposed holding company for
Quitman Federal, has completed its initial stock offering in connection with the
Savings Bank's conversion from mutual to stock form. A total of __________
shares were sold at the price of $10.00 per share.
On __________, 1998, Quitman Federal's Plan of Conversion was approved
by the Savings Bank's voting members at a special meeting of members.
Mr. Plair said that the officers and boards of directors of Quitman
Bancorp, Inc. and the Savings Bank wished to express their thanks for the
response to the stock offering and that Quitman Federal looks forward to serving
the needs of its customers and new stockholders as a community-based stock
institution. The stock is anticipated to commence trading on __________, 1998 on
the OTC Electronic Bulletin Board under the symbol "QMAN". Trident Securities,
Inc. of Raleigh, North Carolina managed the stock offering.
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to notify Quitman
Federal's customers and members of the local community that the
conversion offering is underway.
The intended use of advertisement "B" is to remind Quitman Federal's
customers of the closing date of the Subscription Offering.
B. Media Schedule
1. Advertisement A - To be run immediately following OTS approval
and possibly run weekly for the first three weeks.
2. Advertisement B - To be run during the last week of the
subscription offering.
Trident may feel it is necessary to run more ads in order to remind
customers of the close of the Subscription Offering and the Community
Offering, if conducted.
Alternatively, Trident may, depending upon the response from the
customer base, choose to run fewer ads or no ads at all.
These ads will run in the local newspapers.
The ad size will be as shown or smaller.
<PAGE>
Advertisement (B)
- --------------------------------------------------------------------------------
QUITMAN FEDERAL
__________, 1998 IS THE DEADLINE TO
ORDER STOCK OF QUITMAN BANCORP, INC.
Customers of Quitman Federal Savings Bank
have the opportunity
to invest in Quitman Federal Savings Bank
by subscribing
for common stock in its proposed holding company
QUITMAN BANCORP, INC.
A Prospectus relating to these securities is
available at our office or by calling our
Stock Information Center at (912) 263-4243.
This announcement is neither an offer to sell nor a
solicitation of an offer to buy the stock of
Quitman Bancorp, Inc. The offer is made only by the
Prospectus. The shares of common stock are not
deposits or savings accounts and will not be insured
by the Federal Deposit Insurance Corporation
or any other government agency.
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from Trident Securities, Inc. or such other brokers and dealers
as may legally offer these securities in such state.
- --------------------------------------------------------------------------------
<PAGE>
III. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
conversion. It serves two purposes: a) to answer some of the most
commonly asked questions in "plain, everyday language"; and b) to
highlight in brochure form the purchase commitments of the Savings
Bank's officers and directors shown in the Prospectus. Although most of
the answers are taken verbatim from the Prospectus, it saves the
individual from searching for the answer to a simple question.
B. Method of Distribution
There are four primary methods of distribution of the Question and
Answer brochure. However, regardless of the method the brochures are
always accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial
mailing to all members of the Savings Bank.
2. Question and Answer brochures are available in Quitman
Federal's office.
3. Question and Answer brochures are sent out in a standard
information packet to all interested investors who phone the
Stock Information Center requesting information.
<PAGE>
PROPOSED OFFICER AND DIRECTOR PURCHASES
<TABLE>
<CAPTION>
Total Shares Aggregate Price of Percent of Shares
Name and Position Purchased Shares Purchased Purchased
- ----------------- --------- ---------------- -----------------
<S> <C> <C> <C>
Claude R. Butler 10,000 $100,000 2.0%
Chairman
Larry Cunningham 5,000 50,000 1.0%
Vice Chairman
Walter B. Holwell 3,500 35,000 0.7%
Director
John W. Romaine 6,000 60,000 1.1%
Director
Daniel M. Mitchell, Jr 10,000 100,000 2.0%
Director
Melvin E. Plair 1,500 15,000 0.4%
Director, President and CEO
Peggy Forgione 2,500 25,000 0.5%
Vice President and Controller ------ -------- ---
38,500 $385,000 7.7%
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS
REGARDING
THE PLAN OF CONVERSION
On October 14, 1997, the Board of Directors of Quitman Federal Savings Bank
("Quitman Federal" or the "Savings Bank") unanimously adopted the Plan of
Conversion, pursuant to which Quitman Federal will convert from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank. In addition, all of Quitman Federal's outstanding capital stock will be
issued to Quitman Bancorp, Inc. (the "Holding Company"), which was organized by
Quitman Federal Savings Bank to own Quitman Federal Savings Bank as a
subsidiary.
This brochure is provided to answer general questions you might have about the
Conversion. Following the Conversion, Quitman Federal Savings Bank will continue
to provide financial services to its depositors, borrowers and other customers
as it has in the past and will operate with its existing management and
employees. The Conversion will not affect the terms, balances, interest rates or
existing federal insurance coverage on Quitman Federal's deposits or the terms
or conditions of any loans to existing borrowers under their individual contract
arrangements with Quitman Federal Savings Bank.
For complete information regarding the Conversion, see the Prospectus and the
Proxy Statement dated __________ __, 1998. Copies of each of the Prospectus and
the Proxy Statement may be obtained by calling the Stock Information Center at
(912) 263-4243.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY QUITMAN BANCORP, INC. COMMON STOCK. OFFERS TO BUY OR TO SELL MAY BE
MADE ONLY BY THE PROSPECTUS. PLEASE READ THE PROSPECTUS PRIOR TO MAKING AN
INVESTMENT DECISION. THE SHARES OF QUITMAN BANCORP, INC. COMMON STOCK BEING
OFFERED IN THE SUBSCRIPTION AND COMMUNITY OFFERINGS ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE SAVINGS BANK INSURANCE FUND OF THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
QUESTIONS AND ANSWERS
Quitman Bancorp, Inc.
(the proposed holding company for
Quitman Federal Savings Bank)
Questions and Answers Regarding the Subscription and Community Offerings
MUTUAL TO STOCK CONVERSION
--------------------------
1. Q. What is a "Conversion"?
A. Conversion is a change in the legal form of organization.
Quitman Federal Savings Bank currently operates as a
federally-chartered mutual savings bank with no stockholders.
Through the Conversion, Quitman Federal will become a
federally-chartered stock savings bank, and the stock of its
holding company, Quitman Bancorp, Inc. will be held by
stockholders who purchase stock in the Subscription and
Community Offerings or in the open market following the
Offerings.
2. Q. Why is Quitman Federal Savings Bank converting?
A. Quitman Federal, as a mutual savings bank, does not have
stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, the Savings Bank
will be structured in the form used by commercial banks, most
business entities and a growing number of savings
institutions. The Conversion will be important to the future
growth and performance of Quitman Federal by providing a
larger capital base from which the Savings Bank may operate,
the ability to attract and retain qualified management through
stock-based employee benefit plans, enhanced ability to
diversify into other financial services related activities and
expanded ability to render services to the public.
The Board of Directors and management of Quitman Federal
believe that the stock form of organization is preferable to
the mutual form of organization for a financial institution.
The Board and management recognize the decline in the number
of mutual thrifts from over 12,500 mutual institutions in 1929
to under 800 mutual thrifts today.
Quitman Federal believes that converting to the stock form of
organization will allow Quitman Federal to more effectively
compete with local community banks, thrifts, and with
statewide and regional banks, which are in stock form. Quitman
<PAGE>
Federal believes that by combining its existing quality
service and products with a local ownership base, the Savings
Bank's customers and community members who become stockholders
will be inclined to do more business with Quitman Federal.
Furthermore, because Quitman Federal competes with local
and regional banks not only for customers, but also for
employees, Quitman Federal Savings Bank believes that the
stock form of organization will better afford Quitman Federal
the opportunity to attract and retain employees, management
and directors through various stock benefit plans which are
not available to mutual savings institutions.
3. Q. Is Quitman Federal's mutual to stock conversion beneficial
to the communities that the Savings Bank serves?
A. Management believes that the structure of the Subscription and
Community Offerings is in the best interest of the communities
that Quitman Federal serves because following the Conversion
it is anticipated that a significant portion of the Common
Stock will be owned by local residents desiring to share in
the ownership of a local community financial institution.
Management desires that a significant portion of the shares of
common stock sold in the Offerings will be sold to residents
of the Savings Bank's Local Community (Brooks County,
Georgia).
4. Q. What effect will the Conversion have on deposit accounts and
loans?
A. Terms and balances of accounts in Quitman Federal and interest
rates paid on such accounts will not be affected by the
Conversion. Insurable accounts will continue to be insured by
the Federal Deposit Insurance Corporation ("FDIC") up to the
maximum amount permitted by law. The Conversion also will not
affect the terms or conditions of any loans to existing
borrowers or the rights and obligations of these borrowers
under their individual contractual arrangements with Quitman
Federal.
5. Q. Will the Conversion cause any changes in Quitman Federal's
personnel?
A. No. Both before and after the Conversion, Quitman Federal's
business of accepting deposits, making loans and providing
financial services will continue without interruption with the
same board of directors, management and staff.
6. Q. What approvals must be received before the Conversion becomes
effective?
A. First, the Board of Directors of Quitman Federal must adopt
the Plan of Conversion, which occurred on October 14, 1997.
The Plan of Conversion was then amended on _______________.
Second, the Office of Thrift Supervision must approve the
applications required to effect the Conversion. These
approvals have been obtained. Third, the Plan of Conversion
must be approved by a majority of all votes eligible to be
cast by Quitman Federal's voting members. A Special Meeting of
voting members will be held on __________ __, 1998, to
consider and vote upon the Plan of Conversion.
<PAGE>
THE HOLDING COMPANY
-------------------
7. Q. What is a holding company?
A. A holding company is a Savings Bank that owns another entity.
Concurrent with the Conversion, Quitman Federal Savings Bank
will become a subsidiary of Quitman Bancorp, Inc., a holding
company organized by Quitman Federal to acquire all of the
capital stock of Quitman Federal Savings Bank to be
outstanding after the Conversion.
8. Q. If I decide to buy stock in this offering, will I own stock
in the Holding Company or Quitman Federal Savings Bank?
A. You will own stock in Quitman Bancorp, Inc. However, Quitman
Bancorp, Inc., as a holding company, will own all of the
outstanding capital stock of Quitman Federal Savings Bank.
9. Q. Why did the Board of Directors form the Holding Company?
A. The Board of Directors believes that the Conversion of Quitman
Federal Savings Bank and the formation of the Holding Company
will result in a stronger financial institution with the
ability to provide additional flexibility to diversify the
Savings Bank's business activities. The Holding Company will
also be able to use stock-based incentive programs to attract
and retain executive and other personnel.
ABOUT BECOMING A STOCKHOLDER
----------------------------
10. Q. What are the Subscription and Community Offerings?
A. Under the Plan of Conversion adopted by Quitman Federal
Savings Bank, the Holding Company is offering shares of stock
in the Subscription Offering, to certain current and former
customers of the Savings Bank and to the Savings Bank's
Employee Stock Ownership Plan ("ESOP"). Shares which are not
subscribed for in the Subscription Offering, if any, may be
offered to the general public in a Community Offering with
preference given to natural persons who are permanent
residents of the Savings Bank's Local Community (Brooks
County). These Offerings are consistent with the board's
objective of Quitman Bancorp, Inc. being a locally owned
financial institution. The Subscription Offering and Community
Offering, if conducted, are being managed by Trident
Securities, Inc. It is anticipated that any shares not
subscribed for in either the Subscription or Community
Offerings may be offered for sale in a Syndicated Community
Offering, which is an offering on a best efforts basis by a
selling group of broker-dealers.
<PAGE>
11. Q. Must I pay a commission to buy stock in conjunction with
the Subscription, Community or Syndicated Community Offerings?
A. No. You will not pay a commission to buy the stock
if the stock is purchased in the Subscription Offering or
Community Offering, if conducted.
12. Q. How many shares of Quitman Bancorp, Inc. stock will be issued
in the Conversion?
A. It is currently expected that between 425,000 shares and
575,000 shares of common stock will be sold at a price of
$10.00 per share. Under certain circumstances the number of
shares may be increased to 661,250.
13. Q. How was the price determined?
A. The aggregate price of the common stock was determined by
FinPro, Inc., an independent appraisal firm specializing in
the thrift industry, and was approved by the Office of Thrift
Supervision. The price is based on the pro forma market value
of Quitman Federal Savings Bank and the Holding Company as
determined by the independent evaluation.
14. Q. Who is entitled to buy stock in the Conversion?
A. The shares of Quitman Bancorp, Inc. to be issued in the
Conversion are being offered in the Subscription Offering in
the following order of priority to: (i) The term "Eligible
Account Holders" shall hereinafter mean depositors whose
accounts in the Savings Bank total $50.00 or more as of
December 31, 1995, (ii) the Savings Bank's ESOP, (iii)
depositors with $50.00 or more on deposit at the Savings Bank
as of December 31, 1997, other than Eligible Account Holders,
("Supplemental Eligible Account Holders"), (iv) depositors and
borrowers of the Savings Bank as of _____________, 1998, other
than Eligible Account Holders and Supplemental Eligible
Account Holders ("Other Members"), subject to the priorities
and purchase limitations set forth in the Plan of Conversion.
Subject to the prior rights of holders of subscription rights,
Common Stock not subscribed for in the Subscription Offering
may be offered in the Community Offering to certain members of
the general public, with preference given to natural persons
and trusts of natural persons residing in the Savings Bank's
Local Community (Brooks County). Shares, if any, not
subscribed for in the Subscription or Community Offerings may
be offered to the general public in a Syndicated Community
Offering.
15. Q. Are the subscription rights transferable?
A. No. Subscription rights granted to Quitman Federal's Eligible
Account Holders, Supplemental Eligible Account Holders and
Other Members in the Conversion are not transferable. Persons
violating such prohibition, directly or indirectly, may lose
their right to purchase stock in the Conversion and be subject
to other possible sanctions. It is the responsibility of each
subscriber qualifying as an Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member to list
completely all account numbers for qualifying savings accounts
or loans as of the qualifying date on the stock order form.
<PAGE>
16. Q. What are the minimum and maximum numbers of shares that I can
purchase in the Conversion?
A. The minimum number of shares is 25. The maximum number of
shares that may be purchased in aggregate in the Conversion by
any person or person exercising rights through one account
other than the ESOP, is 6,000 shares. The maximum purchase for
any person or entity, together with associates and those
acting in concert is 10,000 shares.
17. Q. Are the Board of Directors and management of Quitman Federal
Savings Bank buying a significant amount of the stock of the
Holding Company?
A. Directors and executive officers of the Savings Bank are
expected to subscribe for 38,500 shares. The purchase price
paid by directors and executive officers will be the same
$10.00 per share price as that paid by all other persons who
order stock in the Subscription or Community Offerings.
18. Q. How do I subscribe for shares of stock?
A. To subscribe for shares of stock in the Subscription Offering,
you should send or deliver an original stock order form
together with full payment (or appropriate instructions for
withdrawal from permitted deposit accounts as described below)
to Quitman Federal Savings Bank in the postage-paid envelope
provided. The stock order form and payment or withdrawal
authorization instructions must be received prior to the close
of the Subscription Offering, which will terminate at 12:00
p.m., Local Time, on __________ __, 1998, unless extended.
Payment for shares may be made in cash (if made in person) or
by check or money order. Subscribers who have deposit accounts
with Quitman Federal may include instructions on the stock
order form requesting withdrawal from such deposit account(s)
to purchase shares of Quitman Bancorp, Inc. Withdrawals from
certificates of deposit may be made without incurring an early
withdrawal penalty.
If shares remain available for sale after the expiration of
the Subscription Offering, they may be offered in the
Community Offering, which may commence at any time after the
commencement of the Subscription Offering and may terminate at
any time without notice, but may not terminate later than ,
1998. Persons who wish to order stock in the Community
Offering should return their stock order form as soon as
possible after the Community Offering begins. Members of the
general public should contact the Stock Information Center at
(912)263-4243 for additional information.
19. Q. May I use funds in a retirement account to purchase stock?
A. Yes. If you are interested in using funds held in your
retirement account at Quitman Federal Savings Bank, the Stock
Information Center can assist you in transferring those funds
to a self-directed IRA, if necessary, and directing the
trustee to purchase the stock. This process may be done
without an early withdrawal penalty and generally without a
negative tax consequence to your retirement account. Due to
<PAGE>
the additional paperwork involved, IRA transfers must be
completed by _________. For additional information, call the
Stock Information Center at (912) 263-4243.
20. Q. Will I receive interest on funds I submit for a stock purchase?
A. Yes. Quitman Federal will pay interest at its passbook savings
account rate from the date the funds are received until
completion of the stock offering or termination of the
Conversion. All funds authorized for withdrawal from deposit
accounts with Quitman Federal will continue to earn interest
at the contractual rate until the date of the completion of
the Conversion.
21. Q. May I obtain a loan from Quitman Federal Savings Bank to
pay for shares purchased in the Conversion?
A. No. Federal regulations prohibit Quitman Federal Savings Bank
from making loans for this purpose. However, federal
regulations do not prohibit you from obtaining a loan from
another source for the purpose of purchasing stock in the
Conversion.
22. Q. If I buy stock in the Conversion, how would I go about buying
additional shares or selling shares in the aftermarket?
A. Quitman Bancorp, Inc., as a newly organized Savings Bank, has
never issued capital stock, and consequently there is no
established market for its Common Stock at this time. Quitman
Bancorp, Inc. has requested that Trident Securities, Inc. make
a market for the Common Stock through the OTC Bulletin Board.
However, it is unlikely that an active trading market for the
Common Stock will develop, and there can be no assurance that
the shares of Common Stock being offered in the Conversion can
be resold at or above the $10.00 purchase price.
23. Q. What is the Holding company's dividend policy?
A. The Board of Directors of the Holding company intends to
adopt a policy of paying regular semi-annual cash dividends.
Upon Conversion, Quitman Bancorp's Board of Directors will
have the authority to declare dividends on the shares, subject
to statutory and regulatory requirements. Quitman Bancorp
expects initially to pay semi-annual cash dividends on the
shares at a rate of 2.0% per annum ($.20 per share per annum
based on the $10.00 per share offering price) commencing after
the first quarter of 1999. However, 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 Bancorp 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. No assurance can be given,
however, that the payment of dividends, once commenced, will
continue. In addition, from time to time in an effort to
manage capital at a reasonable level, the board may determine
that it is prudent to pay special cash dividends. Special cash
dividends may be paid in addition to, or in lieu of, regular
cash dividends. There can be no assurance that special
dividends
<PAGE>
will be paid, or, if paid, will continue to be paid. See
"Historical and Pro Forma Capital Compliance," "The
Conversion--Effects of Conversion to Stock Form on Savers and
Borrowers of Quitman Federal--Liquidation Account" and
"Regulation--Dividend and Other Capital Distribution
Limitations."
24. Q. Will the FDIC insure the shares of the holding company?
A. No. The shares of Quitman Bancorp, Inc. are not savings
deposits or savings accounts and are not insured by the FDIC
or any other government agency.
25. Q. If I subscribe for shares and later change my mind, will I
be able to get a refund or modify my order?
A. No. Your order cannot be canceled, withdrawn or modified once
it has been received by Quitman Federal without the consent of
Quitman Federal.
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
-----------------------------------------
26. Q. Am I eligible to vote at the Special Meeting of Members to
be held to consider the Plan of Conversion?
A. You are eligible to vote at the Special Meeting of Members to
be held on __________ __, 1998 if you were a depositor or
borrower of Quitman Federal Savings Bank at the close of
business on the Voting Record Date (_______, 1998) and
continue as such until the Special Meeting. If you were a
member on the Voting Record Date, you should have received a
proxy statement and a proxy card with which to vote.
27. Q. How many votes do I have?
A. Each account holder is entitled to one vote for each $100, or
fraction thereof, on deposit in such account(s). Each borrower
member is entitled to cast one vote in addition to the number
of votes, if any, he or she is entitled to cast as an account
holder. No member may cast more than 1,000 votes.
28. Q. If I vote "against" the Plan of Conversion and it is approved,
will I be prohibited from buying stock during the Subscription
Offering?
A. No. Voting against the Plan of Conversion in no way restricts
you from purchasing Quitman Bancorp, Inc. stock in the
Subscription Offering.
29. Q. Did the Board of Directors of Quitman Federal Savings Bank
unanimously adopt the Plan of Conversion?
A Yes. Quitman Federal's Board of Directors unanimously adopted
the Plan of Conversion and urges that all members vote "FOR"
approval of such Plan.
30. Q. What happens if Quitman Federal Savings Bank does not get
enough votes to approve the Plan of Conversion?
A. The Conversion would not take place, and Quitman Federal would
remain a mutual savings institution.
<PAGE>
31. Q. As a qualifying depositor or borrower of Quitman Federal
Savings Bank, am I required to vote?
A. No. However, failure to return your proxy card or otherwise
vote will have the same effect as a vote AGAINST the Plan of
Conversion.
32. Q. What is a Proxy Card?
A. A proxy card gives you the ability to vote without attending
the Special Meeting in person. If you received more than one
informational packet, then you should vote the proxy cards in
all packets. Your proxy card(s) is (are) located in the window
sleeve of your informational packet(s).
You may attend the meeting and vote, even if you have returned
your proxy card, if you choose to do so. However, if you are
unable to attend, you still are represented by proxy.
Previously executed proxies, other than those proxies sent
pursuant to the Conversion, will not be used to vote for
approval of the Plan of Conversion, even if the respective
members do not execute another proxy or attend the Special
Meeting and vote in person.
33. Q. How can I get further information concerning the stock
offering?
A. You may call the Stock Information Center at (912) 263-4243
for further information or to request a copy of the
Prospectus, a stock order form, a proxy statement or a proxy
card.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY QUITMAN BANCORP, INC. COMMON STOCK. SUCH OFFERS
AND SOLICITATIONS MAY BE MADE ONLY BY MEANS OF THE PROSPECTUS. COPIES OF THE
PROSPECTUS MAY BE OBTAINED BY CALLING THE STOCK INFORMATION CENTER AT (912)
263-4243.
THE SHARES OF QUITMAN BANCORP, INC. COMMON STOCK BEING OFFERED ARE NOT
SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE SAVINGS BANK INSURANCE
FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
IV. Individual Letters and Community Meeting Invitations
A. Explanation
In order to educate the public about the stock offering, Trident suggests
holding community meetings in various locations. In an effort to target a group
of interested investors, Trident requests that each Director of the Savings Bank
submit a list of acquaintances that he or she would like to invite to a
community meeting.
B. Method of Distribution of Invitations and Prospect Letters
Each Director submits his list of prospects. Invitations are sent to each
Director's prospects through the mail. All invitations are preceded by a
Prospectus and all attendees are given a Prospectus at the meeting. Letters will
be sent to prospects to thank them for their attendance and to remind them of
closing dates.
C. Examples enclosed.
<PAGE>
(Quitman Federal Savings Bank Letterhead)
____________, 1998
Dear Valued Customer:
Quitman Federal Savings Bank ("Quitman Federal" or the "Savings Bank")
is pleased to announce that it has received regulatory approval to proceed with
its plan to convert to a federally-chartered stock savings bank. This stock
conversion is the most significant event in the history of Quitman Federal in
that it allows customers, community members, directors and employees an
opportunity to own stock in Quitman Bancorp, Inc., the proposed holding company
for the Savings Bank.
For over 61 years, Quitman Federal has successfully operated as a
mutual savings bank. We want to assure you that the Conversion will not affect
the terms, balances, interest rates or existing FDIC insurance coverage deposits
at the Savings Bank, or the terms or conditions of any loans to existing
borrowers under their individual contract arrangements with the Savings Bank.
Let us also assure you that the Conversion will not result in any changes in the
management, personnel or the Board of Directors of the Savings Bank.
As one of our valued members, you have the opportunity to invest in the
Savings Bank's future by purchasing stock in Quitman Bancorp, Inc. during the
Subscription Offering, without paying a sales commission.
If you decide to exercise your subscription rights to purchase shares,
you must return the properly completed stock order form together with full
payment for the subscribed shares so that it is received by the Savings Bank not
later than 12:00 p.m. Local Time on __________, 1998.
Enclosed is a proxy card. Your Board of Directors solicits your vote
"FOR" the Savings Bank's Plan of Conversion. A vote in favor of the Plan does
not obligate you to purchase stock. Please sign and return your proxy card
promptly; your vote is important to us.
We have also enclosed a Prospectus and Proxy Statement which fully
describes Quitman Federal, its management, board and financial strength and the
Plan of Conversion. Please review it carefully before you vote or invest. For
your convenience we have established a Stock Information Center. If you have any
questions, please call the Stock Information Center collect at (912)263-4243.
We look forward to continuing to provide quality financial services to
you in the future.
Sincerely,
Melvin E. Plair
President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and Proxy Statement. There shall be no sale of stock in any state
in which any offer, solicitation of an offer or sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
(Quitman Federal Savings Bank Letterhead)
____________, 1998
Dear Interested Investor:
Quitman Federal Savings Bank ("Quitman Federal " or the "Savings Bank")
is pleased to announce that it has received regulatory approval to proceed with
its plan to convert to a federally-chartered stock savings bank. This stock
conversion is the most significant event in the history of the Savings Bank in
that it allows customers, community members, directors and employees an
opportunity to own stock in Quitman Bancorp, Inc., the proposed holding company
for the Savings Bank.
For over 61 years, Quitman Federal has successfully operated as a
mutual savings bank. We want to assure you that the Conversion will not affect
the terms, balances, interest rates or existing FDIC insurance coverage on the
Savings Bank deposits, or the terms or conditions of any loans to existing
borrowers under their individual contract arrangements with the Savings Bank.
Let us also assure you that the Conversion will not result in any
changes in the management, personnel or the Board of Directors of the Savings
Bank.
Enclosed is a Prospectus which fully describes Quitman Federal, its
management, board and financial strength. Please review it carefully before you
make an investment decision. If you decide to invest, please return to Quitman
Federal a properly completed stock order form together with full payment for
shares at your earliest convenience but not later than 12:00 p.m. Local Time on
_________, 1998. For your convenience we have established a Stock Information
Center. If you have any questions, please call the Stock Information Center
collect at (912) 263-4243.
We look forward to continuing to provide quality financial services to
you in the future.
Sincerely,
Melvin E. Plair
President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and Proxy Statement. There shall be no sale of stock in any state
in which any offer, solicitation of an offer or sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
(Quitman Federal Savings Bank Letterhead)
____________, 1998
Dear Friend:
Quitman Federal Savings Bank ("Quitman Federal " or the "Savings Bank")
is pleased to announce that it has received regulatory approval to proceed with
its plan to convert to a federally-chartered stock savings bank. This stock
conversion is the most significant event in the history of Quitman Federal in
that it allows customers, community members, directors and employees an
opportunity to own stock in Quitman Bancorp, Inc., the proposed holding company
for the Savings Bank.
For over 61 years, Quitman Federal has successfully operated as a
mutual savings bank. We want to assure you that the Conversion will not affect
the terms, balances, interest rates or existing FDIC insurance coverage on the
Savings Bank deposits, or the terms or conditions of any loans to existing
borrowers under their individual contract arrangements with Quitman Federal.
Let us also assure you that the Conversion will not result in any
changes in the management, personnel or the Board of Directors of Quitman
Federal.
Our records indicate that you were a depositor of Quitman Federal on
December 31, 1995 but that you were not a member on _____________, 1998.
Therefore, under applicable law, you are entitled to subscribe for Common Stock
in Quitman Bancorp, Inc.'s Subscription Offering. Orders submitted by you and
others in the Subscription Offering are contingent upon the current members'
approval of the Plan of Conversion at a special meeting of members to be held on
_________, 1998 and upon receipt of all required regulatory approvals.
If you decide to exercise your subscription rights to purchase shares,
you must return the properly completed stock order form together with full
payment for the subscribed shares so that it is received by Quitman Federal not
later than 12:00 p.m. Local Time on _________, 1998.
Enclosed is a Prospectus which fully describes the Savings Bank, its
management, board and financial strength. Please review it carefully before you
invest. For your convenience we have established a Stock Information Center. If
you have any questions, please call the Stock Information Center collect at
(912)263-4243.
We look forward to continuing to provide quality financial services to
you in the future.
Sincerely,
Melvin E. Plair
President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and Proxy Statement. There shall be no sale of stock in any state
in which any offer, solicitation of an offer or sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
(Quitman Federal Savings Bank Letterhead)
___________, 1998
Dear Member:
As a qualified member of Quitman Federal Savings Bank ("Quitman Federal"
or the "Savings Bank"), you have the right to vote upon the Savings Bank's
proposed Plan of Holding Company Conversion and also generally have the right to
subscribe for shares of common stock of Quitman Bancorp, Inc., the proposed
holding company for Quitman Federal through the mutual to stock conversion of
Quitman Federal Savings Bank. However, the proposed plan of Holding Company
Conversion provides that Quitman Bancorp, Inc. will not offer stock in any state
in which compliance with the securities laws would be impracticable for reasons
of cost or otherwise. Unfortunately, the securities laws of your state would
require Quitman Bancorp, Inc. to register its common stock and /or its employees
in order to sell the common stock to you. Such registration would be
prohibitively expensive or otherwise impracticable in light of the few members
residing in your state.
You may vote on the proposed Plan of Holding Company Conversion and we
urge you to read the enclosed Summary Proxy Statement and execute the enclosed
Revocable Proxy. Questions regarding the execution of the Revocable Proxy should
be directed to Quitman Federal Savings Bank's Stock Information Center at
(912)263-4243.
Sincerely,
Melvin E. Plair
President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and Proxy Statement. There shall be no sale of stock in any state
in which any offer, solicitation of an offer or sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
Sent to prospects who are customers*
_______________, 1998
&salutation& &firstname& &last name&
&address&
&city&, &state& &zip&
Dear &prefername&
Recently you may have read in the newspaper that Quitman Federal Savings
Bank (the "Savings Bank") will convert from a federally-chartered mutual savings
bank to a federally-chartered stock savings bank. This is the most significant
event in the history of Quitman Federal in that it allows customers, employees
and directors the opportunity to share in Quitman Federal Savings Bank's future
by becoming charter stockholders of the Savings Bank's newly-formed holding
company, Quitman Bancorp, Inc.
As a customer of Quitman Federal, you should have received a packet of
information regarding the conversion, including a Prospectus and a Proxy
Statement. In addition, we are holding several presentations for friends of the
officers and directors to discuss the stock offering in more detail. You will
receive an invitation in the near future.
Please feel free to call me or Quitman Federal's Stock Information Center
at (912) 263-4243 if you have any questions. I look forward to seeing you at one
of our informational presentations.
Sincerely,
Melvin E. Plair
President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and the Summary Proxy Statement, respectively. There shall be no
sale of stock in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
*Sent to prospects who are not customers*
____________, 1998
&salutation& &firstname& &lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
Recently you may have read in the newspaper that Quitman Federal
Savings Bank (the "Savings Bank") will be converting from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank. This is the
most significant event in the history of Quitman Federal in that it allows
customers, employees and directors the opportunity to share in Quitman Federal's
future by becoming charter stockholders of the Savings Bank's holding company,
Quitman Bancorp, Inc.
[Director] has asked that you be sent a Prospectus and stock order form
which will allow you to become a charter stockholder, should you desire. In
addition, we are holding several presentations for friends of the officers and
directors of Quitman Federal Savings Bank to discuss the stock offering in more
detail. You will receive an invitation in the near future.
Please feel free to call me or Quitman Federal's Stock Information
Center at (912) 263-4243 if you have any questions. I look forward to seeing you
at one of our information presentations.
Sincerely,
Melvin E. Plair
President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and the Summary Proxy Statement, respectively. There shall be no
sale of stock in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
*Sent to those attending a community meeting*
____________, 1998
&salutation& &firstname& &lastname&
&address&
&City&, &state& &zip&
Dear &prefername&:
Thank you for attending our informational presentation relating to
Quitman Federal Savings Bank 's conversion to a stock savings bank. The
information presented at the meeting and the Prospectus you recently received
should assist you in making an informed investment decision.
Obviously, we are excited about this stock offering and the opportunity
to share in the future of Quitman Federal. This conversion is the most important
event in our history and it gives the Savings Bank the strength to compete in
the future and will provide the Savings Bank additional corporate flexibility.
We may contact you in the near future to get an indication of your
interest in our offering. If you make a decision to invest, please return your
properly completed stock order form no later than ___________, 1998. If you have
any questions, please call the Stock Information Center at (912)263-4243.
Sincerely,
Melvin E. Plair
President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and the Summary Proxy Statement, respectively. There shall be no
sale of stock in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
* Sent to those not attending a community meeting *
_________, 1998
&salutation& &firstname& &lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
I am sorry you were unable to attend our recent presentation regarding
Quitman Federal Savings Bank's mutual to stock conversion. The Board of
Directors and management team of Quitman Federal are committed to contributing
to long term shareholder value and as a group we are personally investing
approximately $385,000 of our own funds. We are enthusiastic about the stock
offering and the opportunity to share in the future of Quitman Federal Savings
Bank.
We have established a Stock Information Center to assist you with any
questions regarding the stock offering. Should you require any assistance
between now and ___________, 1998, I encourage you to either stop by our Stock
Information Center or call (912) 263-4243.
I hope you will join me as a charter stockholder in Quitman Bancorp,
Inc.
Sincerely,
Melvin E. Plair
President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and the Summary Proxy Statement, respectively. There shall be no
sale of stock in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
* Final Reminder Letter *
_________, 1998
&salutation&firstname&lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
I am writing to remind you that the deadline for purchasing stock in
Quitman Bancorp, Inc. is quickly approaching. I hope you will join me in
becoming a charter stockholder in one of Georgia's newest publicly owned
financial institutions.
The deadline for becoming a charter stockholder is ____________, 1998.
If you have any questions, please call our Stock Information Center at (912)
263-4243.
Once again, I look forward to having you join me as a charter
stockholder in Quitman Bancorp, Inc.
Sincerely,
Melvin E. Plair
President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and the Summary Proxy Statement, respectively. There shall be no
sale of stock in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
================================================================================
The Directors and Officers
of
Quitman Federal Savings Bank
cordially invite you to attend a brief
presentation regarding the stock offering of
Quitman Bancorp, Inc., our proposed holding company
Please join us at the
--------------
---------------------
---------------------------
------------
------------
for refreshments
YOU MUST RESPOND BY ____________ TO RESERVE A SEAT
R.S.V.P. (912) 263-4243
================================================================================
<PAGE>
V. IRA Mailing
A. Explanation
A special IRA mailing is proposed to be sent to all IRA customers of
the Savings Bank in order to alert the customers that funds held in an
IRA can be used to purchase stock. Since this transaction is not as
simple as designating funds from a certificate of deposit like a normal
stock purchase, this letter informs the customer that this process is
slightly more detailed and involves a personal visit to the Savings
Bank.
B. Quantity
One IRA letter is proposed to be mailed to each IRA customer of the
Savings Bank. These letters would be mailed following OTS approval for
the conversion and after each customer has received the initial mailing
containing a Proxy Statement and a Prospectus.
C. Example - See following page.
<PAGE>
(Quitman Federal Savings Bank Letterhead)
__________ __, 1998
Dear Individual Retirement Account Participant:
As you know, Quitman Federal Savings Bank is in the process of
converting from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank and has formed Quitman Bancorp, Inc. to
hold all of the stock of Quitman Federal Savings Bank (the "Conversion").
Through the Conversion, certain current and former depositors and borrowers of
Quitman Federal have the opportunity to purchase shares of common stock of
Quitman Bancorp, Inc. in a Subscription Offering. Quitman Bancorp, Inc.
currently is offering up to 575,000 shares, subject to adjustment, of Quitman
Bancorp, Inc. at a price of $10.00 per share.
As the holder of an individual retirement account ("IRA") at Quitman
Federal Savings Bank, you have an opportunity to become a shareholder in Quitman
Bancorp, Inc. using funds being held in your IRA. If you desire to purchase
shares of common stock of Quitman Bancorp, Inc. through your IRA, Quitman
Federal can assist you in self-directing those funds. This process can be done
without an early withdrawal penalty and generally without a negative tax
consequence to your retirement account.
If you are interested in ordering Quitman Bancorp, Inc. common
stock utilizing IRA funds, you must contact our Conversion Center at (912)
263-4243 by ___________.
Sincerely,
Melvin E. Plair
President
This letter is neither an offer to sell nor a solicitation of an offer to buy
Quitman Bancorp, Inc. common stock. The offer is made only by the Prospectus,
which was recently mailed to you.
THE SHARES OF QUITMAN BANCORP, INC. COMMON STOCK ARE NOT DEPOSITS AND WILL NOT
BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
VI. Counter Cards and Lobby Posters
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to
Quitman Federal Savings Bank's customers and members of the local
community that the stock sale is underway and (2) to remind the
customers of the end of the Subscription Offering. Trident has learned
in the past that many people forget the deadline for subscribing and
therefore we suggest the use of these simple reminders.
B. Quantity
Approximately 2 - 3 Counter cards will be used at teller windows and on
customer service representatives' desk.
Approximately 1 - 2 Lobby posters will be used at Quitman Federal
Savings Bank's office.
C. Example
D. Size
The counter card will be approximately 8 1/2" x 11".
The lobby poster will be approximately 16" x 20".
<PAGE>
C.
POSTER OR COUNTER CARD
================================================================================
"TAKE STOCK IN OUR FUTURE"
"QUITMAN BANCORP, INC.
STOCK OFFERING MATERIALS
AVAILABLE HERE"
QUITMAN FEDERAL SAVINGS BANK
================================================================================
<PAGE>
VII. Proxy Reminder
A. Explanation
A proxy reminder is used when the majority of votes needed to adopt the
Plan of Conversion is still outstanding. The proxy reminder is mailed
to those "target vote" depositors who have not previously returned
their signed proxy.
The target vote depositors are determined by the conversion agent.
B. Example
C. Size
Proxy reminder is approximately 8 1/2" x 11".
<PAGE>
B. Example
- --------------------------------------------------------------------------------
P R O X Y R E M I N D E R
Quitman Federal Savings Bank
YOUR VOTE ON OUR STOCK CONVERSION PLAN HAS NOT BEEN RECEIVED.
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
VOTING AGAINST THE PLAN.
VOTING FOR THE CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR ACCOUNTS.
DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED UP TO THE APPLICABLE
LIMITS.
YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE
PROXY CARD TO QUITMAN FEDERAL SAVINGS BANK TODAY.
PLEASE VOTE ALL PROXY CARDS RECEIVED.
WE RECOMMEND THAT YOU VOTE TO APPROVE THE PLAN OF CONVERSION. THANK YOU.
THE BOARD OF DIRECTORS AND MANAGEMENT OF
QUITMAN FEDERAL SAVINGS BANK
- -----------------------------------------------------------------
IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST.
FOR FURTHER INFORMATION CALL (912) 263-4243.
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Quitman Bancorp, Inc. common stock offered in the conversion, nor
does it constitute the solicitation of a proxy in connection with the
conversion. Such offers and solicitations of proxies are made only by means of
the Prospectus and the Summary Proxy Statement, respectively. There shall be no
sale of stock in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an offer
to buy these securities. The offer is made only by the prospectus. These
shares have not been approved or disapproved by the Securities and
Exchange Commission, the Office of Thrift Supervision or the Federal Deposit
Insurance Corporation, nor has such commission, office or corporation passed
upon the accuracy or adequacy of the prospectus. Any representation to
the contrary is unlawful.
New Issue ____________, 1998
575,000 Shares
These shares are being offered pursuant
to a Plan of Conversion whereby
Quitman Federal Savings Bank
Quitman, Georgia, will
convert from a federal mutual savings bank
to a federal capital stock savings bank
and become a wholly owned subsidiary of
Quitman Bancorp, Inc.
Common Stock
---------------
Price $10.00 Per Share
---------------
Trident Securities, Inc.
For a copy of the prospectus call (912) 263-4243.
Copies of the prospectus may be obtained in any State in which this announcement
is circulated from Trident Securities, Inc. or such other brokers and dealers
as may legally offer these securities in such state.
The stock will not be insured by the FDIC or any other government agency.
- --------------------------------------------------------------------------------
