SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-27154
JOACHIM BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Missouri 43-1721475
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
Plaza Square, DeSoto, Missouri 63020
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 586-8821
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section
12(g) of the Act: Common Stock, par value $.01 per share
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(Title of Class)
Check whether the Registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES X NO
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Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained herein, and no disclosure will be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB.
The registrant's revenues for the year ended March 31, 1997 were
$2,604,291.
As of May 27, 1997, there were issued and outstanding 722,415 shares of
the Registrant's Common Stock. The Registrant's voting stock is traded
over-the-counter and is listed on the Nasdaq SmallCap Market under the symbol
"JOAC." The aggregate market value of the voting stock held by nonaffiliates
of the Registrant, based on the closing sales price of the Registrant's common
stock as quoted on the Nasdaq SmallCap Market on May 27, 1997 of $14.75, was
$10,655,621. For the purposes of this calculation, officers and directors of
the Registrant are considered nonaffiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended March
31, 1997 ("Annual Report") (Parts I and II).
2. Portions of Registrant's Definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders (Part III).
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PART I
Item 1. Business
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General
Joachim Bancorp, Inc. ("Joachim Bancorp" or the "Company"), a Missouri
corporation, was organized in August 1995 for the purpose of becoming the
holding company for Joachim Federal Savings and Loan Association ("Joachim
Federal" or the "Association") upon Joachim Federal's conversion from a
federal mutual to a federal stock savings and loan association ("Conversion").
The Conversion was completed on December 27, 1995. Joachim Bancorp has not
engaged in any significant activity other than holding the stock of Joachim
Federal and investing its share of the net proceeds of the Conversion stock
offering less the funds used to make the ESOP loan to the Association for
purchase of shares of common stock for the Association's ESOP. Accordingly,
the information set forth in this report, including financial statements and
related data, relates primarily to Joachim Federal and its subsidiary. All
references to the Company herein include the Association where applicable.
Joachim Federal was organized in 1962. The Association is regulated by
the Office of Thrift Supervision ("OTS") and its deposits are insured up to
applicable limits under the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC"). Joachim Federal also is a
member of the Federal Home Loan Bank ("FHLB") System. The Association
operates as a community oriented financial institution and is devoted to
serving the needs of its customers in its market area. Joachim Federal's
business consists primarily of attracting deposits from the general public and
using those funds to originate residential real estate loans.
The following table sets forth certain performance ratios for the
Company for the periods indicated.
At or For the Year Ended March 31,
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1997 1996 1995
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Performance Ratios:
Return on assets(1) . . . . . . . 0.50% 0.66% 0.79%
Return on stockholders' equity(2) 1.73 3.63 5.95
Stockholders' equity-to-
assets ratio(3). . . . . . . . . 29.11 18.14 13.23
Dividend payout ratio(4). . . . . 2.00 44.64 --
Interest rate spread (5). . . . . 2.93 2.99 3.69
Net interest margin(6). . . . . . 4.19 3.80 4.06
Average interest-earning assets
as a percent of average
interest-bearing liabilities . . 141.03 121.94 111.60
Noninterest expense as a percent
of average total assets. . . . . 3.37 2.93 2.84
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(1) Net earnings divided by average total assets.
(2) Net earnings divided by average stockholders' equity.
(3) Average stockholders' equity divided by average total assets.
(4) Dividends declared per share divided by net earnings per share.
(5) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(6) Net interest income as a percentage of average interest-earning assets.
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Market Area
DeSoto, Missouri is a community of approximately 6,000 people located in a
rural setting in Jefferson County, approximately 40 miles southwest of St.
Louis, Missouri on the southern edge of the St. Louis metropolitan area. The
Association focuses primarily on serving customers located in Jefferson
County, Missouri and, to a lesser extent, on customers in the surrounding
counties of St. Francois, Ste. Genevieve and Washington. The population
within the zip code encompassing DeSoto, which covers much of the
Association's primary market area, is currently approximately 14,000. Because
it operates in a relatively small market area, the Association's ability to
achieve loan and deposit growth is limited. The major employers in the
Association's market area include Union Pacific Railroad, which has a car
repair shop, ABZ Company, which manufactures leather binders, and the DeSoto
School District. In addition, a large number of local residents are employed
in the St. Louis area by various large employers, such as Chrysler Corporation
and McDonnell Douglas, and in various construction trades.
The Association faces intense competition from many financial institutions
for deposits and loan originations. See "-- Competition."
Lending Activities
General. The principal lending activity of the Association is the
origination of conventional mortgage loans for the purpose of purchasing,
constructing or refinancing owner-occupied, one- to four-family residential
property. To a significantly lesser extent, the Association also originates
non-owner-occupied, one- to four-family residential loans, multi-family,
commercial real estate, construction, agricultural and consumer and other
loans. The Association's net loans receivable totalled approximately $23.8
million at March 31, 1997, representing approximately 66.7% of consolidated
total assets.
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Loan Portfolio Analysis. The following table sets forth the composition
of the Association's loan portfolio by type of loan at the dates indicated.
The Association had no concentration of loans exceeding 10% of total gross
loans other than as disclosed below.
At March 31,
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1997 1996 1995
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Amount Percent Amount Percent Amount Percent
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(Dollars in Thousands)
Mortgage loans:
One- to four-family $21,142 88.57% $20,649 89.56% $20,291 91.20%
Multi-family. . . . 363 1.52 34 0.15 35 0.16
Construction. . . . -- -- 99 0.43 60 0.27
Commercial. . . . . 813 3.40 948 4.11 605 2.72
Agricultural and
other (1). . . . . 1,116 4.68 789 3.42 794 3.57
Total mortgage ------- ------ ------- ------ ------- ------
loans . . . . . 23,434 98.17 22,519 97.67 21,785 97.92
Consumer and other
loans (2) . . . . . 436 1.83 536 2.33 463 2.08
------- ------ ------- ------ ------- ------
Total gross loans. 23,870 100.00% 23,055 100.00% 22,248 100.00%
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Less:
Unearned discount . -- -- 3
Allowance for loan
losses . . . . . . 74 72 60
Deferred loan
fees, net. . . . . 24 51 79
Total loans ------- ------- -------
receivable, net . $23,772 $22,932 $22,106
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(1) Includes land and building lot loans.
(2) Includes unsecured consumer loans, automobile loans, student loans and
loans secured by deposit accounts.
Residential Real Estate Lending. The primary lending activity of the
Association is the origination of mortgage loans to enable borrowers to
purchase existing one- to four-family homes. Management believes that this
policy of focusing on one- to four-family residential mortgage loans located
in its market area has been successful in contributing to interest income
while keeping delinquencies and losses to a minimum. At March 31, 1997, $21.1
million, or 88.6% of the Association's total gross loan portfolio, consisted
of loans secured by one- to four-family residential real estate. The
Association presently originates for retention in its portfolio both
adjustable rate mortgage ("ARM") loans with terms of up to 25 years and
fixed-rate mortgage loans with terms of up to 20 years. Borrower demand for
ARM loans versus fixed-rate mortgage loans is a function of the level of
interest rates, the expectations of changes in the level of interest rates and
the difference between the initial interest rates and fees charged for each
type of loan. The relative amount of fixed-rate mortgage loans and ARM loans
that can be originated at any time is largely determined by the demand for
each in a competitive environment. At March 31, 1997, $20.4 million, or
85.5%, of the Association's total gross loans were subject to periodic
interest rate adjustments.
The loan fees charged, interest rates and other provisions of the
Association's ARM loans are determined by the Association on the basis of its
own pricing criteria and competitive market conditions. The Association
originates one-year ARM loans secured by owner-occupied residences whose
interest rates and payments generally are adjusted annually to a rate
typically equal to 2.75% above the one-year constant maturity U.S. Treasury
("CMT") index and three-year ARM loans secured by owner-occupied residences
whose interest rates are adjusted every three years to a rate typically equal
to 2.75% above the three-year CMT index. The Association currently offers ARM
loans with initial rates below those which would prevail under the foregoing
computations, determined by the
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Association based on market factors and competitive rates for loans having
similar features offered by other lenders for such initial periods. At March
31, 1997, the initial interest rate on ARM loans offered by the Association
ranged from 6.00% to 8.125% per annum. The periodic interest rate cap (the
maximum amount by which the interest rate may be increased or decreased in a
given period) on the Association's ARM loans is generally 1% - 2% per
adjustment period and the lifetime interest rate cap is generally 5% - 6% over
the initial interest rate of the loan.
The Association also offers mortgage loans for non-owner-occupied one-
to four-family homes. The rates on such loans are generally 50 basis points
higher than for a comparable loan for an owner-occupied residence and ARM
loans for non-owner-occupied homes adjust to a rate equal to 3.25% above the
one-year or three-year CMT index. Loans secured by non-owner-occupied
residences generally involve greater risks than loans secured by owner-
occupied residences. Payments on loans secured by such properties are often
dependent on successful operation or management of the properties. Repayment
of such loans may be subject to a greater extent to adverse conditions in the
real estate market or the economy. The Association requires that borrowers
with loans in excess of $50,000 that are secured by non-owner-occupied homes
submit annual financial statements.
The Association does not originate negative amortization loans. The
terms and conditions of the ARM loans offered by the Association, including
the index for interest rates, may vary from time to time. The Association
believes that the adjustment features of its ARM loans provide flexibility to
meet competitive conditions.
A significant portion of the Association's residential mortgage loans
are not readily saleable in the secondary market because they are not
originated in accordance with the purchase requirements of the Federal Home
Loan Mortgage Corporation ("FHLMC") or the Federal National Mortgage
Association ("FNMA"). Although such loans satisfy the Association's
underwriting requirements, they are "non-conforming" because they do not
satisfy minimum loan amount requirements, acreage limits, or various other
requirements imposed by the FHLMC and FNMA. Accordingly, the Association's
non-conforming loans could be sold only after incurring certain costs and/or
discounting the purchase price. The Association has historically found that
its origination of non-conforming loans has not resulted in high amounts of
nonperforming loans. In addition, the Association believes that these loans
satisfy a need in the Association's local community. As a result, the
Association intends to continue to originate such non-conforming loans.
The retention of ARM loans in the Association's loan portfolio helps
reduce the Association's exposure to changes in interest rates. There are,
however, unquantifiable credit risks resulting from the potential of increased
costs due to changed rates to be paid by the customer. It is possible that
during periods of rising interest rates the risk of default on ARM loans may
increase as a result of repricing and the increased costs to the borrower.
Furthermore, because the ARM loans originated by the Association generally
provide, as a marketing incentive, for initial rates of interest below the
rates which would apply were the adjustment index used for pricing initially
(discounting), these loans are subject to increased risks of default or
delinquency. Another consideration is that although ARM loans allow the
Association to increase the sensitivity of its asset base to changes in the
interest rates, the extent of this interest sensitivity is limited by the
periodic and lifetime interest rate adjustment limits. Because of these
considerations, the Association has no assurance that yields on ARM loans will
be sufficient to offset increases in the Association's cost of funds.
While fixed-rate single-family residential real estate loans are
normally originated with 20 year terms, such loans typically remain
outstanding for substantially shorter periods. This is because borrowers
often prepay their loans in full upon sale of the property pledged as security
or upon refinancing the original loan. In addition, substantially all
mortgage loans in the Association's loan portfolio contain due-on-sale clauses
providing that the Association may declare the unpaid amount due and payable
upon the sale of the property securing the loan. Typically, the Association
enforces these due-on-sale clauses to the extent permitted by law and as
business judgment dictates. Thus, average loan maturity is a function of,
among other factors, the level of purchase and sale activity in the real
estate market, prevailing interest rates and the interest rates payable on
outstanding loans.
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The Association generally requires title insurance insuring the status
of its lien on all of the real estate secured loans. The Association also
requires that fire and extended coverage casualty insurance (and, if
appropriate, flood insurance) be maintained in an amount at least equal to the
outstanding loan balance.
The Association's lending policies generally limit the maximum
loan-to-value ratio on mortgage loans secured by owner-occupied properties to
90% of the lesser of the appraised value or the purchase price, with the
condition that private mortgage insurance is generally required on loans with
loan-to-value ratios greater than 85%. The maximum loan-to-value ratio on
mortgage loans secured by non-owner-occupied properties is generally 80%.
Multi-family Real Estate Lending. The Association has historically
engaged in a limited amount of multi-family real estate lending. The
Association does not actively solicit multi-family real estate loans as there
are few multi-family properties in its market area. At March 31, 1997, the
Association had three multi-family loans in the aggregate amount of $363,000.
Loans secured by multi-family real estate generally involve greater
risks than one- to four-family residential mortgage loans. Payments on loans
secured by such properties are often dependent on successful operation or
management of the properties. Repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
The Association seeks to minimize these risks in a variety of ways, including
limiting the size of such loans, limiting the maximum loan-to-value ratio to
80% and strictly scrutinizing the financial condition of the borrower, the
quality of the collateral and the management of the property securing the
loan. All of the properties securing the Association's multi-family real
estate loans are inspected by the Association's lending personnel before the
loan is made. The Association also obtains appraisals on each property in
accordance with applicable regulations.
Construction Lending. The Association occasionally originates
residential construction loans to individuals or local builders to construct
one- to four-family homes. At March 31, 1997, there were no construction
loans outstanding.
Construction loans that are not made in connection with the granting of
permanent financing on the property are for terms of up to six months. Loans
to builders may be for the construction of a pre-sold home or may be a loan to
construct a speculative home (i.e., a home for which no purchaser has been
identified). The Association generally permits a builder to have only one
construction loan outstanding with the Association at a time. Construction
loans are usually disbursed through Hillsboro Title Co., Inc. ("Hillsboro
Title"), which assumes responsibility for inspections and payments to
contractors, subcontractors and suppliers. A Director of the Association is
the Chairman of Hillsboro Title Company.
Construction lending is generally considered to involve a higher level
of risk as compared to one- to four-family residential lending because of the
inherent difficulty in estimating both a property's value at completion of the
project and the estimated cost of the project. The nature of these loans is
such that they are generally more difficult to evaluate and monitor. If the
estimate of value proves to be inaccurate, the Association may be confronted
at, or prior to, the maturity of the loan, with a project whose value is
insufficient to assure full repayment. Loans for the construction of
speculative homes carry more risk because the payoff for the loan is dependent
on the builder's ability to sell the property prior to the time that the
construction loan is due.
Commercial Real Estate Lending. The Association has historically
engaged in a limited amount of commercial real estate lending. At March 31,
1997, commercial real estate loans in the Association's portfolio totalled
$813,000. The largest commercial real estate loan in the Association's
portfolio at that date was a $481,000 participation interest in a loan secured
by a retail strip center located in Columbia, Missouri, which is performing in
accordance with its terms.
The Association does not actively solicit or originate commercial real
estate loans. Loans secured by commercial real estate generally are larger
and involve greater risks than one- to four-family residential mortgage
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loans. Payments on loans secured by such properties are often dependent on
the successful operation or management of the properties. Repayment of such
loans may be subject to a greater extent to adverse conditions in the real
estate market or the economy. The Association seeks to minimize these risks
in a variety of ways, including limiting the size of such loans, limiting the
maximum loan-to-value ratio to 80% and strictly scrutinizing the financial
condition of the borrower, the quality of the collateral and the management of
the property securing the loan. The Association also obtains loan guarantees
from financially capable parties based on a review of personal financial
statements. All of the properties securing the Association's commercial real
estate loans are inspected by the Association's lending personnel before the
loan is made. The Association also obtains appraisals on each property in
accordance with applicable regulations.
Agricultural and Other Real Estate Lending. The Association originates
loans secured by farm residences and combinations of farm residences and farm
real estate. The Association also originates loans for the acquisition of
land upon which the purchaser can then build or upon which the purchaser makes
improvements necessary to build upon or to sell as improved lots. At March
31, 1997, the Association's agricultural and other real estate loan portfolio
totalled $1.1 million, or 4.7% of total gross loans.
Loans secured by farm real estate generally involve greater risks than
one- to four-family residential mortgage loans. Payments on loans secured by
such properties may, in some instances and to some degree, be dependent on
farm income from the properties. To address this risk, the Association does
not consider farm income when qualifying borrowers. In addition, such loans
are more difficult to evaluate. If the estimate of value proves to be
inaccurate, in the event of default and foreclosure the Association may be
confronted with a property the value of which is insufficient to assure full
repayment.
Consumer and Other Lending. Consumer lending has traditionally been a
small part of the Association's business. Consumer loans generally have
shorter terms to maturity and higher interest rates than mortgage loans. The
Association's consumer and other loans consist primarily of unsecured loans,
deposit account loans and automobile loans. The Association has in the past
originated student loans, though it no longer offers such loans. At March 31,
1997, the Association's consumer and other loans totalled approximately
$436,000, or 1.8% of the Association's total gross loans.
The Association makes unsecured loans to individuals for personal,
family or household purposes up to a maximum of $10,000. Generally, unsecured
loans are made only to current customers with an established relationship with
the Association. Such loans may be for a term of up to three years. At March
31, 1997, unsecured loans totalled $177,000.
The Association makes deposit account loans with the account pledged as
collateral to secure the loan. Loans may be made up to 90% of the account
balance. Deposit account loans are payable in monthly payments of principal
and interest or in a single payment. At March 31, 1997, total loans on
deposit accounts amounted to $183,000.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts
against the borrower beyond obtaining a deficiency judgment. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans.
At March 31, 1997, the Association had no material delinquencies in its
consumer loan portfolio.
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Maturity of Loan Portfolio. The following table sets forth certain
information at March 31, 1997 regarding the dollar amount of principal
repayments becoming due during the periods indicated for loans. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as becoming due within one year. The table does not
include any estimate of prepayments which significantly shorten the average
life of all loans and may cause the Association's actual repayment experience
to differ from that shown below.
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
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(In Thousands)
Mortgage loans (1) . . $ 915 $2,074 $2,453 $6,371 $11,621 $23,434
Consumer and other
loans . . . . . . . . 316 120 -- -- -- 436
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Total gross loans . $1,231 $2,194 $2,453 $6,371 $11,621 $23,870
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The following table sets forth the dollar amount of all loans due after
March 31, 1998, which have fixed interest rates and have floating or
adjustable interest rates.
Fixed- Floating- or
Rates Adjustable-Rates Total
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(In Thousands)
Mortgage loans (1) . . . . . . . . $2,250 $20,269 $22,519
Consumer and other loans . . . . . 120 -- 120
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Total gross loans. . . . . . . . $2,370 $20,269 $22,639
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(1) Includes one- to four-family, multi-family, construction, commercial and
agricultural and other mortgage loans.
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less
than their contractual terms because of prepayments. In addition, due-on-
sale clauses on loans generally give the Association the right to declare
loans immediately due and payable in the event, among other things, that the
borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tends to increase, however, when
current mortgage loan market rates are substantially higher than rates on
existing mortgage loans and, conversely, decrease when rates on existing
mortgage loans are substantially higher than current mortgage loan market
rates.
Loan Solicitation and Processing. Loan applicants come primarily
through referrals by realtors and previous and present customers of the
Association. Upon receipt of a loan application from a prospective borrower,
a credit report and other data are obtained to verify specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate offered as collateral generally is undertaken by
an appraiser employed by the Association and certified by the State of
Missouri.
Mortgage loans must be approved by any three members of the
Association's Loan Committee, which consists of the President, the Senior Vice
President and five nonemployee Directors. Interest rates are subject to
change if the approved loan is not closed within the time of the commitment.
Consumer and other loans may be approved by the President or Senior Vice
President up to $10,000 for unsecured loans and $15,000 for secured loans.
Larger loans are approved by the Board of Directors. Management of the
Association believes its local decision-making capabilities and the
accessibility of its senior officers is an attractive quality to customers
within its market area. The Association's loan approval process allows
consumer loans to be approved in one to two days and mortgage loans to be
approved in approximately 14 days and closed in 30 days.
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Loan Originations, Sales and Purchases. During the year ended March
31, 1997, the Association's total gross mortgage loan originations were $3.9
million. While the Association originates both adjustable-rate and fixed-rate
loans, its ability to generate each type of loan is dependent upon relative
customer demand for loans in its market.
Consistent with its asset/liability management strategy, the
Association's policy has been to retain in its portfolio nearly all of the
loans that it originates.
The Association occasionally purchases loan participation interests
primarily during periods of reduced loan demand in its market area. Any such
purchases are made in conformance with the Association's underwriting
standards. During recent years, the Association has purchased participation
interests from an institution in Fulton, Missouri. All of the properties
securing these loans are located in central Missouri. During the year ended
March 31, 1997, the Association purchased participation interests in 13 one-
to four-family loans and one multi-family loan. The Association acquired a
90% interest in the one- to four-family loans and a 50% interest in the
multi-family dwelling loan. The one- to four-family loans are secured by four
single family dwellings and nine duplexes and the multi-family dwelling loan
is secured by four duplexes. The originating institution retained an interest
and the servicing rights to the loans. The Association may decide to
purchase additional mortgage loans in the future depending upon the demand for
mortgage credit in its market area.
The following table shows total loans originated, originated for sale,
purchased, sold and repaid during the periods indicated.
Year Ended March 31,
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1997 1996 1995
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(In Thousands)
Loans originated:
One- to four-family. . . . . $2,583 $ 3,479 $ 3,069
Multi-family. . . . . . . . 132 -- --
Construction. . . . . . . . 101 246 60
Commercial. . . . . . . . . 206 99 215
Agricultural and other. . . 532 228 369
Consumer and other. . . . . 308 476 367
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Total loans originated . 3,862 4,528 4,080
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Loans purchased:
One- to four-family . . . . 1,139 915 335
Multi-family. . . . . . . . 199 -- --
Commercial. . . . . . . . . -- 496 --
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Total loans purchased. . . . 1,338 1,411 335
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Loan principal repayments. . (4,251) (5,223) (4,554)
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Increase (decrease) in
other items, net. . . . . . (110) 110 (129)
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Net increase (decrease)
in loans receivable, net $ 839 $ 826 $ (268)
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Loan Commitments. The Association issues commitments for
adjustable-rate one- to four-family residential mortgage loans conditioned
upon the occurrence of certain events. Such commitments are made in writing
on specified terms and conditions and are honored for up to 45 days from the
date of loan approval. The Association had outstanding net loan commitments
of approximately $193,000 at March 31, 1997. See Note 12 of Notes to
Consolidated Financial Statements.
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Loan Origination and Other Fees. The Association, in some instances,
receives loan origination fees. Loan fees are a percentage of the principal
amount of the mortgage loan which are charged to the borrower for funding the
loan. The amount of fees charged by the Association is generally up to 1%.
Current accounting standards require fees received (net of certain loan
origination costs) for originating loans to be deferred and amortized into
interest income over the contractual life of the loan. Net deferred fees or
costs associated with loans that are prepaid are recognized as income at the
time of prepayment. The Association had $24,000 of net deferred mortgage loan
fees at March 31, 1997.
Nonperforming Assets and Delinquencies. When a mortgage loan borrower
fails to make a required payment when due, the Association institutes
collection procedures. The first notice is mailed to the borrower at the end
of the month in which the payment is due and, if necessary, a second written
notice follows within 30 days thereafter. Attempts to contact the borrower by
telephone generally begin soon after the first notice is mailed to the
borrower. If a satisfactory response is not obtained, continuous follow-up
contacts are attempted until the loan has been brought current. Before the
90th day of delinquency, attempts to interview the borrower, preferably in
person, are made to establish (i) the cause of the delinquency, (ii) whether
the cause is temporary, (iii) the attitude of the borrower toward the debt,
and (iv) a mutually satisfactory arrangement for curing the default.
In most cases, delinquencies are cured promptly; however, if by the
91st day of delinquency, or sooner if the borrower is chronically delinquent
and all reasonable means of obtaining payment on time have been exhausted,
foreclosure, according to the terms of the security instrument and applicable
law, is initiated. Interest income on loans is reduced by the full amount of
accrued and uncollected interest.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Association institutes collection
procedures. The first notice is mailed to the borrower ten days following the
payment due date. If payment is not promptly received, a second notice is
mailed to the borrower 20 days following the payment due date and the customer
is contacted by telephone to ascertain the cause of the delinquency. If the
delinquency remains uncured, the Association mails an additional notice to the
borrower on the 30th day of delinquency and every 30 days thereafter and
continues to contact the borrower by telephone.
In most cases, delinquencies are cured promptly; however, if, by the
91st day of delinquency the delinquency has not been cured, the Association
begins legal action to either obtain a judgment in small claims court or to
repossess the collateral.
The Association's Board of Directors is informed on a monthly basis as
to the status of all mortgage and consumer loans that are delinquent more than
30 days, the status on all loans currently in foreclosure, and the status of
all foreclosed and repossessed property owned by the Association.
9
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The following table sets forth information with respect to the
Association's nonperforming assets at the dates indicated. The Association
had no restructured loans within the meaning of Statement of Financial
Accounting Standards No. 15 or No. 114 at the dates indicated.
At March 31,
-----------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Loans accounted for on
a nonaccrual basis:
One- to four-family. . . $117 $ -- $ 16
Consumer . . . . . . . . -- -- --
---- ----- ----
Total nonaccrual loans 117 -- 16
Accruing loans which are
contractually past due
90 days or more . . . . 4 4 --
---- ----- ----
Total nonaccrual and 90
days or more past
due loans. . . . . . 121 4 16
Foreclosed real estate held
for sale. . . . . . . . 126 -- 358
---- ----- ----
Total nonperforming assets $247 $ 4 $374
==== ===== ====
Nonaccrual and 90 days or more
past due loans as a percentage
of loans receivable, net 0.51% 0.02% 0.07%
Nonaccrual and 90 days or more
past due loans as a percentage
of total assets . . . . 0.34% 0.01% 0.05%
Nonperforming assets as a
percentage of total assets 0.69% 0.01% 1.25%
Interest income which would have been recorded for the year ended March
31, 1997 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $11,000 The amount of interest included in
the results of operations on such loans for the year ended March 31, 1997
amounted to approximately $5,500.
Foreclosed Real Estate. Foreclosed real estate acquired by the
Association as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as foreclosed real estate until it is sold. When property is
acquired it is recorded at the lower of its cost, which is the unpaid
principal balance of the related loan plus foreclosure costs, or fair market
value. Subsequent to foreclosure, the property is carried at the lower of the
foreclosed amount or fair value, less estimated selling costs. At March 31,
1997, foreclosed real estate consisted of one single-family loan made to a
builder.
Asset Classification. The OTS has adopted various regulations
regarding problem assets of savings institutions. The regulations require
that each insured institution review and classify its assets on a regular
basis.
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In addition, in connection with examinations of insured institutions, OTS
examiners have authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications for problem
assets: substandard, doubtful and loss. Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation
in full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified as
loss is considered uncollectible and of such little value that continuance as
an asset of the institution is not warranted. If an asset or portion thereof
is classified as loss, the insured institution establishes specific allowances
for loan losses for the full amount of the portion of the asset classified as
loss. All or a portion of general loan loss allowances established to cover
possible losses related to assets classified substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. Assets that do not currently expose the insured institution to
sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are placed on a "watch list" and monitored
by the Association.
At March 31, 1997 and 1996, the aggregate amounts of the Association's
classified assets, and of the Association's general and specific loss
allowances at the dates indicated, were as follows:
At March 31,
----------------
1997 1996
---- ----
(In Thousands)
Loss . . . . . . . $ -- $ --
Doubtful . . . . -- --
Substandard assets 254 101
---- ----
Total classified assets $254 $101
==== ====
General loss allowances $ 74 $ 72
Specific loss allowances -- --
---- ----
Total allowances $ 74 $ 72
==== ====
Allowance for Loan Losses. The Association has established a
systematic methodology for the determination of provisions for loan losses.
The methodology is set forth in a formal policy and takes into consideration
the need for an overall general valuation allowance as well as specific
allowances that are tied to individual loans.
In originating loans, the Association recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Association increases its allowance
for loan losses by charging provisions for loan losses against the
Association's income.
The general valuation allowance is maintained to cover losses inherent
in the portfolio of performing loans. Management reviews the adequacy of the
allowance at least quarterly based on management's assessment of current
economic conditions, past loss and collection experience, and risk
characteristics of the loan portfolio. Specific valuation allowances are
established to absorb losses on loans for which full collectibility may not be
reasonably assured. The amount of the allowance is based on the estimated
value of the collateral securing the loan and other analyses pertinent to each
situation. Generally, a provision for losses is charged against income on a
quarterly basis to maintain the allowances.
11
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<PAGE>
At March 31, 1997, the Association had an allowance for loan losses of
$74,000. Management believes that the amount maintained in the allowances
will be adequate to absorb losses inherent in the portfolio. Although
management believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.
While the Association believes it has established its existing
allowance for loan losses in accordance with generally accepted accounting
principles, there can be no assurance that regulators, in reviewing the
Association's loan portfolio, will not request the Association to increase
significantly its allowance for loan losses. In addition, because future
events affecting borrowers and collateral cannot be predicted with certainty,
there can be no assurance that the existing allowance for loan losses is
adequate or that substantial increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed above.
Any material increase in the allowance for loan losses may adversely affect
the Association's financial condition and results of operations.
12
<PAGE>
<PAGE>
The following table sets forth an analysis of the Association's
allowance for loan losses for the periods indicated. Where specific loan loss
reserves have been established, any differences between the loss allowances
and the amount of loss realized has been charged or credited to current
income.
Year Ended March 31,
-----------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Balance at beginning of year $ 72 $ 60 $ 49
Charge-offs:
One- to four-family . . (4) -- (4)
Multi-family. . . . . . -- -- --
Construction. . . . . . -- -- --
Commercial. . . . . . . -- -- --
Agricultural and other. -- -- --
Consumer and other loans (6) -- (7)
---- ---- ----
Total charge-offs. . (10) -- (11)
---- ---- ----
Recoveries:
One- to four-family . . -- -- --
Multi-family. . . . . . -- -- --
Construction. . . . . . -- -- --
Commercial. . . . . . . -- -- --
Agricultural and other. -- -- --
Consumer and other. . . -- -- 1
---- ---- ----
Total recoveries . . -- -- 1
---- ---- ----
Net loan charge-offs . . (10) -- (10)
---- ---- ----
Provision for loan losses 12 12 21
---- ---- ----
Balance at end of year . $ 74 $ 72 $ 60
==== ==== ====
Allowance for loan losses as a
percentage of gross loans
receivable. . . . . . . 0.31% 0.31% 0.27%
Net loan charge-offs as a
percentage of average loans
outstanding during the year 0.04% -- 0.04%
Allowance for loan losses as a
percentage of nonperforming
loans at end of year. . 61.26% 1997.95% 367.66%
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<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses
in any other category.
At March 31,
--------------------------------------------------
1997 1996 1995
---------------- --------------- -----------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to to to
Total Total Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Mortgage loans:
One- to four-family
and multi-family. . . $ 51 90.09% $ 51 89.71% $44 91.36%
Construction . . . . . -- -- -- 0.43 -- 0.27
Commercial . . . . . . 2 3.40 2 4.11 1 2.72
Agricultural and other 3 4.68 2 3.42 2 3.57
Consumer and other loans 18 1.83 17 2.33 13 2.08
Total allowance for --- ------ --- ------ --- ------
loan losses. . . . $74 100.00% $72 100.00% $60 100.00%
=== ====== === ====== === ======
Investment Activities
The Association is permitted under federal and state law to invest in
various types of liquid assets, including U.S. Treasury obligations,
securities of various federal agencies and of state and municipal governments,
deposits at the FHLB-Des Moines, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Subject to
various restrictions, the Association may also invest a portion of its assets
in commercial paper and corporate debt securities. Savings institutions like
the Association are also required to maintain an investment in FHLB stock.
The Association is required under federal regulations to maintain a
minimum amount of liquid assets. See "REGULATION." At March 31, 1997, the
Association's regulatory liquidity was 26% which is significantly in excess of
the 5% required by OTS regulations. It is the intention of management to hold
all securities in the Association's investment portfolio in order to enable
the Association to provide liquidity for loan funding upon maturity of such
investment securities and to match more closely the interest-rate
sensitivities of its assets and liabilities.
A committee consisting of the President, the Senior Vice President and
two Directors determines appropriate investments in accordance with the Board
of Directors' approved investment policies and procedures. The Association's
investment policies generally limit investments to U.S. Government and agency
securities, municipal bonds, certificates of deposits, marketable corporate
debt obligations and mortgage-backed securities. Corporate debt obligations
and municipal bonds must have a credit rating of AA or higher and have
maturities of no more than five years. Mortgage-backed securities must also
have contractual maturities of five years or less. Investments are made based
on certain considerations, which include the interest rate, yield, settlement
date and maturity of the investment, the Association's liquidity position, and
anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits and anticipated loan
amortization and repayments). The effect that the proposed investment would
have on the Association's credit and interest rate risk, and risk-based
capital is also given consideration during the evaluation.
14
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<PAGE>
At March 31, 1997, the Company's and Association's investment portfolio
totalled $9.0 million at amortized cost and consisted of certificates of
deposit, federal agency obligations, municipal bonds, corporate debt
securities, FHLB stock and mortgage-backed and related securities. The
Association's municipal bond portfolio, which totalled $491,000 at amortized
cost at March 31, 1997, was comprised of general obligation bonds (i.e.,
backed by the general credit of the issuer) and revenue bonds (i.e., backed
only by revenues from the specific project being financed) issued by various
municipalities and water and sanitation districts in several states. The
Company's and Association's corporate bond portfolio, which totaled $804,000
at March 31, 1997, was composed of short-term, investment grade issues.
At March 31, 1997, the Association owned one mortgage-backed security
and two collateralized mortgage obligations ("CMOs"). The mortgage-backed
security with a carrying value of $85,000 represents a participation interest
in a pool of mortgages. The principal and interest payments are passed from
the mortgage originators, through an intermediary (in this case, the
Government National Mortgage Association) that pools and resells the
participation interests in the form of securities to investors such as the
Association.
CMOs are securities created by segregating or partitioning cash flows
from mortgage pass-through securities or from pools of mortgage loans. CMOs
provide a broad range of mortgage investment vehicles by tailoring cash flows
from mortgages to meet the varied risk and return preferences of investors.
These securities enable the issuer to "carve up" the cash flow from the
underlying securities and thereby create multiple classes of securities with
different maturity and risk characteristics. CMOs are typically issued by a
special-purpose entity (the "issuer") that may be organized in a variety of
legal forms, such as a trust, a corporation, or a partnership. Accordingly, a
CMO instrument may be purchased in equity form (e.g., trust interest, stock
and partnership interests) or nonequity form (e.g., participating debt
securities). All of the Association's CMOs are nonequity interests. CMOs are
collateralized by mortgage loans or mortgage-backed securities that are
transferred to the CMO trust or pool by a sponsor. The issue is structured so
that collections from the underlying collateral provide a cash flow to make
principal and interest payments on the obligations, or "tranches," of the
issuer.
CMOs totalled $755,000 at March 31, 1997, all of which were backed by
federal agency collateral and which had fixed interest rates. The Association
does not anticipate purchasing any CMOs in the future.
Effective February 1992, the OTS adopted Thrift Bulletin 52 ("TB 52").
Among other things, TB 52 sets forth certain guidelines with respect to
depository institutions' investment in ceratin "high risk mortgage
securities." "High risk mortgage securities" are defined as any mortgage
derivative product that at the time of purchase, or at any subsequent date,
meets any of three tests that are set forth in TB 52. The Association obtains
an analysis to determine whether the CMOs meets any one of the three TB 52
tests, and falls into the category of "high risk mortgage security." The
Association documents no less than annually whether a change in the
characteristics of any CMO causes such security to become a "high risk
mortgage security." At March 31, 1997, the Association did not hold any "high
risk" CMOs in its portfolio.
Statement of Financial Account Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," requires the
investments be categorized as "held to maturity," "trading securities" or
"available for sale," based on management's intent as to the ultimate
disposition of each security. SFAS No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and
ability to hold those securities to maturity. Securities that might be sold
in response to changes in market interest rates, changes in the security's
prepayment risk, increases in loan demand, or other similar factors cannot be
classified as "held to maturity." Debt and equity securities held for current
resale are classified as "trading securities." Such securities are reported
at fair value, and unrealized gains and losses on such securities would be
included in earnings. Debt and equity securities not classified as either
"held to maturity" or "trading securities" are classified as "available for
sale." Such securities are reported at fair value, and unrealized gains and
losses on such securities are excluded from earnings and reported as a net
amount in a separate component of equity. The Company's and Association's
investment policy dictates that investments be made with the intent of holding
them to maturity.
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<PAGE>
The following table sets forth the composition of the Company's and
Association's investment portfolio at the dates indicated.
At March 31,
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
Percent Percent Percent
Carrying of Carrying of Carrying of
Value Portfolio Value Portfolio Value Portfolio
----- --------- ----- --------- ------ ---------
(Dollars in Thousands)
Securities held
to maturity:
Federal
agency
obligations $3,498 38.97% $3,498 45.06% $ 497 12.69%
Municipal
bonds. . . 491 5.47 744 9.59 990 25.29
Corporate
debt
securities 804 8.96 1,057 13.62 1,008 25.75
Total ------ ------ ------ ------ ------ ------
securities
held to
maturity
(1). . 4,793 53.40 5,299 68.27 2,495 63.73
FHLB stock. . 289 3.22 289 3.72 283 7.23
Mortgage-backed
and related
securities
held to
maturity 840 9.36 874 11.26 137 3.50
Certificates
of deposit . 3,053 34.02 1,300 16.75 1,000 25.54
Total ------ ------ ------ ------ ------ ------
investment
portfolio $8,975 100.00% $7,762 100.00% $3,915 100.00%
====== ====== ====== ====== ====== ======
The following table sets forth the maturities and weighted average
yields of the Company's and Association's debt securities held to maturity at
March 31, 1997.
Less Than One to
One Year Five Years Total
------------- ------------- -------------
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Federal agency
obligations. . . . $1,276 5.73% $2,222 5.76% $3,498 5.75%
Municipal obligations(1) 296 3.83 195 3.70 491 3.78
Corporate debt . . . 252 5.47 552 5.53 804 5.51
------ ------ ------
Total . . . . . $1,824 5.39 $2,969 5.58 $4,793 5.51
====== ====== ======
- ------------------
(1) The yields on these securities have not been computed on a tax-equivalent
basis.
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of the
Association's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Des Moines may
be used on a short-term basis to compensate for reductions in the availability
of funds from other sources. Presently, the Association has no other
borrowing arrangements.
Deposit Accounts. Substantially all of the Association's depositors
are residents of the State of Missouri. Deposits are attracted from within
the Association's market area through the offering of a broad selection of
deposit instruments, including negotiable order of withdrawal ("NOW")
accounts, money market deposit accounts, regular savings accounts,
certificates of deposit and retirement savings plans. Deposit account terms
vary, according to the
16
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<PAGE>
minimum balance required, the time periods the funds must remain on deposit
and the interest rate, among other factors. In determining the terms of its
deposit accounts, the Association considers current market interest rates,
profitability to the Association, matching deposit and loan products and its
customer preferences and concerns. The Association reviews its deposit mix
and pricing weekly.
As illustrated in the following table, the Association offers
certificates of deposit for terms not exceeding 36 months. As a result, the
Association believes that it is better able to match the repricing of its
liabilities to the repricing of its loan portfolio.
The following table sets forth information concerning the Association's
time deposits and other interest-bearing deposits at March 31, 1997.
Weighted
Average Percentage
Interest Checking and Minimum of Total
Rate Term Savings Deposits Amount Balance Deposits
- ---- ---- ---------------- ------ ------- --------
(In Thousands)
2.75% None Savings accounts $ 100 $ 5,870 23.64%
2.25 None NOW accounts 500 1,526 6.15
4.53 None Money market deposit
accounts 2,500 2,178(1) 8.77
Certificates of Deposit
-----------------------
3.50 91 day Fixed-term, fixed-rate 2,500 60 .24
4.81 6 months Fixed-term, fixed-rate 2,500 2,301(2) 9.27
5.14 12 months Fixed-term, fixed-rate 500 5,451 21.96
5.17 18 months Individual retirement
account ("IRA")
fixed-term, fixed-rate 100 2,844 11.46
5.15 24 months Fixed-term, fixed-rate 500 737 2.97
5.44 30 months Fixed-term, fixed-rate 500 1,943 7.83
5.57 36 months Fixed-term, fixed-rate 500 1,583 6.38
7.91 Varies Fixed-term, fixed-rate Varies 332 1.33
------- ------
Total $24,825 100.00%
======= ======
- ----------------
(1) Includes public deposit of $1,116,000 at a rate of 5.50%.
(2) Includes jumbo certificates of deposit.
The following table indicates the amount of the Association's jumbo
certificates of deposit by time remaining until maturity as of March 31, 1997.
Jumbo certificates of deposit require minimum deposits of $100,000, and rates
paid on such accounts are negotiable.
Maturity Period Amount
--------------- ------
(In Thousands)
Three months or less $ --
Over three through six months 229
Over six through 12 months --
Over 12 months --
Total jumbo certificates ----
of deposit $229
====
17
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<PAGE>
Deposit Flow
The following table sets forth the balances (inclusive of interest
credited) and change in dollar amount of deposits in the various types of
accounts offered by the Association between the dates indicated.
At March 31,
---------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------ --------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------ ----- ---------- ------ ----- ---------- ------ -----
(Dollars in Thousands)
Savings
accounts $ 5,870 23.64% $(1,047) $6,917 26.97% $ (30) $ 6,947 27.27%
NOW
accounts . 1,526 6.15 114 1,412 5.51 152 1,260 4.95
Money
market
deposit
accounts . 2,178 8.77 1,011 1,167 4.55 308 859 3.37
91 day
certifi-
cates. . . 60 0.24 -- 60 0.23 5 55 0.21
6 month
certifi-
cates. . . 2,072 8.35 (471) 2,543 9.92 (212) 2,755 10.81
12 month
certifi-
cates. . . 5,451 21.96 (55) 5,506 21.47 406 5,100 20.02
18 month
IRA
certifi-
cates. . . 2,844 11.46 (139) 2,983 11.63 30 2,953 11.59
24 month
certifi-
cates. . . 737 2.97 (39) 776 3.03 (97) 873 3.43
30 month
certifi-
cates. . . 1,943 7.83 (311) 2,254 8.79 (438) 2,692 10.57
36 month
certifi-
cates. . . 1,583 6.38 132 1,451 5.66 156 1,295 5.08
Other certi-
ficates. . 332 1.33 (26) 358 1.39 (23) 381 1.50
Jumbo certi-
ficates. . 229 0.92 12 217 0.85 (88) 305 1.20
Total ------- ------ -------- ------- ------ ---- ------- ------
deposits $24,825 100.00% $ (819) $25,644 100.00% $169 $25,475 100.00%
======= ====== ======== ======= ====== ==== ======= ======
Time Deposits by Rates
The following table sets forth the time deposits in the Association
categorized by rates at the dates indicated.
At March 31,
-------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
3.00 - 3.99% . . . . . $ 60 $ 60 $ 683
4.00 - 4.99% . . . . . 2,358 3,998 8,755
5.00 - 5.99% . . . . . 11,795 8,561 3,299
6.00 - 6.99% . . . . . 713 3,190 3,318
7.00 - 7.99% . . . . . 190 195 188
8.00% and over . . . . 135 144 166
------- ------- -------
Total . . . . . . . $15,251 $16,148 $16,409
======= ======= =======
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<PAGE>
The following table sets forth the amount and maturities of time
deposits at March 31, 1997.
Amount Due
----------------------------------------------
Within Second Third After
One Year Year Year 3 Years Total
-------- ---- ---- ------- -----
(In Thousands)
3.00 - 3.99% . . . . . . . $ 60 $ -- $ -- $ -- $ 60
4.00 - 4.99% . . . . . . . 2,358 -- -- -- 2,358
5.00 - 5.99% . . . . . . . 8,091 2,889 815 -- 11,795
6.00 - 6.99% . . . . . . . 649 64 -- -- 713
7.00 - 7.99% . . . . . . . 41 113 3 33 190
8.00% and over . . . . . . -- 15 30 90 135
------- ------ ---- ---- -------
Total. . . . . . . . . $11,199 $3,081 $848 $123 $15,251
======= ====== ==== ==== =======
The following table sets forth the deposit activities of the
Association for the years indicated.
Year Ended March 31,
-------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Net deposits (withdrawals)
before interest credited. . . $(1,704) $(736) $(1,820)
Interest credited. . . . . . . 885 905 713
------- ----- -------
Net increase (decrease) in
deposits. . . . . . . . . . . $ (819) $ 169 $(1,107)
------- ----- -------
Borrowings
Savings deposits are the primary source of funds for the Association's
lending and investment activities and for its general business purposes. The
Association has the ability to use advances from the FHLB-Des Moines to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank
providing credit for savings and loan associations and certain other member
financial institutions. As a member of the FHLB-Des Moines, the Association
is required to own capital stock in the FHLB-Des Moines and is authorized to
apply for advances on the security of such stock and certain of its mortgage
loans and other assets (principally securities which are obligations of, or
guaranteed by, the U.S. Government) provided certain creditworthiness
standards have been met. Advances are made pursuant to several different
credit programs. Each credit program has its own interest rate and range of
maturities. Depending on the program, limitations on the amount of advances
are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At and during the year
ended March 31, 1997, the Association had no borrowings from the FHLB-Des
Moines, although it may decide to make use of such instruments in the future.
REGULATION OF THE ASSOCIATION
General
The Association is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer
of its deposits. The activities of federal savings institutions are governed
by
19
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the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects,
the Federal Deposit Insurance Act ("FDIA") and the regulations issued by the
OTS and the FDIC to implement these statutes. These laws and regulations
delineate the nature and extent of the activities in which federal savings
associations may engage. Lending activities and other investments must comply
with various statutory and regulatory capital requirements. In addition, the
Association's relationship with its depositors and borrowers is also regulated
to a great extent, especially in such matters as the ownership of deposit
accounts and the form and content of the Association's mortgage documents.
The Association must file reports with the OTS and the FDIC concerning its
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. There are periodic
examinations by the OTS and the FDIC to review the Association's compliance
with various regulatory requirements. 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 such
policies, whether by the OTS, the FDIC or Congress, could have a material
adverse impact on the Company, the Association and their operations.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department
of the Treasury subject to the general oversight of the Secretary of the
Treasury. The OTS generally possesses the supervisory and regulatory duties
and responsibilities formerly vested in the Federal Home Loan Bank Board.
Among other functions, the OTS issues and enforces regulations affecting
federally insured savings associations and regularly examines these
institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12
FHLBs, is under the jurisdiction of the Federal Housing Finance Board
("FHFB"). The designated duties of the FHFB are to: supervise the FHLBs;
ensure that the FHLBs carry out their housing finance mission; ensure that the
FHLBs remain adequately capitalized and able to raise funds in the capital
markets; and ensure that the FHLBs operate in a safe and sound manner. The
Association, as a member of the FHLB-Des Moines, is required to acquire and
hold shares of capital stock in the FHLB-Des Moines in an amount equal to the
greater of (i) 1.0% of the aggregate outstanding principal amount of
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or (ii) 1/20 of its advances (borrowings) from the
FHLB-Des Moines. The Association is in compliance with this requirement with
an investment in FHLB-Des Moines stock of $289,000 at March 31, 1997. Among
other benefits, the FHLB-Des Moines provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It
makes advances to members in accordance with policies and procedures
established by the FHFB and the Board of Directors of the FHLB-Des Moines.
Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency established originally to insure the deposits, up to prescribed
statutory limits, of federally insured banks and to preserve the safety and
soundness of the banking industry. The FDIC currently maintains two separate
insurance funds: the Bank Insurance Fund ("BIF") and the Savings Association
Insurance Fund ("SAIF"). As insurer of the Association's deposits, the FDIC
has examination, supervisory and enforcement authority over the Associations.
The Association's deposit accounts are insured by the FDIC under the
SAIF to the maximum extent permitted by law. The Association pays deposit
insurance premiums to the FDIC based on a risk-based assessment system
established by the FDIC for all SAIF-member institutions. Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," and "undercapitalized" -- which are defined in the
same manner as the regulations establishing the prompt corrective action
system, as discussed below. These three groups are then divided into three
subgroups which reflect varying levels of supervisory concern, from those
which are considered to be healthy to those which are considered to be of
substantial supervisory concern.
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The FDIC's current assessment schedule for SAIF deposit insurance
provides that the assessment rate for well-capitalized institutions with the
highest supervisory ratings would be reduced to zero and institutions in the
lowest risk assessment classification will be assessed at the rate of 0.27% of
insured deposits. Until the earlier of December 31, 1999 or the date upon
which the last savings association ceases to exist, SAIF-insured institutions,
will be required to add to their assessments to the FDIC at the rate of 6.5
basis points to help fund interest payments on certain bonds issued by the
Financing Corporation ("FICO"), an agency of the federal government
established to finance takeovers of insolvent thrifts. During this period,
BIF members will be assessed for FICO obligations at the rate of 1.3 basis
points. Thereafter, both BIF and SAIF members will be assessed at the same
rate for FICO payments.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances that could
result in termination of the deposit insurance of the Association.
Liquidity Requirements. Under OTS regulations, each savings
institution is required to maintain an average daily balance of liquid assets
(cash, certain time deposits and savings accounts, bankers' acceptances, and
specified U.S. Government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage (currently 5.0%) of its net withdrawable accounts plus short-term
borrowings. OTS regulations also require each savings institution to maintain
an average daily balance of short-term liquid assets at a specified percentage
(currently 1.0%) of the total of its net withdrawable savings accounts and
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet liquidity requirements.
Prompt Corrective Action. Under the FDIA, each federal banking agency
is required to implement a system of prompt corrective action for institutions
that it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement this system of prompt
corrective action. Under the regulations, an institution shall be deemed to
be (i) "well capitalized" if it has a total risk-based capital ratio of 10.0%
or more, has a Tier I risk-based capital ratio of 6.0% or more, has a leverage
ratio of 5.0% or more and is not subject to specified requirements to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, has a
Tier I risk-based capital ratio of 4.0% or more, has a leverage ratio of 4.0%
or more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized;" (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, has a Tier I risk-based capital ratio
that is less than 4.0% or a leverage ratio that is less than 4.0% (3.0% under
certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, has a Tier I risk-based
capital ratio that is less than 3.0% or has a leverage ratio that is less than
3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has
received in its most recent examination, and has not corrected, a less than
satisfactory rating for asset quality, management, earnings or liquidity.
(The OTS may not, however, reclassify a significantly undercapitalized
institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized,
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significantly undercapitalized or critically undercapitalized. Immediately
upon becoming undercapitalized, an institution shall become subject to various
mandatory and discretionary restrictions on its operations.
At March 31, 1997, the Association was categorized as "well
capitalized" under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that the
Association fails to meet any standard prescribed by the Guidelines, the
agency may require the Association to submit to the agency an acceptable plan
to achieve compliance with the standard. OTS regulations establish deadlines
for the submission and review of such safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either become a national bank or be subject to the following
restrictions on its operations: (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be
able to establish a branch office; (iii) the association shall be ineligible
to obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the statutory and regulatory dividend
restrictions applicable to national banks. Also, beginning three years after
the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in
any activity not permissible for a national bank and would be required to
repay any outstanding advances to any FHLB. In addition, within one year of
the date on which a savings association controlled by a company ceases to be a
QTL, the company must register as a bank holding company and become subject to
the rules applicable to such companies. A savings institution may requalify
as a QTL if it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as
a domestic building and loan association under the Internal Revenue Code or
that 65% of an institution's "portfolio assets" (as defined) consist of
certain housing and consumer-related assets on a monthly average basis in nine
out of every 12 months. Assets that qualify without limit for inclusion as
part of the 65% requirement are loans made to purchase, refinance, construct,
improve or repair domestic residential housing and manufactured housing; home
equity loans; mortgage-backed securities (where the mortgages are secured by
domestic residential housing or manufactured housing); FHLB stock; direct or
indirect obligations of the FDIC; and loans for educational purposes, loans to
small businesses and loans made through credit cards. In addition, the
following assets, among others, may be included in meeting the test subject to
an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer loans; and stock issued by FHLMC or FNMA. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At March
31, 1997, the qualified thrift investments of the Association were
approximately 85% of its portfolio assets.
Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less
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(i) any intangible assets, except for certain qualifying intangible assets;
(ii) certain mortgage servicing rights; and (iii) equity and debt investments
in subsidiaries that are not "includable subsidiaries," which is defined as
subsidiaries engaged solely in activities not impermissible for a national
bank, engaged in activities impermissible for a national bank but only as an
agent for its customers, or engaged solely in mortgage-banking activities. In
calculating adjusted total assets, adjustments are made to total assets to
give effect to the exclusion of certain assets from capital and to account
appropriately for the investments in and assets of both includable and
nonincludable subsidiaries. Institutions that fail to meet the core capital
requirement would be required to file with the OTS a capital plan that details
the steps they will take to reach compliance. In addition, the OTS's prompt
corrective action regulation provides that a savings institution that has a
leverage ratio of less than 4% (3% for institutions receiving the highest
CAMEL examination rating) will be deemed to be "undercapitalized" and may be
subject to certain restrictions. See "-- Federal Regulation of Savings
Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less
than 1.5% of the Association's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets" other than
purchased mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal
to at least 8% of risk-weighted assets. Total risk-based capital consists of
the sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes (i) permanent capital instruments such as cumulative perpetual
preferred stock, perpetual subordinated debt and mandatory convertible
subordinated debt, (ii) maturing capital instruments such as subordinated
debt, intermediate-term preferred stock and mandatory convertible subordinated
debt, subject to an amortization schedule, and (iii) general valuation loan
and lease loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities
that are backed by the full faith and credit of the U.S. Government to 100%
for repossessed assets or assets more than 90 days past due. Qualifying
residential mortgage loans (including multi-family mortgage loans) are
assigned a 50% risk weight. Consumer, commercial, home equity and residential
construction loans are assigned a 100% risk weight, as are nonqualifying
residential mortgage loans and that portion of land loans and nonresidential
construction loans that do not exceed an 80% loan-to-value ratio. The book
value of assets in each category is multiplied by the weighing factor (from 0%
to 100%) assigned to that category. These products are then totalled to
arrive at total risk-weighted assets. Off-balance sheet items are included in
risk-weighted assets by converting them to an approximate balance sheet
"credit equivalent amount" based on a conversion schedule. These credit
equivalent amounts are then assigned to risk categories in the same manner as
balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
the association's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings association whose measured interest rate risk
exposure exceeds 2% must deduct an interest rate risk component in calculating
its total capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the association's assets. That dollar amount is deducted
from an association's total capital in calculating compliance with its
risk-based capital requirement. Under the rule, there is a two quarter lag
between the reporting date of an institution's financial data and the
effective date for the new capital requirement based on that data. A savings
association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not subject
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to the interest rate risk component, unless the OTS determines otherwise. The
rule also provides that the Director of the OTS may waive or defer an
association's interest rate risk component on a case-by-case basis. Under
certain circumstances, a savings association may request an adjustment to its
interest rate risk component if it believes that the OTS-calculated interest
rate risk component overstates its interest rate risk exposure. In addition,
certain "well-capitalized" institutions may obtain authorization to use their
own interest rate risk model to calculate their interest rate risk component
in lieu of the OTS-calculated amount. The OTS has postponed the date that the
component will first be deducted from an institution's total capital.
The following table presents the Association's regulatory capital
levels as of March 31, 1997.
At March 31, 1997
---------------------
Percent of
Amount Assets
------ ------
(Dollars in thousands)
Core or Tier 1 capital . . . . . . $ 7,564 22.70%
Minimum capital requirement. . . . (1,000) (3.00)
------- -----
Excess . . . . . . . . . . . . . . $ 6,564 19.70%
======= =====
Tangible capital . . . . . . . . . $ 7,564 22.70%
Minimum capital requirement. . . . (500) (1.50)
------- -----
Excess . . . . . . . . . . . . . . $ 7,064 21.20%
======= =====
Tier 1 risk-based capital. . . . . $ 7,564 46.20%
Minimum capital requirement. . . . (654) (4.00)
------- -----
Excess . . . . . . . . . . . . . . $ 6,910 42.20%
======= =====
Risk-based capital . . . . . . . . $ 7,638 46.70%
Minimum capital requirement. . . . (1,309) (8.00)
------- -----
Excess . . . . . . . . . . . . . . $ 6,329 38.70%
======= =====
Limitations on Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Association to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.
A Tier 1 savings association has capital in excess of its fully
phased-in capital requirement (both before and after the proposed capital
distribution). Tier 1 savings association may make (without application but
upon prior notice to, and no objection made by, the OTS) capital distributions
during a calendar year up to 100% of its net income to date during the
calendar year plus one-half its surplus capital ratio (i.e., the amount of
capital in excess of its fully phased-in requirement) at the beginning of the
calendar year or the amount authorized for a Tier 2 association. Capital
distributions in excess of such amount require advance notice to the OTS. A
Tier 2 savings association has capital equal to or in excess of its minimum
capital requirement but below its fully phased-in capital requirement (both
before and after the proposed capital distribution). Such an association may
make (without application) capital distributions up to an amount equal to 75%
of its net income during the previous four quarters depending on how close the
association is to meeting its fully phased-in capital requirement. Capital
distributions exceeding this amount require prior OTS approval. Tier 3
associations are savings associations with capital below the minimum capital
requirement (either before or after the proposed capital distribution). Tier
3 associations may not make any capital distributions without prior approval
from the OTS.
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The Association currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of
the calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Association's unimpaired capital and
surplus, plus an additional 10% of unimpaired capital and surplus, if such
loan is secured by readily-marketable collateral, which is defined to include
certain financial instruments and bullion. The OTS by regulation has amended
the loans to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower
in additional amounts under circumstances limited essentially to loans to
develop or complete residential housing units. At March 31, 1997, the
Association's limit on loans to one borrower was $1.1 million. At March 31,
1997, the Association's largest aggregate amount of loans to one borrower was
$647,000.
Activities of Associations and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide
the information each agency may, by regulation, require. Savings associations
also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The
FDIC also may determine by regulation or order that any specific activity
poses a serious threat to the SAIF. If so, it may require that no SAIF member
engage in that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to
which the insured association or its subsidiaries may engage in certain
covered transactions with an affiliate to an amount equal to 10% of such
institution's capital and surplus and place an aggregate limit on all such
transactions with affiliates to an amount equal to 20% of such capital and
surplus, and (ii) require that all such transactions be on terms substantially
the same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction" includes the
making of loans, the purchase of assets, the issuance of a guarantee and
similar types of transactions. Any loan or extension of credit by the
Association to an affiliate must be secured by collateral in accordance with
Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank
holding companies; (ii) a savings association may not purchase or invest in
securities issued by an affiliate (other than securities of a subsidiary); and
(iii) the OTS may, for reasons of safety and soundness, impose more stringent
restrictions on savings associations but may not exempt transactions from or
otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may
be granted only by the Federal Reserve Board, as is currently the case with
respect to all FDIC-insured banks. The Association has not been significantly
affected by the rules regarding transactions with affiliates.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such
persons, is governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations generally
require that such loans be made on terms
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and conditions substantially the same as those offered to unaffiliated
individuals and not involve more than the normal risk of repayment.
Generally, Regulation O also places individual and aggregate limits on the
amount of loans the Association may make to such persons based, in part, on
the Association's capital position, and requires certain board approval
procedures to be followed. The OTS regulations, with certain minor variances,
apply Regulation O to savings institutions.
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), a federal statute, all federally-insured financial institutions have
a continuing and affirmative obligation consistent with safe and sound
operations to help meet all the credit needs of its delineated community. The
CRA does not establish specific lending requirements or programs nor does it
limit an institution's discretion to develop the types of products and
services that it believes are best suited to meet all the credit needs of its
delineated community. The CRA requires the federal banking agencies, in
connection with regulatory examinations, to assess an institution's record of
meeting the credit needs of its delineated community and to take such record
into account in evaluating certain regulatory applications filed by an
institution. The CRA requires public disclosure of an institution's CRA
rating. The Association received an "outstanding" rating as a result of its
latest evaluation.
REGULATION OF THE COMPANY
Holding Company Acquisitions
The HOLA and OTS regulations issued thereunder generally prohibit a
savings and loan holding company, without prior OTS approval, from acquiring
more than 5% of the voting stock of any other savings association or savings
and loan holding company or controlling the assets thereof. They also
prohibit, among other things, any director or officer of a savings and loan
holding company, or any individual who owns or controls more than 25% of the
voting shares of such holding company, from acquiring control of any savings
association not a subsidiary of such savings and loan holding company, unless
the acquisition is approved by the OTS.
Holding Company Activities
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions under the HOLA. If the Company acquires
control of another savings association as a separate subsidiary other than in
a supervisory acquisition, it would become a multiple savings and loan holding
company. There generally are more restrictions on the activities of a
multiple savings and loan holding company than on those of a unitary savings
and loan holding company. The HOLA provides that, among other things, no
multiple savings and loan holding company or subsidiary thereof which is not
an insured association shall commence or continue for more than two years
after becoming a multiple savings and loan association holding company or
subsidiary thereof, any business activity other than: (i) furnishing or
performing management services for a subsidiary insured institution, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary insured institution,
(iv) holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by regulation as of March 5, 1987 to be engaged
in by multiple holding companies or (vii) those activities authorized by the
Federal Reserve Board as permissible for bank holding companies, unless the
OTS by regulation, prohibits or limits such activities for savings and loan
holding companies. Those activities described in (vii) above also must be
approved by the OTS prior to being engaged in by a multiple savings and loan
holding company.
Qualified Thrift Lender Test
The HOLA requires any savings and loan holding company that controls a
savings association that fails the QTL test, as explained under "-- Federal
Regulation of Savings Associations -- Qualified Thrift Lender Test," must,
within one year after the date on which the association ceases to be a QTL,
register as and be deemed a bank holding company subject to all applicable
laws and regulations.
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TAXATION
Federal Taxation
General. The Company and the Association report their income on a
fiscal year basis using the modified cash method of accounting and will be
subject to federal income taxation in the same manner as other corporations
with some exceptions, including particularly the Association's reserve for bad
debts discussed below. The following discussion of tax matters is intended
only as a summary and does not purport to be a comprehensive description of
the tax rules applicable to the Association or the Company.
Bad Debt Reserve. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted
to establish a reserve for bad debts and to make annual additions thereto,
which may have been deducted in arriving at their taxable income. The
Association's deductions with respect to "qualifying real property loans,"
which are generally loans secured by certain interest in real property, were
computed using an amount based on the Association's actual loss experience, or
a percentage equal to 8% of the Association's taxable income, computed with
certain modifications and reduced by the amount of any permitted additions to
the non-qualifying reserve. Due to the Association's loss experience, the
Association generally recognized a bad debt deduction equal to 8% of taxable
income. Although in recent years the Association used the experience method
due to the limitation based on the level of deposits outstanding and retained
earnings.
In August 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection
Act of 1996." The new rules eliminate the 8% of taxable income method for
deducting additions to the tax bad debt reserves for all thrifts for tax years
beginning after December 31, 1995. These rules also require that all
institutions recapture all or a portion of their bad debt reserves added since
the base year (last taxable year beginning before January 1, 1988). For
taxable years beginning after December 31, 1995, the Association's bad debt
deduction will be determined under the experience method using a formula based
on actual bad debt experience over a period of years or, if the Association is
a "large" association (assets in excess of $500 million) on the basis of net
charge-offs during the taxable year. The new rules allow an institution to
suspend bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or greater than the
institutions average mortgage lending activity for the six taxable years
preceding 1996 adjusted for inflation. For this purpose, only home purchase
or home improvement loans are included and the institution can elect to have
the tax years with the highest and lowest lending activity removed from the
average calculation. If an institution is permitted to postpone the reserve
recapture, it must begin its six year recapture no later than the 1998 tax
year. The unrecaptured base year reserves will not be subject to recapture as
long as the institution continues to carry on the business of banking. In
addition, the balance of the pre-1988 bad debt reserves continue to be subject
to provision of present law referred to below that require recapture in the
case of certain excess distributions to shareholders. See Note 9 of the Notes
to the Consolidated Financial Statements in the Annual Report for additional
information.
Distributions. To the extent that the Association makes "nondividend
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of March 31, 1988
(or a lesser amount if the Association's loan portfolio decreased since March
31, 1988) and then from the supplemental reserve for losses on loans ("Excess
Distributions"), and an amount based on the Excess Distributions will be
included in the Association's taxable income. Nondividend distributions
include distributions in excess of the Association's current and accumulated
earnings and profits, distributions in redemption of stock and distributions
in partial or complete liquidation. However, dividends paid out of the
Association's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a
distribution from the Association's bad debt reserve. The amount of
additional taxable income created from an Excess Distribution is an amount
that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if, after the Conversion, the Association
makes a "nondividend distribution," then approximately one and one-half
27
<PAGE>
<PAGE>
times the Excess Distribution would be includable in gross income for federal
income tax purposes, assuming a 34% corporate income tax rate (exclusive of
state and local taxes). See "REGULATION" and "DIVIDEND POLICY" for limits on
the payment of dividends by the Association. The Association does not intend
to pay dividends that would result in a recapture of any portion of its tax
bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. 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 is treated as a preference item for purposes of computing the AMTI. In
addition, only 90% of AMTI can be offset by net operating loss carryovers.
AMTI is increased by an amount equal to 75% of the amount by which the
Association's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses).
For taxable years beginning after December 31, 1986, and before January 1,
1996, an environmental tax of .12% of the excess of AMTI (with certain
modification) over $2.0 million is imposed on corporations, including the
Association, whether or not an Alternative Minimum Tax ("AMT") is paid.
Dividends-Received Deduction. The Company may exclude from its income
100% of dividends received from the Association as a member of the same
affiliated group of corporations. The corporate dividends-received deduction
is generally 70% in the case of dividends received from unaffiliated
corporations with which the Company and the Association will not file a
consolidated tax return, except that if the Company or the Association owns
more than 20% of the stock of a corporation distributing a dividend, then 80%
of any dividends received may be deducted.
Audits. The Association's federal income tax returns have not been
audited within the past five years.
Missouri Taxation
Missouri-based thrift institutions, such as the Association, are
subject to a special financial institutions tax, based on net income without
regard to net operating loss carryforwards, at the rate of 7% of net income.
This tax is in lieu of certain other state taxes on thrift institutions, on
their property, capital or income, except taxes on tangible personal property
owned by the Association and held for lease or rental to others and on real
estate, contributions paid pursuant to the Unemployment Compensation Law of
Missouri, social security taxes, sales taxes and use taxes. In addition, the
Association is entitled to credit against this tax all taxes paid to the State
of Missouri or any political subdivision, except taxes on tangible personal
property owned by the Association and held for lease or rental to others and
on real estate, contributions paid pursuant to the Unemployment Compensation
Law of Missouri, social security taxes, sales and use taxes, and taxes imposed
by the Missouri Financial Institutions Tax Law. Missouri thrift institutions
are not subject to the regular corporate income tax.
Competition
Due to the close proximity of DeSoto to the St. Louis metropolitan
area, the Association operates in a intensely competitive market for the
attraction of savings deposits (its primary source of lendable funds) and in
the origination of loans. Its most direct competition for savings deposits
has historically come from local commercial banks and other large banks
operating in its market area. As of March 31, 1997, there were three
commercial banks in DeSoto, Missouri. Particularly in times of high interest
rates, the Association has faced additional significant competition for
investors' funds from short-term money market securities and other corporate
and government securities. The Association's competition for loans comes
principally from mortgage bankers and commercial banks. Such competition for
deposits and the origination of loans may limit the Association's growth in
the future.
Subsidiary Activities
Federal savings associations may invest up to 3% of their assets in
service corporations, provided that at least one-half of any amount in excess
of 1% is used primarily for community, inner-city and community
28
<PAGE>
<PAGE>
development projects. The Association's investment in its service
corporation, JSLA Service Corp. ("Service Corporation"), did not exceed these
limits at March 31, 1997.
The Service Corporation is a wholly owned subsidiary of the
Association. The Service Corporation was established in 1980 for the purpose
of collecting appraisal fees and commissions on the sale of mortgage life and
credit life insurance. At March 31, 1997, the Association's investment in the
Service Corporation was $8,000.
Personnel
As of March 31, 1997, the Association had 11 full-time and four part-
time employees. The employees are not represented by a collective bargaining
unit and the Association believes its relationship with its employees to be
good.
Item 2. Properties
- -------------------
Joachim Federal operates out of one office, which it owns. This office
was opened in 1973. The net book value of the Association's investment in
office, properties and equipment totalled $358,000 at March 31, 1997. See
Note 6 of the Notes to the Consolidated Financial Statements in the Annual
Report.
Item 3. Legal Proceedings
- --------------------------
Periodically, there have been various claims and lawsuits involving the
Association, mainly as a defendant, such as claims to enforce liens,
condemnation proceedings on properties in which the Association holds security
interests, claims involving the making and servicing of real property loans
and other issues incident to the Association's business. The Association is
not a party to any pending legal proceedings that it believes would have a
material adverse effect on the financial condition or operations of the
Association.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The information contained under the section captioned "Common Stock
Information" on page 2 of the Annual Report is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
---------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 4 of the Annual Report is incorporated herein by reference.
Item 7. Financial Statements and Supplementary Data
- -----------------------------------------------------
(a) Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Earnings for the Years Ended
March 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 1997, 1996 and 1995
29
<PAGE>
<PAGE>
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1997, 1996 and 1995
Notes to the Consolidated Financial Statements*
* Included in the Annual Report attached as Exhibit 13 hereto and
incorporated herein by reference. All schedules have been omitted
as the required information is either inapplicable or included in
the Consolidated Financial Statements or related Notes contained in
the Annual Report.
(b) Supplementary Data
Not applicable.
Item 8. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
PART III
Item 9. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
Executive Officers. The following table sets forth certain information
regarding the executive officers of the Company.
Name Age(1) Position
- ---- ------ --------
Bernard R. Westhoff 55 President and Chief Executive Officer
Lee Ellen Hogan 47 Senior Vice President, Treasurer and
Secretary
Melvin L. Yarbrough 49 Vice President
______________
(1) At March 31, 1997.
Bernard R. Westhoff has served as President of the Association since
1988. Prior to joining the Association, Mr. Westhoff was affiliated with
Boatmens Bank of DeSoto for 14 years. He currently serves on the Loan,
Investment and Asset and Liability Committees.
Lee Ellen Hogan is Senior Vice President, Treasurer and Secretary of
the Association. She has been associated with the Association since 1968 and
has been involved in all areas of operations and lending. Mrs. Hogan is
currently a member of the Loan, Investment and Asset and Liability Committees.
Melvin L. Yarbrough is currently the Senior Loan Officer responsible
for mortgage lending. Mr. Yarbrough joined the Association in 1991.
The information contained under the section captioned "Proposal I -
Election of Directors" contained in the Company's Proxy Statement, is
incorporated herein by reference. Reference is made to the cover page of this
report for information regarding compliance with Section 16(a) of the Exchange
Act.
30
<PAGE>
<PAGE>
Item 10. Executive Compensation
- ----------------------------------
The information contained under the sections captioned "Executive
Compensation," "Directors' Compensation" and "Benefits" under "Proposal I -
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Security Ownership of
Certain Beneficial Owners and Management" of the Proxy Statement
(b) Security Ownership of Management
The information required by this item is incorporated herein by
reference to the sections captioned "Proposal I - Election of
Directors" and "Security Ownership of Certain Beneficial Owners
and Management" of the Proxy Statement.
(c) Changes in Control
The Association is not aware of any arrangements, including any
pledge by any person of securities of the Association, the
operation of which may at a subsequent date result in a change
in control of the Association.
Item 12. Certain Relationships and Related Transactions
- ----------------------------------------------------------
The information set forth under the section captioned "Proposal I -
Election of Directors - Certain Transactions with the Association" in the
Proxy Statement is incorporated herein by reference.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ----------------------------------------------------------------------------
(a) Exhibits
3(a) Articles of Incorporation of the Registrant*
3(b) Bylaws of the Registrant*
10(a) Employment Agreement with Bernard R. Westhoff**
10(b) Employment Agreement with Lee Ellen Hogan**
10(c) Severance Agreement with Melvin L. Yarbrough**
10(d) 1996 Stock Option Plan***
10(e) 1996 Management Recognition and Development Plan***
(13) Annual Report to Stockholders
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
___________________
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1, (File No. 33-96790).
** Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended March 31, 1996.
*** Incorporated by reference to the Registrant's Proxy Statement for the
1996 Annual Meeting.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended March
31, 1997.
31
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JOACHIM BANCORP, INC.
Date: June 19, 1997 By: /s/ Bernard R. Westhoff
---------------------------
Bernard R. Westhoff
President and Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Bernard R. Westoff
- ------------------------- President, Chief June 19, 1997
Bernard R. Westhoff Executive Officer and
Director (Principal
Executive Officer)
/s/ Lee Ellen Hogan
- ------------------------- Senior Vice President, June 19, 1997
Lee Ellen Hogan Treasurer, Secretary and
Director (Principal Financial
and Accounting Officer)
- ------------------------- Chairman of the Board June __, 1997
Andrew H. England of Directors
/s/ Melvin L. Yarbrough
- ------------------------- Vice President June 19, 1997
Melvin L. Yarbrough
/s/ Douglas G. Draper
- ------------------------- Director June 19, 1997
Douglas G. Draper
- ------------------------- Director June __, 1997
Margaret F. Smith
/s/ James H. Wilkins
- ------------------------- Director June 19, 1997
James H. Wilkins
/s/ Stokely R. Wischmeier
- ------------------------- Director June 19, 1997
Stokely R. Wischmeier
<PAGE>
<PAGE>
EXHIBIT 13
1997 Annual Report to Stockholders
<PAGE>
<PAGE>
To our stockholders:
It is a pleasure to present the second annual report to stockholders of
Joachim Bancorp, Inc. The Company earned $182,738 for the year ended March
31, 1997 compared to $208,536 for the year ended March 31, 1996. Net earnings
declined as a result of legislation enacted to recapitalize the Savings
Association Insurance Fund (SAIF). The Association's share of the
industry-wide assessment was approximately $167,000. While the one-time
assessment reduced earnings for the year ended March 31, 1997, recurring SAIF
premiums will be reduced in the future. The nonrecurring SAIF special
assessment, higher other expenses and income taxes more than offset higher net
interest income and noninterest income.
The Association's capital ratios substantially exceed levels required
under the capital adequacy guidelines and regulatory framework for prompt
corrective action. The Association's Tier 1 capital, Tier 1 risk-based
capital, and total capital ratios were 22.7%, 46.2% and 46.7%, respectively,
at March 31, 1997.
On behalf of the Board of Directors, officers and staff of Joachim
Bancorp, Inc., we want to express our appreciation to our stockholders and
customers for their continued loyalty.
Sincerely,
/s/ Bernard R. Westhoff
Bernard R. Westhoff
President
<PAGE>
<PAGE>
Business of the Company and the Association
On December 27, 1995, Joachim Federal Savings and Loan Association
(Association) converted from mutual to stock form and became a wholly-owned
subsidiary of a newly formed Missouri holding company, Joachim Bancorp, Inc.
(Company). The Company sold 760,437 shares of common stock at $10 per share
in conjunction with the subscription offering to the Association's Employee
Stock Ownership Plan (ESOP), eligible account holders and other members. The
Company retained 50% of the net conversion proceeds less the funds used to
make the ESOP loan to the Association for purchase of shares of common stock
for the Association's ESOP and used the balance of the net proceeds to
purchase all of the stock of the Association issued in the conversion.
The Company has no significant assets other than the common stock of the
Association, the loan to the ESOP and net proceeds retained by the Company
following the conversion. The Company's principal business is the business of
the Association.
The Association operates as a federally-chartered stock savings and loan
association, originally chartered by the State of Missouri in 1962. The
Association's deposit accounts are insured up to a maximum of $100,000 by the
Savings Association Insurance Fund (SAIF), which is administered by the
Federal Deposit Insurance Corporation (FDIC).
The Association's primary business, as conducted through its office located in
DeSoto, Missouri, is the origination of mortgage loans secured by one- to
four-family residences located primarily in Jefferson County, Missouri.
Lending activities are funded through attraction of deposit accounts,
consisting of certificate accounts, money-market deposit accounts, savings
accounts and NOW accounts. To a lesser extent, the Association originates
mortgage loans on commercial and agricultural real estate as well as consumer
loans.
Common Stock
The Company's common stock is traded on the Nasdaq Small Cap Market under the
symbol "JOAC". The following table sets forth the market price and dividend
information on the Company's common stock:
Quarter Ended High Low Dividend
------------- ---- --- --------
December 31, 1995 $14.000 $10.000 $.000
March 31, 1996 $13.750 $11.500 $.125
June 30, 1996 $12.750 $11.750 $.125
September 30, 1996 $13.500 $12.250 $.125
December 31, 1996 $15.250 $13.500 $.125
March 31, 1997 $14.625 $14.000 $.125
Dividend declaration and payment decisions are made after considering a
variety of factors, including earnings, financial condition, market
considerations and regulatory restrictions. Restrictions on dividend payments
are described in note 11 of the Notes to Consolidated Financial Statements.
As of March 31, 1997, the Company had approximately 300 stockholders of record
(which includes nominees for beneficial owners holding shares in "street
name").
2
<PAGE>
<PAGE>
Selected Financial Highlights
Financial Condition Data:
At March 31,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
Total assets $ 35,656 36,779 30,011 30,955 31,024
Cash and cash equivalents 2,092 5,385 2,979 2,227 2,364
Securities, certificates of
deposit and FHLB stock 8,135 6,888 3,778 5,289 5,067
Loans receivable, net 23,772 22,932 22,106 22,374 22,459
Mortgage-backed and related
securities 840 874 137 183 195
Deposits 24,825 25,644 25,475 26,582 26,918
Stockholders' equity (1) 10,334 10,751 4,083 3,847 3,553
Operating Data:
For the Year Ended March 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
Interest income $ 2,537 2,349 2,058 2,139 2,356
Interest expense (1,071) (1,158) (903) (957) (1,201)
------- ----- ----- ----- -----
Net interest income 1,466 1,191 1,155 1,182 1,155
Provision for loan losses (12) (11) (21) (17) (42)
Net interest income after ------- ----- ----- ----- -----
provision for loan
losses 1,454 1,180 1,134 1,165 1,113
Noninterest income 67 57 71 82 77
Noninterest expense (1,219) (929) (852) (785) (762)
Earnings before income ------- ----- ----- ----- -----
taxes 302 308 353 462 428
Income taxes (119) (99) (117) (168) (155)
------- ----- ----- ----- -----
Net earnings $ 183 209 236 294 273
======= ===== ===== ===== =====
Earnings per share $ .25 .28 - - -
======= ===== ===== ===== =====
Dividends per share $ .50 .125 - - -
======= ===== ===== ===== =====
(1) Stockholders' equity at March 31, 1997 and 1996 includes $6.5 million from
the net proceeds of the sale of common stock in connection with the
conversion from mutual to stock form and the formation of a holding
company.
3
<PAGE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The business of the Association is that of a financial intermediary consisting
primarily of attracting deposits from the general public and using such
deposits to originate mortgage loans secured by one to four family residences
and, to a lesser extent, commercial and agricultural real estate loans, and
consumer loans. The Association's revenues are derived principally from
interest earned on loans and, to a lesser extent, from interest earned on
investments. The operations of the Association are influenced significantly
by general economic conditions and by policies of financial institution
regulatory agencies, including the Office of Thrift Supervision (OTS) and the
Federal Deposit Insurance Corporation (FDIC). The Association's cost of funds
is influenced by interest rates on competing investments and general market
interest rates. Lending activities are affected by the demand for financing
of real estate and other types of loans, which in turn is affected by the
interest rates at which such financing may be offered.
The Association's net interest income is dependent primarily upon the
difference or spread between the average yield earned on loans and investments
and the average rate paid on deposits, as well as the relative amounts of such
assets and liabilities. The Association is subject to interest rate risk, as
are other financial institutions, to the degree that its interest-bearing
liabilities mature or reprice at different times, or on a different basis,
than its interest-earning assets.
Asset/Liability Management
The Association's principal financial objective is to achieve long-term
profitability while reducing its exposure to fluctuating interest rates. The
Association has sought to reduce exposure of its earnings to changes in market
interest rates by managing the mismatch between asset and liability maturities
and interest rates. The principal element in achieving this objective is to
increase the interest-rate sensitivity of the Association's assets by
originating loans with interest rates subject to periodic adjustment to market
conditions. Accordingly, when possible, the Association has emphasized the
origination of adjustable-rate mortgage (ARM) loans for retention in its
portfolio. In addition, the Association maintains an investment portfolio
with laddered maturities in shorter-term securities. The Association relies
on retail deposits as its primary source of funds. Management believes retail
deposits, compared to brokered deposits, reduce the effects of interest rate
fluctuations because they generally represent a more stable source of funds.
As part of its interest rate risk management strategy, the Association
promotes transaction accounts and one- to three-year certificates of deposit.
The OTS provides a net market value methodology to measure the interest rate
risk exposure of thrift institutions. This exposure is a measure of the
potential decline in the net portfolio value (NPV) of the institution based
upon the effect of an assumed 200 basis point increase or decrease in interest
rates. NPV is the present value of the expected net cash flows from the
institution's assets, liabilities and off-balance sheet contracts. Under OTS
regulations, an institution's normal level of interest rate risk in the event
of this assumed change in interest rates is a decrease in the institution's
NPV in an amount not exceeding 2% of the present value of its assets. This
procedure for measuring interest rate risk was developed by the OTS to replace
the gap analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time
period).
4
<PAGE>
<PAGE>
The following table, sets forth as of March 31, 1997, the estimated changes in
market value of equity based on the indicated interest rate environments:
Change
(In Basis Points) Estimated Change In
in Interest Rates Net Portfolio Value
-------------------
(Dollars in Thousands)
+400 $ (1,236) (14) %
+300 (834) (9)
+200 (468) (5)
+100 (176) (2)
0 - -
-100 43 -
-200 (21) -
-300 30 -
-400 139 2
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities
or periods to repricing, they may react in different degrees to changes in
market interest rates. Also, the interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short term basis and over the life of the
asset. Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
Liquidity and Capital Resources
The Association's principal sources of funds are cash receipts from deposits,
loan repayments by borrowers, proceeds from maturing securities, and net
earnings. The Association has an agreement with the FHLB of Des Moines to
provide cash advances, should the Association need additional funds. For
regulatory purposes, liquidity is measured as a ratio of cash and certain
investments to withdrawable deposits. The minimum level of liquidity required
by regulation is presently 5%. The Association's liquidity ratio at March 31,
1997 was approximately 26%. The Association maintains a higher level of
liquidity than required by regulation as a matter of management philosophy in
order to more closely match interest-sensitive assets with interest-sensitive
liabilities.
The Association has $11.2 million in certificates due within one year and $9.6
million in other deposits without specific maturity at March 31, 1997.
Management estimates that most of the deposits will be retained or replaced by
new deposits.
Cash and cash equivalents and principal collections on loans were used to
purchase certificates of deposit, fund loan originations and purchases and
deposit outflows. Components of interest-bearing assets vary from time to
time due to the availability and interest rates of short-term interest-bearing
investments, securities, mortgage-backed securities and loans. Foreclosed
real estate held for sale consists of one single-family property. Accrued
interest receivable on securities and certificates of deposit increased due to
the timing of interest receipts. Other assets decreased due to the timing of
Federal income tax payments and timing of payment of certain prepaid items.
Other liabilities increased due primarily to the timing of payment of certain
payables.
5
<PAGE>
<PAGE>
During January, 1997, the Company repurchased $435,000 in treasury stock for
the management recognition and development plan (MRDP). During May, 1997, the
Company repurchased an additional 38,022 shares of treasury stock at a price
of $14.3125 per share. While the purchase of treasury stock may be beneficial
to the Company or shareholders, the purchase of treasury stock reduces
interest-earning assets of the Company. Capital of the Association may also
be reduced to the extent treasury stock purchases are funded by dividends from
the Association to the Company.
Commitments to originate loans are legally binding agreements to lend to the
Association's customers. Commitments to originate adjustable-rate mortgage
loans at March 31, 1997, which generally expire in 90 days or less, were
$193,000.
Average Balances, Interest and Average Yields and Rates
The following table presents for the years indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made. All average balances are monthly average balances.
Nonaccruing loans have been included in the table as loans carrying a zero
yield.
Year Ended March 31,
--------------------------------------------------------------------
1997 1996 1995
------------------------ ---------------------- --------------------
Average Average Average
Average Inter- Yield/ Average Inter- Yield/ Average Inter- Yield/
Balance est Cost Balance est Cost Balance est Cost
------- --- ---- ------- --- ---- ------- --- ----
(Dollars in thousands)
Interest-
earning
assets:
Loans
receiv-
able $ 23,593 1,905 8.08% 22,144 1,822 8.23% 22,364 1,743 7.79%
Mortgage-
backed
and
related
securi-
ties 858 55 6.46% 193 13 7.01% 158 11 7.32%
Securities
and FHLB
stock 5,258 288 5.47% 3,118 168 5.38% 3,861 207 5.35%
Other
interest-
earning
assets 5,269 289 5.48% 5,877 346 5.89% 2,065 97 4.69%
Total -------- ----- ---- ------- ----- ---- ------- ----- ----
interest-
earning
assets 34,978 2,537 7.25% 31,332 2,349 7.50% 28,448 2,058 7.23%
------- ----- ---- ------- ----- ---- ------- ----- ----
Interest-
bearing
liabilities:
NOW and
money market
accounts 2,721 78 2.87% 2,270 66 2.88% 2,625 69 2.61%
Savings
accounts 6,318 174 2.75% 6,683 198 2.96% 8,209 226 2.76%
Certifi-
cates 15,762 819 5.20% 16,740 894 5.34% 14,658 608 4.15%
Total -------- ----- ---- ------- ----- ---- ------- ----- ----
interest-
bearing
liabili-
ties $ 24,801 1,071 4.32% 25,693 1,158 4.51% 25,492 903 3.54%
-------- ----- ---- ------- ----- ---- ------- ----- ----
Net
interest
income
before
provision
for loan
losses $ 1,466 1,191 1,155
======== ====== ======
Interest
rate spread 2.93% 2.99% 3.69%
==== ==== ====
Net earning
assets $10,177 5,639 2,956
======= ====== ======
Net yield
on average
interest-
earning
assets 4.19% 3.80% 4.06%
==== ==== ====
Ratio of
average
interest-
earning
assets to
average
interest-
bearing
liabili-
ties 141.03% 121.94% 111.60%
====== ====== ======
6
<PAGE>
<PAGE>
Rate/Volume Analysis
The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the years indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes in volume (changes in volume multiplied by
prior year's rate), rates (changes in rate multiplied by prior year's volume)
and rate/volume (changes in rate multiplied by the changes in volume).
Year Ended March 31,
--------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
-------------------------- --------------------------
Increase (Decrease) Due To Increase (Decrease) Due To
-------------------------- --------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------ ---- ------ ----- ------ ---- ------ -----
(Dollars in Thousands)
Interest
income:
Loans
receivable $ 119 (33) (3) 83 (18) 98 (1) 79
Mortgage-
backed and
related
securities 47 (1) (4) 42 3 (1) - 2
Securities and
FHLB stock 115 3 2 120 (40) 1 - (39)
Other interest-
earning
assets (36) (24) 3 (57) 179 25 45 249
Total ----- ---- ---- ---- ---- ---- ---- ----
interest-
earning
assets 245 (55) (2) 188 124 123 44 291
----- ---- ---- ---- ---- ---- ---- ----
Interest expense:
Deposits (40) (49) 2 (87) 7 247 1 255
Total ----- ---- ---- ---- ---- ---- ---- ----
interest-
bearing
liabilities (40) (49) 2 (87) 7 247 1 255
----- ---- ---- ---- ---- ---- ---- ----
Net interest
income $ 285 (6) (4) 275 117 (124) 43 36
====== ==== ==== ==== ==== ==== ==== ====
Results of Operations
Comparison of the Year Ended March 31, 1997 to the Year Ended March 31, 1996
- ----------------------------------------------------------------------------
Net Earnings
Net earnings decreased by $26,000 from $209,000 for the year ended March 31,
1996 (1996) to $183,000 for the year ended March 31, 1997 (1997). The
decrease in 1997 was due to a nonrecurring assessment to recapitalize the SAIF
of $167,000, higher other noninterest expenses and income taxes, which more
than offset higher net interest income and noninterest income.
Net Interest Income
Net interest income increased by $275,000 from $1,191,000 for 1996 to
$1,466,000 for 1997. Net interest income increased as a result of a higher
ratio of average interest-earning assets to average interest-bearing
liabilities. The ratio of average interest-earning assets to average
interest-bearing liabilities increased from 121.94% for 1996 to 141.03% for
1997 since 1997 reflects a full year effect of the sale of common stock,
compared with three months in 1996. Although the interest rate spread
decreased slightly, the net yield on average interest-earning assets increased
by 39 basis points. The interest rate spread decreased from 2.99% for 1996 to
2.93% for 1997. The net yield on average interest-earning assets increased
from 3.80% for 1996 to 4.19% for 1997. Interest on loans receivable increased
as a result of a higher average balance, which more than offset a lower
weighted-average yield. During 1997 and 1996, the Association purchased $1.3
million and $1.4 million, respectively, of participating interests. The
weighted-average yield declined from 8.23% for 1996 to 8.08% for 1997.
Interest on mortgage-backed securities and interest on securities increased
due to higher average balances. During 1996, the Association and Company
purchased $2.2 million of Federal agency
7
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<PAGE>
obligations, $800,000 of corporate debt and $756,000 of FHLMC and FNMA
collateralized mortgage obligations. These investments were purchased
primarily in the last quarter of 1996 from the proceeds from sale of common
stock. Interest on other interest-earning assets decreased as a result of a
lower average balance and weighted-average yield. Interest on deposits
decreased due to a lower weighted-average rate and average balance. The
weighted-average rate on deposits decreased from 4.51% for 1996 to 4.32% for
1997. The average balance of deposits decreased from $25.7 million for 1996
to $24.8 million for 1997.
Provision for Loan Losses
Provision for loan losses was $11,000 for 1996 and $12,000 for 1997. The
Association experienced net loan recoveries of $200 for 1996 compared to net
loan charge-offs of $10,000 for 1997. Nonaccrual loans (loans more than 90
days delinquent) consisted of four single-family loans which totalled $117,000
with an estimated collateral value of $184,000 at March 31, 1997. There were
no nonaccrual loans at March 31, 1996. Management believes that the increase
in nonaccrual loans is due to economic circumstances of the individual
borrowers and is not related to an adverse economic trend. Provisions for
loan losses are based upon management's consideration of existing and
anticipated economic conditions which may affect the ability of borrowers to
repay the loans. Management also reviews individual loans for which full
collectibility may not be reasonably assured and considers, among other
matters, the risks inherent in the Association's portfolio and the estimated
fair value of the underlying collateral. This evaluation is ongoing and
results in the Association's provision for loan losses.
Noninterest Income
Noninterest income increased from $57,000 for 1996 to $67,000 for 1997. Loan
service charges for 1997 include prepayment penalty income of $4,500 on a
participation loan. The Association incurred net rental expense of $9,000 for
1996 related to foreclosed real estate which was sold in November, 1995.
During 1997, the Association recognized income of $13,000 as a result of the
sale of assets by its data processing service bureau. Other income for 1996
included a one-time patronage dividend of $14,500.
Noninterest Expense
Noninterest expense increased from $929,000 for 1996 to $1,219,000 for 1997 as
a result of the special assessment to recapitalize the SAIF, higher
compensation and benefits expenses, professional fees, and other noninterest
expenses, offset by lower regular SAIF deposit insurance premiums. The
Association's share of the one-time SAIF special assessment was $167,000.
Subsequent to September 30, 1996, the Association's regular SAIF deposit
premium was based on a lower assessment rate. Recurring SAIF premiums are
expected to be assessable based on an annual revised rate of 6.48 basis points
of deposits. Compensation and benefits increased due to the implementation of
the Association's employee stock ownership plan (ESOP) and management
recognition and development plan (MRDP). ESOP expense was $88,000 and
$120,000 for 1996 and 1997, respectively. Under generally accepted accounting
principles, expense of the ESOP is affected by changes in the market price of
the Company's common stock. During July, 1996, the stockholders of the
Company ratified the MRDP. MRDP expense was $69,000 for 1997 and includes
$19,000 related to the accelerated vesting of shares upon the death of a
director. Professional fees and other noninterest expense increased due to
costs associated with operating as a public company, including NASDAQ fees,
annual report printing and transfer agent fees.
Income Taxes
Income taxes increased as a result of a higher effective tax rate due to
recapture of a portion of the Association's tax bad debt reserves and the tax
effect of the ESOP. See note 9 of Notes to Consolidated Financial Statements
for additional information.
8
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<PAGE>
Comparison of the Year Ended March 31, 1996 to the Year Ended March 31, 1995
- ----------------------------------------------------------------------------
Net Earnings
Net earnings decreased by $27,000 from $236,000 for the year ended March 31,
1995 to $209,000 for the year ended March 31, 1996. The decrease in net
earnings was due to expenses associated with the employee stock ownership plan
(ESOP) and lower noninterest income, which was offset by higher net interest
income and lower income taxes. Proceeds from the sale of common stock
completed in December, 1995 of $6.5 million were invested for three months.
However, ESOP expense was the equivalent of a full year of expense since it
was retroactive to April 1, 1995.
Net Interest Income
Net interest income increased by $36,000 from $1,155,000 for 1995 to
$1,191,000 for 1996. The increase in net interest income was due to a higher
ratio of average interest-earning assets to average interest-bearing
liabilities which more than offset the effect of a declining interest rate
spread. The ratio of average interest-earning assets to average
interest-bearing liabilities increased from 111.60% for 1995 to 121.94% for
1996 due, in part, to proceeds from the sale of common stock. The interest
rate spread decreased from 3.69% for 1995 to 2.99% for 1996 due primarily to a
higher weighted-average rate paid on deposits. Interest on loans receivable
increased due to a higher weighted-average yield, which more than offset a
lower average balance. The weighted-average yield increased from 7.79% for
1995 to 8.23% for 1996 as a result of loan originations, refinances and
repricing of ARM loans at market interest rates higher than the average yield
on the existing loan portfolio. Interest on securities decreased as a result
of a lower average balance. The average balance on securities decreased from
$3.9 million for 1995 to $3.1 million for 1996. Interest on other
interest-earning assets increased due to a higher average balance and
weighted-average yield. The average balance on other interest-earning assets
increased from $2.1 million for 1995 to $5.9 million for 1996 due, in part, to
investment of proceeds from sale of common stock. Other interest-earning
assets consist primarily of FHLB daily time accounts and time deposits. The
weighted-average yield on other interest-earning assets increased from 4.69%
for 1995 to 5.89% for 1996. Interest on deposits increased as a result of a
higher weighted-average rate. The weighted-average rate on deposits increased
from 3.54% for 1995 to 4.51% to 1996 due to rising market interest rates.
Provision for Loan Losses
Provision for loan losses decreased from $21,000 for 1995 to $11,000 for 1996.
Net loan charge-offs were $10,000 for 1995 compared to net loan recoveries of
$200 for 1996. The provision for loan losses was based upon management's
consideration of existing and anticipated economic conditions which may affect
the ability of borrowers to repay the loans. Management also reviews
individual loans for which full collectibility may not be reasonably assured
and considers, among other matters, the risks inherent in the Association's
portfolio and the estimated fair value of the underlying collateral. This
evaluation is ongoing and results in variations in the Association's provision
for loan losses.
Noninterest Income
Noninterest income decreased from $71,000 for 1995 to $57,000 for 1996 due
primarily to lower rental income on foreclosed real estate offset, in part, by
a patronage dividend received from the Association's data processor. The
Association had a 23.33% interest in an office building in the St. Louis area
which was foreclosed upon in 1992. The lease with the building's only tenant
expired on December 31, 1994. The building was sold in November, 1995.
Noninterest Expense
Noninterest expense increased from $852,000 for 1995 to $929,000 for 1996 due
primarily to the implementation of the Association's employee stock ownership
plan. ESOP expense was $88,000 for 1996 compared to none for 1995. Under
generally accepted accounting principles, expense of the ESOP is affected by
changes in the market price of the Company's common stock and ESOP shares
committed to be released.
9
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<PAGE>
Income Taxes
Income taxes decreased from $117,000 for 1995 to $99,000 for 1996 as a result
of lower earnings.
Impact of Inflation
The financial statements and related data presented herein have been prepared
in accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. The primary impact of inflation on the operations
of the Association is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates,
generally, have a more significant impact on a financial institution's
performance than does inflation. Interest rates do not necessarily move in
the same direction or to the same extent as the prices of goods and services.
In the current interest rate environment, liquidity and the maturity structure
of the Association's assets and liabilities are critical to the maintenance of
acceptable performance levels.
10
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<PAGE>
MICHAEL TROKEY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10411 CLAYTON ROAD
ST. LOUIS, MISSOURI 63131
(314) 432-0996
Report of Independent Auditors
The Board of Directors
Joachim Bancorp, Inc.
DeSoto, Missouri
We have audited the accompanying consolidated balance sheets of Joachim
Bancorp, Inc. and subsidiary (Company) as of March 31, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Joachim
Bancorp, Inc. and subsidiary as of March 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended March 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Michael Trokey & Company, P.C.
St. Louis, Missouri
April 18, 1997
11
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<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1997 and 1996
Assets 1997 1996
---- ----
Cash and cash equivalents $ 2,091,535 5,384,802
Certificates of deposit 3,052,899 1,300,242
Securities held to maturity, at amortized
cost (market value of $4,746,611 and
$5,266,825, respectively) 4,793,178 5,298,854
Stock in Federal Home Loan Bank of Des
Moines 288,500 288,500
Mortgage-backed and related securities
held to maturity, at amortized cost
(market value of $820,499 and $861,705,
respectively) 840,127 873,599
Loans receivable, net 23,771,636 22,932,379
Premises and equipment, net 358,133 365,101
Foreclosed real estate held for sale, net 126,104 -
Accrued interest receivable:
Securities and certificates of deposit 170,483 120,420
Mortgage-backed and related securities 4,651 4,850
Loans receivable 132,476 126,240
Other assets, including prepaid income taxes
of $34,580 in 1996 26,624 84,364
------------- ----------
Total assets $ 35,656,346 36,779,351
============= ==========
Liabilities and Stockholders' Equity
Deposits $ 24,825,297 25,644,434
Accrued interest on deposits 25,137 26,644
Advances from borrowers for taxes and
insurance 122,711 128,166
Other liabilities 143,890 80,762
Accrued income taxes 46,842 -
Deferred tax liability 158,000 148,000
------------- ----------
Total liabilities 25,321,877 26,028,006
------------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized; none
issued and outstanding - -
Common stock, $.01 par value; 5,000,000
shares authorized; 760,437 shares
issued and outstanding 7,604 7,604
Additional paid-in capital 7,047,500 7,077,876
Common stock acquired by ESOP (448,440) (538,130)
Common stock acquired by MRDP (305,615) -
Retained earnings - substantially
restricted 4,033,420 4,203,995
------------- ----------
Total stockholders' equity 10,334,469 10,751,345
Total liabilities and stockholders' ------------- ----------
equity $ 35,656,346 36,779,351
============= ==========
See accompanying notes to consolidated financial statements.
12
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
Years Ended March 31, 1997, 1996, and 1995
1997 1996 1995
---- ---- ----
Interest income:
Loans receivable $ 1,905,148 1,821,537 1,743,197
Mortgage-backed and related
securities 55,464 13,504 11,535
Securities 287,495 167,616 206,646
Other interest-earning assets 288,810 346,100 96,802
----------- --------- ---------
Total interest income 2,536,917 2,348,757 2,058,180
Interest expense: ----------- --------- ---------
Deposits:
NOW accounts 33,322 30,287 30,510
Money market deposit accounts 44,880 35,092 37,880
Savings accounts 173,624 198,097 226,268
Certificates 819,361 894,074 608,112
----------- --------- ---------
Total interest expense 1,071,187 1,157,550 902,770
----------- --------- ---------
Net interest income 1,465,730 1,191,207 1,155,410
Provision for loan losses 12,300 11,587 21,147
Net interest income after ----------- --------- ---------
provision for loan losses 1,453,430 1,179,620 1,134,263
Noninterest income: ----------- --------- ---------
Loan service charges 24,824 21,151 22,508
NOW service charges 22,365 23,611 26,801
Rental income (expense) from
foreclosed real estate (207) (8,936) 15,337
Gain on investment in data center 12,668 - -
Other 7,724 20,988 6,560
----------- --------- ---------
Total noninterest income 67,374 56,814 71,206
Noninterest expense: ----------- --------- ---------
Compensation and benefits 712,631 627,156 545,909
Occupancy expense 21,686 24,465 21,799
Equipment and data processing expense 75,571 78,735 80,549
Loss (gain) on foreclosed real estate,
net - (2,204) 45
SAIF deposit insurance premium 44,510 58,927 59,963
SAIF special assessment 167,146 - -
Professional fees 76,294 42,831 44,903
Other 121,228 98,988 99,536
----------- --------- ---------
Total noninterest expense 1,219,066 928,898 852,704
----------- --------- ---------
Earnings before income taxes 301,738 307,536 352,765
Income taxes: ----------- --------- ---------
Current 109,000 77,000 111,000
Deferred 10,000 22,000 6,000
----------- --------- ---------
Total income taxes 119,000 99,000 117,000
----------- --------- ---------
Net earnings $ 182,738 208,536 235,765
=========== ========= =========
Net earnings per common share $ .25 .28 -
=========== ========= =========
See accompanying notes to consolidated financial statements.
13
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<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1997, 1996 and 1995
Addi- Common Common Total
tional Stock Stock Stock-
Common Paid-in Acquired Acquired Retained Treasury holders'
Stock Capital By ESOP By MRDP Earnings Stock Equity
----- ------- ------- ------- -------- ----- ------
Balance at
March 31,
1994 $ - - - - 3,847,145 - 3,847,145
Net
earnings - - - - 235,765 - 235,765
Balance at
March 31,
1995 - - - - 4,082,910 - 4,082,910
Proceeds
from sale
of common
stock 7,604 7,066,321 (608,350) - - - 6,465,575
Amortization
of ESOP
awards - 11,555 70,220 - - - 81,775
Cash
dividends
of $.125
per share - - - - (87,451) - (87,451)
Net earnings - - - - 208,536 - 208,536
------ --------- -------- -------- --------- ---- ----------
Balance at
March 31,
1996 7,604 7,077,876 (538,130) - 4,203,995 - 10,751,345
Purchase of
treasury
stock - - - - - (435,343) (435,343)
Issuance of
common
stock for
MRDP - (60,834) - (374,509) - 435,343 -
Amortization of
ESOP awards - 30,458 89,690 - - - 120,148
Amortization of
MRDP awards - - - 68,894 - - 68,894
Cash dividends
of $.50
per share - - - - (353,313) - (353,313)
Net earnings - - - - 182,738 - 182,738
------ --------- -------- -------- --------- ---- ----------
Balance at
March 31,
1997 $7,604 7,047,500 (448,440) (305,615) 4,033,420 - 10,334,469
====== ========= ========= ========= ========= ==== ==========
See accompanying notes to consolidated financial statements.
14
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<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended March 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net earnings $ 182,738 208,536 235,765
Adjustments to reconcile net
earnings to net cash provided by
(used for) operating activities:
Depreciation 26,530 30,455 30,661
ESOP expense 120,148 87,775 -
MRDP expense 68,894 - -
Amortization of premiums, net on
securities and mortgage-backed
and related securities 7,244 9,969 11,206
Provision for loan losses 12,300 11,587 21,147
Loss (gain) on foreclosed real
estate, net - (2,204) 45
FHLB stock dividends - (5,700) -
Decrease (increase) in:
Accrued interest receivable (56,100) (80,862) (1,683)
Other assets 57,740 8,970 (40,338)
Increase (decrease) in:
Accrued interest on deposits (1,507) 6,477 3,333
Other liabilities 63,128 (22,243) (10,807)
Accrued income taxes 46,842 - (55,152)
Deferred tax liability 10,000 22,000 6,000
Other, net (2,657) (242) -
----------- ---------- ---------
Net cash provided by (used for)
operating activities 535,300 274,518 200,177
----------- ---------- ---------
Cash flows from investing activities:
Loans receivable:
Originated (3,862,116) (4,528,241) (4,080,439)
Purchased (1,337,687) (1,411,120) (334,620)
Principal collections 4,251,046 5,223,306 4,553,965
Purchase of mortgage-related
securities held to maturity - (756,250) -
Principal collections on mortgage-
backed securities held to maturity
or for investment 31,904 19,035 46,645
Securities held to maturity or
for investment:
Purchased (500,000) (3,808,135) -
Proceeds from maturity 1,000,000 995,000 2,000,000
Certificates of deposit:
Purchased (3,000,000) (2,050,000) (1,000,000)
Proceeds from maturity 1,250,000 1,750,000 500,000
Proceeds from sale of (additions to)
foreclosed real estate, net (28,904) 238,668 2,140
Purchases of premises and equipment (19,562) (6,808) (12,460)
----------- ---------- ---------
Net cash provided by (used for)
investing activities $ (2,215,319) (4,334,545) 1,675,231
============ ========== =========
(Continued)
15
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended March 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
---- ---- ----
Cash flows from financing activities:
Net increase (decrease) in:
Deposits $ (819,137) 169,319 (1,107,316)
Advances from borrowers for taxes
and insurance (5,455) (81,475) (16,329)
Proceeds from sale of common stock - 6,465,575 -
Cash dividends (353,313) (87,451) -
Purchase of treasury stock (435,343) - -
----------- ---------- ---------
Net cash provided by (used
for) financing activities (1,613,248) 6,465,968 (1,123,645)
Net increase (decrease) in cash and ----------- ---------- ---------
cash equivalents (3,293,267) 2,405,941 751,763
Cash and cash equivalents at
beginning of year 5,384,802 2,978,861 2,227,098
Cash and cash equivalents at ----------- ---------- ---------
end of year $ 2,091,535 5,384,802 2,978,861
============ ========== =========
Supplemental disclosures of
cash flow information:
Cash paid (received) during
the year for:
Interest on deposits $ 1,072,694 1,151,073 899,437
Federal income taxes 14,944 31,307 200,440
State income taxes 16,287 8,928 19,404
Real estate acquired in settlement
of loans $ 97,200 - 114,187
See accompanying notes to consolidated financial statements.
16
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1997 and 1996 and
Years Ended March 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
On December 27, 1995, Joachim Federal Savings and Loan Association
(Association) converted from mutual to stock form and became a
wholly-owned subsidiary of a newly formed Missouri holding company,
Joachim Bancorp, Inc. (Company). The following comprise the significant
accounting policies which the Company and Association follow in preparing
and presenting their consolidated financial statements:
a. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Joachim Federal Savings
and Loan Association. The consolidated financial statements also
include the operations of JSLA Service Corp., a subsidiary of the
Association. JSLA Service Corp. was established for the purpose of
collecting appraisal fees and commissions on sale of mortgage life
and credit life insurance. The Company has no significant assets
other than common stock of the Association, and the loan to the
ESOP, and net proceeds retained by the Company following the
conversion. The Company's principal business is the business of
the Association. All significant intercompany accounts and
transactions have been eliminated.
b. For purposes of reporting cash flows, cash and cash equivalents
include cash and due from depository institutions and
interest-bearing deposits in other depository institutions with
original maturities of three months or less. Interest-bearing
deposits in other depository institutions were $1,477,448 and
$4,758,224 at March 31, 1997 and 1996, respectively.
c. Certificates of deposit are carried at cost, and have original
maturities of more than three months.
d. Securities and mortgage-backed and related securities that the
Association has the positive intent and ability to hold to maturity
are classified as held to maturity securities and reported at cost,
adjusted for amortization of premiums and accretion of discounts
over the life of the security using the interest method.
Securities and mortgage-backed and related securities not
classified as held to maturity securities are classified as
available for sale securities and reported at fair value, with
unrealized gains and losses excluded from net earnings and reported
in a separate component of stockholders' equity. The Association
does not purchase securities and mortgage-backed and related
securities for trading purposes. The cost of securities sold is
determined by specific identification.
Collateralized mortgage obligations (CMOs) are mortgage derivatives
and the type owned by the Association are classified as "low-risk"
under regulatory guidelines. The Association does not purchase
CMOs at any significant premium over par value to limit certain
prepayment risks, and purchases only CMOs issued by U.S. government
agencies in order to minimize credit risk.
e. Loans receivable, net are carried at unpaid principal balances, less
allowance for losses and net deferred loan fees. Loan origination
and commitment fees and certain direct loan origination costs are
deferred and amortized to interest income over the contractual life
of the loan using the interest method.
17
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
f. Effective April 1, 1995, the Association adopted the provisions of
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan"
and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- Income Recognition and Disclosures." Specific valuation
allowances are established for impaired loans for the difference
between the loan amount and the fair value of collateral less
estimated selling costs. The Association considers a loan to be
impaired when, based on current information and events, it is
probable that the Association will be unable to collect all amounts
due according to the contractual terms of the loan agreement on a
timely basis. The types of loans for which impairment is measured
under SFAS No. 114 and No. 118 include nonaccrual income property
loans (excluding those loans included in the homogenous portfolio
which are collectively reviewed for impairment), large, nonaccrual
single family loans and troubled debt restructurings. Such loans
are placed on nonaccrual status at the point they become
contractually delinquent more than 90 days. Impairment losses are
recognized through an increase in the allowance for loan losses.
There were no impaired loans under SFAS No. 114 and No. 118 at
March 31, 1997 or 1996.
g. Allowances for losses are available to absorb losses incurred on
loans receivable and foreclosed real estate held for sale and
represent additions charged to expense, less net charge-offs. In
determining the allowance for losses to be maintained, management
evaluates current economic conditions, past loss and collection
experience, fair value of the underlying collateral and risk
characteristics of the loan portfolio and foreclosed real estate
held for sale. Management believes that allowances for losses on
loans receivable and foreclosed real estate are adequate.
h. Premises and equipment, net are carried at cost, less accumulated
depreciation. Depreciation of premises and equipment is computed
using the straight-line method based on the estimated useful lives
of the related assets. Estimated lives are forty years for the
office building and five to ten years for furniture and equipment.
i. Foreclosed real estate held for sale is carried at the lower of cost
or fair value less estimated selling costs. Costs relating to
improvement of foreclosed real estate are capitalized.
j. Interest on securities, certificates of deposit, mortgage-backed and
related securities and loans receivable is accrued as earned.
Interest on loans receivable contractually delinquent more than
ninety days is excluded from income until collected.
k. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount that will more likely than
not be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the net change in the
deferred tax assets and liabilities.
18
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<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
l. Effective April 1, 1996, the Company adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 suggests that compensation cost for
stock-based employee compensation plans be measured at the grant
date based on the fair value of the award and recognized over the
service period, which is usually the vesting period. However, SFAS
No. 123 also allows an institution to use the intrinsic value based
method under APB Opinion No. 25. The Company has adopted the
disclosure requirements under SFAS No. 123, but will continue to
recognize compensation expense for stock-based employee
compensation plans under APB Opinion No. 25.
m. Earnings per share for 1997 and 1996 are based upon the weighted-
average shares outstanding. Earnings for the period April 1, 1995
to December 31, 1995 of $157,587 have been excluded from the
calculation of earnings per share for 1996. Earnings for the
period December 28, 1995 to December 31, 1995 were not significant.
ESOP shares which have been committed to be released are considered
outstanding. The weighted-average shares outstanding during the
years ended March 31, 1997 and 1996 were 715,473 and 183,002.
n. The following paragraphs summarize the impact of new accounting
pronouncements:
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities." The Statement focuses on the issues of accounting
for transfers and servicing of financial assets, extinguishments of
liabilities and financial assets subject to prepayment. In
December 1996, the FASB issued SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125."
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring generally after
December 31, 1996, and for certain transactions after December 31,
1997. The provisions of SFAS No. 125 for financial assets subject
to prepayment is effective for financial assets held on or acquired
after January 1, 1997. SFAS No. 125 is not expected to have a
material impact on the financial position or results of operations
of the Association.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share"
and SFAS No. 129, "Disclosure of Information about Capital
Structure." The Statements supersede APB Opinion No. 15, amend
certain other accounting pronouncements, and modify the
presentation of earnings per share. The Statements are effective
for financial statements for both interim periods and years ending
after December 15, 1997.
(2) Risks and Uncertainties
The Association is a community oriented financial institution which
provides traditional financial services within the areas it serves.
The Association is engaged primarily in the business of attracting
deposits from the general public and using these funds to originate
one- to four-family residential mortgage loans located primarily in
Jefferson County, Missouri.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions which affect the reported amounts of assets
and liabilities as of the balance sheet dates and income and expenses
for the periods covered. Actual results could differ significantly
from these estimates and assumptions.
19
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Association's operations are affected by interest rate risk, credit
risk, market risk and regulations by the Office of Thrift Supervision
(OTS). The Association is subject to interest rate risk to the degree
that its interest-bearing liabilities mature or reprice more rapidly,
or on a different basis, than its interest-earning assets. To better
control the impact of changes in interest rates, the Association has
sought to improve the match between asset and liability maturities or
repricing periods and rates by emphasizing the origination of one and
three year, adjustable-rate mortgage loans, offering certificates of
deposit with terms of up to three years and maintaining a securities
portfolio with laddered maturities of up to three years. The
Association uses a net market value methodology provided by the OTS to
measure its interest rate risk exposure. This exposure is a measure of
the potential decline in the net portfolio value of the Association
based upon the effect of an assumed 200 basis point increase or
decrease in interest rates. Net portfolio value is the expected net
cash flows from the institution's assets, liabilities and
off-balance-sheet contracts. Credit risk is the risk of default on the
Association's loan portfolio that results from the borrowers' inability
or unwillingness to make contractually required payments. Market risk
reflects changes in the value of collateral underlying loans receivable
and the valuation of real estate held by the Association. The
Association is subject to periodic examination by regulatory agencies
which may require the Association to record increases in the allowances
based on their evaluation of available information. There can be no
assurance that the Association's regulators will not require further
increases to the allowances.
(3) Securities
Securities are summarized as follows:
1997
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
Debt securities held to
maturity:
Federal agency
obligations $ 3,498,407 1,213 (33,231) 3,466,389
Municipal obligation 491,181 651 (61) 491,771
Corporate debt 803,590 - (15,139) 788,451
----------- ----- ------- ---------
$ 4,793,178 1,864 (48,431) 4,746,611
=========== ===== ======= =========
Weighted-average rate 5.51%
===========
1996
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
Debt securities held to
maturity:
Federal agency
obligations $ 3,498,467 3,640 (16,076) 3,486,031
Municipal obligations 743,794 - (2,594) 741,200
Corporate debt 1,056,593 217 (17,216) 1,039,594
----------- ----- ------- ---------
$ 5,298,854 3,857 (35,886) 5,266,825
=========== ===== ======= =========
Weighted-average rate 5.43%
===========
20
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Securities with a carrying value of $900,000 were pledged to secure
public deposits at March 31, 1997.
Maturities of debt securities held to maturity at March 31, 1997 are
summarized as follows:
Amortized Market
Cost Value
---- -----
Due in one year or less $ 1,824,401 1,821,819
Due in one year through five years 2,968,777 2,924,792
------------- ---------
$ 4,793,178 4,746,611
============= =========
(4) Mortgage-backed and Related Securities
Mortgage-backed and related securities held to maturity are summarized as
follows:
1997
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
GNMA participating
certificate $ 85,430 - (1,071) 84,359
Collateralized --------- -------- ------- -------
mortgage obligations:
FHLMC 251,483 - (7,223) 244,260
FNMA 503,214 - (11,334) 491,880
--------- -------- ------- -------
754,697 - (18,557) 736,140
--------- -------- ------- -------
$ 840,127 - (19,628) 820,499
========= ======== ======= =======
Weighted-average
rate 6.46%
=========
1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
GNMA participating
certificate $ 117,468 - (1,857) 115,611
Collateralized --------- -------- ------- -------
mortgage obligations:
FHLMC 251,845 - (3,876) 247,969
FNMA 504,286 - (6,161) 498,125
--------- -------- ------- -------
756,131 - (10,037) 746,094
--------- -------- ------- -------
$ 873,599 - (11,894) 861,705
========= ======== ======= =======
Weighted-average
rate 6.49%
=========
21
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) Loans Receivable, Net
Loans receivable, net are summarized as follows:
1997 1996
---- ----
Real estate loans:
Single-family, 1-4 units $ 21,141,671 20,649,338
Multi-family, 5 or more units 363,347 33,977
Construction - 98,800
Commercial 812,999 948,354
Agricultural 1,115,832 789,057
Consumer loans 177,158 228,998
Auto loans 66,143 89,227
Loans secured by deposits 182,511 203,063
Student loans 10,011 14,631
------------- ----------
23,869,672 23,055,445
Allowance for losses (74,285) (72,000)
Deferred loan fees, net (23,751) (51,066)
------------- ----------
$ 23,771,636 22,932,379
============= ==========
Weighted-average rate 8.09% 8.11%
============= ==========
Adjustable-rate loans included in the loan portfolio amounted to
approximately $20,407,000 and $20,289,000 at March 31, 1997 and 1996,
respectively.
Commercial real estate loans are secured by the following:
1997 1996
---- ----
Retail strip center $ 480,540 496,000
Country club - 299,571
Office buildings 332,459 152,783
------------- ----------
$ 812,999 948,354
============= ==========
Following is a summary of activity in allowance for losses:
1997 1996 1995
---- ---- ----
Balance, beginning of year $ 72,000 60,200 48,863
Loan charge-offs (10,015) (187) (11,145)
Loan recoveries - 400 1,335
Provision charged to expense 12,300 11,587 21,147
--------- ------ ------
Balance, end of year $ 74,285 72,000 60,200
========= ====== ======
22
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
At March 31, 1997 the Association had approximately $117,000 in
nonaccrual loans (loans more than 90 days delinquent). There were no
nonaccrual loans at March 31, 1996. The average balance of nonaccrual
loans for the year ended March 31,1997 was approximately $118,000.
Allowance for losses on nonaccrual loans amounted to approximately
$12,000 at March 31, 1997. For the year ended March 31, 1997, gross
interest income which would have been recorded had nonaccrual loans
been current in accordance with their original terms amounted to
approximately $11,000. The amount of interest income included in the
Association's net earnings for the year ended March 31, 1997 was
approximately $5,500.
The Association originates loans to officers and directors of the
Association in the ordinary course of business. These loans were made
on substantially the same terms as those prevailing at the time for
comparable transactions with unaffiliated persons. In addition, a
director of the Association is an officer of a title company which
transacts business with the Association. The dollar amounts of the
above transactions and related amounts due for periods covered by the
consolidated financial statements have not been presented since the
amounts are considered immaterial to the overall financial position or
results of operations of the Association.
(6) Premises and Equipment, Net
Premises and equipment, net are summarized as follows:
1997 1996
---- ----
Land $ 106,420 106,420
Office building 321,213 313,013
Furniture and equipment 236,850 234,569
664,483 654,002
Less accumulated depreciation 306,350 288,901
---------- -------
$ 358,133 365,101
========== =======
Depreciation expense for the years ended March 31, 1997, 1996 and 1995
was $26,530, $30,455 and $30,661, respectively.
(7) Foreclosed Real Estate Held for Sale, Net
Foreclosed real estate held for sale, net is summarized as follows:
1997 1996
---- ----
Foreclosed real estate held for sale $ 126,104 -
Allowance for losses - -
---------- -------
$ 126,104 -
========== =======
Following is a summary of activity in allowance for losses:
1997 1996 1995
---- ---- ----
Balance, beginning of year $ - 13,000 13,000
Charge-offs, net of gain on sale - (10,796) (45)
Loss charged (gain credited) to
operations - (2,204) 45
------ ------- ------
Balance, end of year $ - - 13,000
====== ======= ======
Foreclosed real estate held for sale consists of one single-family
dwelling.
23
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Deposits
Deposits are summarized as follows:
Description and interest rate 1997 1996
---- ----
NOW accounts, 2.25% $ 1,525,900 1,412,411
Savings accounts, 2.75% 5,869,890 6,917,334
Money market deposit accounts, 4.53%
and 3.50%, respectively 2,178,143 1,166,674
------------- ----------
Total transaction accounts 9,573,933 9,496,419
Certificates: ------------- ----------
3.00 - 3.99% 60,387 59,822
4.00 - 4.99% 2,358,252 3,997,941
5.00 - 5.99% 11,795,158 8,561,151
6.00 - 6.99% 712,752 3,189,967
7.00 - 7.99% 189,789 194,774
8.00 - 8.99% 135,026 144,360
Total certificates, 5.24% and 5.36%, ------------- ----------
respectively 15,251,364 16,148,015
------------- ----------
Total deposits $ 24,825,297 25,644,434
============= ==========
Weighted-average rate - deposits 4.31% 4.40%
============= ==========
Money market deposit accounts at March 31, 1997 include public funds in
the amount of $1,116,242 at a rate of 5.50%. FHLB time certificates of
deposit of $1,500,000 were pledged to secure this customer deposit.
Certificate maturities are summarized as follows:
1997 1996
---- ----
First year $ 11,198,543 12,441,200
Second year 3,081,476 2,775,033
Third year 848,473 784,533
Fourth year 10,000 6,562
Fifth year 22,500 10,000
After fifth year 90,372 130,687
------------- ----------
$ 15,251,364 16,148,015
============= ==========
(9) Income Taxes
In computing Federal income tax, savings institutions are allowed a
statutory bad debt deduction of otherwise taxable income of 8%, subject
to limitations based on aggregate loans and deposit balances. Due to
the limitation based on the level of deposits outstanding and retained
earnings, the Association used the experience method bad debt deduction
for the years ended March 31, 1996 and 1995. The Association also used
the experience method bad debt deduction for the year ended March 31,
1997.
On August 20, 1996 the Small Business Job Protection Act of 1996 was
signed into law. Under the Act, tax bad debt reserves in excess of the
base year level (March 31, 1988) are subject to recapture and payable
in equal amounts over six years in tax years beginning April 1, 1996.
Since the Association's loans outstanding at March 31, 1996 were less
than loans outstanding at the end of the base year, the pro rata
portion of the base year tax bad debt reserves are also
24
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
subject to recapture and amounted to an additional tax liability of
$7,000. Provisions of the Act repealed the percentage of taxable
income method for the Association effective April 1, 1996.
The provisions of SFAS No. 109 require the Association to establish a
deferred tax liability for the tax effect of the tax bad debt reserves
over the amounts at March 31, 1988. The Association's tax bad debt
reserves, as adjusted, were $1,079,000. The estimated deferred tax
liability on such amount is approximately $367,000, which has not been
recorded in the accompanying consolidated financial statements. If
these tax bad debt reserves are used for other than loan losses, the
amount used will be subject to Federal income taxes at the then
prevailing corporate rate.
The components of the net deferred tax liability are summarized as
follows:
1997 1996
---- ----
Deferred tax liabilities:
Tax bad debt reserves arising after
March 31, 1988 and amounts subject
to recapture $ 21,950 16,714
FHLB stock dividends 48,338 48,338
Tax over book accumulated depreciation 63,481 66,821
Accrued income and expense 83,398 61,804
Tax over book ESOP and MRDP expense - 2,269
---------- -------
Total deferred tax liabilities 217,167 195,946
Deferred tax assets: ---------- -------
Deferred loan fees, net 8,773 19,895
Book over tax ESOP and MRDP expense 22,952 -
Allowance for losses on loans and
foreclosed real estate 27,442 28,051
---------- -------
Gross deferred tax assets 59,167 47,946
Valuation allowance - -
---------- -------
Net deferred tax assets 59,167 47,946
---------- -------
Net deferred tax liability $ 158,000 148,000
========== =======
Income taxes are summarized as follows:
1997 1996 1995
---- ---- ----
Current:
Federal $ 94,000 65,000 102,000
State 15,000 12,000 9,000
--------- ------ -------
109,000 77,000 111,000
--------- ------ -------
Deferred:
Federal 15,000 21,000 -
State (5,000) 1,000 6,000
10,000 22,000 6,000
--------- ------ -------
$ 119,000 99,000 117,000
========= ====== =======
25
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Deferred income tax expense represents the tax effects of reporting
income and expense in different periods for financial reporting
purposes than tax purposes as follows:
1997 1996 1995
---- ---- ----
Provision for loss on loans and
foreclosed real estate $ 5,845 (3,073) (5,543)
Accrued income and expense 12,495 20,578 9,075
Book depreciation less than (in
excess of) tax depreciation (3,340) 3,646 (3,532)
Deferred state income taxes (5,000) 1,000 6,000
Other - (151) -
--------- ------ -------
$ 10,000 22,000 6,000
========= ====== =======
The provision for income taxes differs from the Federal statutory
corporate tax rate to earnings before income taxes as follows:
1997 1996 1995
---- ---- ----
Tax at statutory rate 34.0 % 34.0 % 34.0 %
Increases (decreases) in taxes:
Tax-exempt income (3.0) (3.7) (3.2)
State income taxes, net of Federal
tax benefit 2.1 3.0 2.8
Average fair value versus cost of
ESOP shares 3.4 1.8 -
Excess tax bad debt reserves 2.3 - -
Surtax exemption (.6) (1.1) -
Other, net 1.2 (1.8) (.4)
------- ----- ------
Effective tax rate 39.4 % 32.2 % 33.2 %
======= ====== ======
(10) Employee Benefits
The Association participates in a multiemployer, defined benefit
retirement plan which covers substantially all employees. Although the
plan's assets exceed the actuarially computed value of vested benefits
at June 30, 1996, the valuation date of the most recent report, the
Association has an unfunded liability to the plan at March 31, 1997 of
approximately $22,000 as a result of prior service cost. Plan benefits
are fully vested after five years of service and are based on an
employee's years of service and a percentage of the employee's average
salary, using the five highest consecutive years preceding retirement.
The Association's funding policy is to make contributions to the plan
equal to the amount accrued as pension expense. Total pension expense
for the years ended March 31, 1997, 1996 and 1995 was $35,420, $33,525
and $32,652, respectively.
In connection with the conversion from mutual to stock form, the
Association established an employee stock ownership plan (ESOP) for the
benefit of participating employees. Employees are eligible to
participate upon attaining age twenty-one and completing one year of
service.
26
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The ESOP borrowed $608,350 from the Company to fund the purchase of
60,835 shares of the Company's common stock. The purchase of shares of
the ESOP was recorded in the consolidated financial statements through
a credit to common stock and additional paid-in capital with a
corresponding charge to a contra equity account for the unreleased
shares. The loan is secured solely by the common stock and is to be
repaid in equal quarterly installments of principal and interest
payable through March 2002 at an 8.50% interest rate. The intercompany
ESOP note and related interest were eliminated in consolidation.
The Association makes quarterly contributions to the ESOP which are equal
to the debt service less dividends on unallocated ESOP shares used to
repay the loan. Dividends on allocated shares will be paid to
participants of the ESOP. The ESOP shares are pledged as collateral on
the ESOP loan. Shares are released from collateral and allocated to
participating employees, based on the proportion of loan principal and
interest repaid and compensation of the participants. Forfeitures will
be reallocated to participants on the same basis as other contributions
in the plan year. Benefits are payable upon a participant's
retirement, death, disability or separation from service.
Effective with the reorganization date the Association adopted SOP 93-6.
As shares are committed to be released from collateral, the Association
reports compensation expense equal to the average fair value of the
shares committed to be released. Dividends on allocated shares will be
charged to stockholders' equity. Dividends on unallocated shares are
recorded as a reduction to the ESOP loan. ESOP expense for the year
ended March 31, 1997 and 1996 was $120,148 and $87,775, respectively.
The fair value of unreleased shares based on market price of the
Company's stock was $627,816 at March 31, 1997.
The number of ESOP shares at March 31, 1997 are summarized as follows:
Allocated shares 7,022
Shares released for allocation 8,969
Unreleased shares 44,844
------
Total ESOP shares 60,835
======
On July 17, 1996 the stockholders of Joachim Bancorp, Inc. ratified the
1996 Stock Option Plan. Of the 76,044 shares reserved for issuance
under the Stock Option Plan, 60,839 shares were awarded in July 1996,
and the remainder are available for future awards. The stock options
were awarded at $12.3125 per share which was equal to the average
selling price of the Company's common stock on the NASDAQ exchange on
the day prior to the date of grant. The shares granted vest ratably
over a five-year period at the rate of 20% of such shares per year
following the date of grant of the award and have a maximum term of ten
years. At March 31, 1997 there were 3,802 shares exercisable. The
Company has estimated the fair value of its stock option plan as
required under SFAS No. 123 utilizing the Black-Scholes pricing model.
The proforma effect on compensation expense for the year ended March
31, 1997 was considered immaterial and therefore has not been
disclosed.
On July 17, 1996, the stockholders ratified the Management Recognition
and Development Plan (MRDP). All 30,417 shares under the MRDP were
awarded in July, 1996, to directors, executive officers and employees.
Compensation expense in the amount of the fair market value of the
common stock at the date of grant is recognized pro rata over a five
year period following the date of grant of the award. MRDP expense for
1997 was $68,894.
27
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) Stockholders' Equity and Regulatory Capital
The Company issued 760,437 shares of common stock at $10 per share in
conjunction with an initial public offering completed on December 27,
1995. Net proceeds from the sale of common stock in the offering were
$6,465,575, after deduction of conversion costs of $530,445, and
unearned compensation related to shares issued to the Employee Stock
Ownership Plan. The Company retained 50% of the net conversion
proceeds, less the funds used to originate a loan to the ESOP for the
purchase of shares of common stock, and used the balance of the net
proceeds to purchase all of the stock of the Association in the
conversion.
Deposit account holders and borrowers do not have voting rights in the
Association. Voting rights were vested exclusively with the
stockholders of the holding company. Deposit account holders continue
to be insured by the SAIF. A liquidation account was established at
the time of conversion in an amount equal to the capital of the
Association as of the date of the latest balance sheet contained in the
final prospectus. Each eligible account holder or supplemental
eligible account holder is entitled to a proportionate share of this
account in the event of a complete liquidation of the Association, and
only in such event. This share will be reduced if the account holder's
or supplemental eligible account holder's deposit balance falls below
the amounts on the date of record and will cease to exist if the
account is closed. The liquidation account will never be increased
despite any increase in the related deposit balance.
An OTS regulation restricts the Association's ability to make capital
distributions, including paying dividends. The regulation provides
that an institution meeting its capital requirements, both before and
after its proposed capital distribution, may generally distribute the
greater of (1) 75% of its net earnings for the prior four quarters or
(2) 100% of its net earnings to date during the calendar year, plus the
amount that would reduce by one-half its surplus capital ratio (defined
as the percentage by which the institution's capital-to-asset ratio
exceeds the ratio of its capital requirements to its assets) at the
beginning of the calendar year without prior supervisory approval. The
regulation provides more significant restrictions on payment of
dividends in the event that the capital requirements are not met.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) requires that savings institutions maintain "core capital" of
at least 3% of adjusted total assets. Under proposals currently being
evaluated by the Office of Thrift Supervision (OTS), a savings
institution's core capital requirement could be increased to between 4%
and 5% of adjusted total assets. Core capital is defined to include
stockholders' equity among other components. Savings institutions also
must maintain "tangible capital" not less than 1.5% of adjusted total
assets. "Tangible capital" is defined, generally, as core capital
minus any "intangible assets." All of the Association's capital is
tangible.
In addition to requiring compliance with the core and tangible capital
standards, FIRREA and the OTS regulation also require that savings
institutions satisfy a risk-based capital standard. The level of such
capital is based on a credit risk component and calculated by
multiplying the value of each asset (including off-balance sheet
commitments) by one of four risk factors. The four risk categories
range from zero for cash to 100% for certain delinquent loans and
repossessed property. Savings institutions must maintain an 8.0%
risk-based capital level. Failure by a savings institution to meet
minimum capital requirements can initiate certain actions by regulators
that, if undertaken, could have a direct material effect on the
Association's financial statements.
28
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Under the capital adequacy guidelines and regulatory framework for prompt
corrective action, the Association must meet specific capital
guidelines that involve quantitative measures of the Association's
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. Capital adequacy guidelines
require Tier 1 (core) capital of at least 4% (3% under certain
circumstances) of total assets, Tier 1 capital of 4% of risk-weighted
assets and total capital (risk-based capital) of 8% of risk-weighted
assets. As of March 31, 1997, the Association was categorized as well
capitalized under the regulatory framework for prompt corrective
action.
The Association's regulatory capital and regulatory capital requirements
at March 31, 1997 are summarized as follows:
Minimum Required Minimum Required
for Capital to be "Well
Actual Adequacy Capitalized"
-------------- ----------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Consolidated
stockholders'
equity $ 10,334
Stockholders'
equity of
Company $ (2,770)
---------
Tangible capital $ 7,564 22.7% $ 500 1.5%
General valuation
allowance $ 74
---------
Total capital to
risk-weighted-
assets $ 7,638 46.7% $ 1,309 8% $ 1,636 10%
=========
Tier 1 capital to
risk-weighted-
assets $ 7,564 46.2% $ 654 4% $ 981 6%
Tier 1 capital to
total assets $ 7,564 22.7% $ 1,000 3% $ 1,667 5%
(12) Financial Instruments with Off-Balance-Sheet Risk
The Association is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
generally include commitments to originate mortgage loans. Those
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance
sheet. The Association's maximum exposure to credit loss in the event
of nonperformance by the borrower is represented by the contractual
amount and related accrued interest receivable of those instruments.
The Association minimizes this risk by evaluating each borrower's
creditworthiness on a case-by-case basis. Generally, collateral held by
the Association consists of a first or second mortgage on the
borrower's property. The Association generally offers adjustable-rate
loans in order to reduce the sensitivity of its earnings to interest
rate fluctuations. Commitments at March 31, 1997 to originate
adjustable-rate mortgage loans were approximately $193,000, expiring in
90 days or less.
29
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) Condensed Parent Company Only Financial Statements
The following condensed balance sheets and condensed statements of
earnings and cash flows for Joachim Bancorp, Inc. should be read in
conjunction with the consolidated financial statements and the notes
thereto.
BALANCE SHEETS
March 31,
-------------------------
Assets 1997 1996
---- ----
Cash and cash equivalents $ 165,487 1,319,229
Certificates of deposit 552,899 50,242
Securities held to maturity 1,553,590 1,556,341
ESOP note receivable 461,259 532,306
Accrued interest receivable 40,539 14,550
Investment in subsidiary 7,563,985 7,279,073
Other assets 14,156 7,604
------------ ----------
Total assets $ 10,351,915 10,759,345
============ ==========
Liabilities and Stockholders' Equity
Other liabilities $ 2,446 7,000
Accrued income taxes - 1,000
Deferred tax liability 15,000 -
------------ ----------
Total liabilities 17,446 8,000
Stockholders' equity 10,334,469 10,751,345
Total liabilities and ------------ ----------
stockholders' equity $ 10,351,915 10,759,345
============ ==========
STATEMENTS OF EARNINGS
Period from
Year Ended December 27, 1995
March 31, to March 31,
1997 1996
---- ----
Equity in earnings of the Association $ 95,870 185,776
Interest income 193,218 53,069
Other expenses (59,350) (15,309)
Income taxes (47,000) (15,000)
--------- -------
Net earnings $ 182,738 208,536
========= =======
30
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
STATEMENTS OF CASH FLOWS
Period from
Year Ended December 27, 1995
March 31, to March 31,
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $ 182,738 208,536
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Equity in earnings of Association (95,870) (185,776)
Amortization of premiums on securities 2,751 231
Interest credited to certificates of
deposit (2,657) (242)
Decrease (increase) in:
Accrued interest receivable (25,989) (14,550)
Other assets (6,552) (7,604)
Increase (decrease) in:
Other liabilities (4,554) 7,000
Accrued income taxes (1,000) 1,000
Deferred tax liability 15,000 -
Net cash provided by (used for) ------------- ----------
operating activities 63,867 8,595
Cash flows from investing ------------- ----------
activities:
Loan to ESOP - (608,350)
Principal collected on loan to ESOP 71,047 76,044
Purchase of common stock of Association - (3,536,962)
Purchase of certificates of deposit (500,000) (50,000)
Purchase of securities held to maturity - (1,556,572)
Net cash provided by (used for) ------------- ----------
investing activities (428,953) (5,675,840)
Cash flows from financing activities: ------------- ----------
Proceeds from sale of common stock - 7,073,925
Cash dividends (353,313) (87,451)
Purchase of treasury stock (435,343) -
Net cash provided by (used for) ------------- ----------
financing activities (788,656) 6,986,474
Net increase (decrease) in cash and ------------- ----------
cash equivalents (1,153,742) 1,319,229
Cash and cash equivalents at beginning
of period 1,319,229 -
Cash and cash equivalents at end of ------------- ----------
period $ 165,487 1,319,229
============= ==========
31
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company's financial
instruments, are summarized as follows:
1997 1996
-------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Non-trading instruments
and nonderivatives:
Cash and cash
equivalents $ 2,091,535 2,091,535 5,384,802 5,384,802
Certificates of
deposit 3,052,899 3,052,899 1,300,242 1,300,24
Securities held to
maturity 4,793,178 4,746,611 5,298,854 5,266,825
Stock in FHLB of Des
Moines 288,500 288,500 288,500 288,500
Mortgage-backed and
related securities
held to maturity 840,127 820,499 873,599 861,705
Loans receivable, net 23,771,636 24,167,873 22,932,379 23,383,360
Deposits $ 24,825,297 24,828,347 25,644,434 25,726,206
The following methods and assumptions were used in estimating the fair
values of financial instruments:
Cash and cash equivalents and certificates of deposit are valued at their
carrying amounts due to the relatively short period to maturity of the
instruments.
Fair values of securities and mortgage-backed and related securities are
based on quoted market prices or, if unavailable, quoted market prices
of similar securities.
Stock in FHLB of Des Moines is valued at cost, which represents
redemption value and approximates fair value.
Fair values are computed for each loan category using market spreads to
treasury securities for similar existing loans in the portfolio and
management's estimates of prepayments.
Deposits with no defined maturities, such as NOW accounts, savings
accounts and money market deposit accounts, are valued at the amount
payable on demand at the reporting date.
The fair value of certificates of deposit is computed at fixed spreads to
treasury securities with similar maturities.
32
<PAGE>
<PAGE>
CORPORATE INFORMATION
OFFICERS DIRECTORS
ANDREW H. ENGLAND ANDREW H. ENGLAND MARGARET F. SMITH
chairman of the board retired funeral home owner retired tire store owner
DeSoto, Missouri DeSoto, Missouri
BERNARD R. WESTHOFF
president BERNARD R. WESTHOFF JAMES H. WILKINS
president retired railroad car
LEE ELLEN HOGAN shop superintendent
senior vice-president, LEE ELLEN HOGAN DeSoto, Missouri
treasurer and secretary senior vice-president,
treasurer and secretary STOKELY R. WISCHMEIER
MELVIN L. YARBROUGH President
vice-president DOUGLAS G. DRAPER Hopson Lumber Co.
Chairman of the Board DeSoto, Missouri
and former owner
Hillsboro Title Co.
Hillsboro, Missouri
CORPORATE OFFICES SPECIAL COUNSEL
DeSoto Plaza Breyer & Aguggia
DeSoto, Missouri 63020 1300 I Street N.W.
Telephone (314) 586-8821 Suite 470 East
Washington, D.C. 20005
STOCK TRANSFER AGENT AND REGISTRAR AUDITORS
Registrar and Transfer Company Michael Trokey & Company, P.C.
10 Commerce Drive Certified Public Accountants
Cranford, New Jersey 07016 10411 Clayton Road
St. Louis, Missouri 63131
STOCKHOLDERS' ANNUAL MEETING
The annual meeting of Joachim Bancorp, Inc. will be held on July 16, 1997 at
2:00 p.m., at 712 S. Main Street, DeSoto, Missouri.
FORM 10-KSB
A COPY OF FORM 10-KSB, INCLUDING FINANCIAL STATEMENT SCHEDULES, AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO
STOCKHOLDERS AS OF THE RECORD DATE FOR THE ANNUAL MEETING UPON REQUEST TO THE
SECRETARY, JOACHIM BANCORP, INC., DESOTO PLAZA, DESOTO, MISSOURI 63020.
<PAGE>
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
<PAGE>
<PAGE>
Exhibit 21
Subsidiaries of Registrant
Percentage Jurisdiction or
Subsidiaries (1) Owned State of Incorporation
- ---------------- ----- ----------------------
Joachim Federal Savings and Loan
Association 100% United States
JSLA Service Corp. 100% Missouri
- ------------------
(1) The operations of the Company's subsidiaries are included in the
Company's consolidated financial statements.
<PAGE>
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
<PAGE>
<PAGE>
MICHAEL TROKEY & COMPANY, P.C.
Certified Public Accountants
10411 Clayton Road
St. Louis, MO 63131
(314) 432-0996
Board of Directors
Joachim Bancorp, Inc.
DeSoto Plaza
DeSoto, Missouri 63020
Members of the Board:
We consent to the incorporation by reference in the registration
statement on Form S-8 of Joachim Bancorp, Inc. (the "Company") (File No. 333-
9179) of our report dated April 18, 1997 on the financial statements included
in the Company's Annual Report on Form 10-KSB for the year ended March 31,
1997 filed pursuant to the Securities Exchange Act of 1934, as amended.
/s/ Michael Trokey & Company, P.C.
St. Louis, Missouri
June 24, 1997
<PAGE>
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