Quaker City Bancorp. plans $50 million stock debut: mutual s&l seeks IPO for cash to finance acquisitions.

Quaker City Bancorp., one of the oldest and financially strongest savings and loans in Los Angeles County, is planning an initial public offering which could raise as much as $50 million in new capital, Quaker Chief Executive Jerry Thomas told the Business Journal last week.

If successful, the IPO would place the Whittier-based corporation, parent of Quaker City Federal Savings & Loan Association, on NASDAQ under the symbol QCBC, Thomas said.

The offering is expected to be approved by the Office of Thrift Supervision and the Securities and Exchange Commission in November and be completed by year-end, Thomas said. Quaker filed for the IPO with the OTS and the SEC in September.

The offering is expected to be priced at $10 a share with a maximum of 4.9 million shares being issued, Thomas said. It is expected to raise between $32 million and $49 million, with the amount determined by the OTS, he said.

The lion's share of the proceeds, 85 percent, will be added to the thrift's already healthy capital base. The boost in capital will allow the thrift to acquire other institutions, Thomas said.

With the new capital, the thrift could grow from $488 million in assets at Sept. 30 to $1 billion in the next year, he said.

About 15 percent of the offering's proceeds will be used to form a community development bank which will be a subsidiary of Quaker City Bancorp and will make loans for affordable housing developments in low-income areas, Thomas said.

The IPO is expected to be underwritten by Great Neck, N.Y.-based investment banking firm Adams Cohen Securities Inc.

A successful IPO for Quaker City would signal the end of one of the last mutual savings and loans in California, Thomas said.

In a mutual organization, depositors own the company's stock. At Quaker City, a depositor holds one voting right for every $100 he or she has deposited in the thrift and a depositor may have a maximum of 400 votes, Thomas explained.

Many longtime residents of Whittier and the neighboring communities of La Habra and Hacienda Heights are stockholders.

In order to keep Quaker City independent, the IPO filing stipulates that no single buyer may acquire more than 1 percent of the stock and it is expected that most of the shares will be purchased by current employees and depositors, Thomas said.

Quaker City began as a publicly traded institution when it was founded in 1920 and then was converted to a mutual association in 1938, he said. The directors have long intended to convert back to a publicly traded institution and feel that the time is right now, Thomas explained.

"You have a very robust stock market. New issues are being gobbled up," he said. Also "the OTS is encouraging it (IPOs). They see the need for capital in our industry."

Thomas said the regulatory agency is encouraging financially strong thrifts like Quaker to buy weaker thrifts. Quaker is well capitalized under federal standards and has a low percentage of non-performing assets -- delinquent loans and foreclosed real estate -- although they constrained earnings in the latest quarter, Thomas said.

For the third quarter, Quaker reported net earnings of $3,000 due to the fact that the thrift added $1.7 million to reserves for potential losses on loans and foreclosed real estate. That compares with year-earlier net earnings of $917,000.

For the nine months ended Sept. 30, Quaker reported net earnings of $764,000 vs. $4 million the previous year.

In the last year or so, "we've had some loans turn bad," Thomas admitted. He noted the thrift currently has 12 foreclosed properties compared to none two years ago.

Still, the thrift has weathered the recession well. "We've been fortunate; we've been very conservative," Thomas said.

At Sept. 30, 2.2 percent of total assets were non-performing -- a lower than normal average for area thrifts. Quaker has set aside reserves to cover 120 percent of its potential losses on bad loans and foreclosed real estate.

It is one of the few thrifts to have always received the highest rating, five stars, from Bauer Financial Reports Inc., a bank rating service based in Coral Gables, Fla. Banks and thrifts are rated on such factors as capital levels, profitability, repossessed assets, loan delinquencies and asset quality, said Brienne Jorgensen, Bauer spokeswoman.

Of the 1,899 savings and loans in the U.S., 396 have earned a five star rating at one time, Jorgensen said. "It's for the creme de la creme," she said.

Jorgensen said she did not know how many institutions had received a five star rating in every quarter in the last five years since the Bauer Reports have been ranking thrifts, but she said that it was "rare."