Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[x] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
JOACHIM BANCORP, INC.
- ----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
JOACHIM BANCORP, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box): $2,492.33 (previously paid)
[ ] No fee required.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
Joachim Bancorp, Inc. Common Stock, par value $.01 per share
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(2) Aggregate number of securities to which transactions applies: 722,415
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$17.25 -- Pursuant to the Merger Agreement described herein, each
share of Common Stock of Joachim Bancorp, Inc. will be exchanged
for $17.25 in cash.
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(4) Proposed maximum aggregate value of transaction:
$12,461,659
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11 (a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.
(1) Amount previously paid:
N/A
- ----------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
N/A
- ----------------------------------------------------------------------------
(3) Filing party:
N/A
- ----------------------------------------------------------------------------
(4) Date filed:
N/A
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<PAGE>
<PAGE>
April 3, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
of Joachim Bancorp, Inc. ("Joachim"), the holding company for Joachim Federal
Savings and Loan Association ("Joachim Federal"), to be held at the DeSoto
Public Library, 712 South Main Street, DeSoto, Missouri, on May 6, 1998, at
2:00 p.m., Central Time.
The Notice of Special Meeting of Stockholders and Proxy Statement
that appear on the following pages describe the formal business to be
transacted at the meeting. At the meeting, you will be asked to consider and
vote on a proposal to approve the Agreement and Plan of Merger dated as of
December 29, 1997 (the "Merger Agreement") by and among First State
Bancshares, Inc. ("First State"), FSB Sub, Inc. and Joachim. The Merger
Agreement provides that First State will acquire 100% ownership of Joachim
through the merger of FSB Sub, Inc. and Joachim. Simultaneous with this
merger, First State intends to merge Joachim Federal into First State
Community Bank.
Upon consummation of the merger, you will receive $17.25 per share in
cash, without interest, for each share of Joachim common stock you own. Upon
completion of the merger, you will no longer own any stock or have any
interest in Joachim, nor will you receive, as a result of the merger, any
stock of First State. The Merger Agreement and merger have been unanimously
approved by the Board of Directors of Joachim, and the Board unanimously
recommends that you vote FOR the approval of the Merger Agreement. In support
of its recommendation, the Board of Directors has received an opinion from RP
Financial, LC. to the effect that the consideration to be received by the
stockholders of Joachim as a result of the merger is fair from a financial
point of view. Approval of the Merger Agreement requires the affirmative vote
of two-thirds of the outstanding shares of Joachim common stock.
It is very important that your shares be represented at the meeting,
regardless of whether you plan to attend in person. A failure to vote, either
by not returning the enclosed proxy or by checking the "Abstain" box thereon,
will have the same effect as a vote against approval of the Merger Agreement.
To assure that your shares are represented in voting on this very important
matter, please sign, date and return the enclosed proxy card in the enclosed
postage-prepaid envelope whether or not you plan to attend the meeting. If
you are a stockholder of record and do attend, you may, if you wish, revoke
your proxy and vote your shares in person at the meeting.
On behalf of the Board of Directors, I urge you to vote FOR approval
of the Merger Agreement.
Sincerely,
Bernard R. Westhoff
President and Chief Executive Officer
<PAGE>
<PAGE>
JOACHIM BANCORP, INC.
Plaza Square
DeSoto, Missouri 63020
(314) 586-8821
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Joachim Bancorp, Inc. ("Joachim") will be held at the DeSoto Public Library,
712 South Main Street, DeSoto, Missouri, on May 6, 1998, at 2:00 p.m.,
Central Time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement
and Plan of Merger, dated as of December 29, 1997 (the "Merger
Agreement"), by and among First State Bancshares, Inc. ("First
State"), FSB Sub, Inc. and Joachim pursuant to which (i)
Joachim would merge with FSB Sub, Inc. and (ii) each
outstanding share of Joachim common stock would be converted
into the right to receive $17.25 in cash, without interest, all
on and subject to the terms and conditions contained therein.
2. To consider and act upon such other matters as may properly
come before the meeting or any adjournments or postponements
thereof.
Note: The Board of Directors is not aware of any other matters to
come before the meeting.
Only those stockholders of record at the close of business on March
30, 1998 shall be entitled to notice of, and to vote at, the meeting or any
adjournments thereof. The affirmative vote of the holders of two-thirds of
the outstanding shares of Joachim common stock is required for approval of the
Merger Agreement.
Joachim stockholders have the right to dissent from the merger and to
demand payment for their shares of Joachim Common Stock under the provisions
of Section 351.455 of the General and Business Corporation Law of Missouri. A
copy of the applicable Missouri statutory provisions is set forth in Appendix
B to the accompanying Proxy Statement and a summary of such provisions is set
forth under "THE MERGER -- Dissenters' Rights." Further information regarding
voting rights and the business to be transacted at the meeting is given in the
accompanying Proxy Statement.
The Board of Directors of Joachim unanimously recommends that
stockholders vote "FOR" approval of the Merger Agreement.
By Order of the Board of Directors
DeSoto, Missouri Lee Ellen Hogan
April 3, 1998 Secretary
Your vote is important regardless of the number of shares you own. Whether or
not you expect to attend the meeting, please sign, date and promptly return
the accompanying proxy card using the enclosed postage-prepaid envelope. If
you are a stockholder of record and for any reason you should desire to revoke
your proxy, you may do so at any time before it is voted at the meeting.
<PAGE>
JOACHIM BANCORP, INC.
Plaza Square
DeSoto, Missouri 63020
(314) 586-8821
--------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
May 6, 1998
--------------
This Proxy Statement and the accompanying proxy card are being furnished
to the holders of common stock, par value $0.01 per share ("Joachim Common
Stock"), of Joachim Bancorp, Inc. ("Joachim") in connection with the
solicitation of proxies by the Board of Directors of Joachim for use at a
special meeting of stockholders ("Special Meeting") to be held at the DeSoto
Public Library, 712 South Main Street, DeSoto, Missouri, on May 6, 1998 at
2:00 p.m., Central Time.
This Proxy Statement and the proxy card are first being mailed on or
about April 3, 1998 to stockholders of record on March 30, 1998 ("Record
Date").
At the Special Meeting, stockholders will be asked to consider and vote
upon a proposal to approve the Agreement and Plan of Merger, dated as of
December 29, 1997 (the "Merger Agreement"), by and among First State
Bancshares, Inc. ("First State"), FSB Sub, Inc. and Joachim. Pursuant to the
Merger Agreement, Joachim will merge with FSB Sub, Inc. (the "Merger"), with
Joachim surviving the Merger and becoming a wholly-owned subsidiary of First
State. Upon consummation of the Merger, each share of Joachim Common Stock
would be converted into the right to receive $17.25 in cash (the "Merger
Consideration"). A copy of the Merger Agreement is attached to this Proxy
Statement as Appendix A. The Board of Directors of Joachim (the "Joachim
Board") does not know of any matters other than those set forth herein that
may come before the Special Meeting. If any other matters are properly
presented at the Special Meeting, the persons named in the proxy card will
vote in accordance with the determination of the majority of the Joachim
Board.
The Joachim Board unanimously recommends that stockholders vote "FOR"
approval of the Merger Agreement.
Whether or not you plan to attend the Special Meeting, please complete,
date, sign and return the proxy card in the enclosed postage paid envelope.
DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page Page
---- ----
Summary. . . . . . . . . . . . . iii Average Balances, Interest
Market Prices of Joachim Common and Average Yields and Rates. 43
Stock. . . . . . . . . . . . . vii Rate/Volume Analysis . . . . . 44
Selected Financial Data. . . . . viii Asset Quality. . . . . . . . . 44
The Special Meeting. . . . . . . 1 Comparison of the Three and
Place, Time and Date . . . . . 1 Nine Months Ended December
Purpose. . . . . . . . . . . . 1 31, 1997 and 1996 . . . . . . 44
Record Date; Shares Entitled Comparison of the Years Ended
to Vote . . . . . . . . . . . 1 March 31, 1997 and 1996 . . . 45
Vote Required. . . . . . . . . 1 Comparison of the Years Ended
Proxies. . . . . . . . . . . . 1 March 31, 1996 and 1995 . . . 47
The Merger . . . . . . . . . . . 2 Impact of Inflation. . . . . . 47
General. . . . . . . . . . . . 2 Voting Securities and Principal
Effective Time of the Merger . 3 Holders Thereof. . . . . . . . 48
Background and Reasons for Available Information. . . . . . 49
the Merger. . . . . . . . . . 3 Other Matters. . . . . . . . . . 49
Opinion of Financial Advisor . 5 Stockholder Proposals. . . . . . 49
Interests of Certain Persons Index to Financial Statements. . 50
in the Merger . . . . . . . . 8
Employee Matters and Impact Appendix A - Agreement and Plan of
on Employee Benefit Plans . . 9 Merger
Certain Federal Income Tax Appendix B - Section 351.455 of the
Consequences. . . . . . . . . 10 General and Business
Surrender of Stock Corporation Law of
Certificates. . . . . . . . . 10 Missouri
Regulatory Requirements. . . . 10 Appendix C - Fairness Opinion of
Conditions to Consummation; RP Financial, LC.
Termination . . . . . . . . . 11
Business Pending Consummation. 11
No Solicitation. . . . . . . . 12
Waiver and Amendment . . . . . 12
Termination Fees . . . . . . . 12
Dissenters' Rights . . . . . . 13
Accounting Treatment . . . . . 13
Expenses . . . . . . . . . . . 13
Business of Joachim. . . . . . . 14
General. . . . . . . . . . . . 14
Market Area. . . . . . . . . . 14
Lending Activities . . . . . . 14
Investment Activities. . . . . 26
Deposit Activities and Other
Sources of Funds. . . . . . . 28
Competition. . . . . . . . . . 31
Subsidiary Activities. . . . . 32
Personnel. . . . . . . . . . . 32
Properties . . . . . . . . . . 32
Legal Proceedings. . . . . . . 32
Regulation of Joachim Federal. 32
Regulation of Joachim. . . . . 38
Federal Taxation . . . . . . . 39
Missouri Taxation. . . . . . . 40
Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . 41
Asset/Liability Management . . 41
Year 2000. . . . . . . . . . . 42
Liquidity and Capital
Resources . . . . . . . . . 42
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<PAGE>
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information that
may be important to you. You should read the entire proxy statement and its
appendices carefully before you decide how to vote.
Parties to the Merger
First State Bancshares, Inc. First State, a Missouri corporation, is a
multi-bank holding company, organized in 1984 and headquartered in Farmington,
Missouri. First State owns and operates First State Community Bank, which was
chartered as a Missouri state bank in 1954 and has its main banking facility
in Farmington, Missouri. First State Community Bank has additional locations
in Farmington, Bonne Terre, Perryville, and St. Mary, Missouri. First State
also owns and operates Iron County Security Bank, located in Ironton,
Missouri. As of December 31, 1997, First State had approximately $234 million
in assets.
Joachim Bancorp, Inc. Joachim, 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") upon Joachim
Federal's conversion from a federal mutual to a federal stock savings and loan
association. Joachim Federal's mutual-to-stock conversion was completed on
December 27, 1995. Joachim has not engaged in any significant activity other
than holding the stock of Joachim Federal and investing its share of the net
proceeds of its stock offering in connection with Joachim Federal's
conversion.
Joachim Federal was organized in 1962. Joachim Federal 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. Joachim Federal
operates as a community oriented financial institution and its business
consists primarily of attracting deposits from the general public and using
those funds to originate residential real estate loans. Joachim Federal
operates out of one office in DeSoto, Missouri.
Joachim's office is located at Plaza Square, DeSoto, Missouri 63020 and
its telephone number is (314) 586-8821.
See "SELECTED FINANCIAL DATA," "BUSINESS OF JOACHIM" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for
additional information about Joachim.
The Special Meeting
Place, Time and Date; Purpose. The Special Meeting will be held at 2:00
p.m., Central Time, on May 6, 1998 at the DeSoto Public Library, 712 South
Main Street, DeSoto, Missouri. The purpose of the Special Meeting is to
consider and vote on a proposal to approve the Merger Agreement attached
hereto as Appendix A. See "THE SPECIAL MEETING -- Place, Time and Date" and
"-- Purpose."
Record Date; Shares Entitled to Vote. The Joachim Board has fixed the
close of business on March 30, 1998 as the Record Date for the determination
of persons entitled to notice of and to vote at the Special Meeting. Only
those holders of shares of Joachim Common Stock of record on the Record Date
will be entitled to notice of and to vote at the Special Meeting. Each share
of Joachim Common Stock will be entitled to one vote. Stockholders of record
who execute proxies retain the right to revoke them at any time prior to being
voted at the Special Meeting. As of the Record Date, there were 722,415
shares of Joachim Common Stock issued and outstanding and entitled to be voted
at the Special Meeting. See "THE SPECIAL MEETING -- Record Date; Shares
Entitled to Vote."
-iii-
<PAGE>
<PAGE>
Vote Required. Approval of the Merger Agreement requires the affirmative
vote of the holders of two-thirds of the outstanding shares of Joachim Common
Stock. As of the Record Date, the directors (including directors emeritus)
and executive officers of Joachim, together with their affiliates,
beneficially owned 68,552 shares of Joachim Common Stock, which represents
9.5% of the shares entitled to be voted at the Special Meeting. As of the
Record Date, First State and its directors and executive officers owned an
aggregate of 46,548 shares of Joachim Common Stock. See "THE SPECIAL MEETING
- -- Vote Required."
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, will have the same effect as a vote
against approval of the Merger Agreement.
The Merger
The Merger Agreement provides that First State will acquire 100%
ownership of Joachim through the merger of Joachim and FSB Sub, Inc.
Thereafter, First State intends to merge Joachim Federal into First State
Community Bank. For a more detailed description of transactions contemplated
by the Merger Agreement, see "THE MERGER."
At the Effective Time (as hereinafter defined) of the Merger each of the
outstanding shares of Joachim Common Stock outstanding immediately prior to
the Effective Time will be converted into the right to receive $17.25 per
share in cash. Upon completion of the Merger, the existing stockholders of
Joachim will no longer own any stock or have any interest in Joachim, nor will
they receive, as a result of the Merger, any stock of First State.
Recommendation of the Joachim Board
The Joachim Board has unanimously approved the Merger Agreement and
recommends that the stockholders of Joachim vote FOR approval of the Merger
Agreement.
For a discussion of the circumstances surrounding the Merger and the
factors considered by the Joachim Board in making its recommendation, see "THE
MERGER -- Background and Reasons for the Merger." Approval of the Merger
Agreement by Joachim stockholders is required by law and is a condition to
consummation of the Merger. See "THE MERGER -- Conditions to Consummation;
Termination." For a description of certain economic interests that directors
and officers of Joachim may be deemed to have in the Merger, see "THE MERGER -
- - Interests of Certain Persons in the Merger."
Opinion of Financial Advisor
RP Financial, LC. ("RP Financial"), Joachim's financial advisor, has
delivered a written opinion to the Joachim Board, dated the date of this Proxy
Statement, to the effect that the consideration to be paid to Joachim
stockholders is fair to Joachim stockholders from a financial point of view.
A copy of RP Financial's opinion, dated the date of this Proxy Statement,
setting forth the assumptions made, matters considered, procedures followed
and limits of its review, is attached hereto as Appendix C and should be read
by stockholders in its entirety. See "THE MERGER -- Opinion of Financial
Advisor."
Effective Time of the Merger
The Merger will become effective at the time specified in articles of
merger filed with the Missouri Secretary of State ("Effective Time").
Assuming the timely receipt of all regulatory approvals, the expiration of all
statutory waiting periods and the satisfaction or waiver of all conditions in
the Merger Agreement, it is currently anticipated that the Merger will be
consummated in the second calendar quarter of 1998. See "THE MERGER --
Effective Time of the Merger."
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<PAGE>
<PAGE>
Interests of Certain Persons in the Merger
Certain members of Joachim's management and the Board of Directors have
certain interests in the Merger that are in addition to their interests as
stockholders of Joachim generally. As described below, the Merger will result
in the cash out of stock options and certain grants of restricted stock, the
aggregate value of which would be approximately $550,000.
Pursuant to the terms of the Merger Agreement, all validly issued and
outstanding stock options under Joachim's 1996 Stock Option Plan will be
converted into the right to receive $17.25 less the exercise price for the
shares. Executive officers and directors (including directors emeritus) of
Joachim currently hold options to purchase an aggregate of 47,607 shares.
Under this arrangement such persons will receive, net of the option exercise
price of $12.3125 per share, a total of approximately $235,000. Pursuant to
Joachim's 1996 Management Recognition and Development Plan ("MRDP") grants of
restricted stock were made to officers and directors of Joachim, with vesting
of such shares to occur over a five-year period beginning July 17, 1996.
Pursuant to the terms of the Merger Agreement, all unvested restricted shares
of Joachim Common Stock will be cancelled and converted into the right to
receive $17.25. Executive officers and directors (including directors
emeritus) of Joachim currently hold 18,251 shares of unvested restricted
stock. Such shares have an aggregate value of approximately $315,000.
For the first three years after the Effective Time, First State will use
its reasonable best efforts to cause all directors and officers of Joachim to
continue to be covered by Joachim's directors and officers liability insurance
policy at an annual cost not to exceed 150% of Joachim's annual premium
payment for Joachim's current policy. After the Effective Time, First State
will, to the fullest extent permitted by Missouri law, indemnify all directors
and officers of Joachim and Joachim Federal against all liabilities arising
out of actions or omissions occurring on or prior to the Effective Time.
Pursuant to the Merger Agreement, certain executive officers of Joachim
will enter into new employment agreements with First State and/or First State
Community Bank to replace their current employment agreements with Joachim and
Joachim Federal.
The Merger Agreement provides that members of the Joachim Board of
Directors will serve as advisory directors of First State Community Bank's
DeSoto Branch for at least one year after the Effective Time. Each member
will receive advisory directors' fees of $500 per month.
See "THE MERGER -- Interests of Certain Persons in the Merger."
Certain Federal Income Tax Consequences
As a result of the Merger, a stockholder of Joachim will generally
recognize a gain or loss for federal income tax purposes measured by the
difference between the cash received pursuant to the Merger Agreement and such
stockholder's tax basis in the shares of Joachim Common Stock exchanged
therefor. You should consult with your tax advisor as to the specific tax
consequences to you of the Merger, including the applicability and effect of
federal, state, local, foreign and other tax laws. See "THE MERGER -- Certain
Federal Income Tax Consequences."
Surrender of Stock Certificates
After consummation of the Merger, First State Community Bank will mail
instructions to each Joachim stockholder concerning the proper method of
surrendering certificates formerly representing shares of Joachim Common Stock
in exchange for the cash payment to which such stockholder is entitled. DO
NOT SEND STOCK CERTIFICATES AT THIS TIME.
-v-
PAGE
<PAGE>
Conditions to Consummation; Termination
The respective obligations of the parties to consummate the Merger are
subject to, among other things: (i) approval of the Merger Agreement by
Joachim's stockholders holding not less than two-thirds of the outstanding
shares of Joachim Common Stock; (ii) receipt of all applicable regulatory
approvals; (iii) the absence of any order prohibiting consummation of the
Merger; and (iv) certain current officers of Joachim having entered into
employment agreements with First State and/or First State Community Bank.
The obligation of Joachim to consummate the Merger is subject to the
satisfaction or waiver of certain additional conditions, including: (i) the
continued accuracy of the representations and warranties of First State made
by it in the Merger Agreement; and (ii) the performance by First State of the
covenants and agreements made by it in the Merger Agreement. The obligations
of First State are subject to the satisfaction or waiver of certain additional
conditions, including: (i) the continued accuracy of the representations and
warranties of Joachim made by it in the Merger Agreement; (ii) the performance
by Joachim of the covenants and agreements made by it in the Merger Agreement;
(iii) the receipt of all consents, approvals or waivers (other than regulatory
approvals) required for or in connection with the Merger; (iv) there having
been no material adverse change in the business, financial condition or
results of operations of Joachim since the date of the Merger Agreement; and
(v) the number of shares for which dissenters' rights are exercised not
exceeding 10% of the outstanding shares of Joachim Common Stock.
The Merger Agreement may be terminated at any time by mutual agreement of
the parties. The Merger Agreement may also be terminated by either Joachim or
First State if the Merger is not consummated by September 30, 1998. See "THE
MERGER -- Conditions to Consummation; Termination."
Regulatory Requirements
The Merger and the related merger of Joachim Federal and First State
Community Bank are subject to the prior approval of the Board of Governors of
the Federal Reserve System ("Federal Reserve"), the Missouri Division of
Finance and the FDIC. First State filed an application for approval of the
Merger with the Federal Reserve and the Missouri Division of Finance on March
20, 1998 and filed an application for approval of the merger of Joachim
Federal and First State Community Bank with the Missouri Division of Finance
and the FDIC on March 20, 1998. There can be no assurance that the necessary
regulatory approval will be obtained or as to the timing of or conditions
placed upon such approval. See "THE MERGER -- Regulatory Requirements."
Termination Fee
As a condition and inducement to First State's entering into the Merger
Agreement, Joachim has agreed to pay to First State a termination fee of
$500,000 under certain circumstances. The termination fee is intended to make
it more difficult for another party to acquire Joachim, thereby increasing the
likelihood that the Merger will occur. See "THE MERGER -- Termination Fees."
Dissenters' Rights
Stockholders have the right to dissent from the Merger and to obtain the
fair value of their shares of Joachim Common Stock under the provisions of
Section 351.455 of the Missouri General and Business Corporation Law ("GBCL"),
which is set forth in Appendix B to this Proxy Statement. A stockholder who
wishes to exercise his or her dissenters' rights must deliver to Joachim prior
to or at the Special Meeting a written objection to the Merger, must not vote
in favor of the Merger Agreement and must make a written demand on First
State, as the surviving corporation, within 20 days after the Merger is
consummated for the fair value of his or her shares. All objections to the
Merger should be addressed to the corporate secretary, Joachim Bancorp, Inc.,
Plaza Square, DeSoto, Missouri 63020. All stockholders who deliver a written
objection to Joachim and who do not vote in favor of the Merger Agreement will
be notified when the Merger is consummated.
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<PAGE>
<PAGE>
See "THE MERGER -- Dissenters' Rights" and Appendix B for a more complete
description of dissenters' rights. Failure to follow exactly the procedures
specified will result in the loss of your dissenters' rights.
Accounting Treatment
The Merger will be treated as a purchase for accounting purposes.
Accordingly, under generally accepted accounting principles, the assets and
liabilities of Joachim will be recorded on the books of First State at their
respective fair values at the time of consummation of the Merger.
MARKET PRICES OF JOACHIM COMMON STOCK
Joachim Common Stock, which was initially issued on December 27, 1995 at
$10.00 per share, is listed on the Nasdaq SmallCap Market under the symbol
"JOAC." The table below sets forth, for the quarters indicated, the high and
low sales prices of Joachim Common Stock as reported on the Nasdaq SmallCap
Market and the dividends per share declared on Joachim Common Stock in each
such quarter.
Cash Dividends
Prices Paid Per Share
------------------- --------------
High Low
------- -------
Fiscal Year Ended March 31, 1996
Third Quarter . . . . . . . . . . . $14.000 $10.000 $ .--
Fourth Quarter. . . . . . . . . . . 13.750 11.500 .125
Fiscal Year Ended March 31, 1997
First Quarter . . . . . . . . . . . 12.750 11.750 .125
Second Quarter. . . . . . . . . . . 13.500 12.250 .125
Third Quarter . . . . . . . . . . . 15.250 13.500 .125
Fourth Quarter . . . . . . . . . . 14.625 14.000 .125
Fiscal Year Ended March 31, 1998
First Quarter. . . . . . . . . . . 15.250 14.000 .125
Second Quarter . . . . . . . . . . 15.250 14.250 .125
Third Quarter. . . . . . . . . . . 16.000 14.750 .125
Fourth Quarter (through March 26,
1998) . . . . . . . . . . . . . . 16.625 16.000 .125
On the Record Date, shares of Joachim Common Stock were held of record by
approximately 300 persons.
The closing price per share for Joachim Common Stock as reported on the
Nasdaq SmallCap Market on December 29, 1997, the last full trading day prior
to the public announcement of the execution of the Merger Agreement, was
$16.00. On March 26, 1998, which is most recent date for which it was
practicable to obtain market data prior to the printing of this Proxy
Statement, the closing bid price for Joachim Common Stock was $16.438.
Holders of Joachim Common Stock are urged to obtain current market quotations.
-vii-
<PAGE>
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
The following tables set forth certain information concerning the consolidated financial position
and results of operation of Joachim at the dates and for the periods indicated. Information at December
31, 1997 and 1996 and for the nine months ended December 31, 1997 and 1996 is unaudited, but, in the
opinion of management, contains all adjustments (none of which were other than normal recurring entries)
necessary for a fair statement of the results of such periods. Information at and for the years ended
March 31, 1995, 1994 and 1993 is for Joachim Federal only. This information is qualified in its entirety
by reference to the detailed information and Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Proxy Statement.
At or For the At or For the
Nine Months Ended Years Ended
December 31, March 31,
----------------- ---------------------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Interest income. . . . . . . . . . . . .$ 1,892 $ 1,908 $ 2,537 $ 2,349 $ 2,058 $ 2,139 $ 2,356
Interest expense . . . . . . . . . . . . (815) (810) (1,071) (1,158) (903) (957) (1,201)
------- ------- ------- ------- ------- ------- -------
Net interest income. . . . . . . . . . 1,077 1,098 1,466 1,191 1,155 1,182 1,155
Provision for loan losses. . . . . . . . (7) (6) (12) (11) (21) (17) (42)
------- ------- ------- ------ ------- ------- -------
Net interest income after
provision for loan losses. . . . . . 1,070 1,092 1,454 1,180 1,134 1,165 1,113
Non-interest income. . . . . . . . . . . 32 54 67 57 71 82 77
Non-interest expense . . . . . . . . . . (769) (958) (1,219) (929) (852) (785) (762)
------- ------- ------- ------ ------- ------- -------
Earnings before income taxes . . . . . . 333 188 302 308 353 462 428
Income taxes . . . . . . . . . . . . . . (124) (61) (119) (99) (117) (168) (155)
------- ------- ------- ------ ------- ------- -------
Net earnings . . . . . . . . . . . . . .$ 209 $ 127 $ 183 $ 209 $ 236 $ 294 $ 273
======= ======= ======= ====== ======= ======= =======
Historical Per Share Data:
Net earnings . . . . . . . . . . . . . .$ .30 $ .18 $ .25 $ .28 * * *
Cash dividends . . . . . . . . . . . . . .375 .375 .50 .125 * * *
Dividend payout ratio. . . . . . . . . . 125.00% 208.33% 200.00% 44.64% * * *
Selected Ratios:
Return on average equity . . . . . . . . 2.79% 1.57% 1.73% 3.63% 5.95% 7.89% 7.85%
Return on average assets . . . . . . . . 0.80 0.47 0.50 0.66 0.79 0.94 .87
Net interest margin. . . . . . . . . . . 4.24 4.18 4.19 3.80 4.06 3.99 3.86
Average equity as a percentage of
average assets . . . . . . . . . . . . 28.55 29.70 29.11 18.14 13.23 11.94 11.11
Non-performing assets as
a percentage of total assets . . . . . 0.21 0.74 0.69 0.01 1.25 1.23 1.30
Financial Condition Data:
Total assets . . . . . . . . . . . . . .$34,229 $35,110 $35,656 $36,779 $30,011 $30,955 $31,024
Cash and cash equivalents. . . . . . . . 2,311 1,824 2,092 5,385 2,979 2,227 2,364
Securities, certificates of deposit
and FHLB stock . . . . . . . . . . . . 5,052 7,636 8,135 6,888 3,778 5,289 5,067
Loans receivable, net. . . . . . . . . . 25,292 24,027 23,772 22,932 22,106 22,374 22,459
Mortgage-backed and related securities . 823 854 840 874 137 183 195
Deposits . . . . . . . . . . . . . . . . 24,028 24,064 24,825 25,644 25,475 26,582 26,918
Stockholders' equity(1). . . . . . . . . 9,897 10,701 10,334 10,751 4,083 3,847 3,553
- ---------------------
*No shares were outstanding during these periods as Joachim Federal was operating in the mutual form of
organization.
(1) Amounts at March 31, 1995, 1994 and 1993 represent retained earnings of Joachim Federal.
</TABLE>
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THE SPECIAL MEETING
Place, Time and Date
The Special Meeting will be held on Wednesday, May 6, 1998 at 2:00 p.m.,
Central Time, at the DeSoto Public Library, 712 South Main Street, DeSoto,
Missouri. This Proxy Statement is being sent to holders of Joachim Common
Stock and is accompanied by a form of proxy that is being solicited by the
Joachim Board for use at the Special Meeting and any adjournments or
postponements thereof.
Purpose
The purpose of the Special Meeting is (i) to consider and vote upon a
proposal to approve the Merger Agreement described herein and (ii) to act upon
such other matters, if any, as may properly come before the Special Meeting.
Record Date; Shares Entitled to Vote
The Joachim Board has fixed the close of business on March 30, 1998 as the
Record Date for determining stockholders entitled to notice of and to vote at
the Special Meeting. Only those holders of Joachim Common Stock of record on
the Record Date will be entitled to notice of and to vote at the Special
Meeting. Each share of Joachim Common Stock will be entitled to one vote. At
the Record Date, there were 722,415 shares of Joachim Common Stock outstanding
and entitled to be voted at the Special Meeting.
Vote Required
A majority of the shares entitled to vote, represented in person or by
proxy, will constitute a quorum of Joachim stockholders at the Special
Meeting. Valid proxies that are marked "Abstain," including proxies submitted
by brokers that are the record owners of shares (so-called "broker
non-votes"), will be considered present for purposes of determining whether a
quorum exists. Approval of the Merger Agreement requires the affirmative vote
of the holders of two-thirds of the outstanding shares of Joachim Common
Stock. Abstentions and broker non-votes will have the same effect as votes
cast against approval of the Merger Agreement.
As of the Record Date, the directors (including directors emeritus) and
executive officers of Joachim and their affiliates beneficially owned an
aggregate of 68,552 shares of Joachim Common Stock, which represents 9.5% of
the shares entitled to be voted at the Special Meeting. As of the Record
Date, First State and directors and executive officers of First State owned an
aggregate of 46,548 shares of Joachim Common Stock.
Proxies
Holders of Joachim Common Stock may vote either in person or by properly
executed proxy. Shares of Joachim Common Stock represented by a properly
executed proxy received prior to or at the Special Meeting will, unless such
proxy is revoked, be voted in accordance with the instructions indicated on
such proxy. If no instructions are indicated on a properly executed proxy,
the shares covered thereby will be voted FOR the proposal to approve the
Merger Agreement. Failure to return the proxy card or to vote in person at
the Joachim Special Meeting will have the effect of a vote cast against the
Merger Agreement. If any other matters are properly presented at the Special
Meeting for consideration, including, among other things, a motion to adjourn
the Special Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the proxy and acting thereunder will have discretion to vote on such
matters in accordance with their best judgment; provided, however, that no
proxy which is voted against the proposal to approve the Merger Agreement will
be voted in favor of any such adjournment or postponement. As of the date
hereof, the Joachim Board knows of no such other matters.
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Any proxy given pursuant to this solicitation or otherwise may be revoked
by the record holder of the shares at any time before it is voted by
delivering to the Secretary of Joachim, on or before the taking of the vote at
the Special Meeting, a written notice of revocation bearing a later date than
the proxy or a later dated proxy relating to the same shares of Joachim Common
Stock, or by attending the Special Meeting and voting in person. Attendance
at the Special Meeting will not in itself constitute revocation of a proxy.
The proxy for the Special Meeting is being solicited on behalf of the
Joachim Board. The expense of soliciting proxies for the Special Meeting will
be borne by Joachim. All other costs and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby are to be paid
by the party incurring such expenses. Proxies will be solicited principally
by mail, but may also be solicited by the directors, officers and other
employees of Joachim in person or by telephone, facsimile or other means of
communication. Such directors, officers and employees will receive no
compensation therefor in addition to their regular compensation, but may be
reimbursed for out-of-pocket expenses in connection with such solicitation.
Directors, officers and employees of First State may assist Joachim in
soliciting proxies at their own expense. Brokers and others who hold Joachim
Common Stock on behalf of another will be asked to forward proxy material and
related documents to the beneficial owners of such stock, and Joachim will
reimburse them for their expenses in doing so. Joachim has retained Regan &
Associates, Inc. to assist in soliciting proxies at a cost of $3,250 plus
expenses up to $1,650.
Participants in Joachim Federal's ESOP. If a shareholder is a participant
in the Joachim Federal Savings and Loan Association Employee Stock Ownership
Plan (the "ESOP"), the proxy card represents a voting instruction to the
trustees of the ESOP as to the number of shares in the participant's plan
account. Each participant in the ESOP may direct the trustees as to the
manner in which shares of Joachim Common Stock allocated to the participant's
plan account are to be voted. Unallocated shares of Joachim Common Stock held
by the ESOP and allocated shares for which no voting instructions are received
will be voted by the trustees in accordance with their fiduciary duties.
THE MERGER
The descriptions in this Proxy Statement of the terms and conditions of
the Merger and related transactions are qualified in their entirety by
reference to the Merger Agreement, a copy of which is attached as Appendix A
to this Proxy Statement and is incorporated herein by reference.
General
The Merger Agreement provides for the merger of Joachim with FSB Sub,
Inc., with Joachim surviving such merger and becoming a wholly-owned
subsidiary of First State . At the Effective Time, First State intends to
merge Joachim Federal into First State Community Bank. Upon completion of the
Merger, stockholders of Joachim will no longer own any stock in Joachim and
will not, as a result of the Merger, own any stock of First State.
At the Effective Time, each outstanding share of Joachim Common Stock will
be converted into the right to receive $17.25 per share in cash, without any
interest thereon. Promptly after the Effective Time, First State Community
Bank , acting as exchange agent, will mail to holders of Joachim Common Stock
a letter of transmittal and instructions for surrendering certificates
evidencing Joachim Common Stock. Following delivery of a properly executed
letter of transmittal and such certificates, a stockholder will receive a
check for the cash payment to which such stockholder is entitled and the
certificates so surrendered will be canceled. No interest will be paid or
accrued on the amount to which the stockholder becomes entitled at the
Effective Time. DO NOT SEND STOCK CERTIFICATES AT THIS TIME.
Missouri law provides for dissenters' rights in this transaction. See "--
Dissenters' Rights" for more information.
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Effective Time of the Merger
The Effective Time of the Merger will occur at the time specified in
articles of merger filed with the Missouri Secretary of State. Assuming the
timely receipt of all regulatory approvals, the expiration of all statutory
waiting periods and the satisfaction or waiver of all conditions in the Merger
Agreement, it is currently anticipated that the Merger will be consummated in
the second quarter of 1998. Either Joachim or First State may terminate the
Merger Agreement if the Merger is not consummated by September 30, 1998 or for
certain other reasons specified in the Merger Agreement.
Background and Reasons for the Merger
In July 1997, Greg Allen, the President of First State, contacted Bernard
R. Westhoff, the President of Joachim, to discuss the potential acquisition of
Joachim by First State. Mr. Allen and Mr. Westhoff met on August 8, 1997, at
which time Mr. Allen presented to Mr. Westhoff a discussion term sheet. The
term sheet was intended to form the basis for consideration of a possible
business combination between Joachim and First State.
On August 21, the Joachim Board met to discuss the meeting between Mr.
Westhoff and Mr. Allen. At that time, the Joachim Board decided to invite
special legal counsel, Breyer & Aguggia, and RP Financial to address the First
State proposal. At a meeting of the Joachim Board held on September 4, legal
counsel presented an outline of the strategic options that were available to
Joachim. RP Financial presented a financial overview of the return to Joachim
stockholders since Joachim Federal's mutual-to-stock conversion and the
possibilities for enhancing stockholder value, both on a stand-alone basis as
well as under a sale-of-control basis. RP Financial also discussed the
consideration paid in comparable transactions and reviewed the proposal from
First State.
The Joachim Board met again on September 9 to consider the strategic
options available to Joachim. At that meeting, the Joachim Board decided that
it would solicit indications of interest from other parties to determine
whether a business combination potentially presented Joachim stockholders with
a better return relative to a strategy of independence. The Joachim Board
also determined that it would continue to review Joachim's business plan and
consider the possibility of expansion of that plan within the context of
remaining independent.
On September 15, Joachim retained RP Financial to assist Joachim in
identifying prospective merger partners, to assist Joachim in merger
negotiations and, in the event the Joachim Board decided to proceed with a
merger transaction, to address the fairness of the proposed merger terms.
Over the next few weeks, RP Financial worked with Joachim to prepare a list of
regional financial institutions with the ability to consummate an acquisition
at a price potentially exceeding the level of the First State proposal.
Joachim and RP Financial considered institutions that had previously expressed
an interest in merging with Joachim, that have been active acquirers in
Joachim's market, that appeared to have the ability to pay a price equal to or
greater than the First State proposal, and that have the ability to consummate
and gain regulatory approval for a business combination.
In late September, RP Financial contacted the five institutions that
Joachim and RP Financial had identified as being potential merger partners for
Joachim. Four of these institutions indicated an interest in reviewing
information about Joachim. Following the execution of written confidentiality
agreements, RP Financial provided these four institutions with certain
information about Joachim. Over the next several weeks, RP Financial had
numerous discussions with the interested institutions and received indications
of interest from all four institutions. During this period, RP Financial
periodically reported to Joachim management on the progress of such
discussions and the potential merger terms indicated, including the level and
form of consideration, financial assessments of the pro forma impact of the
merger on the prospective acquirers, certain deal contingencies and potential
benefits of the combination.
At a meeting held on November 25, RP Financial reviewed with the Joachim
Board the four indications of interest. Three of the proposals were at a
value below First State's offer. The fourth proposal was at a value
comparable to First State's offer, but the consideration would be paid in
common stock of the acquirer. The Joachim Board discussed this offer in
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comparison with the First State offer and asked RP Financial and legal counsel
to discuss this offer in more detail. On December 4, the Joachim Board met
again to discuss the First State offer and the stock offer. With respect to
the stock offer, the Joachim Board noted the high valuation of the stock, the
aggressive strategy and capital raising activities of the institution, and the
impact of a decline in the institution's stock price on the stockholders of
Joachim as a result of the proposed pricing structure. After considering,
among other things, the amount of First State's offer and its financial and
regulatory ability to complete the acquisition, the uncertainties of the
competing offer compared to the certainty of the value to Joachim stockholders
under First State's proposal, and stockholder returns Joachim could
potentially generate under alternative strategies, the Joachim Board
determined to enter into negotiations with First State to produce an agreement
for the acquisition of Joachim. During the following weeks, the executive
officers of Joachim and First State and their respective counsels engaged in
numerous discussions to negotiate the terms of a definitive merger agreement
and related documents.
On December 29, 1997, the Joachim Board, along with RP Financial and
Joachim's legal counsel, reviewed the contents of the Merger Agreement
together with its exhibits. The Board of Directors also considered Joachim's
strategic alternatives, the market testing process that had been conducted,
the financial and valuation analyses of the transaction, the impact of the
proposed transaction on employees and customers of Joachim Federal and related
questions and answers. The Board also reviewed RP Financial's written
opinion, as of such date, that the consideration to be paid in the Merger was
fair to holders of Joachim Common Stock from a financial point of view.
Thereafter, Joachim's Board of Directors unanimously approved the Merger
Agreement.
The Joachim Board believes that the terms of the Merger Agreement, which
are the product of arm's length negotiations between representatives of First
State and Joachim, are fair and in the best interests of Joachim and its
stockholders. In the course of reaching its determination, the Joachim Board
of Directors consulted with legal counsel with respect to its legal duties,
the terms of the Merger Agreement and the issues related thereto; with its
financial advisor with respect to the financial aspects and fairness of the
transaction; and with senior management regarding, among other things,
operational matters.
In reaching its determination to approve the Merger Agreement, Joachim's
Board of Directors considered all factors it deemed material, which are the
following:
(a) The Joachim Board analyzed information with respect to the financial
condition, results of operations, cash flow, businesses and prospects of
Joachim. In this regard, the Joachim Board analyzed the options of selling
Joachim or continuing on a stand-alone basis. The range of values on a sale
of control basis were determined to generally exceed the present value of
Joachim shares on a stand-alone basis under business strategies which could be
reasonably implemented by Joachim.
(b) The Joachim Board considered the written opinion of RP Financial
that, as of December 29, 1997, the consideration to be received by holders of
Joachim Common Stock pursuant to the Merger Agreement was fair to Joachim
stockholders from a financial point of view. See "-- Opinion of Financial
Advisor."
(c) The Joachim Board considered the current operating environment,
including, but not limited to, the continued consolidation and increasing
competition in the banking and financial services industries and the prospect
for further changes in these industries. This information had been
periodically reviewed by the Joachim Board at its regular Board meetings in
the months following Joachim's mutual-to-stock conversion and was also
discussed between Joachim's Board and Joachim's various advisors.
(d) The Joachim Board considered the other terms of the Merger Agreement
and exhibits, including the taxable nature of the consideration to be paid to
Joachim stockholders.
(e) The Joachim Board considered the detailed financial analyses, pro
forma and other information with respect to Joachim and First State discussed
by RP Financial, as well as the Joachim Board's own knowledge of Joachim,
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First State and their respective businesses. In this regard, the latest
publicly- available financial and other information for Joachim and First
State were analyzed, including a comparison to publicly-available financial
and other information for other similar savings institutions.
(f) The Joachim Board considered the results of the contacts and
discussions between Joachim and its financial advisor and various third
parties and the belief of the Joachim Board and management that the Merger
offered the best transaction available to Joachim and its stockholders.
(g) The Joachim Board considered the likelihood of the Merger and
related transactions being approved by the appropriate regulatory authorities,
including factors such as market share analyses, First State's Community
Reinvestment Act ("CRA") rating at that time and the estimated pro forma
financial impact of the transaction on First State. See "-- Regulatory
Requirements."
(h) The Joachim Board considered the ability of First State to pay the
aggregate consideration. Joachim's Board reviewed First State's liquidity and
capital position as reflected in First State's latest stockholder reports in
evaluating the ability of First State to pay the aggregate consideration.
(i) The Joachim Board considered the fact that the Merger Agreement
prohibits Joachim from initiating, or encouraging discussions with third
parties relating to alternative transactions and requires the payment of a
termination fee of $500,000 to First State in certain events, and the fact
that First State required such provisions as a condition to entering into the
Merger Agreement.
The foregoing discussion of the information and factors considered by the
Joachim Board is not intended to be exhaustive, but constitutes the material
factors considered by the Joachim Board. In reaching its determination to
approve and recommend the Merger Agreement, the Joachim Board did not assign
any relative or specific weights to the foregoing factors, and individual
directors may have weighed factors differently.
For the reasons set forth above, the Joachim Board has unanimously
approved the Merger Agreement as advisable and in the best interests of
Joachim and Joachim stockholders and recommends that the stockholders of
Joachim vote FOR the approval of the Merger Agreement.
Opinion of Financial Advisor
The Joachim Board retained RP Financial in September 1997 to provide
certain financial advisory and investment banking services to Joachim. Such
services included undertaking a search process to ascertain the interest in an
acquisition of Joachim by regional and local financial institutions other than
First State, including those that previously expressed interest in acquiring
Joachim, negotiating financial terms with prospective acquirers and rendering
its opinion with respect to the fairness of the Merger Consideration from a
financial point of view to Joachim's stockholders in the event Joachim entered
into an agreement to be acquired. In requesting RP Financial's advice and
opinion, the Joachim Board did not give any special instructions to RP
Financial, nor did it impose any limitations upon the scope of the
investigation which RP Financial might wish to conduct to enable it to give
its opinion.
RP Financial was selected by Joachim to act as its financial advisor
because of RP Financial's expertise in the valuation of businesses and their
securities for a variety of purposes, including its expertise in connection
with mergers and acquisitions of savings and loan associations, savings banks,
savings and loan holding companies, commercial banks and bank holding
companies. RP Financial had also previously provided the analysis as to
Joachim's pro forma market value in connection with Joachim Federal's
conversion from mutual to stock form. Pursuant to a letter agreement dated
September 12, 1997, and executed by Joachim on September 19, 1997 (the
"Engagement Letter"), RP Financial estimates that it will receive from Joachim
total professional fees of $45,000, of which $25,000 has been paid to date,
plus reimbursement of certain out-of-pocket expenses, for its services in
connection with the Merger. In addition, Joachim has agreed to indemnify RP
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Financial against certain liabilities, including liabilities under the federal
securities laws. RP Financial's fee is not conditioned upon its conclusions
with respect to the fairness of the Merger consideration.
On December 29, 1997, at the meeting in which the Joachim Board approved
and adopted the Merger Agreement and the transactions contemplated thereby, RP
Financial rendered its opinion to the Joachim Board that, as of such date, the
Merger Consideration was fair to holders of Joachim Common Stock from a
financial point of view. That opinion was updated as of the date of this
Proxy Statement. In connection with its opinion dated the date of this Proxy
Statement, RP Financial also confirmed the appropriateness of its reliance on
the analysis used to render its December 29, 1997 opinion by performing
procedures to confirm the appropriateness of such analyses and by reviewing
the assumptions on which such analyses were based and the factors considered
in connection therewith.
The full text of the opinion of RP Financial, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Appendix C to this Proxy Statement and is incorporated herein
by reference. Holders of Joachim Common Stock are urged to read the opinion
in its entirety.
The opinion of RP Financial is directed to the Joachim Board in its
consideration of the Merger Consideration as described in the Merger
Agreement, and does not constitute a recommendation to any stockholder of
Joachim as to any action that such stockholder should take in connection with
the Merger Agreement, or otherwise. It is further understood that the opinion
of RP Financial is based on market conditions and other circumstances existing
on the date hereof.
In rendering its fairness opinion, RP Financial reviewed and analyzed the
following: (1) the Merger Agreement, dated December 29, 1997, including
exhibits; (2) the following information for Joachim -- (a) audited financial
statements for the fiscal years ended March 31, 1995, 1996, and 1997,
incorporated in the respective Annual Reports to stockholders, (b)
stockholder, regulatory and internal financial and other reports through
December 31, 1997, (c) the conversion prospectus, dated November 17, 1995, and
(d) the most recent proxy statement for Joachim; (3) discussions with
Joachim's management and directors regarding past and current business,
operations, financial condition, and future prospects; (4) Joachim's latest
publicly-available financial statements, operating results and market pricing
characteristics relative to those publicly-traded savings institutions with
relatively comparable characteristics; (5) competitive, economic and
demographic characteristics in the local market area; (6) the potential impact
of regulatory and legislative changes on savings institutions; (7) the
financial terms of other recently completed and pending acquisitions of
savings institutions, regionally and nationally, with similar characteristics;
(8) other expressions of interest by third parties; (9) First States'
financial condition through December 31, 1997, to assess First State's ability
to complete the merger from a cash and capital perspective; and (10) First
State Community Bank's most recent CRA rating.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
Joachim as furnished by Joachim to RP Financial, as well as publicly-available
information regarding other financial institutions and competitive, economic,
and demographic data. Joachim did not restrict RP Financial as to the
material it was permitted to review. RP Financial did not perform or obtain
any independent appraisals or evaluations of the assets and liabilities and
potential and/or contingent liabilities of Joachim.
RP Financial expresses no opinion on matters of a legal, regulatory, tax
or accounting nature or the ability of the Merger as set forth in the Merger
Agreement to be consummated. In rendering its opinion, RP Financial assumed
that in the course of obtaining the necessary regulatory and governmental
approvals for the proposed Merger, no restriction will be imposed on First
State that would have a material adverse effect on the ability of the Merger
to be consummated as set forth in the Merger Agreement.
RP Financial's opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of
December 29, 1997 and the date of this Proxy Statement; events occurring after
the date of this Proxy Statement could materially affect the assumptions used
in preparing its opinion.
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In connection with rendering its opinion dated December 29, 1997 and
updated as of the date of this Proxy Statement, RP Financial performed a
variety of financial analyses which are summarized below. Although the
evaluation of the fairness, from a financial point of view, of the Merger
Consideration was to some extent subjective based on the experience and
judgment of RP Financial, and not merely the result of mathematical analyses
of financial data, RP Financial principally relied on the financial analyses
summarized below in its determinations. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to partial analyses or
summary description. RP Financial believes its analyses must be considered as
a whole and that selecting portions of such analyses and factors considered by
RP Financial without considering all such analyses and factors could create an
incomplete view of the process underlying RP Financial's opinion. In its
analyses, RP Financial took into account its assessment of general business,
market, monetary, financial and economic conditions, industry performance and
other matters, many of which are beyond the control of Joachim and First
State, as well as RP Financial's experience in securities valuation, its
knowledge of financial institutions and its experience in similar
transactions. With respect to the comparable transactions analysis described
below, no public company utilized as a comparison is identical to Joachim and
such analyses necessarily involve complex considerations and judgments
concerning the differences in financial and operating characteristics of the
companies and other factors that could affect the acquisition values of the
companies concerned. The analyses were prepared solely for purposes of RP
Financial providing its opinion as to the fairness of the Merger Consideration
and do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Any estimates contained in RP
Financial's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such estimates.
None of the analyses performed by RP Financial was assigned a greater
significance by RP Financial than any other.
Comparable Transactions Analysis. RP Financial compared the Merger on the
basis of stated multiples of reported earnings, tangible book value, assets
and core deposits of Joachim implied by the Merger Consideration to be paid to
the holders of Joachim Common Stock with the same ratios in pending and
completed acquisitions of (a) Missouri savings and loan associations, savings
banks and savings and loan holding companies, and (b) acquisitions of
financially comparable savings and loan associations, savings banks and
savings and loan holding companies based in the Midwest region of the United
States.
The Missouri institutions with completed or pending acquisitions since the
beginning of 1996 included a total of eight institutions. The acquisition
pricing ratios of this group were: (i) price/earnings ratios ranging from
19.20 to 53.49 times, with a median of 27.05 times; (ii) price/tangible book
ratios ranging from 123 to 210 percent, with a median of 163 percent; (iii)
price/assets ratios ranging from 9.43 to 31.54 percent, with a median of 16.63
percent; and (iv) core deposit premiums of 2.73 percent to 19.58 percent, with
a median of 10.44 percent.
The Midwest institutions included 18 completed or pending acquisitions
since the beginning of 1996 of institutions with assets less than
$150 million and equity-to-assets ratios greater than 12 percent. The
acquisition pricing ratios of this group were: (i) price/earnings ratios
ranging from 16.67 to 57.92 times, with a median of 35.90 times; (ii)
price/tangible book ratios ranging from 109 to 175 percent, with a median of
127 percent; (iii) price/assets ratios ranging from 13.47 to 33.96 percent,
with a median of 23.88 percent; and (iv) core deposit premiums ranging from
2.28 percent to 16.41 percent, with a median of 7.76 percent.
In comparison to both groups, Joachim was generally smaller, better
capitalized and more profitable. Further, Joachim's acquisition pricing
ratios pursuant to the terms of the agreement for price/earnings and
price/assets exceeds the median ratios of these two groups while the core
deposit premium falls within the range of medians of these two groups. The
price/tangible book value ratio falls slightly below the median of these two
groups. Specifically, the Merger Consideration of $17.25 indicated the
following acquisition pricing ratios for shares of Joachim Common Stock, based
on financial statements as of or for the nine months ended December 31, 1997:
43.33 times annualized earnings, 126 percent of tangible book value, 36.41
percent of assets and 10.67 percent premium on core deposits.
No company or transaction used in this composite is identical to Joachim
or the Merger. Accordingly, an analysis of the results of the foregoing is
not mathematical; rather, it involves complex considerations and judgments
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concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the trading values of
the securities of the company or companies to which they are being compared.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis, RP
Financial estimated the present value of future dividends, based on Joachim's
current payout ratio, and potential growth in the payout ratio and the present
value of the sale-of-control value at the end of the fifth year under
alternative strategies, reflecting a range of multiples to book value of 1.2
to 1.5 times. Alternative strategies analyzed included a base case scenario,
de novo branch scenario, branch acquisition scenario, rapid growth scenario,
arbitrage strategy, high risk weight lending strategy, stock repurchase
scenario, and special dividend scenario. The price/tangible book multiples
incorporated in RP Financial's analysis were derived from the comparable
transactions analysis discussed above. The dividend streams and
sale-of-control values were then discounted to present values based on
discount rates selected after examining the earnings capitalization rate of
publicly-traded thrifts, the Treasury yield curve (i.e., the risk-free rate),
and perceived investment risks in Joachim Common Stock. RP Financial
concluded that the Merger consideration exceeds the upper end of the range of
present values of the sum of future dividends and range of sale-of-control
values derived from the individual strategic scenarios. For example, the
present values derived from the individual strategic scenarios using a 12
percent discount rate and price/tangible book value multiples of 1.2 times
to 1.5 times implies a range of values from roughly $11.00 to $14.00 per
share.
As described above, RP Financial's opinion and presentation to the Joachim
Board was one of many factors taken into consideration by the Joachim Board in
making its determination to approve the Merger Agreement. Although the
foregoing summary describes the material components of the analyses presented
by RP Financial to the Joachim Board on December 29, 1997 and updated for
presentation in this Proxy Statement as of the date hereof, in connection with
its opinion as of those dates, it does not purport to be a complete
description of all the analyses performed by RP Financial and is qualified by
reference to the written opinion of RP Financial set forth as Appendix C
hereto, which Joachim's stockholders are urged to read in its entirety.
Interests of Certain Persons in the Merger
The directors (including directors emeritus) and executive officers of
Joachim together with their affiliates, beneficially owned a total of 68,552
shares of Joachim Common Stock (representing 9.5% of all outstanding shares of
Joachim Common Stock) on December 29, 1997. The directors and executive
officers will receive the same consideration for their shares as the other
stockholders of Joachim. Certain members of Joachim's management and the
Board of Directors have certain interests in the Merger that are in addition
to their interest as stockholders of Joachim generally. The Board of
Directors was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Joachim 1996 Stock Option Plan. Under Joachim's 1996 Stock Option Plan
options to purchase shares of Joachim Common Stock have been issued to
directors, officers and employees of Joachim. Pursuant to the Merger
Agreement, each holder of an option outstanding as of December 29, 1997 and
remaining outstanding at the Effective Time shall receive from First State, as
of the Effective Time, whether or not the option is then exercisable, a cash
payment in an amount equal to the product of (i) the number of shares of
Joachim Common Stock subject to such option at the Effective Time and (ii) the
excess, if any, of $17.25 over the exercise price per share of such option,
net of any cash which must be withheld under federal and state income and
employment tax requirements. Executive officers and directors (including
directors emeritus) currently hold options to purchase an aggregate of 47,607
shares. Under this arrangement, such persons will receive, net of the option
exercise price of $12.3125 per share, a total of approximately $235,000.
Joachim 1996 Management Development and Recognition Plan. Pursuant to
Joachim's 1996 MRDP, grants of restricted stock were made to directors,
officers and employees of Joachim, with vesting of such shares to occur over a
five-year period beginning July 17, 1996. Pursuant to the terms of the Merger
Agreement, all unvested restricted shares of Joachim Common Stock will be
canceled and converted into
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the right to receive $17.25 in cash. Executive officers and directors
(including directors emeritus) of Joachim currently hold 18,251 shares of
unvested restricted stock, which will be converted into the right to receive
approximately $315,000.
Directors' and Officers' Liability. For the first three years after the
Effective Time, First State will use its reasonable best efforts to cause all
directors and officers of Joachim to continue to be covered by Joachim's
directors and officers liability insurance policy at an annual cost not to
exceed 150% of Joachim's annual premium payment for Joachim's current policy.
In addition, after the Effective Time, First State shall indemnify all
directors and officers of Joachim and Joachim Federal against all liabilities
arising out of actions or omissions occurring at or prior to the Effective
Time to the fullest extent provided for under Missouri law.
Employment Agreements. Bernard R. Westhoff, who currently serves as
President and Chief Executive Officer of Joachim and Joachim Federal, Lee
Ellen Hogan, who currently serves as Senior Vice President and
Secretary/Treasurer of Joachim and Joachim Federal, and Melvin Yarbrough, who
currently serves as Vice President of Joachim and Joachim Federal, have
employment agreements with Joachim and Joachim Federal. The Merger Agreement
provides that Mr. Westhoff, Mrs. Hogan and Mr. Yarbrough will enter into
employment agreements with First State and/or First State Community Bank that
will replace their current employment agreements with Joachim. Entering into
the new employment agreements will not constitute an "event of termination"
under the current employment agreements and will not trigger the payment of
any severance payments to the employee. Mr. Westhoff's new employment
agreement will be upon substantially the same terms as his current employment
agreement and will be for a term of five years; however, Mr. Westhoff will
receive only one-half of his base salary during years four and five of the
agreement unless Mr. Westhoff and First State mutually agree to continue his
employment for such years. Mrs. Hogan's new employment agreement will be for
a term of three years and will be upon substantially the same terms as her
current employment agreement. Mr. Yarbrough's new employment agreement will
be upon substantially the same terms as his current employment agreement.
Board of Directors. The Merger Agreement provides that members of the Joachim
Board will serve as advisory directors of First State Community Bank's DeSoto
Branch for at least one year after the Effective Time. Mr. Westhoff and Mrs.
Hogan will continue as advisory directors through the term of their employment
agreements. Each member will receive advisory directors' fees of $500 per
month.
Employee Matters and Impact on Employee Benefit Plans
Employees of Joachim Federal who are terminated by First State Community
Bank within six months of the Effective Time will receive a severance payment
equal to one week's compensation for each full year's employment, not to
exceed a maximum of six week's compensation. Except with respect to First
State's 401(k) plan, employees of Joachim Federal who continue in employment
with First State Community Bank will be credited for prior years service with
Joachim Federal for purposes of eligibility and vesting under First State's
benefit plans and policies (but not for the accrual of benefits).
Joachim Federal has an ESOP in place for Joachim Federal' employees. The
ESOP holds 59,886 shares of Joachim Common Stock, which upon consummation of
the Merger will be converted into $17.25 per share. Mr. Westhoff has 3,160
shares of Joachim Common Stock allocated to his account under the ESOP, and
Mrs. Hogan has 2,320 shares allocated to her account. All payments received
with respect to the unallocated shares of Joachim Common Stock held by the
ESOP will be applied to prepay the liabilities of the ESOP, and any excess
funds over the amount of such liabilities will be allocated to the ESOP
participants as investment earnings of the ESOP to the extent permitted by
applicable law.
Certain Federal Income Tax Consequences
The receipt of cash for Joachim Common Stock pursuant to the Merger will
be a taxable transaction for federal income tax purposes to stockholders
receiving such cash (and may be a taxable transaction for state, local and
foreign tax purposes as well). A holder of Joachim Common Stock will
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recognize a gain or loss measured by the difference between such stockholder's
tax basis for the Joachim Common Stock owned by him or her at the time of the
Merger and the amount of cash received therefor. Such gain or loss will be a
capital gain or loss if the stock is a capital asset in the hands of the
stockholder.
The cash payments due the holders of Joachim Common Stock upon the
exchange of such Joachim Common Stock pursuant to the Merger (other than
certain exempt persons or entities) will be subject to "backup withholding"
for federal income tax purposes unless certain requirements are met. Under
federal law, the third-party paying agent (in this case, First State Community
Bank) must withhold 31% of the cash payments to holders of Joachim Common
Stock to whom backup withholding applies, and the federal income tax liability
of such persons will be reduced by the amount so withheld. To avoid backup
withholding, a holder of Joachim Common Stock must provide First State
Community Bank with his or her taxpayer identification number and complete a
form in which he or she certifies that he or she has not been notified by the
Internal Revenue Service that he or she is subject to backup withholding as a
result of a failure to report interest and dividends. The taxpayer
identification number of an individual is his or her Social Security number.
No ruling has been or will be requested from the Internal Revenue Service
as to any of the tax effects to Joachim's stockholders of the transactions
discussed in this Proxy Statement, and no opinion of counsel has been or will
be rendered to Joachim's stockholders with respect to any of the tax effects
of the Merger to stockholders.
The tax consequences of the Merger may vary depending upon the particular
circumstances of each stockholder. Therefore, you are urged to consult your
tax advisor to determine the particular tax consequences of the Merger to you,
including those relating to state and/or local taxes.
Surrender of Stock Certificates
Promptly after the Effective Time of the Merger, First State Community
Bank will mail written transmittal materials concerning surrender of stock
certificates to each record holder of shares of Joachim Common Stock
outstanding at the Effective Time. The transmittal material will contain
instructions with respect to the proper method of surrender of certificates
formerly representing shares of Joachim Common Stock in exchange for the
payment to which such stockholder is entitled. DO NOT SEND STOCK CERTIFICATES
AT THIS TIME.
Following, delivery to the paying agent of certificates formerly
representing shares of Joachim Common Stock for cancellation, together with
properly completed transmittal material, a Joachim stockholder will receive a
check for the cash payment to which such stockholder is entitled. Joachim
stockholders will not be entitled to receive interest on any cash to be
received in the Merger.
Regulatory Requirements
The Merger and the related merger of Joachim Federal and First State
Community Bank require the prior approval of the Federal Reserve, the Missouri
Division of Finance and the FDIC. First State filed an application for
approval of the Merger with the Federal Reserve and the Missouri Division of
Finance on March 20, 1998 and filed an application for approval of the merger
of Joachim Federal and First State Community Bank with the Missouri Division
of Finance and the FDIC on March 20, 1998. First State anticipates receiving
final approval of the Merger during the second calendar quarter of 1998.
There can be no assurance that such approval will be obtained or as to the
timing or conditions of such approval. Should First State not receive the
required approval of any regulatory agency, the Merger will not be consummated
and Joachim will remain an independent entity and a going concern.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which do not include review of the Merger from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, stockholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed Merger.
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The Merger Agreement provides that either party may terminate the Merger
Agreement if the Merger has not been consummated by September 30, 1998. See
"-- Conditions to Consummation; Termination." Since there is the possibility
that regulatory approval may not be obtained for a substantial period of time
after approval of the Merger Agreement by Joachim's stockholders, there can be
no assurance that the Merger will be consummated by September 30, 1998. In
addition, should regulatory authorities impose any material changes to the
Merger Agreement, a resolicitation of stockholders may be required if
regulatory approval is obtained after stockholder approval of the Merger
Agreement.
Conditions to Consummation; Termination
The respective obligations of the parties to consummate the Merger are
subject to, among other things: (i) approval of the Merger Agreement by
Joachim's stockholders holding not less than two thirds of the outstanding
shares of Joachim Common Stock; (ii) receipt of all applicable regulatory
approvals; (iii) the absence of any order prohibiting consummation of the
Merger; and (iv) Mr. Westhoff, Mrs. Hogan and Mr. Yarbrough having entered
into employment agreements with First State and/or First State Community Bank.
The obligation of Joachim to consummate the Merger is subject to the
satisfaction or waiver of certain additional conditions, including: (i) the
continued accuracy of the representations and warranties of First State made
by it in the Merger Agreement; (ii) the performance by First State of the
covenants and agreements made by it in the Merger Agreement; (iii) there
having been no material adverse change in the business, financial condition or
results of operations of First State since the date of the Merger Agreement;
and (iv) the receipt of an opinion from First State's legal counsel. The
obligations of First State are subject to the satisfaction or waiver of
certain additional conditions, including: (i) the continued accuracy of the
representations and warranties of Joachim made by it in the Merger Agreement;
(ii) the performance by Joachim of the covenants and agreements made by it in
the Merger Agreement; (iii) the receipt of all consents, approvals or waivers
(other than regulatory approvals) required for or in connection with the
Merger; (iv) there having been no material adverse change in the business,
financial condition or results of operations of Joachim since the date of the
Merger Agreement; (v) the number of shares for which dissenters' rights are
exercised not exceeding 10% of the outstanding shares of Joachim Common Stock;
and (vi) the receipt of an opinion of Joachim's legal counsel.
The Merger Agreement may be terminated at any time prior to the Effective
Time, either before or after approval by the Joachim stockholders, as follows:
(i) by the mutual consent of the parties; (ii) by First State or Joachim if
the Merger is not consummated by September 30, 1998; (iii) by First State or
Joachim if any regulatory authority has denied approval of the transactions
contemplated by the Merger Agreement; (iv) by either party in the event of a
material breach of the Merger Agreement by the other party that is not cured
within 15 days after being given written notice of such breach (or such longer
period not exceeding 40 days in the event such breach cannot reasonably be
cured within 15 days and a cure is being pursued); or (v) by either party if
the stockholders of Joachim do not approve the Merger Agreement at the Special
Meeting.
Business Pending Consummation
Pursuant to terms of the Merger Agreement, Joachim and First State shall
conduct their businesses only in the ordinary and usual course consistent with
past and current practices and shall use its best efforts to maintain and
preserve its business organization, employees and advantageous business
relationships and retain the services of its officers and key employees.
The Merger Agreement contains certain restrictions upon the conduct of
Joachim's business pending consummation of the Merger. In particular, the
Merger Agreement provides that, except as otherwise provided in the Merger
Agreement or without the written consent of First State, Joachim may not,
among other things (i) declare or pay any dividends, except that Joachim may
pay a regular quarterly cash dividend of $0.125 per share on December 31, 1997
and during the first calendar quarter of 1998; (ii) enter into or amend any
employment, severance or similar agreement or arrangement with any director,
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officer, employee or consultant; (iii) authorize, recommend, propose or enter
into any agreement with respect to any acquisition of a business or assets by
means of a merger or consolidation or acquisition of a material amount of
assets or securities or relinquishment of any material contract rights not in
the ordinary course of business; (iv) amend the articles of incorporation or
bylaws of Joachim or any subsidiary; (v) issue any shares of capital stock
(except upon exercise of outstanding stock options), effect any stock split or
otherwise change its capitalization; (vi) grant or award any options, warrants
or other rights to acquire any shares of its capital stock; (vii) purchase or
redeem any shares of its capital stock; (viii) enter into or increase certain
loans or credit commitments; (ix) take back or commence foreclosure on any
property other than in the ordinary course of business; or (x) create, alter
or eliminate any rights or obligations with respect to any employee benefit
plan or policy.
No Solicitation
Joachim has agreed in the Merger Agreement that it will not solicit,
encourage or, except as may be required in the exercise of fiduciary duties,
consider or discuss any offer or proposal for a business combination with a
third party. Joachim has also agreed that, except as may be required in the
exercise of fiduciary duties, it will not provide any information to, or
negotiate with, any other person with respect to a business combination with a
third party.
Waiver and Amendment
Prior to the Effective Time, any condition of the Merger Agreement (to the
extent allowed by law) may be waived by the party benefitted by the provision
or may be amended or modified (including the structure of the transaction) by
an agreement in writing approved by the Boards of Directors of First State and
Joachim; provided, however, that no such amendment may be effected after
stockholder approval of the Merger Agreement without approval of the Joachim
stockholders if the effect of such amendment would be to change the amount or
the type of consideration to be paid in the Merger to Joachim stockholders or
if it would materially and adversely affect the stockholders of Joachim.
Termination Fees
As a condition and inducement to First State's entering into the Merger
Agreement and in consideration thereof, Joachim has agreed to pay to First
State a termination fee of $500,000 under certain circumstances. Such fee may
be demanded by First State if (i) Joachim stockholders fail to approve the
Merger Agreement at the Special Meeting; or (ii) First State terminates the
Merger Agreement as a result of a material breach by Joachim (other than an
unintentional breach by Joachim that cannot be cured) and within 18 months
after the occurrence of either event Joachim enters into an agreement with a
third party providing for certain actions, including a merger or similar
transaction involving Joachim, the purchase, acquisition or lease of
substantially all of the assets of Joachim or the purchase or other
acquisition of securities representing 25% or more of the voting power of
Joachim. If Joachim stockholders fail to approve the Merger Agreement and
Joachim has not breached the Merger Agreement or if the breach giving rise to
the termination is wholly unrelated to the subsequent agreement with a
third-party, the termination fee will be the lesser of $500,000 or 150% of the
difference between the fair market value of the aggregate consideration to be
paid by the third party and that payable by First State pursuant to the Merger
Agreement. The termination fee is intended to increase the likelihood that
the Merger will be consummated according to the terms set forth in the Merger
Agreement and may be expected to discourage competing offers to acquire
Joachim from potential third party acquirers because the termination fee could
increase the cost of such acquisition. To the best of Joachim's knowledge, no
event that would permit First State to demand payment of the termination fee
has occurred as of the date of this Proxy Statement.
The Merger Agreement also provides that First State will pay to Joachim a
termination fee of $100,000 if First State willfully breaches the Merger
Agreement and Joachim exercises its right to terminate the Merger Agreement at
a time when First State is not entitled to terminate the Merger Agreement.
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Dissenters' Rights
Under the Missouri GBCL, stockholders of Joachim will have dissenters'
rights with respect to the Merger. Such rights will entitle stockholders to
receive the fair value of their shares of Joachim Common Stock rather than
having such shares converted into the right to receive the cash payment as
described above, if the stockholders follow the procedures set forth in
Section 351.455 of the Missouri GBCL. Accompanying this Proxy Statement as
Appendix B is a copy of the text of Section 351.455 of the Missouri GBCL,
which prescribes the procedures for the exercise of dissenters' rights and for
determining the fair value of the Joachim Common Stock.
A stockholder who wishes to exercise his or her dissenters' rights must
deliver to Joachim prior to or at the Special Meeting a written objection to
the Merger, must not vote in favor of the Merger and must make a written
demand on First State, as the surviving corporation, within 20 days after the
Merger is consummated for the fair value of his or her shares. All
stockholders who deliver a written objection to Joachim and who do not vote in
favor of the Merger Agreement will be notified when the Merger is consummated.
The fair value of dissenters' shares shall be determined as of the day prior
to the Special Meeting.
If within 30 days after the Effective Time, the value of the dissenting
stockholder's shares is agreed upon between the dissenting stockholder and
First State, payment therefor will be made within 90 days after the Effective
Time upon surrender of the certificate(s) representing such shares.
If within 30 days of the Effective Time the dissenting stockholder and
First State do not agree as to the fair value of such stockholder's shares,
then, within 60 days after such 30 day period, the dissenting stockholder may
file a petition asking for a finding and determination of the fair value of
such shares, and shall be entitled to judgment against First State for the
amount of such fair value as of the day prior to the Special Meeting, together
with interest thereon. The "fair value" determined by the court may be more or
less than the amount offered to Joachim stockholders under the Merger
Agreement. The judgment will be payable only upon the surrender of the
dissenting stockholders certificates representing such stockholder's shares of
Joachim Common Stock. A dissenting stockholder who does not file a petition
within the specified time frame will be conclusively presumed to have approved
the cash payment as described above and will receive the cash payment as
described above in exchange for his or her shares.
The failure of a holder of Joachim Common Stock to vote against approval
of the Merger Agreement will not itself constitute a waiver of the right to
receive payment for his or her shares, nor will a vote against approval of the
Merger Agreement satisfy the notice requirements referred to above.
Accounting Treatment
The Merger, if completed as proposed, will be treated as a purchase in
accordance with generally accepted accounting principles. Accordingly, the
assets and liabilities of Joachim will be recorded on the books of First State
at their respective fair values at the time of consummation of the Merger.
Expenses
First State and Joachim will each pay their own expenses in connection
with the Merger Agreement and the transactions contemplated thereby.
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BUSINESS OF JOACHIM
General
Joachim was organized in 1995 for the purpose of becoming the holding
company for Joachim Federal. Joachim 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. Accordingly, the
information set forth herein, including financial statements and related data,
relates primarily to Joachim Federal and its subsidiary. All references to
Joachim herein include Joachim Federal where applicable.
Joachim Federal was organized in 1962. Joachim Federal is regulated by
the OTS and its deposits are insured up to applicable limits under the SAIF of
the FDIC. Joachim Federal also is a member of the FHLB System. Joachim
Federal operates as a community oriented financial institution and its
business consists primarily of attracting deposits from the general public and
using those funds to originate residential real estate loans.
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.
Joachim Federal 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 Joachim
Federal's primary market area, is currently approximately 14,000. Because it
operates in a relatively small market area, Joachim Federal's ability to
achieve loan and deposit growth is limited. The major employers in Joachim
Federal'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
Boeing Corporation, and in various construction trades.
Joachim Federal faces intense competition from many financial institutions
for deposits and loan originations. See "-- Competition."
Lending Activities
General. The principal lending activity of Joachim Federal 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, Joachim Federal also originates
non-owner-occupied, one- to four-family residential loans, multi-family,
commercial real estate, construction, agricultural and consumer and other
loans. Joachim Federal's net loans receivable totaled 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 Joachim Federal's loan portfolio by type of loan at the dates indicated.
Joachim Federal had no concentration of loans exceeding 10% of total gross
loans other than as disclosed below.
At March 31,
-------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(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%
====== ====== ======
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
======= ======= =======
- -------------
(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 Joachim
Federal 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 Joachim Federal's total gross loan portfolio, consisted
of loans secured by one- to four-family residential real estate. Joachim
Federal 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
Joachim Federal's total gross loans were subject to periodic interest rate
adjustments.
The loan fees charged, interest rates and other provisions of Joachim
Federal's ARM loans are determined by Joachim Federal on the basis of its own
pricing criteria and competitive market conditions. Joachim Federal
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. Joachim Federal currently offers ARM
loans with initial rates below those which would prevail under the foregoing
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computations, determined by Joachim Federal 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 Joachim Federal 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 Joachim Federal'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.
Joachim Federal 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. Joachim Federal requires
that borrowers with loans in excess of $50,000 that are secured by
non-owner-occupied homes submit annual financial statements.
Joachim Federal does not originate negative amortization loans. The
terms and conditions of the ARM loans offered by Joachim Federal, including
the index for interest rates, may vary from time to time. Joachim Federal
believes that the adjustment features of its ARM loans provide flexibility to
meet competitive conditions.
A significant portion of Joachim Federal'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 Fannie Mae ("FNMA"). Although such loans satisfy
Joachim Federal'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,
Joachim Federal's non-conforming loans could be sold only after incurring
certain costs and/or discounting the purchase price. Joachim Federal has
historically found that its origination of non-conforming loans has not
resulted in high amounts of nonperforming loans. In addition, Joachim Federal
believes that these loans satisfy a need in Joachim Federal's local community.
The retention of ARM loans in Joachim Federal's loan portfolio helps
reduce Joachim Federal'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 Joachim Federal 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 Joachim
Federal 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, Joachim Federal has no assurance that yields on ARM loans will
be sufficient to offset increases in Joachim Federal'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 Joachim Federal's loan portfolio contain due-on-sale clauses providing that
Joachim Federal may declare the unpaid amount due and payable upon the sale of
the property securing the loan. Typically, Joachim Federal 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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Joachim Federal generally requires title insurance insuring the status of
its lien on all of the real estate secured loans. Joachim Federal 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.
Joachim Federal'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. Joachim Federal has historically
engaged in a limited amount of multi-family real estate lending. Joachim
Federal does not actively solicit multi-family real estate loans as there are
few multi-family properties in its market area. At March 31, 1997, Joachim
Federal 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.
Joachim Federal 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 Joachim Federal's multi-family real
estate loans are inspected by Joachim Federal's lending personnel before the
loan is made. Joachim Federal also obtains appraisals on each property in
accordance with applicable regulations.
Construction Lending. Joachim Federal 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). Joachim Federal generally permits a builder to have only one
construction loan outstanding with Joachim Federal 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 Joachim Federal 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, Joachim Federal 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. Joachim Federal has historically engaged
in a limited amount of commercial real estate lending. At March 31, 1997,
commercial real estate loans in Joachim Federal's portfolio totaled $813,000.
The largest commercial real estate loan in Joachim Federal'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.
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Joachim Federal 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 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. Joachim Federal 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. Joachim Federal also obtains loan guarantees
from financially capable parties based on a review of personal financial
statements. All of the properties securing Joachim Federal's commercial real
estate loans are inspected by Joachim Federal's lending personnel before the
loan is made. Joachim Federal also obtains appraisals on each property in
accordance with applicable regulations.
Agricultural and Other Real Estate Lending. Joachim Federal originates
loans secured by farm residences and combinations of farm residences and farm
real estate. Joachim Federal 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, Joachim Federal's agricultural and other real estate loan portfolio
totaled $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, Joachim Federal 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 Joachim Federal 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 Joachim Federal's business. Consumer loans generally have
shorter terms to maturity and higher interest rates than mortgage loans.
Joachim Federal's consumer and other loans consist primarily of unsecured
loans, deposit account loans and automobile loans. Joachim Federal has in the
past originated student loans, though it no longer offers such loans. At
March 31, 1997, Joachim Federal's consumer and other loans totaled
approximately $436,000, or 1.8% of Joachim Federal's total gross loans.
Joachim Federal 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
Joachim Federal. Such loans may be for a term of up to three years. At March
31, 1997, unsecured loans totaled $177,000.
Joachim Federal 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 $183,000.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts
against the borrower beyond obtaining a deficiency judgment. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans.
At March 31, 1997, Joachim Federal had no material delinquencies in its
consumer loan portfolio.
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Maturity of Loan Portfolio. The following table sets forth certain
information at March 31, 1997 regarding the dollar amount of principal
repayments becoming due during the periods indicated for loans. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as becoming due within one year. The table does not
include any estimate of prepayments which significantly shorten the average
life of all loans and may cause Joachim Federal's actual repayment experience
to differ from that shown below.
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- ------- ------- -------- -------- -----
(In Thousands)
Mortgage loans (1) . . . . .$ 915 $2,074 $2,453 $6,371 $11,621 $23,434
Consumer and other loans . . 316 120 -- -- -- 436
------ ------ ------ ------ ------- -------
Total gross loans . . . .$1,231 $2,194 $2,453 $6,371 $11,621 $23,870
====== ====== ====== ====== ======= =======
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
------ ---------------- -----
(In Thousands)
Mortgage loans (1) . . . . . . . . $2,250 $20,269 $22,519
Consumer and other loans . . . . . 120 -- 120
------ ------- -------
Total gross loans. . . . . . . . $2,370 $20,269 $22,639
====== ======= =======
- ---------------
(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 Joachim Federal 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 Joachim Federal.
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 Joachim Federal and certified by the State of Missouri.
Mortgage loans must be approved by any three members of Joachim Federal's
Loan Committee, which consists of the President, the Senior Vice President and
three 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. Joachim Federal'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, Joachim Federal's total gross mortgage loan originations were $3.9
million. While Joachim Federal 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, Joachim Federal's
policy has been to retain in its portfolio nearly all of the loans that it
originates.
Joachim Federal occasionally purchases loan participation interests
primarily during periods of reduced loan demand in its market area. Any such
purchases are made in conformance with Joachim Federal's underwriting
standards. During recent years, Joachim Federal 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, Joachim Federal purchased participation interests in 13 one-
to four-family loans and one multi-family loan. Joachim Federal 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 following table shows total loans originated, originated for sale,
purchased, sold and repaid during the periods indicated.
Year Ended March 31,
----------------------------------
1997 1996 1995
---- ---- ----
(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
------- ------- -------
Total loans originated 3,862 4,528 4,080
------- ------- -------
Loans purchased:
One- to four-family . . . . . 1,139 915 335
Multi-family. . . . . . . . . 199 -- --
Commercial. . . . . . . . . . -- 496
------- ------- -------
Total loans purchased. . . . . 1,338 1,411 335
------- ------- -------
Loan principal repayments. . . (4,251) (5,223) (4,554)
------- ------- -------
Increase (decrease) in
other items, net. . . . . . . (110) 110 (129)
------- ------- -------
Net increase (decrease)
in loans receivable, net . $ 839 $ 826 $ (268)
======= ======= =======
Loan Commitments. Joachim Federal 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.
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Loan Origination and Other Fees. Joachim Federal, 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 Joachim Federal 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. Joachim Federal 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, Joachim Federal 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, Joachim Federal 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, Joachim Federal 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, Joachim Federal begins
legal action to either obtain a judgment in small claims court or to repossess
the collateral.
Joachim Federal'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 Joachim Federal.
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The following table sets forth information with respect to Joachim
Federal's nonperforming assets at the dates indicated. Joachim Federal had no
restructured loans within the meaning of Statement of Financial Accounting
Standards ("SFAS") 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 Joachim
Federal 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. In
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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 Joachim Federal.
At March 31, 1997 and 1996, the aggregate amounts of Joachim Federal's
classified assets, and of Joachim Federal'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. Joachim Federal 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, Joachim Federal 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. Joachim Federal increases its allowance
for loan losses by charging provisions for loan losses against Joachim
Federal'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.
At March 31, 1997, Joachim Federal 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
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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 Joachim Federal 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 Joachim Federal's loan
portfolio, will not request Joachim Federal 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 Joachim Federal's
financial condition and results of operations.
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The following table sets forth an analysis of Joachim Federal'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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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 Total to Total to 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
Joachim Federal 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, Joachim Federal may also invest a portion of its assets
in commercial paper and corporate debt securities. Savings institutions like
Joachim Federal are also required to maintain an investment in FHLB stock.
Joachim Federal is required under federal regulations to maintain a
minimum amount of liquid assets. See "REGULATION." It is the intention of
management to hold all securities in Joachim Federal's investment portfolio in
order to enable Joachim Federal 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. Joachim Federal'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, Joachim Federal'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 Joachim Federal's credit and interest rate risk, and risk-based
capital is also given consideration during the evaluation.
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At March 31, 1997, Joachim's investment portfolio totaled $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. Joachim Federal's municipal bond
portfolio, which totaled $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. Joachim's corporate bond portfolio,
which totaled $804,000 at March 31, 1997, was composed of short-term,
investment grade issues.
At March 31, 1997, Joachim Federal 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 Joachim
Federal.
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 Joachim Federal'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 totaled $755,000 at March 31, 1997, all of which were backed by
federal agency collateral and which had fixed interest rates. Joachim Federal
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 certain "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. Joachim Federal 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." Joachim
Federal 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, Joachim Federal did not hold any "high
risk" CMOs in its portfolio.
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. Joachim's investment policy
dictates that investments be made with the intent of holding them to maturity.
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The following table sets forth the composition of Joachim's investment
portfolio at the dates indicated.
At March 31,
-----------------------------------------------------
1997 1996 1995
------------------ ----------------- -----------------
Carry- Carry- Carry-
ing Percent of ing Percent of ing Percent 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 Joachim'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 Joachim
Federal'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, Joachim Federal has no other
borrowing arrangements.
Deposit Accounts. Substantially all of Joachim Federal's depositors are
residents of the State of Missouri. Deposits are attracted from within
Joachim Federal'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 minimum balance required, the time periods the funds
must remain on deposit and the interest rate, among other factors.
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In determining the terms of its deposit accounts, Joachim Federal considers
current market interest rates, profitability to Joachim Federal, matching
deposit and loan products and its customer preferences and concerns. Joachim
Federal reviews its deposit mix and pricing weekly.
As illustrated in the following table, Joachim Federal offers
certificates of deposit for terms not exceeding 36 months. As a result,
Joachim Federal 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 Joachim Federal's
time deposits and other interest-bearing deposits at March 31, 1997.
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Checking and 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 Joachim Federal'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 $229
====
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Deposit Flow
The following table sets forth the balances (inclusive of interest
credited) and change in dollar amount of deposits in the various types of
accounts offered by Joachim Federal between the dates indicated.
At March 31,
--------------------------------------------------------------
1997 1996 1995
------------------------ ----------------------- -------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------ ----- ---------- ------ ----- ---------- ------ -----
(Dollars in Thousands)
Savings
accounts .$ 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
cert-
ificates . 60 0.24 -- 60 0.23 5 55 0.21
6 month
cert-
ificates . 2,072 8.35 (471) 2,543 9.92 (212) 2,755 10.81
12 month
cert-
ificates . 5,451 21.96 (55) 5,506 21.47 406 5,100 20.02
18 month IRA
cert-
ificates . 2,844 11.46 (139) 2,983 11.63 30 2,953 11.59
24 month
cert-
ificates . 737 2.97 (39) 776 3.03 (97) 873 3.43
30 month
cert-
ificates . 1,943 7.83 (311) 2,254 8.79 (438) 2,692 10.57
36 month
cert-
ificates . 1,583 6.38 132 1,451 5.66 156 1,295 5.08
Other cert-
ificates . 332 1.33 (26) 358 1.39 (23) 381 1.50
Jumbo cert-
ificates . 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 Joachim Federal
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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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 Joachim Federal
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
Joachim Federal's lending and investment activities and for its general
business purposes. Joachim Federal 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, Joachim
Federal 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, Joachim Federal had no borrowings
from the FHLB-Des Moines.
Competition
Due to the close proximity of DeSoto to the St. Louis metropolitan
area, Joachim Federal 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, Joachim Federal has faced additional significant competition for
investors' funds from short-term money market securities and other corporate
and government securities. Joachim Federal's competition for loans comes
principally from mortgage bankers and commercial banks.
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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 development
projects. Joachim Federal'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 Joachim
Federal. 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, Joachim Federal's investment in the
Service Corporation was $8,000. It is anticipated that the Service
Corporation will be dissolved prior to consummation of the Merger.
Personnel
As of March 31, 1997, Joachim Federal had 11 full-time and four
part-time employees. The employees are not represented by a collective
bargaining unit and Joachim Federal believes its relationship with its
employees to be good.
Properties
Joachim Federal operates out of one office, which it owns. This
office was opened in 1973. The net book value of Joachim Federal's investment
in office, properties and equipment totaled $358,000 at March 31, 1997. See
Note 6 of the Notes to the Consolidated Financial Statements.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving
Joachim Federal, mainly as a defendant, such as claims to enforce liens,
condemnation proceedings on properties in which Joachim Federal holds security
interests, claims involving the making and servicing of real property loans
and other issues incident to Joachim Federal's business. Joachim Federal 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 Joachim
Federal.
Regulation of Joachim Federal
General. Joachim Federal 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 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, Joachim Federal'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 Joachim Federal's mortgage
documents. Joachim Federal 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 Joachim Federal'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 Joachim, Joachim Federal and their operations.
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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. Joachim Federal, 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.
Joachim Federal 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 SAIF. As insurer of
Joachim Federal's deposits, the FDIC has examination, supervisory and
enforcement authority over Joachim Federal.
Joachim Federal's deposit accounts are insured by the FDIC under the SAIF
to the maximum extent permitted by law. Joachim Federal 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.
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 Joachim Federal.
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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 4.0%) of its net withdrawable accounts plus short-term
borrowings. 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, 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, Joachim Federal 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
Joachim Federal fails to meet any standard prescribed by the Guidelines, the
agency may require Joachim Federal 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
34
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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 Joachim Federal 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 (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 "-- Regulation of Joachim Federal -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of Joachim Federal'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
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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 totaled 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 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.
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 Joachim Federal 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
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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.
Joachim Federal 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 Joachim Federal'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, Joachim
Federal's limit on loans to one borrower was $1.1 million. At March 31, 1997,
Joachim Federal'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 Joachim
Federal 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
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be granted only by the Federal Reserve Board, as is currently the case with
respect to all FDIC-insured banks. Joachim Federal has not been significantly
affected by the rules regarding transactions with affiliates.
Joachim Federal'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 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 Joachim Federal may make to such
persons based, in part, on Joachim Federal'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 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. Joachim Federal received a
"satisfactory" rating as a result of its latest evaluation.
Regulation of Joachim
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, Joachim generally is not subject to activity restrictions under the
HOLA. If Joachim 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 "-- Regulation of Joachim Federal -- 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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Federal Taxation
General. Joachim and Joachim Federal report their income on a fiscal
year basis using the modified cash method of accounting and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly Joachim Federal'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 Joachim Federal or Joachim.
Bad Debt Reserve. Historically, savings institutions such as Joachim
Federal 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. Joachim Federal'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 Joachim Federal's actual loss experience, or a
percentage equal to 8% of Joachim Federal's taxable income, computed with
certain modifications and reduced by the amount of any permitted additions to
the non-qualifying reserve. Due to Joachim Federal's loss experience, Joachim
Federal generally recognized a bad debt deduction equal to 8% of taxable
income. Although in recent years Joachim Federal 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, Joachim Federal'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 Joachim Federal 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 Joachim Federal makes "nondividend
distributions" to Joachim, 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 Joachim Federal'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 Joachim Federal's taxable income. Nondividend distributions
include distributions in excess of Joachim Federal's current and accumulated
earnings and profits, distributions in redemption of stock and distributions
in partial or complete liquidation. However, dividends paid out of Joachim
Federal's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a
distribution from Joachim Federal'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, Joachim Federal
makes a "nondividend distribution," then approximately one and one-half 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 of Joachim Federal" for limits on the
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payment of dividends by Joachim Federal. Joachim Federal 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 Joachim
Federal'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 Joachim
Federal, whether or not an Alternative Minimum Tax ("AMT") is paid.
Dividends-Received Deduction. Joachim may exclude from its income
100% of dividends received from Joachim Federal 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 Joachim and Joachim Federal will not file a
consolidated tax return, except that if Joachim or Joachim Federal owns more
than 20% of the stock of a corporation distributing a dividend, then 80% of
any dividends received may be deducted.
Audits. Joachim Federal's federal income tax returns have not been
audited within the past five years.
Missouri Taxation
Missouri-based thrift institutions, such as Joachim Federal, 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 Joachim Federal 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,
Joachim Federal is entitled to credit against this special financial
institutions tax all other taxes paid to the State of Missouri or any
political subdivision, except taxes on tangible personal property owned by
Joachim Federal 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The business of Joachim 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. Joachim's revenues are derived principally from
interest earned on loans and, to a lesser extent, from interest earned on
investments. The operations of Joachim are influenced significantly by
general economic conditions and by policies of financial institution
regulatory agencies, including the OTS and the FDIC. Joachim'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.
Joachim'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. Joachim 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
Joachim does not purchase derivative financial instruments or other
financial instruments for trading purposes. Further, Joachim is not subject
to any foreign currency exchange rate risk, commodity price risk or equity
price risk. Joachim is subject to interest rate risk. Quantitative and
qualitative disclosures about market risk are discussed in the following
paragraphs.
Joachim's principal financial objective is to achieve long-term
profitability while reducing its exposure to fluctuating interest rates.
Joachim has an exposure to interest rate risk, including short-term U.S. prime
interest rates. Joachim has employed various strategies intended to minimize
the adverse effect of interest rate risk on future operations by providing a
better match between the interest rate sensitivity of its assets and
liabilities. In particular, Joachim's strategies are intended to stabilize
net interest income for the long-term by protecting its interest rate spread
against increases in interest rates. Such strategies include the origination
of ARM loans for retention in its portfolio and the purchase of shorter-term
securities. Joachim 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, Joachim 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).
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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.
Year 2000
Joachim is reviewing computer applications with its outside data
processing service bureau and other software vendors to ensure operational and
financial systems are not adversely affected by "year 2000" software failures.
All major customer applications are processed through the outside service
bureau. The service bureau has indicated that it expects to modify existing
programs to make them year 2000 compliant. Management of Joachim is unable to
estimate any additional expense related to this issue. Any year 2000
compliance failures could result in additional expense to Joachim.
Liquidity and Capital Resources
Joachim's principal sources of funds are cash receipts from deposits,
loan repayments by borrowers, proceeds from maturing securities, and net
earnings. Joachim Federal has an agreement with the FHLB-Des Moines to
provide cash advances, should it 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 4%. Joachim Federal's liquidity ratio exceeded the regulatory
requirement at December 31, 1997. Joachim Federal 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.
During January 1997, Joachim repurchased $435,000 in treasury stock for
the MRDP. During May 1997, Joachim 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 Joachim or shareholders, the purchase of
treasury stock reduces interest-earning assets of Joachim. Capital of Joachim
Federal may also be reduced to the extent treasury stock purchases are funded
by dividends from Joachim Federal to Joachim.
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<TABLE>
Commitments to originate loans are legally binding agreements to lend to
Joachim's customers. Commitments to originate adjustable-rate and fixed-rate
mortgage loans at December 31, 1997 were approximately $271,000 and $21,000,
respectively.
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 Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets:
Loans receivable . . $23,593 $1,905 8.08% $22,144 $1,822 8.23% $22,364 $1,743 7.79%
Mortgage-backed and
related securities. 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
Certificates . . . . 15,762 819 5.20 16,740 894 5.34 14,658 608 4.15
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities. . . . 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
liabilities . . . . 141.03% 121.94% 111.60%
====== ====== ======
43
</TABLE>
PAGE
<PAGE>
<TABLE>
Rate/Volume Analysis
The following table sets forth certain information regarding changes in interest income and interest
expense of Joachim 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
==== ==== === ==== ==== ===== === ====
Asset Quality
Loans are generally placed on a nonaccrual status when contractually
delinquent more than 90 days. Nonaccrual loans amounted to $73,000, or
.29% of net loans receivable, at December 31, 1997.
Following is a summary of activity in the allowance for loan losses:
Balance at March 31, 1997. . . . . . . . . $74,285
Charge-offs . . . . . . . . . . . . . . . (5,798)
Recoveries. . . . . . . . . . . . . . . . 74
Provision for loan loss . . . . . . . . . 6,641
-------
Balance at December 31, 1997 . . . . . . . $75,202
=======
Comparison of the Three and Nine Months Ended December 31, 1997 and 1996
Net Earnings. Net earnings decreased from $76,000 for the three months
ended December 31, 1996 to $60,000 for the three months ended December 31,
1997. Net earnings increased from $127,000 for the nine-months ended December 31, 1996 to $209,000 for
the nine months ended December 31, 1997. The increase in earnings for the nine-month period ended
December 31, 1997 was due primarily to the $167,000 special one-time SAIF assessment expensed in the nine
months ended December 31, 1996. In addition to having no comparable assessment expensed in the nine
months ended December 31, 1997, recurring SAIF deposit insurance premiums were reduced. These increases
to net earnings for
44
</TABLE>
<PAGE>
<PAGE>
the nine months ended December 31, 1997 were partially offset by higher income
taxes and lower net interest income and noninterest income.
Net Interest Income. Net interest income decreased for both the three
and nine months ended December 31, 1997 as compared to the 1996 periods as the
proportion of net interest-earning assets over interest-bearing liabilities
decreased. Interest on loans receivable increased as both the average balance
and yield increased. The average balance increased from $23.5 million for the
nine months ended December 31, 1996 to $24.5 million for the nine months ended
December 31, 1997. Interest on other interest-earning assets decreased due
primarily to a decline in the average balance from $5.3 million for 1996 to
$3.8 million for 1997. Components of interest income change from time to time
based on the availability, quality and interest rates on securities, mortgage-
backed securities and other interest-earning assets.
Provision for Loan Losses. Provision for loan losses is based upon
management's consideration of 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 Joachim's portfolio and the estimated
fair value of the underlying collateral. This evaluation is ongoing and
results in variations in Joachim's provision for loan losses. As a result of
this evaluation, Joachim's provision for loan losses amounted to $2,000 and
$7,000 for the three and nine month periods ended December 31, 1997, as
compared to $2,000 and $6,000 for the three and nine month periods ended
December 31, 1996.
Noninterest Income. Noninterest income decreased from $54,000 for the
nine months ended December 31, 1996 to $32,000 for the nine months ended
December 31, 1997. During the nine months ended December 31, 1996 Joachim
recognized income of $13,000 as a result of the sale of assets of Joachim's
data processing service bureau. In addition, Joachim recognized prepayment
penalty income of $4,500 on a participation loan.
Noninterest Expense. Noninterest expense increased from $258,000 for the
three months ended December 31, 1996 to $266,000 for the three months ended
December 31, 1997. Noninterest expense decreased from $958,000 for the nine
months ended December 31, 1996 to $769,000 for the nine months ended December
31, 1997. Compensation and benefits expense increased for the nine months
ended December 31, 1997 due primarily to higher salary levels and an increase
in the ESOP plan expense, offset by lower retirement plan expense. ESOP plan
expense was $88,000 for the nine months ended December 31, 1996 and $99,000
for the 1997 period. Under generally accepted accounting principles, expense
of the ESOP is affected by changes in the market price of Joachim Common
Stock. Joachim sold two foreclosed properties held for sale in the nine
months ended December 31, 1997 at a net gain of $7,000. There were no sales
in the comparable 1996 period. A special one-time SAIF deposit insurance
assessment of $167,000 was expensed in the nine months ended December 31,
1996, which recapitalized the fund. Subsequent to the special SAIF
assessment, Joachim's recurring SAIF premiums are assessable at a
substantially lower rate. Professional services expenses for the
three and nine months ended December 31, 1997increased as a result of
additional costs of reviewing the strategic options of Joachim, and evaluating
the proposed merger of Joachim.
Income Taxes. Income taxes increased due to the level of earnings before
income taxes.
Comparison of the Years Ended March 31, 1997 and 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 and 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
45
<PAGE>
<PAGE>
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, Joachim Federal 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, Joachim purchased $2.2 million
of Federal agency 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. Joachim 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 totaled $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 Joachim's portfolio
and the estimated fair value of the underlying collateral. This evaluation is
ongoing and results in Joachim'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. Joachim incurred net rental expense
of $9,000 for 1996 related to foreclosed real estate which was sold in
November 1995. During 1997, Joachim 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. Joachim's share of the one-time SAIF special assessment
was $167,000. Subsequent to September 30, 1996, Joachim'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 Joachim's ESOP and 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
Joachim Common Stock. During July 1996, the stockholders of Joachim 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 Joachim Federal's tax bad debt
reserves and the tax effect of the ESOP. See note 9 of Notes to Consolidated
Financial Statements for additional information.
46
<PAGE>
<PAGE>
Comparison of the Years Ended March 31, 1996 and 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 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 Joachim's portfolio and the estimated fair value of the underlying
collateral. This evaluation is ongoing and results in variations in Joachim'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 Joachim's data
processor. Joachim 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 Joachim's
ESOP. 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 Joachim Common Stock and ESOP shares committed
to be released.
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
47
<PAGE>
<PAGE>
the operations of Joachim 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 Joachim's assets and liabilities are critical to the maintenance of
acceptable performance levels.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Persons and groups who beneficially own in excess of 5% of the
outstanding shares of Joachim Common Stock are required to file certain
reports disclosing such ownership pursuant to the Securities Exchange Act of
1934, as amended ("Exchange Act"). Based on such reports, the following table
sets forth, as of the Record Date certain information as to those persons who
were beneficial owners of more than 5% of the outstanding shares of Joachim
Common Stock. To Joachim's knowledge, no other person or entity beneficially
owned more than 5% of outstanding Joachim Common Stock at the Record Date.
The following table also sets forth, as of the Record Date, information
as to the shares of Joachim Common Stock beneficially owned by (a) each
director, (b) the chief executive officer and all executive officers and
directors of Joachim as a group.
Amount and Nature Percent of
of Beneficial Common Stock
Name Ownership (1) Outstanding
- ---- ------------- -----------
Beneficial Owners of More Than 5%
Joachim Federal Savings 59,886 8.3%
and Loan Association
Employee Stock Ownership Plan Trust
Keith Hutson 48,097(2) 6.7
Karen Hutson
835 Progress Drive
Farmington, MO 63640
Directors and Chief Executive Officer
Douglas G. Draper 6,064 *
Lee Ellen Hogan 9,307 1.3
Bernard R. Westhoff** 9,923 1.4
James H. Wilkins 8,064 1.1
Stokely R. Wischmeier 28,064(3) 3.9
All Executive Officers and 69,003 9.5
Directors as a
Group (six persons)
__________
* Less than 1% of shares outstanding.
** Mr. Westhoff is the President and Chief Executive Officer of Joachim.
48
<PAGE>
<PAGE>
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is
deemed to be the beneficial owner, for purposes of this table, of any
shares of Joachim Common Stock if he or she has voting and/or investment
power with respect to such security. The table includes shares owned by
spouses, other immediate family members in trust, shares held in
retirement accounts or funds for the benefit of the named individuals, and
other forms of ownership, over which shares the persons named in the table
may possess voting and/or investment power. Shares held in accounts under
Joachim's ESOP, as to which the holders have voting power but not
investment power, are also included as follows: Mrs. Hogan, 2,320 shares;
Mr. Westhoff, 3,160 shares; all executive officers and directors as a
group, 7,162 shares. The amounts shown also include the following amounts
of Joachim Common Stock which the indicated individuals have the right to
acquire within 60 days of the Record Date through the exercise of stock
options granted pursuant to Joachim's stock option plan: Mr. Draper, 760;
Mrs. Hogan, 1,825; Mr. Westhoff, 3,042; Mr. Wilkins, 760; Mr. Wischmeier,
760; and all executive officers and directors as a group, 8,059. The
table does not include 22,671 unvested shares of restricted stock held by
a trust under Joachim's MRDP for which Messrs. Westhoff, Draper and
Wischmeier serve as trustees and exercise voting power. Participants in
the plan have no voting or investment power for restricted shares awarded
under the plan until such shares vest in accordance with plan provisions.
After vesting, the participant has sole investment and voting power.
(2) This information is based on information provided by Keith Hutson. Keith
Hutson and Karen Hutson have joint ownership and, therefore, shared voting
and dispositive power, with respect to 48,097 shares of Joachim Common
Stock. Keith Hutson is also a director of First State Community Bank.
(3) Includes 10,000 shares owned by a pension plan for which Mr. Wischmeier
acts as trustee and exercises voting power.
AVAILABLE INFORMATION
Joachim files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
or other information that Joachim files at the SEC's public reference room in
Washington, D.C. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms.
Joachim's SEC filings are also available to the public on the SEC Internet
site (http://www.sec.gov).
OTHER MATTERS
The Joachim Board is not aware of any business to come before the Special
Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Special Meeting,
it is intended that proxies in the accompanying form will be voted in respect
thereof in accordance with the judgment of the person or persons voting the
proxies.
STOCKHOLDER PROPOSALS
In the event that the Merger is not approved by stockholders at the
Special Meeting, Joachim expects it would hold its 1998 Annual Meeting of
Stockholders in July 1998. Any proposal intended to be presented by any
stockholder for action at the 1998 Annual Meeting of Stockholders must have
been received by the Secretary of Joachim at Joachim's main office at Plaza
Square, DeSoto, Missouri, no later than February 9, 1998, in order to be
eligible for inclusion in Joachim's proxy materials for the 1998 Annual
Meeting of Stockholders. Any such proposals shall be subject to the
requirements of the proxy rules adopted under the Exchange Act.
49
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets at
March 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Earnings for the Years Ended
March 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity
for the Years Ended March 31, 1997, 1996 and 1995. . . . . . . . F-4
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-7
Consolidated Balance Sheets at December 31,
1997 (unaudited) and March 31, 1997. . . . . . . . . . . . . . . F-23
Consolidated Statements of Earnings for the Three and Nine
Months Ended December 31, 1997 and 1996 (unaudited). . . . . . . F-24
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1997 and 1996 (unaudited) . . . . . . . . . . F-25
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-26
50
<PAGE>
<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
F-1
<PAGE>
<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.
F-2
<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.
<PAGE>
<PAGE>
<TABLE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1997, 1996 and 1995
Common Common
Additional Stock Stock Total
Common Paid-in Acquired Acquired Retained Treasury Stockholders'
Stock Capital by ESOP by MRDP Earnings Stock Equity
--------- ---------- -------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended March 31, 1997, 1996 and 1995
1997 1996 1995
------------ --------- ---------
<S> <C> <C> <C>
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)
</TABLE>
<PAGE>
<PAGE>
<TABLE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended March 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
------------ --------- ----------
<S> <C> <C> <C>
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.
</TABLE>
<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.
F-7
<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.
F-8
<PAGE>
<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.
F-9
<PAGE>
<PAGE>
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
obligations 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%
===========
F-10
<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%
===========
F-11
<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
========= ======== ========
F-12
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.
F-13
<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.
F-14
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
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 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
========= ========== ==========
F-15
<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.
F-16
<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.
F-17
<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.
F-18
<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.
F-19
<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
========== ============
F-20
<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
=========== ============
F-21
<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 1,300,242
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.
F-22
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
December 31, March 31,
Assets 1997 1997
------ ------------ ----------
Cash and cash equivalents $ 2,311,210 2,091,535
Certificates of deposit 1,144,003 3,052,899
Securities held to maturity,
at amortized cost (market value
of $3,612,987 and $4,746,611,
respectively) 3,619,721 4,793,178
Stock in Federal Home Loan Bank
of Des Moines 288,500 288,500
Mortgage-backed securities held
to maturity, at amortized cost
(market value of $823,465 and
$820,499, respectively) 822,912 840,127
Loans receivable, net 25,291,566 23,771,636
Premises and equipment, net 477,500 358,133
Foreclosed real estate held for sale, net - 126,104
Accrued interest receivable:
Securities and certificates of deposit 111,202 170,483
Mortgage-backed securities 4,550 4,651
Loans receivable 137,573 132,476
Other assets 20,726 26,624
------------ ----------
Total assets $ 34,229,463 35,656,346
============ ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $ 24,027,831 24,825,297
Accrued interest on deposits 10,724 25,137
Advances from borrowers for taxes
and insurance 6,961 122,711
Other liabilities 61,183 143,890
Income taxes payable 225,552 204,842
------------ ----------
Total liabilities 24,332,251 25,321,877
------------ ----------
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 7,604 7,604
Additional paid-in capital 7,079,257 7,047,500
Common stock acquired by ESOP (381,172) (448,440)
Common stock acquired by MRDP (252,248) (305,615)
Treasury stock, at cost, 38,022 shares (544,190) -
Retained earnings - substantially
restricted 3,987,961 4,033,420
------------ ----------
Total stockholders' equity 9,897,212 10,334,469
------------ ----------
Total liabilities and stockholders'
equity $ 34,229,463 35,656,346
============ ==========
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ --------------------
1997 1996 1997 1996
-------- -------- --------- ---------
Interest income:
Loans receivable $496,452 480,070 1,486,148 1,417,960
Mortgage-backed securities 13,328 13,824 40,345 41,891
Securities 57,238 70,463 197,830 217,558
Other interest-earning assets 56,591 65,877 167,508 230,375
-------- -------- --------- ---------
Total interest income 623,609 630,234 1,891,831 1,907,784
Interest expense on deposits 271,099 265,083 814,652 810,345
-------- -------- --------- ---------
Net interest income 352,510 365,151 1,077,179 1,097,439
Provision for loan losses 2,000 2,000 6,641 5,500
-------- -------- --------- ---------
Net interest income after
provision for loan losses 350,510 363,151 1,070,538 1,091,939
-------- -------- --------- ---------
Noninterest income:
Loan service charges 5,418 5,198 15,165 19,736
NOW service charges 5,162 4,944 14,493 17,030
Gain on investment in
data center - - - 12,668
Other 904 1,756 2,476 4,329
-------- -------- --------- ---------
Total noninterest income 11,484 11,898 32,134 53,763
-------- -------- --------- ---------
Noninterest expense:
Compensation and benefits 170,888 180,093 545,588 532,275
Occupancy expense 4,987 5,153 15,843 15,746
Equipment and data processing
expense 18,657 17,780 54,980 57,283
Loss (gain) on foreclosed real
estate, net - - (7,387) -
SAIF deposit insurance premium 3,882 14,503 11,663 43,693
SAIF deposit special assessment - - - 167,146
Professional services 33,930 13,206 72,809 54,523
Other 33,497 27,520 75,879 87,072
-------- -------- --------- ---------
Total noninterest expense 265,841 258,255 769,375 957,738
-------- -------- --------- ---------
Earnings before income taxes 96,153 116,794 333,297 187,964
Income taxes 35,725 40,325 124,665 61,325
-------- -------- --------- ---------
Net earnings $ 60,428 76,469 208,632 126,639
======== ======== ========= =========
Basic earnings per common share $ .09 .11 .30 .18
======== ======== ========= =========
Diluted earnings per common
share $ .09 .11 .30 .18
======== ======== ========= =========
Dividends per common share $ .125 .125 .375 .375
======== ======== ========= =========
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
December 31,
--------------------------
1997 1996
----------- -----------
Cash flows from operating activities:
Net earnings $ 208,632 126,639
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation expense 17,364 20,685
ESOP expense 99,025 87,931
MRDP expense 53,367 51,105
Amortization of premiums (discounts),
net on securities and MBS 3,457 3,445
Provision for loan losses 6,641 5,500
Loss (gain) on foreclosed real estate, net (7,387) -
Decrease (increase) in:
Accrued interest receivable 54,285 (36,961)
Other assets 5,898 55,637
Increase (decrease) in:
Accrued interest on deposits (14,413) (7,486)
Other liabilities (82,707) (1,003)
Income taxes payable 20,710 -
Other, net (1,816) (1,989)
----------- -----------
Net cash provided by (used for) operating
activities 363,056 303,503
----------- -----------
Cash flows from investing activities:
Loans receivable:
Originated (4,497,410) (3,572,775)
Purchased - (1,337,688)
Principal collections 2,942,007 3,709,552
Principal collections on mortgage-backed
securities 17,215 19,730
Securities held to maturity - proceeds
from maturity 1,170,000 500,000
Certificates of deposit:
Purchased (600,000) (2,500,000)
Proceeds from maturity 2,510,712 1,250,000
Purchases of premises and equipment (136,731) (6,559)
Proceeds from sale of (additions to)
foreclosed real estate, net 162,323 -
----------- -----------
Net cash provided by (used for)
investing activities 1,568,116 (1,937,740)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (797,466) (1,580,425)
Advances from borrowers for taxes
and insurance (115,750) (80,671)
Purchase of treasury stock (544,190) -
Cash dividends (254,091) (264,984)
----------- -----------
Net cash provided by (used for)
financing activities (1,711,497) (1,926,080)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 219,675 (3,560,317)
Cash and cash equivalents at beginning of period 2,091,535 5,384,802
----------- -----------
Cash and cash equivalents at end of period $ 2,311,210 1,824,485
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits $ 829,065 817,831
Income taxes 103,675 24,000
Real estate acquired in settlement of loans $ 28,832 100,816
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
<PAGE>
JOACHIM BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) The information contained in the accompanying consolidated financial
statements is unaudited. In the opinion of management, the financial
statements contain all adjustments (none of which were other than
normal recurring entries) necessary for a fair statement of the results
of operations for the interim periods. The results of operations for
the interim periods are not necessarily indicative of the results which
may be expected for the entire fiscal year. The accompanying
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended March 31,1997
contained in the Annual Report to stockholders and as an exhibit filed
with Form 10-KSB.
(2) On December 29, 1997, Joachim Bancorp, Inc. (Company) entered into a
definitive merger agreement (Agreement) with First State Bancshares,
Inc. (First State) pursuant to which the Company will be merged into
First State and the Company's wholly-owned subsidiary, Joachim Federal
Savings and Loan Association, will be merged into First State's
wholly-owned subsidiary, First State Community Bank. The Agreement
provides that each share of the Company's common stock will be exchanged
for $17.25 in cash.
Options to purchase shares of the Company's common stock granted
pursuant to its 1996 Stock Option Plan will be canceled as of the
effective date of the merger. In lieu thereof the holders of such
options will be paid $4.9375 for each share of the Company's common
stock the holder of the option formerly had the right to purchase.
Unvested restricted shares of the Company's common stock granted
pursuant to its 1996 Management Recognition and Development Plan will be
canceled as of the effective date of the merger. In lieu thereof the
holders of such shares will be paid $17.25 for each share.
Pursuant to the Agreement, the Company has agreed to pay First State a
termination fee of $500,000 in the event the Agreement is terminated
under certain conditions. Consummation of the merger is subject to
several conditions, including receipt of applicable regulatory approval,
completion of due diligence by First State and approval by the Company's
stockholders.
(3) 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. Following is
a summary of basic and diluted earnings per common share for the three
and nine months ended December 31, 1997 and the three and nine months
ended December 31, 1996, as restated, under SFAS No. 128:
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- --------- --------
Net earnings $ 60,428 76,469 208,632 126,639
======== ======== ========= ========
Weighted-average shares - Basic EPS 683,177 712,230 685,912 709,988
Stock options under treasury
stock method 14,021 9,178 14,021 9,178
-------- -------- --------- --------
Weighted-average shares - Diluted EPS 697,198 721,408 699,933 719,166
======== ======== ========= ========
Basic earnings per common share $ .09 .11 .30 .18
======== ======== ========= ========
Diluted earnings per common share $ .09 .11 .30 .18
======== ======== ========= ========
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of the date last below written by and among FIRST STATE BANCSHARES,
INC., a Missouri corporation ("First State"), FSB Sub, Inc., a Missouri
corporation ("FSB," and collectively with First State, the "First State
Entities") and JOACHIM BANCORP, INC., a Missouri corporation ("Joachim"):
WHEREAS, Joachim is the beneficial and record owner of 100 percent of
the issued and outstanding shares of the capital stock of Joachim Federal
Savings and Loan Association ("JFSL"); and
WHEREAS, First State is the beneficial and record owner of 100 percent
of the issued and outstanding shares of the capital stock of FSB; and
WHEREAS, the respective Boards of Directors of the First State Entities
and Joachim have authorized the execution and delivery of this Agreement; and
WHEREAS, the First State Entities and Joachim desire to provide for
certain undertakings, conditions, representations, warranties, and covenants
in connection with the transactions contemplated by this Agreement;
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, and agreements herein contained, the parties
agree as follows:
ARTICLE I
---------
The Merger
1.01 The Merger. Subject to the terms and conditions of this
Agreement, FSB shall be merged with and into Joachim (the "Merger") in
accordance with the Missouri General and Business Corporation Law (the
"Missouri Act") and the separate corporate existence of FSB shall cease.
Joachim shall be the surviving corporation in the Merger (sometimes referred
to herein as the "Surviving Corporation").
1.02 Closing. The closing (the "Closing") of the Merger shall take
place, subject to satisfaction or waiver of all conditions set forth in
Article VI hereof, at the offices of Suelthaus & Walsh, P.C., 7733
Forsyth Blvd., 12th Floor, St. Louis, Missouri 63105, at 10:00 am., local
time, on such date as the First State Entities shall notify Joachim in writing
(such notice to be reasonably in advance of the Closing), but not earlier than
the later of (i) five business days after the special meeting of Joachim
shareholders held to approve this Agreement and (ii) 30 days after receipt of
approval of the Merger by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") or at such other time and place as the First
State Entities and Joachim shall agree (the "Closing Date").
1.03 Effective Time. On the Closing Date, the First State Entities
will cause the Merger to be consummated by delivering to the Missouri
Secretary of State for filing articles of merger (the "Articles of Merger") in
such form as required by, and duly executed and acknowledged in accordance
with, the relevant provisions of the Missouri Act. The Merger shall be
effective (the "Effective Time") at the time specified in such Articles of
Merger.
1.04 Articles of Incorporation and By-Laws. The Articles of
Incorporation and By-Laws of FSB in effect immediately prior to the Effective
Time shall be the Articles of Incorporation and By-Laws of the Surviving
Corporation, and the Articles of Incorporation and Bylaws of Joachim shall be
changed accordingly, and this shall continue in each case until amended in
accordance with their respective provisions and applicable law.
1.05 Board of Directors and Officers.
(a) At the Effective Time, the Board of Directors of the Surviving
Corporation shall consist of those persons serving as directors of FSB
immediately prior to the Effective Time and the terms of those directors after
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the Effective Time shall be the same as their respective terms immediately
prior to the Effective time (either by operation of this Agreement or by
action of First State as the sole shareholder of the Surviving Corporation
immediately after the Effective Time).
(b) At the Effective Time, the officers of FSB shall become the
officers of the Surviving Corporation until their respective successors are
duly elected and qualified, and the prior officers of Joachim shall be
relieved of their offices with Joachim and JFSL.
1.06 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further deeds,
assignments, or assurances in law or any other acts are necessary or desirable
to (i) vest, perfect, or confirm, of record or otherwise, in the Surviving
Corporation its right, title, or interest in, to, or under any of the rights,
properties, or assets of Joachim, or (ii) otherwise carry out the purposes of
this Agreement, Joachim and its officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such deeds, assignments, or assurances in law and to
do all acts necessary or proper to vest, perfect, or confirm title to and
possession of such rights, properties, or assets in the Surviving Corporation
and otherwise to carry out the purposes of this Agreement, and the officers
and directors of the Surviving Corporation are authorized in the name of
Joachim or otherwise to take any and all such actions.
1.07 Merger Consideration. At the Effective Time, by virtue of the
Merger and without any action on the part of the First State Entities,
Joachim, or the holder of any of the following securities:
(a) The shares of common stock, par value $0.01 per share, of Joachim
("Joachim Common Stock") issued and outstanding immediately prior to the
Effective Time shall be canceled and extinguished and be converted into and
become rights of the holders thereof to receive $17.25 in cash for each one
share of Joachim Common Stock (in the aggregate the "Merger Consideration").
No such conversion shall be made in respect of any such shares of Joachim
Common Stock ("Dissenting Shares") the holder of which has effectively
demanded pursuant to the Missouri Act the appraisal of such shares and who has
timely filed a written objection to the Merger and who neither voted in favor
of, nor consented in writing to, the Merger, and who, as a result thereof, is
entitled to receive the payment of the fair value of such holder's shares of
Joachim Common Stock from the Surviving Corporation in accordance with the
Missouri Act (the "Dissenting Shareholder"). No conversion shall be made with
respect to any treasury shares of Joachim Common Stock.
(b) Each share of common stock of FSB issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding from and after the Effective Time, and shall for all purposes be
deemed to be validly issued and outstanding shares of the Surviving
Corporation.
(c) The holders of the Dissenting Shares, if any, shall be entitled to
payment for such shares only to the extent permitted by and in accordance with
the provisions of the Missouri Act. Liabilities, if any, of the Surviving
Corporation to make payment to the holders of Dissenting Shares pursuant to
the Missouri Act shall be, and the same hereby are, guaranteed and paid as
required by law by First State, just as if First State were deemed the
Surviving Corporation under the Missouri Act and obligated to make such
payments thereunder.
(d) If, in accordance with the Missouri Act any holder of Dissenting
Shares shall forfeit such right to payment of the fair value of such shares,
such shares shall thereupon be deemed to have been converted into and to have
become exchangeable for, as of the Effective Time, the right to receive the
applicable share of the Merger Consideration.
(e) Joachim shall give the First State Entities (i) prompt notice of
any written objections to the Merger and any written demands for the payment
of the fair value of any shares, withdrawals of such demands, and any other
instruments served pursuant to the Missouri Act received by Joachim, and (ii)
the opportunity to direct all negotiations and proceedings with respect to
such demands under the Missouri Act. Joachim shall not voluntarily make any
payment with respect to any demands for payment of fair value and shall not,
except with the prior written consent of the First State Entities, settle or
offer to settle any such demands.
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(f) As used herein, the term "Capital Change" includes stock splits,
stock dividends, combinations of shares, distributions of warrants or other
rights, and/or any other capital rearrangements (other than cash dividends
permitted herein) by Joachim. In the event that any Capital Change occurs
between the date of this Agreement and the Closing Date respecting the shares
of Joachim Common Stock, the Merger Consideration to be received for such
shares, as set forth in subsection (a) of this Section, shall be equitably
adjusted so that the holders of Joachim Common Stock will receive (in lieu of
$17.25 per share of Joachim Common Stock) the same dollar amount that such
holder would have received in the Merger, had the Effective Time been
immediately prior to such Capital Change. This provision shall apply
severally in the event of successive Capital Changes.
(g) With respect to the options to purchase 60,839 shares of Joachim
Common Stock granted by Joachim pursuant to its 1996 Stock Option Plan, such
options shall, as of the Effective Time, be canceled, and in lieu thereof the
holders of such options shall be paid $4.9375 for each share of Joachim Common
Stock the holder of the option formerly had the right to purchase and such
holders shall have no other rights, privileges, or benefits arising out of or
resulting from the grant of said options. In the event of a Capital Change,
the amount to be paid per option share shall be equitably adjusted such that
the holders will receive an amount per option share, after adjustment, that is
equivalent to the difference between the exercise price of the options
($12.3125 per share prior to adjustment) and the merger consideration per
share of Joachim Common Stock ($17.25 per share prior to adjustment). At the
Effective Time the 1996 Stock Option Plan shall be deemed terminated.
(h) With respect to the 23,113 unvested restricted shares of Joachim
Common Stock granted by Joachim pursuant to its 1996 Management Recognition
and Development Plan, such shares shall, as of the Effective Time, be
canceled, and in lieu thereof the holders of such shares shall be paid $17.25
for each share and such holders shall have no other rights, privileges, or
benefits arising out of or resulting from the grant of such restricted shares.
At the Effective Time the 1996 Management Recognition and Development Plan
shall be deemed terminated.
1.08 Surrender and Exchange of Shares.
(a) After the Effective Time, each holder of a certificate or
certificates theretofore evidencing outstanding shares of Joachim Common Stock
shall, upon surrender of the same to First State Community Bank, Farmington,
Missouri (the "Exchange Agent"), be entitled to receive in exchange therefor
such portion of the Merger Consideration as shall be attributable to the
shares of Joachim Common Stock theretofore represented by the certificate or
certificates so surrendered, all as determined pursuant to Section 1.07. At
the Effective Time, First State shall deliver the Merger Consideration to the
Exchange Agent for subsequent delivery to the former holders of Joachim Common
Stock, as hereinafter provided. Promptly after the Effective Time the
Exchange Agent shall mail to each holder of record of an outstanding
certificate which immediately prior to the Effective Time evidenced shares of
Joachim Common Stock, and which is to be exchanged for Merger Consideration, a
form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to such certificate shall pass, only upon
delivery of such certificate to the Exchange Agent) advising such holder of
the terms and the exchange effected by the Merger and the procedure for
surrendering to the Exchange Agent such certificate in exchange for the
portion of the Merger Consideration attributable to the Joachim Common Stock
being surrendered. Upon receipt by the Exchange Agent of a properly completed
and executed letter of transmittal and applicable certificate for shares of
Joachim Common Stock, the Exchange Agent shall promptly forward to the
person(s) properly designated in the letter of transmittal the applicable
portion of the Merger Consideration that may be due. After 180 days following
the Effective Time, the Exchange Agent shall deliver to First State all
undistributed Merger Consideration (including any interest received with
respect thereto) which First State, or any of the First State Entities have
transferred to the Exchange Agent and which have not been disbursed to holders
of certificates formerly representing shares of Joachim Common Stock, and
thereafter such holder shall be entitled to look to the First State Entities,
jointly and/or severally (subject to abandoned property, escheat, and other
similar laws) with respect to such of the foregoing as would otherwise be
deliverable or payable upon due surrender of their certificates.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
shall be liable to any holder of shares of Joachim Common Stock for any
consideration paid to a public official pursuant to any applicable abandoned
property, escheat, or similar laws.
(b) If any portion of the Merger Consideration is to be issued to a
person other than the person in whose name the certificate so surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
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exchange pay to First State any transfer or other taxes required by reason of
the payment of a portion of the Merger Consideration to a person other than
the person who is the registered holder of the certificate surrendered or
otherwise establish to the satisfaction of First State that such tax has been
paid or is not payable.
1.09 Closing of Stock Transfer Books. The stock transfer books of
Joachim shall be closed at the Effective Time. In the event of a transfer of
ownership of Joachim Common Stock which is not registered in the transfer
records of Joachim, the Merger Consideration to be distributed pursuant to
this Agreement may be delivered to a transferee if the certificate
representing such shares is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by payment of
any applicable stock transfer taxes. The First State Entities and the
Exchange Agent shall be entitled to rely upon the stock transfer books of
Joachim to establish the identity of those persons entitled to receive the
Merger Consideration specified in this Agreement for their shares of Joachim
Common Stock, which books shall be conclusive with respect to the ownership of
such shares. In the event of a dispute with respect to the ownership of any
such shares, the First State Entities and the Exchange Agent shall be entitled
to deposit any consideration represented thereby in escrow with an independent
party and thereafter be relieved with respect to any claims to such
consideration.
1.10 Subsidiary Merger. It is the intention of the parties hereto that
simultaneously with the Effective Time JFSL will merge with and into First
State Community Bank, a wholly-owned subsidiary of First State, and that First
State Community Bank shall be the survivor of such merger and the former
banking office of JFSL shall become a branch of First State Community Bank
(collectively such transactions, together will all related and ancillary
transactions, are referred to as the "Subsidiary Merger"). Joachim and JFSL
shall cooperate with First State in obtaining all requisite federal and/or
state regulatory approvals for the Subsidiary Merger, including, but not
limited to causing JFSL to enter into an agreement with First State Community
Bank providing for the Subsidiary Merger in such form as First State shall
reasonably deem advisable (the "Subsidiary Merger Agreement") and such
regulatory applications as First State shall deem necessary to accomplish the
Subsidiary Merger.
ARTICLE II
----------
Representations and Warranties of Joachim
As a material inducement to the First State Entities to enter into and
perform their respective obligations under this Agreement, and notwithstanding
any examinations, inspections, audits, and other investigations heretofore and
hereafter made by the First State Entities, Joachim hereby represents and
warrants to the First State Entities as follows:
2.01 Organization and Authority. Joachim is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Missouri. Joachim is registered as a savings and loan holding company with
the Office of Thrift Supervision ("OTS") under the Home Owners Loan Act
("HOLA"). Joachim has no subsidiaries except JFSL and those set forth on
Schedule 2.01 (together with JFSL, the "Subsidiaries").
JFSL is chartered as a federal savings and loan association, is duly
organized, validly existing, and in good standing under the laws of the United
States of America, and its deposits are insured up to applicable limits by
Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation (the "FDIC") under the Federal Deposit Insurance Act of 1950, as
amended (the "FDIC Act"). Each of Joachim and JFSL possess all corporate
power and authority to own and operate their respective properties and to
carry out their respective businesses as and where the same are now being
conducted. The character of the properties owned or leased by each of Joachim
and JFSL and the nature of the business transacted by each do not require that
either of them be qualified to do business in any other jurisdiction.
Each of the Subsidiaries other than JFSL is duly organized, validly
existing, and in good standing in its state of incorporation and in all states
in which it does business or owns or leases property. Each of the
Subsidiaries other than JFSL possesses all corporate power and authority to
own and operate its respective properties and to carry out its respective
businesses as and where the same are now being conducted.
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2.02 Corporate Authorization; Records. Joachim has the corporate power
and authority to enter into this Agreement and, subject to the approval of the
Merger by the shareholders of Joachim and such approvals of government
agencies and other governing boards having regulatory authority over Joachim
and the Subsidiaries as may be required by applicable law, rule, or
regulation, to carry out its obligations hereunder. The only shareholder vote
of Joachim required to approve the Merger is the affirmative vote of the
holders of two-thirds of the outstanding shares of Joachim Common Stock,
entitled to vote at any meeting of shareholders of Joachim held for such
purpose. The execution, delivery, and performance of this Agreement by
Joachim and the consummation of the transactions contemplated hereby have been
duly authorized by the Board of Directors of Joachim. Subject to the
approvals as aforesaid, this Agreement is the valid and binding obligation of
Joachim, enforceable against Joachim in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, and other laws now or hereafter in effect relating
to the enforcement of creditors' rights generally, and except that equitable
principles may limit the right to obtain specific performance or other
equitable remedies.
Neither the execution, delivery and performance by Joachim of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance by Joachim with any of the provisions hereof, will (a) except as
set forth in Schedule 2.02 attached hereto and except for non-material
breaches which individually and in the aggregate do not or will not have a
material adverse affect upon the financial condition, results of operations,
business, assets, or operations of Joachim and the Subsidiaries taken as a
whole, violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of any lien, security interest,
charge, or encumbrance upon any of the properties or assets of Joachim or any
of the Subsidiaries under any of the terms, conditions, or provisions of (i)
the articles of incorporation, articles of association, or Bylaws of each, or
(ii) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement, or other instrument or obligation to which Joachim or any of the
Subsidiaries is a party or by which it may be bound, or to which Joachim or
any of the Subsidiaries or any of the properties or assets of Joachim or any
of the Subsidiaries may be subject, or (b) subject to compliance with the
statutes and regulations referred to in this Section, violate any judgment,
ruling, order, writ, injunction, decree, or to the best of Joachim's
knowledge, any statute, rule, or regulation applicable to Joachim or any of
the Subsidiaries or any of their respective properties or assets.
Other than in connection or in compliance with the provisions of the
Missouri Act, the Securities Exchange Act of 1934 and the rules and
regulations thereunder (the "Exchange Act"), or filings, consents, reviews,
authorizations, approvals, or exemptions required under the Bank Holding
Company Act of 1956 ("BHC Act"), notice filings with the OTS under the HOLA,
or any required approvals of the Missouri Division of Finance (the "Division
of Finance"), and the FDIC, no notice to, filing with, exemption or review by,
or authorization, consent, or approval of, any public body or authority is
necessary for the consummation by Joachim of the transactions contemplated by
this Agreement.
The minute books and stock records of Joachim and the Subsidiaries are
complete and correct in all material respects and accurately reflect in all
material respects all meetings, consents and other actions of the organizers,
incorporators, shareholders, boards of directors, and committees of the boards
of directors occurring since the organization of each.
2.03 Subsidiaries of Subsidiaries. Except as set forth in Schedule
2.03 attached hereto, the Subsidiaries have no subsidiaries and do not
control, or have any interest in any other corporation, partnership, joint
venture, or other business association (other than any interest pledged to
JFSL in the ordinary course of their business as security for the obligations
of third parties to JFSL or held by JFSL as a consequence of their exercise of
rights and remedies in respect of any interest pledged as security in respect
of such obligations).
2.04 Capitalization of Joachim. The authorized stock of Joachim
consists of 5,000,000 shares of common stock, par value $0.01 per share, of
which, as of the date hereof, 722,415 shares were issued and outstanding, and
38,022 shares are issued but not outstanding and held in treasury, and
1,000,000 shares of preferred stock, par value $0.01 per share, of which, as
of the date hereof, none were issued and outstanding. Except as set forth in
Schedule 2.04, there are no other shares of capital stock or other equity
securities of Joachim outstanding and no other options, warrants, scrip,
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rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into, shares of any capital
stock of Joachim, or contracts, commitments, understandings, or arrangements
by which Joachim is or may become bound to issue additional shares of its
capital stock or options, warrants, or rights to purchase or acquire any
additional shares of its capital stock. Schedule 2.04 summarizes all plans
and agreements for all options, warrants, scrip, rights to subscribe to,
calls, and commitments, and the number of shares for which each is subject.
All of the issued and outstanding shares of Joachim Common Stock are validly
issued, fully paid, and nonassessable, and have not been issued in violation
of any preemptive right to any shareholder of Joachim.
2.05 Capitalization of the Subsidiaries. The authorized capital stock
of JFSL consists of 1,000 shares of common stock, par value $1.00 per share,
of which 1,000 shares are issued and outstanding and 9,000 shares of preferred
stock, none of which are outstanding. Joachim has and will have as of the
Closing Date good and marketable title to all then issued and outstanding
shares of the common stock of JFSL, free and clear of any liens, claims,
charges, encumbrances, and assessments of any kind or nature whatsoever,
except as set forth in Schedule 2.05 attached hereto. There are no other
shares of capital stock or other equity securities of JFSL outstanding and no
other outstanding options, warrants, scrip, rights to subscribe to, calls, or
commitments of any character whatsoever relating to, or securities or rights
convertible into, shares of any capital stock of JFSL, or contracts,
commitments, understandings, or arrangements by which JFSL is or may become
bound to issue additional shares of capital stock or options, warrants, or
rights to purchase or acquire any additional shares of capital stock. All of
the issued and outstanding shares of JFSL's common stock are validly issued,
fully paid, and nonassessable.
The authorized capital stock of each of the Subsidiaries (other than
JFSL) is described in Schedule 2.05 attached hereto under the heading
"Capitalization of Non-Thrift Subsidiaries." Joachim has and will have as of
the Closing Date good and marketable title to all then issued and outstanding
shares of common stock of each Subsidiary (other than JFSL), free and clear of
any liens, claims, charges, encumbrances, and assessments of any kind or
nature whatsoever, except as set forth in Schedule 2.05 attached hereto.
There are no other shares of capital stock or other equity securities of any
of the Subsidiaries (other than JFSL) outstanding and no outstanding options,
warrants, scrip, rights to subscribe to, calls, or commitments of any
character whatsoever relating to, or securities or rights convertible into,
shares of any capital stock of each Subsidiary (other than JFSL), or
contracts, commitments, understandings, or arrangements by which any such
Subsidiary (other than JFSL) is or may become bound to issue additional shares
of capital stock or options, warrants, or rights to purchase or acquire any
additional shares of capital stock. All of the issued and outstanding shares
of common stock of each Subsidiary (other than JFSL) are validly issued, fully
paid, and nonassessable.
2.06 Financial Statements.
(a) Not later than seven business days following execution of this
Agreement, Joachim shall furnish First State with copies of the following
financial statements:
(i) Consolidated balance sheets, statements of income or loss,
statements of cash flows, and statements of shareholders' equity, together
with the notes thereto, as certified by Joachim's independent certified public
accountants, for each of the years in the 3-year period ending March 31, 1997,
and unaudited consolidated balance sheets and statements of income or loss and
statements of shareholders' equity at and for the periods ending June 30 and
September 30, 1997, together with copies of the H-(b)11 reports filed with the
OTS, containing such financial statements;
(ii) <RESERVED>;
(iii) The Thrift Financial Reports of JFSL as of March 31, 1995, 1996,
and 1997, and as of June 30 and September 30, 1997, as furnished by JFSL to
the OTS; and
(iv) The balance sheet, the statement of income or loss, the statement
of cash flows, and the statement of shareholders' equity for each of the
Subsidiaries (other than JFSL) at and for the period ending March 31, 1997;
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(b) The financial statements referenced above in subsection (a) of
this Section are referred to collectively as the "Financial Statements." The
Financial Statements have been prepared in accordance with the books and
records of Joachim and the Subsidiaries in accordance with generally accepted
accounting principles consistently applied, and present fairly the
consolidated financial position of Joachim and the financial position of the
Subsidiaries at the dates thereof and the consolidated results of their
operations and cash flows of Joachim; except that the Thrift Financial Reports
have been prepared in accordance with regulatory accounting principles rather
than generally accepted accounting principles, and that statements for interim
periods are subject to normal adjustments.
(c) Joachim and the Subsidiaries have each prepared, kept, and
maintained through the date hereof true, correct, and complete financial and
other books and records of their affairs which fairly reflect their respective
assets, properties, liabilities, and operations.
(d) All of the accounts, notes, other receivables, and investment
securities which are reflected in the Financial Statements were acquired in
the ordinary course of business.
2.07 Reports. Joachim and the Subsidiaries have filed all reports,
registrations, and statements, together with any required amendments thereto,
that they were required to file with (i) the OTS, (ii) the FDIC, (iii) the
Securities and Exchange Commission (the "SEC") and (iv) any applicable state
securities authorities. All such reports and statements filed with any such
regulatory body or authority are collectively referred to herein as the
"Joachim Reports." As of their respective dates, the Joachim Reports complied
in all material respects with all published rules and regulations promulgated
by the OTS, the FDIC, the SEC, and any applicable state securities
authorities, as the case may be, and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Not later than seven business days following execution of this
Agreement, Joachim shall furnish First State with copies of all of the Joachim
Reports filed with the SEC by Joachim pursuant to the Exchange Act.
2.08 Title to and Condition of Subsidiary Assets.
(a) Except as may be reflected in the Financial Statements, Joachim
and the Subsidiaries have, and at the Closing Date will have, good and
marketable title to all of their respective properties and assets reflected on
the Financial Statements, free and clear of any liens, charges, pledges,
encumbrances, defects, claims, or rights of third parties, except:
(i) as set forth in Schedule 2.08 attached hereto under the heading
"Encumbrances;" or
(ii) for liens for taxes, assessments, or other governmental charges
not yet delinquent; or
(iii) with respect to real property only, for such easements and other
encumbrances as do not individually or in the aggregate materially and
adversely affect the use or value of such real estate.
(b) No material assets reflected on the consolidated balance sheet of
Joachim as of March 31, 1997, have been sold, leased,
transferred, assigned, or otherwise disposed of since March 31, 1997, except
in the ordinary course of business or as set forth in
Schedule 2.08 under the heading "Dispositions."
(C) All furniture, fixtures, vehicles, machinery, equipment, and
computer software owned or used by Joachim and the Subsidiaries, including any
of such items leased as a lessee and all facilities and improvements
comprising part of any owned or leased real property, taken as a whole as to
each of the foregoing, and with no single such item being deemed of material
importance, is fit for the purposes for which they are currently used. The
operation by Joachim and the Subsidiaries of such properties is in compliance
in all material respects with all applicable laws, ordinances, and rules and
regulations of any governmental authorities having jurisdiction.
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2.09 Real Property.
(a) The legal description of each parcel of real property owned by
Joachim and the Subsidiaries (other than real property (i) held by any of the
Subsidiaries as a trustee in the ordinary course of its business, or (ii)
acquired in foreclosures or in lieu of foreclosures and being held by any of
the Subsidiaries for disposition as required by law ("OREO")) is set forth in
Schedule 2.09 attached hereto under the heading "Owned Real Property" (such
real property and other similar real property previously owned by Joachim or
the Subsidiaries being herein referred to as the "Owned Real Property"). The
legal description of each parcel of real property leased by Joachim and the
Subsidiaries as lessee is also set forth in Schedule 2.09 under the heading
"Leased Real Property" (such real property being herein referred to as the
"Leased Real Property"). Collectively, the Owned Real Property and the Leased
Real Property is herein referred to as the "Real Property."
(b) Joachim and the Subsidiaries enjoy peaceful possession of all of
the Real Property.
(c) Neither Joachim nor any of the Subsidiaries has any interest in
any other real property except interests as a mortgagee, and except for OREO.
(d) To the best of Joachim's knowledge, none of the buildings,
structures, or other improvements located on the Real Property encroaches upon
or over any adjoining parcel of real estate or any easement or right-of-way or
"setback" line in any material respect, and all such buildings, structures,
and improvements are located and constructed in material conformity with all
applicable zoning ordinances and building codes.
(e) None of the buildings, structures, or improvements located on the
Real Property are the subject of any official complaint or notice of violation
of any applicable zoning ordinance or building code, and there is no zoning
ordinance, building code, use or occupancy restriction, or condemnation action
or proceeding pending or, to the best of Joachim's knowledge, threatened with
respect to any such building, structure or improvement.
(f) Except as set forth in Schedule 2.09 under the heading of
"Property Especially Mentioned," to the best of Joachim's knowledge, neither
any Owned Real Property nor any real property now or previously held by
Joachim or any of the Subsidiaries as a result of any foreclosures is or was
in violation of any federal, state, or municipal environmental laws,
regulations, or ordinances and there are not nor have there been conditions
existing on any of the Owned Real Property or on any real property held by any
of the Subsidiaries as a result of foreclosure, or otherwise existing with
respect to Joachim and the Subsidiaries, which give rise to, or may give rise
to, any such violation, or which require or may in the future require remedial
action under or with respect to such laws, regulations, and ordinances.
2.10 Contracts, Commitments, and Certain Loans.
(a) Schedule 2.10 attached hereto contains a complete and accurate
listing of all agreements (written or oral) and other contracts (including any
leases, whether as lessor or as lessee) to which Joachim or any of the
Subsidiaries is a party which involve commitment of funds by either of more
than $25,000 or which cannot be terminated by Joachim or the Subsidiary on 30
days' notice or less without liability, other than contracts entered into in
respect of deposits, loan agreements and commitments, notes, security
agreements, repurchase agreements, bankers' acceptances, outstanding letters
of credit and commitments to issue letters of credit, participation
agreements, and other documents relating to loan or deposit transactions
entered into by any of the Subsidiaries in the ordinary course of business.
In addition, Schedule 2.10 also contains a complete and accurate listing of
all loan commitments, outstanding letters of credit and commitments to issue
letters of credit, and other documents relating to or involving commitments to
extend credit by Joachim or JFSL.
(b) Except for the contracts and agreements required to be listed on
Schedule 2.10, neither Joachim nor any of the Subsidiaries is a party to or
bound by any written or oral:
(i) agreement, contract, arrangement, understanding, or commitment
with any labor union or similar organization;
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(ii) <RESERVED>;
(iii) franchise or license agreement;
(iv) employment, severance or termination pay, agency, consulting, or
similar agreement, contract, arrangement, understanding or commitment;
(v) loans or other obligations payable or owing to any officer,
director, or employee, except (i) salaries and wages incurred and accrued in
the ordinary course of business and/or (ii) obligations due in respect of any
depository accounts maintained by any of the foregoing at a bank in the
ordinary course of business;
(vi) loans or debts payable or owing by any executive officer or
director of Joachim or any of the Subsidiaries or any other person or entity
deemed an "executive officer" or a "related interest" of any of the foregoing,
as such terms are defined in Regulation O of the Federal Reserve Board; or
(vii) other material agreement, contract, arrangement, understanding or
commitment extending beyond six months from the date hereof that cannot be
canceled without cost or penalty upon notice of 30 days or less.
(c) Joachim and each of the Subsidiaries carry property, casualty,
liability, fidelity, and other insurance coverages as set forth in Schedule
2.10 under the heading "Insurance."
(d) True, correct, and complete copies of the agreements, contracts,
leases, insurance policies, and other documents referred to in Schedule 2.10
have been or shall be furnished or made available to the First State Entities
promptly upon request.
(e) Each of the agreements, contracts, leases, insurance policies, and
other documents referred to in Schedule 2.10 is a valid, binding, and
enforceable obligation of Joachim or the Subsidiaries and, to the best of
Joachim's knowledge, of the other parties sought to be bound thereby, except
as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, and other laws now or hereafter in effect relating
to the enforcement of creditors' rights generally, and except that equitable
principles may limit the right to obtain specific performance or other
equitable remedies.
(f) There is set forth in Schedule 2.10 under the heading "Loans" a
true, correct, and complete listing, by account or other identifying number,
of: (i) all loans of JFSL which have been accelerated during the past 24
months and which as of the time of acceleration, had in excess of $25,000 of
principal and interest due; (ii) all loan commitments or lines of credit of
JFSL which have been terminated during the past 24 months by reason of default
or material adverse developments in the condition of the borrower or other
events or circumstances affecting the credit of the borrower and which, as of
the time of termination, pertained to more than $25,000 of principal and
interest; (iii) all loans, lines of credit, and loan commitments as to which
JFSL has given notice to the borrower or customer of JFSL's intent to
terminate during the past 24 months and which, as of the time of such notice
pertained to more than $25,000 of principal and interest; (iv) as to all
loans, during the past 12 months under which, or pursuant to which, JFSL has
requested or demanded that actions be taken to correct existing defaults or
facts or circumstances which may become defaults, which, as of the time of
such request or demand, had more than $25,000 of principal and interest due
and were past due by at least 30 days; and (v) each borrower, customer, or
other party which has notified JFSL during the past 24 months of, or asserted
against JFSL, in writing, any "lender liability" or similar claim, and, to the
best of Joachim's knowledge, each borrower, customer, or other party which has
given Joachim or JFSL any oral notification of, or asserted against Joachim or
JFSL, any such claim.
2.11 Absence of Defaults. Except as set forth in Schedule 2.11
attached hereto under the heading "Defaults," there are no pending material
disputes between Joachim or the Subsidiaries and the other parties to the
agreements, contracts, leases, insurance policies, and other documents
referred to in Schedule 2.10, and all such agreements, contracts, leases,
insurance policies, and other documents are in full force and effect and not
in default in any material respect with respect to Joachim or the
Subsidiaries, or, to the best of Joachim's knowledge, any other party thereto.
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2.12 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 2.12 attached hereto:
(a) Neither Joachim nor any of the Subsidiaries, as of the date
hereof, has any debts, liabilities, or obligations, whether accrued, absolute
or contingent and whether due or to become due, except
(i) liabilities reflected in the Financial Statements; or
(ii) debts, liabilities or obligations incurred since March 31, 1997,
in the ordinary and usual course of their respective businesses, none of which
are for breach of contract, breach of warranty, tort, infringement, or
lawsuits, and none of which materially and adversely affect their respective
financial positions or results of operations, or businesses, assets, or
operations; and
(b) Joachim and each of the Subsidiaries were not, as of March 31,
1997, and since such date have not become a party to, any contract or
agreement which affected, affects, or may reasonably be expected to affect,
materially and adversely, their respective financial positions, results of
operations, businesses, assets, or operations.
2.13 Taxes. Joachim and each of the Subsidiaries have timely filed or
will timely file all tax returns required to be filed at or prior to the
Closing Date. Joachim and each of the Subsidiaries have paid, or have set up
adequate reserves on the Financial Statements for the payment of, all taxes
required to be paid in respect of the periods covered by such returns and have
set up adequate reserves on the Financial Statements for the payment of all
taxes anticipated to be payable in respect of the periods subsequent to the
last of said periods for which returns have been filed (treating for this
purpose the Closing Date as the last day of an applicable period, whether or
not it is in fact the last day of a taxable period). Neither Joachim nor any
of the Subsidiaries will have any material liability for any such taxes in
excess of the amounts so paid or reserves so established and no material
deficiencies for any tax, assessment, or governmental charge have been
proposed, asserted, or assessed (tentatively or definitely) against Joachim or
any of the Subsidiaries which would not be covered by existing reserves.
Neither Joachim nor any of the Subsidiaries is delinquent in the payment of
any material tax, assessment, or governmental charge, nor has it requested any
extension of time within which to file any tax returns in respect of any
fiscal year which have not since been filed and no requests for waivers of the
time to assess any taxes are pending. No tax returns of Joachim or the
Subsidiaries have been audited by the Internal Revenue Service (the "IRS")
within the past five years. Except as set forth on Schedule 2.13, no
extensions have been requested for any federal tax return for Joachim or any
of the Subsidiaries within the past five years.
2.14 Material Adverse Change. Except as otherwise disclosed in any of
the Schedules of Joachim referenced herein, since March 31, 1997, there has
been no material adverse change in the business, financial condition, results
of operations, or prospects of Joachim and the Subsidiaries taken as a whole
(other than changes in laws or regulations, or interpretations thereof, that
affect the banking and/or thrift industries generally, or changes in the
general level of interest rates or economic changes).
2.15 Litigation and Other Proceedings. Except as set forth in Schedule
2.15 and except for those claims, actions, suits, proceedings, governmental
proceedings and investigations which, even if adversely determined, will not,
individually or in the aggregate, have a material adverse effect upon the
conditions, results of operations, business, assets, or operations of Joachim
and the Subsidiaries, taken as a whole, neither Joachim nor any of the
Subsidiaries is a party to any pending or to the best knowledge of Joachim
threatened, claim, action, suit, investigation, or proceeding, other than
foreclosure proceedings against borrowers of JFSL, or is subject to any order,
judgment or decree. Without limiting the generality of the foregoing, except
as set forth in Schedule 2.15 and except for those claims, actions, suits,
proceedings, governmental proceedings and investigations which, even if
adversely determined, will not, individually or in the aggregate, have a
material adverse effect upon the conditions, results of operations, business,
assets, or operations of Joachim and the Subsidiaries, taken as a whole, as of
the date of this Agreement, there are no actions, suits, or proceedings
pending or to the best of Joachim's knowledge threatened against Joachim or
any of the Subsidiaries or any of their respective officers, employees, or
directors by any shareholder of Joachim (or any former shareholder) or
involving claims under the Community Reinvestment Act of 1977, the Bank
Secrecy Act, the Right to Financial Privacy Act, or any other laws applicable
to Joachim or the Subsidiaries.
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2.16 Legal Proceedings and Governmental Compliance. Joachim and the
Subsidiaries are in compliance in all material respects with all laws,
ordinances, rules, regulations, and orders that are applicable to each, except
where the failure to be in compliance, individually or in the aggregate, would
not have a material adverse affect upon the financial condition, results of
operations, business, assets, or operations of Joachim and the Subsidiaries
taken as a whole.
Joachim and the Subsidiaries hold all permits, business licenses,
certificates, franchises, and other similar items, which, if not held, would
materially adversely affect the financial condition, operations, prospects,
and/or ownership rights as to the assets and properties of any of the
foregoing. A true, correct and complete list of all such items is set forth
in Schedule 2.16 attached hereto.
There is no legal action or governmental proceeding or investigation
pending or to the best of Joachim's knowledge threatened against Joachim or
any of the Subsidiaries that could prevent or adversely affect or seeks to
prohibit the consummation of the transactions contemplated hereby, nor is
Joachim or any of the Subsidiaries subject to any order of court or
governmental authority having any such effect.
Except as set forth in Schedule 2.16, to the best knowledge of Joachim
neither Joachim nor any of the Subsidiaries is subject to a material liability
as a result of its ownership, operation, or use of any property (whether
directly or as a consequence of such property being part of its investment
portfolio, including, without limitation, properties under foreclosure,
property held by such in its capacity as a trustee, and property in which any
venture capital or similar unit of any of the Subsidiaries has an interest,
but excluding property held as collateral for the security of any loan due it)
(the "Property") (a) that is contaminated by or contains any hazardous waste,
toxic substance, or related materials, including without limitation, asbestos,
PCBs, pesticides, herbicides, or any other substance or waste that is
hazardous to human health or the environment (collectively, a "Toxic
Substance"), or (b) on which any Toxic Substance has been stored, disposed of,
placed, or used in the construction thereof. No claim, action, suit,
proceeding, or investigation is pending or has been initiated against Joachim
or any of the Subsidiaries relating to the Property before any court or other
governmental authority or arbitration tribunal relating to hazardous
substances, pollution, or the environment, and there is no outstanding
judgment, order, writ, injunction, decree, or award against Joachim or any of
the Subsidiaries with respect to the same. Except for statutory or regulatory
restrictions of general application, no federal, state, municipal or other
governmental authority has placed any restriction on the business of Joachim
or the Subsidiaries which reasonably could be expected to have a material
adverse effect on the business, financial condition, results of operations, or
prospects of Joachim or the Subsidiaries.
2.17 Labor and Employment. No work stoppage involving Joachim or any
of the Subsidiaries is pending or, to the best knowledge of Joachim,
threatened. Joachim and the Subsidiaries are not involved in, or to their
knowledge threatened with, any labor dispute, arbitration, lawsuit, or
administrative proceeding which could materially and adversely affect the
business of Joachim and any of the Subsidiaries.
2.18 Material Interests of Certain Persons. Except as set forth on
Schedule 2.18 and except for loans made by JFSL in the ordinary course of
business and in compliance with all applicable regulations, to the best
knowledge of Joachim, no officer or director of Joachim or any of the
Subsidiaries has any material interest in any material contract or property
(real or personal, tangible or intangible) used in or pertaining to the
business of Joachim or such Subsidiary.
2.19 Employee Benefit Plans. There are set forth in Schedule 2.19 all
pension, retirement, stock option, stock purchase, stock ownership, restricted
stock, savings, stock appreciation right, profit sharing, deferred
compensation, consulting, bonus, group insurance, Section 125, severance, and
other employee benefit, incentive, and welfare policies, contracts, plans, and
arrangements, and all trust agreements related thereto, in respect of any of
the present or former directors, officers, or other employees of Joachim and
the Subsidiaries (collectively, "Employee Plans or Policies"). Except as set
forth in Schedule 2.19, all Employee Plans or Policies currently comply and
have at all relevant times complied in all material respects with all
applicable laws, requirements, and orders under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986,
as amended (the "Code"), and state law. With respect to each Employee Plan or
Policy which is a pension plan (as defined in Section 3(2) of ERISA) (the
"Pension Plans"), except as set forth in Schedule 2.19: (a) no Pension Plan
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is a "multi-employer plan" within the meaning of Section 3(37) of ERISA; (b)
each Pension Plan, to the extent necessary and applicable, is "qualified"
within the meaning of Section 401(a) of the Code, and each related trust, if
any, is exempt from taxation under Section 501(a) of the Code; (c) the present
value of all benefits vested and all benefits accrued under each Pension Plan
which is subject to Title IV of ERISA did not, in each case, as of the last
applicable annual valuation date (as indicated on Schedule 2.19), exceed the
value of the assets of the Pension Plans allocable to such vested or accrued
benefits; (d) to the best of Joachim's knowledge no Pension Plan or any trust
created thereunder, nor any trustee, fiduciary, or administrator thereof, has
engaged in a "prohibited transaction" within the meaning of Section 4975 of
the Code or Section 406 of ERISA, which could subject such plan or trust, or
any trustee, fiduciary, or administrator thereof, or any party dealing with
any such plan or trust, to the tax or penalty on prohibited transactions
imposed by said Section 4975 or by Section 502(l) of ERISA; (e) no Pension
Plan or any trust created thereunder has been terminated, nor have there been
any "reportable events" with respect to any Pension Plan, as that term is
defined in Section 4043 of ERISA; and (f) no Pension Plan or any trust created
thereunder has incurred any "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA (whether or not waived), since the effective
date of ERISA.
2.20 Conduct of Joachim and of Subsidiaries to Date. Except as
disclosed in Schedule 2.20, from and after March 31, 1997:
(a) Joachim and the Subsidiaries have carried on their respective
businesses in the ordinary and usual course consistent with their past
practices;
(b) Neither Joachim nor any of the Subsidiaries has issued or sold any
of its capital stock or any corporate debt securities which should, under
generally accepted accounting principles, be classified as long-term debt on
its balance sheet;
(c) Joachim has not granted any option for the purchase of its capital
stock, effected any stock split, or otherwise changed its capitalization;
(d) Joachim has not declared, set aside, or paid any dividend or other
distribution in respect of its capital stock, or, directly or indirectly,
redeemed or otherwise acquired any of its capital stock, except for dividends
declared and paid prior to or on September 30, 1997, and a dividend of $0.125
per share payable on December 31, 1997;
(e) Neither Joachim nor any of the Subsidiaries has incurred any
material obligation or liability (absolute or contingent), except normal trade
or business obligations or liabilities incurred in the ordinary course of
business, or mortgaged, pledged, or subjected to lien, claim, security
interest, charge, encumbrance, or restriction on any of its assets or
properties;
(f) Neither Joachim nor any of the Subsidiaries has discharged or
satisfied any material lien, mortgage, pledge, claim, security interest,
charge, encumbrance, or restriction or paid any material obligation or
liability (absolute or contingent), other than in the ordinary course of
business;
(g) Neither Joachim nor any of the Subsidiaries has sold, assigned,
transferred, leased, exchanged, or otherwise disposed of any of its properties
or assets other than for a fair consideration (in the reasonable opinion of
Joachim's management) in the ordinary course of business;
(h) Neither Joachim nor any of the Subsidiaries has: increased the
rate of compensation of, or paid any bonus to, any of its directors, officers,
or other employees, except merit or promotion increases in accordance with
past practices; entered into any new, or amended or supplemented any existing
employment, management, consulting, deferred compensation, severance, or other
similar contract; entered into, terminated, or substantially modified any
Employee Plan or Policy in respect of any of its present or former directors,
officers, or other employees; or agreed to do any of the foregoing;
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(i) Neither Joachim nor any of the Subsidiaries has suffered any
material damage, destruction, or loss, whether as the result of fire,
explosion, earthquake, accident, casualty, labor trouble, requisition, or
taking of property by any government or any agency of any government, flood,
windstorm, embargo, riot, act of God or the enemy, or other similar or
dissimilar casualty or event or otherwise, and whether or not covered by
insurance; and
(j) Neither Joachim nor any of the Subsidiaries has entered into any
material transaction, contract, or commitment outside the ordinary course of
its business.
2.21 Proxy Statement, etc. None of the information regarding Joachim
and/or the Subsidiaries supplied or to be supplied by Joachim for inclusion or
included in (i) the Proxy Statement to be mailed to shareholders of Joachim in
connection with the meeting to be called to consider the Merger (the "Proxy
Statement"), and (ii) any other documents to be filed with the SEC, the
Federal Reserve Board, the OTS, the Division of Finance, or any other
regulatory authority in connection with the transactions contemplated hereby
will, at the respective times such documents are filed with such applicable
regulatory authority and, with respect to the Proxy Statement, when mailed, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading
or, in the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the meeting of shareholders referred to in Section
5.03, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for such meeting.
All documents which Joachim is responsible for filing with any regulatory
authority in connection with the Merger will comply as to form in all material
respects with the provisions of applicable law.
2.22 Brokers, Investment Bankers, and Finders. Neither Joachim, the
Subsidiaries, nor any of their respective officers, directors, or employees
has employed any broker, investment banker, finder or incurred any liability
for any financial advisory fees, brokerage fees, commissions, investment
banker fees or commissions, or finder's fees, except as described in Schedule
2.22, and no broker, investment banker, or finder has acted directly or
indirectly for Joachim and/or the Subsidiaries in connection with this
Agreement or the transactions contemplated hereby, except as described in
Schedule 2.22.
2.23 Accuracy of Information. The statements contained in this
Agreement, the Schedules, and in any other written document executed and
delivered by or on behalf of Joachim pursuant to the terms of this Agreement
are true and correct in all material respects, and such statements and
documents do not omit any material fact necessary to make the statements
contained therein not misleading.
ARTICLE III
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Representations and Warranties of First State
As a material inducement to Joachim to enter into and perform its
obligations under this Agreement, and notwithstanding any examinations,
inspections, audits, or other investigations made by Joachim, First State
hereby represents and warrants to Joachim as follows:
3.01 Organization and Authority. First State is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Missouri, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified, and has corporate power and authority
to own its properties and assets and to carry on its business as it is now
being conducted. First State is registered as a bank holding company with the
Federal Reserve Board under the BHC Act.
FSB is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Missouri, is duly qualified to do
business and is in good standing in all jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified, and has corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted.
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3.02 Corporate Authorization; Records. First State and FSB each have
the corporate power and authority to enter into this Agreement and to carry
out their respective obligations hereunder. The execution, delivery, and
performance of this Agreement by First State and FSB and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of each of First State and FSB. Subject to such approvals of
government agencies and other governing boards having regulatory authority
over First State and FSB as may be required by statute or regulation, this
Agreement is a valid and binding obligation of First State and FSB,
enforceable against each in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, and other laws now or hereafter in effect relating
to the enforcement of creditors' rights generally, and except that equitable
principles may limit the right to obtain specific performance or other
equitable remedies.
Neither the execution, delivery and performance by First State or FSB of
this Agreement, nor the consummation of the transactions contemplated hereby,
nor compliance by First State or FSB with any of the provisions hereof will
(i) violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of, any lien, security interest,
charge, or encumbrance upon any of the properties or assets of First State or
FSB under any of the terms, conditions, or provisions of (x) their respective
articles of incorporation or by-laws, or (y) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, or other instrument or
obligation to which First State or FSB is a party or by which it may be bound,
or to which First State or FSB or any of its properties or assets may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, to the best knowledge of First State,
violate any judgment, ruling, order, writ, injunction, decree, statute, rule,
or regulation applicable to First State or FSB or any of their properties or
assets.
Other than in connection or compliance with the provisions of the
Missouri Act, the Exchange Act, the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals, notices, or
exemptions required under the BHC Act, the HOLA, or any required approvals of
the Division of Finance or the FDIC, no notice to, filing with, exemption or
review by, or authorization, consent, or approval of, any public body or
authority is necessary for the consummation by First State and FSB of the
transactions contemplated by this Agreement.
The minute books and stock records of First State and FSB are complete
and correct in all material respects and accurately reflect in all material
respects all meetings, consents, and other actions of the organizers,
incorporators, shareholders, boards of directors, and committees of the boards
of directors occurring since the organization of each.
3.03 First State Financial Statements. The consolidated balance sheets
of First State and its subsidiaries (hereinafter sometimes referred to
collectively as the "First State Subsidiaries") as of December 31, 1996 and
1995 and related consolidated statements of income, shareholders' equity, and
cash flows for the three years ended December 31, 1996, together with the
notes thereto, certified by KPMG Peat Marwick, and the unaudited consolidated
balance sheet of First State as of September 30, 1997, and the related
unaudited consolidated statements of income and cash flows for the period then
ended, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, and present fairly the consolidated
financial position of First State at the dates and the consolidated results of
operations and cash flows of First State for the periods stated therein.
3.04 Reports. First State and each of the First State Subsidiaries have
filed all reports, registrations, and statements, together with any required
amendments thereto, that they were required to file with (i) the Federal
Reserve Board, (ii) the FDIC, and (iii) the Division of Finance. All such
reports and statements filed with any such regulatory body or authority are
collectively referred to herein as the "First State Reports." As of their
respective dates, the First State Reports complied in all material respects
with all the rules and regulations promulgated by the Federal Reserve Board,
the FDIC, and the Division of Finance, as the case may be, and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
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3.05 Material Adverse Changes. Except as set forth in Schedule 3.05,
since December 31, 1996, there has been no material adverse change in the
business, financial condition, results of operations or prospects of First
State and the First State Subsidiaries taken as a whole (other than changes in
banking laws or regulations, or interpretations thereof, that affect the
banking industry generally or changes in the general level of interest rates).
3.06 Proxy Statement, etc. None of the information regarding First
State and FSB supplied or to be supplied by First State for inclusion or
included in (i) the Proxy Statement, or (ii) any other documents to be filed
with the SEC, the Federal Reserve Board, the OTS, the Division of Finance, or
any other regulatory authority in connection with the transactions
contemplated hereby will, at the respective times such documents are filed
with such regulatory authority and, with respect to the Proxy Statement, when
mailed, be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the meeting of shareholders of Joachim to
approve the Merger provided for elsewhere herein, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for such meeting. All documents which First State
and the First State Subsidiaries are responsible for filing with the SEC and
any regulatory authority in connection with the Merger will comply as to form
in all material respects with the provisions of applicable law.
3.07 Brokers, Investment Bankers, and Finders. Neither First State,
FSB, nor any of their respective officers, directors, or employees has
employed any broker, investment banker, or finder or incurred any liability
for any financial advisory fees, brokerage fees, commissions, investment
banker fees or commissions, or finder's fees, and no broker, investment
banker, or finder has acted directly or indirectly for First State or in
connection FSB with this Agreement or the transactions contemplated hereby.
3.08 Litigation. There is no legal action or government proceeding or
investigation pending or to the best of First State's knowledge threatened
against First State or FSB that could prevent or adversely affect or seeks to
prohibit the consummation of the transactions contemplated hereby, nor is
First State or FSB subject to any court order or governmental authority having
such effect.
3.09 Availability of Funds. At Closing, First State will have
sufficient funds readily available to it to satisfy its obligations under
Article I of the Agreement.
3.10 Accuracy of Information. The statements contained in this
Agreement, the Schedules, and in any other written document executed and
delivered by or on behalf of First State pursuant to the terms of this
Agreement are true and correct in all material respects, and such statements
and documents do not omit any material fact necessary to make the statements
contained therein not
misleading.
ARTICLE IV
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Conduct of Business Prior to the Effective Time
4.01 Conduct of Businesses Prior to the Effective Time. During the
period from the date of this Agreement to the Effective Time, Joachim and each
of the First State Entities shall, and shall cause each of their respective
subsidiaries to, conduct its business according to the ordinary and usual
course consistent with past and current practices and each shall use its best
efforts to maintain and preserve its business organization, employees, and
advantageous business relationships and retain the services of its officers
and key employees.
4.02 Forbearances by Joachim. During the period from the date of this
Agreement to the Effective Time and except as provided in Schedule 4.02,
Joachim shall not, and shall not cause, vote in favor of, or otherwise
authorize, approve, or permit any of the Subsidiaries to, without the prior
written consent of the First State Entities:
(a) Declare and/or pay any dividends on its outstanding shares of
capital stock, other than the $0.125 per share dividend to be paid as of
December 31, 1997, and a $0.125 per share dividend to be declared and paid
during the first three months of 1998;
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(b) Enter into or amend any employment, severance, or similar
agreements or arrangements with any director, officer, key employee, or
consultant;
(c) Authorize, recommend, propose, or announce an intention to
authorize, recommend, or propose, or enter into an agreement in principle with
respect to, any acquisition of a business or assets by means of a merger,
consolidation, or acquisition of a material amount of assets or securities, or
any release or relinquishment of any material contract rights not in the
ordinary course of business;
(d) Propose or adopt any amendments to the Articles of Incorporation
of Joachim, the federal stock charter of JFSL, the Articles of Incorporation
of any of the Subsidiaries (other than JFSL), or any of their respective
Bylaws;
(e) Issue any shares of capital stock or effect any stock split or
otherwise change its capitalization as it existed as of the date hereof,
except for shares issued upon the exercise of stock options outstanding as of
the date hereof as set forth on Schedule 2.04 hereof;
(f) Grant, confer, or award any options, warrants, conversion rights,
or other rights not existing on the date hereof to acquire any shares of its
capital stock;
(g) Purchase or redeem any shares of its capital stock;
(h) Enter into or increase any loan or credit commitment (including
standby letters of credit), purchase securities, or invest or agree to invest
in any person or entity in an amount in excess of $75,000, without first
consulting with the First State Entities, provided, however, that nothing in
this paragraph shall prohibit any Subsidiary from honoring any contractual and
legally binding obligation in existence on the date of this Agreement--it
being understood that "consulting with" in the context of this paragraph means
advising sufficiently in advance of any proposed action to allow First State a
reasonable opportunity to offer a (non-binding) responsive opinion;
(i) Agree in writing or otherwise to take any of the foregoing actions
or, subject to the provisions of this Agreement, engage in any activity, enter
into any transaction, or take or omit to take any other act which would make
any of Joachim's representations and warranties untrue or incorrect in any
material respect if made anew after engaging in such activity, entering into
such transaction, or taking or omitting such other act;
(j) Take back or commence foreclosure on any property other than in
the ordinary course of business; or
(k) Other than as otherwise contemplated herein, take any actions, or
fail to take any actions which alone, or together with any other action or
inaction, shall create, alter, or eliminate any rights, benefits, obligations,
or liabilities of any person (including, but not limited to the participants,
beneficiaries, Joachim, the Subsidiaries, or, after the Merger First State or
FSB) with respect to any Employee Plans or Policies.
ARTICLE V
---------
Additional Agreements
5.01 Access and Information. Joachim and the Subsidiaries shall each
afford to First State and First State's accountants, counsel, and other
representatives, full access during normal business hours, upon reasonable
notice during the period prior to the Closing Date, to all their respective
properties, books, contracts, commitments, and records and, during such
period, each shall furnish promptly to First State (i) a copy of each report,
schedule, and other document filed or received by it during such period
pursuant to the requirements of Federal and state securities laws and (ii) all
other information concerning its business, properties, and personnel as such
other party may reasonably request. In the event of the termination of this
Agreement First State shall, and shall cause its advisors and representatives
to, (x) hold confidential all information obtained in connection with any
transaction contemplated hereby with respect to the other party which is not
otherwise public knowledge, (y) return all documents (including copies
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thereof) obtained hereunder from Joachim or JFSL to Joachim, and (z) use its
best efforts to cause all information obtained pursuant to this Agreement or
in connection with the negotiation hereof to be treated as confidential and
not use, or knowingly permit others to use, any such information unless such
information becomes generally available to the public.
5.02 Proxy Statement; Regulatory Matters.
(a) Joachim shall prepare and file with the SEC, as soon as is
reasonably practicable, the Proxy Statement with respect to the special
meeting of shareholders of Joachim to be held to consider the Merger.
(b) Each of the parties hereto shall cooperate and use their respective
best efforts to prepare all documentation, to effect all filings, and to
obtain all permits, consents, approvals, and authorizations of all third
parties and governmental bodies necessary to consummate the transactions
contemplated by this Agreement, including, without limitation, any such
approval or authorization required by the Federal Reserve Board, the OTS, the
Division of Finance, and the FDIC.
5.03 Shareholder Approvals. Joachim shall call a meeting of its
shareholders to be held as soon as practicable for the purpose of voting upon
the Merger and related matters. In connection with such meeting, Joachim
shall mail the Proxy Statement and related documents to its shareholders. The
Board of Directors of Joachim shall submit for approval of its shareholders
the matters to be voted upon at such meeting. Subject to the exercise of the
fiduciary duties of directors, the Board of Directors of Joachim will
recommend the approval of this Agreement and the transactions contemplated
hereby and will use its best efforts to obtain the votes and approvals of its
shareholders necessary for the approval and adoption of this Agreement and the
Merger contemplated hereby.
So long as Joachim is not in breach of any of the terms of this
Agreement and upon satisfaction of all other conditions to Closing, First
State agrees to vote its shares of FSB in favor of the Merger, as well as its
shares of Joachim.
5.04 Current Information. During the period from the date of this
Agreement to the Closing Date, each party shall cause one or more of its
designated representatives to confer on a regular and frequent basis with
representatives of the other party. Each party shall promptly notify the
other party of any material change in its business, operations, or prospects
and of any governmental complaints, investigations, or hearings (or
communications indicating that the same may be contemplated), or the
institution or the threat of material litigation or administrative or other
claim involving such party, and shall keep the other party fully informed of
such events.
5.05 Employment Agreements. It is the intention of the parties hereto
that prior to or at the Effective Time each of Bernard R. Westhoff
("Westhoff"), Lee Ellen Hogan ("Hogan"), and Melvin Yarbrough ("Yarbrough")
shall have entered into employment agreements with either or both of First
State and First State Community Bank (the "Employment Agreements"). The
Employment Agreements shall be in lieu of and in replacement for the
employment agreements currently entered into by Joachim and JFSL on the one
hand, and each of Westhoff, Hogan, and Yarbrough on the other hand (the "Prior
Agreements").
The Employment Agreements shall provide, among other things, that:
(a) the Prior Agreements are terminated as of the Effective Time, and
that none of Joachim, JFSL, or any of their successors shall have any
obligation to Westhoff, Hogan, or Yarbrough under the Prior Agreements, except
for normally accruing Base Salary for work performed through the Effective
Time;
(b) none of the entering into the Employment Agreements, terminating
the Prior Agreements, or consummation of the transactions contemplated in this
Agreement shall constitute an "Event of Termination" as such term is defined
in the Prior Agreements;
(c) the Merger, upon the Effective Time, shall constitute a "Change in
Control" as such term is defined in the Prior Agreements, but that for so long
as Westhoff, Hogan, or Yarbrough as the case may be, remains employed by any
of First State, First State Community Bank, or their successors, Westhoff,
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Hogan, or Yarbrough as the case may be, shall not be deemed to have suffered a
"termination of employment" as such term is used in Section 5 of each of the
Prior Agreements;
(d) with respect to Westhoff, the Employment Agreement shall be upon
substantially the same terms as his Prior Agreement, except that Westhoff's
annual Base Salary after the Effective Time shall be as follows: Year 1,
$85,300; Year 2, $86,500; Year 3, $89,800; Year 4, $89,800; Year 5, $89,800;
provided, however, that for years 4 and 5, Westhoff shall only receive
one-half of the annual Base Salary unless both Westhoff and the employer(s)
under the Employment Agreement mutually agree to continue Westhoff's
employment for each such year; and further, that during the course of
Westhoff's employment he shall be provided an automobile comparable to the
automobile currently provided to him by Joachim; and further that Westhoff
will be subject to a non-competition covenant for a two-year period following
termination of the Employment Agreement;
(e) with respect to Hogan, the Employment Agreement shall be upon
substantially the same terms as her Prior Agreement, except that Hogan's
annual Base Salary after the Effective Time shall be as follows: Year 1,
$62,700; Year 2, $64,400; Year 3, $66,100; provided, however, that Hogan will
be subject to a non-competition covenant for a two-year period following
termination of the Employment Agreement; and
(f) with respect to Yarbrough, the Employment Agreement shall be upon
substantially the same terms as his Prior Agreement.
5.06 Expenses.
Subject to the terms and
conditions herein provided, each of the parties hereto (a) In the event that
(x) this Agreement and the Merger contemplated hereby are not approved by the
requisite vote of Joachim's Shareholders at the meeting of shareholders called
pursuant to Section 5.03, or (y) this Agreement is terminated by First State
or FSB pursuant to Section 7.01(d) (other than by reason of an unintentional
breach of the Agreement by Joachim which cannot be cured by Joachim) and
within 18 months after the occurrence of either (x) or (y), Joachim shall have
entered into an agreement with any person (other than the First State Entities
and other than a banking regulatory agency that accomplishes a regulatory or
similar takeover pursuant to applicable law) to (i) merge or consolidate, or
enter into any similar transaction with Joachim or any of the Subsidiaries,
(ii) purchase, lease, or otherwise acquire all or any substantial part of the
assets of Joachim or any of the Subsidiaries, or (iii) purchase or otherwise
acquire (including by way of merger, consolidation, share exchange, or any
similar transaction) securities representing 25 percent or more of the voting
power of Joachim or any of the Subsidiaries (or rights or options exercisable
for, or securities convertible into, securities representing 25 percent or
more of the voting power of Joachim or any of the Subsidiaries), Joachim will,
within 10 business days following written demand by First State, pay to First
State, as liquidated damages and in lieu of any liabilities otherwise due
First State and/or FSB, in immediately available funds, an amount equal to
$500,000. Upon payment in full of the foregoing, this Agreement shall be
terminated and without further force and effect; provided, however, that if
the termination is due to (x) above and there has been no breach of any of the
terms of this Agreement by Joachim, or if the termination is due to (y) above
and the breach by Joachim (in addition to being unintentional) is wholly
unrelated to the subsequent agreement with another person, there shall be
substituted in place of the $500,000 amount shown above an amount equal to 150
percent of the difference (if positive) between the fair market value of the
consideration paid and/or payable by the other person and the fair market
value of the Merger Consideration payable by First State hereunder, but the
amount so determined shall in no event exceed $500,000. This subsection (a)
shall not apply in the event of a termination under Section 7.01 unless such
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termination is for breach of this Agreement by Joachim pursuant to Section
7.01(d) (other than by reason of an unintentional breach of the Agreement by
Joachim which cannot be cured by Joachim).
(b) In the event that First State willfully breaches a representation,
warranty or covenant contained herein and, as a result thereof (i) Joachim
exercises its right to terminate this Agreement at a time when First State was
not entitled to terminate this Agreement and (ii) the Merger is not
consummated, then First State agrees to pay to Joachim a fee of $100,000,
within 10 business days of First State's receipt of written demand thereof.
If First State terminates this Agreement pursuant to Section 7.01(e) of this
Agreement, First State will pay a fee of $100,000 to Joachim within 10
business days of First State's receipt of written demand thereof.
(c) Except as provided in subsections (a) and (b) of this Section,
each Party hereto shall bear its own expenses incident to preparing, entering
into, and carrying out this Agreement and to consummating the Merger.
5.07 Miscellaneous Agreements and Consents. Subject to the terms and
conditions herein provided, each of the parties agrees to use its best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement as expeditiously as possible, including, without limitation,
using its best efforts to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate
the transactions contemplated hereby. Joachim and the First State Entities
shall use their best efforts to obtain consents of all third parties and
governmental bodies necessary or, in the opinion of any of the parties,
desirable for the consummation of the transactions contemplated by this
Agreement.
5.08 Press Releases. Joachim and the First State Entities shall
cooperate with each other in the development and distribution of all news
releases and other public disclosures concerning this Agreement and the Merger
and shall not issue any news release or make any other public disclosure
without the prior consent of the other party, unless it reasonably believes
such is required by law upon the advice of counsel or is in response to
published newspaper or other mass media reports regarding the transactions
contemplated by this Agreement, in which such latter event the parties shall
give reasonable notice, and to the extent practicable, consult with each other
regarding such responsive public disclosure.
5.09 Due Diligence Review. The First State Entities, promptly
following execution and delivery of this Agreement by Joachim, shall undertake
review of Joachim and the Subsidiaries and their respective operations,
business affairs, and financial condition, including, without limitation,
those matters which are the subject of Joachim's representations and
warranties, as well as the nature, structure, status, and other aspects of all
Employee Plans or Policies. The First State Entities shall conclude such
review by not later than 15 days following the execution of this Agreement
(the "Due Diligence Review" and the time for said review is referred to as the
"Due Diligence Review Period"). Notwithstanding anything hereinabove
contained or implied to the contrary, the Due Diligence Review shall not
limit, restrict, or preclude, or be construed to limit, restrict, or preclude,
the First State Entities, at any time or from time to time thereafter, from
conducting further such reviews or from exercising any rights available to
them hereunder as a result of the existence or occurrence prior to the date of
the Due Diligence Review of any event or condition which was not detected in
the Due Diligence Review by any of them and which would constitute a breach of
any representation, warranty, or agreement of Joachim under this Agreement.
During the Due Diligence Review First State shall have such access to
Joachim's and JFSL's management and personnel, and Joachim's and JFSL's loan
files, records, and loan and other committee meetings (including, but not
limited to attending any or all of such meetings in person and reviewing the
minutes of any such meetings), and having such of any First State Entities'
personnel present at Joachim and JFSL during business hours, as First State,
in its sole discretion, shall deem appropriate or useful, provided, however,
that First State shall not, by this Section, be deemed to have the right to
attend Board of Directors meetings of Joachim.
5.10 Employee Plans and Policies Matters. Subject to other provisions
hereof, Joachim shall take any action reasonably requested by the First State
Entities with respect to any of the Employee Plans or Policies, including, but
not limited to, correcting operational errors or deficiencies, making
necessary filings with the Internal Revenue Service, the Department of Labor,
or the Pension Benefit Guaranty Corporation, or amending, freezing,
terminating, or merging one or more Employee Plans or Policies.
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5.11 Nonsolicitation and Exclusive Dealing. Recognizing the
substantial expenditure of time, effort, and expense First State has incurred
as of the date hereof, and will incur through the Effective Time in connection
with negotiating, performing its due diligence investigation, and attempting
to complete the Merger, the Subsidiary Merger, and the other transactions
contemplated herein, until such time as either the Effective Time has occurred
or this Agreement is terminated in accordance with the provisions of Article
VII hereof, none of Joachim, JFSL, or the directors, officers, attorneys,
financial advisors, accountants, or other representatives of Joachim or JFSL
will directly or indirectly: (i) solicit, encourage (including by way of
furnishing any non-public information concerning Joachim's business, property,
or assets) or, except as may be required in the exercise of fiduciary duties,
consider or discuss any Acquisition Offer or Proposal (as defined below); or
(ii) except as may be required in the exercise of fiduciary duties, provide
any information to, or negotiate with, any other person or entity in
connection with any possible sale of all or any portion of the stock, assets,
or business of either of Joachim or JFSL when Joachim has reason to believe
that such information may be utilized to evaluate or make a possible
Acquisition Offer or Proposal. As used herein, "Acquisition Offer or
Proposal" shall mean any offer or proposal for an acquisition, merger, or
other business combination involving either of Joachim or JFSL, or for the
acquisition of a substantial equity interest in, or a substantial portion of
the stock, assets, or business of either of Joachim or JFSL. Joachim will
immediately give notice to First State, in the manner provided for herein,
regarding any contact between Joachim, JFSL, or the directors, officers,
attorneys, financial advisors, accountants, or other representatives of
Joachim, JFSL, and any other person in connection with any Acquisition Offer
or Proposal or related inquiry.
5.12 Indemnification and Directors and Officers Insurance
(a) First State shall indemnify, defend and hold harmless the present
and former officers, directors, employees and agents of Joachim and JFSL
(each, an "Indemnified Party") against all losses, expenses, claims, damages,
or liabilities arising out of actions or omissions occurring on or prior to
the Effective Time (including, without limitation, the transactions
contemplated by this Agreement) to the full extent provided for under the
Missouri Act, as in effect as of the date hereof.
(b) If after the Effective Time First State or its successors or
assigns shall transfer all or substantially all of its properties and assets,
and the acquiror, as a matter of law does not assume all obligations of First
State or its successors or assigns, First State shall use its best efforts to
include in any definitive agreement a provision so that its successors and
assigns shall assume any remaining obligations set forth in this Section 5.12.
If First State shall liquidate, dissolve, or otherwise wind up its business,
then the successors and assigns of First State shall be obligated to assume
any remaining obligations set forth in this Section 5.12.
(c) First State shall use its reasonable best efforts to cause the
persons serving as officers and directors of Joachim and JFSL immediately
prior to the Effective Time to be covered for a period of three years from the
Effective Time by the directors' and officers' liability insurance policy
maintained by Joachim and JFSL (provided that First State may substitute
therefor policies of at least the same coverage and amounts containing terms
and conditions which are not materially less advantageous than such policy)
with respect to acts or omissions occurring prior to the Effective Time which
were committed by such officers and directors in their capacity as such;
provided, however, that in no event shall First State be required to expend
more than 150 percent of the annual amount (not to exceed $6,750 each year in
total) currently expended by Joachim to maintain or procure insurance coverage
pursuant hereto and further provided that if First State is unable to maintain
or obtain the insurance called for by this paragraph, First State shall use
its reasonable best efforts to obtain as much comparable insurance as is
available for such amount.
5.13 Ancillary Matters.
(a) Directors of Joachim, including Directors Emeritus, will become
advisory directors of First State Community Bank's DeSoto Branch at the
Effective Time, and will serve as such for at least one year. Fees for such
services during such one-year period will be $500 per month. Notwithstanding
the foregoing, Westhoff and Hogan shall continue as advisory directors for
such time as they remain employed pursuant to the Employment Agreements.
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(b) Employees of JFSL will be subject to the vacation policies of
First State, except that those employees with five or more years of service
shall be entitled to three weeks of paid vacation per year. Years of services
with Joachim and/or JFSL will be deemed years of service at First State or
First State Community Bank for purposes of this subsection.
5.14 Employee Stock Ownership Plan.
(a) Any cash received by the Trustees of the Joachim Federal Savings
and Loan Association Employee Stock Ownership Plan ("ESOP") in the course of
the Merger with respect to unallocated shares of Joachim Common Stock first
shall be applied by the Trustees to the repayment of the outstanding debt of
the ESOP.
(b) The balance of the cash (if any) received by the ESOP Trustee in
the course of the Merger with respect to unallocated shares of Joachim Common
stock shall be allocated to the accounts of all participants in the ESOP who
have accounts remaining under the ESOP (whether or not such participants are
then actively employed) and beneficiaries in proportion to the account
balances of such participants and beneficiaries as they existed as of the
Effective Time. The foregoing notwithstanding, no allocation shall be made
pursuant to this Section 5.14(b) unless counsel for First State has determined
that the allocation will not adversely affect a determination that the
allocation is in accordance with the terms of the ESOP plan document.
Subject to Section 5.14(e) hereof, following the allocation
contemplated by paragraph (b), the ESOP shall be terminated and distributions
of participant account balances shall be made in accordance with the terms of
the ESOP, subject to the requirements of the Code and ERISA.
(d) Prior to the Effective Time, in addition to regularly scheduled
payments on the outstanding debt of the ESOP, Joachim may, to its sole
discretion, elect to prepay principal on the outstanding debt of the ESOP,
subject to applicable limits on the deductibility of such payments under the
Code.
(e) Notwithstanding anything in this Section 5.14 to the contrary, in
connection with the allocation contemplated by Section 5.14(b), as soon as
practicable after the date of this Agreement, Joachim shall file an
application for determination to the IRS regarding the proposed termination of
the ESOP and whether any amount of such allocation is subject to the
limitation on annual additions under Section 415 of the Code. In the event
that a favorable determination letter is received by Joachim relating to the
allocation contemplated by Section 5.14(b) on or prior to 180 days after the
Effective Time, then the ESOP shall make allocation of remaining funds in a
manner consistent with such favorable determination letter. If a favorable
determination letter is not received within such time period, then in that
event, the termination date shall be postponed until the date immediately
prior to the expiration of the transition period specified in Section
410(b)(6)(C) of the Code and any funds remaining after repaying of the ESOP
debt shall be allocated to the greatest extent possible as ESOP earnings with
the balance of such funds to be allocated through the date of termination
subject to the limitations of Section 415 and based on compensation earned by
ESOP participants through the date of termination.
5.15 Employee Benefits. First State anticipates retaining the
employees of JFSL as employees of First State Community Bank after the
Effective Time, subject to the needs of First State Community Bank and the
qualifications of such employees. If at the Effective Time any employee of
Joachim or JFSL is not offered employment by First State Community Bank at
compensation at least equal to their compensation from Joachim or JFSL, or, if
any employee is terminated within six months after the Effective Time without
cause (as determined in the reasonable discretion of the Board of Directors of
First State), such employee shall be paid a severance payment by First State
or First State Community Bank equal to one week's compensation for each full
year's employment at Joachim, JFSL, and First State Community Bank, not to
exceed a maximum of six weeks compensation. Except with respect to First
State's 401(k) Plan, employees of Joachim or the Subsidiaries who continue in
employment with First State or any subsidiary of First State following the
Effective Time shall be credited for prior years service with Joachim or any
Subsidiary for purposes of eligibility and vesting (but not for the accrual of
benefits) under First State's and its Subsidiaries' benefit plans and policies
(including, without limitation, vacation and sick leave policies), there shall
be no exclusion from medical coverage as the result of pre-existing conditions
that were covered under the medical plan of Joachim or the applicable
Subsidiary, and such employees shall be entitled to participate on an
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equitable basis in the same benefit plans and policies as are generally
available to First State and First State Community Bank employees of similar
rank and status.
ARTICLE VI
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Certain Conditions
6.01 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Closing Date of all of the
following conditions:
(a) This Agreement and the Merger shall have received the requisite
approval of shareholders of Joachim at the meeting of shareholders called for
purposes of approving the Merger.
(b) This Agreement and the transactions contemplated hereby, including
the Subsidiary Merger, shall have been approved by the Federal Reserve Board,
and each other federal and/or state regulatory agencies whose approval is
required for consummation of the transactions contemplated hereby or in the
Subsidiary Merger Agreement, and with respect to the Subsidiary Merger, that
such merger may be effected simultaneously with the Effective Time, and all
applicable waiting periods shall have expired.
None of Joachim, First State, or FSB shall be subject to any order,
decree, or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Merger, nor shall JFSL or First
State Community Bank be subject to any order, decree, or injunction of a court
or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Subsidiary Merger.
(d) Each of Westhoff, Hogan, and Yarbrough on the one hand, and either
or both of First State and First State Community Bank on the other hand, shall
have executed and delivered the respective Employment Agreements.
6.02 Conditions to Obligations of Joachim. The obligations of Joachim
to effect the Merger shall be subject to the fulfillment or waiver at or prior
to the Effective Time of all of the following additional conditions:
(a) Representations and Warranties. The representations and
warranties of First State set forth in Article III hereof shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date (as though made on and as of the Closing Date except (i) to
the extent such representations and warranties are by their express provisions
made as of a specified date, and (ii) for the effect of transactions
contemplated by this Agreement) and Joachim shall have received a signed
certificate of the President or Chief Executive Officer and the Corporate
Secretary of First State, signing on behalf of the First State Entities, to
that effect.
(b) Performance of Obligations. The First State Entities shall have
performed in all material respects all obligations required to be performed by
each under this Agreement prior to the Effective Time, and Joachim shall have
received a signed certificate of the President or Chief Executive Officer and
the Corporate Secretary of First State to that effect, including, without
limitation, the obligations of the First State Entities under Section 1.08
hereof in respect of the payment and/or delivery of the Merger Consideration
to the Exchange Agent.
No Material Adverse Change. Since the date of this Agreement, there
shall have been no material adverse change in the business, financial
condition, or results of operations of First State and the First State
Subsidiaries, taken as a whole (other than changes in banking laws or
regulations, or interpretations thereof, that affect the banking industry
generally or changes in the general level of interest rates).
(d) Opinion of Counsel. First State shall have delivered to Joachim an
opinion of counsel to First State dated as of the Closing Date or a mutually
agreeable earlier date in form substantially similar to that attached hereto
as Exhibit 6.02.
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(e) Segregated Account. The Escrow Agent shall have delivered a
certificate to Joachim that as of the Effective Time the Merger Consideration
is being held in a segregated account to be used in accordance with the
provisions of Section 1.08 hereof.
6.03 Conditions to Obligations of the First State Entities. The
obligations of the First State Entities to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of all of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties
of Joachim set forth in Article II hereof shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date
(as though made on and as of the Closing Date except (i) to the extent such
representations and warranties are by their express provisions made as of a
specific date and (ii) for the effect of transactions contemplated by this
Agreement) and First State shall have received a signed certificate of the
President or Chief Executive Officer and Corporate Secretary of Joachim,
signing on behalf of Joachim, to that effect.
(b) Performance of Obligations. Joachim shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Closing Date, and First State shall have received a
signed certificate of the President or Chief Executive Officer and Corporate
Secretary of Joachim, signing on behalf of Joachim, to that effect.
(c) Permits, Authorizations, etc. Joachim shall have obtained any and
all material consents or waivers from other parties to loan agreements,
leases, or other contracts material to Joachim's and the Subsidiaries'
businesses required for the consummation of the Merger, and First State,
Joachim, and the Subsidiaries shall have obtained any and all material
permits, authorizations, consents, waivers, and approvals required for the
lawful consummation of the Merger.
(d) No Material Adverse Change. Since the date of this Agreement,
there shall have been no material adverse change in the business, financial
condition, or results of operations, of Joachim or the Subsidiaries taken as a
whole (other than changes in banking laws or regulations, or interpretations
thereof, that affect the banking and/or thrift industries generally or changes
in the general level of interest rates or economic conditions).
(e) Election of Dissenting Shareholders. The number of shares of
Joachim Common Stock which have neither voted in favor of the Merger nor
consented thereto in a writing pursuant to the Missouri Act and as to which
written demand for the fair value of their shares pursuant thereto has been
delivered to Joachim by the holders thereof prior to or at the time of the
taking of the vote on the Merger shall not exceed 10 percent of the total
shares of Joachim Common Stock outstanding at the time when the vote is taken.
(f) Opinion of Counsel. Joachim shall have delivered to First State
an opinion of counsel to Joachim dated as of the Closing Date or a mutually
agreeable earlier date in form substantially similar to that attached hereto
as Exhibit 6.03.
ARTICLE VII
-----------
Termination, Amendment, and Waiver
7.01 Termination. This Agreement may be terminated at any time prior to
the Closing Date, whether before or after approval by the shareholders of
Joachim:
(a) By mutual consent of the Boards of Directors of all parties
hereto; or
(b) By the Board of Directors of any party hereto at any time after
September 30, 1998, if the Merger shall not theretofore have been consummated;
or
(c) By the Board of Directors of any party hereto if the Federal
Reserve Board, or any other federal and/or state regulatory agency whose
approval is required for the consummation of the transactions contemplated
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hereby shall have denied approval of such transaction and such denial has,
after exhaustion of any and all available appellate procedures, become final;
(d) By the Board of Directors of either of the First State Entities or
the Board of Directors of Joachim in the event of a material breach by the
other of any representation, warranty, or agreement contained in this
Agreement, which breach is not cured within 15 days (or such longer period not
exceeding 40 days in the event such breach cannot reasonably be cured within
15 days and a cure is being pursued with reasonable diligence) after written
notice thereof is given to the party committing such breach or waived by such
other party(ies); or
(e) By First State, in its sole discretion and without penalty except
as set forth in Section 5.06 of this Agreement, by written notice to Joachim
within 10 days after the end of the Due Diligence Review Period.
(f) By the Board of Directors of any party hereto in the event the
shareholders of Joachim fail to approve the Agreement and Merger at the
special meeting of shareholders called for such purposes.
7.02 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.01 above, this Agreement shall forthwith
become void and without further effect and there shall be no liability on the
part of any party hereto or the respective officers and directors of any
party, except as set forth in the second sentence of Section 5.01 (respecting
confidentiality and the return of information) and in Section 5.06 (respecting
payment of certain expenses), and, except that no termination of this
Agreement pursuant to subsection (d) of Section 7.01 shall relieve the
non-performing or defaulting party of any liability to any other party hereto
arising from the non-performance and/or breach prior to the date of such
termination of any covenant, agreement, term, provision, representation,
warranty required to be observed, performed, complied with and/or kept by such
non-performing or defaulting party; provided, however, that there shall be no
liability for breach of a representation or warranty that was, when given,
true and correct to the best knowledge and belief of the party giving same and
which later turns out (without any other fault of the party giving same) to be
incorrect.
7.03 Amendment. This Agreement and the Exhibits and Schedules hereto
may be amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors, at any time before or after approval of this
Agreement by the shareholders of Joachim; provided, however, that after any
such approval no such modification shall alter the amount or change the form
of the consideration contemplated by this Agreement to be received by
shareholders of Joachim or alter or change any of the terms of this Agreement
if such alteration or change would materially and adversely affect the
shareholders of Joachim. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
7.04 Waiver. Any term, condition or provision of this Agreement may be
waived in writing at any time by the party which is, or whose shareholders
are, entitled to the benefits thereof.
ARTICLE VIII
------------
General Provisions
8.01 Survival of Representations, Warranties, and Agreements. No
investigation by the parties hereto made heretofore or hereafter shall affect
the representations and warranties of the parties which are contained herein
and each such representation and warranty shall survive such investigation.
Except as set forth below in this Section, all representations, warranties,
and agreements in this Agreement of the First State Entities and Joachim or in
any instrument delivered by the First State Entities or Joachim pursuant to
this Agreement shall expire at the Effective Time or upon termination of this
Agreement in accordance with its terms. In the event of termination of this
Agreement in accordance with its terms, the agreements contained in Sections
5.01 (second sentence), 5.06 and 7.02 shall survive such termination.
Sections 5.12, 5.13, 5.14, and 5.15 of this Agreement shall survive the
Effective Time.
8.02 <RESERVED>
--------
8.03 No Assignment; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, but neither this Agreement nor any right or
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obligation set forth in any provision hereof may be transferred or assigned by
any party hereto without the prior written consent of all other parties, and
any purported transfer or assignment in violation of this Section shall be
void and of no effect.
8.04 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remaining provisions of this Agreement.
8.05 No Implied Waiver. No failure or delay on the part of either
party hereto to exercise any right, power, or privilege hereunder or under any
instrument executed pursuant hereto shall operate as a waiver nor shall any
single or partial exercise of any right, power, or privilege preclude any
other further exercise thereof or the exercise of any other right, power, or
privilege.
8.06 Headings. Article, section, subsection, and paragraph titles,
captions and headings herein are inserted only as a matter of convenience and
for reference, and in no way define, limit, extend, or describe the scope of
this Agreement or the intent of any provision hereof.
8.07 Entire Agreement. This Agreement and the Schedules and Exhibits
hereto constitutes the entire agreement between and among the parties with
respect to the subject matter hereof, supersedes all prior negotiations,
representations, warranties, commitments, offers, letters of interest or
intent, proposal letters, contracts, writings, or other agreements or
understandings with respect thereto. No waiver, and no modification or
amendment of any provision of this Agreement shall be effective unless
specifically made in writing and duly signed by all parties thereto.
The parties hereto acknowledge that the Schedules referenced in Article
II hereof are not incorporated in this Agreement as of the date of its
execution. Joachim shall provide all such Schedules to the First State
Entities within seven days after the date of execution of this Agreement, and
at such time the Schedules shall be deemed a part of this Agreement. A
representation in one Schedule shall constitute a representation in all
Schedules. The obligations on the part of the First State Entities under this
Agreement are expressly conditioned upon, and subject to, acceptance by the
First State Entities of the form and/or substance of the Schedules, in each
case, in the reasonable discretion of the First State Entities, except that
the First State Entities may not terminate this Agreement pursuant to this
Section: (i) after 10 business days after the receipt of all of the Schedules
in accordance with the terms hereof; and (ii) unless and until Joachim has had
the opportunity to cure such objections to the information set forth in the
Schedules in a manner satisfactory to the First State Entities, provided that
such cure is accomplished within 15 days after receipt of written notice of
such objections by the First State Entities. In the event that the First
State Entities shall advise Joachim of (a) the unacceptability of any such
cure or (b) Joachim's failure to cure within the 15-day period provided above,
this Agreement, notwithstanding anything herein contained or implied to the
contrary, shall be terminable upon written notice to Joachim by the First
State Entities, subject to the provisions of Section 5.06(b) hereof.
8.08 Counterparts. This Agreement may be executed in one or more
counterparts, and any party to this Agreement may execute and deliver this
Agreement by executing and delivering any of such counterparts, each of which
when executed and delivered shall be deemed to be an original and all of which
taken together shall constitute one and the same instrument.
8.09 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to be duly received (i) on the date given if
delivered personally or by facsimile transmission, telegram, or telex or (ii)
on the date received if mailed by registered or certified mail (return receipt
requested), to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
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(a) If to the First State Entities:
First State Bancshares, Inc.
201 East Columbia
Farmington, Missouri 63640
Attention: Mr. Greg E. Allen,
President
Copy to: Kenneth H. Suelthaus, Esq.
Suelthaus & Walsh, P.C.
7733 Forsyth Boulevard, 12th Floor
St. Louis, Missouri 63105
(b) If to Joachim:
Joachim Bancorp, Inc.
Plaza Square
DeSoto, Missouri 63020
Attention: Mr. Bernard R. Westhoff,
President
Copy to: Paul M. Aguggia, Esq.
Breyer & Aguggia
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
provided, however, that the providing of notice to counsel shall not, of
itself, be deemed the providing of notice to a party hereto.
8.10 Governing Law. This Agreement shall be governed by and controlled
as to validity, enforcement, interpretation, effect, and in all other respects
by the internal laws of the State of Missouri applicable to contracts made in
that state.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the 29th
day of December, 1997.
FIRST STATE: FIRST STATE BANCSHARES, INC.
By:/s/ Greg Allen
-------------------------
Title: President
----------------------
ATTEST:/s/ Carol Rigdon
----------------------------
Title: Assistant Vice President
----------------------------
FSB: FSB
By:/s/ Greg Allen
-------------------------
Title: President
----------------------
ATTEST:/s/ Carol Rigdon
---------------------
Title: Assistant Vice President
----------------------------
JOACHIM: JOACHIM BANCORP, INC.
By: /s/ Bernard R. Westhoff
-------------------------
Title: President
----------------------
ATTEST: /s/ Lee Ellen Hogan
----------------------
Title: Senior Vice President
----------------------
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APPENDIX B
GENERAL AND BUSINESS CORPORATION LAW OF MISSOURI
351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE
OF SHARES, WHEN.
1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall
not vote in favor thereof, and such shareholder, within twenty days after the
merger or consolidation is effected, shall make written demand on the
surviving or new corporation for payment of the fair value of his shares as of
the day prior to the date on which the vote was taken approving the merger or
consolidation, the surviving or new corporation shall pay to such shareholder,
upon surrender of his certificate or certificates representing said shares,
the fair value thereof. Such demand shall state the number and class of the
shares owned by such dissenting shareholder. Any shareholder failing to make
demand within the twenty day period shall be conclusively presumed to have
consented to the merger or consolidation and shall be bound by the terms
thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in
the corporation.
3. If within such period of thirty days the shareholder and the
surviving or new corporation do not so agree, then the dissenting shareholder
may, within sixty days after the expiration of the thirty day period, file a
petition in any court of competent jurisdiction within the county in which the
registered office of the surviving or new corporation is situated, asking for
a finding and determination of the fair value of such shares, and shall be
entitled to judgment against the surviving or new corporation for the amount
of such fair value as of the day prior to the date on which such vote was
taken approving such merger or consolidation, together with interest thereon
to the date of such judgment. The judgment shall be payable only upon and
simultaneously with the surrender to the surviving or new corporation of the
certificate or certificates representing said shares. Upon the payment of the
judgment, the dissenting shareholder shall cease to have any interest in such
shares, or in the surviving or new corporation. Such shares may be held and
disposed of by the surviving or new corporation as it may see fit. Unless the
dissenting shareholder shall file such petition within the time herein
limited, such shareholder and all persons claiming under him shall be
conclusively presumed to have approved and ratified the merger or
consolidation, and shall be bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of
his shares as herein provided shall cease if and when the corporation shall
abandon the merger or consolidation.
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APPENDIX C
April 3, 1998
Board of Directors
Joachim Bancorp, Inc.
Plaza Square
De Soto, Missouri 63020
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide you with our
opinion as to the fairness from a financial point of view to the shareholders
of Joachim Bancorp, Inc., De Soto, Missouri ("Joachim Bancorp") of the
Agreement and Plan of Merger (the "Agreement"), dated December 29, 1997, and
updated April 3, 1998, by and among Joachim Bancorp, First State Bancshares,
Inc.("First State"), and FSB Sub, Inc. ("FSB" and collectively with First
State, the "First State Entities"), where the First State Entities will
acquire for cash all of the shares of Joachim Bancorp Common Stock and Joachim
Bancorp will merge with and into the First State Entities (the "Merger").
Summary Description of Consideration
- ------------------------------------
Pursuant to the Agreement, incorporated herein by reference, at the effective
time of the Merger, each share of common stock of Joachim Bancorp issued and
outstanding, $0.01 par value per share, shall by virtue of the Merger be
converted into the right to receive $17.25 per share in cash (the "Merger
Consideration") upon surrender of certificates representing shares of the
common stock of Joachim Bancorp ("Joachim Common Stock"). Further, at the
Effective Time, all outstanding options will be cancelled and the holder of
each outstanding granted option pursuant to Joachim Bancorp's 1996 Stock
Option Plan shall be paid $4.9375 for each share of Joachim Common Stock the
holder of the option formerly had the right to purchase.
RP Financial Background and Experience
- --------------------------------------
RP Financial, as part of its financial institution valuation and consulting
practice, is regularly engaged in the valuation of financial institution
securities in connection with mergers and acquisitions of commercial banks and
thrift institutions, initial and secondary offerings, mutual-to-stock
conversions of thrift institutions, and business valuations for other
corporate purposes involving financial institutions. As specialists in the
securities of financial institutions, RP Financial has experience in, and
knowledge of, the Missouri and Midwest markets for thrift and bank securities
and financial institutions operating in Missouri.
Materials Reviewed
- ------------------
In rendering this fairness opinion, RP Financial reviewed and analyzed the
following materials: (1) the Agreement, dated December 29, 1997, including
exhibits; (2) the following information for Joachim Bancorp -- (a) audited
financial statements for the fiscal years ended March 31, 1995, 1996, and
1997, incorporated in the respective Annual Reports to shareholders, (b)
shareholder, regulatory and internal financial and other reports through
December 31, 1997, (c) the conversion prospectus, dated November 17, 1995, and
(d) the most recent proxy statement for Joachim Bancorp; (3) discussions with
Joachim Bancorp's management and directors regarding
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RP Financial, L.C.
Board of Directors
April 3, 1998
Page 2
past and current business, operations, financial condition, and future
prospects; (4) Joachim Bancorp's latest publicly-available financial
statements, operating results and market pricing characteristics relative to
those publicly-traded savings institutions with relatively comparable
characteristics; (5) competitive, economic and demographic characteristics in
the local market area; (6) the potential impact of regulatory and legislative
changes on savings institutions; (7) the financial terms of other recently
completed and pending acquisitions of savings institutions, regionally and
nationally with similar characteristics; (8) other expressions of interest by
third parties, and (9) the First State Entities' financial condition through
December 31, 1997, to assess the First State Entities' perceived ability to
complete the merger from a cash and capital perspective.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
Joachim Bancorp as furnished by Joachim Bancorp to RP Financial for review for
purposes of its opinion, as well as publicly-available information regarding
other financial institutions and economic data. Joachim Bancorp did not
restrict RP Financial as to the material it was permitted to review. RP
Financial did not perform or obtain any independent appraisals or evaluations
of the assets and liabilities and potential and/or contingent liabilities of
Joachim Bancorp.
RP Financial expresses no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the merger as set forth in the Agreement
to be consummated. In rendering its opinion, RP Financial assumed that in the
course of obtaining the necessary regulatory and governmental approvals for
the proposed Merger, no restriction will be imposed on the First State
Entities that would have a material adverse effect on the ability of the
Merger to be set forth in the Agreement.
Opinion
- -------
It is understood that this letter is directed to the Board of Directors of
Joachim Bancorp in its consideration of the Agreement, and does not constitute
a recommendation to any shareholder of Joachim Bancorp as to any action that
such shareholder should take in connection with the Agreement, or otherwise.
It is understood that this opinion is based on market conditions and other
circumstances existing on the date hereof.
It is understood that this opinion may be included in its entirety in any
communication by Joachim Bancorp or its Board of Directors to the stockholders
of Joachim Bancorp. It is also understood that this opinion may be included
in its entirety in any regulatory filing by Joachim Bancorp or the First State
Entities, and that RP Financial consents to the summary of the opinion in the
proxy materials of Joachim Bancorp, and any amendments thereto. Except as
described above, this opinion may not be summarized, excerpted from or
otherwise publicly referred to without our prior written consent.
Based upon and subject to the foregoing, and other such matters as we consider
relevant, it is RP Financial's opinion that, as of the date hereof, the Merger
Consideration to be received by Joachim Bancorp's shareholders as described in
the Agreement, is fair to such shareholders from a financial point of view.
Respectfully submitted,
RP FINANCIAL, LC.
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REVOCABLE PROXY
Joachim Bancorp, Inc.
DeSoto, Missouri
----------------
SPECIAL MEETING OF STOCKHOLDERS
May 6, 1998
The undersigned hereby appoints the Board of Directors of Joachim
Bancorp, Inc. ("Joachim") with full powers of substitution to act as attorneys
and proxies for the undersigned, to vote all shares of common stock of Joachim
which the undersigned is entitled to vote at the Special Meeting of
Stockholders ("Meeting"), to be held at the DeSoto Public Library, 712 South
Main Street, DeSoto, Missouri, on Wednesday, May 6, 1998 at 2:00 p.m., Central
Time, and at any and all adjournments and postponements thereof, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
[ ] [ ] [ ]
1. A proposal to approve the Agreement and
Plan of Merger, dated as of December 29,
1997, by and among First State Bancshares,
Inc. ("First State"), FSB Sub, Inc., and
Joachim, pursuant to which (I) Joachim
would merge with FSB Sub, Inc. and (ii)
each outstanding share of Joachim common
stock would be converted into the right to
receive $17.25 in cash, without any
interest thereon, all on and subject to
the terms and conditions contained
therein.
2. In their discretion, upon such other
matters as may properly come before the
meeting.
The Board of Directors recommends a vote "FOR" the above proposal.
This proxy also provides voting instructions to the Trustees of the Joachim
Federal Savings and Loan Association Employee Stock Ownership Plan for
participants with shares allocated to their accounts.
This proxy will be voted as directed, but if no instructions are specified,
this proxy will be voted for the proposal stated above. If any other business
is presented at such meeting, this proxy will be voted by the official proxy
committee in its best judgment. At the present time, the Board of Directors
knows of no other business to be presented at the meeting. This proxy also
confers discretionary authority on the official proxy committee to vote with
respect to matters incident to the conduct of the meeting.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at
any postponement or adjournment thereof and after notification to the
Secretary of Joachim at the Meeting of the stockholder's decision to terminate
this proxy, then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect.
The undersigned acknowledges receipt from Joachim prior to the execution
of this proxy of notice of the meeting, and a proxy statement dated
April 3, 1998.
Dated:____________, 1998
- ------------------------- -------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ------------------------- -------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on your stock certificate. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title. If shares are held jointly, each holder must sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE>
